CREDIT LINE AND NOTES

6.00% Convertible Senior Notes due 2020 ("6.00% Notes")

On February 12, 2015, we entered into a Purchase Agreement (the “Purchase Agreement”), with Jefferies LLC (the “Initial Purchaser”), pursuant to which we agreed to issue and sell to the Initial Purchaser up to $65.0 million in aggregate principal Convertible Senior Notes due 2020 (the “6.00% Notes”). On February 19, 2015, we closed the private placement of $65.0 million aggregate principal amount of the 6.00% Notes. The initial exchange price was $1.95 per share of common stock. The 6.00% Notes were sold at 100 percent of par, resulting in net proceeds of approximately $61.6 million, after deducting the Initial Purchaser’s discounts of $3.4 million. We also incurred offering expenses of $0.6 million. The net proceeds of this offering are being used for general corporate purposes, including working capital for, among other things, investing in development of new products and technologies.

The 6.00% Notes will mature on February 15, 2020 and will bear interest at a fixed rate of 6.00 percent per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2015. During the year ended July 2, 2016 and June 27, 2015, we recorded $4.7 million and $1.7 million, respectively, in interest expense, including the amortization of the debt discount and the issuance costs related to these 6.00% Notes. During the year ended July 2, 2016 and June 27, 2015, we made interest payments of $3.9 million and zero, respectively, related to the 6.00% Notes.

The Purchase Agreement contains customary representations and warranties of the parties and indemnification and contribution provisions under which we, on the one hand, and the Initial Purchaser, on the other, have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

The 6.00% Notes are governed by an Indenture, dated February 19, 2015 (the “Indenture”), entered into between us and U.S. Bank National Association, as trustee (the “Trustee”). The Indenture contains affirmative and negative covenants that, among other things, limits our ability to incur, assume or guarantee additional indebtedness; create liens; sell or otherwise dispose of substantially all of our assets; and enter into mergers and consolidations. The Indenture also contains customary events of default. Upon the occurrence of certain events of default, the Trustee or the holders of the 6.00% Notes may declare all outstanding 6.00% Notes to be due and payable immediately.

Prior to February 15, 2018, in the event that the last reported sale price of our common stock for 20 or more trading days (whether or not consecutive) in a period of 30 consecutive trading days ending within five trading days immediately prior to the date we receive a notice of conversion exceeds the conversion price in effect on each such trading day, we will, in addition to delivering shares upon conversion by the holder of 6.00% Notes, together with cash in lieu of fractional shares, make an interest make-whole payment in cash equal to the sum of the remaining scheduled payments of interest on the 6.00% Notes to be converted through February 15, 2018.

Prior to February 15, 2018, we may not redeem the 6.00% Notes. On or after February 15, 2018, we may redeem for cash all of the 6.00% Notes if the last reported sale price per share of our common stock has been at least 130 percent of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which we provide notice of redemption. The redemption price will equal (i) 100 percent of the principal amount of the Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date plus (iii) the sum of the present values of each of the remaining scheduled payments of interest that would have been made on the 6.00% Notes to be redeemed had such 6.00% Notes remained outstanding from the redemption date to the maturity date (excluding interest accrued to, but excluding, the redemption date that is otherwise paid pursuant to the immediately preceding clause (ii)). Once notified, the holders of the 6.00% Notes could elect to convert, at which point they would receive their shares of common stock based on the initial exchange rate plus up to an additional 11.2 million shares.

Upon the occurrence of a fundamental change, subject to certain conditions, each holder of the 6.00% Notes will have the option to require that we purchase all or a portion of such holder’s Notes in cash at a purchase price equal to 100 percent of the principal amount of the 6.00% Notes to be purchased plus any accrued and unpaid interest, including additional interest, if any, to, but excluding, the fundamental change purchase date. Any holder that converts its 6.00% Notes in connection with a make-whole fundamental change, as defined in the Indenture, will not receive the interest make-whole payment but will instead receive the additional shares set forth in the Indenture.

Our contingent obligation to make a make-whole payment in the event of an early conversion by the holders of the 6.00% Notes, or at our election to redeem the 6.00% Notes for cash, are both considered embedded derivatives. As of February 19, 2015, the date of the debt issuance, and as of July 2, 2016, the fair value of the embedded derivatives is estimated at zero. The estimated fair value of the embedded derivatives was determined by using a binomial lattice approach to determine the probability and timing of a conversion or redemption.

On February 19, 2015, we also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Initial Purchaser to provide the holders of the 6.00% Notes with registration rights with respect to shares of common stock that have been issued upon conversion of the 6.00% Notes and are then outstanding, but only if Rule 144 under the Securities Act is unavailable to holders of the 6.00% Notes who are not affiliates of ours on and following the date that is six months after the original issuance date of the 6.00% Notes.

On February 19, 2015, we entered into a Consent and First Loan Modification Agreement (the “Amendment”) with Silicon Valley Bank (“SVB”). The Amendment modifies the Loan and Security Agreement, dated as of March 28, 2014, by and among us, Oclaro Technology Limited and SVB to allow the cash payments provided for in the Indenture and the 6.00% Notes and include the 6.00% Notes as permitted indebtedness.

