OCLARO, INC. (Form: 10-Q, Received: 11/07/2013 17:02:25)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 28, 2013

¨	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 000-30684

LOGO

OCLARO, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-1303994

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2560 Junction Avenue, San Jose, California 95134

(Address of principal executive offices, zip code)

(408) 383-1400

(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 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 x 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 x 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 (Check one):

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

93,163,442 shares of common stock outstanding as of November 1, 2013

OCLARO, INC.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of September 28, 2013 and June 29, 2013		3

	Condensed Consolidated Statements of Operations for the three months ended September 28, 2013 and September 29, 2012		4

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 28, 2013 and September 29, 2012		5

	Condensed Consolidated Statements of Cash Flows for the three months ended September 28, 2013 and September 29, 2012		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		36

Item 4.	Controls and Procedures		37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		38

Item 1A.	Risk Factors		40

Item 6.	Exhibits		64

Signatures			65

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

OCLARO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 28, 2013			June 29, 2013
	(Thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents	$	91,987		$	84,635
Restricted cash		2,571			2,719
Short-term investments		170			200
Accounts receivable, net, including $3,644 and $2,975 due from related parties at September 28, 2013 and June 29, 2013, respectively		105,925			100,774
Inventories		88,291			86,112
Prepaid expenses and other current assets		46,483			33,307
Assets of discontinued operations held for sale		14,233			55,627

Total current assets		349,660			363,374

Property and equipment, net		65,882			71,842
Other intangible assets, net		9,907			10,233
Other non-current assets		10,418			4,445

Total assets	$	435,867		$	449,894

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, including $2,107 and $2,246 due to related parties at September 28, 2013 and June 29, 2013, respectively	$	114,138		$	94,157
Accrued expenses and other liabilities		62,438			53,227
Capital lease obligations, current		8,300			8,281
Term loan payable		—			24,647
Credit line payable		—			39,964
Liabilities of discontinued operations held for sale		—			16,253

Total current liabilities		184,876			236,529

Deferred gain on sale-leasebacks		10,823			10,477
Convertible notes payable		23,091			22,990
Capital lease obligations, non-current		8,383			9,914
Other non-current liabilities		17,375			15,852

Total liabilities		244,548			295,762

Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: 1,000 shares authorized; none issued and outstanding		—			—
Common stock: $0.01 par value per share; 175,000 shares authorized and 93,032 shares issued and outstanding at September 28, 2013; 175,000 shares authorized and 92,766 shares issued and outstanding at June 29, 2013		931			928
Additional paid-in capital		1,430,161			1,429,155
Accumulated other comprehensive income		42,268			39,368
Accumulated deficit		(1,282,041	)		(1,315,319	)

Total stockholders’ equity		191,319			154,132

Total liabilities and stockholders’ equity	$	435,867		$	449,894

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

OCLARO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended
	September 28, 2013			September 29, 2012
	(Thousands, except per share amounts)
Revenues, including $1,311 and $2,982 from related parties for the three months ended September 28, 2013 and September 29, 2012, respectively	$	96,648		$	95,635
Cost of revenues		85,430			91,173

Gross profit		11,218			4,462
Operating expenses:
Research and development		18,102			20,527
Selling, general and administrative		21,051			21,603
Amortization of other intangible assets		424			1,232
Restructuring, acquisition and related expense, net		2,877			11,594
Flood-related expense		—			264
Impairment of other intangibles		—			864
(Gain) loss on sale of property and equipment		452			(18	)

Total operating expenses		42,906			56,066

Operating loss		(31,688	)		(51,604	)
Other income (expense):
Interest income (expense), net		(553	)		(478	)
Gain (loss) on foreign currency transactions, net		1,777			38
Other income (expense), net		521			—
Gain on bargain purchase		—			24,866

Total other income (expense)		1,745			24,426

Loss from continuing operations before income taxes		(29,943	)		(27,178	)
Income tax provision		302			918

Loss from continuing operations		(30,245	)		(28,096	)
Income from discontinued operations, net of tax		63,523			2,988

Net income (loss)	$	33,278		$	(25,108	)

Basic and diluted net income (loss) per share:
Loss per share from continuing operations	$	(0.33	)	$	(0.35	)
Income per share from discontinued operations		0.70			0.04

Basic net income (loss) per share	$	0.37		$	(0.31	)

Shares used in computing net income (loss) per share:
Basic		90,966			80,219
Diluted		90,966			80,219

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

OCLARO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended
	September 28, 2013			September 29, 2012
	(Thousands)
Net income (loss)	$	33,278		$	(25,108	)
Other comprehensive income:
Unrealized loss on hedging transactions		—			(7	)
Unrealized gain (loss) on marketable securities		(30	)		20
Currency translation adjustments		(2,887	)		876
Pension adjustment, net of tax benefits		5,817			93

Total comprehensive income (loss)	$	36,178		$	(24,126	)

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

OCLARO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	September 28, 2013			September 29, 2012
	(Thousands)
Cash flows from operating activities:
Net income (loss)	$	33,278		$	(25,108	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of deferred gain on sale-leasebacks		(526	)		(331	)
Amortization and writeoff of issuance costs in connection with term loan		4,293			—
Gain on sale of Zurich Business		(62,812	)		—
Depreciation and amortization		8,838			12,244
Impairment of other intangibles		—			864
Gain on bargain purchase		—			(24,866	)
Stock-based compensation expense		1,151			1,600
Other adjustments		344			(18	)
Changes in operating assets and liabilities:
Accounts receivable, net		(847	)		21,356
Inventories		403			(6,990	)
Prepaid expenses and other current assets		(15,707	)		3,794
Other non-current assets		251			78
Accounts payable		16,009			3,179
Accrued expenses and other liabilities		(2,226	)		(2,969	)

Net cash used in operating activities		(17,551	)		(17,167	)

Cash flows from investing activities:
Purchases of property and equipment		(1,416	)		(5,973	)
Proceeds from sale of option to purchase Amplifier Business		5,000			—
Proceeds from sale of Zurich Business		90,618			—
Transfer from restricted cash, net of acquired businesses		175			93
Cash acquired from business combinations		—			36,123

Net cash provided by investing activities		94,377			30,243

Cash flows from financing activities:
Proceeds from issuance of common stock, net		8			738
Proceeds from borrowings under credit line		—			11,500
Payments on capital lease obligations		(1,321	)		(2,316	)
Repayments on borrowings under credit line and term loan		(64,964	)		(386	)
Cash paid under earnout obligations		—			(8,628	)

Net cash (used in) provided by financing activities		(66,277	)		908

Effect of exchange rate on cash and cash equivalents		(3,197	)		(2,061	)
Net increase in cash and cash equivalents		7,352			11,923
Cash and cash equivalents at beginning of period		84,635			61,760

Cash and cash equivalents at end of period	$	91,987		$	73,683

Supplemental disclosures of non-cash transactions:
Issuance of common stock, stock options and stock appreciation rights related to the acquisition of Opnext	$	—		$	89,842
Capital lease obligations incurred for purchases of property and equipment		—			1,228

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

OCLARO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. BASIS OF PREPARATION

Basis of Presentation

Oclaro, Inc., a Delaware corporation, is sometimes referred to in this Quarterly Report on Form 10-Q as “Oclaro,” “we,” “us” or “our.”

On November 1, 2013, we sold our optical amplifier and micro-optics business (the “Amplifier Business”) to II-VI Incorporated (II-VI). The sale is more fully discussed in Note 5, Business Combinations and Dispositions and Note 16, Subsequent Events .

On September 12, 2013, we sold our Oclaro Switzerland GmbH subsidiary and associated laser diodes and pump business (the “Zurich Business”) to II-VI. The sale is more fully discussed in Note 5, Business Combinations and Dispositions .

These sales are reported as discontinued operations, which require retrospective restatement of prior periods to classify the assets, liabilities and results of operations as discontinued operations. We have classified the assets and liabilities to be sold as “assets of discontinued operations held for sale” and “liabilities of discontinued operations held for sale” within current assets and current liabilities, respectively, on the condensed consolidated balance sheet. The notes to our condensed consolidated financial statements relate to our continuing operations only, unless otherwise indicated.

For presentation purposes, certain prior period amounts have been reclassified to conform to the current period financial statement presentation. These reclassifications do not affect our consolidated net loss, cash flows, cash and cash equivalents or stockholders’ equity, as previously reported.

On July 23, 2012, we completed a merger by and among Opnext, Inc. (Opnext). The acquisition is more fully discussed in Note 5, Business Combinations and Dispositions . The condensed consolidated balance sheets as of September 28, 2013 and June 29, 2013, include the assets and liabilities assumed in the Opnext acquisition. The condensed consolidated statements of operations, comprehensive loss and cash flows for the three months ended September 29, 2012 include the results of operations of the combined entities from July 23, 2012, the date of the acquisition.

The accompanying unaudited condensed consolidated financial statements of Oclaro as of September 28, 2013 and for the three months ended September 28, 2013 and September 29, 2012 have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission (SEC) Regulation S-X, and include the accounts of Oclaro and all of our subsidiaries. Accordingly, they do not include all of the information and footnotes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our consolidated financial position and results of operations have been included. The condensed consolidated results of operations for the three months ended September 28, 2013 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending June 28, 2014.

The condensed consolidated balance sheet as of June 29, 2013 has been derived from our audited financial statements as of such date, but does not include all disclosures required by U.S. GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended June 29, 2013 (2013 Form 10-K).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reported periods. These judgments can be subjective and complex, and consequently, actual results could differ materially from those estimates and assumptions. Descriptions of some of the key estimates and assumptions are included in our 2013 Form 10-K.

Fiscal Years

We operate on a 52/53 week year ending on the Saturday closest to June 30. Our fiscal year ending June 28, 2014 will be a 52 week year, with the quarter ended September 28, 2013 being a 13 week quarterly period. Our fiscal year ended June 29, 2013 was a 52 week year, with the quarter ended September 29, 2012 being a 13 week quarterly period.

NOTE 2. RECENT ACCOUNTING STANDARDS

In March 2013, the Financial Accounting Standards Board (FASB) issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This guidance amends a parent company’s accounting for the cumulative translation adjustment recorded in accumulated other comprehensive income associated with a foreign entity. The amendment requires a parent to release into net income the cumulative translation adjustment related to its investment in a foreign entity when it either sells a part or all of its investment, or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. We elected to early adopt this guidance during our first quarter of fiscal year 2014. Accordingly, we treated our sale of our Zurich Business in the first quarter of fiscal year 2014 in accordance with this guidance and recorded $3.1 million in income from discontinued operations within the condensed consolidated statement of operations related to the cumulative translation adjustment from deconsolidating our Swiss subsidiary. This guidance will continue to impact our financial position and results of operations prospectively in the instance of an event or transaction described above.

In July 2013, the FASB issued amended guidance that resolves the diversity in practice for the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This new accounting guidance requires the netting of unrecognized tax benefits (UTBs) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. Under the new standard, UTBs will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. The new standard requires prospective adoption but allows retrospective adoption for all periods presented. We will adopt the FASB’s amended guidance for our second quarter of fiscal year 2014. We do not expect the adoption of the guidance to have a significant impact on our financial position, results of operations or cash flows.

NOTE 3. BALANCE SHEET DETAILS

The following table provides details regarding our cash and cash equivalents at the dates indicated:


	September 28, 2013		June 29, 2013
	(Thousands)
Cash and cash equivalents:
Cash-in-bank	$	90,773	$	82,634
Money market funds		1,214		2,001

	$	91,987	$	84,635

The following table provides details regarding our inventories at the dates indicated:


	September 28, 2013		June 29, 2013
	(Thousands)
Inventories:
Raw materials	$	29,916	$	32,729
Work-in-process		23,845		26,760
Finished goods		34,530		26,623

	$	88,291	$	86,112

The following table provides details regarding our property and equipment, net at the dates indicated:


	September 28, 2013			June 29, 2013
	(Thousands)
Property and equipment, net:
Buildings and improvements	$	10,990		$	10,334
Plant and machinery		74,902			71,487
Fixtures, fittings and equipment		4,568			4,295
Computer equipment		14,916			13,978

		105,376			100,094
Less: Accumulated depreciation		(39,494	)		(28,252	)

	$	65,882		$	71,842

Property and equipment includes assets under capital leases of $16.7 million at September 28, 2013 and $18.2 million at June 29, 2013, respectively. Amortization associated with assets under capital leases is recorded in depreciation expense.

The following table presents details regarding our accrued expenses and other liabilities at the dates indicated:


	September 28, 2013		June 29, 2013
	(Thousands)
Accrued expenses and other liabilities:
Trade payables	$	18,351	$	10,391
Compensation and benefits related accruals		15,408		13,117
Warranty accrual		5,970		5,887
Accrued restructuring charges, current		4,419		5,363
Deferred gain related to option on Amplifier Business		5,000		—
Other accruals		13,290		18,469

	$	62,438	$	53,227

The following table summarizes the activity related to our accrued restructuring charges for the three months ended September 28, 2013:


	Lease Cancellations, Commitments and Other Charges			Termination Payments to Employees and Related Costs			Total Accrued Restructuring Charges
	(Thousands)
Balance at June 29, 2013	$	230		$	7,036		$	7,266
Charged to restructuring costs		—			2,141			2,141
Paid or written-off		(168	)		(2,521	)		(2,689	)

Balance at September 28, 2013	$	62		$	6,656		$	6,718

Current portion		62			4,357			4,419
Non-current portion		—			2,299			2,299

During the first quarter of fiscal year 2014, we initiated a restructuring plan to simplify our operating footprint, reduce our cost structure and focus our research and development investment in the optical communications market where we can leverage our core competencies. During the three months ended September 28, 2013, we recorded restructuring charges and paid $0.2 million related to workforce reductions in our research and development facility in Israel. We expect to incur an additional $20.0 million to $25.0 million in restructuring charges over the course of the next year in connection with the ongoing activities related to this restructuring plan.

In connection with the acquisition of Opnext, we initiated a restructuring plan to integrate the businesses in the first quarter of fiscal year 2013. We recorded $0.9 million and $8.3 million in restructuring charges during the three months ended September 28, 2013 and September 29, 2012, respectively. The restructuring charges for the three months ended September 28, 2013, included $0.9 million related to external consulting charges and professional fees associated with reorganizing the infrastructure. The restructuring charges for the three months ended September 29, 2012, included $7.0 million related to workforce reductions, $0.9 million related to the impairment of certain technology that was considered redundant following the acquisition and $0.4 million related to the write-off of net book value inventory that supported this technology. During the three months ended September 28, 2013 we made scheduled payments of $2.0 million to settle a portion of these restructuring liabilities. As of September 28, 2013, we had $0.1 million in accrued restructuring liabilities related to this restructuring plan.

During fiscal year 2012, we initiated a restructuring plan in connection with the transfer of our Shenzhen, China manufacturing operations to Venture Corporation Limited (Venture). In connection with this transition, we recorded restructuring charges related to employee separation charges of $1.0 million and $1.6 million during the three months ended September 28, 2013 and September 29, 2012, respectively. During the three months ended September 28, 2013, we made scheduled payments of $0.5 million to settle a portion of these restructuring liabilities. As of September 28, 2013, we had $4.8 million in accrued restructuring liabilities related to this restructuring plan. We expect to incur between $4.0 million and $6.0 million in additional restructuring costs in connection with the transition of our Shenzhen manufacturing operations to Venture over the next year and a half.

At September 28, 2013, we also had $1.9 million in accrued restructuring liabilities relating to the separation agreement with our former Chief Executive Officer.

The current portion of accrued restructuring liabilities is included in the caption accrued expenses and other liabilities and the non-current portion is included in the caption other non-current liabilities in the condensed consolidated balance sheet.

The following table presents the components of accumulated other comprehensive income at the dates indicated:


	September 28, 2013			June 29, 2013
	(Thousands)
Accumulated other comprehensive income:
Currency translation adjustments	$	42,832		$	45,719
Unrealized loss on marketable securities		(135	)		(105	)
Switzerland and Japan defined benefit plans		(429	)		(6,246	)

	$	42,268		$	39,368

In connection with the sale of the Zurich Business in the first quarter of fiscal year 2014, II-VI assumed the pension plan covering employees of the Swiss subsidiary.

NOTE 4. FAIR VALUE

We define fair value as the estimated price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. We apply the following fair value hierarchy, which ranks the quality and reliability of the information used to determine fair values:


Level 1 –		Quoted prices in active markets for identical assets or liabilities.

Level 2 –		Inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices of identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –		Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Our cash equivalents and marketable securities are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include most marketable securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The contingent obligation related to the make-whole premium on our convertible notes was valued using a valuation model which estimates the value based on the probability and timing of conversion. We have classified the contingent obligation within Level 3 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are shown in the table below by their corresponding balance sheet caption and consisted of the following types of instruments at September 28, 2013:


	Fair Value Measurement at Reporting Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(Thousands)
Assets:
Cash and cash equivalents: ⁽¹⁾
Money market funds	$	1,214	$	—	$	—	$	1,214
Short-term investments:
Equity securities		170		—		—		170

Total assets measured at fair value	$	1,384	$	—	$	—	$	1,384

Liabilities:
Other non-current liabilities:
Contingent obligation for make-whole premium	$	—	$	—	$	699	$	699

Total liabilities measured at fair value	$	—	$	—	$	699	$	699

(1)	Excludes $90.8 million in cash held in our bank accounts at September 28, 2013.

The following table provides details regarding the changes in assets and liabilities classified within Level 3 from June 29, 2013 to September 28, 2013:


	Accrued Expenses
	and Other Liabilities
	(Thousands)
Balance at June 29, 2013	$	99
Current period adjustments to the contingent obligation for make-whole premium		600

Balance at September 28, 2013	$	699

NOTE 5. BUSINESS COMBINATIONS AND DISPOSITIONS

Sale of Zurich Business

On September 12, 2013, we completed a share and asset purchase agreement with II-VI, pursuant to which we sold our Oclaro Switzerland GmbH subsidiary and associated laser diodes and pump business to II-VI. We received proceeds of $90.6 million in cash on September 12, 2013. We will also receive $6.0 million subject to hold-back by II-VI until December 31, 2014 to address any post-closing adjustments or claims, and $2.0 million subject to a potential post-closing working capital adjustment, which will be calculated based on the level of working capital in the Oclaro Switzerland GmbH subsidiary at the September 12, 2013 close versus a target based on working capital at June 29, 2013. In addition, we retained approximately $14.7 million in accounts receivable related to the Zurich Business and approximately $9.6 million of supplier and employee related payables related to the Zurich Business which were not included in the Zurich subsidiary.

As part of the agreement, II-VI purchased our Switzerland subsidiary, which includes its GaAs fabrication facility, and also the corresponding high power laser diodes, VCSEL and 980 nm pump laser product lines, including intellectual property, inventory, equipment and a related research and development facility in Tucson, all of which are associated with the business.

We will continue the back-end manufacturing of the 980 nm pump and some high power laser diode products at our Shenzhen, China manufacturing facility and supply them to II-VI under a manufacturing services agreement. The employees of Shenzhen, China will continue to be employed by us. In addition, various supply and transition service agreements have been established between the companies to ensure a smooth transition.

We have classified the sale of our Zurich Business as a discontinued operation. In connection with this transaction, we transferred $32.5 million in net assets to II-VI. We also incurred approximately $4.9 million in legal fees, commissions and other administrative costs related to this transaction. We recognized a gain of $62.8 million on the sale of the Zurich Business, which is recorded within discontinued operations in the condensed consolidated statements of operations for the three months ended September 28, 2013. We also recorded $3.1 million in income from discontinued operations within the condensed consolidated statement of operations related to the cumulative translation adjustment from deconsolidating our Swiss subsidiary. As of September 28, 2013, we recorded a $2.0 million receivable in prepaid expenses and other current assets and a $6.0 million receivable in other non-current assets from II-VI related to the holdback for potential post-closing working capital adjustments and other adjustments or claims.

The assets and liabilities of the discontinued operation are presented as current assets and current liabilities, separately under the captions assets of discontinued operations held for sale and liabilities of discontinued operations held for sale in the accompanying condensed consolidated balance sheets at September 28, 2013 and June 29, 2013, and consist of the following:


	September 28, 2013		June 29, 2013
	(Thousands)
Assets of Discontinued Operations Held for Sale
Accounts receivable, net		—		79
Inventories		—		23,762
Prepaid expenses and other current assets		—		1,294
Property and equipment, net		—		12,749
Deferred tax asset, non-current		—		2,283

	$	—	$	40,167


	September 28, 2013		June 29, 2013
	(Thousands)
Liabilities Held for Sale
Accounts payable		—		2,315
Accrued expenses and other liabilities		—		5,571
Other non-current liabilities		—		8,367

	$	—	$	16,253

The following table presents the statements of operations for the discontinued operations of the Zurich Business for the three months ended September 28, 2013 and September 29, 2012:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
Revenues	$	13,896	$	25,285
Cost of revenues		11,593		20,154

Gross profit		2,303		5,131
Operating expenses		3,416		4,351
Other income (expense), net		61,150		158

Income from discontinued operations before income taxes		60,037		938
Income tax provision		163		265

Income from discontinued operations	$	59,874	$	673

Sale of Amplifier Business

In connection with the sale of the Zurich Business on September 12, 2013, II-VI acquired an exclusive option for $5.0 million to purchase our Amplifier Business, which was to be credited against the purchase price of the business, if the sale occurred. We received the $5.0 million in cash proceeds on September 12, 2013. As of September 28, 2013, we recorded the $5.0 million as a deferred gain in accrued expenses and other liabilities in our condensed consolidated balance sheet.

On October 10, 2013, II-VI exercised the option and purchased our Amplifier Business for $88.6 million. On November 1, 2013, the sale was completed. The sale is more fully discussed in Note 16, Subsequent Events .

We have classified the sale of our Amplifier Business as a discontinued operation as of September 12, 2013, the date management committed to sell the business. The assets of the discontinued operation are presented as current assets under the caption assets of discontinued operations held for sale in the accompanying condensed consolidated balance sheets at September 28, 2013 and June 29, 2013, and consist of the following:


	September 28, 2013		June 29, 2013
	(Thousands)
Assets of Discontinued Operations Held for Sale
Inventories	$	6,792	$	8,225
Prepaid expenses and other current assets		407		494
Property and equipment, net		7,034		6,741

	$	14,233	$	15,460

The following table presents the statements of operations for the discontinued operations of the Amplifier Business for the three months ended September 28, 2013 and September 29, 2012:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
Revenues	$	28,316	$	27,893
Cost of revenues		20,715		21,448

Gross profit		7,601		6,445
Operating expenses		3,936		4,130
Other income (expense), net		—		—

Income from discontinued operations before income taxes		3,665		2,315
Income tax provision		—		—

Income from discontinued operations	$	3,665	$	2,315

Acquisition of Opnext

On March 26, 2012, we entered into an Agreement and Plan of Merger and Reorganization, by and among Opnext, Tahoe Acquisition Sub, Inc., a newly formed wholly-owned subsidiary of Oclaro (Merger Sub), and Oclaro, pursuant to which we acquired Opnext through a merger of Merger Sub with and into Opnext. On July 23, 2012, we consummated the acquisition following approval by the stockholders of both companies.

Any excess of the fair value of assets acquired and liabilities assumed over the aggregate consideration given for such acquisition results in a gain on bargain purchase. In the first quarter of fiscal year 2013, we initially recorded a gain on bargain purchase of $39.5 million in connection with the acquisition of Opnext, which was subsequently adjusted to $24.9 million, upon completing our purchase price allocation and finalizing our fair value estimates of assets acquired and liabilities assumed in the fourth quarter of fiscal year 2013.

This acquisition is more fully discussed in Note 3, Business Combinations and Asset Dispositions , to our consolidated financial statements included in our 2013 Form 10-K.

Acquisition of Mintera

In July 2010, we acquired Mintera Corporation (Mintera). Under the terms of this acquisition, we agreed to pay certain revenue-based consideration, whereby former security holders of Mintera were entitled to receive earnouts up to $20.0 million, determined based on revenue from Mintera products following the acquisition. In the first quarter of fiscal year 2013, we settled the remaining earnout obligations of $8.6 million in cash.

This acquisition is more fully discussed in Note 3, Business Combinations and Asset Dispositions , to our consolidated financial statements included in our 2013 Annual Report on Form 10-K.

NOTE 6. OTHER INTANGIBLE ASSETS

In connection with our sale of the Zurich Business during the first quarter of fiscal year 2014, we transferred certain of our other intangible assets to II-VI. As of September 12, 2013, the date of the sale, and June 29, 2013, these other intangible assets had no carrying value. For the three months ended September 29, 2012, we recorded $0.1 million in amortization related to these intangible assets, which has been reclassified to discontinued operations in the condensed consolidated statements of operations.

In connection with our acquisition of Opnext on July 23, 2012, we recorded $16.4 million in other intangible assets as our estimate of the fair value of acquired intangible assets. The intangible assets acquired from Opnext consist of $8.7 million of developed technology with an estimated weighted average useful life of 6 years, $0.2 million of contract backlog with an estimated weighted average useful life of 1 year, $4.9 million of customer relationships with an estimated weighted average useful life of 11 years, and $2.7 million of trademarks and other with an estimated weighted average useful life of 6 years.

During the first quarter of fiscal year 2013, we determined that a portion of the technology we acquired in connection with our acquisition of Mintera in July 2010 was redundant, following the acquisition of Opnext and its product lines. We recorded $0.9 million for the impairment loss related to these intangibles in our condensed consolidated statements of operations for the three months ended September 29, 2012.

The following table summarizes the activity related to our intangible assets for the three months ended September 28, 2013:


	Core and		Development
	Current		and Supply		Customer		Patent		Other
	Technology		Agreements		Relationships		Portfolio		Intangibles		Amortization			Total
	(Thousands)
Balance at June 29, 2013	$	8,333	$	4,556	$	5,198	$	915	$	3,338	$	(12,107	)	$	10,233
Amortization		—		—		—		—		—		(422	)		(422	)
Translations and adjustments		38		58		—		—		—		—			96

Balance at September 28, 2013	$	8,371	$	4,614	$	5,198	$	915	$	3,338	$	(12,529	)	$	9,907

NOTE 7. CREDIT LINE AND NOTES

Credit Line and Term Loan

On August 2, 2006, Oclaro, Inc., as the (“Parent”), along with Oclaro Technology Limited, (“Borrower”), Oclaro Photonics, Inc. and Oclaro Technology, Inc., each a wholly-owned subsidiary, entered into a Credit Agreement with Wells Fargo Capital Finance, Inc. (Wells Fargo) and certain other lenders. From time to time, we amended and restated the Credit Agreement, which is more fully discussed in Note 7, Credit Line and Notes , to our consolidated financial statements included in our 2013 Annual Report on
Form 10-K.

On May 6, 2013, Parent, Borrower, the Lenders (collectively, Wells Fargo and Silicon Valley Bank), Wells Fargo (“Agent”) and PECM Strategic Funding LP and Providence TMT Debt Opportunity Fund II LP (the “Term Lenders”) entered into Amendment Number Two to the Credit Agreement and the associated guaranties and security agreements (the “Amendment”), which amended the Credit Agreement in pertinent part by: (i) adding a $25.0 million term loan (the “Term Loan”) to be provided by the Term Lenders; (ii) reducing the revolving credit facility from $80 million to $50 million (to be further reduced on a dollar-for-dollar basis by an amount equal to the net proceeds of certain asset sale transactions that the Parent may undertake in the future), eliminating the Borrower’s option to increase the revolving credit facility to $100.0 million and implementing an availability block under the revolving credit facility of at least $10.0 million; (iii) removing the financial covenants so that Borrower is not required to maintain a minimum of $15.0 million of availability under the revolving credit facility or $15.0 million in qualified cash balances; (iv) adding an affirmative covenant that Borrower shall have consummated one or more asset sales by July 15, 2013 and with a minimum threshold of net proceeds, and (v) providing for payments and proceeds of asset sales to be applied to repay the credit facility and the Term Loan (with the first $20.0 million of such proceeds being applied to repay Wells Fargo Capital Finance, Inc. and Silicon Valley Bank and the next $25.0 being applied to repay Providence and the remaining proceeds being used to repay Wells Fargo Capital Finance, Inc. and Silicon Valley Bank all amounts outstanding under the credit facility). In connection with the Term Loan, we also issued certain warrants.

On August 21, 2013, Parent, Borrower, Agent, and Wells Fargo and Silicon Valley Bank (collectively, the “Lenders”) entered into Waiver and Amendment Number Three to the Credit Agreement, which amended the Credit Agreement in pertinent part by: (i) extending the date by which the Borrower shall have consummated one or more asset sales with a minimum threshold of net proceeds to September 2, 2013; (ii) eliminating the mandatory reduction of the revolving credit facility upon the consummation of the asset sales described in (i) above; and (iii) adding a covenant that the Borrower is required to maintain a minimum liquidity of at least $45.0 million at all times (liquidity being the sum of the Borrower’s excess availability under the revolving credit facility plus the lesser of $25.0 million and qualified cash balances). The Borrower paid the lenders an amendment fee of $650,000.

Under the Credit Agreement, as amended, we were required to complete certain asset sales on or by September 2, 2013. We completed the sale of the Zurich Business on September 12, 2013 and applied the net proceeds to repay the entire credit line and Term Loan. At September 28, 2013, there are no amounts outstanding under the credit line or the Term Loan. At June 29, 2013, we had $40.0 million outstanding under the credit line and $25.0 million outstanding related to the Term Loan. Upon repaying the credit line and the Term Loan during the first quarter of fiscal year 2014, we recorded the remaining balance of $4.3 million of unamortized debt discount and issuance costs related to this loan in interest (income) expense, net within the condensed consolidated statement of operations for the three months ended September 28, 2013.

The event of default resulting from not completing the transaction on September 2, 2013, was waived on September 26, 2013. This waiver eliminated the requirement for the Agent and Lenders to make any advances, issue any letters of credit or provide any other extension of credit until the Agent and Lenders agree otherwise and prevents us from exercising any right or action set forth in the applicable loan documents that is conditioned on the absence of any event of default. If the Agent and Lenders do not agree to make amounts under the Credit Agreement available to us, then the Agent and Lenders will have the option to immediately terminate the Credit Agreement. As of September 28, 2013, no amounts were available to us under the Credit Agreement. We are currently in discussions with the Agent and Lenders regarding an amendment to the Credit Agreement.

7.50 % Exchangeable Senior Secured Second Lien Notes (Convertible Notes)

On December 14, 2012, we and our indirect, wholly owned subsidiary, Oclaro Luxembourg S.A., closed the private placement of $25.0 million aggregate principal amount 7.50% Exchangeable Senior Secured Second Lien Notes due 2018 (Convertible Notes). The sale of the Convertible Notes resulted in net proceeds of approximately $22.8 million. The private placement was completed pursuant to a purchase agreement, dated December 14, 2012 entered into by us, certain of our domestic and foreign subsidiaries (the Guarantors) and Morgan Stanley & Co. LLC, which is more fully discussed in Note 7, Credit Line and Notes , to our consolidated financial statements included in our 2013 Annual Report on Form 10-K.

Any holder that exchanges its Convertible Notes after such holder’s Convertible Notes have been called for redemption by us will, in addition to receiving shares of common stock deliverable upon such exchange and cash in lieu of fractional shares, receive a payment (the “redemption exchange make-whole payment”) in cash equal to the sum of the remaining scheduled payments of interest that would have been made on the Convertible Notes to be exchanged had such Convertible Notes remained outstanding from the applicable exchange date to the maturity date. If the redemption exchange make-whole payment is payable upon exchange of a holder’s Convertible Notes, then such holder will not receive the “make-whole premium” payment described above.

In connection with the issuance of the Convertible Notes, our contingent obligation to make a make-whole premium payment in the event of an early conversion by the holders of the Convertible Notes is considered an embedded derivative. As of September 28, 2013 and June 29, 2013, the fair value of this contingent obligation is estimated at $0.7 million and $0.1 million, respectively, and recorded within other non-current liabilities in the condensed consolidated balance sheet. The estimated fair value of the make-whole premium was determined by using a valuation model to predict the probability and timing of a conversion.

In connection with the private placement of the Convertible Notes, we incurred approximately $1.3 million in debt discount and $0.9 million in issuance costs. The debt discount and the issuance costs are recorded in convertible notes payable in the consolidated balance sheet as of September 28, 2013 and June 29, 2013. During the three months ended September 28, 2013, we recorded $0.2 million in debt discount and issuance costs in our condensed consolidated statement of operations.

The following table sets forth balance sheet information related to the Convertible Notes at September 28, 2013:


	September 28, 2013
	(Thousands)
Principal value of the liability component	$	25,000
Unamortized value of the debt discount and issuance costs		(1,909	)

Net carrying value of the liability component	$	23,091

NOTE 8. POST-RETIREMENT BENEFITS

Switzerland Defined Benefit Plan

During the first quarter of fiscal year 2014, we sold our Zurich Business, and as part of the sale transferred our pension plan covering employees of our Swiss subsidiary (the Swiss Plan) to II-VI. At September 28, 2013, we had no remaining obligations under the Swiss Plan.

Net periodic pension costs associated with our Swiss Plan are recorded in discontinued operations for the three months ended September 28, 2013 and September 29, 2012, and included the following:


	Three Months Ended
	September 28, 2013			September 29, 2012
	(Thousands)
Service cost	$	703		$	809
Interest cost		169			183
Expected return on plan assets		(279	)		(306	)
Net amortization		76			93

Net periodic pension costs	$	669		$	779

During the three months ended September 28, 2013 and September 29, 2012, we contributed $0.5 million and $0.6 million, respectively, to our Swiss Plan.

Japan Defined Contribution and Benefit Plan

In connection with our acquisition of Opnext, we assumed a defined contribution plan and a defined benefit plan that provides retirement benefits to our employees in Japan.

Under the defined contribution plan, contributions are provided based on grade level and totaled $0.2 million for the three months ended September 28, 2013 and $0.3 million for the period from July 23, 2012, the acquisition date, to September 29, 2012, the end of our first quarter of fiscal year 2013. Employees can elect to receive the benefit as additional salary or contribute the benefit to the plan on a tax-deferred basis.

Under the defined benefit plan in Japan (the Japan Plan), we calculate benefits based on an employee’s individual grade level and years of service. Employees are entitled to a lump sum benefit upon retirement or upon certain instances of termination. As of September 28, 2013, there were no plan assets. Net periodic pension costs for the Japan Plan for the three months ended September 28, 2013 and September 29, 2012 included the following:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
Service cost	$	248	$	294
Interest cost		24		37
Net amortization		16		22

Net periodic pension costs	$	288	$	353

In connection with the Japan Plan, we have $0.2 million in accrued expenses and other liabilities and $8.0 million in other non-current liabilities in our condensed consolidated balance sheet as of September 28, 2013, to account for the projected benefit obligations.

We made benefit payments of $0.1 million and less than $0.1 million, respectively, under the Japan plan during the three months ended September 28, 2013 and September 29, 2012.

NOTE 9. COMMITMENTS AND CONTINGENCIES

Loss Contingencies

We are involved in various lawsuits, claims, and proceedings that arise in the ordinary course of business. We record a loss provision when we believe it is both probable that a liability has been incurred and the amount can be reasonably estimated.

Guarantees

We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and executive officers. We have not recorded a liability associated with these indemnification arrangements, as we historically have not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that we maintain, however, such insurance may not cover any, or may cover only a portion of, the amounts we may be required to pay. In addition, we may not be able to maintain such insurance coverage in the future.

We also have indemnification clauses in various contracts that we enter into in the normal course of business, such as indemnifications in favor of customers in respect of liabilities they may incur as a result of purchasing our products should such products infringe the intellectual property rights of a third party. We have not historically paid out any material amounts related to these indemnifications; therefore, no accrual has been made for these indemnifications.

Warranty accrual

We generally provide a warranty for our products for twelve to thirty-six months from the date of sale, although warranties for certain of our products may be longer. We accrue for the estimated costs to provide warranty services at the time revenue is recognized. Our estimate of costs to service our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty costs would increase, resulting in a decrease in gross profit.

The following table summarizes movements in the warranty accrual for the periods indicated:


	Three Months Ended
	September 28, 2013			September 29, 2012
	(Thousands)
Warranty provision—beginning of period	$	5,887		$	2,599
Warranties assumed in acquisitions		—			4,867
Warranties issued		972			691
Warranties utilized or expired		(983	)		(972	)
Currency translation adjustment		94			85

Warranty provision—end of period	$	5,970		$	7,270

Capital Leases

In connection with our acquisition of Opnext, we assumed certain capital leases with Hitachi Capital Corporation for certain equipment. The following table shows the future minimum lease payments due under non-cancelable capital leases with Hitachi Capital Corporation:


	Capital Leases
	(Thousands)
Fiscal Year Ending:
2014 (remaining)	$	7,671
2015		4,803
2016		3,150
2017		1,494
2018		56
Thereafter		100

Total minimum lease payments		17,274
Less amount representing interest		(591	)

Present value of capitalized payments		16,683
Less: current portion		(8,300	)

Long-term portion	$	8,383

Litigation

In the ordinary course of business, we are involved in various legal proceedings, and we anticipate that additional actions will be brought against us in the future. The most significant of these proceedings are described below. The following supplements and amends the discussion set forth in our Annual Report on Form 10-K for the year ended June 29, 2013. These legal proceedings, as well as other matters, involve various aspects of our business and a variety of claims in various jurisdictions. Complex legal proceedings frequently extend for several years, and a number of the matters pending against us are at very early stages of the legal process. As a result, some pending matters have not yet progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to determine whether the proceeding is material to us or to estimate a range of possible loss, if any. Unless otherwise disclosed, we are unable to estimate the possible loss or range of loss for the legal proceedings described below. While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on our results of operations, financial position or cash flows.

On October 23, 2013, Xi’an Raysung Photonics Inc. filed a civil suit against our wholly-owned subsidiary, Oclaro Technology (Shenzhen) Co., Ltd. (formerly known as Bookham Technology (Shenzhen) Co., Ltd.) in the Xi’an Intermediate People’s Court in Shaanxi Province of the People’s Republic of China. The complaint filed by Xi’an Raysung Photonics Inc. alleges that Oclaro Technology (Shenzhen) Co., Ltd. terminated its purchase order pursuant to which Xi’an Raysung Photonics Inc. had supplied certain products and was to supply certain products to Oclaro Technology (Shenzhen) Co., Ltd.

Xi’an Raysung Photonics Inc. has requested the court award damages of approximately $0.8 million (equivalent to RMB 4,796,531.81), and requested that Oclaro Technology (Shenzhen) Co., Ltd. take the finished products that are now stored in Xi’an Raysung Photonics Inc.’s warehouse (the value of the finished product is approximately, $2.2 million, (equivalent to RMB 13,505,162.34) and requested that Oclaro Technology (Shenzen) Co., Ltd. pay its court fees in connection with this suit.

The Xi’an Intermediate People’s Court delivered an Asset Preservation Order which was served on Oclaro Technology (Shenzhen) Co., Ltd. and the local Customs office. According to the Asset Preservation Order, Oclaro Technology (Shenzhen) Co., Ltd. was ordered to maintain approximately $2.5 million (equivalent to RMB 15,000,000.00) or assets equivalent to the said amount during the litigation process, and the Customs office was ordered that before the Asset Preservation Order is lifted, Oclaro Technology (Shenzhen) Co., Ltd.’s equipment is restricted from being exported. Oclaro Technology (Shenzhen) Co., Ltd. believes it has meritorious defenses to the claims made by Xi’an Raysung Photonics Inc.

On August 29, 2013, the Secured Lender Trustee of the Secured Lender Trust established under the Second Amended Chapter 11 Plan of Liquidation of Dewey & LeBoeuf LLP (the “Trustee”) filed a complaint against Oclaro, Inc. in the United States Bankruptcy Court, Southern District of New York. The complaint alleges that we were formerly a client of Dewey & LeBoeuf LLP (“Dewey”) and engaged it to provide services for the period through June 5, 2012. The Trustee claims that there are unpaid invoices outstanding totaling approximately $0.5 million. We intend to defend this litigation vigorously.

On December 21, 2012, Labyrinth Optical Technologies LLC filed a complaint against us in United States District Court for the Central District of California alleging that certain coherent transponder modules, coherent receivers and DQPSK transceivers sold by us infringe Labyrinth Optical U.S. patent Nos. 7,599,627 and 8,103,173. The parties executed a settlement agreement on September 13, 2013 and subsequently filed a motion to dismiss the case with prejudice. The settlement amount was not significant.

On May 19, 2011, Curtis and Charlotte Westley filed a purported class action complaint in the United States District Court for the Northern District of California, against us and certain of our officers and directors. The Court subsequently appointed the Connecticut Laborers’ Pension Fund (Pension Fund) as lead plaintiff for the putative class. On April 26, 2012, the Pension Fund filed a second amended complaint, captioned as Westley v. Oclaro, Inc., No. 11 Civ. 2448 EMC, allegedly on behalf of persons who purchased our common stock between May 6 and October 28, 2010, alleging that we and certain of our officers and directors issued materially false and misleading statements during this time period regarding our current business and financial condition, including projections for demand for our products, as well as our revenues, earnings, and gross margins, for the first quarter of fiscal year 2011 as well as the full fiscal year. The complaint alleges violations of section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5, as well as section 20(a) of the Securities Exchange Act. The complaint seeks damages and costs of an unspecified amount. On September 21, 2012, the Court dismissed the second amended complaint with leave to amend. After the Pension Fund moved for reconsideration, on January 10, 2013, the Court allowed plaintiffs to take discovery regarding statements made in May and June 2010. On March 1, 2013 the Pension Fund filed a third amended complaint, attempting to cure pleading deficiencies with regard to statements allegedly made in July and August 2010. On April 1, 2013, defendants moved to dismiss the third amended complaint with respect to the statements made in July and August 2010. On May 30, 2013, the Court granted Defendants’ motion to dismiss the complaint’s claims based on statements made in July and August 2010. Discovery has commenced, and no trial has been scheduled in this action. We intend to defend this litigation vigorously.

On June 10, 2011, a purported shareholder, Stanley Moskal, filed a purported derivative action in the Superior Court for the State of California, County of Santa Clara, against us, as nominal defendant, and certain of our current and former officers and directors, as defendants. The case is styled Moskal v. Couder, No. 1:11 CV 202880 (Santa Clara County Super. Ct. filed June 10, 2011). Four other purported shareholders, Matteo Guindani, Jermaine Coney, Jefferson Braman and Toby Aguilar, separately filed substantially similar lawsuits in the United States District Court for the Northern District of California on June 27, June 28, July 7 and July 26, 2011, respectively. By Order dated September 14, 2011, the Guindani, Coney, and Braman actions were consolidated under In re Oclaro, Inc. Derivative Litigation, Lead Case No. 11 Civ. 3176 EMC. On October 5, 2011, the Aguilar action was voluntarily dismissed. Each remaining purported derivative complaint alleges that Oclaro has been, or will be, damaged by the actions alleged in the Westley complaint, and the litigation of the Westley action, and any damages or settlement paid in the Westley action. Each purported derivative complaint alleges counts for breaches of fiduciary duty, waste, and unjust enrichment. Each purported derivative complaint seeks damages and costs of an unspecified amount, as well as injunctive relief. By Order dated March 6, 2012, the parties in the Moskal action agreed that defendants shall not be required to respond to the original complaint. By Order dated February 27, 2013, the parties in the Moskal action agreed that plaintiff would serve an amended complaint no later than 30 days after the Court in the Westley action rules on defendants’ motion to dismiss the third amended complaint in the Westley action and the stay of discovery would remain in effect until further order of the Court or agreement by the parties, provided, however, that they obtain discovery produced in the Westley Action. By Order dated March 12, 2013, the parties to In re Oclaro, Inc. Derivative Litigation agreed to stay all proceedings until such time as (a) the defendants file an answer to any complaint in the Westley action; or (b) the Westley action is dismissed in its entirety with prejudice, provided, however, that they obtain discovery produced in the Westley Action. No trial has been scheduled in any of these actions.

