Harmonic Annual Report 2015

Plain-text annual report

Table of Contents 2015 Annual ReportTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________________________________________________Form 10-K_______________________________________________________(Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2015¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission File No. 000-25826_______________________________________________________HARMONIC INC.(Exact name of Registrant as specified in its charter)Delaware77-0201147(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number)4300 North First StreetSan Jose, CA 95134(408) 542-2500(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)Securities registered pursuant to section 12(b) of the Act:Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock, par value $.001 per shareNASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:None_______________________________________________________Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ýIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No ýIndicate 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 1934during 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 filingrequirements for the past 90 days. Yes ý No ¨Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired 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 Registrantwas required to submit and post such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer¨Accelerated filerýNon-accelerated filer¨ (Do not check if a smaller reporting company)Smaller reporting company¨Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ýBased on the closing sale price of the Common Stock on the NASDAQ Global Select Market on July 3, 2015, the aggregate market value of the votingCommon Stock held by non-affiliates of the Registrant was approximately $446,231,000. Shares of Common Stock held by each executive officer anddirector and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to beaffiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.The number of shares outstanding of the Registrant’s Common Stock, $.001 par value, was 77,300,250 on March 21, 2016._______________________________________________________DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement for the Registrant’s 2015 Annual Meeting of Stockholders (which will be filed with the Securities and ExchangeCommission within 120 days of the end of the fiscal year ended December 31, 2015) are incorporated by reference in Part III of this Annual Report onForm 10-K.Table of ContentsHARMONIC INC.FORM 10-KTABLE OF CONTENTS PagePART IITEM 1BUSINESS4ITEM 1ARISK FACTORS13ITEM 1BUNRESOLVED STAFF COMMENTS31ITEM 2PROPERTIES31ITEM 3LEGAL PROCEEDINGS31ITEM 4MINE SAFETY DISCLOSURE32PART IIITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES33ITEM 6SELECTED FINANCIAL DATA35ITEM 7MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS37ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK53ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA55ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE97ITEM 9ACONTROLS AND PROCEDURES97ITEM 9BOTHER INFORMATION97PART IIIITEM 10DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE97ITEM 11EXECUTIVE COMPENSATION98ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS98ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE98ITEM 14PRINCIPAL ACCOUNTANT FEES AND SERVICES98PART IVITEM 15EXHIBITS AND FINANCIAL STATEMENT SCHEDULES98SIGNATURES99EXHIBIT INDEX1002Table of ContentsForward Looking StatementsSome of the statements contained in this Annual Report on Form 10-K are forward-looking statements that involve risk and uncertainties. Thestatements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statementsregarding our expectations, beliefs, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by terminologysuch as, “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “potential,” or “continue” or the negativeof these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:•developing trends and demands in the markets we address, particularly emerging markets;•economic conditions, particularly in certain geographies, and in financial markets;•new and future products and services;•capital spending of our customers;•our strategic direction, future business plans and growth strategy;•industry and customer consolidation;•expected demand for and benefits of our products and services;•seasonality of revenue and concentration of revenue sources;•the potential impact of our continuing stock repurchase plan;•potential future acquisitions and dispositions;•anticipated results of potential or actual litigation;•our competitive environment;•the impact of governmental regulation;•anticipated revenue and expenses, including the sources of such revenue and expenses;•expected impacts of changes in accounting rules;•use of cash, cash needs and ability to raise capital; and•the condition of our cash investments.These statements are subject to known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially fromthose implied by the forward-looking statements. Important factors that may cause actual results to differ from expectations include those discussed in “RiskFactors” beginning on page 13 in this Annual Report on Form 10-K. All forward-looking statements included in this Annual Report on Form 10-K are basedon information available to us on the date thereof, and we assume no obligation to update any such forward-looking statements. The terms “Harmonic,” the“Company,” “we,” “us,” “its,” and “our”, as used in this Annual Report on Form 10-K, refer to Harmonic Inc. and its subsidiaries and its predecessors as acombined entity, except where the context requires otherwise.3Table of ContentsPART IItem 1.BUSINESSWe design, manufacture and sell versatile and high performance video infrastructure products and system solutions that enable our customers toefficiently create, prepare and deliver a full range of video and broadband services to consumer devices, including televisions, personal computers, laptops,tablets and smart phones. We operate in two segments, Video and Cable Edge. Our Video business sells video processing and production and playoutsolutions and services worldwide to cable operators and satellite and telecommunications (telco) Pay-TV service providers, which we refer to collectively as“service providers,” and to broadcast and media companies, including streaming new media companies. Our Cable Edge business sells cable edge solutionsand related services, primarily to cable operators globally.Across our two business segments, we derived approximately 56% of our revenue from the Americas in 2015. The Europe, Middle East and Africa(EMEA) and Asia Pacific (APAC) regions accounted for the remaining 25% and 19% of our 2015 revenue, respectively.Harmonic was initially incorporated in California in June 1988, and was reincorporated in Delaware in May 1995. Our principal executive offices arelocated at 4300 North First Street, San Jose, California 95134. Our telephone number is (408) 542-2500. Our Internet website is http://www.harmonicinc.com.Other than the information expressly set forth in this Annual Report on Form 10-K, the information contained or referred to on our web site is not part of thisreport.Industry OverviewDemand for Video Services Anytime, AnywhereThe delivery of television programming and Internet-based services to consumers continues to rapidly converge. Consumers increasingly seek a morepersonalized and dynamic video experience that can be delivered at any time to any location to a variety of devices, ranging from high-definition (HD) andultra-high-definition (Ultra HD) televisions and Internet-enabled “smart” televisions, to traditional desktop and laptop computers, to mobile platforms suchas smart phones and tablet computers. In this multiscreen video environment, video programming and content needs to be transformed into multiple formats,bit rates and resolutions for display on a broad range of devices.Consumers have grown accustomed to watching video programming and content at their convenience rather than on fixed timeframes scheduled byservice providers. “Time-shifting” technologies such as digital video recorders (DVRs) and video-on-demand (VOD) services are enabling this flexibility, andthe introduction of network DVRs by some service providers has eliminated the need for local storage, allowing a subscriber to store programming on theservice provider’s servers for future playback at any time, on any device.Consumers are also accustomed to video download and streaming services from new media companies such as Netflix, Hulu, Google (YouTube),Amazon (Amazon Instant Video) and Apple (iTunes). These and other similar services aggregate third-party and original content and stream video “over-the-top” (OTT) to any Internet-connected device utilizing Internet service providers’ networks at no incremental infrastructure cost to the consumer. In response,a number of service providers and broadcast and media companies are now providing more of their own OTT streaming video services.Demand for High Quality VideoConsumer demand for high quality video anytime, anywhere and on any device requires ever-increasing bandwidth capacity in service providers’networks, as well as technology that maximizes network bandwidth efficiency. With the advent of Ultra HD televisions and OTT services increasingly beingrendered in “4K” high resolution and consuming approximately four times the bandwidth of traditional MPEG-4/AVC (H.264) HD channels, we believe nextgeneration compression technologies, such as High Efficiency Video Compression (HEVC), will continue to steadily gain industry traction. HEVC offersapproximately 50% improved bandwidth efficiency and improved picture quality when compared to the MPEG-4 compression standard more commonlyused to transport video signals today.Service Provider TrendsService providers are competing intensely to offer higher quality video signals in HD, including evolving initiatives to deliver video in 4K Ultra HDresolution. Also, in response to the growing success of new media OTT streaming companies, in addition to the time-shifting technologies described above,service providers are broadly expanding their video streaming offerings to customers, for viewing on any device. Increasingly, these services are alsofeaturing content in the bandwidth4Table of Contentsintensive, high resolution 4K standard in order to provide consumers with higher value, differentiated video services. Service providers are developing andexpanding their content delivery and Internet Protocol (IP) networks, and increasing the capacity and efficiency of their networks with investments in variousdelivery infrastructure technologies to, among other things, maximize video quality, minimize bandwidth utilization and enable new network capacity. Webelieve that the delivery of video over IP will continue to change traditional video viewing habits and distribution methods and may alter the traditionaladvertising and subscription business models of major service providers.Service providers continue to consolidate to achieve greater economies of scale and subscriber concentration, and to compete more effectively,especially against the growing disruptive threat of OTT offerings. In addition, service providers continue to enhance and differentiate their offerings bycreating and delivering their own branded content, either through organic in-house development of new content or through acquisitions of existing contentbrands. For example, Comcast, a cable operator, owns NBC Universal, a broadcast and media company, and Sky Broadcasting, a European satellite serviceprovider, has developed its own channels and content.Content Provider TrendsContent owners and media companies in the U.S. and internationally continue to launch OTT streaming offerings to reach consumers directly, withOTT streaming of live programming becoming increasingly relevant. These offerings may be in partnership or competition with service providers.As service providers deliver more video services to more devices and platforms, they are increasingly requiring content providers to supply content thatis properly formatted for each device. As the number and type of devices continue to grow, the lack of consistent video standards means content providersmust reformat and package their content in dozens of different formats to enable their content to be viewable across different devices. As a result, somebroadcast and media companies are beginning to outsource playout functionality to service providers.Market TrendsCable MarketTo address increasing competition, reduce subscriber losses, increase average revenue per user (ARPU) and differentiate themselves, cable operatorscontinue to focus on a number of initiatives to improve their product offerings:•Bundled digital video, voice and high speed data services;•Expansion of VOD libraries and on-demand service offerings;•Refresh of the user experience with upgraded home set-top box solutions, network DVRs and content navigation tools;•Video delivery over IP to broadband enabled consumer devices;•Capacity enhancement of high-speed data services;•Expansion of network capacity to support the growing number of available services, including HDTV in foreign markets; and•Collaboration with content owners on offering access to on-line content.To support this rapid expansion of service offerings, cable operators are investing in video processing solutions that can receive, process, and distributecontent from a variety of sources to a broad array of consumer devices, video storage equipment, and servers to ingest, store and intelligently distributecontent, complemented by the latest cable edge solutions to significantly scale broadband network capacity and speed.Satellite and Telco MarketsOver 100 satellite operators around the world have established digital television services that serve tens of millions of subscribers. These services arecapable of providing tens of thousands of channels, including an increasing number of HD channels and the introduction of Ultra HD channels. These linearservices will likely continue to expand as operators offer premium packages targeted towards specific consumer groups, with the goal of gaining loyalty andexpanding ARPU. In parallel, satellite operators have begun offering the same linear services and VOD options to their customer base via broadband-connected consumer devices such as smart phones, tablets and their own set-top boxes. These services are deployed in conjunction with content deliverynetworks (CDNs) and are accessible through partnerships, acquisitions or internal5Table of Contentsinvestments. To support these new services, satellite operators are upgrading their video infrastructure in order to attain greater bandwidth efficiency andoperational optimization in an increasingly complex environment.Internationally, and specifically in emerging markets, satellite operators continue to enjoy substantial growth in their customer base, driven mainly byrapid economic development, which has resulted in a significantly growing middle class with disposable income. As this growth continues, it is expected thatthese satellite operators will expand their product offerings to leverage the growing customer base and increase overall revenue.Over the past several years, telcos around the world have added video services as a competitive response to cable and satellite operators and as apotential source of revenue growth. As their businesses have grown and matured, they have also expanded their offerings in an effort to successfully competein the video arena, including high quality HD content, larger VOD libraries, time-shifting television services, bundled voice, data and video packages,multiscreen video offerings to a broad range of devices, and branded mobile specific services. The last of these offerings, mobile wireless services, is a keycompetitive advantage for telcos today, as it provides a clear differentiator in anytime, anywhere service offerings for consumers looking to view content onthe move. In developed markets, telcos are also making significant infrastructure investments, including VDSL2 Vectoring with plans to integrate thistechnology with the new G.Fast DSL standard, along with ongoing deployments of fiber-to-the-premises (FTTP) to enable very high-speed broadbandconnections for residences and businesses.Broadcast and Media MarketsNetwork broadcasters, programmers and content owners transmit live programming of news and sports to their studios for subsequent broadcast, anddeliver the same programming and content to service providers for distribution to their subscribers. These broadcasters generally produce their own news andsports highlight content, along with hundreds of channels of network programming that is played-to-air under strict reliability requirements.In the terrestrial broadcasting market, operators in many countries in EMEA, APAC and South America are now required by regulation to convert fromanalog to digital transmission in order to free up broadcast spectrum. These broadcasters are faced with requirements of converting analog signals to digitalsignals prior to transmission over the air, as well as to distribute these new signals across a new terrestrial network. The conversion to digital transmissionprovides the opportunity to deliver new channels; HD, Ultra HD and 4K services; premium content and interactive services.Media companies, in order to