The following table sets forth balance sheet information related to the 6.00% Notes at July 2, 2016 and June 27, 2015:



	July 2, 2016			June 27, 2015

Principal value of the liability component	$	65,000		$	65,000
Unamortized value of the debt discount and issuance costs	(2,942		)	(3,754		)
Net carrying value of the liability component	$	62,058		$	61,246

At July 2, 2016, the $2.5 million debt discount and the $0.5 million issuance costs are recorded as a contra-liability in convertible notes payable within the consolidated balance sheet.

In August 2016, we entered into multiple privately negotiated agreements, pursuant to which all of our 6.00% Notes were cancelled, and the indenture, dated as of February 19, 2015, by and between us and U.S. Bank National Association, pursuant to which the 6.00% Notes were issued, was satisfied and discharged. We issued in aggregate 34,659,972 shares of our common stock and made a cash payment of $4.7 million in exchange for $65.0 million aggregate principal amount of our 6.00% Notes. See Note 16, Subsequent Events for additional information on the privately negotiated agreements.

Silicon Valley Bank Credit Facility

On March 28, 2014, Oclaro, Inc. and its subsidiary, Oclaro Technology Limited (the “Borrower”), entered into a loan and security agreement (the “Loan Agreement”) with Silicon Valley Bank (the “Bank”) pursuant to which the Bank provided the Borrower with a three-year revolving credit facility of up to $40.0 million. Under the Loan Agreement, advances are available based on up to 80 percent of “eligible accounts” as defined in the Loan Agreement. The Loan Agreement has a $10.0 million sub-facility for letters of credit, foreign exchange contracts and cash management services. On September 17, 2015, we entered into an amendment to the Loan Agreement with the Bank increasing from $5.0 million to $15.0 million the amount of equipment liens that may qualify as "Permitted Liens" thereunder.

The obligations of the Borrower under the Loan Agreement are guaranteed by us and certain subsidiaries of ours (collectively, the “Guarantors”) pursuant to an Unconditional Guaranty in favor of the Bank (the “Guaranty”), and are secured by substantially all of the assets of the Borrower and the Guarantors, including a pledge of the capital stock holdings of the Borrower and the Guarantors in their direct subsidiaries.

Borrowings made under the Loan Agreement bear interest at a rate based on either the London Interbank Offered Rate plus 2.25 percent or Wall Street Journal’s prime rate plus 1.00 percent. If the sum of (a) the Borrower’s unrestricted cash and cash equivalents that are subject to the Bank’s liens less (b) the amount outstanding to the Bank under the Loan Agreement (such sum being “Net Cash”) is less than $15.0 million, then the interest rates are increased by 0.75 percent until Net Cash exceeds $15.0 million for a calendar month. If interest paid under the Loan Agreement is less than $45,000 in any fiscal quarter, the Borrower is required to pay the Bank an additional amount equal to the difference between $45,000 and the actual interest paid during such fiscal quarter. The minimum interest payment is in lieu of a stand-by charge.

The obligations of the Borrower under the Loan Agreement may be accelerated, and the Guarantors may become obligated under the Guaranty, upon the occurrence of an event of default under the Loan Agreement. The Loan Agreement includes customary events of default. Upon the occurrence and during the continuance of an event of default, obligations shall bear interest at a rate per annum which is 2 percentage points above the rate that is otherwise applicable thereto, unless the Bank elects otherwise, in its sole discretion.

The Loan Agreement contains covenants applicable to us, the Borrower and our subsidiaries, including a financial covenant that, on a consolidated basis, requires us to maintain a minimum fixed charge coverage ratio of no less than 1.10 to 1.00, if the Borrower has not maintained Net Cash of at least $15.0 million, and other customary covenants. The Loan Agreement also contains restrictions on our ability to pay cash dividends on our common stock.

If the Loan Agreement terminates prior to its maturity date, the Borrower will pay a termination fee equal to 1.00 percent of the total credit facility if such termination occurs in the first year after closing, 0.75 percent of the total credit facility if such termination occurs in the second year after closing and 0.50 percent of the total credit facility if such termination occurs in the third year after closing. The maturity date of the Loan Agreement is March 28, 2017.

At July 2, 2016 and June 27, 2015, there were no amounts outstanding under the Loan Agreement.

Wells Fargo 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, before terminating the agreement on March 14, 2014.

On May 6, 2013, Parent, Borrower, the Lenders, the 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 (“Amendment Number Two”), which amended the Credit Agreement in pertinent part by: (i) adding a $25 million, one year term loan (the “Term Loan”) to be provided by the Term Lenders; (ii) reducing the revolving credit facility from $80.0 million to $50.0 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 as set forth in the Amendment, 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 and SVB, the next $25.0 million being applied to repay the Term Lenders and the remaining proceeds being used to repay Wells Fargo and SVB all amounts outstanding under the credit facility), and events of default relating thereto. During a continuing event of default, the Agent or Lenders can declare any amounts outstanding under the Credit Agreement immediately due and payable.

