10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

OR

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

For the transition period from        to        

Commission File Number: 001-35061

NeoPhotonics Corporation

(Exact name of registrant as specified in its charter)

Delaware	94-3253730
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2911 Zanker Road

San Jose, California 95134

(Address of principal executive offices, zip code)

(408) 232-9200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒     No   ☐     

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ☒     No   ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐		Accelerated filer	☒
Non-accelerated filer	☐	(do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐     No   ☒ 

As of October 31, 2016, there were approximately 42,324,000 shares of the registrant’s Common Stock outstanding.

NEOPHOTONICS CORPORATION

For the Quarter Ended September 30, 2016

Table of Contents

		Page
	Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
	Part II. Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	75
	Signature	76

PART I. FINANCIAL INFORMATION

ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NEOPHOTONICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	As of
	September 30,		December 31,
(In thousands, except par data)	2016		2015
ASSETS
Current assets:
Cash and cash equivalents	$	71,625	$	76,088
Short-term investments		28,470		23,294
Restricted cash		2,813		2,660
Accounts receivable, net of allowance for doubtful accounts		95,677		83,161
Inventories		60,219		65,602
Prepaid expenses and other current assets		14,932		12,393
Total current assets		273,736		263,198
Property, plant and equipment, net		95,846		62,618
Purchased intangible assets, net		6,217		9,852
Goodwill		1,115		1,115
Other long-term assets		7,672		5,095
Total assets	$	384,586	$	341,878
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	76,341	$	50,620
Notes payable and short-term borrowing		31,508		32,657
Current portion of long-term debt		908		760
Accrued and other current liabilities		28,184		27,950
Total current liabilities		136,941		111,987
Long-term debt, net of current portion		12,116		10,759
Other noncurrent liabilities		9,044		7,476
Total liabilities		158,101		130,222
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0025 par value, 10,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $0.0025 par value, 100,000 shares authorized
At September 30, 2016, 42,315 shares issued and outstanding; at December 31, 2015, 40,986 shares issued and outstanding		106		102
Additional paid-in capital		528,451		511,750
Accumulated other comprehensive loss		(1,398)		(1,723)
Accumulated deficit		(300,674)		(298,473)
Total stockholders’ equity		226,485		211,656
Total liabilities and stockholders’ equity	$	384,586	$	341,878

See accompanying Notes to Condensed Consolidated Financial Statements.

3

NEOPHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands, except per share data)	2016		2015		2016		2015
Revenue	$	103,312	$	83,560	$	301,586	$	250,316
Cost of goods sold		75,863		59,788		215,486		176,345
Gross profit		27,449		23,772		86,100		73,971
Operating expenses:
Research and development		17,474		10,763		42,206		32,702
Sales and marketing		5,936		3,789		13,674		11,439
General and administrative		9,822		7,384		26,747		22,999
Amortization of purchased intangible assets		462		447		1,375		1,344
Acquisition-related costs		148		180		923		467
Restructuring charges		—		18		—		44
Asset impairment charges		—		368		—		368
Total operating expenses		33,842		22,949		84,925		69,363
Income (loss) from operations		(6,393)		823		1,175		4,608
Interest income		95		31		227		84
Interest expense		(103)		(171)		(304)		(1,133)
Other income (expense), net		18		1,852		(828)		2,408
Total interest and other income (expense), net		10		1,712		(905)		1,359
Income (loss) before income taxes		(6,383)		2,535		270		5,967
Provision for income taxes		(804)		(1,157)		(2,471)		(2,698)
Net income (loss)	$	(7,187)	$	1,378	$	(2,201)	$	3,269
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09
Weighted average shares used to compute basic net income (loss) per share		42,038		40,367		41,589		36,303
Weighted average shares used to compute diluted net income (loss) per share		42,038		42,217		41,589		37,537

See accompanying Notes to Condensed Consolidated Financial Statements.

4

NEOPHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2016		2015		2016		2015
Net income (loss)	$	(7,187)	$	1,378	$	(2,201)	$	3,269
Other comprehensive income (loss):
Foreign currency translation adjustments, net of zero tax		(22)		(4,687)		292		(4,098)
Unrealized gains (losses) on available-for-sale securities, net of zero tax		—		(1)		33		(5)
Total other comprehensive income (loss)		(22)		(4,688)		325		(4,103)
Comprehensive loss	$	(7,209)	$	(3,310)	$	(1,876)	$	(834)

See accompanying Notes to Condensed Consolidated Financial Statements.

5

NEOPHOTONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30,
(In thousands)	2016		2015
Cash flows from operating activities
Net income (loss)	$	(2,201)	$	3,269
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		16,921		17,511
Stock-based compensation expense		14,445		5,418
Deferred taxes		(1,162)		719
Investment, debt and other related amortization		125		248
Gain on disposal of property and equipment		(18)		(22)
Asset impairment charges		—		368
Adjustment to fair value of penalty payment derivative		—		(141)
Allowance for doubtful accounts		(415)		628
Write-down of inventories		1,995		3,556
Foreign currency remeasurement and other, net		(556)		(1,867)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable		(12,169)		8,035
Inventories		4,518		(16,971)
Prepaid expenses and other assets		(3,439)		1,962
Accounts payable		12,610		(1,718)
Accrued and other liabilities		(3,937)		117
Net cash provided by operating activities		26,717		21,112
Cash flows from investing activities
Purchase of property, plant and equipment		(29,962)		(11,051)
Proceeds from sale of property, plant and equipment and other assets		139		200
Purchase of marketable securities		(69,520)		(28,936)
Proceeds from sale of marketable securities		48,979		12,938
Proceeds from maturity of securities		15,373		1,000
Change in restricted cash		(226)		9,784
Net cash used in investing activities		(35,217)		(16,065)
Cash flows from financing activities
Proceeds from (payments for) public stock offering, net of offering costs		(25)		45,646
Proceeds from exercise of stock options and issuance of stock under ESPP		5,083		1,186
Tax withholding on restricted stock units		(570)		(688)
Proceeds from bank loans		71,400		56,512
Repayment of bank and acquisition-related loans		(72,090)		(70,162)
Proceeds from issuance of notes payable		13,144		16,999
Repayment of notes payable		(14,069)		(20,072)
Proceeds from government grants		608		—
Net cash provided by financing activities		3,481		29,421
Effect of exchange rates on cash and cash equivalents		556		(253)
Net increase (decrease) in cash and cash equivalents		(4,463)		34,215
Cash and cash equivalents at the beginning of the period		76,088		43,035
Cash and cash equivalents at the end of the period	$	71,625	$	77,250
Supplemental disclosure of noncash investing and financing activities:
Changes in unpaid property, plant and equipment	$	(12,494)	$	(768)
Modification of bank loan with Comerica	$	—	$	15,786
Issuance of note to seller of acquired business	$	—	$	15,482
Transfer of restricted investments to short-term investments	$	—	$	8,296
Unpaid deferred offering costs	$	76	$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

6

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 1. Basis of presentation and significant accounting policies

Basis of Presentation and Consolidation

The condensed consolidated financial statements of NeoPhotonics Corporation (“NeoPhotonics” or the “Company”) as of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015, have been prepared in accordance with the instructions on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, the Company has omitted certain information and notes normally provided in the Company’s annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the interim periods. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results expected for the entire fiscal year. All intercompany accounts and transactions have been eliminated.

Certain Significant Risks and Uncertainties

The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors.  For example, any of the following areas could have a negative effect on the Company in terms of its future financial position, results of operations or cash flows: the general state of the U.S., China and world economies; the highly cyclical nature of the industries the Company serves; the loss of any of a small number of its larger customers; ability to obtain additional financing; inability to meet certain debt covenants; fundamental changes in the technology underlying the Company’s products; the hiring, training and retention of key employees; successful and timely completion of product design efforts; and new product design introductions by competitors.

Reclassification

Reclassification has been made to combine deferred income tax liabilities amount into other noncurrent liabilities in the prior year to conform to the current year’s presentation.

Concentration

In the three months ended September 30, 2016, Huawei Technologies Co. Ltd. and their affiliate HiSilicon Technologies (together with Huawei Technologies Co. Ltd., “Huawei”) and Ciena Corporation (“Ciena”) accounted for approximately 48% and 15% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 91% of the Company’s total revenue.  In the three months ended September 30, 2015, Huawei and Ciena accounted for approximately 41% and 26% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 92% of the Company’s total revenue. In the nine months ended September 30, 2016, Huawei and Ciena each accounted for approximately 49% and 15% of the Company’s total revenue, respectively, and the top ten customers represented approximately 91% of its total revenue.  In the nine months ended September 30, 2015, Huawei and Ciena accounted for approximately 40% and 24% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 91% of its total revenue.

As of September 30, 2016 and December 31, 2015, one customer accounted for approximately 45% and 59%, respectively, of the Company’s total accounts receivable.

7

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting period. Significant estimates made by management include: the useful lives of property, plant and equipment and intangible assets as well as future cash flows to be generated by those assets; fair values of identifiable assets acquired and liabilities assumed in business combinations; allowances for doubtful accounts; valuation allowances for deferred tax assets; valuation of excess and obsolete inventories; warranty reserves; litigation accrual and recognition of stock-based compensation, among others. Actual results could differ from these estimates.

Summary of Significant Accounting Policies

There have been no significant changes in the Company’s significant accounting policies in the three and nine months ended September 30, 2016, as compared to the significant accounting policies described in its Annual Report on Form 10-K for the year ended December 31, 2015.

Recent accounting pronouncements

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). Under ASU 2016-16, the transferring (selling) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. The resulting deferred tax asset or deferred tax liability is measured by (1) computing the difference between the tax basis of the asset in the buyer’s jurisdiction and its financial reporting carrying value in the consolidated financial statements and (2) multiplying such difference by the enacted tax rate in the buyer’s jurisdiction. ASU 2016-16 is effective for the Company’s interim and annual periods beginning after December 15, 2017 and should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. Early adoption is permitted for the beginning of a fiscal year. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments(“ASU 2016-15”). ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2017 and must be applied retrospectively to all periods presented or prospectively from the earliest data practicable if retrospective application is impracticable. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 amends existing guidance on the impairment of financial assets and adds an impairment model that is based on expected losses rather than incurred losses. Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses for its financial assets. An entity will apply this guidance through a cumulative-effect adjustment to retained earnings upon adoption (a modified-retrospective approach) while a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. ASU 2016-13 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

8

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2016. Early adoption is permitted. A retrospective transition method is required for the changes related to the recognition timing of excess tax benefits, minimum statutory withholding requirements, forfeitures and intrinsic value. A retrospective transition method is required for changes related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement. A prospective transition method is required for the recognition of excess tax benefits and tax deficiencies in the income statement for estimating expected term. Changes related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”).  ASU 2016-02 introduces a lessee model that requires recognition of assets and liabilities arising from qualified leases on the consolidated balance sheets and consolidated statements of operations and to disclose qualitative and quantitative information about lease transactions. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition is required with certain optional practical expedients allowed. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).  ASU 2016-01 revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value.  It also amends certain disclosure requirements associated with the fair value of financial instruments.  A modified retrospective transition method is required except for the equity securities without readily determinable fair values which will require a prospective transition method. ASU 2016-01 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for certain provisions.  The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires entities to measure most inventory “at the lower of cost and net realizable value” but does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For the Company, this ASU is effective for annual and interim periods beginning after December 15, 2016. Prospective transition method is required and early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. In August 2015, the FASB issued an accounting standard update for a one-year deferral of the effective date of ASU 2014-09 to annual and interim periods beginning after December 15, 2017 and permits entities to early adopt the standard of ASU 2014-09 for annual and interim reporting periods beginning after December 15, 2016. Companies are permitted to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.  In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which amends the principal-versus-agent implementation guidance in ASU 2014-09. In April 2016, the FASB

9

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606: Identifying performance obligations and Licensing amending certain aspects of ASU 2014-09 on (1) identifying performance obligations and (2) licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients amending certain aspects of ASU 2016-09 including collectability, presentation of sales tax and other similar taxes collected from customers, noncash transaction, contract modifications and completed contracts at transition and the disclosure requirements for entities that use the full retrospective transition method.The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

Note 2. Net income (loss) per share

The following table sets forth the computation of the basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Numerator:
Net income (loss)	$	(7,187)	$	1,378	$	(2,201)	$	3,269
Denominator:
Weighted average shares used to compute per share amount:
Basic		42,038		40,367		41,589		36,303
Dilutive effect of equity awards		-		1,850		-		1,234
Diluted		42,038		42,217		41,589		37,537
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09

The Company has excluded the impact of the following employee stock options, restricted stock units and shares expected to be issued under its employee stock purchase plan from the computation of diluted net income (loss) per share, as their effect would have been antidilutive (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2016	2015	2016	2015
Employee stock options	4,344	1,256	4,344	1,670
Restricted stock units	2,044	26	2,044	26
Employee stock purchase plan	151	—	151	—
	6,539	1,282	6,539	1,696

10

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 3. Cash, cash equivalents, short-term investments, and restricted cash

The following table summarizes the Company’s cash, cash equivalents, short-term investments, and restricted cash at September 30, 2016 and December 31, 2015 (in thousands):

	September 30,		December 31,
	2016		2015
Cash and cash equivalents:
Cash	$	47,666	$	29,133
Cash equivalents		23,959		46,955
Cash and cash equivalents	$	71,625	$	76,088
Short-term investments	$	28,470	$	23,294
Restricted cash	$	2,813	$	2,660

The following table summarizes the Company’s unrealized gains and losses related to its cash equivalents and short-term investments in marketable securities designated as available-for-sale (in thousands):

	As of September 30, 2016								As of December 31, 2015
		Amortized Cost	Gross Unrealized Gains		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
Marketable securities:
Money market accounts	$	23,959	$	—	$	—	$	23,959	$	46,955	$	—	$	—	$	46,955
Money market funds		4,703		—		—		4,703		11,318		—		—		11,318
Corporate bonds		7,810		4		(3)		7,811		5,694		—		(18)		5,676
Government-sponsored enterprise obligations		4,292		1		(1)		4,292		3,290		—		(6)		3,284
Commercial paper		6,285		—		—		6,285		1,398		—		—		1,398
U.S. government securities		4,755		2		—		4,757		1,000		—		(3)		997
Sovereign government bonds		621		1		—		622		623		—		(2)		621
Total	$	52,425	$	8	$	(4)	$	52,429	$	70,278	$	—	$	(29)	$	70,249
Reported as:
Cash equivalents	$	23,959	$	—	$	—	$	23,959	$	46,955	$	—	$	—	$	46,955
Short-term investments		28,466		8		(4)		28,470		23,323		—		(29)		23,294
Total	$	52,425	$	8	$	(4)	$	52,429	$	70,278	$	—	$	(29)	$	70,249

As of September 30, 2016 and December 31, 2015, maturities of marketable securities were as follows (in thousands):

	September 30,		December 31,
	2016		2015
Less than 1 year	$	46,645	$	66,974
Due in 1 to 2 years		5,784		3,275
Due after 5 years		—		—
Total	$	52,429	$	70,249

11

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Realized gains and losses on the sale of marketable securities during the three and nine months ended September 30, 2016 and 2015 were immaterial. The Company did not recognize any impairment losses on its marketable securities during the three and nine months ended September 30, 2016 or 2015. As of September 30, 2016 and December 31, 2015, the Company did not have any investments in marketable securities that were in an unrealized loss position for a period in excess of 12 months.

Note 4.  Fair value disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company's assets that are measured at fair value on a recurring basis (in thousands):

	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents and short-term investments:
Money market funds	$	4,703	$	—	$	—	$	4,703	$	11,318	$	—	$	—	$	11,318
U.S. government securities		4,757		—		—		4,757		997		—		—		997
Money market accounts		—		23,959		—		23,959		—		46,955		—		46,955
Corporate bonds		—		7,811		—		7,811		—		5,676		—		5,676
Government-sponsored enterprise obligations		—		4,292		—		4,292		—		3,284		—		3,284
Commercial papers		—		6,285		—		6,285		—		1,398		—		1,398
Sovereign government bonds		—		622		—		622		—		621		—		621
Variable rate demand notes		—		—		—		—		—		—		—		—
Total	$	9,460	$	42,969	$	—	$	52,429	$	12,315	$	57,934	$	—	$	70,249
Foreign currency forward contracts	$	—	$	*	$	—	$	*	$	—	$	—	$	—	$	—
Mutual funds held in Rabbi Trust, recorded in other long-term assets	$	599	$	—	$	—	$	599	$	435	$	—	$	—	$	435

*Fair values of the foreign currency forward contracts were immaterial as of September 30, 2016.

The Company offers a Non-Qualified Deferred Compensation Plan (“NQDC Plan”) to a select group of its highly compensated employees.  The NQDC Plan provides participants the opportunity to defer payment of certain compensation as defined in the NQDC Plan.  A Rabbi Trust has been established to fund the NQDC Plan obligation, which was fully funded at September 30, 2016.  The assets held by the Rabbi Trust are substantially in the form of exchange traded mutual funds and are included in the Company’s other long-term assets on its condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015.

Effective July 1, 2016, the Company has established a hedging program using forward exchange contracts as economic hedges, to protect against volatility of foreign exchange rate exposure when it is deemed economical to do so, based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The forward contracts are not designated for hedge accounting.

Under the hedging program, the Company enters into monthly forward exchange contracts, that have average maturities of one month, to offset the effects of exchange rate exposures for its net intercompany activities denominated in Japanese Yen, or JPY, and Chinese Renminbi, or RMB, by buying and selling foreign currencies in the future at fixed

12

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

exchange rates, to offset the consequences of changes in foreign exchange on the balance sheet. If the U.S. dollar strengthens relative to the currency of the hedged assets, the increase in the fair value of the forward contracts offsets the decrease in the expected future U.S. dollar cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the decrease in the fair value of the forward contracts offsets the increase in the value of the anticipated foreign currency cash flows. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the re-measured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. The net effect of fair value changes is reported inother (income) expense, net. As of September 30, 2016, the fair values of the Company’s foreign currency forward contracts were immaterial due to the short-term nature of the contracts, which generally expire at each quarter-end. The total notional value of our foreign currency exchange contracts as of September 30, 2016 were approximately $39.2 million and $2.4 million for RMB and JPY, respectively.

The following table presents the Company's liabilities that are measured at fair value on a recurring basis (in thousands):

	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Penalty payment derivative (Note 10)	$	—	$	—	$	389	$	389	$	—	$	—	$	389	$	389

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2016. In the year ended December 31, 2015, the Company wrote off $0.2 million of property, plant and equipment and $0.2 million of held-for-sale assets. These assets were measured at fair value due to events or circumstances the Company identified as having significant impact on their fair value during the period. To arrive at the valuation of these assets, the Company considered the discounted cash flows to determine fair value using best estimates and unobservable inputs (Level 3).

Assets and Liabilities Not Measured at Fair Value

The carrying values of accounts receivable, accounts payable, notes payable and short-term borrowings approximate their fair values due to the short-term nature and liquidity of these financial instruments.

The fair values of the Company’s long-term debt have been calculated using an estimate of the interest rate the Company would have had to pay on the issuance of liabilities with a similar maturity and discounting the cash flows at that rate which it considers to be a level 2 fair value measurement. The fair values, which approximate the carrying value of the long-term debt, do not necessarily give an indication of the amount that the Company would currently have to pay to extinguish any of this debt.

Note 5. Business combination

EMCORE Corporation

On January 2, 2015, the Company closed an acquisition of the tunable laser product lines of EMCORE Corporation (“EMCORE”) for an original purchase price of $17.5 million, pursuant to the terms of the Asset Purchase Agreement between the parties dated October 22, 2014, under which the Company purchased certain assets and assumed certain liabilities of EMCORE’s tunable laser product lines. Consideration for the transaction consisted of $1.5 million in cash and a promissory note (the “EMCORE Note”) of approximately $16.0 million, which was subject to certain adjustments for inventory, net accounts receivable and pre-closing revenues, and was subsequently adjusted to $15.5 million in connection with a True-Up Confirmation Agreement (the “True-Up Agreement”) executed by and between the Company and EMCORE on April 16, 2015.The True-Up Agreement made several final adjustments to the Asset Purchase

13

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Agreement, including, among other things, (i) adjusting the principal amount of the EMCORE Note from approximately $16.0 million to approximately $15.5 million, (ii) agreeing upon final amounts for inventory value adjustment, net accounts receivable adjustment, and revenue purchase price adjustment, and (iii) resolving the treatment of certain accounts receivable for products sold by EMCORE prior to the closing of the transaction. The adjusted purchase price for the acquisition was approximately $17.0 million.

The Company accounted for this acquisition as a business combination. With this acquisition, the Company strengthens its narrow line width tunable laser product portfolio.

In connection with the acquisition, the Company incurred approximately $0.9 million in total acquisition-related costs related to legal, accounting and other professional services. The acquisition costs were expensed as incurred and included in operating expenses in the Company’s condensed consolidated statement of operations.

The Company’s preliminary allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed was based on estimated fair values as of the close of the acquisition. The fair values assigned to intangible assets acquired are based on valuations using estimates and assumptions provided by management, with the assistance of an independent third party appraisal firm. The excess purchase price over those fair values is recorded as goodwill. These estimates were determined through established and generally accepted valuation techniques. While the Company used best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, estimates and assumptions were subject to refinement, including the acquired property, plant and equipment, prepaid and other current assets and accounts payable, as the Company was in the process of obtaining further information. As a result, during the preliminary measurement period, which was completed in 2015, the Company recorded adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Subsequent to the initial allocation of the assets acquired and liabilities assumed, the Company adjusted the acquired net accounts receivable, the acquired net inventories, the assumed sales tax accrual and the acquired prepaid expenses and other current assets by immaterial amounts, and decreased goodwill by a corresponding net amount.

As of September 30, 2016 and December 31, 2015, goodwill was $1.1 million, which represented the excess of the purchase price over the aggregate net estimated fair values of the assets acquired and liabilities assumed in the acquisition.

The following table summarizes the allocation of the assets acquired and liabilities assumed from EMCORE as of the acquisition date and subsequent adjustments (in thousands): 

Total purchase consideration:
Cash paid	$	1,500
Notes payable		15,482
Total	$	16,982
Fair value of assets acquired:
Accounts receivable	$	9,274
Inventories		1,693
Prepaid expenses and other current assets		670
Property, plant and equipment		6,917
Intangible assets acquired:
Developed technology		4,100
Customer relationships		700
Total	$	23,354
Less: fair value of liabilities assumed:
Accounts payable	$	(7,427)
Accrued liabilities		(60)
Total	$	(7,487)
Goodwill	$	1,115

14

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective estimated useful lives. The following table presents details of the purchase price allocated to the acquired intangible assets at the acquisition date:

	Useful		Purchased
	Life		intangible assets
	(In years)		(In thousands)
Developed technology	7	$	4,100
Customer relationships	2		700
Total purchased intangible assets		$	4,800

The following unaudited supplemental pro forma information presents the combined results of operations of NeoPhotonics Corporation for the three and nine months ended September 30, 2016 and 2015 as though the companies had been combined as of the beginning of 2014. In the three months ended September 30, 2016 and 2015, revenue related to products acquired from EMCORE was $20.2 million and $13.2 million, respectively.  In the nine months ended September 30, 2016 and 2015, revenue related to products acquired from EMCORE was $58.3 million and $39.5 million, respectively. The following table reflects the actual results for the 2016 periods and the pro forma financial information for the 2015 periods and includes adjustments related to zero transaction costs in the three months ended September 30, 2016 and 2015 and zero and $0.3 million transactions costs, respectively, in the nine months ended September 30, 2016 and 2015, as well as immaterial employee expense during the 2015 periods. There were no sales between the business acquired from EMCORE and the Company in the three and nine months ended September 30, 2016 and 2015.

The unaudited pro forma results do not assume any operating efficiencies as a result of the consolidation of operations (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue	$	103,312	$	83,560	$	301,586	$	250,316
Net income (loss)	$	(7,187)	$	1,404	$	(2,201)	$	3,689
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.10
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.10

EigenLight Corporation

In November 2015, the Company closed an acquisition of the business and products of EigenLight Corporation for cash consideration of $0.4 million in an asset transaction. The Company accounted for this as a business combination and the majority of the purchase price was allocated to inventory and property, plant and equipment.

15

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 6. Balance sheet components

Accounts receivable, net

Accounts receivable, net consists of the following (in thousands):

	September 30, 2016		December 31, 2015
Accounts receivable	$	93,967	$	82,235
Trade notes receivable		2,102		1,769
Allowance for doubtful accounts		(392)		(843)
	$	95,677	$	83,161

Inventories, net

Inventories, net consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Raw materials	$	22,189	$	23,793
Work in process		17,918		12,165
Finished goods(1)		20,112		29,644
	$	60,219	$	65,602

⁽¹⁾ Finished goods inventory at customer vendor managed inventory locations was $7.7 million and $14.2 million as of September 30, 2016 and December 31, 2015, respectively.

Purchased intangible assets

Purchased intangible assets consist of the following (in thousands):

	September 30, 2016						December 31, 2015
	Gross		Accumulated		Net		Gross		Accumulated		Net
	Assets		Amortization		Assets		Assets		Amortization		Assets
Technology and patents	$	37,387	$	(33,463)	$	3,924	$	37,430	$	(31,061)	$	6,369
Customer relationships		15,391		(14,054)		1,337		15,101		(12,623)		2,478
Leasehold interest		1,277		(321)		956		1,312		(307)		1,005
	$	54,055	$	(47,838)	$	6,217	$	53,843	$	(43,991)	$	9,852

16

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Amortization expense relating to technology and patents and the leasehold interest intangible assets is included within cost of goods sold and customer relationships within operating expenses. The following table presents details of the amortization expense of the Company’s purchased intangible assets as reported in the condensed consolidated statements of operations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of goods sold	$	853	$	836	$	2,542	$	2,512
Operating expenses		462		447		1,375		1,344
Total	$	1,315	$	1,283	$	3,917	$	3,856

The estimated future amortization expense of purchased intangible assets as of September 30, 2016, is as follows (in thousands):

2016 (remaining three months)	$	566
2017		1,432
2018		1,226
2019		811
2020		688
Thereafter		1,494
	$	6,217

Accrued and other current liabilities

Accrued and other current liabilities consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Employee-related	$	18,290	$	17,420
Income and other taxes payable		4,188		3,720
Accrued warranty		685		1,175
Penalty payment derivative		389		389
Other accrued expenses		4,632		5,246
	$	28,184	$	27,950

Warranty Accrual

The table below summarizes the movement in the warranty accrual, which is included in accrued and other current liabilities (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Beginning balance	$	669	$	1,254	$	1,175	$	1,751
Warranty accruals		126		90		25		(85)
Settlements		(110)		(184)		(515)		(506)
Ending balance	$	685	$	1,160	$	685	$	1,160

17

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Other noncurrent liabilities

Other noncurrent liabilities consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Pension and other employee-related	$	6,071	$	5,036
Deferred income tax liabilities		40		88
Other		2,933		2,352
	$	9,044	$	7,476

Note 7. Restructuring

In 2014, the Company initiated a restructuring plan (the “2014 Restructuring Plan”) to refocus on its strategy execution, optimize its structure, and improve operational efficiencies. The 2014 Restructuring Plan consisted of workforce reductions primarily in the U.S. and in China. The remaining restructuring liability was paid through October 2015. There were no  restructuring charges recorded in the three and nine months ended September 30, 2016. There were no restructuring liabilities as of September 30, 2016 or December 31, 2015.

Note 8. Debt

The table below summarizes the carrying amount and weighted average interest rate of the Company’s debt (in thousands, except percentages): 

	September 30, 2016				December 31, 2015
	Carrying		Interest		Carrying		Interest
	Amount		Rate		Amount		Rate
Notes payable	$	7,708	—		$	8,857	—
Bank borrowings-Comerica Bank		23,800	3.28	%		23,800	2.99	%
Total notes payable and short-term borrowing	$	31,508			$	32,657
Long-term debt, current and non-current:
Bank borrowings-Mitsubishi Bank	$	13,258	1.43	%	$	11,769	1.53	%
Total long-term debt, current and non-current	$	13,258			$	11,769
Unaccreted discount within current portion of long-term debt		(80)				(71)
Unaccreted discount within long-term debt, net of current portion		(154)				(179)
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519
Reported as:
Current portion of long-term debt	$	908			$	760
Long-term debt, net of current portion		12,116				10,759
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519

Notes payable

The Company regularly issues notes payable to its suppliers in China. These notes are supported by non-interest bearing bank acceptance drafts issued under the Company’s existing line of credit facilities and are due three to six months after issuance. As a condition of the notes payable arrangements, the Company is required to keep a

18

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

compensating balance at the issuing banks that is a percentage of the total notes payable balance until the amounts are settled.

In July 2016, the Company’s China subsidiary renewed its short-term line of credit facility with a banking institution that expired in June 2016. Under the agreement, the Company could borrow up to RMB 120.0 million ($18.0 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 171.4 million ($25.8 million) for bank acceptance drafts (with a 30% compensating balance requirement). This short-term line of credit facility was renewed in August 2016 and will expire in July 2019. In September 2015, the Company’s China subsidiary renewed its second short-term line of credit facility with a banking institution, under which the Company can borrow up to RMB 133.0 million ($19.9 million) for short-term loan, which bore interest at varying rates, or up to approximately RMB 190.0 million ($28.5 million) for bank acceptance drafts (with a 30% compensating balance requirement). This line of credit facility expired on September 30, 2016 and was renewed in October 2016. Under the renewed credit line, which will expire in September 2017, the Company can borrow up to RMB 266.0 million (approximately $39.9 million) for short-term loans at varying interest rates or up to approximately RMB 380.0 million (approximately $57.0 million) for bank acceptance drafts (with a 30% compensating balance requirement).  

In August 2016, the Company’s China subsidiary entered into a third line of credit facility with a banking institution that expires in July 2019. Under this line of credit, the Company can borrow up to RMB 30.0 million ($4.5 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 42.9 million ($6.4 million) for bank acceptance drafts (with a 30% compensating balance requirement).

Under these line of credit facilities, the non-interest bearing bank acceptance drafts issued in connection with the Company’s notes payable to its suppliers in China, had an outstanding balance of $7.7 million and $8.9 million as of September 30, 2016 and December 31, 2015, respectively. In addition to the outstanding notes payable, two letters of credit totaling $1.3 million to its suppliers were issued in August 2016 and September 2016 for future equipment purchases that are expected to be delivered by December 2016. These letters of credit require a 30% compensating balance requirement.

As of September 30, 2016 and December 31, 2015, compensating balances relating to these bank acceptance drafts and letters of credit issued to suppliers and the Company’s subsidiaries totaled $2.8 million and $2.7 million, respectively. Compensating balances are classified as restricted cash on the Company’s condensed consolidated balance sheets.

Short-term borrowing

In April 2015, the Company repaid the interest and principal of its $5.0 million short-term advance financing agreement, dated October 2014, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at 4.02% per annum.

In May 2015, the Company repaid the interest and principal of its second $5.0 million short-term advance financing agreement, dated November 2014, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at 2.33% per annum and service fees at 1.00% per annum.

In September 2015, the Company repaid the interest and principal of its $5.0 million advance financing agreement, dated April 2015, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at a six-month LIBOR plus 330 basis points, or approximately 3.71% per annum.

19

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Acquisition-related

In connection with the purchase consideration to acquire the tunable laser products of EMCORE in January 2015 (See Note 5), the Company issued the EMCORE Note, as amended, of $15.5 million, which had a maturity of two years from the closing of the transaction and an interest rate of 5% per annum for the first year and 13% per annum for the second year. The interest was payable semi-annually in cash. The EMCORE Note was subordinated to the Company’s existing bank debt in the U.S. and was repaid in fullin April 2015.

Bank borrowings

The Company has a credit agreement with Comerica Bank as lead bank in the U.S. (the “Comerica Bank Credit Facility”). The Comerica Bank Credit Facility requires the maintenance of a modified EBITDA and certain liquidity covenants. The credit agreement also restricts the Company’s ability to incur certain additional debt or to engage in specified transactions, restricts the payment of dividends and is secured by substantially all of the Company’s U.S. assets, other than intellectual property assets.

The Company amended the Comerica Bank Credit Facility in January 2015 to modify the EBITDA and liquidity covenants and eliminate the need to maintain compensating balances (restricted cash). In March 2015, the Company further amended the Comerica Bank Credit Facility to increase borrowing capacity to $30.0 million. 

In September 2016, the Company amended the Comerica Bank Credit Facility to increase the limitation on the Company’s capital expenditures to $62.0 million for fiscal year 2016 and to provide for an extension of the maturity date to January 31, 2017. As of each of September 30, 2016 and December 31, 2015, the Company was in compliance with the covenants of the credit facility.

Borrowings under the Comerica Bank Credit Facility bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. Base rate is based on the greater of (a) the effective prime rate, (b) the Federal Funds effective rate plus one percent, and (c) the daily adjusting LIBOR rate plus one percent. Amounts borrowed, if any, are due on or before January 31, 2017. As of September 30, 2016, the rate on the LIBOR option was 3.28%. As of each of September 30, 2016 and December 31, 2015, there was $23.8million outstanding.  On February 25, 2015, the Company entered into certain loan agreements and related special agreements with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Mitsubishi Bank”) that provided for (i) a term loan in the aggregate principal amount of 500 million JPY ($4.2 million) (the “Term Loan A”) and (ii) a term loan in the aggregate principal amount of one billion JPY ($8.4 million) (the “Term Loan B” and together with the Term Loan A, the “Mitsubishi Bank Loans”). The Mitsubishi Bank Loans are secured by a mortgage on certain real property and buildings owned by our Japanese subsidiary. The full amount of each of the Mitsubishi Bank Loans was drawn on the closing date of February 25, 2015. Interest on the Mitsubishi Bank Loans accrues and is paid monthly based upon the annual rate of the monthly Tokyo Interbank Offer Rate (TIBOR) plus 1.40%. The Term Loan A requires interest only payments until the maturity date of February 23, 2018, with a lump sum payment of the aggregate principal amount on the maturity date. The Term Loan B requires equal monthly payments of principal equal to 8,333,000 JPY until the maturity date of February 25, 2025, with a lump sum payment of the balance of 8,373,000 JPY on the maturity date. Interest on the Term Loan B is accrued based upon monthly TIBOR plus 1.40% and is secured by real estate collateral. In conjunction with the execution of the Bank Loans, the Company paid a loan structuring fee, including consumption tax, of 40,500,000 JPY ($0.3 million).

The Mitsubishi Bank Loans contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company’s Japanese subsidiary, including, among other things, restrictions on cessation in business, management, mergers or acquisitions. The Mitsubishi Bank Loans contain financial covenants relating to minimum net assets, maximum ordinary loss and a dividends covenant. The Mitsubishi Bank Loans also include customary events of default, including but not limited to the nonpayment of principal or interest, violations of

20

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

covenants, restraint on business, dissolution, bankruptcy, attachment and misrepresentations. In February 2015, the Company used a portion of the proceeds of the Mitsubishi Bank Loans to repay the then-outstanding loan related to the acquisition of NeoPhotonics Semiconductor, which had an outstanding principal and interest amount of approximately 710 million JPY ($6.0 million) and the remaining proceeds will be used for general working capital. Outstanding principal balance under the Mitsubishi Bank Loans was approximately 1.3 billion JPY (approximately $13.3 million), net of unamortized debt issuance costs of 23.7 million JPY (approximately $0.2 million), as of September 30, 2016 and 1.4 billion JPY (approximately $11.5 million), net of unamortized debt issuance costs of 30.1 million JPY (approximately $0.3 million) as of December 31, 2015. The Company was in compliance with the related covenants.

At September 30, 2016, maturities of long-term debt were as follows (in thousands):

2016 (remaining three months)	$	247
2017		988
2018		5,929
2019		988
2020		988
Thereafter		4,118
	$	13,258

Note 9. Japan pension plans

In connection with its acquisition of NeoPhotonics Semiconductor on March 29, 2013 from LAPIS Semiconductor Co., Ltd. (“LAPIS”), the Company assumed responsibility for two defined benefit plans that provide retirement benefits to its NeoPhotonics Semiconductor employees in Japan: the Retirement Allowance Plan (“RAP”) and the Defined Benefit Corporate Pension Plan (“DBCPP”). The RAP is an unfunded plan administered by the Company.  Effective February 28, 2014, the DBCPP was converted to a defined contribution plan (“DCP”).  In May 2014, in accordance with the acquisition agreements, the seller transferred approximately $2.0 million into the newly formed DCP which is the allowable amount that can be transferred according to the Japanese regulations. LAPIS also paid the Company approximately $0.3 million in connection with the conversion of the plan. Additionally, the Company transferred the net unfunded projected benefit obligation amount from the DBCPP to the RAP and froze the RAP benefit at the February 28, 2014 amount.

The pension liability at September 30, 2016 and December 31, 2015 was $5.7 million and $5.1 million, respectively, of which $0.3 million and $0.1 million, respectively, was recorded in accrued and other current liabilities and the remainder in other noncurrent liabilities on the Company’s condensed consolidated balance sheet.

As the Company transitioned the DBCPP to the DCP effective February 2014, no further contributions to the DBCPP are required.

Net periodic pension cost associated with these plans was immaterial in the three and nine months ended September 30, 2016 and 2015.

21

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 10. Commitments and contingencies

Litigation

From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.

On January 5, 2010, Finisar Corporation, or Finisar, filed a complaint in the U.S. District Court for the Northern District of California, or the Court, against Source Photonics, Inc., MRV Communications, Inc., Oplink Communications, Inc. and the Company, or collectively, the co-defendants. In the complaint Finisar alleged infringement of certain of its U.S. patents. In 2010 the Company filed an answer to the complaint and counterclaims, asserting two claims of patent infringement and additional claims. The Court dismissed without prejudice all co-defendants (including the Company) except Source Photonics, Inc., on grounds that such claims should have been asserted in four separate lawsuits, one against each defendant. This dismissal does not prevent Finisar from bringing a new similar lawsuit against the Company. In 2011 the Company and Finisar agreed to suspend their respective claims and in 2012 the Company and Finisar further agreed to toll their respective claims. While there has been no action on this matter since 2012, the Company is currently unable to predict the outcome of this dispute and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

On January 2, 2013, the Company was served with a lawsuit, filed in Belgium by a distributor called Laser 2000 Beneluo SA (“Laser 2000”) claiming unpaid commissions. The distributor agreement was formally terminated as of January 3, 2012. The Company paid $492,000 to Laser 2000 as partial settlement of claims and to avoid penalties from the Belgian Court and submitted a legal brief to court on September 16, 2013. Laser 2000 filed a response on December 16, 2013 and the Company filed the final rebuttal brief on January 30, 2014. On March 23, 2015, the Belgian Court issued a ruling awarding Laser 2000 approximately one million euros in damages (approximately $1,100,000 at current exchange rates). The Company was served with the judgment on September 28, 2015. The Company is appealing this verdict, but is unable to predict the duration or outcome of the appeal or the overall lawsuit at this time. The Company does not believe it will ultimately be liable for the full amount of damage; however, in light of developments in the case, the Company increased its accrual for estimated probable net litigation expense relating to this matter in March 2015. There has been no change in such accrual subsequent to March 2015.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. As of September 30, 2016, the Company did not have any material indemnification claims that were probable or reasonably possible.

22

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Leases

The Company leases various facilities under non-cancelable operating leases expiring through 2027. As of September 30, 2016, future minimum payments under these operating leases totaled approximately $27.8 million and future minimum sublease receipts was approximately $1.1 million. Rent expense was $0.6 million and $1.7 million in the three and nine months ended September 30, 2016, respectively, and $0.5 million and $1.7 million in the three and nine months ended September 30, 2015, respectively.

In the nine months ended September 30, 2016, the Company renewed one of its leases for its facility in Fremont, California. In September 2016, the Company entered into an office lease for approximately 64,000 square feet of office and laboratory space located adjacent to the Company’s current headquarters in San Jose (the “Lease”).

The term of the Lease is scheduled to commence on January 1, 2017. Upon commencement, the Lease has an initial term of one hundred and twenty-nine (129) months, ending on September 30, 2027 (the “Initial Term”), with a monthly rental rate of $144,000, escalating annually to a maximum monthly rental rate of approximately $194,000 in the last year of the Initial Term. The Landlord has agreed to provide the office and laboratory space to the Company free of charge for the first nine months of the Initial Term through September 30, 2017. Upon termination of the Lease, the Company anticipates a restoration cost of approximately $2.8 million.

Penalty Payment Derivative

In connection with a private placement transaction with Joint Stock Company “Rusnano” (formerly Open Joint Stock Company “RUSNANO” ), or Rusnano, or in 2012, the Company agreed to certain performance obligations including establishing a wholly-owned subsidiary in Russia and making a $30.0 million investment commitment (the ‘Investment Commitment’) towards the Company’s Russian operations, which could be partially satisfied by cash and/or non-cash investment inside or outside of Russia and/or by way of non-cash asset transfers.

In March 2015, the Company extended the Investment Commitment deadline to June 30, 2015 and then further amended the Investment Commitment in July 2015. The latter amendment, or the Rights Agreement, became effective on June 30, 2015 and provides that the maximum amount of penalties, or the Penalty Payment, to be paid by the Company will not exceed $5.0 million in the aggregate. In addition, the amendment also provides for an updated investment plan for the Company’s Russian subsidiaries that includes non-cash transfer of licensing rights to intellectual property, non-cash transfers of existing equipment and commitments to complete the remaining investment milestones through fiscal year 2019. The Company fulfilled its investment commitment required by 2015 and had contributed over $15.4 million in cash and assets to its subsidiaries in Russia as of December 31, 2015.  Although the Company met its investment commitment for 2015, certain required equipment was delivered but not fully installed and operational as of the required date to fulfill certain manufacturing milestones under the Rights Agreement. The Company has remediated these issues and, in August 2016, entered into the second amendment to the Rights Agreement with Rusnano (the “Amended Rights Agreement”) to address this matter. The amendment extended the foregoing manufacturing deadlines to June 30, 2016 and confirmed that the Company had completed these milestones as of June 30, 2016. Therefore, the Company will not be held liable for the $5.0 million Penalty Payment as of each of December 31, 2015 and September 30, 2016.

In the event the Company’s cumulative investment and spending contributed to its subsidiaries in Russia is less than $18.8 million by December 31, 2016, the Company will be subject to a $1.5 million penalty within 30 days after the end of a 90-day cure period. If certain of the Investment Commitments are not achieved in the indicated time frames in 2016 and 2019, the Company also has the ability to cease the operations of its Russian subsidiaries by paying exit fees of $3.5 million or $2.0 million at the end of 2016 or 2019, respectively.  

In August 2016, the Company entered into a letter of agreement with Rusnano to agree to transfer a product line and incur expected costs of approximately $0.1 million by July 30, 2017.

Rusnano has non-transferable veto rights over the Company’s Russian subsidiaries’ annual budget during the investment period and must approve non-cash asset transfers to be made in satisfaction of the Investment Commitment. 

23

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Spending and/or commitments to spend for general working capital and research and development do not require approval by Rusnano. There are no legal restrictions on the specific usage of the $39.8 million received in the private placement transaction or on withdrawal from the Company’s bank accounts for use in general corporate purposes.

The Company accounted for the Penalty Payment as an embedded derivative instrument, with the underlying being the performance or nonperformance of meeting the Investment Commitment and initially classified $4.9 million of the $5.0 million as additional paid-in capital and the remaining $0.1 million, representing the estimated fair value of the Penalty Payment derivative, in other noncurrent liabilities.

The fair value of the Penalty Payment derivative has been estimated at the date of the original common stock sale (April 27, 2012) and at each subsequent balance sheet date using a probability-weighted discounted future cash flow approach using unobservable inputs, which are classified as Level 3 within the fair value hierarchy. The primary inputs for this approach include the probability of achieving the Investment Commitment and a discount rate that approximates the Company’s incremental borrowing rate. After the initial measurement, changes in the fair value of this derivative were recorded in other expense, net. The estimated fair value of this derivative, after taking into consideration the non-compliance regarding the manufacturing milestone and the Amended Rights Agreement, was $0.4 million as of each of September 30, 2016 and December 31, 2015, and reported within accrued and other current liabilities on the Company’s condensed consolidated balance sheets (see Note 4).

Separately, in December 2014, the Company entered into a Commitment to File a Registration Statement and Related Waiver of Registration Rights, whereby Rusnano waived certain registration rights in connection with a potential offering by the Company of shares of the Company’s common stock, and the Company committed to file with the U.S. Securities and Exchange Commission a resale registration statement on Form S-1 covering the resale of all shares of the Company’s common stock held by Rusnano, or the 2015 Registration Statement. The Company filed the 2015 Registration Statement in April 2015 (See Note 11).  Rusnano also waived its demand registration rights under the original rights agreement and agreed to enter into a lock up agreement with the Company whereby it would agree not to sell any shares of the Company’s common stock, or engage in certain other transactions relating to the Company’s securities, for a period of 60 days from the filing date of the 2015 Registration Statement. Rusnano signed such lock up agreement with the Company on April 2, 2015. In addition, in connection with the Company’s public stock offering completed in the second quarter of 2015, or the 2015 Follow-On Offering, Rusnano entered into a separate lock up agreement with Needham & Company, LLC, the lead underwriter of the 2015 Follow-On Offering, whereby it agreed not to sell any shares of the Company’s common stock, or engage in certain other transactions relating to the Company’s securities, for a period of 180 days from May 21, 2015. Such lock up agreement expired in November 2015.

Note 11. Stockholders’ equity

Common Stock

As of September 30, 2016, the Company had reserved 7,220,893 common stock shares for issuance under its stock option plans and 776,613 common stock shares for issuance under its employee stock purchase plan.

Resale Registration Statement

In April 2015, the Company filed the 2015 Registration Statement, which registered 4,972,905 shares of the Company’s common stock, at a par value of $0.0025 per share, held by Rusnano. The Company does not receive any proceeds from any sales of the Company’s common stock held by Rusnano (See Note 10).

24

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Follow-On Public Offering

In the second quarter of 2015, the Company completed the 2015 Follow-On Offering, in which the Company sold 6,866,689 shares of its common stock, including 895,655 shares of common stock sold upon the exercise in full of the overallotment option by the underwriters, at a public offering price of $7.25 per share. The Company raised approximately $45.6 million, net of underwriting discounts of $3.0 million and other offering expenses of approximately $1.2 million.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of related taxes, were as follows (in thousands):

	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Available-For-Sale Securities		Defined Benefit Pension Plan Adjustment		Total Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	(1,595)	$	(29)	$	(99)	$	(1,723)
Other comprehensive income, net of taxes of zero and reclassifications		292		33		—		325
Balance at September 30, 2016	$	(1,303)	$	4	$	(99)	$	(1,398)

No material amounts were reclassified out of accumulated other comprehensive income during the three and nine months ended September 30, 2016 and 2015 for realized gains or losses on available-for-sale securities.

Accumulated Deficit

Approximately $7.9 million of the Company’s retained earnings within its total accumulated deficit at December 31, 2015 was subject to restriction due to the fact that the Company’s subsidiaries in China are required to set aside at least 10% of their respective accumulated profits each year end to fund statutory common reserves as well as allocate a discretional portion of their after-tax profits to their staff welfare and bonus fund.

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NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12. Stock-based compensation

The following table summarizes the stock-based compensation expense recognized in the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of goods sold	$	297	$	339	$	1,605	$	1,119
Research and development		2,981		363		4,508		1,357
Sales and marketing		2,352		275		3,604		1,175
General and administrative		3,146		459		4,728		1,767
	$	8,776	$	1,436	$	14,445	$	5,418

Stock-based compensation expense in the three and nine months ended September 30, 2016 included approximately $5.8 million in stock-based compensation expense, net of approximately $0.8 million capitalized in inventory, associated with the accelerated vesting of stock options covering approximately 1.1 million shares of the Company’s common stock and stock appreciation units (“SAUs”) of approximately 0.2 million shares with a market-based vesting condition. In September 2016, the market-based condition of these stock options and SAUs was satisfied when the average closing price of the Company’s common stock over a period of 20 consecutive trading days equal to or exceeded $15.00 per share and the recipients remained in the continuous service with the Company.

Determining Fair Value

The Company estimated the fair value of certain stock-based awards using a Black-Scholes-Merton valuation model or a binomial lattice model with the following assumptions:  

	Three Months Ended September 30,		Nine Months Ended September 30,
Stock options	2016	2015	2016	2015
Weighted-average expected term (years)	5.9	5.6	5.8	5.4
Weighted-average volatility	65%	63%	65%	64%
Risk-free interest rate	1.01%-1.15%	1.63% – 1.85%	1.01%-1.76%	1.37% – 1.65%
Expected dividends	—  %	—  %	—  %	—  %
Stock appreciation units
Weighted-average expected term (years)	2.6	3.5	2.8	3.6
Weighted-average volatility	62%	60%	62%	62%
Risk-free interest rate	0.45%-0.71%	0.28% – 1.38%	0.45%-1.47%	0.25% – 1.57%
Expected dividends	—  %	—  %	—  %	—  %
ESPP
Weighted-average expected term (years)	—	—	0.7	0.7
Weighted-average volatility	—  %	—  %	70%	58%
Risk-free interest rate	—  %	—  %	0.08%-0.39%	0.03% – 0.14%
Expected dividends	—  %	—  %	—  %	—  %

26

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Stock Options and Restricted Stock Units (RSUs)

The following table summarizes the Company’s stock option and RSU activity during the nine months ended September 30, 2016:

	Stock Options			Restricted Stock Units
		Weighted			Weighted
		Average			Average
	Number of	Exercise		Number of	Grant Date
	Shares	Price		Units	Fair Value
Balance at December 31, 2015	5,007,797	$	4.34	1,213,686	$	7.46
Granted	358,186		12.22	1,071,230		12.18
Exercised/Converted	(962,366)		3.62	(211,388)		7.02
Cancelled/Forfeited	(59,961)		4.99	(29,694)		7.36
Balance at September 30, 2016	4,343,656	$	5.14	2,043,834	$	9.99

Stock appreciation units

SAUs are liability classified share-based awards. The Company did not grant any SAUs during the three and nine months ended September 30, 2016 or 2015. As of September 30, 2016 and December 31, 2015, there were 293,457 and 342,316 SAUs outstanding. Outstanding SAUs are re-measured each reporting period at fair value until settlement.

Employee Stock Purchase Plan (“ESPP”)

As of September 30, 2016, there was $0.1 million of unrecognized stock-based compensation expense for employee stock purchase rights that will be recognized over the remaining offering period through November 2016.

Note 13. Income taxes

The provision for income taxes in the periods presented is based upon the income (loss) before income taxes:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2016		2015		2016		2015
Provision for income taxes	$	(804)	$	(1,157)	$	(2,471)	$	(2,698)

The Company’s income tax provision in the three and nine months ended September 30, 2016 and 2015 was primarily related to income taxes of the Company’s non-U.S. operations.

The Company conducts its business globally and its operating income is subject to varying rates of tax in the U.S., China and Japan. Consequently, the Company’s effective tax rate is dependent upon the geographic distribution of its earnings or losses and the tax laws and regulations in each geographical region. Historically, the Company has experienced net losses in the U.S. and in the short term, expects this trend to continue. One of the Company’s subsidiaries in China historically qualified for a preferential 15% tax rate available for high technology enterprises as opposed to the statutory 25% tax rate. In June 2016, the State Administration of Taxation issued a notice to adjust the requirements for high technology enterprise status. As a result, the Company believes that it is more likely than not that the Company’s China subsidiary will not meet the requirements for the tax year 2016 as of September 30, 2016. Therefore, the Company has computed its China subsidiary’s tax provision for 2016 based on a 25% regular corporate income tax rate and remeasured its deferred tax assets accordingly. The preferential tax rate is subject to renewal for periods after 2016.

27

NeoPhotonics Corporation

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Due to historic losses in the U.S., the Company has a full valuation allowance on its U.S. federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination.

As of September 30, 2016, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2015.

Note 14. Subsequent events

Subsequent events, through the filing of this report, included the following:

Repayment of Comerica Credit Facility

In October 2016, the Company repaid the outstanding balance under its Comerica Bank Credit Facility, which was $23.8 million as of September 30, 2016.

Shelf Registration

In October 2016, the Company filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission through which it may offer to sell $80.0 million of its common stock from time-to-time. In addition, the registration statement registered 8,261,882 shares of the Company’s common stock held by certain stockholders. The Company will not receive any proceeds from the sales of the Company’s common stock held by its selling stockholders.

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ITEM 2.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 the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the period ended September 30, 2016 and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2015 included in our Annual Report on Form 10-K. References to “NeoPhotonics,” “we,” “our,” and “us” are to NeoPhotonics Corporation unless otherwise specified or the context otherwise requires.

This Quarterly Report on Form 10-Q for the period ended September 30, 2016 contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q for the period ended September 30, 2016 that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Terminology such as “believe,” “may,” “might,” “objective,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “potential,” or the negative of these terms or other similar expressions is intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and industry and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in “Part II —Item 1A. Risk Factors” below, and those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 15, 2016.  Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Business overview

We develop, manufacture and sell optoelectronic products that transmit, receive and switch high speed digital optical signals for communications networks. We sell our products to the world’s leading network equipment manufacturers, including Ciena Corporation, Cisco Systems, Inc., HiSilicon Technologies, Ltd., an affiliate of Huawei Technologies, Co., Ltd. and Huawei Technologies Co., Ltd. (collectively “Huawei”) and Nokia Corporation (formerly Alcatel-Lucent SA which was acquired by Nokia Corporation in January 2016). These companies are among our largest customers and a focus of our strategy due to their leading market positions.

We have research and development and wafer fabrication facilities in San Jose and Fremont, California and in Tokyo, Japan that coordinate with our research and development and manufacturing facilities in Dongguan, Shenzhen and Wuhan, China, Ottawa, Canada, and Moscow, Russia. We use proprietary design tools and design-for-manufacturing techniques to align our design process with our precision nanoscale, vertically integrated manufacturing and testing. We believe we are one of the highest volume Photonic Integrated Circuit, or PIC, manufacturers in the world and that we can further expand our manufacturing capacity to meet market needs.

Recognizing our focus on growth in our 100Gbps (“100G”) and beyond products, we aligned our product group reporting to “High Speed Products” which includes products designed for 100G and beyond applications and “Network Products and Solutions” which comprises all products designed for applications below 100G and includes 40G products previously included in our “High Speed Products” group. Our High Speed Products primarily implement coherent technology and include those designed for 100G and beyond data rates for telecom and datacenter or content provider networks and applications.

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In the three and nine months ended September 30, 2016, High Speed Products represented approximately 67% and 66%, respectively, of total revenue and Network Products and Solutions represented approximately 33% and 34%, respectively, of total revenue.  In the three and nine months ended September 30, 2015, High Speed Products was 56% and 58%, respectively, of total revenue and Network Products and Solutions represented approximately 44% and 42%, respectively, of total revenue.

Revenue grew 24% and 20%, respectively, in the three and nine months ended September 30, 2016, compared to 2% and 10%, respectively, in the same periods in 2015. The revenue growth was driven primarily by demand for our High Speed Products, as carriers continued to accelerate deployment of high capacity optical transport networks particularly in China. Our gross profit was 26.6% and 28.5% of revenue, respectively, in the three and nine months ended September 30, 2016, compared to 28.4% and 29.6% of revenue, respectively, in the three and nine months ended September 30, 2015, primarily attributable to pricing and a bankruptcy filing by one of our distributors, partially offset by cost savings, yields and, to a lesser extent, favorable product mix.

We are planning to reduce volume and end the production for certain low speed passive optical network, or PON, products that accounted for approximately $6.5 million and $25.9 million of total revenue, respectively, in the three and nine months ended September 30, 2016 and are expected to represent approximately $30 million of total revenue in 2016. These products are focused on passive optical network applications and are nearing their end-of-life with relatively low gross margins. The end-of-life process is expected to span approximately three fiscal quarters to complete and is part of our product evolution cycle to reduce legacy products that may no longer meet our requirements for gross margin and profitability.

We expect continued volume growth for our High Speed Products, although quarter-to-quarter results may show considerable variability as is usual in a rapid initial ramp-up for a new technology.  Similar to revenue, our gross margins may fluctuate materially depending on a variety of factors including average selling price changes, product mix, volume, manufacturing utilization and ongoing manufacturing process improvements.

In October 2016, we filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission through which we may offer to sell $80.0 million of our common stock from time-to-time. In addition, the registration statement registered 8,261,882 shares of our outstanding common stock held by certain stockholders. We will not receive any proceeds from the sales of our common stock held by our selling stockholders.

Critical accounting policies and estimates

There have been no material changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2016 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Results of operations

Revenue

We sell substantially all of our products to original equipment manufacturers, or OEMs. Revenue is recognized when the product is shipped and title has transferred to the buyer. We price our products based on market and competitive conditions and may periodically reduce the price of our products as market and competitive conditions change and as manufacturing costs are reduced. Historically, our first quarter revenue is generally seasonally lower than the rest of the year primarily due to lower capacity utilization during the holidays in China and customer pricing schedules. However, this historical pattern should not be considered a reliable indicator of our future revenue or financial performance. In 2016, this historical pattern shifted from the first quarter to the second quarter due to certain price reductions being delayed beyond the first quarter in part due to surging volumes in the first quarter supporting 100G build-outs, notably in China. Our sales transactions to customers are denominated primarily in U.S. dollars, with some portions in Chinese Renminbi (“RMB”) or Japanese Yen (“JPY”).

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
(in thousands)	2016		2015		$ Change		% Change		2016		2015		$ Change		% Change
Total revenue	$	103,312	$	83,560	$	19,752	24	%	$	301,586	$	250,316	$	51,270	20	%

We have generated most of our revenue from a limited number of customers. Customers accounting for more than 10% of our total revenue and revenue from our top ten customers in the three and nine months ended September 30, 2016 and 2015 were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Percent of revenue from customers accounting for 10% or more of total revenue:
Huawei Technologies Co., Ltd (1)	48	%	41	%	49	%	40	%
Ciena Corporation	15	%	26	%	15	%	24	%
Percent of revenue from top ten customers	91	%	92	%	91	%	91	%

⁽¹⁾ Huawei’s percentage of revenue included its affiliate, HiSilicon Technologies Co. Ltd. (“HiSilicon”). Revenue from HiSilicon represented approximately 34% and 18% of total revenue, respectively, in the three months ended September 30, 2016 and 2015, and approximately 33% and 19% of total revenue, respectively, in the nine months ended September 30, 2016 and 2015.

We expect that a significant portion of our revenue will continue to be derived from a limited number of customers. As a result, the loss of, or a significant reduction in, orders from any of our key customers would materially affect our revenue and results of operations. Similarly, our accounts receivable are from a limited number of customers. As of September 30, 2016 and December 31, 2015, one customer accounted for 45% and 59%, respectively, of our total accounts receivable.

Three Months Ended September 30, 2016 Compared With Three Months Ended September 30, 2015

Revenue increased $19.8 million, or 24%, in the three months ended September 30, 2016, compared to the same period in 2015, primarily due to an increase in revenue from our High Speed Products driven by strong demand for 100G products.  The increase from High Speed Products revenue was partially offset by a decrease in revenue from our Network Products and Solutions group primarily due to a decline in revenue from low speed PON products and a $2.2 million revenue that cannot be recognized as a result of a distributor’s bankruptcy reorganization. In the three months ended September 30, 2016, High Speed Products represented approximately 67% of total revenue, compared to 56% of total revenue in the same period in 2015 while Network Products and Solutions represented approximately 33% of total revenue in the three months ended September 30, 2016, compared to approximately 44% of total revenue in the same period in 2015. Revenue from China, Americas, Japan and rest of the world was 61%, 19%, 1% and 19% of total

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revenue, respectively, in the three months ended September 30, 2016, compared to 50%, 28%, 4% and 18% of total revenue, respectively, in the same period in 2015.

Nine Months Ended September 30, 2016 Compared With Nine Months Ended September 30, 2015

Revenue increased $51.3 million, or 20%, in the nine months ended September 30, 2016, compared to the same period in 2015, primarily due to an increase in revenue from our High Speed Products driven by strong demand for 100G products, notably in China.  The increase from High Speed Products revenue was partially offset by a decrease in revenue from our Network Products and Solutions group partly attributable to a decline in revenue from low speed PON products and a $2.2 million revenue that cannot be recognized as a result of a distributor’s bankruptcy reorganization. In the nine months ended September 30, 2016, High Speed Products represented approximately 66% of total revenue, compared to 58% of total revenue in the same period in 2015 while Network Products and Solutions represented approximately 34% of total revenue in the nine months ended September 30, 2016, compared to approximately 42% of total revenue in the same period in 2015. Revenue from China, Americas, Japan and rest of the world was 61%, 14%, 4% and 21% of total revenue, respectively, in the nine months ended September 30, 2016, compared to 49%, 29%, 4% and 18% of total revenue, respectively, in the same period in 2015.

Cost of Goods Sold and Gross Profit

Our cost of goods sold consists primarily of the cost to produce wafers and to manufacture and test our products. Additionally, our cost of goods sold generally includes stock-based compensation, write-downs of excess and obsolete inventory, amortization of certain purchased intangible assets, depreciation, acquisition-related fair value adjustments, restructuring charges, warranty costs, royalty payments, logistics and allocated facilities costs. 

Gross profit as a percentage of total revenue, or gross margin, has been and is expected to continue to be affected by a variety of factors including the introduction of new products, production volume, production volume compared to sales over time, the mix of products sold, inventory changes, changes in the average selling prices of our products, changes in the cost and volumes of materials purchased from our suppliers, changes in labor costs, changes in overhead costs or requirements, stock-based compensation, write-downs of excess and obsolete inventories and warranty costs. In addition, we periodically negotiate pricing with certain customers which can cause our gross margins to fluctuate, particularly in the quarters in which the negotiations occurred. Historically, our first quarter gross margins are generally seasonally lower than the fourth quarter of the prior year due to customer pricing schedules as well as lower capacity utilization during the holidays in China and the lower installment of outside plant equipment by customers in winter.  In 2016, this historical pattern shifted from the first quarter to the second quarter due to certain price reductions being delayed beyond the first quarter in part due to surging volumes in the first quarter supporting 100G build-outs, notably in China. 

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(in thousands, except percentages)	2016		2015		$ Change		% Change			2016		2015		$ Change		% Change
Cost of goods sold	$	75,863	$	59,788	$	16,075		27	%	$	215,486	$	176,345	$	39,141	22	%
Gross profit		27,449		23,772		3,677		15	%		86,100		73,971		12,129	16	%

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Gross profit as a % of revenue	27	%	28	%	29	%	30	%

Three Months Ended September 30, 2016 Compared With Three Months Ended September 30, 2015

Gross profit increased $3.7 million, or 15%, to $27.4 million in the three months ended September 30, 2016, compared to $23.8 million in the same period in 2015. The increase is primarily attributable to an increase in sales volume and continuous costs reduction efforts. Gross margin decreased in the three months ended September 30, 2016, compared to the same period in 2015, primarily due to pricing and a $1.4 million unfavorable cost of goods sold impact

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as a result of the unrecoverable inventory associated with the bankruptcy reorganization by one of our distributors, partially offset by cost savings, yields and, to a lesser extent, favorable product mix. 

Nine Months Ended September 30, 2016 Compared With Nine Months Ended September 30, 2015

Gross profit increased $12.1 million, or 16%, to $86.1 million in the nine months ended September 30, 2016, compared to $74.0 million in the same period in 2015. This increase is primarily attributable to an increase in sales volume as well as an increase in sales toward our High Speed Products, driven by the strong 100G product demand and the associated strong manufacturing utilization. Gross margin decreased in the nine months ended September 30, 2016, compared to the same period in 2015, primarily due to pricing and a $1.4 million unfavorable cost of goods sold impact as a result of the unrecoverable inventory associated with the bankruptcy reorganization by one of our distributors, partially offset by cost savings, yield and, to a lesser extent, favorable product mix.

Operating expenses

Personnel costs are the most significant component of operating expenses and consist of costs such as salaries, benefits, bonuses, stock-based compensation and, with regard to sales and marketing expense, other variable compensation. In the three and nine months ended September 30, 2016, stock-based compensation expense of approximately $5.8 million was recorded in our operating expenses attributable to the accelerated vesting of our stock options and stock appreciation units (“SAUs”) with a market-based vesting condition as such condition was satisfied when the average closing price of our common stock over a period of 20 consecutive trading days exceeded $15.0 per share in September 2016. Stock-based compensation related to outstanding SAUs are subject to remeasurement until settlement dates. Our operating expenses are denominated primarily in U.S. dollars, or USD, Chinese Renminbi, or RMB and Japanese Yen, or JPY.

	Three Months Ended September 30,									Nine Months Ended September 30,
(in thousands, except percentages)	2016		2015		$Change		% Change			2016		2015		$ Change		% Change
Research and development	$	17,474	$	10,763	$	6,711		62	%	$	42,206	$	32,702	$	9,504	29	%
Sales and marketing		5,936		3,789		2,147		57	%		13,674		11,439		2,235	20	%
General and administrative		9,822		7,384		2,438		33	%		26,747		22,999		3,748	16	%
Amortization of purchased intangible assets		462		447		15		3	%		1,375		1,344		31	2	%
Restructuring charges		—		18		(18)		(100)	%		—		44		(44)	(100)	%
Acquisition-related costs		148		180		(32)		(18)	%		923		467		456	98	%
Asset impairment charge		—		368		(368)		(100)	%		—		368		(368)	(100)	%
Total operating expenses	$	33,842	$	22,949	$	10,893		47	%	$	84,925	$	69,363	$	15,562	22	%

Research and development

Research and development expense consists of personnel costs, including stock-based compensation, for our research and development personnel, and product development costs, including engineering services, development software and hardware tools, depreciation of equipment and facility costs. We record all research and development expense as incurred.

Three Months Ended September 30, 2016 Compared With Three Months Ended September 30, 2015

Research and development expense increased by $6.7 million, or 62%, in the three months ended September 30, 2016 compared to the same period in 2015. The increase was primarily due to a $2.6 million increase in stock-based compensation expense largely driven by higher market price of the Company’s common stock and the accelerated vesting of our market-based stock awards, a $2.4 million increase in development projects including prototype and materials, a $0.8 million net increase in payroll and related expenses and a $0.7 million increase in outside development services in the three months ended September 30, 2016, compared to the same 2015 period.

Nine Months Ended September 30, 2016 Compared With Nine Months Ended September 30, 2015

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Research and development expense increased by $9.5 million, or 29%, in the nine months ended September 30, 2016 compared to the same period in 2015. The increase was primarily due to a $3.2 million increase in stock-based compensation expense largely due to the higher market price of our common stock and the accelerated vesting of our market-based stock awards, a $2.6 million increase in development spending including prototype and materials, a $2.0 million increase in payroll and related costs, a $1.0 million increase in outsider services, a $0.4 million reduction in administrative reimbursements and a $0.3 million increase in net allocated costs in the nine months ended September 30, 2016, compared to the same 2015 period.

Sales and marketing

Sales and marketing expense consists primarily of personnel costs, including stock-based compensation and other variable compensation, costs related to sales and marketing programs and services and facility costs.

Three Months Ended September 30, 2016 Compared With Three Months Ended September 30, 2015

Sales and marketing expense increased by $2.1 million, or 57%, in the three months ended September 30, 2016 compared to the same period in 2015 primarily due to a $2.1 million increase in stock-based compensation expense largely due to the higher market price of our common stock and the accelerated vesting of our market-based stock awards and a $0.3 million increase in payroll and related costs, partially offset by a $0.6 million decrease in the doubtful account provision. 

Nine Months Ended September 30, 2016 Compared With Nine Months Ended September 30, 2015

Sales and marketing expense increased by $2.2 million, or 20%, in the nine months ended September 30, 2016 compared to the same period in 2015 primarily due to a $2.4 million increase in stock-based compensation expense largely due to the higher market price of our common stock and the accelerated vesting of our market-based stock awards, a $0.5 million increase in payroll and related costs and a $0.3 million increase in variable compensation, partially offset by a $1.0 million decrease in the doubtful account provision due to collections.

General and administrative

General and administrative expense consists primarily of personnel costs, including stock-based compensation, for our finance,  human resources and information technology personnel and certain executive officers, as well as professional services costs related to accounting, tax, banking, legal and information technology services, depreciation and facility costs.

Three Months Ended September 30, 2016 Compared With Three Months Ended September 30, 2015

General and administrative expense increased by $2.4 million, or 33%, in the three months ended September 30, 2016 compared to the same period in 2015, mainly due to a $2.7 million increase in stock-based compensation expense largely due to the higher market price of our common stock and the accelerated vesting of our market-based stock awards, a $0.2 million increase in payroll and related costs, partially offset by a $0.5 million reduction in variable compensation and $0.2 million decrease in accrued sales and export taxes.

Nine Months Ended September 30, 2016 Compared With Nine Months Ended September 30, 2015

General and administrative expense increased by $3.7 million, or 16%, in the nine months ended September 30, 2016 compared to the same period in 2015, mainly due to a $3.0 million increase in stock-based compensation expense largely due to the higher market price of our common stock and the accelerated vesting of our market-based stock awards, a $0.7 million increase in payroll and related costs, a $0.6 million increase in accrued sales and export taxes and a $0.2 million increase in employee related expenses, partially offset by a $0.6 million decrease in facility charges, a $0.5 milion increase in governmental incentives and a $0.4 million decrease in variable compensation expense.

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Amortization of purchased intangible assets

Our intangible assets are being amortized over their estimated useful lives.  Amortization expense relating to technology, patents and leasehold interests are included within cost of goods sold, while customer relationships and other agreements are recorded within operating expenses. Amortization of purchased intangibles included in operating expenses was relatively consistent in the three and nine months ended September 30, 2016 and included the amortization of intangible assets from our acquisition of EMCORE’s tunable laser products in January 2015. 

Acquisition-related transaction costs

We incurred $0.1 million and $0.9 million in acquisition-related costs primarily related to legal, accounting and other professional services in the three and nine months ended September 30, 2016, respectively. Acquisition related costs were $0.2 million and $0.5 million in the three and nine months ended September 30, 2015, respectively, related to legal, accounting and other professional services for our acquisition activities, including our acquisition of tunable laser products from EMCORE.

Restructuring charges

There were no restructuring charges in the three and nine months ended September 30, 2016. Restructuring charges in the three and nine months ended September 30, 2015 were immaterial and were related to our restructuring plan initiated in 2014 (the “2014 Restructuring Plan”) to refocus on our strategy execution, optimize our structure, and improve operational efficiencies. The 2014 Restructuring Plan consisted of workforce reductions primarily in the U.S and in China and was completed in October 2015.

Interest and other income (expense), net

Interest income consists of income earned on our cash, cash equivalents and short-term investments, as well as restricted cash and investments. Interest expense consists of amounts paid for interest on our bank and other borrowings. Other expense, net is primarily made up of government subsidies as well as foreign currency transaction gains and losses. The functional currency of our subsidiaries in China is the RMB and of our subsidiary in Japan is the JPY.  The foreign currency transaction gains and losses of our subsidiaries in China and Japan primarily result from their transactions in U.S. dollars.

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(in thousands)	2016		2015		$ Change		% Change			2016		2015		$ Change		% Change
Interest income	$	95	$	31	$	64		206	%	$	227	$	84	$	143	170	%
Interest expense		(103)		(171)		68		(40)	%		(304)		(1,133)		829	(73)	%
Other income (expense), net		18		1,852		(1,834)		(99)	%		(828)		2,408		(3,236)	(134)	%
Total	$	10	$	1,712	$	(1,702)		(99)	%	$	(905)	$	1,359	$	(2,264)	(167)	%

Total interest and other income (expense), net decreased by $1.7 million in the three months ended September 30, 2016, compared to the same period in 2015. The decrease was primarily due to a $1.8 million unfavorable change in other income (expense), net primarily attributable to a foreign exchange related loss as a result of stronger RMB against the U.S. dollar in the 2016 period.

Total interest and other income (expense), net decreased by $2.3 million in the nine months ended September 30, 2016, compared to the same period in 2015, mainly due to a $3.2 million unfavorable change in other income (expense), net primarily driven by a foreign exchange related loss as a result of stronger JPY and RMB against the U.S. dollar, partially offset by a $0.8 million decrease in interest expense primarily attributable to less borrowing activities in the U.S. and China in the 2016 period.

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Income taxes

We conduct our business globally and our operating income is subject to varying rates of tax in the U.S., China, Japan and other various foreign jurisdictions. Consequently, our effective tax rate is dependent upon the geographic distribution of our earnings or losses and the tax laws and regulations in each geographical region. Historically, we have experienced net losses in the U.S. and in the short term, we expect this trend to continue. In China, one of our subsidiaries has historically qualified for a preferential 15% tax rate available for high technology enterprises as opposed to the statutory 25% tax rate. In June 2016, the State Administration of Taxation issued a notice to adjust the requirements for high technology enterprise status. As a result, we believe that it is more likely than not that our China subsidiary will not meet the requirements for the tax year 2016 as of September 30, 2016. Therefore, we have computed our China subsidiary’s tax provision for 2016 based on a 25% regular corporate income tax rate and remeasured our deferred tax assets accordingly. The preferential tax rate is subject to renewal for periods after 2016.

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(in thousands)	2016		2015		$ Change		% Change			2016		2015		$ Change		% Change
Provision for income taxes	$	(804)	$	(1,157)	$	353		(31)	%	$	(2,471)	$	(2,698)	$	227		(8)	%

Our income tax provision in the three and nine months ended September 30, 2016 and 2015 was primarily related to income taxes of our non-U.S. operations.

Liquidity and capital resources

At September 30, 2016, we had working capital of $136.8 million and total cash, cash equivalents and short-term investments of $100.1 million. Approximately 37% of our total cash, cash equivalents and short-term investments was held by our foreign entities, including approximately $24.8 million held in accounts by our subsidiaries in China and approximately $12.3 million held in accounts by our subsidiary in Japan. In addition, we had $2.8 million in restricted cash in accounts held by our subsidiaries in China as of September 30, 2016. Cash, cash equivalents, investments and restricted cash held outside of the U.S. may be subject to taxes if repatriated and may not be immediately available for our working capital needs.

Approximately $7.9 million of our retained earnings within our total accumulated deficit at December 31, 2015 was subject to restrictions due to the fact that our subsidiaries in China are required to set aside at least 10% of their respective accumulated profits each year end to fund statutory common reserves as well as allocate a discretionary portion of their after-tax profits to their staff welfare and bonus fund.  This restricted amount is not distributable as cash dividends except in the event of liquidation.

In the U.S., we have a bank credit agreement with Comerica Bank. Our credit agreement, as amended, with Comerica Bank, or the Comerica Bank Credit Facility, restricts our ability to incur certain additional debt or to engage in specified transactions, restricts the payment of dividends and is secured by substantially all of its U.S. assets, other than intellectual property assets, and requires us to maintain certain financial covenants, including the maintenance of a modified EBITDA and certain liquidity covenants. As of September 30, 2016, our borrowing capacity under our Comerica Bank Credit Facility was $30.0 million, subject to covenant requirements. Amounts borrowed under the Comerica Bank Credit Facility are due on or before January 31, 2017 and borrowings bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. As of September 30, 2016, the rate on the LIBOR option was 3.28% and the outstanding balance was $23.8 million, which was repaid in October 2016.

We regularly issue notes payable to our suppliers in China in exchange for accounts payable. These notes are supported by non-interest bearing bank acceptance drafts and are due three to six months after issuance. As a condition of the notes payable arrangements, we are required to keep a compensating balance at the issuing banks that is a percentage of the total notes payable balance until the amounts are settled.

Our subsidiary in China has three short-term line of credit facilities with two banking institutions. Under the short-term line of credit facility agreement renewed in June 2015, up to RMB 120.0 million ($18.0 million) could be used for

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short-term loans, which bore interest at varying rates, or up to approximately RMB 171.4 million ($25.8 million) could be used for bank acceptance drafts (with a 30% compensating balance requirement). This line of credit facility expired in June 2016 and was renewed in August 2016 and will expire in July 2019. Under our China subsidiary’s second short-term line of credit facility, up to RMB 133.0 million ($19.9 million) can be used for short-term loan or up to approximately RMB 190.0 million ($28.5 million) can be used for bank acceptance drafts (with a 30% compensating balance requirement). This line of credit facility expired in September 2016 and, in October 2016, was renewed to extend the expiration date to September 2017 and to increase the credit limit to RMB 266.0 million (approximately $39.9 million) for short-term loans at varying interest rates or up to RMB 380.0 million (approximately $57.0 million) with a 30% compensating balance. In August 2016, our China subsidiary entered into a third line of credit facility with a banking institution that expires in July 2019. Under this line of credit, we can borrow up to RMB 30.0 million ($4.5 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 42.9 million ($6.4 million) for bank acceptance drafts (with a 30% compensating balance requirement).

As of September 30, 2016 and December 31, 2015, the non-interest bearing bank acceptance drafts issued in connection with our notes payable to our suppliers in China under these line of credit facilities had an outstanding balance of $7.7 million and $8.9 million, respectively. The compensating balance for these bank acceptance drafts totaled $2.8 million and $2.7 million, respectively, as of September 30, 2016 and December 31, 2015, and was classified as restricted cash on our condensed consolidated balance sheets.

On February 25, 2015, our subsidiary in Japan entered into certain loan agreements and related special agreements with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Mitsubishi Bank”) that provided for (i) a term loan in the aggregate principal amount of 500 million JPY ($4.2 million) (the “Term Loan A”) and (ii) a term loan in the aggregate principal amount of one billion JPY ($8.4 million) (the “Term Loan B” and together with the Term Loan A, the “Mitsubishi Bank Loans”). The Mitsubishi Bank Loans are secured by a mortgage on certain real property and buildings owned by our Japanese subsidiary in Japan. The full amount of each of the Mitsubishi Bank Loans was drawn on the closing date of February 25, 2015. Interest on the Mitsubishi Bank Loans accrues and is paid monthly based upon the annual rate of the monthly Tokyo Interbank Offer Rate (TIBOR) plus 1.40%. The Term Loan A requires interest only payments until the maturity date of February 23, 2018, with a lump sum payment of the aggregate principal amount on the maturity date. The Term Loan B requires equal monthly payments of principal equal to 8,333,000 JPY until the maturity date of February 25, 2025, with a lump sum payment of the balance of 8,373,000 JPY on the maturity date. Interest on the Term Loan B is accrued based upon monthly TIBOR plus 1.40% and is secured by real estate collateral. In conjunction with the execution of the Mitsubishi Bank Loans, we paid a loan structuring fee, including consumption tax, of 40,500,000 JPY ($0.3 million).

The Mitsubishi Bank Loans contain customary representations and warranties and customary affirmative and negative covenants including, among other things, restrictions on cessation in business, management, mergers or acquisitions. The Mitsubishi Bank Loans also contain financial covenants relating to minimum net assets, maximum ordinary loss and a dividends covenant. The Mitsubishi Bank Loans also include customary events of default, including but not limited to the nonpayment of principal or interest, violations of covenants, restraint on business, dissolution, bankruptcy, attachment and misrepresentations. In February 2015, we used a portion of the proceeds of the Mitsubishi Bank Loans to repay the then-outstanding outstanding principal and interest amount of approximately 710 million JPY ($6.0 million) under the loan from the acquisition of NeoPhotonics Semiconductor.  

Our total outstanding balance under the Mitsubishi Bank Loans was 1.3 billion JPY (approximately $13.3 million), net of unamortized debt issuance costs of 23.7 million JPY (approximately $0.2 million), as of September 30, 2016 and $1.4 billion JPY (approximately $11.5 million), net of unamortized debt issuance costs of 30.1 million JPY (approximately $0.3 million), as of December 31, 2015.

On January 2, 2015, we closed an acquisition of the tunable laser product lines of EMCORE for approximately $17.5 million. Consideration for the transaction consisted of $1.5 million in cash and a promissory note of approximately $16.0 million, which was subject to certain adjustments for inventory, net accounts receivable and pre-closing revenues and was subsequently adjusted to $15.5 million and was fully repaid in April 2015.

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From time to time we accept notes receivable in exchange for accounts receivable from certain of our customers in China. These notes receivable are non-interest bearing and are generally due within six months.  Historically, we have collected on the notes receivable in full at the time of maturity.

We believe that our existing cash, cash equivalents and cash flows from our operating activities will be sufficient to meet our anticipated cash needs for at least the next 12 months.  Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products, the costs to increase our manufacturing capacity and our foreign operations, the continuing market acceptance of our products and acquisitions of businesses and technology. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.

Private placement transaction

In April 2012, we entered into a rights agreement with Rusnano, one of our principal stockholders. Under the rights agreement, we agreed to make a $30.0 million investment commitment, or the Investment Commitment, toward our Russian operations. The Investment Commitment can be partially satisfied by cash and/or non-cash investment inside or outside of Russia and/or by way of non-cash asset transfers.

In July 2015, we amended our rights agreement with Rusnano. The amendment to the rights agreement became effective on June 30, 2015 and provides for an updated investment plan for our Russian subsidiaries that includes a non-cash transfer of licensing rights to intellectual property, non-cash transfers of exiting equipment and commitments to complete the remaining milestones of approximately one-half of the overall investment through fiscal year 2019. It also provides that the maximum amount of penalties to be paid by us will not exceed $5.0 million in the aggregate, with the following penalties for failure to meet specified milestones and exit options at the end of the following years, subject to a 90-day cure period (“Cure Period”) following such years:

· By December 31, 2015, if the actual cumulative investment and spending to our Russian subsidiaries was less than $13.0 million, or if we had not sold any products manufactured by its Russian subsidiary, or if we had not completed agreed-upon manufacturing milestones, then we would be subject to a $5.0 million penalty within 30 days after the end of the applicable Cure Period; if the cumulative investments and spending to our Russian subsidiaries were less than $15.4 million but more than $13.0 million by December 31, 2015 and was not cured within the applicable Cure Period, we would be subject to a $1.5 million penalty within 30 days after the end of the applicable Cure Period. We fulfilled our investment commitment required by 2015 and had contributed over $15.4 million in cash and assets to our subsidiaries in Russia as of December 31, 2015. We also satisfied the requirement related to sale of products manufactured by our Russian subsidiary as of December 31, 2015. However, we were not in full compliance with the completion of agreed-upon manufacturing milestones as of December 31, 2015 (and as of the end of the Cure Period ended March 30, 2016) since certain required equipment was delivered but not fully installed and operational as of that date. We have remediated these issues and, in August 2016, entered into the second amendment to the Rights Agreement with Rusnano (the “Amended Rights Agreement”) to address this matter. The amendment extended the foregoing manufacturing deadlines to June 30, 2016 and confirmed that we had completed these milestones as of June 30, 2016. As a result, we will not be held liable for the $5.0 million penalty.

· By December 31, 2016, if the actual cumulative investment and spending to our subsidiaries in Russia is less than $18.8 million, we will be subject to a $1.5 million penalty within 30 days after the end of the applicable Cure Period.

· At the end of 2016, we will be subject to pay an exit fee of $3.5 million to Rusnano should we decide to cease the operations of our subsidiaries in Russia, provided that the cumulative investments and spending including the tangible asset transfers, other than intangible asset transfers which is limited to a maximum valuation of $5.7 million, exceed $10.0 million.

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· At the end of 2019, we will be subject to pay an exit fee of $2.0 million to Rusnano should we decide to cease the operations of our subsidiaries in Russia, if the cumulative investments and spending are less than $30.0 million.

In August 2016, we entered into a letter of agreement with Rusnano to agree to transfer a product line and incur expected costs of approximately $0.1 million by July 30, 2017.

Separately, on December 18, 2014, we entered into a Commitment to file a Registration Statement and Related Waiver of Registration Rights, whereby Rusnano waived certain registration rights in connection with a potential offering by us of shares of our common stock, and we committed to file with the SEC a resale registration statement on Form S-1 covering the resale of all shares of our common stock held by Rusnano, or the 2015 Registration Statement. We filed the 2015 Registration Statement on April 6, 2015 to register 4,972,905 shares of our common stock held by Rusnano. Rusnano also waived its demand registration rights under the original rights agreement and agreed to enter into a lock up agreement with us whereby it would agree not to sell any shares of our common stock, or engage in certain other transactions relating to our securities, for a period of 60 days from the filing date of the 2015 Registration Statement. Rusnano signed such lock up agreement with us on April 2, 2015. In connection with our public stock offering completed in the second quarter of 2015, or the 2015 Follow-On Offering, Rusnano entered into a separate lock up agreement with Needham & Company, LLC, the lead underwriter of the offering, whereby it agreed not to sell any shares of our common stock, or engage in certain other transactions relating to our securities, for a period of 180 days from May 21, 2015. Such lock up agreement expired in November 2015. We do not receive any proceeds from any sales of our common stock held by Rusnano.

Cash flow discussion

The table below sets forth selected cash flow data for the periods presented:

	Nine Months Ended September 30,
(in thousands)	2016		2015
Net cash provided by operating activities	$	26,717	$	21,112
Net cash used in investing activities		(35,217)		(16,065)
Net cash provided by financing activities		3,481		29,421
Effect of exchange rates on cash and cash equivalents		556		(253)
Net increase (decrease) in cash and cash equivalents	$	(4,463)	$	34,215

Operating activities

Net cash provided by operating activities was $26.7 million in the nine months ended September 30, 2016, compared to $21.1 million provided by operating activities in the same 2015 period. The increase was primarily attributable to a $21.5 million increase in cash flows from inventories primarily due to increases in shipments driven by customer demand and a $14.3 million increase in cash flows related to accounts payable due to timing of payments, partially offset by a $20.2 million decrease in cash flows from accounts receivable primarily driven by timing of billings and collections in the 2016 period, a $5.4 million decrease in cash flows from prepaid and other assets primarily due to a reduction in prepaid taxes in the 2015 period that did not recur in 2016 and a $4.1 million decrease in cash flows related to accrued and other liabilities primarily due to variable compensation payments in the 2016 period.