On September 3, 2013, the parties agreed to settle the Westley, Moskal, and In re Oclaro Derivative matters for a total of $3.95 million, plus certain corporate governance changes. The money will be paid entirely by our directors and officers liability insurance carriers. Any fees awarded to the plaintiffs in these actions, or their respective counsel, will be included in this amount. The settlement is subject to final documentation and court approval.

On May 27, 2011, Opnext Japan filed a complaint against Furukawa in the Tokyo District Court alleging that certain laser diode modules sold by Furukawa infringe Opnext Japan’s Japanese patent No. 3,887,174. Opnext Japan is seeking an injunction as well as damages in the amount of 100.0 million Japanese yen.

On August 5, 2011, Opnext Japan filed a complaint against Furukawa in the Tokyo District Court alleging that certain integratable tunable laser assemblies sold by Furukawa infringe Opnext Japan’s Japanese patent No. 4,124,845. Opnext Japan is seeking an injunction as well as damages in the amount of 200.0 million Japanese yen.

NOTE 10. EMPLOYEE STOCK PLANS

Stock Incentive Plans

We currently maintain the Amended and Restated 2004 Stock Incentive Plan (Plan). Under the Plan, there are a total of 7.8 million shares of common stock authorized for issuance, with full value awards being counted as 1.25 shares of common stock for purposes of the share limit. The Plan expires in October 2020.

In connection with our acquisition of Opnext, we assumed Opnext’s Amended and Restated 2001 Long-Term Stock Incentive Plan (Opnext Plan) and the shares reserved for issuance thereunder. After giving effect to the exchange ratio, the unused and converted share reserve thereunder consisted of 6,306,977 shares of common stock as of the acquisition date. Subject to compliance with applicable NASDAQ listing requirements, we may grant new stock awards under the assumed Opnext Plan using such share reserve (including any shares returned to such share reserve as a result of the forfeiture or expiration of the stock awards assumed and converted by us) to our employees who are former Opnext employees and to new employees hired after the date of the acquisition.

As of September 28, 2013, there were 7.5 million shares of our common stock available for grant under both plans.

We generally grant stock options that vest over a four year service period, and restricted stock awards and units that vest over a one to four year service period, and in certain cases each may vest earlier based upon the achievement of specific performance-based objectives as set by our board of directors.

In July 2011, our board of directors approved the grant of 0.2 million performance stock units (PSUs) to certain executive officers with an aggregate estimated grant date fair value of $0.9 million. These PSUs vest, up to 150 percent of the target PSUs, upon the achievement of certain revenue growth targets through June 30, 2013, relative to certain comparable companies. Vesting is also contingent upon service conditions being met through August 2015. In October 2013, it was determined that achievement of the performance conditions was reached at the 150 percent target level. As of September 28, 2013, there were 0.2 million PSUs outstanding, after adjustments for forfeitures due to terminations, related to this grant, with an aggregate estimated grant date fair value of $0.8 million.

In July 2012, our board of directors approved an additional grant of 0.6 million PSUs to certain executive officers, subject to shareholder approval of an amendment to our current Plan. These PSUs are not included in the awards outstanding or granted disclosures or in stock-based compensation expense as they are not deemed granted for accounting purposes until the foregoing shareholder approval is obtained. Approximately 0.2 million of the PSUs were forfeited as a result of certain executive officer departures. We will record a cumulative adjustment for stock-based compensation expense based on the fair value of these awards at the date of approval. These PSUs vest upon the achievement of certain adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) targets through June 30, 2014. Vesting is also contingent upon service conditions being met through August 2016. If the performance conditions are not achieved, then the corresponding PSUs will be forfeited in the first quarter of fiscal year 2015.

The following table summarizes the combined activity under all of our equity incentive plans for the three months ended September 28, 2013:


	Shares			Stock			Weighted-		Restricted Stock			Weighted-
	Available			Options /SARs			Average		Awards / Units			Average Grant
	For Grant			Outstanding			Exercise Price		Outstanding			Date Fair Value
	(Thousands)			(Thousands)					(Thousands)
Balances at June 29, 2013		7,578			6,475		$	9.36		2,850		$	3.17
Granted		(499	)		—			—		400			1.12
Exercised or released		—			(8	)		0.97		(468	)		2.73
Cancelled or forfeited		392			(281	)		12.36		(141	)		2.95

Balances at September 28, 2013		7,471			6,186			9.25		2,641			2.95

Supplemental disclosure information about our stock options outstanding as of September 28, 2013 is as follows:

Weighted-

Average

Aggregate

Average

Remaining

Intrinsic

Shares

Exercise Price

Contractual Life

Value

(Thousands)

(Years)

(Thousands)

Options and SARs exercisable at September 28, 2013

5,407

9.79

4.5

180

Options and SARs outstanding at September 28, 2013

6,186

9.25

5.0

184

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the closing price of our common stock of $1.80 on September 27, 2013, which would have been received by the option holders had all option holders exercised their options as of that date. There were approximately 0.2 million shares of common stock subject to in-the-money options which were exercisable as of September 28, 2013. We settle employee stock option exercises with newly issued shares of common stock.

NOTE 11. STOCK-BASED COMPENSATION

We recognize compensation expense in our statement of operations related to all share-based awards, including grants of stock options, based on the grant date fair value of such share-based awards. Estimating the grant date fair value of such share-based awards requires us to make judgments in the determination of inputs into the Black-Scholes stock option pricing model which we use to arrive at an estimate of the grant date fair value for such awards. The assumptions used in this model to value stock option grants for the three months ended September 28, 2013 and September 29, 2012 were as follows:


	Three Months Ended
	September 28, 2013		September 29, 2012
Stock options:
Expected life		—		5.1 years
Risk-free interest rate		—		0.7	%
Volatility		—		82.9	%
Dividend yield		—		—

The amounts included in cost of revenues and operating expenses for stock-based compensation for the three months ended September 28, 2013 and September 29, 2012 were as follows:


	Three Months Ended
	September 28, 2013			September 29, 2012
	(Thousands)
Stock-based compensation by category of expense:
Cost of revenues	$	252		$	274
Research and development		246			319
Selling, general and administrative		465			780

	$	963		$	1,373

Stock-based compensation by type of award:
Stock options	$	331		$	746
Restricted stock awards		658			517
Purchase rights under ESPP		—			180
Inventory adjustment to cost of revenues		(26	)		(70	)

	$	963		$	1,373

As of September 28, 2013 and June 29, 2013, we had capitalized approximately $0.3 million and $0.4 million, respectively, of stock-based compensation as inventory.

NOTE 12. INCOME TAXES

The income tax provision of $0.3 million and $0.9 million for the three months ended September 28, 2013 and September 29, 2012, respectively, related primarily to our foreign operations.

The total amounts of our unrecognized tax benefits as of September 28, 2013 and June 29, 2013 were approximately $8.2 million and $8.0 million, respectively. For the three months ended September 28, 2013 and September 29, 2012, we had $3.5 million and $4.8 million, respectively in unrecognized tax benefits that, if recognized, would affect our effective tax rate. While it is often difficult to predict the final outcome of any particular uncertain tax position, we believe that unrecognized tax benefits could decrease by approximately $1.5 million in the next twelve months. We are currently under tax audit in China, and we believe that our tax returns are supportable as filed. However, we cannot predict the outcome of the examination, and the ultimate outcome could result in a material adjustment to our tax liability.

NOTE 13. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using only the weighted-average number of shares of common stock outstanding for the applicable period, while diluted net income per share is computed assuming conversion of all potentially dilutive securities, such as stock options, unvested restricted stock awards, warrants and convertible notes during such period.

For the three months ended September 28, 2013 and September 29, 2012, we excluded 24.7 million and 7.8 million, respectively, of outstanding stock options, stock appreciation rights, warrants, shares issuable in connection with convertible notes, and unvested restricted stock awards from the calculation of diluted net income per share because their effect would have been anti-dilutive.

NOTE 14. GEOGRAPHIC INFORMATION, PRODUCT GROUPS AND CUSTOMER CONCENTRATION INFORMATION

Geographic Information

The following table shows revenues by geographic area based on the delivery locations of our products:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
Hong Kong	$	16,981	$	14,875
Germany		14,395		10,084
Mexico		12,854		4,292
Japan		12,488		12,893
Malaysia		9,511		10,160
United States		7,390		13,850
Italy		6,387		5,848
China, excluding Hong Kong		5,836		10,467
Thailand		3,307		3,812
Rest of world		7,499		9,354

	$	96,648	$	95,635

Product Groups

The following table sets forth revenues by product group:


	Three Months Ended
	September 28, 2013		September 29, 2012
	(Thousands)
40 Gb/s and 100 Gb/s transmission	$	38,892	$	31,445
10 Gb/s and lower transmission		50,540		58,548
Industrial and consumer		7,216		5,642

	$	96,648	$	95,635

Significant Customers and Concentration of Credit Risk

For the three months ended September 28, 2013, Cisco Systems, Inc. (Cisco) accounted for 15 percent and Coriant accounted for 11 percent of our revenues. For the three months ended September 29, 2012, Cisco accounted for 16 percent of our revenues.

As of September 28, 2013, Flextronics International Ltd. accounted for 14 percent and Coriant accounted for 10 percent of our accounts receivable. As of June 29, 2013, Huawei Technologies Co., Ltd. (Huawei) accounted for 15 percent of our accounts receivable.

NOTE 15. RELATED PARTY TRANSACTIONS

As a result of our acquisition of Opnext on July 23, 2012, Hitachi, Ltd. (Hitachi) holds approximately 13 percent of our outstanding common stock as of September 28, 2013 based on Hitachi’s most recent Schedule 13G filed with the Securities and Exchange Commission on July 27, 2012.

We continue to enter into transactions with Hitachi in the normal course of business. Sales to Hitachi were $1.3 million and $3.0 million, respectively for the three months ended September 28, 2013 and September 29, 2012. Purchases from Hitachi were $2.7 million and $6.4 million, respectively, for the three months ended September 28, 2013 and September 29, 2012. At September 28, 2013 we had $3.6 million accounts receivable due from Hitachi and $2.1 million accounts payable due to Hitachi. At June 29, 2013 we had $3.0 million accounts receivable due from Hitachi and $2.2 million accounts payable due to Hitachi. We also have certain capital equipment leases with Hitachi Capital Corporation as described in Note 9, Commitments and Contingencies .

We are now party to the following material agreements with Hitachi:

•

Intellectual Property License Agreements

We are party to two intellectual property license agreements pursuant to which Hitachi licenses certain intellectual property rights to us on the terms and subject to the conditions stated therein on a fully paid, nonexclusive basis and we license certain intellectual property rights to Hitachi on a fully paid, nonexclusive basis. Hitachi has also agreed to sublicense certain intellectual property to us to the extent that Hitachi has the right to make available such rights to us in accordance with the terms and subject to the conditions stated therein.

We are also party to an intellectual property license agreement with Hitachi Communication Technologies, Ltd., a wholly owned subsidiary of Hitachi, whereby Hitachi Communication Technologies, Ltd. licenses certain intellectual property rights to us on a fully paid, nonexclusive basis, and we license certain intellectual property rights to Hitachi Communication Technologies, Ltd. on a fully paid, nonexclusive basis.

•

Research and Development Agreement

We are party to a Research and Development Agreement pursuant to which Hitachi provides certain research and development support to us in accordance with the terms and conditions of the agreement. Intellectual property resulting from certain research and development projects is owned by us and licensed to Hitachi on a fully paid, nonexclusive basis. Intellectual property resulting from certain other research and development projects is owned by Hitachi and licensed to us on a fully paid, nonexclusive basis. Certain other intellectual property is jointly owned.

NOTE 16. SUBSEQUENT EVENTS

On October 10, 2013, Oclaro Technologies entered into an Asset Purchase Agreement with II-VI, whereby Oclaro Technologies agreed to sell to II-VI and certain of its affiliates the Amplifier Business for $88.6 million in cash. The transaction closed on November 1, 2013.

Consideration, valued at $88.6 million, consists of $79.6 million in cash, which was received on November 1, 2013, $4.0 million subject to hold-back by II-VI until December 31, 2014 to address any post-closing claim and $5.0 million related to the exclusive option, which was received on September 12, 2013 and will be credited against the purchase price.

We entered into certain transition service and manufacturing service agreements to allow the Amplifier Business to continue operations during the ownership transition.

Both parties provided customary and reciprocal representations, warranties and covenants in the Asset Purchase Agreement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, about our future expectations, plans or prospects and our business. You can identify these statements by the fact that they do not relate strictly to historical or current events, and contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “will,” “plan,” “believe,” “should,” “outlook,” “could,” “target,” “model,” “may” and other words of similar meaning in connection with discussion of future operating or financial performance. We have based our forward looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. There are a number of important factors that could cause our actual results or events to differ materially from those indicated by such forward-looking statements, including (i) the effect of receiving a “going concern” statement in our auditors report on our 2013 consolidated financial statements, (ii) the sale of businesses which may or may not arise in connection with executing our restructuring plans, (iii) the future performance of Oclaro and our ability to effectively integrate the operations of acquired companies following the closing of acquisitions and mergers, including our merger with Opnext, (iv) our ability to support the carve out of processes, assets and product lines sold in connection with the sale of our Zurich Business and the Amplifier Business, to serve as a supplier to the buyers of such businesses during the transition of manufacturing activities, (v) our ability to effectively restructure our operations and business following the sale of our Zurich Business and the Amplifier Business in accordance with our business plan, (vi) the potential inability to realize the expected and ongoing benefits and synergies of acquisitions and mergers and from the utilization of capital from our asset dispositions, (vii) the impact of continued uncertainty in world financial markets and any resulting reduction in demand for our products, (viii) our ability to meet or exceed our gross margin expectations, (ix) the effects of fluctuating product mix on our results, (x) our ability to timely develop and commercialize new products, (xi) our ability to reduce costs and operating expenses, (xii) our ability to respond to evolving technologies and customer requirements and demands, (xiii) our dependence on a limited number of customers for a significant percentage of our revenues, (xiv) our ability to maintain strong relationships with certain customers, (xv) our ability to effectively compete with companies that have greater name recognition, broader customer relationships and substantially greater financial, technical and marketing resources than we do, (xvi) our ability to effectively and efficiently transition to an outsourced back-end assembly and test model, (xvii) our ability to timely capitalize on any increase in market demand, (xviii) increased costs related to downsizing and compliance with regulatory and legal requirements in connection with such downsizing, (xix) competition and pricing pressure, (xx) the risks associated with our international operations, (xxi) our ability to service and repay our outstanding indebtedness pursuant to the terms of the applicable agreements, (xxii) the outcome of tax audits or similar proceedings, (xxiii) the outcome of pending or potential litigation against us, (xxiv) our ability to maintain or increase our cash reserves and obtain debt or equity-based financing on terms acceptable to us or at all, and (xxv) other factors described in other documents we periodically file with the SEC. We cannot guarantee any future results, levels of activity, performance or achievements. You should not place undue reliance on forward-looking statements. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements. Several of the important factors that may cause our actual results to differ materially from the expectations we describe in forward-looking statements are identified in the sections captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference.

As used herein, “Oclaro,” “we,” “our,” and similar terms include Oclaro, Inc. and its subsidiaries, unless the context indicates otherwise.

OVERVIEW

We are one of the largest providers of optical components, modules and subsystems for the optical communications market. We are a global leader dedicated to photonics innovation, with research and development (R&D) and chip fabrication facilities in the U.K., Italy, Korea and Japan. We have in-house and contract manufacturing sites in the U.S., China, Malaysia and Thailand, with design, sales and service organizations in most of the major regions around the world.

Our customers include ADVA Optical Networking; Alcatel-Lucent; Ciena; Cisco; Coriant; Ericsson; Fiberhome Technologies Group; Fujitsu; Huawei; and Tellabs, Inc.

RECENT DEVELOPMENTS

On October 10, 2013, Oclaro Technologies entered into an Asset Purchase Agreement with II-VI, whereby Oclaro Technologies agreed to sell its optical amplifier and micro-optics business (the “Amplifier Business”) to II-VI and certain of its affiliates for $88.6 million in cash. The transaction closed on November 1, 2013.

Consideration, valued at $88.6 million, consists of $79.6 million in cash, which was received on November 1, 2013, $4.0 million subject to hold-back by II-VI until December 31, 2014 to address any post-closing claim and $5.0 million related to the exclusive option, which was received by us on September 12, 2013, and was credited against the purchase price.

We entered into certain transition service and manufacturing service agreements to allow the Amplifier Business to continue operations during the ownership transition.

On September 12, 2013, we also sold our Oclaro Switzerland GmbH subsidiary and associated laser diodes and pump business (the “Zurich Business”) to II-VI Incorporated (II-VI). We received proceeds of $90.6 million in cash on September 12, 2013. We will also receive $6.0 million subject to hold-back by II-VI until December 31, 2014 to address any post-closing adjustments or claims, and $2.0 million subject to a potential post-closing working capital adjustment, which will be calculated based on the level of working capital in the Oclaro Switzerland GmbH subsidiary at the September 12, 2013 close versus a target based on working capital at June 29, 2013. In addition, we retained approximately $14.7 million in accounts receivable related to the Zurich Business and approximately $9.6 million of supplier and employee related payables related to the Zurich Business which were not included in the Oclaro Switzerland GmbH subsidiary.

As part of the agreement, II-VI has purchased our Switzerland subsidiary, which includes its GaAs fabrication facility, and also the corresponding high power laser diodes, VCSEL and 980 nm pump laser product lines, including intellectual property, inventory, equipment and a related research and development facility in Tucson, Arizona, all of which are associated with this business.

We will continue the back-end manufacturing of the 980 nm pump and certain high power laser diode products at our Shenzhen, China manufacturing facility and supply them to II-VI under a manufacturing services agreement. The employees of Shenzhen, China will continue to be employed by us. In addition, various supply and transition service agreements have been established between the companies to ensure a smooth transition.

We have used a portion of the proceeds from the sale of the Zurich and Amplifier Businesses to repay our term loan, repay our entire outstanding balance under our credit line and will use a portion of the remaining proceeds to begin restructuring Oclaro for the future. We intend to further simplify our operating footprint, reduce our cost structure and focus our research and development investment in the optical communications market where we can leverage our core competencies.

RESULTS OF OPERATIONS

On September 12, 2013 we announced the sale of our Zurich Business to II-VI, along with an exclusive option to purchase our Amplifier Business. On October 10, 2013, we entered into an Asset Purchase Agreement with II-VI for the sale of our Amplifier Business, which subsequently closed on November 1, 2013. We have classified the financial results of the Zurich and Amplifier Businesses as discontinued operations for all periods presented. The following presentations relate to continuing operations only, unless otherwise indicated.

On July 23, 2012, we completed a merger by and among Opnext, Inc. (Opnext). The acquisition is more fully discussed in Note 5, Business Combinations and Dispositions to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The condensed consolidated statements of operations for the three months ended September 29, 2012 include the results of operations of the combined entities from July 23, 2012, the date of the acquisition.

The following tables set forth our condensed consolidated results of operations for the three month periods indicated, along with amounts expressed as a percentage of revenues, and comparative information regarding the absolute and percentage changes in these amounts:


	Three Months Ended															Increase
	September 28, 2013						September 29, 2012						Change			(Decrease)
	(Thousands)			%			(Thousands)			%			(Thousands)			%
Revenues	$	96,648			100.0		$	95,635			100.0		$	1,013			1.1
Cost of revenues		85,430			88.4			91,173			95.3			(5,743	)		(6.3	)

Gross profit		11,218			11.6			4,462			4.7			6,756			151.4

Operating expenses:
Research and development		18,102			18.7			20,527			21.4			(2,425	)		(11.8	)
Selling, general and administrative		21,051			21.8			21,603			22.6			(552	)		(2.6	)
Amortization of intangible assets		424			0.4			1,232			1.3			(808	)		(65.6	)
Restructuring, acquisition and related costs		2,877			3.0			11,594			12.1			(8,717	)		(75.2	)
Flood-related expense		—			—			264			0.3			(264	)		(100.0	)
Impairment of other intangibles		—			—			864			0.9			(864	)		(100.0	)
(Gain) loss on sale of property and equipment		452			0.5			(18	)		—			470			n/m	⁽¹⁾

Total operating expenses		42,906			44.4			56,066			58.6			(13,160	)		(23.5	)

Operating loss		(31,688	)		(32.8	)		(51,604	)		(53.9	)		19,916			(38.6	)
Other income (expense):
Interest income (expense), net		(553	)		(0.6	)		(478	)		(0.5	)		(75	)		15.7
Gain on foreign currency translation		1,777			1.8			38			—			1,739			4,576.3
Other income (expense), net		521			0.6			—			—			521			n/m	⁽¹⁾
Gain on bargain purchase		—			—			24,866			26.0			(24,866	)		(100.0	)

Total other income (expense)		1,745			1.8			24,426			25.5			(22,681	)		(92.9	)

Loss before income taxes		(29,943	)		(31.0	)		(27,178	)		(28.4	)		(2,765	)		10.2
Income tax provision		302			0.3			918			1.0			(616	)		(67.1	)

Loss from continuing operations		(30,245	)		(31.3	)		(28,096	)		(29.4	)		(2,149	)		7.6
Income from discontinued operations, net of tax		63,523			65.7			2,988			3.1			60,535			2,025.9

Net income (loss)	$	33,278			34.4		$	(25,108	)		(26.3	)	$	58,386			n/m	⁽¹⁾

(1)

Not meaningful.

Revenues

Revenues for the three months ended September 28, 2013 increased by $1.0 million, or 1 percent, compared to the three months ended September 29, 2012. Compared to the three months ended September 29, 2012, revenues from sales of our 40 Gb/s and 100 Gb/s transmission modules increased by $7.4 million, or 24 percent; revenues from sales of our 10 Gb/s transmission modules decreased by $8.0 million, or 14 percent; and revenues from sales of our industrial and consumer products increased by $1.6 million, or 28 percent.

In fiscal year 2014, we expect our revenues to decrease significantly as a result of the sale of our Zurich and Amplifier Businesses. The Zurich Business and Amplifier Business accounted for approximately 15 percent and 16 percent, respectively, of our fiscal year 2013 revenue.

Cost of Revenues

Our cost of revenues consists of the costs associated with manufacturing our products, and includes the purchase of raw materials, labor costs and related overhead, including stock-based compensation charges and the costs charged by our contract manufacturers for the products they manufacture for us. Charges for excess and obsolete inventory are also included in cost of revenues. Costs and expenses related to our manufacturing resources incurred in connection with the development of new products are included in research and development expenses.

Our cost of revenues for the three months ended September 28, 2013 decreased by $5.7 million, or 6 percent, from the three months ended September 29, 2012. The decrease was primarily related to merger related synergies and realizing the benefits of previous cost reduction efforts.

Gross Profit

Gross profit is calculated as revenues less cost of revenues. Gross margin rate is gross profit reflected as a percentage of revenues.

Our gross margin rate increased to 12 percent for the three months ended September 28, 2013, compared to 5 percent for the three months ended September 29, 2012. Of the 7 percentage points improvement in gross margin rate, the primary sources were improvement in manufacturing overhead as redundancies from the Opnext acquisition were eliminated, manufacturing overhead in other sites was reduced for cost cutting purposes, the sale of our Santa Rosa facility and a higher level of reserves in 2012 versus 2013.

Research and Development Expenses

Research and development expenses consist primarily of salaries and related costs of employees engaged in research and design activities, including stock-based compensation charges related to those employees, costs of design tools and computer hardware, costs related to prototyping and facilities costs for certain research and development focused sites.

Research and development expenses decreased to $18.1 million for the three months ended September 28, 2013 from $20.5 million for the three months ended September 29, 2012. The decrease was primarily related to synergies from aligning and reducing combined research and development resources of Oclaro and Opnext in association with the merger, and other cost reduction efforts in response to softening market conditions.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation charges related to employees engaged in sales, general and administrative functions, legal and professional fees, facilities expenses, insurance expenses and certain information technology costs.

Selling, general and administrative expenses decreased to $21.1 million for the three months ended September 28, 2013, from $21.6 million for the three months ended September 29, 2012. The decrease was primarily related to synergies from aligning and reducing combined selling, general and administrative resources of Oclaro and Opnext in association with the merger, and other cost reduction efforts in response to softening market conditions.

Amortization of Intangible Assets

Amortization of intangible assets decreased to $0.4 million for the three months ended September 28, 2013 from $1.2 million for the three months ended September 29, 2012. The decrease in our amortization is a result of recording $14.2 million in impairment losses during the fourth quarter of fiscal year 2013, including $6.4 million related to intangibles acquired in connection with our acquisition of Mintera, $2.6 million related to intangibles acquired in connection with our acquisition of Opnext, and $5.2 million related to intangibles acquired in connection with other earlier acquisitions. As a result of these impairments, we expect the amortization of intangible assets to decrease from $5.3 million in fiscal year 2013 to $1.7 million for fiscal years 2014 through 2018 based on the current level of our intangible assets.

Restructuring, Acquisition and Related Costs

Impairment of Other Intangible Assets

During the first quarter of fiscal year 2013, we determined that a portion of the technology we acquired in connection with our acquisition of Mintera in July 2010 was considered redundant, following the acquisition of Opnext and its product lines. We recorded $0.9 million for the impairment loss related to these intangibles in our condensed consolidated statement of operations for the three months ended September 29, 2012.

Other Income (Expense)

Other income (expense) decreased to $1.7 million in income for the three months ended September 28, 2013 from $24.4 million in income for the three months ended September 29, 2012. This decrease was primarily due to a $24.9 million gain on bargain purchase in connection with our acquisition of Opnext in the first quarter of fiscal year 2013.

Income Tax Provision

For the three months ended September 28, 2013 and September 29, 2012, our income tax provisions of $0.3 million and $0.9 million, respectively, primarily related to our foreign operations.

Income from Discontinued Operations, Net of Tax

During the three months ended September 28, 2013, we recorded a gain on the sale of the Zurich Business of $62.8 million and income from discontinued operations of the Zurich and Amplifier Businesses of $63.5 million. For the three months ended September 29, 2012, we recorded a gain of $3.0 million related to the operations of the Zurich and Amplifier Businesses during that period.

The following table sets forth the results of the discontinued operations of our Zurich and Amplifier Businesses for the three months ended September 28, 2013 and September 29, 2012 and the year-over-year increases (decreases) in our results:


	Three Months Ended
	September 28, 2013			September 29, 2012			Change
	(Thousands)			(Thousands)			(Thousands)
Revenues	$	42,212		$	53,178		$	(10,966	)
Cost of revenues		32,308			41,602			(9,294	)

Gross profit		9,904			11,576			(1,672	)
Gross margin rate		23	%		22	%
Operating expenses		7,352			8,481			(1,129	)
Other income (expense), net		61,150			158			60,976

Income from discontinued operations before income taxes		63,702			3,253			60,433
Income tax provision		163			265			(102	)

Income from discontinued operations	$	63,539		$	2,988		$	60,535

Revenues. Revenues of the Zurich and Amplifier Businesses decreased $11.0 million, or 21 percent, during the three months ended September 28, 2013 compared to the three months ended September 29, 2012, primarily as a result of decreased sales to our customers due to weaker market conditions, and as a result of completing the sale of the Zurich Business during the quarter ended September 28, 2013.

Cost of Revenues. Cost of revenues of the Zurich and Amplifier Businesses decreased $9.3 million, or 22 percent, during the three months ended September 28, 2013 compared to the three months ended September 29, 2012 due to the net effect of a decrease in direct product costs, based on lower revenues.

Gross Margin Rate. The gross margin rate of the Zurich and Amplifier Businesses increased to 23 percent for the three months ended September 28, 2013 compared to the three months ended September 29, 2012, as a result of lower inventory reserves in the three months ended September 28, 2013.

Operating Expenses. Operating expenses of the Zurich and Amplifier Businesses decreased $1.1 million, or 13 percent, during the three months ended September 28, 2013 compared to the three months ended September 29, 2012, primarily as a result of lower research and development expenses in the three months ended September 28, 2013.

Other Income (Expense). Other income (expense) for the Zurich and Amplifier Businesses increased $61.0 million during the three months ended September 28, 2013 compared to the three months ended September 29, 2012, primarily as a result of $62.8 million gain on the sale of the Zurich Business.

Income Tax Provision. Our income tax provision related to discontinued operations is negligible in each period presented.

RECENT ACCOUNTING STANDARDS

See Note 2, Recent Accounting Standards , to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information regarding the effect of new accounting pronouncements on our condensed consolidated financial statements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses and other financial information. Actual results may differ significantly from those based on our estimates and judgments or could be materially different if we used different assumptions, estimates or conditions. In addition, our financial condition and results of operations could vary due to a change in the application of a particular accounting policy.

We identified our critical accounting policies in our Annual Report on Form 10-K for the year ended June 29, 2013 (2013 Form 10-K) related to revenue recognition and sales returns, inventory valuation, business combinations, impairment of goodwill and other intangible assets, accounting for stock-based compensation and income taxes. It is important that the discussion of our operating results be read in conjunction with the critical accounting policies discussed in our 2013 Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

The condensed consolidated statement of cash flows and the discussion below on cash flows from operating, investing and financing activities have not been adjusted for the effects of the discontinued operations.

Cash Flows from Operating Activities

Net cash used by operating activities for the three months ended September 28, 2013 was $17.6 million, primarily resulting from a net income of $33.3 million adjusted for non-cash adjustments of $48.7 million and a $2.1 million decrease in cash due to changes in operating assets and liabilities. The $2.1 million decrease in cash due to changes in operating assets and liabilities was comprised of a $16.0 million increase in accounts payable, a $0.4 million decrease in inventories and a $0.3 million decrease in other non-current assets, partially offset by a $15.7 million increase in prepaid expenses and other current assets, a $2.2 million decrease in accrued expenses and other liabilities and a $0.8 million increase in accounts receivable. The $48.7 million decrease in cash resulting from non-cash adjustments primarily consisted of a $62.8 million gain on the sale of the Zurich Business, $0.5 million from the amortization of deferred gain from sales-leaseback transactions, partially offset by $8.8 million in depreciation and amortization, $4.2 million related to the amortization and writeoff of the issuance costs of the term loan, and $1.2 million of expense related to stock-based compensation.

Net cash used by operating activities for the three months ended September 29, 2012 was $17.2 million, primarily resulting from a net loss of $25.1 million adjusted for non-cash adjustments of $10.5 million and a $18.4 million increase in cash due to changes in operating assets and liabilities. The $18.4 million increase in cash due to changes in operating assets and liabilities was comprised of a $21.4 million decrease in accounts receivable, a $7.0 million increase in inventories, a $3.8 million increase in prepaid expenses and other current assets, a $3.2 million increase in accounts payable, a $3.0 million decrease in accrued expenses and other liabilities, and a $0.1 million decrease in other non-current assets. The $10.5 million decrease in cash resulting from non-cash adjustments primarily consisted of $24.9 million bargain purchase gain related to the acquisition of Opnext and $0.3 million from the amortization of deferred gain from sales-leaseback transactions, partially offset by $12.2 million in depreciation and amortization, $1.6 million of expense related to stock-based compensation and $0.9 million related to the impairment of certain intangibles.

Cash Flows from Investing Activities

Net cash provided by investing activities for the three months ended September 28, 2013 was $94.4 million, primarily consisting of $90.6 million proceeds from the sale of Zurich Business, $5.0 million from the sale of an exclusive option to purchase the Amplifier Business and a $0.2 million reduction in restricted cash, which were partially offset by $1.4 million used in capital expenditures.

Net cash provided by investing activities for the three months ended September 29, 2012 was $30.2 million, primarily consisting of $36.1 million cash acquired in the acquisition of Opnext, partially offset by $6.0 million used in capital expenditures.

Cash Flows from Financing Activities

Net cash used in financing activities for the three months ended September 28, 2013 was $66.3 million, primarily consisting of $65.0 million in repayments on a term loan and our revolving credit facility and $1.3 million in payments on capital lease obligations.

Net cash provided by financing activities for the three months ended September 29, 2012 was $0.9 million, primarily consisting of $11.5 million in borrowings under our revolving credit facility and $0.7 million received from the issuance of common stock through stock option exercises and our employee stock purchase plan, partially offset by $8.6 million in payments in connection with the remaining earnout obligations related to our acquisition of Mintera, $2.3 million in payments on capital lease obligations and $0.4 million repayments on a note payable.

Credit Line and Notes

As of September 28, 2013, no amounts were available to us under our senior secured revolving credit facility with Wells Fargo Capital Finance, Inc. and other lenders (the Credit Agreement). We are currently in discussions with the Agent and Lenders regarding an amendment to the Credit Agreement.

As of September 28, 2013, there were no amounts outstanding under the credit facility and no amounts owed in connection with the Term Loan. As of September 28, 2013, the net carrying value of the liability component of our Convertible Notes was $23.1 million and the estimated fair value of the contingent obligation for the make-whole premium was valued at $0.7 million. As of June 29, 2013, there was $40.0 million outstanding under the credit facility and $25.0 million owed in connection with the term loan. As of June 29, 2013, the net carrying value of the liability component of our Convertible Notes was $22.8 million and the estimated fair value of the contingent obligation for the make-whole premium was valued at $0.1 million. During the first quarter of fiscal year 2014, we used part of the proceeds from the sale of the Zurich Business to fully repay our outstanding balance under the credit facility and the Term Loan.

At September 28, 2013 and June 29, 2013, there was $30,000 in outstanding standby letters of credit secured under the Credit Agreement. These letters of credit expire in June 2015.

See Note 7, Credit Line and Notes for additional information regarding the credit facility, term loan and Convertible Notes.

Future Cash Requirements

In the event we need additional liquidity beyond our current expectations, such as to fund future growth or strengthen our balance sheet or to fund the cost of restructuring activities, we may find it necessary to lower our operating income break-even level and undertake additional cost cutting measures. We will continue to explore other sources of additional liquidity. These additional sources of liquidity could include one, or a combination, of the following: (i) issuing equity securities, (ii) incurring indebtedness secured by our assets, (iii) issuing debt and/or convertible debt securities, or (iv) selling product lines, other assets and/or portions of our business. There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all. As of September 28, 2013, no amounts were available to us under the Credit Agreement. We are currently in discussions with the Agent and Lenders regarding an amendment to the Credit Agreement.

We have incurred significant operating losses and generated negative cash flows for fiscal year 2013, the first quarter of fiscal year 2014 and anticipate that our net loss for the remaining fiscal year 2014 could be substantial. The continued operation of our business is dependent upon our achieving cash flows expected to be generated from the execution of our current operating plan, including anticipated restructuring plans.

For additional information on the risks we face related to future cash requirements, see Item 1A. Risk Factors under “— Risks Related to Our Business — We have a history of large operating losses and we may not be able to achieve profitability in the future and maintain sufficient levels of liquidity,” Note 1, Business and Summary of Significant Accounting Policies , and the Report of Independent Registered Public Accounting Firm included in our 2013 Annual Report on Form 10-K.

As of September 28, 2013, $74.0 million of the $92.0 million of our cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in the United States, we could be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not include repatriation of these funds.

Off-Balance Sheet Arrangements

We also have indemnification clauses in various contracts that we enter into in the normal course of business, such as indemnification in favor of customers in respect of liabilities they may incur as a result of purchasing our products should such products infringe the intellectual property rights of a third party. We have not historically paid out any material amounts related to these indemnifications; therefore, no accrual has been made for these indemnifications.

Other than as set forth above, we are not currently party to any material off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk affecting us, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended June 29, 2013, which is incorporated herein by reference. Our exposure to market risk has not changed materially since June 29, 2013.

INTEREST RATES

We finance our operations through a mixture of issuances of equity securities, finance leases, working capital and by drawing on our Credit Agreement. We have exposure to interest rate fluctuations on our cash deposits and for amounts borrowed under our Credit Agreement, Convertible Notes and through our capital leases. At September 28, 2013 the carrying value of our Convertible Note was $23.1 million with an average interest rate of 7.5 percent per annum and $16.7 million under capital leases. An increase in our average interest rate by 1.0 percent would increase our annual interest expense by $0.4 million.

We monitor our interest rate risk on cash balances primarily through cash flow forecasting. Cash that is surplus to immediate requirements is invested in short-term deposits with banks accessible with one day’s notice and invested in overnight money market accounts. We believe our current interest rate risk is immaterial.

FOREIGN CURRENCY

As our business is multinational in scope, we are subject to fluctuations based upon changes in the exchange rates between the currencies in which we collect revenues and pay expenses. In the future, we expect that a majority of our revenues will continue to be denominated in U.S. dollars, while a significant portion of our expenses will continue to be denominated in U.K. pounds sterling and Japanese yen. Our expenses denominated in the Swiss franc have decreased significantly as a result of our sale of the Zurich Business in the first quarter of fiscal year 2014. Fluctuations in the exchange rate between the U.S. dollar, the U.K. pound sterling, and the Japanese yen and, to a lesser extent, other currencies in which we collect revenues and pay expenses, could affect our operating results. This includes the Chinese yuan, the Korean won and the Euro in which we pay expenses in connection with operating our facilities in Shenzhen and Shanghai, China; Daejeon, South Korea and San Donato, Italy. To the extent the exchange rate between the U.S. dollar and these currencies were to fluctuate more significantly than experienced to date, our exposure would increase.

As of September 28, 2013, our U.K. subsidiary had $33.1 million, net, in U.S. dollar denominated operating intercompany payables, $53.2 million in U.S. dollar denominated accounts receivable and payable, net, related to sales to external customers and purchases from suppliers, and $52.5 million in U.S. dollar denominated cash accounts. It is estimated that a 10 percent fluctuation in the U.S. dollar relative to the U.K. pound sterling would lead to a profit of $7.3 million (U.S. dollar strengthening), or loss of $7.3 million (U.S. dollar weakening) on the translation of these receivables and other cash balances, which would be recorded as gain (loss) on foreign currency transactions, net, in our condensed consolidated statement of operations.

As of September 28, 2013, our Japan subsidiary had $43.3 million, net, in U.S. dollar denominated operating intercompany payables, $16.2 million in U.S. dollar denominated accounts payable, net of accounts receivable, related to sales to external customers and purchases from suppliers, and $0.6 million in U.S. dollar denominated cash and restricted cash accounts. It is estimated that a 10 percent fluctuation in the U.S. dollar relative to the Japanese yen would lead to a profit of $5.9 million (U.S. dollar weakening), or loss of $5.9 million (U.S. dollar strengthening) on the translation of these balances, which would be recorded as gain (loss) on foreign currency transactions, net, in our condensed consolidated statement of operations.

ITEM 4. 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 28, 2013. The term “disclosure controls and procedures,” as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it 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 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 28, 2013, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.

As disclosed in our Annual Report on Form 10-K for the year ended June 29, 2013, we identified a material weakness in our internal control over financial reporting such that our disclosure controls and procedures related to accounting for the purchase of the Opnext acquisition were not effective. Over the next several quarters, we will be implementing enhancements to our internal controls over financial reporting, including hiring finance personnel and adding controls over the preparation and oversight of accounting for acquisitions and dispositions. Our remediation efforts, including the testing of these controls, will continue throughout our fiscal year 2014. We expect that the material weakness will be remediated during fiscal year 2014 once these controls have been operational for a sufficient period of time to allow management to conclude that these controls are operating effectively.

Notwithstanding the ineffectiveness of our disclosure controls and procedures as of September 28, 2013 and the material weakness in our internal control over financial reporting that existed as of that date as described above, management believes that (i) this Form 10-Q 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 they were made, not misleading with respect to the periods covered by this Report and (ii) the condensed consolidated financial statements, and other financial information, included in this Report fairly present in all material respects in accordance with U.S. GAAP our financial condition, results of operations and cash flows as of, and for, the dates and periods presented.

Except as noted in the preceding paragraph, there was no change in our internal control over financial reporting during the three months ended September 28, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Overview

Specific Matters

ITEM 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. The risks described below are not the only ones facing us. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business, operations, liquidity and stock price materially and adversely. You should carefully consider the risks and uncertainties described below in addition to the other information included or incorporated by reference in this Quarterly Report on Form 10-Q. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall and you could lose all or part of your investment.

We have recently announced significant changes at Oclaro relating to our operations, strategic plan and management team.

Beginning in June 2013, we have announced a series of events, transactions and restructuring plans, which have had a significant impact on our business. Among other things, we have announced the appointment of a new Chief Executive Officer, a new Chief Financial Officer, the sale of our Zurich and Amplifier Businesses and a restructuring plan to focus our business on our core competencies. While we believe these events, transactions and plans will have a positive impact on our financial condition and results of operations, these changes will result in at least a significant near-term reduction in our revenue, could lead to a disruption in our operations and employee morale, could lead to unplanned attrition of employees, and adversely affect our ability to attract highly skilled employees. If we experience these or other adverse consequences or are otherwise unable to realize the expected benefits of our restructuring plan, our business, results of operations and financial condition would be materially and adversely affected and we may not be able to continue as a going concern over the long term.

There is risk in executing the transition of our Shenzhen assembly and test operations, and in executing to the corresponding long term supply agreement, with Venture, and we may not realize any anticipated benefits from either.

In March 2012, we entered into a definitive agreement with Venture Corporation Limited (Venture) to transfer our Shenzhen final assembly and test operations to Venture’s Malaysia facility in a phased and gradual transfer of products over a period of three years. In conjunction with this agreement, we entered into a five-year supply agreement with Venture to manufacture and supply us with certain products that were previously manufactured at our Shenzhen facility. There can be no assurance that the transition of our Shenzhen assembly and test operations and the corresponding long term supply agreement with Venture will result in the benefits that we expect, or that revenues will not be adversely impacted during the transition period. There can be no assurance that we will realize our initial estimate of $35 million in lower working capital requirements, net of related costs incurred, due to the outsourcing of these activities.

In addition, there is significant risk in our ability to execute stages of this transfer without negative impacts on production output, delivery to customer requests, quality and customer service in general. Revenues could be adversely impacted if production output falls short of expectations during the transfer or if customer service is perceived to be inadequate.

On March 28, 2012, shortly after announcing this agreement, certain of our employees in Shenzhen initiated a work stoppage up to and including April 4, 2012. Although we negotiated a resolution to this work stoppage, there can be no assurance that work stoppages will not arise in the future having a material adverse impact on our production output and/or the levels and gross margins of the corresponding product revenues supported by the production output, and/or increasing the net costs of executing the transfer to Venture. Any such work stoppage may adversely impact our revenues and our ability to deliver products to our customers. In addition, our recent sale of the Zurich and Amplifier Businesses, and our commitment to provide manufacturing services for the buyer using our Shenzhen facility and personnel, could potentially have an impact on corresponding employee relations in Shenzhen.

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

The market for optical components and modules is highly competitive and this competition could result in our existing customers moving their orders to our competitors. We are aware of a number of companies that have developed or are developing optical component products, including tunable lasers, pluggables, wavelength selective switches and thin film filter products, among others, that compete directly with our current and proposed product offerings.

Certain of our competitors may be able to more quickly and effectively:

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develop or respond to new technologies or technical standards;

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react to changing customer requirements and expectations;

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devote needed resources to the development, production, promotion and sale of products; and

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deliver competitive products at lower prices.

Some of our current competitors, as well as some of our potential competitors, have longer operating histories, greater name recognition, broader customer relationships and industry alliances and substantially greater financial, technical and marketing resources than we do. In addition, market leaders in industries such as semiconductor and data communications, who may also have significantly more resources than we do, may in the future enter our market with competing products. Our competitors and new Chinese companies are establishing manufacturing operations in China to take advantage of comparatively low manufacturing costs. All of these risks may be increased if the market were to further consolidate through mergers or other business combinations between competitors.

Certain of our competitors may not have been impacted by the flooding in Thailand and this may place competitive pressures on our ability to recover our flood-affected revenue losses.

We may not be able to compete successfully with our competitors and aggressive competition in the market may result in lower prices for our products and/or decreased gross margins. Any such development could have a material adverse effect on our business, financial condition and results of operations.