Interest on the Term Loan obligations accrued at a per annum rate equal to the sum of: (i) the PIK Term Loan Interest Rate, with such accrued interest to be capitalized quarterly and added to the outstanding principal balance of the Term Loan, and (b) the Cash Term Loan Interest Rate. The PIK Term Loan Interest Rate is 2.0 percent beginning on the effective date of the Term Loan (the “Effective Date”) up to but excluding the date six months thereafter, then it is 4.0 percent until the date twelve months after the Effective Date and then it is 5.0 percent. The Cash Term Loan Interest Rate is 7.0 percent beginning on the Effective Date up to but excluding the date six months thereafter, then it is 8.5 percent until the date twelve months after the Effective Date and then it is 10.0 percent.

In connection with Amendment Number Two, the Borrower paid the revolving lenders an amendment fee of $0.5 million and the Term Lenders a closing fee of $2.1 million. These costs were capitalized and scheduled to be amortized straight-line to expense over the one year term of the loan. In connection with the Term Loan, we also issued certain warrants. The Term Lenders exercised these warrants in May 2014, which is more fully discussed in Note 9, Stockholders’ Equity.

On August 21, 2013, Parent, Borrower, the Lenders and the Agent 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 $0.7 million.

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 all amounts outstanding under the Credit Agreement. 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 prevented 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.

On March 14, 2014, we terminated the Credit Agreement.

Borrowings made under the Credit Agreement bore interest at a rate based on either the London Interbank Offered Rate plus 2.50 percentage points or the bank’s prime rate plus 1.25 percentage points. During fiscal year 2014, we made interest payments of $0.3 million in connection with the Credit Agreement. All amounts owed under the Credit Agreement and Term Loan were repaid during fiscal year 2014. During fiscal year 2014, we recorded the remaining unamortized debt discount and issuance costs of $4.8 million related to the Term Loan in discontinued operations within the consolidated statement of operations.

7.50% Exchangeable Senior Secured Second Lien Notes ("7.50% 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 ("7.50% Notes"). The sale of the 7.50% 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. The 7.50% Notes are governed by an Indenture, entered into by us and the Guarantors with Wells Fargo Bank, National Association, as trustee and second lien collateral agent (the "Trustee"). The Indenture contained affirmative and negative covenants that, among other things, limited the ability of us and the Guarantors to incur, assume or guarantee additional indebtedness; make restricted payments including, without limitation, paying dividends, repurchasing capital stock and redeeming debt that is junior in right of payment to the convertible notes; create liens; sell or otherwise dispose of assets, including capital stock of subsidiaries; and enter into mergers and consolidations. The Indenture also contained customary events of default. Upon the occurrence of certain events of default, the Trustee or the holders of the 7.50% Notes may declare all outstanding convertible notes to be due and payable immediately. The 7.50% Notes were unconditionally guaranteed, jointly and severally, on a senior secured basis by us and all of the Guarantors.

Under the terms of the 7.50% Notes, on or after December 15, 2013, in the event that the last reported sale price of our common stock for 20 or more trading days (whether or not consecutive) in a period of 30 consecutive trading days ending within five trading days immediately prior to the date that we receive a notice of exchange exceeded the exchange price in effect on each such trading day, we were obliged, in addition to delivering shares upon exchange by the holder of convertible notes, together with cash in lieu of fractional shares, to make a “make-whole premium” payment in cash equal to the sum of the present value of the remaining scheduled payments of interest on the convertible notes to be exchanged through the maturity date computed using a discount rate equal to 0.50 percent. The initial exchange price was $1.846 per share of common stock. Any holder that exchanged its 7.50% Notes after such holder’s convertible notes had been called for redemption by us would, 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 7.50% Notes to be exchanged had such 7.50% 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 7.50% Notes, then such holder would not receive the “make-whole premium” payment described above.

We considered the contingent obligation of having to make a make-whole payment in the event of an early conversion by the holders of the 7.50% Notes as an embedded derivative. On December 19, 2013, the holders exercised their rights to exchange the 7.50% Notes for our common stock. The exchange rate for the exchanges was 541.7118 shares of common stock per $1,000 in principal amount of 7.50% Notes. We issued approximately 13.5 million shares of common stock in connection with the exchange, with cash payable in lieu of fractional shares. In addition, pursuant to the terms of the indenture governing the 7.50% Notes, we made a redemption exchange make-whole payment of $8.3 million, which we recorded in interest (income) expense, net, in the consolidated statements of operations for the year ended June 28, 2014.

During the year ended June 28, 2014, we recorded and paid $0.9 million in routine interest payments related to these 7.50% Notes. Interest on the 7.50% Notes was payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2013.

In connection with the private placement of the 7.50% Notes, we incurred approximately $1.3 million in debt discount and $0.9 million in issuance costs. Upon exchange of the 7.50% Notes during fiscal year 2014, we recorded the remaining unamortized debt discount and issuance costs of $1.8 million in additional paid-in capital within the consolidated balance sheet.