Investing activities

Net cash used in investing activities was $35.2 million in the nine months ended September 30, 2016, compared to $16.1 million provided by investing activities in the same 2015 period. Cash used increased primarily attributable to a $40.6 million increase in marketable securities purchases, a $18.9 million increase in property, plant and equipment purchases to meet our product demand and a $10.0 million increase largely attributable to a reduction in restricted cash in the 2015 period as a result of the modification of our credit agreement with the Comerica Bank, partially offset by a

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$36.0 million increase in proceeds from sales of marketable securities and a $14.4 million increase in proceeds from maturities of marketable securities.

We expect to invest approximately $50 million in property, plant and equipment purchases in 2016 as we expand our capacity to meet product demand.

Financing activities

Net cash provided by financing activities was $3.5 million in the nine months ended September 30, 2016, compared to $29.4 million provided by financing activities in the same 2015 period. The decrease was largely due to a $45.6 million net proceeds from our public stock offering completed in the 2015 period, a $3.9 million decrease in proceeds from issuance of notes payable and a $1.9 million increase in repayment of bank and acquisition-related loans, partially offset by a $14.9 million increase in proceeds from bank borrowings, a $6.0 million reduction in repayment of notes payable, a $3.9 million increase in proceeds from stock option exercises and issuance of stock under our employee stock purchase plan driven by higher stock price of our common stock and a $0.6 million increase in proceeds from government grants.

Contractual obligations and commitments

As of September 30, 2016, our principle commitments consisted of obligations under operating leases, purchase commitments, debt and other contractual obligations. Except for the new office lease in San Jose, California we executed in September 2016, there have been no significant changes to these obligations during the nine months ended September 30, 2016 compared to the contractual obligations disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Off-balance sheet arrangements

During the nine months ended September 30, 2016, we did not have any significant off-balance sheet arrangements except for two letters of credit, totaling $1.3 million, outstanding as of September 30, 2016.

Recent accounting pronouncements

See Note 1 “Basis of presentation and significant accounting policies” in the Notes to Condensed Consolidated Financial Statements on this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements and accounting changes.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Effective July 1, 2016, we have entered into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations, primarily related to RMB and JPY, on our inter-company receivables and payables. Our exposures to other market risk have not changed materially since December 31, 2015. For quantitative and qualitative disclosures about market risk, see Item 7A Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it

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files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to reasonably ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) for the quarter ended September 30, 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely.  Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute assurances.  In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line of business, including commercial disputes and employment issues. As of the date of this Quarterly Report on Form 10-Q, other than as described below, we are not involved in any pending legal proceedings that we believe could have a material adverse effect on our financial condition, results of operations or cash flows. However, as described below, a certain dispute involves a claim by a third party that our activities infringe their intellectual property rights. This and other types of intellectual property rights claims generally involve the demand by a third party that we cease the manufacture, use or sale of the allegedly infringing products, processes or technologies and/or pay substantial damages or royalties for past, present and future use of the allegedly infringing intellectual property. Claims that our products or processes infringe or misappropriate any third-party intellectual property rights (including claims arising through our contractual indemnification of our customers) often involve highly complex, technical issues, the outcome of which is inherently uncertain. Moreover, from time to time, we may pursue litigation to assert our intellectual property rights. Regardless of the merit or resolution of any such litigation, complex intellectual property litigation is generally costly and diverts the efforts and attention of our management and technical personnel which could adversely affect our business.

For a discussion of our current legal proceedings, please refer to the information set forth under the “Litigation” section in Note 10, Commitments and Contingencies, in Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A.RISK FACTORS 

Except for those risk factors denoted by an asterisk (*), the risk factors facing our company have not changed materially from those set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 15, 2016, which risk factors are set forth below.

Risks related to our business

*We are dependent on Huawei Technologies Co., Ltd. and its affiliate HiSilicon Technologies Co., Ltd., Ciena, Nokia and our other key customers for a significant portion of our revenue and the loss of, or a significant reduction in orders from any of our key customers may reduce our revenue and adversely impact our results of operations.

Historically, we have generated most of our revenue from a limited number of customers. In the nine months ended September 30, 2016, Huawei Technologies Co. Ltd., together with its affiliate HiSilicon Technologies Co., Ltd. (collectively “Huawei”), and Ciena Corporation accounted for approximately 49% and 15% of our revenue, respectively, and our top ten customers represented 91% of our revenue. In the year ended December 31, 2015, Huawei and Ciena Corporation accounted for approximately 44% and 21% of our revenue, respectively, and our top ten customers represented 91% of our revenue. In the year ended December 31, 2014, Huawei, Ciena Corporation, and Nokia Corporation accounted for 38%, 15% and 10% of our revenue, respectively, and our top ten customers represented 88% of our revenue. As a result, the loss of, or a significant reduction in orders from these major customers or any of our other key customers would materially and adversely affect our revenue and results of operations. In addition, the industry in which our customers operate is subject to a trend of consolidation. To the extent this trend continues, we may become dependent on even fewer customers to maintain and grow our revenue. Adverse events, including but not limited to any bankruptcy reorganization, affecting our customers could also adversely affect our revenue and results of operations.

Manufacturing problems could impact manufacturing yields or result in delays in product shipments to customers and could adversely affect our revenue, competitive position and reputation.

We may experience delays, disruptions or quality control problems in our manufacturing operations, which could adversely impact manufacturing volumes, yields or delay product shipments. As a result, we could incur additional costs

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that would adversely affect our gross margin, and product shipments to our customers could be delayed beyond the shipment schedules requested by our customers, which would negatively affect our revenue, competitive position and reputation.

Additionally, manufacturing yields depend on a number of factors, including the stability and manufacturability of the product design, manufacturing improvements gained over cumulative production volumes, the quality and consistency of component parts and the nature and extent of customization requirements by customers. Capacity constraints, raw materials shortages, logistics issues, labor shortages, volatility in utilization of manufacturing operations, supporting utility services and other manufacturing supplies, the introduction of new product lines, rapid increases in production demands and changes in customer requirements, manufacturing facilities or processes, or those of some third party contract manufacturers and suppliers of raw materials and components have historically caused, and may in the future cause, reduced manufacturing yields, negatively impacting the gross margin on, and our production capacity for, those products. Moreover, an increase in the rejection and rework rate of products during the quality control process before, during or after manufacture would result in our experiencing lower yields, gross margin and production capacity. Our ability to maintain sufficient manufacturing yields is particularly challenging with respect to PICs due to the complexity and required precision of a large number of unique manufacturing process steps. Manufacturing yields for PICs can also suffer if contaminated materials or materials that do not meet highly precise composition requirements are inadvertently utilized. Because a large portion of our PIC manufacturing costs are fixed, PIC manufacturing yields have a substantial effect on our gross margin. Lower than expected manufacturing yields could also delay product shipments and decrease our revenue. It can be hard to cost-effectively increase our production output rapidly, and we can experience yield loss and excess material scrap, which can increase our cost of goods sold and harm our profitability. Also, if we do not have sufficient demand for our PIC-based products our cost of goods sold can increase as the fixed costs of our fabrication facilities are spread over lower production.

We depend upon outside contract manufacturers for a portion of the manufacturing process for some of our products. Our operations and revenue related to these products could be adversely affected if we encounter problems with a contract manufacturer.

The majority of our products are manufactured internally. However, we also rely upon contract manufacturers in Thailand, China, Japan and other Asia locations to provide back-end manufacturing and produce the finished portion of some of our products. Our reliance on contract manufacturers for these products makes us vulnerable to possible capacity constraints and reduced control over their supply chains, delivery schedules, manufacturing yields, manufacturing quality/controls and costs. If one of our contract manufacturers is unable to meet all of our customer demand in a timely fashion, this could have a material adverse effect on the revenue from our products. If the contract manufacturer for one of our product were unable or unwilling to manufacture such product in required volumes and at high quality levels or to continue our existing supply arrangement, we would have to identify, qualify and select an acceptable alternative contract manufacturer or move these manufacturing operations to our internal manufacturing facilities. Any significant interruption in manufacturing our products would require us to reduce our supply of products to our customers, which in turn would reduce our revenue, harm our relationships with the customers of these products and cause us to forego potential revenue opportunities.

We are under continuous pressure to reduce the prices of our products, which has adversely affected, and may continue to adversely affect, our gross margins.

The communications networks industry has been characterized by declining product prices over time, resulting from increased competition, overcapacity and the introduction of new products. We have reduced the prices of many of our products in the past and we expect to continue to experience pricing pressure for our products in the future, including from our major customers. When seeking to maintain or increase their market share, our competitors may also reduce the prices of their products. In addition, our customers may have the ability or seek to internally develop and manufacture competing products at a lower cost than we would otherwise charge, which would add additional pressure on us to lower our selling prices. If we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our gross margin would be adversely affected.

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*We are subject to risks and uncertainties related to our market growth plan in China.

Fiber optics telecommunication growth in China is important to our success. Over the next two years, we expect to derive a significant portion ofour revenue growth from China infrastructure spending in wireline and wireless networks, notably from the three largest China telecom carriers, China Mobile Communications Corporation, China Telecommunications Corporation and China United Network Communications Group Co., Ltd. In part, this infrastructure spending originates from the publicly announced China Broadband 2020 National Initiative. If the anticipated spending and related carrier large tender awards do not materialize as anticipated, or if there are unanticipated delays in the Chinese initiative, our business, financial condition, results of operations and prospects would be adversely affected.

*If the Metro and datacenter market sectors do not grow as rapidly as we expect, or if demand for our products in these sectors is lower than we expect, our growth may be adversely affected, and our business may suffer as a result.

We expect that our future growth in the market for 100G and beyond coherent products to be driven in large part by the increased adoption of our high-speed products in the Metro market segment and in the high-performance datacenter market. Over the last several years, 100G and beyond coherent technology has seen increasing adoption in the Long Haul market segment but has only recently begun to penetrate the much larger Metro sector of the market. Additionally, because the datacenter market has only recently emerged, may be more cost-sensitive and the requirements and relative scale may change rapidly and diverge from typical Metro networks.

If we are unable to achieve or sustain a leadership position in the Long Haul telecom sector and use our position in that market to penetrate the Metro and datacenter segments, if these segments fail to grow as expected, or if demand for our products in the Metro and datacenter market segments fails to materialize, our business, financial condition, results of operations and prospects would suffer.

We face intense competition which could negatively impact our results of operations and market share.

The communications networks industry is highly competitive. Our competitors range from large international companies offering a wide range of products to smaller companies specializing in niche markets.

Some of our competitors have substantially greater name recognition, technical, financial, and marketing resources, and greater manufacturing capacity, as well as better-established relationships with customers, than we do. Some of our competitors have more resources to develop or acquire, and more experience in developing or acquiring, new products and technologies and in creating market awareness for these products and technologies. Some of our competitors may be able to develop new products more quickly than us and may be able to develop products that are more reliable or which provide more functionality than ours. In addition, some of our competitors have the financial resources on business strategy to offer competitive products at below-market pricing levels that could prevent us from competing effectively and result in a loss of sales or market share or cause us to lower prices for our products.

In particular we have developed new technologies and products that we believe are key components in our customers’ systems for 100Gbps and beyond data transmission. The emergence of technologies and products from our competitors and their success in competing against our technologies and products for 100Gbps data transmission could render our existing products uncompetitive from a pricing standpoint, obsolete or otherwise unmarketable.

We also face competition from some of our customers who evaluate our capabilities against the merits of manufacturing products internally, including Huawei. Due to the fact that such customers are not seeking to make a comparable profit directly from the manufacture of these products, they may have the ability to provide competitive products at a lower total cost than we would charge such customers. As a result, these customers may purchase less of our products and there would be additional pressure to lower our selling prices which, accordingly, would negatively impact our revenue and gross margin.

Intense competition in our markets could result in aggressive business tactics by our competitors, including aggressively pricing their products or selling older inventory at a discount. If our current or future competitors utilize

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aggressive business tactics, including those described above, demand for our products could decline, we could experience delays or cancellations of customer orders, or we could be required to reduce our sales prices.

If we fail to retain our key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

Our success and ability to implement our business strategy depends upon the continued contributions of our senior management team and others, including senior management in foreign subsidiaries and our technical and operations employees in all locations. Our future success depends, in part, on our ability to attract and retain key personnel, including our senior management and others. The loss of services of members of our senior management team or key personnel or the inability to continue to attract and retain qualified personnel could have a material adverse effect on our business. Competition for highly skilled technical and operations people where we operate is extremely intense, and we continue to face challenges identifying, hiring and retaining qualified personnel in many areas of our business. If we fail to retain our senior management and other key personnel or if we fail to attract additional qualified personnel, our business could suffer.

If spending for communications networks does not continue to grow as expected, our business and financial results may suffer.

Our future success as a provider of modules and subsystems to leading network equipment vendors depends on their continued capital spending on global communications networks. Network traffic has experienced rapid growth driven primarily by bandwidth-intensive content, including cloud services, mobile video and data services, wireless 4G/LTE and 5G services, social networking, video conferencing and other multimedia. This growth is intensified by the proliferation of fixed and wireless devices that are enabling consumers to access content at increasing data rates anytime and anywhere. Our future success depends on continued demand for high-bandwidth, high-speed communications networks and the ability of network equipment vendors and carrier datacenter operators to fulfill this demand. We cannot be certain that demand for bandwidth-intensive content will continue to grow in the future. If expectations for growth of communications networks and bandwidth consumption are not realized and investment in communications networks does not grow as anticipated, our business could be harmed.

Customer demand is difficult to accurately forecast and, as a result, we may be unable to optimally match production with customer demand, which could adversely affect our business and financial results.

We make planning and spending decisions based on our estimates of customer requirements. The short-term nature of commitments by many of our customers, and the possibility of unexpected changes in demand for their products, reduce our ability to accurately estimate future customer requirements. On occasion, customers may require rapid increases in production, which can strain our resources, cause our manufacturing to be negatively impacted by materials shortages, necessitate higher or more restrictive procurement commitments, increase our manufacturing yield loss and scrapping of excess materials, result in delayed shipments and/or reduce our gross margins. We may not have sufficient capacity at any given time to meet the volume demands of our customers, and we may have difficulty expanding our manufacturing operations on a timely basis to meet increasing customer demand. Additionally, one or more of our suppliers may not have sufficient capacity at any given time to meet our volume demands. Conversely, a downturn in the markets in which our customers compete can cause, and in the past have caused, our customers to significantly reduce or delay the amount of products ordered from us or to cancel existing orders, leading to lower utilization of our facilities. Because many of our costs and operating expenses are relatively fixed, reduction in customer demand due to market downturns or other reasons would have a material adverse effect on our gross margin, operating income and cash flow.

*The majority of our customer contracts do not commit customers to specified buying levels, and many of our customers may decrease, cancel or delay their buying levels at any time with little or no advance notice to us.

Our products are typically sold pursuant to individual purchase orders or by use of a vendor-managed inventory, or VMI, model, which is a process by which we ship agreed quantities of products to a customer-designated location and

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those products remain our inventory and we retain the title and risk of loss for those products until the customer takes possession of the products. While our customers generally provide us with their demand forecasts and may give us a promised market share award, they are typically not contractually committed to buy any quantity of products beyond firm purchase orders. Many of our customers may increase, decrease, cancel or delay purchase orders already in place. We have experienced and expect to continue to experience wide fluctuations in demand from customers using VMI, particularly Huawei Technologies Co., Ltd. and their affiliate HiSilicon Technologies Co., Ltd., even in instances where we have built and shipped products to the customer-designated locations as VMI. In recent periods, there has been an increase in the number of our customers utilizing VMI, which may increase our exposure to risks of wide fluctuations in demand from VMI customer locations. If any of our major customers decrease, stop or delay purchasing our products for any reason, our business and results of operations would be harmed. Cancellation or delays of such orders, as well as fluctuations in VMI utilization by our customers, may cause us to incur an adverse effect on our revenues, as well as adversely affect our overall results of operations.

*If we fail to adequately manage our growth and expansion, our business and financial results will suffer.

In recent years, we have experienced significant growth through, among other things, internal manufacturing and related expansion programs, product development and acquisitions of other businesses and products. Our business has expanded to numerous locations, including foreign locations, and as a result has become more complex, more demanding of management’s attention and subject to new laws and regulations. This growth has placed, and any future growth may place, a significant strain on our management, operational and financial infrastructure. If we fail to comply with new laws and regulations related to the expansion of our business, our business could suffer.

We intend to continue to expand our business significantly within existing and new markets, which could require us to expand our manufacturing operations, expend capital on manufacturing equipment, hire new personnel, lease or purchase additional facilities, developing the management infrastructure and developing our suppliers to manage any such expansion. Our current and planned operations, personnel, IT and other systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investment in our infrastructure. Our success and ability to further scale our business will depend, in part, on our ability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures. This could also result in declines in quality or customer satisfaction, increased costs, difficulties in introducing new offerings, or other operational difficulties. Any failure to effectively manage growth could adversely affect our business and reputation.

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

The communications networks industry is characterized by substantial investment in new technology and the development of diverse and changing technologies and industry standards. For example, new technologies are required to satisfy the emerging standards for 100Gbps to 400 Gbps and beyond data transmission in communications networks.

Our ability to anticipate and respond to evolving technology, industry standards, customer requirements and product offerings, and to develop and introduce new and enhanced products and technologies, will be critical factors in our ability to succeed. If we are unable to anticipate and respond to such changes in the future, our competitive position could be adversely affected. In addition, the introduction of new products by other companies embodying new technologies, or the emergence of new industry standards, could render our existing products uncompetitive from a pricing standpoint, obsolete or otherwise unmarketable.

We must continually achieve new design wins and enhance existing products or our business and future revenue may be harmed.

The markets for our products are characterized by frequent new product introductions, changes in customer requirements and evolving industry standards, all with an underlying pressure to reduce cost and meet stringent reliability and qualification requirements. Our future performance will depend on our successful development, introduction and market acceptance of new and enhanced products that address these challenges. The anticipated or

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actual introduction of new and enhanced products by us and by our competitors may cause our customers to defer or cancel orders for our existing products. In addition, the introduction of new products by us or our competitors could result, and in the past, has resulted, in a slowdown in demand for our existing products and could result, and in the past, has resulted, in a write-down in the value of inventory. We have both recently and in the past experienced a slowdown in demand for existing products and delays in new product development, and such delays may occur in the future. To the extent customers defer or cancel orders for our products for any reason or we fail to achieve new design wins, our competitive position would be adversely affected and our ability to grow revenue would be impaired.

Furthermore, fast time-to-market with new products can be critical to success in our markets. It is difficult to displace an existing supplier for a particular type of product once a network equipment vendor has chosen a supplier, even if a later-to-market product provides superior performance or cost efficiency. If we are unable to make our new or enhanced products commercially available on a timely basis, we may lose existing and potential customers and our financial results would suffer.

The development of new, technologically-advanced products is a complex and uncertain process requiring frequent innovation, highly-skilled engineering and development personnel and significant capital, as well as the accurate anticipation of technological and market trends. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely basis. Further, we cannot assure you that our new products will gain market acceptance or that we will be able to respond effectively to product introductions by competitors, technological changes or emerging industry standards. We also may not be able to develop the underlying core technologies necessary to create new products and enhancements, license these technologies from third parties, or remain competitive in our markets.

*We may be exposed to costs or losses from product lines that we intend to end the production, including certain of our laser and PON products.

In August 2016, we announced our intention to reduce the volume and end the production of certain of our lower-margin laser and PON products within a year of August 2016. These products have been declining in revenue and have lower gross margins than our other higher speed products. We may incur additional costs in connection with the sale or end-of-life of these products, or other products and/or facilities in the future, and our revenues and net income could be negatively affected, particularly in the short term, in connection with the end-of-life or sales of such products and/or facilities.  It is also possible that we could incur continued costs or liabilities after the end-of-life process is completed, which could have a material adverse effect on our financial condition or operating results.

We have had a history of losses which may recur in the future.

We have had a history of losses and we may incur additional losses in future periods. As of September 30, 2016, our accumulated deficit was $300.7 million. We also expect to continue to make significant expenditures related to the ongoing operation and development of our business. These include expenditures related to the sales, marketing and development of our products and to maintain our manufacturing facilities and research and development operations.

We are subject to the cyclical nature of the markets in which we compete and any future downturn may reduce demand for our products and revenue.

The markets in which we compete are tied to the aggregate capital expenditures of telecommunications service providers as they build out and upgrade their network infrastructure. These markets are cyclical and characterized by constant and rapid technological change, price erosion, evolving standards and wide fluctuations in product supply and demand. In the past, including recently to varying degrees in China, the U.S. and Europe, these markets have experienced significant downturns, often connected with, or in anticipation of, the maturation of product cycles—for both manufacturers’ and their customers’ products—or in response to over or under purchasing of inventory by our customers relative to ultimate carrier demand, and with declining general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices.  To respond to a downturn, many service providers may slow their capital expenditures, cancel or delay new developments, reduce their workforces and inventories and take a cautious approach to acquiring

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new equipment and technologies from original equipment manufacturers, which would have a negative impact on our business.

Our historical results of operations have been subject to substantial fluctuations, and we may experience substantial period-to-period fluctuations in future results of operations. Any future downturn in the markets in which we compete could significantly reduce the demand for our products and therefore may result in a significant reduction in revenue. Our revenue and results of operations may be materially and adversely affected in the future due to changes in demand from individual customers or cyclical changes in the markets utilizing our products.

We face a variety of risks associated with international sales and operations, which if not adequately managed could adversely affect our business and financial results.

We currently derive, and expect to continue to derive, a significant portion of our revenue from international sales in various markets. In addition, a major portion of our operations is based in Shenzhen and Dongguan, China as well as our having additional operations in Japan, Russia and Canada. Our international revenue and operations are subject to a number of material risks, including, but not limited to:

· difficulties in staffing, managing and supporting operations in more than one country;

· difficulties in enforcing agreements and collecting receivables through foreign legal systems;

· fewer legal protections for intellectual property in foreign jurisdictions;

· compliance with local regulations;

· foreign and U.S. taxation issues and international trade barriers;

· general economic and political conditions in the markets in which we operate;

· difficulties in obtaining any necessary governmental authorizations for the export of our products to certain foreign jurisdictions;

· imposition of export restrictions on sales to any of our major foreign customers;

· fluctuations in foreign economies;

· fluctuations in the value of foreign currencies and interest rates;

· trade and travel restrictions;

· outbreaks of contagious disease;

· domestic and international economic or political changes, hostilities and other disruptions; and

· difficulties and increased expenses in complying with a variety of U.S. and foreign laws, regulations and trade standards, including the Foreign Corrupt Practices Act. Negative developments in any of these areas in China, Japan, Russia or other countries could result in a reduction in demand for our products, the cancellation or delay of orders already placed, difficulties in producing and delivering our products, threats to our intellectual property, difficulty in collecting receivables, and a higher cost of doing business.

In addition, although we maintain an anti-corruption compliance program throughout our company, violations of our compliance program may result in criminal or civil sanctions, including material monetary fines, penalties and other costs against us or our employees, and may have a material adverse effect on our business.

*Failure to realize the anticipated benefits from our planned expansion in the Russian Federation may affect our future results of operations and financial condition.

In connection with our raising capital in an April 2012 private placement of common stock, we have established a wholly-owned subsidiary and company operations in the Russian Federation. The establishment of successful operations

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in the Russian Federation requires capital expenditure over several years, and is in part dependent on the cooperation of Russian entities that could include the Russia government and other third parties. If there are delays in our efforts to establish operations in the Russian Federation, the anticipated benefits of our Russian expansion may not be realized or may take longer to realize than expected. The anticipated benefits of our Russian expansion could be materially reduced by a number of factors, including the following:

· the future revenue and gross margins of products produced in the Russian Federation may be materially different from those we originally anticipated;

· we could incur material unanticipated expenses; and

· we could have difficulty managing a business in the Russian Federation, where we did not previously have a material business presence.

In addition, in connection with the private placement transaction, we entered into a rights agreement with Rusnano. Pursuant to the rights agreement, we have agreed to make a $30.0 million investment towards our Russian operations. We are currently required to satisfy this total investment commitment over a period from 2012 to 2019. Pursuant to the rights agreement, failure to perform our investment commitments for specific years within this time period may result in an obligation to pay damages to Rusnano, up to a maximum amount of penalties and exit fee of $3.5 million. Although we met our investment commitment for 2015, certain required equipment was delivered but not fully installed and operational as of the required date to fulfill certain manufacturing milestones under the rights agreement. We remediated these issues and, in August 2016, entered into the second amendment to the rights agreement with Rusnano (the “Amended Rights Agreement”) to address this matter. The amendment extended the foregoing manufacturing deadlines to June 30, 2016 and confirmed that we had completed these milestones as of June 30, 2016. However, if we are unable to fulfill our remaining milestones for 2016-2019 as set forth in the Amended Rights Agreement and Rusnano seeks to enforce the penalty provision, it is possible that we could be forced to pay Rusnano penalty and/or exit fees of up to $3.5 million. In addition, we have entered into a letter of agreement with Rusnano to agree to transfer a product line and incur expected costs of approximately $0.1 million by July 30, 2017.

Our business operations conducted in Russia are relatively small compared to our overall business. A portion of our property, plant and equipment was located in Russia. We expect to make further investments in Russia in the foreseeable future. Therefore, our business, financial condition, results of operations and prospects are to a degree subject to economic, political, legal, and social events and developments in Russia. In recent years the Russian Federation has undergone substantial political, economic and social change. The business, legal and regulatory infrastructure in the Russian Federation is less well-developed that would generally exist in a more mature free market economy. In addition, the tax, currency and customs legislation within the Russian Federation is subject to varying interpretations and changes, which can occur frequently. The future economic direction of the Russian Federation remains largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the government, together with tax, legal, regulatory and political developments. Our failure to manage the risks associated with our planned Russian expansion could have a material adverse effect upon our results of operations.

We could be adversely affected by any actions taken by Russia in response to U.S. or international sanctions, including but not limited to actions such as restrictions placed by Russia on U.S. companies doing business in Russia.

The occurrence of any or all of these events may have an adverse effect on our business, and results of operations and financial condition.

Our revenues and costs will fluctuate over time, making it difficult to predict our future results of operations. 

Our revenue, gross margin and results of operations have varied significantly and are likely to continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. For instance, changes in gross margin may result from various factors, such as changes in pricing, changes in our fixed costs, changes in the cost of labor, changes in the mix of our products sold, changes in the amount of product manufactured versus the amount of product sold over time, and charges for excess and obsolete inventory. In addition, our first quarter revenue is generally seasonally lower than the rest of the year primarily due to lower capacity utilization during the holidays in China and the

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impact of typical price negotiations during the fourth quarter. It is difficult for us to accurately forecast our future revenue and gross margin and plan expenses accordingly and, therefore, it is difficult for us to predict our future results of operations.

Increasing costs may adversely impact our gross margins.

We may not be able to maintain or improve our gross margins because of slow introductions of new products, pricing pressure from increased competition, failure to effectively reduce the cost of existing products, failure to improve our product mix, future macroeconomic or market volatility reducing sales volumes, changes in customer demand (including a change in product mix among different areas of our business) or other factors. Our gross margins can also be adversely affected for reasons including, but not limited to, fixed manufacturing costs that would not be expected to decrease in proportion to any decrease in revenues; unfavorable production yields or variances; increases in costs of input parts and materials; the timing of movements in our inventory balances; warranty costs and related returns; changes in foreign currency exchange rates; possible exposure to inventory valuation reserves; and other increases in our costs and expenses, including as a result of rising labor costs in China.  Such significant increases in costs without corresponding increases in revenue would materially and adversely affect our business, our results of operations and our financial condition and our gross margins. 

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

We believe that our existing cash and cash equivalents, and cash flows from our operating activities and funds available under our credit facilities, will be sufficient to meet our anticipated cash needs for at least the next 12 months. We operate in an industry, however, that makes our prospects difficult to evaluate. It is possible that we may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs. If this occurs, we may need additional financing to continue operations or execute on our current or future business strategies, including to:

· invest in our research and development efforts, including by hiring additional technical and other personnel;

· maintain and expand our operating or manufacturing infrastructure;

· acquire complementary businesses, products, services or technologies; or

· otherwise pursue our strategic plans and respond to competitive pressures.

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products, or otherwise respond to competitive pressures could be significantly limited. In addition, a significant portion of our cash, cash equivalents and restricted cash is held by our subsidiaries outside of the U.S. and we may not be able to repatriate off-shore cash to the U.S. without taxes that maybe substantial. Furthermore, in the event adequate capital is not available to us as required, or is not available on favorable terms, our business, financial condition, results of operations, and cash flows may be materially and adversely affected.

If we incur additional indebtedness through arrangements such as credit agreements or term loans, such arrangements may impose restrictions and covenants that limit our ability to respond appropriately to market conditions, make capital investments or take advantage of business opportunities. In addition, any additional debt arrangements we may enter into would likely require us to make regular interest payments, which could adversely affect our results of operations.

If our customers do not qualify our products for use, then our results of operations may suffer.

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Prior to placing volume purchase orders with us, most of our customers require us to obtain their approval—called qualification in our industry—of our new and existing products, and our customers often audit our manufacturing facilities and perform other vendor evaluations during this process. The qualification process involves product sampling and reliability testing and collaboration with our product management and engineering teams in the design and manufacturing stages. If we are unable to qualify our products with customers, then our revenue would be lower than expected and we may not be able to recover the costs associated with the qualification process which would have an adverse effect on our results of operations.

In addition, due to evolving technological changes in our markets, a customer may cancel or modify a design project before we have qualified our product or begun volume manufacturing of a qualified product. It is unlikely that we would be able to recover the expenses for cancelled or unutilized custom design projects. It is difficult to predict with any certainty whether our customers will delay or terminate product qualification or the frequency with which customers will cancel or modify their projects, but any such delay, cancellation or modification would have a negative effect on our results of operations.

In particular, we have developed new technologies and products that we believe are key components in our customers’ systems for 100Gbps and beyond data transmission. There are multiple modulation approaches for these systems and not all are likely to be equally successful. While we are shipping certain products for 100Gbps and beyond system designs today, many of our products for these systems are currently being qualified for use by our customers. Our ability to successfully qualify and scale capacity for these new technologies and products is important to our ability to grow our business and market presence. If we are unable to qualify and sell any of these products in volume on time, or at all, our results of operations may be adversely affected.

We have pursued and may continue to pursue acquisitions. Acquisitions could be difficult to integrate, divert the attention of key personnel, disrupt our business, dilute stockholder value and impair our financial results.

As part of our business strategy, we have pursued and intend to continue to pursue acquisitions of complementary businesses, products, services or technologies that we believe could accelerate our ability to compete in our existing markets or allow us to enter new markets. Any of these transactions could be material to our financial condition and results of operations. For instance, in October 2011, we completed the acquisition of Santur Corporation, a designer and manufacturer of InP-based PIC products, and in March 2013 we completed the acquisition of the optical semiconductor business unit of LAPIS Semiconductor Co., Ltd., now known as NeoPhotonics Semiconductor. We purchased the tunable laser product lines of EMCORE in January 2015 and the power monitoring products business of EigenLight Corporation, or Eigenlight, in November 2015. If we fail to properly evaluate or integrate acquisitions, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate.

Acquisitions involve numerous risks, any of which could harm our business, including:

· difficulties in integrating the operations, technologies, products, existing contracts, accounting and personnel of the target company;

· difficulties in realizing our expectations for the financial performance of the target company;

· difficulties in supporting and transitioning customers, if any, of the target company;

· difficulties in managing and integrating different cultures with respect to our international acquisitions;

· dependence or reliance on subcontractors or suppliers to the acquired company that may not have been fully qualified or evaluated for their position in supplying the acquired company previously;

· diversion of management time and potential business disruption;

· the incurrence of debt to provide capital for any cash-based acquisitions;

· the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity;

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· risks of entering new markets in which we have limited or no experience;

· potential loss of key employees, customers and strategic alliances from either our current business or the target company’s business;

· assumption of unanticipated problems or latent liabilities, such as problems with the quality of the target company’s products;

· exposure to environmental liabilities that have not yet been discovered associated with acquired businesses’ facilities;

· expenses, distractions and actual or threatened claims or litigation resulting from acquisitions, whether or not they are completed;

· unexpected capital expenditure requirements;

· inability to generate sufficient revenue to offset increased expenses association with any acquisition;

· issues arising from weaknesses or deficiencies in internal controls over financial reporting for acquired businesses that were not previously subject to internal control requirements of a U.S. public company;

· in the event of international acquisitions, risks associated with accounting and business practices that are different from applicable U.S. practices and requirements;

· dilutive effect on our stock as a result of any equity-based acquisitions;

· incurring potential write-offs, contingent liabilities and amortization expense; and

· opportunity costs of committing capital to such acquisitions.

The failure to successfully evaluate and execute acquisitions or otherwise adequately address these risks could materially harm our business and financial results.

Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairments which have occurred in the past and which, were they to occur in the future, could harm our financial results. As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. The failure to successfully evaluate and execute acquisitions or investments or otherwise adequately address these risks could materially harm our business and financial results.

It could be discovered that our products contain defects that may cause us to incur significant costs, divert our attention, result in a loss of customers and result in product liability claims.

Our products are complex and undergo quality testing as well as formal qualification, both by our customers and by us. However, defects may occur from time to time. For various reasons, such as the occurrence of performance problems that are unforeseeable in testing or that are detected only when products age or are operated under peak stress conditions, our products may fail to perform as expected long after customer acceptance. Failures could result from faulty components or design, problems in manufacturing or other unforeseen reasons. As a result, we could incur significant costs to repair or replace defective products under warranty, particularly when such failures occur in installed systems. Any significant product failure could result in lost future sales of the affected product and other products, as well as customer relations problems, litigation and damage to our reputation.

In addition, our products are typically embedded in, or deployed in conjunction with, our customers’ products, which incorporate a variety of components, modules and subsystems and may be expected to interoperate with modules produced by third parties. As a result, not all defects are immediately detectable and when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant damages or warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems or loss of customers, all of which would harm our business.

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The occurrence of any defects in our products could give rise to liability for damages caused by such defects. They could, moreover, impair our customers’ acceptance of our products. Both could have a material adverse effect on our business and financial condition. Although we carry product liability insurance which covers this risk, this insurance may not adequately cover our costs arising from defects in our products or otherwise.

The communications networks industry has long product development cycles requiring us to incur product development costs without assurances of an acceptable investment return.

The communications networks industry is highly capital-intensive. Large volumes of equipment and support structures are installed with considerable expenditures of funds and other resources, and long investment return period expectations. At the component supplier level, these cycles create considerable, typically multi-year, gaps between the commencement of new product development and volume purchases. Accordingly, we and our competitors often incur significant research and development and sales and marketing costs for products that, initially, will be purchased by our customers long after much of the cost is incurred and, in some cases, may never be purchased due to changes in industry or customer requirements in the interim.

Due to changing industry and customer requirements, we are constantly developing new products, including seeking to further integrate functions on PICs and developing and using new technologies in our products. These development activities can and are expected to necessitate significant investment of capital. Our new products often require a long time to develop because of their complexity and rigorous testing and qualification requirements. Additionally, developing a manufacturing approach with an acceptable cost structure and yield for new products can be expensive and time-consuming. Due to the costs and length of research and development and manufacturing process cycles, we may not recognize revenue from new products until long after such expenditures are incurred, if at all, and our gross margin may decrease if our costs are higher than expected.

While we rely on many suppliers, there are a few which, if they stopped, decreased or delayed shipments to us, it could have an adverse effect on our business and financial results.

We depend on a limited number of suppliers for certain components and materials we have qualified to use in the manufacture of certain of our products. Some of these suppliers could disrupt our business if they stop, decrease or delay shipments or if the components they ship have quality, consistency, or business continuity issues. Some of these components and materials are available only from a sole source, or have been qualified only from a single source. For example, we use various types of adhesives that are sourced from various manufacturers, which presently are sole sources for these particular adhesives. Furthermore, there are a limited number of entities from which we could obtain certain other components and materials. We may also face component shortages if we experience increased demand for components beyond what our qualified suppliers can deliver. We have experienced component shortages from certain key suppliers, which has resulted and, if this occurs in the future, may result in an inability to meet customer demand, higher purchasing costs, or both. Although we engage in various actions to mitigate the impact of these shortages, any inability on our part to obtain sufficient quantities of critical components at reasonable costs could adversely affect our ability to meet demand for our products, which could cause our revenue, results of operations, or both to suffer.

Our customers generally restrict our ability to change the component parts in our modules without their approval. For more critical components, such as PICs, lasers and photo detectors, any changes may require repeating the entire qualification process. We typically have not entered into long-term or written agreements with our suppliers to guarantee the supply of the key components used in our products, and, therefore, our suppliers could stop supplying materials and equipment at any time or fail to supply adequate quantities of component parts on a timely basis. It is difficult, costly, time consuming and, on short notice, sometimes impossible for us to identify and qualify new component suppliers. The reliance on a sole supplier, single qualified vendor or limited number of suppliers could result in delivery and quality problems, reduced control over product pricing, reliability and performance and an inability to identify and qualify another supplier in a timely manner. We have in the past had to change suppliers, which has, in some instances, resulted in delays in product development and manufacturing and loss of revenue. Any such delays in the future may limit our ability to respond to changes in customer and market demands. Any supply deficiencies relating to the quality, quantities or timeliness of delivery of components that we use to manufacture our products could adversely affect our ability to fulfill our customer orders and our results of operations.

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We are subject to global governmental export and import controls that could subject us to liability, impair our ability to compete in international markets, or restrict our sales to certain customers.

We are subject to export and import control laws, trade regulations and other trade requirements that limit which products we sell and where and to whom we sell our products, especially laser-dependent products. In some cases, it is possible that export licenses would be required from the U.S. or other government agencies outside the U.S. such as, but not limited to, Japan, China or Russia for some of our products in accordance with various statutes. In addition, various countries regulate the import of certain technologies and have enacted laws that could limit our ability to distribute our products. We may not be successful in obtaining the necessary export and import licenses. Failure to comply with these and similar laws on a timely basis, or at all, or any limitation on our ability to export or sell our products or to obtain any required licenses would adversely affect our business, financial condition and results of operations.

Changes in our products or changes in export and import laws and implementing regulations may create delays in the introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or import of our products to certain countries altogether. For instance, if export restrictions or import restrictions were placed on any of our major customers, we could be restricted from selling our products to such customer(s), which could result in an immediate and material reduction in our sales to such customer(s) and adversely affect our business and results of operations. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. In such event, our business and results of operations could be adversely affected.

If we fail to protect, or incur significant costs in defending, our intellectual property and other proprietary rights, our business and results of operations could be materially harmed.

Our success depends to a significant degree on our ability to protect our intellectual property and other proprietary rights. We rely on a combination of patent, trademark, copyright, trade secret and unfair competition laws, as well as license agreements and other contractual provisions, to establish and protect our intellectual property and other proprietary rights. We have applied for patent registrations in the U.S. and in other foreign countries, some of which have been issued. We cannot guarantee that our pending applications will be approved by the applicable governmental authorities. Moreover, our existing and future patents and trademarks may not be sufficiently broad to protect our proprietary rights or may be held invalid or unenforceable in court. A failure to obtain patents or trademark registrations or a successful challenge to our registrations in the U.S. or other foreign countries may limit our ability to protect the intellectual property rights that these applications and registrations intended to cover.

Policing unauthorized use of our technology is difficult and we cannot be certain that the steps we have taken will prevent the misappropriation, unauthorized use or other infringement of our intellectual property rights. Further, we may not be able to effectively protect our intellectual property rights from misappropriation or other infringement in foreign countries where we have not applied for patent protections, and where effective patent, trademark, trade secret and other intellectual property laws may be unavailable, or may not protect our proprietary rights as fully as U.S. or Japan law. Particularly, our U.S. patents do not afford any intellectual property protection in China, Japan, Canada or other Asia locations where we have company operations, or in Russia, where we intend to expand operations. We seek to secure, to the extent possible, comparable intellectual property protections in China and other areas in which we operate. However, while we have issued patents and pending patent applications in China, portions of our intellectual property portfolio are not yet protected by patents in China. Moreover, the level of protection afforded by patent and other laws in countries such as China and Russia may not be comparable to that afforded in the U.S. or Japan.

We attempt to protect our intellectual property, including our trade secrets and know-how, through the use of trade secret and other intellectual property laws, and contractual provisions. We enter into confidentiality and invention assignment agreements with our employees and independent consultants. We also use agreements containing confidentiality and non-disclosure provisions with other third parties who may have access to our proprietary technologies and information. Such measures, however, provide only limited protection, and there can be no assurance that our confidentiality and non-disclosure provisions will not be breached, especially after our employees or those of our

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third-party contract manufacturers end their employment or engagement, and that our trade secrets will not otherwise become known by competitors or that we will have adequate remedies in the event of unauthorized use or disclosure of proprietary information. Unauthorized third parties may try to copy or reverse engineer our products or portions of our products, otherwise obtain and use our intellectual property, or may independently develop similar or equivalent trade secrets or know-how. If we fail to protect our intellectual property and other proprietary rights, or if such intellectual property and proprietary rights are infringed or misappropriated, our business, results of operations or financial condition could be materially harmed.

In the future, we may need to take legal actions to prevent third parties from infringing upon or misappropriating our intellectual property or from otherwise gaining access to our technology. Protecting and enforcing our intellectual property rights and determining their validity and scope could result in significant litigation costs and require significant time and attention from our technical and management personnel, which could significantly harm our business. In addition, we may not prevail in such proceedings. An adverse outcome of such proceedings may reduce our competitive advantage or otherwise harm our financial condition and our business.

We may be involved in intellectual property disputes in the future, which could divert management’s attention, cause us to incur significant costs and prevent us from selling or using the challenged technology.

Participants in the 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 our competitors. In addition, from time to time, we have been notified that we may be infringing certain patents or other intellectual property rights of others. Regardless of their merit, responding to such claims can be time consuming, divert management’s attention and resources and may cause us to incur significant expenses. In addition, there can be no assurance that third parties will not assert infringement claims against us. While we believe that our products do not infringe in any material respect upon intellectual property rights of other parties and/or meritorious defense would exist with respect to any assertions to the contrary, we cannot be certain that our products would not be found infringing the intellectual property rights of others. Intellectual property claims against us could invalidate our proprietary rights and force us to do one or more of the following:

· obtain from a third party claiming infringement a license to sell or use the relevant technology, which may not be available on commercially reasonable terms;

· stop manufacturing, selling, incorporating or using our products that use the challenged intellectual property;

· pay substantial monetary damages; or

· expend significant resources to redesign the products that use the technology and to develop non-infringing technology.

Any of these actions could result in a substantial reduction in our revenue and could result in losses over an extended period of time.

In January 2010, Finisar Corporation, or Finisar, filed a complaint in the U.S. District Court for the Northern District of California against us and three other co-defendants. In the complaint, Finisar alleged infringement of certain of its U.S. patents arising from the co-defendants’ respective manufacture, importation, use, sale of or offer to sell certain optical transceiver products in the U.S. In March 2010, we filed an answer to the complaint and counterclaims, asserting two claims of patent infringement and additional claims asserting that Finisar has violated state and federal competition laws and violated its obligations to license on reasonable and non-discriminatory terms. In May 2010, the Court dismissed without prejudice all co-defendants (including us) except Source Photonics, Inc., on grounds that such claims should have been asserted in four separate lawsuits, one against each co-defendant. This dismissal without prejudice does not prevent Finisar from bringing a new similar lawsuit against us. In May 2012, we and Finisar agreed to toll our respective claims until the refiling of certain of the previously asserted claims from this dispute. As a result, Finisar is permitted to bring a new lawsuit against us if it chooses to do so, and we may bring new claims against Finisar upon seven days written notice prior to filing such claims.

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If we are unsuccessful in our defense of the Finisar patent infringement claims, a license to use the allegedly infringing technology may not be available on commercially reasonable terms and therefore may limit or preclude us from competing in the market for optical transceivers in the U.S., which may have a material adverse effect on our results of operations and financial condition, and otherwise materially harm our business.

Although we believe that we would have meritorious defenses to the infringement allegations and intend to defend any new similar lawsuit vigorously, there can be no assurance that we will be successful in our defense. Even if we are successful, we may incur substantial legal fees and other costs in defending the lawsuit. Further, a new lawsuit, if brought by either party, would be likely to divert the efforts and attention of our management and technical personnel, which could harm our business.

If we fail to obtain the right to use the intellectual property rights of others which are necessary to operate our business, and to protect their intellectual property, our business and results of operations will be adversely affected.

From time to time we may choose to or be required to license technology or intellectual property from third parties in connection with the development of our products. We cannot assure you that third-party licenses will be available to us 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 results of operations. The inability to obtain a necessary third-party license required for our product offerings or to develop new products and product enhancements could require us to substitute technology of lower quality or performance standards, or of greater cost, either of which could adversely affect our business. If we are not able to obtain licenses from third parties, if necessary, then we may also be subject to litigation to defend against infringement claims from these third parties. Our 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. Also, we typically enter into confidentiality agreements with such third parties in which we agree to protect and maintain their proprietary and confidential information, including requiring our employees to enter into agreements protecting such information. There can be no assurance that the confidentiality agreements will not be breached by any of our employees or that such third parties will not make claims that their proprietary information has been disclosed.

*Participation in standards setting organizations may subject us to intellectual property licensing requirements or limitations that could adversely affect our business and prospects.

In the course of our participation in the development of emerging standards for some of our present and future products, we have agreed to grant to all other participants a license to our patents that are essential to the practice of those standards on reasonable and non-discriminatory, or RAND, terms. As a result, in the future we may not always be able to limit to whom and, to a certain extent, on what terms we license our patents, and our control over and our ability to generate licensing revenue from some of our patents may be limited.  We have not received any requests for such licenses at this time. We may be required to license our patents or other intellectual property to others in the future.  We cannot guarantee that our essential patents will be an effective barrier to entry or that any patents and technology that we provide in such future licenses will not be used to compete against us.

Any potential dispute involving our products, services or technology could also include our customers using our products, which could trigger our indemnification obligations to them and result in substantial expenses to us.

In any potential dispute involving allegations that our products, services or technology infringe the intellectual property rights of third parties, our customers could also become the target of litigation. Because we often indemnify our customers for intellectual property claims made against them for products incorporating our technology, any claims against our customers could trigger indemnification obligations in some of our supply agreements, which could result in substantial expenses such as increased legal expenses, product recalls, damages for past infringement or royalties for future use. While we have not incurred any material indemnification expenses to date, any future indemnity claim could adversely affect our relationships with our customers and result in substantial costs to us. Our insurance does not cover intellectual property infringement.

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Natural disasters, terrorist attacks or other catastrophic events could harm our operations and our financial results.

Our worldwide operations could be subject to natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses. For example, our corporate headquarters and wafer fabrication facility in Silicon Valley, California and our Tokyo, Japan facility are located near major earthquake fault lines, and our manufacturing facilities are located in Shenzhen and Dongguan, China, areas that are susceptible to typhoons. In the event that an earthquake, tsunami, typhoon, terrorist attack or other natural or man-made catastrophe were to destroy any part of our facilities, destroy or disrupt vital infrastructure systems or interrupt our operations or the facilities or operations of our suppliers or customers for any extended period of time, our business, financial condition and results of operations would be materially and adversely affected. We are not insured against many natural disasters, including earthquakes.

Similarly, our worldwide operations could be subject to secondary effects of natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses. For instance, natural disasters and other business disruptions have created significant secondary effects in the past (such as the 2011 floods in Thailand and the 2011 earthquakes, tsunami and subsequent crisis relating to nuclear power facilities in Japan). Any of these types of events in the future could result in a slowdown of business or inability to manufacture products by our customers or others in the industry that are located in the affected areas; a disruption to the global supply chain for products manufactured in the affected areas that are included in the products either by us or by our customers; a disruption to manufacturing resulting from power shortages or other rationing of inputs to production; an increase in the cost of products that we purchase due to reduced supply; and other unforeseen impacts. These secondary effects could have a material and adverse effect on our business, financial condition, and results of operations.

Rapidly changing standards and regulations could make our products obsolete, which would cause our revenue and results of operations to suffer.

We design our products to conform to regulations established by governments and to standards set by industry standards bodies worldwide, such as The American National Standards Institute, the European Telecommunications Standards Institute, the International Telecommunications Union and the Institute of Electrical and Electronics Engineers. Various industry organizations are currently considering whether and to what extent to create standards for elements used in 100Gbps and beyond systems. Because certain of our products are designed to conform to current specific industry standards, if competing or new standards emerge that are preferred by our customers, we would have to make significant expenditures to develop new products. If our customers adopt new or competing industry standards with which our products are not compatible, or the industry groups adopt standards or governments issue regulations with which our products are not compatible, our existing products would become less desirable to our customers and our revenue and results of operations would suffer.

Failure to realize the anticipated benefits from our past and future acquisitions may affect our future results of operations and financial condition.

In connection with our acquisitions of Santur, NeoPhotonics Semiconductor, EMCORE’s tunable laser products and EigenLight’s power monitor products, we have integrated the commercial operations and personnel into our existing infrastructure. If there are unexpected difficulties in our integration of these acquired businesses and/or the product lines we have acquired from EMCORE, the anticipated benefits of these acquisitions may not be realized or may take longer to realize than expected. The anticipated benefits of these acquisitions could be materially reduced by a number of factors, including the following:

· the future revenue and gross margins of the acquired products may be materially different from those we originally anticipated;

· we could incur material unanticipated expenses;

· acquired products may not achieve the performance levels or specifications required by our customers;

· claims or lawsuits may arise from the acquisition transaction or from their previous business operations;

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· we may experience difficulties in managing inventory and other operational processes in facilities that we acquire or lease as a result of the acquisitions;

· we may experience difficulties in implementing effective internal controls over financial reporting as part of our integration actions, particularly since neither of these businesses were historically subject as a stand-alone entity to the internal control requirements of a U.S. public company;

· potential growth, expected financial results, perceived synergies and anticipated opportunities may not be realized through the ongoing integration actions;

· we may face competition from existing customers as well as new competitors;

· some existing customers of the acquired businesses may view our company as a competitor, and therefore may reduce or end their purchases of NeoPhotonics products for competitive reasons;

· a potential decline in revenues could occur from NeoPhotonics Semiconductor’s legacy products for network applications that are declining within our customer base (such as NeoPhotonics Semiconductor’s gallium arsenide integrated circuits for 10G network applications)

· we could have difficulty implementing and maintaining financial reporting requirements for the acquired business operations, which have not been previously audited nor subject to the internal compliance structure of a U.S. public company;

· we could incur additional costs associated with known and unknown environmental contamination of the real estate acquired from NeoPhotonics Semiconductor; and

· we could incur costs associated with new export or compliance issues associated with NeoPhotonics Semiconductor products or the product lines we recently acquired from EMCORE or EigenLight.

The occurrence of any or all of these events may have an adverse effect on our business and results of operations.

Potential changes in our effective tax rate could negatively affect our future results.

We are subject to income taxes in the U.S., China, Japan and other various foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions. Our tax rate is affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses and the valuation of deferred tax assets and liabilities, including our ability to utilize our net operating losses. Increases in our effective tax rate could negatively affect our results of operations.

*Our future results of operations may be subject to volatility as a result of exposure to fluctuations in foreign exchange rates, primarily the Chinese Renminbi (RMB) and Japanese Yen (JPY) exchange rates.

We are exposed to foreign exchange risks. Foreign currency fluctuations may adversely affect our revenue and our costs and expenses, and hence our results of operations. A substantial portion of our business is conducted through our subsidiaries based in China, whose functional currency is the RMB and Japan, whose functional currency is the JPY. The value of the RMB against the U.S. dollar and other currencies and the value of the JPY against the U.S. dollar and other currencies fluctuate and are affected by, among other things, changes in political and economic conditions.

For example, the JPY appreciated by 16% against the U.S. dollar in the nine months ended September 30, 2016. In addition, the People’s Bank of China regularly intervenes in the foreign exchange market to manage fluctuations in RMB exchange rates and achieve policy goals. In the year ended December 31, 2015, the Chinese government had allowed the RMB to devalue against the U.S. dollar by approximately 6%. It is difficult to predict how market forces or Chinese or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. There remains significant international pressure on the Chinese government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar.

To the extent that transactions by our subsidiaries in China and Japan are denominated in currencies other than the

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RMB and JPY, we bear the risk that fluctuations in the exchange rates of the RMB and JPY in relation to other currencies could decrease our revenue or increase our costs and expenses, therefore having an adverse effect on our future results of operations.

While we generate a significant portion of our revenue in U.S dollars, a significant portion of our cost of goods sold are in RMB. Therefore appreciation in RMB against the U.S. dollar would negatively impact our cost of goods sold upon translation to U.S. dollars.

We also transact in other currencies that have had historical volatility, including the Russian Rubles (RUB). Fluctuations in the exchange rates of these currencies may cause us to recognize additional transaction gains or losses which could impact our results of operations. While the RUB strengthened against the U.S. dollar by 14% in the nine months ended September 30, 2016, the related impact on our operating results has been immaterial. However, as we expect to expand our Russian operations, our risk associated with fluctuation of the RUB against the U.S. dollar could increase in the future.

Effective July 1, 2016, we have entered into hedging transactions to reduce the short-term impact of foreign currency fluctuations. However, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure. In addition, our currency exchange variations may be magnified by Chinese exchange control regulations that restrict our ability to convert RMB into foreign currency.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Preparing our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input or review and require significant management judgment. One or more of these elements may result in errors that may not be detected and could result in a material misstatement of our consolidated financial statements. For instance, during 2013, we identified material weaknesses in our internal control over financial reporting, which resulted in material misstatements in our consolidated financial statements for the first two quarters of 2013, which required us to file restatements of these financial statements. We subsequently remediated these material weaknesses, and our management concluded that our internal control over financial reporting was effective as of the end of both 2014 and 2015. However, if material weaknesses in our internal control are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.

We may also experience difficulties in implementing effective internal controls over financial reporting as part of our integration of acquired businesses or products, particularly the product lines acquired from EMCORE or EigenLight. The product lines we acquired from EMCORE or EigenLight were not subject as a stand-alone entity to the internal control requirements of a U.S. public company. We could also experience unanticipated additional operating costs in implementing and managing effective internal controls over financial reporting or EMCORE or EigenLight operations, which could adversely affect our financial performance.

If a material misstatement occurs in the future, we may fail to meet our future reporting obligations, we may need to restate our financial results and the price of our common stock may decline. Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in the implementation, our business and operating results may be harmed and we may fail to meet our financial reporting obligations. Any failure of our internal controls could also adversely affect the results of the periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that is now applicable to us under the rules of the Securities and Exchange Commission, or the SEC. Effective internal controls are necessary for us to produce reliable financial

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reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

We may be subject to disruptions or failures in information technology systems and network infrastructures that could have a material adverse effect on our business and financial condition.

We rely on the efficient and uninterrupted operation of complex information technology systems and network infrastructures to operate our business. A disruption, infiltration or failure of our information technology systems as a result of software or hardware malfunctions, system implementations or upgrades, computer viruses, cyber attacks, third-party security breaches, employee error, theft or misuse, malfeasance, power disruptions, natural disasters or accidents could cause breaches of data security, loss of intellectual property and critical data and the release and misappropriation of sensitive competitive information and partner, customer and employee personal data. Any of these events could harm our competitive position, result in a loss of customer confidence, cause us to incur significant costs to remedy any damages and ultimately materially adversely affect our business and financial condition.

Covenants in our credit facilities may limit our flexibility in responding to business opportunities and competitive developments and increase our vulnerability to adverse economic or industry conditions.

We have lending arrangements with several financial institutions, including a revolving credit agreement with Comerica Bank in the U.S. Our U.S. revolving credit agreement requires us to maintain certain financial covenants and limits our ability to take certain actions such as incurring some kinds of additional debt, paying dividends, or engaging in certain transactions like mergers and acquisitions, investments and asset sales without the lenders’ consent.  

These restrictions may limit our flexibility in responding to business opportunities, competitive developments and adverse economic or industry conditions. In addition, our obligations under our U.S. revolving credit agreement with Comerica Bank are secured by substantially all of our assets other than intellectual property assets, which limit our ability to provide collateral for additional financing. A breach of any of these covenants, or a failure to pay interest or indebtedness when due under any of our credit facilities, could result in a variety of adverse consequences, including the acceleration of our indebtedness.

We may be unable to utilize our net operating loss carryforwards to reduce our income taxes, which could adversely affect our future financial results.

As of December 31, 2015, we had net operating loss, or NOL, carryforwards for U.S. federal and state tax purposes of $207.0 million and $69.2 million, respectively. As these net operating losses have not been utilized, a portion expired in 2015 and will continue to expire further in the current and future years. The utilization of the NOL and tax credit carryforwards are subject to a substantial limitation imposed by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions. We recorded deferred tax assets, net of valuation allowance, for the NOL carryforwards currently available after considering the existing Section 382 limitation. If we incur an additional limitation under Section 382, then the NOL carryforwards, as disclosed, could be reduced by the impact of any future limitation that would result in existing NOL carryforwards and tax credit carryforwards expiring unutilized and increases in future tax liabilities.

We are subject to government regulations that could adversely impact our business.

The Federal Communications Commission, or FCC, has jurisdiction over the entire U.S. telecommunications industry and, as a result, our products and our U.S. customers are subject to FCC rules and regulations. Current and future FCC regulations affecting communications services, our products or our customers’ businesses could negatively affect our business. In addition, international regulatory standards could impair our ability to develop products for international customers in the future. Delays caused by our compliance with regulatory requirements could result in postponements or cancellations of product orders. Further, we may not be successful in obtaining or maintaining any regulatory approvals that may, in the future, be required to operate our business. Any failure to obtain such approvals could harm our business and results of operations.

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We may utilize conflict minerals in our production or rely on suppliers who utilize conflict minerals in their production, and the use of such conflict minerals may negatively impact our results of operations.

In August 2012, the SEC adopted its final rule to implement Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding reporting obligations for the use of conflict minerals originating in the Democratic Republic of the Congo and adjoining countries, and beginning on January 1, 2013, we became subject to these reporting obligations and subsequently have timely filed our conflict minerals reports with the SEC. In connection with these requirements, we regularly communicate with customers and suppliers regarding the new conflict mineral rules and reporting obligations and continue to work with these customers and suppliers to implement any necessary or requested compliance programs. As a result of these new rules, our results in operations may suffer for a variety of reasons, including:

· difficulty in obtaining supplies that are conflict-free;

· shipping delays or the cancellation of orders for our products;

· costs associated with the implementation of the conflict minerals reporting obligations; and

· reputational damage in the event that we determine our products do incorporate conflict minerals or cannot be verified as not incorporating conflict minerals.

In some instances, we rely on third-party sales representatives to assist in selling our products, and the failure of these representatives to perform as expected could reduce our future revenue.

Although we primarily sell our products through direct sales to systems vendors, we also sell our products to some of our customers through third-party sales representatives. Many of our third-party sales representatives also market and sell competing products from our competitors. Our third-party sales representatives may terminate their relationships with us at any time, or with short notice. Our future performance will also depend, in part, on our ability to attract additional third-party sales representatives that will be able to market and support our products effectively, especially in markets in which we have not previously distributed our products. If our current third-party sales representatives fail to perform as expected, our revenue and results of operations could be harmed.

We are subject to environmental, health and safety laws and regulations, which could subject us to liabilities, increase our costs, or restrict our business or operations in the future.

Our manufacturing operations and our products are subject to a variety of federal, state, local and international environmental, health and safety laws and regulations in each of the jurisdictions in which we operate or sell our products. Our failure to comply with present and future environmental, health or safety requirements, or the identification of contamination, could cause us to incur substantial costs, including cleanup costs, monetary fines, civil or criminal penalties, or curtailment of operations. In addition, the enactment of more stringent laws and regulations, or other unanticipated events could restrict our ability to expand our facilities, require us to install costly pollution control equipment or incur other additional expenses, or require us to modify our manufacturing processes or the contents of our products, which could have a material adverse effect on our business, financial condition and results of operations.

With our acquisition of NeoPhotonics Semiconductor, we own and operate a semiconductor facility in Japan which is subject to local environmental laws and regulations, including the Japanese Environmental Quality Standards (“JEQS”) and the Water Pollution Control Law (“Water Law”), which includes provisions for periodic monitoring of groundwater quality. The JEQS provides guidelines for specified substances in groundwater, primarily including metals and volatile organic compounds, include some that are either used in our operations or have been used in our facilities in prior years. In addition, the Soil Contamination Countermeasures Law includes regulatory standards for many of the same substances regulated under the Water Law, some that are either used in our operations or have been used in our facilities in prior years. Should any of these regulated materials be detected in local water or soil, we could be subject to local law remedies, which could affect our ability to operate or could negatively affect our results of operations.

Additionally, increasing efforts to control emissions of greenhouse gases, or GHG, may also impact us. Additional climate change or GHG control requirements are under consideration at the federal level in the U.S. and in China.

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Additional restrictions, limits, taxes, or other controls on GHG emissions could increase our operating costs and, while it is not possible to estimate the specific impact any final GHG regulations will have on our operations, there can be no assurance that these measures will not have significant additional impact on us.

Adoption of international labor standards may increase our direct labor costs.

International standards of corporate social responsibility include strict requirements on labor work practices and overtime. As global service providers and their network equipment vendors adopt these standards, we have in the past incurred and may be required in the future to incur additional direct labor costs associated with our compliance with these standards.  

Risks related to our operations in China.

Our business operations conducted in China are critical to our success. A significant portion ofour revenue in the nine months ended September 30, 2016 was recognized from customers for whom we shipped products to a location in China. Additionally, a substantial portion of our net property, plant and equipment, approximately 32% as of September 30, 2016, was located in China. We expect to make further investments in China in the foreseeable future. Therefore, our business, financial condition, results of operations and prospects are to a significant degree subject to economic, political, legal, and social events and developments in China.

Adverse changes in economic and political policies in China, or Chinese laws or regulations could have a material adverse effect on business conditions and the overall economic growth of China, which could adversely affect our business.

The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate and control of foreign exchange and allocation of resources. The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Despite reforms, the government continues to exercise significant control over China’s economic growth by way of the allocation of resources, control over foreign currency-denominated obligations and monetary policy and provision of preferential treatment to particular industries or companies. Moreover, the laws, regulations and legal requirements in China, including the laws that apply to foreign-invested enterprises are relatively new and are subject to frequent changes. The interpretation and enforcement of such laws is uncertain. Any adverse changes to these laws, regulations and legal requirements, including tax laws, or their interpretation or enforcement, or the creation of new laws or regulations relating to our business, could have a material adverse effect on our business. For example, the Chinese government’s recent crackdown on alleged antitrust violations and bribery of local officials by multinational companies could signal a broad trend toward elevated scrutiny of foreign corporations operating in the country.

Furthermore, while China’s economy has experienced rapid growth in the past 20 years, its rate of growth has slowed over the past several quarters. Any continuing or worsening slowdown could significantly reduce domestic commerce in China. An economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China could have a material adverse effect on our business, financial condition and results of operation.

Our cost advantage from having our manufacturing and part of our research and development in China may diminish over time due to increasing labor costs, which could materially and adversely affect our operating results.

The labor market in China, particularly in the manufacturing-heavy Southeast region of China where our manufacturing facilities are located, has experienced higher costs due to increased wages. We were required to pay additional employee benefits taxes beginning in late 2010 and were subject to increases in the minimum wage in each year from 2011 to 2016. We expect that we will be subject to further increases in personnel costs and taxes in the future due to market conditions and/or government mandates. If labor costs in China continue to increase, our gross margins and profit margins and results of operations may be adversely affected. In addition, our competitive advantage against competitors with manufacturing in traditionally higher cost countries would be diminished.

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*The termination, expiration or unavailability of our preferential income tax treatment in China may have a material adverse effect on our operating results.

Effective January 1, 2008, the China Enterprise Income Tax Law, or the EIT law, imposes a single uniform income tax rate of 25% on all Chinese enterprises, including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions, reductions and preferential treatment available under the previous tax laws and regulations. As a result, our subsidiaries in China may be subject to the uniform income tax rate of 25% unless we are able to qualify for preferential status. Historically, we have qualified for a preferential 15% tax rate that is available for new and high technology enterprises. The preferential tax rate applied to 2015, 2014 and 2013. We realized benefits from this 10% reduction in tax rate of $0.9million, $0.5 million and $0.2 million for 2015, 2014 and 2013, respectively. In order to retain the preferential tax rate, we must meet certain operating conditions, satisfy certain product requirements, meet certain headcount requirements and maintain certain levels of research expenditures. The preferential tax rate that we enjoyed could be modified or discontinued altogether at any time, which could materially and adversely affect our financial condition and results of operations. In June 2016, the State Administration of Taxation issued a notice to adjust the requirements for high technology enterprise status. As a result, as of September 30, 2016 we believe that it is more likely than not that our China subsidiary will not meet the requirements for the tax year 2016 and will be subject to a 25% regular income tax rate.

Our subsidiaries in China may be subject to restrictions on dividend payments, on making other payments to us or any other affiliated company, and on borrowing or allocating tax losses among our subsidiaries.

Current Chinese regulations permit our subsidiaries in China to pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations, which are different than U.S. accounting standards and regulations. In addition, our subsidiaries in China are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund their statutory common reserves until such reserves have reached at least 50% of their respective registered capital, as well as to allocate a discretional portion of their after-tax profits to their staff welfare and bonus fund. As of December 31, 2015, our Chinese subsidiaries’ common reserves had not reached this threshold and, accordingly, these entities are required to continue funding such reserves with accumulated net profits. The statutory common reserves are not distributable as cash dividends except in the event of liquidation. In addition, current Chinese regulations prohibit inter-company borrowings or allocation of tax losses among subsidiaries in China. Further, if our subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Accordingly, we may not be able to move our capital easily, which could harm our business.

Restrictions on currency exchange may limit our ability to receive and use our revenue and cash effectively.

Because a substantial portion of our revenue is denominated in RMB, any restrictions on currency exchange may limit our ability to use revenue generated in RMB to fund any business activities we may have outside China or to make dividend payments in U.S. dollars. Under relevant Chinese rules and regulations, the RMB is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, without the prior approval of the State Administration of Foreign Exchange, or SAFE. Currently, our subsidiaries in China may purchase foreign exchange for settlement of “current account transactions,” including the payment of dividends to us, without the approval of SAFE. Although Chinese government regulations now allow greater convertibility of the RMB for current account transactions, significant restrictions remain. For example, foreign exchange transactions under our primary Chinese subsidiary’s capital account, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval of SAFE. These limitations could affect the ability of our subsidiaries in China to obtain foreign exchange for capital expenditures through debt or equity financing, including by means of loans or capital contributions from us. We cannot be certain that Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. If such restrictions are imposed, our ability to adjust our capital structure or engage in foreign exchange transactions may be limited.

In August 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement

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of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 142, a notice regulating the conversion by foreign-invested enterprises or FIE of foreign currency into RMB by restricting how the converted RMB may be used. Circular 142 requires that RMB converted from the foreign currency-dominated capital of a FIE may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within China unless specifically provided for otherwise. Although Circular 142 was superseded by a more recent SAFE notice issued in March 2015 (known as the Notice on Reforming the Methods on Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Notice 19), the aforementioned restriction under Circular 142 has been preserved in Notice 19. In addition, SAFE strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-dominated capital of a FIE. The use of such RMB may not be changed without approval from SAFE. Violations of Notice 19 may result in severe penalties, including substantial fines set forth in the Foreign Exchange Administration Regulations. As a result of Notice 19 (as supplemented and adjusted by other regulations and notices issued by SAFE from time to time), our subsidiaries in China may not be able to convert our capital contributions to them into RMB for equity investments or acquisitions in China.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The M&A Rules establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a Chinese domestic enterprise. We may seek to expand our business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Uncertainties with respect to China’s legal system could adversely affect the legal protection available to us.

Our operations in China are governed by Chinese laws and regulations. Our subsidiaries in China are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. China’s legal system is a civil law system based on written statutes. Unlike common law systems, it is a legal system where decided legal cases have limited value as precedents. Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully-integrated legal system, and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties, including regional variations within China. For example, we may have to resort to administrative and court proceedings to enforce the legal protection under contracts or law. However, since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contract terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we would receive compared to more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our distributors, business partners, customers and suppliers. In addition, protections of intellectual property rights and confidentiality in China may not be as effective as in the U.S. or other countries or regions with more developed legal systems. Furthermore, the legal system in China is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. All the uncertainties described above could limit the legal protections available to us and could materially and adversely affect our business and operations.

Chinese regulations relating to offshore investment activities by Chinese residents and employee stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment activity or otherwise adversely affect the implementation of our acquisition strategy. If our stockholders

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who are Chinese residents, or our Chinese employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under Chinese laws.

Chinese foreign exchange regulations require Chinese residents and corporate entities to register with local branches of SAFE in connection with their direct or indirect offshore investment activities. These regulations apply to our stockholders who are Chinese residents and may apply to any offshore acquisitions that we make in the future. Pursuant to these foreign exchange regulations, Chinese residents who make, or have previously made, direct or indirect investments in offshore companies, will be required to register those investments. In addition, any Chinese resident who is a direct or indirect stockholder of an offshore company is required to file or update the registration with the local branch of SAFE, with respect to that offshore company, including any material change involving its round-trip investment, capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long-term equity or debt investment or creation of any security interest. If any Chinese stockholder fails to make the required SAFE registration or file or update the registration, subsidiaries in China of that offshore parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into their subsidiaries in China. Moreover, failure to comply with the various foreign exchange registration requirements described above could result in liability under Chinese laws for evasion of applicable foreign exchange restrictions. We cannot provide any assurances that all of our stockholders who are Chinese residents have made or obtained, or will make or obtain, any applicable registrations or approvals required by these foreign exchange regulations. The failure or inability of our stockholders in China to comply with the required registration procedures may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our Chinese subsidiaries’ ability to distribute dividends or obtain foreign-exchange-dominated loans. Moreover, because of the uncertainties in the interpretation and implementation of these foreign exchange regulations, we cannot predict how they will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a domestic company in China, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by these foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule. Under the Stock Option Rule, Chinese residents who are granted stock options by an overseas publicly-listed company are required, through a Chinese agent or Chinese subsidiary of such overseas publicly-listed company, to register with SAFE and complete certain other procedures. We and our Chinese employees who have been granted stock options are subject to the Stock Option Rule. We have completed the process of registering our stock option and appreciation plans with SAFE. On February 20, 2012, SAFE issued the Circular on Relevant Issues concerning Foreign Exchange Administration for Individuals in PRC Participating in Equity Incentive Plan of Overseas-Listed Companies, or Circular 7, which provides detailed procedures for conducting foreign exchange matters related to domestic individuals’ participation in the equity incentive plans of overseas listed companies and supersedes the Stock Option Rule in its entirety. If we or our optionees in China fail to comply with the applicable regulations, we or our optionees in China may be subject to fines and legal sanctions. Several of our employees in China have exercised their stock options prior to our becoming an overseas publicly-listed company. Since there is not yet a clear regulation on how and whether Chinese employees can exercise their stock options granted by overseas private companies, it is unclear whether such exercises were permitted by Chinese laws and it is uncertain how SAFE or other government authorities will interpret or administer such regulations. Therefore, we cannot predict how such exercises will affect our business or operations. For example, we may be subject to more stringent review and approval processes with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may affect our results of operations and financial condition.

We may be obligated to withhold and pay individual income tax in China on behalf of our employees who are subject to individual income tax in China arising from the exercise of stock options. If we fail to withhold or pay such

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individual income tax in accordance with applicable Chinese regulations, we may be subject to certain sanctions and other penalties and may become subject to liability under Chinese laws.

The State Administration of Taxation has issued several circulars concerning employee stock options. Under these circulars, our Chinese employees (which could include both employees in China and expatriate employees subject to individual income tax in China) who exercise stock options will be subject to individual income tax in China. Our subsidiaries in China have obligations to file documents related to employee stock options with relevant tax authorities and withhold and pay individual income taxes for those employees who exercise their stock options. However, since there was not yet a clear regulation on how and whether Chinese employees could exercise stock options granted by overseas private companies and how Chinese employers shall withhold and pay individual taxes, the relevant tax authority verbally advised us that due to the difficulty in determining the fair market value of our shares as a private company, we did not need to withhold and pay the individual income tax for the exercises until after we completed our initial public offering in February 2011. Thus, we have not withheld or paid the individual income tax for the option exercises through the date of our initial public offering. However, we cannot be assured that the Chinese tax authorities will not act otherwise and request us to pay the individual income tax immediately and impose sanctions on us.

If the Chinese government determines that we failed to obtain approvals of, or registrations with, the requisite Chinese regulatory authority with respect to our current and past import and export of technologies, or failed to obtain the necessary licenses to file patent applications outside China for inventions made in China, we could be subject to sanctions, which could adversely affect our business.

China imposes controls on technology import and export. The term “technology import and export” is broadly defined to include, without limitation, the transfer or license of patents, software and know-how, and the provision of services in relation to technology. Depending on the nature of the relevant technology, the import and export of technology to or from China requires either approval by, or registration with, the relevant Chinese governmental authorities. Additionally, the Chinese government requires the patent application for any invention made at least in part in China to be filed first in China, which application then undergoes a government secrecy review, and then the Chinese government requires a license to be obtained before such application is filed in other countries.

If we are found to be, or to have been, in violation of Chinese laws or regulations, the relevant regulatory authorities have broad discretion in dealing with such violation, including, but not limited to, issuing a warning, levying fines, restricting us from benefiting from these technologies inside or outside of China, confiscating our earnings generated from the import or export of such technology or even restricting our future export and import of any technology. If the Chinese government determines that our past import and export of technology were inconsistent with, or insufficient for, the proper operation of our business, we could be subject to similar sanctions. In addition, if the Chinese government determines that we failed to follow required procedures and obtain the appropriate license before filing a patent application outside China for an invention made at least in part in China, our China patents on such products may be invalidated. Any of these or similar sanctions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may adversely affect our business and result of operations.

China regulation of loans and direct investment by offshore holding companies to China entities may delay or prevent us from using the proceeds we received from our initial public offering to make loans or additional capital contributions to our China subsidiaries.

From time to time, we may make loans or additional capital contributions to our China subsidiaries. Any loans to our China subsidiaries are subject to China regulations and approvals. For example, any loans to our China subsidiaries to finance their activities cannot exceed statutory limits, must be registered with SAFE, or its local counterpart, and must be approved by the relevant government authorities. Any capital contributions to our China subsidiaries must be approved by the Ministry of Commerce of China or its local counterpart. In addition, under Circular 142, our China subsidiaries, as FIEs, may not be able to convert our capital contributions to them into RMB for equity investments or acquisitions in China.

We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to our future loans or capital contributions to our China subsidiaries. If we fail to receive such

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registrations or approvals, our ability to capitalize our China subsidiaries may be negatively affected, which could materially and adversely affect our liquidity and ability to fund and expand our business.

Dividends paid to us by our Chinese subsidiaries may be subject to Chinese withholding tax.

The EIT Law and the implementation regulations provide that a 10% withholding tax may apply to dividends payable to investors that are “non-resident enterprises,” to the extent such dividends are derived from sources within China and in the absence of any tax treaty that may reduce such withholding tax rate. The comprehensive Double Taxation Arrangement between China and Hong Kong generally reduces the withholding tax on dividends paid from a Chinese company to a Hong Kong company to 5%. Dividends paid to us by our Chinese subsidiaries will be subject to Chinese withholding tax if, as expected, we are considered a “non-resident enterprise” under the EIT Law. If dividends from our Chinese subsidiaries are subject to Chinese withholding tax, our financial condition may be adversely impacted to the extent of such tax.

Our worldwide income may be subject to Chinese tax under the EIT Law.

The EIT Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% enterprise income tax on their worldwide income. Under the implementation regulations for the EIT Law issued by the State Council, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. If we are deemed to be a resident enterprise for Chinese tax purposes, we will be subject to Chinese tax on our worldwide income at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income, however, dividends paid to us by our Chinese subsidiaries may not be subject to withholding if we are deemed to be a resident enterprise.

Dividends payable by us to our investors and gains on the sale of our common stock by our foreign investors may be subject to tax under Chinese law.

Under the EIT Law and implementation regulations issued by the State Council, a 10% withholding tax is applicable to dividends payable to investors that are “non-resident enterprises.” Similarly, any gain realized on the transfer of common stock by such investors is also subject to a 10% withholding tax if such gain is regarded as income derived from sources within China. If we are determined to be a “resident enterprise,” dividends and other income we pay on our common stock, or the gain you may realize from the transfer of our common stock, would be treated as income derived from sources within China. If we are required under the EIT Law to withhold tax from dividends payable to investors that are “non-resident enterprises,” or if a gain realized on the transfer of our common stock is subject to withholding, the value of your investment in our common stock may be materially and adversely affected.

Our contractual arrangements with our subsidiaries in China may be subject to audit or challenge by the Chinese tax authorities, and a finding that our subsidiaries in China owe additional taxes could substantially reduce our net income and the value of our stockholders’ investment.

Under the applicable laws and regulations in China, arrangements and transactions among related parties may be subject to audit or challenge by the Chinese tax authorities. We would be subject to adverse tax consequences if the Chinese tax authorities were to determine that the contracts with or between our subsidiaries were not executed on an arm’s length basis, and as a result the Chinese tax authorities could require that our Chinese subsidiaries adjust their taxable income upward for Chinese tax purposes. Such an adjustment could adversely affect us by increasing our tax expenses.

Because a substantial portion of our business is located in China, we may have difficulty maintaining adequate management, legal and financial controls, which we are required to do in order to comply with Section 404 of the Sarbanes-Oxley Act and securities laws, and which could cause a material adverse impact on our consolidated financial statements, the trading price of our common stock and our business.

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Chinese companies have historically not adopted a western style of management and financial reporting concepts and practices, which includes strong corporate governance, internal controls and computer, financial and other control systems. Most of our middle management staff and some of our top management staff in China are not educated and trained in the western system, and we may have difficulty hiring new employees in China with experience and expertise relating to accounting principles generally accepted in the U.S. and U.S. public-company reporting requirements. As a result of these factors, we may experience difficulty in maintaining management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. public-company reporting requirements. We may, in turn, experience difficulties in maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act. This may result in material weaknesses in our internal controls which could impact the reliability of our consolidated financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act. Any such material weaknesses or lack of compliance with SEC rules and regulations could result in restatements of our historical consolidated financial statements, cause investors to lose confidence in our reported financial information, have an adverse impact on the trading price of our common stock, adversely affect our ability to access the capital markets and our ability to recruit personnel, lead to the delisting of our securities from the stock exchange on which they are traded. This could lead to litigation claims, thereby diverting management’s attention and resources, and which may lead to the payment of damages to the extent such claims are not resolved in our favor, lead to regulatory proceedings, which may result in sanctions, monetary or otherwise, and have a material adverse effect on our reputation and business.

See also the risk factor “If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.”

Our consolidated affiliated entities in China are audited by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

Publicly traded companies in the United States are audited by independent registered public accounting firms registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because the auditors of our consolidated affiliated entities in China are located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, such auditors are not currently inspected by the PCAOB. On May 24, 2013, the PCAOB announced that it had entered into a memorandum of understanding on enforcement cooperation with the China Securities Regulatory Commission and the Ministry of Finance of China that establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations in the United States and China. However, direct PCAOB inspections of independent registered accounting firms in China are still not permitted by Chinese authorities.

Inspections of auditing firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our Chinese auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The turnover of direct labor in manufacturing industries in China is high, which could adversely affect our production, shipments, and results of operations.

Employee turnover of direct labor in the manufacturing sector in China is typically high and retention of such personnel is a challenge to companies located in or with operations in China. Although direct labor cost does not represent a high proportion of our overall manufacturing costs, direct labor is required for the manufacture of our products. If our direct labor turnover rates are higher than we expect, or we otherwise fail to adequately manage our direct labor turnover rates, then our results of operations could be adversely affected.

Our subsidiaries in China are subject to Chinese labor laws and regulations. Changes to Chinese labor laws and regulations may increase our operating costs in China, which could adversely affect our financial results.

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China Labor Contract Law, effective January 1, 2008, together with its implementing rules, effective September 18, 2008 and its amendments, effective July 1, 2013, provides certain protections to Chinese employees. Under the current rules, the probation period varies depending on contract terms and the employment contract can only be terminated during the probation period for cause upon three days’ notice. Additionally, an employer may not be able to terminate a contract during the probation period on the grounds of a material change of circumstances or a mass layoff. The current law also has specific provisions on conditions when an employer has to sign an employment contract with open-ended terms. If an employer fails to enter into an open-ended contract in certain circumstances, the employer must pay the employee twice their monthly wage beginning from the time the employer should have executed an open-ended contract. Additionally an employer must pay severance for nearly all terminations, including when an employer decides not to renew a fixed-term contract.

On January 1, 2008, the Regulations on Paid Annual Leaves of Staff and Workers also took effect, followed by its implementing measures effective September 18, 2008. These regulations provide that employees who have worked consecutively for one year or more are entitled to paid annual leave. An employer must guarantee that employees receive the same wage income during the annual leave period as that for the normal working period. Where an employer cannot arrange annual leave for an employee due to production needs, upon agreement with the employee, the employer must pay daily wages equal to 300% of the employee’s daily salary for each day of annual leave forfeited by such employee.

The Shenzhen municipal government, effective December 2010, issued a measure to require all government agencies, public institutions, and enterprises in Shenzhen to pay a monthly housing fund. The housing fund is designed to enhance the welfare and increase the funds available to Shenzhen employees when buying, building, renovating, or overhauling owner-occupied houses. Employee and employers are required to make equal contributions to the housing fund, which generally can range between 5% and 20% of the employees’ average salary of the most recent year and we commenced making these contributions in the fourth quarter of 2010.

From time to time, the Chinese government has implemented requirements to increase the minimum wage for employees in China. These requirements have resulted in the past, and may result in the future, in higher employee costs for our personnel in China. Minimum wage rates generally vary by city and province within China and have historically increased as much as 20% on an annual basis. We were required to increase wages to comply with these requirements and it may be necessary for us to increase wages more than the minimum wage adjustment requires due to market conditions or additional government mandates. If labor costs in China continue to increase, our gross margins, profit margins and results of operations may be adversely affected. In addition, our competitive advantage against competitors with personnel costs or manufacturing in traditionally higher cost countries may be diminished. Future changes to labor laws and regulations may materially increase the costs of our operations in China.

If any of our subsidiaries in China becomes the subject of a bankruptcy or liquidation procedures, we may lose or diminish the ability to use its assets.

Because a substantial portion of our business and revenue are derived from China, if any of our subsidiaries in China goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our operations in China. Any delay, interruption or cessation of all or a part of our operations in China would negatively impact our ability to generate revenue and otherwise adversely affect our business.

We may be exposed to liabilities under the FCPA and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practices Act of 1977, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties and we make significant sales in China. China also strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by our employees, consultants, sales agents or distributors, even though they may not always be subject to our control. Although we have implemented policies and procedures to discourage these practices by our employees, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may

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engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

Risks Related to Ownership of Our Common Stock

Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter to quarter. This variability may lead to volatility in our stock price as research analysts and investors respond to these quarterly fluctuations. These fluctuations are due to numerous factors, including:

· fluctuations in demand for our products;

· the timing, size and product mix of sales of our products;

· changes in our pricing and sales policies, particularly in the first quarter of the year, or changes in the pricing and sales policies of our competitors;

· our ability to design, manufacture and deliver products to our customers in a timely and cost-effective manner and that meet customer requirements;

· quality control or yield problems in our manufacturing operations;

· our ability to timely obtain adequate quantities of the components used in our products;

· length and variability of the sales cycles of our products;

· unanticipated increases in costs or expenses; and

· fluctuations in foreign currency exchange rates.

The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our quarterly and annual results of operations in the future. In addition, a significant amount of our operating expenses is relatively fixed in nature due to our internal manufacturing, research and development, sales and general administrative efforts. Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of such revenue shortfall on our results of operations. Moreover, our results of operations may not meet our announced financial outlook or the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly. There can be no assurance that we will be able to successfully address these risks.

Our stock price may be volatile.

The market price of our common stock could be subject to wide fluctuations in response to, among other things, the risk factors described in this section of our Annual Report on Form 10-K, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us.

The stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions, such as recessions, sovereign debt or liquidity issues, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock.

In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may become the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

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If research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our common stock, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that research analysts publish about us and our business. The price of our common stock could decline if one or more research analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. If one or more of the research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price or trading volume to decline.

The concentration of our capital stock ownership with our principal stockholders, executive officers and directors and their affiliates may limit other stockholders’ ability to influence corporate matters.

As of August 31, 2016, our executive officers and directors, and entities that are affiliated with them or that have a right to designate a director, beneficially own an aggregate of approximately 28% of our outstanding common stock. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Also, as a result, these stockholders, acting together, may be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Consequently, this concentration of ownership may have the effect of delaying or preventing a change in control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if such a change in control would benefit our other stockholders.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. In addition, the terms of our U.S. revolving credit agreement with Comerica Bank restrict our ability to pay dividends. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our common stock that will prevail in the market will ever exceed the price that you pay.

Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.

Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:

· providing for a classified board of directors with staggered, three-year terms;

· not providing for cumulative voting in the election of directors;

· authorizing our board of directors to issue, without stockholder approval, preferred stock rights senior to those of common stock;

· prohibiting stockholder action by written consent;

· limiting the persons who may call special meetings of stockholders; and

· requiring advance notification of stockholder nominations and proposals.

In addition, we have been governed by the provisions of Section 203 of the Delaware General Corporate Law since the completion of our initial public offering. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding common stock, from engaging in certain business combinations without approval of substantially all of our stockholders for a certain period of time.

These and other provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be

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willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Failure to comply with conditions required for our common stock to be listed on the NYSE could result in delisting of our common stock from the NYSE and have a significant negative effect on the value and liquidity of our securities as well as other matters.

We are required to comply with the NYSE Listed Company Manual as a condition for our common stock to continue to be listed on the NYSE. If we are unable to comply with such conditions such as non-timely filing of our Annual Report on Form 10-K or our Quarterly Reports on Form 10-Q, then our shares of common stock are subject to delisting from the NYSE.

If our common stock is delisted from the NYSE, such securities may be traded over-the-counter on the “pink sheets.” The alternative market, however, is generally considered to be less efficient than, and not as broad as, the NYSE. Accordingly, delisting of our common stock from the NYSE could have a significant negative effect on the value and liquidity of our securities. In addition, the delisting of such stock could adversely affect our ability to raise capital on terms acceptable to us or at all. In addition, delisting of our common stock may preclude us from using exemptions from certain state and federal securities regulations.

ITEM  2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM  4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM  5.OTHER INFORMATION

Retention Agreements with Certain Named Executive Officers.  

We entered into retention agreements, with an effective date of August 5, 2016, providing for updated severance and change in control benefits with all five of our named executive officers: Timothy S. Jenks, our President and Chief Executive Officer, Clyde R. Wallin, our Chief Financial Officer and Senior Vice President; Benjamin L. Sitler, our Senior Vice President of Global Sales; Dr. Chi Yue (“Raymond”) Cheung, our Senior Vice President and Chief Operating Officer; and Dr. Wupen Yuen, our Senior Vice President and General Manager. 

We entered into these arrangements after a review of existing arrangements by the compensation committee of our board of directors, with the committee taking into account market assessment data prepared by the committee’s independent compensation consultant.  Each retention agreement amends and supersedes the prior severance rights agreement with each such named executive officer. 

The descriptions of the retention agreements provided below are qualified in their entirety by reference to the actual agreements, which are filed as exhibits to this Quarterly Report on Form 10-Q.

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Involuntary termination generally.  The retention agreements with each of our named executive officers provide for the following severance benefits on a termination without “cause” (excluding death or disability) or a voluntary resignation for “good reason” (each as defined in the retention agreement and as summarized below, and collectively referred to below as an “involuntary termination”):

· a lump sum severance payment equal to the sum of:

o a percentage of his base salary, which is 200% in the case of Mr. Jenks, Dr. Cheung and Dr. Yuen, and 100% in the case of Mr. Wallin and Mr. Sitler;

o in the case of Mr. Jenks, 100% of his target annual bonus; and

o a cash payment equal to $144,000 in the case of Mr. Jenks, Dr. Cheung and Dr. Yuen, and $72,000 in the case of Mr. Wallin and Mr. Sitler, which is intended to assist in the payment of (but not required for be used for) continued health insurance; and

· 18 month’s worth of any then-unvested accelerated vesting of compensatory equity awards providing for time-based vesting (but no waiver of any performance-based criteria, except for Mr. Jenks).

Involuntary termination on or following a change in control. The retention agreements also provide that upon an involuntary termination on or within 12 months following a “change in control” as described below, the named executive officers would receive the following severance benefits:

· a lump sum severance payment equal to the sum of:

o a percentage of his base salary, which is 200% in the case of Mr. Jenks, Dr. Cheung and Dr. Yuen, and 150% in the case of Mr. Wallin and Mr. Sitler;

o a percentage of his target annual bonus, which is 200% in the case of Mr. Jenks, Dr. Cheung and Dr. Yuen, and 100% in the case of Mr. Wallin and Mr. Sitler; and

o a cash payment equal to $144,000 in the case of Mr. Jenks, Dr. Cheung and Dr. Yuen, and $72,000 in the case of Mr. Wallin and Mr. Sitler, which is intended to assist in the payment of (but not required for be used for) continued health insurance; and

· 100% accelerated vesting of then-unvested compensatory equity awards providing for time-based vesting (but no waiver of any performance-based criteria, except for Mr. Jenks).

The retention agreement with Mr. Jenks also provides that if he is involuntarily terminated prior to a change in control and he can reasonably demonstrate to our board’s satisfaction that such termination was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a change in control, then he will be entitled to the greater amount of severance benefits payable on an involuntary termination following a change in control.

Accelerated vesting if no assumption of equity awards in a change in control.  The retention agreements also provide that in the event of a change in control in which the acquirer does not assume outstanding and unvested equity awards, then the vesting of all then-unvested equity awards held by the named executive officer will accelerate as to the number of shares that would have vested in the ordinary course of business subject to continued service with us over the 18 month period following the closing of the change in control transaction.  This acceleration is in lieu of any automatic accelerated vesting provision triggered solely on the closing of a change in control transaction contained in our equity incentive plans.

Certain death benefits.  The retention agreements also provide for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that such named executive officer’s employment

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terminates due to his death while he is outside of his country of residence (for any reason), if necessary, so that the named executive officer’s estate or beneficiaries receive total death benefits equal to 200% of his then-current annual base salary.

Conditions to payment.  A named executive officer is required to execute a general waiver and release of all employment related obligations and claims against us as a condition to receiving any benefits under his retention agreement.  The retention agreements do not obligate a named executive officer to mitigate losses by seeking other employment or otherwise, and the benefits under these agreements will not be reduced by compensation earned through employment by another employer.  In addition, Dr. Cheung’s retention agreement clarifies that if he is entitled to receive severance benefits under applicable law, any cash severance benefits otherwise payable under his retention agreement will be reduced by the amounts legally required to be paid to him under applicable law.  Any benefits that are otherwise payable under the retention agreements that are deemed to be so-called “parachute payments” subject to Sections 280G and 4999 of the Internal Revenue Code are also subject to potential cutback in the manner provided in our 2010 Equity Incentive Plan if the named executive officer would be better off on an after tax basis following such cutback. 

Definitions.  For purposes of the retention agreements entered into with our named executive officers, the following definitions apply:

We will be deemed to have “cause” to terminate a named executive officer upon any of the following events: (i) any act of personal dishonesty taken by the named executive officer in connection with his responsibilities as an employee and intended to result in substantial personal enrichment of the named executive officer; (ii) the conviction of a felony; (iii) a willful act by the named executive officer that constitutes gross misconduct and which materially injures us; and (iv) following delivery to the named executive officer of a written demand for performance from us, which describes the basis for our belief that the named executive officer has not substantially performed his duties, continued violations by him of his obligations to us that are demonstrably willful and deliberate on the named executive officer’s part.

A “change in control” will be deemed to occur under these retention agreements in the event of any of the following events: (i) any person becomes the beneficial owner, directly or indirectly, of our securities representing 50% or more of the total voting power represented by our then-outstanding voting securities, excluding sales of stock by the Company or in connection with certain financing transactions; (ii) the consummation of the sale or disposition of all or substantially all of our consolidated assets; (iii) the consummation of a merger or consolidation with any other entity, other than a merger, consolidation or similar transaction that would result in our stockholders immediately prior thereto continuing to own voting securities representing at least 60% of the total voting power of such surviving entity (or its parent) outstanding immediately after such transaction; or (iv) certain changes affecting the majority of the directors of our board of directors.

A termination by us will be deemed to be due to “disability” if the named executive officer has been unable to perform his duties as the result of his incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by us or our insurers and acceptable to the named executive officer or his legal representative.

A named executive officer will have “good reason” to resign following the occurrence (without the named executive officer’s written consent) of any of the following events: (i) a material reduction or other material adverse change in the named executive officer’s job duties, responsibilities, authority or requirements, including the removal of such job duties, responsibilities, authority or requirements; (ii) a material reduction of the named executive officer’s annual base compensation (or target annual bonus in the case of Mr. Jenks); (iii) our requiring the named executive officer to move his primary work location to a location that increases his one-way commute by more than 50 miles (25 miles in the case of Mr. Jenks); or (iv) our failure to obtain the assumption, in all material respects, of the retention agreement by any of our successors; provided that the named executive officer must provide written notice to us of the existence of one of these conditions within 60 days after its initial existence, we fail to reasonably correct such event within 30 days, and he voluntarily resigns from all positions he holds within 30 days following the end of our 30-day cure period.  The retention agreement with Mr. Jenks also provides that he will have good reason to resign following any change which requires him to report to anyone other than our board, the board of directors of any successor company, or the board of directors of any parent company if we become a wholly-owned subsidiary of another company following a change in control.

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ITEM 6.EXHIBITS

See Index to Exhibits at the end of this report.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		NeoPhotonics Corporation
Date:	November 8, 2016	By:	/S/  CLYDE RAYMOND WALLIN
			Clyde Raymond Wallin
			Chief Financial Officer and Senior Vice President
			(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit no.	Description of exhibit	Form	SEC File No.	Exhibit	Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of NeoPhotonics Corporation.	Form 8-K	001-35061	3.1	February 10, 2011
3.2	Amended and Restated Bylaws of NeoPhotonics Corporation.	Form S-1	333-166096	3.4	November 22, 2010
4.1	Specimen Common Stock Certificate of NeoPhotonics Corporation.	Form S-1	333-166096	4.1	May 17, 2010
4.2	2008 Investors’ Rights Agreement by and between NeoPhotonics Corporation and the investors listed on Exhibit A thereto, dated May 14, 2008.	Form S-1	333-166096	4.2	April 15, 2010
4.3	Commitment to File Registration Statement and Related Waiver of Registration Rights by and between NeoPhotonics Corporation and Open Join Stock Company “RUSNANO” dated as of December 18, 2014.	Form S-1	333-201180	4.4	December 19, 2014
10.2+	Retention Agreement by and between the Company and Timothy S. Jenks, dated August 5, 2016.	Form 10-Q	001-35061	10.1	August 9, 2016
10.3+	Retention Agreement by and between the Company and Dr. Chi Yue (“Raymond”) Cheung, dated August 5, 2016.	Form 10-Q	001-35061	10.1	August 9, 2016
10.4+	Retention Agreement by and between the Company and Clyde R. Wallin, dated August 5, 2016.	Form 10-Q	001-35061	10.1	August 9, 2016
10.5+	Retention Agreement by and between the Company and Benjamin L. Sitler, dated August 5, 2016.	Form 10-Q	001-35061	10.1	August 9, 2016
10.6+	Retention Agreement by and between the Company and Dr. Wupen Yuen, dated August 5, 2016.	Form 10-Q	001-35061	10.1	August 9, 2016
10.7	Lease Agreement, dated September 9, 2016, by and between NeoPhotonics Corporation and SP Zanker Property LLC.					X
10.8	Extension dated September 14, 2016 of Property Lease Contract, dated May 31, 2011, by and between NeoPhotonics Dongguan Co., Ltd. and Dongguan Conrad Hi-Tech Park, Ltd. (Translated to English of an original Chinese document).					X
10.9	Eighth Amendment dated September 22, 2016 to Revolving Credit and Term Loan Agreement, dated March 21, 2013, by and between NeoPhotonics Corporation and Comerica Bank, as Agent and sole Lender.					X
10.10	Ninth Amendment dated September 30, 2016 to Revolving Credit and Term Loan Agreement, dated March 21, 2013,  by and between NeoPhotonics Corporation and Comerica Bank, as Agent and sole Lender.					X
10.11	Amendment dated August 3, 2016, by and between NeoPhotonics (China) Co., Ltd. and Shanghai Pudong Development Bank Shenzhen Branch, to that certain Credit Line Agreement dated as of July 9, 2015 (Translated to English of an original Chinese document).					X

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Exhibit no.	Description of exhibit	Form	SEC File No.	Exhibit	Filing Date	Filed Herewith
10.12	Second Amendment dated August 2, 2016 to that certain Rights Agreement dated as of April 27, 2012 between the Company and Open Join Stock Company “RUSNANO”					X
10.13	Comprehensive Credit Granting Contract, dated October 21, 2016, by and between Neophotonics (China) Co., Ltd. and Shenzhen Branch CITIC Bank (Translated to English of an original Chinese document).					X
10.14	Financing Line of Credit Agreement, dated July 25, 2016, by and between Neophotonics Dongguan Co., Ltd. and Shanghai Pudong Development Bank Shenzhen Branch (Translated to English of an original Chinese document).					X
31.1	Certification pursuant to Rule 13a-14(a)/15d-14(a).					X
31.2	Certification pursuant to Rule 13a-14(a)/15d-14(a).					X
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	XBRL Instance Document.					X
101.SCH	XBRL Taxonomy Extension Schema Document.					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.					X
+ Management compensatory plan or arrangement.

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EX-10.10

Exhibit 10.10

NINTH AMENDMENT TO CREDIT AGREEMENT

This Ninth Amendment to Credit Agreement (this “Amendment”) is made as of September 30, 2016, by and among NeoPhotonics Corporation, a Delaware corporation (“Borrower”), Lenders (as defined below) and Comerica Bank, as administrative agent for Lenders (in such capacity, “Agent”).

RECITALS

A.Borrower entered into that certain Revolving Credit and Term Loan Agreement dated as of March 21, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), with certain financial institutions from time to time parties thereto (collectively, “Lenders”), Comerica Bank, as lead arranger, and Agent.

B.Borrower has requested that Agent and Lenders make certain amendments to the Credit Agreement and Agent and Lenders are willing to do so, but only on the terms and conditions set forth in this Amendment.

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, Agent and Lenders hereby agree as follows:

1. The definition of “Revolving Credit Maturity Date” set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows:

“‘Revolving Credit Maturity Date’ shall mean the earlier of (i) January 31, 2017 and (ii) the date on which the Revolving Credit Aggregate Commitment shall terminate in accordance with the provisions of this Agreement.”

2. This Amendment shall become effective (according to the terms hereof) on the date (the “Ninth Amendment Effective Date”) that the following conditions have been fully satisfied by Borrower:

(a) Agent shall have received counterpart signature pages to this Amendment, duly executed and delivered by each of Agent, Borrower and Lenders;

(b) Borrower shall have paid to Agent all reasonable costs and expenses, if any, that are due and owing to Agent and Lenders as of the date hereof;

(c)Agent and Lenders shall have received such other documents and completion of matters as Agent or Lenders may deem necessary or appropriate.

3. Borrower hereby represents and warrants that, after giving effect to this Amendment, (a) the execution and delivery of this Amendment are within such party’s corporate

or limited liability company powers, have been duly authorized, are not in contravention of any law applicable to such party or the terms of its organizational documents, and except to the extent previously obtained do not require the consent or approval of any governmental body, agency or authority, and this Amendment and the Credit Agreement (as amended hereby) shall constitute the valid and binding obligations of such undersigned party, enforceable in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), (b) the representations and warranties set forth in Article 6 of the Credit Agreement are true and correct in all material respects on and as of the date hereof (other than any representation or warranty that expressly speaks only as of a certain date), and (c) as of the Ninth Amendment Effective Date, no Default or Event of Default shall have occurred and be continuing.

4. Except as specifically set forth above, this Amendment (i) shall not be deemed to amend or alter in any respect the terms and conditions of the Credit Agreement (including without limitation all conditions and requirements for Advances and any financial covenants), any of the Notes issued thereunder or any of the other Loan Documents; and (ii) shall not constitute a waiver or release by Agent or Lenders of any right, remedy, Default or Event of Default under or a consent to any transaction not meeting the terms and conditions of the Credit Agreement, any of the Notes issued thereunder or any of the other Loan Documents. Furthermore, this Amendment shall not affect in any manner whatsoever any rights or remedies of Lenders with respect to any non-compliance by Borrower with the Credit Agreement or any other Loan Document, whether in the nature of a Default or Event of Default, and whether now in existence or subsequently arising, and shall not apply to any other transaction.

5. Borrower and each other Credit Party hereby acknowledge and agree that this Amendment and the amendment set forth herein do not constitute any course of dealing or other basis for altering (i) any obligation of Borrower, any other Credit Party or any other party or (ii) any rights, privilege or remedy of Lenders under the Credit Agreement, any other Loan Document, any other agreement or document, or any contract or instrument.

6. Capitalized terms used in this Amendment but not expressly defined herein shall have the respective meanings ascribed to them in the Credit Agreement.

7. This Amendment may be executed in two or more counterparts in accordance with Section 13.9 of the Credit Agreement.

8. This Amendment shall be construed in accordance with and governed by the laws of the State of California, without regard to principles of conflict of laws that would result in the application of the laws of a different jurisdiction.

[Remainder of page intentionally left blank. Signature pages follow.]

IN WITNESS WHEREOF, Borrower, Lenders and Agent have each caused this Amendment to be executed by their respective duly authorized officers or agents, as applicable, as of the date first set forth above.

COMERICA BANK, as Agent and sole Lender
By:	/s/ Elizabeth Leahy
Name:	Elizabeth Leahy
Title:	Vice President

IN WITNESS WHEREOF, Borrower, Lenders and Agent have each caused this Amendment to be executed by their respective duly authorized officers or agents, as applicable, as of the date first set forth above.

NEOPHOTONICS CORPORATION
By:	/s/ Clyde R. Wallin
Name:	Clyde R. Wallin
Title:	Senior Vice President and Chief Financial Officer

EX-10.11

Exhibit 10.11

                                               Number:BC2016072500001472

Financing Credit Line Agreement

                          Credit Line Agreement

Company: Neophotonics (China) Co., Ltd.                                       (hereinafter referred to as Client)

Principal Office Location: Neophotonics building Keji South 12 road Hi-tech park Nanshan District Shenzhen

Liaison:  Zhenyu Wei                          Telephone:13760128394

Bank: Shanghai Pudong Development Bank Company Limited Shenzhen                 Branch

(hereinafter referred to as Creditor） 

Principal Office Location: 25F International Chamber of Commerce Center Fuhua 3 road Futian District

Liaison:Zepeng Lian                             Telephone: 26480841

 The parties have, through amicable consultation and on the principle of fairness and mutual benefit, equally and voluntarily reached the following agreements according to applicable laws and regulations:

Section I General terms and conditions

1. Agreements refer to any and all instruments entered into by and between Client and Creditor within the term of credit line, including credit line change agreement (see Exhibit 1 for template) and attached financing instruments, and such instruments shall be read together with this Agreement in its entirety.

2. Credit Line For the purpose of this Agreement, term of Credit Line refers to the term specified by Credit Line List (see Section II for details) or required by any credit line change agreement reached by Client and Creditor, in which case the latest one prevails. Client shall apply Creditor for tapping into credit line within the term. Such application given after expiration of the term shall be refused by Creditor regardless of whether the related credit line has been used up.

3. Credit Line Change. In case of discrepancy between this provision and Credit Line List, the latter one (including credit line change made by Client and Creditor from time to time by a signed credit line change agreement) shall prevail. If any attached instruments executed by Client and Creditor within the term conflict with this Agreement, such instruments shall be applied to the services involved.

 Notwithstanding the foregoing, Creditor reserves the right to notify Client of early expiration of any loan under any attached instruments in order to protect security of such loan where Creditor deems

necessary to do so, in which case, Client is required to repay any debt due immediately and replenish any margin to a full amount for the letter of credit, bank guarantee/standby letter of credit and bank’s acceptance bill issued by Creditor upon request of Client.

4. Financing. This Agreement and attached financing documents define that Client may apply Creditor for credit financing (collectively referred to as Financing) based on credit line within the term as agreed, in which case the Credit Line List shall be applied to determine applicable financing type. Creditor offers irrevocable and revocable financing acceptance to Client under this Agreement. Revocable acceptance means that Creditor may (but is not obliged to) finance Client; while irrevocable one means that Creditor shall fulfill the obligations of acceptance under this Agreement as long as agreements on use of credit line and other prerequisites agreed by the parties concerning certain services have been are satisfied.

5. Attached Financing Documents For the purpose of this Agreement, Attached Financing Instrumentsrefer to the documents signed by Client and include but not limited to:

（1） working capital loan contract, fixed assets loan contract and any other loan documents signed by Client in case of the said service;

（2） discounting bill agreement and any other documents signed by Client in case of the said service;

（3） agreement of guaranteed discounting of commercial acceptance bill and any other documents signed by Client in case of the said service;

（4） factoring agreement and any other documents signed by Client in case of factoring financing;

（5） agreements on export bill credit, advance against documentary collection and any other instruments signed by Client in case of export bill credit (inclusive of domestic letter of credit) and advance against documentary collection;

（6） agreements on import bill credit and any other instruments signed by Client in case of the said service;

（7） packing loan agreements and any other instruments signed by Client in case of the said service;

（8） agreement of issuance of letter of credit and any other documents signed by Client in case of the said service;

（9） agreement of issuance of bank guarantee and standby letter of credit in case of the said service;

（10） agreement of issuance of bank acceptance bills and any other documents signed by Client in case of the said service;

（11） other financing documents entered into by and between Client and Creditor.

In respect of Client’s application of credit line, where terms and conditions under this Agreement and related requirements of Creditor are satisfied, Creditor may release financing fund to Client in accordance with this Agreement and attached financing instruments or give bank guarantee to external party upon request of Client. However, Client is not allowed to withdraw or change any signed or submitted financing application/agreement, otherwise Client is required to pay Creditor any costs, expenses and loss incurred to Creditor due to such withdrawal or change.

6. Submission of Documents. Client guarantees that the following documents have been provided or the conditions hereinafter have been satisfied prior to execution of this Agreement or according to related requirements by Creditor:

（1） Copy of Client’s latest articles of association, business license;

（2） Resolutions of board of directors in authorizing Client to execute this Agreement and related attached financing documents;

（3） Power of attorney and signature sample of representatives of Client;

（4） All attached financing documents which have been signed by Client lawfully according to Creditor’s requirements;

（5） Other instruments or conditions required by Creditor.

7. Prerequisites on Use of Credit Line

The following prerequisites shall be satisfied prior to use of any credit line by Client:

（1） Client has normal business operation, sound finance state and not experienced significant deterioration in business performance in the latest three years;

（2） Client has not committed any breaches under credit line agreement;

（3） Where the loan under this Agreement is secured, related security instruments are supposed to have been executed, necessary procedures of mortgage/charge have been completed and the related security rights have been created prior to commencement of financing services by Creditor;

（4） Client is required to give express and clear Credit Line Use Plan; elements for application of certain services, comply with Creditor’s regulations and credit granting approval systems as well as requirements for financing services;

（5） Client has provided information concerning production, operation, finance activities and financial statements and undertakes to provide such information in a timely manner as well as accept supervision and inspection by Creditor within the term of this Agreement;

（6） Amount to be used shall not exceed balance amount of the credit line;

（7） Applications of certain services have to be given within the term of credit line, and loan release day or issuance day of letter of credit, bank guarantee/standby letter of credit, bank’s acceptance bill and other services falls on Creditor’s business day;

（8） Other prerequisites required by Creditor (see Section II Other Arrangements if applicable).

8. Used Credit Line refers to the loan which has been released by Creditor according to this Agreement and attached financial instruments at any time but not repaid by Client plus the amount of bank guarantee issued by Creditor upon request of Client, but such amount shall be minus the amount which was paid by Client or Client’s guarantor by cash collateral (inclusive of margin), unless otherwise additionally specified by the parties.

9. Revolving. In respect of revolving credit line, where Client has completed performance of obligations (inclusive of repayment of loan, replenishing margin to a full amount, release of payment obligations of Creditor to external party) under this Agreement and attached financing instruments, used credit line attributable to such obligations shall be recovered in the amount equivalent to the amount involved by the completed obligations, in which case Client is allowed to apply Creditor for credit line again within the related term. In respect of non-revolving credit line, used credit line shall not be recovered unless otherwise with consent by Creditor. Unless otherwise specified by this Agreement, Creditor reserves the right to reexamine Client’s operation state and related collateral in a yearly basis, in which case Client is allowed to use credit line in the coming year if such reexamination passed; while Creditor is entitled to cancel credit line for the coming year if such reexamination failed and any unused and to be repaid credit line shall not be allowed again except that currently effective attached financing instruments are not affected.

10. Security. If credit line under this Agreement is secured, prerequisite for application of the financing

contained herein is that Client has executed the related security instruments and such instruments have come into force. In case Credit Line List defines percentage of margin for letter of credit, bank guarantee/standby L/C and bank’s acceptance bill, prerequisite for application of issuance of the said instruments is that Client has paid margin in a full amount. If Client applies Creditor for change of credit line and such change causes credit line increase, Client shall give additional security or cause Guarantor confirm such change and additional security. Where credit line is granted continuously in the coming year upon reexamination by Creditor, Client is required to make sure that security in relating to such credit line remains effective.

11. Taxation. Client is required to repay financing fund at net amount and no deductions are allowed except that related taxations are imposed on such repayment by law. If Client is required to withhold the said taxation by law, a tax payment receipt shall be given to Creditor within fifteen (15) days following such withholding, in which case Client is required to compensate Creditor with such additional charges so that Creditor receives the repayment without any deductions.

12. Representations and Warranties. Client represents and warrants as below, and such representations and warranties shall be deemed to have been made by Client every time when Creditor grants financing to Client according to this Agreement and attached financing instruments and remain effective.

(1) Client is a corporation (enterprise) legal person and other economic organization incorporated according to applicable laws and has independent legal person qualification, complete finance system and repayment capacity, which is entitled to execute and fulfill this Agreement, sign this agreement and any related instruments, and has taken any necessary corporate action to make sure that this Agreement and any related instruments are lawful, valid and enforceable;  

(2) Execution and performance of this Agreement and obligations contained herein by Client are neither in violation of any signed contract or document, articles of association, any applicable laws, regulations or administrative order, related instruments, judgment, award by competent authority, nor conflict with any other obligations or arrangements of Client;

(3) Client, its shareholders and affiliates are neither involved in any liquidation, bankruptcy, reconstructing, acquisition, merger, division, reorganization, dissolution, winding up, shutdown, suspension of business or similar proceedings, nor any circumstance possibly causing such proceedings occurred;

(4) Client was neither involved in any economic, civil, criminal and administrative proceedings which may cause significant adverse impact, nor any circumstance possibly causing such involvement to the proceedings or similar arbitration procedures occurred;

(5) Material assets of Client’s legal representative, directors, supervisors or other senior managers and Client are neither involved any mandatory execution, seizure, lien, freezing, encumbrance, regulatory measures, nor any circumstance possibly causing such measures occurred;

(6) Client guarantees that the provided financial statements (if any) are in line with applicable laws, and true, complete and fair to reflect its finance state; all materials, documents and information (of Client or guarantor) provided for the purpose of execution and performance of this Agreement are true, effective, accurate, complete and without any concealment or omission;

(7) Client strictly complies with applicable laws and regulations to operate, carries on business activities strictly according to regulations defined by business license or business scope determined by law and goes through registration annual review procedures;

(8) Client has disclosed all important known or supposedly known facts and states (including but not limited to business conditions, finance state, security to external parties, etc.), on which Creditor depends to grant credit line under this Agreement;

(9) Client’s internal management documents concerning environmental and social risks are in line with legal requirements and have been implemented efficiently;

(10) Client warrants that there is no other circumstance or event which causes or may cause significant adverse impact on Client’s performance capabilities;

13. Commitments. Client undertakes as below, and such commitments shall be deemed to have been made by Client every time when Creditor grants financing to Client according to this Agreement and attached financing instruments and remain effective.

（1） Client shall strictly abide by this Agreement and fulfill the obligations contained herein and its attached financing instruments；

（2） Unless otherwise specified in this Agreement or attached financing instruments, Client is required to replay financing fund or out-of-pocket fund in a timely manner or replenish margin to a full amount upon request of Creditor according to this Agreement and attached instruments; Client shall apply for, obtain and comply with verification, authorization, registration and permit required by applicable laws and regulations, and maintain effectiveness of such official permits so that Client has the lawful power to sign and execute this Agreement and obligations under any documents related to this Agreement; upon request of Creditor, Client shall immediately give the relevant proof；

（3） Client is required to give Creditor notice in writing within five (5) Creditor’s business days where Client is aware of its involvement in any economic, civil, criminal, administrative proceedings or similar proceedings which may cause significant adverse impact or where Client learns that its key assets are involved to any mandatory execution, seizure, lien, freezing, encumbrance, regulatory measures, and such notice shall state the consequences and remedy measures which have been taken or are to be taken；

（4） Without prior written consent of Creditor, Client is not allowed to offer any third party security which is sufficient to cause significant adverse impact on its finance position or its obligations performance under this Agreement;

（5） Without prior written consent of Creditor, Client is not allowed to repay other long-term debt and such repayment has significant adverse impact on Client’s obligations performance under this Agreement;

（6） Following the day of execution of this Agreement and prior to full repayment of entire debts under this Agreement and attached financing instruments, without prior written consent of Creditor, Client is not allowed to:

a) Proceed liquidation, reconstructing, bankruptcy, merger, acquisition, division, reorganization, dissolution, winding-up, shutdown, suspension of business or similar proceedings;

b) In addition to demand of day-to-day operation, sell, lease, donate, transfer or dispose its significant assets in any other manner;

c) Change shareholding structure;

d) Sign contract / agreement which has significant adverse impact on performance capacity of obligations under this Agreement or assume any obligations with similar impact.

（7） In case security under this Agreement suffers certain circumstance or certain change, upon request of Creditor, Client is required to give other security recognized by Creditor. Such circumstance or change includes but not limit to suspension of production or business, dissolution, business interruption for rectification, revoking or cancelation of business license, voluntary or mandatory application for reorganization and bankruptcy, material change of operation or financial position, involvement to significant litigation or arbitration cases, litigation of legal representative / responsible person, arbitration or other mandatory measures, decrease or possible decrease of collateral’s value, property preservation measures taken by seizure, breaches under security contract and request to terminate such security contract, etc.；

（8） Upon request by Creditor, Client shall go through notarization (with mandatory enforcement

effect) procedures with notary public authority recognized by Creditor, in which case Client shall accept such mandatory enforcement；

（9） Client shall notify Creditor of any events which may impact performance of obligations under this Agreement and any other instruments related；

（10） Special agreements for Group Client (Group Client applicable).

If Client is a Group Client, the following commitments are required:

a) Client is required to promptly report the final grantee’s related-party transaction involving above 10% of net assets, including: a. relationship of the transaction parties; b transaction project and nature of the transaction; c. transaction amount or corresponding proportion; d. pricing policy (including transaction involving no specific amount or only with nominal amount);

b) If the final grantee is under one of the following circumstances, Client shall be deemed in violation of this Agreement, in which case Creditor has the right unilaterally decide to cancel Client’s unused credit and recover entire or partial used credit or require Client to add margin to 100%: a. provide false information or conceal important operational and financial facts; b. change intended usage of credit line without prior consent of Creditor, misappropriate credit or use such credit to engage in illegal or unlawful transactions; c. take advantage of false contract with related-party, and take receivable notes, receivable accounts and other creditor notes which contain no real trading to apply for bank discounting or pledge to defraud money or credit from the bank; d. refuse to accept supervision and inspection by Creditor on fund use and related operational and financial  activities; e. have material mergers, acquisitions and restructuring which in Creditor’s opinion may affect safety of credit; f. evade debts owning to bank by related-party transactions.

（11） Special guarantees and commitments to green credit and arrangements (applicable to clients engaged in nuclear power plants, large-scale hydropower plant, water projects, resource extraction projects and other projects having construction, production and business activities possibly significantly change environmental status and cause adverse environmental and social consequences which are not easily eliminated, as well as petroleum processing, coking and nuclear fuel processing, chemical materials and chemical products manufacturing and its construction, production and business activities causing negative environmental and social consequences which are not easily eliminated through mitigation measures):

a) Client represents and warrants to manage environmental and social risks well, including: a. internal management documents concerning environmental and social risks are in line with legal requirements and have been implemented efficiently; b. there is no critical mitigations related to environmental and social risks;

b) Client undertakes to accept Creditor’s supervision, strengthen environmental and social risk management, including: a. undertake to keep all behavior and performance associate with environmental and social risks in compliance with related regulations; b. undertake to set up and improve a sound internal management system on environmental and social risks, and define detailed duties, obligations and penalties to related responsible persons; c. undertake to set up and improve emergency response mechanisms and measures for environmental and social risks; d. undertake to set up specialized department or appoint a specialized person to be in charge of environmental and social risk issues; e. undertake to assist Creditor or the third party recognized by Creditor to have environmental and social risk evaluation and examination; f. undertake to give proper response or take other necessary actions facing serious disputes raised by the public or other interest-related parties on Client’s control performance for environmental and social risks; g. undertake to urge Client’s key related-parties to strengthen their management to prevent impact from such parties’ environmental

and social risks; h. undertake to fulfill other obligations which Creditor deems related with control environmental and social risks.

c) Client undertakes to report promptly and sufficiently to Creditor in case of the following circumstances: a. permit, approval and inspection related with environmental and social risks in the course of project commencement, construction, operation and shutdown; b. assessment or inspection by environmental and social risks regulatory bodies or accredited institution; c. environment-related supporting facilities construction and operation; d. discharge of pollutants and compliance; e. safety and health of employees; f. complaints and protest by surrounding communities against Client; g. major environmental and social claims; h. other major cases related with environmental and social risks as Creditor deems so;

d) If Client and the final grantee is under one of the following circumstances, Client shall be deemed in violation of this Agreement: a. representations and warranties made by Client concerning environmental and social risk management are not implemented with due diligence; b. Client is punished by relevant authority due to poor management of environmental and social risks; c. Client is seriously questioned by the public of media due to poor management of environmental and social risks; d. other defaults agreed by Creditor and Client concerning environmental and social risk management, including the cross-default event;

In case of the defaults mentioned above, Creditor has the right to unilaterally decide: a. withdraw credit acceptance; b. interrupt release of loan until Client takes remedial measures satisfying Creditor; c. collect released loan early; d. execute related mortgage and pledge rights and other penalty measures early in case of failure to repay the loan; e. other penalty measures agreed by Creditor and Client.

（12） Client / Guarantor agrees and irrevocably authorizes that Creditor is entitled to provide information about entire contract/agreement/commitments entered into by and between Client/Guarantor and Creditor, including aforesaid contract/agreement/commitment of performance, as well as company profile and other information provided by Client/Guarantor to state-owned financial credit information database for credit inquiry by entities with approved access as long as Creditor is not in violation of prohibitive regulations under Credit Reference Administration Rules and applicable laws and regulations and makes such disclosure according to reference collection requirements of the database; meanwhile Creditor has the right to inquire and use Client/Guarantor’s credit information which has been input to the database. The aforesaid authorization extend to the whole procedures from execution of this Agreement to service management in the course of this Agreement, which shall be void upon actual termination of this Agreement;

（13） Client hereby confirms that it has fully understood and been informed of the principle that Creditor forbids its employees to seek any form of interests by taking advantage of job position and undertakes to prevent such circumstance on the principle of honesty and fairness, not to offer privately Creditor’s employees any rebates, cash gifts, valuable securities, precious items, incentives, private expenses compensation, personal travel, high-value entertainment and consumption as well as other improper benefits.

14. Expenses and Costs. Client shall assume related expenses and costs according to applicable laws, regulations and this Agreement.

15. Penalty Interest. Overdue penalty interest, misappropriation penalty, calculation and payment arising out of the financing under this Agreement shall be defined by the Credit Line List or attached financing

instruments.

16. Currency Conversion. If currency of financing fund is different as the currency of credit line in calculating used credit line, Creditor has the right to have conversion at related exchange rate determined by itself. If at any time total amount of used credit line exceeds the maximum credit line under this Agreement due to vibration of exchange rate, Creditor has the right to require Client immediately repay the exceeding amount. If the Client repays (including authorized repayment) by the currency different as the financing currency, Creditor has the right to go through the repayment procedures at the exchange rate determined by itself, in which case exchange rate risk shall be borne by Client.

17. Authorized Repayment and Offsetting. Client hereby authorizes Creditor (on behalf of Client) to allocate the balance (in any currency) of Client’s bank account opened at Shanghai Pudong Development Bank Company Limited to repay directly any unrepaid maturing debt, and such authorization is irrevocable, in which case Creditor shall apply exchange rate determined by itself for conversion if applicable, and exchange rate risk shall be borne by Client.

18. Debt Books. Creditor shall maintain accounts and books which are related with business activities under this Agreement and attached financing instruments in accordance with Creditor’s operational guidelines. In addition to obvious error Client acknowledges that such accounts and books or other valid supporting materials are the effective proof of Client’s debt except for any significant errors.

19. Transfer. Client shall not transfer any rights or obligations under this Agreement. Creditor has the right to transfer rights or obligations under this Agreement to any third party at any time and disclose such third party any information concerning this Agreement, including any and all information provided by Client and Guarantor for the purpose of this Agreement.

20. Information Disclosure. Client agrees that: except for disclosure under Article 19, Creditor may disclose any and all information in relating to this Agreement to its headquarters, branches, affiliates and staff employed by such affiliates, meanwhile disclosure by Creditor to regulatory authorities, government or judicial authorities by laws and regulations is also allowed.

21. Default. If Client is in violation of any representations and warranties under this Agreement or such representations and warranties are proved to be inaccurate, untrue, or omission or misleading or have been violated, and Client breaches or refused to perform any part of this Agreement or Client breaches this Agreement or any attached financial instruments or Client suffers any event which may affect safety of loan of Creditor, or Guarantor violates security instrument, the aforesaid circumstances all constitute Client’s default to this Agreement and attached financing documents, in which case Creditor is entitled to claim Client for any and all losses (inclusive of attorney fees) in addition to take (but not be obliged to take) the following measures separately or simultaneously:

（1） Adjust or cancel credit line under this Agreement；

（2） Declare that all debts under any attached financial instruments of this Agreement due early, and/or terminate entire or partial Agreement and attached financing instruments, require Client immediately repay all or partial principal and interests of the loan. For letter of credit, bank guarantee/standby letter of credit which has been accepted by Creditor within the term, Creditor has the right to require Client add margin or allocate

balance of Client’s deposit account or settlement account as margin for external payments or future out-of-pocket payments for Client; if Creditor has paid out-of-pocket expenses, Creditor has the right to repay such expenses immediately;

（3） Interests shall be calculated according to penalty interest rate under this Agreement or attached financing instruments and the unpaid overdue interests shall be charged compound interests;

（4） Deduct any deposits of Client’s bank account opened by Creditor in accordance with Article 17 under this Agreement.

22. Applicable Law and Jurisdiction This Agreement is governed by and constructed according to the laws of the People's Republic of China (for the purposes of this Agreement, the PRC exclusive of Hong Kong, Macao and Taiwan). Any dispute in connection with this Agreement shall be resolved through amicable consultations; should such consultation fails, appeal can be filed to the people's court with jurisdiction over Creditor. The parties shall continue perform the not involved part of this Agreement in the course of such appeal.

23. Address of Service. Client acknowledges that summons, notice and other juridical instruments arising out of any proceedings under this Agreement shall be deemed to have been served as long as such instruments have been delivered to the addresses set forth in this Agreement, and any change of address shall not be accepted by Creditor if such change was not notified to Creditor in advance. 

24. Notice. Notice given by one party to the other party shall be delivered to the addresses set forth in this Agreement until either party notifies the other party in writing of change of address. As long as such notice was delivered to the addresses set forth in this Agreement, it shall be deemed validly given on: the seventh (7th) business day of Creditor following registered mailing of the letter; the signing day of receipt if delivered by hand; the sending day if delivered by fax or e-mail. However, all notices, requests or other communications sent to Creditor shall be only deemed validly given when Creditor actually received, in which case all original versions of such communications shall be delivered by hand or by post to Creditor for confirmation.

25. Severability of Provisions. If any provisions of this Agreement or attached financing instruments turn to be invalid, unlawful or unenforceable, such provisions shall not affect validness, lawfulness and enforceability of the remaining provisions of this Agreement or any other attached financing instruments.

26. Grace. If Creditor allows any grace or suspends to take measures for Client’s any default or other acts, such grace or suspension shall not impair, affect or limit any and all rights or interest of Creditor by law or as a Creditor under this Agreement, and also constitute neither acceptance of Client’s default to this Agreement, nor waive by Creditor to take actions against Client’s current or future default.

27. Relation of Prior Credit Grant with this Agreement. Unless otherwise agreed by the parties, if there has been an existing credit grant agreement entered into by and between Client and Creditor, any unrepaid balance under such agreement shall be automatically integrated into this Agreement and directly account for the credit line under this Agreement. Client undertakes to obtain confirmation from Guarantor of debt under the originally existing agreement to continue security for the debt under this

Agreement.

28. Effectiveness. This Agreement comes into force upon signatures (or seals) by Client’s Legal Representative or authorized signatory and official seal as well as signatures (or seals) by Creditor’s Legal Representative or authorized signatory and official seal (or Contract Seal). This Agreement remains effective unless Creditor cancels entire credit line and there is no financing or debt balance under this Agreement and attached financing instruments.

(The End of Section I)

Section II

Client Name: Neophotonics (China) Co., Ltd.
Credit Line Descriptions
Amount of Credit Line (Currency)	Risk exposure amount  RMB120 million		Term of Credit Line (dd/mm/yyyy)				From Jul 25,2016   to Jul 25,2019
Revolving or non-revolving credit line	√□Revolving    □Non-revolving    □Other
Credit Line Type	√□Revocable    □Irrevocable
Guarantor of debt under this Agreement and security contract including but not limiting to:
Guarantor	／	Security mode			□Mortgage; □Pledge; □Guarantee
Guarantor	／	Security mode			□Mortgage; □Pledge; □Guarantee
Guarantor	／	Security mode			□Mortgage; □Pledge; □Guarantee
Percentage of margin	□Guaranteed discounting%;□Bank’s acceptance bill%;□Bank’s guarantee/standby L/C%; □Other
Applicable financing product and credit line requirement (please use √ for checked one and X for unchecked one)
	Applicable financing product			Credit Line (Amount, currency)		Interest/rate		Maximum term of a single service	Notes
□	Loan
	□Working capital loan
	□Fixed asset loan
□	Trading financing
	□Issue bank’s acceptance bill

	□Commercial bill discounting (agreed interest payment)
	□Bank’s acceptance bill discounting
	□Guaranteed commercial bill discounting (Client as Acceptor)
	□Factoring financing
	□Issue L/C (usance credit payable at sight Incd.)
	□Import bill advance (under L/C/import collection)
	□Export L/C advance
	□Export collection advance
	□Packing loan
	□Issue guarantee/standby L/C
	□Import prepayment
	□Outward remittance financing
	□Import payables guarantee
	□Buyer’s financing via domestic L/C
□	□Other

Other arrangements: Credit line and term shall be reviewed and approved annually by the financing bank, the use of credit line shall be based on the approval. Under the total

credit line, the applicable financing products and the allocated credit lines and the adjustment shall be based on the approval.            

Special notes:

(1)

Total amount of credit line used by all applied financing products shall not exceed the maximum credit line at any time. If Client intends to separate a single financing product from the other applied products with regard to its credit line, the credit line for such product is required to be stated separately.

(2)

If Client is the mortgagor or pledger, Client’s name or Client is filled in the box opposite to the Guarantor.

(3)

Interest rate of Chinese Yuan is annual rate, and floating interest rate is required with floating period. Single amount or ratio can be filled in for the expense ratio.

This Agreement is made in  5  copies, 1 of which (is) are held by Client and 4 of which (is) are held by Creditor. Held(s) . All of such copies constitute the same instrument and have equal legally effect.  

(The rest of this page is intentionally left blank)

(This page is for signatures and contains no main body)

This Agreement was entered into by and between the parties on July 25, 2016. Client acknowledges that the parties have made detailed descriptions and discussions concerning entire terms and conditions contained herein when such Agreement was executed, have no disputes on the terms and conditions and understand accurately the limitation of rights, obligations and liabilities or legal interpretation of exemption provisions.

Client (Company Seal)	Creditor (Company Seal or Contract Seal)
Legal Representative or Authorized Signatory (Signature or Seal)	Legal Representative or Authorized Signatory (Signature or Seal)

Exhibit 1:

Credit Line Change Agreement (Template)

Number:

Client			Creditor		Shanghai Pudong Development Bank Company Limited Branch
According to Financing Credit Line Agreement (number: ) entered into by and between Client and Creditor, the parties have, through mutual consultation, reached agreement on change issues in relating to financing credit line granted by Creditor. The parties acknowledge that this Change Agreement constitutes an integral part of the Financing Credit Line Agreement. The rest provisions under the Financing Credit Line Agreement shall be not changed and remain effective except for provisions under this Change Agreement.
Main changes	□Amount of financing credit line □Term of credit line □Financing product □Security mode □Other
Client and Creditor acknowledge that changed financing credit line is stated as below:
Amount of Credit Line (Currency)				Term of Credit Line (dd/mm/yyyy)
Revolving or non-revolving credit line		□Revolving   □Non-revolving    □Other
Credit Line Type		□Revocable   □Irrevocable

Guarantor of debt under this Agreement and security contract including but not limiting to:
Guarantor		Security mode	□Mortgage; □Pledge; □Guarantee
Guarantor		Security mode	□Mortgage; □Pledge; □Guarantee
Guarantor		Security mode	□Mortgage; □Pledge; □Guarantee
Percentage of margin	□Guaranteed discounting%;□Bank’s acceptance bill%;□Bank’s guarantee/standby L/C%; □Other

Applicable financing product and credit line requirement (please use √ for checked one and X for unchecked one)
	Applicable financing product	Credit Line (Amount, currency)	Interest/rate	Maximum term of a single service	Notes
□	Loan
	□Working capital loan
	□Fixed asset loan
□	Trading financing
	□Issue bank’s acceptance bill
	□Commercial bill discounting (agreed interest payment)
	□Bank’s acceptance bill discounting
	□Guaranteed commercial bill discounting (Client as Acceptor)
	□Factoring financing
	□Issue L/C (usance credit payable at sight Incd.)
	□Import bill advance (under L/C/import collection)
	□Export L/C advance
	□Export collection advance
	□Packing loan

	□Issue guarantee/standby L/C
	□Import prepayment
	□Outward remittance financing
	□Import payables guarantee
	□Buyer’s financing via domestic L/C
□	□Other
Other arrangements:
This Agreement is made in  5  copies, 1 of which (is) are held by Client and 4 of which (is) are held by Creditor.  / Held(s) / . All of such copies constitute the same instrument and have equal legally effect.
Signed by Client		Signed by Guarantor
Client (Company Seal): Legal Representative or Authorized Signatory (Signature or Seal) Day/Month/Year		Guarantor hereby acknowledges that it has been informed of the aforesaid changes and shall carry security obligations for the principal debt upon effectiveness day of this Change Agreement. Confirmed! Guarantor (Company Seal): Legal Representative or Authorized Signatory (Signature or Seal) Day/Month/Year
Signed by Creditor

Creditor (Company Seal or Contract Seal):

Legal Representative or Authorized Signatory (Signature or Seal):

Date: Day/Month/Year

EX-10.12

Exhibit 10.12

NeoPhotonics Corporation

Amendment Two to Rights Agreement

This Amendment Two to the Rights Agreement (this “Amendment Two”), is entered into and effective on the date last signed below (the “Effective Date”) by and between NeoPhotonics Corporation, having a principal place of business at 2911 Zanker Road, San Jose, CA  95134 USA (“Company”) and Joint Stock Company “RUSNANO” (Principal State Registration Number 1117799004333, with registered office at Prospect 60-letiya Oktabrya 10a, 117036 Moscow, Russian Federation) (“Rusnano” or the “Purchaser”), (each a “Party” and collectively the “Parties”).

Recitals

Whereas, the Parties hereto have previously executed that certain Rights Agreement, dated and effective as of April 27, 2012 (the “Agreement”), the Extension to Milestone Date, dated and effective February 26, 2015 and  the Amendment to Rights Agreement effective June 30, 2015 (the “Amendment”);

Whereas, the Parties have mutually agreed to modify the Agreement and the Amendment to reflect the most current state of the business relationship between the Parties;

Whereas, this Amendment shall be the current and binding agreement between the Parties for the provisions amended; and

Whereas, in furtherance of the Parties’ business relationship and discussions relating thereto, the Parties hereto desire to amend the Agreement and Amendment as set forth below.

All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement and the Amendment.

Agreement

Now, therefore, for good and valuable consideration and the mutual promises set forth herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1) Section 6(e)(iii)(B) sections (a)(iii), d and e of the Amendment are hereby amended to read as follows:

a. (iii) Phase-2: Installing, starting up operations and meeting all internal qualification requirements by June 30, 2016 all necessary equipment procedures and facilities for the fabrication capabilities to complete the fabrication of optical wafers from optical-circuit precursor, such as wafer and waveguide processing (Optical Wafer Line – Optical Layer Processing as described in Plan Equipment Model), including wafer processing to wit thermal annealing, clad coating and PECVD of PLC splitters.

d. Begin Phase-2 external customer qualification by June 30, 2016. The Parties acknowledge that the shipping of products manufactured by NeoRussia according to

Phase-2 to customers started prior to the herein mentioned deadline. The Parties agree that NeoPhotonics will inform RUSNANO in a timely manner on any technical issues reported by the customers in regards to three first shipments of products manufactured by NeoRussia according to Phase-2.

e. Begin Phase-2 production – Optical Packaging, Optical Finishing and Optical Layer Processing by June 30, 2016.

2) Section 6(e)(iii)(D)(d)(iii)of the Amendment is hereby amended to read as follows:

a) (iii) The Parties acknowledge and agree that  as of June 30, 2016 the Company completed installation, starting up operations of all necessary equipment according to Phase-2  at NeoRussia and  have met all internal qualification requirements for products manufactured by NeoRussia according to Phase-2.

3) Miscellaneous:

a) No Other Modifications. Except as otherwise expressed set forth in this Amendment Two, the Agreement, the Amendment and the Extension to Milestone Date shall remain in full force in effect without any modification thereto.

b) Entire Agreement.  This Amendment Two, the Amendment, the Extension to Milestone Date and the Rights Agreement constitute the full and entire understanding and agreement between the parties hereto pertaining to the subjects thereof and hereof.

c) Counterparts.  This Amendment Two may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.

[Signature page follows]

In witness whereof, the parties hereto have each caused this Amendment Two to Rights Agreement to be signed and delivered by its respective duly authorized officer, all as of the date last signed below.

Arch

	macnica, inc.
NEOPHOTONICS CORPORATION	JOINT STOCK COMPANY “RUSNANO”
Signature:            /s/ Clyde R. Wallin	Signature:      /s/ Yuri A. Udaltsov
Printed Name: Clyde R. Wallin	Printed Name: Yuri A. Udaltsov
Title: Senior Vice President and Chief Financial Officer Date: July 29, 2016	Title: Deputy Chairman of the Management Board of Management Company Rusnano LLC, acting on the basis of a power of attorney Date: August 2, 2016 _____________________________

EX-10.13

Exhibit 10.13

                                 Contract No.: 2016 SY H ZZ No.  0020 

Comprehensive Credit Granting Contract

(Version 1.0, 2014)

CHINA CITIC BANK

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Instruction

  I. This contract shall be filled out with black blue or black signature pen or fountain pen.

  II. This contract shall be filled out completely, and written clearly and neatly.

  III. Currencies shall be filled out in Chinese rather than replaced with currency symbols, amounts of currency in words shall be added with Chinese names of currency in front of them, amounts of currency in figures shall be added with currency symbols in front of them.

  IV. Extra blanks or blanks not to be filled out in this contract may be handled by adopting broken lines, slashes or stamping the seal of “Blank hereunder” or filling the words “Blank hereunder”.

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Comprehensive Credit Granting Contract

Credit Grantee : Neophotonics (China) Co., Ltd

Address: Keji South 12th Road, Hi-tech Industrial Park, Nanshan District, Shenzhen

Postal Code: 518057

Contact: Chuanfang Zheng

Tel: 0755-26748269

Fax: 0755-26748187

Email: Chuanfangzheng_zheng@neophotonics.com

Legal Representative /Principal: Timothy S. Jenks

Bank of Deposit and Account No.: Shenzhen Houhai Sub-branch CITIC Bank 7442610182400001273

Credit Grantor: Shenzhen Branch CITIC Bank

Address: The 1st Floor and 5-10th Floor, North Block, Stage II, Times Square Excellence, No.8 Fuhua Third Road, Futian District, Shenzhen City

Postal Code: 518000

Contact: Xia Pei

Tel: 0755-86288310

Fax: 0755-86288315

Legal Representative/Principal: Xuying Chen

Contract Signing Place: Futian District Shenzhen                                  

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  This contract is entered into by and between party A and party B through negotiation, in accordance with the Commercial Bank Law of the People’s Republic of China, the Contract Law of the People’s Republic of China and other related laws and regulations, as well as based on the principles of honesty, creditability, equality and voluntariness.

Article 1 Definition

  The following terms under this contract shall be defined as follows unless otherwise clearly stipulated in the context:

  1.1 “Comprehensive Credit Granting” means the qualification or right of party B to, based on the comprehensive evaluation of party A’s credit and security provided, grant party A the right of applying for loan, note discount, corporation overdraft, or opening of bank acceptance bills, letter of guarantee, letter of credit or other operations within certain term and certain credit line.

  1.2 “Credit Balance” means the sum of the principals of the outstanding debts generated from the comprehensive credit granting used by party A under this contract but not yet repaid. In case of opening of bank acceptance bills, it means the sum of bank acceptance bills already issued by party B under this contract or specific business contract but not yet paid; in case of issuing of letter of credit, it means the sum of letter of credit already issued by party A under this contract or specific business contract but not yet paid, in case of issuing of letter of guarantee, it means the sum of letter of guarantee already issued by party B under this contract or specific business contract but not yet paid.

  1.3 “Specific Business Contract” means the documents and commitments (in whatever name) that party A enters into with party B by using the comprehensive credit line under this contract during the term of credit granting as well as constitute the contractual relationship between party A and party B for specific business according to law, and the guarantee documents (if any) that restrain the guarantor under specific business; the afore-mentioned specific business contract shall include but not limited to business-related contracts, agreements, applications, commitment letters, guarantee contracts/agreements, guarantee letters, business vouchers issued by party B or its designated handling agencies (including the related documents that are unilaterally issued by party A and accepted by party B), etc. When party B doesn’t require signing other formal contract for specific business, the related terms of this contract and related documents formed in handling specific business shall automatically constitute specific business contracts between party A and party B.

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  Article 2 Comprehensive Credit Line and Type

  2.1 The comprehensive credit line that party A may apply to party B for during the using term of the comprehensive credit line as agreed in this contract is: Currency RMB  (Words) Two hundred and Sixty-six million , (figures) 266,000,000.00 . This comprehensive credit line is (fill with “√” for Yes and fill with “X” for No):

  □√Exposure credit line, meaning the credit line after deducting the pledge of security deposit, deposit receipt, bank acceptance bills and financing product that meet low risk requirements (security deposit, deposit receipt) that guarantees the credit granting.

  □X Non-exposure credit line

  2.2 The specific business type that is applicable to the comprehensive credit line under this contract and the credit line respectively occupies are in (1)   as follows:

  (1) This credit line shall be collectively used and collectively managed without being classified based on business types;

  (2) The applicable specific business types and the respective credit line occupied are (for those only being classified based on business types and not occupying credit line, you only need to fill it with √, and fill amounts with “/”):

  □Credit line of working capital loans: (Words)     /     , (Figures)     /        ;  

  □Credit line of fixed assets loans: (Words)      /      , (Figures)    /         ;

  □Credit line of project financing: (Words)     /       , (Figures)      /       ;

  □Credit line of opening of bank acceptance bills: (Words)   /          ,  

(Figures)       /      ;

  □Credit line of discount of bank acceptance bills: (Words)     /       ,

(Figures)        /     ;

  □Credit line of discount of commercial acceptance bills: (Words)     /       ,

(Figures)        /     ;

  □Credit line of opening of letters of credit: (Words)    /         ,

(Figures)       /      ;

  □Credit line of opening of letters of bank guarantee: (Words)    /         ,

(Figures)    /         ;

  □Credit line of trade financing: (Words)         /    , (Figures)     /        ;

  □Credit line of corporation overdrafts (Words)      /       , (Figures)   /          ;

  □Others:                 /                                           

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  If party A needs to apply for handling other operations than the business scope stipulated above within the credit line, party A needs to propose a written application to party B and obtain a written consent from party B.

  2.3 The comprehensive credit line under this contract shall be used in the (1)   method as follows: 

  (1) Party A shall apply for any and all credit lines before using;

  (2) Party A and other companies authorized by party A (refer to the List of Appendixes) may jointly apply for and use the credit line, any other company in the List of Appendixes that uses the comprehensive credit line under this contract shall enter into specific business contract with party B.

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Article 3 Using Term of Comprehensive Credit Line

  3.1 The using term of the comprehensive credit line agreed under this contract shall be from the date of  10/21/2016    to the date of  09/30/2017  (hereunder referred to as the “Expiry Date of the Term of Credit Line”).

  3.2 The beginning date and expiry date of specific businesses shall be otherwise agreed under specific business contracts, the beginning date shall be included in the using term of the foresaid comprehensive credit line, the expiry date may be prior to, on or later than the expiry date of the term of credit line based on business types. Unless otherwise agreed under this contract, the expiry date of the term of credit line shall not be interpreted as expiry date of any specific business.

Article 4 Use of Comprehensive Credit Line

  4.1 Within the using term and comprehensive credit line agreed under this contract, party A may apply to party B in writing for using this comprehensive credit line at once or in multiple times.

  4.2 When party A applies for using comprehensive credit line, party A shall propose credit line using application in written form, which shall clearly state the business type, term, amount, etc. of the credit line to be used, and party A shall provide the related materials and handle related guarantee procedures (if any) as required by party B. If party B believes party A meets its credit granting conditions and the contractual terms after review, party B and party A shall enter into specific business contract or other legal documents recognized by party B.

  4.3 The type, credit line, term, use, interest rate, exchange rate, discount rate and expense of specific business as well as other rights and obligations of party A and party B shall be in accordance with the specific business contract entered into by and between the two parties. Party B shall fulfill loan release and other related obligations only based on the terms of specific business contract.

  4.4 Any and all inconsistencies between the specific business contract entered into by and between party A and party B under this contract and terms set forth under this contract shall be in accordance with such specific business contract.

  4.5 The credit balance formed by party A during the using term of credit line shall not exceed the comprehensive credit line set forth in Article 2.1 and the credit line of corresponding business type set forth in Article 2.2 at all times. During the using term of comprehensive credit line, for the comprehensive credit line that is already paid off by party A, party B agrees to handle it in the following (1)    method, any unused comprehensive credit line during the using term of comprehensive credit line shall be automatically canceled after the expiration of such using term.

  (1) Circle use allowed. Meaning under the comprehensive credit line set forth in Article 2 of this contract, if party A has paid off the debt to party B within the using term of the foresaid comprehensive credit line, for the paid-off part of debts, party B may recover the related credit line for party A, and party A may reuse it during the using term of the comprehensive credit line;

  (2) Circle use not allowed. Meaning under the comprehensive credit line set forth in Article 2 of this contract, if party A has paid off the debt to party B within the using term of the foresaid comprehensive credit line, for the paid-off part of loan, party B shall not recover the related credit line for party A, and party A shall not reuse it during the using term of the comprehensive credit line;

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  4.6 In case party A has any breach of contract behavior stipulated in this contract or specific business contract, or there is any adjustment of financial policy, currency policy or credit policy by national or financial regulatory authorities, or there is any major adjustment of party B’s credit policy, or there is any negative policy adjustment and financial risk in the industry and region of party A, or there is any change to party A’s operating or financial situation or party A’s enterprise mechanism, or there is any material negative change to party A’s solvency, or party A’s credit rating score or level by evaluated by party B decreases, party B shall have the right to adjust the credit line actually unused by party A at any time by notifying party A in writing, including but not limited to adjustment to the amount of adjustment, the scope of the types of credit granting business, whether it is circle and the term of licensing, such adjustment shall immediately come into effect after arriving at party A.

Article 5 Party A’s Representations and Warranties

  5.1 Party A is a Chinese legal person or other organization established in accordance with the laws of the People’s Republic of China, having the civil right and civil capacity needed to sign and fulfill this contract according to law, and able to independently bear civil liabilities, and party A has obtained all the necessary and legal internal and external approvals and authorizations to sign this agreement.

  5.2 Party A hereby guarantees that its behavior of signing and fulfilling this contract are not against the laws, regulations, protocols, judgments, rulings, orders or the company’s articles of association that it shall comply with, nor in conflict with any other obligation in any contract or agreement signed.

  5.3 Party A confirms that it didn’t, as signing this contract, hide any litigation case, arbitration case, administrative case, assets preservation measure, enforcement procedure that is already occurred or about to occur, influenced or may influence its signing or fulfillment of this contract, or may generate negative influence on its financial state, or other event that may generate negative influence on the state of enterprise operation; besides, party A shall continuously bear the obligation of timely disclosing the foresaid information to party B during the effective term of this contract.

  5.4 Party A guarantees to use the credit line according to laws and regulations as well as the provisions in specific business contract, and coordinate party B in inspecting the fulfillment of related specific business contract as required by party B.

  5.5 Party A guarantees to, during the term of credit line and as required by party B, timely submit authentic financial statements and other materials reflecting the enterprise’s operating state, as well as guarantees the materials, documents, data and information provided to be authentic, accurate, complete, legal and effective.

  5.6 Party A guarantees to develop operational activities according to law during the using term of the comprehensive credit line, and adopt effective measures to prevent occurrence of any event that jeopardizes or damages or may jeopardize or damage party B’s rights and interests.

  5.7 Party A agrees that party B provides its credit information to the financial credit information basic database and/or the credit information service approved by the People’s Bank of China, authorizes and agrees party B to, for the purpose of this contract, inquire, download, copy, print and use its credit information from the financial credit information basic database and/or the credit information service approved by the People’s Bank of China, and use them for the legal and regular purposes relating to this contract; if party A fails to fulfill the related obligations of this

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contract or specific business contract, any and all negative credit consequences incurred hereof shall be borne by party A itself.

  Article 6 Party A’s Rights and Obligations

  6.1 During the using term of comprehensive credit line, if there is any change to party A’s operating decision making, including but not limited to share transfer, reorganization, merge, splitting, shareholding reform, joint venture, cooperation, joint operation, contracting lease, change to business scope and registered capital or other circumstances that may affect party B’s rights and interests, party A shall send a written notice to party B at least thirty days in advance, and implement the debt repayment liabilities under this contract as consented by party B in writing, or provide security recognized by party B.

  6.2 If party A disposes all or part of its assets or business revenue by transferring, leasing or setting security for other debts than the debt under this contract or other matters that may affect party B’s rights and interests, party A shall send a written notice to party B at least thirty days in advance and obtain a written notice from party B in advance.

  6.3 In case of any event that has negative influence on the fulfillment of debts under this contract, including but not limited to involvement in litigation, arbitration, criminal investigation, administrative punishment, suspension, business discontinuation, dissolution, being declared of bankruptcy, being suspended of business license, being canceled, deterioration of financial conditions, etc., party A shall send a written notice to party B within three days after the occurrence or possible occurrence of the afore-mentioned event.

  6.4 If the guarantor has any negative circumstance, including but not limited to suspension, business discontinuation, being declared of bankruptcy, dissolution, being canceled of business license, being canceled or operation loss, etc. partially or entirely loses the guaranteeing ability relating to this contract, or have the value of the mortgage or collateral serving as the security under this contract diminished or have any circumstance that may be negative to the security of party B’s creditor’s rights, party A shall provide new security recognized by party B.

  6.5 Without a written consent from party B, party A shall not entirely or partially transfer the debts under this contract to any third party.

  6.6 Party A guarantees to timely repay the principal and interests of the credit line, and timely pay the payable expenses. For the due (including advance due) payables of party A under this contract and specific business contract, including but not limited to the corresponding principal, interests, penalty interests and other payable expenses of the already used credit line, party B shall have the right to deduct it from any account of party A opened at China CITIC Bank without obtaining the consent from party A in advance. When party B actively deducts payment based on this contract and provision in specific business contract, if the currency of such account is inconsistent with the business pricing currency, it shall be calculated and converted based on the exchange rate released by party B on the date of settlement.

  6.7 During the using term of the comprehensive credit line, if party A changes its legal person name, legal representative, project principal, address, telephone, fax, etc., party A shall notice party B in writing within seven days after such change.

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  6.8 Party A shall provide, as required by party B, party B with the information and materials, including the related group members’ names, legal representatives, actual controllers, registration places, registered capitals, main businesses, equity structures, senior management, financial conditions, major assets projects, guarantee status, main litigations, etc., and guarantee such materials to be authentic, accurate, complete, legal and effective. If there is any change to the foresaid information and material of group member, party A shall notice party B in writing within 3 days after the occurring date of such change.

  6.9 Party A shall timely submit written reports to party B to inform any and all affiliated transactions that are occurred or about to occur and account for over 10% (including 10%) of party A’s net assets, including but not limited to the affiliation relationship between different transacting parties, transaction items, transaction natures, transaction amount or related ratios, pricing policy (including the transactions without amount or with only symbolic amounts).

  6.10 Party A shall not sign or issue any contract, commitment or other text with any third party that damages party B’s realization of its creditor’s rights under this contract and specific business contract, or engages in any transaction or behavior that damages the realization of party B’s creditor’s rights.

  6.11 If party B makes any external payment, compensation or advance payment based on party A’s application for bank letter of guarantee, letter of credit or bank acceptance bill, party A shall unconditionally confirm and repay the related advance payment, interest and expense paid by party B in advance within agreed period.

Article 7 Party B’s Rights and Obligations

  7.1 Party B shall have the right to decide if signing each specific business contract with party A based on the related management regulations and credit approving procedures of China CITIC Bank, and shall have the right to inspect and supervise the fulfillment of each specific business contract at any time.

  7.2 Party B shall keep the materials, documents and information provided by party A in confidentiality, except for the inquiries and disclosures according to laws, regulations or requirements by the authorities.

Article 8 Guarantee

  8.1 In order to guarantee the creditor’s rights formed under this contract to be repaid, the following guarantee method shall be adopted:

  (1) Guarantor   /        and party B enter into the   /        with serial number of    /       ;

  (2) Mortgagor      /       and party B enter into the “     /     Contract” with serial number of    /           ;

  (3) Pledger      /       and party B enter into the “       /   Contract” with serial number of        /       ;

  (4) Others:                       /                                    .  

  8.2 When party A and party B enter into specific business contract under this contract or during the actual fulfillment process of this contract and specific business contract, party B shall have the right to require party A to provide other security than the one stipulated in this term, the already used credit line of party A within the comprehensive credit line may also be included in the scope of new security.

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  8.3 If there are multiple security methods under this comprehensive credit line, party B shall have the right to choose any one or all the security methods to realize its security rights. Party B’s waiver of any one security right (no matter such security is provided by party A or third party) or change of the sequence or content of security right due to any reason shall not affect party B’s priority right to be repaid over other security rights.

Article 9 Liabilities for Breach of Contract

  9.1 Party A and party B shall strictly fulfill the agreements under this contract and specific business contract. Either party that fails to fulfill or fails to completely fulfill any agreed obligation shall bear the related liabilities for breach of contract and compensate the other party for any and all losses caused.

  9.2 During the fulfillment process of this contract or specific business contract, in case of any of the following circumstances, party A shall be deemed as committing breach of contract:

  9.2.1 During the effective term of this contract, party A explicitly expresses or uses its own action to indicate that it is unable to fulfill or fails to fulfill obligations under this contract or specific business contract;

  9.2.2 Party A violates any agreement under this contract or specific business contract;

  9.2.3 The documents relating to this contract that party A provides to party B and the representations and warranties stipulated in Article 5 of this contract are proven to be unauthentic, inaccurate, incomplete or purposefully misleading;

  9.2.4 Party A stops to repay its due debts, or is unable to or indicating its inability to repay the debts;

  9.2.5 Party A has any suspension, business discontinuation, being declared of bankruptcy, dissolution, being suspended of business license, being canceled, or has any litigation, arbitration, criminal or administrative punishment that has negative consequence on party A’s operation or assets state, and party B believes it may or has already affected or damaged party B’s rights and interests under this contract;

  9.2.6 There is any change to party A’s address, business scope, legal representative or other matters of industrial and commercial registration, or any external investment situation that affects or threaten the realization of party B’s creditor’s rights;

  9.2.7 Party A has any financial loss, asset loss or any asset loss caused from its external guarantee, or other financial crisis that makes party B believe that it may or has already affected or damaged party B’s rights and interests under this contract;

  9.2.8 Party A changes the purpose of credit line at will;

  9.2.9 There is any major crisis in the operation or finance of party A’s controlling shareholder or other affiliated company, or there is any major affiliated transaction between party A and its controlling shareholder or other affiliated company, which affects the normal operation of party A;

  9.2.10 There is any negative change in the industry of party A that makes the realization of party B’s creditor’s rights to be materially affected or threatened;

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  9.2.11 Party A’s senior management is lost of contact, missing, dead, declared of missing, declared of death, suspected of involvement in corruption, bribery, malpractice or illegal operation case that party B believes it may or has already affected or damaged party B’s rights and interests under this contract;

  9.2.12 Party A has any breach of contract to other creditors that affects the realization of party B’s creditor’s rights;

  9.2.13 The guarantor violates any agreement under the guarantee contract or has any breach of contract under the guarantee contract, and party A fails to provide new security meeting party B’s requirements;

  9.2.14 Any mortgage or collateral under this contract is sealed, seized, reported of loss, suspended of payment or adopted of other enforcement measures, having dispute over ownership, subject to or may be subject to infringement by any third party, receiving negative influence on safety or intact state, or such mortgage or collateral already loses or is about to lose the ability to provide security for party B’s creditor’s rights, and party A fails to provide new security that meets party B’s requirements;

  9.2.15 Party A uses any false contract with its affiliated party or other party to discount from party B with notes receivable or accounts receivable without actual trading background, so as to extract fund or credit line from party B;

  9.2.16 Party A refuses to accept party B’s supervision and inspection on the fulfillment of each specific business contract and related operational and financial activities;

  9.2.17 Party B has already escaped or tries to escape its debts to party B through affiliated transactions;

  9.2.18 In case of other events or circumstances that jeopardize or damage or may jeopardize or damage party B’s rights and interests or party B believes sufficient to affect party A’s debt repaying ability.

  9.3 In case of any circumstance stipulated in Article 9.2 above, party B shall have the right to exercise the following one or several measures as follows, and party A has no dispute over this:

  9.3.1 Require party A or the guarantor to correct breach of contract within limited period;

  9.3.2 Adjust, cancel or suspend the comprehensive credit line under this contract, or adjust the using term of credit line;

  9.3.3 Suspend the release of the comprehensive credit line under this contract, announce party A’s debts under this contract (including the corresponding principal, interests, expenses or other payable amounts of the already used credit line) to entirely or partially mature immediately, require party A to immediately repay all or part of the already used credit line; if party B has opened bank acceptance bills, letter of credit, letter of guarantee or assumes other contingent debt under this contract, party B shall have the right to require party A to deposit the amount required and the supplementary deposit or other related payments to the account designated by party B.

  9.3.4 Collect penalty interest and compound interest according to the related regulations of the People’s Bank of China and agreements in business documents;

  9.3.5 Require party A to provide other guarantee, mortgage, pledge or other security recognized by party B, or adopt other measures to ensure the legal rights and interests of party B not to be harmed;

  9.3.6 Have the right to exercise security rights;

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  9.3.7 Based on the provisions in this contract, directly deduct payments from any account opened by party A at China CITIC Bank to repay the entire debts (including the debts of advance repayment as required by party B) under this contract and each specific business contract, without the need to obtaining party A’s consent in advance; if party B has opened bank acceptance bills, letter of credit, letter of guarantee or assumes other contingent debts under specific business contract based on the application by party A, party B shall have the right to directly transfer the related payments from any account opened by party A at China CITIC Bank to party B’s own account, and use it to provision or pay the related payables without the need to obtain consent from party A in advance.

  9.3.8 Adopt other necessary measures allowed by laws and regulations.

  Under the circumstances above, party A agrees to unconditionally waive the right of defense and bear any and all losses caused to party B due to its breach of contract.

  9.4 Any and all expenses incurred from party B’s realization of creditor’s rights (including but not limited to litigious fee, arbitration fee, travelling expense, lawyer fee, assets preservation fee, notification fee, notarization fee, certification fee, translation fee, evaluation and auction fee, etc.) shall be at party A’s expense.

Article 10 Accumulation of Rights

  10.1 Party B’s rights under this rights are accumulative and shall not affect or eliminate any right that party B is entitled to based on laws and other contracts over party A. Unless expressed by party B in writing, party B’s failure to exercise, partial exercising and/or delayed exercising of any right shall not constitute waiver or partial waiver of such right, and shall not affect, obstruct or prevent party B’s continuous exercising of such right or exercising of any other right.

Article 11 Continuation of Obligation

  11.1 All the obligations and joint liabilities of party A under this contract are continuous, and have full binding force on its assets successor or heir, legal agent, receiver, transferee as well as the entity after its merge, separation, reorganization, shareholding reform, name change, etc., and shall not be affected by any dispute, claim or legal procedure or any contract or document signed between the debtor of main contract and any natural person or legal person, and shall not have any change due to any bankruptcy, insolvency, losing of enterprise qualification, change of articles of association or any substantial change of the debtor under the main contract.

Article 12 Effect, Change and Cancellation of Contract

  12.1 This contract shall come into effect after signed or stamped of official seal or special seal for contracts by party A’s legal representative or authorized agent and party B’s legal representative/principal or authorized agent (signature or stamp).

  12.2 After effect of this contract, unless otherwise agreed in this contract, neither party A nor party B may change or cancel this contract at will; if this contract indeed needs to be canceled, party A and party B shall reach a written agreement through negotiation.

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Article 13 Effect of This Contract

  13.1 If certain terms or partial content of certain terms under this contract is currently or in the future recognized as ineffective or canceled, the effect of other terms of this contract or other contents of such terms shall not be affected.

Article 14 Other Agreed Matters

  Party A and Party B agree that any unsettled businesses under <Comprehensive Credit Line Agreement> 2015 SYHZZ No. 0013 shall be incorporated into this agreement.                                                                  

Any conflict between this term and other terms shall be in accordance with this term.

Article 15 Applicable Laws

  15.1 This contract shall be applicable to the law of the People’s Republic of China (for the purpose of this contract, excluding the laws in Hong Kong, Macao and Taiwan).

Article 16 Dispute Settlement

  16.1 Any and all disputes incurred from or in connection with this contract shall be settled between party A and party B through negotiation; if negotiation fails, both parties agree to settle it in the following (2)    method:

  (1) Apply to        /              Arbitration Commission for arbitration, and use the currently effective arbitration rules at the time of arbitration;

  (2) File lawsuit to the People’s Court with jurisdiction where party B is located.

Article 17 Others

  17.1 For any matter not mentioned in this contract, party A and party B may reach a written agreement to be an appendix to this contract. Any and all appendixes, modifications and supplementations to this contract shall constitute inseparable parts of this contract and have equal legal effect with this contract.

  17.2 Any and all contracts and agreements that party B and party A enter into for each specific business shall constitute parts of this contract and constitute a contractual entirety with equal legal effect.

  17.3 Any and all matters relating to this contract such as notarization, registration, authentication, evaluation, preservation, transfer, withdrawal, etc. shall be handled by the applicant of the related matters according to law.

  17.4 Notice and delivery

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  17.4.1 The notices, requirements under this contract, debt collections involved in this contract, legal documents of litigation (arbitration) or other communications may be delivered to or sent to the addresses or contact means agreed in the first page of this contract.

  17.4.2 As for any and all notices, requirements, debt recollection letters and other communications from party B to party A under this contract, those made in form of telegraph, telephone, fax, email, etc. shall be deemed as having been sent to party A once they are sent out; those made in form of postal mails shall be deemed as having delivered to party A on the third day after mailing; as for personal delivery, the date of signing by party A shall be deemed as the date of delivery, if party A refuses to accept, the deliverer may adopt photographing, or video recording method to record the delivery process, and keep the related documents, which shall also be deemed as being delivered.

  17.4.3 Judicial departments or arbitration institutions may also use the addresses or contact means agreed in the first page of this contract to send to party A the related (legal) documents, if postal mail is adopted, the third day after the mailing date shall be deemed as the date of delivery to party A; if party A refuses to accept at personal delivery, the deliverer may adopt photographing, or video recording method to record the delivery process, and keep the related (legal) documents, which shall also be deemed as being delivered.

  17.4.4 If there is any change to the foresaid contact means provided by party A, party A shall notice party B in writing within three days after such change; after the debt under this contract enters into litigation or arbitration stage, the trying authority shall be notified in written form, or else, the notice or other documents sent out in the original contact means shall still be deemed as effective.

  17.5 This contract is made of  two  originals of same form, party A shall hold one  originals and party B shall hold  one  originals.

  17.6 Party B has adopted reasonable methods such as bolding, blackening and highlighting to remind party A to pay attention to the liability exemption or limitation clauses under this contract, and has made full explanation of the related terms as required by party A; party A and party B have no dispute over the understanding of all terms under this contract.

  (No text hereunder)

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(This page is contract signing page and has no text)

  Credit Grantee   (Official Seal or Special Seal for Contracts)

       Neophotonics (China) Co., Ltd. 

  Legal Representative:

  (or Authorized Agent)   Timothy Storrs Jenks

                                  Date:  10/21/2016              

  Party B (Official Seal or Special Seal for Contracts)

        Shenzhen Branch CITIC Bank

  Legal Representative:

  (or Authorized Agent)    Xuying Chen

                                  Date:  10/21/2016              

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Appendix: List of other companies that are authorized to use the comprehensive credit line under the “Comprehensive Credit Granting Contract”:

  All the authorized companies hereby commit that this company shall use the credit line under the “Comprehensive Credit Granting Contract” with serial No. of 2016 SYHZZ No.0020          , is subject to the binding by the foresaid “Comprehensive Credit Granting Contract” as Credit Grantee, and shall fulfill obligations and bear liabilities based on such contract.

  Name of Authorized Company:

  Legal Representative/Authorized Agent:

  Type and Amount of Available Credit Line:

  Official Seal:

  Date:

  Name of Authorized Company:

  Legal Representative/Authorized Agent:

  Type and Amount of Available Credit Line:

  Official Seal:

  Date:

                           The Authorizer: (Party A’s Signature and Seal)

                       Date: 

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EX-10.14

Exhibit 10.14

                                               Number:BC2016072500001474

Financing Credit Line Agreement

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                          Credit Line Agreement

Company: Neophotonics Dongguan Co., Ltd.                                       (hereinafter referred to as Client)

Principal Office Location: Section B of B9, Conrad High-Tech Park, Chang Nan Road, Shangsha Village, Zhen’An, Chang'An Town, Dongguan

Liaison:  Zhenyu Wei                          Telephone:13760128394

Bank: Shanghai Pudong Development Bank Company Limited Shenzhen                 Branch

(hereinafter referred to as Creditor） 

Principal Office Location: 25F International Chamber of Commerce Center Fuhua 3 road Futian District

Liaison:Zepeng Lian                             Telephone: 26480841

 The parties have, through amicable consultation and on the principle of fairness and mutual benefit, equally and voluntarily reached the following agreements according to applicable laws and regulations:

Section I General terms and conditions

1. Agreements refer to any and all instruments entered into by and between Client and Creditor within the term of credit line, including credit line change agreement (see Exhibit 1 for template) and attached financing instruments, and such instruments shall be read together with this Agreement in its entirety.

2. Credit Line For the purpose of this Agreement, term of Credit Line refers to the term specified by Credit Line List (see Section II for details) or required by any credit line change agreement reached by Client and Creditor, in which case the latest one prevails. Client shall apply Creditor for tapping into credit line within the term. Such application given after expiration of the term shall be refused by Creditor regardless of whether the related credit line has been used up.

3. Credit Line Change. In case of discrepancy between this provision and Credit Line List, the latter one (including credit line change made by Client and Creditor from time to time by a signed credit line change agreement) shall prevail. If any attached instruments executed by Client and Creditor within the term conflict with this Agreement, such instruments shall be applied to the services involved.

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 Notwithstanding the foregoing, Creditor reserves the right to notify Client of early expiration of any loan under any attached instruments in order to protect security of such loan where Creditor deems necessary to do so, in which case, Client is required to repay any debt due immediately and replenish any margin to a full amount for the letter of credit, bank guarantee/standby letter of credit and bank’s acceptance bill issued by Creditor upon request of Client.

4. Financing. This Agreement and attached financing documents define that Client may apply Creditor for credit financing (collectively referred to as Financing) based on credit line within the term as agreed, in which case the Credit Line List shall be applied to determine applicable financing type. Creditor offers irrevocable and revocable financing acceptance to Client under this Agreement. Revocable acceptance means that Creditor may (but is not obliged to) finance Client; while irrevocable one means that Creditor shall fulfill the obligations of acceptance under this Agreement as long as agreements on use of credit line and other prerequisites agreed by the parties concerning certain services have been are satisfied.

5. Attached Financing Documents For the purpose of this Agreement, Attached Financing Instrumentsrefer to the documents signed by Client and include but not limited to:

（1） working capital loan contract, fixed assets loan contract and any other loan documents signed by Client in case of the said service;

（2） discounting bill agreement and any other documents signed by Client in case of the said service;

（3） agreement of guaranteed discounting of commercial acceptance bill and any other documents signed by Client in case of the said service;

（4） factoring agreement and any other documents signed by Client in case of factoring financing;

（5） agreements on export bill credit, advance against documentary collection and any other instruments signed by Client in case of export bill credit (inclusive of domestic letter of credit) and advance against documentary collection;

（6） agreements on import bill credit and any other instruments signed by Client in case of the said service;

（7） packing loan agreements and any other instruments signed by Client in case of the said service;

（8） agreement of issuance of letter of credit and any other documents signed by Client in case of the said service;

（9） agreement of issuance of bank guarantee and standby letter of credit in case of the said service;

（10） agreement of issuance of bank acceptance bills and any other documents signed by Client in case of the said service;

（11） other financing documents entered into by and between Client and Creditor.

In respect of Client’s application of credit line, where terms and conditions under this Agreement and related requirements of Creditor are satisfied, Creditor may release financing fund to Client in accordance with this Agreement and attached financing instruments or give bank guarantee to external party upon request of Client. However, Client is not allowed to withdraw or change any signed or submitted financing application/agreement, otherwise Client is required to pay Creditor any costs, expenses and loss incurred to Creditor due to such withdrawal or change.

6. Submission of Documents. Client guarantees that the following documents have been provided or the conditions hereinafter have been satisfied prior to execution of this Agreement or according to related requirements by Creditor:

（1） Copy of Client’s latest articles of association, business license;

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（2） Resolutions of board of directors in authorizing Client to execute this Agreement and related attached financing documents;

（3） Power of attorney and signature sample of representatives of Client;

（4） All attached financing documents which have been signed by Client lawfully according to Creditor’s requirements;

（5） Other instruments or conditions required by Creditor.

7. Prerequisites on Use of Credit Line

The following prerequisites shall be satisfied prior to use of any credit line by Client:

（1） Client has normal business operation, sound finance state and not experienced significant deterioration in business performance in the latest three years;

（2） Client has not committed any breaches under credit line agreement;

（3） Where the loan under this Agreement is secured, related security instruments are supposed to have been executed, necessary procedures of mortgage/charge have been completed and the related security rights have been created prior to commencement of financing services by Creditor;

（4） Client is required to give express and clear Credit Line Use Plan; elements for application of certain services, comply with Creditor’s regulations and credit granting approval systems as well as requirements for financing services;

（5） Client has provided information concerning production, operation, finance activities and financial statements and undertakes to provide such information in a timely manner as well as accept supervision and inspection by Creditor within the term of this Agreement;

（6） Amount to be used shall not exceed balance amount of the credit line;

（7） Applications of certain services have to be given within the term of credit line, and loan release day or issuance day of letter of credit, bank guarantee/standby letter of credit, bank’s acceptance bill and other services falls on Creditor’s business day;

（8） Other prerequisites required by Creditor (see Section II Other Arrangements if applicable).

8. Used Credit Line refers to the loan which has been released by Creditor according to this Agreement and attached financial instruments at any time but not repaid by Client plus the amount of bank guarantee issued by Creditor upon request of Client, but such amount shall be minus the amount which was paid by Client or Client’s guarantor by cash collateral (inclusive of margin), unless otherwise additionally specified by the parties.

9. Revolving. In respect of revolving credit line, where Client has completed performance of obligations (inclusive of repayment of loan, replenishing margin to a full amount, release of payment obligations of Creditor to external party) under this Agreement and attached financing instruments, used credit line attributable to such obligations shall be recovered in the amount equivalent to the amount involved by the completed obligations, in which case Client is allowed to apply Creditor for credit line again within the related term. In respect of non-revolving credit line, used credit line shall not be recovered unless otherwise with consent by Creditor. Unless otherwise specified by this Agreement, Creditor reserves the right to reexamine Client’s operation state and related collateral in a yearly basis, in which case Client is allowed to use credit line in the coming year if such reexamination passed; while Creditor is entitled to cancel credit line for the coming year if such reexamination failed and any unused and to be repaid credit line shall not be allowed again except that currently effective attached financing instruments are not affected.