We depend on a limited number of suppliers and key contract manufacturers who could disrupt our business if they stopped, decreased, delayed or were unable to meet our demand for shipments of their products or manufacturing of our products.

We depend on a limited number of suppliers of raw materials and equipment used to manufacture our products. We currently also depend on a limited number of contract manufacturers, principally Fabrinet in Thailand, to manufacture certain of our products. We will also increasingly depend on Venture as we transfer our Shenzhen assembly and test operations in a phased and gradual transfer of products to Venture. Some of these suppliers are sole sources. We typically have not entered into long-term agreements with our suppliers other than Fabrinet and Venture, therefore, these suppliers generally may stop supplying us materials and equipment at any time. Our reliance on a sole supplier or limited number of suppliers could result in delivery problems, reduced control over product pricing and quality, and an inability to identify and qualify another supplier in a timely manner. Some of our suppliers that may be small or undercapitalized may experience financial difficulties that could prevent them from supplying us materials and equipment. In addition, our suppliers, including our sole source suppliers, may experience manufacturing delays or shut downs due to circumstances beyond their control such as earthquakes, floods, fires, political unrest or other natural disasters.

Fabrinet’s manufacturing operations are located in Thailand. In October 2011, due to flooding in Thailand, Fabrinet suspended operations at both of their factories that supply us with finished goods. Thailand has also been subject to political unrest in the recent past, including the temporary interruption of service at one of its international airports, and may again experience such political unrest in the future. If Fabrinet is unable to supply us with materials or equipment, or if they are unable to ship our materials or equipment out of Thailand due to future flooding or political unrest, this could materially adversely affect our ability to fulfill customer orders and our results of operations.

Any supply deficiencies relating to the quality or quantities of materials or equipment we use to manufacture our products could materially adversely affect our ability to fulfill customer orders and our results of operations. Lead times for the purchase of certain materials and equipment from suppliers have increased and in some cases have limited our ability to rapidly respond to increased demand, and may continue to do so in the future. To the extent we introduce additional contract manufacturing partners, introduce new products with new partners and/or move existing internal or external production lines to new partners, we could experience supply disruptions during the transition process. In addition, due to our customers’ requirements relating to the qualification of our suppliers and contract manufacturing facilities and operations, we cannot quickly enter into alternative supplier relationships, which prevents us from being able to respond immediately to adverse events affecting our suppliers.

Uncertainties associated with the sale of the Zurich and Amplifier Businesses may cause us to lose employees, customers and business partners.

Our current and prospective employees, customers and business partners may be uncertain about their future roles and relationships with us following the completion of the sale of the Zurich and Amplifier Businesses. This uncertainty may adversely affect our ability to attract and retain key management and employees, customers and business partners.

We relocated our operations formerly located in Totsuka, Japan. Our business may experience disruption due to this relocation.

We relocated our manufacturing and research and development facilities, as well as our administrative offices from Totsuka, Japan to a facility we leased from Yokogawa Electric Corporation in Sagamihara-shi, Kanagawa Prefecture, Japan. While we completed this transition, there can be no assurance that the relocation activities will not adversely impact our production capacity or manufacturing yields or divert management’s attention from the day-to-day operations of our business, any of which could adversely affect our business, results of operations and cash flows.

We have a history of large operating losses. We may not be able to achieve profitability in the future and as a result we may not be able to maintain sufficient levels of liquidity.

We have historically incurred losses and negative cash flows from operations since our inception. As of September 28, 2013, we had an accumulated deficit of $1,282.0 million. We incurred a loss from continuing operations of $30.2 million and negative cash flows from operations of $17.2 million during the three months ended September 28, 2013, and we incurred net losses for the years ended June 29, 2013, June 30, 2012 and July 2, 2011 of $122.7 million, $66.5 million and $46.4 million, respectively.

As of September 28, 2013, we held $94.7 million in cash and short-term investments, comprised of $92.0 million in cash and cash equivalents, $2.6 million in restricted cash and $0.2 million of short-term investments; and we had working capital of $164.8 million. At September 28, 2013, we had debt of $39.8 million, consisting of $23.1 million outstanding pursuant to the issuance of 7.50% Exchangeable Senior Secured Second Lien Notes due 2018 (the “Convertible Notes”) by our indirect, wholly owned subsidiary, Oclaro Luxembourg S.A., and guaranteed by us and $16.7 million related to capital leases. During fiscal year 2013 and 2014, we executed a number of financing transactions in order to generate funds to help sustain our operations: we sold our interleaver and thin film filter business, we expanded our line of credit, we executed a convertible debt transaction and in the third quarter of fiscal year 2013, we began to evaluate and execute sales of product lines in order to generate additional capital. On May 6, 2013, we secured a short term loan from Providence Equity of $25.0 million (with net proceeds to us of $20.5 million after discounts and expenses) as a bridge to the conclusion of certain asset sales. In order to obtain the short term loan, we amended our Credit Agreement to add Providence as a term lender. In connection with this amendment, we agreed to complete certain asset sales and use the proceeds to repay amounts we have borrowed under the Credit Agreement by July 15, 2013. On August 21, 2013, we amended our Credit Agreement to extend the time frame within which we must complete such asset sales to make such repayments to September 2, 2013. The corresponding sale of our Zurich Business to II-VI was closed on September 12, 2013. We received proceeds of $90.6 million in cash on September 12, 2013. We will also receive $6.0 million subject to hold-back by II-VI until December 31, 2014 to address any post-closing adjustments or claims, and $2.0 million subject to a potential post-closing working capital adjustment, which will be calculated based on the level of working capital in the Oclaro Switzerland GmbH subsidiary at the September 12, 2013 close versus a target based on working capital at June 29, 2013. We also received $5.0 million for a 30 day option to sell our Amplifier Business for $88.0 million inclusive of the option amount. On November 1, 2013, we sold our Amplifier Business to II-VI and certain of its affiliates for $88.6 million in cash, consisting of $79.6 million in cash, subject to inventory valuation adjustments after closing, and $4.0 million, subject to hold-back by II-VI until December 31, 2014 to address any post-closing claims. In accordance with the option agreement we entered into with II-VI, the $5.0 million paid by II-VI was credited against the $88.6 million purchase price for the Amplifier Business.

Following the sale of the Zurich Business, we repaid all amounts outstanding under the Credit Agreement as required. The event of default resulting from not completing the sale of the Zurich Business on September 2, 2013 was waived on September 26, 2013. This waiver eliminated the requirement for the Agent and Lenders to make any advances, issue any letters of credit or provide any other extension of credit until the Agent and Lenders agree otherwise and prevents us from exercising any right or action set forth in the applicable loan documents that is conditioned on the absence of any event of default. If the Agent and Lenders do not agree to make amounts under the Credit Agreement available to us within 30 days of the waiver (or such later time as the Agent agrees), then the Agent and Lenders will have the option to immediately terminate the Credit Agreement.

Given the reduction in sales, delays in production of new programs, sale of revenue generating businesses, the continuing costs of our previously announced restructuring activities and the potential for volatile macroeconomic or market related commercial conditions, we expect our net loss for the second quarter of fiscal year 2014 to be as large as the quarterly losses we experienced during fiscal year 2013. We can make no assurances that we will be successful in negotiating new terms to our bank line of credit so that we may begin borrowing under the Credit Agreement.

The optical communications industry is subject to significant operational fluctuations. In order to remain competitive we incur substantial costs associated with research and development, qualification, production capacity and sales and marketing activities in connection with products that may be purchased, if at all, long after we have incurred such costs. In addition, the rapidly changing industry in which we operate, the length of time between developing and introducing a product to market, frequent changing customer specifications for products, customer cancellations of products and general down cycles in the industry, among other things, make our prospects difficult to evaluate. We are not generating positive cash flow from operations, and it is possible that we may not (i) generate sufficient positive cash flow from operations; (ii) be able to draw down on our $50.0 million senior secured revolving credit facility, against which we have no current ability to draw upon subject to conclusion of negotiations of new terms which are underway; (iii) if we can draw down on our revolving credit facility, be able to subsequently repay such amounts; (iv) conclude additional strategic dispositions or similar transactions; or (v) otherwise have sufficient capital resources to meet our future capital or liquidity needs. We believe it is prudent to undertake additional restructuring activities to reduce our cost base and lower our operating income break-even level, which activities will also be financed from our existing financial resources. There are no guarantees we will be able to generate additional financial resources beyond our existing balances.

If we raise funds through the issuance of equity, equity-linked or convertible debt securities, our stockholders may be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of securities held by existing stockholders. If we raise funds through the issuance of debt instruments, the agreements governing such debt instruments may contain covenant restrictions that limit our ability to, among other things: (i) incur additional debt, assume obligations in connection with letters of credit, or issue guarantees; (ii) create liens; (iii) make certain investments or acquisitions; (iv) enter into transactions with our affiliates; (v) sell certain assets; (vi) redeem capital stock or make other restricted payments; (vii) declare or pay dividends or make other distributions to stockholders; and (viii) merge or consolidate with any entity. 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, develop or enhance our products, or otherwise respond to competitive pressures and operate effectively could be significantly limited.

We sold the Zurich and Amplifier Businesses and may pursue other strategic dispositions or a further reduction in the number of our locations which could be difficult to implement, disrupt our business or further change our business profile significantly.

The sale of the Zurich and Amplifier Businesses, and any future strategic disposition of assets or businesses or reduction in the number of our locations involve numerous risks, including: (i) potential disruption of our ongoing business and distraction of management; (ii) difficulty segregating assets or businesses to be disposed of or consolidated; (iii) exposure to unknown, contingent or other liabilities, including litigation arising in connection with the disposition; (iv) changing our business profile in ways that could have unintended negative consequences; (v) the failure to achieve anticipated benefits, (vi) accounting charges that may affect our financial condition and results of operations; (vii) significant fluctuations in our revenues and operating results; (viii) our ability to support manufacturing services and transition services and the risk to the rest of our business resulting from resources focusing on those services; and (ix) with respect to the sale of the Zurich Business, (A) our ability to support the buyer’s transition from Shenzhen; and (B) the ability of the buyer to supply us with 980 nm pumps. In addition, a material disposition could require the amendment or refinancing of our outstanding indebtedness or a portion thereof.

Our revenues and operating results are likely to fluctuate significantly as a result of factors that are outside our control and through asset sales.

Our revenues and operating results are likely to fluctuate significantly in the future as a result of factors that are outside our control. The timing of order placement, size of orders and satisfaction of contractual customer acceptance criteria, changes in the pricing of our products due to competitive pressures as well as order or shipment delays or deferrals, with respect to our products, may cause material fluctuations in revenues. Our lengthy sales cycle, which may extend to more than one year, may cause our revenues and operating results to vary from period to period and it may be difficult to predict the timing and amount of any variation. Delays or deferrals in purchasing decisions by our customers may increase as we develop new or enhanced products for new markets, including data communications, industrial, research, consumer and biotechnology markets. Purchase decisions by our customers are also impacted by the capital expenditure plans of the global telecom carriers, which tend to be the primary customers of our customers. Our current and anticipated future dependence on a small number of customers increases the revenue impact of each such customer’s decision to delay or defer purchases from us, or decision not to purchase products from us. For example, during the second half of fiscal 2012, our revenues were adversely impacted by a significant change in demand expectations from a particular major customer. Our expense levels in the future will be based, in large part, on our expectations regarding future revenue sources and, as a result, operating results for any quarterly period in which material orders fail to occur, or are delayed or deferred, could vary significantly. In addition, our revenues will decrease and our operating results will be impacted by the completion of asset sales. We sold the Zurich Business on September 12, 2013 and the Amplifier Business on November 1, 2013. We expect that the loss of revenue from the Zurich and Amplifier Businesses will cause a decrease in our total revenue and impact our operating results during the 2014 fiscal year. Additional asset sales could reduce our revenue and impact our operating results. Because our business is capital intensive, significant fluctuations in our revenues, without a corresponding decrease in expenses, can have a significant adverse impact on our operating results.

A lack of effective internal control over our financial reporting could result in an inability to report our financial results accurately, which could lead to a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

In connection with establishing the fair values of certain assets and liabilities associated with our acquisition of Opnext, we identified a material weakness over controls related to our recording of the purchase under Accounting Standards Codification Topic 805, Business Combinations . In the fourth quarter of fiscal year 2013, we made adjustments to the fair value of certain items, including property and equipment, capital leases and intangible assets. As a result of these adjustments, management concluded that we did not maintain effective internal control over financial reporting as of June 29, 2013, because the potential impact of these adjustments could have been material to our financial position and results of operations. As of September 28, 2013, we continue to implement remediation efforts.

In addition, in April 2012, in connection with the restatement of our previously issued consolidated financial statements as of and for the quarters ended March 31, 2012 and October 1, 2011, our management re-evaluated the effectiveness of our disclosure controls and procedures. As a result of that re-evaluation, our management determined that a material weakness existed in our internal controls over financial reporting such that our disclosure controls and procedures related to accounting for income taxes were not effective as of March 31, 2012 and October 1, 2011. During the three months ended March 31, 2012, we implemented enhancements to our internal controls over financial reporting, including adding additional monitoring controls over the preparation and filing of foreign income tax returns. Our remediation efforts, including the testing of these controls continued throughout our fiscal year 2012. The material weakness related to the preparation and filing of foreign income taxes was considered remediated in the fourth quarter of fiscal year 2012, once these controls were shown to be operational for a sufficient period of time to allow management to conclude that these controls were operating effectively.

We cannot assure you that similar material weaknesses will not recur. If additional material weaknesses or significant deficiencies 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.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed. Our failure to implement and maintain effective internal control over financial reporting could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our business, financial condition, operating results and our stock price, and we could be subject to stockholder litigation as a result. Even if we are able to implement and maintain effective internal control over financial reporting, the costs of doing business may increase and our management may be required to dedicate greater time and resources to that effort. In addition, we have in the past, and may in the future, acquire companies that have either experienced material weaknesses in their internal controls over financial reporting or have had no previous reporting obligations under Sarbanes-Oxley. Failure to integrate acquired businesses into our internal controls over financial reporting could cause those controls to fail.

We may experience low manufacturing yields.

Manufacturing yields depend on a number of factors, including the volume of production due to customer demand and the nature and extent of changes in specifications required by customers for which we perform design-in work. Higher volumes due to demand for a fixed, rather than continually changing, design generally results in higher manufacturing yields, whereas lower volume production generally results in lower yields. In addition, lower yields may result, and have in the past resulted, from commercial shipments of products prior to full manufacturing qualification to the applicable specifications. Changes in manufacturing processes required as a result of changes in product specifications, changing customer needs and the introduction of new product lines have historically caused, and may in the future cause, significantly reduced manufacturing yields, resulting in low or negative margins on those products. Moreover, an increase in the rejection rate of products during the quality control process, before, during or after manufacture, results in lower yields and margins. Finally, manufacturing yields and margins can also be lower if we receive or inadvertently use defective or contaminated materials from our suppliers. Any reduction in our manufacturing yields will adversely affect our gross margins and could have a material impact on our operating results.

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

We may experience delays, disruptions or quality control problems in our manufacturing operations or the manufacturing operations of our subcontractors. As a result, we could incur additional costs that would adversely affect our gross margins, and our product shipments to our customers could be delayed beyond the shipment schedules requested by our customers, which would negatively affect our revenues, competitive position and reputation. Furthermore, even if we are able to deliver products to our customers on a timely basis, we may be unable to recognize revenues at the time of delivery based on our revenue recognition policies. Exposures to these risks could increase during the transition of our Shenzhen product lines to Venture Malaysia over what is anticipated to be a two to three year period, and with regards to any product line manufacturing transitions associated with our integration of Opnext.

We may not be able to maintain or improve gross margin levels.

We may not be able to maintain or improve our gross margins, due to slow introductions of new products, failure to effectively cost reduce existing products, the potential for future macroeconomic or market volatility reducing sales volumes, changes in customer demand (including a change in product mix between different areas of our business) and pricing pressure from increased competition or other factors. We are attempting to reduce our product costs and improve our product mix to offset price competition and erosion expected in most product categories, but there is no assurance that we will be successful. Our gross margins can also be adversely impacted for reasons including, but not limited to, fixed manufacturing costs that would not be expected to decrease in proportion to any decrease in revenues, as occurred due to the flooding in Thailand; 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; the sale of the Zurich and Amplifier Businesses, including procuring certain parts that were previously internally sourced; and failure to realize benefits of the transfer to Venture. Any failure to maintain, or improve, our gross margins will adversely affect our financial results, including our goal to achieve sustainable cash flow positive operations.

Our business and results of operations may continue to be negatively impacted by general economic, financial market conditions and market conditions in the industries in which we operate, and such conditions may increase the other risks that affect our business.

Over the past few years, the world’s financial markets have experienced significant turmoil, resulting in reductions in available credit, increased costs of credit, extreme volatility in security prices, potential changes to existing credit terms, and rating downgrades of investments. In light of these economic conditions, many of our customers reduced their spending plans, leading them to draw down their existing inventory and reduce orders for our products. It is possible that economic conditions could result in further setbacks, and that these customers, or others, could as a result significantly reduce their capital expenditures, draw down their inventories, reduce production levels of existing products, defer introduction of new products or place orders and accept delivery for products for which they do not pay us due to their economic difficulties or other reasons. These conditions have contributed materially and adversely affected the market conditions in the industries in which we operate, and have had a material adverse impact on our revenues. In addition, the financial downturn affected the financial strength of certain of our customers, including their ability to obtain credit to finance purchases of our products, and could adversely affect additional customers in the future. Our suppliers may also be adversely affected by economic conditions that may impact their ability to provide important components used in our manufacturing processes on a timely basis, or at all. To a large degree, orders from our customers are dependent on demand from telecom carrier capital expenditures around the world. The capital expenditure plans and execution by telecom carriers can also be adversely impacted, both in terms of total spend and in determination of areas of investment within network infrastructures, by global and regional macroeconomic conditions.

These conditions could also result in reduced capital resources because of the potential lack of credit availability, higher costs of credit and the stretching of payables by creditors seeking to preserve their own cash resources. We are unable to predict the likely duration, severity and potential continuation of any disruption in financial markets and adverse economic conditions in the U.S. and other countries, but the longer the duration the greater the risks we face in operating our business.

We have a complex multinational tax structure, and changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

We have a complex multinational tax structure with multiple types of intercompany transactions, and our allocation of profits and losses among us and our subsidiaries through our intercompany transfer pricing agreements is subject to review by the Internal Revenue Service and other tax authorities. Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. In addition, we are also subject to the continuous examination of our income tax returns and related transfer pricing documentation by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

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

The market for telecommunications equipment is characterized by substantial capital investment, rapid and unpredictable changes in customer demand and diverse and evolving technologies. For example, the market for optical components is currently characterized by a trend toward the adoption of pluggable components and tunable transmitters that do not require the customized interconnections of traditional fixed wavelength “gold box” devices and the increased integration of components on subsystems. Our ability to anticipate and respond to these and other changes in technology, industry standards, customer requirements and product offerings and to develop and introduce new and enhanced products will be significant factors in our ability to succeed. We expect that new technologies will continue to emerge as competition in the telecommunications industry increases and the need for higher and more cost efficient bandwidth expands. The introduction of new products embodying new technologies or the emergence of new industry standards could render our existing products or products in development uncompetitive from a pricing standpoint, obsolete or unmarketable, which would negatively affect our financial condition and results of operations.

We depend on a limited number of customers for a significant percentage of our revenues.

Historically, we have generated most of our revenues from a limited number of customers. Our dependence on a limited number of customers is due to the fact that the optical telecommunications systems industry is dominated by a small number of large companies. These companies in turn depend primarily on a limited number of major telecommunications carrier customers to purchase their products that incorporate our optical components. For example, during the fiscal years ended June 29, 2013, June 30, 2012 and July 2, 2011, our three largest customers accounted for 31 percent, 29 percent and 36 percent of our revenues, respectively, including our discontinued operations. Because we rely on a limited number of customers for significant percentages of our revenues, a decrease in demand for our products from any of our major customers for any reason (including due to market conditions, catastrophic events or otherwise) could have a materially adverse impact on our financial conditions and results of operations. For example, during the second half of fiscal 2012, our revenues were adversely impacted by a significant change in demand expectations from a particular major customer. Further, 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 revenues.

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

The majority of our customers typically purchase our products pursuant to individual purchase orders or contracts that do not contain purchase commitments. Some customers provide us with their expected forecasts for our products several months in advance, but many of these customers may decrease, cancel or delay purchase orders already in place, and the impact of any such actions may be intensified given our dependence on a small number of large customers. 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 may cause us to fail to achieve our short-term and long-term financial and operating goals and result in excess and obsolete inventory. For example, in fiscal year 2011, we did experience certain deferrals and cancellation of orders which adversely impacted our quarterly financial results. In addition, during the second half of fiscal 2012, our revenues were adversely impacted by a significant change in demand expectations from a particular major customer.

We have significant manufacturing and research and development operations in China, which exposes us to risks inherent in doing business in China.

A significant portion of our assembly and test operations, chip-on-carrier operations and manufacturing and supply chain management operations are concentrated in our facility in Shenzhen, China. In addition, we have substantial research and development related activities in Shenzhen and Shanghai, China. To be successful in China we will need to:

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qualify our manufacturing lines and the products we produce in Shenzhen, as required by our customers;

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attract and retain qualified personnel to operate our Shenzhen facility, even during the transition period to Venture; and

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attract and retain research and development employees at our Shenzhen and Shanghai facilities.

We cannot assure you that we will be able to do any of these.

Employee turnover in China is high due to the intensely competitive and fluid market for skilled labor. To operate our Shenzhen facility under these conditions, we need to continue to hire direct manufacturing personnel, administrative personnel and technical personnel; obtain and retain required legal authorization to hire such personnel; and incur the time and expense to hire and train such personnel. On March 28, 2012, shortly after announcing the agreement with Venture, certain of our employees in Shenzhen initiated a work stoppage. The work stoppage impacted our Shenzhen manufacturing capabilities temporarily up to and including April 4, 2012. Revenues for the three months ended March 31, 2012 were adversely impacted by approximately $4.0 million by the work stoppage.

Inflation rates in China are higher than in most jurisdictions in which we operate. We believe that salary inflation rates for the skilled personnel we hire and seek to retain in Shenzhen and Shanghai are likely to be higher than overall inflation rates.

Operations in China are subject to greater political, legal and economic risks than our operations in other countries. In particular, the political, legal and economic climate in China, both nationally and regionally, is fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, employee benefits and other matters. In addition, we may not obtain or retain the requisite legal permits to continue to operate in China, and costs or operational limitations may be imposed in connection with obtaining and complying with such permits.

We intend to continue to export the products manufactured at our Shenzhen facility. Under current regulations, upon application and approval by the relevant governmental authorities, we will not be subject to certain Chinese taxes and will be exempt from certain duties on imported materials that are used in the manufacturing process and subsequently exported from China as finished products. However, Chinese trade regulations are in a state of flux, and we may become subject to other forms of taxation and duties in China or may be required to pay export fees in the future. In the event that we become subject to new forms of taxation or export fees in China, our business and results of operations could be materially adversely affected. We may also be required to expend greater amounts than we currently anticipate in connection with increasing production at our Shenzhen facility. Any one of the factors cited above, or a combination of them, could result in unanticipated costs or interruptions in production, which could materially and adversely affect our business.

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

We need to manage our inventory of component parts and finished goods effectively to meet changing customer requirements. Accurately forecasting customers’ product needs is difficult. Some of our products and supplies have in the past, and may in the future, become obsolete or deemed excess while in inventory due to rapidly changing customer specifications or a decrease in customer demand. We also have exposure to contractual liabilities to our contract manufacturers for inventories purchased by them on our behalf, based on our forecasted requirements, which may become excess or obsolete. Our inventory balances also represent an investment of cash. To the extent our inventory turns are slower than we anticipate based on historical practice, our cash conversion cycle extends and more of our cash remains invested in working capital. If we are not able to manage our inventory effectively, we may need to write down the value of some of our existing inventory or write off non-saleable or obsolete inventory. We have from time to time incurred significant inventory-related charges. Any such charges we incur in future periods could materially and adversely affect our results of operations. As part of the transition of our Shenzhen manufacturing facility to Venture, we may need to invest in additional inventories during the corresponding transition period, and in the future may be exposed to contractual liabilities to Venture for inventories purchased by them on our behalf.

Sales of our products could decline if customer and/or supplier relationships are disrupted by our recent acquisition or divestiture activities.

Our existing customers, customers of acquired businesses, and/or of predecessor companies, may not continue their historical buying patterns. Customers may defer purchasing decisions as they evaluate our financial strength, the likelihood of successful integration or divestiture of our products and our future product strategy, or consider purchasing products of our competitors.

Customers may also seek to modify or terminate existing agreements, or prospective customers may delay entering into new agreements or purchasing our products or may decide not to purchase any products from us.

Competitive positions in the market, including relative to suppliers who are also competitors, could change as a result of an acquisition or divestiture, and this could impact supplier relationships, including the terms under which we do business with such suppliers.

As a result of our recent business combinations, we have become a larger and more geographically diverse organization. Our operating results have been poorer since the acquisition of Opnext. While it is not certain that the added complexity of the business has contributed to the decrease in operating results, the added complexity does increase the difficulty of improving the operating results and of focusing our resources more effectively and efficiently.

As of September 28, 2013, we had approximately 2,500 employees in a total of 20 facilities around the world. As a result of the acquisition of Opnext, and our previous merger and acquisition activities, we face challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs. Our inability to manage successfully the geographically more diverse (including from a cultural perspective) and substantially larger combined organization, including managing and executing the planned acquisition synergies and transitions with Opnext, could have a material adverse effect on our operating results and, as a result, on the market price of our common stock. The Opnext acquisition and other recent acquisitions have increased our serviceable available markets and scaling the company to address the growth potentially available from addressing these markets, and potentially available within our previously existing markets, creates additional challenges of a similar nature. We also continue to evaluate plans and alternatives to simplify the merged company, and to reduce our profitability break-even levels, which could include additional strategic transactions, such as asset sales or intellectual property transactions and further actions to restructure the merged company. The corresponding activities could distract from normal business operations and adversely impact our ability to execute our operating results.

We have initiated steps to reduce our complexity and to simplify our operating footprint. These actions include the outsourcing of Shenzhen to Venture, the sale of the Zurich and Amplifier Businesses, and the elimination of research and development investment on future WSS products. We anticipate taking further restructuring actions as well. While these, and other, steps may reduce our complexity in the long term, in the short term the execution of these actions, and the support of transitions associated with these actions, increases the complexity of our operations and creates risk of successfully executing the actions.

We may undertake mergers or acquisitions, such as our acquisition of Opnext, Inc. (Opnext), that do not prove successful, which would materially and adversely affect our business, prospects, financial condition and results of operations.

From time to time we consider mergers or acquisitions, collectively referred to as “acquisitions,” of other businesses, assets or companies that would complement our current product offerings, enhance our intellectual property rights or offer other competitive opportunities. For example, on March 26, 2012, we entered into an Agreement and Plan of Merger and Reorganization with Opnext, which was completed on July 23, 2012. However, in the future, we may not be able to identify suitable acquisition candidates at prices we consider appropriate. In addition, we are in an industry that is actively consolidating and, as a result, there is no guarantee that we will successfully and satisfactorily bid against third parties, including competitors, when we identify a critical target we want to acquire.

We cannot readily predict the timing or size of our future acquisitions, or the success of our recent or future acquisitions. Failure to successfully implement our acquisition plans could have a material adverse effect on our business, prospects, financial condition and results of operations. Even successful acquisitions could have the effect of reducing our cash balances, diluting the ownership interests of existing stockholders or increasing our indebtedness. For example, in our acquisition of Opnext we issued approximately 38.4 million newly issued shares of our common stock to the former stockholders of Opnext.

In addition, during the first quarter of fiscal year 2012, we issued 0.9 million shares of our common stock related to the settlement of our Xtellus escrow liability. In October 2011, we paid $0.5 million in cash and issued 0.8 million shares of our common stock to pay earnout obligations related to our acquisition of Mintera. In the fourth quarter of fiscal year 2012, we paid $2.2 million to settle a portion of our Mintera earnout obligations, and settled the remaining $8.6 million obligation in cash in the first quarter of fiscal year 2013.

Our acquisition of Opnext and other acquisitions involve a number of other potential risks to our business, including the following, any of which could harm our business:

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failure to realize the potential financial or strategic benefits of the acquisition;

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increased costs associated with merged or acquired operations;

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increased indebtedness obligations;

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economic dilution to gross and operating profit (loss) and earnings (loss) per share;

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failure to successfully further develop the combined, acquired or remaining technology, which could, among other things, result in the impairment of amounts recorded as goodwill or other intangible assets;

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unanticipated costs and liabilities and unforeseen accounting charges;

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difficulty in integrating product offerings;

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difficulty in coordinating and rationalizing research and development activities to enhance introduction of new products and technologies with reduced cost;

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difficulty in coordinating and integrating the manufacturing activities of our acquired businesses, including with respect to third-party manufacturers, including coordination, integration or transfers of any manufacturing activities associated with our acquisition of Opnext;

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delays and difficulties in delivery of products and services;

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failure to effectively integrate or separate management information systems, personnel, research and development, marketing, sales and support operations;

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difficulty in maintaining internal control procedures and disclosure controls that comply with the requirements of the Sarbanes-Oxley Act of 2002, or poor integration of a target’s procedures and controls;

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difficulty in preserving important relationships of our acquired businesses and resolving potential conflicts between business cultures;

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uncertainty on the part of our existing customers, or the customers of an acquired company, about our ability to operate effectively after a transaction, and the potential loss of such customers;

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loss of key employees;

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difficulty in coordinating the international activities of our acquired businesses, including Opnext, which has substantial operations in Japan as well as the United States, and which uses contract manufacturing suppliers in Southeast Asia;

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the effect of tax laws and other legal and regulatory regimes due to increasing complexities of our global operating structure;

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greater exposure to the impact of foreign currency changes on our business;

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the effect of employment law or regulations or other limitations in foreign jurisdictions that could have an impact on timing, amounts or costs of achieving expected synergies; and

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substantial demands on our management as a result of these transactions that may limit their time to attend to other operational, financial, business and strategic issues.

Our integration with acquired businesses has been and will continue to be a complex, time-consuming and expensive process. We cannot assure you that we will be able to successfully integrate these businesses in a timely manner, or at all, or that any of the anticipated benefits from our acquisition of Opnext or previous acquisitions will be realized. There are inherent challenges in integrating the operations of geographically diverse companies. We may have difficulty, and may incur unanticipated expenses related to, integrating management and personnel from our acquisition of Opnext and previously acquired entities with our management and personnel. Our failure to achieve the strategic objectives of our acquisition of Opnext or previous acquisitions could have a material adverse effect on our revenues, expenses and our other operating results and cash resources, and could result in us not achieving the anticipated potential benefits of these transactions. In addition, we cannot assure you that the growth rate of the combined company will equal the historical growth rate experienced by any of the companies that we have acquired including Opnext. Comparable risks would accompany any divestiture of businesses or assets we might undertake.

In addition, even if we successfully integrate the operations of Opnext and other companies that we acquire in the future, we cannot predict with certainty which strategic, financial or operating synergies or other benefits, if any, will actually be achieved from our acquisition, the timing of any such benefits, or whether those benefits which have been achieved will be sustainable on a long-term basis. Our failure to successfully integrate the operations of Opnext would likely have a material and adverse impact on our business, prospects, financial condition and results of operations.

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

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

In addition, certain employees of companies we have acquired, including Opnext, that are now employed by us may decide to no longer work for us with little or no notice for a number of reasons, including dissatisfaction with our corporate culture, compensation, and new roles or responsibilities, among others.

At times, the market price of our common stock has fluctuated significantly.

The market price of our common stock has been, and is likely to continue to be, highly volatile. For example, between July 1, 2012 and June 29, 2013, the market price of our common stock ranged from a low of $0.99 per share to a high of $3.19 per share. Many factors could cause the market price of our common stock to rise and fall.

In addition to the matters discussed in other risk factors included in our public filings, some of the events that could impact our stock price are:

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fluctuations in our results of operations, including our gross margins;

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changes in our business, operations or prospects;

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hiring or departure of key personnel;

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new contractual relationships with key suppliers or customers by us or our competitors;

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proposed acquisitions and dispositions by us or our competitors;

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financial results or projections that fail to meet public market analysts’ expectations and changes in stock market analysts’ recommendations regarding us, other optical technology companies or the telecommunication industry in general;

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future sales of common stock, or securities convertible into, exchangeable or exercisable for common stock;

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adverse judgments or settlements obligating us to pay damages;

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future issuances of common stock in connection with acquisitions or other transactions;

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acts of war, terrorism, or natural disasters;

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industry, domestic and international market and economic conditions, including the global macroeconomic downturn over the last three years and related sovereign debt issues in certain parts of the world;

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low trading volume in our stock;

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developments relating to patents or property rights; and

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government regulatory changes.

In connection with our acquisition of Xtellus, during the first quarter of fiscal year 2012 we issued 0.9 million shares of our common stock to settle our escrow liability. In connection with our acquisition of Mintera, during the second quarter of fiscal year 2012, we issued 0.8 million shares of our common stock to pay portions of the 12 month earnout obligations. In connection with our acquisition of Opnext, during the first quarter of fiscal year 2013, we issued 38.4 million shares of our common stock. In addition, we have $25.0 million of Convertible Notes outstanding, which if converted, would result in us issuing 13.5 million shares of our common stock. In May 2013, we also issued 1.8 million warrants to purchase our common stock at an exercise price of $1.50 per share in connection with the Term Loan we received in May 2013 (See Note 7, Credit Line and Notes elsewhere in this Quarterly Report on Form 10-Q for further details). These issuances and the subsequent sale of these shares will dilute our existing stockholders and could potentially have a negative impact on our stock price.

Our shares of common stock have experienced substantial price and volume fluctuations, in many cases without any direct relationship to our operating performance. An outgrowth of this market volatility is the significant vulnerability of our stock price to any actual or perceived fluctuation in the strength of the markets we serve, regardless of the actual consequence of such fluctuations. As a result, the market price for our stock is highly volatile. These broad market and industry factors have caused the market price of our common stock to fluctuate, and may in the future cause the market price of our common stock to fluctuate, regardless of our actual operating performance.

We are not restricted from issuing additional shares of our common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, shares of our common stock. Issuances of shares of our common stock or convertible securities, including outstanding options and warrants, will dilute the ownership interest of our stockholders.

We have a material amount of debt and may be unable to service or refinance this debt, which could have a material adverse effect on our business in the future, and may place us at a competitive disadvantage in our industry.

As of September 28, 2013, we had consolidated debt of $39.8 million outstanding, net, all of which was secured, including $23.1 million outstanding pursuant to the issuance by our wholly-owned subsidiary of the Convertible Notes and $16.7 million related to capital leases.

This high level of debt could have negative consequences. For example, it could:

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result in our inability to comply with the financial and other restrictive covenants in our current and future credit facilities;

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increase our vulnerability to adverse industry and general economic conditions;

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require us to dedicate a substantial portion of our cash flow from operations to make scheduled principal payments on our debt, thereby reducing the availability of our cash flow for working capital, capital investments and other business activities;

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limit our ability to obtain additional financing to fund future working capital, capital investments and other business activities;

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limit our ability to refinance our indebtedness on terms that are commercially reasonable, or at all;

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expose us to the risk of interest rate fluctuations to the extent we pay interest at variable rates on the debt;

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limit our flexibility to plan for, and react to, changes in our business and industry; or

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place us at a competitive disadvantage relative to our less leveraged competitors.

Despite existing debt levels, we may have to incur substantially more debt, which would increase the risks associated with our leverage.

Even with our existing debt levels as of September 28, 2013, we may have to incur substantial amounts of additional debt in the future, including debt under the senior secured revolving credit facility and any future credit facilities, some or all of which may be secured. Although the terms of the senior secured revolving credit facility and any future credit facilities will limit our ability to incur additional debt, these terms do not and will not prohibit us from incurring substantial amounts of additional debt. If new debt is added to our current debt levels, the related risks that we and they now face could intensify and could further exacerbate the risks associated with our leverage.

Servicing our debt will require a significant amount of cash and our ability to generate cash may be affected by factors beyond our control.

Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness or to fund our other liquidity needs, including working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements.

If we cannot fund our liquidity needs, we will have to take actions such as: reducing or delaying capital expenditures, product development efforts, strategic acquisitions, investments and alliances; selling assets; restructuring or refinancing our debt; or seeking additional equity capital. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. Our Credit Agreement limits the use of the proceeds from any disposition of assets. As a result, we may not be allowed to use the proceeds from such dispositions to satisfy all current debt service obligations. In addition, if we incur additional debt, the risks associated with our substantial leverage, including the risk that we would be unable to service our debt or generate enough cash flow to fund our liquidity needs, could intensify.

Restrictive covenants in our Credit Agreement, the indenture governing our outstanding notes and the agreements governing our other indebtedness restrict our ability to operate our business.

Our Credit Agreement and the indenture governing our outstanding senior secured second lien notes contain, and agreements governing indebtedness we may incur in the future may contain, covenants that restrict our ability to, among other things, incur additional debt, pay dividends, make investments, enter into transactions with affiliates, merge or consolidate with other entities or sell all or substantially all of our assets.

On May 6, 2013, we entered into Amendment Number Two to the Second Amended and Restated Credit Agreement and the associated guaranties and security agreements, which amended the Credit Agreement in pertinent part by adding an affirmative covenant that Borrower shall have consummated one or more asset sales by July 15, 2013 and with a minimum threshold of net proceeds as set forth in the Amendment. On August 21, 2013, we amended our Credit Agreement to extend the time frame in which we must complete such asset sales to September 2, 2013. We completed the sale of the Zurich Business on September 12, 2013 and applied the net proceeds to repay all amounts outstanding under the Credit Agreement. The event of default resulting from not completing the sale of the Zurich Business on September 2, 2013 was waived on September 26, 2013. This waiver eliminated the requirement for the Agent and Lenders to make any advances, issue any letters of credit or provide any other extension of credit until the Agent and Lenders agree otherwise and prevents us from exercising any right or action set forth in the applicable loan documents that is conditioned on the absence of any event of default. If the Agent and Lenders do not agree to make amounts under the Credit Agreement available to us within 30 days of the waiver (or such later time as the Agent agrees), then the Agent and Lenders will have the option to immediately terminate the Credit Agreement. As a result of this waiver, we currently cannot access the availability under our Credit Agreement.

Additionally, the Credit Agreement requires us to comply with certain financial covenants. A breach of any of these covenants could result in a default under these agreements, which could allow the lenders or holders to declare all amounts outstanding thereunder immediately due and payable. If we are unable to repay outstanding borrowings when due, the lenders under the Credit Agreement, the second lien collateral agent under the indenture governing these notes and similar agents under other agreements would have the right to proceed against the collateral granted to them. We may also be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under our indebtedness.

We are subject to pending securities class action and shareholder derivative legal proceedings.

When the market price of a stock experiences a sharp decline, as our stock price recently has, holders of that stock have often brought securities class action litigation against the company that issued the stock. Several securities class action lawsuits have been filed against us and certain of our current and former officers and directors. Other class action lawsuits have been initiated against Opnext, us and certain of our respective current and former officers and directors as purported derivative actions. The securities class action complaints allege violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated by the Securities and Exchange Commission. Each purported derivative complaint alleges, among other things, counts for breaches of fiduciary duty, waste, and unjust enrichment. For a description of these lawsuits, see Part II, Item 1 – Legal Proceedings of this Quarterly Report on Form 10-Q. These lawsuits will likely divert the time and attention of our management. In addition, if these suits are resolved in a manner adverse to us, the damages we could be required to pay may be substantial and could have an adverse impact on our results of operations and our ability to operate our business.

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

Our revenues and other operating results are likely to fluctuate significantly in the future. The timing of order placement, size of orders and satisfaction of contractual customer acceptance criteria, changes in the pricing of our products due to competitive pressures as well as order or shipment delays or deferrals, with respect to our products, acquisitions and asset sales may cause material fluctuations in revenues. Our lengthy sales cycle, which may extend to more than one year, may cause our revenues and operating results to vary from period to period and it may be difficult to predict the timing and amount of any variation. Delays or deferrals in purchasing decisions by our customers may increase as we develop new or enhanced products for new markets, including data communications, industrial, research, consumer and biotechnology markets. Purchase decisions by our customers are also impacted by the capital expenditure plans of the global telecom carriers, which tend to be the primary customers of our customers. Our current and anticipated future dependence on a small number of customers increases the revenue impact of each such customer’s decision to delay or defer purchases from us, or decision not to purchase products from us. Our expense levels in the future will be based, in large part, on our expectations regarding future revenue sources and, as a result, operating results for any quarterly period in which material orders fail to occur, or are delayed or deferred, could vary significantly.

Because of these and other factors, quarter-to-quarter comparisons of our results of operations may not be indicative of our future performance. In future periods, our results of operations may differ, in some cases materially, from the estimates of public market analysts and investors. Such a discrepancy, or our failure to meet published financial projections, could cause the market price of our common stock to decline.

The failure to maintain a minimum closing share price of $1.00 per share of our common stock could result in the delisting of our shares from the NASDAQ Global Select Market, which would harm the market price of our common stock.

In order to retain our listing on The NASDAQ Global Select Market we are required by NASDAQ to maintain a minimum closing bid price of $1.00 per share. Our stock price is currently trading above $1.00 per share, but closed below $1.00 per share on September 4, 5 and 6, 2013. In the event that our common stock closes below the minimum closing bid price of $1.00 per share for any 30 consecutive business days, our common stock could be delisted from The NASDAQ Global Select Market, transferred to a listing on The NASDAQ Capital Market or delisted from the NASDAQ markets altogether unless we regain compliance by having our common stock close at or above $1.00 per share for 10 consecutive days during the 180 days immediately following failure to maintain the minimum closing bid price. The failure to maintain our listing on The NASDAQ Global Select Market could harm the liquidity of our common stock and could have an adverse effect on the market price of our common stock.

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

We expect to incur significant restructuring expenses for incremental actions going forward, including restructuring actions we intend to announce in the first half of fiscal year 2014 to reduce our complexity and to simplify our operating footprint subsequent to the sale of the Zurich and Amplifier Businesses.

We have previously enacted a series of restructuring plans and cost reduction plans designed to reduce our manufacturing overhead and our operating expenses that have resulted in significant restructuring charges. Such charges have adversely affected, and will continue to adversely affect, our results of operations for the periods in which such charges have been, or will be, incurred. Additionally, actual costs have in the past, and may in the future, exceed the amounts estimated and provided for in our financial statements. Significant additional charges could materially and adversely affect our results of operations in the periods that they are incurred and recognized. In addition, any restructuring activities will require significant cash commitments and will adversely affect our cash balances.

For instance, during fiscal year 2011, we incurred $0.6 million in restructuring charges related to a restructuring plan specific to our acquisition of Mintera. During fiscal year 2012 and 2013, we incurred $6.0 million and $5.1 million in restructuring charges, respectively, in connection with the transition of our Shenzhen, China assembly and test operations to Venture, and expect to incur an additional $4.0 million to $6.0 million in restructuring charges over the remaining transition period. During the year ended June 29, 2013, we incurred $12.1 million in restructuring charges in connection with the acquisition and integration of Opnext, and expect to incur additional restructuring charges related to this plan over the next few quarters.

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

Most of our customers do not purchase products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for volume production. Our existing manufacturing lines, as well as each new manufacturing line, must pass through varying levels of qualification with our customers. Our manufacturing lines have passed our qualification standards, as well as our technical standards. However, our customers also require that our manufacturing lines pass their specific qualification standards and that we, and any subcontractors that we may use, be registered under international quality standards. In addition, we have in the past, and may in the future, encounter quality control issues as a result of relocating our manufacturing lines or introducing new products to fill production. We may be unable to obtain customer qualification of our manufacturing lines or we may experience delays in obtaining customer qualification of our manufacturing lines. Such delays or failure to obtain qualifications would harm our operating results and customer relationships. To the extent we introduce new contract manufacturing partners and move any production lines from existing internal or external facilities the new production lines will likely need to be re-qualified with customers. Exposures to these risks could increase materially during the transition of our Shenzhen product lines to Venture Malaysia, and as a result of our acquisition and integration of Opnext, including the relocation of certain operations from Totsuka, Japan to a different leased facility in Sagamihara, Japan.