effectively address consumer demands, are expanding their offerings to support a wide range of live and linear content,and to make content available in higher quality video formats and on-demand. These trends are increasing demand for media servers and video optimizedstorage equipped to support higher resolution formats, and accelerating demand for functionally collapsed playout systems with integrated mediaorchestration software. In addition, distribution networks responsible for moving video content to service providers are being upgraded to handle largervolumes of digital content in more efficient formats and with greater flexibility.New Media and OTT MarketOTT video streaming already accounts for well over half of downstream Internet traffic in North America, and new media OTT companies areaggressively pushing into international markets. These companies will continue to require high quality video processing solutions in order to process anddistribute large amounts of content from a wide variety of sources to a broad array of consumer devices, and to optimize adaptive bitrate video streamingquality and bandwidth utilization. Also, some OTT companies are increasingly developing and introducing original content, and other new media companiesare also in the process of developing program channels similar to channels currently available from service providers. We believe these developments mayresult in increased investments by OTT companies in video production and playout solutions.Emerging MarketsWith a rapidly growing middle class across emerging markets, we believe the Pay-TV business is poised for rapid growth over the coming decade in theAsia Pacific region, South Asia, the Middle East, Africa and Central and South America. We currently derive a meaningful portion of our revenue fromcountries in emerging markets. Many consumers who are entering the middle class are now able to afford a monthly video service to gain access to theirfavorite programs and movies. Considering the early stages of economic development in many of these regions, together with very large populations, webelieve some of the leading video service providers serving emerging markets will experience high subscriber growth rates and may become worldwideindustry leaders. In addition, since the video services currently available to consumers in these markets are generally more basic when compared to servicesavailable in more developed markets, we believe subscribers will demand increasingly sophisticated video services over time as consumer consumptiontrends in these markets track those in more developed markets. As a result, we believe that the infrastructure and technology investments of these serviceproviders and new market entrants are likely to grow significantly for the foreseeable future.6Table of ContentsFurther, media companies addressing emerging markets are aggressively investing in the creation of new content, particularly content that is localizedand responsive to consumer demands, with the goal of creating strong brands and a growing, loyal customer base. We believe that this growth in contentcreation will require these media companies to significantly increase their investments in video storage, processing and related technologies.Our Video BusinessOverviewWe offer a range of products and solutions, as well as next-generation software-based media processing platforms that address the demand and markettrends shaping our industry.In light of more complicated workflows inherent in managing the delivery of greater quantities of content across multiple formats to a growingpopulation of set-top-boxes and consumer electronic devices, we believe the industry is moving toward unified video processing systems. These systemsincorporate historically discrete video processing functions in software, enabling significant cost efficiencies across the entire video workplace. Additionally,we believe there is gaining industry momentum towards network function virtualization, whereby core video chain functions are being re-engineered andcollapsed to run on the latest Intel processors in order to leverage high-performance and scalable appliance-based hardware, or as software-only virtualinstances designed to run on industry standard servers in data center environments.From production studios to broadcast newsrooms, consumer demand for higher resolution video programming and more viewing options is escalatingnetwork touch points and server capacity needed to administer channel production and playout processes, thereby elevating costs and space restrictions. Asmore content is filmed in 4K and played-to-air on newly created channels supporting higher resolution HD and Ultra HD formats, these constraints are likelyto be exacerbated and we believe these issues will create increased demand for functionally-collapsed playout systems with integrated media orchestrationsoftware. This type of software provides an automated control system that streamlines playout processes, improves video quality, and reduces server overheadby combining historically discrete video chain functions into a unified playout system where content can be ingested, formatted, stored and played-to-air.We believe functionally collapsed video playout infrastructures with media orchestration systems, along with video optimized storage solutions, willenable content providers to produce more channels in higher resolution formats faster and more cost-effectively, and provide content in the widest possiblerange of formats and at the highest possible video quality.As a result, service providers and broadcast and media companies are likely to make significant investments in these newly architected systems in theforeseeable future.Video ProductsVideo Processing SolutionsOur video processing solutions, which include network management software and application software and hardware products, provide our customerswith the ability to acquire a variety of signals from different sources and in different protocols in order to deliver a variety of real-time and stored content totheir subscribers for viewing on a broad range of devices.Broadcast and distribution encoders. Our Electra and Ion high performance encoders compress video, audio and data channels to low bit rates, whilemaintaining high video quality. Our encoders are available in multiple formats, including standard, HD and Ultra HD formats, using various codecs includingthe MPEG-2, MPEG-4, HEVC and AVS+ video compression standards, for both televisions and new multiscreen formats targeted at smart phones, tablets andbroadband-connected televisions. Our Electra XVM software product is a completely virtualized media processor designed to run in virtual machineenvironments on blade servers, and is our first product based on our VOS platform, which is the next-generation software platform we are developing to unifythe entire media processing chain, from ingest to delivery. Electra XVM supports a broad range of compression standards over constant bit rate (CBR),variable bit rate (VBR) and adaptive bit rate (ABR) encoding schemes, and includes integrated video graphics and branding as well as playout capabilitiessuch as channel origination and linear ad insertion. Our encoding products are primarily used in real-time, linear video applications and to a lesser extent forencoding video content and storage for later delivery as VOD and time-shifted services.Contribution encoders. Our Ellipse encoders provide broadcasters with video compression solutions for real-time news gathering, live sports coverageand other remote events, and enable our customers to deliver these feeds to their studios for further processing. Our latest models encode full-resolution1080p60 video signals in AVC 4:2:2 10-bit, enabling the transmission of very high quality video, and include an integrated modulator which eliminates theneed for a separate satellite uplink device. Broadcasters and other operators also use our contribution encoders for delivery of their programming to theircustomers, which are typically cable, telco and satellite operators.7Table of ContentsMultiscreen transcoders and stream processing. Our ProStream real-time stream processor and transcoder products enable our customers to transcodestandard definition (SD) and HD MPEG-2 and MPEG-4 video content for both broadcast and OTT mobile and web applications simultaneously. OurProStream products also feature high-density, multiple SD or HD inputs and multiscreen output profiles; multiplexing; advanced remultiplexing, scramblingand descrambling; linear ad splicing into video streams; and integrated statmux pools.Content preparation and delivery for multiscreen applications. Our ProMedia products enable high-quality broadcast, VOD and OTT services on anydevice, including live streaming, VOD, catch-up TV, start-over TV, and network DVR services through hypertext transfer protocol (HTTP) streaming. OurProMedia software products enable file-based and real-time transcoding, stream packaging, and multiscreen workflow management. Our ProMedia OriginHTTP streaming video server product ingests transcoded, segmented and encrypted output from our ProMedia software products and enables high-volumelive adaptive bitrate streaming and the delivery of time-shifted services.Decoders and descramblers. Our ProView integrated receivers-decoder (IRD) products allow service providers to acquire content delivered via satellite,IP or terrestrial networks for distribution to their subscribers. These products are also used to decode signals backhauled from live news and sporting events incontribution applications and, more recently, are used by content owners looking to distribute their content in a controlled manner to a large base of videoservice providers.Management and control software. Our NMX Digital Service Manager provides service providers with the ability to control and visually monitor theirdigital video infrastructure at an aggregate level, rather than as just discrete pieces of hardware, and is designed to be integrated into larger networkmanagement systems through the use of a simple network management protocol (SNMP). In addition, our Iris advanced video analytics software suite worksin tandem with NMX to collect data from our Electra and Ion encoder products in order to provide video quality, global channel availability and sourceprofiling measurements for hundreds of compressed channels. Our DMS video distribution management system provides broadcasters and content providerswith software control tools over large numbers of our ProView IRD products, enabling flexible device or group addressability, entitlements and authorizationmanagement and over-the-air (OTA) in-band control of CDN elements.Video Production Platforms and Playout SolutionsOur video production platforms consist of video-optimized storage and content management applications, which provide broadcast and mediacompanies with file-based infrastructure to support video content production activities, such as editing, post-production and finishing. Our video playoutsolutions, including media orchestration software, are based on scalable video servers used by broadcast and media companies to create and playouttelevision channels.Video servers. Our Spectrum family of video server and storage products are used by broadcast and media companies to create play-to-air televisionchannels. Our customers typically use these video server products to record incoming content from either live feeds or from tapes, encoding that content inreal-time into standard media files that are then stored in the server’s file system until the content is needed for playback as part of a scheduled playlist. Clipsstored in the server are decoded in real-time and played-to-air according to a playout schedule in a frame-accurate, back-to-back manner to create a seamlesstelevision channel. Our servers support both SD and HD programming, with our latest software-upgradeable Spectrum X product able to support UltraHDprogramming, as well as many different media formats. Our new Polaris media orchestration software solutions work with our Spectrum products and provideour customers with playout management and control tools for channel-in-a-box and integrated channel playout applications.Video-optimized storage. Our MediaGrid active storage system is a scale-out, network-attached storage system with a built-in media file system that hasbeen optimized for typical read and write file operations found in media production workflows. Architected as a clustered storage system with a distributedfile system, MediaGrid provides highly scalable storage capacity and access bandwidth to support demanding media production applications, such as videoediting, content transformation and media library management. In addition, MediaGrid systems are increasingly being employed for VOD, time-shiftedtelevision services and OTT adaptive bitrate streaming.Media Applications. Complementing our server and storage platforms, our Media Application Server (MAS), combined with a suite of integratedapplications, provides a basic level of integrated media management and workflow control over content stored across our systems. For more complex mediamanagement, our underlying application programming interface, called Media Services Framework, allow both customers and other application developersto build advanced media management applications that can automate many media processing and movement tasks, collect and organize content metadata,and provide search and review functionality.Our Cable Edge Business8Table of ContentsOverviewWe believe the market and industry trends highlighted above are similarly creating opportunities for our Cable Edge business.As consumption of VOD services accelerates, service provider demand for video edge QAMs increases. In addition, with heightened competition fromnon-cable service providers such as AT&T, Verizon, Google Fiber and local municipalities to deliver gigabit data rates, cable operators are aggressivelydriving enabling broadband access technologies, including the Converged Cable Access Platform (CCAP) architecture. We also believe the cable industrywill move rapidly to DOCSIS 3.1, which enables increased bandwidth data transfer over existing broadband infrastructure as we begin migrating todistributed solutions.In the last few years, the cable industry has begun to develop and promulgate the CCAP architecture for next-generation cable edge solutions, whichcombines edge QAM and CMTS functions in a single system in order to combine resources for video and data delivery. We believe centralized CCAP-basedsystems will significantly reduce cable headend costs and increase operational efficiency, and that the deployment of these systems will be an important stepin cable operators’ transition to all-IP networks.In addition to centralized CCAP systems, we believe there is growing interest in complementary distributed remote PHY solutions, particularly incompetitive gigabit service markets where cable operators are competing with FTTH services and are extending fiber access networks deeper into theirdistribution networks. This distributed access architecture alleviates power and space requirements of centralized systems at headend sites, and we believewill enable service providers to efficiently scale to support data and video growth.Cable Edge ProductsEdge QAM products. Our Narrowcast Services Gateway (NSG) products are fully integrated edge gateway products that integrate routing, multiplexing,scrambling and modulation into a single package for the delivery of narrowcast services to subscribers over cable networks. An NSG is usually supplied withsingle Gigabit Ethernet inputs or multiple Gigabit Ethernet inputs, allowing the cable operator to use bandwidth efficiently by delivering IP signals from theheadend to the edge of the network for subsequent modulation onto a HFC network. Originally developed for VOD applications, the NSG has evolved tosupport multiple applications, including switched digital video and modular CMTS applications, as well as large-scale VOD deployments.Centralized CCAP Solution. Our NSG Pro product is based on the current CCAP architecture and provides high-density, universal edge QAMcapabilities with easy upgradeability to enable future CMTS capabilities. The CMTS feature, which is currently under development and testing by leadingMSOs, would make our NSG Pro system fully compliant with current CCAP architecture requirements.Distributed CCAP Solution. Our NSG Exo product is a cost-effective distributed CCAP device which enables the deployment of a Distributed AccessArchitecture (DAA) utilizing coax networks. The NSG Exo allows service providers to move their radio frequency (RF) delivery requirements out of theheadend or hub and deeper into the distribution network, simplifying network design and operation to resolve power and space constraints, provide serviceflexibility, and lower capital and operational expenses.We believe CCAP-based systems may, over time, replace and make obsolete current cable edge QAM products, as well as current CMTS products, sincefully compliant CCAP-based solutions will combine the functionality of these products into one system. Since we historically have not addressed the CMTSmarket, we believe the NSG Pro and any other CCAP-based products we develop will have an opportunity to be sold into a significantly larger and growingmarket created by the CCAP standard.Technical Support and Professional ServicesWe