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10. Security. If credit line under this Agreement is secured, prerequisite for application of the financing contained herein is that Client has executed the related security instruments and such instruments have come into force. In case Credit Line List defines percentage of margin for letter of credit, bank guarantee/standby L/C and bank’s acceptance bill, prerequisite for application of issuance of the said instruments is that Client has paid margin in a full amount. If Client applies Creditor for change of credit line and such change causes credit line increase, Client shall give additional security or cause Guarantor confirm such change and additional security. Where credit line is granted continuously in the coming year upon reexamination by Creditor, Client is required to make sure that security in relating to such credit line remains effective.

11. Taxation. Client is required to repay financing fund at net amount and no deductions are allowed except that related taxations are imposed on such repayment by law. If Client is required to withhold the said taxation by law, a tax payment receipt shall be given to Creditor within fifteen (15) days following such withholding, in which case Client is required to compensate Creditor with such additional charges so that Creditor receives the repayment without any deductions.

12. Representations and Warranties. Client represents and warrants as below, and such representations and warranties shall be deemed to have been made by Client every time when Creditor grants financing to Client according to this Agreement and attached financing instruments and remain effective.

(1) Client is a corporation (enterprise) legal person and other economic organization incorporated according to applicable laws and has independent legal person qualification, complete finance system and repayment capacity, which is entitled to execute and fulfill this Agreement, sign this agreement and any related instruments, and has taken any necessary corporate action to make sure that this Agreement and any related instruments are lawful, valid and enforceable;  

(2) Execution and performance of this Agreement and obligations contained herein by Client are neither in violation of any signed contract or document, articles of association, any applicable laws, regulations or administrative order, related instruments, judgment, award by competent authority, nor conflict with any other obligations or arrangements of Client;

(3) Client, its shareholders and affiliates are neither involved in any liquidation, bankruptcy, reconstructing, acquisition, merger, division, reorganization, dissolution, winding up, shutdown, suspension of business or similar proceedings, nor any circumstance possibly causing such proceedings occurred;

(4) Client was neither involved in any economic, civil, criminal and administrative proceedings which may cause significant adverse impact, nor any circumstance possibly causing such involvement to the proceedings or similar arbitration procedures occurred;

(5) Material assets of Client’s legal representative, directors, supervisors or other senior managers and Client are neither involved any mandatory execution, seizure, lien, freezing, encumbrance, regulatory measures, nor any circumstance possibly causing such measures occurred;

(6) Client guarantees that the provided financial statements (if any) are in line with applicable laws, and true, complete and fair to reflect its finance state; all materials, documents and information (of Client or guarantor) provided for the purpose of execution and performance of this Agreement are true, effective, accurate, complete and without any concealment or omission;

(7) Client strictly complies with applicable laws and regulations to operate, carries on business activities strictly according to regulations defined by business license or business scope determined by law and goes through registration annual review procedures;

(8) Client has disclosed all important known or supposedly known facts and states (including but not limited to business conditions, finance state, security to external parties, etc.), on which Creditor depends to grant credit line under this Agreement;

(9) Client’s internal management documents concerning environmental and social risks are in line with

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legal requirements and have been implemented efficiently;

(10) Client warrants that there is no other circumstance or event which causes or may cause significant adverse impact on Client’s performance capabilities;

13. Commitments. Client undertakes as below, and such commitments shall be deemed to have been made by Client every time when Creditor grants financing to Client according to this Agreement and attached financing instruments and remain effective.

（1） Client shall strictly abide by this Agreement and fulfill the obligations contained herein and its attached financing instruments；

（2） Unless otherwise specified in this Agreement or attached financing instruments, Client is required to replay financing fund or out-of-pocket fund in a timely manner or replenish margin to a full amount upon request of Creditor according to this Agreement and attached instruments; Client shall apply for, obtain and comply with verification, authorization, registration and permit required by applicable laws and regulations, and maintain effectiveness of such official permits so that Client has the lawful power to sign and execute this Agreement and obligations under any documents related to this Agreement; upon request of Creditor, Client shall immediately give the relevant proof；

（3） Client is required to give Creditor notice in writing within five (5) Creditor’s business days where Client is aware of its involvement in any economic, civil, criminal, administrative proceedings or similar proceedings which may cause significant adverse impact or where Client learns that its key assets are involved to any mandatory execution, seizure, lien, freezing, encumbrance, regulatory measures, and such notice shall state the consequences and remedy measures which have been taken or are to be taken；

（4） Without prior written consent of Creditor, Client is not allowed to offer any third party security which is sufficient to cause significant adverse impact on its finance position or its obligations performance under this Agreement;

（5） Without prior written consent of Creditor, Client is not allowed to repay other long-term debt and such repayment has significant adverse impact on Client’s obligations performance under this Agreement;

（6） Following the day of execution of this Agreement and prior to full repayment of entire debts under this Agreement and attached financing instruments, without prior written consent of Creditor, Client is not allowed to:

a) Proceed liquidation, reconstructing, bankruptcy, merger, acquisition, division, reorganization, dissolution, winding-up, shutdown, suspension of business or similar proceedings;

b) In addition to demand of day-to-day operation, sell, lease, donate, transfer or dispose its significant assets in any other manner;

c) Change shareholding structure;

d) Sign contract / agreement which has significant adverse impact on performance capacity of obligations under this Agreement or assume any obligations with similar impact.

（7） In case security under this Agreement suffers certain circumstance or certain change, upon request of Creditor, Client is required to give other security recognized by Creditor. Such circumstance or change includes but not limit to suspension of production or business, dissolution, business interruption for rectification, revoking or cancelation of business license, voluntary or mandatory application for reorganization and bankruptcy, material change of operation or financial position, involvement to significant litigation or arbitration cases, litigation of legal representative / responsible person, arbitration or other mandatory measures, decrease or possible decrease of collateral’s value, property preservation measures taken by seizure, breaches under security contract and request to terminate such security contract, etc. ;

（8） Upon request by Creditor, Client shall go through notarization (with mandatory enforcement

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effect) procedures with notary public authority recognized by Creditor, in which case Client shall accept such mandatory enforcement；

（9） Client shall notify Creditor of any events which may impact performance of obligations under this Agreement and any other instruments related；

（10） Special agreements for Group Client (Group Client applicable).

If Client is a Group Client, the following commitments are required:

a) Client is required to promptly report the final grantee’s related-party transaction involving above 10% of net assets, including: a. relationship of the transaction parties; b transaction project and nature of the transaction; c. transaction amount or corresponding proportion; d. pricing policy (including transaction involving no specific amount or only with nominal amount);

b) If the final grantee is under one of the following circumstances, Client shall be deemed in violation of this Agreement, in which case Creditor has the right unilaterally decide to cancel Client’s unused credit and recover entire or partial used credit or require Client to add margin to 100%: a. provide false information or conceal important operational and financial facts; b. change intended usage of credit line without prior consent of Creditor, misappropriate credit or use such credit to engage in illegal or unlawful transactions; c. take advantage of false contract with related-party, and take receivable notes, receivable accounts and other creditor notes which contain no real trading to apply for bank discounting or pledge to defraud money or credit from the bank; d. refuse to accept supervision and inspection by Creditor on fund use and related operational and financial  activities; e. have material mergers, acquisitions and restructuring which in Creditor’s opinion may affect safety of credit; f. evade debts owning to bank by related-party transactions.

（11） Special guarantees and commitments to green credit and arrangements (applicable to clients engaged in nuclear power plants, large-scale hydropower plant, water projects, resource extraction projects and other projects having construction, production and business activities possibly significantly change environmental status and cause adverse environmental and social consequences which are not easily eliminated, as well as petroleum processing, coking and nuclear fuel processing, chemical materials and chemical products manufacturing and its construction, production and business activities causing negative environmental and social consequences which are not easily eliminated through mitigation measures):

a) Client represents and warrants to manage environmental and social risks well, including: a. internal management documents concerning environmental and social risks are in line with legal requirements and have been implemented efficiently; b. there is no critical mitigations related to environmental and social risks;

b) Client undertakes to accept Creditor’s supervision, strengthen environmental and social risk management, including: a. undertake to keep all behavior and performance associate with environmental and social risks in compliance with related regulations; b. undertake to set up and improve a sound internal management system on environmental and social risks, and define detailed duties, obligations and penalties to related responsible persons; c. undertake to set up and improve emergency response mechanisms and measures for environmental and social risks; d. undertake to set up specialized department or appoint a specialized person to be in charge of environmental and social risk issues; e. undertake to assist Creditor or the third party recognized by Creditor to have environmental and social risk evaluation and examination; f. undertake to give proper response or take other necessary actions facing serious disputes raised by the public or other interest-related parties on Client’s control performance for environmental and social risks; g. undertake to urge Client’s key related-parties to strengthen their management to prevent impact from such parties’ environmental and social risks; h. undertake to fulfill other obligations which Creditor deems related with

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control environmental and social risks.

c) Client undertakes to report promptly and sufficiently to Creditor in case of the following circumstances: a. permit, approval and inspection related with environmental and social risks in the course of project commencement, construction, operation and shutdown; b. assessment or inspection by environmental and social risks regulatory bodies or accredited institution; c. environment-related supporting facilities construction and operation; d. discharge of pollutants and compliance; e. safety and health of employees; f. complaints and protest by surrounding communities against Client; g. major environmental and social claims; h. other major cases related with environmental and social risks as Creditor deems so;

d) If Client and the final grantee is under one of the following circumstances, Client shall be deemed in violation of this Agreement: a. representations and warranties made by Client concerning environmental and social risk management are not implemented with due diligence; b. Client is punished by relevant authority due to poor management of environmental and social risks; c. Client is seriously questioned by the public of media due to poor management of environmental and social risks; d. other defaults agreed by Creditor and Client concerning environmental and social risk management, including the cross-default event;

In case of the defaults mentioned above, Creditor has the right to unilaterally decide: a. withdraw credit acceptance; b. interrupt release of loan until Client takes remedial measures satisfying Creditor; c. collect released loan early; d. execute related mortgage and pledge rights and other penalty measures early in case of failure to repay the loan; e. other penalty measures agreed by Creditor and Client.

（12） Client / Guarantor agrees and irrevocably authorizes that Creditor is entitled to provide information about entire contract/agreement/commitments entered into by and between Client/Guarantor and Creditor, including aforesaid contract/agreement/commitment of performance, as well as company profile and other information provided by Client/Guarantor to state-owned financial credit information database for credit inquiry by entities with approved access as long as Creditor is not in violation of prohibitive regulations under Credit Reference Administration Rules and applicable laws and regulations and makes such disclosure according to reference collection requirements of the database; meanwhile Creditor has the right to inquire and use Client/Guarantor’s credit information which has been input to the database. The aforesaid authorization extend to the whole procedures from execution of this Agreement to service management in the course of this Agreement, which shall be void upon actual termination of this Agreement;

（13） Client hereby confirms that it has fully understood and been informed of the principle that Creditor forbids its employees to seek any form of interests by taking advantage of job position and undertakes to prevent such circumstance on the principle of honesty and fairness, not to offer privately Creditor’s employees any rebates, cash gifts, valuable securities, precious items, incentives, private expenses compensation, personal travel, high-value entertainment and consumption as well as other improper benefits.

14. Expenses and Costs. Client shall assume related expenses and costs according to applicable laws, regulations and this Agreement.

15. Penalty Interest. Overdue penalty interest, misappropriation penalty, calculation and payment arising out of the financing under this Agreement shall be defined by the Credit Line List or attached financing instruments.

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16. Currency Conversion. If currency of financing fund is different as the currency of credit line in calculating used credit line, Creditor has the right to have conversion at related exchange rate determined by itself. If at any time total amount of used credit line exceeds the maximum credit line under this Agreement due to vibration of exchange rate, Creditor has the right to require Client immediately repay the exceeding amount. If the Client repays (including authorized repayment) by the currency different as the financing currency, Creditor has the right to go through the repayment procedures at the exchange rate determined by itself, in which case exchange rate risk shall be borne by Client.

17. Authorized Repayment and Offsetting. Client hereby authorizes Creditor (on behalf of Client) to allocate the balance (in any currency) of Client’s bank account opened at Shanghai Pudong Development Bank Company Limited to repay directly any unrepaid maturing debt, and such authorization is irrevocable, in which case Creditor shall apply exchange rate determined by itself for conversion if applicable, and exchange rate risk shall be borne by Client.

18. Debt Books. Creditor shall maintain accounts and books which are related with business activities under this Agreement and attached financing instruments in accordance with Creditor’s operational guidelines. In addition to obvious error Client acknowledges that such accounts and books or other valid supporting materials are the effective proof of Client’s debt except for any significant errors.

19. Transfer. Client shall not transfer any rights or obligations under this Agreement. Creditor has the right to transfer rights or obligations under this Agreement to any third party at any time and disclose such third party any information concerning this Agreement, including any and all information provided by Client and Guarantor for the purpose of this Agreement.

20. Information Disclosure. Client agrees that: except for disclosure under Article 19, Creditor may disclose any and all information in relating to this Agreement to its headquarters, branches, affiliates and staff employed by such affiliates, meanwhile disclosure by Creditor to regulatory authorities, government or judicial authorities by laws and regulations is also allowed.

21. Default. If Client is in violation of any representations and warranties under this Agreement or such representations and warranties are proved to be inaccurate, untrue, or omission or misleading or have been violated, and Client breaches or refused to perform any part of this Agreement or Client breaches this Agreement or any attached financial instruments or Client suffers any event which may affect safety of loan of Creditor, or Guarantor violates security instrument, the aforesaid circumstances all constitute Client’s default to this Agreement and attached financing documents, in which case Creditor is entitled to claim Client for any and all losses (inclusive of attorney fees) in addition to take (but not be obliged to take) the following measures separately or simultaneously:

（1） Adjust or cancel credit line under this Agreement；

（2） Declare that all debts under any attached financial instruments of this Agreement due early, and/or terminate entire or partial Agreement and attached financing instruments, require Client immediately repay all or partial principal and interests of the loan. For letter of credit, bank guarantee/standby letter of credit which has been accepted by Creditor within the term, Creditor has the right to require Client add margin or allocate balance of Client’s deposit account or settlement account as margin for external

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payments or future out-of-pocket payments for Client; if Creditor has paid out-of-pocket expenses, Creditor has the right to repay such expenses immediately;

（3） Interests shall be calculated according to penalty interest rate under this Agreement or attached financing instruments and the unpaid overdue interests shall be charged compound interests;

（4） Deduct any deposits of Client’s bank account opened by Creditor in accordance with Article 17 under this Agreement.

22. Applicable Law and Jurisdiction This Agreement is governed by and constructed according to the laws of the People's Republic of China (for the purposes of this Agreement, the PRC exclusive of Hong Kong, Macao and Taiwan). Any dispute in connection with this Agreement shall be resolved through amicable consultations; should such consultation fails, appeal can be filed to the people's court with jurisdiction over Creditor. The parties shall continue perform the not involved part of this Agreement in the course of such appeal.

23. Address of Service. Client acknowledges that summons, notice and other juridical instruments arising out of any proceedings under this Agreement shall be deemed to have been served as long as such instruments have been delivered to the addresses set forth in this Agreement, and any change of address shall not be accepted by Creditor if such change was not notified to Creditor in advance. 

24. Notice. Notice given by one party to the other party shall be delivered to the addresses set forth in this Agreement until either party notifies the other party in writing of change of address. As long as such notice was delivered to the addresses set forth in this Agreement, it shall be deemed validly given on: the seventh (7th) business day of Creditor following registered mailing of the letter; the signing day of receipt if delivered by hand; the sending day if delivered by fax or e-mail. However, all notices, requests or other communications sent to Creditor shall be only deemed validly given when Creditor actually received, in which case all original versions of such communications shall be delivered by hand or by post to Creditor for confirmation.

25. Severability of Provisions. If any provisions of this Agreement or attached financing instruments turn to be invalid, unlawful or unenforceable, such provisions shall not affect validness, lawfulness and enforceability of the remaining provisions of this Agreement or any other attached financing instruments.

26. Grace. If Creditor allows any grace or suspends to take measures for Client’s any default or other acts, such grace or suspension shall not impair, affect or limit any and all rights or interest of Creditor by law or as a Creditor under this Agreement, and also constitute neither acceptance of Client’s default to this Agreement, nor waive by Creditor to take actions against Client’s current or future default.

27. Relation of Prior Credit Grant with this Agreement. Unless otherwise agreed by the parties, if there has been an existing credit grant agreement entered into by and between Client and Creditor, any unrepaid balance under such agreement shall be automatically integrated into this Agreement and directly account for the credit line under this Agreement. Client undertakes to obtain confirmation from Guarantor of debt under the originally existing agreement to continue security for the debt under this Agreement.

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28. Effectiveness. This Agreement comes into force upon signatures (or seals) by Client’s Legal Representative or authorized signatory and official seal as well as signatures (or seals) by Creditor’s Legal Representative or authorized signatory and official seal (or Contract Seal). This Agreement remains effective unless Creditor cancels entire credit line and there is no financing or debt balance under this Agreement and attached financing instruments.

(The End of Section I)

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Section II

Client Name: Neophotonics Dongguan Co., Ltd.
Credit Line Descriptions
Amount of Credit Line (Currency)	Risk exposure amount  RMB30 million		Term of Credit Line (dd/mm/yyyy)				From Jul 25,2016   to Jul 25,2019
Revolving or non-revolving credit line	√□Revolving    □Non-revolving    □Other
Credit Line Type	√□Revocable    □Irrevocable
Guarantor of debt under this Agreement and security contract including but not limiting to:
Guarantor	Neophotonics (China) Co.,Ltd.	Security mode			□Mortgage; □Pledge; √□Guarantee
Guarantor	／	Security mode			□Mortgage; □Pledge; □Guarantee
Guarantor	／	Security mode			□Mortgage; □Pledge; □Guarantee
Percentage of margin	□Guaranteed discounting%;□Bank’s acceptance bill%;□Bank’s guarantee/standby L/C%; □Other
Applicable financing product and credit line requirement (please use √ for checked one and X for unchecked one)
	Applicable financing product			Credit Line (Amount, currency)		Interest/rate		Maximum term of a single service	Notes
□	Loan
	□Working capital loan
	□Fixed asset loan
□	Trading financing
	□Issue bank’s acceptance bill

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	□Commercial bill discounting (agreed interest payment)
	□Bank’s acceptance bill discounting
	□Guaranteed commercial bill discounting (Client as Acceptor)
	□Factoring financing
	□Issue L/C (usance credit payable at sight Incd.)
	□Import bill advance (under L/C/import collection)
	□Export L/C advance
	□Export collection advance
	□Packing loan
	□Issue guarantee/standby L/C
	□Import prepayment
	□Outward remittance financing
	□Import payables guarantee
	□Buyer’s financing via domestic L/C
□	□Other

13

Other arrangements: Credit line and term shall be reviewed and approved annually by the financing bank, the use of credit line shall be based on the approval. Under the total

14

credit line, the applicable financing products and the allocated credit lines and the adjustment shall be based on the approval.                        

15

Special notes:

(1)

Total amount of credit line used by all applied financing products shall not exceed the maximum credit line at any time. If Client intends to separate a single financing product from the other applied products with regard to its credit line, the credit line for such product is required to be stated separately.

(2)

If Client is the mortgagor or pledger, Client’s name or Client is filled in the box opposite to the Guarantor.

(3)

Interest rate of Chinese Yuan is annual rate, and floating interest rate is required with floating period. Single amount or ratio can be filled in for the expense ratio.

This Agreement is made in  5  copies, 1 of which (is) are held by Client and 4 of which (is) are held by Creditor. /  Held(s) / . All of such copies constitute the same instrument and have equal legally effect.  

(The rest of this page is intentionally left blank)

16

(This page is for signatures and contains no main body)

This Agreement was entered into by and between the parties on July 25, 2016. Client acknowledges that the parties have made detailed descriptions and discussions concerning entire terms and conditions contained herein when such Agreement was executed, have no disputes on the terms and conditions and understand accurately the limitation of rights, obligations and liabilities or legal interpretation of exemption provisions.

Client (Company Seal)	Creditor (Company Seal or Contract Seal)
Legal Representative or Authorized Signatory (Signature or Seal)	Legal Representative or Authorized Signatory (Signature or Seal)

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Exhibit 1:

Credit Line Change Agreement (Template)

Number:

Client			Creditor	Shanghai Pudong Development Bank Company Limited Branch
According to Financing Credit Line Agreement (number: ) entered into by and between Client and Creditor, the parties have, through mutual consultation, reached agreement on change issues in relating to financing credit line granted by Creditor. The parties acknowledge that this Change Agreement constitutes an integral part of the Financing Credit Line Agreement. The rest provisions under the Financing Credit Line Agreement shall be not changed and remain effective except for provisions under this Change Agreement.
Main changes	□Amount of financing credit line □Term of credit line □Financing product □Security mode □Other
Client and Creditor acknowledge that changed financing credit line is stated as below:
Amount of Credit Line (Currency)				Term of Credit Line (dd/mm/yyyy)
Revolving or non-revolving credit line				□Revolving   □Non-revolving    □Other
Credit Line Type				□Revocable   □Irrevocable
Guarantor of debt under this Agreement and security contract including but not limiting to:
Guarantor		Security mode			□Mortgage; □Pledge; □Guarantee
Guarantor		Security mode			□Mortgage; □Pledge; □Guarantee
Guarantor		Security mode			□Mortgage; □Pledge; □Guarantee
Percentage of margin	□Guaranteed discounting%;□Bank’s acceptance bill%;□Bank’s guarantee/standby L/C%; □Other

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Applicable financing product and credit line requirement (please use √ for checked one and X for unchecked one)
	Applicable financing product	Credit Line (Amount, currency)	Interest/rate	Maximum term of a single service	Notes
□	Loan
	□Working capital loan
	□Fixed asset loan
□	Trading financing
	□Issue bank’s acceptance bill
	□Commercial bill discounting (agreed interest payment)
	□Bank’s acceptance bill discounting
	□Guaranteed commercial bill discounting (Client as Acceptor)
	□Factoring financing
	□Issue L/C (usance credit payable at sight Incd.)
	□Import bill advance (under L/C/import collection)
	□Export L/C advance
	□Export collection advance
	□Packing loan

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	□Issue guarantee/standby L/C
	□Import prepayment
	□Outward remittance financing
	□Import payables guarantee
	□Buyer’s financing via domestic L/C
□	□Other
Other arrangements:
This Agreement is made in copies, of which (is) are held by Client and of which (is) are held by Creditor. Held(s) . All of such copies constitute the same instrument and have equal legally effect.
Signed by Client		Signed by Guarantor
Client (Company Seal): Legal Representative or Authorized Signatory (Signature or Seal) Day/Month/Year		Guarantor hereby acknowledges that it has been informed of the aforesaid changes and shall carry security obligations for the principal debt upon effectiveness day of this Change Agreement. Confirmed! Guarantor (Company Seal): Legal Representative or Authorized Signatory (Signature or Seal) Day/Month/Year
Signed by Creditor

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Creditor (Company Seal or Contract Seal):

21

Legal Representative or Authorized Signatory (Signature or Seal):

Date: Day/Month/Year

22

23

EX-10.7

Exhibit 10.7

LEASE

3081 ZANKER ROAD

SAN JOSE, CALIFORNIA

SP ZANKER PROPERTY, LLC

a Delaware limited liability company,

as Landlord,

and

NEOPHOTONICS CORPORATION,

a Delaware corporation,

as Tenant.

TABLE OF CONTENTS

1.	DEMISE OF PREMISES
2.	USE.
3.	TERM.
4.	SECURITY DEPOSIT.
5.	RENT.
6.	RULES AND REGULATIONS AND COMMON AREA.
7.	PARKING.
8.	EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX.
9.	ACCEPTANCE AND SURRENDER OF PREMISES.
10.	“AS-IS” BASIS.
11.	ALTERATIONS AND ADDITIONS.
12.	TENANT MAINTENANCE.
13.	UTILITIES.
14.	TAXES.
15.	CABLING AND LINES.
16.	ABATEMENT.
17.	TENANT’S INSURANCE.
18.	PROPERTY AND LANDLORD’S LIABILITY INSURANCE.
19.	WAIVER OF CERTAIN CLAIMS.
20.	INDEMNIFICATION.
21.	COMPLIANCE.
22.	LIENS.
23.	SUBLEASING, ASSIGNMENT AND OTHER TRANSFERS.
24.	ESTOPPEL CERTIFICATES; SUBORDINATION; LENDER PROTECTIONS.
25.	ENTRY BY LANDLORD.
26.	TENANT'S DEFAULTS; LANDLORD'S REMEDIES.
27.	ABANDONMENT.
28.	DAMAGE AND DESTRUCTION.
29.	EMINENT DOMAIN.
30.	SALE OR CONVEYANCE BY LANDLORD.
31.	EXTENSION AND EXPANSION RIGHTS.
32.	HOLDING OVER.
33.	QUIET ENJOYMENT.
34.	CONSTRUCTION CHANGES.
35.	[OMITTED]
36.	ATTORNEYS’ FEES.
37.	WAIVER.
38.	NOTICES.
39.	EXAMINATION OF LEASE.
40.	DEFAULT BY LANDLORD.
41.	[OMITTED]
42.	LIMITATION OF LIABILITY.
43.	SIGNS.
44.	Utility Billing Information.
45.	Rooftop Equipment.
46.	HAZARDOUS MATERIALS.
47.	BROKERS.
48.	MISCELLANEOUS AND GENERAL PROVISIONS.

ii

LEASE AGREEMENT

THIS LEASE AGREEMENT (this “Lease”) is entered into this 9th day of September, 2016 (the “Effective Date”), by and between SP ZANKER PROPERTY LLC, a Delaware limited liability company (“Landlord”), and NEOPHOTONICS CORPORATION, a Delaware corporation (“Tenant”).

WITNESSETH:

1. DEMISE OF PREMISES.  Subject to the terms and conditions in this Lease, Landlord hereby leases to Tenant, and Tenant hereby hires and takes from Landlord, all of that certain two-story building (the “Building”) consisting of 64,000 square feet of rentable space (but without warranty as to square footage) located at 3081 Zanker Road, San Jose, California, together with that portion of the Land (as defined below) on which the Building is located, and any areas located on the Land that are contiguous to the Building and that provide access to the Building, including the front entranceway and any loading areas that exclusively serve the Building (collectively with the Building, the “Premises”).  The Building is depicted on the site plan (the “Site Plan”) attached as Exhibit A-1 to this Lease.  The Site Plan depicts the office complex (the “Complex”), of which the Building forms a part, located on the land (the “Land”) that is legally described on Exhibit A-2 attached hereto.  The parties hereby acknowledge that the purpose of Exhibit A-1 is to show the approximate location of the Premises in the Complex (as defined below) and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the Common Areas (as that term is defined in Paragraph 6), or the elements thereof or of the access ways to the Premises or the Complex.  As used in this Lease, the term “Complex” or the “Property” means the Premises, a second building comprising 116,000 square feet of space (the “Other Building” and, together with the Building, the “Buildings”), surface parking areas (collectively, the "Parking Area" or “Parking Areas”), and certain other improvements on the Land that are or may be reasonably designated from time to time by Landlord as Common Areas appurtenant to or servicing the Buildings, and all other improvements, fixtures and equipment now or hereafter situated on the Land.  This Lease is made upon and subject to the terms, covenants and conditions hereinafter set forth, and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of such terms, covenants and conditions. 

2.  USE.  Tenant shall use the Premises for general office, research and development, and electronics laboratory uses necessary for Tenant to conduct Tenant’s business, provided that such uses shall be in accordance with all applicable Laws and for no other purpose.  As used herein, the term “Laws” means all laws, regulations, rules, codes, ordinances, policies, and other orders and directives of all governmental authorities, judicial decisions, statutes, resolutions, regulations, administrative orders, or other requirement of any governmental agency or authority having jurisdiction over the parties to this Lease, the Premises and/or the Complex, whether in effect at the date of execution of this Lease or at any time during the Term, including, without limitation, the Americans With Disabilities Act (“ADA”) and any regulation, order, or policy of any quasi-official entity or body (e.g., board of fire examiners, public utility or special district).  Tenant shall comply with all recorded covenants, conditions, and restrictions currently affecting the Complex.  Additionally, Tenant acknowledges that the Complex may be subject to any future covenants, conditions, and restrictions (the "CC&Rs") which Landlord, in Landlord’s reasonable discretion, deems necessary or desirable, and Tenant agrees that this Lease shall be subject and subordinate to such CC&Rs; provided, however, that from and after the Effective Date Landlord will not attempt to make the Premises or Complex subject to any new CC&Rs or modifications of existing CC&Rs which would unreasonably impair Tenant’s ability to use or have access to the Premises or the

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associated parking areas or which would unreasonably diminish Tenant’s rights hereunder (other than in a de minimus manner) or materially increase Tenant’s costs hereunder without the prior written consent of Tenant.  Landlord shall have the right to require Tenant to execute (or make good faith and reasonable corrective comments to) and acknowledge, within fifteen (15) business days of a request by Landlord, an agreement in form and substance reasonably acceptable to Landlord and Tenant agreeing to and acknowledging the CC&Rs.  Tenant shall not do or permit to be done in or about the Premises or the Complex nor bring or keep or permit to be brought or kept in or about the Premises or the Complex anything that is prohibited by or will in any way increase the existing rate of (or otherwise adversely affect) any fire insurance or other insurance covering the Complex or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Complex or any part thereof, or any of its contents.  Tenant shall not do or permit to be done anything in, on or about the Premises or the Complex that will in any way obstruct or interfere with the rights of other tenants or occupants of the Complex or injure them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or the Complex.  No sale by auction shall be permitted on the Premises.  Tenant shall not place any loads upon the floors, walls, or ceiling that endanger or impair the Building Structure (defined in Paragraph 11(a)), or place any harmful fluids or other materials in the drainage system of the Building, or overload existing electrical or other mechanical systems.  No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the Building, except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the Building where designated by Landlord.  No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises or on any portion of the Common Areas.  Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall that may reasonably be deemed to appear unsightly from outside the Premises.  No loudspeaker or other device, system or apparatus that can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord.  Tenant shall not commit or suffer to be committed any waste in or upon the Premises subject to Paragraph 19 below.  Tenant shall indemnify, defend, protect, and hold Landlord and its Mortgagees, officers, partners, members, shareholders, trustees, parent companies, directors, employees, representatives, successors and assigns (each, an “Indemnified Party” and collectively, the “Indemnified Parties”) harmless from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses, disbursements, demands and claims, including attorneys’ fees and costs incurred as a result of such claims or in enforcing this indemnification provision (collectively, “Claims”), arising out of any failure of Tenant or any person controlled by Tenant to comply with any applicable Law relating to the Premises or Tenant’s use thereof or for which Tenant is otherwise obligated to comply under the terms of this Lease.  The provisions of this Paragraph 2 are for the benefit of Landlord and the other Indemnified Parties only and shall not be construed to be for the benefit of any other tenant or occupant of the Complex other than Tenant.  Landlord and Tenant hereby acknowledge that the Premises has not undergone inspection by a Certified Access Specialist (CASp).

3. TERM. As used herein, (i) the term “Delivery Date” will be the date that the Premises are delivered by Landlord to Tenant, free and clear of the current tenant’s occupancy (such delivery being referred to as “Delivery”), (ii) the term “Construction Period” shall mean the three (3) month period after the Delivery Date, and (iii) the “Commencement Date” shall be the later of (a) January 1, 2017 (the “Anticipated Delivery Date”) or (b) seven (7) days after the Delivery Date.  For purposes of this Paragraph 3 and Paragraph 5, “Delivery” shall be deemed to have occurred if Landlord offers to tender possession of the Premises to Tenant in the condition required by the preceding clause (i) but Tenant fails to provide the evidence of insurance and insurance endorsements required by the terms of this Lease.  The term of this Lease (the “Term”) shall commence as of the Commencement Date and shall end on the last day of the month falling one hundred twenty nine (129) full months after the Commencement Date (the “Expiration Date”).  By way of example, if the Delivery Date (and hence the Commencement Date)

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occurs on the Anticipated Delivery Date, then the Expiration Date will be September 30, 2027, and if the Delivery Date occurs on January 10, 2017 (i.e., after the Anticipated Delivery Date), then the Expiration Date shall be October 31, 2027.  During the Construction Period, Tenant and Tenant’s representatives, vendors, employees and contractors shall have the right to enter the Premises for the purposes of installing and constructing the Tenant Improvements pursuant to the provisions of the Tenant Work Letter and of installing Tenant’s personal property and equipment, furniture, fixtures, voice and data cabling, as well as occupying the Premises for the conduct of Tenant’s business operations prior to the Commencement Date, all subject to the terms, conditions and requirements of this Lease other than the obligation to pay Base Rent (hereinafter defined) or the Direct Expenses (hereinafter defined).  Tenant agrees that if for any reason Landlord is unable to achieve Delivery on or before the Anticipated Delivery Date, Tenant shall have no right to terminate this Lease and Landlord shall not be liable for any damage resulting from such inability, but except to the extent such delay is the result of the acts or omissions of Tenant, the Commencement Date, the Rent Commencement Date (as defined in Paragraph 5(a)) and the Additional Rent Commencement Date (as defined in Paragraph 5(h)) shall be delayed beyond the Target Rent Commencement Date and the Target Additional Rent Commencement Date (each as hereafter defined) on a day-for-day basis for each day of such delay in Delivery.  At any time after the Commencement Date, Landlord shall have the right to submit to Tenant an amendment to this Lease in the form of Exhibit B to this Lease (the “Amendment”) confirming the Commencement Date, the Expiration Date, the Rent Commencement Date, the Base Rent Schedule and such other terms as may reasonably be provided in such amendment, and Tenant shall execute (or make good faith and reasonable corrective comments to) and deliver the Amendment to Landlord within ten (10) business days after Tenant’s receipt thereof.  If Tenant fails to execute (or make good faith and reasonable corrective comments to) and return the Amendment within such ten (10) business day period, Tenant shall be deemed to have approved and confirmed the dates set forth therein, provided that such deemed approval shall not relieve Tenant of its obligation to execute and return the Amendment.

4.  SECURITY DEPOSIT.  Concurrently with the execution and delivery of this Lease, Tenant shall deposit with Landlord a security deposit in an amount equal to two (2) months of the Base Rent payable during the last month of the Term (i.e., Three Hundred Eighty-Seven Thousand Forty-Seven and 92/100 Dollars ($387,047.92)) (the “Security Deposit”).  Landlord shall hold the Security Deposit as security for the faithful performance by Tenant of all of the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Term hereof.  If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of Rent and any of the monetary sums due herewith, Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any other amount which Landlord may spend by reason of Tenant’s default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default.  If any portion of the Security Deposit is so used or applied, within ten (10) business days after Landlord’s written demand therefor, Tenant shall deposit cash with Landlord in the amount sufficient to restore the Security Deposit to its original amount.  Tenant’s failure to do so shall be a material breach of this Lease.  Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit.  If Tenant fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or at Landlord’s option, to the last assignee of tenant’s interest hereunder) within sixty (60) days after the expiration of the Term and after Tenant has vacated the Premises and has satisfied all conditions to the return of such funds, including without limitation the performance of Tenant’s surrender and other obligations under this Lease.  In the event of termination of Landlord’s interest in this Lease, Landlord shall transfer the Security Deposit to Landlord’s successor in interest, whereupon Tenant shall be deemed to have released Landlord from all liability for the return of such Deposit or the accounting therefor.  Nothing in this Paragraph 4 shall be construed to limit the amount of damages recoverable by Landlord or any other remedy to the amount of the Security Deposit.  Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code, and all

3

other provisions of any Laws, now or hereinafter in force, to the extent the same restricts the amount or types of claim that a landlord may make upon a security deposit or imposes upon a landlord (or its successors) any obligation with respect to the handling or return of security deposits.  Landlord and Tenant agree that Landlord may, in addition, claim those sums reasonably necessary to compensate Landlord for any foreseeable or unforeseeable loss or damage caused by the act or omission of Tenant.  Tenant may not assign or encumber the Security Deposit, and any attempt to do so shall be void and, in all events, not binding upon Landlord.

5.  RENT.

(a) Base Rent.  From and after the Rent Commencement Date, Tenant shall pay, without notice or demand, to Landlord, or at such other place as Landlord may from time to time designate in writing at least ten (10) business days before the effective date of the change in the Rent payment address, in cash or other immediately available good funds, base rent (“Base Rent”), payable in monthly installments as set forth in the Base Rent Schedule set forth below, in advance on or before the first (1st) day of each and every month during the Term, without any setoff or deduction whatsoever except as expressly set forth herein.  As used in this Lease, the term “Rent Commencement Date” means the date that is nine (9) months after the Commencement Date.  The Rent Commencement Date is anticipated to be October 1, 2017 (the “Target Rent Commencement Date”), provided that if the Delivery Date occurs after the Anticipated Delivery Date, then for each day after the Anticipated Delivery Date that elapses until the actual Delivery Date occurs, the Rent Commencement Date shall be extended by the same number of days.  The period of time elapsing between the Commencement Date and the Rent Commencement Date is referred to as the “BaseRent Abatement Period.”  Base Rent shall increase by three (3%) on the first day of the first full calendar month that is twelve (12) months after the Commencement Date (the “First Adjustment Date”) and on each subsequent anniversary of the First Adjustment Date (each, an “Adjustment Date”), as set forth in the Base Rent Schedule set forth below.  The First Adjustment Date is anticipated to occur on January 1, 2018.

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BASE RENT SCHEDULE

Months
Months	Monthly Base Rent
Commencement Date until Rent Commencement Date	$0.00 (Abated)*
Rent Commencement Date until First Adjustment Date	$144,000.00
First Rent Adjustment Date until Second Adjustment Date	$148,320.00
Second Adjustment Date until Third Adjustment Date	$152,769.60
Third Adjustment Date until Fourth Adjustment Date	$157,352.69
Fourth Adjustment Date until Fifth Adjustment Date	$162,073.27
Fifth Adjustment Date until Sixth Adjustment Date	$166,935.47
Sixth Adjustment Date until Seventh Adjustment Date	$171,943.53
Seventh Adjustment Date until Eighth Adjustment Date	$177,101.84
Eighth Adjustment Date until Ninth Adjustment Date	$182,414.89
Ninth Adjustment Date until Tenth Adjustment Date	$187,887.34
Tenth Adjustment Date until Expiration Date	$193,523.96

*The abatement of Base Rent during the Base Rent Abatement Period is subject to Paragraph 5(h) below.

(b) Additional Rent and Rent Defined.  As used herein, the term “Additional Rent” means Operating Expenses (as defined below), Management Fees (as defined in Paragraph 5(f)), and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease other than Base Rent.  “Rent” or “rent” means Base Rent and Additional Rent.  In the event of nonpayment by Tenant of Operating Expenses or other Additional Rent, Landlord shall have all the rights and remedies with respect thereto as Landlord has for nonpayment of Base Rent.  During the Construction Period, in addition to not being obligated to pay Base Rent, Tenant shall not be obligated to pay Operating Expenses, Real Property

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Taxes or the Management Fee (the “Additional Rent Abatement”); the Additional Rent Abatement will expire as of the expiration of the Construction Period.  The date on which Tenant is required to commence paying Operating Expenses, Real Property Taxes and the Management Fee (i.e., the day following the date of expiration of the Construction Period) is referred to as the “Additional Rent Commencement Date.”  The Additional Rent Commencement Date is anticipated to be April 1, 2017 (the “Target Additional Rent Commencement Date”), provided that if the Delivery Date occurs after the Anticipated Delivery Date, then for each day after the Anticipated Delivery Date that elapses until the actual Delivery Date occurs, the Additional Rent Commencement Date shall be extended by the same number of days.

(c) Time for Payment.  Starting on the first day of the first month after the Additional Rent Commencement Date and/or the Rent Commencement Date, as applicable, monthly Rent (which will not include Base Rent until the Rent Commencement Date) shall be due in advance on the first day of each such calendar month.  Notwithstanding the preceding sentence to the contrary, the full monthly payment of Base Rent and estimated Operating Expenses for the first full month of the Term after the Base Rent Abatement Period (the “PrepaidRent”) shall be due and payable concurrent with the execution and delivery of this Lease.  Accordingly, concurrently with the full execution and delivery of this Lease, Tenant shall pay to Landlord as Prepaid Rent the sum of One Hundred Sixty-Eight Thousand Seven Hundred Fifty-Five and 20/100 Dollars ($168,755.20).  The Rent for any fractional month shall be a proportionate amount of a full calendar month’s Rent based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs.  All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

(d) Late Charge.  Notwithstanding any other provision of this Lease, if any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee by the due date therefor, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the amount due plus any reasonable attorneys’ fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder; notwithstanding the foregoing, Tenant shall be entitled to a notice of non-payment and a five (5) day cure period prior to the imposition of such late charge on the first (1st) occasion during the first five (5) years of the Term or any subsequent five (5) year period of the Term or any extension thereof in which any installment of Rent is not timely paid.  The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder, at law and/or in equity, and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.  In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid by the date that they are due shall thereafter bear interest until paid at a rate (the "Interest Rate") equal to the lesser of (i) the "Prime Rate" or "Reference Rate" announced from time to time by Bank of America, N.A. (or such reasonable comparable national banking institution as selected by Landlord in the event Bank of America, N.A. ceases to exist or publish a Prime Rate or Reference Rate), plus four percent (4%), or (ii) the highest rate permitted by applicable Law.

(e) Operating Expenses.  This Lease is a triple net lease, and Base Rent shall be paid to Landlord absolutely net of all costs and expenses relating to the Building and Tenant’s Proportionate Share (defined below) of the Complex, except as specifically provided to the contrary in this Lease.  As used in this Lease, Tenant’s “Proportionate Share” of Operating Expenses, Real Property Taxes and other Direct Expenses (as defined below in this Paragraph 5(e)) or other amounts payable by Tenant shall be deemed to be thirty-six percent (36%), provided that with respect to any Operating Expenses that are allocable solely to the Building (and not to the Other Building) Tenant’s Proportionate Share shall be one hundred percent (100%).  Similarly, with respect to Operating Expenses that are allocable solely to the Other Building (or any collection of buildings now or hereafter located at the Complex but not the

6

Building), Tenant’s Proportionate Share will be zero percent (0%).  The parties hereby agree that the Premises contain 64,000 rentable square feet, there shall be no adjustment in the Base Rent or other amounts set forth in this Lease that are determined based upon rentable or usable square feet of the Premises, and Tenant shall have no right to terminate this Lease or receive any adjustment or rebate of any Base Rent or Additional Rent payable hereunder if the square footage of the Complex or the Premises is incorrect.  However, if the rentable area of the Complex is changed by the construction of new rentable area on the Land (other than with regard to increases to the rentable area of the Building as the result of the Lobby Changes, if any, made by Tenant pursuant to Section 5.7 of the Tenant Work Letter), Tenant’s Proportionate Share shall be adjusted accordingly.  Beginning on the first (1st) day immediately following the expiration of the Additional Rent Abatement Period, Tenant shall pay to Landlord or to Landlord’s designated agent, in addition to the Base Rent and as Additional Rent, the following (collectively, “Direct Expenses”):

(i) Tenant’s Proportionate Share of all Real Property Taxes for the Complex as set forth in Paragraph 14, and

(ii) Tenant’s Proportionate Share of insurance premiums and deductibles relating to the Complex and Premises, as set forth in Paragraph 18, and

(iii) Tenant’s Proportionate Share of other Operating Expenses required to be paid under Paragraph 8, and

(iv) All charges, costs and expenses that Tenant is required to pay hereunder other than Base Rent, together with all interest and penalties, costs and expenses (including reasonable attorneys’ fees and legal expenses), that may accrue thereto in the event of Tenant’s failure to pay such amounts, and all damages, reasonable costs and expenses that Landlord may incur by reason of default of Tenant or failure on Tenant’s part to comply with the terms of this Lease.

Tenant shall pay to Landlord monthly, in advance, Tenant’s Proportionate Share of the amount estimated by Landlord (as described below) to be Landlord’s approximate average monthly expenditure for such Direct Expenses.  Landlord shall endeavor to give Tenant, on or before July 1 each year during the Term, a yearly expense estimate statement (the “Estimate Statement”), which shall set forth Landlord's reasonable estimate (the “Estimate”) of what the total amount of the Operating Expenses, Real Property Taxes and Management Fee charges allocated to the Building shall be and the estimated amount of Tenant's Proportionate Share of such amounts (the “Estimated Expense Payments”) for the upcoming fiscal year.  Landlord's Estimate Statement for any fiscal year shall be set forth in reasonable detail, and shall contain a line-item breakdown of component costs and the method of calculation of any categories of Direct Expenses which represents an equitable proration by Landlord between the Building and the Other Building (or any other building subsequently constructed in the Complex) as set forth below.  As used in this Lease, the term “fiscal year” shall mean July 1 to June 30 of each year during the Term of the Lease.  Landlord shall have the right to update the Estimate Statement and Estimated Expense Payments from time to time, in which event Tenant thereafter shall pay the revised Estimated Expense Payments set forth in such updated Estimate Statement commencing as of the first (1st) day and the first (1st) calendar month which occurs at least thirty (30) days after Landlord’s delivery to Tenant of notice of such revision.  The failure of Landlord to timely furnish an Estimate Statement for any fiscal year shall not preclude Landlord from enforcing its rights to collect any Operating Expenses, Real Property Taxes or other amounts payable by Tenant hereunder.  Upon delivery of the Estimate Statement, Tenant shall pay, with its next installment of Base Rent due at least thirty (30) days after the date of delivery of the Estimate Statement, a fraction of the Estimated Expense Payments for the then-current fiscal year (reduced by any amounts paid pursuant to the last sentence of this paragraph).  Such fraction shall have as its numerator the number of months which have elapsed in such current fiscal year to the

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month of such payment, both months inclusive, and shall have twelve (12) as its denominator.  Until a new Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Expense Payments set forth in the previous Estimate Statement delivered by Landlord to Tenant.

Within one hundred eighty (180) days after the end of each fiscal year, or more frequently if Landlord elects to do so, at Landlord’s sole and absolute discretion, the Estimate Expense Payments shall be reconciled with Landlord’s actual expenditure for such Additional Rent items and set forth in a reasonably detailed statement (the “Statement”).

Landlord has provided Tenant with an example of, and Tenant has approved, the form of Estimate Statement/ Statement currently used by Landlord, a copy of which is attached to this Lease as Exhibit J-1 (the “Sample Statement”).  Tenant acknowledges that the amounts specified in the Sample Statement are estimates only and do not constitute a representation or warranty by Landlord of what actual Direct Expenses are or will be during the Term.  If Landlord hereafter makes any material changes to the form of the Sample Statement, any future Estimate Statement and Statement shall contain, to the extent applicable, the following:

(A)a line-item breakdown showing at least the following major categories of costs:

(i) maintenance and repairs (including landscape maintenance, parking lot sweeping, fountain cleaning, and parking lot lighting maintenance);

(i) utilities (electricity, water, sewer, and backflow prevention, maintenance and repairs);

(i) insurance;

(i) salaries (engineering and administrative);

(i) general and administrative (Management Fees; professional services; office supplies; and other); and

(i) Real Property Taxes;

(B)the anticipated savings to be realized in the subject calendar year by any Permitted Capital Item (defined below), the cost of which is included as a portion of Operating Expenses because such Capital Item was intended to reduce other Operating Expenses;

(C)to the extent that the Direct Expenses include wages, salaries and payroll burdens that are not included in the Management Fee, the method of prorating the wages, salaries and payroll burden of employees engaged primarily, but not solely, in the management, operation or maintenance of the Building or portions of the Complex benefitting the Building versus taxes which primarily or solely benefit the Other Building or any other building(s) now or hereafter located on the Complex; and

(D)an explanation in reasonable detail of any other proportionate cost attributable to the Building which represents a proration of costs shared by one or more buildings.

Tenant shall pay to Landlord, within thirty (30) days after delivery of the applicable Statement, the amount of actual Direct Expenses expended by Landlord in excess of the Estimated Expense Payments, or if the Estimated Expense Payments actually paid by Tenant exceeds Tenant’s Proportionate Share of the

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actual amounts of Direct Expenses paid by Landlord, Landlord shall reimburse or credit to Tenant (provided Tenant is not in Default) any amount of Estimated Expense Payments made by Tenant in excess of Tenant’s Proportionate Share of Landlord’s actual expenditures for such Additional Rent items.

Notwithstanding the foregoing, at Landlord’s Option, Landlord shall have the right to separately charge and collect in a lump sum from Tenant any Real Property Taxes and insurance premiums by delivering to Tenant an invoice setting forth the applicable Real Property Taxes and insurance premiums that are due.  In such event, Tenant shall pay Landlord Tenant’s Proportionate Share of such expenses within thirty (30) days (or, in the case of insurance premiums, within fifteen (15) days) after Landlord’s delivery of the applicable invoice to Tenant.  Tenant acknowledges that to the extent Landlord has prepaid any Operating Expenses (such as insurance premiums) or Real Property Taxes for the Premises or the Complex prior to the Additional Rent Commencement Date that relate to Operating Expenses that are payable by Tenant following the Additional Rent Commencement Date, Tenant shall reimburse Landlord for its Proportionate Share of such expenses as set forth in this Paragraph 5(e).

(f) Fixed Management Fee.  Beginning on the Additional Rent Commencement Date, Tenant shall pay to Landlord, in addition to the Base Rent and as part of the Additional Rent, a fixed monthly management fee (“Management Fee”) equal to three percent (3%) per month of all Base Rent and Direct Expenses.

(g) Place of Payment of Rent.  All Rent hereunder shall be paid to Landlord at the office of Landlord at: SP Zanker Property, LLC, c/o Sahadi Properties, L.P. 800 Pollard Road, C-36, Los Gatos, California 95032, or to such other person or to such other place as Landlord may from time to time designate in writing at least thirty (30) days prior to the effective date of the address change.

(h) Abated Rent.  Landlord and Tenant acknowledge that Tenant shall not be obligated to pay Base Rent attributable to the Premises during the Base Rent Abatement Period (the "Base Rent Abatement") and that the aggregate amount of the Base Rent Abatement equals One Million Two Hundred Ninety-Six Thousand and 00/100 Dollars ($1,296,000.00).  Tenant acknowledges and agrees that during the Base Rent Abatement Period, such abatement of Base Rent for the Premises shall have no effect on the calculation of any future increases in Base Rent or Operating Expenses payable by Tenant pursuant to the terms of this Lease, which increases shall be calculated without regard to such Base Rent Abatement.  Tenant acknowledges and agrees that the foregoing Base Rent Abatement has been granted to Tenant as additional consideration for entering into this Lease, and for agreeing to pay the Rent and perform the terms and conditions otherwise required under this Lease.  If Tenant shall be in Default hereunder, and if Landlord terminates this Lease as a consequence of such Default, then Landlord may include in its calculation of termination damages the then (as of the date of the Default) unamortized portion of the Base Rent Abatement, assuming amortization of the Abated Rent (without interest) on a straight line basis over the Term.

(i) Landlord’s Records.  Landlord shall maintain during the Term complete and accurate books of account and records in accordance with sound real estate management and accounting practices as are reasonably necessary to properly audit Direct Expenses.  Upon Tenant’s written request given not more than one hundred twenty (120) days after Tenant’s receipt of a Statement for a particular fiscal year, and provided that Tenant is not then in Default, specifically including, but not limited to, the timely payment of Additional Rent (whether or not a component thereof is the subject of the audit contemplated herein), Landlord shall furnish Tenant with such reasonable supporting documentation pertaining to the calculation of the Direct Expenses payable by Tenant as set forth in the Statement as Tenant may reasonably request.  Landlord shall provide said documentation pertaining to the relevant

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Direct Expenses to Tenant within sixty (60) days after Tenant’s written request therefor.  Within sixty (60) days after Landlord’s delivery of all of such supporting documentation (the "Audit Period"), if Tenant disputes the amount of the Direct Expenses payable by Tenant set forth in the Statement, after reasonable notice to Landlord and at reasonable times, Tenant may retain an independent certified public accountant to conduct an audit at Landlord’s office of Landlord’s records with respect to the Direct Expenses payable by Tenant set forth in the Statement, provided that (i) Tenant is not then in Default, (ii) Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, and (iii) a copy of the audit agreement between Tenant and its particular certified public accounting firm has been delivered to Landlord prior to the commencement of the audit.  Any such accountant shall (A) be a member of a nationally or regionally recognized certified public accounting firm which has previous experience in auditing financial operating records of landlords of office buildings, (B) not already be providing primary accounting and/or lease administration services to Tenant and shall not have provided primary accounting and/or lease administration services to Tenant in the past three (3) years, (C) not be working on a contingency fee basis [i.e., Tenant must be billed based on the actual time and materials that are incurred by the certified public accounting firm in the performance of the audit], and (D) not currently be providing accounting and/or lease administration services to another tenant of the Complex in connection with a review or audit by such other tenant of similar expense records).  In connection with such audit, Tenant and Tenant’s certified public accounting firm must execute a commercially reasonable confidentiality agreement regarding such audit.  Any audit report prepared by Tenant’s certified public accounting firm shall be delivered concurrently to Landlord and Tenant within the Audit Period.  Tenant’s failure to audit the amount of the Direct Expenses payable by Tenant set forth in any Statement within the Audit Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to audit the amounts set forth in such Statement.  If after such audit, Tenant still disputes the Direct Expenses payable by Tenant, an audit to determine the proper amount shall be made, at Tenant’s expense, by an independent certified public accountant (the "Accountant") selected by Landlord and subject to Tenant’s reasonable approval.  Tenant hereby acknowledges that Tenant’s sole right to audit Landlord’s records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Paragraph 5(i), and Tenant hereby waives any and all other rights pursuant to applicable law to audit such records and/or to contest the amount of Direct Expenses payable by Tenant.  If Landlord's Statement is ultimately determined to be in error, within thirty (30) days after such determination, Landlord will reimburse to Tenant, or Tenant will pay to Landlord, any amount which may be determined to have been due as a result of the Accountant’s audit; additionally, if Landlord is determined to have overcharged Tenant for Direct Expenses by five percent (5%) or more, Landlord shall reimburse Tenant within thirty (30) days following such determination for the reasonable cost of the Accountant (which cost may not be included as a Direct Expense).

(j) Survival.  The respective obligations of Landlord and Tenant under this Paragraph 5 shall survive the expiration or other termination of the Term of this Lease, and if the Term hereof shall expire or shall otherwise terminate on a day other than the last day of a fiscal year, the actual Base Rent or Additional Rent incurred for the fiscal year in which the Term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Base Rent or Additional Rent for such fiscal year and shall be prorated in the proportion which the number of days in such fiscal year preceding such expiration or termination bears to 365.  Notwithstanding the foregoing, Tenant will not be responsible for any Direct Expenses attributable to any fiscal year which is first billed to Tenant more than thirty (30) months after the date of expiration of the expiration of the fiscal year to which such Direct Expenses apply, provided that Tenant shall nonetheless be responsible for any such sums for any fiscal year if the same are first levied by any governmental authority or by any public utility companies following the date that is thirty (30) months following the expiration of such fiscal year.

6. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and conditions of this Lease and the rules and regulations set forth on Exhibit D, as such rules and regulations

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may be reasonably modified from time to time in Landlord’s good faith discretion (collectively, the “Rules and Regulations”), Tenant and Tenant’s employees, agents, contractors, customers, guests and invitees (collectively, “Tenant Parties”) shall, in common with other occupants of the Complex and their respective employees, invitees and customers, and others entitled to the use thereof, have the non-exclusive right to use the access roads, Parking Area, and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Complex (collectively, “Common Areas”).  Tenant’s right to use the Common Areas shall terminate upon the termination of this Lease.  Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Areas, provided that the same do not (other than on a temporary basis) materially and adversely affect Tenant’s ability to have access to and/or use of the Premises and have access to and use of all of the spaces in the Parking Area allocated to Tenant hereunder.  Landlord further reserves the right to promulgate such reasonable changes or amendments to the Rules and Regulations as Landlord may deem appropriate for the best interests of the occupants of the Complex.  The Rules and Regulations shall be binding upon Tenant upon ten (10) days following delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance.  Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Complex of any of the Rules and Regulations and shall not be required to provide or otherwise be responsible for providing security in the Premises, the Common Areas, or anywhere in the Complex for Tenant or any Tenant Parties.  Landlord further reserves the right from time to time without notice to Tenant (i) to close temporarily any of the Common Areas; (ii) to make changes to the Common Areas as described above; (iii) add additional buildings and improvements to the Common Areas subject to the limitations described above; (v) to remove buildings (other than the Premises/Building) and land from the Common Areas subject to the limitations described above; (v) to designate land outside the Complex to be part of the Common Areas, and in connection with the improvement of such land to add additional buildings and Common Areas to the Land; (vi) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Land or to any adjacent land, or any portion thereof subject to the limitations described above; and (vii) to do and perform such other acts and make such other changes in, to or with respect to the Land, the Common Areas or the expansion thereof as Landlord may, in the exercise of its reasonable judgment, deem to be appropriate subject to the limitations described above.  Landlord shall operate, manage, and maintain the Common Areas in good condition and repair, provided that all the costs thereof shall be Common Areas Expenses to the extent permissible hereunder.

7.  PARKING.Tenant shall have the right to use with the other tenants or occupants of the Complex (other than with respect to Tenant’s Exclusive Parking Spaces described below, to which other tenants or occupants will have no rights) two hundred twenty-seven (227) total parking spaces (i.e., 3.55 spaces per 1,000 rentable square feet [the “Parking Ratio”] in the Parking Area of the Complex, inclusive of Tenant’s Exclusive Parking Spaces described below.  Such parking spaces are provided on a non-exclusive basis, except for Tenant’s Exclusive Parking Spaces described below.  Tenant and the Tenant Parties shall not use parking spaces in excess of such permitted number of spaces allocated to Tenant hereunder.  Tenant shall have the exclusive right to use thirty-nine (39) parking spaces adjacent to the Building in the auto court area located between the Building and the Other Building, as depicted on the Site Plan (“Tenant’s Exclusive Parking Spaces”), provided that Landlord shall not be required to enforce Tenant’s right to use the Tenant’s Exclusive Parking Space.  If and to the extent that Tenant leases additional space in the Complex, whether pursuant to a right or option set forth in this Lease or otherwise, Tenant’s parking space allocation will increase in accordance with the Parking Ratio.  Tenant acknowledges that the tenant of the Other Building has, as of the Effective Date, the exclusive right to use forty-two (42) parking spaces in the auto court area located between the Building and the Other Building (as shown on the Site Plan), and Tenant shall not use or permit the Tenant Parties to use such exclusive spaces.  Subject to the terms of this Paragraph 7 and Paragraphs 2 and 8 of this Lease, Landlord agrees to similarly require other Complex occupants to refrain from using Tenant’s Exclusive Parking Spaces.  Landlord shall have the right, at Landlord’s sole discretion, to specifically designate the location of

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Tenant’s parking spaces (other than Tenant’s Exclusive Parking Spaces) within the Parking Area in the event of a dispute among the tenants occupying the building and/or Complex referred to herein, in which event Tenant agrees that Tenant and the Tenant Parties shall not use any parking spaces other than those parking spaces specifically designated by Landlord for Tenant’s use; in such event, Landlord will use reasonable efforts to locate such parking spaces in a contiguous block, as close as possible to the Building.  Such parking spaces, if specifically designated by Landlord to Tenant, may be relocated by Landlord at any time, and from time to time, and Landlord reserves the right, at Landlord’s sole discretion, to rescind any specific designation of parking spaces (other than Tenant’s Exclusive Parking Spaces), thereby returning Tenant’s parking spaces to the common Parking Area.  Landlord shall give Tenant written notice of any change in Tenant’s parking spaces.  Tenant shall not, at any time, park or permit to be parked, any trucks or vehicles adjacent to the loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park or permit the parking of Tenant’s trucks or other vehicles or the trucks and vehicles of Tenant’s suppliers or others, in any portion of the Common Areas not designated by Landlord for such use by Tenant.  Tenant shall not park nor permit to be parked, any inoperative vehicles or equipment on any portion of the common Parking Area or other Common Areas of the Complex.  Tenant agrees to assume responsibility for compliance by its employees and other Tenant Parties with the parking provisions contained herein.  At Tenant’s sole expense, Landlord shall have the right to tow away from the Complex any vehicle belonging to Tenant or any Tenant Party parked in violation of these provisions, or to attach violation stickers or notices to such vehicles.  Tenant shall use the parking spaces for vehicle parking only and shall not use the Parking Areas for storage.

8.  EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE COMPLEX. In accordance with Paragraph 5(e) of this Lease, Tenant shall pay to Landlord, as Additional Rent, Tenant’s Proportionate Share of all operating expenses (collectively “Operating Expenses”) relating to the operation, management, maintenance, repair and replacement of the Complex and the Common Areas thereof, including, but not limited to the following (A) supplying, operating, managing, maintaining, repairing, replacing and restoring utilities, services and systems (including sewers, storm drains, elevators, pest control, recycling programs, trash removal, outdoor fountains, water and sewer backflow prevention), and taxes thereon; (B) cleaning, sweeping, maintaining, repairing, restoring and replacing the Parking Areas (including resurfacing, repainting, re-striping and cleaning) and other Common Areas of the Complex (including landscaped areas and parking lot lighting); (C) compensation (including salaries, wages, employment taxes, fringe benefits and other payroll expenses) for persons who perform duties in connection with the operation, management, maintenance, repair and improvement of the Complex, such compensation to be appropriately allocated for persons who also perform duties unrelated to the Complex; (D) premiums for insurance for the Complex (including without limitation coverage for (i) earthquake (subject to the provisions set forth below regarding earthquake insurance deductible payments), (ii) flood, (iii) pollution, (iv) terrorism (e.g., TRIPRA), (v) general liability, (vi) rental income (i.e., loss of rents), for a period of up to 18 months or such longer period of time as required by Landlord’s Mortgagee, (vii) all-risk casualty, and (viii) any other insurance required to be maintained by Landlord’s Mortgagee or that in the reasonable opinion of Landlord is appropriate and reasonable, together with any expenditures for co-insurance and deductible amounts (subject to the provisions set forth below regarding earthquake deductibles) paid under such insurance; (E) licenses, permits, certificates and inspections; (F) complying with the requirements of any Laws; (G) costs incurred for capital improvements to or replacements of the Complex, limited to (A) costs to comply with Laws, (B) costs intended to result in a net reduction in Direct Expenses (but only to the extent of the savings reasonably anticipated to result therefrom), and (C) costs of capital improvements or replacements which are required to maintain the Building and the Complex in good condition and repair or that are intended to enhance the safety and security of Complex occupants (collectively, “Permitted Capital Items”) (and for avoidance of doubt, in no event will Permitted Capital Items include the cost of performing any capital repairs, replacements, upgrades or improvements exclusively to the Other Building or any other building now located on or subsequently added to the

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Complex or to any portion of the Complex which is reserved for the exclusive use of any one Complex tenant (other than Tenant) or any collection of Complex tenants which excludes Tenant); (H) the Management Fees (I) accounting, legal and other professional services incurred in connection with the operation of the Complex and the calculation of Operating Expenses and Taxes; (J) a reasonable allowance for depreciation on machinery and equipment used to operate and maintain the Complex; (K) the reasonable cost of contesting the validity or applicability of any Laws that may affect the Complex; (L) [OMITTED]; (M) supplies, materials, tools and rental equipment; (N) license, permit, and inspection fees; utility charges associated with exterior landscaping and lighting (including water and sewer charges); (O) costs incurred in connection with a governmentally mandated transportation system management program or similar program; (P) costs under any instrument pertaining to the sharing of costs by the Complex, including without limitation payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Complex, including, without limitation, any covenants, conditions and restrictions affecting the Property, and reciprocal easement agreements affecting the property, parking licenses, and any agreements with transit agencies affecting the Property; (P) fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute Real Property Taxes; and (Q) any other cost, expenditure, fee or charge, whether or not hereinbefore described which in accordance with generally accepted property management practices would be considered an expense of owning, managing, operating, maintaining, repairing, replacing, restoring, and/or improving the Complex which is properly passed through to tenants on a so-called “triple net” basis.  As used herein, however “Operating Expenses” shall not include:

(i) Landlord’s principal or interest payments on indebtedness secured by the Complex;

(i) expenses by Landlord for the particular benefit of any other tenant;

(i) cost for the installation of any other tenant improvements;

(i) cost of attracting and leasing (or attempting to lease) to tenants;

(i) executive salaries;

(i) any capital item whatsoever, except Permitted Capital Items;

(i) repairs or other work occasioned by fire, windstorm or other insured casualty or hazard, to the extent that Landlord shall receive proceeds of such insurance (provided that Landlord’s failure to maintain the insurance coverage required to be carried by Landlord under this Lease will not be a valid basis for including in Operating Expenses to the extent that the cost of repair otherwise would have been covered by such insurance);

(i) the cost of tenant newsletters and Building promotional gifts, events or parties for existing or future occupants, and the costs of signs in or on the Building identifying the owner of the Building or other third parties’ signs and any costs related to the celebration or acknowledgment of holidays;

(i) repairs or rebuilding necessitated by condemnation;

(i) Real Estate Taxes;

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(i) salaries of individuals who hold a position which is generally considered to be higher in rank than the position of the manager of the Complex or the chief engineer of the Complex;

(i) subject to Paragraph 46, any costs incurred to test, survey, clean up, contain, abate, remove or otherwise remedy any spill or discharge of Hazardous Materials;

(i) the costs of electrical power or any other utility provided to the premises of other tenants or occupants of the Complex or to any portion of the Complex which solely benefits other Complex occupants but not Tenant;

(i) the cost of any service sold to any tenant or occupant of the Complex for which Landlord is entitled to be reimbursed as an additional charge or rental over and above the basic rent and escalations payable under the lease or occupancy agreement with that tenant or other occupant;

(i) costs incurred by Landlord in connection with rooftop communications equipment of Landlord or other third parties, or Complex occupants;

(i) amounts paid to any person, firm or corporation related or otherwise affiliated with Landlord or any general partner, officer or director of Landlord or any of its general partners, to the extent same materially exceeds arms-length competitive prices paid in the Relevant Market for the services or goods provided;

(i) costs relating to maintaining Landlord's existence, either as a corporation, partnership, or other entity, such as trustee's fees, annual fees, partnership or organization or administration expenses, deed recordation expenses, as well as the operation of the entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Complex, as well as partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of any disputes between Landlord and its employees, disputes of Landlord with Complex management or personnel, or outside fees paid in connection with disputes with other tenants;

(i) increased costs incurred due to Landlord's violation of any terms and conditions of this Lease or any other lease relating to the Building or of any Law to the extent that compliance with such Law is Landlord’s responsibility under this Lease;

(i) increased costs arising from the negligence of Landlord or its agents, or of any other tenant, or any vendors, contractors, or providers of materials or services selected, hired or engaged by Landlord or its agents;

(i) costs incurred in removing and storing the property of former tenants or occupants of the Building;

(i) (i) the cost of installing, operating and maintaining any specialty service, observatory, broadcasting facilities, luncheon club, museum, athletic or recreational club, or child care facility, and (ii) the cost of installing, operating and maintaining any other service operated or supplied by or normally operated or supplied by a third party under an agreement between a third party and a landlord;

(i) costs for acquisition of sculpture, paintings, other objects of art, as well as the cost of insuring, repairing or maintaining the same;

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(i) title insurance, key man and other life insurance, long-term disability insurance and health, accident and sickness insurance, except only for group plans providing reasonable benefits to persons of the grade of building manager and below employed and engaged on a substantially full time basis in operating and managing the Building;

(i) any costs, fees, dues, contributions or similar expenses for industry associations or similar organizations;

(i) the entertainment expenses and travel expenses of Landlord, its employees, agents, partners and affiliates;

(i) consulting costs and expenses paid by Landlord unless they relate exclusively to the improved management or operation of the Complex.

The cost of Permitted Capital Items will, for the purpose of inclusion in Operating Expenses, be amortized by Landlord on a straight line basis over a ten (10) year term.  The amortized cost of any Permitted Capital Items may include interest at the rate paid by Landlord on any funds borrowed (or, if Landlord elects to fund such expenditure using its own funds, at the market rate of interest, as reasonably determined by Landlord, that Landlord reasonably would have paid had Landlord elected to finance such expenditure) from an unaffiliated third-party financial institution, but in no event greater than the Interest Rate.

Landlord shall have the right, from time to time, to equitably allocate some or all of the Operating Expenses, Real Property Taxes and other charges among different tenants or buildings comprising the Complex as and when such different buildings are constructed and added to (and/or excluded from) the Complex or otherwise (the “Cost Pools”).  In addition, Landlord shall have the right from time to time, in its reasonable discretion, to include or exclude existing or future buildings in the Complex for purposes of determining Operating Expenses and Real Property Taxes.

If at any time during the Term the Building or the Complex is damaged by an earthquake and if in connection with such earthquake Landlord is required to make a deductible payment that is less than an amount that exceeds two hundred fifty percent (250%) of the then-applicable monthly Base Rent (the “Earthquake Deductible Threshold”) under Landlord’s policy of earthquake insurance, Operating Expenses for the applicable calendar year will include such deductible, which will be payable in monthly installments during the remainder of the calendar year.  If as a result of any such earthquake Landlord is required to make a deductible payment equal to or in excess of the Earthquake Deductible Threshold, Operating Expenses for the applicable calendar year will include the deductible up to the amount of the Earthquake Deductible Threshold as described above, and the remaining balance of any such deductible payment (together with interest thereon) shall, for the purposes of inclusion in Operating Expenses, be treated as a Permitted Capital Item (and the amortization period associated therewith shall be deemed to be ten (10) years).

9. ACCEPTANCE AND SURRENDER OF PREMISES.

(a) Acceptance of Premises.  By entry hereunder, Tenant accepts the Premises and the Building in their “as is” condition and without representation or warranty by Landlord as to the size, condition or suitability of the Premises or as to the use or occupancy which may be made thereof.  Tenant acknowledges that on the Commencement Date the Premises shall be delivered to Tenant in the configuration set forth on Exhibit A-3 hereto.

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(b) Surrender of Premises.  Tenant agrees on the last day of the Term, or on the sooner termination of this Lease, to surrender the Premises promptly and peaceably to Landlord in the configuration set forth in the Surrender Plans attached hereto as Attachment 2 to the Tenant Work Letter attached as Exhibit C to this Lease (the “Tenant Work Letter”) and the Detailed Surrender Plans (as defined below).  If the Surrender Plans and/or the construction notes set forth on such plans are inconsistent with the provisions of this Paragraph 9(b), then, in that event, the Surrender Plans will prevail.  At least ten (10) months before the Expiration Date, Tenant at its sole cost and expense shall prepare construction drawings that are consistent with and a logical evolution of the Surrender Plans and that contain the specifications and other detailed information required for submittal to and processing by the City of San Jose Building Department (the “Detailed Surrender Plans”) for Landlord’s review and approval, which shall not be unreasonably withheld, delayed or conditioned.  The process for preparation and approval of the Detailed Surrender Plans and any iterations thereof shall be governed by Section 11 of this Lease.  Tenant shall thereafter, as and when appropriate, submit to and obtain approval by the City of San Jose of the Detailed Surrender Plans.  Following approval of the Detailed Surrender Plans by Landlord and the City of San Jose, Tenant shall cause the work described in the Detailed Surrender Plans to be completed as and when required by this Lease.  Tenant will surrender the Premises in compliance with all applicable city, county, state and federal laws, including the ADA, and all other applicable Laws.  The Premises will be returned uniform in appearance, color scheme and texture, including but not limited to all floor coverings, walls and ceilings.  All heating, ventilation and air conditioning (“HVAC”), plumbing, electrical and other Systems and Equipment (as defined in Paragraph 12(a)) will be returned in good operating condition and repair.  All windows will be washed.  Tenant shall remove all Alterations (as defined in Paragraph 11) that may have been made in or to the Premises except to the extent that Landlord has expressly agreed in writing to allow any particular Alteration to remain within the Premises.  All cables and other Lines installed by Tenant shall be removed as provide in Paragraph 15.  If Tenant fails to complete the removal of Specialty Alterations and/or to repair any damage caused by the removal thereof, and/or to return the Premises to the condition required by this Paragraph 9(b) prior to the expiration of the Term or prior termination of this Lease, then at Landlord’s option, either (A) Tenant shall be deemed to be holding over in the Premises and Rent shall continue to accrue in accordance with the terms of Paragraph 32, below, until such work shall be completed, and/or (B) Landlord may do so and may charge the cost thereof to Tenant.

(c) Landlord Surveys.  During the last nine (9) months of the Term, Landlord shall have the right to hire independent contractors to inspect and survey the Building to confirm the Building’s compliance with ADA and other codes and to confirm the condition of the HVAC, mechanical, life-safety, sprinklers, elevators, and electrical systems serving the Building for the purpose of determining whether they have or have not been properly maintained by Tenant, and Tenant shall pay the commercially reasonable cost of such surveys (but not multiple surveys on the same subject matter) within thirty (30) days after receipt of a statement therefor from Landlord.

(d) Removal of Personal Property.  On or before the end of the Term or sooner termination of this Lease, Tenant shall remove all of Tenant’s personal property and trade fixtures from the Premises, and all property not so removed on or before the end of the Term or sooner termination of this Lease shall be deemed abandoned by Tenant and title to same shall thereupon pass to Landlord without compensation to Tenant.  Upon termination of this Lease, Landlord may remove all moveable furniture and equipment so abandoned by Tenant, at Tenant’s sole cost, and repair any damage caused by such removal at Tenant’s sole cost.

(e) Indemnity.  If the Premises are not surrendered at the end of the Term or sooner termination of this Lease in the condition required by this Lease, Tenant shall indemnify Landlord and the other Indemnified Parties against loss, liability and other Claims resulting from the delay by Tenant in so surrendering the Premises including, without limitation, any Claims made by any succeeding Tenant

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founded on such delay.  Nothing contained herein shall be construed as an extension of the Term hereof or as consent by Landlord to any holding over by Tenant.  The voluntary or other surrender of this Lease or the Premises by Tenant or a mutual cancellation of this Lease shall not work as a merger and, at the option of Landlord, shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies.

10. “AS-IS” BASIS. Tenant acknowledges and agrees that the Premises are leased strictly on an “as-is” basis and in their present condition.  Landlord shall not be required to make, nor be responsible for any cost, in connection with any repair, restoration, and/or improvement to the Premises in order for this Lease to commence, or (except as described in Paragraph 28 and Paragraph 29 below) thereafter, throughout the Term.  Except as otherwise expressly set forth in this Lease, Landlord makes no warranty or representation of any kind or nature whatsoever as to the condition or repair of the Premises, nor as to the use or occupancy which may be made thereof.  Tenant acknowledges and agrees that Tenant has been given, at Tenant's own cost and expense, a full opportunity to inspect and investigate each and every aspect of the Premises, either independently or through agents of Tenant's choosing, including, without limitation: (i) all matters relating to the title, together with all governmental and other legal requirements such as taxes, assessments, zoning, use permit requirements, building permit requirements, building codes and other development requirements; (ii) the size of or physical condition of the Premises, access to the Premises and all other physical and functional aspects of the Premises; and (iii) all other matters of any significance affecting the Premises whether physical in nature or intangible in nature.  TENANT SPECIFICALLY ACKNOWLEDGES AND AGREES THAT EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE, LANDLORD IS LEASING THE PREMISES ON AN “AS IS, WHERE IS, WITH ALL FAULTS” BASIS AND THAT TENANT IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM LANDLORD, LANDLORD'S AGENTS OR BROKERS, AS TO ANY MATTERS CONCERNING THE PREMISES AND THOSE ITEMS AND ASPECTS OF THE PREMISES REFERENCED IMMEDIATELY ABOVE, INCLUDING, WITHOUT LIMITATION: (i) the quality, nature, adequacy and physical condition of the Premises, including, without limitation, access, soils, geology and any ground water; (ii) the existence, quality, nature, adequacy, and physical condition of utilities serving the Premises; (iii) the use, habitability, merchantability, or fitness, suitability, value or adequacy of the Premises for any particular purpose; (iv) the zoning or other legal status of the Premises or any other public or private restrictions on use of the Premises; (v) the compliance of the Premises or the Premises' operation with any applicable Laws or other requirements of any governmental or quasi‑governmental entity or any other person or entity; (vi) the presence of Hazardous Materials in, at, on, under, from or about the Premises (including, without limitation, soil and groundwater conditions) or the adjoining or neighboring Premises; (vii) the quality of any labor and materials used in any improvements on or benefiting the Premises; (viii) condition of title to the Premises; and (ix) the economics of the present or future operation of the Premises.

11.  ALTERATIONS AND ADDITIONS.

(a) Landlord's Consent to Alterations.  Tenant shall not make any improvements, alterations, additions or changes to the Premises or any mechanical, alarm, sprinkler, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the "Alterations") without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord with respect to proposed Alterations that (a) comply with all applicable Laws; (b) are reasonably compatible with the design of the Building, its architecture and Systems and Equipment; (c) do not unreasonably interfere with the use and occupancy of other tenants; (d) do not affect the structural portions of the Building , including, without limitation, the foundation, footings, floor slabs, ceilings, roof, columns, beams, shafts, stairs, stairwells, escalators, elevators, base building restrooms and

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all Common Areas (collectively, the "Building Structure"); and (e) do not affect the exterior appearance of the Building.  Additionally, Landlord’s consent shall not be required for any Alteration that satisfies all of the following criteria (a “Minor Alteration”): (1) is not visible from the exterior of the Premises or Building; (2) complies with clauses (a) through (e) above; and (3) costs less than Fifty Thousand Dollars ($50,000) (the “Alterations Threshold”) for any one project.  The Alterations Threshold will be increased every fifth (5th) anniversary of the Commencement Date, by the aggregate increase in the CPI most recently issued prior to such anniversary over the CPI most recently issued prior to the Commencement Date.  As used herein, the “CPI” shall mean the Consumer Price Index-All Urban Consumers  (San Francisco-Oakland-San Jose All Items, 1982-1984=100), issued by the Bureau of Labor Statistics, or such replacement index as Landlord and Tenant may mutually agree upon.  It shall be deemed reasonable for Landlord to withhold its consent to any Alteration which affects the Building Structure or Systems and Equipment or is visible from the exterior of the Building.  The construction of the Tenant Improvements shall be governed by the terms of the Tenant Work Letter and not the terms of this Paragraph 11.  Landlord agrees to respond to any request by Tenant for approval of Alterations which approval is required hereunder within ten (10) Business Days after delivery of Tenant’s written request (which request shall be accompanied by the proposed plans and drawings prepared by Tenant’s then-architect and engineers).  All such plans and drawings shall comply with the drawing format and specifications reasonably required by Landlord, and shall be subject to Landlord's approval, which shall not be unreasonably withheld, delayed or conditioned.  Landlord’s response shall be in writing and, if Landlord withholds its consent, Landlord shall specify in reasonable detail in Landlord’s notice of disapproval, the basis for such disapproval, and the changes to Tenant’s plans which would be required in order to obtain Landlord’s approval.  If Landlord fails to notify Tenant of Landlord’s approval or disapproval within such ten (10) business day period, Tenant shall have the right to provide Landlord with a second written request for approval (a “Second Request”) that contains the following statement in bold and capital letters:  “THIS IS A SECOND REQUEST FOR APPROVAL OF PLANS PURSUANT TO THE PROVISIONS OF PARAGRAPHS 11(a) AND 11(b) OF THE LEASE.  IF LANDLORD FAILS TO RESPOND WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT OF THIS NOTICE, THEN LANDLORD SHALL BE DEEMED TO HAVE APPROVED THE ALTERATIONS DESCRIBED HEREIN.”  If Landlord fails to respond to such Second Request within five (5) business days after receipt by Landlord, the Alterations in question shall be deemed approved by Landlord.  Notwithstanding the foregoing, if the time period for Landlord’s response would fall between December 20 and January 2 (the “Blackout Period”), then for each such day falling during the Blackout Period, the time period for Landlord to respond to any request for Alteration shall be extended on a day-for-day basis.  If Landlord timely delivers to Tenant notice of Landlord’s disapproval of any plans, Tenant may revise Tenant’s plans to incorporate the changes suggested by Landlord in Landlord’s notice of disapproval, and resubmit such plans to Landlord; in such event, the scope of Landlord’s review of such plans shall be limited to Tenant’s correction of the items in which Landlord had previously objected in writing.  Landlord’s review and approval (or deemed approval) of such revised plans shall be governed by the provisions set forth above in this Paragraph 11(a)).  The procedure set out above for approval of Tenant’s plans will also apply to any change, addition or amendment to Tenant’s plans.

(b) Manner of Construction.  Landlord may impose, as a condition of its consent to any and all Alterations or material repairs of the Premises which involve the Building Structure or material work on the Systems and Equipment or that affect the exterior appearance of the Building (a “Major Alteration”), such requirements as Landlord in its reasonable discretion, commensurate with the provisions of owners of Comparable Buildings (as defined in Section 31(d)), may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant and approved by Landlord (such approval not to be unreasonably withheld), and the requirement that upon Landlord's request delivered concurrently with Landlord’s consent to any Specialty Alterations that Tenant, at Tenant's expense, remove such Specialty Alterations upon the expiration or any early termination of the Term.  As

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used herein, a “Specialty Alteration” shall mean any Alteration that is not a normal and customary general office improvement or that materially deviates from the Surrender Plans, including, but not limited to improvements which (i) perforate, penetrate or require reinforcement of a floor slab (including, without limitation, interior stairwells or high-density filing or racking systems), (ii) consist of the installation of a raised flooring system, (iii) consist of the installation of a vault or other similar device or system intended to secure the Premises or a portion thereof in a manner that exceeds the level of security necessary for ordinary office space, (iv) involve material plumbing connections (such as, for example but not by way of limitation, kitchens, saunas, showers, and executive bathrooms outside of the Building core and/or special fire safety systems), (v) consist of the dedication of any material portion of the Premises to non-office usage (such as laboratories, classrooms, bicycle storage rooms, or “cooking” kitchens), (vi) can be seen from outside the Premises, or (vii) are required to be removed under Paragraph 9(b) or the Surrender Plans (or the Detailed Surrender Plans, as applicable).  As a condition to Landlord’s obligation to consider any request for consent to any Alterations, Tenant agrees to pay Landlord within thirty (30) days after Tenant’s receipt of invoices and reasonable supporting documentation for the reasonable out-of-pocket third party costs and expenses of consultants, engineers, architects and others for reasonable review of plans and specifications for the construction of the proposed Alterations.  Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable rules and regulations of any federal, state, county or municipal code or ordinance and pursuant to a valid building permit, issued by the City, and in conformance with Landlord’s construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord's design parameters and code compliance issues.  In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Complex or any portion thereof, by any other tenant of the Complex, and so as not to obstruct the business of Landlord or other tenants in the Complex.  Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Complex.  In addition to Tenant's obligations under Paragraph 22 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the recorder of the county in which the Building is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to Landlord a reproducible copy of the "as built" drawings of the Alterations as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.  At the conclusion of construction, Tenant shall (i) cause its architect to update the drawings as necessary to reflect all changes made to the Alterations Constructions Drawings during the course of construction, and (ii) deliver to Landlord two (2) sets of sepias of such as-built drawings as well as CAD and pdf copies of same, and (ii) deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems relating to such Alterations.

(c) Payment for Alterations.  Tenant shall obtain final lien releases and waivers in a form reasonably satisfactory to Landlord in connection with Tenant's payment for work to contractors, subcontractors and materialmen.  Tenant shall pay for all overhead, general conditions, fees and other costs and expenses of the Alterations, and shall pay to Landlord a Landlord supervision fee of three percent (3%) of the cost of the Alterations.

(d) Construction Insurance.  In addition to the requirements of Paragraph 17 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant or Tenant’s general contractor carries "builder's all risk" or “course of construction” insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and that Tenant and the general contractor carry general liability, worker’s compensation, and such other insurance as Landlord may reasonably require, it being

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understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Paragraph 17 of this Lease immediately upon completion thereof.  In addition, if the estimated costs of the Alterations exceeds One Hundred Fifty Thousand Dollars ($150,000.00) Landlord may, in its discretion, require Tenant to obtain at Landlord’s option a lien and completion bond or some alternate form of security reasonably satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations.