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

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

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

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

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

Our financial results have been and will continue to be materially impacted by foreign currency fluctuations. At certain times in our history, declines in the value of the U.S. dollar versus the U.K. pound sterling have had a major negative effect on our margins and our cash flow. A significant portion of our expenses are denominated in U.K. pounds sterling and Japanese yen and substantially all of our revenues are denominated in U.S. dollars.

Fluctuations in the exchange rate between these currencies and, to a lesser extent, other currencies in which we collect revenues and/or pay expenses could have a material effect on our future operating results. For example during fiscal year 2013, the Swiss franc appreciated approximately 1 percent relative to the U.S. dollar, the U.K. pound sterling depreciated approximately 2 percent relative to the U.S. dollar, and the Japanese yen depreciated approximately 20 percent relative to the U.S. dollar, impacting our manufacturing overhead and operating expenses. If the U.S. dollar stays the same or depreciates relative to the U.K. pound sterling and/or Japanese yen in the future, our future operating results may be materially impacted. Additional exposure could also result should the exchange rate between the U.S. dollar and the Chinese yuan, the South Korean won, or the Euro vary more significantly than they have to date.

We periodically engage in currency hedging transactions in an effort to cover some of our exposure to U.S. dollar to U.K. pound sterling currency fluctuations, and we may be required to convert currencies to meet our obligations. We may, in the future, enter into similar hedging transactions in an effort to cover some of our exposure to U.S. dollar to Japanese yen currency fluctuations. These transactions may not operate to fully hedge our exposure to currency fluctuations, and under certain circumstances, these transactions could have an adverse effect on our financial condition.

We may record additional impairment charges that will adversely impact our results of operations.

As of September 28, 2013, we had $9.9 million in other intangible assets on our condensed consolidated balance sheet. If we make changes in our business strategy or if market or other conditions adversely affect our business operations, we may be forced to record an impairment charge related to these assets, which would adversely impact our results of operations. If impairment has occurred, we will be required to record an impairment charge for the difference between the carrying value of the other intangible assets and the implied fair value of the other intangible assets in the period in which such determination is made. The testing of other intangible assets for impairment requires us to make significant estimates about the future performance and cash flows of our business, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic, industry, or market conditions, changes in underlying business operations, future reporting unit operating performance, changes in competition, or changes in technologies. Any changes in key assumptions, or actual performance compared with those assumptions, about our business and its future prospects or other assumptions could affect the fair value of one or more reporting units, and result in an impairment charge.

During the fourth quarter of fiscal year 2013 we completed our annual analysis for potential impairment of our goodwill, which included examining the impact of current general economic conditions on our future prospects and the current level of our market capitalization. Based on this analysis, we determined that the goodwill related to our Mintera reporting unit was fully impaired. This resulted in a $10.9 million impairment charge in our statement of operations for fiscal year 2013. In addition, during the first quarter of fiscal year 2013, we recorded $0.9 million in impairment charges related to the impairment of certain technology that is now considered redundant following the acquisition of Opnext. In the fourth quarter of fiscal year 2013, we recorded an additional $13.7 million impairment charge related to the impairment of intangible assets related to certain technologies and we recorded impairment charges of $1.7 million related to other long-lived assets.

Our intellectual property rights may not be adequately protected.

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

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

Opnext has historically relied on Hitachi for assistance with the research and development efforts related to Opnext’s product portfolio. Any failure of Hitachi to continue to provide these services could have a material adverse effect on our business. Opnext’s product expertise is based on the research ability developed within their Hitachi heritage and through joint research and development in lasers and optical technologies. A key factor to Opnext’s business success and strategy is fundamental laser research. Opnext relied on access to Hitachi’s research laboratories pursuant to a research and development agreement with Hitachi, which includes access to Hitachi’s research facilities and engineers, to conduct research and development activities that are important to the establishment of new technologies and products vital to their current and future business. Should access to Hitachi’s research laboratories become unavailable or available at less attractive terms in the future, this may impede development of new technologies and products, and our financial condition and operating results could be materially adversely affected.

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

Companies in the industry in which we operate frequently are sued or receive informal claims of patent infringement or infringement of other intellectual property rights. We have, from time to time, received such claims, including from competitors and from companies that have substantially more resources than us.

Third parties may in the future assert claims against us concerning our existing products or with respect to future products under development, or with respect to products that we may acquire through acquisitions. We have entered into and may in the future enter into indemnification obligations in favor of some customers that could be triggered upon an allegation or finding that we are infringing other parties’ proprietary rights. If we do infringe a third party’s rights, we may need to negotiate with holders of those rights in order to obtain a license to those rights or otherwise settle any infringement claim. We have from time to time received notices from third parties alleging infringement of their intellectual property and where appropriate have entered into license agreements with those third parties with respect to that intellectual property. Any license agreements that we wish to enter into the future with respect to intellectual property rights may not be available to us on commercially reasonable terms, or at all. We may not in all cases be able to resolve allegations of infringement through licensing arrangements, settlement, alternative designs or otherwise. We may take legal action to determine the validity and scope of the third-party rights or to defend against any allegations of infringement. Holders of intellectual property rights could become more aggressive in alleging infringement of their intellectual property rights and we may be the subject of such claims asserted by a third party. In the course of pursuing any of these means or defending against any lawsuits filed against us, we could incur significant costs and diversion of our resources and our management’s attention. Due to the competitive nature of our industry, it is unlikely that we could increase our prices to cover such costs. In addition, such claims could result in significant penalties or injunctions that could prevent us from selling some of our products in certain markets or result in settlements or judgments that require payment of significant royalties or damages.

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

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

Prior to our acquisition of Opnext, Opnext licensed its intellectual property to Hitachi and its wholly owned subsidiaries without restriction. In addition, Hitachi is free to license certain of Hitachi’s intellectual property that Opnext used in its business to any third party, including competitors, which could harm our business and operating results.

Opnext was initially created as a stand-alone entity by acquiring certain assets of Hitachi through various transactions. In connection with these transactions, Opnext acquired a number of patents and know-how from Hitachi, but also granted Hitachi and its wholly owned subsidiaries a perpetual right to continue to use those patents and know-how, as well as other patents and know-how that Opnext developed during a period which ended in July 2011 (or October 2012 in certain cases). This license back to Hitachi is broad and permits Hitachi to use this intellectual property for any products or services anywhere in the world, including licensing this intellectual property to our competitors.

Additionally, while significant intellectual property owned by Hitachi was assigned to Opnext when Opnext was formed, Hitachi retained and only licensed to Opnext the intellectual property rights to underlying technologies used in both Opnext products and the products of Hitachi. Under the agreement, Hitachi remains free to license these intellectual property rights to the underlying technologies to any party, including competitors. The intellectual property that has been retained by Hitachi and that can be licensed in this manner does not relate solely or primarily to one or more of Opnext’s products, or groups of products; rather, the intellectual property that is licensed to Opnext by Hitachi is generally used broadly across Opnext’s entire product portfolio. Competition by third parties using the underlying technologies retained by Hitachi could harm the Opnext business, financial condition and results of operations.

The inability to obtain government licenses and approvals for desired international trading activities or technology transfers may prevent the profitable operation of our business.

Many of our present and future business activities are subject to licensing by the United States government under the Export Administration Act, the Export Administration Regulations and other laws, regulations and requirements governing international trade and technology transfer. We presently manufacture products in China and Thailand that require such licenses. The profitable operations of our business may require the continuity of these licenses and may require further licenses and approvals for future products in these and other countries. However, there is no certainty to the continuity of these licenses, nor that further desired licenses and approvals may be obtained.

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

For fiscal years ended June 29, 2013, June 30, 2012 and July 2, 2011, 13 percent, 18 percent and 17 percent of our revenues, respectively, were derived from sales to customers located in the United States and 87 percent, 82 percent and 83 percent of our revenues, respectively, were derived from sales to customers located outside the United States, including our discontinued operations. We are subject to additional risks related to operating in foreign countries, including:

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currency fluctuations, which could result in increased operating expenses and reduced revenues;

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greater difficulty in accounts receivable collection and longer collection periods;

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difficulty in enforcing or adequately protecting our intellectual property;

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ability to hire qualified candidates;

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foreign taxes;

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political, legal and economic instability in foreign markets;

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foreign regulations;

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changes in, or impositions of, legislative or regulatory requirements;

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trade restrictions, including restrictions imposed by the United States government on trading with parties in foreign countries;

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transportation delays;

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epidemics and illnesses;

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terrorism and threats of terrorism;

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work stoppages and infrastructure problems due to adverse weather conditions or natural disasters;

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work stoppages related to employee dissatisfaction;

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changes in import/export regulations, tariffs, and freight rates; and

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the effective protections of, and the ability to enforce, contractual arrangements.

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

We may face product liability claims.

Despite quality assurance measures, defects may occur in our products. The occurrence of any defects in our products could give rise to liability for damages caused by such defects, including consequential damages. Such defects could, moreover, impair market acceptance of our products. Both could have a material adverse effect on our business and financial condition. In addition, we may assume product warranty liabilities related to companies we acquire, which could have a material adverse effect on our business and financial condition. In order to mitigate the risk of liability for damages, we carry product liability insurance with a $25.0 million aggregate annual limit and errors and omissions insurance with a $5.0 million annual limit. We cannot assure you that this insurance would adequately cover our costs arising from any defects in our products or otherwise.

Our business and operating results may be adversely affected by natural disasters or other catastrophic events beyond our control.

Our business and operating results are vulnerable to natural disasters, such as earthquakes, fires, tsunami, volcanic activity and floods, as well as other events beyond our control such as power loss, telecommunications failures and uncertainties arising out of terrorist attacks in the United States and armed conflicts overseas. For example, in the latter three quarters of fiscal year 2012, our results of operations were materially and adversely impacted by the flooding in Thailand. Additionally, our corporate headquarters and a portion of our research and development and manufacturing operations are located in Silicon Valley, California, and select manufacturing facilities are located in Japan. These regions in particular have been vulnerable to natural disasters, such as earthquakes and tsunamis. The occurrence of any of these events could pose physical risks to our property and personnel, which may adversely affect our ability to produce and deliver products to our customers. Although we presently maintain insurance against certain of these events, we cannot be certain that our insurance will be adequate to cover any damage sustained by us or by our customers.

We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act, or the FCPA. Our failure to comply with these laws could result in penalties which could harm our reputation and have a material adverse effect on our business, results of operations and financial condition.

We are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits, along with various other anticorruption laws. Although we have implemented policies and procedures designed to ensure that we, our employees and other intermediaries comply with the FCPA and other anticorruption laws to which we are subject, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA or other laws for actions taken by our employees and other intermediaries with respect to our business or any businesses that we may acquire. We have manufacturing operations in China and other jurisdictions, many of which pose elevated risks of anti-corruption violations, and we export our products for sale internationally. This puts us in frequent contact with persons who may be considered “foreign officials” under the FCPA, resulting in an elevated risk of potential FCPA violations. If we are not in compliance with the FCPA and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anticorruption laws by U.S. or foreign authorities could harm our reputation and have an adverse impact on our business, financial condition and results of operations.

Litigation may substantially increase our costs and harm our business.

We are a party to numerous lawsuits and will continue to incur legal fees and other costs related thereto, including potentially expenses for the reimbursement of legal fees of officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. In addition, there can be no assurance that we will be successful in any defense. Further, the amount of time that will be required to resolve these lawsuits is unpredictable and these actions may divert management’s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time could have a material adverse effect on our business, results of operations and financial condition.

For a description of our current material litigation, see Part II, Item 1 – Legal Proceedings of this Quarterly Report on Form 10-Q.

In addition, from time to time, we have been a party to certain intellectual property infringement litigation as more fully described above under “Risks Related to Our Business — Our products may infringe the intellectual property rights of others, which could result in expensive litigation or require us to obtain a license to use the technology from third parties, or we may be prohibited from selling certain products in the future .”

Our business involves the use of hazardous materials, and we are subject to environmental and import/export laws and regulations that may expose us to liability and increase our costs.

We handle hazardous materials as part of our manufacturing activities. Consequently, our operations are subject to environmental laws and regulations governing, among other things, the use and handling of hazardous substances and waste disposal. We may incur costs to comply with current or future environmental laws. As with other companies engaged in manufacturing activities that involve hazardous materials, a risk of environmental liability is inherent in our manufacturing activities, as is the risk that our facilities will be shut down in the event of a release of hazardous waste, or that we would be subject to extensive monetary liabilities. The costs associated with environmental compliance or remediation efforts or other environmental liabilities could adversely affect our business. Under applicable European Union regulations, we, along with other electronics component manufacturers, are prohibited from using lead and certain other hazardous materials in our products. We could lose business or face product returns if we fail to maintain these requirements properly.

In addition, the sale and manufacture of certain of our products require on-going compliance with governmental security and import/export regulations. We may, in the future, be subject to investigation which may result in fines for violations of security and import/export regulations. Furthermore, any disruptions of our product shipments in the future, including disruptions as a result of efforts to comply with governmental regulations, could adversely affect our revenues, gross margins and results of operations.

The new disclosure requirements related to the “conflict minerals” provision of the Dodd-Frank Act may limit our supply and increase our costs for certain metals used in our products and could affect our reputation with customers or shareholders.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Securities and Exchange Commission (SEC) adopted a new rule requiring public companies to disclose the use of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. The new rule, which went into effect for calendar year 2013 and requires a disclosure report to be filed with the SEC by May 31, 2014, will require companies to perform due diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo (DRC) or an adjoining country. The new rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacturing of our products. The number of suppliers who provide conflict-free minerals may be limited. In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to the due diligence process of determining the source of certain minerals used in our products, as well as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. As our supply chain is complex and we use contract manufacturers for some of our products, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. If we cannot determine that our products exclude conflict minerals sourced from the DRC or adjoining countries, some of our customers may discontinue, or materially reduce, purchases of our products, which could negatively affect our results of operations.

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

Our certificate of incorporation authorizes us to issue up to 1.0 million shares of preferred stock with designations, rights and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:

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adversely affect the voting power of the holders of our common stock;

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make it more difficult for a third-party to gain control of us;

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discourage bids for our common stock at a premium;

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limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or

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otherwise adversely affect the market price of our common stock.

We may in the future issue shares of authorized preferred stock at any time.

Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if such a transaction would be beneficial to our stockholders.

Some provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These include provisions:

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authorizing the board of directors to issue preferred stock;

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prohibiting cumulative voting in the election of directors;

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limiting the persons who may call special meetings of stockholders;

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prohibiting stockholder actions by written consent;

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creating a classified board of directors pursuant to which our directors are elected for staggered three-year terms;

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permitting the board of directors to increase the size of the board and to fill vacancies;

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requiring a super-majority vote of our stockholders to amend our bylaws and certain provisions of our certificate of incorporation; and

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establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

We are subject to the provisions of Section 203 of the Delaware General Corporation Law which limit the right of a corporation to engage in a business combination with a holder of 15 percent or more of the corporation’s outstanding voting securities, or certain affiliated persons. We do not currently have a stockholder rights plan in place.

Although we believe that these charter and bylaw provisions, and provisions of Delaware law, provide an opportunity for the board to assure that our stockholders realize full value for their investment, they could have the effect of delaying or preventing a change of control, even under circumstances that some stockholders may consider beneficial.

ITEM 6. EXHIBITS

The exhibits filed as part of this Quarterly Report on Form 10-Q, or incorporated by reference, are listed on the Exhibit Index immediately preceding such exhibits, which Exhibit Index is incorporated herein by reference.

SIGNATURES

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.


	OCLARO, INC.
	(Registrant)

Date: November 7, 2013	By:	/ S / J ERRY T URIN
		Jerry Turin
		Chief Financial Officer
		(Authorized Officer and Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit Number		Description of Exhibit

2.1		Agreement and Plan of Merger dated March 26, 2012, among Oclaro, Inc., Tahoe Acquisition Sub, Inc. and Opnext, Inc. (previously filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on March 26, 2012 and incorporated herein by reference)

2.2		Agreement of Merger among: Oclaro, Inc., a Delaware corporation; Nikko Acquisition Corp., a Delaware corporation; Mintera Corporation, a Delaware corporation; and Shareholder Representative Services LLC, as the Stockholders’ Agent. Dated as of July 20, 2010 (previously filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on July 26, 2010 and incorporated herein by reference.)

2.3		Agreement of Merger among: Oclaro, Inc., a Delaware corporation; Rio Acquisition corp., a Delaware corporation; Xtellus Inc., a Delaware corporation; and Alta Berkeley LLP, as the Stockholders’ Agent. Dated as of December 16, 2009 (previously filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on December 22, 2009 and incorporated herein by reference.)

3.1		Amended and Restated Bylaws of Oclaro, Inc., including Amendments No. 1 and No. 2 thereto (formerly Bookham, Inc.) (previously filed as Exhibit 3.1 to Registrant’s Registration Statement on Form S-8 dated May 5, 2009 and incorporated herein by reference)

3.2		Amendment No. 3 to Amended and Restated By-Laws of Oclaro, Inc. (previously filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on July 28, 2011 and incorporated herein by reference).

3.3		Restated Certificate of Incorporation of Oclaro, Inc. (previously filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K filed on September 1, 2010 and incorporated herein by reference)

3.4		Certificate of Amendment to Restated Certificate of Incorporation of Oclaro, Inc. (previously filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on July 27, 2012 and incorporated herein by reference.)

4.1		Indenture, dated December 14, 2012, entered into by Oclaro, Inc., Oclaro Luxembourg S.A., certain of Oclaro, Inc.’s domestic and foreign subsidiaries and Wells Fargo Bank, National Association (previously filed as Exhibit 4.1 to Registrant’s Quarterly Report on Form 10-Q/A filed on February 15, 2013 and incorporated herein by reference.)

4.2		Form of Warrant Certificate dated May 6, 2013 (previously filed as Exhibit 4.2 to Registrant’s Annual Report on 10-K filed on September 27, 2013 and incorporated herein by reference.)

10.1 (1)(3)		Retirement, Severance and Release of All Claims Agreement, effective July 12, 2013, between Alain Couder and Oclaro, Inc.

10.2 (1)		Waiver and Amendment Number Three to Second Amended and Restated Credit Agreement, dated August 21, 2013, by and among Oclaro, Inc., Oclaro Technology Limited, Wells Fargo Capital Finance, LLC and other lenders party thereto.

10.3 (1)		Asset Purchase Agreement, dated October 10, 2013, entered into by Oclaro Technology Limited and II-VI Incorporated.

10.4		Share and Asset Purchase Agreement, dated September 12, 2013, entered into by Oclaro Technology Limited and II-VI Holdings B.V. (previously filed as Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on September 17, 2013 and incorporated herein by reference.)



10.5 (1)		Waiver to Second Amended and Restated Credit Agreement, dated September 26, 2013, by and among Oclaro, Inc., Oclaro Technology Limited, Wells Fargo Capital Finance, LLC and the lenders party thereto.

10.6 (1)		Option Agreement, dated September 12, 2013, entered into by Oclaro Technology Limited, Oclaro, Inc., Oclaro (North America), Inc., Avanex Communications Technologies Co, II-VI Holdings B.V., and II-VI Incorporated.

10.7 (3)		Employment Agreement, dated September 11, 2013, between Oclaro, Inc. and Greg Dougherty (previously filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on September 17, 2013 and incorporated herein by reference.)

31.1 (1)		Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2 (1)		Certification of Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1 (1)		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350

32.2 (1)		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

101.INS (2)		XBRL Instance Document

101.SCH (2)		XBRL Taxonomy Extension Schema Document

101.CAL (2)		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF (2)		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB (2)		XBRL Taxonomy Extension Label Linkbase Document

101.PRE (2)		XBRL Taxonomy Extension Presentation Linkbase Document

(1)	Filed herewith.

(2)

Pursuant to Rule 406T of Regulation S-T, XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

(3)	Management contract or compensatory plan or arrangement.

Exhibit 10.1

RETIREMENT, SEVERANCE AND RELEASE OF ALL CLAIMS AGREEMENT

This Retirement, Severance And Release of All Claims Agreement (“Agreement”) is made by and between Oclaro, Inc. (“the Company”) and Alain Couder (“Employee”) based on the following facts:

a. Employee retired and resigned as an employee with the Company, and all of its parents, subsidiaries, and affiliates, effective June 6, 2013 (“Retirement Date”) and, concurrently with the execution of this Agreement, hereby resigns as a director of the Company.

b. Employee’s retirement constitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

c. The Company has offered, and Employee has accepted, the benefits set forth below in Section 3 in exchange for a general release of all claims as contemplated in the Second Amendment to the Employment Agreement dated July 26, 2012 between the Company and Employee (“Second Amended Employment Agreement”). This Agreement is therefore entered into by the Company and Employee to document the parties’ agreement regarding the terms of Employee’s separation from the Company.

WHEREFORE, the Company and Employee agree as follows:

1. Employee has received all wages, bonuses, commissions, accrued vacation, compensation of any kind (other than as specifically set forth in Section 3 below) and benefits to which Employee is entitled as a result of Employee’s employment with the Company.

2. Employee agrees to promptly return all Company property remaining in Employee’s possession, including but not limited to credit cards, hardware, software, data, keys and documents (“Company Property”). Employee also agrees to promptly return any subsequently discovered Company Property, and agrees to comply with Employee’s continuing obligations under the applicable proprietary information and inventions agreement between Employee and the Company (“Proprietary Information Agreement”) and similar obligations imposed by state and federal law.

3. In consideration for the promises and representations of Employee as described in this Agreement, and in accordance with Section 6.4 of the Second Amended Employment Agreement (which sets forth the timing of payments to which Employee is entitled in accordance with Section 409A of the Code):

(a) The Company will pay Employee the gross sum of $1,851,619.30 (equal to twice Employee’s annual base salary as of the Retirement Date and twice the amount as determined by (x) adding all bonuses earned by Employee for the three most recent full fiscal years prior to the fiscal year in which the Retirement Date occurred and (y) dividing the sum of such bonuses by 3), less federal and state withholdings (“Retirement Pay”). The Company will provide Employee with the Retirement Pay as follows: (i) a gross payment of $17,500 shall be payable in a lump-sum payment on the Company’s first payroll date that is at least 28 days following the Retirement Date; provided the Agreement has become effective as set forth in Section 6(d) below, and (ii) the remaining gross amount of $1,834,119.30 shall be paid in six equal payments over a period of six months beginning on December 7, 2013. Employee acknowledges that Employee’s receipt of the Retirement Pay is conditioned on Employee’s execution of this Agreement.

(b) If Employee qualifies for and timely completes all documentation necessary to continue health insurance coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay the applicable COBRA premium (which initially shall be $2157.35 per month) for Employee for up to 18 months after the Retirement Date (which period may be extended to 24 months after the Retirement Date if Employee qualifies for and continues COBRA coverage through such 24 month period), which premium payments shall be treated as taxable compensation to the extent necessary to preclude violation of Section 105(h) of the Code and applicable guidance promulgated thereunder (“COBRA Premium”). Notwithstanding the foregoing, if the Company determines at any time that it cannot pay the COBRA Premium on behalf of Employee without violating applicable law (including, without limitation, Section 2716 of the Public Health Services Act), the COBRA Premium benefits shall cease and Employee will thereafter receive a monthly taxable payment in the amount of the applicable COBRA Premium payment in effect as of the date that the Company ceased to pay Employee’s COBRA Premiums, with the monthly payments to end in the 24th month following the month in which the Retirement Date occurs (and, for the avoidance of doubt, such taxable monthly payments will continue even if Employee ceases COBRA coverage prior to the end of his COBRA eligibility period). If Employee’s COBRA Premium payments cease after 18 months due to Employee’s exhausting his eligibility for COBRA coverage then in each of the 19th through 24 months following the month in which the Retirement Date occurs Employee will receive a taxable payment in the amount of the Employee’s applicable COBRA Premium payment as in effect for the 18th month of Employee’s COBRA coverage. In lieu of continued life insurance coverage as described in Section 6.2.3 of the Second Amended Employment Agreement, Employee will receive a gross amount equal to $2,080.80, which amount shall be paid in installments as follows: (i) in each month from December 2013 through May 2014, Employee shall receive a payment equal to $173.40, less applicable tax withholdings, provided that the first payment shall be made no earlier than December 7, 2013, and (ii) in each month from June 2014 through May 2015, Employee shall receive a payment equal to $86.70 less applicable tax withholdings.

(c) All stock options, restricted stock grants and other equity awards granted to Employee prior to the Retirement Date, and as to which (i) vesting was based solely on continued employment or (ii) vesting was based on both the achievement of performance targets and continued employment and the award currently remains subject solely to continued employment to vest, and in each case that have not vested as of the Retirement Date, shall immediately vest as of the Retirement Date (“Continued Employment Vested Equity”). Stock options that vest in accordance with the foregoing sentence will remain exercisable for the greater of (i) the time period set forth in the applicable award agreement(s) or (ii) one year following the Retirement Date, but in no event shall any of Employee’s options remain exercisable beyond the option’s termination date. Any equity awards that vest in accordance with this clause (c) (other than stock options) that are subject to Section 409A of the Code will be settled ratably over the six month period during which Employee receives cash severance benefits as set forth in Section 3(a), and any equity awards that vest in accordance with this clause (c) (other than stock options) that are exempt from Section 409A of the Code will be settled as soon as practicable following the Retirement Date. Employee acknowledges that Employee’s receipt of the accelerated vesting of continued employment awards as contemplated in this clause (c) as provided herein is conditioned on Employee’s execution of this Agreement.

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(d) All stock options, restricted stock grants and other equity awards granted to Employee prior to the Retirement Date shall be forfeited and shall terminate as of the Retirement Date.

Any outstanding equity awards granted to Employee by the Company that do not vest as provided in clause (c) above shall terminate as of the Retirement Date without payment of any consideration with respect to such awards and Employee shall have no further rights with respect to those awards.

For purposes of this Section 3, to the extent that any in-kind benefit or reimbursement to be paid or provided to Employee constitutes a “deferral of compensation” within the meaning of Section 409A of the Code, (i) the amount of expenses eligible for reimbursement or the provision of any in-kind benefit (within the meaning of Section 409A of the Code) to Employee during any calendar year will not affect the amount of expenses eligible for reimbursement or provided as in-kind benefits to Employee in any other calendar year, (ii) any reimbursements for expenses that Employee incurs will be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred, (iii) Employee will not be entitled to any in-kind benefits or reimbursement for any expenses incurred subsequent to the end of calendar year 2015 and (iv) the right to any such reimbursement or in-kind benefit may not be liquidated or exchanged for any other benefit. To the extent applicable, the terms in this Section 3 are intended to comply with Section 409A of the Code and any ambiguities shall be construed in a manner consistent with this intent Each installment payment described in this Section 3 shall be treated as a separate payment and not as components of a single payment for purposes of Section 409A of the Code.

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4. Except for the rights and obligations expressly set forth herein, Employee, for Employee and for each of Employee’s past and present agents, assigns, transferees, heirs, spouses, relatives, executors, attorneys, administrators, employees, predecessors, affiliates, successors, insurers, and representatives (“Releasors”), hereby releases and discharges the Company and its respective past and present agents, assigns, transferees, attorneys, administrators, officers, directors, stockholders, employees, predecessors, subsidiaries, parents, affiliates, successors, insurers, and representatives (“Releasees”) from any and all claims and causes of action, known or unknown, which Releasors now have or may have against any of the Releasees arising through the date of this Agreement, including but not limited to claims arising out of or relating to the Employment Agreement between the Company and Employee dated July 10, 2007 (“Employment Agreement”), the amended and restated Employment Agreement dated August 2, 2010, the Second Amended Employment Agreement, and/or Employee’s employment or the severance of Employee’s employment from the Company. This release is intended to be interpreted broadly and is intended to include, without limitation, all common law claims (including but not limited to: breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, wrongful discharge in violation of public policy, infliction of emotional distress, negligence, invasion of privacy, interference with contractual relationship, defamation and fraud), as well as any statutory claims (including but not limited to claims arising under: the Age Discrimination in Employment Act (“ADEA”) as amended, 29 U.S.C. § 621 et seq. ; Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, 42 U.S.C. § 2000 et seq. ; the Civil Rights Act of 1866, 42 U.S.C. § 1981; the Family and Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq. ; the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq. ; the False Claims Act, 31 U.S.C. § 3729 et seq. ; the Fair Labor Standards Act, 29 U.S.C. § 215 et seq. , the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2102 et seq. , as well as claims under any laws of the state of California, or any other claim whatsoever arising out of Employee’s employment or the termination of Employee’s employment, other than those that cannot be released as a matter of law. This release shall not be interpreted to require Employee to waive or release Employee’s right to file a charge with the Equal Employment Opportunity Commission (“EEOC”) or the National Labor Relations Board (“NLRB”), however, Employee does waive and release Employee’s right to any monetary recovery or other personal relief should the EEOC, NLRB, or any other agency pursue claims on Employee’s behalf. This release also does not apply to any lawsuit brought to challenge the validity of this Agreement under the ADEA, to enforce the terms of this Agreement, or for claims that arise under the ADEA after the Effective Date. Employee and the Company expressly acknowledge and agree that neither the Company nor Employee would enter into this Agreement but for the representation and warranty that Employee is hereby releasing any and all claims of any nature whatsoever, known or unknown, whether statutory or at common law, which Employee now has or could assert directly or indirectly against any of the Releasees (other than as expressly set forth herein).

5. Employee waives all the benefits and rights granted by California Civil Code section 1542, and any other applicable similar state laws, which provides:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time executing the release, which, if known by him or her must have materially affected his or her settlement with the debtor.

6. This Agreement is intended to release and discharge any claims of Employee under the Age Discrimination and Employment Act. To satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. section 626(f), the parties agree as follows:

a. Employee acknowledges that Employee has read and understands the terms of this Agreement.

b. Employee acknowledges that Employee has been advised to consult with an attorney, if desired, concerning this Agreement and has received all advice Employee deems necessary concerning this Agreement.

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c. Employee acknowledges that Employee has been given twenty-one days from receipt of this Agreement to consider whether or not to enter into this Agreement (“Execution Deadline”), has taken as much of this time as necessary to consider whether to enter into this Agreement, and has chosen to enter into this Agreement freely, knowingly and voluntarily.

d. For a seven day period following the execution of this Agreement by Employee, Employee may revoke this Agreement by delivering a written revocation to the Company’s Chairperson of the Board. This Agreement shall not become effective and enforceable until the revocation period has expired (the “Effective Date”). If Employee does not sign this Agreement and provide the Company’s Chairperson of the Board with an executed copy of the Agreement on or before the Execution Deadline or revokes the Agreement before the Effective Date, Employee shall not receive the Retirement Pay, Health Insurance Premium, Life Insurance Premium, accelerated vesting of the Continued Employment Vested Equity or Performance Vested Equity, or any other consideration Employee would not otherwise be entitled to in the absence of this Agreement.

7. Employee acknowledges and agrees that Employee has no pending lawsuit, administrative charge or complaint against the Company or any of the other Releasees, in any court or with any governmental agency. Further, if lawfully subpoenaed by a court of this jurisdiction, Employee agrees to provide the Company written notice of such a subpoena within five (5) days of receipt. A “covenant not to sue” is a legal term that means Employee promises not to file a lawsuit in court. It is different from the general release contained in Section 4, above. By this Section 7, Employee agrees never to sue the Company, its owners, shareholders, directors, officers, employees and agents, or become party to a lawsuit, on the basis of any claim of any type covered by Section 4.

8. Employee agrees that Employee will not disparage, defame or otherwise detrimentally comment upon the Releasees or investors in the Company, including their business practices or products, in any manner. Employee acknowledges that such comment shall cause serious damage to the Company.

9. Employee shall not, for a period of one year following the Effective Date, directly or indirectly solicit, induce, recruit, or encourage any officer, director, or employee of the Company to terminate his, her or its relationship with the Company or interfere with the Company’s relationship with those individuals in any way.

10. Employee represents and warrants that Employee has not heretofore assigned, transferred or purported to assign or transfer to any other person or entity any rights, claims or causes of action herein released and discharged, and no other person or entity has any interest in the matters herein released and discharged. Furthermore, Employee shall indemnify and hold the Company and all persons or entities released herein harmless from and against any rights, claims or causes of action which have been assigned or transferred contrary to the foregoing representations, or in violation of the foregoing warranties, and shall hold such persons or entities harmless from any and all loss, expense and/or liability arising directly or indirectly out of the breach of any of the foregoing representations or warranties.

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11. This Agreement is a compromise of the parties rights under various agreements, and both parties have entered into it for the purpose of resolving all claims between them and avoiding litigation.

12. Employee agrees and promises that the existence, terms and conditions of this Agreement, including but not limited to the fact and amount of payment, (collectively the “Confidential Matters”) shall not be described or discussed or caused to be described or discussed in any manner, either written or oral, directly or indirectly, with any person, organization, company or entity, other than Employee’s spouse, attorneys, and/or tax advisors, without the prior written consent of the Company.

13. This Agreement may be pled as a full and complete defense and may be used as the basis for an injunction against any action, suit, or proceeding that may be prosecuted, instituted, or attempted by Employee or the Company in breach thereof.

14. This Agreement shall be construed in accordance with, and be deemed governed by, the laws of the State of California, and the Company and Employee agree that the proper forum and venue for any action brought arising out of or relating in any way to this Agreement shall be in San Jose, California.

15. Employee agrees that this Agreement has been negotiated by the parties, and that no provision contained herein shall be interpreted against any party because that party drafted the provision.

16. This Agreement, the applicable equity plans and agreements, and the Proprietary Information Agreement contain the entire agreement between the parties on the subjects addressed in this Agreement and replace any other prior agreements between the parties on these subjects. This Agreement may only be modified in a written document signed by the Company’s Chairman of the Board.

17. Employee and the Company represent and warrant that they are not relying, and have not relied, on any representations or statements, verbal or written, made by any other with regard to the facts involved in this controversy or with regard to their rights or asserted rights arising out of alleged claims or the execution and terms of this Agreement, except as provided herein. Employee and the Company have consulted with an attorney regarding the terms of this Agreement and have entered into this Agreement freely, willingly and without any coercion or duress.

18. The Company and Employee shall execute any and all further documents that may be required to effectuate the purposes of this Agreement.

19. This Agreement shall be binding upon and shall inure to the benefit of the Company and Employee and to their respective representatives, successors, heirs, agents and assigns.

20. In any action for breach of this Agreement, the parties shall bear their own attorneys’ fees and costs.

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21. This Agreement may be executed in counterparts, and if so executed each such counterpart shall have the force and effect of an original. Photocopies of such signed counterparts may be used in lieu of the originals for any purpose.

22. In the event any provision of this Agreement shall be found unenforceable by a court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefits contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such court, the unenforceable provision shall be deemed deleted, replaced with a reasonable and enforceable provision, and the validity and enforceability of the remaining provisions shall not be affected thereby.

23. No breach of any provision of this Agreement can be waived unless in writing. Waiver of any one breach shall not be deemed to be a waiver of any other breach of the same or any other provision of this Agreement.

Each individual signing this Agreement directly and expressly warrants that he/she has been given and has received and accepted authority to sign and execute the documents on behalf of the party for whom it is indicated he/she has signed, and further has been expressly given and received and accepted authority to enter into a binding agreement on behalf of such party with respect to the matters concerned herein and as stated herein.

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WE, THE UNDERSIGNED, HAVE READ THE FOREGOING AND, HAVING BEEN ADVISED BY COUNSEL, FULLY UNDERSTAND AND AGREE TO ITS TERMS,


Dated: 7/12, 2013						/s/ Alain Couder
						Alain Couder

						Oclaro, Inc.

Dated: July 7, 2013						/s/ Marissa Peterson
						Marissa Peterson
						Chairperson of the Board of Directors

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Exhibit 10.2

WAIVER AND AMENDMENT NUMBER THREE TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Waiver and Amendment Number Three to Second Amended and Restated Credit Agreement (“ Amendment ”) is entered into as of August 21, 2013, by and among WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company (as successor-by-merger to Wells Fargo Capital Finance, Inc.), as administrative agent (the “ Agent ”) for the lenders (the “ Lenders ”) party to the Credit Agreement (as defined below), and the Lenders, on the one hand, and OCLARO, INC. , a Delaware corporation (“ Parent ”), OCLARO TECHNOLOGY LIMITED, a company incorporated under the laws of England and Wales (“ Borrower ”), and the Grantors (defined below) identified on the signature pages hereto, on the other hand, with reference to the following facts:

A. Agent, Lenders, Parent and Borrower have previously entered into that certain Second Amended and Restated Credit Agreement, dated as of November 2, 2012 (as amended, supplemented, amended and restated, or otherwise modified, the “ Credit Agreement ”).

B. Certain grantors (“ Grantors ”) and Agent have previously entered into that certain Amended and Restated Security Agreement (Domestic), dated as of November 2, 2012 (as amended, supplemented, amended and restated, or otherwise modified, the “ Domestic Security Agreement ”) and that certain Amended and Restated Security Agreement (Foreign), dated as of November 2, 2012 (as amended, supplemented, amended and restated, or otherwise modified, the “ Foreign Security Agreement ”, and together with the Domestic Security Agreement, the “ Security Agreements ”).

C. Grantors have previously entered into that certain Amended and Restated General Continuing Guaranty (Domestic) dated as of November 2, 2012 (as amended, supplemented, amended and restated, or otherwise modified, the “ Domestic Guaranty ”) and that certain Amended and Restated Security Agreement (Foreign), dated as of November 2, 2012 (as amended, supplemented, amended and restated, or otherwise modified, the “ Foreign Guaranty ”, and together with the Domestic Guaranty, the “ Guaranties ”).

D. The “Existing Default” (as defined below) has occurred and is continuing.

E. Borrower has requested that Agent and Lenders waive the Existing Default and amend certain provisions of the Credit Agreement.

F. Agent and Lenders are willing to agree to waive the Existing Default on the terms and conditions specified herein.

G. Borrower, Parent, Grantors, Agent, and Lenders desire to amend the Credit Agreement as provided for and on the conditions herein.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrower, Parent, Grantors, Agent and Lenders agree as follows:

1. DEFINITIONS .

(a) Interpretation . All initially capitalized terms used in this Amendment shall have the meanings given to them in the Credit Agreement unless specifically defined herein.

(b) Additional Definitions . As used herein, the following terms will have the respective meanings given to them below:

(i) “ Existing Default ” means an Event of Default under Section 8.2(a) of the Credit Agreement as a result of Borrower’s failure to consummate one or more Strategic Transactions by the Milestone Date resulting in Net Proceeds of at least $100,000,000 as required by Section 5.20(a) of the Credit Agreement.

2. ACKNOWLEDGMENTS AND AGREEMENTS .

(a) Acknowledgment of Obligations . Borrower hereby acknowledges, confirms and agrees that as of the close of business on August 19, 2013, (i) Borrower is indebted to Agent and Lenders in respect of the Advances in the principal amount of $0, (ii) Borrower is indebted to Agent and Lenders in respect of the Term Loan in the aggregate principal amount of $25,077,778.78, and (iii) Borrower is indebted to Lender in respect of the Letter of Credit Usage in the principal amount of $30,000. Borrower hereby acknowledges, confirms and agrees that all such loans, together with interest accrued and accruing thereon, and all fees, costs, expenses and other charges now or hereafter payable by Borrower to Agent and Lenders, pursuant to the Loan Documents are unconditionally owing by Borrower to Agent and Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever.

(b) Acknowledgment of Security Interests . Each Grantor hereby acknowledges, confirms and agrees that Agent has and will continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Collateral heretofore granted to Agent pursuant to the Credit Agreement and the Loan Documents or otherwise granted to or held by Agent, in all cases subject to Permitted Liens.

(i) Notwithstanding anything to the contrary in the Credit Agreement and the other Loan Documents, all amounts deposited in any Controlled Account (as defined in the Domestic Security Agreement and Foreign Security Agreement) will be forwarded by daily sweep from the applicable Controlled Account to the Agent’s Account on or after the date hereof (other than constituting proceeds of any Strategic Transactions) and shall be applied in accordance with Section 2.4(b)(ii) of the Credit Agreement; provided, however, all amounts forwarded by daily sweep that would otherwise be applied pursuant to Section 2.4(b)(ii)(M) – (N) of the Credit Agreement shall be retained by Agent in Agent’s Account as cash collateral to secure the Obligations; provided, further, that so long as no Event of Default exists, any amounts retained by Agent shall be applied to any Obligations outstanding as provided in Section 2.4(b)(ii)(A) – (L) of the Credit Agreement; provided, further, that if an Event of Default exists, Agent may (and at the direction of the Supermajority Lenders, shall) apply such cash collateral to the Obligations in accordance with the terms of the Credit Agreement.

(ii) Notwithstanding anything to the contrary in the Credit Agreement and the other Loan Documents, solely with respect to a Strategic Transaction pursuant to clause (b) of such definition, the amounts applied to the Advances and to cash collateralize Letters of Credit pursuant to clause (c)(i) above shall be counted toward the $20,000,000 limitation set forth in Section 2.4(b)(i)(B)(1) of the Credit Agreement (as in effect after giving effect to this Amendment) dollar for dollar until such $20,000,000 limitation is reached as if such amounts had been applied pursuant to Section 2.4(b)(i)(B)(1) of the Credit Agreement (as in effect after giving effect to this Amendment).

(d) LIBOR Rate Loans . Notwithstanding anything to the contrary in the Credit Agreement and the other Loan Documents, Borrower acknowledges and agrees that Borrower may not, at any time on or after the date hereof, exercise the LIBOR Option described in Sections 2.12(a) and (b) of the Credit Agreement for any Advances. All LIBOR Rate Loans that are outstanding on the date hereof will be converted to Base Rate Loans.

(e) Reserves . Without limiting any of the provisions of Section 2.1(c) of the Credit Agreement, Borrower hereby acknowledges and agrees that Agent shall have the right (but not the obligation) to establish reserves from time to time against the Borrowing Base or the Maximum Revolver Amount in such amounts as Agent in its Permitted Discretion shall deem necessary and appropriate with respect to any potential claims with priority over Agent’s floating charge over the Deposit Account (including funds therein) in the United Kingdom, including, without limitation reserves relating to the “prescribed part” or “ring-fenced pot”.

(f) Binding Effect of Documents . Each Loan Party hereby acknowledges, confirms and agrees that: (i) this Amendment constitutes a Loan Document, (ii) each of the Credit Agreement and the Loan Documents to which it is a party has been duly executed and delivered to Agent by such Loan Party, and each is and will remain in full force and effect as of the date hereof except as modified pursuant hereto, (iii) the agreements and obligations of Loan Parties contained in such documents and in this Amendment constitute the legal, valid and binding Obligations of Loan Parties, enforceable against it in accordance with their respective terms, and no Loan Party has any knowledge of any valid defense to the enforcement of such Obligations, and (iv) Agent is and will be entitled to the rights, remedies and benefits provided for under the Credit Agreement and the Loan Documents and applicable law.

3. WAIVER IN RESPECT OF EXISTING DEFAULT .

(a) Acknowledgment of Default . Borrower hereby acknowledges and agrees that the Existing Default has occurred and is continuing, constitutes an Event of Default and entitles Agent to exercise its rights and remedies under the Credit Agreement and the Loan Documents, applicable law or otherwise. Borrower represents and warrants that as of the date hereof, no Events of Default exist other than the Existing Default. Borrower hereby acknowledges and agrees that Agent has the exercisable right to declare the Obligations to be immediately due and payable under the terms of the Credit Agreement and the Loan Documents. Borrower acknowledges that neither Agent, Issuing Lender or any Lender has any obligation to make any Advance or issue any Letters of Credit.

(b) Waiver . In reliance upon the representations, warranties and covenants of Borrower contained in this Amendment, and subject to the terms and conditions of this Amendment and any documents or instruments executed in connection herewith, Agent and Lenders hereby waive the Existing Default.