provide maintenance and support services to most of our customers under service level agreements that are generally renewed on an annual basis.We also provide consulting, implementation and integration services to our customers worldwide. We draw upon our expertise in broadcast television,communications networking and compression technology to design, integrate and install complete solutions for our customers, including integration withthird-party products and services. We offer a broad range of services, including program management, technical design and planning, building and sitepreparation, integration and equipment installation, end-to-end system testing and comprehensive training.Customers9Table of ContentsWe sell our products to a variety of cable, satellite and telco, and broadcast and media companies. Set forth below is a representative list of oursignificant end user and integrator/reseller customers, based, in part, on revenue during 2015.United StatesInternationalCenturyLinkGroupe Canal + SACharter CommunicationsArqivaComcast CableCapellaCox CommunicationsDimension Data NetherlandsDigitalGlueHuawei TechnologiesDirecTVKabel Deutschland Vertrieb und ServiceEchoStar HoldingOneBand SystemsHeartland VideoOOO StarlineTime Warner CableSky Perfect JSATTurner BroadcastingVirgin MediaSales to our ten largest customers in 2015, 2014 and 2013 accounted for approximately 32%, 35% and 31% of our net revenue, respectively. Althoughwe continue to seek to broaden our customer base by penetrating new markets and further expanding internationally, we expect to see continuing industryconsolidation and customer concentration.During 2015, 2014 and 2013, revenue from Comcast accounted for 12%, 16% and 12% of our net revenue, respectively. The loss of Comcast or anyother significant customer, any material reduction in orders by Comcast or any significant customer, or our failure to qualify our new products with asignificant customer could materially and adversely affect our operating results, financial condition and cash flows. In addition, we are involved in mostquarters in one or more relatively large individual transactions. A decrease in the number of relatively larger individual transactions in which we are involvedin any quarter could adversely affect our operating results for that quarter.Sales and MarketingIn the U.S. and internationally, we sell our products through our own direct sales force, as well as through independent resellers and systems integrators.Our direct sales team is organized geographically and by major customers and markets to support customer requirements. Our principal sales offices outsideof the U.S. are located in Europe and Asia, and we have a support center in Switzerland to support our international customers and operations. Ourinternational resellers are generally responsible for importing our products and providing certain installation, technical support and other services tocustomers in their territory after receiving training from us.Our direct sales force and resellers are supported by a highly trained technical staff, which includes application engineers who work closely with ourcustomers to develop technical proposals and design systems to optimize system performance and economic benefits for our customers. Our technical supportteams provide a customized set of services, as required, for ongoing maintenance, support-on-demand and training for our customers and resellers, both in ourfacilities and on-site.Our product management organization develops strategies for product lines and markets and, in conjunction with our sales force, identifies theevolving technical and application needs of customers so that our product development resources can be most effectively and efficiently deployed to meetanticipated product requirements. Our product management organization is also responsible for setting price levels, demand forecasting and general supportof the sales force, particularly at major accounts.Our corporate marketing organization is responsible for building awareness of the Harmonic brand in our markets and driving engagement with ourstrategies, solutions and products. The group develops all of our corporate messaging and manages all customer and industry communication mechanisms,including advertising, our Web presence, speakers bureau, events and trade shows. The marketing organization also develops our corporate video assets,including 4K/Ultra HD content for displays and demos, and manages product launches and demand generation in conjunction with our sales force. We havemany programs in place to heighten industry awareness of our products, including participation in technical conferences, publication of articles in industryjournals and exhibitions at trade shows.Manufacturing and SuppliersWe rely on third party contract manufacturers to assemble our products and the subassemblies and modules for our products. In 2003, we entered intoan agreement with Plexus Services Corp. to act as our primary contract manufacturer.10Table of ContentsPlexus currently provides us with a substantial majority, by dollar amount, of the products we purchase from our contract manufacturers. This agreement hasautomatic annual renewals, unless prior notice for nonrenewal is given, and has been automatically renewed until October 2016. We do not generallymaintain long-term agreements with any of our contract manufacturers.Many components, subassemblies and modules necessary for the manufacture or integration of our products are obtained from a sole supplier or alimited group of suppliers. While we expend considerable efforts to qualify additional component sources, consolidation of suppliers in the industry and thesmall number of viable alternatives have limited the results of these efforts. We do not generally maintain long-term agreements with any of our suppliers.Intellectual PropertyAs of December 31, 2015, we held 59 issued U.S. patents and 35 issued foreign patents and had 30 patent applications pending. Although we attempt toprotect our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade secrets andother measures, we cannot assure you that any patent, trademark, copyright or other intellectual property rights owned by us will not be invalidated,circumvented or challenged, that such intellectual property rights will provide competitive advantages to us, or that any of our pending or future patentapplications will be issued with the claims, or the scope of the claims, sought by us, if at all. We cannot assure you that others will not develop technologiesthat are similar or superior to our technology, duplicate our technology or design around the patents that we own. In addition, effective patent, copyright andtrade secret protection may be unavailable or limited in which we do business or may do business in the future.We generally enter into confidentiality or license agreements with our employees, consultants, vendors and customers as needed, and generally limitaccess to, and distribution of, our proprietary information. However, no assurances can be given that these actions will prevent misappropriation of ourtechnology. In addition, if necessary, we are prepared to take legal action, in the future, to enforce our patents and other intellectual property rights, to protectour trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Any suchlitigation could result in substantial costs and diversion of resources, including management time, and could negatively affect our business, operating results,financial position and cash flows.In order to successfully develop and market our products, we may be required to enter into technology development or licensing agreements with thirdparties. Although many companies are often willing to enter into such technology development or licensing agreements, we cannot assure you that suchagreements can be negotiated on reasonable terms or at all. The failure to enter into technology development or licensing agreements, when necessary, couldlimit our ability to develop and market new products and could harm our business.BacklogWe schedule production of our products and solutions based upon our backlog, open contracts, informal commitments from customers and salesprojections. Our backlog consists of firm purchase orders by customers for delivery within the next 12 months, as well as deferred revenue that is expected tobe recognized within the succeeding 12 months. Our backlog, including deferred revenue at December 31, 2015 was approximately $120.1 million. Deliveryschedules on such orders may be deferred or canceled for a number of reasons, including reductions in capital spending by our customers or changes inspecific customer requirements. In addition, due to annual capital spending budget cycles at many of our customers, the amount of our backlog at any giventime is not necessarily indicative of actual revenues for any succeeding period.CompetitionThe markets for video infrastructure systems are extremely competitive and have been characterized by rapid technological change and decliningaverage selling prices. The principal competitive factors in these markets include product performance, reliability, price, breadth of product offering, salesand distribution capabilities, technical support and service, and relationships with end customers. We believe that we compete favorably in each of thesecategories.Our competitors in our Video business segment include vertically integrated system suppliers, such as Arris Group, Cisco Systems and Ericsson, and, incertain product lines, other companies including ATEME and Sumavision Technologies. With respect to production and playout products, competitorsinclude Evertz Microsystems, EVS, Grass Valley (a Belden brand) and Imagine Communications. Our competitors in our Cable Edge business include Arris,Casa Systems and Cisco Systems.Consolidation in the industry has led to the acquisition of a number of our historic competitors over the last several years. For example, MotorolaHome, BigBand Networks and C-Cor were acquired by Arris; NDS and Scientific Atlanta were11Table of Contentsacquired by Cisco Systems; Envivio and Tandberg Television were acquired by Ericsson; Elemental Technologies was acquired by Amazon; and MirandaTechnologies and Grass Valley were acquired by Belden Inc. Consequently, some of our principal competitors are substantially larger and have greaterfinancial, technical, marketing and other resources than we have.Research and DevelopmentWe have historically devoted a significant amount of our resources to research and development. Research and development expenses in 2015, 2014and 2013 were approximately $87.5 million, $93.1 million and $99.9 million, respectively. Research and development expenses as a percent of revenue in2015, 2014 and 2013 were approximately 23.2%, 21.5% and 21.6%, respectively. Our internal research and development activities are conducted primarilyin the United States (California, Oregon, New York and New Jersey), Israel and Hong Kong. In addition, a portion of our research and development isconducted through third party partners with engineering resources in Ukraine and in India.Our research and development program is primarily focused on developing new products and systems, and adding new features and other improvementsto existing products and systems. Our development strategy is to identify features, products and systems, in both software and hardware solutions, that are, orare expected to be, needed by our customers. Our current research and development efforts are focused heavily on next-generation video processingsolutions, including enhanced video compression, enhanced video quality, and multiscreen solutions. We also devote significant resources to productionand playout and distribution solutions. Other research and development efforts are devoted to cable edge solutions for both video and data, particularly thedevelopment of products that will be fully compliant with the requirements of the CCAP architecture.Our success in designing, developing, manufacturing and selling new or enhanced products will depend on a variety of factors, including theidentification of market demand for new products, product selection, timely product design and development, product performance, effective manufacturingand assembly processes and sales and marketing. Because of the complexity inherent in such research and development efforts, we cannot assure you that wewill successfully develop new products, or that new products developed by us will achieve market acceptance. Our failure to successfully develop andintroduce new products would materially and adversely affect our business, operating results, financial condition and cash flows.EmployeesAs of December 31, 2015, we employed a total of 989 people, including 364 in research and development, 184 in sales, 217 in service and support, 54in operations, 68 in marketing (corporate and product), and 102 in a general and administrative capacity. Of those employees, 507 were located in theU.S. and 482 employees were located in foreign countries in South America, the Middle East, Europe, Asia and Canada. We also employ a number oftemporary employees and consultants on a contract basis. None of our employees are represented by a labor union with respect to his or her employment withus. We have not experienced any work stoppages, and we consider our relations with our employees to be good.12Table of ContentsItem 1A.RISK FACTORSWe depend on cable, satellite and telco, and broadcast and media industry capital spending for our revenue and any material decrease or delay in capitalspending in any of these industries would negatively impact our operating results, financial condition and cash flows.Our revenue has been derived from worldwide sales to service providers and broadcast and media companies, as well as, more recently, emergingstreaming media companies. We expect that these markets will provide our revenue for the foreseeable future. Demand for our products will depend on themagnitude and timing of capital spending by customers in each of these markets for the purpose of creating, expanding or upgrading their systems. Thesecapital spending patterns are dependent on a variety of factors, including:• the impact of general economic conditions, actual and projected;• access to financing;• annual capital spending budget cycles of each of the industries we serve;• the impact of industry consolidation;• customers suspending or reducing capital spending in anticipation of: (i) new standards, such as HEVC and DOCSIS 3.1; (ii) industry trends andtechnology shifts, such as virtualization, and (iii) new products, such as products based on the VOS software platform or the CCAP architecture;• federal, state, local and foreign government regulation of telecommunications, television broadcasting and streaming media;• overall demand for communication services and consumer acceptance of new video and data technologies and services;• competitive pressures, including pricing pressures;• the impact of fluctuations in currency exchange rates; and• discretionary end-user customer spending patterns.In the past, specific factors contributing to reduced capital spending have included:• weak or uncertain economic and financial conditions in the U.S. or one or more international markets;• uncertainty related to development of digital video industry standards;• delays in evaluations of new services, new standards and systems architectures by many operators;• emphasis by operators on generating revenue from existing customers, rather than from new customers, through construction, expansion orupgrades;• a reduction in the amount of capital available to finance projects of our customers and potential customers;• proposed and completed business combinations and divestitures by our customers and the length of regulatory review of each;• completion of a new system or significant expansion or upgrade to a system; and• bankruptcies and financial restructuring of major customers.In the past, adverse economic conditions in one or more of the geographies in which we offer our products have adversely affected our customers’capital spending in those geographies and, as a result, our business. During challenging economic13Table of Contentstimes, and in tight credit markets, many customers may delay or reduce capital expenditures. This could result in reductions in revenue from our products,longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new technologies and increased price competition. If globaleconomic and market conditions, or economic conditions in the U.S., Europe or other key markets, deteriorate, we could experience a material and adverseeffect on our business, results of operations, financial condition and cash flows. Additionally, since most of our international revenue is denominated in U.S.dollars, global economic and market conditions may impact currency exchange rates and cause our products to become relatively more expensive tocustomers in a particular country or region, which could lead to delayed or reduced capital spending in those countries or regions, thereby negativelyimpacting our business and financial condition.In addition, industry consolidation has in the past constrained, and may in the future constrain or delay, capital spending by our customers. Further, ifour product portfolio and product development plans do not position us well to capture an increased portion of the capital spending of customers in themarkets on