(e) Removal of Alterations; Landlord's Property.  All Alterations that may be installed in the Premises, from time to time, shall be made at the sole cost of Tenant.  During the final six (6) month of the Term, Landlord and Tenant will endeavor to meet and confer to determine which, if any, of the Specialty Alterations previously made by Tenant which Landlord continues to desire that Tenant surrender with the Premises upon expiration of the Term.  If Landlord agrees in writing that any such Specialty Alterations may remain at and be surrendered with the Premises upon expiration of the Term or upon prior termination of this Lease, the same shall become a part of the Premises and the property of Landlord upon expiration of the Term or upon prior termination of this Lease.  Notwithstanding the foregoing, if the parties fails to meet prior to the expiration of the Term, or if Landlord does not agree to permit any Specialty Alterations to remain and be surrendered with the Premises, Tenant’s obligations with respect to such Specialty Alterations shall be governed by Paragraph 9(b).  If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Specialty Alterations and return the affected portion of the Premises to the condition required hereunder, (i) Landlord may do so and may charge the cost thereof to Tenant, or (ii) Tenant shall be obligated to do so and will be deemed to be holding over until such time as the removal and restoration is completed (and, accordingly, the terms of Paragraph 32 of this Lease shall be applicable during such period).  Tenant hereby protects, defends, indemnifies and holds Landlord harmless from all liens and other Claims in any manner relating to the installation, placement, removal, or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises except to the extent the same arises out of the gross negligence or willful misconduct of Landlord or Landlord’s agents, employees or contractors, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

12. TENANT MAINTENANCE.

(a) At its sole cost and expense, Tenant shall keep and maintain and repair the Premises (including appurtenances) and every part thereof in a high standard of maintenance and repair, or replacement, and in good and sanitary condition.  Tenant’s maintenance and repair responsibilities herein referred to include, but are not limited to, providing janitorial service, cleaning, repair and replacement, as necessary, of all windows (interior and exterior), window frames, plate glass and glazing (destroyed by accident or act of third parties), truck doors, plumbing systems (such as water and drain lines, sinks, toilets, faucets, drains, showers and water fountains), electrical systems (such as panels, conduits, outlets, lighting fixtures, lamps, bulbs, tubes and ballasts), HVAC systems and components thereof (such as compressors, fans, air handlers, VAV boxes, ducts, mixing boxes, thermostats, time clocks, boilers, heaters, supply and return grills), and other Systems and Equipment (as defined below), electrical wiring and conduits, gas lines, water pipes, sprinkler, alarm and other life safety systems, and plumbing and sewage fixtures and pipes (both within the Building and outside the Building up to the point where any such pipe connects to the sewer main), foundations, slabs, structural elements and exterior surfaces of the Premises, roofs, downspouts, all interior improvements within the Premises including but not limited to wall coverings, window coverings, carpet, floor coverings, partitioning, ceilings, doors (both interior and exterior), including closing mechanisms, latches, locks, any exterior ramps and railings at the entrances of the Building, skylights (if any), automatic fire extinguishing systems, security systems, alarm systems, and elevators and all other interior improvements of any nature whatsoever.  As used herein, the term “Systems and Equipment” means any plant, machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply

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heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Building and/or any other building in the Complex in whole or in part.

Notwithstanding the foregoing to the contrary, if any Systems or Equipment (or major component thereof) or major component of the Building Structure requires replacement during the Term, including any replacement required by Law (and provided such replacement is not necessitated by (w) casualty or condemnation, (x) Tenant’s failure to perform reasonable periodic maintenance and customary and reasonable repairs of such item, (y) Tenant’s misuse of such item, or (z) the negligence or willful misconduct of Tenant or any Tenant Party, it being agreed that Tenant shall be solely responsible for any repairs or replacements necessitated by the preceding clauses (x), (y), and (z)), Landlord and Tenant shall cooperate in good faith to determine the best suitable replacement for such item (or component); in connection therewith, the parties will attempt to identify a substantially similar replacement item, and neither party shall have the right to require that the capacity, quality or size of such item be upgraded as a part of such replacement, unless the party requiring such upgrade agrees to bear any increased cost associated with the acquisition of an upgraded item compared to the acquisition of a reasonably similar substitute item (however, if applicable law requires an upgrade, the parties will share the cost of such upgrade as described herein).  Upon determining a mutually agreeable replacement item, the parties shall share the cost of such replacement (other than any increased cost associated with an upgrade, as described above), as follows:  (i) Tenant shall bear the first One Hundred Thousand Dollars ($100,000.00) of the cost of the replacement, (ii) Landlord shall initially bear the cost of such replacement in excess of One Hundred Thousand Dollars ($100,000.00) but, from and after the date of such replacement, Tenant shall pay to Landlord, as and when Base Rent is payable hereunder, an amount equal to 1/120 of the applicable replacement cost which was so initially borne by Landlord (it being the intention of the parties hereto that any such item or unit will be assumed to have a useful life of approximately ten (10) years, and that the foregoing formula allocates to Tenant a proportionate share of the cost of such replacement equal to the relationship between the then-remaining Term and the useful life of the unit (or component) in question).  The amortized cost of such expenditure may include interest at the rate paid by Landlord on any funds borrowed (or, if Landlord elects to fund such expenditure using its own funds, at the market rate of interest, as reasonably determined by Landlord that Landlord reasonably would have paid had Landlord elected to finance such expenditure) from an unaffiliated third-party financial institution, but in no event greater than the Interest Rate.

(b) Without limiting the foregoing, at its sole cost and expense Tenant shall enter into a contract or contracts (each a “Service Contract”) in form and substance reasonably approved by Landlord with qualified, experienced professional third party service companies reasonably approved by Landlord to perform its maintenance, repair and replacement of these portions of the Systems and Equipment which require regularly scheduled periodic maintenance, including the HVAC systems (which shall provide for and include, without limitation, replacement of filters, oiling and lubricating of machinery, parts replacement, adjustment of drive belts, oil changes and other preventive maintenance, including annual maintenance of duct work, interior unit drains and caulking of sheet metal, and recaulking of jacks and vents on an annual basis), elevators, the roof, the building fire/life-safety systems, and the electrical and plumbing systems.  On an annual basis, Landlord shall have the right to review and approve each contractor or vendor retained by Tenant to perform scheduled maintenance and repairs and, if Landlord reasonably determines that such contractor or vendor is not performing adequate maintenance or repair, Landlord may require that Tenant replace such contractor or vendor with a contractor or vendor reasonably approved by Landlord.  The HVAC Service Contract shall provide for the HVAC service provider to maintain, repair and replace when necessary all HVAC equipment which serves the Premises and to keep the same in good condition through regular inspection and servicing at least once every sixty

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(60) days.  Tenant also shall maintain continuously throughout the Term a Service Contract for the washing of all windows in the Premises (both interior and exterior surfaces) with a contractor approved by Landlord, which provides for the periodic washing of all such windows at least once every ninety (90) days and Service Contracts for the inspection, testing and servicing of the life-safety and elevator systems in the Premises, with a contractor reasonably approved by Landlord.  Upon Tenant’s request, Tenant shall furnish Landlord with copies of all such Service Contracts.

(c) All repairs and replacements required of Tenant shall be promptly made with new materials and equipment of like kind and quality, subject to the commercial availability of like kind materials.  If any maintenance, repairs, replacements or other work to be performed pursuant to this Paragraph 12 affects the Building Structure or exterior of the Premises or if any non-scheduled material repair or replacement work relates to the Systems and Equipment, or if the estimated cost of any item of repair or replacement to the Building Structure or Systems and Equipment exceeds Fifty Thousand Dollars ($50,000.00), then Tenant shall first obtain Landlord’s written approval of the scope of work, plans therefor, materials to be used, and the contractor that will perform the work, such approval not to be unreasonably withheld, conditioned or delayed and to be governed by the provisions of Paragraph 11(a) above.  Tenant agrees to provide carpet shields under all rolling chairs.  Tenant shall employ only qualified, reputable and licensed contractors and vendors to perform maintenance,  repairs and other services at the Premises.

(d) Tenant shall regularly, in accordance with commercially reasonable standards, generate and maintain preventive maintenance records relating to the Systems and Equipment, including copies of all Service Contracts (“Books and Records”).  In addition, within thirty (30) days following Landlord’s written request, Tenant shall make available for Landlord’s review (or at Tenant’s option, deliver to Landlord copies of) the Books and Records.  Within thirty (30) days following Tenant’s receipt of written request from Landlord, Tenant shall make available for Landlord’s review (or at Tenant’s option, deliver to Landlord copies of) any maintenance and repair reports, documents and back-up materials related to the maintenance, repair and other work required to be performed by Tenant, to the extent the same are regularly and customarily generated and maintained by, and in the possession of, Tenant or its management team (collectively, the “M&R Reports”).  Tenant’s obligation to deliver Books and Records and M&R Reports shall survive the Expiration Date and the prior termination of this Lease for a period not to exceed twelve (12) months.

(e) In the event any of the above maintenance responsibilities apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such maintenance responsibilities and charges shall be allocated to the Premises by square footage or other equitable basis as calculated and determined by Landlord.

13. UTILITIES.

(a) Upon commencement of the Term, Tenant shall have all utilities servicing the Premises transferred into Tenant’s name; Landlord will reasonably cooperate with Tenant’s efforts to do so.  Tenant shall pay promptly, as the same become due, all charges for water, gas, electricity, telephone, broad band, internet, and other electronic communication service, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the Term, including, without limitation, any temporary or permanent utility surcharge or other exactions whether or not hereinafter imposed.  In the event the above charges apply to any other tenant(s) of Landlord where there is common usage with other tenant(s), such charges shall be allocated to the Premises by square footage or other equitable basis as calculated and determined by Landlord.

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(b) In the event any governmental authority having jurisdiction over the Land or the Building promulgates or revises any Law or building, fire or other code or imposes mandatory controls or guidelines on Landlord or the Land or the Building relating to the use or conservation of energy or utilities or the reduction of automobile or other emissions (collectively, “Controls”) or in the event Landlord is required to make alterations to the Land or the Building in order to comply with such mandatory Controls, Landlord may, in its sole discretion, comply with such Controls or make such alterations to the Land or the Building related thereto but will us commercially reasonable efforts to carry out any such work in a manner calculated to minimize disturbance to Tenant’s business operations therein as described in Paragraph 25 below.  Such compliance and the making of such alterations shall not constitute an eviction of Tenant, constructive or otherwise, or impose upon Landlord any liability whatsoever, including, but not limited to, liability for consequential damages or loss of business by Tenant.  Costs incurred by Landlord in connection with implementation of mandatory Controls shall be included in Operating Expenses, and will be amortized as if such costs are Permitted Capital Items.

(c) Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of Rent by reason of any interruption or failure of utility services to the Premises, including without limitation any interruption or failure that is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord.

14. TAXES.

(a) Real Property Taxes.  As Additional Rent and in accordance with Paragraph 5(e) of this Lease, Tenant shall pay to Landlord, monthly in advance pursuant to an Estimate or as they become due pursuant to statements submitted by Landlord, Tenant’s Proportionate Share (which shall be allocated to the Premises by square footage or other equitable basis, as calculated by Landlord) of all Real Property Taxes relating to the Complex accruing during the Term of this Lease.  The term “Real Property Taxes” shall also include supplemental taxes related to the period of the Term whenever levied, including such taxes that may be levied after the Term has expired.  The term “Real Property Taxes”, as used herein, shall mean (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases in taxes resulting from reassessments caused by any change in ownership of the Premises) now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Complex (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord’s interest therein; any improvements located within the Complex (regardless of ownership); the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located in the Complex; or Parking Areas, public utilities, or energy within the Complex; (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Complex; (iii) assessments, taxes, fees, levies and charges may be imposed by governmental agencies for services such as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services; (iv) governmental or private assessments or the Complex’s contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (v) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (vi) any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the

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Premises; (vii) any increases in taxes arising under Proposition 13 adopted by the voters of the State of California in the June 1978 election; and (viii) all costs and fees (including reasonable attorneys’ fees) incurred by Landlord in reasonably contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax.  Any costs and expenses (including, without limitation, reasonable attorneys' and consultants' fees) incurred in attempting to protest, reduce or minimize Real Property Taxes shall be included in Real Property Taxes in the fiscal year such expenses are incurred.  Tax refunds shall be credited against Real Property Taxes and refunded to Tenant regardless of when received, based on the fiscal year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such fiscal year exceed the total amount paid by Tenant for such fiscal year.  If Real Property Taxes for any period during the Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's proportionate of any such increased Real Property Taxes.  If any Real Property Tax can be paid by Landlord in installments, then, for the purpose of calculating Tenant's obligation to pay Real Property Taxes, any such Real Property Tax shall be deemed to be paid by Landlord in the maximum allocable number of installments, regardless of the manner in which Landlord actually pays such Real Property Taxes.

(b) Alternative Real Property Taxes.  If at any time during the Term of this Lease the taxation or assessment of the Complex prevailing as of the Commencement Date of this Lease shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Complex or Landlord’s interest therein or (ii) on or measured by the gross receipts, income or rentals from the Complex, on Landlord’s business of leasing the Complex, or computed in any manner with respect to the operation of the Complex, then any such tax or charge, however designated, shall be included within the meaning of the term “Real Property Taxes” for purposes of this Lease.  If any Real Property Tax is based upon property or rents unrelated to the Complex, then only that part of such Real Property Tax that is fairly allocable to the Complex shall be included within the meaning of the term “Real Property Taxes.”

(c) Exclusions from Real Property Taxes.  Notwithstanding the foregoing, the term “Real Property Taxes” shall not include (i) estate, inheritance, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord’s income from all sources, (ii) penalties incurred as a result of Landlord's negligence, inability or unwillingness to make payments of, and/or to file any tax or informational returns with respect to, any Real Property Taxes, when due, or (iii) any taxes directly payable by Tenant or any other tenant in the Complex under the applicable provisions in their respective leases.

(d) Pursuit of Claim for Reduction of Real Property Taxes.  After written request (the "Tax Notice") by Tenant, at Landlord's option, either (i) Landlord shall diligently pursue claims for reductions in Real Property Taxes, in which event Landlord shall provide Tenant with detailed information as to how Landlord will pursue such claims, or (ii) Tenant may pursue such claims with Landlord's concurrence, in the name of Landlord, or (iii) Tenant may pursue such claims in the name of Landlord without Landlord's concurrence.  In the event that Landlord does not elect either item (i) or (ii), above, within thirty (30) days of receipt of the Tax Notice, Tenant shall thereafter have the right to pursue such claims under item (iii), above.  If Landlord either agrees to pursue such claims or concurs in the decision to pursue such claims but elects to have them pursued by Tenant, the cost of such proceedings shall be paid by Landlord and included in Real Property Taxes in the year such expenses are paid.  If Tenant pursues such claims without obtaining Landlord's concurrence and such contest is successful, then the cost of such proceedings, but in no event more than the cumulative tax savings to Landlord achieved, shall be deducted from Operating Expenses payable by Tenant in the fiscal year such expenses are paid. 

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Tenant may deliver a Tax Notice prior to the issuance of the actual tax bill by the taxing authority or receipt by Tenant of a billing from Landlord.

(e) Taxes on Tenant’s Property.

(i) Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises.  If any such taxes on Tenant’s personal property or trade fixtures are levied against Landlord or Landlord’s property or if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based on such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall within thirty (30) days following demand, as the case may be, repay to Landlord the taxes so levied against Landlord, or the proportion of such taxes resulting from such increase in the assessment; provided that in any such event Tenant shall have the right, in the name of Landlord and with Landlord’s full cooperation, to bring suit in any court of competent jurisdiction to recover the amount of such taxes so paid under protest, and any amount so recovered shall belong to Tenant.

(ii) If any improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are assessed for real property tax purposes at a valuation materially higher than the valuation at which standard office improvements in other space in the Complex are assessed, then the real property taxes and assessments levied against the Landlord or the Complex by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of the Tenant and shall be governed by the provisions of Paragraph 14(d)(i) above.  If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether such Tenant improvements are assessed at a higher valuation than standard office space improvements in other space in the Complex, such records shall be binding on both the Landlord and the Tenant.  If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making such determination, the actual cost of construction shall be used.

15. CABLING AND LINES. Tenant may install, maintain, replace, remove or use any communications or computer wires and cables (collectively, the "Lines") at the Complex in or serving the Premises, provided that (i) Tenant shall obtain Landlord’s prior written consent, use Landlord’s designated contractor for provision of cabling and riser management services (or, if Landlord does not have a designated contractor, then an experienced and qualified contractor reasonably approved in writing by Landlord), and comply with all of the other provisions of Paragraph 11 of this Lease, (ii) an acceptable number of spare Lines and space for additional Lines shall be maintained for existing and future occupants of the Complex, as determined in Landlord’s reasonable opinion, (iii) the Lines therefor (including riser cables) shall be (x) appropriately insulated to prevent excessive electromagnetic fields or radiation, (y) surrounded by a protective conduit reasonably acceptable to Landlord, and (z) identified in accordance with the "Identification Requirements," as that term is defined below, (iv) any new or existing Lines servicing the Premises shall comply with all applicable Laws, (v) as a condition to permitting the installation of new Lines, Tenant shall remove the existing Lines located in or serving the Premises which are being replaced by the new Lines and repair any damage in connection with such removal, and (vi) Tenant shall pay all costs in connection therewith.  All Lines shall be clearly marked with adhesive plastic labels (or plastic tags attached to such Lines with wire) to show Tenant’s name, suite number, telephone number and the name of the person to contact in the case of an emergency (A) every four feet (4’) outside the Premises (specifically including, but not limited to, the electrical room risers and other Common Areas), and (B) at the Lines’ termination point(s) (collectively, the "Identification Requirements").  Upon the expiration of the Term, or immediately following any earlier termination of

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this Lease, Tenant shall, at Tenant’s sole cost and expense, remove all Lines installed by Tenant, and repair any damage caused by such removal.  In the event that Tenant fails to complete such removal and/or fails to repair any damage caused by the removal of any Lines, Landlord may do so and may charge the cost thereof to Tenant.  Landlord reserves the right to require that Tenant remove any Lines located in or serving the Premises which are installed in violation of these provisions, or which are at any time (1) are in violation of any Applicable Laws, (2) are inconsistent with then-existing industry standards (such as the standards promulgated by the National Fire Protection Association (e.g., such organization’s "2002 National Electrical Code")), or (3) otherwise represent a dangerous or potentially dangerous condition.

16.  ABATEMENT.

(a) Generally.  The obligations of Tenant under this Lease shall be separate and independent covenants.  All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any abatement of Rent, except as expressly set forth herein.  If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant’s part to be performed hereunder, including Tenant’s obligations under Paragraph 12 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant’s part.  In the case of an emergency, no prior notification by Landlord shall be required.  Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant’s obligations.  All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Interest Rate, from the date of payment by Landlord, shall be paid to Landlord on demand as Additional Rent.  Tenant hereby waives, to the maximum extent permitted by applicable Laws, any rights that it may now or in the future have to quit or surrender the Premises, to terminate this Lease, or to any abatement, except as expressly set forth herein, diminution, offset, reduction or suspension of Rent on account of any event or circumstance, including, without limitation, any rights it might otherwise have under the provisions of California Civil Code Sections 1932 and 1933, or any amended, similar or successor laws.

(b) Abatement Events.  Notwithstanding the provisions of Paragraph 16(a) above, in the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, as a result of (i) any repair, maintenance or alteration performed by Landlord, or which Landlord failed to perform, which substantially interferes with Tenant’s use of or ingress to or egress from the Complex, Building or Premises, (ii) any interruption of services to all or any portion of the Premises if such failure is attributable to the sole active negligence or willful misconduct of Landlord (or Landlord’s agents, employees or contractors) or to Landlord’s failure to perform its maintenance obligations set forth herein, or (iii) the presence of Hazardous Materials that reasonably could be expected to pose a risk to health or human safety and that are caused by the acts of Landlord or Landlord’s agents, employees or contractors, then Tenant shall have the right to give Landlord notice (the “Initial Notice”), specifying such failure to perform by Landlord (the “Abatement Event”).  The Initial Notice shall identify this Lease and state in bold conspicuous font the following:  “IMMEDIATE ATTENTION REQUIRED.THIS IS AN INITIAL NOTICE UNDER SECTION 16(b) OF THE LEASE.  YOUR FAILURE TO CURE THE ABATEMENT EVENT DESCRIBED IN THIS NOTICE WITHIN 5 BUSINESS DAYS PURSUANT TO SECTION 9(b) OF THE LEASE MAY RESULT IN TENANT RECEIVING RENTAL ABATEMENT.” If Landlord has not cured such Abatement Event within five (5) business days after the receipt of the Initial Notice, Tenant may deliver an additional notice to Landlord (the "Additional Notice"), specifying such Abatement Event and Tenant’s intention to abate the payment of Rent under this Lease.  The Additional Notice shall identify this Lease and state in bold conspicuous font the following:  “IMMEDIATE ATTENTION REQUIRED.THIS IS AN ADDITIONAL NOTICE UNDER SECTION 16(b) OF THE LEASE.  YOUR FAILURE TO CURE THE ABATEMENT

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EVENT DESCRIBED IN THIS NOTICE WITHIN 5 BUSINESS DAYS PURSUANT TO SECTION 9(b) OF THE LEASE MAY RESULT IN TENANT RECEIVING RENTAL ABATEMENT.”  If Landlord does not cure such Abatement Event within three (3) business days of receipt of the Additional Notice, Tenant may, upon written notice to Landlord, immediately abate Rent payable under this Lease for that portion of the Premises rendered untenantable and not used by Tenant, for the period beginning on the date five (5) business days after the Initial Notice to the earlier of the date Landlord cures such Abatement Event or the date Tenant recommences the use of such portion of the Premises.  Such right to abate Rent shall be Tenant’s sole and exclusive remedy at law or in equity for an Abatement Event.  Except as provided in this Paragraph 16(b), nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder

17. TENANT’S INSURANCE.

(a) Tenant's Compliance with Landlord's Fire and Casualty Insurance.  At Tenant's expense, Tenant shall comply as to the Premises with all insurance company requirements pertaining to the use of the Premises promulgated by Landlord’s insurer of which Tenant has received written notice.  If Tenant's conduct or use of the Premises causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase.  Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

(b) Tenant's Insurance.  From and after the Delivery Date, and as a condition to Landlord’s obligation to deliver possession of the Premises to Tenant, Tenant shall maintain the following coverages in the following amounts.

(i) Liability Insurance.  Commercial General Liability (“CGL”) Insurance written on a form that is at least as broad as form ISO CG 00 01 10 01, covering the insured with a duty to defend against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities, or use of the Premises, including contractual liability coverage for the performance by Tenant of the indemnity agreements set forth in Paragraph 20 of this Lease, and coverage for damage to the Premises (including all improvements in the Tenant’s care, custody, or control).  Tenant shall provide an endorsement or policy excerpt showing that Tenant’s coverage is primary and any insurance carried by Landlord shall be excess and non-contributing.  The coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire.  The policy shall not contain any intra-insured exclusions as between insured persons or organizations.  The policy shall include a per location aggregate, coverage for products and completed operations, independent contractors, and contractual liability for all legal contracts, including liabilities under this Lease as an insured contract for the performance of all of Tenant’s indemnity obligations under this Lease, and a waiver of subrogation (such as GC 24 04 endorsement or equivalent).  The limits of said insurance shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder.  Such insurance shall be for limits of liability not less than the following amounts:

Bodily Injury and Property Damage Liability	$15,000,000 each occurrence $15,000,000 annual aggregate
Personal Injury Liability	$15,000,000 each occurrence $15,000,000 annual aggregate

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Tenant may achieve such coverage through a combination of primary and umbrella coverages.

(ii) Property Insurance.  Commercial property insurance covering physical damage to: (i) all improvements and betterments installed, made or paid for by Tenant, and all fixtures, equipment, personal property, and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, and (ii) all Tenant Improvements and other Alterations installed by Tenant.  Such insurance shall be written on a Special Form basis, for the full replacement cost value (subject to reasonable deductible amounts), without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for (a) all perils included in the CP 10 30 04 02 Coverage Special Form, (b) water damage from any cause whatsoever, including, but not limited to, sprinkler leakage (including as the result of earthquake), bursting, leaking or stoppage of any pipes, explosion, and backup or overflow from sewers or drains, (c) earthquake, (d) terrorism (to the extent such terrorism insurance is available as a result of the Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322), the Terrorism Risk Insurance Program Reauthorization Act of 2005 (Pub. L. 109‑144), and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Pub. L. 110‑160, 121 Stat. 183), and the Terrorism Risk Insurance Program Reauthorization Act of 20015 (“TRIPRA”) any successor statute or regulation, or is otherwise available), (e) boiler and machinery.  In no event shall Landlord be liable for any damage to or loss of Tenant’s personal property sustained by Tenant, whether or not it is insured, even if such loss is caused by the negligence of Landlord, its employees, officers, directors, or agents.  Such insurance policies shall include a waiver of subrogration as required by Paragraph 19.

(iii) Workers’ Compensation Insurance.  Workers' compensation insurance as required by law, with employers’ liability coverage of at least $1,000,000.

(iv) Loss of Income.  Loss of income, business interruption, and extra expense insurance in such amounts as will reimburse Tenant for direct and indirect loss of earnings attributable to Tenant’s operations in the Premises due to all perils covered in the all-risk commercial property insurance and terrorism insurance described above for a period of at least twelve (12) months.

(v) Automobile.  Commercial automobile liability insurance written on a form at least as broad as form ISO CA 00 01 10 01 and having a combined single limit of not less than $2,000,000 per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance or use of any owned, hired, or non-owned automobiles, and including vicarious liability coverage.

(vi) Builder’s Risk and Other Construction Liability.  Tenant shall carry all-risk Builder’s Risk insurance in an amount reasonably approved by Landlord covering the construction of the Tenant Improvements and any Alterations made by Tenant, and such other construction-related insurance as Landlord may reasonably require, it being understood and agreed that the Tenant Improvements and any Alterations shall be insured by Tenant pursuant to this Lease immediately upon completion thereof.  Such insurance shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that both Tenant and all of Tenant’s agents, contractors, and subcontractors (other than minor subtrades) shall carry liability insurance, including Products and Completed Operation Coverage, in amounts not less than $5,000,000 per incident, $5,000,000 in the aggregate (or such higher limits as may be reasonably recommended by Landlord’s risk manager), worker’s compensation insurance and automobile insurance as required by Paragraph 17(b)(iii) and Paragraph 17(b)(v), and be in form and with companies as are required to be carried by Tenant as set forth in this Lease, naming Landlord and such others as the Landlord may reasonably designate as an additional insured.  All professionals (including without limitation architects

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and engineers) providing any work for any such Tenant project shall be required to carry professional liability errors and omissions coverage of not less than $1,000,000 with a retention of not less than $25,000.  All insurance carried by Tenant’s agents, contractors and subcontractors shall comply with the requirements of Paragraph 17(b)(vii) and Paragraph 17(e).

(vii) Form of Policies.  The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease.  Such insurance shall:  (i) except with respect to the coverage described in Paragraph 17(b)(ii) above), name Landlord, Landlord's Mortgagee (as defined in Paragraph 24(c)) of which Tenant has notice, the lessors of a ground or underlying lease with respect to the Property of which Tenant has notice, Landlord’s directors, officers, employees, members and managers, and any other party having an insurable interest in the Premises whom Landlord reasonably specifies (including, if applicable, some or all of the Indemnified Parties), as an additional insured; (ii) be issued by an insurance company having a rating of not less than “A” or better by Standard & Poor or “A-VIII” or better in Best's Insurance Guide, or which is otherwise acceptable to Landlord, and authorized to do business in the state of California; (iii) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (iv) if commercially available, provide that such insurance shall not be canceled for non-payment of premium unless at least ten (10) days' prior written notice shall have been given to Landlord; (v) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord; (vi) with respect to the insurance required in Paragraph 17(b)(i) through Paragraph 17(b)(v) above, have deductible amounts not exceeding Ten Thousand Dollars ($10,000.00); and (vii) include waivers of subrogation as provided in Paragraph 19.  Tenant shall deliver certificates evidencing the required coverage hereunder to Landlord on or before (I) the earlier to occur of:  (x) the Commencement Date, and (y) the date Tenant and/or its employees, contractors and/or agents first enter the Premises for occupancy, construction of improvements, alterations, or any other move-in activities, and (II) five (5) business days after the renewal of such policies.  If Tenant receives notice from the insurer of any cancellation or material change in coverage, Tenant shall give Landlord written notice thereof promptly after receipt, in which event Landlord may require that Tenant procure replacement insurance from another carrier.  If Tenant shall fail to procure or to maintain any insurance required by this Paragraph 17, or to deliver such policies or certificate, within such time periods, Landlord may, at its option, in addition to all of its other rights and remedies under this Lease, and without regard to any notice and cure periods set forth in this Lease, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within thirty (30) days after delivery of bills therefor.

(c) Further Insurance Obligations.  Tenant shall carry and maintain during the entire Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Paragraph 17, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably required by Landlord’s Mortgagee or reasonably requested by Landlord, provided, however, (i) that such increased or other types of insurance are reasonably commensurate with the levels and types of coverage reasonably required by Landlord, including as the result of Tenant’s particular use of the Premises and (ii) in no event shall Tenant be required to adjust its insurance coverage pursuant to the provisions of this Paragraph 17(c) more often than once in any twenty four (24) month period unless such adjustment is the result of Tenant’s particular use of the Premises.

(d) Loss Payee, and Certificate Obligations.  All property policies required above shall include a standard mortgagee/loss payable endorsement pursuant to which Landlord, Landlord's Mortgagee(s), the lessors of a ground or underlying lease with respect to the Property, and any other party Landlord so specifies shall to be named as the mortgagee/loss payee, as appropriate, as their interests may appear.

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(e) Third Party Contractors.  Tenant shall obtain and deliver to Landlord, Third Party Contractor’s certificates of insurance and applicable endorsements at least seven (7) business days prior to the commencement of work in or about the Premises by any vendor or any other third-party contractor (collectively, a "Third Party Contractor").  All such insurance shall (a) name Landlord as an additional insured under such party’s liability policies as required by Paragraphs 17(b)(vi) and 17(b)(vii) above and this Paragraph 17(e), (b) provide a waiver of subrogation in favor of Landlord under such Third Party Contractor’s commercial general liability insurance, (c) be primary and any insurance carried by Landlord or such Third Party Contractor shall be excess and non-contributing, and (d) comply with Landlord’s reasonably minimum insurance requirements.

(f) Self-Insurance of Certain Risks.  Notwithstanding the preceding provisions of this Paragraph 17 to the contrary,  so long as (i) the originally named Tenant or an Affiliate is the tenant-in-possession, and (ii) the Tenant meets the conditions set forth in this Paragraph 17(f), Tenant may elect, on written notice to Landlord, to self-insure the risks covered by the insurance required by clause (c) of Paragraph 17(b)(ii) (i.e., earthquake insurance) and clause (d) of Paragraph 17(b)(ii) (i.e., terrorism insurance) that it is otherwise obligated to maintain under the terms of this Lease, subject to the following requirements:

(i) "Self-insure" shall mean that Tenant is itself acting as though it were the insurance company providing the insurance required under the provisions hereof rather than placing insurance with a third-party insurer and shall pay any amounts due in lieu of insurance proceeds which would have been payable if the insurance policies had been carried, which amounts shall be treated as insurance proceeds for all purposes under this Lease.

(ii) All amounts which are paid or are required to be paid and all loss or damages resulting from risks for which Tenant has elected to self-insure shall be subject to the waiver of subrogation provisions of Paragraph 19 and shall not limit Tenant's indemnification obligations set forth in Paragraph 20.

(iii) Tenant's right to self-insure and to continue to self-insure is conditioned upon and Tenant maintaining appropriate loss reserves.

(iv) If an event or claim occurs for which coverage would have been available from the insurance company, Tenant shall use its own funds to pay any claim or replace any property or otherwise provide the funding which would have been available from insurance proceeds but for such election by Tenant to self-insure.

18. PROPERTY AND LANDLORD’S LIABILITY INSURANCE. Landlord shall purchase and keep in force a policy of policies of insurance covering loss or damage to the Premises and the Complex (excluding routine maintenance and repairs and incidental damage or destruction caused by accidents or vandalism for which Tenant is responsible under Paragraph 12), providing protection against those perils included within the classification of “special form” or “all risk” insurance and containing such endorsements as Landlord’s Mortgagee may require, including coverage for boiler and machinery insurance.  Landlord will also obtain, if commercially available, “ordinance or law coverage” or “enforcement” endorsements, and a policy of rental loss insurance in the amount of one hundred (100%) percent of eighteen (18) months Base Rent (or such longer period of time after such eighteen-month period as may be required by Landlord’s Mortgagee or as Landlord reasonably may require), plus sums paid as Additional Rent and any deductibles related thereto, and may elect to obtain flood (including both primary and excess flood), earthquake and/or terrorism insurance.  If the cost of any such insurance is increased solely due to Tenant’s unique use of the Premises or the Complex, Tenant agrees to pay to Landlord the full cost of such increase; similarly, if another Complex occupant’s unique use causes the

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cost of Landlord’s insurance to be increased solely due to such use, Operating Expenses will not include the cost of any such increase, which will instead be borne by such occupant.  Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord for the Complex.  Tenant shall pay to Landlord (or Landlord’s agent if so directed by Landlord) Tenant’s Proportionate Share of the costs of all premiums and all deductibles on insurance claims, subject to the provisions of Paragraph 8 above.  In addition to the above, during the Term, Landlord shall have the right to maintain a policy or policies of worker’s compensation and employer’s liability, employee dishonesty, automobile, and commercial general liability insurance insuring Landlord and the Indemnified Parties against liability for personal injury, bodily injury, death, and damage to property occurring or resulting from an occurrence in, on or about the Common Areas, with such limits as Landlord may determine to be reasonable or as are required to be maintained by Landlord’s Mortgagee.  Any liability coverage required hereunder may be satisfied through a combination of primary and blanket or umbrella policies.  All costs and expenses of procuring the insurance described in this Paragraph 18 shall constitute Operating Expenses under Paragraph 5(e).  

19. WAIVER OF CERTAIN CLAIMS.  Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each hereby waives any and all rights of recovery, claim, action, or cause of action against the other, its agents, employees, licensees, or invitees for any loss or damage to or at the Premises or the Complex or any personal property of such party therein or thereon by reason of fire, the elements, or any other cause which would be insured against under the terms of (i) special causes of loss form property insurance or (ii) the liability insurance referred to in Paragraph 17(b)(i) and Paragraph 18, to the extent of such insurance, regardless of cause or origin, including omission of the other party hereto, its agents, employees, licensees, or invitees.  Landlord and Tenant covenant that no insurer under any such policy shall hold any right of subrogation against either of such parties with respect thereto.  This waiver shall be ineffective against any insurer of Landlord or Tenant to the extent that such waiver is prohibited by the laws and insurance regulations of the State of California.  The parties hereto agree that any and all such insurance policies required to be carried by either shall be endorsed with a subrogation clause, substantially as follows:  "This insurance shall not be invalidated should the insured waive, in writing prior to a loss, any and all right of recovery against any party for loss occurring to the property described therein, " and shall provide that such party's insurer waives any right of recovery against the other party in connection with any such loss or damage.Landlord and Tenant hereby represent and warrant that their respective "all risk" property insurance policies include a waiver of (i) subrogation by the insurers, and (ii) all rights based upon an assignment from its insured, against Landlord and/or any of the Landlord Parties or Tenant and/or any of the Tenant Parties (as the case may be) in connection with any property loss risk thereby insured against.  Tenant will cause all subtenants and licensees of the Premises claiming by, under, or through Tenant to execute and deliver to Landlord a waiver of claims similar to the waiver in this Paragraph 19 and to obtain such waiver of subrogation rights endorsements and Landlord will similarly extend the provisions of this Paragraph 19 to any such subtenants or licensees who so comply.  If either party hereto fails to maintain the waivers set forth in items (i) and (ii) above, the party not maintaining the requisite waivers shall indemnify, defend, protect, and hold harmless the other party for, from and against any and all claims, losses, costs, damages, expenses and liabilities (including, without limitation, court costs and reasonable attorneys’ fees) arising out of, resulting from, or relating to, such failure.

20. INDEMNIFICATION. Landlord shall not be liable to Tenant, and Tenant hereby waives all claims against Landlord, for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Complex by or from any cause whatsoever, including, without limitation, gas, fire, oil, electricity or leakage of any character from the roof, walls, basement or other portion of the Premises or the Complex, a slip and fall or other accident, any criminal or terrorist activities, and/or the passive negligence of Landlord and any Indemnified Parties but excluding, however, the willful misconduct and sole active negligence of Landlord, its agents, servants, employees, invitees and/or contractors.  Except as to injury to persons or damage to property to the extent arising from the

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willful misconduct or the sole active negligence of Landlord, its agents, employees or contractors, and subject to the provisions of Paragraph 19 above, Tenant shall indemnify, defend, protect and hold harmless Landlord and the other Indemnified Parties against any and all expenses, including reasonable attorneys’ fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises, or any part thereof, from any cause whatsoever, accruing and/or occurring during the Term of this Lease.  Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy of the Premises or use of the Common Areas, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including without limitation, its actual professional fees such as reasonable appraisers', accountants' and attorneys' fees.  Subject to the provisions of Paragraph 19 above, Landlord shall indemnify, defend, protect and hold harmless Tenant against any and all expenses, including reasonable attorneys’ fees, in connection therewith, arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises or Complex, or any part thereof, to the extent the same arises from the willful misconduct or the sole active negligence of Landlord, its agents, servants, employees, invitees, or contractors.

21. COMPLIANCE. At its sole cost and expense, Tenant promptly shall comply with all Laws (including without limitation the ADA, all “path of travel” requirements, the Toxic Mold Protection Act of 2001 and all fire, life safety, seismic and building code requirements,) now or hereafter in effect; with the requirements of any board of fire underwriters or other similar body now or hereafter constituted; and with any direction or occupancy certificate issued pursuant to any applicable Law by any public officer with respect to the Premises or any portion of the Complex that Tenant is required to maintain or repair pursuant to this Lease; provided, however, that no such failure shall be deemed a breach of the provisions if Tenant, immediately upon notification, commences to remedy or rectify such failure.  However, Tenant, at Tenant's expense, may contest by appropriate proceedings in good faith the legality or applicability of any Law affecting the Premises, provided that (i) the Building or any part thereof will not be subject to being condemned or vacated by reason of non-compliance or otherwise by reason of such contest, (ii) no unsafe or hazardous condition remains unremedied as a result of such contest, (iii) such non-compliance or contest is not prohibited under any then-applicable Mortgage, (iv) such non‑compliance or contest shall not prevent Landlord from obtaining any and all permits and licenses then required by applicable Laws in connection with the operation of the Complex, and (v) such non‑compliance or contest shall not invalidate, violate or give rise to an insurance carrier’s right to cancel any insurance policy carried by Landlord or Tenant.  Tenant shall not do anything or suffer anything to be done in or about the Premises or the Complex which will in any way conflict with any Law now in force or which may hereafter be enacted or promulgated, including, without limitation, any such governmental regulations related to disabled access.  During the Term, should the Premises or any part thereof, whether structural or non-structural in nature, require modifications, renovations or Alterations to become compliant with any applicable Laws (including without limitation ADA compliance), the cost of any such modifications, repairs or Alterations shall be at Tenant’s sole cost and without reimbursement by Landlord.  The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such Law shall be conclusive of that fact as between Landlord and Tenant.  At its sole cost and expense, Tenant shall comply with any and all requirements pertaining to the Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance covering requirements pertaining to the Premises.

22. LIENS.  Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Premises or the Complex, and any and all liens and encumbrances created by Tenant shall attach to Tenant’s interest only.  Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens.  Tenant shall keep the

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Premises free from any liens arising out of any work performed, materials furnished or obligation incurred by Tenant.  Within ten (10) business days following notice to Tenant of the imposition of any such lien, Tenant at its sole cost shall cause the same to be released of record, either by bonding (pursuant to a bond acceptable to First American Title Company or such other title company as may have insured title or agreed to insure the Complex from mechanics’ lien claims), payment or otherwise by having such lien released of record).  If Tenant shall not, within ten (10) business days after notice to Tenant of the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, without any duty to investigate the validity thereof, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien.  All sums paid by Landlord for such purpose, and all expenses incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest from the date expanded by Landlord at the Interest Rate.  To the extent, if at all, that Landlord has agreed to reimburse Tenant for any sums of money pursuant to this Lease, Landlord’s obligation to reimburse Tenant shall be conditioned upon the full payment of all amounts owing to any mechanics’ lien claimants (including any and all general contractors, subcontractors, and material providers), receipt of unconditional final lien releases from such claimants, and the lapse of all applicable lien periods of such claimants.  Without limiting the foregoing, if required by the title insurance company insuring title to the Land in connection with a prospective sale or financing of the Land, Tenant shall execute and deliver to the title insurance company a mechanics’ lien indemnity agreement in form and substance reasonably acceptable to Tenant and the Title Company with respect to any mechanics’ or suppliers’ liens created as the result of work or materials furnished to the Premises contracted by or through Tenant.

23.  SUBLEASING, ASSIGNMENT AND OTHER TRANSFERS.

(a) Landlord’s Consent Required.  Tenant shall not assign this Lease or any interest therein, or sublet or license or permit the use or occupancy of the Premises or any part thereof by or for the benefit of anyone other than Tenant, or in any other manner transfer all or any part of Tenant’s interest under this Lease (each and all a “Transfer”), without the prior written consent of Landlord, which consent (subject to the other provisions of this Paragraph 23) shall not be unreasonably withheld, conditioned or delayed.  The term Transfer, as used herein, includes the following:  (i) the transfer, voluntary or involuntary, either by a single transaction or in a series of transactions, of a controlling interest in Tenant (or, if Tenant is a trust, in the trustee of such trust) which will not include the normal transfer of shares of Tenant on a nationally recognized securities exchange, (ii) any dissolution, merger, consolidation or other reorganization of Tenant, and (iii) the sale, by a single transaction or series of transactions, within any one (1) year period of assets equaling or exceeding fifty percent (50%) (or, if Tenant is a trust, exceeding fifty percent (50%)) of the total value of Tenant’s assets.  As used herein, the term “controlling interest” means (a) in the case of a partnership, limited liability company or other business entity, the ownership of partnership interests, membership interests or other indicia of ownership constituting more than fifty percent (50%) of the ownership interests in Tenant (provided that in the case of a limited partnership or manager controlled limited liability company, it also means the ownership of more than fifty percent (50%) of the ownership interests in the general partner or manager of Tenant), and (b) in the case of a corporation, the ownership and/or the right to vote stock constituting more than fifty percent (50%) of the voting stock of Tenant.  Notwithstanding any provision in this Lease to the contrary, Tenant shall not mortgage, pledge, hypothecate or otherwise encumber this Lease or all or any part of Tenant’s interest under this Lease.

(b) Reasonable Consent.  Prior to any proposed Transfer, Tenant shall submit in writing to Landlord, not less than thirty (30) days prior to the proposed effective date of the Transfer, (i) the name and legal composition of the proposed assignee, subtenant, user or other transferee (each a “Proposed Transferee”); (ii) the nature of the business proposed to be carried on in the Premises; (iii) a current balance sheet, income statements for the last two years and such other reasonable financial and

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other information concerning the Proposed Transferee as Landlord may within ten (10) business days after Tenant’s delivery of such balance sheet and income statements request; and (iv) a copy of the proposed assignment, sublease or other agreement(s) governing the proposed Transfer (“Transfer Documents”).  Within twenty (20) days after Landlord receives all such information satisfying the requirements above, it shall notify Tenant whether it approves or disapproves such Transfer or if it elects to proceed under Paragraph 23(g), provided that if the Mortgagee’s consent is required for the proposed Transfer and the Mortgagee has not responded to Landlord’s request for such consent within such time period, such time period shall be extended for three (3) business days after the Mortgagee’s response.  If Landlord fails to timely deliver to Tenant notice of Landlord’s consent, or the withholding of consent, to a proposed Transfer, Tenant may send a second (2nd) notice to Landlord, which notice must contain the following inscription, in bold faced lettering: “SECOND NOTICE DELIVERED PURSUANT TO PARAGRAPH 23 OF LEASE - - FAILURE TO TIMELY RESPOND WITHIN FIVE (5) BUSINESS DAYS SHALL RESULT IN DEEMED APPROVAL OF AN ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY TENANT.”  If Landlord fails to deliver notice of Landlord’s consent to, or the withholding of Landlord’s consent, to the proposed assignment, sublease or other Transfer within such five (5) business day period, then unless the Mortgagee’s consent to the Transfer was required and not granted or deemed granted under the terms of the applicable loan documents, Landlord shall be deemed to have approved the Transfer in question.  Notwithstanding the foregoing, if the time period for Landlord’s response would fall during the Blackout Period, then for each such day falling during the Blackout Period, the time period for Landlord to respond to any request for consent to a Transfer shall be extended on a day-for-day basis.  If Landlord at any time timely delivers notice to Tenant or Landlord’s withholding of consent to a proposed assignment or sublease, Landlord shall specify in reasonable detail in such notice, the basis for such withholding of consent.  Tenant acknowledges and agrees that, among other circumstances for which Landlord could reasonably withhold consent to a proposed Transfer, it shall be reasonable for Landlord to withhold consent where (i) the Proposed Transferee does not intend itself to occupy the entire portion of the Premises assigned or sublet, (ii) Landlord reasonably disapproves of the Proposed Transferee’s business operating ability or history, reputation or creditworthiness or the character of the business to be conducted by the Proposed Transferee at the Premises, (iii) at the time Tenant requests Landlord’s consent Tenant is in Default or an uncured notice of Default has been issued to Tenant, (iv) the Mortgagee’s consent to the Transfer is required and the Mortgagee will not consent to the Transfer, or (v) the Transfer would result in a violation of the terms and conditions of this Lease or any loan document securing or evidencing a loan secured by the Complex.  In no event may Tenant place any signs in or about the Premises or Building to market the Premises for assignment or sublease.  Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under this Paragraph 23 or otherwise has breached or acted unreasonably under this Paragraph 23, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives the provisions of Section 1995.310 of the California Civil Code, or any successor statute, and all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee.  Tenant shall indemnify, defend and hold harmless Landlord from any and all liability, losses, claims, damages, costs, expenses, causes of action and proceedings involving any third party or parties (including without limitation Tenant’s proposed subtenant or assignee) who claim they were damaged by Landlord’s wrongful withholding or conditioning of Landlord’s consent.

(c) Excess Consideration.  If Landlord consents to the Transfer, Tenant shall pay to Landlord as Additional Rent, as and when received by Tenant, fifty percent (50%) of any Bonus Rent (as hereinafter defined) paid by or on behalf of any transferee (the “Transferee”) for or in connection with the Transfer.  The term “Bonus Rent,” as used herein, means any and all rent and other consideration, whether denominated rent or otherwise, payable by or on behalf of the Transferee under the terms of the Transfer or any collateral agreement in excess of the Base Rent and Additional Rent payable hereunder,

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less the reasonable cost of any improvements installed by the Tenant, at its expense, in the Premises pursuant to the Transfer for the specific subtenant or assignee (and approved by Landlord) and reasonable leasing commissions and reasonable attorneys’ fees actually paid by the Tenant in connection with the Transfer, without deduction for carrying costs due to vacancy or otherwise.  At Landlord’s option, upon written notice to the Transferee, Landlord may require the Transferee to pay Landlord’s portion of such Bonus Rent directly to Landlord; provided, however, that Landlord’s acceptance or collection of the Bonus Rent will not be deemed to be a consent to any Transfer or a cure of any Default under this Paragraph 23 or any other provisions of this Lease.  In the case of a sublease, the Bonus Rent shall be determined by comparing the rent and/or other consideration payable under the sublease to the portion of the Base Rent and Additional Rent allocable to the subleased portion of the Premises (and the portion of the Base Rent and Additional Rent allocable to the subleased portion of the Premises shall be determined by multiplying the Base Rent and Additional Rent by a fraction, the numerator of which is the rentable area of the subleased portion of the Premises and the denominator of which is the rentable area of the Premises).

(d) No Release of Tenant.  No Transfer shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether accruing before or after such Transfer.  The consent by Landlord to any Transfer shall not relieve Tenant or any Transferee from the obligation to obtain Landlord’s express prior written consent to any subsequent Transfer by Tenant or any Transferee.  The acceptance of rent by Landlord from any other person (whether or not such person is an occupant of the Premises) shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be Landlord’s consent to any Transfer.

(e) Expenses and Attorneys’ Fees.  Tenant shall pay to Landlord on demand all costs and expenses (including reasonable attorneys’ fees) incurred by Landlord in connection with reviewing and responding to any proposed Transfer (including any request for consent to, or any waiver of Landlord’s rights in connection with, any security interest in any of Tenant’s property at the Premises).  Such expenses also shall include reasonable costs incurred by Landlord in considering any improvements or Alterations proposed to be made in connection with the Transfer.

(f) Effectiveness of Transfer.  Prior to the date on which any Transfer becomes effective, Tenant shall deliver to Landlord a counterpart of the fully executed Transfer document and the final form of Consent to Assignment or Consent to Sublease executed by Tenant and the Transferee in which each of Tenant and the Transferee confirms its obligations pursuant to this Lease.  Failure or refusal of a Transferee to execute any such instrument shall not release or discharge the Transferee from any liability.  The voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual cancellation by Landlord and Tenant, shall not work a merger, and any such surrender or cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any or all of such subleases.

(g) Landlord’s Right to Recapture Space.  Notwithstanding any of the provisions of this Paragraph 23 to the contrary, if Tenant notifies Landlord that it desires to enter into a Transfer of (x) all of the Premises (including without limitation an assignment of the Lease or a sublease of all of the Premises), (y) of any portion of the Premises consisting of more than twenty five percent (25%) of the Premises for a term which is all, or essentially all, of the then-remaining Term, or (z) more than one entire floor of the Premises for a term expiring on after the date that is twelve (12) months prior to the Expiration Date, except, in each case, with respect to a Permitted Transfer, Landlord shall have the right to recapture the entire portion of the Premises proposed to be Transferred, by giving Tenant written notice that Landlord elects to terminate this Lease, effective on the date specified in Landlord’s notice, as to such portion of the Premises.  Landlord may lease the portion of the Premises so recaptured (the "Recaptured Space") to any party, including Tenant’s Proposed Transferee, on such terms as Landlord,

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in its discretion, determines.  In the event of a partial termination of this Lease, Base Rent and Tenant’s Proportionate Share of Operating Expenses and other Additional Rent shall be reduced proportionately to the reduction in the area of the Premises.

(h) Assignment of Sublease Rents.  Tenant hereby absolutely and irrevocably assigns to Landlord any and all rights to receive rent and other consideration from any sublease and agrees that Landlord, as assignee or as attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant appointed on Landlord’s application may (but shall not be obligated to) collect such rents and other consideration and apply the same toward Tenant’s obligations to Landlord under this Lease; provided, however, that Landlord grants to Tenant at all times prior to occurrence of any Default by Tenant a license to collect such rents (which license shall automatically and without notice be and be deemed to have been revoked and terminated immediately upon any Default).

(i) Additional Requirements.  Any Transfer shall be null and void unless it complies with this Lease and:  (i) in the case of an assignment, provides that the assignee assumes all of Tenant’s obligations under this Lease and agrees to be bound by all of the terms of this Lease; and (ii) in the case of a sublease, provides that (a) it is subject and subordinate to this Lease, (b) if there is any conflict or inconsistency between the sublease and this Lease, as between the subtenant and Landlord or Tenant and Landlord, this Lease will prevail, (c) [OMITTED], (d) the sublease may not be modified (but may be terminated) without Landlord’s prior written consent and that any modification without such consent shall be null and void, (e) if this Lease is terminated or Landlord reenters or repossesses the Premises, Landlord may, at its option, take over all of Tenant’s right, title and interest as sublessor and, at Landlord’s option, the subtenant shall attorn to Landlord, but Landlord shall not be (x) liable for any previous act or omission of Tenant under the sublease, (y) subject to any existing defense or offset against Tenant, or (z) bound by any previous modification of the sublease made without Landlord’s prior written consent or by any prepayment of more than one (1) month’s rent.  Any and all sublease agreement(s) between Tenant and any and all subtenant(s) (which agreements must be consented to by Landlord pursuant to the requirements of this Lease) shall contain the following provision:  “If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease.  Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever.”

(j) Administration and Enforcement.  If a Transfer occurs, then subject to Landlord’s rights set forth elsewhere in this Paragraph 23, Tenant shall (a) cause the assignee, subtenant, user or other transferee (the “Transferee”) promptly and faithfully to make all payments and perform all other acts required to be made or performed by the Transferee under the Transfer Documents and to conform to and comply with the terms and conditions of the Transfer Documents required to be performed by the Transferee, (b) not consent to any further assignment, sublease or transfer of the Transferee’s rights and/or obligations under the Transfer Documents without the prior written consent of Landlord; (d) not grant, permit or suffer to exist any lien, security interest or other encumbrance on the interest of Tenant or the Transferee in the Transfer Documents, or agree to do so, except in favor of Landlord; (c) not amend or modify the Transfer Documents without Landlord’s prior written consent; (d) deliver to Landlord copies of all notices given by the Transferee or Tenant under the Transfer Documents;

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and (e) promptly notify Landlord in writing of the occurrence of any default (i.e., beyond notice and the passage of any grace period) Tenant or the Transferee under the Transfer Documents.

(k) Permitted Transfers.  Notwithstanding anything to the contrary contained in this Paragraph 23, if Tenant is not in Default, Tenant may assign this Lease or sublet any portion of the Premises (hereinafter collectively referred to as a “Permitted Transfer”) to (a) an “Affiliate” of Tenant (defined as an entity which is Controlled by, Controls, or is under common Control with, Tenant), (b) any successor entity to Tenant by way of merger, consolidation or other non-bankruptcy corporate reorganization, or (c) an entity which acquires all or substantially all of Tenant’s assets (collectively, “Permitted Transferees”, and, individually, a “Permitted Transferee”); provided that (i) at least ten (10) days before the Transfer, Tenant notifies Landlord of such Transfer, and supplies Landlord with any documents or information reasonably requested by Landlord regarding such Transfer or Permitted Transferee, including, but not limited to, copies of the sublease or instrument of assignment and copies of documents establishing to the reasonable satisfaction of Landlord that the transaction in question is one permitted under this Paragraph 23(k) (however, if the delivery of such notice is precluded by applicable Law or confidentiality agreement, Tenant will be required to provide such notice as soon as the provision of such notice is permissible), (ii) not less than ten (10) business days after the Transfer, Tenant furnishes Landlord with a written document executed by the Permitted Transferee in which such entity assumes all of Tenant’s obligations under this Lease (in the case of a sublease, to the extent applicable), and (iii) any such proposed Transfer is made for a good faith operating business purpose and not, whether in a single transaction or in a series of transactions, be entered into as a subterfuge to evade the obligations and restrictions relating to Transfers set forth in this Paragraph 23.  For purposes of this Paragraph 23(k), “Control” shall mean the ownership, directly or indirectly, of the power to direct or cause the direction of the management, affairs and policies of anyone, whether through the ownership of voting securities, by contract, or otherwise.  For the purpose of this Paragraph 23, if Tenant is a corporation or other entity whose capital stock is traded on a public exchange, the sale of Tenant's capital stock through any such public exchange shall not be deemed an assignment, subletting, or any other Transfer of the Lease or the Premises.  In addition, Paragraph 23(c) and Paragraph 23(g) shall not apply to a Permitted Transfer.

24. ESTOPPEL CERTIFICATES; SUBORDINATION; LENDER PROTECTIONS.

(a) Estoppel Certificates.  Within ten (10) business days after written request therefor, Tenant shall execute (or make reasonable good faith corrective comments to) and deliver to Landlord, in the form of Exhibit F hereto or such other form of certificate as may be reasonably required by Landlord’s current or potential Mortgagee, or, in the event of a sale of the Building, in a form reasonably required by any actual or potential purchaser of the Property.  The form of the current Mortgagee’s estoppel certificate is attached as Exhibit G.  Any such certificate may include provisions stating that this Lease is in full force and effect, describing any amendments or modifications hereto, acknowledging that this Lease is subordinate or prior, as the case may be, to any encumbrance and stating any other information Landlord may reasonably request, including the Term, the date on which the Term began and expires, the monthly Base Rent, the date to which Rent has been paid, the amount of any security deposit or prepaid rent, whether either party hereto is in default under the terms of the Lease, and whether Landlord has completed its obligations, if any, to construct any improvements or to pay any improvement allowances.  Any person or entity purchasing, acquiring an interest in or extending financing with respect to the Property shall be entitled to rely upon any such certificate; provided, however, that no such certificate shall be deemed to modify or amend the express provisions of this Lease.  If Tenant fails to deliver such certificate within the time period set forth above and such failure continues for three (3) business days after delivery of notice of such failure, at Landlord’s option, Tenant will be in Default hereunder.  Similarly, if Tenant is seeking financing, is engaged in a merger or acquisition transaction, or is proposing to engage in any sublease or assignment and if the party with which Tenant is negotiating requires an estoppel certificate from Landlord and Tenant is not in

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Default, then within ten (10) business days after Landlord’s receipt of Tenant’s written request (provided that if such ten (10) business day period falls during the Blackout Period, then for each such day falling during the Blackout Period, the time period shall be extended on a day-for-day basis) Landlord agrees to deliver to Tenant a statement (upon which such third party may rely), confirming the Term, the date on which the Term began and expires, the monthly Base Rent, the date to which Rent has been paid, the amount of any security deposit or prepaid rent, whether either party hereto is in default under the terms of the Lease, and whether Landlord has completed its obligations, if any, to construct any improvements or to pay any improvement allowances.

(b) Subordination.  Subject to Tenant’s receipt of an SNDA (defined below) as described herein, this Lease is expressly made subject and subordinate to any mortgage, deed of trust, ground lease, underlying lease or like encumbrance affecting any part of the Property or any interest of Landlord therein which is now existing or hereafter executed or recorded (“Encumbrance”).  Tenant shall execute (or make good faith and reasonable corrective comments to) and deliver to Landlord, within ten (10) business days after written request therefor by Landlord and in a form reasonably requested by Landlord, any additional documents evidencing the subordination of this Lease as described herein.  If the interest of Landlord in the Property is transferred pursuant to or in lieu of proceedings for enforcement of any Encumbrance, provided the new owner requires Tenant to do so or Tenant is party to an SNDA as herein described, Tenant shall attorn to the new owner, and this Lease shall continue in full force and effect as a direct lease between the transferee and Tenant on the terms and conditions set forth in this Lease.  Anything in this Paragraph 24(b) to the contrary notwithstanding, if a Mortgagee so elects in writing, this Lease shall be deemed superior to the Encumbrance held by the Mortgagee, regardless of the date of recordation of the Encumbrance, and Tenant will execute an agreement confirming the Mortgagee’s election on request.

Notwithstanding the preceding provisions of this Paragraph 24(b), if not obtained prior to or concurrently with the execution of this Lease, Landlord shall use commercially reasonable efforts to obtain from its existing Mortgagee (“Lender”) within thirty (30) days after the full execution and delivery of this Lease a subordination, non-disturbance, and attornment agreement (the “SNDA”).  A copy of the Lender’s current form of SNDA with Tenant’s requested changes is attached hereto as Exhibit H.  In the event that Tenant desires to modify or otherwise negotiate the form of the SNDA, Tenant shall be liable for all additional costs and expenses associated therewith.  In addition, Landlord shall use commercially reasonable efforts to provide an SNDA from any future ground lessors or mortgagees in such ground lessor’s or mortgagees standard form.  Except as set forth in the next-succeeding sentence, Tenant shall pay all costs incurred by Landlord in obtaining the SNDA or any other subordination and non-disturbance agreement.  "Commercially reasonable efforts" of Landlord shall not require Landlord to incur any cost or expense (other than the then-current lender’s “base fee” for the issuance of a SNDA; for avoidance of doubt, Tenant shall be responsible for cost associated with the negotiation of any Tenant-requested modifications to any such SNDA) or liability to obtain such SNDA.  Landlord's failure to obtain the SNDA or any other non-disturbance, subordination and attornment agreement for Tenant in a form acceptable to Tenant shall have no effect on the rights, obligations and liabilities of Landlord and Tenant or be considered to be a default by Landlord hereunder; however, absent the delivery of a SNDA, Tenant shall have no obligation hereunder to subordinate this Lease to the lien of such Mortgagee’s loan.

(c) Mortgagee Protection.  Tenant agrees to give any holder of any Encumbrance covering any part of the Property (“Mortgagee”), by certified mail or nationally recognized overnight courier, a copy of any notice of default served by Tenant upon Landlord, provided that prior to such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise) of the address of such Mortgagee.  If Landlord shall have failed to cure such default within thirty (30) days from the effective date of such notice of default, then (provided the Mortgagee has

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notified Tenant within such thirty (30) day period of the Mortgagee’s intent to attempt to cure Landlord’s default and thereafter diligently and continuously prosecute such cure) the Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary to cure such default (including the time necessary to foreclose or otherwise terminate its Encumbrance, if necessary to effect such cure), and this Lease shall not be terminated so long as such remedies are being diligently pursued; provided, however, that nothing contained in this Paragraph 24(c) shall be construed to impose any obligation on a Mortgagee to cure such default.

(d) Attornment.  In the event the interest of Landlord in the land and Building (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by the Mortgagee or any third party through judicial foreclosure or by exercise of a power of sale at private trustee’s foreclosure sale, and subject to the terms of any SNDA that has been entered into by Tenant and the Mortgagee as described above, Tenant hereby agrees to attorn to the purchaser at any such judicial foreclosure or foreclosure sale and to recognize such purchaser as the Landlord under this Lease.  In the event the lien of the deed of trust securing the loan from a Mortgagee to Landlord is prior and paramount to this Lease and subject to the terms of any SNDA previously executed by Tenant and the Mortgagee, at the Mortgagee’s sole option (which option shall be elected, if at all, in writing by the Mortgagee), this Lease shall nonetheless continue in full force and effect for the remainder of the unexpired Term hereof, at the same rental herein reserved and upon all the other terms, conditions and covenants herein contained.

(e) Financial Statements.  If at any time during the Term, Tenant’s financial reports (i.e., Forms 10-K and 10-Q) are not publicly available on the Securities Exchange Commission’s website or otherwise, then, within ten (10) business days after written request therefor, but not more than once a year (unless required by an actual or prospective purchaser or Mortgagee), upon request by Landlord, Tenant shall deliver to Landlord a copy of the financial statements (including at least a year end balance sheet and a statement of profit and loss) of Tenant (and of each guarantor, if any, of Tenant’s obligations under this Lease) for each of the three most recently completed years, prepared in accordance with generally accepted accounting principles (and, if such is Tenant’s normal practice, audited by an independent certified public accountant), together with all then available subsequent interim statements.

(f) Modification of Lease.  Should any current or prospective Mortgagee or ground lessor for the Building require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way adversely change the rights and obligations of Tenant hereunder (other than in a de minimus manner, such as adding the requirement that Tenant must provide additional notice to such ground lessor or Mortgagee of any Landlord default), then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute or make good faith and reasonable corrective comments to whatever documents are required therefor and deliver the same to Landlord within thirty (30) days following the request therefor, provided that Landlord agrees to reimburse Tenant within thirty (30) days following the delivery of an invoice therefor, for the reasonable actual third party attorneys’ fees and costs incurred in Tenant’s review and negotiation of any such documents.  Should Landlord or any such current or prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Term, Tenant agrees to execute or make good faith and reasonable corrective comments to such short form of Lease and to deliver the same to Landlord within thirty (30) days following the request therefor.

25. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable times after at least twenty four (24) hours’ notice (except in emergencies, in which event no advance notice shall be required) have the right to enter the Premises (i) to inspect them; (ii) to perform any services which are

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expressly to be provided by Landlord hereunder; (iii) to make necessary repairs in accordance with the express provisions of this Lease; (iv) to submit the Premises to prospective purchasers, Mortgagees or (during the final twelve (12) months of the Term only) tenants; (v) to post notices of non-responsibility; all without abatement of Rent (except as set forth in Paragraph 16(b)), and may erect scaffolding and other necessary structures in or through the Premises where reasonably required by the character of the work to be performed; provided, however that the business of Tenant shall be interfered with to the least extent that is reasonably practical, Tenant shall have the right to require that Landlord be accompanied by a representative of Tenant during any such entry (other than during an emergency); and in connection therein, other than in the event of an emergency, Landlord and Tenant will reasonably cooperate to coordinate such entry.  Landlord shall use diligent efforts to ensure that any such entry (or any work in the Complex which might affect the Premises) will not interfere with Tenant's use of the Premises (or any portion thereof) for Tenant's business purposes (such efforts to include limiting the performance of any such work which might be disruptive to weekends or the evening and the cleaning of any work area prior to the commencement of the next business day).  To the extent that Landlord installs, maintains, uses, repairs or replaces pipes, cables, ductwork, conduits, utility lines, and/or wires through hung ceiling space, exterior perimeter walls and column space, adjacent to and in demising partitions and columns, in or beneath the floor slab or above, below, or through the Premises, then in the course of making any such installation or repair, Landlord will (w) not interfere unreasonably with or interrupt the business operations of Tenant within the Premises; (x) not reduce Tenant’s usable space, except to a de minimus extent, if the same are not installed behind existing walls or ceilings; (y) box in any of the same installed adjacent to existing walls with construction materials substantially similar to those existing in the affected area(s) of the Premises; and (z) repair all damage caused by the same and restore such area(s) of the Premises to the condition existing immediately prior to such work.  Any entry to the Premises by Landlord for the purposes provided for herein shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof.

26. TENANT'S DEFAULTS; LANDLORD'S REMEDIES.

(a) Events of Default by Tenant.  All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent, except as expressly set forth herein.  The occurrence of any of the following shall constitute a “Default” under this Lease by Tenant:

(i) Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease or any part thereof as and when such amount is due; provided, however, that Tenant shall be entitled to a notice of non-payment and a five (5) day cure period on the first (1st) occasion during the first thirty-six (36) months of the Term, and on the first (1st) occasion during each successive thirty-six (36) month period, in which any installment of Rent or other such charge is not timely paid, provided that on the second (2nd) failure or any subsequent failure during any such thirty-six (36) month period, no such notice shall be required.

(ii) Tenant abandons the Premises, as described in California Civil Code Section 1951.3.

(iii) Tenant fails timely to deliver any subordination document, estoppel certificate, financial statement or other document requested by Landlord within the applicable time period specified in Paragraph 24.

(iv) Tenant violates the restrictions on liens set forth in Paragraph 22 or on Transfer set forth in Paragraph 23.

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(v) Tenant ceases doing business as a going concern; makes an assignment for the benefit of creditors; is adjudicated an insolvent, files a petition (or files an answer admitting the material allegations of a petition) seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors’ rights; all or substantially all of Tenant’s assets are subject to judicial seizure or attachment and are not released within thirty (30) days, or Tenant consents to or acquiesces in the appointment of a trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant’s assets.

(vi) Tenant fails, within sixty (60) days after the commencement of any proceedings against Tenant seeking relief under any state or federal bankruptcy or other statute, law or regulation affecting creditors’ rights, to have such proceedings dismissed, or Tenant fails, within six (30) days after an appointment, without Tenant’s consent or acquiescence, of any trustee, receiver or liquidator for Tenant or for all or any substantial part of Tenant’s assets, to have such appointment vacated.

(vii) Tenant fails to deliver or replenish the Security Deposit as required under Paragraph 4.

(viii) Tenant shall fail to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 or any similar or successor law; and provided further that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30)-day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure the default as soon as possible.

(b) Landlord's Remedies.  Upon the occurrence of any Default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

(i) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

(A) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

(B) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(C) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(D) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in

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the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

(E) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable Law.

The term “rent” as used in this Paragraph 26(b) shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Paragraph 26(b)(i)(A) and Paragraph 26(b)(i)(B)), above, the “worth at the time of award” shall be computed by allowing interest at the Interest Rate set forth in Paragraph 5(d) of this Lease.  As used in Paragraph Paragraph 26(b)(i)(C) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

(ii) Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due.

(iii) Landlord may, but shall not be obligated to, make any such payment or perform or otherwise cure any such obligation, provision, covenant or condition on Tenant's part to be observed or performed regarding which Tenant is in Default hereunder (and may enter the Premises for such purposes).  In the event of Tenant's failure to perform any of its obligations or covenants under this Lease, and such failure to perform poses a material risk of injury or harm to persons or damage to or loss of property, then Landlord shall have the right to cure or otherwise perform such covenant or obligation at any time after such failure to perform by Tenant, whether or not any such notice or cure period set forth in Paragraph 26(a) above has expired.  Any such actions undertaken by Landlord pursuant to the foregoing provisions of this Paragraph 26(b)(iii) shall not be deemed a waiver of Landlord's rights and remedies as a result of Tenant's failure to perform and shall not release Tenant from any of its obligations under this Lease.

(c) Payment by Tenant.  Tenant shall pay to Landlord, within thirty (30) days after delivery by Landlord to Tenant of statements therefor:  (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with Landlord's performance or cure of any of Tenant's obligations pursuant to the provisions of Paragraph 26(b)(iii) above; and (ii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect any past-due Rent or other charges payable by Tenant hereunder, including, without limitation, all legal fees and other amounts so expended, plus interest on the amounts expended by Landlord at the Interest Rate.  Tenant's obligations under this Paragraph 26(c) shall survive the expiration or sooner termination of the Term.

(d) Sublessees of Tenant.  If Landlord elects to terminate this Lease on account of any Default by Tenant, as set forth in this Paragraph 26, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements.  In the event of Landlord's election to succeed to

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Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

(e) Waiver of Default.  No waiver by Landlord of any violation or breach by Tenant of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach by Tenant of the same or any other of the terms, provisions, and covenants herein contained.  Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon a Default by Tenant shall not be deemed or construed to constitute a waiver of such Default.  The acceptance of any Rent hereunder by Landlord following the occurrence of any Default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a Default in the payment of the Rent so accepted.

(f) Efforts to Relet.  For the purposes of this Paragraph 26, Tenant's right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder.  The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession.

27. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time during the Term of this Lease and if Tenant shall abandon, vacate or surrender the Premises, or be dispossessed by the process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned, at the option of Landlord, except such property as may be mortgaged to Landlord.  However, Tenant shall not be in Default under this Lease if it leaves all or any part of Premises vacant so long as (i) Tenant is performing all of its other obligations under the Lease including the obligation to pay Rent (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and Systems and Equipment (including the HVAC systems) are operated and maintained to the extent necessary to prevent damage to the Premises or its systems.

28. DAMAGE AND DESTRUCTION.

(a) Repair of Damage to Premises by Landlord.  Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty.  If the Premises or any Common Areas of the Building or the Real Property serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord will, within sixty (60) days following the date of the damage, deliver to Tenant an estimate of the time necessary to repair the damage in question such that the Premises may be used by and accessible to Tenant and the Building and Common Areas operable as a comparable office Complex; such notice will be based upon the review and opinions of Landlord’s architect and contractor (“Landlord’s Repair Notice”).  Landlord shall promptly and diligently thereafter, subject to reasonable delays for insurance adjustment, delays occasioned by Landlord’s Mortgagee, or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Paragraph 28, restore the Premises (other than improvements installed by Tenant and Tenant’s Property), the Systems and Equipment, and the Common Areas.  Such restoration shall be to substantially the same condition of the Premises, the Systems and Equipment, and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other Laws or by any Mortgagee, or the lessor of a ground or underlying lease with respect to the Building and/or the Real Property, or any other modifications to the Common Areas reasonably deemed desirable by Landlord, subject to the provisions of Paragraph 6 and Paragraph 25 above.  Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, at its sole cost and expense, Tenant

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shall repair any injury or damage to the Tenant Improvements and Alterations installed in the Premises and shall return such Tenant Improvements and Alterations to their original condition or such alternate condition as Tenant, at the time, so desires, subject to receipt of Landlord’s approval of any alternate design, such approval to be obtained in accordance with the provisions of Paragraph 11 above.  Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, Landlord shall allow Tenant a proportionate abatement of Rent, to the extent that Landlord is reimbursed from the proceeds of rental interruption insurance (provided that Landlord has maintained the rental loss coverage required by Article 18 above), during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result thereof except for the maintenance of a “skeleton crew” within the affected portion of the Premises, for example, for such purposes as securing Tenant’s records and files, forwarding telephone communications, correspondence and deliveries, and otherwise enabling those aspects of Tenant’s business operations previously conducted within the affected portion of the Premises to be carried on from an alternative location.  However, if a substantial portion of the Premises is damaged to the extent that the remaining portion thereof is not sufficient to allow Tenant to conduct is business operations from such remaining portion and Tenant does not conduct its business operations therein, Tenant will be entitled to a total abatement of Rent, to the extent Landlord is reimbursed from the proceeds of rental interruption insurance (provided that Landlord has maintained the rental loss coverage required by Article 18 above), during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result of the damage.

(b) Landlord’s Option to Repair.  Notwithstanding the terms of Paragraph 28(a) of this Lease, Landlord may elect not to rebuild and/or restore the Premises, and/or any other portion of the Real Property and instead terminate this Lease by notifying Tenant in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected, and one or more of the following conditions is present:  (i) repairs cannot reasonably be completed within twelve (12) months of the date of damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any Mortgage on the Building or ground or underlying lessor with respect to the Building and/or the Real Property will not permit the release of any insurance proceeds or shall require that the insurance proceeds or any portion thereof be used to pay down or retire the mortgage debt, or shall terminate the ground or underlying lease, as the case may be; (iii) the damage is not Substantially Covered, except for deductible amounts and self-insured retentions, by Landlord’s insurance policies.  As used herein, “Substantially Covered” shall mean that the estimated cost of repair does not exceed the aggregate of the anticipated receipt of insurance policy payments, deductible payments and any self-insured retention amounts by more than Seven Hundred Thousand Dollars ($700,000.00); or (iv) in lieu of repairing damage resulting from a casualty, Landlord decides to redevelop the Land by demolishing the Buildings (either on or about the same time or in phases) and constructing new improvements on the Land and, if such casualty affects any other occupants of the Complex and if the lease or leases with such occupants grant Landlord a termination right with respect to such casualty, Landlord exercises its right to terminate the leases of any other such occupants of the Complex on or substantially about the date that Landlord exercises its right to terminate this Lease.  In addition, if the Premises or the Building is destroyed or damaged to any substantial extent (which shall mean, for the purposes of this Paragraph 28(b), that the cost of performing the repair exceeds ten percent (10%) of the estimated replacement cost of the Building) during the last eighteen (18) months of the Term, then notwithstanding anything contained in this Paragraph 28, Landlord shall have the option to terminate this Lease by giving written notice to Tenant of the exercise of such option within sixty (60) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date that is thirty (30) days following notice. 

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Upon any such termination of this Lease pursuant to this Paragraph 28, all insurance proceeds available from the fire and property damage insurance carried by Tenant and covering the Tenant Improvements and any Alterations, but excluding proceeds allocable to trade fixtures, merchandise, signs and other personal property of Tenant, shall be disbursed and paid to Landlord, Tenant shall pay the Base Rent and Additional Rent (properly apportioned) up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Term.

(c) Tenant’s Termination Options.  If the Premises are damaged by fire or other casualty and are rendered not reasonably usable for Tenant’s business purposes thereby, or if the Building shall be so damaged that Tenant shall be deprived of reasonable access to the Premises, and if, pursuant to Landlord’s Repair Notice, the restoration will not be substantially completed within fifteen (15) months following the date of such damage, Tenant shall have the right to terminate this Lease by giving written notice (the “Termination Notice”) to Landlord not later than thirty (30) days following receipt of Landlord’s Repair Notice.  If Tenant gives a Termination Notice, this Lease shall be deemed cancelled and terminated as of the date of the damage as if such date were the Expiration Date, and Rent shall be apportioned and shall be paid or refunded, as the case may be up to and including the date of such damage or destruction.  Notwithstanding the foregoing, if Tenant was entitled to, but elected not to, exercise its right to terminate this Lease as set forth above and Landlord does not substantially complete the repair and restoration of the Premises within three (3) months after the expiration of the estimated period of time set forth in Landlord’s Repair Notice, which period shall be extended to the extent of any delays caused by Tenant and any events of Force Majeure (up to a maximum of one hundred fifty (150) days of additional extension for Force Majeure), then Tenant may deliver written notice to Landlord within thirty (30) days after the expiration of such period, as the same may be so extended (a “Late Delivery Termination Notice”), electing to terminate this Lease effective upon the date occurring thirty (30) days following receipt by Landlord of the Late Delivery Termination Notice (the “Termination Effective Date”).  If Tenant delivers a Late Delivery Termination Notice to Landlord, then Landlord shall have the one-time right to nullify the Late Delivery Termination Notice (in which case the Late Delivery Termination Notice shall be of no force or effect) by delivering written notice to Tenant prior to the Termination Effective Date that, in Landlord’s reasonable and good faith judgment, as evidenced by written statements from Landlord’s architect and/or general contractor which will be included with the Termination Extension Notice (defined below), Landlord shall complete such repairs on or before the Termination Effective Date (the “Termination Extension Notice”).  If Landlord does not so complete such repairs, then Tenant shall again have the right to terminate this Lease upon the delivery to Landlord of a second termination notice (the "Second Termination Notice") within ten (10) business days after the Termination Effective Date, in which event this Lease shall terminate ten (10) business days after the date Tenant delivers the Second Termination Notice to Landlord unless the repairs are completed within such ten (10) business day period.  If Tenant fails to deliver a Second Termination Notice to Landlord within such ten (10) business day period, then this Lease shall remain in full force and effect; provided, however, Tenant shall have the right to deliver a Second Termination Notice to Landlord during the first five (5) business days of each succeeding calendar month until such time as Landlord completes the repairs.  Additionally, if the Premises, or any part thereof, or any portion of the Building necessary for Tenant’s use of the Premises, are materially damaged (which shall mean, for the purposes of this Paragraph 28(b), that the cost of performing the repair exceeds ten percent (10%) of the estimated replacement cost of the Building) or destroyed during the last twelve (12) months of the Term, or any extension thereof, Tenant may terminate this Lease by giving written notice thereof to Landlord within thirty (30) days after the date of the casualty, in which case this Lease shall terminate as of the later of the date of the casualty or the date of Tenant’s vacation of the Premises.

(d) Waiver of Statutory Provisions.  The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all

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damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Real Property, and any statute or regulation of the state of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Real Property.  No endorsement or statement on any check or any letter accompanying any payment of Base Rent or such other sums shall be deemed an accord and satisfaction, and Landlord may accept any such check or payment without prejudice to Landlord's right to receive payment of the balance of such rent and/or other sums, or Landlord's right to pursue Landlord's remedies.

29. EMINENT DOMAIN.

(a) Termination Upon Taking of Premises.  If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this Lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemnor.  Landlord shall be entitled to any and all payment, income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance, and Tenant shall have no claim against Landlord or otherwise for the value of any unexpired Term of this Lease.  Notwithstanding the foregoing sentence, any compensation specifically awarded Tenant for loss of business, Tenant’s personal property, moving costs or loss of goodwill, shall be and remain the property of Tenant.

(b) Landlord’s Termination Right.  If (i) any action or proceeding is commenced by any public or quasi-public authority for such taking all or more than fifty percent (50%) of the Premises, (ii) any of the foregoing events occur with respect to the taking of space in the Complex not included in the Premises but necessary for the operation of, or access to, the Building, or (iii) any such spaces are taken or conveyed in lieu of such taking and in any such events Landlord shall decide to discontinue the use and operation of the Complex, or shall decide to demolish, alter or rebuild the Complex, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of such written advice, or commencement of such action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.

(c) Tenant’s Termination Right.  In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business therein, Tenant shall have the right to terminate this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to the Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the Rent from the date of such taking or conveyance to the date of termination.

(d) Temporary Taking.  Notwithstanding anything to the contrary contained in this Paragraph 29, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate and there shall be no abatement of Rent.  In such event, Tenant shall be entitled to receive the entire award made in connection with any such temporary taking, provided that to the extent such award relates to the temporary taking of any other portion of the Complex, Landlord shall be entitled to such award to the extent relating to such other portions of the Complex.

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(e) Adjustment of Rent if Lease Not Terminated.  If a portion of the Premises shall be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed.  In such event the Rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the Rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking.

30. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of the Premises by any owner of the reversion then constituting Landlord, and the assumption by the transferee of the obligations of Landlord hereunder, the transferor shall thereby be released from any further liability upon any of the terms, covenants or conditions (express or implied) herein contained in favor of Tenant arising after the effective date of the sale or conveyance, and in such event, insofar as such transfer is concerned, Tenant agrees to look solely to the successor in interest of such transferor (and not to the transferor) in and to the Complex and this Lease with respect to any obligation or liability of the “Landlord” arising after the effective date of such sale or conveyance.  This Lease shall not be affected by any such sale or conveyance, and Tenant agrees to attorn to the successor in interest of such transferor.

31. EXTENSION AND EXPANSION RIGHTS.

(a) Conditional Option to Extend.

(i) Grant of Conditional Extension Option.  Subject to the terms and conditions in this Paragraph 31(a), Tenant shall have the one-time right (the “Extension Option”) to extend the Term for one additional period of five (5) years commencing on the day following the Expiration Date and ending on the fifth anniversary of the Expiration Date (the “Extension Term”), provided that each of the following conditions is satisfied:  (A) unless Tenant exercises the Right of First Offer for the Other Building pursuant to Paragraph 31(b) below concurrently with its exercise of the Extension Option, not more than twenty two (22) and not less than sixteen (16) full calendar months before the Expiration Date, Tenant delivers written notice to Landlord (the “Extension Notice”) electing to exercise the Extension Option; (B) Tenant is not in Default when Tenant delivers the Extension Notice; (C) no more than fifty percent (50%) of part of the Premises is then subject to a sublease (excluding Permitted Transfers, which will not be deemed “subleases” for the purposes of this clause (C)) which is scheduled to remain in effect essentially through the remainder of the Term and this Lease has not been assigned (other than to a Permitted Transferee) when Tenant delivers the Extension Notice; (D) Tenant shall have a tangible net worth (not including goodwill as an asset), as reflected on its most recently released audited financial statements, computed in accordance with generally accepted accounting principles ("Net Worth"), at least equal to ninety-five percent (95%) of the Net Worth of Tenant as of the date this Lease is executed and delivered by Tenant; and (E) as of the date that Tenant delivers the Extension Notice, the Co-Occupancy Condition, as defined below, has been satisfied.

(ii) Co-Occupancy Condition.  As used herein, the term “Co-Occupancy Condition”) means that Other Building is then-being fully leased and is occupied by the then-existing tenant thereof (or any subtenants/assignees of such tenant) (or is scheduled to be leased and occupied by a replacement tenant or tenants who are have executed leases for the Other Building that are in full force and effect and whose effectiveness is not subject to any contingencies) (the “Existing Tenant”) for a term (disregarding any renewal or extension options of the tenant or tenants) expiring not earlier than the last day of the Extension Term.  Notwithstanding the foregoing, if the Co-Occupancy Condition initially is satisfied but subsequently fails to be satisfied at any time prior to the date that is ten (10) months before the commencement of the Extension Term due to the termination of the lease of the Other Building (including as the result of the rejection of the tenant’s lease in bankruptcy or the termination of such lease as the result of casualty, the default of the tenant), Landlord may override Tenant’s exercise of the Extension Option by giving written notice to Tenant not later than nine (9) months prior to the commencement of the Extension Term.  For the avoidance of doubt, notwithstanding the foregoing, the

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Co-Occupancy Condition may be satisfied if Tenant properly and timely exercises the Right of First Offer pursuant to Paragraph 31(b) concurrently with Tenant’s exercise of the Extension Option.

(iii) Terms Applicable to Extension Term.  During the Extension Term, (A) the Base Rent per rentable square foot shall be equal to the Prevailing Market Rent per rentable square foot; (B) Base Rent shall increase, if at all, in accordance with the increases assumed in the determination of Prevailing Market Rent; and (C) Base Rent shall be payable in monthly installments in accordance with the terms and conditions of this Lease.  During the Extension Term, Tenant shall pay Tenant’s Proportionate Share of Operating Expenses, Real Property Taxes and other Direct Expenses in accordance with this Lease.

(iv) Extension Amendment.  If Tenant has the right to exercise and properly exercises its Extension Option, once the Prevailing Market Rent for the Extension Term is determined in accordance with Paragraph 31(c) below, Landlord, within a reasonable time thereafter, shall prepare and deliver to Tenant an amendment (the “Extension Amendment”) reflecting changes to the Base Rent, the Term, the Expiration Date, and other appropriate terms necessitated by the extension of the Term, and Tenant shall execute (or make good faith and reasonable corrective comments to) and return the Extension Amendment to Landlord within fifteen (15) days after receiving it.  Notwithstanding the foregoing, upon determination of the Prevailing Market Rent for the Extension Term in accordance with Paragraph 31(c), an otherwise valid exercise of the Extension Option shall be fully effective whether or not the Extension Amendment is executed.

(v) Delay in Determination.  If the Prevailing Market Rent is not established prior to the commencement of the Extension Term, then Tenant shall continue to pay as Base Rent and Additional Rent the sums in effect as of the last day of the prior Term and, once the Prevailing Market Rent is determined, Tenant shall, within thirty (30) days following receipt of Landlord’s invoice therefor, pay to Landlord any deficiency in the amount paid by Tenant during such period, or, if Tenant paid excess Base Rent during such period, Landlord shall credit such excess payments to the Base Rent amounts next due.

(vi) Personal Right.  The Extension Option hereby granted is personal to Tenant and its Permitted Transferees and is not otherwise transferable.

(b) Right of First Offer.

(i) Grant of Right of First Offer.  Subject to the terms of this Paragraph 31(b), if at any time during the Right of First Offer Term (as defined below) the Other Building becomes available for lease, Tenant shall have a one-time right of first offer (“Right of First Offer”) to lease the Other Building in its entirety.  For the purposes of this Paragraph 31(b), the Other Building shall not be deemed available for lease, and this Right of First Offer shall not apply, if the Existing Tenant is leasing the Other Building or has the right to lease the Other Building (by virtue of an option to lease, an option to extend, a right of first refusal, a right of first offer, a right of first negotiation, or otherwise) pursuant to a lease or other agreement entered into prior to the date hereof, regardless of whether such rights are executed strictly in accordance with their respective terms or pursuant to a lease amendment or a new lease, or if Landlord and the Existing Tenant otherwise hereafter agree to extend the term of the Existing Tenant’s lease (collectively, the “Superior Rights”).  Tenant acknowledges and agrees that Landlord shall have the right to hereafter negotiate and to enter into lease amendments or other agreements with the Existing Tenant (or any affiliate of the Existing Tenant) pursuant to which the term of the Existing Tenant’s lease is extended, shortened, or otherwise modified, and any such modifications shall constitute Superior Rights.