(i) Agent has not waived, is not by this Amendment waiving, and has no intention of waiving, any Events of Default (other than the Existing Default) which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Existing Default or otherwise), and Agent has not agreed to forbear with respect to any of its rights or remedies concerning any Events of Default occurring at any time.

(ii) Subject to Section 3(b) above (solely with respect to the Existing Default), Agent reserves the right, in its discretion, to exercise any or all of its rights and remedies under the Credit Agreement and the Loan Documents as a result of any Events of Default occurring at any time. Agent has not waived any of such rights or remedies, and nothing in this Amendment, and no delay on its part in exercising any such rights or remedies, will be construed as a waiver of any such rights or remedies.

(d) Additional Events of Default . The parties hereto acknowledge, confirm and agree that any misrepresentation by any Loan Party in any material respect, or any failure of any Loan Party to comply with the covenants, conditions and agreements contained in this Amendment will constitute an immediate Event of Default under the Credit Agreement and the Loan Documents.

(e) Waiver Fee . In consideration for the agreements of Agent and the Lenders set forth in Section 3(b) above, Borrower shall pay to Agent, for the ratable benefit of the Lenders in accordance with their respective Pro Rata Shares (calculated in accordance with clause (d) of such definition), a waiver fee of $650,000, which waiver fee shall be deemed fully earned when required to be paid and nonrefundable when paid (the “ Waiver Fee ”).

4. AMENDMENTS TO THE CREDIT AGREEMENT .

(a) Section 2.4(b)(i)(A) of the Credit Agreement is hereby amended and restated as follows:

“(A) with respect to any Strategic Transaction pursuant to clause (a) of the definition thereof:

(1)

first , such Net Proceeds shall be applied in the order set forth in Sections 2.4(b)(ii)(A) through (L) ; provided that the aggregate amount of Net Proceeds applied pursuant to this Section 2.4(b)(i)(A)(1) , when taken together with any amounts applied to the Obligations pursuant to Section 2.4(b)(i)(B)(1) from all Strategic Transactions may not exceed $20,000,000;

(2)

second , any remaining Net Proceeds shall be applied to the outstanding amount of the Obligations owed to Term Loan Lenders to be applied in the order set forth in Sections 2.4(b)(ii)(M) and (N) until paid in full; and

(3)

third, any remaining proceeds shall be applied to all other Obligations as set forth in Section 2.4(b)(ii) .”

(b) Section 2.4(b)(i)(B)(1) of the Credit Agreement is hereby amended by replacing the reference to “Section 2.4(b)(A)(2)” with “Section 2.4 (b)(i)(A)(1)”.

(c) Section 4 of the Credit Agreement is hereby amended by adding the following Sections 4.35 and 4.36 to the end thereof:

“4.35 UK Solvency . (This Section 4.35 shall be governed by and construed in accordance with the laws of England and Wales).

(a) No Insolvency Proceeding has been commenced against Borrower (other than frivolous or vexatious Insolvency Proceedings which have been discharged, stayed or dismissed within 14 days of commencement).

(b) After giving effect to the Third Amendment, Borrower (i) is able (and has not admitted any inability) to pay its debts as they fall due (within the meaning of section 123 of the Insolvency Act 1986 (UK)); (ii) is not and has not been deemed or declared to be unable to pay its debts under applicable law; (iii) has not suspended or threatened to suspend making payments on any of its debts; or (iv) has not by reason of actual or anticipated financial difficulties, commenced negotiations with one or more of its creditors with a view to rescheduling any of its Indebtedness.

(c) The value of the assets of the Borrower are greater than its liabilities (taking into account contingent and prospective liabilities).

4.36 Purpose . All amounts borrowed under this Agreement have been and will continue to be used by Borrower only for purposes which are consistent with the duties of Borrower’s directors under all applicable laws including, without limitation, the Companies Act 2006 (UK) and English law.”

(d) Section 5.20 of the Credit Agreement is hereby amended and restated as follows:

“5.20 Strategic Transactions . Borrower shall (a) have consummated one or more Strategic Transactions pursuant to clause (b) of the definition thereof resulting in Net Proceeds of at least $100,000,000 with at least $80,000,000 of such Net Proceeds being applied in accordance with Section 2.4(b) on or prior to the Milestone Date, (b) notify Agent of any consummated Strategic Transaction at least 2 days prior to the closing of such Strategic Transaction, (c) cause the Net Proceeds of any Strategic Transaction to be paid directly to a Controlled Account of Borrower subject to daily sweeps for application in accordance with Section 2.4(b)(i), and (d) cause its investment banking advisors to provide Agent with weekly telephonic or email updates regarding the status of any potential or actual Strategic Transaction.”

(e) Effective upon the consummation of one or more Strategic Transactions pursuant to clause (b) of the definition thereof and receipt by Agent of Net Proceeds of at least $80,000,000 resulting therefrom, to be applied in accordance with Section 2.4(b) of the Credit Agreement, Section 5.21 of the Credit Agreement shall be deleted in its entirety.

(f) Section 7 of the Credit Agreement is hereby amended by adding the following Section 7.2 at the end thereof:

“7.2 Minimum Liquidity . Not permit Liquidity to be less than $45,000,000 at any time.”

(g) Subsections (c) and (d) of the defined term “Permitted Intercompany Advance” in Section 1.1 of the Credit Agreement are hereby amended and restated as follows:

“(c) made by any of Parent’s Subsidiaries that is a Loan Party to any of Parent’s other Subsidiaries that is not a Loan Party in the form of operational funding consistent with current business practices and consistent with the level and nature of the operations and revenue generating activities implicit in the financial models provided by Parent (as reviewed and approved by the Lenders) and reviewed by Consultant pursuant to Section 5.21 , so long as no Default or Event of Default has occurred and is continuing or would result therefrom;

(d) [intentionally omitted];”

(h) The defined term “Milestone Date” in Section 1.1 of the Credit Agreement is hereby amended and restated as follows:

“ Milestone Date ” means September 2, 2013.

(i) The defined term “Strategic Transaction” in Section 1.1 of the Credit Agreement is hereby amended and restated as follows:

“ Strategic Transaction ” means (a) a disposition in one or more transactions of non-core assets of Parent and its Subsidiaries which are unrelated to Parent’s or its Subsidiaries’ Industrial and Consumer Business that is conducted principally at locations in Zurich, Switzerland and Komoro, Japan, so long as the aggregate sale price of all such dispositions (including any deferred purchase price payment) pursuant to this clause (a) at no time exceeds $10,000,000 and such transaction has been approved by Supermajority Lenders, (b) a disposition (whether directly or through a sale of interests in one or more entities) of all or a portion of Parent’s and its Subsidiaries’ Industrial and Consumer Business consisting of the business conducted at its locations in Zurich, Switzerland and related assets located there and elsewhere (which related assets may include the 980 nm pumps or the business conducted at locations in Komoro, Japan) in a single transaction that results in aggregate Net Proceeds received by Parent or its Subsidiaries of not less than $100,000,000, or (c) any other disposition, in one or more transactions, of the assets of Parent and its Subsidiaries which are approved by Supermajority Lenders; provided , that such approval will not be conditioned upon the application of the Net Proceeds of such disposition in any manner other than as set forth in Section 2.4(b) .

(j) The defined term “Qualified Cash” in Section 1.1 of the Credit Agreement is hereby amended and restated as follows:

“ Qualified Cash ” means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of Parent and its Subsidiaries that is in Deposit Accounts or in Securities Accounts, or any combination thereof which is subject to a first priority Lien in favor of Agent to secure the Obligations, and which such Deposit Account or Securities Account is the subject of a Control Agreement and is maintained by a branch office of the bank or securities intermediary located within the United States, United Kingdom or Canada.

(k) Schedule 1.1 of the Credit Agreement is hereby amended by adding the following new defined terms in appropriate alphabetical order:

“ Liquidity ” means, as of any date of determination, the sum of Excess Availability plus the lesser of (i) $25,000,000 and (ii) Qualified Cash at such time.

“ Third Amendment ” means that certain Waiver and Amendment Number Three to Second Amended and Restated Credit Agreement, entered into as of August 21, 2013, by and among Agent, Lenders, Parent, Borrower and Grantors.

(l) Schedule C-1 of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with Schedule C-1 attached hereto.

(m) Schedule 5.2 of the Credit Agreement is hereby amended by deleting it in its entirety and replacing it with Schedule 5.2 attached hereto.

5. COVENANTS .

(a) Consultant . Borrower and each other Grantor (i) agree to fully cooperate with Alvarez & Marsal North America, LLC or such other consultant engaged by Agent (“ Agent’s Consultant ”), (ii) agree to provide Agent’s Consultant access to its properties, books and records, employees and professionals (including financial advisors, investment bankers and consultants) and (iii) hereby authorize Agent’s Consultant to provide to Agent such information and status reports from time to time with respect to Borrower and Grantors and their financial condition, businesses, assets, liabilities and prospects, as Agent requests from time to time.

(b) Joinder to Intercompany Subordination Agreement . On or before the date that is 10 days following the date hereof, Borrower shall deliver to Agent, a joinder to that certain Second Amended and Restated Intercompany Subordination Agreement dated as of November 2, 2012 between Parent, the Subsidiaries and Affiliates of Parent party thereto from time to time and Agent, executed by Oclaro Japan, Inc., Opnext Germany GmbH, Forthaven Ltd. (UK), Oclaro (North America), Inc., Italy Branch, Oclaro Japan KK, Avanex Communication Technologies Co., Ltd., Oclaro Technology (Shenzhen) Co., Ltd., Oclaro (Thailand) Ltd., Oclaro Switzerland GmbH and Oclaro Luxembourg S.A., in form in substance satisfactory to Agent.

6. BOOKHAM INTERNATIONAL LTD .

(a) The Agent and each Lender consent to the sale, transfer or other disposition of 51% of the equity interests (the “ Cayman Shares ”) of Bookham International Ltd., an exempted company incorporated with limited liability under the laws of the Cayman Islands (“ Oclaro Cayman ”), free and clear of the Agent’s and such Lender’s Lien thereon, solely in connection with a Strategic Transaction pursuant to clause (b) of such definition.

(b) Upon the consummation of one or more Strategic Transactions pursuant to clause (b) of the definition thereof resulting in Net Proceeds of at least $100,000,000 and receipt by Agent of Net Proceeds of at least $80,000,000 of such Net Proceeds on or prior to the Milestone Date, to be applied in accordance with Section 2.4(b), the Agent and each Lender shall (i) release its Lien on the Cayman Shares granted by Borrower under the Foreign Security Agreement, the Share Charge dated as of August 2, 2006 (as amended or otherwise modified), made by Borrower in favor of Lender or any other Loan Document, (ii) release its Lien on the assets of Oclaro Cayman, including the equity interests of Oclaro Technology (Shenzhen) (FFTZ) Co., Ltd. (the “ Oclaro Shenzhen Equity Interests ”), granted by Oclaro Cayman under the Foreign Security Agreement, the Deed of Charge dated as of August 2, 2006 (as amended or otherwise modified, the “ Cayman Deed ”), made by Oclaro Cayman in favor of the Agent or any other Loan Document and (iii) release Oclaro Cayman from its obligations under the Foreign Guaranty, the Foreign Security Agreement, the Cayman Deed and each other Loan Document. At any time upon the reasonable request of Parent or Borrower, the Agent and each Lender shall execute and deliver any releases or other documents that Parent or Borrower reasonably request to evidence or effect the releases provided for herein, at the cost of Borrower and Parent. Upon consummation of the Strategic Transaction pursuant to clause (b) of the definition thereof and the re-transfer of the Cayman Shares and the Oclaro Shenzhen Equity Interests to Borrower and Oclaro Cayman in accordance with the documentation relating to the Strategic Transaction, Agent’s and each Lender’s Lien on the Cayman Shares and Oclaro Shenzhen Equity Interests shall be deemed to automatically and immediately attach and otherwise become valid and effective upon each re-transfer of the Cayman Shares and Oclaro Shenzhen Equity Interests, respectively. Upon Agent’s request, Borrower and each other Grantor shall execute and deliver any documentation that Agent reasonably requests to evidence or effect the Agent and Lenders’ Lien on the Cayman Shares and the Oclaro Shenzhen Equity Interests.

7. REPRESENTATIONS AND WARRANTIES . Parent, Borrower, and each Grantor each hereby affirms to Agent and Lenders that, after giving effect to the amendments herein, all of its representations and warranties set forth in the Credit Agreement are true, complete and accurate in all respects as of the date hereof.

8. CONDITIONS PRECEDENT . The effectiveness of this Amendment is expressly conditioned upon receipt by Agent of:

(a) a fully executed copy of this Amendment, the Reaffirmation of Guaranty attached hereto, and a reaffirmation of the Loan Documents;

(b) an acknowledgment executed by Borrower, in form and substance satisfactory to Agent, of Agent’s engagement of Agent’s Consultant;

(d) a fully executed copy of that certain Amendment No. 1 to Agreement Among Lenders dated as of the date hereof by and among Agent and the Lenders; and

(e) all fees and other amounts payable on or prior to the closing date of this Agreement, including all attorneys’, consultants’ and other professionals’ fees and expenses incurred by Agent and Lenders (including, without limitation, fees and expenses for Agent and each Lender’s respective counsel).

9. RELEASE .

(a) Except with respect to the rights of Borrower, Parent, and each Grantor expressly provided herein, in consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of Borrower, Parent, and each Grantor, on behalf of itself and its successors, assigns and other legal representatives (each of Borrower, Parent, and each Grantor and all such other persons being hereinafter referred to collectively as “ Releasors ” and individually as a “ Releasor ”), hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent and each Lender and all such other persons being hereinafter referred to collectively as “ Releasees ” and individually as a “ Releasee ”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a “ Claim ” and collectively, “ Claims ”) of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Releasors may now or hereafter own, hold, have or claim to have against Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement or any of the other Loan Documents or transactions thereunder or related thereto.

(b) It is the intention of each of Borrower, Parent, and each Grantor that this Amendment and the release set forth above shall constitute a full and final accord and satisfaction of all claims they may have or hereafter be deemed to have against Releasees as set forth herein. In furtherance of this intention, each of Borrower, Parent, and each Grantor, on behalf of itself and each other Releasor, expressly waives any statutory or common law provision that would otherwise prevent the release set forth above from extending to claims that are not currently known or suspected to exist in any Releasor’s favor at the time of executing this Amendment and which, if known by Releasors, might have materially affected the agreement as provided for hereunder. Each of Borrower, Parent, and each Grantor, on behalf of itself and each other Releasor, acknowledges that it is familiar with Section 1542 of California Civil Code:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Each of Borrower, Parent, and each Grantor, on behalf of itself and each other Releasor, waives and releases any rights or benefits that it may have under Section 1542 to the full extent that it may lawfully waive such rights and benefits, and each of Borrower, Parent, and each Grantor, on behalf of itself and each other Releasor, acknowledges that it understands the significance and consequences of the waiver of the provisions of Section 1542 and that it has been advised by its attorney as to the significance and consequences of this waiver.

(c) Each of Borrower, Parent, and each Grantor understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

(d) Each of Borrower, Parent, and each Grantor agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

10. COVENANT NOT TO SUE . Each of the Releasors hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by any Releasor pursuant to Section 9 above. If any Releasor violates the foregoing covenant, Borrower, for itself and its successors, assigns and other legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys’ fees and costs incurred by any Releasee as a result of such violation.

11. COSTS AND EXPENSES . Borrower shall pay to Agent all of Agent’s and Lenders’ out-of-pocket costs and reasonable expenses (including, without limitation, the fees and expenses of their respective counsel, which counsel may include any local counsel deemed by Agent as necessary, search fees, filing and recording fees, documentation fees, appraisal fees, travel expenses, and other fees) arising in connection with the preparation, execution, and delivery of this Amendment and all related documents.

12. LIMITED EFFECT . In the event of a conflict between the terms and provisions of this Amendment and the terms and provisions of the Credit Agreement, the terms and provisions of this Amendment shall govern. In all other respects, the Credit Agreement, as amended and supplemented hereby, shall remain in full force and effect.

13. COUNTERPARTS; EFFECTIVENESS . This Amendment may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Amendment. This Amendment shall become effective upon the execution of a counterpart of this Amendment by each of the parties hereto and the satisfaction of the condition precedent in Section 8 above.

[Signatures on next page]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above.


WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as Agent and a Lender

By:		/s/ Patrick McCormack
Name:		Patrick McCormack
Title:		V.P.

Signature Page to Amendment Number Three to Second Amended and Restated Credit Agreement


SILICON VALLEY BANK, as a Lender

By:		/s/ Marla Johnson
Name:		Marla Johnson
Title:		Managing Director

Signature Page to Amendment Number Three to Second Amended and Restated Credit Agreement


PECM STRATEGIC FUNDING LP, as a Term Loan Lender

By:		/s/ Bryan Martoken
Name:		BRYAN MARTOKEN
Title:		CFO

PROVIDENCE TMT DEBT OPPORTUNITY FUND II LP, as a Term Loan Lender

By:		/s/ Bryan Martoken
Name:		BRYAN MARTOKEN
Title:		CFO


OCLARO, INC., a Delaware corporation, as Parent and a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Chief Financial Officer

OCLARO TECHNOLOGY LIMITED, a company incorporated under the laws of England and Wales, as Borrower and a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Secretary

Witness:

By:		/s/ Carol Davis
Name:		Carol Davis
Title:		Paralegal
Address: 2560 Junction Avenue, San Jose, CA 95134

Signature Page to Amendment Number Three to Second Amended and Restated Credit Agreement


OCLARO TECHNOLOGY, INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Treasurer & Secretary

OCLARO (NEW JERSEY), INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, CFO & Secretary

OCLARO PHOTONICS, INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, Treasurer & Secretary

OCLARO (NORTH AMERICA), INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		CEO, CFO & Secretary

MINTERA CORPORATION, a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, CFO & Secretary

OPNEXT, INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		CEO, President, CFO & Secretary

Signature Page to Amendment Number Three to Second Amended and Restated Credit Agreement


PINE PHOTONICS COMMUNICATIONS, INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, Treasurer & Secretary

OPNEXT SUBSYSTEMS, INC., a Delaware corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, CFO & Secretary


BOOKHAM INTERNATIONAL LTD., a company organized under the laws of the Cayman Islands, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Secretary

BOOKHAM NOMINEES LIMITED, a company incorporated under the laws of England and Wales, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Secretary

Witness:

By:		/s/ Carol Davis
Name:		Carol Davis
Title:		Paralegal
Address: 2560 Junction Avenue, San Jose, CA 95134

OCLARO (CANADA) INC., a federally incorporated Canadian corporation, as a Grantor

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President & Treasurer


OCLARO INNOVATIONS LLP, a limited liability partnership organized under the laws of England and Wales, as a Grantor

By:	Oclaro, Inc.,
	its member

	By:	/s/ Jerry Turin
	Name:	Jerry Turin
	Title:	CFO

By:	Oclaro (North America), Inc., its member

	By:	/s/ Jerry Turin
	Name:	Jerry Turin
	Title:	CEO, CFO & Secretary

REAFFIRMATION OF GUARANTY

Each of the undersigned has executed an Amended and Restated General Continuing Guaranty (Domestic) or Amended and Restated General Continuing Guaranty (Foreign) (each, a “ Guaranty ”), in favor of Wells Fargo Capital Finance, LLC, a Delaware limited liability company (as successor-by-merger to Wells Fargo Capital Finance, Inc.) (“ WFCF ”), as agent (in such capacity, the “ Agent ”) for the lenders (the “ Lenders ”) from time to time party to Credit Agreement (as defined above) respecting the obligations of Oclaro Technology Limited, a company organized under the laws of England and Wales (the “ Borrower ”) and Oclaro, Inc., a Delaware corporation (the “ Parent ”), owing to the Lenders. Each of the undersigned acknowledges the terms of the above Amendment and reaffirms and agrees that: (i) its Guaranty remains in full force and effect; (ii) nothing in such Guaranty obligates Agent or any Lender to notify any of the undersigned of any changes in the financial accommodations made available to the Borrower or to seek reaffirmations of any of the Guaranties; and (iii) no requirement to so notify any of the undersigned or to seek reaffirmation in the future shall be implied by the delivery or execution of this reaffirmation.


OCLARO INNOVATIONS LLP
a limited liability partnership organized under the laws of England and Wales

By:	Oclaro, Inc., its member

	By:	/s/ Jerry Turin
	Name:	Jerry Turin
	Title:	CFO


By:	Oclaro (North America), Inc., its member

	By:	/s/ Jerry Turin
	Name:	Jerry Turin
	Title:	CEO, CFO & Secretary


BOOKHAM NOMINEES LIMITED,
a company incorporated under the laws of England and Wales

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Secretary


Witness:

By:		/s/ Carol Davis
Name:		Carol Davis
Title:		Paralegal
Address:		2560 Junction Avenue, San Jose, CA 95134


BOOKHAM INTERNATIONAL LTD.,
a company organized under the laws of the Cayman Islands

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Secretary


OCLARO (CANADA) INC.,
a federally incorporated Canadian corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin,
Title:		President & Treasurer


OCLARO, INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Chief Financial Officer


OCLARO TECHNOLOGY, INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		Treasurer & Secretary


OCLARO (NEW JERSEY), INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, CFO & Secretary


OCLARO PHOTONICS, INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, Treasurer & Secretary


MINTERA CORPORATION,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, CFO & Secretary


OCLARO (NORTH AMERICA), INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		CEO, CFO & Secretary


OPNEXT, INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		CEO, President, CFO & Secretary


PINE PHOTONICS COMMUNICATIONS, INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, Treasurer & Secretary


OPNEXT SUBSYSTEMS, INC.,
a Delaware corporation

By:		/s/ Jerry Turin
Name:		Jerry Turin
Title:		President, CFO & Secretary

SCHEDULE C-1

Commitments


Lender	Revolver Commitment*		Term Loan Commitment		Total Commitment
Wells Fargo Capital Finance, Inc.	$	31,250,000	$	0	$	31,250,000
Silicon Valley Bank	$	18,750,000	$	0	$	18,750,000
PECM Strategic Funding LP	$	0	$	10,250,000	$	10,250,000
Providence TMT Debt Opportunity Fund II LP	$	0	$	14,750,000	$	14,750,000
All Lenders	$	50,000,000	$	25,000,000	$	75,000,000

SCHEDULE 5.2

Provide Agent (and if so requested by Agent, with copies for each Lender) with each of the documents set forth below at the following times in form satisfactory to Agent:


Daily by 11:00 a.m. (Pacific Standard Time) of each day		(a) a detailed report regarding Parent’s and its Subsidiaries’ cash and Cash Equivalents, including an indication of which amounts constitute Qualified Cash.

Weekly by the 3 ^rd Business Day of each week		(b) a detailed report, including a rolling 13-week cash flow forecast, regarding Parent’s and its Subsidiaries’ cash and Cash Equivalents, including an indication of which amounts constitute Qualified Cash;

Monthly (no later than the 10th day of each month) (or, if the Revolver Usage is in excess of $0 (other than that certain Letter of Credit # SM239003W) or a request for an Advance or the issuance of a Letter of Credit (other than that certain Letter of Credit # SM239003W) has been made, weekly by the 3rd Business day of each week, it being understood that if Borrower shall request an Advance or the issuance of a Letter of Credit (other than that certain Letter of Credit # SM239003W), Borrower shall deliver items (c) through (g) by 11:00 a.m. (Pacific Standard Time) one Business Day		(c) an Account roll-forward with supporting details supplied from sales journals, collection journals, credit registers and any other records, in each case, in a format acceptable to Agent in its discretion, tied to the beginning and ending account receivable balances of Borrower’s general ledger, (d) a Borrowing Base Certificate, (e) a detailed aging, by total, of Borrower’s Accounts, together with a reconciliation and supporting documentation for any reconciling items noted (delivered electronically in an acceptable format, if Borrowers have implemented electronic reporting), (f) a detailed calculation of those Accounts that are not eligible for the Borrowing Base, if Borrowers have not implemented electronic reporting, and (g) a summary aging, by vendor, of Parent’s and its Subsidiaries’ accounts payable and any book overdrafts (delivered electronically in an acceptable format, if Borrowers have implemented electronic reporting) and an aging, by vendor, of any held checks.
prior to such request)

Schedule 5.2

Monthly (no later than the 10th day of each month)

(h) unless delivered pursuant to clause (c) above, an Account roll-forward with supporting details supplied from sales journals, collection journals, credit registers and any other records, in each case, in a format acceptable to Agent in its discretion, tied to the beginning and ending account receivable balances of Borrower’s general ledger,

(i) notice of all claims, offsets, or disputes asserted by Account Debtors with respect to Parent’s and its Subsidiaries’ Accounts,

(j) unless delivered pursuant to clause (d) above, a Borrowing Base Certificate,

(k) unless delivered pursuant to clause (e) above, a detailed aging, by total, of Borrower’s Accounts, together with a reconciliation and supporting documentation for any reconciling items noted (delivered electronically in an acceptable format, if Borrowers have implemented electronic reporting),

Schedule 5.2


		(l) unless delivered pursuant to clause (f) above, a detailed calculation of those Accounts that are not eligible for the Borrowing Base, if Borrowers have not implemented electronic reporting, (m) unless delivered pursuant to clause (f) above, a summary aging, by vendor, of Parent’s and its Subsidiaries’ accounts payable and any book overdrafts (delivered electronically in an acceptable format, if Borrowers have implemented electronic reporting) and an aging, by vendor, of any held checks, and (n) a monthly Account roll-forward.

Monthly (no later than the 30th day of each month)		(o) a reconciliation of Accounts of Borrower’s general ledger accounts and trade accounts payable of Parent and its Subsidiaries’ general ledger accounts to, in each case, their monthly financial statements including any book reserves related to each category, and (p) a report regarding Parent’s and its Subsidiaries’ accrued, but unpaid, ad valorem taxes.

Quarterly		(q) a detailed report regarding Parent’s and its Subsidiaries’ Permitted Dispositions including a detailed list of the assets sold or disposed of since the Closing Date and the consideration received in connection therewith.

Annually		(r) a detailed list of Parent’s and its Subsidiaries’ customers, including contract expiration dates, together with address and contact information.

Upon request by Agent		(s) copies of invoices together with corresponding shipping and delivery documents, and credit memos together with corresponding supporting documentation, with respect to invoices and credit memos in excess of an amount determined in the sole discretion of Agent, from time to time and (t) such other reports as to the Collateral or the financial condition of Parent and its Subsidiaries, as Agent may reasonably request.

Schedule 5.2

Exhibit 10.3

E XECUTION V ERSION

ASSET PURCHASE AGREEMENT

between:

II-VI I NCORPORATED ,

a Pennsylvania corporation, and

O CLARO T ECHNOLOGY L IMITED ,

a company incorporated under the laws of England and Wales

Dated as of October 10, 2013


1. SALE OF TRANSFERRED ASSETS; RELATED TRANSACTIONS		1

1.1	Sale of Transferred Assets	1

1.2	Delivery of Tangible Transferred Assets	3

1.3	Purchase Price	3

1.4	Assumption of Liabilities	4

1.5	Inventory Adjustment	5

1.6	Transfer Taxes	7

1.7	Allocation	7

1.8	Closing	7

1.9	Third Party Consents	7

1.10	Shenzhen Equipment	8

2. REPRESENTATIONS AND WARRANTIES OF THE SELLER		8

2.1	Due Organization, Etc.	8

2.2	Inventory	8

2.3	Equipment	9

2.4	Financial Statements; Absence of Changes	9

2.5	Title to Tangible Assets	9

2.6	Intellectual Property; Information Technology	10

2.7	Proceedings; Orders	12

2.8	Compliance with Laws; Governmental Authorizations	12

2.9	Environmental Matters	12

2.10	Employee and Labor Matters	13

2.11	Employee Benefit Matters	14

2.12	Tax Matters	15

2.13	Real Property	15

2.14	Authority; Binding Nature of Agreements	16

2.15	Non-Contravention; Consents	17

2.16	Sufficiency of Assets	17

2.17	Customers and Suppliers	18

2.18	Trade Compliance Matters	18

2.19	Related Party Matters	19

2.20	Absence of Certain Events	19

2.21	Insurance	20



2.22	Books and Records	21

2.23	Disclaimer of the Seller	21

2.24	Brokers	21

2.25	Contracts	21

2.26	Warranties	21

3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER		22

3.1	Due Organization	22

3.2	Authority; Binding Nature of Agreements	22

3.3	Non-Contravention; Consents	22

3.4	Funding	23

3.5	Proceedings; Orders	23

3.6	Independent Investigation; Seller’s Representations	23

3.7	Brokers	23

4. COVENANTS		23

4.1	Bulk Sales Laws	23

4.2	Non-Competition	24

4.3	Patent Files	25

4.4	Records	25

4.5	Audited Financial Statements	25

4.6	Non-Solicitation	25

4.7	Non-Disclosure Agreements	25

4.8	Shenzhen Equipment	26

4.9	Returned Assets	26

4.10	Registration with AIC	26

4.11	Operation of the Business	26

5. SELLER’S CLOSING DELIVERABLES		27

6. PURCHASER’S CLOSING DELIVERABLES		28

7. CLOSING CONDITIONS; TERMINATION		29

7.1	Closing Conditions	29

7.2	Termination Events	29

7.3	Termination Procedures	29

7.4	Effect of Termination	30

8. INDEMNIFICATION, ETC.		30



8.1	Survival of Representations and Warranties	30

8.2	Indemnification by the Seller	30

8.3	Indemnification by the Purchaser	31

8.4	Limitations on Indemnification	31

8.5	Exclusive Remedy	32

8.6	Holdback	32

8.7	Defense of Third Party Claims	32

9. EMPLOYEE MATTERS		33

9.1	Offers of Employment	33

9.2	Termination of Employment	33

9.3	Pre-Closing Compensation	33

9.4	Pre-Closing Liabilities	33

9.5	Credit for Prior Service	34

9.6	Waiver of Pre-Existing Conditions	34

9.7	Special Jurisdiction Transferred Employees	34

9.8	Employee Notices	34

9.9	No Third-Party Rights	34

10. MISCELLANEOUS PROVISIONS		35

10.1	Tax Returns; Taxes; Cooperation	35

10.2	Further Actions	35

10.3	Continuing Access to Information	36

10.4	Publicity	36

10.5	Fees and Expenses	37

10.6	Notices	37

10.7	Headings	38

10.8	Counterparts and Exchanges by Electronic Transmission or Facsimile	38

10.9	Governing Law; Venue	38

10.10	Successors and Assigns; Parties in Interest	39

10.11	Remedies Cumulative; Specific Performance	39

10.12	Waiver	40

10.13	Amendments	40

10.14	Severability	40

10.15	Entire Agreement	40

10.16	Disclosure Letter	40

10.17	Appointment of Process Agent	40

10.18	Construction	41

iii

L IST OF A NNEXES



Annex A	—	Certain Definitions

Annex A-I	—	List of Knowledge Group

Annex A-II	—	Definition of “Business”

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ASSET PURCHASE AGREEMENT

T HIS A SSET P URCHASE A GREEMENT is entered into as of October 10, 2013, by and between II-VI Incorporated , a Pennsylvania corporation (the “ Purchaser ”) and O CLARO T ECHNOLOGY L IMITED , a company incorporated under the laws of England and Wales with company number 2298887, having its principal office at Caswell Office, Towcester, Northamptonshire, NN12 8EQ, England (“ Seller ”). Certain capitalized terms used in this Agreement are defined in Annex A .

RECITALS

The Seller and the Purchaser have entered into an Option Agreement, dated as of September 12, 2013 (the “ Option Agreement ,” and such date, the “ Option Date ”), whereby the Seller has granted to the Purchaser an exclusive option, exercisable upon the terms and conditions set forth therein, to acquire from Seller and Seller’s Affiliates the Business;

The Seller and the Purchaser wish to provide for the sale of the Transferred Assets (as defined in Section 1.1 ) to, and the assumption of the Assumed Liabilities (as defined in Section 1.4 ) by, the Purchaser or an Affiliate of the Purchaser on the terms set forth in this Agreement; and

Pursuant to the Option Agreement, the Purchaser made a payment of $5,000,000 to the Seller, which payment was non-refundable but creditable against the purchase of such Transferred Assets.

AGREEMENT

The parties to this Agreement, intending to be legally bound, agree as follows:

1.	SALE OF TRANSFERRED ASSETS; RELATED TRANSACTIONS.

1.1 Sale of Transferred Assets. The Seller shall sell and transfer and Seller shall cause its Affiliates to sell to the Purchaser or an Affiliate of Purchaser, at the Closing, all of the right, title and interest of Seller or any Affiliate of Seller in the following tangible and intangible assets to the extent located in the United Kingdom or otherwise owned by Seller (the “ UK Transferred Assets ”), free and clear of all Encumbrances, on the terms and subject to the conditions set forth in this Agreement, in consideration for payment of the Purchase Price:

(a) Patents and Patent Applications : All of the patents, patent applications and patent rights to inventions that are either (i) used exclusively in the Business, or (ii) identified on Part 1.1(a) of the Disclosure Letter (the Patents, Patent Applications and patent rights to inventions referred to in this Section 1.1(a) , together with the Patents, Patent Applications and patent rights and inventions sold, transferred and conveyed pursuant to the Non-UK Transfer Documents being referred to in this Agreement as the “ Transferred Patents ”), subject to any rights granted in the Intellectual Property License Agreement.

(b) Other Proprietary Assets : All of the Trade Secrets, Technology and Intellectual Property Rights (other than patent rights, which are addressed in Section 1.1(a)) that are either (i) used exclusively in the Business, or (ii) described on Part 1.1(b) of the Disclosure Letter (the Trade Secrets, Technology and Intellectual Property Rights referred to in this Section 1.2(b), together with the Trade Secrets, Technology and Intellectual Property Rights sold, transferred and conveyed pursuant to the Non-UK Transfer Documents, being referred to in this Agreement as the “ Transferred IP ”).

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(c) Inventory : All of the Inventory owned by the Seller or any Affiliate of the Seller that (i) relates exclusively to the Business regardless of location, (ii) is listed on Part 1.1(c) of the Disclosure Letter, except to the extent such inventory has been sold in the ordinary course of business prior to the Closing, (iii) is vendor managed inventory owned by Seller or an Affiliate of Seller relating exclusively to the Business and located at the site of a customer or any other Person, or (iv) is located at the Seller’s or its Affiliates’ facilities in Shanghai, People’s Republic of China (the “ Shanghai Facility ”), or Horseheads, New York (the “ Horseheads Facility ”) (the Inventory referred to in this Section 1.1(c) , together with the Inventory sold, transferred and conveyed pursuant to the Non-UK Transfer Documents, being referred to in this Agreement as the “ Transferred Inventory ”).

(d) Equipment : All of the Equipment that is (i) owned by the Seller or any Affiliate of the Seller and used exclusively in the Business, (ii) listed on Part 1.1(d) of the Disclosure Letter, or (iii) located at the Shanghai Facility or the Horseheads Facility, other than (A) personal items, (B) information technology equipment assigned to persons that are not Transferred Employees, or items of a similar nature, and (C) any customer-owned or vendor-owned equipment (the Equipment referred to in this Section 1.1(d) , together with the Equipment sold, transferred and conveyed pursuant to the Non-UK Transfer Documents, being referred to in this Agreement as the “ Transferred Equipment ”) (it being understood that Equipment owned by a third party and leased to the Seller or an Affiliate of the Seller is not “Transferred Equipment”).

(e) Contracts : The benefit (subject to the burden) of the Seller or any Affiliate of the Seller under the Contracts (a) identified on Part 1.1(e) of the Disclosure Letter, (b) that are customer purchase orders to the extent exclusively related to the Business and received and accepted in the ordinary course of business of the Business consistent with past practices, and (c) the portions of the Contracts listed on Part 1.1(e)(i) of the Disclosure Letter that are exclusively related to the Business (the Contracts referred to in this Section 1.1(e) , together with the Contracts conveyed pursuant to the Non-UK Transfer Documents, being referring to in this Agreement as the “ Transferred Contracts ”).

(f) Records : All Records exclusively or primarily related to the Business (the Records referred to in this Section 1.1(f) , together with the Records conveyed pursuant to the Non-UK Transfer Documents, being referring to in this Agreement as the “ Transferred Books ”); provided, however, that Seller and its Affiliates shall be entitled to retain one or more copies of any Transferred Books, which Transferred Books are confidential information subject to the terms of the NDA provided that the terms of non-disclosure under the NDA shall continue indefinitely.

(g) Governmental Authorizations : All of the Governmental Authorizations that are capable of being transferred and that are held by the Seller or any Affiliate of the Seller and used or held for use exclusively in the Business, including without limitation those identified on Part 1.1(g) of the Disclosure Letter (the Governmental Authorizations referred to in this Section 1.1(g) , together with the Governmental Authorizations conveyed pursuant to the Non-UK Transfer Documents, being referring to in this Agreement as the “ Transferred Governmental Authorizations ”).

(h) Prepayments : Prepayments made pursuant to any Transferred Contracts;

(i) Claims : All claims, guarantees, warranties, rights of indemnity and other rights of recovery and other Proceedings against third parties solely with respect to the Transferred Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise;

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(j) Models and Prototypes : All models (whether tangible or digital), prototypes and test devices exclusively embodying any of the products exclusive to the Business; and

(k) Goodwill : The goodwill of the Business, other than the goodwill associated with the other businesses of the Seller or any Affiliate of the Seller, or the name or Trademarks of the Seller or any of the Affiliates of the Seller that are not Transferred Assets, including any Trademarks that include any form of “Oclaro”.

Part 1.1(x) of the Disclosure Letter indicates, as to each UK Transferred Asset, which of Purchaser or Purchaser’s Affiliates is receiving title hereunder.

The Seller shall cause the Parent and, as applicable, any of Parent’s Affiliates to sell, transfer and convey to the Purchaser or an Affiliate of Purchaser, at the Closing, all of the right, title and interest of the Parent or such Affiliate of Parent in any tangible or intangible assets that would constitute Transferred Assets but for the fact that such assets are owned by any Affiliate of Seller or Parent or not located in the United Kingdom (“ Non-UK Transferred Assets ,” and together with the UK Transferred Assets, the “ Transferred Assets ”), on the terms and subject to the conditions set forth in this Agreement and pursuant to one or more bills of sale and assignments in form and substance mutually agreeable to the Purchaser and the Seller (the “ Non-UK Transfer Documents ”), in consideration for payment of the Purchase Price.

Notwithstanding anything in Section 1.1 to the contrary, Seller and Purchaser expressly acknowledge and agree that the Transferred Assets will not include any assets, rights or properties other than those specifically described above in this Section 1.1 , and any assets, rights or properties specifically identified on Part 1.1A of the Disclosure Letter are expressly excluded from the Transferred Assets (such excluded assets being referred to herein collectively as the “ Excluded Assets ”).

1.2 Delivery of Tangible Transferred Assets. The Purchaser shall take physical delivery of the Transferred Inventory, Transferred Equipment and Transferred Books to the Purchaser (the “ Tangible Transferred Assets ”) at the location at which such Tangible Transferred Assets are located on the Closing Date. To the extent any lab notebooks that constitute Transferred Books are not immediately available for delivery on the Closing Date, such lab notebooks will be delivered to Purchaser as soon as practicable following the Closing Date.

1.3 Purchase Price . The aggregate purchase price (the “ Purchase Price ”) to be paid by the Purchaser as consideration for the sale, transfer and conveyance of the Transferred Assets pursuant to this Agreement shall be Eighty Eight Million Six Hundred Thousand Dollars ($88,600,000), subject to adjustment pursuant to Section 1.5 below. The Purchase Price shall be paid as follows:

(a) Five Million Dollars ($5,000,000) of such Purchase Price shall be credited as paid pursuant to the Option Agreement.

(b) At the Closing, the Purchaser shall pay (or cause to be paid) to Seller (or to one or more Affiliates of Seller), in cash in immediately available funds, a total of Eighty Three Million Six Hundred Thousand Dollars ($83,600,000), less the Indemnification Holdback Amount (the “ Closing Payment ”), subject to adjustment pursuant to Section 1.5(a) below, by wire transfer to one or more accounts provided to the Purchaser by Seller prior to the Closing (it being understood that if Seller desires that any portion of the amount specified in this Section 1.3 be paid to any Affiliate of Seller, Seller shall provide the Purchaser with written instructions with respect thereto prior to the Closing). The Closing Payment shall be made in United States dollars; provided, however, that the Purchaser may deliver up to $600,000 of the Closing Payment in Chinese renminbi (at an exchange rate determined as the average of the prevailing exchange rates published by the Wall Street Journal as of the close of business on each of the five business days immediately preceding the Closing Date) to one or more accounts provided to the Purchaser by Seller prior to the Closing, which amount may be used by Seller or Seller’s Affiliate to satisfy potential severance obligations in respect of Transferred Employees of Avanex Communications Technologies Co. (“ Avanex ”) at the Shanghai Facility.

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(c) At the Closing, the Purchaser shall assume the Assumed Liabilities by delivery to Seller of an Assignment and Assumption Agreement in form and substance mutually agreeable to the Purchaser and the Seller (the “ Assumption Agreement ”).

(d) At the Closing, the Purchaser shall withhold the Indemnification Holdback Amount from the Purchase Price to provide funds against which a Purchaser Indemnitee may assert claims of indemnification under this Agreement. The Indemnification Holdback Fund will be held, administered and distributed by Purchaser in accordance with the terms of Article 8 of this Agreement.

1.4 Assumption of Liabilities .

(a) Simultaneously with the Closing, the Purchaser or an Affiliate of Purchaser shall assume and be liable for, and shall pay, perform and discharge, when due, and no other Liabilities: (i) all Liabilities arising after the Closing under the Transferred Contracts but only to the extent that such Liabilities thereunder do not relate to any failure to perform, improper performance, or other breach, default or violation of any such Transferred Contract by Seller or any Affiliate of Seller prior to the Closing; (ii) all Liabilities arising from the conduct of the Business or the ownership of the Transferred Assets by Purchaser or any Affiliate of Purchaser following the Closing, including without limitation the design, manufacture, import, sale or offer for sale of any products by the Purchaser or any Affiliate of Purchaser irrespective of when such products were designed, manufactured, imported or offered for sale; and (iii) all Liabilities of the Purchaser incurred in accordance with this Agreement, including, without limitation, those set forth on Part 1.4(a) of the Disclosure Letter (the Liabilities described in clauses “(i)”, “(ii)”, and “(iii)” of this sentence being collectively referred to as the “ Assumed Liabilities ”).

(b) Notwithstanding Section 1.4(a) , the Purchaser shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of Seller or any of its Affiliates of any kind or nature whatsoever other than the Assumed Liabilities (the “ Excluded Liabilities ”). Without limiting the generality of the foregoing, the Excluded Liabilities shall include, but not be limited to, the following:

(i) any and all Liabilities to the extent arising from, or incurred in connection with, the Excluded Assets;

(ii) any and all Liabilities of Seller or any of its Affiliates for Seller Transaction Expenses (as defined in Section 10.5(b) below);

(iii) any and all Liabilities of Seller or any of its Affiliates listed on Part 1.4(b) of the Disclosure Letter;

(iv) all Liabilities arising from the conduct of the Business or the ownership of the Transferred Assets on and prior to the Closing Date including, without limitation, all Liabilities associated with administering and honoring all repair and replacement warranties, returns and similar obligations related to the products and services of the Business sold on or prior to the Closing Date or such services provided on or prior to the Closing Date; provided that, with respect to products sold or services performed prior to the Closing, Purchaser will administer and honor all such warranties, returns and similar obligations on behalf of Seller and any Affiliate of Seller;

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(v) any Liability for (x) Taxes of Seller or any Affiliate of Seller or relating to the Transferred Assets or the Assumed Liabilities for any Pre-Closing Period, (y) Taxes that arise out of the consummation of the transactions contemplated hereby or that are the responsibility of Seller pursuant to Section 1.6 or (z) other Taxes of Seller or any Affiliate of Seller of any kind or description (including any Liability for Taxes of Seller or any Affiliate of Seller that becomes a Liability of Purchaser or any Affiliate of Purchaser under any common Legal Requirement doctrine of de facto merger or transferee or successor liability or otherwise by operation of contract or Legal Requirement, except current real estate and personal property taxes with respect to the Business or the Transferred Assets to the extent such Taxes relate to a Post-Closing Period);

(vi) subject to Part 1.4(a) of the Disclosure Letter, any Liabilities of Seller or any Affiliate of the Seller for any Pre-Closing Period relating to present or former employees, officers, directors, retirees, independent contractors or consultants of Seller or any Affiliate of Seller, including, without limitation, any Liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, workers’ compensation, severance, retention, termination or other payments;

(vii) any Liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent of Seller or any Affiliate of Seller, including, with respect to any breach of fiduciary obligations;

(viii) any Liabilities associated with debt, loan or credit facilities of the Seller and/or any Affiliate of Seller; and

(ix) any Liabilities arising out of, in respect of or in connection with the failure by Seller or any of its Affiliates to comply with any Legal Requirement or Order.