which we focus, our revenue may decline.As a result of these capital spending issues, we may not be able to maintain or increase our revenue in the future, and our operating results, financialcondition and cash flows could be materially and adversely affected.The markets in which we operate are intensely competitive.The markets for our products are extremely competitive and have been characterized by rapid technological change and declining average sales pricesin the past. Our competitors in our Video business segment include vertically integrated system suppliers, such as Arris Group, Cisco Systems and Ericsson,and, in certain product lines, other companies including ATEME and Sumavision Technologies. With respect to production and playout products,competitors include Evertz Microsystems, EVS, Grass Valley (a Belden brand) and Imagine Communications. Our competitors in our Cable Edge businessinclude Arris, Casa Systems and Cisco Systems.Many of our competitors are substantially larger, or as a result of consolidation activity have become larger, and have greater financial, technical,marketing and other resources than we have, and have been in operation longer than we have. Consolidation in the industry has led to the acquisition of anumber of our historic competitors over the last several years. For example, Motorola Home, BigBand Networks and C-Cor were acquired by Arris; NDS andScientific Atlanta were acquired by Cisco Systems; Envivio and Tandberg Television were acquired by Ericsson; Elemental Technologies was acquired byAmazon; and Miranda Technologies and Grass Valley were acquired by Belden Inc.In addition, some of our larger competitors have more long-standing and established relationships with domestic and foreign customers. Many of theselarge enterprises are in a better position to withstand any significant reduction in capital spending by customers in our markets. They often have broaderproduct lines and market focus, and may not be as susceptible to downturns in a particular market. These competitors may also be able to bundle theirproducts together to meet the needs of a particular customer, and may be capable of delivering more complete solutions than we are able to provide. To theextent large enterprises that currently do not compete directly with us choose to enter our markets by acquisition or otherwise, competition would likelyintensify.Further, some of our competitors that have greater financial resources have offered, and in the future may offer, their products at lower prices than weoffer for our competing products or on more attractive financing or payment terms, which has in the past caused, and may in the future cause, us to lose salesopportunities and the resulting revenue or to reduce our prices in response to that competition. Also, some competitors that are smaller than we are haveengaged in, and may continue to engage in, aggressive price competition in order to gain customer traction and market share. Reductions in prices for any ofour products could materially and adversely affect our operating margins and revenue.Additionally, certain customers and potential customers have developed, and may continue to develop, their own solutions that may cause suchcustomers or potential customers to not consider our product offerings or to displace our installed products with their own solutions. The growing availabilityof open source codecs and related software, as well as new server chipsets that incorporate encoding technology, has, in certain respects, lowered the barriersto entry for the video processing industry. The development of solutions by potential and existing customers and the reduction of the barriers to entry toenter the video processing industry could result in increased competition and adversely affect our results of operations and business.If any of our competitors’ products or technologies were to become the industry standard, our business could be seriously harmed. If our competitors aresuccessful in bringing their products to market earlier than us, or if these products are more technologically capable than ours, our revenue could bematerially and adversely affected.14Table of ContentsWe need to develop and introduce new and enhanced products in a timely manner to meet the needs of our customers and to remain competitive.All of the markets we address are characterized by continuing technological advancement, changes in customer requirements and evolving industrystandards. To compete successfully, we must continually design, develop, manufacture and sell new or enhanced products that provide increasingly higherlevels of performance and reliability and meet our customers changing needs. However, we may not be successful in those efforts if, among other things, ourproducts:• are not cost effective;• are not brought to market in a timely manner;• are not in accordance with evolving industry standards;• fail to meet market acceptance or customer requirements; or• are ahead of the needs of their markets.We are currently developing and marketing products based on the latest video compression standards, such as HEVC, which provides significantlygreater compression efficiency, thereby making more bandwidth available to operators. At the same time, we continue to devote development resources toenhance the existing MPEG-4 AVC/H.264 compression of our products, which many of our customers continue to require. There can be no assurance thatthese efforts will be successful in the near future, or at all, or that our competitors will not take significant market share in encoding or transcoding.In order to attempt to meet fast paced, dynamic, evolving standards and customer requirements, we are intensifying our development efforts on anumber of our product solutions in our Video and Cable Edge businesses. Our VOS solution is a software-based, fully virtualized platform that we aredeveloping to unify the entire media processing chain, from ingest to delivery, and which is designed to operate on common server hardware in data centerenvironments. Electra XVM is our first video media processing and encoding product family based on this platform, with the latest version supporting HEVCcompression. We believe some of our customers have been delaying their purchase decisions as they consider transitioning to virtualized solutions or wait fornew products based on our VOS software platform, which has adversely affected our revenue from video products in recent periods. In our Cable Edgebusiness, we continue to develop our CCAP solutions based on a distributed access architecture and utilizing our NSG Exo product, and we continue todevelop, market and sell our NSG Pro centralized CCAP product solutions.Many of these products and initiatives are intended to integrate existing and new features and functions in response to shifts in customer demands inthe relevant market, as well as to general technology trends (such as virtualized and cloud-based computing, and integrated QAM and CMTS functionality inCCAP-based products) that we believe will significantly impact our industry. The success of these significant and costly development efforts will bepredicated, for certain products and initiatives, on the timing of market adoption of the new standards on which the resulting products are based, and for otherproducts, the timing of customer adoption of our products and solutions, as well as our ability to timely develop the features and capabilities of our productsand solutions. If new standards or some of our new products are adopted later than we predict or not adopted at all, or if adoption occurs earlier than we areable to deliver the applicable products or functionality, we risk spending significant research and development time and dollars on products or features thatmay never achieve market acceptance or that miss the customer demand window and thus do not produce the revenue that a timely introduction would havelikely produced.If we fail to develop and market new and enhanced products on a timely basis, our operating results, financial condition and cash flows could bematerially and adversely affected.Our CCAP-based product initiatives expose us to certain technology transition risks that may adversely impact our operating results, financial conditionand cash flows.In the last few years, the cable industry has begun to develop and promulgate the CCAP architecture for next-generation cable edge solutions, whichcombines edge QAM and CMTS functions in a single system in order to combine resources for video and data delivery. We believe CCAP-based systems,both centralized and remote PHY solutions, will significantly reduce cable headend costs and increase operational efficiency, and are an important step incable operators’ transition to all-IP networks. We market and sell CCAP-based products, and are developing the CMTS capabilities to make our productsfully-compliant with current and future CCAP architecture standards. If we are unsuccessful in developing these capabilities15Table of Contentsin a timely manner, or are otherwise delayed in making such capabilities available to our customers, our business may be adversely impacted, particularly ifour competitors develop and market fully compliant products before we do.We believe CCAP-based systems may, over time, replace and make obsolete current cable edge QAM solutions, including our cable edge QAMproducts, as well as current CMTS solutions, which is a market our products have previously not addressed. If demand for our CCAP-based systems is weakerthan expected, or sales of our CCAP-based systems do not adequately offset the expected decline in demand for our non-CCAP cable edge products, or thedecline in demand for our non-CCAP cable edge products is more rapid and precipitous than expected, our near and long-term operating results, financialcondition and cash flows could be adversely impacted. Moreover, if a new or competitive architecture for next-generation cable edge solutions ispromulgated that renders our CCAP-based systems obsolete, our business may be adversely impacted.Our future growth depends on market acceptance of several broadband services, on the adoption of new broadband technologies, and on several otherbroadband industry trends.Future demand for many of our products will depend significantly on the growing market acceptance of emerging broadband services, including digitalvideo, VOD, HDTV, IP video services (particularly streaming to tablet computers, connected TVs and mobile devices), and very high-speed data services. Themarket demand for such emerging services is rapidly growing, with many custom or proprietary systems in use, which increases the challenge of deliveringinteroperable products intended to address the requirements of such services.The effective delivery of these services will depend, in part, on a variety of new network architectures, standards and devices, such as:• the adoption of advanced video compression standards, such as next generation H.264 compression and HEVC;• the CCAP architecture;• fiber to the premises, or FTTP, networks designed to facilitate the delivery of video services by telcos;• the greater use of protocols such as IP;• the further adoption of bandwidth-optimization techniques, such as DOCSIS 3.0 and DOCSIS 3.1; and• the introduction of new consumer devices, such as advanced set-top boxes, DVRs and network DVRs, connected TVs, tablet computers, and avariety of smart phone mobile devices.If adoption of these emerging services and/or technologies is not as widespread or as rapid as we expect, or if we are unable to develop new productsbased on these technologies on a timely basis, our operating results, financial condition and cash flows could be materially and adversely affected.Furthermore, other technological, industry and regulatory trends and requirements may affect the growth of our business.These trends and requirements include the following:• convergence, whereby network operators bundle video, voice and data services to consumers, including mobile delivery options;• the increasing availability of traditional broadcast video content and video-on-demand on the Internet;• adoption of high-bandwidth technology, such as DOCSIS 3.x, next generation LTE and FTTP;• the use of digital video by businesses, governments and educational institutions;• efforts by regulators and governments in the U.S. and internationally to encourage the adoption of broadband and digital technologies, as well asto regulate broadband access and delivery;• consumer interest in higher resolution video such as Ultra HD or retina-display technologies on mobile devices;• the need to develop partnerships with other companies involved in video infrastructure workflow and broadband services;16Table of Contents• the continued adoption of the television viewing behaviors of consumers in developed economies by the growing middle class across emergingeconomies;• the extent and nature of regulatory attitudes towards issues such as network neutrality, competition between operators, access by third parties tonetworks of other operators, local franchising requirements for telcos to offer video, and other new services, such as mobile video; and• the outcome of disputes and negotiations between content owners and service providers regarding rights of service providers to store and distributerecorded broadcast content, which outcomes may drive adoption of one technology over another in some cases.If we fail to recognize and respond to these trends, by timely developing products, features and services required by these trends, we are likely to loserevenue opportunities and our operating results, financial condition and cash flows could be materially and adversely affected.We depend significantly on our international revenue and are subject to the risks associated with international operations, including those of our resellers,contract manufacturers and outsourcing partners, which may negatively affect our operating results.Revenue derived from customers outside of the U.S. in the fiscal years ended December 31, 2015, 2014 and 2013 represented approximately 53%, 52%and 57% of our revenue, respectively. Although no assurance can be given with respect to international sales growth in any one or more regions, we expectthat international revenue will likely continue to represent, from year to year, a majority, and potentially increasing, percentage of our annual revenue for theforeseeable future. A significant percentage of our revenue is generated from sales to resellers, value-added resellers (VARs) and systems integrators,particularly in emerging market countries. Furthermore, a significant percentage of our employees are based in our international offices and locations, andmost of our contract manufacturing occurs outside of the U.S. In addition, we outsource a portion of our research and development activities to certain thirdparty partners with development centers located in different countries, particularly Ukraine and India.Our international operations, the international operations of our resellers, contract manufacturers and outsourcing partners, and our efforts to maintainand increase revenue in international markets are subject to a number of risks, which are generally greater with respect to emerging market countries,including the following:• growth and stability of the economy in one or more international regions;• fluctuations in currency exchange rates;• changes in foreign government regulations and telecommunications standards;• import and export license requirements, tariffs, taxes and other trade barriers;• our significant reliance on resellers and others to purchase and resell our products and solutions, particularly in emerging market countries;• availability of credit, particularly in emerging market countries;• difficulty in collecting accounts receivable, especially from smaller customers and resellers, particularly in emerging market countries;• compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, particularly in emerging market countries and/or similaranti-corruption and anti-bribery laws;• the burden of complying with a wide variety of foreign laws, treaties and technical standards;• fulfilling “country of origin” requirements for our products for certain customers;• difficulty in staffing and managing foreign operations;17Table of Contents• business and operational disruptions or delays caused by political, social and economic instability and unrest, including risks related to terroristactivity, particularly in emerging market countries (e.g., recent significant civil, political and economic disturbances in Russia and Ukraine);• changes in economic policies by foreign governments, including the imposition and potential continued expansion of economic sanctions by theU.S. and the European Union on the Russian Federation; and• business and economic disruptions and delays caused by outbreaks of disease, epidemics and potential pandemics.We have certain international customers who are billed in their local currency, primarily the Euro, British pound and Japanese yen, which subjects us toforeign currency risk. In addition, a portion of our operating expenses relating to the cost of certain international employees, are denominated in foreigncurrencies, primarily the Israeli shekel, British pound, Euro, Singapore dollar, Chinese yuan and Indian rupee, although we do hedge against the Israelishekel. Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising frominternational operations may contribute to fluctuations in our operating results. Furthermore, payment cycles for international customers are typically longerthan those for customers in the U.S. Unpredictable payment cycles could cause us to fail to meet or exceed the expectations of security analysts and investorsfor any given period.Most of our international revenue is denominated in U.S. dollars, and fluctuations in currency exchange rates could cause our products to becomerelatively more expensive to customers in a particular country or region, leading to a reduction in revenue or profitability from sales in that country or region.The potential negative impact of a strong U.S. dollar on our business may be exacerbated by the significant devaluation of a number of foreign currencies.Also, if the U.S. dollar were to weaken against many foreign currencies, there can be no assurance that a weaker dollar would lead to growth in capitalspending in foreign markets.Our operations outside the U.S. also require us to comply with a number of U.S. and international regulations that prohibit improper payments or offersof payments to foreign governments and their officials and political parties for corrupt purposes. For example, our operations in countries outside the U.S. aresubject to the FCPA and similar laws, including the U.K. Bribery Act. Our activities in certain emerging countries create the risk of unauthorized payments oroffers of payments by one of our employees, consultants, sales agents or channel partners that could be in violation of various anti-corruption laws, eventhough these parties may not be under our control. Under the FCPA and U.K. Bribery Act, companies may be held liable for the corrupt actions taken by theirdirectors, officers, employees, channel partners, sales agents, consultants, or other strategic or local partners or representatives. We have internal controlpolicies and procedures with respect to FCPA compliance, have implemented FCPA training and compliance programs for our employees, and include in ouragreements with resellers a requirement that those parties comply with the FCPA. However, we cannot provide assurances that our policies, procedures andprograms will prevent violations of the FCPA or similar laws by our employees or agents, particularly in emerging market countries, and as we expand ourinternational operations. Any such violation, even if prohibited by our policies, could result in criminal or civil sanctions against us.The effect of one or more of these international risks could have a material and adverse effect on our business, financial condition, operating results andcash flows.We purchase several key components, subassemblies and modules used in the manufacture or integration of our products from sole or limited sources, andwe rely on contract manufacturers and other subcontractors.Many components, subassemblies and modules necessary for the manufacture or integration of our products are obtained from a sole supplier or alimited group of suppliers. For example, we depend on one supplier for certain video encoding chips which are incorporated into several products. Ourreliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on contractors for manufacturing and installation of our products,involves several risks, including a potential inability to obtain an adequate supply of required components, subassemblies or modules; reduced control overcosts, quality and timely delivery of components, subassemblies or modules; supplier discontinuation of components, subassemblies or modules we require;and timely installation of products.These risks could be heightened during a substantial economic slowdown, because our suppliers and subcontractors are more likely to experienceadverse changes in their financial condition and operations during such a period. Further, these risks could materially and adversely affect our business if oneof our sole sources, or a sole source of one of our suppliers or contract manufacturers, is adversely affected by a natural disaster. While we expend resources toqualify additional component sources, consolidation of suppliers and the small number of viable alternatives have limited the results of these efforts.Managing our18Table of Contentssupplier and contractor relationships is particularly difficult during time periods in which we introduce new products and during time periods in whichdemand for our products is increasing, especially if demand increases more quickly than we expect.Plexus Services Corp., which manufactures our products at its facilities in Malaysia, currently serves as our primary contract manufacturer, and currentlyprovides us with a substantial majority, by dollar amount, of the products that we purchase from our contract manufacturers. Most of the productsmanufactured by our Israeli operations are outsourced to another third party manufacturer in Israel. From time to time we assess our relationship with ourcontract manufacturers, and we do not generally maintain long-term agreements with any of our suppliers or contract manufacturers. Our agreement withPlexus has automatic annual renewals, unless prior notice is given by either party, and has been automatically renewed until October 2016.Difficulties in managing relationships with any of our current contract manufacturers, particularly Plexus, that manufacture our products off-shore, orany of our suppliers of key components, subassemblies and modules used in our products, could impede our ability to meet our customers’ requirements andadversely affect our operating results. An inability to obtain adequate and timely deliveries of our products or any materials used in our products, or theinability of any of our contract manufacturers to scale their production to meet demand, or any other circumstance that would require us to seek alternativesources of supply, could negatively affect our ability to ship our products on a timely basis, which could damage relationships with current and prospectivecustomers and harm our business and materially and adversely affect our revenue and other operating results. Furthermore, if we fail to meet customers’supply expectations, our revenue would be adversely affected and we may lose sales opportunities, both short and long term, which could materially andadversely affect our business and our operating results, financial condition and cash flows. Increases, from time to time, in demand on our suppliers andsubcontractors from our customers or from other parties have, on occasion, caused delays in the availability of certain components and products. In response,we may increase our inventories of certain components and products and expedite shipments of our products when necessary. These actions could increaseour costs and could also increase our risk of holding obsolete or excess inventory, which, despite our use of a demand order fulfillment model, couldmaterially and adversely affect our business, operating results, financial position and cash flows.The loss of one or more of our key customers, a failure to continue diversifying our customer base, or a decrease in the number of larger transactions couldharm our business and our operating results.Historically, a significant portion of our revenue has been derived from relatively few customers, due in part to the consolidation of the ownership ofcable television and direct broadcast satellite system companies. Sales to our top ten customers in the fiscal years ended December 31, 2015, 2014 and 2013accounted for approximately 32%, 35% and 31% of revenue, respectively. Although we have broadened our customer base by further penetrating newmarkets and expanding internationally, we expect to see continuing industry consolidation and customer concentration.In the fiscal years ended December 31, 2015, 2014 and 2013, revenue from Comcast accounted for approximately 12%, 16% and 12% of our revenue,respectively, and further consolidation in the cable industry could lead to additional revenue concentration for us. The loss of Comcast or any othersignificant customer, any material reduction in orders by Comcast or any other significant customer, or our failure to qualify our new products with asignificant customer could materially and adversely affect, either long term or in a particular quarter, our operating results, financial condition and cash flows.In addition, we are involved in most quarters in one or more relatively large individual transactions. A decrease in the number of the relatively largerindividual transactions in which we are involved in any quarter could materially and adversely affect our operating results for that quarter.As a result of these and other factors, we may be unable to increase our revenues from some or all of the markets we address, or to do so profitably, andany failure to increase revenues and profits from these customers could materially and adversely affect our operating results, financial condition and cashflows.We rely on resellers, value-added resellers and systems integrators for a significant portion of our revenue, and disruptions to, or our failure to develop andmanage our relationships with these customers or the processes and procedures that support them could adversely affect our business.We generate a significant percentage of our revenue through sales to resellers, value-added resellers (VARs) and systems integrators that assist us withfulfillment or installation obligations. We expect that these sales will continue to generate a significant percentage of our revenue in the future. Accordingly,our future success is highly dependent upon establishing and maintaining successful relationships with a variety of channel partners.We generally have no long-term contracts or minimum purchase commitments with any of our reseller, VAR or system integrator customers, and ourcontracts with these parties do not prohibit them from purchasing or offering products or services19Table of Contentsthat compete with ours. Our competitors may provide incentives to any of our reseller, VAR or systems integrator customers to favor their products or, ineffect, to prevent or reduce sales of our products. Any of our reseller, VAR or systems integrator customers may independently choose not to purchase or offerour products. Many of our resellers, and some of our VARs and system integrators are small, are based in a variety of international locations, and may haverelatively unsophisticated processes and limited financial resources to conduct their business. Any significant disruption of our sales to these customers,including as a result of the inability or unwillingness of these customers to continue purchasing our products, or their failure to properly manage theirbusiness with respect to the purchase of, and payment for, our products, could materially and adversely affect our business, operating results, financialcondition and cash flows. In addition, our failure to continue to establish or maintain successful relationships with reseller, VAR and systems integratorcustomers could likewise materially and adversely affect our business, operating results, financial condition and cash flows.We have made, and may continue to make, acquisitions, and any acquisition could disrupt our operations, cause dilution to our stockholders andmaterially and adversely affect our business, operating results, cash flows and financial condition.As part of our business strategy, from time to time we have acquired, and we may continue to acquire, businesses, technologies, assets and product linesthat we believe complement or expand our existing business. For example, on February 29, 2016, we announced the closing of our acquisition of ThomsonVideo Networks, which is headquartered in Rennes, France. Acquisitions involve numerous risks, including the following:• unanticipated costs or delays associated with an acquisition;• difficulties in the assimilation and integration of acquired operations, technologies and/or products;• potential disruption of our business and the diversion of management’s attention from the regular operations of the business during the acquisitionprocess;• the challenges of managing a larger and more geographically widespread operation and product portfolio after the closing of the acquisition;• potential adverse effects on new and existing business relationships with suppliers, contract manufacturers, resellers, partners and customers;• compliance with regulatory requirements, such as local employment regulations and organized labor in France;• risks associated with entering markets in which we may have no or limited prior experience;• the potential loss of key employees of acquired businesses and our own business as a result of integration;• difficulties in bringing acquired products and businesses into compliance with applicable legal requirements in jurisdictions in which we operateand sell products;• impact of known potential liabilities or unknown liabilities, including litigation and infringement claims, associated with companies we acquire;• substantial charges for acquisition costs or for the amortization of certain purchased intangible assets, deferred stock compensation or similaritems;• substantial impairments to goodwill or intangible assets in the event that an acquisition proves to be less valuable than the price we paid for it;• delays in realizing, or failure to realize, the anticipated benefits of an acquisition; and• the possibility that any acquisition may be viewed negatively by our customers or investors or the financial markets.Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and is likely to continue to be, intense.As such, even if we are able to identify an acquisition that we would like to consummate, we may not be able to complete the acquisition on commerciallyreasonable terms or because the target chooses to be acquired by another company. Furthermore, in the event that we are able to identify and consummate anyfuture acquisitions, we may, in each of those acquisitions:20Table of Contents• issue equity securities which would dilute current stockholders’ percentage ownership;• incur substantial debt to finance the acquisition or assume substantial debt in the acquisition;• incur significant acquisition-related expenses;• assume substantial liabilities, contingent or otherwise; or• expend significant cash.These financing activities or expenditures could materially and adversely affect our operating results, cash flows and financial condition or the price ofour common stock. Alternatively, due to difficulties in the capital or credit markets at the time, we may be unable to secure capital necessary to complete anacquisition on reasonable terms, or at all. Moreover, even if we were to obtain benefits from acquisitions in the form of increased revenue and earnings pershare, there may be a delay between the time the expenses associated with an acquisition are incurred and the time we recognize such benefits.As of December 31, 2015, we had approximately $198 million of goodwill recorded on our balance sheet associated with prior acquisitions. In the eventwe determine that our goodwill is impaired, we would be required to write down all or a portion of such goodwill, which could result in a material non-cashcharge to our results of operations in the period in which such write-down occurs.If we are unable to successfully address one or more of these risks, our business, operating results, financial condition and cash flows could be materiallyand adversely affected.We may not be able to effectively manage our operations.We have grown significantly, principally through acquisitions, and expanded our international operations. For example, upon the closing of ouracquisition of Thomson Video Networks on February 29, 2016, we added approximately 450 employees, most of whom are based in France.As of December 31, 2015, we had 482 employees in our international operations, representing approximately 49% of our worldwide workforce. Ourability to manage our business effectively in the future, including with respect to any future growth, our operation as both a hardware and increasinglysoftware-centric business, the integration of any acquisition efforts such as our recent purchase of Thomson Video Networks, and the breadth of ourinternational operations, will require us to train, motivate and manage our employees successfully, to attract and integrate new employees into our overalloperations, to retain key employees and to continue to improve and evolve our operational, financial and management systems. There can be no assurancethat we will be successful in any of these efforts, and our failure to effectively manage our operations could have a material and adverse effect on ourbusiness, operating results, cash flows and financial condition.We face risks associated with having outsourced engineering resources located in Ukraine.We outsource a portion of our research and development activities to a third-party partner with engineering resources located in Ukraine. Political,social and economic instability and unrest or violence in Ukraine, including the ongoing conflict with Russian-backed separatists or conflict with theRussian Federation directly, could cause disruptions to the business and operations of our outsourcing partner, which could slow or delay the developmentwork our partner is undertaking for us. Instability, unrest or conflict could limit or prevent our employees from traveling to, from, or within Ukraine to directand coordinate