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(ii) Term.  The term of the Right of First Offer (“Right of First Offer Term”) shall commence on the date the Other Building becomes available for lease and shall terminate on the date that is sixteen (16) months prior to Expiration Date or the prior termination of the Right of First Offer as set forth in this Paragraph 31(b).

(iii) Conditions to Exercise of Right of First Offer.  Notwithstanding any provision of this Paragraph 31(b) to the contrary, Tenant shall have the right to exercise the Right of First Offer if and only if each of the following conditions is satisfied:  (A) Tenant is not in Default when Tenant delivers Tenant’s Acceptance Notice (as defined below); (B) no more than thirty three percent (33%) of the Premises is sublet and this Lease has not been assigned (in each, other than to a Permitted Transferee, who will not be deemed an assignee or a subtenant for the purposes of this clause (B)) when Tenant delivers Tenant’s Acceptance Notice; (C) Tenant shall have a Net Worth, as reflected on its most recently released audited financial statements at least equal to ninety-five percent (95%) of the Net Worth of Tenant as of the date this Lease is executed and delivered by Tenant; and (D) if the Co-Occupancy Condition is not then satisfied by the Existing Tenant, concurrently with Tenant’s exercise of the Right of First Offer (and in no event after the expiration of the twenty (20) day period for Tenant to deliver an Acceptance Notice pursuant to Section 31(b)(v)), Tenant exercises the Extension Option pursuant to Paragraph 31(a).

(iv) Offer Notice.  Subject to the terms and conditions in this Paragraph 31(b), if during the Right of First Offer Term Landlord determines that the Other Building will become available for lease, Landlord shall first provide Tenant with a written notice (“Offer Notice”) detailing (i) the proposed rent for the Other Building (based on rentable square feet), which shall be equal to the Prevailing Market Rent (as defined in Paragraph 31(c)), (ii) the date the Other Building will become available for occupancy or the construction of improvements (the “Anticipated Other Building Delivery Date”), (iii) the term of the proposed lease of the Other Building, which shall be concurrent with the Extended Term of this Lease under Paragraph 31(a), and (iv) all other terms upon which Landlord proposes to lease the Other Building to Tenant.  The Other Building shall be leased on an “as is” basis without any tenant improvement allowance, free rent or other concessions.

(v) Exercise of Tenant’s Right of First Offer.  Subject to the terms and conditions in this Paragraph 32(b), Tenant may exercise Tenant’s Right of First Offer to lease all (but not less than all) of the Other Building described in the Offer Notice by providing Landlord with written notice (the “Acceptance Notice”) thereof within twenty (20) days after Landlord’s delivery to Tenant of the Offer Notice.  Tenant’s Acceptance Notice, if any, delivered to Landlord must expressly state that Tenant accepts all of the terms and conditions in the Offer Notice, without modification, and if Tenant’s Acceptance Notice sets forth modifications of any kind, Tenant shall not be deemed to have delivered a valid Acceptance Notice and any such acceptance shall be null and void.  Notwithstanding the preceding provisions of this Paragraph 32(b)(v) to the contrary, if Tenant wishes to exercise the Right of First Offer but in good faith disagrees with Landlord’s determination of the Prevailing Market Rent as set forth in Landlord’s Offer Notice, Tenant may nonetheless accept the offer by delivering an Acceptance Notice as provided above, but may elect to reserve its right to have the Fair Market Rent determined as provided in Paragraph 32(c) below, provided that any such reservation of rights shall not extend the time period for Tenant to deliver the Acceptance Notice.  If Tenant does not properly exercise its Right of First Offer within such twenty (20) day period, then Landlord shall thereafter be free to lease some or all of the Other Building to anyone without restriction and on such terms and conditions as Landlord may elect in its sole and absolute discretion, and in such event Tenant shall have no further rights under this Section 31(b).

(vi) Personal Right.  Tenant’s Right of First Offer shall be personal to the Tenant and any Permitted Transferees and shall not be transferable with any assignment of this Lease or subletting of the Premises.

(vii) Terms for Right of First Offer.  In the event that Tenant exercises the Right of First Offer, Tenant’s occupancy of the Other Building taken shall be on all of the same terms and conditions described in the Offer Notice and otherwise on the terms and conditions of this Lease.

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(viii) Lease.  If Tenant exercises the Right of First Offer and delivers an Acceptance Notice as and when required by this Paragraph 31(b), Landlord and Tenant hereby agree to execute a lease (“Other Building Lease”) prior to Tenant’s occupancy of the Other Building.  The Other Building Lease shall not replace this Lease (which shall continue in full force and effect in accordance with its terms) but shall be in the same form as this Lease, subject to any modifications necessary to reflect the terms set forth in the Offer Notice (including, without limitation, the Base Rent, date of occupancy, description of the premises, the number of applicable parking spaces to be allocated to Tenant, Tenant’s percentage share, the square footage of the Other Building, and any other changes needed due to the fact that Tenant will be leasing space in both Buildings).  If Tenant does not execute or provide Landlord with good faith and reasonable comments to such Other Building Lease within fifteen (15) days after the date on which Landlord delivers a draft Other Building Lease to Tenant, then, at Landlord’s option to be exercised by notice delivered by Landlord on or before (x) the date that is ten (10) business days following the expiration of the such fifteen (15) day period and (y) Tenant’s execution and delivery of (or delivery to Landlord of good faith and reasonable comments to) the Other Building Lease, Tenant’s rights hereunder shall be void and terminated, but, otherwise, a valid exercise of Tenant’s Right of First Offer shall be fully effective, whether or not such an Other Building Lease is executed.

(c) Procedure for Determining Prevailing Market Rent.  The Prevailing Market Rent shall be mutually agreed upon by Landlord and Tenant in writing within the thirty (30) calendar day period (the “Negotiation Period”) following Tenant’s delivery of an Extension Notice or an Acceptance Notice, as applicable.  If Landlord and Tenant are unable, despite good faith efforts, to agree upon the Prevailing Market Rent within the Negotiation Period, then the Prevailing Market Rent shall be established by appraisal in accordance with the procedures set forth below.

(i) Within fifteen (15) days after the expiration of the Negotiation Period, each party, at its cost, shall engage a real estate broker to act on its behalf in determining the Prevailing Market Rent.  The brokers each shall have at least ten (10) years’ experience with leases in Relevant Market and shall submit to Landlord and Tenant in advance for Landlord’s and Tenant’s reasonable approval their statements of qualifications and the appraisal methods to be used.  If a party does not designate a broker within such fifteen (15) day period but a broker is timely designated by the other respective party, the single broker appointed shall be the sole broker and shall set the Prevailing Market Rent.  If the two brokers are appointed by the parties as stated in this paragraph, such brokers shall meet promptly and attempt to set the Prevailing Market Rent.  If such brokers are unable to agree within thirty (30) days after appointment of the second broker, the brokers shall elect a third broker meeting the qualifications stated in this paragraph within ten (10) days after the last date the two brokers are given to set the Prevailing Market Rent.  Each of the parties hereto shall bear one‑half (1/2) the cost of appointing the third broker and of the third broker’s fee.  The third broker shall be a person who has not previously acted in any capacity for either party.  Once a party has selected a broker and negotiations have commenced between the brokers, such broker may not be replaced with another broker.

(ii) The third broker shall conduct his or her own investigation of the Prevailing Market Rent, and shall be instructed not to advise either party of his or her determination of the Prevailing Market Rent except as follows:  When the third broker has made his or her determination, he or she shall so advise Landlord and Tenant and shall establish a date, at least five (5) days after the giving of notice by the third broker to Landlord and Tenant, on which he or she shall disclose his determination of the Prevailing Market Rent.  Such meeting shall take place in the third broker’s office unless otherwise agreed by the parties.  After having initialed a paper on which his determination of Prevailing Market Rent is set forth, the third broker shall place his or her determination of the Prevailing Market Rent in a sealed envelope.  Landlord’s broker and Tenant’s broker shall each set forth their determination of Prevailing Market Rent on a paper, initial the same and place them in sealed envelopes.  Each of the three envelopes shall be marked with the name of the party whose determination is inside the envelope.

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(iii) In the presence of the third broker, the determination of the Prevailing Market Rent by Landlord’s broker and Tenant’s broker shall be opened and examined.  If the higher of the two determinations is one hundred five percent (105%) or less of the amount set forth in the lower determination, the average of the two determinations shall be the Prevailing Market Rent, the envelope containing the determination of the Prevailing Market Rent by the third broker shall be destroyed and the third broker shall be instructed not to disclose his or her determination.  If either party’s envelope is blank, or does not set forth a determination of Prevailing Market Rent, the determination of the other party shall prevail and be treated as the Prevailing Market Rent.  If the higher of the two determinations is more than one hundred five percent (105%) of the amount of the lower determination, the envelope containing the third broker’s determination shall be opened.  If the value determined by the third broker is the average of the values proposed by Landlord’s broker and Tenant’s broker, the third broker’s determination of Prevailing Market Rent shall be the Prevailing Market Rent.  If such is not the case, Prevailing Market Rent shall be the rent proposed by either Landlord’s broker or Tenant’s broker which is closest to the determination of Prevailing Market Rent by the third broker.

(iv) Notwithstanding anything in Paragraph 31(a) to the contrary, in no event shall the Prevailing Market Rent (calculated on a per square foot basis) for the first year of the Extension Term of this Lease be less than the Base Rent and Additional Rent (calculated on a per square foot basis) payable in the last month of the initial Term of this Lease (the “Rent Floor”).  Landlord and Tenant specifically acknowledge and agree that the Rent Floor shall apply if the Prevailing Market Rent is determined in connection with Tenant’s exercise of the Extension Option under Paragraph 31(a) but shall not apply with respect to Tenant’s lease of the Other Building if Tenant exercises the Right of First Offer under Paragraph 31(b).

(v) The parties expressly agree that the provisions of this Paragraph 31(c) shall be implemented in accordance with express terms of this Paragraph 31(c) and under such other procedures as the parties may agree to in their sole discretion, and except as expressly set forth above, shall not be subject to or governed by the provisions of California Code of Civil Procedure Section 1280 et seq. as an arbitration, and all such arbitration provisions are hereby intentionally waived.

(d) Definition of Prevailing Market Rent.  For purposes of Paragraphs 31(a) and 31(b), the term “Prevailing Market Rent” shall mean the fair-market, monthly rental rate per rentable square foot being charged (including the applicable periodic adjustments thereto) in “arms’ length” direct leases (i.e., excluding subleases), on a net basis (i.e., excluding “full service” leases and “gross” leases for similarly sized office/research buildings located in the Relevant Market, as defined below (“Comparable Buildings”); accordingly, for such purposes, any Comparable Transaction (defined below) used in order to determine Prevailing Market Rent which is a “full service” or “gross” lease, shall be appropriately adjusted to reflect the economic terms under such Comparable Transactions if such Comparable Transaction were a “triple net” lease).  Prevailing Market Rent shall be determined based upon leases for comparable transactions for comparable space entered into on or about the date on which the Prevailing Market Rent is being determined hereunder, for space in that portion of North San Jose that is within a twenty (20) block radius of the intersection of North First Street and Montague Expressway, excluding any portion of such radius that falls within the City of Santa Clara (“Comparable Transactions” and the “Relevant Market”, respectively).  If sufficient transactions regarding Comparable Buildings are not available for comparison purposes, adjustments shall be made in the determination of Prevailing Market Rent to reflect the age and quality of the Building (or the Other Building) as contrasted to other buildings used for comparison purposes, taking into consideration size, location, proposed term of the lease, extent of services to be provided, and the time that the particular rate under consideration became or is to become effective.  The intent of the parties is that Tenant will obtain the same rent and other economic benefits that landlords would otherwise give in Comparable Transactions and that Landlord will make and receive the same economic payments and concessions that landlords would otherwise make and receive in

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Comparable Transactions.  The determination of Prevailing Market Rent shall take into account any material economic differences between the terms of this Lease or the Other Building Lease, as appropriate and any comparison lease or amendment, such as rent abatements, tenant improvement allowances and other concessions, and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes.  The determination of Prevailing Market Rent also shall take into consideration any reasonably anticipated changes in the Prevailing Market Rent from the time such Prevailing Market Rent is being determined and the time such Prevailing Market Rent will become effective under this Lease.

(e) Redevelopment.  Notwithstanding anything in this Paragraph 31 to the contrary, Tenant shall have no right to exercise the Extension Option or the Right of First Offer and, if previously exercised, at Landlord’s election, Tenant’s exercise of the Extension Option and/or the Right of First Offer shall be null and void, if Landlord or any purchaser or other successor of Landlord’s interest in the Complex, each in its sole and absolute discretion, intends to redevelop the Land by demolishing the Buildings (either on or about the same time or in phases) and constructing new improvements on the Land (“Landlord’s Redevelopment Override Right”).  If Tenant has exercised the Extension Option or the Right of First Offer as and when provided in this Paragraph 31, Landlord or any such purchaser or successor shall have the right to exercise Landlord’s Redevelopment Override Right by notice delivered to Tenant (the “Override Notice”) at any time prior to the date that is twelve (12) months prior to the date that the Extension Term (assuming Tenant has properly exercised the Extension Term) or the term of the Other Building Lease (assuming Tenant has properly exercised the Right of First Offer) is scheduled to commence.  Without limiting any circumstances evidencing Landlord’s intent to redevelop the Complex, Landlord shall be deemed to intend to redevelop the Complex if Landlord or its successor has, prior to Landlord’s delivery of the Override Notice, submitted a development plan to the City of San Jose for review (including preliminary review) or submitted an application to the City of San Jose for approvals or permits relating to the proposed redevelopment (including without limitation demolition permits, site development permits and/or building permits) (evidence of the foregoing to be included in Landlord’s Override Notice).

32. HOLDING OVER. If Tenant (directly or through any Transferee or other successor-in-interest of Tenant) remains in possession of the Premises after the expiration or earlier termination of this Lease with Landlord’s consent but the parties do not otherwise expressly agree in writing on the terms of such holding over, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term.  In such event, Tenant shall continue to comply with and perform all the terms and obligations of Tenant under this Lease, except that the Base Rent during Tenant’s holding over shall be one hundred twenty five percent (125%) of the Base Rent payable in the last full month prior to the expiration or termination hereof, for the first (1st) fifteen (15) days of such holdover, and, thereafter, one hundred fifty percent (150%) of the Base Rent payable in the last full month prior to the expiration or termination hereof.  If Tenant holds over after the expiration of the Term without the consent of Landlord, such tenancy shall be a tenancy at sufferance, and shall not constitute a renewal hereof or an extension for any further term, and in such case daily damages in any action to recover possession of the Premises shall be calculated at a daily rate equal to one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Term under this Lease (calculated on a per diem basis).  Acceptance by Landlord of rent after such expiration or termination shall not constitute a renewal of this Lease; and nothing contained in this provision shall be deemed to waive Landlord’s right of reentry or any other right hereunder or at Law.  Tenant shall indemnify, defend and hold Landlord and the other Indemnified Parties harmless from and against all Claims arising or resulting directly or indirectly from Tenant’s failure to timely surrender the Premises, including (i) any rent payable by or any loss, cost, or damages claimed by any prospective tenant of the Premises, and (ii) Landlord’s damages as a result of such prospective tenant rescinding or refusing to enter into the prospective lease of the

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Premises or delaying the commencement of rent payable thereunder by reason of Tenant’s failure to timely surrender the Premises.

33. QUIET ENJOYMENT. Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing the other terms herein contained on the part of Tenant to be kept, observed and performed, shall, during the Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any party.

34. CONSTRUCTION CHANGES. It is specifically understood and agreed that Landlord has made no representation or warranty to Tenant and has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, or any part thereof and that no representations respecting the condition of the Premises or the Building have been made by Landlord to Tenant except as specifically set forth herein or in the Tenant Work Letter.  However, Tenant hereby acknowledges that Landlord in the future may during the Term renovate, improve, alter, or modify (collectively, the "Renovations") the Complex, including without limitation the Parking Areas and Common Areas.  In connection with any Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in in the vicinity of the Building, temporarily limit or eliminate access to portions of the Complex, including portions of the Common Areas, or perform work outside of the Building, which work may create noise, dust or leave debris.  Any such work will be carried out in accordance with the provisions of Paragraph 16(b) above and Paragraph 25 above.  Tenant hereby agrees that such Renovations, if carried out in accordance with this Paragraph 34, and Landlord’s reasonable actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor, except as described in Paragraph 16(b), entitle Tenant to any abatement of Rent.  Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord’s actions.

35. [OMITTED]

36. ATTORNEYS’ FEES.

(a) In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach or default of any provision of this Lease, or for any other relief against the other party hereunder, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

(b) Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy hereunder and provided that the basis of such suit is not derived from the active negligence or willful misconduct of Landlord or Landlord’s architects, employees or representatives during the Term or the breach of Landlord of the terms of this Lease, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including reasonable attorney’s fees.

37. WAIVER. The waiver by either party of the other party’s failure to perform or observe any term, covenant or condition herein contained to be performed or observed by such waiving party shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent failure of the party failing to perform or observe the same or any other such term, covenant or condition therein contained, and no custom or practice which may develop between the parties hereto during the Term hereof shall be

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deemed a waiver of, or in any way affect, the right of either party to insist upon performance and observance by the other party in strict accordance with the terms hereof.

38. NOTICES. All notices, demands, requests, advices or designations which may be or are required to be given by either party to the other hereunder shall be in writing.  All notices, demands, requests, advices or designations by Landlord to Tenant or by Tenant to Landlord shall be served by personal delivery, certified mail postage prepaid or by a reputable same day or overnight courier service addressed to Landlord or Tenant, as the case may be, at the following addresses:

If to Landlord:SP Zanker Property, LLC
Sahadi Properties
800 Pollard Road, Suite C-36
Los Gatos, California 95032
Attention:  Stephen Barrett Sahadi

With a copy to:Seubert French Frimel & Warner LLP
1075 Curtis Street
Second floor
Menlo Park, California 94025
Attention:  Daniel Seubert

And to:Flynn Riley Bailey & Pasek LLP
1010 B Street
Suite 200
San Rafael, California 94901
Attention:  Brian C. Pedersen, Esq.

If to Tenant:NeoPhotonics Corporation
2911 Zanker Road
San Jose, California 95134
Attention:  General Counsel

With a copy to:Shartsis Friese LLP
One Maritime Plaza
18th Floor
San Francisco, California 94111
Attention:  Jonathan M. Kennedy/Kathleen K. Bryski

Each notice, request, demand, advice or designation referred to in this Paragraph 38 shall be deemed received (i) if served by personal delivery on the date of the personal service or receipt or refusal to accept receipt of the mailing thereof (provided that if the day of delivery is a weekend or holiday, or such delivery occurs after 5 p.m. Pacific Time, then such notice shall be deemed delivered on the next-succeeding business day), (ii) if sent via certified mail, three (3) business days after deposit with the United States postal service or (iii) if sent by overnight courier, on the business day next succeeding the date on which such notice is delivered to the courier for next-day delivery.  Either party shall have the right, upon ten (10) days written notice to the other, to change the address as noted herein.

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39. EXAMINATION OF LEASE. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for a lease, and this instrument is not effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant.

40. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to any Mortgagee whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord’s obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion.

41. [OMITTED]

42. LIMITATION OF LIABILITY. In consideration of the benefits accruing hereunder, Tenant and all successors and assigns of Tenant covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord, or in the event of any other claim of any kind, whether arising from contract or tort, by Tenant against Landlord:

(a) no partner, member or shareholder of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership);

(b) no service of process shall be made against any partner, member or shareholder of Landlord (except as may be necessary to secure jurisdiction of the partnership);

(c) no partner, member or shareholder of Landlord shall be required to answer or otherwise plead to any service of process;

(d) no judgment will be taken against any partner, member or shareholder of Landlord;

(e) any judgment taken against any partner, member or shareholder of Landlord may be vacated and set aside at any time without hearing;

(f) no writ of execution will ever be levied against the assets of any partner, member or shareholder of Landlord;

(g) Tenant covenants not to sue any party other than the Landlord or any direct successor owner of the Complex; and

(h) these covenants and agreements are enforceable both by Landlord and also by any partner, member or shareholder of Landlord.

Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law.

43. SIGNS. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside of the Premises or any exterior windows of the Premises without the written consent of Landlord (which will not be unreasonably withheld, conditioned or delayed) first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to Tenant and at the expense of Tenant.  If

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Tenant is allowed to print or affix or in any way place a sign in, on, or about the Premises, upon expiration or other sooner termination of this Lease, Tenant at Tenant’s sole cost and expense shall both remove such sign and repair all damage in such a manner as to restore all aspects of the appearance of the Premises to the condition prior to the placement of such sign.  All approved signs or lettering on outside shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord.

Notwithstanding the foregoing, so long as Tenant or a Permitted Transferee is in occupancy of at least seventy five percent (75%) of the Premises, at Tenant’s sole cost Tenant shall have the right to have the name of Tenant listed on the monument signs for the Building located at the corner of Montague Expressway and Zanker Road and at the entry of the Complex on Zanker Road (collectively, the “Monument Signs”) and to place a sign on the back side of the Building (i.e., facing Montague Expressway and Zanker Road), subject to the terms of this paragraph (the “Building Sign” and, together with the Monument Signs, the “Signs”).  Landlord approves the installation of Tenant’s corporate logo (as of the Effective Date, in the form of Exhibit I attached hereto) in each of the Signs, subject to Landlord’s consent (not to be unreasonably withheld) regarding the materials and method of installation of any such Signs.  The design, size and color of Tenant’s signage with Tenant’s name to be included on the Signs, and the manner in which it is attached to the Signs, shall comply with all applicable Laws and shall be subject to the approval of and receipt of all permits required by all applicable governmental authorities.  Any changes to the Signs shall be designed, constructed, installed, insured, maintained, repaired and removed from the Signs all at Tenant’s sole risk, cost and expense.  Tenant, at its cost, shall be responsible for the maintenance, repair or replacement of Tenant’s signage on the Signs, which shall be maintained in a manner reasonably satisfactory to Landlord.  Upon the expiration or earlier termination of this Lease, or if during the Term (including any extension thereof) Tenant or a Permitted Transferee leases and occupancies less than at least seventy five percent (75%) of the Premises, then Tenant's rights granted herein will, at Landlord’s option, be suspended and Landlord may remove Tenant’s or the Permitted Transferee’s name from the Signs at Tenant’s sole cost and expense and restore the Signs to the condition they were in prior to installation of Tenant’s signage thereon, ordinary wear and tear excepted.  The cost of such removal and restoration shall be payable as additional rent within ten (10) days of Landlord’s demand; provided, however, that if Tenant subsequently satisfies the occupancy requirement described herein, Tenant shall once again have the right to the signs as described herein.  The rights provided in this paragraph shall be non-transferable except in connection with an assignment of this Lease or sublease to a Permitted Transferee, unless otherwise agreed by Landlord in writing in its sole discretion

44. Utility Billing Information. In the event that Tenant contracts directly for the provision of electricity, gas and/or water services to the Premises with the third-party provider thereof, Tenant shall promptly, but in no event more than ten (10) business days following Landlord’s request, provide Landlord with a copy of each invoice received from the applicable provider.  Tenant acknowledges that pursuant to California Public Resources Code Section 25402.10 and the regulations adopted pursuant thereto (collectively the "Energy Disclosure Requirements"), Landlord may be required to disclose information concerning Tenant’s energy usage at the Building to certain third parties, including, without limitation, prospective purchasers, lenders and tenants of the Building (the "Tenant Energy Use Disclosure").  Tenant hereby (A) consents to all such Tenant Energy Use Disclosures, (B) acknowledges that Landlord shall not be required to notify Tenant of any Tenant Energy Use Disclosure, and (C) waives any rights that it may have if Landlord fails to comply with any Energy Disclosure Requirements.  Further, Tenant hereby releases Landlord from any and all losses, costs, damages, expenses and liabilities relating to, arising out of and/or resulting from any Tenant Energy Use Disclosure.  The terms of this Paragraph 44 shall survive the expiration or earlier termination of this Lease.

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45. Rooftop Equipment.

(a) Rooftop Equipment.  At Tenant’s sole cost and expense, Tenant shall have the right to install one or more satellite or microwave dishes or other communications, HVAC or other equipment servicing the business conducted by Tenant from within the Premises (all such equipment, including non-telecommunication equipment is, for the sake of convenience, defined collectively as the “Rooftop Equipment”) upon the roof of the Building, for Tenant’s personal use and not for any other commercial purpose.  In no event shall Tenant have the right to place any items on the roof of the Building for other than use in connection with the conduct of its own business, and in no event shall Tenant have the right to lease or license space on the roof in exchange for any revenues or income generated from any such lessee or licensee.  If Tenant wishes to install any Rooftop Equipment, Tenant shall first notify Landlord in writing and provide Landlord with all other information required for any other Alterations pursuant to Paragraph 11.  Such notice shall fully describe the Rooftop Equipment, including, without limitation, its purpose, weight, size and desired location on the roof of the Building and its intended method of connection to the Premises.  All of Tenant's Rooftop Equipment must be located in areas reasonably approved by Landlord prior to any installation.  Landlord also reserves the right to restrict the number and size of dishes, antennae and other Rooftop Equipment in its reasonable discretion.  The physical appearance and the size of the Rooftop Equipment shall be subject to Landlord’s reasonable approval, the location of any such installation of the Rooftop Equipment shall be designated by Tenant subject to Landlord’s reasonable approval and Landlord may require Tenant to install screening around such Rooftop Equipment, at Tenant’s sole cost and expense, as reasonably required by Landlord.

(b) Installation Requirements.  The installation of the Rooftop Equipment shall constitute an Alteration and shall be performed in accordance with and subject to the provisions of Paragraph 11 of this Lease.  Tenant shall comply with all applicable Laws, rules and regulations relating to the installation, maintenance and operation of Rooftop Equipment (including, without limitation, all construction rules and regulations) and will pay all costs and expenses relating to such Rooftop Equipment, including the cost of obtaining and maintaining any necessary permits or approvals for the installation, operation and maintenance thereof in compliance with applicable laws, rules and regulations.  The installation, operation and maintenance of the Rooftop Equipment at the Building shall not adversely affect the structure or operating systems of the Building.  For purposes of determining Landlord's and Tenant's respective rights and obligations with respect to the use of the roof, the portion of the roof affected by the Rooftop Equipment shall be deemed to be a portion of the Premises (provided that such portion shall not be measured for purposes of determining the area of the Premises); consequently, all of the provisions of this Lease respecting Tenant's obligations hereunder shall apply to the installation, use and maintenance of the Rooftop Equipment, including without limitation provisions relating to compliance with requirements as to insurance, indemnity, repairs and maintenance.

(c) Maintenance and Repair.  Tenant shall maintain any Rooftop Equipment installed by or for Tenant at Tenant’s sole cost and expense in accordance with Paragraph 12.  In the event Tenant elects to exercise its right to install the Telecommunication Equipment, then Tenant shall give Landlord prior notice thereof.  Tenant shall reimburse to Landlord the actual third-party costs reasonably incurred by Landlord in approving such Rooftop Equipment.  Tenant shall remove such Rooftop Equipment upon the expiration or earlier termination of this Lease and shall return the affected portion of the rooftop and the Building to the condition the rooftop and the Building would have been in had no such Rooftop Equipment been installed (reasonable wear and tear excepted).  Such Rooftop Equipment shall, in all instances, comply with applicable Laws.

46. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with respect to the existence or use of “Hazardous Materials” (as defined herein) on, in, under or about the Premises and

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real property located beneath the Premises and the Common Areas of the Complex (hereinafter collectively referred to as the “Property”):

(a) Definitions.  As used herein, the term “Hazardous Materials” shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos).  As used herein, the term “Environmental Laws” shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.  Without limiting the foregoing, the term “Environmental Laws” includes the Toxic Mold Protection Act of 2001 (California Health and Safety Code Section 26100 et. seq.)

(b) Tenant’s Activities.  At Landlord’s request, Tenant shall complete, execute and deliver to Landlord prior to the Commencement Date of this Lease and thereafter from time to time as reasonably requested by Landlord an Environmental Questionnaire in the form attached hereto as Exhibit E.  All statements made by Tenant in the Environmental Questionnaire constitute representations and warranties of Tenant.  Tenant shall obtain Landlord’s written consent, which may be withheld in Landlord’s sole discretion, prior to the occurrence of any Tenant’s Hazardous Materials Activities (defined below); provided, however, that Landlord’s consent shall not be required for normal use in compliance with applicable Environmental Laws of customary household and office supplies (Tenant shall first provide Landlord with a list of such materials use), such as mild cleaners, lubricants and copier toner used for ordinary office purposes provided that no governmental permit is required in connection with the storage, handling, transportation or disposal of such materials.  As used herein, the term “Tenant’s Hazardous Materials Activities” shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant’s use of the Property, or by Tenant or by any of Tenant’s agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees.  Tenant agrees that any and all Tenant’s Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant’s expense, and shall not result in any contamination of the Property or the environment.  Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant’s Hazardous Materials Activities of which Tenant becomes aware.  If Tenant’s Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant’s expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease (“Anniversary Date”); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant’s Hazardous Materials Activities.  Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant’s findings within two (2) months of each Anniversary Date.  Tenant, at its

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expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.

(c) Compliance.  Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant’s Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant’s Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws.  Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.

(d) Landlord’s Rights.  If Landlord, in its good faith discretion, believes that the Property has become contaminated or otherwise in violation of any Environmental Laws as a result of Tenant’s Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may, upon prior notice to Tenant, enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination; any such entry shall be subject to the limitations described in Paragraph 25 above (except in the case of emergency).  Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys’ fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination or non-compliance with Environmental Laws for which Tenant is liable under this Lease; otherwise, if such investigation results in a determination that Tenant has not violated the terms of this Paragraph 46, the cost of such investigation shall be borne solely by Landlord (and not included in Direct Expenses) constituted a violation of any Environmental Laws,.  Notwithstanding the above, Landlord may, at its option and in its sole and absolute discretion, choose to perform remediation and obtain reimbursement for cleanup costs as set forth herein from Tenant.  Any cleanup costs incurred by Landlord as the result of Tenant’s Hazardous Materials Activities shall be reimbursed by Tenant within thirty (30) days of presentation of written documentation of the expense to Tenant by Landlord.  Such reimbursable costs shall include, but not be limited to, any reasonable consultant and attorney fees incurred by Landlord.  Tenant shall take all actions necessary to preserve any claims it has against third parties, including, but not limited to, its insurers, for claims related to its operation, management of Hazardous Materials or contamination of the Property.  Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord’s prior written consent which may be withheld in Landlord’s discretion.  Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.

(e) Indemnity.  Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord and the other Indemnified Parties from and against any and all Claims which arise from or relate to:  (i) Tenant’s Hazardous Materials Activities; (ii) releases or discharges of Hazardous Materials at the Premises, which occur during the Term of this Lease (except to the extent the same are caused by the acts or omissions of Landlord, Landlord’s agents, contractors or employees), (iii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date; or (iv) the breach of any obligation of Tenant under this Paragraph 46 (collectively, “Tenant’s Environmental Indemnification”).  Tenant’s Environmental

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Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property.  Tenant’s Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant’s expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, “Response Actions”).  Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.

(f) Survival; Remedies.  Tenant’s representations, warranties, covenants and other related to Hazardous Materials will survive the expiration or termination of this Lease.  Landlord may obtain specific performance of Tenant’s obligations under this Paragraph 46, in addition to damages and any other remedies available at law or in equity.

47. BROKERS.Tenant represents and warrants that it has not dealt with any real estate brokers, agents, or finders in connection with the original Term of this Lease, and knows of no real estate broker or agent who is entitled to a commission in connection with this Lease, except for Cornish & Carey Commercial Newmark Knight Frank, representing Landlord (“Landlord’s Broker”), and Jones Lang LaSalle, representing Tenant (“Tenant’s Broker”).  The Landlord’s Broker and the Tenant’s Broker are referred to collectively as the “Brokers.” Landlord shall pay a commission to Landlords’ Broker pursuant to a separate written agreement between Landlord and Landlord’s Broker.  Tenant shall be responsible for paying the brokerage commission owing to Tenant’s Broker (one-half (1/2) of such commission to be paid within five (5) days after the execution of this Lease and the other half (1/2) of the commission to be paid on or before October 1, 2017).  Tenant agrees to defend, protect, indemnify and hold Landlord and the other Indemnified Parties harmless from and against any failure of Tenant to pay the commission owing to Tenant’s Broker and any other claims for brokerage commissions, finder’s fees, and other compensation made by any other broker, agent, or finder (other than Landlord’s Broker) as a consequence of the Tenant’s actions or dealings with such other broker, agent or finder.

48. MISCELLANEOUS AND GENERAL PROVISIONS.

(a) Use of Building Name.  [OMITTED]

(b) Choice of Law; Severability.  This Lease shall in all respects be governed by and construed in accordance with the laws of the State of California.  If any provision of this Lease shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect.

(c) Definition and Interpretation of Terms.  The term “Premises” includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto.  The term “Landlord” or any pronoun used in place thereof includes the plural as well as the singular and the successors and assigns of Landlord.  The term “Tenant” or any pronoun used in place thereof includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations, and each of their respective heirs, executors, administrators, successors and permitted assigns, according to the context hereof, and the provisions of this Lease shall inure to the benefit of and bind such heirs, executors, administrators, successors and permitted assigns.  The term “person” includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations.  References to the plural include the singular, the plural, the part and the whole; “including” has the meaning represented by the phrase “including without limitation.”  The words “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Lease refer to this Lease as a whole and not to any particular provision of this Lease.  Paragraphs, section, subsection, clause, schedule and exhibit references are to this Lease unless otherwise

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specified.  Words used in any gender include other genders.  If there be more than one Tenant the obligations of Tenant hereunder are joint and several.  The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provisions hereof.

(d) Time of Essence; Days.  Time is of the essence of this Lease and of each and all of its provisions.  All references to “days” shall mean calendar days.  All references to “business days” shall mean all calendar days other than Saturdays, Sundays or legal holidays.

(e) Quitclaim.  At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) business days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the real property of which Tenant’s Premises are a part.

(f) Incorporation of Prior Agreements; Amendments.  This instrument along with any exhibits and attachments hereto constitutes the entire agreement between Landlord and Tenant relative to the Premises and this agreement and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant.  Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves and their agents or representatives relative to the leasing of the Premises are merged in or revoked by this agreement.

(g) [Intentionally omitted].

(h) Recording.  Tenant shall not record this Lease or any memorandum or other document evidencing this Lease without the prior written consent of Landlord.  [Intentionally omitted].

(i) Landlord's Title.  Landlord's title is and always shall be paramount to the title of Tenant.  Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

(j) Clauses, Plats and Riders.  Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof.

(k) Diminution of Light, Air or View.  Tenant covenants and agrees that no diminution or shutting off of light, air or view by any structure which may be hereafter erected (whether or not by Landlord) shall in any way affect this Lease, entitle Tenant to any reduction of Rent hereunder or result in any liability of Landlord to Tenant.

(l) Force Majeure.  Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of a party hereto (collectively, “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage.  Accordingly, if this Lease specifies a time period for performance of an obligation by a party hereto, that time period shall be extended by the period of any delay in Landlord’s performance caused by an event of Force Majeure.  The occurrence of any Force Majeure event shall not delay or excuse Tenant’s payment of rent.

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(m) Waiver of Statutory Provisions.  Each party waives California Civil Code §§ 1932(2), 1933(4) and 1945.  Tenant waives (a) any rights under (i) California Civil Code §§ 1932(1), 1941, 1942, 1950.7 or any similar Law, or (ii) California Code of Civil Procedure §§ 1263.260 or 1265.130; and (b) any right to terminate this Lease under California Civil Code § 1995.310.  Tenant hereby waives for Tenant, and for all those claiming under Tenant, California Civil Code § 3275 and California Code of Civil Procedure §§ 1174(c) and 1179 and any other right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease.

(n) Modifications and Amendments.  None of the terms, covenants, conditions or provisions of this Lease (including without limitation any exhibits to this Lease) can be modified, deleted or added to except in a written agreement or instrument signed by Landlord and Tenant and delivered by such parties.

(o) Severability.  The determination that any provisions hereof may be void, invalid, illegal or unenforceable shall not impair any other provisions hereof and all such other provisions of this Lease shall remain in full force and effect.  The unenforceability, invalidity or illegality of any provision of this Lease under particular circumstances shall not render unenforceable, invalid or illegal other provisions of this Lease, or the same provisions under other circumstances

(p) Drafting and Determination Presumption.The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease.

(q) Landlord Approvals.  The review and/or approval by Landlord of any item or matter to be reviewed or approved by Landlord under the terms of this Lease or any Exhibits hereto shall not impose upon Landlord any liability for the accuracy or sufficiency of any such item or matter or the quality or suitability of such item for its intended use.  Any such review or approval is for the sole purpose of protecting Landlord’s interest in the Property, and no third parties, including Tenant or the representatives and visitors of Tenant or any person or entity claiming by, through or under Tenant, shall have any rights as a consequence thereof.  Except as specifically and expressly provided elsewhere in this Lease, whenever Landlord’s consent or approval is required, such approval will not be unreasonably withheld.  If it is determined that Landlord failed to give its consent where it was required to do so under this Lease, Tenant shall be entitled to injunctive relief but shall not be entitled to monetary damages or to terminate this Lease for such failure.

(r) Real Estate Investment Trust.  During the Term of this Lease, or any extension thereof, should a real estate investment trust become the Landlord hereunder, all provisions of the Lease shall remain in full force and effect except as modified by this Section.  If Landlord in good faith determines that its status as a real estate investment trust under the provisions of the Internal Revenue Code of 1986, as heretofore or hereafter amended, will be jeopardized because of any provision of this Lease, Landlord may request reasonable amendments to the Lease, and Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that (x) such amendments do not (a) increase the obligations of Tenant pursuant to this Lease or (b) in any other manner adversely affect Tenant’s rights under this Lease or interest in the Premises and (y) Landlord agrees to reimburse Tenant for the reasonable third party costs incurred by Tenant in the review and negotiation of any such amendments.

(s) No Third Party Beneficiaries.  This Lease shall not be deemed or construed to confer any rights, title or interest upon any person or entity other than the parties hereto, including, without limitation, any third party beneficiary status or right to enforce any provision of this Lease.

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(t) Transportation Management.  Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Complex and/or the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.  Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Complex, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees.

(u) Independent Covenants.  This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

(v) Confidentiality.  Tenant acknowledges that the content of this Lease and any related documents are confidential information (“Confidential Information”).  Tenant shall keep such Confidential Information strictly confidential and shall not disclose such Confidential Information to any person or entity other than to Tenant’s employees, financial, legal, real estate space planning consultants, and prospective Transferees, provided that such parties reasonably need to know such information and (i) are informed by Tenant of the confidential nature of such information and of the existence of this Paragraph 48(v) and (ii) are directed by Tenant to treat such information confidentially in accordance with this Paragraph 48(v).  The foregoing restriction shall not apply: (w) if Tenant is required to disclose the Confidential Information in response to a subpoena or other regulatory, administrative or court order, or (x) if independent legal counsel to Tenant delivers a written opinion to Landlord that Tenant is required to disclose the Confidential Information to, or file a copy of this Lease with, any governmental agency or any stock exchange, (y) in response to a request for discovery in any civil or criminal proceeding, or (z) in connection with any litigation, judicial reference, arbitration or other dispute by or between the parties.

(w) Representations and Covenants.   Each party ("Representing Party") represents, warrants and covenants to the other that (a) Representing Party is, and at all times during the Term will remain, duly organized, validly existing and in good standing under the Laws of the state of its formation and qualified to do business in the state of California; (b) neither Representing Party's execution of nor its performance under this Lease will cause Representing Party to be in violation of any agreement or Law; (c) Representing Party (and, if Representing Party is Tenant, any guarantor hereof) has not, and at no time during the Term will have, (i) made a general assignment for the benefit of creditors, (ii) filed a voluntary petition in bankruptcy or suffered the filing of an involuntary petition by creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of its assets, (iv) suffered the attachment or other judicial seizure of all or substantially all of its assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally; and (d) each party that (other than through the passive ownership of interests traded on a recognized securities exchange) constitutes, owns, controls, or is owned or controlled by Representing Party or (if Representing Party is Tenant) any guarantor hereof or any subtenant of Tenant is not, and at no time during the Term will be, (i) in violation of any Laws relating to terrorism or money laundering, or (ii) among the parties identified on any list compiled pursuant to Executive Order 13224 for the purpose of identifying suspected terrorists or on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website,

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http://www.treas.gov/ofac/tllsdn.pdf or any replacement website or other replacement official publication of such list.

(x) No Other Warranties.  In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.  Tenant agrees that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the physical condition of the Building, the Complex, the land upon which the Building or the Complex are located, or the Premises, or the expenses of operation of the Premises, the Building or the Complex, or any other matter or thing affecting or related to the Premises, except as herein expressly set forth in the provisions of this Lease.

(y) Exterior Lift.

(i) During the Term of this Lease, Tenant shall have the right to use up to three (3) parking spaces that Tenant is otherwise entitled to use under Paragraph 7 for the purpose of installing and operating a mechanical or hydraulic lift (the “Lift”) serving the Building.  The Lift shall be installed, if at all, in the location described on Exhibit A-1 (the “Exterior Lift Area”).  Tenant acknowledges that if Tenant elects to install the Lift, the total number of Tenant’s Exclusive Parking Spaces will be reduced accordingly.

(ii) Tenant shall be responsible, at its sole cost and expense, for making any Alterations to the Exterior Lift Area, the Complex or the Building that may be necessary to install the Lift.  All such alterations (the "Lift Alterations") shall be performed by Tenant in accordance with Paragraph 11 of this Lease; provided, however, that Landlord shall be permitted to approve, deny or condition its consent to any such Lift Alterations in Landlord's reasonable discretion.  Notwithstanding any contrary provision of the Lease or this Amendment, (i) any failure of the Landlord to approve any proposed Lift Alterations, (ii) any condition imposed upon Tenant in connection with Landlord's approval, if any, of the proposed Lift Alterations, (iii) any delay in Landlord's approval, if any, of the Lift Alterations and/or (iv) any inconvenience suffered by Tenant as a result of any of the foregoing, shall not subject Landlord to any liability for any loss or damage resulting therefrom or entitle Tenant to any remedy, credit, abatement or adjustment of rent or other sums payable under this Lease.  The Lift Alterations shall be separately metered to the Building, at Tenant’s sole cost, and Tenant shall be solely responsible for paying the cost of any utilities consumed in connection with the Lift.

(iii) Tenant shall maintain the Lift Alterations and Exterior Lift Area in good condition and repair in accordance with Paragraph 12 of this Lease.  Landlord shall have no obligation to maintain, repair or safeguard the Lift Alterations or the Exterior Lift Area or to prevent unauthorized third parties from using the Exterior Lift Area or the Lift Alterations.  Tenant agrees to accept the Exterior Lift Area in its existing configuration and condition, without any representation by Landlord regarding the configuration or condition and without any obligation on the part of Landlord to perform or pay for any alteration or improvement.  Any failure to furnish, delay in furnishing, or diminution in the quality or quantity of such electrical service to the Lift Alterations and/or the Exterior Lift Area resulting from any application of any Laws, failure of equipment, performance of maintenance, repairs, improvements or alterations, utility interruption, or event of Force Majeure as defined in Paragraph 48(l)) shall not render Landlord liable to Tenant, constitute a constructive eviction, excuse Tenant from any obligation hereunder or under the Lease or result in an event of default by Landlord under this Lease.

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(iv) Tenant shall cause the Lift Alterations to be covered by Tenant's property insurance required under Paragraph 17 of this Lease as if they were Tenant's property or trade fixtures; and Tenant (not Landlord) shall be responsible, at Tenant's expense, for restoring the Lift Alterations and Exterior Lift Area if they are damaged by any casualty or taking under power of eminent domain.  Tenant shall indemnify, defend, protect, and hold the Indemnified Parties (as defined in Paragraph 2) harmless from any Claim that is imposed or asserted by any third party and arises from (i) use of any Reserved Charging Space and/or Lift Alterations by, or any negligence or willful misconduct of, Tenant, any party claiming by, through or under Tenant, their (direct or indirect) owners, or any of their respective beneficiaries, trustees, officers, directors, employees, agents, contractors, or licensees, or (ii) any breach by Tenant of any representation, covenant or other term contained in this Paragraph 1(b), except to the extent such Claim arises from the gross negligence or willful misconduct of any Indemnified Party.

(v) The Lift Alterations and Tenant's use of the Exterior Lift Area shall comply with all applicable Laws and the specifications of the manufacturer of the Lift.  Tenant, at its expense, shall obtain any governmental permits and approvals that may be required for Tenant lawfully to perform the Lift Alterations and use the Exterior Lift Area as provided herein (provided, however, that, if Landlord has approved the proposed Lift Alterations, Landlord shall reasonably cooperate with Tenant, at no cost or liability to Landlord, in executing any permit applications and performing any other ministerial acts that may be reasonably necessary to enable Tenant to obtain such permits and approvals).  Notwithstanding any provision herein to the contrary, at the expiration or earlier termination of this Lease, Tenant, at its expense, shall (x) remove any Lift Alterations (other than any electrical panels), (y) repair any resulting damage to the parking areas within the Exterior Parking Area, the Building, and Complex, and (z) restore the affected portions of the Exterior Lift Area to its condition existing before the installation of such Lift Alterations (including restriping of any parking spaces).  If Tenant fails to complete such removal, repair or restoration when required, Landlord may do so and Tenant shall reimburse Landlord the reasonable cost thereof within thirty (30) days after receipt of written request.  Tenant shall reimburse Landlord, on a monthly basis within thirty (30) days after billing by Landlord, for all electrical costs, if any, incurred by Landlord as a result of providing electricity, if any, to the Lift Alterations and/or the Exterior Lift Area

(z) Condition Precedent.  This Lease shall not be operative or deemed effective for any purpose whatsoever unless and until (a) the written consent of Landlord’s current Mortgagee (the “Mortgagee”) to this Lease and to the lease termination agreement (“Lease Termination Agreement”) between Landlord and Semiconductor Equipment and Materials International, Inc. (“SEMI”) have been obtained and (b) SEMI has paid to Tenant the SEMI Surrender Payment as described in Section 5.7 of the Work Letter.  Landlord shall use diligent good faith efforts to obtain the Mortgagee’s consent and to cause SEMI to make the SEMI Surrender Payment and will promptly respond to inquiries from Tenant regarding the status of either endeavor with an appropriate update.  If such consent is not obtained and/or the SEMI Surrender Payment has not been paid to Tenant within sixty (60) days following the date hereof, either Landlord or Tenant shall have the right to terminate this Lease by providing written notice thereof to the other unless the Mortgagee’s consent is obtained and/or the SEMI Surrender Payment is delivered to Tenant prior to the giving of any such notice, in which event such notice shall be of no force or effect.  If such written notice of termination is given following the lapse of such sixty (60) day period and prior to the Mortgagee’s consent being obtained and the SEMI Surrender Payment being delivered to Tenant, this Lease shall be deemed null and void and neither Landlord nor Tenant shall have any liability or obligations to the other hereunder. 

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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the Effective Date.

Arch
	LANDLORD: SP ZANKER PROPERTY LLC, a Delaware limited liability company
	By: Sahadi Properties, L.P., a California limited partnership
	By:	/s/ Stephen B. Sahadi
	Name:	Stephen B. Sahadi
	Its:	Managing Partner

Arch
	TENANT: NEOPHOTONICS CORPORATION
	By:	/s/ Timothy S. Jenks
	Name:	Timothy S. Jenks
	Its:	President, Chief Executive Officer and Chairman of the Board of Directors

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LIST OF EXHIBITS

Exhibit A-1Site Plan

Exhibit A-2Legal Description of the Land

Exhibit A-3Configuration of the Premises

Exhibit BAmendment to Lease

Exhibit CTenant Work Letter

Attachment 1Final Space Plan

Attachment 2Surrender Plans

Exhibit DRules and Regulations

Exhibit EEnvironmental Questionnaire

Exhibit FForm of Estoppel Certificate

Exhibit GForm of Current Mortgagee’s Estoppel Certificate

Exhibit HForm of Current Mortgagee’s SNDA

Exhibit ITenant’s Logo For Signs

Exhibit J-1Sample Statement of Direct Expenses

Exhibit J-2[Reserved]

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EXHIBIT A-1

SITE PLAN

1

EXHIBIT A-2

LEGAL DESCRIPTION

All that certain real property situate in the City of San Jose, County of Santa Clara, State of California, described as follows:

PARCEL ONE:

Parcel 1, as shown upon that certain Map entitled, “Parcel Map, being a Re-Subdivision of Lots 1, 2 and 11 as shown upon that certain Tract Map No. 6740 Filed in Book 462 of Maps at pages 21 through 24, Santa Clara County Records, San Jose, California,” and which map was filed for record September 11, 1984 in Book 533 of Maps at Pages 44 and 45, Santa Clara County Records.

PARCEL TWO:

A portion of that certain real property situate in the City of San Jose, County of Santa Clara, State of California, described as Parcel 2, as shown upon that certain Parcel Map filed for record September 11, 1984 in Book 533 of Maps at pages 44 and 45 Santa Clara County Records, more particularly described as follows:

Beginning at the most Easterly corner of Parcel 2; thence N. 30 deg. 04' 00" W. 165.56 feet along the Northeasterly line of said Parcel 2; thence continuing along said Northeasterly line and its prolongation thereof, S. 55 deg. 13' 40" W. 53.30 feet; thence S. 34 deg. 46' 20" E. 165.00 feet to a point on the Southeasterly line of said Parcel 2; thence N. 55 deg. 13' 40" E. 39.72 feet to the point of beginning, as approved by that certain Lot Line Adjustment recorded June 21, 1990 in Book L 395, page 0291, Official Records.

EXCEPTING FROM Parcel One and Parcel Two above, all minerals and mineral rights interests, and royalties, including without limiting the generality thereof, oil, gas and other hydrocarbon substances, as well as metallic or other solid minerals which lie below a point 500 feet below the surface, without, however, any right of surface entry in connection therewith, as reserved in the deed executed by Southern Pacific Transportation Company, recorded on October 11, 1988 in Book K 712, page 2203, Official Records.

PARCEL THREE:

An easement 10.00 feet in width for the purpose of storm drainage, as described in that certain Storm Drain Easement Agreement, recorded on September 23, 1988 in Book K 692, page 2131 of Official Records, said easement being a portion of Parcel 2, as shown upon that certain map entitled, “Parcel Map,” which Map was filed for record in the office of the Recorder of Santa Clara County, State of California, on September 11, 1984 in Book 533

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of Maps, at pages 44 and 45, and lying 5.00 feet on both sides of the following described centerline:

Commencing at the most easterly corner of Parcel 2, said point also being a common corner to both Parcel 1 and Parcel 2 of said Parcel Map; thence North 30 deg. 04' 00" West along the boundary line common to said Parcels, 112.47 feet to the Point of Beginning of this description; thence South 63 deg. 10' 13" West, 387.43 feet; thence South 51 deg. 48' 19" West, 153.86 feet; thence South 19 deg. 59' 08" East, 147.46 feet; thence South 45 deg. 05' 00" West 49.69 feet; thence South 60 deg. 47' 00" West, 5.44 feet to the Point of Termination of this description; said point also being on the southwesterly boundary line of Parcel 2 and the northeasterly right-of-way line of North First Street and bears North 30 deg. 04' 00" West, 5.66 feet from the most southerly corner of said Parcel 2.

Excepting therefrom that portion thereof that lies within Parcel Two hereinabove described.

Said easement is appurtenant to and for the benefit of Parcels One and Two hereinabove described.

PARCEL FOUR:

An easement 10.00 feet in width for the purpose of storm drainage, as described in that certain Storm Drain Easement Agreement, recorded on September 23, 1988 in Book K 692, page 2131 of Official Records, said easement being a portion of Parcel 2, as shown upon that certain map entitled, “Parcel Map,” which Map was filed for record in the office of the Recorder of Santa Clara County, State of California, on September 11, 1984 in Book 533 of Maps, at pages 44 and 45, and lying 5.00 feet on both sides of the following described centerline:

Commencing at the most northerly corner of Parcel 2, said point also being a common corner to both Parcel 1 and Parcel 2 of said Parcel Map; thence South 30 deg. 04' 00" East along the boundary line common to said Parcels, 95.91 feet to the Point of Beginning of this description; thence South 87 deg. 47' 28" West, 79.22 feet; thence South 59 deg. 53' 47" West, 109.41 feet; thence South 49 deg. 24' 57" West 319.63 feet; thence South 63 deg. 34' 00" West, 81.86 feet to the Point of Termination of this description; said point also being on both southwesterly boundary line of Parcel 2 and the northeasterly right-of-way line of North First Street and bears South 30 deg. 04' 00" East, 86.40 feet from the southerly terminus of the 70.00 foot radius curve at the westerly corner of said Parcel 2.

Said easement is appurtenant to and for the benefit of Parcels One and Two hereinabove described.

PARCEL FIVE:

AN EASEMENT 30.00 FEET IN WIDTH FOR THE PURPOSE OF INGRESS AND EGRESS AS DESCRIBED IN THAT CERTAIN AMENDMENT NO. 1 TO RECIPROCAL ACCESS

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EASEMENT AGREEMENT RECORDED ON JULY 28, 1989 IN BOOK L037, PAGE 791 OF OFFICIAL RECORDS, SAID EASEMENT BEING A PORTION OF PARCEL 2, AS SHOWN UPON THAT CERTAIN MAP ENTITLED, "PARCEL MAP", WHICH MAP WAS FILED FOR RECORD IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA ON SEPTEMBER 11, 1984 IN BOOK 533 OF MAPS, AT PAGES 44 AND 45, THE CENTERLINE OF SAID EASEMENT BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHEASTERLY CORNER OF SAID PARCEL 2; THENCE ALONG THE NORTHEASTERLY LINE OF SAID PARCEL NORTH 30° 04' 00" WEST 41.14 FEET TO A LINE PARALLEL WITH AND 41.00 FEET NORTHWESTERLY OF, MEASURED AT RIGHT ANGLES TO, THE SOUTHEASTERLY LINE OF SAID PARCEL, SAID POINT BEING THE TRUE POINT OF BEGINNING OF THIS DESCRIPTION; THENCE ALONG SAID PARALLEL LINE SOUTH 55° 13' 40" WEST 377.15 FEET; THENCE LEAVING SAID PARALLEL LINE SOUTHWESTERLY AND WESTERLY ALONG A TANGENT CURVE TO THE RIGHT WITH A RADIUS OF 150.00 FEET, THROUGH A CENTRAL ANGLE OF 48° 58' 50", AN ARC LENGTH OF 128.23 FEET TO A POINT OF REVERSE CURVATURE; THENCE WESTERLY AND SOUTHWESTERLY ALONG A CURVE TO THE LEFT WITH A RADIUS OF 150.00 FEET, THROUGH A CENTRAL ANGLE OF 40° 15' 30", AN ARC LENGTH OF 115.91 FEET; THENCE SOUTH 59° 56' 00" WEST 20.05 FEET TO THE SOUTHWESTERLY LINE OF SAID PARCEL, SAID POINT BEING THE TERMINUS OF THIS EASEMENT.  THE NORTHEASTERLY TERMINAL LINE BEING THE SAID NORTHEASTERLY LINE OF SAID PARCEL, THE SOUTHWESTERLY TERMINAL LINE BEING THE SAID SOUTHWESTERLY LINE OF SAID PARCEL.

EXCEPTING THEREFROM THAT PORTION THEREOF THAT LIES WITHIN PARCEL TWO HEREINABOVE DESCRIBED.

Said easement is appurtenant to and for the benefit of Parcels One and Two hereinabove described.

APN:  101-30-001

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EXHIBIT A-3

PREMISES

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EXHIBIT B

AMENDMENT TO LEASE

THIS AMENDMENT TO LEASE (“Amendment”) is made and entered into effective as of _________________, 20__, by and between SP ZANKER PROPERTY LLC, a Delaware limited liability company (“Landlord”), and NEOPHOTONICS CORPORATION, a Delaware corporation (“Tenant”).

r e c i t a l s :

A.Landlord and Tenant entered into that certain Lease Agreement dated as of __________________, 20___ (the “Lease”) pursuant to which Landlord leased to Tenant and Tenant leased from Landlord certain “Premises”, as described in the Lease, in that certain Building located at 3081 Zanker Road, San Jose, California.

B.Except as otherwise set forth herein, all capitalized terms used in this Amendment shall have the same meaning as such terms have in the Lease.

C.Landlord and Tenant desire to amend the Lease to confirm the Commencement Date and the Expiration Date of the Term, as hereinafter provided.

NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Confirmation of Dates.  The parties hereby confirm that the Term commenced as of ____________________ (the “Commencement Date”) for a term of _________________________ months ending on _______________________ (the “Expiration Date”), unless sooner terminated as provided in the Lease.  The parties further confirm that the Rent Commencement Date is ____________, 20__ and that the Additional Rent Commencement Date is _____________, 20__.

2.Base Rent Schedule.  The parties hereby confirm that the Base Rent Schedule is as follows:  [To be inserted].

3.No Further Modification.  Except as set forth in this Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

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IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the day and year first above written.

“Landlord”:

SP ZANKER PROPERTY LLC,
a Delaware limited liability company

By:   Sahadi Properties, L.P.,

         a California limited partnership

         By: ______________________________
                                                                                              Stephen B. Sahadi, Managing Partner

“Tenant”:

NEOPHOTONICS CORPORATION, a Delaware corporation

By:Name:Its:

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EXHIBIT C

TENANT WORK LETTER

This Tenant Work Letter ("Tenant Work Letter") shall set forth the terms and conditions relating to the construction of the Premises.  All references in this Tenant Work Letter to the "Lease" shall mean the relevant portions of the Lease to which this Tenant Work Letter is attached as Exhibit C.

SECTION 1

AS –IS CONDITION

Tenant hereby accepts the Building in its current “AS-IS” condition existing as of the date of the Lease and the Commencement Date.  Landlord shall not be obligated to make or pay for any alterations or improvements to the Building, the Complex, or the Property.

SECTION 2

TENANT IMPROVEMENTS

Tenant shall be solely responsible for all costs relating to the design and construction of Tenant's improvements that are affixed to the Premises (the "Tenant Improvements").  The design and construction of the Tenant Improvements shall be governed by the terms of this Tenant Work Letter.

SECTION 3

CONSTRUCTION DRAWINGS

3.1Selection of Architect/Construction Drawings.  Tenant shall retain an architect (the "Architect”)approved by Landlord, which approval shall not be unreasonably withheld, to prepare the Construction Drawings.  Landlord hereby approves TDS Architects, Inc., 2060 Clarmar Way, Suite 200, San Jose, CA 95128 (“TDS”), as the Architect.  Tenant shall retain (or shall cause the Architect or, on a design-build basis, the Contractor to) engineering consultants approved by Landlord (the "Engineers"), which approval shall not be unreasonably withheld (if Landlord fails to notify Tenant of Landlord's approval or disapproval of any such Engineers within such ten (10) business day period, Landlord will be deemed to have approved such Engineers), to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life-safety, and sprinkler work in the Premises.  The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the "Construction Drawings."  All Construction Drawings shall be subject to Landlord's approval.  Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith.  Landlord's review of the Construction Drawings as set forth in this Section 3, shall be for its sole purpose and shall not imply Landlord's review of the same, or obligate Landlord to review the same, for quality, design, code compliance or other like matters.  Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.

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3.2Final Space Plan.  Tenant has provided to Landlord space plans covering the first and second floor of the Building (collectively, the "Final Space Plan"), which includes a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein.  A copy of the Final Space Plan is attached to this Tenant Work Letter as Attachment 1 hereto.  Landlord hereby approves the Final Space Plan, provided that (a) Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan and (b) Tenant may make revisions to the Final Space Plan, in which case Tenant shall obtain Landlord’s prior written consent to such changes and Landlord shall not unreasonably withhold, delay or condition its consent to such changes.

3.3Final Working Drawings.  Tenant shall cause the Architect and the Engineers to complete the architectural and engineering drawings for the Tenant Improvements, and cause the Architect to compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is consistent with and a logical evolution of the Final Space Plan (as the same may be amended pursuant to Section 3.2)  so as to allow subcontractors to bid on the work and to obtain all applicable permits for the Tenant Improvements (collectively, the "Final Working Drawings"), and shall submit the same to Landlord for Landlord's approval.  Tenant shall supply Landlord with four (4) copies signed by Tenant of such Final Working Drawings.  Landlord shall advise Tenant within twenty (20) days after Landlord's receipt of the Final Working Drawings for the Premises if the same is unsatisfactory or incomplete in any respect, in which event Landlord shall include in its notice of disapproval a reasonably detailed explanation as to which items are not satisfactory or complete and the reason(s) therefor.  If Landlord fails to notify Tenant of Landlord’s approval or disapproval within such ten (10) business day period, Tenant shall have the right to provide Landlord with a second written request for approval (a “Second Request”) that contains the following statement in bold and capital letters:  “THIS IS A SECOND REQUEST FOR APPROVAL OF PLANS PURSUANT TO THE PROVISIONS OF SECTION 3 OF THE TENANT WORK LETTER.  IF LANDLORD FAILS TO RESPOND WITHIN FIVE (5) BUSINESS DAYS AFTER RECEIPT OF THIS NOTICE, THEN LANDLORD SHALL BE DEEMED TO HAVE APPROVED THE PLANS DESCRIBED HEREIN.”  If Landlord fails to respond to such Second Request within five (5) business days after receipt by Landlord, the Final Working Drawings in question shall be deemed approved by Landlord.  If Tenant is so advised, Tenant shall promptly (i) revise the Final Working Drawings in accordance with such review and any disapproval of Landlord in connection therewith, and (ii) deliver such revised Final Working Drawings to Landlord.  Landlord shall approve or disapprove the resubmitted Final Working Drawings, based upon the criteria set forth in this Section 3.3, within ten (10) business days after Landlord receives such resubmitted Final Working Drawings.  Such procedure shall be repeated until the Final Working Drawings are approved; provided, however, that if Landlord fails to notify Tenant of Landlord's approval or disapproval of any iteration of the Final Working Drawings within the ten (10) business day review period for approval or disapproval thereof, Landlord will be deemed to have approved such iteration of the Final Working Drawings.

3.4Approved Working Drawings.  The Final Working Drawings shall be approved by Landlord (the "Approved Working Drawings”) prior to the commencement of construction of the Premises by Tenant.  After approval by Landlord of the Final Working Drawings, Tenant shall promptly submit the same to the appropriate governmental authorities for all applicable building permits.  Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant's responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy.

3.5Change Orders.  In the event Tenant desires to change the Approved Working Drawings, Tenant shall deliver notice (the "Drawing Change Notice") of the same to Landlord, setting forth in detail the changes (the "Tenant Change") Tenant desires to make to the Approved Working Drawings.  Landlord

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shall, within ten (10) business days of receipt of a Drawing Change Notice, either (i) approve the Tenant Change, or (ii) disapprove the Tenant Change and deliver a notice to Tenant specifying in reasonably sufficient detail the reasons for Landlord's disapproval.  Any additional costs which arise in connection with such Tenant Change shall be paid by Tenant pursuant to this Work Letter.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1Tenant's Selection of Contractor and Tenant's Agents.

4.1.4The Contractor.  Tenant shall select a general contractor reasonably approved in advance by Landlord (“Contractor”) construct the Tenant Improvements.  Landlord shall notify Tenant of Landlord's approval or disapproval of such Contractor within ten (10) business days following notice to Landlord of Tenant's selection; if Landlord fails to timely notify Tenant of Landlord's approval or disapproval, Landlord will be deemed to have approved such Contractor.

4.1.2Tenant's Agents.  All subcontractors, laborers, materialmen, and suppliers used by Tenant in connection with the Tenant Improvements and the Contractor are referred to collectively as "Tenant's Agents."  The mechanical, electrical and plumbing subcontractors used by Tenant (but not any other subcontractors or any materialmen or suppliers) must be approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed.  Landlord will notify Tenant within ten (10) business days following Tenant's notice to Landlord of the identity of any such subcontractors, if Landlord approves or disapproves such subcontractors; if Landlord fails to timely notify Tenant of Landlord's approval or disapproval of such subcontractors, Landlord will be deemed to have approved such subcontractors.

4.2Construction of Tenant Improvements by Tenant's Agents.

4.2.1Construction Contract; Cost Budget.  Prior to Tenant's execution of the construction contract and general conditions with Contractor (the "Contract"), Tenant shall submit the Contract to Landlord for its records.  Prior to the commencement of the construction of the Tenant Improvements, and after Tenant has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord with a written detailed cost breakdown (the "Final Costs Statement"), by trade, of the final costs to be incurred, or which have been incurred, in connection with the design and construction of the Tenant Improvements to be performed by or at the direction of Tenant or the Contractor (which costs form a basis for the amount of the Contract, if any (the "Final Costs").

4.2.2Tenant's Agents.

4.2.2.1Landlord's General Conditions for Tenant's Agents and Tenant Improvement Work.  Tenant's and Tenant's Agents' construction of the Tenant Improvements shall comply with the following:  (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant and Tenant's Agents shall not, in any way, interfere with, obstruct, or delay, the work of any of Landlord’s contractors and subcontractors or the operations at the Complex; and (iii) Tenant shall abide by all reasonable rules made by Landlord or Landlord's property manager with respect to the use of freight, loading dock and service elevators, storage of materials, and any other matter in connection with this Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements.

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4.2.2.2Coordination Fee.  Tenant shall pay Landlord a Landlord coordination fee of two percent (2%) of the hard costs of the Tenant Improvements.  Such fee shall be due and payable within thirty (30) days after the completion of the Tenant Improvements.

4.2.2.3[OMITTED].

4.2.2.4Insurance Requirements.

4.2.2.4.1 General Coverages.  All of Tenant's Agents shall carry worker's compensation insurance covering all of their respective employees, and carry commercial liability insurance, and such other insurance as is required by and shall comply with the requirements of Paragraphs 17(b)(iii), (v), (vi) and (vii) and Paragraph 17(e) of the Lease.

4.2.2.4.2  Special Coverages.  During construction of the Tenant Improvements, Tenant shall carry "Builder's All Risk" or “Course of Construction” insurance in an amount approved by Landlord on a non-reporting basis (but in no event greater than 100% of the completed insurable value of the Improvements) covering the construction of the Improvements (at Tenant's option, Tenant shall cause Contractor to carry such Builder's All Risk insurance), and such other insurance as Landlord may reasonably require; it being understood and agreed that the Improvements shall be insured by Tenant pursuant to this Lease immediately upon completion thereof.

4.2.3Governmental Compliance.  The Tenant Improvements shall comply in all respects with the following:  (i) all building codes and other state, federal, city or quasi-governmental codes, ordinances regulations and other Laws, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications.

4.2.4Inspection by Landlord.  Landlord shall have the right to inspect the Tenant Improvements at all times, provided however, that Landlord shall not interfere with the construction of the Tenant Improvements and Landlord's failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall Landlord's inspection of the Tenant Improvements constitute Landlord's approval of the same.  Should Landlord reasonably disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved.  Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or exterior appearance of the Building or any other tenant's use of such other tenant's leased premises, Landlord may, take such action as Landlord deems necessary, at Tenant's expense and without incurring any liability on Landlord's part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord's satisfaction.  Landlord shall perform any such correction in a diligent and timely manner so as to minimize any delay in the construction of the Tenant Improvements.

4.2.5Meetings.  Tenant shall hold weekly meetings at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Tenant Improvements, which meetings shall be held at on a mutually acceptable location, and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend, all

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such meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend such meetings.  In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord.  During the course of construction, one such meeting each month shall include the review of Contractor's current request for payment.

4.3Notice of Completion; Copy of "As Built" Plans.  Within ten (10) days after completion of construction of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County in which the Building is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation.  If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense.  At the conclusion of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the "record-set" of as-built drawings are true and correct, which certification shall survive the expiration or termination of the Lease, (C) to deliver to Landlord three (3) sets of sepias and electronic copies (in CAD and pdf format) of such drawings within ninety (90) days following issuance of a certificate of occupancy for the Premises, and (D) to deliver to Landlord electronic copies (in CAD and pdf format) of the Approved Working Drawings, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises.

4.4Coordination by Tenant's Agents with Landlord.  Upon Tenant's delivery of the Contract to Landlord under Section 4.2.1 of this Tenant Work Letter, Tenant shall furnish Landlord with a schedule setting forth the projected date of the completion of the Tenant Improvements and showing the critical time deadlines for each phase, item or trade relating to the construction of the Tenant Improvements.

SECTION 5

MISCELLANEOUS

5.1Tenant's Representative.  Tenant has designated Gerry Reed (gerry.reed@neophotonics.com) as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

5.2Landlord's Representatives.  Landlord has designated Fred Sahadi (sahadi@sahadi.net) and/or Tony Yaccarine (ayaccarine@teamwrkx.com) as its sole representatives with respect to the matters set forth in this Tenant Work Letter, each of whom, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

5.3Time of the Essence in This Tenant Work Letter.  Unless otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days.  If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.

5.4No Miscellaneous Charges.  Prior to the Commencement Date, during the construction of the Improvements, and subject to compliance with Landlord's reasonable and customary construction rules and regulations applicable to the Building (as the same are in effect on the date of this Lease), and if and to the extent reasonably available, Tenant may use the following items, free of charge, during such times as are reasonably necessary to Tenant's construction schedule, furniture and equipment delivery and relocation activities, on a nonexclusive basis, and in a manner and to the extent reasonably necessary to perform the

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Improvements:  hoists, freight elevators, loading docks, utilities, and toilets.  Notwithstanding the foregoing, if Tenant or Contractor or other agents require any of the foregoing in connection with any use reasonably unrelated to Tenant's construction and/or installation of the Tenant Improvements, Tenant shall pay the applicable cost of such service.

5.5Tenant's Lease Default.  Notwithstanding any provision to the contrary contained in the Lease, if a Default by Tenant of this Tenant Work Letter or the Lease has occurred at any time on or before the substantial completion of the Tenant Improvements, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, at law and/or in equity, Landlord may cause Contractor to cease the construction of the Tenant Improvements (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such work stoppage), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such inaction by Landlord).  Notwithstanding the foregoing, if a Default by Tenant is cured, forgiven or waived, Landlord's suspended obligations shall be fully reinstated and resumed, effective immediately.

5.6.Conflict With Lease.  In the event of any conflict between the terms of the Lease and the terms of this Tenant Work Letter, the terms of this Tenant Work Letter shall control.

5.7Surrender Plans.  Landlord has advised Tenant that Landlord and SEMI are parties to a lease (the “SEMI Lease”) pursuant to which SEMI currently leases the Premises, and that pursuant to the Lease Termination Agreement between SEMI and Landlord, SEMI and Landlord have agreed to terminate the SEMI Lease effective as of December 31, 2016.  Pursuant to the Lease Termination Agreement, SEMI has agreed, among other things, to make a direct payment to Tenant in the amount of Two Million Forty-Eight Thousand and No/100 Dollars ($2,048,000.00) (the “SEMI Surrender Payment”) in exchange for Tenant’s agreement to assume SEMI’s obligations to complete certain restoration and repair work at the Premises that SEMI otherwise would be required to complete at the time SEMI surrenders the Premises (the “SEMI Surrender Obligations”).  Provided that the SEMI Surrender Payment is delivered to Tenant in accordance with Paragraph48(z) of the Lease, Tenant hereby agrees to assume SEMI’s Surrender Obligations, it being understood and agreed that SEMI’s Surrender Obligations consist of the renovation and restoration work (the “Required Renovations”) described on Attachment 2 hereto, including the construction notes therein (the “Surrender Plans”), and the obligations in Paragraph 9(b) of the Lease.   Tenant shall be required to complete such work as and when set forth in this Paragraph5.7.  At least nine (9) months before the expiration of the Term or prior termination of the Lease, Tenant at its sole cost and expense shall commence to perform and shall diligently prosecute to completion the Required Renovations, provided that in all events the Required Renovations shall be completed prior to the Expiration Date or the prior termination of the Term.  Landlord shall have the right to reduce the scope of the renovation and restoration work by reasonable prior notice to Tenant, provided that if Landlord wishes to increase the scope of such work, Landlord shall notify Tenant thereof at least thirty (30) days prior to the Expiration Date and shall reimburse Tenant for any increased costs incurred in connection with such increased scope of work.  Tenant’s completion of the Required Renovations shall be governed by and subject to the provisions of Paragraph 9(b) and Paragraph 11 of the Lease.

5.8Lobby Area.  Tenant has advised Landlord that as part of or after completion of the Tenant Improvements, Tenant may wish to make changes to the lobby area to reduce the ceiling height of the lobby from two floors to one floor (the “Lobby Changes”).  If Tenant desires to make Lobby Changes as part of the Tenant Improvements, such changes shall be set forth in the Construction Drawings and shall be subject to the other terms and conditions of this Tenant Work Letter.  If Tenant desires to make Lobby Changes after the completion of the Tenant Improvements, such changes shall be subject to the applicable provisions

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of the Lease governing Alterations (including without limitation Paragraph 11 of the Lease).  Subject to the foregoing, Landlord consents to Tenant’s making of the Lobby Changes.

6.1Extension of Time; Blackout Period.  Notwithstanding anything in this Tenant Work Letter to the contrary, if the time period for Landlord’s consent, approval or other response would fall during the Blackout Period, then for each such day falling during the Blackout Period, the time period for Landlord to consent, approve or respond to any request from Tenant under this Tenant Work Letter shall be extended on a day-for-day basis.

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ATTACHMENT 1 TO EXHIBIT C

FINAL SPACE PLAN

1

2

ATTACHMENT 2 TO EXHIBIT C

SURRENDER PLANS

1

2

EXHIBIT D

RULES AND REGULATIONS

The following Rules and Regulations are additional provisions of the foregoing Lease.  Capitalized terms used herein have the meanings ascribed to them in the Lease.  In the event of any conflict between the terms of the Lease and the terms of this Exhibit D, the terms of the Lease will control.

1.No Access to Roof.  Except as expressly permitted under the Lease, Tenant has no right of access to the roof of the Building and will not install, repair or replace any antenna, aerial, aerial wires, fan, air conditioner, satellite dish or other device on the roof of the Building, without the prior written consent of Landlord, which may be given or withheld in Landlord’s sole discretion.  Any such device installed without such written consent is subject to removal at Tenant’s expense without notice at any time.  In any event Tenant will be liable for any damages or repairs incurred or required as a result of its installation, use, repair, maintenance or removal of such devices on the roof and agrees to indemnify, protect, defend and hold harmless Landlord from any Claims arising from any activities of Tenant or of Tenant’s Parties on the roof of the Building.

2.Signage.  Except as may be expressly permitted hereunder, no sign, placard, picture, name, advertisement or notice visible from the exterior of the Premises will be inscribed, painted, affixed or otherwise displayed by Tenant on or in any part of the Premises or the Building without the prior written consent of Landlord, which may be given or withheld in Landlord’s sole discretion.  Landlord reserves the right to adopt general guidelines relating to signs in or on the Building.  Approved signage, if any, will be inscribed, painted or affixed at Tenant’s expense by a person approved by Landlord.

3.Prohibited Uses.  The Premises will not be used for manufacturing, for the storage of merchandise held for sale to the general public, for lodging or for the sale of goods to the general public.  Tenant will not permit any food preparation on the Premises except that Tenant may use Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages so long as such use is in accordance with all applicable Laws.  The foregoing prohibitions shall be in addition to, and not in lieu of, any other prohibitions applicable to the use of the Premises under the Lease and/or applicable Laws.  Except for service animals, neither Tenant nor its employees, agents, contractors, or invitees shall bring any animal or pet into the Premises, the halls or corridors or any other part of the Building, or the Common Areas, without the prior written consent of Landlord, which shall not be unreasonably refused as to animals which are required on account of an established disability.

4.Janitorial Services.  Tenant will be responsible for providing its own janitorial service.

5.Reserved.

6.Freight.  Tenant shall not transport freight in loads exceeding the weight limitations of any elevators serving the Premises.  Landlord reserves the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building.  Landlord reserves the right to require that heavy objects will stand on wood strips of such length and thickness as is necessary to properly distribute the weight.  Landlord will not be responsible for loss of or damage to any such property from any cause, and Tenant will be liable for all damage or injuries caused by moving or maintaining such property.

7.Nuisances and Dangerous Substances.  Tenant will not conduct itself or permit Tenant’s Parties or visitors to conduct themselves, in the Premises or anywhere on or in the Property in a manner

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which is offensive or unduly annoying to any other tenant or Landlord’s property managers.  Tenant will not install or operate any phonograph, radio receiver, musical instrument, or television or other similar device in any part of the Common Areas and shall not operate any such device installed in the Premises in such manner as to disturb or annoy other tenants of the Building.  Tenant will not use or keep in the Premises or the Property any kerosene, gasoline or other combustible fluid or material other than limited quantities thereof reasonably necessary for the maintenance of office equipment, or, without Landlord’s prior written approval, use any method of heating or air conditioning other than that supplied by Landlord.  Tenant will not use or keep any foul or noxious gas or substance in the Premises or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein.  Tenant will not bring or keep any animals in or about the Premises or the Property.

8.Building Name and Address.  Without Landlord’s prior written consent, Tenant will not use the name of the Building in connection with or in promoting or advertising Tenant’s business except as Tenant’s address.

9.Building Directory.  A directory for the Building will be provided for the display of the name and location of tenants.  Landlord reserves the right to approve or disapprove placing any additional names Tenant desires to place in the directory and, if so approved, Landlord may assess a reasonable charge for adding such additional names.

10.Window Coverings.  No curtains, draperies, blinds, shutters, shades, awnings, screens or other coverings, window ventilators, hangings, decorations or similar equipment shall be attached to, hung or placed in, or used in or with any window of the Building without the prior written consent of Landlord, and Landlord shall have the right to control all lighting within the Premises that may be visible from the exterior of the Building.

11.Floor Coverings.  Tenant will not lay or otherwise affix linoleum, tile, carpet or any other floor covering to the floor of the Premises in any manner except as approved in writing by Landlord.  Tenant will be liable for the cost of repair of any damage resulting from the violation of this rule or the removal of any floor covering by Tenant or its contractors, employees or invitees.

12.Wiring and Cabling Installations.  Landlord will direct Tenant’s electricians and other vendors as to where and how data, telephone, and electrical wires and cables are to be installed.  No boring or cutting for wires or cables will be allowed without the prior written consent of Landlord.  The location of burglar alarms, smoke detectors, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the written approval of Landlord.

13.Office Closing Procedures.  Tenant will see that the doors of the Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before Tenant or its employees leave the Premises, so as to prevent waste or damage.  Tenant will be liable for all damage or injuries sustained by other tenants or occupants of the Building or Landlord resulting from Tenant’s carelessness in this regard or violation of this rule.  Tenant will keep the doors to the Building corridors closed at all times except for ingress and egress.

14.Plumbing Facilities.  The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein.  Tenant will be liable for any breakage, stoppage or damage resulting from the violation of this rule by Tenant, its employees or invitees.

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15.Use of Hand Trucks.  Tenant will not use or permit to be used in the Premises or in the Common Areas any hand trucks, carts or dollies except those equipped with rubber tires and side guards or such other equipment as Landlord may approve.

16.Refuse.  Tenant shall store all Tenant’s trash and garbage within the Premises or in other facilities designated by Landlord for such purpose.  Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Building is located without being in violation of any law or ordinance governing such disposal.  All trash and garbage removal shall be made in accordance with directions issued from time to time by Landlord, only through such Common Areas provided for such purposes and at such times as Landlord may designate.  Tenant shall comply with the requirements of any recycling program adopted by Landlord for the Building.

17.Soliciting.  Canvassing, peddling, soliciting and/or distribution of handbills or any other written materials in the Building are prohibited, and Tenant will cooperate to prevent the same.

18.Parking.  Tenant will use, and cause Tenant’s Parties and visitors to use, any parking spaces to which Tenant is entitled under the Lease in a manner consistent with Landlord’s directional signs and markings in the Parking Facility.  Specifically, but without limitation, Tenant will not park, or permit Tenant’s Parties or Visitors to park, in a manner that impedes access to and from the Building or the Parking Facility or that violates space reservations for handicapped drivers registered as such with the California Department of Motor Vehicles.  Landlord may use such reasonable means as may be necessary to enforce the directional signs and markings in the Parking Facility, including but not limited to towing services, and Landlord will not be liable for any damage to vehicles towed as a result of noncompliance with such parking regulations.

19.Fire, Security and Safety Regulations.  Tenant will comply with all safety, security, fire protection and evacuation measures and procedures established by Landlord or any governmental agency.

20.Responsibility for Theft.  Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

21.Sales and Auctions.  Tenant will not conduct or permit to be conducted any sale by auction in, upon or from the Premises or elsewhere in the Property, whether said auction be voluntary, involuntary, pursuant to any assignment for the payment of creditors or pursuant to any bankruptcy or other insolvency proceeding.

22.Waiver of Rules.  Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord will be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants nor prevent Landlord from thereafter enforcing these Rules and Regulations against any or all of the tenants of the Building.

23.Effect on Lease.  These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease.  In the event of any conflict or inconsistency between these Rules and Regulations and the provisions of the Lease, the provisions of the Lease shall control.  Violation of these Rules and Regulations constitutes a failure to fully perform the provisions of the Lease.

24.Nondiscriminatory Enforcement.  Subject to the provisions of the Lease (and the provisions of other leases with respect to other tenants), Landlord shall use reasonable efforts to enforce

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these Rules and Regulations in a nondiscriminatory manner, but in no event shall Landlord have any liability for any failure or refusal to do so (and Tenant’s sole and exclusive remedy for any such failure or refusal shall be injunctive relief preventing Landlord from enforcing any of the Rules and Regulations against Tenant in a manner that discriminates against Tenant).

25.Additional and Amended Rules.  Landlord reserves the right to rescind or amend these Rules and Regulations and/or to adopt any other rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and the Property and for the preservation of good order therein and thereon.

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EXHIBIT E

ENVIRONMENTAL QUESTIONNAIRE

The purpose of this form is to obtain information regarding the use of hazardous substances used or proposed to be used at the premises.  Prospective tenants should answer the questions in light of their proposed operations on the premises.  Existing tenants should answer the questions as they relate to on-going operations at the premises and should update any information previously submitted.  If additional space is needed to answer the questions, you may attach separate sheets of paper to this form.

Your cooperation in this matter is appreciated.  Any questions should be directed to, and when completed, the form should be mailed to:

SP Zanker Property, LLC

c/o Sahadi Properties, L.P.

800 Pollard Road, C-36

Los Gatos,  California 95032 

Attention: _____________________

1.GENERAL INFORMATION

Name of Responding Company: ____________________________________________

Check the Applicable Status:

Prospective Tenant  ☐Existing Tenant  ☐

Mailing Address: _________________________________________________________

________________________________________________________________________

Contact Person and Title: __________________________________________________

Telephone Number: (  ) __________________________________________________

Address of Premises: ______________________________________________

Length of Term: ____________________________________________________

Describe the proposed operations to take place on the property, including principal products manufactured or services to be conducted.  Existing tenants should describe any proposed changes to on-going operations.

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________________________________________________________________________

________________________________________________________________________

2.STORAGE OF HAZARDOUS MATERIALS

2.1Will any hazardous materials be used or stored on site?

Wastes	Yes  ☐No  ☐
Chemical Products	Yes  ☐No  ☐

2.2Attach the list of any hazardous materials to be used or stored, the quantities that will be on-site at any given time, and the location and method of storage (e.g., 55 gallon drums on concrete pad).

3.STORAGE TANKS & PUMPS

3.1Is any above or below ground storage of gasoline, diesel, or other hazardous substances in tanks or pumps proposed or currently to be used or stored on the premises?

Yes  ☐No  ☐

If yes, describe the materials to be stored, and the type, size and construction of the pump or tank.  Attach copies of any permits obtained for the storage of such substances.

__________________________________________________________________

__________________________________________________________________

3.2Have any existing tanks or pumps been inspected or tested for leakage?

Yes  ☐No  ☐

If so, attach the results.

3.3Have any spills or leaks occurred from such tanks or pumps?

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Yes  ☐No  ☐

If so, describe.

___________________________________________________________________

___________________________________________________________________

3.4Were any regulatory agencies notified of the spill or leak?

Yes  ☐No  ☐

If so, attach copies of any spill reports filed, any clearance letters or other correspondence from regulatory agencies relating to the spill or leak.

3.5Have any underground storage tanks or sumps been taken out of service or removed?

Yes  ☐No  ☐

If yes, attach copies of any closure permits and clearance obtained from regulatory agencies relating to closure and removal of such tanks.

4.SPILLS

4.1During the past year, have any spills occurred on the premises?

Yes  ☐No  ☐

If so, please describe the spill and attach the results of any testing conducted to determine the extent of such spills.

4.2Were any agencies notified in connection with such spills?

Yes  ☐No  ☐

If so, attach copies of any spill reports or other correspondence with regulatory agencies.

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4.3Were any clean-up actions undertaken in connection with the spills?