1.5 Inventory Adjustment .

(a) At least one business day prior to the Closing, Seller shall deliver to Purchaser its good faith estimate of the net book value of the Transferred Inventory as of the Closing Date (the “ Estimated Inventory Value ”). Part 1.5(a) of the Disclosure Letter contains an example calculation of Estimated Inventory Value as of October 5, 2013. The Closing Payment will be adjusted upwards or downwards as follows: (i) if Estimated Inventory Value exceeds $9,000,000 (the “ Inventory Value Target ”), then the Closing Payment will be increased by such excess, and (ii) if the Estimated Inventory Value is less than the Inventory Value Target, then the Closing Payment will be reduced by the amount by which Estimated Inventory Value is less than the Inventory Value Target.

(b) Any amount by which the net book value of the Transferred Inventory as of the Closing Date (the “ Closing Date Inventory Value ”) is less than the Inventory Value Target will reduce the Purchase Price, and any amount by which the Closing Date Inventory Value is greater than the Inventory Value Target will increase the Purchase Price.

(c) Within 70 calendar days of the Closing Date, the Seller shall prepare and deliver to the Purchaser a statement setting forth the calculation of the Closing Date Inventory Value, including the components thereof.

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(d) The Purchaser will notify the Seller in writing of any objections to the Seller’s computation of Closing Date Inventory Value within 15 calendar days after the Purchaser receives the statement thereof. If the Purchaser does not notify the Seller of any such objections by the end of that 15-day period, then the Closing Date Inventory Value will be considered final at the end of the last day of that 15-day period. If the Purchaser does notify the Seller of any such objections by the end of that 15-day period and the Purchaser and the Seller are unable to resolve their differences within 15 calendar days thereafter, then the Purchaser and the Seller will instruct their respective accountants to use commercially reasonable efforts to resolve such disputed items to their mutual satisfaction and to deliver a final calculation of Closing Date Inventory Value to the Purchaser and the Seller as soon as reasonably possible. If the Purchaser’s accountants and the Seller’s accountants are unable to resolve any such disputed items within 15 calendar days after receiving such instructions, then the remaining disputed items and the value attributable to them by each of the Purchaser and the Seller will be submitted to a nationally recognized accounting firm mutually agreed by the Purchaser and the Seller (the “ Accounting Arbiter ”) for resolution, and the Accounting Arbiter will be instructed to determine the final Closing Date Inventory Value and deliver the same to the Purchaser and the Seller as soon as possible. The Accounting Arbiter will consider only those items and amounts in the Purchaser’s and the Seller’s respective calculations of the Closing Date Inventory Value that are identified as being items and amounts to which the Purchaser and the Seller have been unable to agree. In resolving any disputed item, the Accounting Arbiter may not assign a value to any item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party. The Accounting Arbiter’s determination of the Closing Date Inventory Value will be based solely on the financial records of the Business consistent with the past practices of the Business (i.e., not on independent review) and on the definition of Closing Date Inventory Value included herein. The determination of the Accounting Arbiter will be final, conclusive and binding upon the parties hereto. Neither the Purchaser nor the Seller will have any right to, and will not, institute any Proceeding challenging such determination or with respect to the matters that are the subject of this Section 1.5 , except that the foregoing will not preclude a Proceeding to enforce such determination. If the Accounting Arbiter’s determination of Closing Date Inventory Value is closer to the value initially asserted by the Purchaser to the Accounting Arbiter, then the Seller will pay the costs of the Accounting Arbiter. If the Accounting Arbiter’s determination of Closing Date Inventory Value is closer to the value initially asserted by the Seller to the Accounting Arbiter, then the Purchaser will pay the costs of the Accounting Arbiter. Each of the Seller and the Purchaser and their respective Affiliates will cooperate with and assist the Accounting Arbiter to determine the final Closing Date Inventory Value, including by making available and granting reasonable access to records and employees. The terms of engagement of the Accounting Arbiter for the purposes of this Section 1.5(c) shall be such reasonable commercial terms as shall be agreed between the Seller and the Purchaser consistently with the provisions of this Section 1.5 . If the Seller and the Purchaser fail to agree on terms of engagement for the Accounting Arbiter within 5 calendar days, the Seller and the Purchaser agree that each of them will execute the standard form of the Accounting Arbiter’s terms of engagement as proposed by the Accounting Arbiter for its appointment.

(e) Within five (5) business days after the final determination of the Closing Date Inventory Value in accordance with this Section 1.5 :

(i) if the Closing Date Inventory Value is greater than the Estimated Inventory Value, the Purchaser will cause the amount by which the Closing Date Inventory Value exceeds the Estimated Inventory Value to be paid to the Seller by wire transfer of immediately available funds to an account designated by the Seller; and

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(ii) if the Closing Date Inventory Value is less than the Estimated Inventory Value, the Seller shall cause the amount by which the Closing Date Inventory Value is less than the Estimated Inventory Value to be paid to the Purchaser by wire transfer of immediately available funds to an account designated by the Purchaser.

1.6 Transfer Taxes . To the extent any sales (including bulk sales), value added, use, transfer, ad valorem, privilege, gross receipts, registration, conveyance, excise, license, goods and services, stamp or similar Taxes and documentary charges, recording fees or other charges or fees that arise out of, in connection with or are attributable to the sale of the Transferred Assets to the Purchaser or any of the other Transactions (collectively, the “ Transfer Taxes ”) are imposed, such Transfer Taxes shall be the responsibility of, and timely paid by, both the Purchaser and the Seller in equal proportions. Seller shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees for the Business operations prior to or in connection with the Closing (and Purchaser shall cooperate with respect thereto as necessary). The Purchaser and the Seller shall use commercially reasonable efforts to minimize Transfer Taxes, if any, arising out of or relating to the Transactions, including by Purchaser accepting delivery of software assets located in the State of California by electronic transmission from Seller’s or Seller’s Affiliates’ place of business to Purchaser’s computers in accordance with California Sales and Use Tax Regulation 1502(f)(1)(D), with Seller and its Affiliates having no obligation to deliver any tangible assets in connection with the delivery of such software.

1.7 Allocation . The Seller and the Purchaser shall cooperate in good faith to reach an agreement as to the allocation of the Purchase Price attributable to the Transferred Assets for U.S. federal income tax purposes in accordance with Section 1060 of the Code and for tax purposes and Legal Requirements of other applicable jurisdictions. If such agreement is achieved by the Seller, on the one hand and the Purchaser, on the other hand, then the Seller and the Purchaser shall, to the extent applicable, prepare and file Internal Revenue Service Form 8594 on a basis consistent with such agreement and shall take no contrary position except to the extent required by applicable Legal Requirements. If such agreement is not achieved by the Seller, on the one hand and the Purchaser, on the other hand, then the Seller and the Purchaser shall allocate the Purchase Price attributable to the applicable Transferred Assets in accordance with their separate determinations.

1.8 Closing . Subject to the satisfaction or waiver of the conditions set forth in Section 7.1 , the closing of the sale of the Transferred Assets and the assumption of the Assumed Liabilities pursuant to this Agreement (the “ Closing ”) shall take place at the offices of Sherrard, German & Kelly, P.C. in Pittsburgh, Pennsylvania, at a time to be agreed upon by the Purchaser and the Seller, on the later of: (i) November 1, 2013, or (ii) the date that is the second business day after the satisfaction or waiver of the conditions set forth in Section 7.1 , or such other time and date mutually agreed by the Purchaser and the Seller. For purposes of this Agreement, “ Closing Date ” shall mean the date on which the Closing actually takes place. The Closing shall be effective as of 12:01 am on the Closing Date.

1.9 Third Party Consents. To the extent that rights of Seller or any Affiliate of Seller under any Contract or Governmental Authorization constituting a Transferred Asset, may not be assigned to Purchaser without the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller or its Affiliate shall use commercially reasonable efforts to obtain any such required consent(s) as promptly as possible. The expenses incurred by Seller and its Affiliate(s) to obtain any such consent(s) shall be borne by Seller. If any such consent shall not be obtained or if any attempted assignment would be ineffective or would impair Purchaser or its Affiliates’ rights under the Transferred Asset in question so that Purchaser or an Affiliate of Purchaser would not in effect acquire the benefit of all such rights, Seller shall (or cause its Affiliate to), to the maximum extent permitted by Legal Requirement and the Transferred Asset, (i) act after the Closing as Purchaser’s agent in order to obtain for it the benefits thereunder; and (ii) cooperate with the Purchaser in any other reasonable arrangement designed to provide such benefits to Purchaser or its Affiliate; provided , that to the extent such benefits are provided to Purchaser or any Affiliate of Purchaser, Purchaser shall be responsible for all corresponding Liabilities arising after the Closing but only to the extent that such Liabilities do not relate to any failure to perform, improper performance, warranty or other breach, default or violation by Seller or an Affiliate of Seller on or prior to the Closing.

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1.10 Shenzhen Equipment . All of the Shenzhen Equipment, including record title thereto, free and clear of any Encumbrance, will be transferred after the Closing Date as provided in the Bills of Sale with respect to the Shenzhen Equipment (which shall be in form and substance mutually agreeable to the Purchaser and the Seller). “ Shenzhen Equipment ” shall mean the Transferred Equipment located in Shenzhen, People’s Republic of China. Notwithstanding the foregoing, the Parties acknowledge that the purchase price allocated to the Shenzhen Equipment is being paid in full by the Purchaser on the Closing Date and the Seller and its Affiliates have conveyed equitable title pursuant to this Agreement.

2.	REPRESENTATIONS AND WARRANTIES OF THE SELLER .

Seller represents and warrants as of the date of this Agreement, subject to such exceptions as are disclosed in the Disclosure Letter prepared in accordance with Section 10.16 , to and for the benefit of the Purchaser and any Affiliate of Purchaser, as follows:

2.1 Due Organization, Etc .

(a) Organization . The Seller and each Affiliate of the Seller that owns any Transferred Assets is a corporation or other entity duly organized, validly existing and in good standing (in jurisdictions that recognize the concept of good standing) under the Legal Requirements of the jurisdiction of its organization and has full power and unrestricted authority to own and operate the Transferred Assets, and, where applicable, to carry on the Business as currently conducted. Part 2.1(a) of the Disclosure Letter accurately sets forth the jurisdiction of organization for the Parent, Seller and each Affiliate of the Seller that owns any Transferred Asset.

(b) Qualification . The Seller and each Affiliate of the Seller that owns Transferred Assets is qualified to do business as a foreign entity under the Legal Requirements of all jurisdictions in which the ownership of the Transferred Assets or the operation of the Business as currently conducted requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect. Part 2.1(b) of the Disclosure Letter accurately sets forth the jurisdictions where Parent, Seller and each Affiliate of the Seller that owns any Transferred Asset is qualified to do business as a foreign entity.

2.2 Inventory . All of the Transferred Inventory is (and will as of the Closing be) of such quality and quantity as to be usable and saleable in the ordinary course of business of the Business, except for any such Transferred Inventory included in reserves for unusable or unsaleable inventory as set forth on Part 2.2(b) of the Disclosure Letter. As of the Closing Date, all Transferred Inventory will be owned by Seller or an Affiliate of Seller free and clear of all Encumbrances. No Transferred Inventory is held on a consignment basis. Part 2.2(a) of the Disclosure Letter accurately sets forth the location of all Transferred Inventory and accurately identifies the owner of all Transferred Inventory.

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2.3 Equipment .

(a) Part 2.3(a) of the Disclosure Letter accurately identifies as of the date of this Agreement all material items of Transferred Equipment, and the location of such material items of Equipment.

(b) Part 2.3(b) of the Disclosure Letter accurately identifies as of the date of this Agreement all material items of Equipment that are used in the Business and are (i) owned by a customer of the Business and (ii) physically located in one of Seller’s manufacturing facilities or a manufacturing facility of a contract manufacturer for the Business.

(c) All of the Transferred Equipment and other Equipment owned by the Seller or any Affiliate of the Seller in connection with the Business: (i) are structurally sound and in good operating condition and repair (ordinary wear and tear excepted) and are suitable for use in the ordinary course of business; and (ii) are adequate for the uses to which they are being put in the ordinary operation of the Business.

(d) The Shenzhen Equipment is owned by the Shenzhen Company.

2.4 Financial Statements; Absence of Changes .

(a) The Seller has delivered to the Purchaser the unaudited pro forma statement of income for the Business for the twelve months ended June 29, 2013 (the “ Financial Statement Date ,” and such statement of income, the “ Business Financial Statements ”). The Business Financial Statements are correct and complete in all material respects and present fairly in all material respects the results of operations of the Business for the period covered thereby, all in accordance with GAAP subject to (i) pro forma estimates, assumptions and adjustments, including the exclusion of stock compensation charges, insurance payments from the Thailand floods, restructuring costs associated with production transfers and related activities, foreign currency gain/loss on intercompany balances, income or expense from non-cash “in period” changes in inventory absorption and valuation and tax provision and (ii) no statements of cash flows, shareholders equity, or comprehensive income have been included and no footnotes have been included. The Business Financial Statements have been prepared from and are consistent with the accounting books and records of the Seller and its Affiliates.

(b) Between the Financial Statement Date and the date of this Agreement, there has not occurred any Material Adverse Effect, the Business has not incurred any material Liabilities other than in the ordinary course of business, and the operations of the Business has been conducted in the ordinary course of business.

(c) The books and Records of the Seller and each Affiliate of Seller that owns Transferred Assets are complete are correct in all material respects, reflect all transactions affecting the Business and the Transferred Assets, and have consistently been maintained in accordance with sound business practices.

2.5 Title to Tangible Assets . The Seller or the applicable Affiliate of the Seller currently owns and has good and valid title to, all of the Transferred Inventory and Transferred Equipment. As of the Closing Date, the Seller or the applicable Affiliate of the Seller will own, and have good and valid title to, all of the Transferred Inventory and Transferred Equipment, free and clear of any Encumbrances.

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2.6 Intellectual Property; Information Technology .

(a) The Transferred Patents constitute all U.S. and foreign Issued Patents and Patent Applications owned by the Seller or any Affiliate of Seller, and which are exclusively used in the operation of the Business.

(b) Part 2.6(b) of the Disclosure Letter accurately lists all of the registered and material unregistered Trademarks and applications for registration of Trademarks owned by the Seller or any Affiliate of Seller and which are exclusively used in the operation of the Business, setting forth in each case, the name of the owners of the Trademarks and the jurisdictions in which the Trademarks have been registered and trademark applications for registration have been filed.

(c) Part 2.6(c) of the Disclosure Letter accurately lists all of the registered Copyrights that are owned by the Seller or any Affiliate of Seller and which are exclusively used or exclusively held for use in the operation of the Business, setting forth in each case, the name of the owners of the Copyrights and the jurisdictions in which Copyrights have been registered and applications for copyright registration have been filed.

(d) The Transferred IP constitutes all Intellectual Property Rights (other than Patents) that are owned by the Seller or any Affiliate of Seller and which are exclusively used or exclusively held for use in the operation of the Business.

(e) Except as set forth on Part 2.6(e) of the Disclosure Letter, all Registered IP is valid, subsisting and enforceable. All required filings and fees related to the Registered IP due to be filed or paid before the date of Closing have been timely filed with and paid to the relevant Governmental Bodies and authorized registrars.

(f) Part 2.6(f) of the Disclosure Letter contains a complete and accurate list of (i) all Contracts pursuant to which Seller or any of its Affiliates has licensed or is obligated to license any Seller IP to a third party, excluding any non-exclusive licenses to Seller IP granted by Seller or any of its Affiliates in the ordinary course of business incident to a sale of any products of the Business to an end-customer using Seller’s standard form of agreement (the “ Out-Licenses ”), or (ii) other than Open Source Software licenses, all Contracts pursuant to which a third party has licensed any Intellectual Property Rights to Seller or any of Seller’s Affiliates that is (A) incorporated into the Seller IP (other than Shrink-Wrap Code), or (B) is otherwise material to the Business or the Transferred Assets (the “ In-Licenses ”); excluding, for the purpose of (i) and (ii), employee agreements, agreements with consultants and independent contractors and non-disclosure agreements entered into in the ordinary course of business (the Out-Licenses, together with the In-Licenses, the “ License Agreements ”). Seller, or the Affiliate of Seller, as applicable, has performed all material obligations required to be performed by it to date under the License Agreements, and it is not (with or without the lapse of time or the giving of notice, or both) in material breach or material default thereunder and, to the Knowledge of Seller, no other party to any License Agreement is (with or without the lapse of time or the giving of notice, or both) in material breach or material default thereunder. Seller or Affiliate, as applicable, has not received any written notice of the intention of any party to terminate any License Agreement.

(g) Excluding (i) any in-licensed third-party Intellectual Property Rights embedded or included in the Seller IP as set forth in Part 2.6(g) of the Disclosure Letter or pursuant to any Material Contract, and (ii) any Open Source Software embedded or included in the Seller IP, the Seller, or an Affiliate of the Seller has good, marketable, and, to the Knowledge of the Seller, valid title to the Seller IP, and will have as of the Closing Date, free and clear of all Encumbrances, good, marketable, and, to the Knowledge of the Seller, valid title to the Seller IP. To the Knowledge of the Seller, except as set forth on Part 2.6(g)-2 of the Disclosure Letter and subject to any rights granted or restrictions contained in the License Agreements, the respective Seller or Affiliate of Seller has a valid right to make, use, sell, offer for sale, license and otherwise exploit all Seller IP.

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(h) Except as set forth on Part 2.6(h) of the Disclosure Letter and subject to any rights granted or restrictions contained in the License Agreements:

(i) Neither the Seller, nor an Affiliate of Seller jointly owns, licenses or claims any Seller IP with any other Person that is exclusively used in the operation of the Business.

(ii) In the five (5) years prior to closing, no Person has asserted or threatened a claim which would have a material adverse effect on the Seller’s or any Affiliate’s ownership rights to, or rights under, any Seller IP, or restricts in any material respect the making, use, selling, offering for sale, transfer, delivery or licensing of any product of the Business, or which may affect the validity, use or enforceability of any Seller IP.

(iii) Neither the Seller, nor any Affiliate of Seller is subject to any Proceeding or Order restricting in any manner the use, transfer or licensing of any Seller IP, or the use, transfer or licensing of any product of the Business, or which may affect the validity, use or enforceability of any Seller IP.

(iv) To the Knowledge of the Seller, no Person is currently infringing any Seller IP.

(v) To the Knowledge of the Seller, none of the Seller IP infringes or misappropriates any Intellectual Property Right or Technology of any other Person. There is no pending or threatened (in writing) Proceeding alleging that any of the Seller IP has infringed or misappropriated any Intellectual Property Right or Technology of any other Person.

(i) Seller has taken commercially reasonable measures to protect and maintain the confidentiality of all Trade Secrets embodied in the Transferred Assets, the Licensed Seller Intellectual Property in which it has any right, title or interest. Without limiting the generality of the foregoing, except as set forth on Part 2.6(i) of the Disclosure Letter, Seller and its Affiliates have entered into binding, written agreements with every current and former employee and independent contractor of such Seller or Affiliate involved in the creation, invention or discovery of any material Owned IP or Trade Secret, to the extent either is embodied in any Transferred Asset or Licensed Seller Intellectual Property, whereby such employees and independent contractors either (i) assign or are obligated to assign to the Seller or the Affiliate of Seller any ownership interest and right they may have in the Owned IP or Trade Secret; or (ii) otherwise acknowledge the Seller’s or its Affiliate’s ownership of all Owned IP or Trade Secrets as work made for hire or otherwise. Seller has delivered to Purchaser true and complete copies of all such agreements.

(j) Except as set forth on Part 2.6(j) of the Disclosure Letter:

(i) To the Knowledge of Seller, all Patents listed on Part 2.6(a) of the Disclosure Letter and all Patents included as part of the Licensed Seller Intellectual Property: (A) have been prosecuted in good faith and are in good standing, (B) have no inventorship challenges, and (C) no interference has been declared or provoked relating to any such Patents.

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(ii) To the Knowledge of the Seller, there is no material fact with respect to any Patent Application in which Seller or any Affiliate of Seller has any right, title or interest and which are used or held for use in the operation of the Business that would (A) preclude the issuance of an Issued Patent from such Patent Application (with valid claims no less broad in scope than the claims as currently pending in such Patent Application), (B) render any Issued Patent issuing from such Patent Application invalid or unenforceable, or (C) cause the claims included in such Patent Application to be narrowed.

2.7 Proceedings; Orders . There is no pending Proceeding against or involving the Seller, or any Affiliate of the Seller that owns Transferred Assets and, to the Knowledge of the Seller, no Person has threatened to commence any Proceeding against or involving the Seller or any Affiliate of the Seller that owns Transferred Assets, in each case, that relates to, or affects, the Business or the Transferred Assets. There is no Order applicable to the Seller or any Affiliate of the Seller that relates to, or affects, the Business or the Transferred Assets.

2.8 Compliance with Laws; Governmental Authorizations .

(a) The Seller and each Affiliate of the Seller that owns Transferred Assets have complied, and are complying, in all material respects, with all Legal Requirements applicable to the conduct and operation of the Business and the ownership and use of the Transferred Assets. No Proceeding has been commenced against the Seller or Affiliate of the Seller that owns Transferred Assets with respect to any alleged violation of any Legal Requirement and none of them has received any written notice alleging any such violation, nor, to the Knowledge of Seller, is there any inquiry, investigation or proceedings relating to alleged violations of respective Legal Requirements with respect to the conduct and operation of the Business and the ownership and use of the Transferred Assets.

(b) All material Government Authorizations currently required for Seller and its Affiliates to conduct the Business as currently conducted or for the ownership, use and operation of the Transferred Assets have been obtained by Seller and its Affiliates and are valid and in full force and effect. All fees and charges with respect to such Governmental Authorizations as of the date hereof have been paid in full. Part 2.8(b) of the Disclosure Letter lists all material Governmental Authorizations currently issued to the Seller or an Affiliate of the Seller which are currently required for the conduct of the Business as currently conducted or the ownership and use of the Transferred Assets, including the names of such Governmental Authorizations and their respective dates of issuance and expiration. To the Knowledge of the Seller, no event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or limitation of any Government Authorization set forth in Part 2.8(b) of the Disclosure Letter. To the Knowledge of the Seller, no Governmental Authorizations currently required to operate the Business are or will be terminated or otherwise affected by the transactions contemplated under or in connection with this Agreement.

2.9 Environmental Matters . Except as identified on Part 2.9 of the Disclosure Letter:

(a) The operations of Seller and the Affiliates of Seller with respect to the Business and the Transferred Assets are currently in compliance in all material respects with all Environmental Laws. Seller has not received from any Person, with respect to the Business or the Transferred Assets, any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing Liability, Proceeding, Order, obligation or requirement as of the Closing Date.

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(b) Seller has obtained and is in compliance in all material respects with all Environmental Permits necessary for the conduct of the Business as currently conducted and the ownership or use of the Transferred Assets and all such Environmental Permits are in full force and effect.

(c) None of the Leased Real Property is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA or any similar state or foreign list that could give rise to liability of the Seller.

(d) To the Knowledge of the Seller, there has been no Release of Hazardous Materials in contravention of Environmental Law with respect to the Leased Real Property. Seller has not received an Environmental Notice that the Leased Real Property (including soils, groundwater, surface water, buildings and other structure located thereon) has been contaminated with any Hazardous Material which, in each case, could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, Seller or any Affiliate of Seller.

(e) Part 2.9(e) of the Disclosure Letter contains a complete and accurate list of all active or abandoned underground storage tanks owned or operated by Seller or any Affiliate of Seller at the Leased Real Property.

(f) Seller has Made Available any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, and other similar documents with respect to the Leased Real Property, which are in the possession of Seller related to Environmental Claims or an Environmental Notice or the Release of Hazardous Materials.

2.10 Employee and Labor Matters .

(a) With respect to each Eligible Employee (as each such term is defined in Section 9.1 ), to the extent not prohibited by applicable Legal Requirements, the Seller has provided the Purchaser with the following information: (i) the name; (ii) date of hire; (iii) aggregate amounts of the compensation (including wages, salary, commissions, deferred compensation, housing or car allowances, bonuses, profit-sharing payments and other payments) received by such employee from the Seller or any Affiliate of the Seller with respect to services performed in the year ended December 31, 2012; (iv) such employee’s annualized base salary and bonus opportunity as of the date of this Agreement; (v) the location of such employee’s principal place of business; (vi) exempt/non-exempt status; (iv) union membership or work council coverage; (viii) execution status of Intellectual Property Right assignments to the Seller or its Affiliates (including description thereof); and (ix) any accrued holiday and/or overtime entitlement.

(b) Except as set forth in Part 2.10(b) of the Disclosure Letter: (i) neither the Seller nor any Affiliate of the Seller, is bound by, or a party to, or has a duty to bargain or consult with, any works council, labor union, association or other employee group, employee representative committee or similar body representing any Eligible Employees, and (ii) no labor union or employee organization has been certified or recognized as the collective bargaining representative of any Eligible Employees.

(c) During the past three (3) years there have not been any and, to the Knowledge of the Seller, there are, with respect to the Seller and its Affiliates, no threatened, strikes, work stoppages, slowdowns, lockouts, union organizing campaigns, demands for recognition, or representation proceedings regarding or affecting any Eligible Employees. No mass layoffs (as defined by the Worker Readjustment and Notification Act (29 U.S.C. § 2101)) have been announced since January 1, 2013 or are being planned.

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(d) The Seller and the Affiliates of Seller are, and for the past three (3) years have been, in compliance in all material respects with all applicable Legal Requirements respecting the employment of the Eligible Employees, including, but not limited to Legal Requirements relating to equal employment opportunity, discrimination and/or harassment on the basis of race, national origin, religion, gender, disability, age, workers’ compensation, or any other protected classification, affirmative action, hiring practices, immigration, workers’ compensation, unemployment compensation, the withholding and payment of payroll taxes and union dues, the payment of social security contributions, employment of minors, health and safety, labor relations, collective bargaining agreements, payment of wages, hours worked, pay equity, employee classification, leaves of absence, plant closings, and mass layoffs.

(e) The Seller and any Affiliate of Seller are, and for the past three (3) years have been, in compliance in all material respects with all applicable collective bargaining agreements and other agreements respecting the Eligible Employees.

(f) Except as set forth on Part 2.10(f) of the Disclosure Letter, all of the Eligible Employees employed in the United States are employed at will.

(g) Except as set forth on Part 2.10(g) of the Disclosure Letter, during the past three (3) years, there have not been any material claims, demands, or proceedings asserted against the Seller or any Affiliate of Seller by or on behalf of any Eligible Employee, including, but not limited to, grievances, arbitration proceedings, unfair labor practice charges, discrimination charges, wage and hour complaints, and safety complaints.

(h) Except as set forth in this Agreement, no proposal, assurance or commitment has been communicated to any Eligible Employee regarding any material change to his or her terms of employment agreement or working conditions or regarding the continuance, introduction, increase or improvement of any benefits or any discretionary arrangement or practice.

2.11 Employee Benefit Matters .

(a) Part 2.11 of the Disclosure Letter lists each material employee benefit plan, with respect to Transferred Employees (including each “employee benefit plan” as defined in Section 3(3) of ERISA), maintained or contributed to (or required to be contributed to) by Seller or the Seller’s Affiliates for the benefit of Eligible Employees, or under which the Seller or any Affiliate thereof has any Liability, including any retention, severance, equity-based, change in control, retirement, welfare, fringe benefit, incentive or deferred compensation plan, program or arrangement (each of the foregoing, a “ Seller Benefit Plan ”). The Seller has provided to the Purchaser true and complete copies of each of such Seller Benefit Plans. Any Seller Benefit Plan which is intended to meet the requirements for tax-qualification under Sections 401(a) and 401(k) of the Code has been determined by the IRS to be so qualified (by IRS determination letter to the plan’s sponsor, or by IRS opinion letter to the prototype plan’s sponsor) and no event has occurred and no condition exists with respect to the form or operation of such Seller Benefit Plan that would reasonably be expected to cause the loss of such qualification or exemption.

(b) Each Seller Benefit Plan has been established, administered and maintained in material compliance with its terms and in material compliance with all applicable Legal Requirements (including ERISA and the Code). All contributions required to have been made to all Seller Benefit Plans as of the Closing will have been made as of the Closing. There are no Proceeding or claims pending or, to the Knowledge of the Seller, threatened (in writing) with respect to the Seller Benefit Plans (other than routine claims for benefits).

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(c) Neither Seller nor any of its ERISA Affiliates has (i) incurred or reasonably expects to incur, either directly or indirectly, any material Liability under Title IV of ERISA or related provisions of the Code or foreign Legal Requirement relating to any Seller Benefit Plan; (ii) failed to timely pay premiums to the Pension Benefit Guaranty Corporation; or (iii) engaged in any transaction which would give rise to liability under Section 4069 or Section 4212(c) of ERISA.

(d) With respect to each Seller Benefit Plan, (i) no such plan is a “multiple employer plan” within the meaning of Section 413(c) of the Code or a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA); and (ii) no Action has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a trustee for any such plan.

(e) Other than as required under Section 601 et. seq. of ERISA or other applicable Legal Requirement, no Seller Benefit Plan or other arrangement provides post-termination or retiree welfare benefits to any individual for any reason.

(f) The term “ Foreign Plan ” shall mean any Seller Benefit Plan that is maintained outside of the United States. Each Foreign Plan complies with all applicable Legal Requirement in all material respects. The Records of the Business accurately reflect the Foreign Plan liabilities and accruals for contributions required to be paid to the Foreign Plans, in accordance with applicable generally accepted accounting principles consistently applied. All contributions required to have been made to all Foreign Plans as of the Closing will have been made as of the Closing. There are no Proceedings or claims pending or, to the Knowledge of the Seller, threatened (in writing) with respect to the Foreign Plans (other than routine claims for benefits).

2.12 Tax Matters .

(a) There are no liens for Taxes upon any of the Transferred Assets other than for current Taxes not yet due and payable.

(b) Except as set forth on Part 2.12 of the Disclosure Letter, (1) all material Tax Returns required to be filed on or before the Closing Date, insofar as related to the Transferred Assets, the Seller, or any Affiliate of Seller owning Transferred Assets, have been or will be timely filed (including pursuant to any applicable extension); (2) all material Tax Returns, insofar as related to the Transferred Assets, the Seller, or any Affiliate of Seller owning Transferred Assets are true and correct and complete in all material respects; (3) all Taxes shown to be due and payable on such Tax Returns have been paid or adequate reserves have been established for the payment of such Taxes; (4) no other material Taxes are payable, insofar as related to the Transferred Assets, the Seller, or any Affiliate of Seller owning Transferred Assets with respect to items or periods covered by such Tax Returns; (5) no audit or examination or refund litigation with respect to any such Tax Return is pending or has been threatened in writing; and (6) no waivers of statute of limitations have been given by or requested with respect to any Taxes of the Seller, or any Affiliate of Seller owning Transferred Assets.

2.13 Real Property .

(a) Seller does not own any real property used in the Business.

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(b) Part 2.13(b) of the Disclosure Letter sets forth each parcel of real property leased by the Seller or any Affiliate of the Seller that is used primarily in the conduct of the Business as currently conducted (together with all rights, title and interest of Seller or such Affiliate in and to leasehold improvements relating thereto, including, but not limited to, security deposits, reserves or prepaid rents paid in connection therewith, collectively, the “ Leased Real Property ”), and a true and complete list of all leases, subleases, licenses, concessions and other agreements (whether written or oral), including all amendments, extensions renewals, guaranties and other agreements with respect thereto (collectively, the “ Leases ”). Seller has Made Available to Purchaser a true and complete copy of each Lease. With respect to each Lease:

(i) Except as disclosed on Part 2.13(b)(i) of the Disclosure Letter, Seller or the Affiliate of Seller that is a party to the Lease has not subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property or any portion thereof; and

(ii) Seller or such Affiliate of the Seller has not pledged, mortgaged or otherwise granted an Encumbrance on its leasehold interest in any Leased Real Property.

(c) Neither Seller nor any Affiliate of the Seller has received any written notice of (i) material violations of building codes and/or zoning ordinances or other Legal Requirements affecting the Leased Real Property, (ii) existing, pending or threatened condemnation proceedings affecting the Leased Real Property, or (iii) existing, pending or threatened zoning, building code or other moratorium proceedings, or similar matters which could reasonably be expected to adversely affect in any material respect the ability to operate the Leased Real Property as currently operated. Neither the whole nor any portion of any Leased Real Property has been materially damaged or destroyed by fire or other casualty since April 28, 2010. All improvements on the Leased Real Property, including all leasehold improvements, that were made after April 28, 2010, are in compliance with all applicable Legal Requirements and Orders.

2.14 Authority; Binding Nature of Agreements . The Seller and each of the Seller’s Affiliates has the right, power and authority to enter into, deliver and to perform its respective obligations under each of the Transactional Agreements to which it is or may become a party (including all right, power, capacity and authority to sell, transfer, convey and surrender the Transferred Assets as provided by this Agreement); and the execution, delivery and performance by the Seller and each of the Seller’s Affiliates of the Transactional Agreements to which it is or may become a party have been duly authorized by all necessary action on the part of the Seller (or such Affiliate) and their respective board of directors as required by any Legal Requirement, including any applicable Constituent Document. This Agreement constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to: (a) Legal Requirements of general application relating to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other Legal Requirements from time to time in effect relating to creditors’ rights; and (b) remedies generally and general principles of equity. Upon the execution by the Seller or any Affiliate of the Seller of each other Transactional Agreement to which the Seller or any Affiliate of the Seller is a party, such Transactional Agreement will constitute the legal, valid and binding obligation of the Seller or such Affiliate of the Seller, as the case may be, and will be enforceable against the Seller or such Affiliate of the Seller, as the case may be, in accordance with its terms, subject to: (a) Legal Requirements of general application relating to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other Legal Requirements from time to time in effect relating to creditors’ rights; and (b) remedies generally and general principles of equity.

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2.15 Non-Contravention; Consents . Neither the execution and delivery by the Seller or any Affiliate of the Seller of any of the Transactional Agreements, nor the consummation or performance by the Seller or any Affiliate of the Seller of any of the Transactions, will (with or without notice or lapse of time):

(a) result in a violation of: (i) any of the provisions of the Organizing Documents of the Seller or any Affiliate of the Seller that owns Transferred Assets; or (ii) any resolution adopted by the stockholders, board of directors or any committee of the board of directors of the Seller or any Affiliate of the Seller that owns Transferred Assets;

(b) result in a violation of any Legal Requirement or any Order to which the Seller or any Affiliate of the Seller, or any of the Transferred Assets, is subject;

(c) result in a material breach of any provision of, or material default under, or give any Person the right to declare a default or accelerate the maturity or performance of, or payment under, or to cancel, terminate or modify, any Material Contract;

(d) contravene, conflict with or result in a violation or breach of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any material Governmental Authorization; or

(e) result in the creation or imposition of an Encumbrance on the Transferred Assets.

Except as set forth on Part 2.15 of the Disclosure Letter, and except for the filing with the United States Securities and Exchange Commission of such reports under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) as may be required in connection with this Agreement, the other Transactional Agreements and the Transactions, neither the Seller nor any Affiliate of the Seller is required to make any filing with or give any notice to, or to obtain any Consent from, any Governmental Body or other Person in connection with the execution and delivery by the Seller or any Affiliate of the Seller of any of the Transactional Agreements or the consummation or performance by the Seller or any Affiliate of the Seller of any of the Transactions.

2.16 Sufficiency of Assets . The Transferred Assets, together with the services to be provided by the Seller or any of its Affiliates under the Transition Services Agreement and the Manufacturing Services and Supply Agreement and the Technology and Intellectual Property Rights to be licensed to the Purchaser or an Affiliate of the Purchaser under the Intellectual Property License Agreement, will collectively constitute, as of the Closing Date, all of the material properties, rights, interests and other tangible and intangible assets necessary to enable the Purchaser to conduct the Business in all material respects in the manner in which the Business is currently being conducted by the Seller and the Affiliates of the Seller; provided, however , that the foregoing shall not constitute a representation or warranty of non-infringement of Intellectual Property Rights or any other matter covered by Section 2.6 of this Agreement.

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2.17 Customers and Suppliers.

(a) Part 2.17(a) of the Disclosure Letter sets forth with respect to the Business (i) each customer who has paid aggregate consideration to Seller or any Affiliate of Seller for goods or services rendered in an amount greater than or equal to $5,000,000 in either of the two most recent fiscal years; and (ii) the amount of consideration paid by each such customer during such periods. Neither Seller nor any Affiliate of Seller has received written notice or has Knowledge that any customer who has paid aggregate consideration to Seller or any Affiliate of Seller for goods or services rendered in an amount greater than or equal to $2,500,000 in either of the two most recent fiscal years (each, “ Material Customer ”) has ceased, or that any such Material Customers intends to cease after the Closing, to purchase the goods or services of the Business or to otherwise terminate or materially reduce its relationship with the Business.

(b) Part 2.17(b) of the Disclosure Letter sets forth with respect to the Business (i) each supplier to whom the Seller and all Affiliates of Seller, in the aggregate, have paid consideration for goods or services rendered in an amount greater than or equal to $1,000,000 for the most recent fiscal year (collectively, the “ Material Suppliers ”); and (ii) the amount of purchases from each Material Supplier during such period. Neither Seller nor any Affiliate of Seller has received any written notice or has Knowledge that any of the Material Suppliers has ceased, or that any of such Material Suppliers intends to cease, to supply goods or services to the Business or to otherwise terminate or materially reduce its relationship with the Business.

(c) Neither Seller nor any Affiliate of Seller has received any advance payments or deposits from any customer in consideration to Seller or such Affiliate for the provision of goods or services of the Business after the Closing Date.

2.18 Trade Compliance Matters.

(a) To the Knowledge of the Seller, neither Seller nor any Affiliate of Seller, nor any director, officer, agent, employee or other Person acting on behalf of any or all of them, has with respect to the Business, in the course of its actions for, or on behalf of, the Business: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity of for any illegal payments or undeserved benefits to the benefit of a Person, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(b) To the Knowledge of the Seller, the operations of the Seller and its Affiliates with respect to the Business are and have been conducted at all times in material compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued administered or enforced by any Governmental Body (collectively, the “ Money Laundering Laws ”) and no action, suit or proceeding by or before any court or Governmental Body or any arbitrator involving the Business with respect to the Money Laundering Laws is pending or, to the Knowledge of Seller, threatened.

(c) To the Knowledge of the Seller, Seller and its Affiliates’ operation of the Business is in compliance, in all material respects, with applicable requirements, if any, of the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto.

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(d) To the Knowledge of the Seller:

(i) the Seller and its Affiliates, with respect to the Business, conduct, and have at all times since January 1, 2009 conducted, its export and re-export transactions in all material respects in accordance with all applicable U.S. export and re-export controls, including the United States Export Administration Act and Export Administration Regulations, the Arms Export Control Act and International Traffic in Arms Regulations and all regulations promulgated and administered by the Treasury Department’s Office of Foreign Assets Control (collectively “ U.S. Export Controls ”), respectively and related or similar Legal Requirements issued, administered or enforced in other jurisdictions applicable to the Business;

(ii) since January 1, 2009, the Seller and its Affiliates have not received any written notification or communication from any Governmental Body asserting that the Seller or any Affiliate is not, with respect to the Business, in compliance, in any material respect, with any U.S. Export Controls, nor has Seller or any Affiliate of Seller submitted any voluntary self-disclosure to any Governmental Body regarding any actual or potential violation of any U.S. Export Controls, or any similar Legal Requirements or guidelines issued, administered or enforced in the jurisdictions concerned by the Business;

(iii) the Seller and its Affiliates possess or have applied for all Permits from Governmental Bodies which are required under U.S. Export Controls (or similar Legal Requirements or guidelines issued, administered or enforced in the jurisdictions concerned by the Business) in order for the Seller and the Affiliates to conduct the Business as presently conducted. To the Knowledge of Seller, (i) all such issued Permits are valid and in full force and effect and (ii) there is no formal proceeding pending of a, nor has the Seller or any Affiliate of the Seller received a written notice from any, Governmental Body seeking or threatening to, modify, suspend, revoke, withdraw, terminate or otherwise limit any such Permit; and

(iv) neither the Seller nor any Affiliate of Seller that owns Transferred Assets (i) is a Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order, or is otherwise associated with any such Person in any manner violative of Section 2 of such executive order or (iii) is a Person on the list of Specially Designated Nationals and Blocked Persons.

2.19 Related Party Matters . Except as set forth in Part 2.19 of the Disclosure Letter, or pursuant to any Intercompany Contract, to the Knowledge of the Seller, neither the Seller nor any Related Party (as defined below) is, or has been since January 1, 2009, (i) a competitor, creditor, debtor, customer, distributor, supplier or vendor of the Business or party to any Contract with, Seller or any Affiliate of Seller, with respect to the Business or (ii) an officer, director, employee, member, partner, family member, investor, shareholder or owner of any such Person referred to in clause (i). As used herein “ Related Party ” means (X) any Affiliate of Seller, (Y) any officer or director of the Seller or Affiliate of Seller or (Z) or any Affiliate of any Person referred to in clause (Y) above. All matters set forth on Part 2.19 of the Disclosure Letter shall be referred to as the “ Related Party Arrangements ”.

2.20 Absence of Certain Events . Since the Financial Statements Date, and other than in the ordinary course of business consistent with past practice, there has not been any:

(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

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(b) material change in any method of accounting or accounting practice for the Business, except as required by GAAP;

(c) material change in inventory control procedures, prepayment of expenses, payment of trade accounts payable (except that the Seller and its Affiliates have delayed payments of certain accounts payable in order to conserve cash), accrual of other expenses, and acceptance of customer deposits, cash management practices and policies, practices and procedures with respect to collection of Accounts Receivable, establishment of reserves for uncollectible Accounts Receivable, accrual of Accounts Receivable, in each case, with respect to the Business;

(d) relocation, transfer, assignment, sale or other disposition of any of the Transferred Assets, except for the sale of Transferred Inventory in the ordinary course of business;

(e) transfer, assignment or grant of any license or sublicense of any rights under or with respect to any Intellectual Property Rights or Technology;

(f) material damage, destruction or loss, or any material interruption in use, of any Transferred Asset, whether or not covered by insurance;

(g) purchase, lease or other acquisition of the right to own, use or lease any property or assets in connection with the Business for an amount in excess of $500,000, individually (in the case of a lease, per annum) or $1,000,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of Transferred Inventory in the ordinary course of business consistent with past practice;

(h) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of any employees, officers, directors, independent contractors or consultants of the Business, other than as required in any existing written agreements or required by applicable Legal Requirements, (ii) change in the terms of employment for any employee of the Business or any termination of any employees for which the aggregate costs and expenses exceed $50,000, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any employee, officer, director, consultant or independent contractor of the Business;

(i) adoption, modification or termination of any: (i) severance or retention agreement with any current or former employee, officer, director, independent contractor or consultant of the Business, (ii) Seller Benefit Plan, or (iii) collective bargaining or other agreement with a labor union or works council, in each case whether written or oral; or

(j) entry into any commitment or Contract to do any of the foregoing.