our outsourced engineering teams, or cause us to shift all or portions of the development work occurring in Ukraine to other locations orcountries. The resulting delays could negatively impact our product development efforts, operating results and our business.We face risks associated with having facilities and employees located in Israel.As of December 31, 2015, we maintained facilities in Israel with a total of 173 employees, or approximately 17% of our worldwide workforce. Ouremployees in Israel engage in a number of activities, including research and development, product development, and supply chain management for certainproduct lines and sales activities.As such, we are directly affected by the political, economic and military conditions affecting Israel. Any significant conflict involving Israel could havea direct effect on our business or that of our Israeli contract manufacturers, in the form of21Table of Contentsphysical damage or injury, restrictions from traveling or reluctance to travel to from or within Israel by our Israeli and other employees or those of oursubcontractors, or the loss of Israeli employees to active military duty. Most of our employees in Israel are currently obligated to perform annual reserve dutyin the Israel Defense Forces, and approximately 7% of those employees were called for active military duty in 2015. In the event that more of our employeesare called to active duty, certain of our research and development activities may be significantly delayed and adversely affected. Further, the interruption orcurtailment of trade between Israel and its trading partners, as a result of terrorist attacks or hostilities, conflicts between Israel and any other Middle Easterncountry or organization, or any other cause, could significantly harm our business. Additionally, current or future tensions or conflicts in the Middle Eastcould materially and adversely affect our business, operating results, financial condition and cash flows.Our operating results are likely to fluctuate significantly and, as a result, may fail to meet or exceed the expectations of securities analysts or investors,causing our stock price to decline.Our operating results have fluctuated in the past and are likely to continue to fluctuate in the future, on an annual and a quarterly basis, as a result ofseveral factors, many of which are outside of our control. Some of the factors that may cause these fluctuations include:• the level and timing of capital spending of our customers in the U.S., Europe and in other foreign markets;• economic and financial conditions specific to each of the cable, satellite and telco, and broadcast and media industries, as well as generaleconomic and financial market conditions;• changes in market acceptance of and demand for our products or our customers’ services or products;• the timing and amount of orders, especially from large individual transactions and transactions with our significant customers;• the mix of our products sold and the effect it has on gross margins;• the timing of revenue recognition, including revenue recognition on sales arrangements and from transactions with significant service and supportcomponents, which may span several quarters;• the timing of completion of our customers’ projects;• the length of each customer product upgrade cycle and the volume of purchases during the cycle;• competitive market conditions, including pricing actions by our competitors;• the level and mix of our domestic and international revenue;• new product introductions by our competitors or by us;• changes in domestic and international regulatory environments affecting our business;• the evaluation of new services, new standards and system architectures by our customers;• the cost and timely availability to us of components, subassemblies and modules;• the mix of our customer base, by industry and size, and sales channels;• changes in our operating and extraordinary expenses;• the timing of acquisitions and dispositions by us and the financial impact of such transactions;• impairment of our goodwill and intangibles;• the impact of litigation, such as related litigation expenses and settlement costs;• write-downs of inventory and investments;22Table of Contents• changes in our effective federal tax rate, including as a result of changes in our valuation allowance against our deferred tax assets, and changes inour effective state tax rates, including as a result of apportionment;• changes to tax rules related to the deferral of foreign earnings and compliance with foreign tax rules;• the impact of applicable accounting guidance on accounting for uncertainty in income taxes that requires us to establish reserves for uncertain taxpositions and accrue potential tax penalties and interest; and• the impact of applicable accounting guidance on business combinations that requires us to record charges for certain acquisition related costs andexpenses and generally to expense restructuring costs associated with a business combination subsequent to the acquisition date.The timing of deployment of our products by our customers can be subject to a number of other risks, including the availability of skilled engineeringand technical personnel, the availability of third party equipment and services, our customers’ ability to negotiate and enter into rights agreements withvideo content owners that provide the customers with the right to deliver certain video content, and our customers’ need for local franchise and licensingapprovals.We often recognize a substantial portion of our quarterly revenue in the last month of the quarter. We establish our expenditure levels for productdevelopment and other operating expenses based on projected revenue levels for a specified period, and expenses are relatively fixed in the short term.Accordingly, even small variations in the timing of revenue, particularly from relatively large individual transactions, can cause significant fluctuations inoperating results in a particular quarter.As a result of these factors and other factors, our operating results in one or more future periods may fail to meet or exceed the expectations of securitiesanalysts or investors. In that event, the trading price of our common stock would likely decline.Fluctuations in our future effective tax rates could affect our future operating results, financial condition and cash flows.We are required to periodically review our deferred tax assets and determine whether, based on available evidence, a valuation allowance is necessary.The realization of our deferred tax assets, which are predominantly in the U.S., is dependent upon the generation of sufficient U.S. and foreign taxable incomein the future to offset these assets. Based on our evaluation, a history of operating losses in recent years has led to uncertainty with respect to our ability torealize certain of our net deferred tax assets, and as a result we recorded a net increase in valuation allowance of $29.0 million and $3.1 million in 2014 and2015, respectively, against U.S. net deferred tax assets.The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potentialliabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxeswill be due. In the event we determine that it is appropriate to create a reserve or increase an existing reserve for any such potential liabilities, the amount ofthe additional reserve is charged as an expense in the period in which it is determined. If payment of these amounts ultimately proves to be unnecessary, thereversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimateof tax liabilities proves to be less than the ultimate tax assessment for the applicable period, a further charge to expense in the period such short fall isdetermined would result. Either such charge to expense could have a material and adverse effect on our operating results for the applicable period.We continue to be in the process of expanding our international operations and staffing to better support our expansion into international markets. Thisexpansion involves the implementation of an international structure that includes, among other things, an international support center in Europe, researchand development cost sharing arrangements, and certain licenses and other contractual arrangements between us and our wholly-owned domestic and foreignsubsidiaries. As a result of these changes, we anticipate that our consolidated pre-tax income will be subject to foreign tax at relatively lower tax rates whencompared to the U.S. federal statutory tax rate and, as a consequence, our effective income tax rate is expected to be lower than the U.S. federal statutory rate.Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if the relative mix of U.S.and international income changes for any reason. Accordingly, there can be no assurance that our income tax rate will be less than the U.S. federal statutoryrate in future periods.23Table of ContentsWe or our customers may face intellectual property infringement claims from third parties.Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and otherintellectual property rights. In particular, leading companies in the telecommunications industry have extensive patent portfolios. Also, patent infringementclaims and litigation by entities that purchase or control patents, but do not produce goods or services covered by the claims of such patents (so-called “non-practicing entities” or “NPEs”), have increased rapidly over the last decade or so. From time to time, third parties, including NPEs, have asserted, and mayassert in the future, patent, copyright, trademark and other intellectual property rights against us or our customers. For example, in October 2011, AvidTechnology, Inc. filed a complaint against us in the United States District Court for the District of Delaware alleging that our MediaGrid product infringestwo patents held by Avid. In February 2014, a jury determined that we had not infringed on either of these patents. Avid filed an appeal with respect to thejury’s verdict and in January 2016, the Federal Circuit issued an order vacating the verdict of noninfringement and remanding the case to the trial court for anew trial on infringement. On February 26, 2016, Harmonic filed a request for rehearing and rehearing en banc at the Federal Circuit. Our suppliers and theircustomers, including us, may have similar claims asserted against them. A number of third parties, including companies with greater financial and otherresources than us, have asserted patent rights to technologies that are important to us.Any intellectual property litigation, regardless of its outcome, could result in substantial expense and significant diversion of the efforts of ourmanagement and technical personnel. An adverse determination in any such proceeding could subject us to significant liabilities and temporary orpermanent injunctions and require us to seek licenses from third parties or pay royalties that may be substantial. Furthermore, necessary licenses may not beavailable on terms satisfactory to us, or at all. An unfavorable outcome on any such litigation matter could require that we pay substantial damages, couldrequire that we pay ongoing royalty payments, or could prohibit us from selling certain of our products. Any such outcome could have a material and adverseeffect on our business, operating results, financial condition and cash flows.Our suppliers and customers may have intellectual property claims relating to our products asserted against them. We have agreed to indemnify some ofour suppliers and most of our customers for patent infringement relating to our products. The scope of this indemnity varies, but, in some instances, includesindemnification for damages and expenses (including reasonable attorney’s fees) incurred by the supplier or customer in connection with such claims. If asupplier or a customer seeks to enforce a claim for indemnification against us, we could incur significant costs defending such claim, the underlying claim orboth. An adverse determination in either such proceeding could subject us to significant liabilities and have a material and adverse effect on our operatingresults, cash flows and financial condition.We may be the subject of litigation which, if adversely determined, could harm our business and operating results.We may be subject to claims arising in the normal course of business. The costs of defending any litigation, whether in cash expenses or in managementtime, could harm our business and materially and adversely affect our operating results and cash flows. An unfavorable outcome on any litigation mattercould require that we pay substantial damages, or, in connection with any intellectual property infringement claims, could require that we pay ongoingroyalty payments or prohibit us from selling certain of our products. In addition, we may decide to settle any litigation, which could cause us to incursignificant settlement costs. A settlement or an unfavorable outcome on any litigation matter could have a material and adverse effect on our business,operating results, financial condition and cash flows.We may sell one or more of our product lines, from time to time, as a result of our evaluation of our products and markets, and any such divestiture couldadversely affect our continuing business and our expenses, revenues, results of operation, cash flows and financial position.We periodically evaluate our various product lines and may, as a result, consider the divestiture of one or more of those product lines. For example, inFebruary 2013, we entered into an Asset Purchase Agreement with Aurora Networks pursuant to which we agreed to sell our cable access HFC Business for$46 million in cash. Any such divestiture could adversely affect our continuing business and expenses, revenues, results of operations, cash flows andfinancial position.Divestitures of product lines have inherent risks, including the expense of selling the product line, the possibility that any anticipated sale will notoccur, delays in closing any sale, the risk of lower-than-expected proceeds from the sale of the divested business, unexpected costs associated with theseparation of the business to be sold from the seller’s information technology and other operating systems, and potential post-closing claims forindemnification or breach of transition services obligations of the seller. Expected cost savings, which are offset by revenue losses from divested businesses,may also be difficult to achieve or maximize due to the seller’s fixed cost structure, and a seller may experience varying success in reducing fixed costs ortransferring liabilities previously associated with the divested business.24Table of ContentsOur operating results could be adversely affected by natural disasters affecting the Company or impacting our third-party manufacturers, suppliers,resellers or customers.Our corporate headquarters is located in California, which is prone to earthquakes. We have employees, consultants and contractors located in regionsand countries around the world. In the event that any of our business, sales or research and development centers or offices in the U.S. or internationally areadversely affected by an earthquake or by any other natural disaster, we may sustain damage to our operations and properties, which could cause a sustainedinterruption or loss of affected operations, and cause us to suffer significant financial losses.We rely on third-party contract manufacturers for the production of our products. Any significant disruption in the business or operations of suchmanufacturers or of their or our suppliers could adversely impact our business. Our principal contract manufacturers and several of their and our suppliers andour resellers have operations in locations that are subject to natural disasters, such as severe weather, tsunamis, floods and earthquakes, which could disrupttheir operations and, in turn, our operations.In addition, if there is a natural disaster in any of the locations in which our significant customers are located, we face the risk that our customers mayincur losses or sustained business interruption, or both, which may materially impair their ability to continue their purchase of products from us. Accordingly,natural disaster in one of the geographies in which we, or our third-party manufacturers, their or our suppliers or our customers, operate could have a materialand adverse effect on our business, operating results, cash flows and financial condition.In order to manage our growth, we must be successful in addressing management succession issues and attracting and retaining qualified personnel.Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group. Wemust successfully manage transition and replacement issues that may result from the departure or retirement of members of our executive management. Wecannot provide assurances that changes of management personnel in the future would not cause disruption to operations or customer relationships or adecline in our operating results.We are also dependent on our ability to retain and motivate our existing highly qualified personnel, in addition to attracting new highly qualifiedpersonnel. Competition for qualified management, technical and other personnel is often intense, and we may not be successful in attracting and retainingsuch personnel. Competitors and others have in the past attempted, and are likely in the future to attempt, to recruit our employees. While our employees arerequired to sign standard agreements concerning confidentiality and ownership of inventions, we generally do not have employment contracts or non-competition agreements with any of our personnel. The loss of the services of any of our key personnel, the inability to attract or retain highly qualifiedpersonnel in the future or delays in hiring such personnel, particularly senior management and engineers and other technical personnel, could negativelyaffect our business and operating results.We could be negatively affected as a result of a future proxy contest and the actions of activist stockholders.If a proxy contest with respect to election of our directors is initiated in the future, or if other activist stockholder activities occur, our business could beadversely affected because:• responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disrupting our operations anddiverting the attention of management and our employees;• perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and maymake it more difficult to attract and retain qualified personnel and business partners; and• if individuals are elected to our Board of Directors (the “Board”) with a specific agenda, it may adversely affect our ability to effectively and timelyimplement our strategic plans.Our failure to adequately protect our proprietary rights and data may adversely affect us.At December 31, 2015, we held 59 issued U.S. patents and 35 issued foreign patents, and had 30 patent applications pending. Although we attempt toprotect our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade secrets andother measures, we can give no assurances that any patent,25Table of Contentstrademark, copyright or other intellectual property rights owned by us will not be invalidated, circumvented or challenged, that such intellectual propertyrights will provide competitive advantages to us, or that any of our pending or future patent applications will be issued with the scope of the claims soughtby us, if at all. We can give no assurances that others will not develop technologies that are similar or superior to our technologies, duplicate ourtechnologies or design around the patents that we own. In addition, effective patent, copyright and trade secret protection may be unavailable or limited incertain foreign countries in which we do business or may do business in the future.We generally enter into confidentiality or license agreements with our employees, consultants, and vendors and our customers, as needed, and generallylimit access to, and distribution of, our proprietary information. Nevertheless, we cannot provide assurances that the steps taken by us will preventmisappropriation of our technology. In addition, we have taken in the past, and may take in the future, legal action to enforce our patents and otherintellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims ofinfringement or invalidity. Such litigation could result in substantial costs and diversion of management time and other resources, and could materially andadversely affect our business, operating results, financial condition and cash flows.Recently reported hacking attacks on government and commercial computer systems, particularly attacks sponsored by foreign governments orenterprises, raise the risks that such an attack may compromise, in a material respect, one or more of our computer systems and permit hackers access to ourproprietary information and data. If such an attack does, in fact, allow access to or theft of our proprietary information or data, our business, operating results,financial condition and cash flows could be materially and adversely affected.Our products include third-party technology and intellectual property, and our inability to acquire new technologies or use third-party technology in thefuture could harm our business.In order to successfully develop and market certain of our planned products, we may be required to enter into technology development or licensingagreements with third parties. Although companies with technology useful to us are often willing to enter into technology development or licensingagreements with respect to such technology, we cannot provide assurances that such agreements may be negotiated on commercially reasonable terms, or atall. The failure to enter, or a delay in entering, into such technology development or licensing agreements, when necessary or desirable, could limit ourability to develop and market new products and could materially and adversely affect our business.We incorporate certain third-party technologies, including software programs, into our products, and, as noted, intend to utilize additional third-partytechnologies in the future. In addition, the technologies that we license may not operate properly or as specified, and we may not be able to securealternatives in a timely manner, either of which could harm our business. We could face delays in product releases until alternative technology can beidentified, licensed or developed, and integrated into our products, if we are able to do so at all. These delays, or a failure to secure or develop adequatetechnology, could materially and adversely affect our business, operating results, financial condition and cash flows.Our use of open source software in some of our products may expose us to certain risks.Some of our products contain software modules licensed for use from third-party authors under open source licenses. Use and distribution of opensource software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or othercontractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make availablesource code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software withopen source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietarysoftware to the public. This could allow our competitors to create similar products with lower development effort and in less time and ultimately could resultin a loss of product sales for us.Although we monitor our use of open source closely, it is possible our past, present or future use of open source has triggered or may trigger theforegoing requirements. Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licensescould be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In such event, wecould be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of ourproducts in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely affect our operating results,financial condition and cash flows.26Table of ContentsWe cannot assure you that our stock repurchase program will result in repurchases of our common stock or enhance long term stockholder value, andrepurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves.In April 2013, our Board approved a modified “Dutch Auction” tender offer to repurchase up to $100 million of shares of our common stock. The tenderoffer expired on May 24, 2013, and resulted in our repurchasing approximately 12 million shares of our common stock, at $6.25 per share, for an aggregatepurchase price of approximately $75 million.Following the tender offer, we resumed purchases under our stock repurchase program. Under the program, we are authorized to repurchase up to $300million of our common stock in open market transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of theExchange Act. As of December 31, 2015, we had purchased an aggregate of $254 million of our common stock under this program, including under thetender offer. The timing and actual number of shares repurchased, if any, will depend on a variety of factors, including the price and availability of our shares,trading volume, general market conditions and projected cash positions. The program was suspended prior to the announcement of the tender offer, and maybe suspended or discontinued at any time in the future without prior notice.Repurchases pursuant to our tender offer and our stock repurchase program could affect our stock price and increase its volatility and will reduce themarket liquidity for our stock. Additionally, these repurchases will diminish our cash reserves, which could impact our ability to pursue possible futurestrategic opportunities and acquisitions and would result in lower overall returns on our cash balances. There can be no assurance that any stock repurchaseswill, in fact, occur, or, if they occur, that they will enhance stockholder value because the market price of our common stock may decline below the levels atwhich we repurchased shares of stock. Although our tender offer and our stock repurchase program are intended to enhance long-term stockholder value,short-term stock price fluctuations could reduce the effectiveness of these repurchases.We are subject to import and export controls that could subject us to liability or impair our ability to compete in international markets.Our products are subject to U.S. export controls, and may be exported outside the U.S. only with the required level of export license or through anexport license exception, in most cases because we incorporate encryption technology into our products. In addition, various countries regulate the import ofcertain technology and have enacted laws that could limit our ability to distribute our products, or could limit our customers’ ability to implement ourproducts, in those countries. Changes in our products or changes in export and import regulations may delay the introduction of our products in internationalmarkets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent theexport or import of our products to certain countries altogether. Any change in export or import regulations or related legislation, shift in approach to theenforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased useof our products by, or in our decreased ability to export or sell our products to, existing or potential international customers.In addition, we may be subject to customs duties that could have a significant adverse impact on our operating results or, if we are able to pass on therelated costs in any particular situation, would increase the cost of the related product to our customers. As a result, the future imposition of significantincreases in the level of customs duties or the creation of import quotas on our products in Europe or in other jurisdictions, or any of the limitations oninternational sales described above, could have a material adverse effect on our business, operating results, financial condition and cash flows. Further, someof our customers in Europe have been, or are being, audited by local governmental authorities regarding the tariff classifications used for importation of ourproducts. Import duties and tariffs vary by country and a different tariff classification for any of our products may result in higher duties or tariffs, which couldhave an adverse impact on our operating results and potentially increase the cost of the related products to our customers.We may need additional capital in the future and may not be able to secure adequate funds on terms acceptable to us.We have been engaged in the design, manufacture and sale of a variety of video products and system solutions since inception, which has required, andwill continue to require, significant research and development expenditures.We believe that our existing cash and short-term investments of approximately $153 million at December 31, 2015, even as it may be reduced throughpossible future repurchases of our common stock under the stock repurchase program discussed above, will satisfy our cash requirements for at least the next12 months. However, we may need to raise additional funds to take advantage of presently unanticipated strategic opportunities, satisfy our other cashrequirements from time to time, or strengthen our financial position. Our ability to raise funds may be adversely affected by a number of factors, includingfactors beyond our control, such as weakness in the economic conditions in markets in which we sell our products and continued27Table of Contentsuncertainty in financial, capital and credit markets. There can be no assurance that equity or debt financing will be available to us on reasonable terms, if atall, when and if it is needed.We may raise additional financing through public or private equity offerings, debt financings, or corporate partnership or licensing arrangements. Tothe extent we raise additional capital by issuing equity securities or convertible debt, our stockholders may experience dilution. To the extent that we raiseadditional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or products, or grantlicenses on terms that are not favorable to us. To the extent we raise capital through debt financing arrangements, we may be required to pledge assets or enterinto covenants that could restrict our operations or our ability to incur further indebtedness and the interest on such debt may adversely affect our operatingresults.If adequate capital is not available, or is not available on reasonable terms, when needed, we may not be able to take advantage of acquisition or othermarket opportunities, to timely develop new products, or to otherwise respond to competitive pressures.Our business and industry are subject to various laws and regulations that could adversely affect our business, operating results, cash flows and financialcondition.Our business and industry are regulated under various federal, state, local and international laws. For example, we are subject to environmentalregulations such as the European Union’s Waste Electrical and Electronic Equipment (WEEE) and Restriction on the Use of Certain Hazardous Substances inElectrical and Electronic Equipment (RoHS) directives and similar legislation enacted in other jurisdictions worldwide. Our failure to comply with these lawscould result in our being directly or indirectly liable for costs, fines or penalties and third-party claims, and could jeopardize our ability to conduct businessin such regions and countries. We expect that our operations will be affected by other new environmental laws and regulations on an ongoing basis.Although we cannot predict the ultimate impact of any such new laws and regulations, they would likely result in additional costs, and could require that weredesign or change how we manufacture our products, any of which could have a material and adverse effect on our operating results, financial condition andcash flows.We are subject to the Sarbanes-Oxley Act of 2002 which, among other things, requires an annual review and evaluation of our internal control overfinancial reporting. If we conclude in future periods that our internal control over financial reporting is not effective or if our independent registered publicaccounting firm is unable to provide an unqualified attestation as of future year-ends, we may incur substantial additional costs in an effort to correct suchproblems, and investors may lose confidence in our financial statements, and our stock price may decrease in the short term, until we correct such problems,and perhaps in the long term, as well.We are subject to requirements under the Dodd-Frank Act of 2010 that require us to conduct research, disclose, and report whether or not our productscontain certain conflict minerals sourced from the Democratic Republic of Congo or its surrounding countries. The implementation of these newrequirements could adversely affect the sourcing, availability, and pricing of the materials used in the manufacture of components used in our products. Inaddition, we may incur certain additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures todetermine the sources of conflict minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products,processes or sources of supply as a consequence of such verification activities. It is also possible that we may face reputational harm if we determine thatcertain of our products contain minerals not determined to be conflict-free and/or we are unable to alter our products, processes or sources of supply to avoidsuch materials.Changes in telecommunications legislation and regulations in the U.S. and other countries could affect our sales and the revenue we are able to derivefrom our products. In particular, “net neutrality” rules issued by the U.S. Federal Communications Commission (FCC) or regulations dealing with access bycompetitors to the networks of incumbent operators could slow or stop infrastructure and services investments or expansion by service providers. Increasedregulation of our customers’ pricing or service offerings could limit their investments and, consequently, revenue from our products. The impact of new orrevised legislation or regulations could have a material adverse effect on our business, operating results, financial condition and cash flows.Some anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeoverattempt.We have provisions in our certificate of incorporation and bylaws that could have the effect of rendering more difficult or discouraging an acquisitiondeemed undesirable by our Board. These include provisions:28Table of Contents• authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;• limiting the liability of, and providing indemnification to, our directors and officers;• limiting the ability of our stockholders to call, and bring business before, special meetings;• requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidatesfor election to our Board;• controlling the procedures for conducting and scheduling of Board and stockholder meetings; and• providing the Board