Yes  ☐No  ☐

If so, briefly describe the actions taken.  Attach copies of any clearance letters obtained from any regulatory agencies involved and the results of any final soil or groundwater sampling done upon completion of the clean-up work.

__________________________________________________________________

__________________________________________________________________

5.WASTE MANAGEMENT

5.1Has your company been issued an EPA Hazardous Waste Generator I.D. Number?

Yes  ☐No  ☐

5.2Has your company filed a biennial report as a hazardous waste generator?

Yes  ☐No  ☐

If so, attach a copy of the most recent report filed.

5.3Attach the list of the hazardous waste, if any, generated or to be generated at the premises, its hazard class and the quantity generated on a monthly basis.

5.4Describe the method(s) of disposal for each waste.  Indicate where and how often disposal will take place.

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

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5.5Indicate the name of the person(s) responsible for maintaining copies of hazardous waste manifests completed for off-site shipments of hazardous waste.

__________________________________________________________________

__________________________________________________________________

5.6Is any treatment or processing of hazardous wastes currently conducted or proposed to be conducted at the premises?

Yes  ☐No  ☐

If yes, please describe any existing or proposed treatment methods.

__________________________________________________________________

__________________________________________________________________

__________________________________________________________________

5.7Attach copies of any hazardous waste permits or licenses issued to your company with respect to its operations on the premises.

6.WASTEWATER TREATMENT/DISCHARGE

6.1Do you discharge wastewater to:

___________ storm drain?__________ sewer?

___________ surface water?__________ no industrial discharge

6.2Is your wastewater treated before discharge?

Yes  ☐No  ☐

If yes, describe the type of treatment conducted.

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________________________________________________________________________

________________________________________________________________________

6.3Attach copies of any wastewater discharge permits issued to your company with respect to its operations on the premises.

7.AIR DISCHARGES

7.1Do you have any air filtration systems or stacks that discharge into the air?

Yes  ☐No  ☐

7.2Do you operate any of the following types of equipment, or any other equipment requiring an air emissions permit?

__________ Spray booth

__________ Dip tank

__________ Drying oven

__________ Incinerator

__________ Other (please describe)

__________ No Equipment Requiring Air Permits

7.3Are air emissions from your operations monitored?

Yes  ☐No  ☐

If so, indicate the frequency of monitoring and a description of the monitoring results.

________________________________________________________________________

________________________________________________________________________

7.4Attach copies of any air emissions permits pertaining to your operations on the promises.

8.HAZARDOUS MATERIALS DISCLOSURES

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8.1Does your company handle hazardous materials in a quantity equal to or exceeding an aggregate of 500 pounds, 55 gallons, or 200 cubic feet?

Yes  ☐No  ☐

8.2Has your company prepared a hazardous materials management plan (“business plan”) pursuant to Fire Department requirements?

Yes  ☐No  ☐

If so, attach a copy of the business plan.

8.3Are any of the chemicals used in your operations regulated under Proposition 65?

Yes  ☐No  ☐

If so, describe the actions taken, or proposed actions to be taken, to comply with Proposition 65 requirements.

________________________________________________________________________

________________________________________________________________________

8.4Describe the procedures followed to comply with OSHA Hazard Communication Standard requirements.

________________________________________________________________________

________________________________________________________________________

9.ENFORCEMENT ACTIONS, COMPLAINTS

9.1Has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees?

Yes  ☐No  ☐

If so, describe the actions and any continuing compliance obligations imposed as a result of these actions.

________________________________________________________________________

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________________________________________________________________________

9.2Has your company ever received requests for information, notice or demand letters, or any other inquiries regarding its operations?

Yes  ☐No  ☐

9.3Have there ever been, or are there now pending, any lawsuits against the company regarding any environmental or health and safety concerns?

Yes  ☐No  ☐

9.4Has an environmental audit ever been conducted at your company’s current facility?

Yes  ☐No  ☐

If so, discuss the results of the audit.

________________________________________________________________________

________________________________________________________________________

9.5Have there been any problems or complaints from neighbors at any of the company’s current facilities?

Yes  ☐No  ☐

Please describe:

________________________________________________________________________

________________________________________________________________________

8

Name of Tenant:

By: 

Title: 

Date: 

9

EXHIBIT F

FORM OF TENANT'S ESTOPPEL CERTIFICATE

The undersigned as Tenant under that certain Lease Agreement (the "Lease") made and entered into as of ___________, 201_by and between SP ZANKER PROPERTY LLC, as Landlord, and the undersigned as Tenant, for Premises located at 3081 Zanker Road, San Jose, California, certifies as follows:

1.Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto.  The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2.The undersigned currently occupies the Premises described in the Lease, the Term commenced on __________, and the Term expires on ___________, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Complex.

3.Base Rent became payable on ____________.

4.The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.

5.Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

6.Tenant shall not modify the documents contained in Exhibit A (other than a modification reflecting the exercise by Tenant of a right or option expressly set forth in the Lease) without the prior written consent of Landlord's mortgagee.

7.All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through ___________.  The current monthly installment of Base Rent is $_____________________.

8.To the undersigned’s knowledge, all conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease as of the date of this Estoppel Certificate have been satisfied and Landlord is not in default thereunder.  In addition, the undersigned has not delivered any currently outstanding notice to Landlord regarding a default by Landlord thereunder.

9.No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.  Neither Landlord, nor its successors or assigns, shall in any event be liable or responsible for, or with respect to, the retention, application and/or return to Tenant of any security deposit paid to any prior landlord of the Premises, whether or not still held by any such prior landlord, unless and until the party from whom the security deposit is being sought, whether it be a lender, or any of its successors or assigns, has actually received for its own account, as landlord, the full amount of such security deposit.

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10.As of the date hereof, to the undersigned’s knowledge, there are no existing defenses or offsets, or, to the undersigned's knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

11.If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

12.There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

13.Tenant is in material compliance with all federal, state and local laws, ordinances, rules and regulations affecting its use of the Premises, including, but not limited to, those laws, ordinances, rules or regulations relating to hazardous or toxic materials.  Tenant has never permitted or suffered, nor does Tenant have any knowledge of, the generation, manufacture, treatment, use, storage, disposal or discharge of any hazardous, toxic or dangerous waste, substance or material in, on, under or about the Complex or the Premises or any adjacent premises or property in violation of any federal, state or local law, ordinance, rule or regulation.

14.To the undersigned's knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full.  All work (if any) in the Common Areas required by the Lease to be completed by Landlord as of the date of this Estoppel Certificate has been completed and all parking spaces required by the Lease have been furnished and/or all parking ratios required by the Lease have been met.

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.  However, in no event will this Estoppel Certificate be deemed to amend or revise the express provisions of the Lease.

2

Executed at ______________ on the ____ day of ___________, 20__.

"Tenant":

,
a  

By: 
     Its: 

By: 
     Its: 

3

EXHIBIT G

FORM OF CURRENT MORTGAGEE’S ESTOPPEL CERTIFICATE

Tenant Estoppel Certificate

_______________, 2015

German American Capital Corporation, its successors and/or assigns (“Lender”)

60 Wall Street – 10th Floor

New York, New York 10005

Re:Lease between _________________, a ____________ limited _____________, as Landlord or its assignees (“Landlord”) and ____________________ as Tenant (“Tenant”) dated __________, as amended, supplemented and/or modified by the amendments, modifications, side letters, guaranties, letters of credit and other documents listed on Schedule 1attached hereto (as so amended, supplemented and/or modified, the “Lease”) at the property known as __________________ (the “Property”)

Dear Sir or Madam:

Tenant hereby certifies to Landlord and Lender that, except as set forth on Schedule 2:

(a) Tenant is the present tenant under the Lease.

(b) The Lease has commenced pursuant to its terms and is in full force and effect.  Tenant has not given Landlord any notice of termination under the Lease.

(c) There are no amendments, supplements or modifications of any kind to the Lease except as set forth on Schedule 1.  The Lease represents the entire agreement between Tenant and Landlord with respect to the leasing and occupancy of the premises leased under the Lease (the “Leased Premises”); there are no other promises, agreements, understandings, or commitments of any kind between Landlord and Tenant with respect thereto.

(d) There has not been and is now no subletting of the Leased Premises, or any part thereof, or assignment by Tenant of the Lease, or any rights therein, to any party, other than as set forth on Schedule 1.

(e) the Lease term commenced on ________, ____, the termination date (excluding any renewals) is ____________________.

(f) Current monthly base rent is $_____________, Tenant’s Proportionate Share of Direct Expenses is _______%, paid on an estimated monthly basis of $___________ [TO BE ADJUSTED IF TAXES ARE PAID IN AN ALTERNATE MANNER].  The date of Tenant’s last rental payment was __________, 20___.  Tenant is current with respect to, and

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is paying the full rent and other charges stipulated in the Lease.  No rent or other sums due have been paid more than one (1) month in advance.

(g) Landlord holds a security deposit of $____________.

(h) The Leased Premises consists of __________ square feet.

(i) Tenant has no option to renew or extend the Lease term except as set forth on Schedule 2.

(j) Tenant is in possession of the Leased Premises, is in occupancy of the Leased Premises, is open for business, and is paying rent, and all of Landlord’s obligations accruing as of the date of this certificate have been satisfied.  Except as expressly set forth in the Lease, Tenant has no right to vacate the Leased Premises or cease to operate its business therefrom.

(k) All of the construction obligations of the Landlord under the Lease (if any) accruing as of the date of this certificate have been duly performed and completed including, without limitation, any obligations of the Landlord to make or to pay the Tenant for any improvements, alterations or work done on the Leased Premises, and the improvements described in the Lease have been constructed in accordance with the plans and specifications therefor and have been accepted by Tenant.  All common areas of the Property (including, without limitation, parking areas, sidewalks, access ways and landscaping) are in compliance with the Lease and are satisfactory for Tenant’s purposes.

(l) Neither Tenant nor, to Tenant’s knowledge, Landlord, is in default under the Lease.  Tenant has made no currently outstanding claim against Landlord alleging Landlord’s default under the Lease.

(m) Tenant has no offsets or defenses to the payment of rent or other sums or obligations under the Lease and Tenant is not entitled to any credits, reductions, reimbursements, free rent, rent concessions or abatements of rent under the Lease or otherwise against the payment of rent or other charges under the Lease.

(n) Tenant has no option or right of first refusal to purchase all or any part of the Property or the Leased Premises.

(o) Tenant is not currently in discussions or negotiations (directly or indirectly) with Landlord with respect to any material amendment or modification of the Lease (including, without limitation, any reduction in the rent or the term thereof).  Any material amendment or modification of the Lease (including, without limitation, any reduction in the rent or the term thereof but excluding any amendment which reflects the exercise by Tenant of a right or option expressly set forth in the Lease) shall be null and void and of no force and/or effect (and, without limiting the generality of the foregoing, none of Lender, its designee and/or any purchaser at the sale described in Paragraph (p) below shall be bound thereby) unless and until Lender has consented to any such amendment or modification in writing.

(p) Tenant acknowledges and agrees that the Lease is and shall be subordinate to the mortgage, deed of trust or other such security instrument securing the loan made by Lender to Landlord (including any Purchaser that succeeds to Landlord’s interest in the Property).  Lender, by accepting this letter, agrees that no foreclosure (whether judicial or nonjudicial), deed or

2

assignment in lieu of foreclosure, or sale of the Property in connection with the enforcement of such mortgage, deed of trust or other such security instrument or otherwise in satisfaction of the Loan shall operate to terminate the Lease or Tenant’s rights thereunder to possess and use the Leased Premises; provided that the Lease is in full force and effect and no uncured Default exists under the Lease.

(q) If Lender or its designee succeeds to Landlord’s (or any successor to Landlord’s) interest in the Property or if a sale by power of sale or foreclosure occurs, Tenant agrees to attorn to and accept Lender, its designee or a purchaser at such sale as its landlord under the Lease for the then remaining balance of the term thereof.

(r) Tenant is not insolvent and is able to pay its debts as they mature.  Tenant has not declared bankruptcy or similar insolvency proceeding, and has no present intentions of doing so, no such proceeding has been commenced against Tenant seeking such relief, and Tenant has no knowledge that any such proceeding is threatened.

(s) Tenant shall deliver to Lender a copy of all notices of Default when it serves on or receives from the Landlord to:

German American Capital Corporation

60 Wall Street, 10th Floor

New York, New York 10005

Attn:  __________________

with a copy to:

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166

Attn:  Corey A. Tessler, Esq.

(t) To the best of Tenant’s knowledge and belief, there are no rental, lease, or similar commissions payable with respect to the Lease, except as may be expressly set forth therein.

(u) Tenant has not at any time and does not presently use the Leased Premises for the generation, manufacture, refining, transportation, treatment, storage or disposal of any hazardous substance or waste in violation of applicable laws or for any purpose which poses a substantial risk of imminent damage to public health or safety or to the environment.

(v) The information with respect to the Lease set forth on Schedule 1 and Schedule 2 hereto is true, correct, and complete.

(w) Tenant acknowledges and agrees that Landlord, Lender, co-lenders or participant lenders and their respective successors and assigns shall be entitled to rely on Tenant’s certifications set forth herein; provided that in no event will this certificate be deemed to modify the express terms of the Lease.

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The undersigned representative of Tenant is duly authorized and fully qualified to execute this instrument on behalf of Tenant thereby binding Tenant.

Very truly yours,

Tenant: _____________________________

By:______________________________
Name:
Title:

4

Schedule 1

Amendments, Modifications, Side Letters, Guaranties, Letters of Credit
or other Modifications (including any sublease or assignment documents)

[List or, if none, say “None”]

1

Schedule 2

1. Rights of renewal:  [List or, if none, say “None”]

2. Exceptions to letter:  [List or, if none, say “None”]

2

EXHIBIT H

FORM OF CURRENT MORTGAGEE’S SNDA

This SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT (the “Agreement”) is dated as of _____________, and is by and among GERMAN AMERICAN CAPITAL CORPORATION, a Maryland corporation, having an address at 60 Wall Street, 10th Floor, New York, New York  10005 (together with its successors and assigns, “Lender”), ______________________, a _________________________, having an office at _____________________________ (“Landlord”), and __________________________, a ________________________________________, having an office at ________________________ (“Tenant”).

WHEREAS, Lender has made or intends to makea loan to Landlord (the “Loan”), which Loan shall be evidenced by one or more promissory notes (as the same may be amended, modified, restated, severed, consolidated, renewed, replaced, or supplemented from time to time, the “Promissory Note”) and secured by, among other things, that certain Mortgage or Deed of Trust, Assignment of Leases and Rents and Security Agreement (as the same may be amended, restated, replaced, severed, split, supplemented or otherwise modified from time to time, the “Mortgage”) encumbering the real property located in ______________________ more particularly described on Exhibit A annexed hereto and made a part hereof (the “Property”);

WHEREAS, by a lease agreement (the “Lease”) dated ___________, _____, between Landlord (or Landlord's predecessor in title) and Tenant, Landlord leased to Tenant a portion of the Property, as said portion is more particularly described in the Lease (such portion of the Property hereinafter referred to as the “Premises”);

WHEREAS, Tenant acknowledges that Lender will rely on this Agreement in making the Loan to Landlord; and

WHEREAS, Lender and Tenant desire to evidence their understanding with respect to the Mortgage and the Lease as hereinafter provided.

NOW,  THEREFORE,  in consideration of the mutual agreements hereinafter set forth, the parties hereto hereby agree as follows:

1. Tenant covenants, stipulates and agrees that the Lease and all of Tenant's right, title and interest in and to the Property thereunder (including but not limited to any option to purchase, right of first refusal to purchase or right of first offer to purchase the Property or any portion thereof) is hereby, and shall at all times continue to be, subordinated and made secondary and inferior in each and every respect to the Mortgage and the lien thereof, to all of the terms, conditions and provisions thereof and to any and all advances made or to be made thereunder, so that at all times the Mortgage shall be and remain a lien on the Property prior to and superior to the Lease for all purposes, subject to the provisions set forth herein.  Subordination is to have the same force and effect as if the Mortgage and such renewals, modifications, consolidations, replacements and extensions had been executed, acknowledged, delivered and recorded prior to the Lease, any amendments or modifications thereof and any notice thereof.

1

2. Lender agrees that if Lender exercises any of its rights under the Mortgage, including entry or foreclosure of the Mortgage or exercise of a power of sale under the Mortgage, Lender will not disturb Tenant's right to use, occupy and possess the Premises under the terms of the Lease so long as Tenant is not in default beyond any applicable grace period under any term, covenant or condition of the Lease.

3. If, at any time Lender (or any person, or such person's successors or assigns, who acquires the interest of Landlord under the Lease through foreclosure of the Mortgage or otherwise) shall succeed to the rights of Landlord under the Lease as a result of a default or event of default under the Mortgage, Tenant shall attorn to and recognize such person so succeeding to the rights of Landlord under the Lease (herein sometimes called “Successor Landlord”) as Tenant's landlord under the Lease, said attornment to be effective and self-operative without the execution of any further instruments.  Although said attornment shall be self-operative, Tenant agrees to execute and deliver to Lender or to any Successor Landlord, such other instrument or instruments as Lender or such other person shall from time to time reasonably request in order to confirm said attornment.

4. Landlord authorizes and directs Tenant to honor any written demand or notice from Lender instructing Tenant to pay rent or other sums to Lender rather than Landlord (a “Payment Demand”), regardless of any other or contrary notice or instruction which Tenant may receive from Landlord before or after Tenant's receipt of such Payment Demand.  Tenant may rely upon any notice, instruction, Payment Demand, certificate, consent or other document from, and signed by, Lender and shall have no duty to Landlord to investigate the same or the circumstances under which the same was given.  Any payment made by Tenant to Lender or in response to a Payment Demand shall be deemed proper payment by Tenant of such sum pursuant to the Lease.

5. If Lender shall become the owner of the Property or the Property shall be sold by reason of foreclosure or other proceedings brought to enforce the Mortgage or if the Property shall be transferred by deed in lieu of foreclosure, Lender or any Successor Landlord shall not be:

(a) liable for any act or omission of any prior landlord (including Landlord) or bound by any obligation to make any payment to Tenant which was required to be made prior to the time Lender succeeded to any prior landlord (including Landlord); or

(b) liable for any defaults of any prior landlord (including Landlord) which occurred, or (except as set forth in 5(a) above) to make any payment to Tenant which was required to be paid by any prior landlord (including Landlord), prior to the time that Lender or any Successor Landlord succeeded to the interest of such landlord under the Lease; or

(c) obligated to perform any construction obligations of any prior landlord (including Landlord) under the Lease or liable for any defects (latent, patent or otherwise) in the design, workmanship, materials, construction or otherwise with respect to improvements and buildings constructed on the Property; or

(d) subject to any offsets, defenses or counterclaims which Tenant may be entitled to assert against any prior landlord (including Landlord); or

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(e) bound by any payment of rent or additional rent by Tenant to any prior landlord (including Landlord) for more than one month in advance; or

(f) bound by any amendment, modification, termination or surrender of the Lease (other than any amendment, modification, termination or surrender reflecting or representing the exercise by Tenant of an express right or option set forth in the Lease) made without the written consent of Lender; or

(g) liable or responsible for or with respect to the retention, application and/or return to Tenant of any security deposit paid to any prior landlord (including Landlord), whether or not still held by such prior landlord, unless and until Lender or any Successor Landlord has actually received said deposit for its own account as the landlord under the Lease as security for the performance of Tenant's obligation under the Lease (which deposit shall, nonetheless, be held subject to the provisions of the Lease).

6. Tenant hereby represents, warrants, covenants and agrees to and with Lender:

(a) to deliver to Lender, by certified mail, return receipt requested or nationally recognized overnight courier, a duplicate of each notice of default delivered by Tenant to Landlord at the same time as such notice is given to Landlord and no such notice of default shall be deemed given by Tenant under the Lease unless and until a copy of such notice shall have been so delivered to Lender.  Lender shall have the right (but shall not be obligated) to cure such default.  Tenant shall accept performance by Lender of any term, covenant, condition or agreement to be performed by Landlord under the Lease with the same force and effect as though performed by Landlord.  Tenant further agrees that if Lender, within thirty (30) days following Tenant’s delivery of any such notice of default to Lender, notifies Tenant of Lender’s intent to attempt to cure such default, Tenant will afford Lender a period of thirty (30) days beyond any period afforded to Landlord for the curing of such default during which period Lender may elect (but shall not be obligated) to seek to cure such default, or, if such default cannot be cured within that time but Lender is diligently attempting to cure such default, then such additional time as may be necessary to cure such default (including but not limited to commencement of foreclosure proceedings) during which period Lender may continue to seek to cure such default, prior to taking any action to terminate the Lease.

(b) that Tenant is the sole owner of the leasehold estate created by the Lease; and

(c) to promptly certify in writing to Lender, in connection with any proposed assignment of the Mortgage, whether or not any default on the part of Landlord then exists under the Lease and to deliver to Lender any tenant estoppel certificates required under the Lease.

7. Tenant acknowledges that the interest of Landlord under the Lease is assigned to Lender solely as security for the Promissory Note, and Lender shall have no duty, liability or obligation under the Lease or any extension or renewal thereof, unless Lender shall

3

specifically undertake such liability in writing or Lender becomes and then only with respect to periods in which Lender becomes, the fee owner of the Property.

8. This Agreement shall be governed by and construed in accordance with the laws of the State in which the Premises is located (excluding the choice of law rules thereof).

9. This Agreement and each and every covenant, agreement and other provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns (including, without limitation, any successor holder of the Promissory Note) and may be amended, supplemented, waived or modified only by an instrument in writing executed by the party against which enforcement of the termination, amendment, supplement, waiver or modification is sought.

10. All notices to be given under this Agreement shall be in writing and shall be deemed served upon receipt by the addressee if served personally or, if mailed, upon the first to occur of receipt or the refusal of delivery as shown on a return receipt, after deposit in the United States Postal Service certified mail, postage prepaid, addressed to the address of Landlord, Tenant or Lender appearing below.  Such addresses may be changed by notice given in the same manner.  If any party consists of multiple individuals or entities, then notice to any one of same shall be deemed notice to such party.

Lender's Address:German American Capital Corporation

60 Wall Street, 10th Floor

New York, New York 10005

Attn:  __________________

With a copy to:Winston & Strawn LLP

200 Park Avenue

New York, New York 10166

Attn: Corey A. Tessler, Esq.

Tenant's Address:NeoPhotonics Corporation

2911 Zanker Road

San Jose, California  95134

Attn:  President

With a copy to:NeoPhotonics Corporation

2911 Zanker Road

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San Jose, California  95134

Attn:  General Counsel

With a copy to:Shartsis Friese LLP

One Maritime Plaza, 18th Floor

San Francisco, California  94111

Attn:  Jonathan M. Kennedy

    Landlord's Address:SP Zanker Property, LLC
Sahadi Properties
800 Pollard Road, Suite C-36
Los Gatos, California 95032
Attention:  Stephen Barrett Sahadi

With a copy to:Seubert French Frimel & Warner LLP
1075 Curtis Street
Second floor
Menlo Park, California 94025
Attention:  Daniel Seubert

And to:Flynn Riley Bailey & Pasek LLP
1010 B Street
Suite 200
San Rafael, California 94901
Attention:  Brian C. Pedersen, Esq.

11. If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement.  This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Mortgage.

12. In the event Lender shall acquire Landlord's interest in the Premises, Tenant shall look only to the estate and interest, if any, of Lender in the Property for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by Lender as a Successor Landlord under the Lease or under this Agreement, and no other property or assets of Lender shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to the Lease, the relationship of the landlord and tenant under the Lease or Tenant's use or occupancy of the Premises or any claim arising under this Agreement.

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13. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to be enforceable, or if such modification is not practicable, such provision shall be deemed deleted from this Agreement, and the other provisions of this Agreement shall remain in full force and effect, and shall be liberally construed in favor of Lender.

14. In the event that either party should bring suit for the recovery of any sum due under this Agreement, or because of the breach of any provision of this Agreement or for any other relief against the other, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, and shall be enforceable whether or not the action is prosecuted to judgment.

15. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

Arch
	TENANT: NEOPHOTONICS CORPORATION, a Delaware corporation
	By:
	Name:
	Title:

LANDLORD: SP ZANKER PROPERTY LLC, a Delaware limited liability company
By: Sahadi Properties, L.P., a California limited partnership
By:
Name:	Stephen B. Sahadi
Its:	Managing Partner

6

Arch
	By:
	Name:
	Title:

Arch
	LENDER: GERMAN AMERICAN CAPITAL CORPORATION
	By:
	Name:
	Title:
Arch
	By:
	Name:
	Title:

[ADD APPROPRIATE ACKNOWLEDGMENT (one for each Signatory)]

7

Exhibit A

Legal Description of Property

(Attached)

8

EXHIBIT I

TENANT’S LOGO FOR SIGNS

1

EXHIBIT J-1

SAMPLE DIRECT EXPENSE STATEMENT

[See Attached]

2

3

EXHIBIT J-2

[RESERVED]

4

EX-10.8

Exhibit 10.8

PROPERTY LEASE CONTRACT

BETWEEN

DONGGUAN CONRAD HI-TECH PARK LTD.

AND

NEOPHOTONICS DONGGUAN CO., LTD

DONGGUAN, CHINA

12 September, 2016

TABLE OF CONTRACT

1. GENERAL PROVISIONS	3
2. LEASE OF THE LEASED PROPERTY	5
3. RENT AND OTHER CHARGES	6
4. UTILITIES	11
5. RESPONSIBILITIES OF LESSOR	12
6. RESPONSIBILITIES OF LESSEE	15
7. REPRESENTATIONS AND WARRANTIES OF THE PARTIES	16
8. CONDITIONS OF THE LEASED PROPERTY, FACTORY BUILDINGS AND SITE	17
9. DELIVERY OF LEASED PROPERTY	17
10. BREACH OF CONTRACT AND TERMINATION	18
11. MISCELLANEOUS	20

THIS PROPERTY LEASE CONTRACT (this “Contract”) is made on 12 September 2016, in Dongguan, the People’s Republic of China (“China”) by and between:

Dongguan Conrad Hi-Tech Park Ltd., a legal person of China, registered with  Dongguan Administration of Industry and Commerce (Business License#:441900400104128) and with its legal address at South Section of Chang Nan Road, Shangsha Village, Chang'An Town, Dongguan City, Guangdong Province, China (“Lessor”), and

NeoPhotonics Dongguan Co., Ltd, a legal person of China, registered with Dongguan Administration of Industry and Commerce (Business License#: 441900400162776) and with its legal address at Section B, B9 Conrad Hi-Tech Park, South Section of Chang Nan Road, Shangsha Village, Zhen’an, Chang’An Town, Dongguan City, Guangdong Province, China(“Lessee”).

Lessor and Lessee are referred to collectively as the “Parties” and individually as a “Party”.

1. GENERAL PROVISIONS

1.1Preliminary Statement

WHEREAS, the Parties entered into a property lease contract on 31st May, 2011 (Contract No. Execution Version 2011-05-12) and had entered into two supplement   agreements ever since; WHEREAS, the lease term as set out in the supplement agreements has expired. NOW, THEREFORE, the Parties hereby agree on their rights and obligations during the new lease term.

Lessor has acquired from the Dongguan Bureau of Land and Resources by way of assignment, the granted land use right for the Site (as defined below), and owns the Leased Property (as defined below) situated thereon.

Lessor now agrees to lease the Leased Property to Lessee to allow Lessee to use the Leased Property as office and factory according to the terms and conditions hereof.

The Parties agree to carry out the lease hereunder in accordance with the terms and conditions of this Contract.

1.2Definitions

In this Contract, the capitalized terms shall have the meanings set forth below.

(a) “Affiliate” with respect to a Party, means a corporation, partnership, joint venture or other entity directly or indirectly controlling, controlled by or under common control with the Party. In this definition of "Affiliate," "control" means ownership of more than 50% of shares having the right to vote or the right to appoint a majority of the directors.

(b) “Leased Property” means 1F, 2F, 3F, 4F and 5F areas of the building located at Section B of B9, Conrad Hi-Tech Park, South Section of Chang Nan Road, Shangsha Village, Zhen’an, Chang'An Town, Dongguan City, Guangdong Province, China; with total gross floor area of 7,824 square meters (the actual floor area shall be determined according to the plans filed with the governmental authorities). Floor plans of the Leased Property are attached in Exhibit 1A.  

(c) “Month” means a calendar month.

(d) “Lease Term” means the leasing period of the Leased Property as provided under Article 2.4 of this Contract.

(e) “Real Estate Certificates” means the Building Title Certificate and Land Use Right Certificate relating to the Leased Property and the Site, respectively, issued by the competent land and building administrative authorities under Lessor’s name attached hereto as Exhibit 5.  （If the Building Title Certificate has not been obtained, then the Lessor shall provide the Building Title Certificate to Lessee once received. ）

(f) “Rent” has the meaning set forth in Article 3.1.

(g) “Site” means the land parcel on which the Leased Property is situated, comprising 44,702 square meters gross area, as evidenced by the Land Use Right Certificate attached hereto in Exhibit 5. Plan of the Site is attached in Exhibit 1B.

(h) “Additional Equipment and Facilities” means all the equipment and facilities described in Exhibit 2A.

(i) “Utilities” means water, electricity, environmental protection, fire prevention and other related facilities installed in the Leased Property.

2. LEASE OF THE LEASED PROPERTY

2.1Lease

In accordance with the laws and regulations of China and Dongguan Municipality, Lessor agrees to lease to Lessee the Leased Property. Lessee agrees to pay the Rent and other charges payable under this Contract in accordance with the terms hereof.

2.2Use of the Leased Property

(j) Lessee shall use the Leased Property as production factory and office of Lessee.

(k) Lessor agrees Lessee to display signage on the external walls and the roof of the Leased Property indicating Lessee’s name. However, the size of the signage is subject to the prior approval of Lessor.  Lessor shall not unreasonably refuse to give its approval. Lessee’s notice of signage installation shall be deemed to be approved by Lessor if Lessor fails to reply within two working days of the receipt of such notice. Lessor shall procure that Lessee shall obtain the approval of Lessee’s signage described above from the property management company and relevant government authorities.

2.3Sub-Lease

(l) At any time during the Lease Term or renewal thereof, the Lessee shall have the right to sublease any portion of the Leased Property to any of its Affiliates provided that Lessee shall provide the relevant information of such Affiliate to Lessor by 10-day prior written notice.

(m) Lessee shall be allowed, in case of the sale of shares or assets, restructuring or re-organization, to transfer or assign all of its rights and obligation to the respective successor or purchaser of its business or assets. If assigned or transferred pursuant to this Article 2.3(b), then the successor or purchaser must continue to comply with all the terms of this Contract.

2.4Lease Term, Renewal

(n) Lease Term starts from 1st day of June, 2016 and ends on 31st day of May, 2021. Unless the Lessor notifies the Lessee in writing no later than six(6) months prior to the expiry of the Lease Term that this Contract will not renew when the Lease Term expires, this Contract shall renew for an additional 5 years.

If Lessee would like to continue to rent the Leased Property after the Lease Term expires, the growth range of the rent will be mutually agreed between the Parties and be equal to the prevailing open market effective rent subject to a cap of 15% of the previous Leased Property rent (exclusive of the shared expenses of Additional Equipment and Facilities).

(o) Lessee has a right of preemption to rent and/or purchase the Leased Property when the Lease Term expires or the Lessor intends to sell the Leased Property.

3. RENT AND OTHER CHARGES

3.1Rent

The amount payable by Lessee to Lessor hereunder includes rental of the Leased Property and the shared expenses of Additional Equipment and Facilities (collectively, the “Rent”), and is set out as follows:

Monthly rent per ㎡ of the Leased Property: RMB 18.00/㎡/month （inclusive of taxes）.

(p) Monthly rent of Leased Property: RMB 18.00/㎡/month×7,824㎡ = RMB140832/month.

(q) Monthly Additional Equipment and Facilities shared expenses：See Exhibit 6  (Monthly Rent Payment Plan of Additional Equipment and Facilities). The rent of the Additional Equipment and Facilities does not change within each item’s depreciation years as agreed by the Parties. If the Lease Term(including renewal period) are longer than the depreciation years, then Lessor warrants that the rental of Additional Equipment and Facilities will be free during the remainder of the Lease Term (including the renewal period). Also, the maintenance cost of the Additional Equipment and Facilities will be borne by Lessee, and Lessor shall help Lessee to communicate with the suppliers. (Details of calculation of shared expenses of Additional Equipment and Facilities are provided under Article 3.2)

(r) The Rent shall be payable once every month. 

The Rent shall be paid within 15 working days of each month. Lessor shall provide the relevant tax invoice to Lessee within 3 working days of the receipt of the payment from Lessee.

Lessor hereby designates that all payments by Lessee as described under Article 3 shall be made by wire transfer to the following bank account of Lessor. During the Lease Term, if Lessor intends to change the receiving bank account, Lessor shall provide Lessee with prior written notice.

Account Name: DONGGUAN CONRAD HI-TECH PARK CONSTRUCTION LTD.

Bank Name: ChangAn Fuli Branch Bank of Dongguan Bank东莞银行长安富丽支行

Account No.:500061574301018

3.2Additional Equipment and Facilities Shared Expenses

Pursuant to the Lessee’s request, Lessor has provided Lessee with the Additional Equipment and Facilities described in Exhibit 2A, which have been installed in accordance with Exhibit 2B.

Lessee will pay monthly shared expenses of Additional Equipment and Facilities to Lessor as part of the Rent payable by Lessee on monthly basis pursuant to Article 3.1; the calculation of the monthly share expenses of Additional Equipment and Facilities are provided in further details in Exhibit 3.

3.3Deposit

(s) The Parties agree to divide the Deposit into two parts which are Building deposit and Additional Equipment and Facilities deposit. The Building deposit will be equal to 3 months’ rent of the Leased Property (RMB375,552), the Additional Equipment and Facilities deposit is 8% of the total investment of the Additional Equipment and Facilities (RMB 282,400).  Lessee has paid the Deposit to Lessor and                    Lessor has already provided the relevant deposit receipt to Lessee.

In the event that Lessee terminates this Contract pursuant to Article 9.2 hereof, Lessor shall, within 3 working days following receipt of Lessee’s termination notice, refund the full amount of the Building deposit described under Article 3.3(a) above in the amount of RMB375,552 to such bank account designated by Lessee.

(t) In the event that Lessee does not continue to rent the Leased Property when the Lease Term expires, Lessor shall, within 3 working days following the expiry of the Lease Term, refund the full amount of the Building deposit described under Article 3.3(a) above to such bank account designated by Lessee. About the Additional Equipment and Facilities deposit, if the Lease Term is shorter than the depreciation years described under Article 3.1(c), then Lessor will take the Additional Equipment and Facilities Deposit as compensation. If the depreciation years described under Article 3.1(c)finishes before the expiry of the Lease Term, then Lessor shall refund the Additional Equipment and Facilities deposit by phases according to Exhibit 3 to such bank

account designated by Lessee.

3.4Property Management Fee and Car Park Fee

(u) During the Lease Term (including renewal period thereof), the property management fee of the Leased Property is included in the Rent of the Leased Property, and no additional fees or charges of the greenery, security, cleaning, electricity and water for the public area in the High-tech Park shall be payable by Lessee.

(v) During the Lease Term (including renewal period thereof), Lessor will not charge any car park fee from Lessee, and Lessor will provide 15 fixed parking spaces and sufficient public parking spaces to Lessee.

3.5Dormitory 

Lessee has the right to require Lessor to undertake that during the Lease Term, Lessor shall reserve certain dormitories to Lessee. Accordingly, Lessor will require Lessee to pay at least 70% of the required dormitories. The standard of dormitory is as follows: _10-12 persons per room, located at _Conrad Hi-Tech Park_, and the rental of dormitory is RMB 1,160/room/month(tax included).

The standard of dormitory is as follows: _1-4 persons per room, located at _Conrad Hi-Tech Park_, and the rental of dormitory is RMB  1,000/room/month(tax included).

In the event that Lessor can’t provide the sufficient dormitories within 30 days following receipt of Lessee’s notice, then

(w) Lessor undertakes that Lessor will provide the relevant dormitories of same numbers and same standards to Lessee in other places. In the event that the rental of the dormitory is more than RMB 1160/room/month (tax included), then Lessor shall pay for the price difference；or

(x) Lessor may build new dormitories in time for Lessee’s use. In the event that Lessor fails to build the dormitories in time, then during the construction period, Lessor shall provide temporary dormitory options to Lessee.

3.6Canteen

Lessor undertakes that during the Lease Term, Lessor shall provide canteen and services to Lessee, which can accommodate 1,500 employees.

3.7Other Charges

(y) Other than the Rent specified in Article 3.1 (including shared expenses of Additional Equipment and Facilities) and the Deposit specified in Article 3.3 hereof, Lessee is not responsible for payment of any other charges to Lessor. Lessor shall be responsible to pay for the land use right grant fee, taxes and any other costs and charges in connection with the Leased Property and the related land use right . In the circumstance that any of the foregoing taxes or fees are imposed by the related government authorities or any third party on Lessee, Lessor shall be responsible to reimburse Lessee for all such expenses and taxes incurred by Lessee in an expeditious manner or Lessee will have the right to deduct such expenses and taxes from the Rent payable to Lessor.

(z) Lessee shall bear charges caused by using of Leased Property, which includes but not limited to water, electricity, telecommunication, and environmental protection, etc. 

(aa) Each Party hereto shall bear all taxes and governmental surcharges which are imposed on such Party according to Chinese tax laws and regulations, which includes but not limited to real estate tax, business tax, enterprise income tax and stamp duty.

3.8Currency

Lessor and Lessee shall pay all the amounts due under this Contract in RMB.

4. UTILITIES

4.1Connections and Responsibilities

Lessor shall use its best efforts to support the continuous and uninterrupted supply of Utilities that are directly connected to the Leased Property as specified in Exhibits 2 and 4 to meet the full operating requirements of Lessee. Lessee shall be responsible for all of Lessee’s usage or consumption charges for Utilities (inclusive of normal share of wear and tear). Lessor shall ensure that separate meters are installed for all Utilities (other than telephones) utilized by Lessee, and no other party's usage of Utilities shall be computed by such meters. Lessee shall not be obligated to pay for any Utilities based on any meter reading which includes consumption by any other party. 

4.2Payment

Lessor shall use its best efforts to procure that the basic rates charged to Lessee for Utilities are no

less favorable than the public utility rate offered by the suppliers of such Utilities to Lessor (inclusive of normal share of wear and tear).  To the extent required by applicable law, Lessee shall pay to the respective suppliers of such Utilities in a timely manner.

5. RESPONSIBILITIES OF LESSOR

5.1Ownership

Lessor represents and warrants to Lessee that Lessor is the lawful owner of the Leased Property and has the right to enter into this Contract.

5.2Peaceful Enjoyment and Exclusive Use

Lessor shall protect Lessee's exclusive and unimpaired right to the use of the Leased Property and Site and shall not lease the Leased Property and Site to any third party during the relevant Lease Term. Provided that Lessee comply with all the reasonable and legal regulations set by Lessor, Lessor shall ensure that the activities conducted by it and its representatives, employees, agents and licensees shall neither cause or constitute a nuisance to nor otherwise disturb or interfere with Lessee's use of the Leased Property and Site.  Lessee and its representatives, employees, agents, licensees and invitees shall at all times be provided with unimpaired access to the Leased Property and Site throughout the relevant Lease Term and shall be provided with conditions and access appropriate for Lessee's ongoing operations. Should Lessor intend to mortgage, use as security or otherwise dispose of the Leased Property and/or Site during the Lease Term, Lessor shall (1) guarantee that any mortgage or encumbrance shall not affect Lessee’s rights and shall not release Lessor’s obligations hereunder; and (2) indemnify Lessee for the loss and pay for the damages caused to Lessee and Lessee's research and development facilities, laboratory, production and operations arising from such mortgage, encumbrance, guarantee or other disposal.

5.3Government Filings

(a) If Local Government has the filings regulation, then Lessor shall complete all registrations and filings of this Contract with the relevant authorities required by applicable laws and regulations within 30 days following the date hereof and provide the copies of the registration documents in form and substance satisfactory to Lessee.

(b) Lessor shall indemnify Lessee against any cost, loss, damage or injury incurred by Lessee, caused by Lessor’s failure to fulfill in full its obligations set forth in Article 5.3(a) hereto.

5.4Real Property and Land Use Right

(c) Throughout the Lease Term, Lessor shall pay all taxes and fees for the Leased Property as required in accordance with the applicable law and regulations.

(d) In the event that Lessor decides, during the term of this Contract as extended from time to time, transfer its ownership to the Leased Property to a third party, it shall provide a written notice to Lessee no later than 90 days before the effective date of such transfer to Lessee. However, Lessor shall ensure that: 1) the transferee has committed to abide by all the terms and conditions of this Contract and to assume any and all outstanding liabilities and obligations of Lessor; 2) such transferee has the full legal right and capacity to perform its obligations as if it were party to this Contract; and 3) Lessor shall be jointly liable with the transferee in the event that such transferee refuses or delays the performance of obligation hereunder or breaches the provisions of this Contact in any manner.

5.5 Maintenance

(bb) Lessor shall be responsible for the main structure of the building and the maintenance and annual inspection of the lightning protection facilities of the building. Lessee shall be responsible for the maintenance, repair and annual inspection of the Leased Property and the Additional Equipment and Facilities (including the firefighting equipment and facilities, water and electricity lines and facilities, etc. ), and the Lessor shall provide any necessary assistance. (For example, providing the documents and files required for the purposes of the annual inspection of the elevators and fire and the firefighting equipment and facilities, etc. )

(cc) Lessor shall indemnify and hold Lessee harmless against any cost, loss, damage or injury incurred by Lessee, in respect of its property or to any person, caused by the act, default or negligence of Lessor or its representatives, employees, agents, invitees or licensees in repairing or maintaining the Leased Property and the Site.

5.6Environmental Protection Fire Prevention and Health &Safety

The Leased Property and the Site provided by Lessor shall be in compliance with all applicable laws, regulations and standards relating to environmental protection and fire prevention and the Leased Property and Site shall be approved by the relevant authorities as meeting all such applicable laws and standards. Lessor shall, at its own expense, install permanent environmental protection, fire prevention and safety facilities in the Leased Property and Site in accordance with requirements of applicable laws, regulations, and standards and ensure their normal condition and operation during the Lease Term (the necessary or normal maintenance and repair is provided in further details under Article 5.5(a)).

5.7Insurance

(a) Lessor shall procure and maintain in effect all insurance against all property risks on the Leased Property and Site, public liability insurance and other insurance coverage required by applicable

law and Lessor shall pay insurance costs for such policies during the Lease Term. Lessor shall provide evidence of such insurance policies being procured and maintained (i) within 1 month following the date hereof, and (ii) within 15 days ahead of the date hereof.   If Lessor fails to provide evidence of such insurance policies being procured during any of the time period described above, Lessee shall be entitled to, at its own cost, procure such insurance policies and deduct from the Rent payable by Lessee pursuant to Article 3.1 hereof the insurance costs incurred by Lessee.  Lessee shall procure and maintain in effect all insurance against all property risks and other insurance coverage required by applicable law and Lessee shall pay insurance costs for and maintain in effect such policies.

(b) Lessor and Lessee shall also be responsible for coordinating with its respective insurer and perform its respective obligations as a policy holder under the respective policy. The failure by any Party to perform its obligation under the respective insurance policy shall be deemed as a breach under this Contract and any damages thus suffered by the other Party shall be compensated by the Party in breach; however, in the event of a breach written notice of such breach must be sent to the Party in breach and the Party in breach shall have 90 days from the receipt of the notice to cure the breach.

6. RESPONSIBILITIES OF LESSEE

Throughout the relevant Lease Term, in addition to its other obligations arising hereunder, Lessee shall perform the following:

6.1Fitting Out and Structural Changes

Lessee shall not make any structural changes to the Leased Property without the prior written consent of Lessor. Lessee shall change and fit out the Leased Property only in accordance with plans and specifications submitted to and approved by Lessor(such approval not to be unreasonably withheld or delayed); Lessor shall be deemed to have consented to any such plans and specifications received from Lessee for structural changes or fitting out of the Leased Property in writing if it has not responded to Lessee within 3 working days of Lessee’s provision of such plans and specifications to Lessor. Lessee shall undertake the quality, safety, environmental protection and other liabilities in connection with such changes described above.

6.2Fire Prevention and Safety

Lessee shall strictly comply with the fire prevention measures and safety protection rules in accordance with laws and regulations when Lessee uses the Leased Property. Lessee shall bear the relevant responsibility in law, if Lessee does not comply with the relevant regulations and measures of fire prevention, safety protection.

6.3Rental Payment

Lessee shall pay the Rent on time, if Lessee delays the payment for more than 2 months, Lessor has the right to terminate this Contract, and Lessee shall bear the relevant responsibility in law.

7. REPRESENTATIONS AND WARRANTIES OF THE PARTIES

7.1In addition to their other representations and warranties herein, each Party represents and warrants to the other Party that:

(dd) Each Party has the full right, power and authority, and has obtained all necessary governmental and corporate approvals, for the execution of this Contract and the performance of its obligations hereunder.

(ee) This Contract constitutes its legal, valid and binding obligation, enforceable in accordance with its terms.

(ff) Each Party acknowledges that it is not aware of any litigation, arbitration or administrative proceeding that is currently taking place or pending or threatened against it or its assets which are the subject of this Contract or which could impact such party’s performance of any of its obligations hereunder.

8. CONDITIONS OF THE LEASED PROPERTY AND SITE

In addition to its other representations and warranties hereunder, Lessor represents and warrants to Lessee as follows:

(gg) No currently existing zoning laws or other applicable laws or regulations would prevent, or limit Lessee from utilizing the Leased Property and Site as contemplated by this Contract.

(hh) In connection with the Leased Property and Site, there are no adverse environmental conditions nor have there been any releases of any contaminant into the soils, surface waters or ground waters which would adversely impact public health or the environment.

(ii) Lessor shall ensure that the conditions of the Leased Property and the Additional Equipment and Facilities as set forth in the Exhibit 2 and Exhibit 4, respectively, shall have been met in all material aspects.

(jj) Lessor is the sole and lawful owner of the Leased Property and the Site.  The Leased Property and

Site is free and clear of all mortgages, trust, liens, loans or other encumbrances.

9. BREACH OF CONTRACT AND TERMINATION

9.1Uncured Breach

(kk) If the actual damages are difficult to calculate in the event of an uncured breach by any Party of its obligations under this Contract, the breaching Party is liable to pay liquidated damages to the non-breaching Party and such liquidated damages shall be calculated as follows:

ª Daily Liquidated Damages = Daily rental*2; (including the rent of Building and the rent of Additional Equipments and Facilities)

ª Days of Breach = Calendar days commencing from such breach until the date the breaching Party has fully remedied the breach or on the date of termination of this Contract pursuant to the terms of this Contract;

ª Amount of Liquidated Damages = Daily Liquidated Damages × Days of Breach

(ll) In addition, in the event of a material and an uncured breach by any Party of its obligations under this Contract, the other Party shall have the right to terminate this Contract immediately if the breach is not capable of being cured. Each of the Parties shall be relieved of their duties and obligations arising under this Contract after the date of the termination; provided that no such termination shall relieve any Party from liability for any uncured breach of this Agreement as provided under this Article 9.2.

9.2 Right to Terminate

In addition to the Lessee’s right of termination provided under Article 2.4 hereof, this Contract terminates immediately upon the occurrence of any of the following events:

(mm) If the performance of this Contract by such Party has become in any material respect commercially impracticable by virtue of any order, action or regulation of any government or agency, either Party can terminate this Contract immediately;

(nn) If the other Party materially breached its obligations under this Contract, and fails to correct such breach within 30 days after being notified by the non-breaching Party, the non-breaching Party can terminate this Contract immediately; or

(oo) If either Party cannot perform this Contract due to any issues in relation to the Property Title, Lessee can terminate this Contract immediately.

9.3Preservation of Rights

The provision of this Article 9 are without prejudice to any other rights or remedies either Party may have pursuant to other provisions of this Contract and applicable laws by reason of the default of the other Party.

9.4Expiration of Lease Term

This Contract shall terminate on the expiration of the Lease Term, if not terminated earlier in accordance with Article 9, or renewed in accordance with Article 2.4.

10. MISCELLANEOUS

10.1Assignment

Neither Party may assign any of its rights or obligations hereunder to any other person without the express written consent of the other Party unless otherwise provided in this Contract; however, Lessee is permitted to assign this Contract to an Affiliate upon notice to Lessor.

10.2Applicable Law

The formation, validity, interpretation, execution, amendment and termination of this Contract shall be governed by the laws of China.

10.3Settlement of Disputes

All disputes arising from, out of, or in connection with this Contract shall be settled through friendly consultations between the Parties. Such consultations shall begin immediately after one Party has delivered, in accordance with Article 10.8 to the other Party a written request for such consultation. If within 90 days following the date on which such notice is given the dispute cannot be settled through consultations, the dispute shall be submitted for arbitration to the China International Economic and Trade Arbitration Commission in Shenzhen in accordance with its then effective arbitration rules upon the request of either Party with notice to the other Party. The arbitral award is final and binding upon the Parties. The proceeding of arbitration shall be in Chinese. Any award hereunder shall be enforced in any court with competent jurisdiction.

During the period when a dispute is being resolved, the Parties shall in all other respects continue their performance of this Contract.

10.4Amendment and Modification of the Contract

Amendment to this Contract or its exhibits may be made only by a written agreement in Chinese and English signed by duly authorized representatives of each Party.

10.5Severability

The invalidity of any provision of this Contract shall not affect the validity of any other provision of this Contract.

10.6 Language

This Contract is executed both in Chinese and English in 6 original copies. Both language versions shall be equally authentic. Each Party hereto shall keep 3 original copies. In case of inconsistency between the Chinese and English of this Contract, Chinese language shall prevail.

10.7Waiver

Failure or delay on the part of any Party hereto to exercise any right, power or privilege under this Contract, or to require full performance by the other Party, shall not operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude exercise of any other right, power on privilege.

10.8Notices

Notices or other communications required to be given by any Party pursuant to this Contract shall be written in Chinese and may be delivered personally, by registered mail (postage prepaid) or by a recognized courier service to the address of the other Party set forth below. The dates on which notices shall be deemed to have been effectively given shall be determined as following:

(a) Notices given by personal delivery shall be deemed effectively given on the date of personal delivery.

(b) Notices given by registered mail (postage prepaid) shall be deemed effectively given on receipt.

(c) Notices given by courier service shall be deemed effectively given on receipt.

For the purpose of notices, the addresses of the Parties are as follows:

Lessor: DONGGUAN CONRAD HI-TECH PARK CONSTRUCTION LTD.

Contact Person：Mr. Junhui FANG

Address：South Section of Chang Nan Road, Shangsha Village,Chang'An Town, Dongguan City, Guangdong Province, China

Telephone：+86 769 85417288

Fax：+86 769 85417278

Email： jh.fang@anlipark.com

Lessee: NeoPhotonics Dongguan Co., Ltd

Contact Person: Mr.  Jingtao Ding

Address: Section B, B9 Conrad Hi-Tech Park, South Section of Chang Nan Road, Shangsha Village, Zhen’an, Chang’An Town, Dongguan City, Guangdong Province, China

Telephone:  +86 76989393085

Fax: 0769-89393079

Email: jintao_ding@neophotonics.com.cn

With a copy to: NeoPhotonics (China) Co., Ltd.          

Attention: Legal Department

Address: NeoPhotonics Building, No. 8 South Keji 12th Road, Nanshan District, Shenzhen 518057 China

Either Party may at any time change its address by notice in writing delivered to the other Party in accordance with the terms hereof.

10.9Exhibits

The exhibits attached hereto are hereby made an integral part of this Contract and are equally binding upon the Parties.

10.10补充协议 Supplementary Agreement

The supplement agreement entered into by the Parties on 10th day of September, 2013  (EXHIBIT 7) and the supplement agreement entered into by the Parties on 24th day of December , 2013 (EXHIBIT 8) shall continue in force.

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IN WITNESS WHEREOF, each Party has caused this Contract to be executed by its duly authorized representative on the date first set forth above with effect from 1 June 2016.

DONGGUAN CONRAD HI-TECH PARK LTD.

By：/s/ Zhi Feng Li   　　　

Name：Zhi Feng Li   　　　

Title：General Manager

NeoPhotonics Dongguan Co., Ltd

By： /s/ Chi Yue (Raymond) Chenug　　　

Name：Chi Yue (Raymond) Chenug

Title：    Senior Vice President and Chief Operating Officer

Exhibit一A：

EXHIBIT 1A:  LEASED PROPERTY FLOOR PLAN （1F-5F AND ROOF）

Exhibit一B:

EXHIBIT 1B: SITE PLAN

Exhibit 2A:

EXHIBIT 2A: ADDITIONAL EQUIPMENT AND FACILITIES

(Subject to Design Floor Plan under Exhibit 2B)

Item	Requirement	Remarks
Concrete Construction
B9 Concrete Construction and Retrofit	Change the passenger and cargo lifts’ door of 1F-3F, top floor surface with waterproof slope, elevator machine room with steel door.
Additional Factory Facilities Room	Used area of 172.5㎡(5m*34.5m), illumination intensity should be not less than 200lx	Water chiller/air compressor/vacuum pump/process cooling water, the roof placed cooling towers request bearing 750KG/m2
配电 Power
Power Supply	1*1600KVA transformer, high and low voltage, In-coming and out-coming cabinets and measure cabinets (dual-circuits)	Design work according to   materials of low-voltage distribution cabinets provided by customers
High-voltage Room and Supporting Concrete Construction	High and low voltage room concrete construction, pipeline and cable channel

电梯 Lifts
Otis Passenger Lifts	Otis (Hangzhou) 800 kg	Adopt stainless steel door and door set and cabin
Otis Cargo Lifts	Otis (Hangzhou) 3000 kg	Adopt stainless steel door and door set and cabin

Lessor Reserve Place
Nitrogen Station Foundation	Area of 24㎡	Nitrogen storage tank, covering an area of about 16 square meters, with liquid nitrogen weighed about 17000KG total
Consumable Goods Warehouse	Area of 24㎡, comply with the national safety regulations	Shacks/B9 top storey (build by  NeoPhotonics, Lessor to reserve the place)
Consumable Waster Warehouse	Area of 18㎡, comply with the national safety regulations	Shacks/B9 top storey (build by  NeoPhotonics, Lessor to reserve the place)
ME Equipment Room	Area of 40㎡	Minicomputers processing equipment Shacks/B9 top storey (build by  NeoPhotonics, Lessor to reserve the place)

Production Equipment Spare Parts Warehouse	Area of 40㎡	Shacks/B9 top storey (build by  NeoPhotonics, Lessor to reserve the place)
Power Spare Parts/Material Warehouses	Area of 32㎡	Shacks/B9 top storey (build by NeoPhotonics,  Lessor to reserve the place)
Monitoring Center	Area of 20㎡	Shacks (build by  NeoPhotonics, Lessor to reserve the place)

Exhibit 2B:

EXHIBIT 2B: DESIGN FLOOR PLAN

Location of Additional Factory Facilities Room

Design Floor Plan (1-5F)

Layout of  High-voltage Room and Supporting Concrete Construction：

Layout of Additional Factory Facilities Room：

EXHIBIT 3 ：Additional Equipments & Facilities Deposit Calculation and Return Plan

No.	Item	Depreciation years	Investment (RMB)	Deposit (RMB)	Deposit Return Schedule
1	High-voltage Room and Supporting Concrete Construction	5	980,000.00	78,400.00	Full returned to  Lessee at 64thmonth of the Commencement Date
2	B9 Concrete Construction and Retrofit	5
3	Equipments Room Design Fee	5
4	Equipment Room (water chillers)	5
5	dual-circuits 1*1600KVA transformer, high and low voltage, Incoming and outcoming cabinets and measure cabinets	8	2,100,000.00	168,000.00	Full returned to  Lessee at 100th month of the Commencement Date

6	Passenger Lift:800kg	8	450,000.00	36,000.00
7	Cargo Lift： 3000kg

EXHIBIT 4: LEASED PROPERTY HANDOVER CONDITION

Item	B9 workshop project
Main structure acceptance	Factory Facilities Acceptance Criteria	remarks	Actual construction delivery	Confirm
Main structure	Without leakage
Doors and windows	Without leakage and damage
power distribution house acceptance	Acceptance Criteria
Doors and windows	should be open outwardly, preventing small animals measures should be integrated
Lighting	illumination intensity should be not less than 250lx , accord with fireproof requirements, and the sign is obvious
卫生环境 Hygiene environment	无杂物，进出线孔洞应封堵完好 Without sundry, cavern should plugging intact

高压柜 high-voltage cabinet	安装端正，牢固，柜门及隔板封闭良好Install decently and firm, cabinet door and clapboard are well closed
低压柜 low voltage cabinet	配备绝缘板 Equipped with insulation board
发动机自动互锁转化柜 Automatic engine interlock transformation ark	动作准确 Movements accurately
电力供应 Power supply	采用双回路供电 dual-circuits power supply
电缆、保护、变压器电气设备及柴油发电机 Cable, protection, transformer electrical equipment and diesel generator	出厂测试，安装合格检验验收报告齐全 The factory test and install inspection report are complete.

power distribution house acceptance	Acceptance Criteria	Actual construction delivery	Confirm
Lighting	Illumination intensity should be not less than 200lx, should be installed one or more power socket
ventilation	Stale air shall not be discharged into room
Related material	Architectural layout, manufactured products quality certificate and lock device, speed device, safety clamp and buffer type test certificate copy
Fire control system acceptance	Acceptance Criteria	remarks
Related material	Provide fire control system design, the examination and approval, the completion acceptance certificate materials

Remarks：

1. The afore-described conditions will be subject to the construction drawings that shall be confirmed by the Parties;

2. The afore-described conditions may be subject to certain change or adjustment in accordance with the actual situation, and any such change or adjustment shall be subject to Parties’ mutual agreement.

EXHIBIT 5: REAL ESTATE CERTIFICATES

State-owned Land Use Certificate

Construction Land Planning Permit

Construction Engineering Planning Permit of B9

Final Acceptance of Construction of B9

EXHIBIT  6：Monthly Rent Payment Plan of Additional Equipment and Facilities

（96 months from 13th day of May, 2011）

#of Month	Total Amount of Payment Monthly	#of Month	Total Amount of Payment Monthly	#of Month	Amount of Payment Monthly
1	65,093.67	33	57,581.64	65	32,789.92
2	64,849.67	34	57,337.04	66	32,639.13
3	64,605.67	35	57,091.43	67	32,487.34
4	64,361.66	36	56,845.82	68	32,336.56
5	64,117.66	37	56,601.22	69	32,184.77
6	63,873.65	38	56,355.62	70	32,032.99
7	63,629.65	39	56,111.00	71	31,882.20
8	63,385.65	40	55,865.40	72	31,730.41
9	63,141.64	41	55,620.79	73	31,579.63
10	62,897.64	42	55,375.19	74	31,427.84
11	62,653.64	43	55,129.58	75	31,276.05
12	62,409.63	44	54,884.97	76	31,125.27
13	62,165.63	45	54,639.37	77	30,973.48
14	61,921.62	46	54,394.77	78	30,822.70
15	61,677.62	47	54,149.15	79	30,670.91
16	61,433.62	48	53,903.55	80	30,520.12
17	61,189.61	49	53,658.95	81	30,368.34
18	60,945.61	50	53,413.34	82	30,216.55
19	60,701.61	51	53,168.73	83	30,065.77
20	60,457.60	52	52,923.12	84	29,913.98

21	60,213.60	53	52,677.52	85	29,763.19
22	59,969.60	54	52,432.92	86	29,611.41
23	59,725.59	55	52,187.30	87	29,459.63
24	59,481.59	56	51,942.70	88	29,308.83
25	59,237.58	57	51,697.10	89	29,157.05
26	58,993.58	58	51,451.49	90	29,006.26
27	58,749.58	59	51,206.88	91	28,854.48
28	58,505.57	60	50,961.27	92	28,702.69
29	77,592.07	61	33,396.06	93	28,551.90
30	58,317.47	62	33,244.28	94	28,400.12
31	58,071.85	63	33,093.49	95	28,249.34
32	57,827.25	64	32,941.70	96	28,097.54

注明：

  1. 以上所指附属设备及设施与附录三所述的附属设备及设施的内容一致

  2. 以上表格中列出的各期（月）租金金额已经含附属设备设施的本金、利息和所有税金。

  3. 涉及到中国人民银行利率的调整，针对附属设备及设施部分的，经双方书面确认后，参照银行利率调整的惯例实施。

  4、涉及到当地政府税率政策的调整，针对附属设备及设施部分的，经双方书面确认后，遵照政府相关规定实施。

EXHIBIT 7

附录八

EXHIBIT  8

EX-10.9

Exhibit 10.9

EIGHT AMENDMENT TO CREDIT AGREEMENT

This Eighth Amendment to Credit Agreement (“Eighth Amendment”) is made as of September 22, 2016, by and among NeoPhotonics Corporation (the “Borrower”), the Lenders (as defined below) and Comerica Bank, as administrative agent for Lenders (in such capacity, “Agent”).

RECITALS

A.Borrower entered into that certain Revolving Credit and Term Loan Agreement dated as of March 21, 2013 (as amended, restated, or otherwise modified from time to time, the “Credit Agreement”), with certain financial institutions from time to time parties thereto (collectively, “Lenders”) and Agent.

B.Borrower has requested that Agent and Lenders make certain amendments to the Credit Agreement, and Agent and Lenders are willing to do so, but only on the terms and conditions set forth in this Eighth Amendment.

NOW, THEREFORE, in consideration of the Recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, Agent and Lenders agree as follows:

1. Section 8.6 of the Credit Agreement is hereby amended and restated in its entirety as follows:

8.6 Limitation on Capital Expenditures Make or commit to make (by way of the acquisition of securities of a Person or otherwise) any expenditure in respect of the purchase or other acquisition of fixed or capital assets (excluding any such asset acquired in connection with normal replacement and maintenance programs properly charged to current operations) except for (a) Reinvestments of Net Proceeds from Asset Sales to the extent permitted under Section 4.8 hereof and (b) Capital Expenditures, the amount of which in any Fiscal Year shall not exceed (i) for Fiscal Year 2013, $32,000,000, (ii) for Fiscal Year 2014, $23,000,000, (iii) for Fiscal Year 2015, $25,000,000, and for Fiscal Year 2016, $62,000,000.

2. This Eighth Amendment shall become effective (according to the terms hereof) on the date (the “Eighth Amendment Effective Date”) that the following conditions have been fully satisfied by Borrower:

(a) Agent shall have received counterpart signature pages to this Eighth Amendment, duly executed and delivered by Agent, Borrower and Lenders;

3. Borrower hereby represents and warrants that, after giving effect to the amendments to the Credit Agreement contained herein, (a) the execution and delivery of this

Eighth Amendment are within such party’s corporate or limited liability company powers, have been duly authorized, are not in contravention of any law applicable to such party or the terms of its organizational documents, and except as have been previously obtained do not require the consent or approval, material to the amendments contemplated in this Eighth Amendment, of any governmental body, agency or authority, and this Eighth Amendment and the Credit Agreement (as amended herein) will constitute the valid and binding obligations of such undersigned party, enforceable in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), (b) the representations and warranties set forth in Article 6 of the Credit Agreement are true and correct in all material respects on and as of the date hereof (other than any representation or warranty that expressly speaks only as of a certain date), and (c) as of the Eighth Amendment Effective Date, no Default or Event of Default shall have occurred and be continuing 

4. Except as specifically set forth above, this Eighth Amendment (i) shall not be deemed to amend or alter in any respect the terms and conditions of the Credit Agreement (including without limitation all conditions and requirements for Advances and any financial covenants), any of the Notes issued thereunder or any of the other Loan Documents; and (ii) shall not constitute a waiver or release by Agent or Lenders of any right, remedy, Default or Event of Default under or a consent to any transaction not meeting the terms and conditions of the Credit Agreement, any of the Notes issued thereunder or any of the other Loan Documents. Furthermore, this Amendment shall not affect in any manner whatsoever any rights or remedies of Lenders with respect to any non-compliance by Borrower with the Credit Agreement or any other Loan Document, whether in the nature of a Default or Event of Default, and whether now in existence or subsequently arising, and shall not apply to any other transaction.

5. Borrower and each other Credit Party hereby acknowledge and agree that this Amendment and the amendment set forth herein do not constitute any course of dealing or other basis for altering (i) any obligation of Borrower, any other Credit Party or any other party or (ii) any rights, privilege or remedy of Lenders under the Credit Agreement, any other Loan Document, any other agreement or document, or any contract or instrument.

6. Except as specifically defined to the contrary herein, capitalized terms used in this Eighth Amendment shall have the meanings set forth in the Credit Agreement.

7. This Eighth Amendment may be executed in counterparts in accordance with Section 13.9 of the Credit Agreement.

8. This Eighth Amendment shall be construed in accordance with and governed by the laws of the State of California, without regard to principles of conflict of laws that would result in the application of the laws of a different jurisdiction.

IN WITNESS WHEREOF, Borrower, the Lenders and Agent have each caused this Eighth Amendment to be executed by their respective duly authorized officers or agents, as applicable, as of the date first set forth above.

COMERICA BANK, as Agent and sole Lender
By:	/s/ Robert Shutt
Name:	Robert Shutt
Title:	Senior Vice President

IN WITNESS WHEREOF, Borrower, the Lenders and Agent have each caused this Eighth Amendment to be executed by their respective duly authorized officers or agents, as applicable, all as of the date first set forth above.

NEOPHOTONICS CORPORATION
By:	/s/ Clyde R. Wallin
Name:	Clyde R. Wallin
Title:	Senior Vice President and Chief Financial Officer

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Timothy S. Jenks, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NeoPhotonics Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financing reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2016

/S/ TIMOTHY S. JENKS                  

Timothy S. Jenks

President, Chief Executive Officer and

Chairman of the Board of Directors

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Clyde Raymond Wallin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NeoPhotonics Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financing reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November  8, 2016

/S/ CLYDE RAYMOND WALLIN 

Clyde Raymond Wallin

Chief Financial Officer and Senior Vice President

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. § 1350), Timothy S. Jenks, President, Chief Executive Officer and Chairman of the Board of Directors of NeoPhotonics Corporation (the “Company”), and Clyde Raymond Wallin, Chief Financial Officer and Senior Vice President of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, as amended; and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 8th day of November, 2016.

/S/ TIMOTHY S. JENKS	/S/ CLYDE RAYMOND WALLIN
Timothy S. Jenks	Clyde Raymond Wallin
President, Chief Executive Officer and	Chief Financial Officer and Senior Vice President
Chairman of the Board of Directors	(Principal Financial and Accounting Officer)

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of NeoPhotonics Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
Document Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	NPTN
Entity Registrant Name	NEOPHOTONICS CORP
Entity Central Index Key	0001227025
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		42,324,000

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 71,625	$ 76,088
Short-term investments	28,470	23,294
Restricted cash	2,813	2,660
Accounts receivable, net of allowance for doubtful accounts	95,677	83,161
Inventories	60,219	65,602
Prepaid expenses and other current assets	14,932	12,393
Total current assets	273,736	263,198
Property, plant and equipment, net	95,846	62,618
Purchased intangible assets, net	6,217	9,852
Goodwill	1,115	1,115
Other long-term assets	7,672	5,095
Total assets	384,586	341,878
Current liabilities:
Accounts payable	76,341	50,620
Notes payable and short-term borrowing	31,508	32,657
Current portion of long-term debt	908	760
Accrued and other current liabilities	28,184	27,950
Total current liabilities	136,941	111,987
Long-term debt, net of current portion	12,116	10,759
Other noncurrent liabilities	9,044	7,476
Total liabilities	158,101	130,222
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.0025 par value, 10,000 shares authorized, no shares issued or outstanding
Common stock, $0.0025 par value, 100,000 shares authorized At September 30, 2016, 42,315 shares issued and outstanding; at December 31, 2015, 40,986 shares issued and outstanding	106	102
Additional paid-in capital	528,451	511,750
Accumulated other comprehensive loss	(1,398)	(1,723)
Accumulated deficit	(300,674)	(298,473)
Total stockholders' equity	226,485	211,656
Total liabilities and stockholders' equity	$ 384,586	$ 341,878

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Sep. 30, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.0025	$ 0.0025
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0025	$ 0.0025
Common stock, shares authorized	100,000	100,000
Common stock, shares issued	42,315	40,986
Common stock, shares outstanding	42,315	40,986

XML

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Revenue	$ 103,312	$ 83,560	$ 301,586	$ 250,316
Cost of goods sold	75,863	59,788	215,486	176,345
Gross profit	27,449	23,772	86,100	73,971
Operating expenses:
Research and development	17,474	10,763	42,206	32,702
Sales and marketing	5,936	3,789	13,674	11,439
General and administrative	9,822	7,384	26,747	22,999
Amortization of purchased intangible assets	462	447	1,375	1,344
Acquisition-related costs	148	180	923	467
Restructuring charges		18		44
Asset impairment charge		368		368
Total operating expenses	33,842	22,949	84,925	69,363
Income (loss) from operations	(6,393)	823	1,175	4,608
Interest income	95	31	227	84
Interest expense	(103)	(171)	(304)	(1,133)
Other income (expense), net	18	1,852	(828)	2,408
Total interest and other income (expense), net	10	1,712	(905)	1,359
Income (loss) before income taxes	(6,383)	2,535	270	5,967
Provision for income taxes	(804)	(1,157)	(2,471)	(2,698)
Net income (loss)	$ (7,187)	$ 1,378	$ (2,201)	$ 3,269
Basic net income (loss) per share	$ (0.17)	$ 0.03	$ (0.05)	$ 0.09
Diluted net income (loss) per share	$ (0.17)	$ 0.03	$ (0.05)	$ 0.09
Weighted average shares used to compute basic net income (loss) per share	42,038	40,367	41,589	36,303
Weighted average shares used to compute diluted net income (loss) per share	42,038	42,217	41,589	37,537

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
Net income (loss)	$ (7,187)	$ 1,378	$ (2,201)	$ 3,269
Other comprehensive income (loss):
Foreign currency translation adjustments net of zero tax	(22)	(4,687)	292	(4,098)
Unrealized gains (losses) on available-for-sale securities, net of zero tax		(1)	33	(5)
Total other comprehensive income (loss)	(22)	(4,688)	325	(4,103)
Comprehensive income (loss)	$ (7,209)	$ (3,310)	$ (1,876)	$ (834)

XML

Consolidated Statements of Comprehensive Loss (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
Foreign currency translation adjustments, tax	$ 0	$ 0	$ 0	$ 0
Unrealized gains (losses) on available-for-sale securities, tax	$ 0	$ 0	$ 0	$ 0

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities
Net income (loss)	$ (2,201)	$ 3,269
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	16,921	17,511
Stock-based compensation expense	14,445	5,418
Deferred taxes	(1,162)	719
Investment, debt and other related, and other amortization	125	248
Gain on disposal of property and equipment	(18)	(22)
Asset impairment charges		368
Adjustment to fair value of penalty payment derivative		(141)
Allowance for doubtful accounts	(415)	628
Write-down of inventories	1,995	3,556
Foreign currency remeasurement and other, net	(556)	(1,867)
Change in assets and liabilities, net of effects of acquisitions:
Accounts receivable	(12,169)	8,035
Inventories	4,518	(16,971)
Prepaid expenses and other assets	(3,439)	1,962
Accounts payable	12,610	(1,718)
Accrued and other liabilities	(3,937)	117
Net cash provided by operating activities	26,717	21,112
Cash flows from investing activities
Purchase of property, plant and equipment	(29,962)	(11,051)
Proceeds from sale of property, plant and equipment and other assets	139	200
Purchase of marketable securities	(69,520)	(28,936)
Proceeds from sale of marketable securities	48,979	12,938
Proceeds from maturity of securities	15,373	1,000
Change in restricted cash	(226)	9,784
Net cash (used in) provided by investing activities	(35,217)	(16,065)
Cash flows from financing activities
(Payments for deferred offering costs) Proceeds from public stock offering, net of offering costs	(25)	45,646
Proceeds from exercise of stock options and issuance of stock under ESPP	5,083	1,186
Tax withholding on restricted stock units	(570)	(688)
Proceeds from bank loans	71,400	56,512
Repayment of bank and acquisition-related loans	(72,090)	(70,162)
Proceeds from issuance of notes payable	13,144	16,999
Repayment of notes payable	(14,069)	(20,072)
Proceeds from government grants	608
Net cash provided by financing activities	3,481	29,421
Effect of exchange rates on cash and cash equivalents	556	(253)
Net increase (decrease) in cash and cash equivalents	(4,463)	34,215
Cash and cash equivalents at the beginning of the period	76,088	43,035
Cash and cash equivalents at the end of the period	71,625	77,250
Supplemental disclosure of noncash investing and financing activities:
Changes in unpaid property, plant and equipment	(12,494)	(768)
Modification of bank loan with Comerica		15,786
Issuance of note to seller of acquired business		15,482
Transfer of restricted investments to short-term investments		$ 8,296
Unpaid public stock offering costs	$ 76

XML

Basis of presentation and significant accounting policies

9 Months Ended

Sep. 30, 2016

Basis of presentation and significant accounting policies

Basis of presentation and significant accounting policies

Note 1. Basis of presentation and significant accounting policies

Basis of Presentation and Consolidation

The condensed consolidated financial statements of NeoPhotonics Corporation (“NeoPhotonics” or the “Company”) as of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015, have been prepared in accordance with the instructions on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, the Company has omitted certain information and notes normally provided in the Company’s annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the interim periods. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results expected for the entire fiscal year. All intercompany accounts and transactions have been eliminated.

Certain Significant Risks and Uncertainties

The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors.  For example, any of the following areas could have a negative effect on the Company in terms of its future financial position, results of operations or cash flows: the general state of the U.S., China and world economies; the highly cyclical nature of the industries the Company serves; the loss of any of a small number of its larger customers; ability to obtain additional financing; inability to meet certain debt covenants; fundamental changes in the technology underlying the Company’s products; the hiring, training and retention of key employees; successful and timely completion of product design efforts; and new product design introductions by competitors.

Reclassification

Reclassification has been made to combine deferred income tax liabilities amount into other noncurrent liabilities in the prior year to conform to the current year’s presentation.

Concentration

In the three months ended September 30, 2016, Huawei Technologies Co. Ltd. and their affiliate HiSilicon Technologies (together with Huawei Technologies Co. Ltd., “Huawei”) and Ciena Corporation (“Ciena”) accounted for approximately 48% and 15% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 91% of the Company’s total revenue.  In the three months ended September 30, 2015, Huawei and Ciena accounted for approximately 41% and 26% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 92% of the Company’s total revenue. In the nine months ended September 30, 2016, Huawei and Ciena each accounted for approximately 49% and 15% of the Company’s total revenue, respectively, and the top ten customers represented approximately 91% of its total revenue.  In the nine months ended September 30, 2015, Huawei and Ciena accounted for approximately 40% and 24% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 91% of its total revenue.

As of September 30, 2016 and December 31, 2015, one customer accounted for approximately 45% and 59%, respectively, of the Company’s total accounts receivable.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting period. Significant estimates made by management include: the useful lives of property, plant and equipment and intangible assets as well as future cash flows to be generated by those assets; fair values of identifiable assets acquired and liabilities assumed in business combinations; allowances for doubtful accounts; valuation allowances for deferred tax assets; valuation of excess and obsolete inventories; warranty reserves; litigation accrual and recognition of stock-based compensation, among others. Actual results could differ from these estimates.

Summary of Significant Accounting Policies

There have been no significant changes in the Company’s significant accounting policies in the three and nine months ended September 30, 2016, as compared to the significant accounting policies described in its Annual Report on Form 10-K for the year ended December 31, 2015.

Recent accounting pronouncements

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). Under ASU 2016-16, the transferring (selling) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. The resulting deferred tax asset or deferred tax liability is measured by (1) computing the difference between the tax basis of the asset in the buyer’s jurisdiction and its financial reporting carrying value in the consolidated financial statements and (2) multiplying such difference by the enacted tax rate in the buyer’s jurisdiction. ASU 2016-16 is effective for the Company’s interim and annual periods beginning after December 15, 2017 and should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. Early adoption is permitted for the beginning of a fiscal year. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments(“ASU 2016-15”). ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2017 and must be applied retrospectively to all periods presented or prospectively from the earliest data practicable if retrospective application is impracticable. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 amends existing guidance on the impairment of financial assets and adds an impairment model that is based on expected losses rather than incurred losses. Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses for its financial assets. An entity will apply this guidance through a cumulative-effect adjustment to retained earnings upon adoption (a modified-retrospective approach) while a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. ASU 2016-13 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2016. Early adoption is permitted. A retrospective transition method is required for the changes related to the recognition timing of excess tax benefits, minimum statutory withholding requirements, forfeitures and intrinsic value. A retrospective transition method is required for changes related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement. A prospective transition method is required for the recognition of excess tax benefits and tax deficiencies in the income statement for estimating expected term. Changes related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”).  ASU 2016-02 introduces a lessee model that requires recognition of assets and liabilities arising from qualified leases on the consolidated balance sheets and consolidated statements of operations and to disclose qualitative and quantitative information about lease transactions. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition is required with certain optional practical expedients allowed. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).  ASU 2016-01 revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value.  It also amends certain disclosure requirements associated with the fair value of financial instruments.  A modified retrospective transition method is required except for the equity securities without readily determinable fair values which will require a prospective transition method. ASU 2016-01 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for certain provisions.  The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires entities to measure most inventory “at the lower of cost and net realizable value” but does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For the Company, this ASU is effective for annual and interim periods beginning after December 15, 2016. Prospective transition method is required and early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. In August 2015, the FASB issued an accounting standard update for a one-year deferral of the effective date of ASU 2014-09 to annual and interim periods beginning after December 15, 2017 and permits entities to early adopt the standard of ASU 2014-09 for annual and interim reporting periods beginning after December 15, 2016. Companies are permitted to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.  In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which amends the principal-versus-agent implementation guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606: Identifying performance obligations and Licensing amending certain aspects of ASU 2014-09 on (1) identifying performance obligations and (2) licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients amending certain aspects of ASU 2016-09 including collectability, presentation of sales tax and other similar taxes collected from customers, noncash transaction, contract modifications and completed contracts at transition and the disclosure requirements for entities that use the full retrospective transition method.The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

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Net income per share

9 Months Ended

Sep. 30, 2016

Net income per share

Net income per share

Note 2. Net income (loss) per share

The following table sets forth the computation of the basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Numerator:
Net income (loss)	$	(7,187)	$	1,378	$	(2,201)	$	3,269
Denominator:
Weighted average shares used to compute per share amount:
Basic		42,038		40,367		41,589		36,303
Dilutive effect of equity awards		-		1,850		-		1,234
Diluted		42,038		42,217		41,589		37,537
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09

The Company has excluded the impact of the following employee stock options, restricted stock units and shares expected to be issued under its employee stock purchase plan from the computation of diluted net income (loss) per share, as their effect would have been antidilutive (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2016	2015	2016	2015
Employee stock options	4,344	1,256	4,344	1,670
Restricted stock units	2,044	26	2,044	26
Employee stock purchase plan	151	—	151	—
	6,539	1,282	6,539	1,696

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Cash, cash equivalents, short-term investments, and restricted cash and investments

9 Months Ended

Sep. 30, 2016

Restricted Cash and Investment

Cash, cash equivalents and short-term investments and restricted cash and investments

Note 3. Cash, cash equivalents, short-term investments, and restricted cash

The following table summarizes the Company’s cash, cash equivalents, short-term investments, and restricted cash at September 30, 2016 and December 31, 2015 (in thousands):

	September 30,		December 31,
	2016		2015
Cash and cash equivalents:
Cash	$	47,666	$	29,133
Cash equivalents		23,959		46,955
Cash and cash equivalents	$	71,625	$	76,088
Short-term investments	$	28,470	$	23,294
Restricted cash	$	2,813	$	2,660

The following table summarizes the Company’s unrealized gains and losses related to its cash equivalents and short-term investments in marketable securities designated as available-for-sale (in thousands):

	As of September 30, 2016								As of December 31, 2015
		Amortized Cost	Gross Unrealized Gains		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
Marketable securities:
Money market accounts	$	23,959	$	—	$	—	$	23,959	$	46,955	$	—	$	—	$	46,955
Money market funds		4,703		—		—		4,703		11,318		—		—		11,318
Corporate bonds		7,810		4		(3)		7,811		5,694		—		(18)		5,676
Government-sponsored enterprise obligations		4,292		1		(1)		4,292		3,290		—		(6)		3,284
Commercial paper		6,285		—		—		6,285		1,398		—		—		1,398
U.S. government securities		4,755		2		—		4,757		1,000		—		(3)		997
Sovereign government bonds		621		1		—		622		623		—		(2)		621
Total	$	52,425	$	8	$	(4)	$	52,429	$	70,278	$	—	$	(29)	$	70,249
Reported as:
Cash equivalents	$	23,959	$	—	$	—	$	23,959	$	46,955	$	—	$	—	$	46,955
Short-term investments		28,466		8		(4)		28,470		23,323		—		(29)		23,294
Total	$	52,425	$	8	$	(4)	$	52,429	$	70,278	$	—	$	(29)	$	70,249

As of September 30, 2016 and December 31, 2015, maturities of marketable securities were as follows (in thousands):

	September 30,		December 31,
	2016		2015
Less than 1 year	$	46,645	$	66,974
Due in 1 to 2 years		5,784		3,275
Due after 5 years		—		—
Total	$	52,429	$	70,249

Realized gains and losses on the sale of marketable securities during the three and nine months ended September 30, 2016 and 2015 were immaterial. The Company did not recognize any impairment losses on its marketable securities during the three and nine months ended September 30, 2016 or 2015. As of September 30, 2016 and December 31, 2015, the Company did not have any investments in marketable securities that were in an unrealized loss position for a period in excess of 12 months.

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Fair value disclosures

9 Months Ended

Sep. 30, 2016

Fair value disclosures

Fair value disclosures

Note 4.  Fair value disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company's assets that are measured at fair value on a recurring basis (in thousands):

	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents and short-term investments:
Money market funds	$	4,703	$	—	$	—	$	4,703	$	11,318	$	—	$	—	$	11,318
U.S. government securities		4,757		—		—		4,757		997		—		—		997
Money market accounts		—		23,959		—		23,959		—		46,955		—		46,955
Corporate bonds		—		7,811		—		7,811		—		5,676		—		5,676
Government-sponsored enterprise obligations		—		4,292		—		4,292		—		3,284		—		3,284
Commercial papers		—		6,285		—		6,285		—		1,398		—		1,398
Sovereign government bonds		—		622		—		622		—		621		—		621
Variable rate demand notes		—		—		—		—		—		—		—		—
Total	$	9,460	$	42,969	$	—	$	52,429	$	12,315	$	57,934	$	—	$	70,249
Foreign currency forward contracts	$	—	$	*	$	—	$	*	$	—	$	—	$	—	$	—
Mutual funds held in Rabbi Trust, recorded in other long-term assets	$	599	$	—	$	—	$	599	$	435	$	—	$	—	$	435

*Fair values of the foreign currency forward contracts were immaterial as of September 30, 2016.

The Company offers a Non-Qualified Deferred Compensation Plan (“NQDC Plan”) to a select group of its highly compensated employees.  The NQDC Plan provides participants the opportunity to defer payment of certain compensation as defined in the NQDC Plan.  A Rabbi Trust has been established to fund the NQDC Plan obligation, which was fully funded at September 30, 2016.  The assets held by the Rabbi Trust are substantially in the form of exchange traded mutual funds and are included in the Company’s other long-term assets on its condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015.

Effective July 1, 2016, the Company has established a hedging program using forward exchange contracts as economic hedges, to protect against volatility of foreign exchange rate exposure when it is deemed economical to do so, based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The forward contracts are not designated for hedge accounting.

Under the hedging program, the Company enters into monthly forward exchange contracts, that have average maturities of one month, to offset the effects of exchange rate exposures for its net intercompany activities denominated in Japanese Yen, or JPY, and Chinese Renminbi, or RMB, by buying and selling foreign currencies in the future at fixed exchange rates, to offset the consequences of changes in foreign exchange on the balance sheet. If the U.S. dollar strengthens relative to the currency of the hedged assets, the increase in the fair value of the forward contracts offsets the decrease in the expected future U.S. dollar cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the decrease in the fair value of the forward contracts offsets the increase in the value of the anticipated foreign currency cash flows. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the re-measured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. The net effect of fair value changes is reported inother (income) expense, net. As of September 30, 2016, the fair values of the Company’s foreign currency forward contracts were immaterial due to the short-term nature of the contracts, which generally expire at each quarter-end. The total notional value of our foreign currency exchange contracts as of September 30, 2016 were approximately $39.2 million and $2.4 million for RMB and JPY, respectively.

The following table presents the Company's liabilities that are measured at fair value on a recurring basis (in thousands):

	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Penalty payment derivative (Note 10)	$	—	$	—	$	389	$	389	$	—	$	—	$	389	$	389

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2016. In the year ended December 31, 2015, the Company wrote off $0.2 million of property, plant and equipment and $0.2 million of held-for-sale assets. These assets were measured at fair value due to events or circumstances the Company identified as having significant impact on their fair value during the period. To arrive at the valuation of these assets, the Company considered the discounted cash flows to determine fair value using best estimates and unobservable inputs (Level 3).