2.21 Insurance . Part 2.21 of the Disclosure Letter lists all insurance policies (including the name of each carrier, coverage types and limits, policy numbers and expiration dates) to which the Seller or any Affiliate of Seller is a party and which relate to the Business or the Transferred Assets. All insurance policies listed on Part 2.21 of the Disclosure Letter are valid and in effect as of the Closing Date. Neither Seller nor any Affiliate of Seller is in default with respect to any provisions of any liability or other forms of insurance held by it and listed on Part 2.21 of the Disclosure Letter or has failed to give any material notice or present any material claim thereunder in a due and timely fashion. During the past twelve (12) months, and with respect to the Business and the Transferred Assets, neither the Seller nor any Affiliate of the Seller has been denied any application for insurance or had any insurance policy terminated nor have any of them been notified of any pending termination. There is no claim in an amount exceeding USD $500,000 outstanding under any of the insurance policies (or under any policies previously held by the Seller or its Affiliates with respect to the Business.

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2.22 Books and Records . The books of account and other financial Records of the Business (including electronically kept records), all of which have been Made Available to Purchaser, are complete and correct and represent actual, bona fide transactions and have been maintained in accordance with sound business practices and the requirements of Section 13(b)(2) of the Exchange Act (regardless of whether the Seller is subject to that Section or not), including the maintenance of an adequate system of internal controls.

2.23 Disclaimer of the Seller . The Transferred Assets are being sold on an “as is” basis as of the Closing and in their condition as of the Closing “with all faults” and, except as set forth in this Section 2 , none of the Seller, any Affiliate of the Seller or any of their respective Representatives makes or has made any other representations or warranties, express or implied, at law or in equity, in respect of the Business, any Transferred Assets or any Assumed Liabilities, including with respect to: (a) merchantability or fitness for any particular purposes; (b) the operation of the Business by the Purchaser or any Affiliate of the Purchaser; or (c) the probable success or profitability of the Business after the Closing.

2.24 Brokers . Except as set forth in Part 2.24 of the Disclosure Letter, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transactional Agreement based upon arrangements made by or on behalf of Seller.

2.25 Contracts .

(a) Part 2.25(a) of the Disclosure Letter identifies any Contract that is a Material Contract.

(b) With respect to each Transferred Contract: (i) each such Transferred Contract is a valid and enforceable agreement of the Company, the Seller or an Affiliate of the Seller and is in full force and effect in all material respects and subject in each case to: (A) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (B) general principles of equity; and (ii) no event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Transferred Contract or result in a termination thereof or would cause or permit the acceleration of any material right or obligation or the loss of any material benefit thereunder. Complete and correct copies of each Transferred Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been Made Available to Purchaser. No Person has threatened in writing to terminate or commence any Proceeding with respect to any dispute involving any Transferred Contract.

2.26 Warranties . There are no product warranty obligations with respect to the products of the Business manufactured, sold or delivered by Seller or any of its Affiliates, other than as set forth in the Transferred Contracts or in any purchase orders with respect to such products.

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3.	REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.

The Purchaser represents and warrants, to and for the benefit of the Seller, as follows:

3.1 Due Organization . The Purchaser and each Affiliate of the Purchaser that is involved in any of the Transactions is a corporation duly organized, validly existing and in good standing under the Legal Requirements of the jurisdiction of its organization.

3.2 Authority; Binding Nature of Agreements . The Purchaser and each of its Affiliates has right, power and authority to enter into, deliver and to perform its obligations under each of the Transactional Agreements to which it is or may become a party; and the execution, delivery and performance by the Purchaser and each of its Affiliates of the Transactional Agreements to which it is or may become a party have been duly authorized by all necessary action on the part of the Purchaser (or such Affiliate) and its board of directors. Neither the Purchaser nor any Affiliate of the Purchaser is required to obtain the approval of its stockholders in connection with the execution, delivery and performance of any of the Transactional Agreements. This Agreement constitutes the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to: subject to: (a) Legal Requirements of general application relating to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other Legal Requirements from time to time in effect relating to creditors’ rights; and (b) remedies generally and general principles of equity. Upon the execution by the Purchaser or any Affiliate of the Purchaser of each other Transactional Agreement to which the Purchaser or any Affiliate of the Purchaser is a party, such Transactional Agreement will constitute the legal, valid and binding obligation of the Purchaser (or such Affiliate), and will be enforceable against the Purchaser (or such Affiliate) in accordance with its terms, subject to: (i) Legal Requirements of general application relating to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other Legal Requirements from time to time in effect relating to creditors’ rights; and (ii) remedies generally and general principles of equity.

3.3 Non-Contravention; Consents . Neither the execution and delivery by the Purchaser or any Affiliate of the Purchaser of any of the Transactional Agreements, nor the consummation or performance by the Purchaser or any Affiliate of the Purchaser of any of the Transactions, will (with or without notice or lapse of time):

(a) result in a violation of: (i) any of the provisions of the Organizing Documents of the Purchaser or any Affiliate of the Purchaser; or (ii) any resolution adopted by the stockholders, board of directors or any committee of the board of directors of the Purchaser or any Affiliate of the Purchaser;

(b) result in a violation of any Legal Requirement or any Order to which the Purchaser or any Affiliate of the Purchaser is subject; or

(c) result in a material breach of any provision of or material default under, or result in a default under, any provision of any Contract to which the Purchaser or any Affiliate of the Purchaser is a party or by which the Purchaser or any Affiliate of the Purchaser is bound.

Except as disclosed on Part 3.3 of the Disclosure Letter, neither the Purchaser nor any Affiliate of the Purchaser is required to make any filing with or give any notice to, or to obtain any Consent from, any Governmental Body in connection with the execution and delivery by the Purchaser or any Affiliate of the Purchaser of any of the Transactional Agreements or the consummation or performance by the Purchaser or any Affiliate of the Purchaser of any of the Transactions.

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3.4 Funding . The Purchaser currently has available, and at the Closing will continue to have available, sufficient cash to enable it to pay the Purchase Price and all other amounts payable pursuant to this Agreement and the other Transactional Agreements or otherwise necessary to consummate the Transactions. Upon the consummation of the Transactions: (a) the Purchaser will not be insolvent; (b) the Purchaser will not be left with unreasonably small capital; (c) the Purchaser will not have incurred debts beyond its ability to pay such debts as they mature; and (d) the capital of the Purchaser will not be impaired.

3.5 Proceedings; Orders . There is no pending Proceeding against or involving the Purchaser or any Affiliate of the Purchaser, and, to the Knowledge of the Purchaser, no Person has threatened (in writing) to commence any Proceeding against or involving the Purchaser or any Affiliate of the Purchaser that challenges, or that may have the effect of preventing, materially delaying, making illegal or otherwise materially interfering with, any of the Transactions. To the Knowledge of the Purchaser, there is no Order that would reasonably be expected to have: (a) an adverse effect on the ability of the Purchaser or any Affiliate of the Purchaser to comply with or perform any material covenant or obligation under any of the Transactional Agreements; or (b) the effect of preventing, materially delaying, making illegal or otherwise materially interfering with any of the Transactions.

3.6 Independent Investigation; Seller’s Representations . The Purchaser has conducted its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, software, technology and prospects of the Business, which investigation, review and analysis was done by the Purchaser and its Affiliates and Representatives. In entering into this Agreement, the Purchaser acknowledges that it has relied solely upon the aforementioned investigation, review and analysis and not on any factual representations or opinions of the Seller, its Affiliates, or their respective Representatives (except the specific representations and warranties of the Seller set forth in Section 2 as qualified by the Disclosure Letter). The Purchaser hereby agrees and acknowledges that: other than the representations and warranties made in Section 2 (as qualified by the Disclosure Letter), none of the Seller, the Seller’s Affiliates or any of their respective Representatives make or have made any representation or warranty, express or implied, at law or in equity, with respect to the Transferred Assets, the Assumed Liabilities or the Business including as to: (i) merchantability or fitness for any particular use or purpose; (ii) the operation of the Business by the Purchaser or any Affiliate of the Purchaser; or (iii) the probable success or profitability of the Business after the Closing.

3.7 Brokers. Except as set forth on Part 3.7 of the Disclosure Letter, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transactional Agreement based upon arrangements made by or on behalf of Purchaser.

4.	COVENANTS.

4.1 Bulk Sales Laws. The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Legal Requirements of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Transferred Assets to the Purchaser.

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4.2 Non-Competition .

(a) For all purposes of and under this Agreement, the following capitalized terms shall have the following respective meanings:

(i) “ Competing Business ” shall mean the business of designing, developing, manufacturing, selling, licensing, marketing, distributing, maintaining and supporting products of the Business as of the date of this Agreement.

(ii) “ Competing Territory ” shall mean anywhere in the world where products or services of the Business are designed, manufactured, purchased, assembled, distributed or sold, including without limitation the United States of America, the United Kingdom, and the People’s Republic of China.

(b) Seller acknowledges and agrees that Purchaser would be irreparably damaged if Seller, or any of its Affiliates, were to participate in a Competing Business and that any such competition by Seller (or its Affiliates) would result in a significant loss of goodwill by the Purchaser. Seller further acknowledges and agrees that the covenants and agreements set forth in this Section 4.2 were a material inducement to Purchaser to enter into this Agreement and to perform its obligations hereunder, and that Purchaser would not obtain the full benefit of the bargain set forth in this Agreement as specifically negotiated by the Parties hereto if Seller breached the provisions of this Section 4.2 . Therefore, Seller agrees, in further consideration of the amounts to be paid hereunder for the Transferred Assets, except with the prior written consent of the Purchaser, at all times from and after the Closing Date until the date that is 60 months following the Closing Date, Seller shall not, and shall cause its Affiliates not to, directly or indirectly, engage in, conduct, manage, operate, own, control or participate in the management of a Competing Business in the Competing Territory or any portion thereof. Seller acknowledges that the Business has been conducted or is presently proposed to be conducted throughout the Competing Territory and that the time and geographic restrictions set forth above are reasonable and necessary to protect the goodwill of the Business being sold by Seller pursuant to this Agreement.

(i) acquire and continue to operate any Person that conducts a Competing Business if in the calendar year prior to the acquisition, the consolidated revenues of that Person (“ Target ”) from its Competing Business do not constitute more than 20% of the total consolidated revenues of Target;

(ii) purchase products or services from third parties that are engaged in a Competing Business; or

(iii) hold and make passive indirect investments, through a publicly traded mutual fund or similar investment, in publicly traded securities or other equity interests not to exceed a five percent (5%) ownership interest in such Person; provided that Seller and its Affiliates do not actively participate in or control, directly or indirectly, any investment or other decisions with respect to such investment.

(d) Notwithstanding anything to the contrary in this Section 4.2 , if any Person acquires control of Seller or any of its Affiliates, whether by stock purchase, merger, consolidation or other business combination, and such Person or an Affiliate of such Person is engaged in a Competing Business at the time of such acquisition, the provisions of this Section 4.2 shall terminate effective upon the consummation of such acquisition by such Person, and the provisions of this Section 4.2 shall not have any further force or effect.

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(e) The Parties acknowledge that nothing in this Section 4.2 shall limit or restrict (i) the ability of the Parties to perform any of their obligations under any of the Transactional Agreements or (ii) to perform or receive the obligations or benefits under any non-assignable Transferred Assets pursuant to Section 1.9 of this Agreement.

4.3 Patent Files. Within 30 calendar days of the Closing Date, Seller shall deliver a letter of instruction, in form and substance reasonably acceptable to Purchaser, to each legal counsel of Seller or any Affiliate of Seller that has in its possession Patent prosecution files that related to any Transferred Patents, instructing such counsel to release such files upon Purchaser’s request (and at Purchaser’s sole expense).

4.4 Records . Within 60 calendar days of the Closing Date, Seller shall deliver to Purchaser copies of all Records related to the Business but which are not Transferred Books.

4.5 Audited Financial Statements. After the Closing, the Seller will cause to be prepared the consolidated balance sheet of the Business as of June 29, 2013 and the related consolidated statements of income and cash flows of the Business for the period ending on June 29, 2013, prepared in accordance with GAAP on a basis consistent with the basis in which the Seller and its Affiliates have applied GAAP historically, and shall deliver such statements to Grant Thornton, LLP promptly to enable the preparation of an audit of such statements for delivery to the Purchaser within sixty (60) days following the Closing Date (as audited, the “ Audited Financial Statements ”). Seller and Purchaser shall share equally the cost of the Audited Financial Statements. Purchaser shall cooperate and assist the Seller and its Representatives, at Purchaser’s cost, with respect to the preparation of the Audited Financial Statements and shall ensure that the Seller and its Representatives, upon reasonable notice, are provided with access to the Representatives, personnel and assets of the Business to the extent necessary for the Representatives to timely prepare the Audited Financial Statements, including all existing books, Records, Tax Returns, work papers and other documents and information relating to the Business.

4.6 Non-Solicitation . Following the Closing Date for a period of two (2) years:

(a) Purchaser shall not, and shall cause its Affiliates not to, solicit to employ, or solicit to provide services to Purchaser or any of its Affiliates, any employee of Seller or its Affiliates who is then-employed by Seller or its Affiliates; and

(b) Seller shall not, and shall cause its Affiliates not to, solicit to employ, or solicit to provide services to Seller or any of its Affiliates, any employee of Purchaser or its Affiliates who is then-employed by Purchaser or its Affiliates.

For purposes of this Section 4.6 , the term “solicit” shall not be deemed to include generalized searches for employees through media advertisements or employment firms.

4.7 Non-Disclosure Agreements . Promptly following the Closing, Seller shall and shall cause its Affiliates to use commercially reasonable efforts to cause all counterparties to nondisclosure agreements pertaining to an acquisition of the Business to return or destroy all confidential information of the Business provided by Seller or any Affiliate of Seller thereunder. In the event either Purchaser or Seller (or any of their respective Affiliates) become aware of noncompliance by any such counterparty, then the Party learning of such non-compliance shall notify the other Party and thereafter, upon written request from Purchaser, Seller or such Affiliate shall assign to Purchaser or an Affiliate of Purchaser all rights to enforce such nondisclosure agreements, or if such rights are not assignable, shall enforce such rights on behalf of Purchaser or Purchaser’s Affiliate (at the expense of Purchaser or such Affiliate).

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4.8 Shenzhen Equipment . Seller agrees that neither Seller, Parent or an Affiliate of Seller or Parent will (A) sell, transfer, lease, exchange, assign or otherwise dispose of, or grant any option, warrant or other right with respect to, any of the Shenzhen Equipment other than as required under Section 1.10 ; or (B) create, incur or suffer to exist any Encumbrance with respect to any Shenzhen Equipment, except for the Liens in favor of Purchaser.

4.9 Returned Assets. After the Closing Date, Seller shall use commercially reasonable efforts to, and shall cause Parent to, (a) exercise their respective rights under the Venture Contract Manufacturing Agreement to cause the counterparty thereto to return and reconvey title to the equipment previously transferred by Seller or Parent or acquired at Seller’s or Parent’s direction thereunder as identified in Part 4.9 of the Disclosure Letter (the “ Repurchased Transferred Equipment ”) or (b) acquire equipment substantially similar to such Repurchased Transferred Equipment (“ Replacement Equipment ”), and Seller and Parent shall promptly upon acquisition thereof convey title to such Repurchased Transferred Equipment or Replacement Equipment to Purchaser or Purchaser’s designee. Purchaser will take delivery of any Repurchased Transferred Equipment or Replacement Equipment at the location the Repurchased Transferred Equipment is in on the date of this Agreement.

4.10 Registration with AIC. Within three (3) months after the Closing Date, Seller shall use commercially reasonable efforts to cause the registered address of Avanex to be corrected with the Administration of Industry and Commerce (AIC) in China so that Purchaser’s Affiliate may register at such address.

4.11 Operation of the Business . Unless the Seller shall receive the prior written consent of the Purchaser, which consent may not be unreasonably withheld or delayed, and except as required by any Legal Requirement, the Seller shall use its commercially reasonable efforts to ensure that, during the Pre-Closing Period, the following covenants are complied with, but only as they relate exclusively to the Business and the Transferred Assets:

(a) the Seller and its Affiliates shall conduct the operations of the Business in the ordinary course of business (except that the Seller and its Affiliates may delay the payment of certain payables to conserve cash);

(b) the Seller and its Affiliates shall use commercially reasonable efforts to keep available the services of the employees currently providing services primarily to the Business;

(c) the Seller and its Affiliates shall not change any of the methods of accounting or accounting practices in any material respect, other than in a manner consistent with changes in GAAP or to conform to changes in applicable Legal Requirements;

(d) the Seller and its Affiliates shall not make any Tax election with respect to the Business or that affects the Transferred Assets, other than Tax elections that are the same as or consistent with Tax elections previously made by the respective party or to conform to changes in applicable Legal Requirements;

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(e) the Seller and its Affiliates shall not (i) sell, transfer, lease, license or otherwise dispose of any of the Transferred Assets, other than sales of Transferred Inventory in the ordinary course of business, or (ii) subject any of the Transferred Assets to any claim, lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, conditional sales agreement, Encumbrance, preemptive right, right of first refusal, restriction or other right of third parties, whether voluntarily incurred or arising by operation of law, other than as may exist on the Effective Date;

(f) the Seller and its Affiliates shall not: (i) other than in the ordinary course of business, declare or pay any bonus or declare or make any cash incentive payment, retention payment or similar payment to, or increase the amount of the wages, salary, commissions, benefits or other compensation (including equity and equity-based compensation) or remuneration payable to, or accelerate any benefits available to, any of the Eligible Employees; or (ii) other than in the ordinary course of business, hire any new employee for the Business; and

(g) the Seller and its Affiliates shall not commit to take any of the actions described in clauses “(c)” through “(f)” of this Section 4.11 .

5.	SELLER’S CLOSING DELIVERABLES.

At Closing, Seller shall deliver the following to Purchaser (the terms of which shall be negotiated by the Parties in good faith and any of which may be waived by the Purchaser, in whole or in part, in writing), each of which shall be in full force and effect:

5.1 a Transition Services Agreement in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Transition Services Agreement ”), duly executed by the parties thereto (other than the Purchaser or any Affiliate of Purchaser);

5.2 a Manufacturing Services and Supply Agreement (Amplifier) in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Manufacturing Services and Supply Agreement ”), duly executed by the parties thereto (other than the Purchaser or any Affiliate of Purchaser);

5.3 an Intellectual Property License Agreement in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Intellectual Property License Agreement ”), duly executed by the parties thereto (other than the Purchaser);

5.4 bills of sale with respect to the Transferred IP, Transferred Inventory, Transferred Equipment, Transferred Books and Transferred Governmental Authorizations, in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Bills of Sale ”), duly executed by the Seller or the Affiliate of the Seller that owns the respective Transferred Asset;

5.5 assignment agreements with respect to the Transferred Patents and Transferred Contracts in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Assignment Agreements ”), duly executed by the Seller or the Affiliate of the Seller that owns the Transferred Patent or is a party to the Transferred Contract;

5.6 a certificate signed by the Secretary of each of Seller and each Affiliate of the Seller that owns Transferred Assets certifying as true and correct as of the Closing Date: (i) the Constituent Documents of the respective entities signing the certificate; (ii) the incumbency of the officers of such entities that are signing any of the Transactional Agreements; and (iii) the resolutions of the boards of directors (or equivalent managing bodies) of such entities approving the Transactional Agreements to which they are a party and the transactions contemplated therein;

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5.7 a spreadsheet accurately and completely setting forth the payment instructions for any payments required to be made at Closing, duly executed by the Seller;

5.8 the Non-UK Transfer Documents, duly executed by the owner of the respective Transferred Assets;

5.9 evidence of the termination or release, in each case in a manner reasonably satisfactory to Purchaser, of all Encumbrances on the Transferred Assets;

5.10 a Deed of Release in favor of the Purchaser in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Deed of Release ”);

5.11 a Non-Compete Agreement in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement (the “ Non-Compete Agreement ”);

5.12 a Sublicense Agreement (Amplifier Business), in relation to the Intellectual Property License Agreement between Alcatel and Oclaro (North America), Inc. (formerly known as Avanex Corporation), dated July 31, 2003, in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement;

5.13 the Furukawa Side Letter in substantially the form and substance contemplated by the Purchaser and the Seller on the date of this Agreement; and

5.14 such other documents as the Purchaser may request in good faith for the purpose of facilitating the consummation or performance of any of the Transactions.

6.	PURCHASER’S CLOSING DELIVERABLES.

At Closing, Purchaser shall deliver the following to Seller (the terms of which shall be negotiated by the Parties in good faith and any of which may be waived by the Purchaser, in whole or in part, in writing), each of which shall be in full force and effect:

6.1 the Transition Services Agreement, duly executed by the Purchaser or an Affiliate of the Purchaser;

6.2 the Manufacturing Services and Supply Agreement, duly executed by the Purchaser or an Affiliate of the Purchaser;

6.3 the Assumption Agreement, duly executed by the Purchaser or an Affiliate of the Purchaser;

6.4 the Intellectual Property License Agreement, duly executed by the Purchaser or an Affiliate of the Purchaser;

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6.5 a certificate signed by the Chief Executive Officer of the Purchaser and each Affiliate of the Purchaser that is purchasing Transferred Assets certifying as true and correct as of the Closing Date: (i) the Constituent Documents of the respective entities signing the certificate; (ii) the incumbency of the officers of such entities that are executing the Transactional Agreements; (iii) the resolutions of the such entities approving the Transactional Agreements to which they are a party and the transactions contemplated therein; and (iv) the incumbency of each officer for each entity that is purchasing any Transferred Assets, duly executed by the respective parties;

6.6 such assignments, assumption agreements and other documents as the Seller may, acting reasonably and in good faith, determine to be necessary or appropriate to effect the assumption of the Assumed Liabilities; and

6.7 such other documents as the Seller may request in good faith for the purpose of facilitating the consummation or performance of any of the Transactions.

7.	CLOSING CONDITIONS; TERMINATION.

7.1 Closing Conditions . The Purchaser’s obligation to purchase, and the Seller’s obligation to sell and transfer the Transferred Assets, and to take the other actions required to be taken by the Purchaser and the Seller, respectively, at the Closing is subject to the satisfaction, at or prior to the Closing, of the following conditions:

(a) confirmation from the German Cartel Office ( Bundeskartellamt ) pursuant to Chapter VII of the German Act against Restrictions of Competition of 1958 ( Gesetz gegen Wettbewerbsbeschränkungen ) that no action will be taken by the German Cartel Office with respect to the transactions contemplated by this Agreement (the “ Anti-Trust Approval ”); and

(b) no temporary restraining order, preliminary or permanent injunction or other Order preventing the consummation of any of the Transactions shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to any of the Transactions that makes consummation of the Transactions illegal.

7.2 Termination Events . This Agreement may be terminated prior to the Closing:

(a) by the mutual written consent of the Purchaser and the Seller;

(b) by the Purchaser if the Closing has not taken place on or before December 1, 2013 (other than as a result of any failure on the part of the Purchaser to comply with or perform its covenants and obligations under this Agreement); or

(c) by the Seller if the Closing has not taken place on or before December 1, 2013 (other than as a result of any failure on the part of the Seller to comply with or perform any covenant or obligation set forth in this Agreement).

7.3 Termination Procedures . If the Purchaser wishes to terminate this Agreement pursuant to Section 7.2(b) , the Purchaser shall deliver to the Seller a written notice stating that the Purchaser is terminating this Agreement. If the Seller wishes to terminate this Agreement pursuant to Section 7.2(c) , the Seller shall deliver to the Purchaser a written notice stating that the Seller is terminating this Agreement.

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7.4 Effect of Termination . If this Agreement is terminated pursuant to Section 7.2 , all further obligations of the parties under this Agreement shall terminate; provided, however , that: (a) no party shall be relieved of any obligation or other Liability arising from any intentional breach by such party of any representation or warranty contained in this Agreement or material breach by such party of any covenant contained in this Agreement; and (b) the parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Section 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.15, 10.16 and 10.17 .

8.	INDEMNIFICATION, ETC.

8.1 Survival of Representations and Warranties .

(a) All agreements and covenants in this Agreement shall survive the Closing indefinitely or otherwise in accordance with their terms.

(b) The representations and warranties made by the Seller in Sections 2.5 and 2.6(g) of this Agreement shall survive the Closing indefinitely (each, a “ Fundamental Rep ”), and the representations and warranties made by the Seller in Sections 2.9 and 2.12 of this Agreement (each, an “ SOL Rep ”) shall survive the Closing until one month after the applicable statute of limitations (the “ SOL Representation Termination Date ”). All representations and warranties made by the Seller in this Agreement other than the Fundamental Reps and SOL Reps shall expire at 5:00 p.m., United States Pacific Standard Time, on December 31, 2014 (the “ General Representation Termination Date ”), and the representations and warranties made by the Purchaser in this Agreement shall expire on the General Representation Termination Date; provided, however, that if a Claim Notice (as defined below) relating to any representation or warranty of the Seller in this Agreement is given to the Seller on or prior to the General Representation Termination Date or the SOL Representation Expiration Date, as applicable, or if a Claim Notice relating to any representation or warranty of the Purchaser in this Agreement is given to the Purchaser on or prior to the General Representation Termination Date, then the claim(s) asserted in such Claim Notice shall survive the General Representation Termination Date or the SOL Representation Expiration Date, as applicable, until such time as such claim is (or claims are) fully and finally resolved.

(d) For purposes of this Agreement, a “ Claim Notice ” relating to a particular representation or warranty shall be deemed to have been given if any Indemnitee, acting in good faith, delivers to the Seller or the Purchaser, as applicable, a written notice stating that such Indemnitee believes that there is or has been a breach of such representation or warranty, asserting a claim for recovery under Section 8.2 in the case of a breach by the Seller or under Section 8.3 in the case of a breach by the Purchaser, and setting forth in reasonable detail: (i) the basis for, and a reasonable description of the circumstances supporting, such Indemnitee’s belief that there is or has been such a breach; and (ii) a non-binding, preliminary estimate of the aggregate dollar amount of the actual and potential Damages that have arisen and may arise as a result of such breach.

8.2 Indemnification by the Seller. From and after the Closing Date (but subject to the limitations set forth in this Section 8 ), the Seller shall indemnify each of the Purchaser Indemnitees on a pound for pound basis against all Damages that are incurred by any of the Purchaser Indemnitees and that arise from:

(a) any inaccuracy in or breach of any of the representations or warranties made by the Seller in this Agreement;

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(b) any breach of any covenant or obligation of the Seller contained in this Agreement; or

8.3 Indemnification by the Purchaser . From and after the Closing Date (but subject to the limitations set forth in this Section 8 ), the Purchaser shall indemnify each of the Seller Indemnitees on a pound for pound basis against all Damages that are incurred by any of the Seller Indemnitees and that arise from:

(a) any inaccuracy in or breach of any of the representations or warranties made by the Purchaser in this Agreement;

(b) any breach of any covenant or obligation of the Purchaser contained in this Agreement; or

8.4 Limitations on Indemnification .

(a) Subject to Section 8.4(d), the Seller shall not be required to make any indemnification payment pursuant to Section 8.2(a) until such time as the total amount of all Damages that have been incurred by any one or more of the Purchaser Indemnitees and with respect to which any indemnification payment would otherwise be available to the Purchaser Indemnitees pursuant to such section, exceeds an aggregate of $440,000 (the “ Deductible Amount ”). If the total amount of such Damages exceeds the Deductible Amount, the Purchaser Indemnitees shall be entitled to be indemnified only against the amount of such Damages exceeding the Deductible Amount. Subject to Section 8.4(e), the Purchaser shall not be required to make any indemnification payment pursuant to Section 8.3(a) until such time as the total amount of all Damages that have been incurred by any one or more of the Seller Indemnitees and with respect to which any indemnification payment would otherwise be available to the Seller Indemnitees pursuant to such section exceeds the Deductible Amount. If the total amount of such Damages exceeds the Deductible Amount, the Seller Indemnitees shall be entitled to be indemnified only against the amount of such Damages exceeding the Deductible Amount.

(b) Subject to Section 8.4(e), the maximum amount of indemnifiable Damages which may be recovered by the Purchaser Indemnitees from the Seller with respect to (i) the matters described in Section 8.2(a), Section 8.2(b) and Section 8.2(c) shall be an aggregate amount equal to the Indemnification Holdback Amount.

(c) Subject to Section 8.4(e), the maximum amount of indemnifiable Damages which may be recovered by the Seller Indemnitees from the Purchaser with respect to the matters described in Section 8.3(a) and 8.3(b) shall be an aggregate amount equal to $4,000,000.

(d) The amount of Damages recoverable by any Indemnitees hereunder shall be reduced by the amount of any insurance proceeds actually paid to the Indemnitee, and the Tax benefits to which any of the Purchaser Indemnitees is entitled, relating to such Damages, after deducting all attorneys fees, expenses and other costs of recovery and any deductible associated therewith to the extent paid.

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(e) The limitations on the indemnification obligations of the Seller and the Purchaser set forth in Sections 8.4(a) , 8.4(b), and 8.4(c) shall not apply to any Damages arising from any inaccuracy in or breach of any Fundamental Representation or in the case of fraud.

8.5 Exclusive Remedy . Subject to any injunction or other equitable remedies that may be available to the Indemnitees, from and after the Closing Date, the Indemnitors shall not be liable or responsible in any manner whatsoever (whether for indemnification or otherwise) to the Indemnitees for a breach of this Agreement, the Bills of Sale, the Assumption Agreements, and the Non-UK Transfer Document, except as expressly provided in this Section 8 , and, subject to the foregoing, this Section 8 provides the exclusive remedy and cause of action of Indemnitees against any Indemnitor with respect to any matter arising out of or in connection with a breach of this Agreement; provided, however , that no claim against an Indemnitor for fraud by such Indemnitor shall be subject to the limitations of this Section 8.5 .

8.6 Holdback . A Purchaser Indemnitee shall be paid from the Indemnification Holdback Fund the amount of any Damage for which it has been finally determined in accordance with Part 10.9(d) of the Disclosure Letter that such Purchaser Indemnitee is entitled to indemnification pursuant to this Section 8 , promptly after such final determination. So long as any of the Indemnification Holdback Amount remains in the Indemnification Holdback Fund, the Indemnification Holdback Fund shall be the sole source of recovery for any Damage incurred by a Purchaser Indemnitee under Section 8.2 of this Agreement. The period during which claims for indemnification from the Indemnification Holdback Fund may be initiated shall commence on the Closing Date and terminate at 5:00 p.m., Pacific Time, on December 31, 2014 (the “ Indemnification Holdback Claim Period ”). Notwithstanding anything to the contrary in this Agreement, on the date of expiration of the Indemnification Holdback Claim Period, such portion of the Indemnification Holdback Fund as may be necessary, in the reasonable judgment of Purchaser, to satisfy any then unresolved or unsatisfied claims for Damages (to the extent specified in any Claims Notice delivered to the Seller pursuant to Section 8.2 prior to the expiration of the Indemnification Holdback Claim Period) shall remain in the Indemnification Holdback Fund until such claims for Damages have been resolved or satisfied in accordance with this Article 8. Within three business days after the date of expiration of the Indemnification Holdback Claim Period, the Indemnification Holdback Fund, less any amount determined pursuant to the previous sentence, shall be paid by the Purchaser to the Seller.

8.7 Defense of Third Party Claims . In the event of the assertion or commencement by any Person of any Proceeding with respect to which any Indemnitee may be entitled to indemnification pursuant to this Section 8 , the Indemnitor shall have the right, at its election, to proceed with the defense (including settlement or compromise) of such Proceeding on its own with counsel reasonably satisfactory to the Indemnitee; provided, however, that the Indemnitor may not settle or compromise any such Proceeding without the prior written consent of the Indemnitee. The Indemnitee shall give the Indemnitor prompt notice after it becomes aware of the commencement of any such Proceeding against the Indemnitee; provided, however, any failure on the part of the Indemnitee to so notify the Indemnitor shall not limit any of the obligations of the Indemnitor, or any of the rights of the Indemnitee, under this Section 8 (except to the extent such failure prejudices the defense of such Proceeding). If the Indemnitor elects to assume and control the defense of any such Proceeding: (a) at the request of the Indemnitor, the Indemnitee shall make available to the Indemnitor any material documents and materials in the possession of the Indemnitee that may be necessary to the defense of such Proceeding; (b) the Indemnitor shall keep the Indemnitee reasonably informed of all material developments relating to such Proceeding; and (c) the Indemnitee shall have the right to participate in the defense of such Proceeding at its own expense. If the Indemnitor does not elect to proceed with the defense of any such Proceeding, the Indemnitee may proceed with the defense of such Proceeding with counsel of its own choice.

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9. EMPLOYEE MATTERS.

9.1 Offers of Employment . The Purchaser shall extend (or shall cause an Affiliate of the Purchaser to extend) an offer of employment to those employees of the Seller or an Affiliate of the Seller set forth on Part 9.1 of the Disclosure Letter and to any other employee of the Seller or any Affiliate of the Seller that the Seller and the Purchaser agree prior to the Closing will be offered employment by the Purchaser or an Affiliate of the Purchaser (each, an “ Eligible Employee ”). Without limiting the foregoing, Eligible Employees shall be deemed to include all employees of the Shanghai Facility and all or substantially all of the employees of the Horseheads Facility, and other employees critical to the operation of the Business, it being understood that the aggregate number of Eligible Employees is expected to equal approximately 148 persons. Effective immediately following the Closing, but subject to the provisions of the Transition Services Agreement, the Purchaser shall (or shall cause an Affiliate of the Purchaser to) hire each Eligible Employee who timely accepts the offer of employment extended to such individual as contemplated by this Section 9.1 , as well as each Special Jurisdiction Transferred Employee, as defined in Section 9.7 below (each such employee referred to in this sentence, a “ Transferred Employee ”).

9.2 Termination of Employment . Effective as of the Closing Date, but subject to the provisions of the Transition Services Agreement, (i) Seller shall terminate the employment of all Transferred Employees (other than any Special Jurisdiction Transferred Employee) and eliminate (A) any contractual provisions or other restrictions that would otherwise prevent any Transferred Employee from becoming an employee of the Purchaser or an Affiliate of the Purchaser and (B) any confidentiality restrictions that would prevent any Transferred Employee from using or transferring to the Purchaser any information relating to or useful for the Business and (ii) except as otherwise precluded by applicable Legal Requirements, the Transferred Employees shall cease accruing any benefits under any Seller Benefit Plan, and Seller shall take, or cause to be taken, all such actions as may be necessary to effect such cessation of such participation. Seller shall bear any and all obligations and liability under the WARN Act resulting from employment losses pursuant to this Section 9 ; provided , that Purchaser and its applicable Affiliates comply with all of their obligations under Section 9.1 . In the event that Purchaser or one of its applicable Affiliates does not comply with its obligations under this Section 9.2 , the Purchaser shall bear any and all obligations and liability under the WARN Act resulting from employment losses.

9.3 Pre-Closing Compensation . Subject to Part 1.4(a) of the Disclosure Letter, Seller shall be solely responsible, and the Purchaser shall have no obligations whatsoever for, any compensation or other amounts payable to any Transferred Employee relating to service with Seller or any of its Affiliates at any time on or prior to the Closing Date, including, without limitation, any hourly pay, commission, bonus, salary, accrued vacation, fringe, pension or profit sharing benefits or severance pay for any period relating to the service with Seller or any of its Affiliates, and Seller shall pay all such amounts to all entitled persons on or prior to the Closing Date.

9.4 Pre-Closing Liabilities . Seller shall remain solely responsible for the satisfaction of all claims for life insurance, sickness, accident or disability benefits brought by or in respect of any Transferred Employee (or a spouse or dependent thereof) to the extent such claims relate to events occurring on or prior to the Closing Date, and Seller shall remain solely responsible for the satisfaction of all health care claims brought by or in respect of any Transferred Employee (or a spouse or dependent thereof) to the extent such claims relate to treatment or services provided on or prior to the Closing Date.

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9.5 Credit for Prior Service . To the extent not otherwise required by or resulting from operation of any Legal Requirement, the Purchaser shall, or shall cause its Affiliates to, recognize each Transferred Employee’s period of employment with the Seller (and any Affiliate of Seller or predecessor of Seller or such Affiliate) for purposes of vesting, eligibility and level of benefits under the Purchaser’s and its Affiliates’ employee benefit plans, programs and arrangements in which any Transferred Employee will be eligible to participate following Closing, including but not limited to, the Seller’s and its Affiliates’ applicable welfare benefit plans, employee pension plans, vacation, disability, sick leave, paid time off and severance benefit plans, programs and arrangements; provided, however, that the foregoing shall not apply to any employee benefit plan, program or arrangement, including severance benefit plans, solely required under any Legal Requirement.

9.6 Waiver of Pre-Existing Conditions . With respect to any plan that provides medical, disability, dental, vision or similar benefits maintained by Purchaser or any Affiliate of Purchaser, Purchaser shall (and Purchaser shall cause its Affiliates to) cause any and all pre-existing condition (or actively-at-work or similar) limitations, waiting periods and evidence of insurability requirements to be waived with respect to all Transferred Employees and their eligible dependents.

9.7 Special Jurisdiction Transferred Employees . Notwithstanding any other provision of this Agreement, effective as of the Closing, the Purchaser shall employ (or shall cause an Affiliate of the Purchaser to employ) all of the Eligible Employees who are employed by the Seller or an Affiliate of the Seller as of the Closing and whose transfer of employment to the Purchaser or an Affiliate in connection with the Transactions is required pursuant to applicable Legal Requirements (each, a “ Special Jurisdiction Transferred Employee ”). The Purchaser shall (and shall cause each of its applicable Affiliates to) comply with all applicable provisions of the EC Council Directive No. 2001/23 as implemented by applicable local regulations, or other country-specific legal standards or applicable Legal Requirements, in connection with the transfer of the employment of the Special Jurisdiction Transferred Employees to the Purchaser or to an Affiliate of the Purchaser.

9.8 Employee Notices . To the extent any notification, information or consultation requirements are imposed by applicable Legal Requirements in connection with the Transactions with regard to any Eligible Employees, the Purchaser and the Seller agree to cooperate to ensure that such notification, information and consultation requirements are completed.

9.9 No Third-Party Rights . No provision in this Section 9 shall (i) create any third-party beneficiary or other rights in any employee or former employee (including any beneficiary or dependent thereof) of Seller or any of its Affiliates or any other Person other than the parties hereto and their respective successors and permitted assigns, (ii) constitute or create an employment agreement or (iii) constitute or be deemed to constitute an amendment to any employee benefit plan (including any Seller Benefit Plan) sponsored or maintained by the Purchaser or the Seller or any of their respective Affiliates.

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10.

MISCELLANEOUS PROVISIONS.

10.1 Tax Returns; Taxes; Cooperation .

(a) The Seller shall file or cause to be filed all Tax Returns with respect to the Business and the Transferred Assets for all taxable periods ending on or prior to the Closing Date, and the Purchaser shall file or cause to be filed all Tax Returns with respect to the Business and the Transferred Assets for all taxable periods beginning after the Closing Date. The Tax Returns with respect to the Business and the Transferred Assets for any taxable period that includes but does not end on the Closing Date (“ Straddle Period ” and each such Tax Return, a “ Straddle Period Return ”) shall be prepared by Purchaser, or at its direction, consistent with the prior Tax Returns of the Business and the Transferred Assets. Purchaser shall provide a copy of each Straddle Period Return to Seller for its comment and approval at least 30 days prior to filing and shall make such revisions to each Straddle Period Return as are consistent with the prior Tax Returns with respect to the Business and the Transferred Assets and are reasonably requested by Seller.

(b) Any Tax refunds that are determined to be due to Purchaser that relate to Tax periods or portions thereof ending on or before the Closing Date shall be for the account of Seller, and Purchaser shall pay over to Seller any such refund within five days after receipt or determination of entitlement thereto.

(c) Purchaser shall not file any amended Tax Return with respect to the Business or the Transferred Assets for any taxable period ending on or prior to the Closing Date or to file any amended Straddle Period Return, or to make any Tax election that affects any Tax Return with respect to the Business or the Transferred Assets for any taxable period ending on or prior to the Closing Date or any Straddle Period Return, in each case without the prior written consent of the Seller.

(d) The Seller and the Purchaser shall reasonably cooperate, and shall cause their respective Affiliates and Representatives to reasonably cooperate, in all matters relating to Taxes, including by providing any information and documentation that may be necessary to enable the other to comply with any filing requirements relating to any such Taxes.

10.2 Further Actions .

(a) From and after the Closing, each party hereto shall cooperate with the other parties, and shall cause to be executed and delivered such documents as the other parties may reasonably request, for the purpose of evidencing the Transactions.

(b) After the Closing, if the Seller or any Affiliate of the Seller receives any payment, refund or other amount that is a Transferred Asset or is otherwise properly due and owing to the Purchaser or any Affiliate of the Purchaser in connection with the Transactions, the Seller shall promptly remit or shall cause to be remitted such amount to the Purchaser or to such Affiliate of the Purchaser. After the Closing, if the Purchaser or any Affiliate of the Purchaser receives any payment, refund or other amount that is properly due and owing to the Seller or any Affiliate of the Seller in connection with the Transactions, the Purchaser shall promptly remit or shall cause to be remitted such amount to the Seller or such Affiliate of the Seller.

(c) After the Closing, if Purchaser identifies any Intellectual Property Rights of Seller or any Affiliate of Seller that Purchaser reasonably determines should have been included in the Seller IP transferred to Purchaser because such Intellectual Property Rights are used exclusively in the Business or licensed to Purchaser because such Intellectual Property Rights are necessary to conduct the Business (“ Excluded IP ”), the Seller agrees to undertake a good faith effort with the Purchaser to review the Excluded IP consistent with the Parties’ review of the Seller IP prior to Closing and if the Parties agree that any such item of Excluded IP should have been included in Seller IP transferred or licensed to Purchaser, then such item of Excluded IP shall be transferred or licensed, as the case may be, to Purchaser on the same terms and conditions as the Seller IP was transferred or licensed to Purchaser under this Agreement. If the Parties are unable to agree, the Parties agree to resolve the issue pursuant to the Dispute Resolution Procedures referred to in Section 10.9(d) .

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10.3 Continuing Access to Information . After the Closing, Purchaser shall give (and shall cause its Affiliates to give) Seller and its Representatives reasonable access during normal business hours to (and shall, and shall cause its Affiliates to, allow Seller and its Representatives to make copies of) any books and records and information relating to the Business or the Transferred Assets for any reasonable purpose, including as may be necessary for: (a) preparation of Tax returns and financial statements which are the responsibility of Seller; (b) management and handling of any Tax audits and Tax disputes; or (c) complying with any audit request, subpoena or other investigative demand by any Governmental Body or for any civil litigation. For a period of six years following the Closing, or such longer period as may be required by applicable Legal Requirements or necessitated by applicable statutes of limitations, Purchaser shall maintain all books and records related to the Transferred Assets in the jurisdiction in which such books and records were located prior to the Closing and shall not destroy or dispose of any of such books and records.

10.4 Publicity .

(a) The Purchaser shall ensure that, on and at all times after the date of this Agreement: (i) no press release or other publicity concerning any of the Transactions is issued or otherwise disseminated (and no other disclosure regarding any of the Transactions is made) by or on behalf of the Purchaser or any Affiliate of the Purchaser without the Seller’s prior written consent; and (ii) the Purchaser (and each of its Affiliates) continues to keep the terms of this Agreement and the other Transactional Agreements strictly confidential; provided, however , that, without the consent of the Seller: (A) the existence and terms of the Transactions, this Agreement and the other Transactional Agreements may be disclosed to the extent the Purchaser reasonably believes that such disclosure is required by any Legal Requirement (including rules and regulations issued by a national securities exchange that are applicable to the Purchaser); (B) the Purchaser and the Affiliates of the Purchaser may disclose the existence and terms of the Transactions, this Agreement and the other Transactional Agreements to their Representatives to the extent that the Purchaser in good faith believes that such Persons have a reasonable need to know such information; and (C) the Purchaser and the Affiliates of the Purchaser may make disclosures that are consistent with (but not more expansive in any material respect than) disclosures approved by the Seller or made pursuant to clause “(A)” or “(B)” of this sentence.