Assets and Liabilities Not Measured at Fair Value

The carrying values of accounts receivable, accounts payable, notes payable and short-term borrowings approximate their fair values due to the short-term nature and liquidity of these financial instruments.

The fair values of the Company’s long-term debt have been calculated using an estimate of the interest rate the Company would have had to pay on the issuance of liabilities with a similar maturity and discounting the cash flows at that rate which it considers to be a level 2 fair value measurement. The fair values, which approximate the carrying value of the long-term debt, do not necessarily give an indication of the amount that the Company would currently have to pay to extinguish any of this debt.

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Business combination

9 Months Ended

Sep. 30, 2016

Business combination

Business combination

Note 5. Business combination

EMCORE Corporation

On January 2, 2015, the Company closed an acquisition of the tunable laser product lines of EMCORE Corporation (“EMCORE”) for an original purchase price of $17.5 million, pursuant to the terms of the Asset Purchase Agreement between the parties dated October 22, 2014, under which the Company purchased certain assets and assumed certain liabilities of EMCORE’s tunable laser product lines. Consideration for the transaction consisted of $1.5 million in cash and a promissory note (the “EMCORE Note”) of approximately $16.0 million, which was subject to certain adjustments for inventory, net accounts receivable and pre-closing revenues, and was subsequently adjusted to $15.5 million in connection with a True-Up Confirmation Agreement (the “True-Up Agreement”) executed by and between the Company and EMCORE on April 16, 2015.The True-Up Agreement made several final adjustments to the Asset Purchase Agreement, including, among other things, (i) adjusting the principal amount of the EMCORE Note from approximately $16.0 million to approximately $15.5 million, (ii) agreeing upon final amounts for inventory value adjustment, net accounts receivable adjustment, and revenue purchase price adjustment, and (iii) resolving the treatment of certain accounts receivable for products sold by EMCORE prior to the closing of the transaction. The adjusted purchase price for the acquisition was approximately $17.0 million.

The Company accounted for this acquisition as a business combination. With this acquisition, the Company strengthens its narrow line width tunable laser product portfolio.

In connection with the acquisition, the Company incurred approximately $0.9 million in total acquisition-related costs related to legal, accounting and other professional services. The acquisition costs were expensed as incurred and included in operating expenses in the Company’s condensed consolidated statement of operations.

The Company’s preliminary allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed was based on estimated fair values as of the close of the acquisition. The fair values assigned to intangible assets acquired are based on valuations using estimates and assumptions provided by management, with the assistance of an independent third party appraisal firm. The excess purchase price over those fair values is recorded as goodwill. These estimates were determined through established and generally accepted valuation techniques. While the Company used best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, estimates and assumptions were subject to refinement, including the acquired property, plant and equipment, prepaid and other current assets and accounts payable, as the Company was in the process of obtaining further information. As a result, during the preliminary measurement period, which was completed in 2015, the Company recorded adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Subsequent to the initial allocation of the assets acquired and liabilities assumed, the Company adjusted the acquired net accounts receivable, the acquired net inventories, the assumed sales tax accrual and the acquired prepaid expenses and other current assets by immaterial amounts, and decreased goodwill by a corresponding net amount.

As of September 30, 2016 and December 31, 2015, goodwill was $1.1 million, which represented the excess of the purchase price over the aggregate net estimated fair values of the assets acquired and liabilities assumed in the acquisition.

The following table summarizes the allocation of the assets acquired and liabilities assumed from EMCORE as of the acquisition date and subsequent adjustments (in thousands): 

Total purchase consideration:
Cash paid	$	1,500
Notes payable		15,482
Total	$	16,982
Fair value of assets acquired:
Accounts receivable	$	9,274
Inventories		1,693
Prepaid expenses and other current assets		670
Property, plant and equipment		6,917
Intangible assets acquired:
Developed technology		4,100
Customer relationships		700
Total	$	23,354
Less: fair value of liabilities assumed:
Accounts payable	$	(7,427)
Accrued liabilities		(60)
Total	$	(7,487)
Goodwill	$	1,115

Purchased intangibles with finite lives will be amortized on a straight-line basis over their respective estimated useful lives. The following table presents details of the purchase price allocated to the acquired intangible assets at the acquisition date:

	Useful		Purchased
	Life		intangible assets
	(In years)		(In thousands)
Developed technology	7	$	4,100
Customer relationships	2		700
Total purchased intangible assets		$	4,800

The following unaudited supplemental pro forma information presents the combined results of operations of NeoPhotonics Corporation for the three and nine months ended September 30, 2016 and 2015 as though the companies had been combined as of the beginning of 2014. In the three months ended September 30, 2016 and 2015, revenue related to products acquired from EMCORE was $20.2 million and $13.2 million, respectively.  In the nine months ended September 30, 2016 and 2015, revenue related to products acquired from EMCORE was $58.3 million and $39.5 million, respectively. The following table reflects the actual results for the 2016 periods and the pro forma financial information for the 2015 periods and includes adjustments related to zero transaction costs in the three months ended September 30, 2016 and 2015 and zero and $0.3 million transactions costs, respectively, in the nine months ended September 30, 2016 and 2015, as well as immaterial employee expense during the 2015 periods. There were no sales between the business acquired from EMCORE and the Company in the three and nine months ended September 30, 2016 and 2015.

The unaudited pro forma results do not assume any operating efficiencies as a result of the consolidation of operations (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue	$	103,312	$	83,560	$	301,586	$	250,316
Net income (loss)	$	(7,187)	$	1,404	$	(2,201)	$	3,689
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.10
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.10

EigenLight Corporation

In November 2015, the Company closed an acquisition of the business and products of EigenLight Corporation for cash consideration of $0.4 million in an asset transaction. The Company accounted for this as a business combination and the majority of the purchase price was allocated to inventory and property, plant and equipment.

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Balance Sheet Components

9 Months Ended

Sep. 30, 2016

Balance Sheet Components [Abstract]

Balance sheet components

Note 6. Balance sheet components

Accounts receivable, net

Accounts receivable, net consists of the following (in thousands):

	September 30, 2016		December 31, 2015
Accounts receivable	$	93,967	$	82,235
Trade notes receivable		2,102		1,769
Allowance for doubtful accounts		(392)		(843)
	$	95,677	$	83,161

Inventories, net

Inventories, net consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Raw materials	$	22,189	$	23,793
Work in process		17,918		12,165
Finished goods(1)		20,112		29,644
	$	60,219	$	65,602

⁽¹⁾ Finished goods inventory at customer vendor managed inventory locations was $7.7 million and $14.2 million as of September 30, 2016 and December 31, 2015, respectively.

Purchased intangible assets

Purchased intangible assets consist of the following (in thousands):

	September 30, 2016						December 31, 2015
	Gross		Accumulated		Net		Gross		Accumulated		Net
	Assets		Amortization		Assets		Assets		Amortization		Assets
Technology and patents	$	37,387	$	(33,463)	$	3,924	$	37,430	$	(31,061)	$	6,369
Customer relationships		15,391		(14,054)		1,337		15,101		(12,623)		2,478
Leasehold interest		1,277		(321)		956		1,312		(307)		1,005
	$	54,055	$	(47,838)	$	6,217	$	53,843	$	(43,991)	$	9,852

Amortization expense relating to technology and patents and the leasehold interest intangible assets is included within cost of goods sold and customer relationships within operating expenses. The following table presents details of the amortization expense of the Company’s purchased intangible assets as reported in the condensed consolidated statements of operations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of goods sold	$	853	$	836	$	2,542	$	2,512
Operating expenses		462		447		1,375		1,344
Total	$	1,315	$	1,283	$	3,917	$	3,856

The estimated future amortization expense of purchased intangible assets as of September 30, 2016, is as follows (in thousands):

2016 (remaining three months)	$	566
2017		1,432
2018		1,226
2019		811
2020		688
Thereafter		1,494
	$	6,217

Accrued and other current liabilities

Accrued and other current liabilities consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Employee-related	$	18,290	$	17,420
Income and other taxes payable		4,188		3,720
Accrued warranty		685		1,175
Penalty payment derivative		389		389
Other accrued expenses		4,632		5,246
	$	28,184	$	27,950

Warranty Accrual

The table below summarizes the movement in the warranty accrual, which is included in accrued and other current liabilities (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Beginning balance	$	669	$	1,254	$	1,175	$	1,751
Warranty accruals		126		90		25		(85)
Settlements		(110)		(184)		(515)		(506)
Ending balance	$	685	$	1,160	$	685	$	1,160

Other noncurrent liabilities

Other noncurrent liabilities consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Pension and other employee-related	$	6,071	$	5,036
Deferred income tax liabilities		40		88
Other		2,933		2,352
	$	9,044	$	7,476

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Restructuring

9 Months Ended

Sep. 30, 2016

Restructuring

Restructuring

Note 7. Restructuring

In 2014, the Company initiated a restructuring plan (the “2014 Restructuring Plan”) to refocus on its strategy execution, optimize its structure, and improve operational efficiencies. The 2014 Restructuring Plan consisted of workforce reductions primarily in the U.S. and in China. The remaining restructuring liability was paid through October 2015. There were no  restructuring charges recorded in the three and nine months ended September 30, 2016. There were no restructuring liabilities as of September 30, 2016 or December 31, 2015.

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Debt

9 Months Ended

Sep. 30, 2016

Debt

Debt

Note 8. Debt

The table below summarizes the carrying amount and weighted average interest rate of the Company’s debt (in thousands, except percentages): 

	September 30, 2016				December 31, 2015
	Carrying		Interest		Carrying		Interest
	Amount		Rate		Amount		Rate
Notes payable	$	7,708	—		$	8,857	—
Bank borrowings-Comerica Bank		23,800	3.28	%		23,800	2.99	%
Total notes payable and short-term borrowing	$	31,508			$	32,657
Long-term debt, current and non-current:
Bank borrowings-Mitsubishi Bank	$	13,258	1.43	%	$	11,769	1.53	%
Total long-term debt, current and non-current	$	13,258			$	11,769
Unaccreted discount within current portion of long-term debt		(80)				(71)
Unaccreted discount within long-term debt, net of current portion		(154)				(179)
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519
Reported as:
Current portion of long-term debt	$	908			$	760
Long-term debt, net of current portion		12,116				10,759
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519

Notes payable

The Company regularly issues notes payable to its suppliers in China. These notes are supported by non-interest bearing bank acceptance drafts issued under the Company’s existing line of credit facilities and are due three to six months after issuance. As a condition of the notes payable arrangements, the Company is required to keep a compensating balance at the issuing banks that is a percentage of the total notes payable balance until the amounts are settled.

In July 2016, the Company’s China subsidiary renewed its short-term line of credit facility with a banking institution that expired in June 2016. Under the agreement, the Company could borrow up to RMB 120.0 million ($18.0 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 171.4 million ($25.8 million) for bank acceptance drafts (with a 30% compensating balance requirement). This short-term line of credit facility was renewed in August 2016 and will expire in July 2019. In September 2015, the Company’s China subsidiary renewed its second short-term line of credit facility with a banking institution, under which the Company can borrow up to RMB 133.0 million ($19.9 million) for short-term loan, which bore interest at varying rates, or up to approximately RMB 190.0 million ($28.5 million) for bank acceptance drafts (with a 30% compensating balance requirement). This line of credit facility expired on September 30, 2016 and was renewed in October 2016. Under the renewed credit line, which will expire in September 2017, the Company can borrow up to RMB 266.0 million (approximately $39.9 million) for short-term loans at varying interest rates or up to approximately RMB 380.0 million (approximately $57.0 million) for bank acceptance drafts (with a 30% compensating balance requirement).  

In August 2016, the Company’s China subsidiary entered into a third line of credit facility with a banking institution that expires in July 2019. Under this line of credit, the Company can borrow up to RMB 30.0 million ($4.5 million) for short-term loans, which bear interest at varying rates, or up to approximately RMB 42.9 million ($6.4 million) for bank acceptance drafts (with a 30% compensating balance requirement).

Under these line of credit facilities, the non-interest bearing bank acceptance drafts issued in connection with the Company’s notes payable to its suppliers in China, had an outstanding balance of $7.7 million and $8.9 million as of September 30, 2016 and December 31, 2015, respectively. In addition to the outstanding notes payable, two letters of credit totaling $1.3 million to its suppliers were issued in August 2016 and September 2016 for future equipment purchases that are expected to be delivered by December 2016. These letters of credit require a 30% compensating balance requirement.

As of September 30, 2016 and December 31, 2015, compensating balances relating to these bank acceptance drafts and letters of credit issued to suppliers and the Company’s subsidiaries totaled $2.8 million and $2.7 million, respectively. Compensating balances are classified as restricted cash on the Company’s condensed consolidated balance sheets.

Short-term borrowing

In April 2015, the Company repaid the interest and principal of its $5.0 million short-term advance financing agreement, dated October 2014, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at 4.02% per annum.

In May 2015, the Company repaid the interest and principal of its second $5.0 million short-term advance financing agreement, dated November 2014, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at 2.33% per annum and service fees at 1.00% per annum.

In September 2015, the Company repaid the interest and principal of its $5.0 million advance financing agreement, dated April 2015, under one of its China subsidiary’s line of credit facilities. This financing agreement bore interest at a six-month LIBOR plus 330 basis points, or approximately 3.71% per annum.

Acquisition-related

In connection with the purchase consideration to acquire the tunable laser products of EMCORE in January 2015 (See Note 5), the Company issued the EMCORE Note, as amended, of $15.5 million, which had a maturity of two years from the closing of the transaction and an interest rate of 5% per annum for the first year and 13% per annum for the second year. The interest was payable semi-annually in cash. The EMCORE Note was subordinated to the Company’s existing bank debt in the U.S. and was repaid in fullin April 2015.

Bank borrowings

The Company has a credit agreement with Comerica Bank as lead bank in the U.S. (the “Comerica Bank Credit Facility”). The Comerica Bank Credit Facility requires the maintenance of a modified EBITDA and certain liquidity covenants. The credit agreement also restricts the Company’s ability to incur certain additional debt or to engage in specified transactions, restricts the payment of dividends and is secured by substantially all of the Company’s U.S. assets, other than intellectual property assets.

The Company amended the Comerica Bank Credit Facility in January 2015 to modify the EBITDA and liquidity covenants and eliminate the need to maintain compensating balances (restricted cash). In March 2015, the Company further amended the Comerica Bank Credit Facility to increase borrowing capacity to $30.0 million. 

In September 2016, the Company amended the Comerica Bank Credit Facility to increase the limitation on the Company’s capital expenditures to $62.0 million for fiscal year 2016 and to provide for an extension of the maturity date to January 31, 2017. As of each of September 30, 2016 and December 31, 2015, the Company was in compliance with the covenants of the credit facility.

Borrowings under the Comerica Bank Credit Facility bear interest at an interest rate option of a base rate as defined in the agreement plus 1.75% or LIBOR plus 2.75%. Base rate is based on the greater of (a) the effective prime rate, (b) the Federal Funds effective rate plus one percent, and (c) the daily adjusting LIBOR rate plus one percent. Amounts borrowed, if any, are due on or before January 31, 2017. As of September 30, 2016, the rate on the LIBOR option was 3.28%. As of each of September 30, 2016 and December 31, 2015, there was $23.8million outstanding.  On February 25, 2015, the Company entered into certain loan agreements and related special agreements with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Mitsubishi Bank”) that provided for (i) a term loan in the aggregate principal amount of 500 million JPY ($4.2 million) (the “Term Loan A”) and (ii) a term loan in the aggregate principal amount of one billion JPY ($8.4 million) (the “Term Loan B” and together with the Term Loan A, the “Mitsubishi Bank Loans”). The Mitsubishi Bank Loans are secured by a mortgage on certain real property and buildings owned by our Japanese subsidiary. The full amount of each of the Mitsubishi Bank Loans was drawn on the closing date of February 25, 2015. Interest on the Mitsubishi Bank Loans accrues and is paid monthly based upon the annual rate of the monthly Tokyo Interbank Offer Rate (TIBOR) plus 1.40%. The Term Loan A requires interest only payments until the maturity date of February 23, 2018, with a lump sum payment of the aggregate principal amount on the maturity date. The Term Loan B requires equal monthly payments of principal equal to 8,333,000 JPY until the maturity date of February 25, 2025, with a lump sum payment of the balance of 8,373,000 JPY on the maturity date. Interest on the Term Loan B is accrued based upon monthly TIBOR plus 1.40% and is secured by real estate collateral. In conjunction with the execution of the Bank Loans, the Company paid a loan structuring fee, including consumption tax, of 40,500,000 JPY ($0.3 million).

The Mitsubishi Bank Loans contain customary representations and warranties and customary affirmative and negative covenants applicable to the Company’s Japanese subsidiary, including, among other things, restrictions on cessation in business, management, mergers or acquisitions. The Mitsubishi Bank Loans contain financial covenants relating to minimum net assets, maximum ordinary loss and a dividends covenant. The Mitsubishi Bank Loans also include customary events of default, including but not limited to the nonpayment of principal or interest, violations of covenants, restraint on business, dissolution, bankruptcy, attachment and misrepresentations. In February 2015, the Company used a portion of the proceeds of the Mitsubishi Bank Loans to repay the then-outstanding loan related to the acquisition of NeoPhotonics Semiconductor, which had an outstanding principal and interest amount of approximately 710 million JPY ($6.0 million) and the remaining proceeds will be used for general working capital. Outstanding principal balance under the Mitsubishi Bank Loans was approximately 1.3 billion JPY (approximately $13.3 million), net of unamortized debt issuance costs of 23.7 million JPY (approximately $0.2 million), as of September 30, 2016 and 1.4 billion JPY (approximately $11.5 million), net of unamortized debt issuance costs of 30.1 million JPY (approximately $0.3 million) as of December 31, 2015. The Company was in compliance with the related covenants.

At September 30, 2016, maturities of long-term debt were as follows (in thousands):

2016 (remaining three months)	$	247
2017		988
2018		5,929
2019		988
2020		988
Thereafter		4,118
	$	13,258

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Japan pension plans

9 Months Ended

Sep. 30, 2016

Japan pension plans

Japan pension plans

Note 9. Japan pension plans

In connection with its acquisition of NeoPhotonics Semiconductor on March 29, 2013 from LAPIS Semiconductor Co., Ltd. (“LAPIS”), the Company assumed responsibility for two defined benefit plans that provide retirement benefits to its NeoPhotonics Semiconductor employees in Japan: the Retirement Allowance Plan (“RAP”) and the Defined Benefit Corporate Pension Plan (“DBCPP”). The RAP is an unfunded plan administered by the Company.  Effective February 28, 2014, the DBCPP was converted to a defined contribution plan (“DCP”).  In May 2014, in accordance with the acquisition agreements, the seller transferred approximately $2.0 million into the newly formed DCP which is the allowable amount that can be transferred according to the Japanese regulations. LAPIS also paid the Company approximately $0.3 million in connection with the conversion of the plan. Additionally, the Company transferred the net unfunded projected benefit obligation amount from the DBCPP to the RAP and froze the RAP benefit at the February 28, 2014 amount.

The pension liability at September 30, 2016 and December 31, 2015 was $5.7 million and $5.1 million, respectively, of which $0.3 million and $0.1 million, respectively, was recorded in accrued and other current liabilities and the remainder in other noncurrent liabilities on the Company’s condensed consolidated balance sheet.

As the Company transitioned the DBCPP to the DCP effective February 2014, no further contributions to the DBCPP are required.

Net periodic pension cost associated with these plans was immaterial in the three and nine months ended September 30, 2016 and 2015.

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Commitments and contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and contingencies

Note 10. Commitments and contingencies

Litigation

From time to time, the Company is subject to various claims and legal proceedings, either asserted or unasserted, that arise in the ordinary course of business. The Company accrues for legal contingencies if the Company can estimate the potential liability and if the Company believes it is probable that the case will be ruled against it. If a legal claim for which the Company did not accrue is resolved against it, the Company would record the expense in the period in which the ruling was made. The Company believes that the likelihood of an ultimate amount of liability, if any, for any pending claims of any type (alone or combined) that will materially affect the Company’s financial position, results of operations or cash flows is remote. The ultimate outcome of any litigation is uncertain, however, and unfavorable outcomes could have a material negative impact on the Company’s financial condition and operating results. Regardless of outcome, litigation can have an adverse impact on the Company because of defense costs, negative publicity, diversion of management resources and other factors.

On January 5, 2010, Finisar Corporation, or Finisar, filed a complaint in the U.S. District Court for the Northern District of California, or the Court, against Source Photonics, Inc., MRV Communications, Inc., Oplink Communications, Inc. and the Company, or collectively, the co-defendants. In the complaint Finisar alleged infringement of certain of its U.S. patents. In 2010 the Company filed an answer to the complaint and counterclaims, asserting two claims of patent infringement and additional claims. The Court dismissed without prejudice all co-defendants (including the Company) except Source Photonics, Inc., on grounds that such claims should have been asserted in four separate lawsuits, one against each defendant. This dismissal does not prevent Finisar from bringing a new similar lawsuit against the Company. In 2011 the Company and Finisar agreed to suspend their respective claims and in 2012 the Company and Finisar further agreed to toll their respective claims. While there has been no action on this matter since 2012, the Company is currently unable to predict the outcome of this dispute and therefore cannot determine the likelihood of loss nor estimate a range of possible loss.

On January 2, 2013, the Company was served with a lawsuit, filed in Belgium by a distributor called Laser 2000 Beneluo SA (“Laser 2000”) claiming unpaid commissions. The distributor agreement was formally terminated as of January 3, 2012. The Company paid $492,000 to Laser 2000 as partial settlement of claims and to avoid penalties from the Belgian Court and submitted a legal brief to court on September 16, 2013. Laser 2000 filed a response on December 16, 2013 and the Company filed the final rebuttal brief on January 30, 2014. On March 23, 2015, the Belgian Court issued a ruling awarding Laser 2000 approximately one million euros in damages (approximately $1,100,000 at current exchange rates). The Company was served with the judgment on September 28, 2015. The Company is appealing this verdict, but is unable to predict the duration or outcome of the appeal or the overall lawsuit at this time. The Company does not believe it will ultimately be liable for the full amount of damage; however, in light of developments in the case, the Company increased its accrual for estimated probable net litigation expense relating to this matter in March 2015. There has been no change in such accrual subsequent to March 2015.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. As of September 30, 2016, the Company did not have any material indemnification claims that were probable or reasonably possible.

Leases

The Company leases various facilities under non-cancelable operating leases expiring through 2027. As of September 30, 2016, future minimum payments under these operating leases totaled approximately $27.8 million and future minimum sublease receipts was approximately $1.1 million. Rent expense was $0.6 million and $1.7 million in the three and nine months ended September 30, 2016, respectively, and $0.5 million and $1.7 million in the three and nine months ended September 30, 2015, respectively.

In the nine months ended September 30, 2016, the Company renewed one of its leases for its facility in Fremont, California. In September 2016, the Company entered into an office lease for approximately 64,000 square feet of office and laboratory space located adjacent to the Company’s current headquarters in San Jose (the “Lease”).

The term of the Lease is scheduled to commence on January 1, 2017. Upon commencement, the Lease has an initial term of one hundred and twenty-nine (129) months, ending on September 30, 2027 (the “Initial Term”), with a monthly rental rate of $144,000, escalating annually to a maximum monthly rental rate of approximately $194,000 in the last year of the Initial Term. The Landlord has agreed to provide the office and laboratory space to the Company free of charge for the first nine months of the Initial Term through September 30, 2017. Upon termination of the Lease, the Company anticipates a restoration cost of approximately $2.8 million.

Penalty Payment Derivative

In connection with a private placement transaction with Joint Stock Company “Rusnano” (formerly Open Joint Stock Company “RUSNANO” ), or Rusnano, or in 2012, the Company agreed to certain performance obligations including establishing a wholly-owned subsidiary in Russia and making a $30.0 million investment commitment (the ‘Investment Commitment’) towards the Company’s Russian operations, which could be partially satisfied by cash and/or non-cash investment inside or outside of Russia and/or by way of non-cash asset transfers.

In March 2015, the Company extended the Investment Commitment deadline to June 30, 2015 and then further amended the Investment Commitment in July 2015. The latter amendment, or the Rights Agreement, became effective on June 30, 2015 and provides that the maximum amount of penalties, or the Penalty Payment, to be paid by the Company will not exceed $5.0 million in the aggregate. In addition, the amendment also provides for an updated investment plan for the Company’s Russian subsidiaries that includes non-cash transfer of licensing rights to intellectual property, non-cash transfers of existing equipment and commitments to complete the remaining investment milestones through fiscal year 2019. The Company fulfilled its investment commitment required by 2015 and had contributed over $15.4 million in cash and assets to its subsidiaries in Russia as of December 31, 2015.  Although the Company met its investment commitment for 2015, certain required equipment was delivered but not fully installed and operational as of the required date to fulfill certain manufacturing milestones under the Rights Agreement. The Company has remediated these issues and, in August 2016, entered into the second amendment to the Rights Agreement with Rusnano (the “Amended Rights Agreement”) to address this matter. The amendment extended the foregoing manufacturing deadlines to June 30, 2016 and confirmed that the Company had completed these milestones as of June 30, 2016. Therefore, the Company will not be held liable for the $5.0 million Penalty Payment as of each of December 31, 2015 and September 30, 2016.  

In the event the Company’s cumulative investment and spending contributed to its subsidiaries in Russia is less than $18.8 million by December 31, 2016, the Company will be subject to a $1.5 million penalty within 30 days after the end of a 90-day cure period. If certain of the Investment Commitments are not achieved in the indicated time frames in 2016 and 2019, the Company also has the ability to cease the operations of its Russian subsidiaries by paying exit fees of $3.5 million or $2.0 million at the end of 2016 or 2019, respectively.  

In August 2016, the Company entered into a letter of agreement with Rusnano to agree to transfer a product line and incur expected costs of approximately $0.1 million by July 30, 2017.

Rusnano has non-transferable veto rights over the Company’s Russian subsidiaries’ annual budget during the investment period and must approve non-cash asset transfers to be made in satisfaction of the Investment Commitment.  Spending and/or commitments to spend for general working capital and research and development do not require approval by Rusnano. There are no legal restrictions on the specific usage of the $39.8 million received in the private placement transaction or on withdrawal from the Company’s bank accounts for use in general corporate purposes.

The Company accounted for the Penalty Payment as an embedded derivative instrument, with the underlying being the performance or nonperformance of meeting the Investment Commitment and initially classified $4.9 million of the $5.0 million as additional paid-in capital and the remaining $0.1 million, representing the estimated fair value of the Penalty Payment derivative, in other noncurrent liabilities.

The fair value of the Penalty Payment derivative has been estimated at the date of the original common stock sale (April 27, 2012) and at each subsequent balance sheet date using a probability-weighted discounted future cash flow approach using unobservable inputs, which are classified as Level 3 within the fair value hierarchy. The primary inputs for this approach include the probability of achieving the Investment Commitment and a discount rate that approximates the Company’s incremental borrowing rate. After the initial measurement, changes in the fair value of this derivative were recorded in other expense, net. The estimated fair value of this derivative, after taking into consideration the non-compliance regarding the manufacturing milestone and the Amended Rights Agreement, was $0.4 million as of each of September 30, 2016 and December 31, 2015, and reported within accrued and other current liabilities on the Company’s condensed consolidated balance sheets (see Note 4).

Separately, in December 2014, the Company entered into a Commitment to File a Registration Statement and Related Waiver of Registration Rights, whereby Rusnano waived certain registration rights in connection with a potential offering by the Company of shares of the Company’s common stock, and the Company committed to file with the U.S. Securities and Exchange Commission a resale registration statement on Form S-1 covering the resale of all shares of the Company’s common stock held by Rusnano, or the 2015 Registration Statement. The Company filed the 2015 Registration Statement in April 2015 (See Note 11).  Rusnano also waived its demand registration rights under the original rights agreement and agreed to enter into a lock up agreement with the Company whereby it would agree not to sell any shares of the Company’s common stock, or engage in certain other transactions relating to the Company’s securities, for a period of 60 days from the filing date of the 2015 Registration Statement. Rusnano signed such lock up agreement with the Company on April 2, 2015. In addition, in connection with the Company’s public stock offering completed in the second quarter of 2015, or the 2015 Follow-On Offering, Rusnano entered into a separate lock up agreement with Needham & Company, LLC, the lead underwriter of the 2015 Follow-On Offering, whereby it agreed not to sell any shares of the Company’s common stock, or engage in certain other transactions relating to the Company’s securities, for a period of 180 days from May 21, 2015. Such lock up agreement expired in November 2015.

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Stockholders' equity

9 Months Ended

Sep. 30, 2016

Stockholders’ Equity

Stockholders’ Equity

Note 11. Stockholders’ equity

Common Stock

As of September 30, 2016, the Company had reserved 7,220,893 common stock shares for issuance under its stock option plans and 776,613 common stock shares for issuance under its employee stock purchase plan.

Resale Registration Statement

In April 2015, the Company filed the 2015 Registration Statement, which registered 4,972,905 shares of the Company’s common stock, at a par value of $0.0025 per share, held by Rusnano. The Company does not receive any proceeds from any sales of the Company’s common stock held by Rusnano (See Note 10).

Follow-On Public Offering

In the second quarter of 2015, the Company completed the 2015 Follow-On Offering, in which the Company sold 6,866,689 shares of its common stock, including 895,655 shares of common stock sold upon the exercise in full of the overallotment option by the underwriters, at a public offering price of $7.25 per share. The Company raised approximately $45.6 million, net of underwriting discounts of $3.0 million and other offering expenses of approximately $1.2 million.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of related taxes, were as follows (in thousands):

	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Available-For-Sale Securities		Defined Benefit Pension Plan Adjustment		Total Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	(1,595)	$	(29)	$	(99)	$	(1,723)
Other comprehensive income, net of taxes of zero and reclassifications		292		33		—		325
Balance at September 30, 2016	$	(1,303)	$	4	$	(99)	$	(1,398)

No material amounts were reclassified out of accumulated other comprehensive income during the three and nine months ended September 30, 2016 and 2015 for realized gains or losses on available-for-sale securities.

Accumulated Deficit

Approximately $7.9 million of the Company’s retained earnings within its total accumulated deficit at December 31, 2015 was subject to restriction due to the fact that the Company’s subsidiaries in China are required to set aside at least 10% of their respective accumulated profits each year end to fund statutory common reserves as well as allocate a discretional portion of their after-tax profits to their staff welfare and bonus fund.

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Stock-based compensation

9 Months Ended

Sep. 30, 2016

Stock-based compensation

Stock-based compensation

Note 12. Stock-based compensation

The following table summarizes the stock-based compensation expense recognized in the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of goods sold	$	297	$	339	$	1,605	$	1,119
Research and development		2,981		363		4,508		1,357
Sales and marketing		2,352		275		3,604		1,175
General and administrative		3,146		459		4,728		1,767
	$	8,776	$	1,436	$	14,445	$	5,418

Stock-based compensation expense in the three and nine months ended September 30, 2016 included approximately $5.8 million in stock-based compensation expense, net of approximately $0.8 million capitalized in inventory, associated with the accelerated vesting of stock options covering approximately 1.1 million shares of the Company’s common stock and stock appreciation units (“SAUs”) of approximately 0.2 million shares with a market-based vesting condition. In September 2016, the market-based condition of these stock options and SAUs was satisfied when the average closing price of the Company’s common stock over a period of 20 consecutive trading days equal to or exceeded $15.00 per share and the recipients remained in the continuous service with the Company.

Determining Fair Value

The Company estimated the fair value of certain stock-based awards using a Black-Scholes-Merton valuation model or a binomial lattice model with the following assumptions:  

	Three Months Ended September 30,		Nine Months Ended September 30,
Stock options	2016	2015	2016	2015
Weighted-average expected term (years)	5.9	5.6	5.8	5.4
Weighted-average volatility	65%	63%	65%	64%
Risk-free interest rate	1.01%-1.15%	1.63% – 1.85%	1.01%-1.76%	1.37% – 1.65%
Expected dividends	—  %	—  %	—  %	—  %
Stock appreciation units
Weighted-average expected term (years)	2.6	3.5	2.8	3.6
Weighted-average volatility	62%	60%	62%	62%
Risk-free interest rate	0.45%-0.71%	0.28% – 1.38%	0.45%-1.47%	0.25% – 1.57%
Expected dividends	—  %	—  %	—  %	—  %
ESPP
Weighted-average expected term (years)	—	—	0.7	0.7
Weighted-average volatility	—  %	—  %	70%	58%
Risk-free interest rate	—  %	—  %	0.08%-0.39%	0.03% – 0.14%
Expected dividends	—  %	—  %	—  %	—  %

Stock Options and Restricted Stock Units (RSUs)

The following table summarizes the Company’s stock option and RSU activity during the nine months ended September 30, 2016:

	Stock Options			Restricted Stock Units
		Weighted			Weighted
		Average			Average
	Number of	Exercise		Number of	Grant Date
	Shares	Price		Units	Fair Value
Balance at December 31, 2015	5,007,797	$	4.34	1,213,686	$	7.46
Granted	358,186		12.22	1,071,230		12.18
Exercised/Converted	(962,366)		3.62	(211,388)		7.02
Cancelled/Forfeited	(59,961)		4.99	(29,694)		7.36
Balance at September 30, 2016	4,343,656	$	5.14	2,043,834	$	9.99

Stock appreciation units

SAUs are liability classified share-based awards. The Company did not grant any SAUs during the three and nine months ended September 30, 2016 or 2015. As of September 30, 2016 and December 31, 2015, there were 293,457 and 342,316 SAUs outstanding. Outstanding SAUs are re-measured each reporting period at fair value until settlement.

Employee Stock Purchase Plan (“ESPP”)

As of September 30, 2016, there was $0.1 million of unrecognized stock-based compensation expense for employee stock purchase rights that will be recognized over the remaining offering period through November 2016.

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Income taxes

9 Months Ended

Sep. 30, 2016

Income taxes

Income taxes

Note 13. Income taxes

The provision for income taxes in the periods presented is based upon the income (loss) before income taxes:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2016		2015		2016		2015
Provision for income taxes	$	(804)	$	(1,157)	$	(2,471)	$	(2,698)

The Company’s income tax provision in the three and nine months ended September 30, 2016 and 2015 was primarily related to income taxes of the Company’s non-U.S. operations.

The Company conducts its business globally and its operating income is subject to varying rates of tax in the U.S., China and Japan. Consequently, the Company’s effective tax rate is dependent upon the geographic distribution of its earnings or losses and the tax laws and regulations in each geographical region. Historically, the Company has experienced net losses in the U.S. and in the short term, expects this trend to continue. One of the Company’s subsidiaries in China historically qualified for a preferential 15% tax rate available for high technology enterprises as opposed to the statutory 25% tax rate. In June 2016, the State Administration of Taxation issued a notice to adjust the requirements for high technology enterprise status. As a result, the Company believes that it is more likely than not that the Company’s China subsidiary will not meet the requirements for the tax year 2016 as of September 30, 2016. Therefore, the Company has computed its China subsidiary’s tax provision for 2016 based on a 25% regular corporate income tax rate and remeasured its deferred tax assets accordingly. The preferential tax rate is subject to renewal for periods after 2016.

Due to historic losses in the U.S., the Company has a full valuation allowance on its U.S. federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination.

As of September 30, 2016, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2015.

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Subsequent event

9 Months Ended

Sep. 30, 2016

Subsequent Event

Subsequent event

Note 14. Subsequent events

Subsequent events, through the filing of this report, included the following:

Repayment of Comerica Credit Facility

In October 2016, the Company repaid the outstanding balance under its Comerica Bank Credit Facility, which was $23.8 million as of September 30, 2016.

Shelf Registration

In October 2016, the Company filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission through which it may offer to sell $80.0 million of its common stock from time-to-time. In addition, the registration statement registered 8,261,882 shares of the Company’s common stock held by certain stockholders. The Company will not receive any proceeds from the sales of the Company’s common stock held by its selling stockholders.

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Basis of presentation and significant accounting policies (Policies)

9 Months Ended

Sep. 30, 2016

Basis of presentation and significant accounting policies

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The condensed consolidated financial statements of NeoPhotonics Corporation (“NeoPhotonics” or the “Company”) as of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015, have been prepared in accordance with the instructions on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In accordance with those rules and regulations, the Company has omitted certain information and notes normally provided in the Company’s annual consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments, consisting only of normal recurring items, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the interim periods. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”). These condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results expected for the entire fiscal year. All intercompany accounts and transactions have been eliminated.

Certain Significant Risks and Uncertainties

The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors.  For example, any of the following areas could have a negative effect on the Company in terms of its future financial position, results of operations or cash flows: the general state of the U.S., China and world economies; the highly cyclical nature of the industries the Company serves; the loss of any of a small number of its larger customers; ability to obtain additional financing; inability to meet certain debt covenants; fundamental changes in the technology underlying the Company’s products; the hiring, training and retention of key employees; successful and timely completion of product design efforts; and new product design introductions by competitors.

Reclassification

Reclassification

Reclassification has been made to combine deferred income tax liabilities amount into other noncurrent liabilities in the prior year to conform to the current year’s presentation.

Concentration

Concentration

In the three months ended September 30, 2016, Huawei Technologies Co. Ltd. and their affiliate HiSilicon Technologies (together with Huawei Technologies Co. Ltd., “Huawei”) and Ciena Corporation (“Ciena”) accounted for approximately 48% and 15% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 91% of the Company’s total revenue.  In the three months ended September 30, 2015, Huawei and Ciena accounted for approximately 41% and 26% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 92% of the Company’s total revenue. In the nine months ended September 30, 2016, Huawei and Ciena each accounted for approximately 49% and 15% of the Company’s total revenue, respectively, and the top ten customers represented approximately 91% of its total revenue.  In the nine months ended September 30, 2015, Huawei and Ciena accounted for approximately 40% and 24% of the Company’s total revenue, respectively, and the Company’s top ten customers represented approximately 91% of its total revenue.

As of September 30, 2016 and December 31, 2015, one customer accounted for approximately 45% and 59%, respectively, of the Company’s total accounts receivable.

Use of estimates

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenue and expenses during the reporting period. Significant estimates made by management include: the useful lives of property, plant and equipment and intangible assets as well as future cash flows to be generated by those assets; fair values of identifiable assets acquired and liabilities assumed in business combinations; allowances for doubtful accounts; valuation allowances for deferred tax assets; valuation of excess and obsolete inventories; warranty reserves; litigation accrual and recognition of stock-based compensation, among others. Actual results could differ from these estimates.

Recent accounting pronouncements

Recent accounting pronouncements

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). Under ASU 2016-16, the transferring (selling) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or deferred tax liability, as well as the related deferred tax benefit or expense, upon receipt of the asset. The resulting deferred tax asset or deferred tax liability is measured by (1) computing the difference between the tax basis of the asset in the buyer’s jurisdiction and its financial reporting carrying value in the consolidated financial statements and (2) multiplying such difference by the enacted tax rate in the buyer’s jurisdiction. ASU 2016-16 is effective for the Company’s interim and annual periods beginning after December 15, 2017 and should be applied on a modified retrospective basis, recognizing the effects in retained earnings as of the beginning of the year of adoption. Early adoption is permitted for the beginning of a fiscal year. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments(“ASU 2016-15”). ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2017 and must be applied retrospectively to all periods presented or prospectively from the earliest data practicable if retrospective application is impracticable. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 amends existing guidance on the impairment of financial assets and adds an impairment model that is based on expected losses rather than incurred losses. Under this guidance, an entity recognizes as an allowance its estimate of expected credit losses for its financial assets. An entity will apply this guidance through a cumulative-effect adjustment to retained earnings upon adoption (a modified-retrospective approach) while a prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. ASU 2016-13 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2016. Early adoption is permitted. A retrospective transition method is required for the changes related to the recognition timing of excess tax benefits, minimum statutory withholding requirements, forfeitures and intrinsic value. A retrospective transition method is required for changes related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement. A prospective transition method is required for the recognition of excess tax benefits and tax deficiencies in the income statement for estimating expected term. Changes related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”).  ASU 2016-02 introduces a lessee model that requires recognition of assets and liabilities arising from qualified leases on the consolidated balance sheets and consolidated statements of operations and to disclose qualitative and quantitative information about lease transactions. This guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition is required with certain optional practical expedients allowed. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”).  ASU 2016-01 revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value.  It also amends certain disclosure requirements associated with the fair value of financial instruments.  A modified retrospective transition method is required except for the equity securities without readily determinable fair values which will require a prospective transition method. ASU 2016-01 is effective for the Company’s annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted for certain provisions.  The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires entities to measure most inventory “at the lower of cost and net realizable value” but does not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. For the Company, this ASU is effective for annual and interim periods beginning after December 15, 2016. Prospective transition method is required and early adoption is permitted. The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. In August 2015, the FASB issued an accounting standard update for a one-year deferral of the effective date of ASU 2014-09 to annual and interim periods beginning after December 15, 2017 and permits entities to early adopt the standard of ASU 2014-09 for annual and interim reporting periods beginning after December 15, 2016. Companies are permitted to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.  In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which amends the principal-versus-agent implementation guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606: Identifying performance obligations and Licensing amending certain aspects of ASU 2014-09 on (1) identifying performance obligations and (2) licensing. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients amending certain aspects of ASU 2016-09 including collectability, presentation of sales tax and other similar taxes collected from customers, noncash transaction, contract modifications and completed contracts at transition and the disclosure requirements for entities that use the full retrospective transition method.The Company is in the process of evaluating the impact of adoption on its consolidated financial statements.

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Net income per share (Tables)

9 Months Ended

Sep. 30, 2016

Net income per share

Computation of Basic and Diluted Net Income per Share

The following table sets forth the computation of the basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Numerator:
Net income (loss)	$	(7,187)	$	1,378	$	(2,201)	$	3,269
Denominator:
Weighted average shares used to compute per share amount:
Basic		42,038		40,367		41,589		36,303
Dilutive effect of equity awards		-		1,850		-		1,234
Diluted		42,038		42,217		41,589		37,537
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.09

Potentially Dilutive Securities Excluded from Computation of Diluted Net Income per Share Attributable to Common Stockholders

The Company has excluded the impact of the following employee stock options, restricted stock units and shares expected to be issued under its employee stock purchase plan from the computation of diluted net income (loss) per share, as their effect would have been antidilutive (in thousands):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2016	2015	2016	2015
Employee stock options	4,344	1,256	4,344	1,670
Restricted stock units	2,044	26	2,044	26
Employee stock purchase plan	151	—	151	—
	6,539	1,282	6,539	1,696

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Cash, cash equivalents, short-term investments, and restricted cash and investments (Tables)

9 Months Ended

Sep. 30, 2016

Restricted Cash and Investment

Summary of Cash, Cash Equivalents and Short-Term investments and Restricted Cash and Investments

The following table summarizes the Company’s cash, cash equivalents, short-term investments, and restricted cash at September 30, 2016 and December 31, 2015 (in thousands):

	September 30,		December 31,
	2016		2015
Cash and cash equivalents:
Cash	$	47,666	$	29,133
Cash equivalents		23,959		46,955
Cash and cash equivalents	$	71,625	$	76,088
Short-term investments	$	28,470	$	23,294
Restricted cash	$	2,813	$	2,660

Summary of Unrealized Gains and Losses Related to Cash Equivalents and Investments in Marketable Securities

The following table summarizes the Company’s unrealized gains and losses related to its cash equivalents and short-term investments in marketable securities designated as available-for-sale (in thousands):

	As of September 30, 2016								As of December 31, 2015
		Amortized Cost	Gross Unrealized Gains		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
Marketable securities:
Money market accounts	$	23,959	$	—	$	—	$	23,959	$	46,955	$	—	$	—	$	46,955
Money market funds		4,703		—		—		4,703		11,318		—		—		11,318
Corporate bonds		7,810		4		(3)		7,811		5,694		—		(18)		5,676
Government-sponsored enterprise obligations		4,292		1		(1)		4,292		3,290		—		(6)		3,284
Commercial paper		6,285		—		—		6,285		1,398		—		—		1,398
U.S. government securities		4,755		2		—		4,757		1,000		—		(3)		997
Sovereign government bonds		621		1		—		622		623		—		(2)		621
Total	$	52,425	$	8	$	(4)	$	52,429	$	70,278	$	—	$	(29)	$	70,249
Reported as:
Cash equivalents	$	23,959	$	—	$	—	$	23,959	$	46,955	$	—	$	—	$	46,955
Short-term investments		28,466		8		(4)		28,470		23,323		—		(29)		23,294
Total	$	52,425	$	8	$	(4)	$	52,429	$	70,278	$	—	$	(29)	$	70,249

Maturities of Marketable Securities

As of September 30, 2016 and December 31, 2015, maturities of marketable securities were as follows (in thousands):

	September 30,		December 31,
	2016		2015
Less than 1 year	$	46,645	$	66,974
Due in 1 to 2 years		5,784		3,275
Due after 5 years		—		—
Total	$	52,429	$	70,249

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Fair value disclosures (Tables)

9 Months Ended

Sep. 30, 2016

Fair value disclosures

Fair Value of Financial Assets

The following table presents the Company's assets that are measured at fair value on a recurring basis (in thousands):

	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents and short-term investments:
Money market funds	$	4,703	$	—	$	—	$	4,703	$	11,318	$	—	$	—	$	11,318
U.S. government securities		4,757		—		—		4,757		997		—		—		997
Money market accounts		—		23,959		—		23,959		—		46,955		—		46,955
Corporate bonds		—		7,811		—		7,811		—		5,676		—		5,676
Government-sponsored enterprise obligations		—		4,292		—		4,292		—		3,284		—		3,284
Commercial papers		—		6,285		—		6,285		—		1,398		—		1,398
Sovereign government bonds		—		622		—		622		—		621		—		621
Variable rate demand notes		—		—		—		—		—		—		—		—
Total	$	9,460	$	42,969	$	—	$	52,429	$	12,315	$	57,934	$	—	$	70,249
Foreign currency forward contracts	$	—	$	*	$	—	$	*	$	—	$	—	$	—	$	—
Mutual funds held in Rabbi Trust, recorded in other long-term assets	$	599	$	—	$	—	$	599	$	435	$	—	$	—	$	435

Fair Value of Financial Liabilities

The following table presents the Company's liabilities that are measured at fair value on a recurring basis (in thousands):

	As of September 30, 2016								As of December 31, 2015
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Penalty payment derivative (Note 10)	$	—	$	—	$	389	$	389	$	—	$	—	$	389	$	389

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Business combination (Tables)

9 Months Ended

Sep. 30, 2016

Business combination

Summary of Purchase Accounting and Tangible and Intangible Assets Acquired and Liabilities Assumed

The following table summarizes the allocation of the assets acquired and liabilities assumed from EMCORE as of the acquisition date and subsequent adjustments (in thousands): 

Total purchase consideration:
Cash paid	$	1,500
Notes payable		15,482
Total	$	16,982
Fair value of assets acquired:
Accounts receivable	$	9,274
Inventories		1,693
Prepaid expenses and other current assets		670
Property, plant and equipment		6,917
Intangible assets acquired:
Developed technology		4,100
Customer relationships		700
Total	$	23,354
Less: fair value of liabilities assumed:
Accounts payable	$	(7,427)
Accrued liabilities		(60)
Total	$	(7,487)
Goodwill	$	1,115

Purchase Price Allocation of Intangible Assets

The following table presents details of the purchase price allocated to the acquired intangible assets at the acquisition date:

	Useful		Purchased
	Life		intangible assets
	(In years)		(In thousands)
Developed technology	7	$	4,100
Customer relationships	2		700
Total purchased intangible assets		$	4,800

Pro forma Information for Business Acquisition

The unaudited pro forma results do not assume any operating efficiencies as a result of the consolidation of operations (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue	$	103,312	$	83,560	$	301,586	$	250,316
Net income (loss)	$	(7,187)	$	1,404	$	(2,201)	$	3,689
Basic net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.10
Diluted net income (loss) per share	$	(0.17)	$	0.03	$	(0.05)	$	0.10

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Balance sheet components (Tables)

9 Months Ended

Sep. 30, 2016

Balance Sheet Components [Abstract]

Accounts Receivable, Net

Accounts receivable, net consists of the following (in thousands):

	September 30, 2016		December 31, 2015
Accounts receivable	$	93,967	$	82,235
Trade notes receivable		2,102		1,769
Allowance for doubtful accounts		(392)		(843)
	$	95,677	$	83,161

Inventories, net

Inventories, net consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Raw materials	$	22,189	$	23,793
Work in process		17,918		12,165
Finished goods(1)		20,112		29,644
	$	60,219	$	65,602

⁽¹⁾ Finished goods inventory at customer vendor managed inventory locations was $7.7 million and $14.2 million as of September 30, 2016 and December 31, 2015, respectively.

Purchased Intangible Assets

Purchased intangible assets consist of the following (in thousands):

	September 30, 2016						December 31, 2015
	Gross		Accumulated		Net		Gross		Accumulated		Net
	Assets		Amortization		Assets		Assets		Amortization		Assets
Technology and patents	$	37,387	$	(33,463)	$	3,924	$	37,430	$	(31,061)	$	6,369
Customer relationships		15,391		(14,054)		1,337		15,101		(12,623)		2,478
Leasehold interest		1,277		(321)		956		1,312		(307)		1,005
	$	54,055	$	(47,838)	$	6,217	$	53,843	$	(43,991)	$	9,852

Amortization Expense of Purchased Intangible Assets

The following table presents details of the amortization expense of the Company’s purchased intangible assets as reported in the condensed consolidated statements of operations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of goods sold	$	853	$	836	$	2,542	$	2,512
Operating expenses		462		447		1,375		1,344
Total	$	1,315	$	1,283	$	3,917	$	3,856

Estimated Future Amortization Expense of Purchased Intangible Assets

The estimated future amortization expense of purchased intangible assets as of September 30, 2016, is as follows (in thousands):

2016 (remaining three months)	$	566
2017		1,432
2018		1,226
2019		811
2020		688
Thereafter		1,494
	$	6,217

Accrued Expenses and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Employee-related	$	18,290	$	17,420
Income and other taxes payable		4,188		3,720
Accrued warranty		685		1,175
Penalty payment derivative		389		389
Other accrued expenses		4,632		5,246
	$	28,184	$	27,950

Summary of Movement in Warranty Accrual

The table below summarizes the movement in the warranty accrual, which is included in accrued and other current liabilities (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Beginning balance	$	669	$	1,254	$	1,175	$	1,751
Warranty accruals		126		90		25		(85)
Settlements		(110)		(184)		(515)		(506)
Ending balance	$	685	$	1,160	$	685	$	1,160

Other Noncurrent Liabilities

Other noncurrent liabilities consist of the following (in thousands):

	September 30, 2016		December 31, 2015
Pension and other employee-related	$	6,071	$	5,036
Deferred income tax liabilities		40		88
Other		2,933		2,352
	$	9,044	$	7,476

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Debt (Tables)

9 Months Ended

Sep. 30, 2016

Debt

Components of Debt, Obligations, Weighted Average Interest Rate and Additional Fair Value Information Relating to Outstanding Debt Instruments

The table below summarizes the carrying amount and weighted average interest rate of the Company’s debt (in thousands, except percentages): 

	September 30, 2016				December 31, 2015
	Carrying		Interest		Carrying		Interest
	Amount		Rate		Amount		Rate
Notes payable	$	7,708	—		$	8,857	—
Bank borrowings-Comerica Bank		23,800	3.28	%		23,800	2.99	%
Total notes payable and short-term borrowing	$	31,508			$	32,657
Long-term debt, current and non-current:
Bank borrowings-Mitsubishi Bank	$	13,258	1.43	%	$	11,769	1.53	%
Total long-term debt, current and non-current	$	13,258			$	11,769
Unaccreted discount within current portion of long-term debt		(80)				(71)
Unaccreted discount within long-term debt, net of current portion		(154)				(179)
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519
Reported as:
Current portion of long-term debt	$	908			$	760
Long-term debt, net of current portion		12,116				10,759
Total long-term debt, net of unaccreted discount	$	13,024			$	11,519

Maturities of Long-term Debt

At September 30, 2016, maturities of long-term debt were as follows (in thousands):

2016 (remaining three months)	$	247
2017		988
2018		5,929
2019		988
2020		988
Thereafter		4,118
	$	13,258

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Stockholders' equity (Tables)

9 Months Ended

Sep. 30, 2016

Stockholders’ Equity

Schedule of Accumulated Other Comprehensive Income, Net of Related Taxes

The components of accumulated other comprehensive loss, net of related taxes, were as follows (in thousands):

	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Available-For-Sale Securities		Defined Benefit Pension Plan Adjustment		Total Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	(1,595)	$	(29)	$	(99)	$	(1,723)
Other comprehensive income, net of taxes of zero and reclassifications		292		33		—		325
Balance at September 30, 2016	$	(1,303)	$	4	$	(99)	$	(1,398)

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Stock-based compensation (Tables)

9 Months Ended

Sep. 30, 2016

Stock-based compensation

Summary of Stock Based Compensation Expense

The following table summarizes the stock-based compensation expense recognized in the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of goods sold	$	297	$	339	$	1,605	$	1,119
Research and development		2,981		363		4,508		1,357
Sales and marketing		2,352		275		3,604		1,175
General and administrative		3,146		459		4,728		1,767
	$	8,776	$	1,436	$	14,445	$	5,418

Estimated Fair Value of Certain Stock-Based Awards Using Black-Scholes-Merton Valuation Model

The Company estimated the fair value of certain stock-based awards using a Black-Scholes-Merton valuation model or a binomial lattice model with the following assumptions:  

	Three Months Ended September 30,		Nine Months Ended September 30,
Stock options	2016	2015	2016	2015
Weighted-average expected term (years)	5.9	5.6	5.8	5.4
Weighted-average volatility	65%	63%	65%	64%
Risk-free interest rate	1.01%-1.15%	1.63% – 1.85%	1.01%-1.76%	1.37% – 1.65%
Expected dividends	—  %	—  %	—  %	—  %
Stock appreciation units
Weighted-average expected term (years)	2.6	3.5	2.8	3.6
Weighted-average volatility	62%	60%	62%	62%
Risk-free interest rate	0.45%-0.71%	0.28% – 1.38%	0.45%-1.47%	0.25% – 1.57%
Expected dividends	—  %	—  %	—  %	—  %
ESPP
Weighted-average expected term (years)	—	—	0.7	0.7
Weighted-average volatility	—  %	—  %	70%	58%
Risk-free interest rate	—  %	—  %	0.08%-0.39%	0.03% – 0.14%
Expected dividends	—  %	—  %	—  %	—  %

Summary of Stock Option and Restricted Stock Unit Activity

The following table summarizes the Company’s stock option and RSU activity during the nine months ended September 30, 2016:

	Stock Options			Restricted Stock Units
		Weighted			Weighted
		Average			Average
	Number of	Exercise		Number of	Grant Date
	Shares	Price		Units	Fair Value
Balance at December 31, 2015	5,007,797	$	4.34	1,213,686	$	7.46
Granted	358,186		12.22	1,071,230		12.18
Exercised/Converted	(962,366)		3.62	(211,388)		7.02
Cancelled/Forfeited	(59,961)		4.99	(29,694)		7.36
Balance at September 30, 2016	4,343,656	$	5.14	2,043,834	$	9.99

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Income taxes (Tables)

9 Months Ended

Sep. 30, 2016

Income taxes

Income (Loss) before Income Taxes

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2016		2015		2016		2015
Provision for income taxes	$	(804)	$	(1,157)	$	(2,471)	$	(2,698)

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Basis of Presentation and Significant Accounting Policies - Additional Information (Details) - customer	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Huawei Technologies [Member] | Revenue [Member]
Concentration Risk [Line Items]
Percentage of concentration of credit risk	48.00%	41.00%	49.00%	40.00%
Ciena Corporation [Member] | Revenue [Member]
Concentration Risk [Line Items]
Percentage of concentration of credit risk	15.00%	26.00%	15.00%	24.00%
Company Top Ten Customers [Member] | Revenue [Member]
Concentration Risk [Line Items]
Percentage of concentration of credit risk	91.00%	92.00%	91.00%	91.00%
Number of customers	10	10	10	10
Customer One [Member] | Accounts Receivable [Member]
Concentration Risk [Line Items]
Percentage of concentration of credit risk			45.00%		59.00%
Number of customers			1		1

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Net Income Per Share - Computation of Basic and Diluted Net Income (Loss) per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator:
Net income (loss)	$ (7,187)	$ 1,378	$ (2,201)	$ 3,269
Denominator:
Basic	42,038	40,367	41,589	36,303
Dilutive effect of equity awards		1,850		1,234
Diluted	42,038	42,217	41,589	37,537
Basic net income (loss) per share	$ (0.17)	$ 0.03	$ (0.05)	$ 0.09
Diluted net income (loss) per share	$ (0.17)	$ 0.03	$ (0.05)	$ 0.09

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Net Income Per Share - Potentially Dilutive Securities Excluded From Computation of Diluted Net Loss per Share Attributable to Common Stockholders (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Antidilutive Securities Excluded From Computation Of Earnings Per Share
Potentially dilutive securities, excluded from computation of diluted net income (loss) per share	6,539	1,282	6,539	1,696
Employee Stock Options
Antidilutive Securities Excluded From Computation Of Earnings Per Share
Potentially dilutive securities, excluded from computation of diluted net income (loss) per share	4,344	1,256	4,344	1,670
Restricted stock units
Antidilutive Securities Excluded From Computation Of Earnings Per Share
Potentially dilutive securities, excluded from computation of diluted net income (loss) per share	2,044	26	2,044	26
Employee Stock Purchase Plan
Antidilutive Securities Excluded From Computation Of Earnings Per Share
Potentially dilutive securities, excluded from computation of diluted net income (loss) per share	151		151

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Summary of Cash, Cash Equivalents, Short-Term investments, and Restricted Cash and Investments - Summary of cash, cash equivalents, short-term investments and restricted cash and investments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Cash and cash equivalents:
Cash	$ 47,666	$ 29,133
Cash equivalents	23,959	46,955
Cash and cash equivalents	71,625	76,088	$ 77,250	$ 43,035
Short-term investments	28,470	23,294
Restricted cash and investments:
Restricted cash and investments, current	$ 2,813	$ 2,660

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Summary of Cash, Cash Equivalents, Short-Term investments, and Restricted Cash and Investments - Summary of unrealized gains and losses (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 52,425	$ 70,278
Gross Unrealized Gains	8
Gross Unrealized Losses	(4)	(29)
Fair Value	52,429	70,249
Cash Equivalents
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	23,959	46,955
Fair Value	23,959	46,955
Short-Term Investments
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	28,466	23,323
Gross Unrealized Gains	8
Gross Unrealized Losses	(4)	(29)
Fair Value	28,470	23,294
Money market accounts
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	23,959	46,955
Fair Value	23,959	46,955
Money Market Funds
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	4,703	11,318
Fair Value	4,703	11,318
Corporate Bonds
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	7,810	5,694
Gross Unrealized Gains	4
Gross Unrealized Losses	(3)	(18)
Fair Value	7,811	5,676
Government-sponsored enterprise obligations
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	4,292	3,290
Gross Unrealized Gains	1
Gross Unrealized Losses	(1)	(6)
Fair Value	4,292	3,284
Commercial papers
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	6,285	1,398
Fair Value	6,285	1,398
U.S. government securities
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	4,755	1,000
Gross Unrealized Gains	2
Gross Unrealized Losses		(3)
Fair Value	4,757	997
Sovereign government bonds
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	621	623
Gross Unrealized Gains	1
Gross Unrealized Losses		(2)
Fair Value	$ 622	$ 621

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Summary of Cash, Cash Equivalents, Short-Term investments, and Restricted Cash and Investments - Maturities of marketable securities and additional information (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) item	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) item	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) item
Fair value disclosures
Less than 1 year	$ 46,645		$ 46,645		$ 66,974
Due in 1 to 2 years	5,784		5,784		3,275
Total	52,429		52,429		$ 70,249
Impairment losses on its marketable securities	$ 0	$ 0	$ 0	$ 0
Investments in marketable securities in unrealized loss position in excess of 12 months | item	0		0		0

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Fair value disclosures - Assets and liabilities measured at fair value on recurring basis (Details) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	$ 52,429	$ 70,249
Fair Value, Inputs, Level 1 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	9,460	12,315
Fair Value, Inputs, Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	42,969	57,934
Money Market Funds
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	4,703	11,318
Money Market Funds | Fair Value, Inputs, Level 1 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	4,703	11,318
U.S. government securities
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	4,757	997
U.S. government securities | Fair Value, Inputs, Level 1 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	4,757	997
Money market accounts
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	23,959	46,955
Money market accounts | Fair Value, Inputs, Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	23,959	46,955
Corporate Bonds
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	7,811	5,676
Corporate Bonds | Fair Value, Inputs, Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	7,811	5,676
Government-sponsored enterprise obligations
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	4,292	3,284
Government-sponsored enterprise obligations | Fair Value, Inputs, Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	4,292	3,284
Commercial papers
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	6,285	1,398
Commercial papers | Fair Value, Inputs, Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	6,285	1,398
Sovereign government bonds
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	622	621
Sovereign government bonds | Fair Value, Inputs, Level 2 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	622	621
Mutual Funds Held in Rabbi Trust [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	599	435
Mutual Funds Held in Rabbi Trust [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets, fair value	599	435
Penalty payment derivative
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Liabilities, fair value	389	389
Penalty payment derivative | Fair Value, Inputs, Level 3 [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Liabilities, fair value	$ 389	$ 389

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Fair value disclosures - Hedging Program (Details) - Foreign exchange contracts $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($)
Average maturities of monthly foreign exchange contracts	1 month
Japan, Yen
Notional value of derivatives related to economic hedges	$ 2.4
China, Yuan Renminbi
Notional value of derivatives related to economic hedges	$ 39.2

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Fair value disclosures - Additional information (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($)	12 Months Ended
	Dec. 31, 2015	Sep. 30, 2016
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Assets Fair Value Disclosure		$ 0
Liabilities measured at fair value		$ 0
Loss on sale of property, plant and equipment	$ 200,000
Write off of assets held-for-sale	$ 200,000

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Business Combination (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended			4 Months Ended	9 Months Ended
	Jan. 02, 2015	Nov. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2015	Apr. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Acquisition [Line Items]
Acquisition-related costs			$ 148	$ 180			$ 923	$ 467
Revenue			103,312	83,560			301,586	250,316
Tunable Laser Product Lines From EMCORE Corporation [Member]
Business Acquisition [Line Items]
Total consideration	$ 17,500					$ 16,982
Cash consideration paid	1,500					1,500
Issuance of notes to the seller of acquired business	$ 16,000					$ 15,482
Acquisition-related costs								900
Tunable Laser Product Lines From EMCORE Corporation [Member] | Pro Forma [Member]
Business Acquisition [Line Items]
Acquisition-related costs			0				0	300
Revenue			20,200	$ 13,200			58,300	39,500
Tunable Laser Product Lines From EMCORE Corporation [Member] | Intersegment Eliminations [Member] | Pro Forma [Member]
Business Acquisition [Line Items]
Revenue			$ 0		$ 0		$ 0	$ 0
EigenLight Corporation
Business Acquisition [Line Items]
Cash consideration paid		$ 400

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Business Combination - Allocation of Assets acquired, liabilites assumed and Purchase price (Details) - USD ($) $ in Thousands		4 Months Ended	9 Months Ended
	Jan. 02, 2015	Apr. 30, 2015	Sep. 30, 2016	Dec. 31, 2015
Liabilities assumed:
Goodwill			$ 1,115	$ 1,115
Tunable Laser Product Lines From EMCORE Corporation [Member]
Total purchase consideration:
Cash paid	$ 1,500	$ 1,500
Notes payable	16,000	15,482
Total consideration	17,500	$ 16,982
Fair value of assets acquired:
Accounts receivable	9,274
Inventories	1,693
Prepaid expenses and other current assets	670
Property, plant and equipment	6,917
Intangible assets acquired:
Intangible assets acquired			4,800
Fair value of assets acquired	23,354
Liabilities assumed:
Accounts payable	(7,427)
Accrued liabilities	(60)
Fair value of liabilities assumed total	(7,487)
Goodwill	1,115		$ 1,100	$ 1,100
Tunable Laser Product Lines From EMCORE Corporation [Member] | Developed Technology [Member]
Fair value of assets acquired:
Useful Life (in years)			7 years
Intangible assets acquired:
Intangible assets acquired	4,100		$ 4,100
Tunable Laser Product Lines From EMCORE Corporation [Member] | Customer Relationships [Member]
Fair value of assets acquired:
Useful Life (in years)			2 years
Intangible assets acquired:
Intangible assets acquired	$ 700		$ 700

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Business Combination - Pro forma results (Details) - Tunable Laser Product Lines From EMCORE Corporation [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Acquisition Pro Forma Information Nonrecurring Adjustment [Line Items]
Revenue	$ 103,312	$ 83,560	$ 301,586	$ 250,316
Net income (loss)	$ (7,187)	$ 1,404	$ (2,201)	$ 3,689
Basic net income (loss) per share	$ (0.17)	$ 0.03	$ (0.05)	$ 0.10
Diluted net income (loss) per share	$ (0.17)	$ 0.03	$ (0.05)	$ 0.10

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Balance sheet components - Accounts Receivable, net (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accounts receivable, net
Accounts receivable	$ 93,967	$ 82,235
Trade notes receivable	2,102	1,769
Allowance for doubtful accounts	(392)	(843)
Accounts receivable, Net ,Total	$ 95,677	$ 83,161

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Balance sheet components - Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Inventories
Raw materials	$ 22,189	$ 23,793
Work in process	17,918	12,165
Finished goods	20,112	29,644
Inventories	60,219	65,602
Finished goods, at vendor managed inventory locations	$ 7,700	$ 14,200

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Balance sheet components - Purchased intangible assets (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Finite Lived Intangible Assets [Line Items]
Gross Assets	$ 54,055	$ 53,843
Accumulated Amortization	(47,838)	(43,991)
Net Assets	6,217	9,852
Technology and Patents [Member]
Finite Lived Intangible Assets [Line Items]
Gross Assets	37,387	37,430
Accumulated Amortization	(33,463)	(31,061)
Net Assets	3,924	6,369
Customer Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Gross Assets	15,391	15,101
Accumulated Amortization	(14,054)	(12,623)
Net Assets	1,337	2,478
Leasehold Interest [Member]
Finite Lived Intangible Assets [Line Items]
Gross Assets	1,277	1,312
Accumulated Amortization	(321)	(307)
Net Assets	$ 956	$ 1,005

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Balance sheet components - Amortization expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Purchased intangible assets
Cost of goods sold	$ 853	$ 836	$ 2,542	$ 2,512
Operating expenses	462	447	1,375	1,344
Total	$ 1,315	$ 1,283	$ 3,917	$ 3,856

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Balance sheet components - Estimated future amortization expense (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Purchased intangible assets
2016 (remaining three months)	$ 566
2017	1,432
2018	1,226
2019	811
2020	688
Thereafter	1,494
Net Assets	$ 6,217	$ 9,852

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Balance sheet components - Accrued and other current liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Accrued and other current liabilities
Employee-related	$ 18,290		$ 17,420
Income and other taxes payable	4,188		3,720
Accrued warranty	685	$ 669	1,175	$ 1,160	$ 1,254	$ 1,751
Penalty payment derivative	389		389
Other accrued expenses	4,632		5,246
Accrued and other current liabilities	$ 28,184		$ 27,950

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Balance sheet components - Warranty accrual (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Summary of significant accounting policies
Beginning balance	$ 669	$ 1,254	$ 1,175	$ 1,751
Warranty accruals	126	90	25
Warranty accruals				(85)
Settlements	(110)	(184)	(515)	(506)
Ending balance	$ 685	$ 1,160	$ 685	$ 1,160

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Balance sheet components - Other noncurrent liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Other Noncurrent liabilites
Pension and other employee-related	$ 6,071	$ 5,036
Deferred income tax liabilities	40	88
Other	2,933	2,352
Other noncurrent liabilities	$ 9,044	$ 7,476

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Restructuring (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016	Dec. 31, 2015
Restructuring
Restructuring liability	$ 0	$ 0	$ 0
Restructuring costs incurred	$ 0	$ 0

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Debt - Components of Debt, Obligations, Weighted Average Interest Rate (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Debt Instrument [Line Items]
Notes payable	$ 7,708	$ 8,857
Total notes payable and short-term borrowing	31,508	32,657
Total long-term debt, current and non-current	13,258	11,769
Unaccreted discount within current portion of long-term debt	(80)	(71)
Unaccreted discount within long-term debt, net of current portion	(154)	(179)
Total long-term debt, net of unaccreted discount	13,024	11,519
Current portion of long-term debt	908	760
Long-term debt, net of current portion	12,116	10,759
Comerica Bank Term Loan [Member]
Debt Instrument [Line Items]
Bank borrowings-Comerica Bank	$ 23,800	$ 23,800
Short-term Debt Weighted Average Interest Rate	3.28%	2.99%
Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Bank borrowings-Mitsubishi Bank	$ 13,258	$ 11,769
Long-term Debt Weighted Average Interest Rate	1.43%	1.53%

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Debt - Additional Information (Details) $ in Thousands, ¥ in Millions				1 Months Ended									3 Months Ended	4 Months Ended	9 Months Ended
	Feb. 25, 2015 JPY (¥)	Feb. 25, 2015 USD ($)	Jan. 02, 2015 USD ($)	Oct. 31, 2016 CNY (¥)	Aug. 31, 2016 CNY (¥)	Sep. 30, 2015 USD ($)	Jun. 30, 2015 CNY (¥)	May 31, 2015 USD ($)	Apr. 30, 2015 USD ($)	Feb. 28, 2015 JPY (¥)	Feb. 28, 2015 USD ($)	Jan. 31, 2015 USD ($)	Sep. 30, 2016 JPY (¥) item	Apr. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Oct. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)	Aug. 31, 2016 USD ($)	Dec. 31, 2015 JPY (¥)	Dec. 31, 2015 USD ($)	Sep. 30, 2015 CNY (¥)	Sep. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)	Mar. 31, 2015 USD ($)	Feb. 25, 2015 USD ($)
Debt Instrument [Line Items]
Repayment of notes payable															$ 14,069	$ 20,072
Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Short-term line of credit facility													¥ 1,300,000,000					$ 13,300		¥ 1,400,000,000	$ 11,500
Unamortized debt issuance costs													¥ 23,700,000					200		¥ 30,100,000	300
Tunable Laser Product Lines From EMCORE Corporation [Member]
Debt Instrument [Line Items]
Issuance of notes to the seller of acquired business			$ 16,000											$ 15,482
Debt Instrument, Term												2 years
Libor Plus Rate [Member] | Comerica [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Short-term line of credit facility																		$ 23,800			23,800
Debt Instrument, Basis Spread on Variable Rate															2.75%
Line of credit facility, interest rate													3.28%					3.28%
First Year [Member] | Tunable Laser Product Lines From EMCORE Corporation [Member]
Debt Instrument [Line Items]
Note payable, interest rate												5.00%
Second Year [Member] | Tunable Laser Product Lines From EMCORE Corporation [Member]
Debt Instrument [Line Items]
Note payable, interest rate												13.00%
Credit Facility Base Rate [Member] | Comerica [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate															1.75%
Federal Funds Effective Rate [Member] | Comerica [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate															1.00%
Daily Adjusting LIBOR Rate [member] | Comerica [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate															1.00%
First Credit Facility Expires June 2016 [Member] | China]
Debt Instrument [Line Items]
Percentage of compensating balance requirement for bank acceptance drafts							30.00%
Second Credit Facility Expires September 2016 [Member] | China]
Debt Instrument [Line Items]
Percentage of compensating balance requirement for bank acceptance drafts						30.00%
First Short-Term Advance Financing Agreement Expires April 2015 [Member]
Debt Instrument [Line Items]
Debt repaid									$ 5,000
Interest rate									4.02%					4.02%
First Short-Term Advance Financing Agreement Expires April 2015 [Member] | China]
Debt Instrument [Line Items]
Debt repaid						$ 5,000
First Short-Term Advance Financing Agreement Expires April 2015 [Member] | China] | Libor Plus Rate [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate						3.30%
Obligation bear variable interest																						3.71%	3.71%
Second Short-Term Advance Financing Agreement Expires May 2015 [Member]
Debt Instrument [Line Items]
Debt repaid								$ 5,000
Interest rate								2.33%
Service fees interest percentage								1.00%
Term Loan B [Member] | Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Debt, aggregate principal amount	¥ 1,000,000,000																									$ 8,400
Debt, periodic principal payments | ¥	8,333,000
Debt, lump sum payment on the maturity date | ¥	8,373,000
Loan structuring fee including consumption tax	¥ 40,500,000	$ 300
Term Loan B [Member] | Tunable Laser Product Lines From EMCORE Corporation [Member] | Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Issuance of notes to the seller of acquired business												$ 15,500
Term Loan B [Member] | Tokyo Interbank Offer Rate [Member] | Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.40%	1.40%
Senior Secured Revolving Credit Facility Expires November 2016 [Member] | Comerica [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity																									$ 30,000
Term Loan A [Member] | Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Debt, aggregate principal amount	¥ 500,000,000																									$ 4,200
Term Loan A [Member] | Tokyo Interbank Offer Rate [Member] | Mitsubishi Bank [Member]
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.40%	1.40%
Capital Expenditures Credit Facility Expires January 31, 2017 Member | Comerica [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Capacity Available for Specific Purpose Other than for Trade Purchases																		$ 62,000
Loans Payable | First Credit Facility Expires June 2016 [Member] | China]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity							¥ 120.0																	$ 18,000
Loans Payable | Second Credit Facility Expires September 2016 [Member] | China]
Debt Instrument [Line Items]
Short-term line of credit facility																						¥ 133.0	$ 19,900
Notes Payable [Member] | NeoPhotonics Semiconductor [Member]
Debt Instrument [Line Items]
Repayment of notes payable										¥ 710,000,000	$ 6,000
Bankers Acceptance
Debt Instrument [Line Items]
Restricted cash and investments, current																		2,800			2,700
Bankers Acceptance | Minimum [Member]
Debt Instrument [Line Items]
Debt Instrument, Term															3 months
Bankers Acceptance | China]
Debt Instrument [Line Items]
Short-term line of credit facility																		7,700			$ 8,900
Bankers Acceptance | China] | Maximum [Member]
Debt Instrument [Line Items]
Debt Instrument, Term															6 months
Bankers Acceptance | First Credit Facility Expires June 2016 [Member] | China]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity							¥ 171.4																	$ 25,800
Bankers Acceptance | Second Credit Facility Expires September 2016 [Member] | China]
Debt Instrument [Line Items]
Short-term line of credit facility																						¥ 190.0	$ 28,500
Bankers Acceptance | Third Credit Facility Expires July 2019 [Member] | China]
Debt Instrument [Line Items]
Percentage of compensating balance requirement for bank acceptance drafts					30.00%
Bank Borrowings [Member]
Debt Instrument [Line Items]
Percentage of compensating balance requirement for bank acceptance drafts													30.00%
Number of letters of credit | item													2
Short-term line of credit facility																		$ 1,300
China | First Short-Term Advance Financing Agreement Expires April 2015 [Member] | Libor Plus Rate [Member]
Debt Instrument [Line Items]
Adjusted LIBOR variable rate term						6 months
China | Loans Payable | Third Credit Facility Expires July 2019 [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity					¥ 30.0														$ 4,500
China | Bank Overdrafts | Third Credit Facility Expires July 2019 [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity					¥ 42.9														$ 6,400
Subsequent Event [Member] | Loans Payable | Third Credit Facility Expires September 2017 [Member] | China]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity				¥ 266.0													$ 39,900
Percentage of compensating balance requirement for bank acceptance drafts				30.00%
Subsequent Event [Member] | Bankers Acceptance | Third Credit Facility Expires September 2017 [Member] | China]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity				¥ 380.0													$ 57,000

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Debt - Maturities of Long -Term debt (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Maturities Of Long Term Debt [Abstract]
2016 (remaining three months)	$ 247
2017	988
2018	5,929
2019	988
2020	988
Thereafter	4,118
Long Term Debt	$ 13,258	$ 11,769

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Japan pension plans (Details) $ in Millions	1 Months Ended
	May 31, 2014 USD ($)	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)	Mar. 29, 2013 item
Defined Benefit Plan Disclosure [Line Items]
Number of Defined Benefit Pension Plans | item				2
Employer contributions	$ 2.0
Conversion of plan, proceed from LAPIS	$ 0.3
Pension liability		$ 5.7	$ 5.1
Accrued and other current liabilities
Defined Benefit Plan Disclosure [Line Items]
Pension liability included in accrued and other current liabilities		$ 0.3	$ 0.1

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Commitments and Contingencies (Details) ft² in Thousands, € in Millions					1 Months Ended		3 Months Ended		9 Months Ended		12 Months Ended
	Apr. 02, 2015	Mar. 23, 2015 EUR (€)	Mar. 23, 2015 USD ($)	Sep. 16, 2013 USD ($)	Sep. 30, 2016 USD ($) ft²	Aug. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2010 defendant item
Loss Contingencies [Line Items]
Number of defendants | defendant												4
Probable or reasonably possible loss					$ 0		$ 0		$ 0
Operating leases, future minimum payments due					27,800,000		27,800,000		27,800,000
Operating leases, future minimum, sublease receipts					$ 1,100,000		1,100,000		1,100,000
Rent expense							600,000	$ 500,000	$ 1,700,000	$ 1,700,000
Area of office lease | ft²					64
Office lease term, months									129 months
Office lease, monthly rental rate									$ 144,000
Office and laboratory lease period free of charge									9 months
Amount of contribution											$ 15,400,000
Amount of companies cumulative investment and spending									$ 18,800,000
Penalty amount									$ 1,500,000
Number of days in which penalty needs to be paid									30 days
Cure period									90 days
Expected Costs to Transfer Product Line						$ 100,000
Penalty payment derivative					$ 400,000		400,000		$ 400,000		$ 400,000
Proceeds from public stock offering, net of offering costs									39,800,000
Revenue							103,312,000	$ 83,560,000	301,586,000	$ 250,316,000
Securities lock up agreement period	60 days							180 days
Restoration Costs Upon Lease Termination					2,800,000		2,800,000		2,800,000
Finisar Corp Member
Loss Contingencies [Line Items]
Loss Contingency, Pending Claims, Number | item												2
Maximum [Member]
Loss Contingencies [Line Items]
Office lease, monthly rental rate									194,000
Pending Litigation Member
Loss Contingencies [Line Items]
Partial settlement of claims				$ 492,000
Accrual for estimated net litigation expense		€ 1	$ 1,100,000
Embedded Derivative Financial Instruments [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Other non-current liability					5,000,000		5,000,000		5,000,000
RUSSIAN FEDERATION
Loss Contingencies [Line Items]
Exit fees									3,500,000
Exit fees for future									2,000,000
Private Placement [Member] | Embedded Derivative Financial Instruments [Member]
Loss Contingencies [Line Items]
Penalty payment derivative					100,000		100,000		100,000
Additional paid-in capital					4,900,000		4,900,000		4,900,000
Private Placement [Member] | Performance Guarantee [Member]
Loss Contingencies [Line Items]
Other non-current liability					$ 30,000,000		$ 30,000,000		$ 30,000,000

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Stockholders' equity - Common stock, resale registration statement, and follow-on public offering (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Apr. 30, 2015
Class Of Stock [Line Items]
Common Stock Shares Authorized	100,000,000			100,000,000		100,000,000
Common stock, par value	$ 0.0025			$ 0.0025		$ 0.0025
Issuance of common stock from public stock offering, net of discount and offering costs (in shares)			6,866,689
Sale of common stock upon the exercise of overallotment option			895,655
Public offering price			$ 7.25
Consideration raised on transaction			$ 45.6
Underwriting discounts			3.0
Other offering expenses			$ 1.2
Reclassified out of accumulated other comprehensive income for realized gains or losses on available for sale securities	$ 0.0	$ 0.0		$ 0.0	$ 0.0
Accumulated deficit subject to restriction						$ 7.9
Resale Registration Statement [Member]
Class Of Stock [Line Items]
Common Stock Shares Authorized							4,972,905
Common stock, par value							$ 0.0025
Minimum [Member]
Class Of Stock [Line Items]
Accumulated profits						10.00%
Employee Stock Options
Class Of Stock [Line Items]
Common stock	7,220,893			7,220,893
Sale of common stock upon the exercise of overallotment option				962,366
Employee Stock Purchase Plan
Class Of Stock [Line Items]
Common stock	776,613			776,613

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Stockholders Equity - Accumulated Other Comprehensive Income, Net of Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Balance			$ (1,723)
Other Comprehensive Income Loss Net Of Tax	$ (22)	$ (4,688)	325	$ (4,103)
Balance	(1,398)		(1,398)
Foreign Currency Translation Adjustments
Balance			(1,595)
Other Comprehensive Income Loss Net Of Tax			292
Balance	(1,303)		(1,303)
Unrealized (Loss) Gain on Available-For-Sale Securities
Balance			(29)
Other Comprehensive Income Loss Net Of Tax			33
Balance	4		4
Defined Benefit Pension Plan Adjustment
Balance			(99)
Balance	$ (99)		$ (99)

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Stock-based compensation - Stock-based compensation expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 8,776	$ 1,436	$ 14,445	$ 5,418
Cost of Goods Sold [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share-based compensation expense	297	339	1,605	1,119
Research and Development Expense [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share-based compensation expense	2,981	363	4,508	1,357
Selling and Marketing Expense [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share-based compensation expense	2,352	275	3,604	1,175
General and Administrative Expense [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Share-based compensation expense	$ 3,146	$ 459	$ 4,728	$ 1,767

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Stock-based compensation - Estimated fair vale of stock-based awards (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee Stock Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Weighted-average expected term (years)	5 years 10 months 24 days	5 years 7 months 6 days	5 years 9 months 18 days	5 years 4 months 24 days
Weighted-average volatility	65.00%	63.00%	65.00%	64.00%
Risk-free interest rate Minimum	1.01%	1.63%	1.01%	1.37%
Risk-free interest rate Maximum	1.15%	1.85%	1.76%	1.65%
Expected dividends	0.00%	0.00%	0.00%	0.00%
Stock Appreciation Units (SARs) [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Weighted-average expected term (years)	2 years 7 months 6 days	3 years 6 months	2 years 9 months 18 days	3 years 7 months 6 days
Weighted-average volatility	62.00%	60.00%	62.00%	62.00%
Risk-free interest rate Minimum	0.45%	0.28%	0.45%	0.25%
Risk-free interest rate Maximum	0.71%	1.38%	1.47%	1.57%
Expected dividends	0.00%	0.00%	0.00%	0.00%
Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Weighted-average expected term (years)			8 months 12 days	8 months 12 days
Weighted-average volatility			70.00%	58.00%
Risk-free interest rate Minimum			0.08%	0.03%
Risk-free interest rate Maximum			0.39%	0.14%
Expected dividends	0.00%	0.00%	0.00%	0.00%

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Stock-based compensation - Stock Options and RSUs (Details) - $ / shares	3 Months Ended	9 Months Ended
	Jun. 30, 2015	Sep. 30, 2016
Number of Shares
Exercised/Converted	(895,655)
Employee Stock Options
Number of Shares
Beginning Balance		5,007,797
Granted		358,186
Exercised/Converted		(962,366)
Cancelled/Forfeited		(59,961)
Ending Balance		4,343,656
Weighted Average Exercise Price
Beginning Balance		$ 4.34
Granted		12.22
Exercised/Converted		3.62
Cancelled/Forfeited		4.99
Ending Balance		$ 5.14
Restricted stock units
Number of Units
Beginning Balance		1,213,686
Granted		1,071,230
Exercised/Converted		(211,388)
Cancelled/Forfeited		(29,694)
Ending Balance		2,043,834
Weighted Average Exercise Price
Beginning Balance		$ 7.46
Granted		12.18
Exercised/Converted		7.02
Cancelled/Forfeited		7.36
Ending Balance		$ 9.99

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Stock-based compensation - Stock appreciation units (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Stock Appreciation Units (SARs) [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Performance-based stock appreciation units	0	0	0	0
Shares outstanding	293,457		293,457		342,316
Share-based Compensation Arrangement by Share-based Payment Award, Accelerated Vesting, Number	1,100,000		1,100,000
Market Based Awards Member
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Accelerated Vesting, Number			200,000
Market Based Awards Vesting, Threshold Consecutive Trading Days	20 days		20 days
Share Price	$ 15.00		$ 15.00
Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unrecognized stock-based compensation expense	$ 0.1		$ 0.1
Employee Stock Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award Accelerated Compensation Cost	5.8		5.8
Employee Service Share-based Compensation, Allocation of Recognized Period Costs, Capitalized Amount	$ 0.8		$ 0.8

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Income taxes - Provision for income taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income taxes
Provision for income taxes	$ (804)	$ (1,157)	$ (2,471)	$ (2,698)

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Income taxes - Additional information (Details) - Foreign Country [Member] - China]	9 Months Ended
	Sep. 30, 2016
Income Taxes [Line Items]
Preferential rate	15.00%
Income tax statutory rate	25.00%
Corporate effective income tax rate	25.00%

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Subsequent event (Details) - Subsequent Event [Member] $ in Millions	1 Months Ended
	Oct. 31, 2016 USD ($) shares
Shelf Registration Member
Subsequent Event [Line Items]
Offering amount	$ 80.0
Common Stock Shares Held By Selling Shareholders | shares	8,261,882
Comerica [Member]
Subsequent Event [Line Items]
Repayments of Lines of Credit	$ 23.8