(b) The Seller shall ensure that, on and at all times after the date of this Agreement: (i) no press release or other publicity concerning any of the Transactions is issued or otherwise disseminated by or on behalf of the Seller or any Affiliate of the Seller without the Purchaser’s prior written consent; and (ii) the Seller (and each of Affiliate of the Seller) continues to keep the terms of this Agreement and the other Transactional Agreements strictly confidential; provided, however , that, without the consent of the Purchaser: (A) the existence and terms of the Transactions, this Agreement and the other Transactional Agreements may be disclosed to the extent the Seller reasonably believes that such disclosure is required by any Legal Requirement (including rules and regulations issued by a national securities exchange that are applicable to the Seller or any Affiliate thereof); (B) the Seller and the Affiliates of the Seller may disclose the existence and terms of the Transactions, this Agreement and the other Transactional Agreements to their employees, customers, suppliers and other Persons with relationships with the Business, in each case to the extent that the Seller in good faith believes that such Persons have a reasonable need to know such information; and (C) the Seller and the Affiliates of the Seller may make disclosures that are consistent with (but not more expansive in any material respect than) disclosures approved by the Purchaser or made pursuant to clause “(A)” or “(B)” of this sentence.

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10.5 Fees and Expenses .

(a) Except as otherwise specifically set forth in this Agreement, the Seller shall bear and pay all fees, costs and expenses that have been incurred or that are in the future incurred by, on behalf of or for the benefit of the Seller or any Affiliate of the Seller in connection with: (i) the negotiation, preparation and review of this Agreement (including the Disclosure Letter) and the other Transactional Agreements; (ii) the preparation and submission of any filing or notice required to be made or given by the Seller or any Affiliate of the Seller in connection with any of the Transactions, and the obtaining of any Consent required to be obtained by the Seller or any Affiliate of the Seller in connection with any of the Transactions; and (iii) the consummation and performance of the Transactions (collectively, the “ Seller Transaction Expenses ”).

(b) The Purchaser shall bear and pay all fees, costs and expenses that have been incurred or that are in the future incurred by, or on behalf or for the benefit of the Purchaser in connection with: (i) the negotiation, preparation and review of this Agreement and the other Transactional Agreements; (ii) the preparation and submission of any filing or notice required to be made or given by the Purchaser or any Affiliate of the Purchaser in connection with any of the Transactions, and the obtaining of any Consent required to be obtained by the Purchaser or any Affiliate of the Purchaser in connection with any of the Transactions; and (iii) the consummation and performance of the Transactions.

10.6 Notices . Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received: (a) when delivered by hand; (b) the first business day after sent by registered mail, by overnight courier or by express delivery service; (c) if sent by facsimile transmission before 2:00 p.m. in California, when transmitted and receipt is confirmed; (d) if sent by facsimile transmission after 2:00 p.m. in California and receipt is confirmed, on the following business day, in any case to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto):

if to the Seller:

Oclaro Technology Limited

c/o Oclaro, Inc.

2560 Junction Ave.

San Jose, CA 95134

Attention: Kate Rundle, General Counsel

Facsimile: +1.408.919.1501

with a copy (which shall not constitute notice) to:

Jones Day

1755 Embarcadero Road

Palo Alto, California 94303

Attention: Robert T. Clarkson

Facsimile: +1.650.739.3900

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if to the Purchaser:

II-VI Incorporated

375 Saxonburg Boulevard

Saxonburg, Pennsylvania 16056

Attention: Francis J. Kramer, President

Facsimile: +1.724.352.5299

with a copy (which shall not constitute notice) to:

Sherrard, German & Kelly, P.C.

28th Floor, Two PNC Plaza

620 Liberty Avenue

Pittsburgh, Pennsylvania 15222

Attention: Robert D. German, Esquire

Facsimile: +1.412.261.6221

10.7 Headings . The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

10.8 Counterparts and Exchanges by Electronic Transmission or Facsimile . This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission or facsimile shall be sufficient to bind the parties to the terms and conditions of this Agreement.

10.9 Governing Law; Venue .

(a) This Agreement and any claim, dispute or issue arising out of or in connection with this Agreement or its subject matter, shall be governed in all respects by the laws of England and Wales (without giving effect to principles of conflicts of laws).

(b) Except as otherwise expressly provided in this Agreement or in Section 10.9(d), the courts of England and Wales have exclusive jurisdiction to settle any Proceeding or dispute arising out of or in connection with this Agreement or its subject matter. Each party to this Agreement:

(i)

expressly and irrevocably consents and submits to the jurisdiction of the courts of England and Wales in connection with any such Proceeding;

(ii)

irrevocably agrees that the courts of England and Wales will have exclusive jurisdiction in relation to any claim, dispute or difference concerning this Agreement, any matter arising from it and the negotiations leading up to it being entered into; and

(iii)

irrevocably waives any right that it may have to object to an action being brought in those Courts, to claim that the action has been brought in an inconvenient forum or to claim that those Courts do not have jurisdiction.

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A judgment, order or decision of the courts of England and Wales in respect of any such Proceeding or dispute may be recognized or enforced by any courts of any state which, under the laws and rules applicable in that state, are competent or able to grant such recognition or enforcement.

(c) Notwithstanding the submission to that exclusive jurisdiction or anything to the contrary contained in this Agreement any party may bring proceedings in the courts of any other state which have jurisdiction for reasons other than the parties’ choice, for the purpose of seeking:

(i)

an injunction, order or other non-monetary relief (or its equivalent in such other state); and/or

(ii)

any relief or remedy which, if it (or its equivalent) were granted by the courts of England and Wales, would not be enforceable in such other state.

(d) Notwithstanding anything to the contrary contained in this Agreement, any claim for indemnification pursuant to Section 8 shall be brought and resolved exclusively in accordance with Part 10.9(d) of the Disclosure Letter; provided, however , that nothing in this Section 10.9(d) shall prevent the Seller or the Purchaser from seeking preliminary injunctive relief from a court of competent jurisdiction.

10.10 Successors and Assigns; Parties in Interest .

(a) This Agreement shall be binding upon: the Seller and its successors and assigns (if any); and the Purchaser and its successors and assigns (if any). This Agreement shall inure to the benefit of: the Seller, the Purchaser; the other Indemnitees; and the respective successors and assigns (if any) of the foregoing.

(b) Neither the Seller nor the Purchaser may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other party hereto, except that: (i) each party may assign any of its rights to any Affiliate of such party; and (ii) each party may delegate any of its obligations to any Affiliate of such party as long as such party remains jointly and severally liable with such Affiliate for such obligations.

(c) Except for the provisions of Section 8 hereof, none of the provisions of this Agreement is intended to provide any rights or remedies to any Person other than the parties to this Agreement and their respective successors and assigns (if any). Without limiting the generality of the foregoing, no creditor of the Seller or any Affiliate of the Seller shall have any rights under this Agreement or any of the other Transactional Agreements.

10.11 Remedies Cumulative; Specific Performance . The rights and remedies of the parties hereto shall be cumulative (and not alternative). Each party agrees that: (a) in the event of any breach or threatened breach by the other party of any covenant, obligation or other provision set forth in this Agreement, such party shall be entitled (in addition to any other remedy that may be available to it) to: (i) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision; and (ii) an injunction restraining such breach or threatened breach; and (b) no Person shall be required to provide any bond or other security in connection with any such decree, order or injunction or in connection with any related Proceeding.

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10.12 Waiver . No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

10.13 Amendments . This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of the Purchaser and the Seller. Save as provided in Section 8 or otherwise expressly provided for in this Agreement, the Parties do not intend that any term of this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 by a person who is not a party to this Agreement and the consent of any person who is not a party to this Agreement shall not be required for the amendment, variation, rescission or termination of the same, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

10.14 Severability . In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent it shall to that extent be deemed not to form part of this Agreement but, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by any Legal Requirements. Without limiting the foregoing, if, at the time of enforcement of the covenants contained in Section 4.6 (the “ Restrictive Covenants ”), a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed and directed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by Legal Requirements.

10.15 Entire Agreement . The Transactional Agreements and the NDA set forth the entire understanding of the parties relating to the subject matter thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter thereof.

10.16 Disclosure Letter . The Disclosure Letter shall be arranged in separate parts corresponding to the numbered and lettered sections contained herein; provided, however , that any information disclosed in any numbered or lettered part shall be deemed to relate to and to qualify any other representation or warranty or numbered or lettered section where such disclosure would reasonably be deemed to apply.

10.17 Appointment of Process Agent

(a) The Purchaser shall ensure that there is at all times appointed an agent for service of process on it in England in relation to any matter arising out of this Agreement or any of the other Transaction Documents, service upon whom shall be deemed completed whether or not forwarded to or received by the Purchaser and the Purchaser shall notify the Seller of the name of such agent and their contact details.

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(b) The Purchaser may from time to time appoint a new process agent acceptable to the Seller (acting reasonably) to receive service of process in England pursuant to Section 10.17(a) .

(c) The Purchaser shall inform the Seller in writing of any change in the address of its process agent within 28 calendar days.

(d) If any process agent appointed by the Purchaser pursuant to this Section 10.17 ceases to have an address in England, the Purchaser irrevocably agrees to appoint a new process agent acceptable to the Seller (acting reasonably) and to deliver to the Seller within 14 calendar days a copy of a written acceptance of appointment by its new process agent.

(e) Pursuant to clause Section 10.17(a) , the Purchaser agrees to appoint Gareth Rowles of II-VI U.K., Limited as its agent for service of process on it in England in relation to any matter arising out of this Agreement and the other Transaction Documents.

10.18 Construction .

(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

(b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(d) Any reference to “$”, “USD” or “dollars” means United States dollars. All amounts required to be paid under or pursuant to this Agreement shall be in United States Dollars.

(e) Except as otherwise indicated, all references in this Agreement to “ Sections ” are intended to refer to Sections of this Agreement.

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The parties to this Agreement have caused this Agreement to be executed and delivered as of the date first written above.


II-VI INCORPORATED

BY:		/s/ Vincent D. Mattera, Jr.
Name: Vincent D. Mattera, Jr.
Title: Executive Vice President

Signed by Jerry Turin on behalf of
O CLARO T ECHNOLOGY L IMITED in the presence of a witness:

WITNESS:

[ Signature Page to Asset Purchase Agreement ]

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ANNEX A

CERTAIN DEFINITIONS

For purposes of the Agreement (including this Annex A ):

Accounts Receivable . “Accounts Receivable” shall mean all accounts and notes receivable generated from the Business.

Affiliate . “Affiliate” shall mean, with respect to any Person, any other Person that as of the date of the Agreement or as of any subsequent date, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. The foregoing notwithstanding, for purposes of this Agreement, any Affiliate of Seller that is not a Subsidiary of the Parent shall be deemed not to be an Affiliate of the Seller.

Agreement . “Agreement” shall mean the Asset Purchase Agreement to which this Annex A is attached (including the Disclosure Letter), as it may be amended from time to time.

Business . “Business” shall have the meaning given to it on Annex A-II .

CERCLA. “CERCLA” shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

Code. “ Code” shall mean the United States Internal Revenue Code of 1986, as amended.

Consent . “Consent” shall mean any approval, consent, permission or authorization (including any Governmental Authorization).

Constituent Document . “Constituent Document” shall mean, with respect to any Person that is not a natural person, such Person’s articles of incorporation, certificate of incorporation, bylaws, or similar charter documents.

Contract . “Contract” shall mean any written, oral, implied or other agreement, contract, instrument, deed, purchase order or legally binding undertaking.

Copyrights . “Copyrights” shall mean all copyrights, copyrightable works, semiconductor topography and mask work rights, and applications for registration thereof, including all rights of authorship, use, publication, reproduction, distribution, performance transformation, moral rights and rights of ownership of copyrightable works and mask works, and all rights to register and obtain renewals and extensions of registrations, together with all other interests accruing by reason of international copyright, semiconductor topography and mask work conventions.

Damages . “Damages” shall mean any loss, damage, judgment, award, fines, penalties, Proceedings, assessments, fee (including any legal fee, expert fee, accounting fee or advisory fee) cost or expense, and including without limitation all special, indirect, incidental or consequential damages.

Disclosure Letter . “Disclosure Letter” shall mean the disclosure letter (dated as of the date of the Agreement) delivered to the Purchaser on behalf of the Seller.

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Encumbrance . “Encumbrance” shall mean any lien, charge, security interest or encumbrance, other than: (a) statutory liens for Taxes that are not yet due and payable or liens for Taxes being contested in good faith by any appropriate proceedings for which adequate reserves have been established; (b) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements; (c) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by applicable Legal Requirements; (d) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies and other like liens; (e) liens in favor of customs and revenue authorities arising as a matter of Legal Requirements to secure payments of customs duties in connection with the importation of goods; (f) encumbrances that do not materially interfere with the use, operation or transfer of, or any of the benefits of ownership of, the property subject thereto, (g) any licenses of Technology or Intellectual Property Rights of Seller or Affiliates of the Seller that were entered into in the ordinary course of business or were otherwise Made Available to Purchaser; (h) any licenses or covenants not to sue granted to customers, resellers or OEMs of Seller or any Affiliates of the Seller that were entered into in the ordinary course of business or were otherwise Made Available to Purchaser; and (i) easements, rights of way, zoning ordinances and other similar encumbrances affecting the Leased Real Property which do not prohibit or interfere with the current operation of any Leased Real Property.

Environmental Law. “Environmental Law” shall mean any applicable Legal Requirement relating to the environment, or to Hazardous Material, including the emission, discharge, deposit, disposal, leaching, migration or release of any Hazardous Material into the environment or the generation, treatment, storage, transportation or disposal of any Hazardous Material.

Environmental Claim. “Environmental Claim” shall mean any Proceeding or Order, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging Liability of whatever kind or nature reasonably (including Liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.

Environmental Notice. “Environmental Notice” shall mean any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.

Environmental Permit. “Environmental Permit” shall mean any Governmental Authorization required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

Entity . “Entity” shall mean any corporation, general partnership, limited partnership, limited liability partnership, joint venture or other entity.

Equipment . “Equipment” shall mean all furniture, fixtures, equipment (including development tools, testing equipment, factory test equipment, IT equipment), computer hardware, office equipment and apparatuses, tools, machinery and supplies and other tangible property (other than Inventory).

ERISA . “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate . “ERISA Affiliate” shall mean any Person who is treated as a single employer along with the Seller pursuant to Section 414(b) or (c) of the Code.

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GAAP . “GAAP” shall mean generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, that are applicable to the circumstances of the date of determination, consistently applied.

Governmental Authorization . “Governmental Authorization” shall mean any permit, license, registration, qualification or authorization issued by any Governmental Body.

Governmental Body . “Governmental Body” shall mean any:

(a) nation, state, county, city, town, borough, village, district, or other jurisdiction;

(b) Federal, state, local, municipal, foreign, multinational, or other government;

(c) governmental authority of any nature (including any agency, branch, department, board, commission, court, tribunal, or other entity exercising governmental powers);

(d) body entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power, whether local, national, or international; or

(e) official of any of the foregoing.

Hazardous Material . “Hazardous Material” shall mean any “hazardous substance,” “pollutant,” “contaminant,” “hazardous waste,” “regulated substance,” “hazardous chemical” or “toxic chemical” as designated, listed or defined (whether expressly or by reference) in any statute, regulation or other Legal Requirement.

Indemnitees . “Indemnitees” shall mean Purchaser Indemnitees and Seller Indemnitees.

Indemnitors . “Indemnitors” shall mean the Purchaser and the Seller.

Indemnification Holdback Amount . “Indemnification Holdback Amount” shall mean $4,000,000.

Indemnification Holdback Fund . “Indemnification Holdback Fund” shall mean the funds held by Purchaser in accordance with Article 8 of this Agreement, excluding funds which by the terms of this Agreement should have been disbursed to Seller and all interest, dividends, gains and other income accrued thereon.

Intellectual Property Rights . “Intellectual Property Rights” shall mean all rights of the following types, which may exist or be created under the Legal Requirements of any jurisdiction in the world: (a) rights associated with works of authorship, including copyrights, moral rights and mask works; (b) trademark and trade name rights and similar rights; (c) trade secret rights; (d) patent and industrial property rights; and (e) rights in or relating to registrations, renewals, extensions, combinations, divisions, and reissues of, and applications for, any of the rights referred to in clauses “(a)” through “(d)” above.

Intercompany Contract . “Intercompany Contract” means any Contract to which the sole parties are the Seller and/or any Affiliate of the Seller.

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Inventory . “Inventory” shall mean all inventory (including spare parts, raw materials, work in process, finished goods, packaging and supplies), including all such in-transit inventory, but excluding any consumables used in the manufacture of any products of the Business.

IRS . “IRS” means the United States Internal Revenue Service.

Issued Patents . “Issued Patents” shall mean all issued patents, reissued or reexamined patents, revivals of patents, utility models, certificates of invention, registrations of patents and extensions thereof, regardless of country or formal name, issued by the United States Patent and Trademark Office and any other Governmental Body.

Knowledge . Information shall be deemed to be known to or to the “Knowledge” of the Seller if that information is actually known by any Person identified on Annex A-I after due inquiry. Information shall be deemed to be known to or to the “Knowledge” of the Purchaser if that information is actually known by any of the directors or senior executive officers of the Purchaser. As used herein, the phrase “after due inquiry” shall mean, with respect to any Person, such Person’s inquiry of the direct report who would reasonably be expected to have actual knowledge of relevant facts and circumstances.

Legal Requirement . “Legal Requirement” shall mean any law, statute, rule or regulation issued, enacted or promulgated by any Governmental Body.

Liability . “Liability” shall mean any debt, obligation, duty or liability of any nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint, several or secondary liability), regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with GAAP and regardless of whether such debt, obligation, duty or liability is immediately due and payable.

Licensed Seller Intellectual Property . “Licensed Seller Intellectual Property” shall mean the Intellectual Property Rights and Technology licensed by Seller or an Affiliate of the Seller to Purchaser or an Affiliate of the Purchaser and as set forth in Schedule 1 of the Intellectual Property License Agreement.

Made Available . “Made Available” means made available to Purchaser and/or its Representatives prior to the Closing Date through the Seller’s virtual data room or otherwise.

Material Adverse Effect . “Material Adverse Effect” shall mean any change that does, or would be reasonably expected to, have a material adverse effect on the Transferred Assets, taken as a whole; provided, however, that none of the following shall be deemed either alone or in combination to constitute, and none of the following shall be taken into account in determining whether there has been or would be, a Material Adverse Effect: (a) any adverse effect resulting from or arising out of the announcement or pendency of the Agreement (including the identity of the Purchaser or the Purchaser’s plans for the Business) or the Transactions (including any action or inaction by the customers, suppliers, distributors, employees or competitors of the Parent, Seller or their respective Affiliates); (b) any adverse effect resulting from or arising out of general economic conditions, including from conditions in the United States or foreign economies or banking or securities markets; (c) any adverse effect resulting from or arising out of general conditions in the industries in which the Business operates; (d) any adverse effect resulting from changes or developments in international, national, regional, state or local wholesale or retail markets for any product that has similar specification as the products of the Business, including enhancements, modifications, evolutions or combinations of or with such products, including those due to actions by competitors; (e) any adverse effect resulting from or arising out of any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof; (f) any adverse effect resulting from or arising out of any changes in any Legal Requirement or GAAP; (g) any failure by the Seller, the Parent, or the Business to meet (A) any published analyst estimates or expectations of revenue, earning or other financial performance or results of operations for any period or products or (B) any budgets, plans, projections or forecasts of its revenues, earnings or other financial performance or results of operations for any period or products, whether or not published; or (h) any adverse effect resulting from the undertaking, performance or observance of the obligations contemplated by this Agreement, the failure to take any action as a result of restrictions or other prohibitions set forth in this Agreement, or any actions taken with the prior written consent of the Purchaser.

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Material Contract. “Material Contract” shall mean (a) each Transferred Contract; and (b) each of the Contracts listed in subsections (i)-(vii) below, other than Intercompany Contracts, that exclusively relate to the Business:

(i) any Contract pursuant to which any material Intellectual Property Rights or Technology of the Business is or has been licensed, sold, assigned or otherwise conveyed or provided to the Seller or an Affiliate of the Seller (other than any Contracts for non-customized software that (i) is licensed solely in executable or object code form pursuant to a nonexclusive software license and (ii) is generally available on standard terms);

(ii) any Contract imposing any material restriction on the right or ability of the Seller or any Affiliate of Seller, or, after the Closing Date, the right or ability of the Purchaser or an Affiliate of Purchaser (A) to compete in any Product Line or the Business or with any Person or in any area or which would so limit the freedom of the Seller or an Affiliate of the Seller or, after the Closing Date, the Purchaser or an Affiliate of Purchaser (including granting exclusive rights or rights of first refusal to license, market, sell or deliver any of the products or services offered by Seller), (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person (including granting any rights of first refusal), or (C) develop, distribute or license any Technology or Intellectual Property Rights;

(iii) any Contract for the purchase of materials, supplies, goods, services, equipment or other assets providing for annual payments by the Seller and the Affiliates of Seller of $500,000 or more;

(iv) any Contract relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise): (A) entered into after July 1, 2010, or (B) pursuant to which the Seller or an Affiliate of the Seller has any current or future rights or obligations;

(v) any Contract relating to indebtedness for borrowed money or the deferred purchase price of property;

(vi) any partnership, joint venture or any sharing of revenues, profits, losses, costs or liabilities or any other similar Contracts;

(vii) other than purchase orders received in the ordinary course of business, any other Contract (1) not made in the ordinary course of business that is material to the Business; and (2) is not terminable without penalty or Liability on 60 days prior written notice.

NDA. “NDA” means that certain Confidentiality Agreement dated as of February 19, 2013 between the Parent and Purchaser.

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Open Source Software . “Open Source Software” shall mean any Software that is subject to any: “open source,” “copyleft,” or other similar types of license terms (including any GNU General Public License, Library General Public License, Lesser General Public License, Mozilla license, Berkeley Software Distribution license, Open Source Initiative license, MIT, Apache, and Public Domain licenses, and the like), including any licensed approved by the Open Source Initiative and listed at http://www.opensource.org/licenses.

Order . “Order” shall mean any order, judgment, decree, injunction, ruling, decision or award issued by any court, administrative agency or other Governmental Body or any arbitrator or arbitration panel.

Organizing Documents. “Organizing Documents” shall mean the certificate of incorporation, bylaws, and any other similar organizational or constituent documents.

Owned IP . “Owned IP” shall mean: (a) all Intellectual Property Rights and Technology that is used or held for use in or that relates to the Business in which the Seller or any Affiliate of the Seller has an ownership interest.

Parent. “Parent” means Oclaro, Inc., a Delaware corporation.

Patent Applications. “Patent Applications” shall mean all published or unpublished nonprovisional and provisional patent applications and reexamination proceedings.

Patents. “Patents” shall mean the Issued Patents and the Patent Applications.

Permits . “Permits” shall mean all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained from Governmental Authorities.

Person . “Person” shall mean any individual, Entity or Governmental Body.

Pre-Closing Period . “Pre-Closing Period” shall mean the period from the date of the Agreement through the Closing Date.

Post-Closing Period. “Post-Closing Period” shall mean the period from the date after the Closing Date.

Prepayments. “Prepayments” shall mean any prepaid expenses, credits, advance payments, security deposits and other deposits, but not including any estimated Taxes.

Proceeding . “Proceeding” shall mean any action, suit or legal proceeding commenced, conducted or heard by or before any Governmental Body or any arbitrator or arbitration panel.

Purchaser Indemnitees . “Purchaser Indemnitees” shall mean the following Persons: (a) the Purchaser; (b) the Purchaser’s current and future Affiliates; (c) the respective current and future Representatives of the Persons referred to in clauses “(a)“and “(b)” of this sentence; and (d) the respective successors and assigns of the Persons referred to in clauses “(a)”, “(b)” and “(c)” of this sentence.

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Records. “Records” shall mean, whether or not such information is maintained in writing, visually, electronically or in machine readable or any other form: (a) books of account, ledgers and general, financial and accounting records, tax declarations and tax records, machinery and equipment maintenance files, customer lists, customer purchasing histories, price lists, distribution lists, supplier lists, production data, lab notebooks, quality system audit reports, failure mode analyses, quality control records and procedures, sales material and records (including pricing history, total sales, terms and conditions of sale, sales and pricing policies and practices), marketing and promotional surveys, publicly filed documents relating to any Proceeding currently pending, internal and external audit reports (including, reports relating to financial, quality, export control or trade compliance matters), documents relating to any mergers or acquisitions; and (b) research and development files and intellectual property files relating to any Intellectual Property Right or Technology and (c) all historical parametric data and related information including such data that relates to the historic production of products.

Registered IP . “Registered IP” shall mean all Seller IP that is registered, filed, or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights, registered mask works and registered trademarks and all applications for any of the foregoing.

Release. “Release” shall mean any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture) in violation of Environmental Law.

Representatives . “Representatives” shall mean officers, directors, employees, agents, attorneys, accountants and financial and other advisors.

Seller Contract . “Seller Contract” shall mean any Contract exclusively relating to the Business to which the Seller or any Affiliate of the Seller is a party.

Seller Indemnitees . “Seller Indemnitees” shall mean the following Persons: (a) the Seller; (b) the Seller’s current and future Affiliates, including the Parent; (c) the respective current and future Representatives of the Persons referred to in clauses “(a)“and “(b)” of this sentence; and (d) the respective successors and assigns of the Persons referred to in clauses “(a)”, “(b)” and “(c)” of this sentence.

Seller IP . “Seller IP” shall mean: (a) all Intellectual Property Rights and Technology that is used in the Business in which the Seller or any Affiliate of the Seller has an ownership interest or a license or similar right, including but not limited to the Transferred Patents, the Transferred IP, and the Licensed Seller Intellectual Property.

Shenzhen Company . “Shenzhen Company” shall mean Oclaro Technology (Shenzhen) Co., Ltd., a People’s Republic of China company.

Shrink-Wrap Code . “Shrink-Wrap Code” shall mean generally commercially available, off-the-shelf Software where available for a cost of not more than $5,000 for a perpetual license for a single user or work station (or $1,000 for an annual license for a single user or work station).

Software . “Software” shall mean computer software, programs and databases in any form, including source code, object code, operating systems and specifications, data, databases, GDS and GDSII files, database management code, firmware, utilities, graphical user interfaces, menus, images, icons, forms and software engines, and all related documentation, developer notes, comments and annotations.

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Subsidiary. “Subsidiary” means, with respect to any Person, any other Person that is an entity, whether incorporated or unincorporated, at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such other Person that is an entity is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries, or of which such Person or any one of its Subsidiaries is the managing member or general partner.

Tax . “Tax” shall mean any tax (including any income tax, franchise tax, capital gains tax, estimated tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, occupation tax, inventory tax, occupancy tax, withholding tax or payroll tax), levy, assessment, tariff, impost, imposition, toll, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), that is imposed, assessed or collected by or under the authority of any Governmental Body or is payable pursuant to any tax-sharing agreement.

Tax Return . “Tax Return” shall mean any return, report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information that is, has been or may in the future be filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

Technology . “Technology” shall mean algorithms, apparatus, databases, data collections, diagrams, inventions, know-how, logos, marks, methods and processes, protocols, software, techniques, works of authorship and other forms of technology (whether or not embodied in any tangible form and including all tangible embodiments of the foregoing, such as instruction manuals, laboratory notebooks, prototypes, samples, studies and summaries).

Trademarks. “Trademarks” shall mean all (i) trademarks, service marks, marks, logos, insignias, designs, names or other symbols, (ii) applications for registration of trademarks, service marks, marks, logos, insignias, designs, names or other symbols, (iii) trademarks, service marks, marks, logos, insignias, designs, names or other symbols for which registrations has been obtained.

Trade Secrets. “Trade Secrets” shall mean all product specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, research and development, manufacturing or distribution methods and processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans, computer software and programs (including object code), computer software and database technologies, systems, structures and architectures (and related processes, formulae, composition, improvements, devices, know-how, inventions, discoveries, concepts, ideas, designs, methods and information), and any other information, however documented, that is a trade secret within the meaning of the applicable trade-secret protection Legal Requirements.

Transactional Agreements . “Transactional Agreements” shall mean: (a) the Agreement; (b) the Transition Services Agreement; (c) the Assumption Agreement; (d) the Intellectual Property License Agreement; (e) Bills of Sale; (f) the Payoff Instructions; (g) the certificates required under Sections 5.6 and 6.5 ; (h) the Non-UK Transfer Documents; (i) the Assignment Agreements; and (j) the Manufacturing Services and Supply Agreement.

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Transactions . “Transactions” shall mean: (a) the execution and delivery of the respective Transactional Agreements; and (b) all of the transactions contemplated by the respective Transactional Agreements, including: (i) the sale of the Transferred Assets by the Seller to the Purchaser in accordance with the Agreement; (ii) the assumption of the Assumed Liabilities by the Purchaser in accordance with the Agreement; and (iii) the performance by the Seller and the Purchaser or their respective Affiliates of their respective obligations under the Transactional Agreements, and the exercise by the Seller and the Purchaser of their respective rights under the Transactional Agreements.

Venture Contract Manufacturing Agreement. “Venture Contract Manufacturing Agreement” means, collectively (a) certain Manufacturing and Purchase Agreement, by and between the Seller and Venture Corporation Ltd., effective as of March 19, 2012, and (b) that certain Equipment and Inventory Purchase Agreement by and among the Seller, the Shenzhen Company, Venture Electronics (Shenzhen) Co., Ltd. and Venture Electronics Services (M) Sdn Bhd dated March 19, 2012.

WARN Act . “WARN Act” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign Legal Requirements related to plant closings, relocations, mass layoffs and employment losses.

A-9

Each of the following terms is defined in the Section set forth opposite such terms:


Term		Section
Anti-Trust Approval		7.1(a)
Assignment Agreements		5.5
Assumed Liabilities		1.4(a)
Assumption Agreement		1.3(c)
Audited Financial Statements		4.5
Bills of Sale		5.4
Business Financial Statements		2.4(a)
Claim Notice		8.1(d)
Closing		1.8
Closing Date		1.8
Closing Date Inventory Value		1.5(b)
Closing Payment		1.3(b)
Competing Business		4.2(a)(i)
Competing Territory		4.2(a)(ii)
Deductible Amount		8.4(a)
Eligible Employee		9.1
Estimated Inventory Value		1.5(a)
Exchange Act		2.15
Excluded Assets		1.1
Excluded Liabilities		1.4(b)
Financial Statement Date		2.4(a)
Foreign Plan		2.11(f)
Fundamental Rep		8.1(b)
General Representation Termination Date		8.1(b)
Horseheads Facility		1.1(c)
In-Licenses		2.6(f)
Indemnification Holdback Claim Period		8.6
Intellectual Property License Agreement		5.3
Inventory Value Target		1.5(a)
Leased Real Property		2.13(b)
Leases		2.13(b)
License Agreements		2.6(f)
Manufacturing Services and Supply Agreement		5.2
Material Customers		2.17(a)
Material Suppliers		2.17(b)
Money Laundering Laws		2.18(b)
Non-UK Transferred Assets		1.1
Non-UK Transfer Documents		1.1
Option Agreement		Recital
Option Date		Recital
Out-Licenses		2.6(f)
Purchase Price		1.3


Purchaser		Introduction
Related Party		2.19
Related Party Arrangements		2.19
Replacement Equipment		4.9
Repurchased Transferred Equipment		4.9
Seller		Introduction
Seller Benefit Plan		2.11(a)
Seller Transaction Expenses		10.5(a)
Shanghai Facility		1.1(c)
Shenzhen Equipment		1.10
SOL Rep		8.1(b)
SOL Representation Termination Date		8.1(b)
Special Jurisdiction Transferred Employee		9.7
Straddle Period		10.1(a)
Straddle Period Return		10.1(a)
Tangible Transferred Assets		1.2
Target		4.2(c)(i)
Transfer Taxes		1.6
Transferred Assets		1.1
Transferred Books		1.1(f)
Transferred Contracts		1.1(e)
Transferred Employee		9.1
Transferred Equipment		1.1(d)
Transferred Governmental Authorization		1.1(g)
Transferred Inventory		1.1(c)
Transferred IP		1.1(b)
Transferred Patents		1.1(a)
Transition Services Agreement		5.1
U.S. Export Controls		2.18(d)(i)
UK Transferred Assets		1.1

C ONFIDENTIAL

ANNEX A-I

MEMBERS OF KNOWLEDGE GROUP

Greg Dougherty

Jerry Turin

Kate Rundle

Yves LeMaitre

Terry Unter

Jim Haynes

Pete Mangan

Julie Stephenson

ANNEX A-II

DEFINITION OF “BUSINESS”

“ Business ” means Seller’s and Seller’s Affiliates’ Amplification Business Unit comprised of Seller’s and Seller’s Affiliates’ (A) optically pumped fiber amplifier products, including related sub-systems and line card products serving telecommunications markets; and (B) micro-optics products, including related sub-systems and line card products serving telecommunication markets. The Business also includes the Transferred Assets and related personnel (it being understood that transferred employees will include a total of approximately 148 employees).

The Amplification Business Unit comprises: the Avanex Communications Technology (Shanghai) legal entity in Shanghai, Peoples’ Republic of China including the Transferred assets and related personnel; personnel and research and development assets located in or assigned to Horseheads, New York, San Jose, California, and Paignton, UK; manufacturing assets and personnel located in Bangkok, Thailand, Penang, Malaysia and Shenzhen, China; and manufacturing assets owned by Seller’s and Seller’s Affiliates’ consigned to the following suppliers: Fabrinet, Venture, Photop Fuzhou and Browave Zhuhai in the Peoples’ Republic of China.

“Business” does not include: (i) transmission subsystems and line card products of Seller and/or Sellers’ Affiliates, which may include as component parts (A) optically pumped fiber amplifiers that Seller or its Affiliates may purchase after the Closing from vendors other than Affiliates of Seller or (B) micro optic products that either (x) Seller or its Affiliates may purchase after the Closing from vendors other than Affiliates of Seller or (y) are not part of the product and product lines intended to be sold in the Transactions; (ii) wavelength selective switches; and (iii) related assets and personnel.

Exhibit 10.5

WAIVER TO

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Waiver to Second Amended and Restated Credit Agreement (“ Waiver ”) is entered into as of September 26, 2013, by and among WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company (as successor-by-merger to Wells Fargo Capital Finance, Inc.), as administrative agent (the “ Agent ”) for the lenders (the “ Lenders ”) party to the Credit Agreement (as defined below), and the Lenders, on the one hand, and OCLARO, INC. , a Delaware corporation (“ Parent ”), OCLARO TECHNOLOGY LIMITED, a company incorporated under the laws of England and Wales (“ Borrower ”), and the Grantors (defined below) identified on the signature pages hereto, on the other hand. All initially capitalized terms used in this Waiver shall have the meanings given to them in the Credit Agreement referred to below unless specifically defined herein.

B. An Event of Default has occurred and is continuing under Section 8.2(a) of the Credit Agreement as a result of Borrower’s failure to consummate one or more Strategic Transactions by the Milestone Date as required by Section 5.20(a) of the Credit Agreement (the “Existing Default”). Borrower has requested that Agent and Lenders waive the Existing Default. Agent and Lenders are willing to agree to waive the Existing Default on the terms and conditions specified herein.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrower, Parent, Grantors, Agent and Lenders agree as follows:

1. ACKNOWLEDGMENTS AND AGREEMENTS .

(a) Acknowledgment of Obligations . Borrower hereby acknowledges, confirms and agrees that all such loans, together with interest accrued and accruing thereon, and all fees, costs, expenses and other charges now or hereafter payable by Borrower to Agent and Lenders, pursuant to the Loan Documents are unconditionally owing by Borrower to Agent and Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever.

(c) Restrictions on Advances and Letters of Credit . Notwithstanding the effect of this Waiver or anything to the contrary set forth in the Credit Agreement or any other Loan Document, until such time as Agent and Lenders agree otherwise in writing (such agreement to be given or withheld in Agent’s and each Lender’s sole and absolute discretion):

(i)

Neither Agent nor any Lender shall be obligated to make any Advances, issue any Letters of Credit or provide any other extension of credit or other financial accommodations, except (A) Agent may make Advances or otherwise charge the Loan Account (1) to pay any accrued and unpaid Lender Group Expenses and (2) to pay any accrued and unpaid interest and fees payable to the Lender Group and (B) Agent and each Lender may make Advances, as Agent and such Lender deem appropriate, in their sole and absolute discretion (each such Advance, a “ Discretionary Advance ” and collectively, the “ Discretionary Advances ”); any decision of Agent and each Lender to make any Discretionary Advance shall not be construed as creating any course of dealing, shall not entitle Borrower to any further Discretionary Advance; and

(ii)

any right or action of Borrower set forth in the Loan Documents that is conditioned on the absence of any Event of Default may not be exercised or taken.

(d) Additional Advances and Other Financial Accommodations . Each Loan Party agrees that if Agent and Lenders do not agree (such agreement to be given or withheld in Agent’s and each Lender’s sole and absolute discretion) to make Advances, issue Letters of Credit or otherwise provide any other extensions of credit under the Credit Agreement and the other Loan Documents (other than as provided in Section 1(c)), and to establish new financial covenants, within 30 days of the date hereof (or such later date as may be agreed to in writing by Agent), an immediate Event of Default will be deemed to have occurred and Agent and Lenders may, as a result thereof, (i) declare the Revolver Commitment terminated, whereupon the Revolver Commitments shall immediately be terminated together with (A) any obligation of any Lender to make Advances, (B) the obligation of the Swing Lender to make Swing Loans, and (C) the obligation of the Issuing Lender to issue Letters of Credit, (ii) declare the Obligations to be immediately due and payable under the terms of the Credit Agreement and the Loan Documents, (iii) exercise any other rights and remedies available thereto under the Loan Documents or applicable law or (iv) any of the above. In furtherance of the foregoing, Parent shall deliver to Agent such financial projections as Agent requests within ten days of the date hereof. It is understood and agreed that nothing in the Credit Agreement (as modified by this Waiver) or this Waiver constitutes a commitment of Agent or any Lender to enter into any agreement to make Advances, issue Letters of Credit or otherwise provide any other extensions of credit.

(e) Binding Effect of Documents . Each Loan Party hereby acknowledges, confirms and agrees that: (i) this Waiver constitutes a Loan Document, (ii) each of the Credit Agreement and the Loan Documents to which it is a party has been duly executed and delivered to Agent by such Loan Party, and each is and will remain in full force and effect as of the date hereof except as modified pursuant hereto, (iii) the agreements and obligations of Loan Parties contained in such documents and in this Waiver constitute the legal, valid and binding Obligations of Loan Parties, enforceable against it in accordance with their respective terms, and no Loan Party has any knowledge of any valid defense to the enforcement of such Obligations, and (iv) Agent is and will be entitled to the rights, remedies and benefits provided for under the Credit Agreement and the Loan Documents and applicable law.

2. WAIVER IN RESPECT OF EXISTING DEFAULT .

(b) Waiver . In reliance upon the representations, warranties and covenants of Borrower contained in this Waiver, and subject to the terms and conditions of this Waiver and any documents or instruments executed in connection herewith, Agent and Lenders hereby waive the Existing Default.

(i) Agent has not waived, is not by this Waiver waiving, and has no intention of waiving, any Events of Default (other than the Existing Default) which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Existing Default or otherwise), and Agent has not agreed to forbear with respect to any of its rights or remedies concerning any Events of Default occurring at any time.

(ii) Subject to Section 2(b) above (solely with respect to the Existing Default), Agent reserves the right, in its discretion, to exercise any or all of its rights and remedies under the Credit Agreement and the Loan Documents as a result of any Events of Default occurring at any time. Agent has not waived any of such rights or remedies, and nothing in this Waiver, and no delay on its part in exercising any such rights or remedies, will be construed as a waiver of any such rights or remedies.

(d) Additional Events of Default . The parties hereto acknowledge, confirm and agree that any misrepresentation by any Loan Party in any material respect, or any failure of any Loan Party to comply with the covenants, conditions and agreements contained in this Waiver will constitute an immediate Event of Default under the Credit Agreement and the Loan Documents.

3. REPRESENTATIONS AND WARRANTIES . Parent, Borrower, and each Grantor each hereby affirms to Agent and Lenders that all of its representations and warranties set forth in the Credit Agreement are true, complete and accurate in all respects as of the date hereof.

4. CONDITIONS PRECEDENT . The effectiveness of this Waiver is expressly conditioned upon receipt by Agent of a fully executed copy of this Waiver and the Reaffirmation of Guaranty attached hereto.

5. RELEASE .

(a) Except with respect to the rights of Borrower, Parent, and each Grantor expressly provided herein, in consideration of the agreements of Agent and each Lender contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of Borrower, Parent, and each Grantor, on behalf of itself and its successors, assigns and other legal representatives (each of Borrower, Parent, and each Grantor and all such other persons being hereinafter referred to collectively as “ Releasors ” and individually as a “ Releasor ”), hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Agent and each Lender, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Agent and each Lender and all such other persons being hereinafter referred to collectively as “ Releasees ” and individually as a “ Releasee ”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a “ Claim ” and collectively, “ Claims ”) of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Releasors may now or hereafter own, hold, have or claim to have against Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Waiver, for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement or any of the other Loan Documents or transactions thereunder or related thereto.

(b) It is the intention of each of Borrower, Parent, and each Grantor that this Waiver and the release set forth above shall constitute a full and final accord and satisfaction of all claims they may have or hereafter be deemed to have against Releasees as set forth herein. In furtherance of this intention, each of Borrower, Parent, and each Grantor, on behalf of itself and each other Releasor, expressly waives any statutory or common law provision that would otherwise prevent the release set forth above from extending to claims that are not currently known or suspected to exist in any Releasor’s favor at the time of executing this Waiver and which, if known by Releasors, might have materially affected the agreement as provided for hereunder. Each of Borrower, Parent, and each Grantor, on behalf of itself and each other Releasor, acknowledges that it is familiar with Section 1542 of California Civil Code:

6. COVENANT NOT TO SUE . Each of the Releasors hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by any Releasor pursuant to Section 5 above. If any Releasor violates the foregoing covenant, Borrower, for itself and its successors, assigns and other legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys’ fees and costs incurred by any Releasee as a result of such violation.

7. COSTS AND EXPENSES . Borrower shall pay to Agent all of Agent’s and Lenders’ out-of-pocket costs and reasonable expenses (including, without limitation, the fees and expenses of their respective counsel, which counsel may include any local counsel deemed by Agent as necessary, search fees, filing and recording fees, documentation fees, appraisal fees, travel expenses, and other fees) arising in connection with the preparation, execution, and delivery of this Waiver and all related documents.

8. LIMITED EFFECT . In the event of a conflict between the terms and provisions of this Waiver and the terms and provisions of the Credit Agreement, the terms and provisions of this Waiver shall govern. In all other respects, the Credit Agreement, as amended and supplemented hereby, shall remain in full force and effect.

9. COUNTERPARTS; EFFECTIVENESS . This Waiver may be executed in any number of counterparts and by different parties on separate counterparts, each of which when so executed and delivered shall be deemed to be an original. All such counterparts, taken together, shall constitute but one and the same Waiver. This Waiver shall become effective upon the execution of a counterpart of this Waiver by each of the parties hereto and the satisfaction of the condition precedent in Section 4 above.

[Signatures on next page]

IN WITNESS WHEREOF, the parties hereto have executed this Waiver as of the date first set forth above.


WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as Agent and a Lender

By:		/s/ Patrick McCormack
Name:		Patrick McCormack
Title:		Vice President