with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled specialmeetings.These provisions could delay hostile takeovers, changes in control of the Company or changes in our management. As a Delaware corporation, we arealso subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding morethan 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of ouroutstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a changein control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price thatsome investors are willing to pay for our common stock.The conditional conversion feature of our convertible senior notes, if triggered, may adversely affect our financial condition and operating results.In December 2015, we issued $128.25 million aggregate principal amount of 4.00% convertible senior notes due 2020 (“Notes”) through privateplacement with a financial institution. The Notes bear interest at 4.00% per annum, which is payable semiannually in arrears on June 1 and December 1 ofeach year, commencing June 1, 2016. In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convertthe Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversionobligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settlea portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not electto convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as acurrent rather than long-term liability, which would result in a material reduction of our net working capital.The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financialresults.In May 2008, the Financial Accounting Standards Board, which we refer to as FASB, issued FASB Staff Position No. APB 14-1, Accounting forConvertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified asAccounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20. Under ASC 470-20, an entity mustseparately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially incash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equitycomponent is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of theequity component would be treated as debt discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to recorda greater amount of non-cash interest expense in current and future periods presented as a result of the amortization of the discounted carrying value of theNotes to their face amount over the term of the Notes. We will report lower net income in our financial results because ASC 470-20 will require interest toinclude both the current period’s amortization of the debt discount and the instrument’s non-convertible interest rate, which could adversely affect ourreported or future financial results, the trading price of our common stock and the trading price of the Notes.In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currentlyaccounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Notes are not included in thecalculation of diluted earnings per share except to the extent that the conversion29Table of Contentsvalue of the Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted foras if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannotbe sure that the accounting standards in the future will continue to permit the use of the treasury stock method or that circumstances would not change suchthat we would no longer be permitted to use the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuableupon conversion of the Notes, then our diluted earnings per share would be adversely affected.Our common stock price, and therefore the price of our Notes, may be extremely volatile, and the value of an investment in our stock may decline.Our common stock price has been highly volatile. We expect that this volatility will continue in the future due to factors such as:• general market and economic conditions;• actual or anticipated variations in operating results;• increases or decreases in the general stock market or to the stock prices of technology companies;• announcements of technological innovations, new products or new services by us or by our competitors or customers;• changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;• announcements by us or our competitors of significant acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;• announcements by our customers regarding end user market conditions and the status of existing and future infrastructure network deployments;• the repurchase of over 30% of our outstanding shares since 2012 pursuant to our ongoing stock repurchase program and the tender offer wecompleted in 2013, as well as any future repurchases under our stock repurchase program;• additions or departures of key personnel; and• future equity or debt offerings or our announcements of these offerings.In addition, in recent years, the stock market in general, and the NASDAQ Stock Market and the securities of technology companies in particular, haveexperienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance ofindividual companies. These broad market fluctuations have in the past, and may in the future, materially and adversely affect our stock price, regardless ofour operating results. In these circumstances, investors may be unable to sell their shares of our common stock at or above their purchase price over the shortterm, or at all.Our stock price may decline if additional shares are sold in the market or if analysts drop coverage of or downgrade our stock.Future sales of substantial amounts of shares of our common stock by our existing stockholders in the public market, or the perception that these salescould occur, may cause the market price of our common stock to decline. In addition, we issue additional shares upon exercise of stock options, includingunder our Employee Stock Purchase Plan, and in connection with grants of restricted stock units on an ongoing basis. To the extent we do not elect to paysolely cash upon conversion of our Notes, we will also be required to issue additional shares of common stock upon conversion. Increased sales of ourcommon stock in the market after exercise of outstanding stock options or grants of restricted stock units could exert downward pressure on our stock price.These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.The trading market for our common stock relies in part on the availability of research and reports that third-party industry or securities analysts publishabout us. If one or more of the analysts who do cover us downgrade our stock, our stock price may decline. If one or more of these analysts cease coverage ofus, we could lose visibility in the market, which in turn could cause the liquidity of our stock and our stock price to decline.30Table of ContentsAvailable InformationHarmonic makes available free of charge, on the Harmonic web site, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K (via link to the SEC website), and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of theExchange Act as soon as reasonably practicable after Harmonic files such material with, or furnishes such material to, the Securities and ExchangeCommission. The address of the Harmonic web site is http://www.harmonicinc.com. Except as expressly set forth in this Form 10-K, the contents of our website are not incorporated into, or otherwise to be regarded as part of, this report.Item 1B.UNRESOLVED STAFF COMMENTSNone.Item 2.PROPERTIESAll of our facilities are leased, including our principal operations and corporate headquarters in San Jose, California. We have research anddevelopment centers in the United States, Israel and Hong Kong. We have sales and service offices primarily in the U.S. and various locations in Europe andAsia. Our leases, which expire at various dates through November 2022, are for an aggregate of approximately 339,000 square feet of space. The San Joselease has a term of ten years and is for approximately 188,000 square feet of space. The San Jose facility houses our research and development and corporateheadquarters functions. We have two business segments: Video and Cable Edge. Because of the interrelation of these segments, a majority of these segmentsuse substantially all of the properties, at least in part, and we retain the flexibility to use each of the properties in whole or in part for each of the segments. Webelieve that the facilities that we currently occupy are adequate for our current needs and that suitable additional space will be available, as needed, toaccommodate the presently foreseeable expansion of our operations.Item 3.LEGAL PROCEEDINGSFrom time to time, we are involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigations in theordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employmentand other matters. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time.In October 2011, Avid Technology, Inc. (“Avid”) filed a complaint in the United States District Court for the District of Delaware alleging thatHarmonic’s Media Grid product infringes two patents held by Avid. A jury trial on this complaint commenced on January 23, 2014 and, on February 4, 2014,the jury returned a unanimous verdict in our favor, rejecting Avid’s infringement allegations in their entirety. On May 23, 2014, Avid filed a post-trial motionasking the court to set aside the jury’s verdict, and the judge issued an order on December 17, 2014, denying the motion. On January 5, 2015, Avid filed anappeal with respect to the jury’s verdict with the Federal Circuit, which was docketed on January 9, 2015, as Case No. 2015-1246. Avid filed its opening briefwith respect to this appeal on March 24, 2015, we filed our response brief on May 7, 2015, and Avid filed its reply brief on June 16, 2015. Oral argumentswere held on December 11, 2015. On January 29, 2016, the Federal Circuit issued an order vacating the verdict of noninfringement and remanding the case tothe trial court for a new trial on infringement. On February 26, 2016, Harmonic filed a request for rehearing and rehearing en banc at the Federal Circuit.In June 2012, Avid served a subsequent complaint in the United States District Court for the District of Delaware alleging that Harmonic’s Spectrumproduct infringes one patent held by Avid. The complaint seeks injunctive relief and unspecified damages. In September 2013, the U.S. Patent Trial andAppeal Board (“PTAB”) authorized an inter partes review to be instituted as to claims 1-16 of the patent asserted in this second complaint. A hearing beforethe PTAB was conducted on May 20, 2014. On July 10, 2014, the PTAB issued a decision finding claims 1-10 invalid and claims 11-16 not invalid. We filedan appeal with respect to the PTAB’s decision on claims 11-16 on September 11, 2014. The appeal was docketed with the Federal Circuit on October 22,2014, as Case No. 2015-1072, and we filed our opening brief with respect to this appeal on January 29, 2015. Avid and PTAB each filed a response brief onApril 27, 2015, and we filed a reply brief on May 28, 2015. Oral arguments were held on October 8, 2015. The Federal Circuit issued an order on March 1,2016, affirming the PTAB’s decision. The litigation is currently stayed.31Table of ContentsAn unfavorable outcome on any litigation matters could require us to pay substantial damages, or, in connection with any intellectual propertyinfringement claims, could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, oran unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on our business, operatingresults, financial position and cash flows.Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and otherintellectual property rights. From time to time, third parties have asserted, and may in the future assert, exclusive patent, copyright, trademark and otherintellectual property rights against us or our customers. Such assertions arise in the normal course of our operations. The resolution of any such assertions andclaims cannot be predicted with certainty.Item 4.MINE SAFETY DISCLOSURENot applicable.32Table of ContentsPART IIItem 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket Information of our Common StockOur common stock is traded on the NASDAQ Global Select Market under the symbol HLIT, and has been listed on NASDAQ since our initial publicoffering on May 22, 1995. The following table sets forth, for the periods indicated, the high and low sales price per share of our common stock as reported onthe NASDAQ Global Select Market: 2015 2014 Sales Price Sales PriceQuarter endedHigh Low High LowFirst quarter$7.98 $6.53 $7.48 $5.93Second quarter7.64 6.55 7.75 6.35Third quarter7.09 5.40 7.66 5.66Fourth quarter6.31 4.07 7.46 5.61HoldersAs of February 29, 2016, there were approximately 402 holders of record of our common stock.Dividend PolicyWe have never declared or paid any dividends on our capital stock. At this time, we expect to retain future earnings, if any, for use in the operation andexpansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our line of credit includes covenants prohibiting thepayment of cash dividends.Repurchases of Equity Securities by the IssuerIn April 2012, the Board approved a stock repurchase program that provided for the repurchase of up to $25 million of our outstanding common stock.Under the program, we are authorized to repurchase shares of common stock in open market transactions or pursuant to any trading plan that may be adoptedin accordance with Rule 10b5-1 of the Exchange Act. From time to time, the Board may approve further increases to the program and the amount approvedfor this program was increased to $300 million periodically through May 2014 and the repurchase period was extended through the end of 2016. The timingand actual number of shares repurchased, if any, will depend on a variety of factors, including the price and availability of our shares, trading volume andgeneral market conditions. The purchases are funded from available working capital. The program may be suspended or discontinued at any time withoutprior notice.During the years ended December 31, 2015, 2014 and 2013, we repurchased from open market transactions 3.4 million, 13.9 million and 6.3 millionshares of our common stock, respectively, at a total cost of $23.0 million, $93.1 million and $40.6 million, respectively, and at an average share price of$6.70, $6.70 and $6.48, respectively. In addition, $76.0 million, including $1.0 million of expenses, was spent in our “modified Dutch auction” tender offer,which closed on May 24, 2013. Under the tender offer, we repurchased 12.0 million shares of our common stock at $6.25 per share. The remaining authorizedamount for repurchases under this program was $45.7 million as of December 31, 2015. The excess of cost over par value for the repurchase of the Company’scommon stock is recorded to additional paid-in-capital. Common stock repurchased under the program was recorded based upon the trade date foraccounting purposes. All common shares repurchased under this program have been retired.Additionally, on December 8 2015, the Board approved the use of part of the proceeds from the sale and issuance of our 4.00% convertible senior notesdue 2020 (“the Notes” or “the offering”, as applicable), issued on December 14, 2105, (see Note 12, “Convertible Notes and Credit Facilities” for additionalinformation on the Notes) to repurchase shares of our common stock from purchasers of the Notes in privately negotiated transactions effected through theinitial purchaser or its affiliate as our agent. Concurrent with the issuance of the Notes, we used $49.9 million of the net proceeds from the Notes to repurchase11.1 million shares of our common stock at a price of $4.49 per share.The following table is a summary of our stock repurchases during the quarter ended December 31, 2015 (in thousands, except per share data):33Table of ContentsPeriodTotal Number ofSharesRepurchased Average PricePaid per Share Total Number ofSharesRepurchased asPart of PubliclyAnnounced Planor Program Approximate DollarValue of Shares thatMay Yet bePurchased Underthe Plan orProgramOctober 3, 2015 - October 30, 2015400 $5.96 400 $46,261October 31, 2015 - November 27, 2015100 $5.88 100 $45,673November 28, 2015 - December 31, 2015— — $45,673 500 $5.95 500 Stock Performance GraphSet forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of the Company’s common stockwith the cumulative return of the NASDAQ Telecommunications Index and of the Standard & Poor’s (S&P) 500 Index for the period commencingDecember 31, 2010 and ending on December 31, 2015. The graph assumes that $100 was invested in each of the Company’s common stock, the S&P 500 andthe NASDAQ Telecommunications Index on December 31, 2010, and assumes the reinvestment of dividends, if any. The comparisons shown in the graphbelow are based upon historical data. Harmonic cautions that the stock price performance shown in the graph below is not indicative of, nor intended toforecast, the potential future performance of the Company’s common stock. 12/10 12/11 12/12 12/13 12/14 12/15Harmonic Inc.100.00 58.81 59.16 86.11 81.80 47.49S&P 500100.00 102.11 118.45 156.82 178.29 180.75NASDAQ Telecom100.00 89.84 91.94 128.06 133.34 128.91The information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material”, “filed” or incorporated byreference in previous or future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extentthat Harmonic specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.34Table of ContentsItem 6.SELECTED FINANCIAL DATAThe selected financial data set forth below as of December 31, 2015 and 2014, and for the fiscal years ended December 31, 2015, 2014 and 2013, arederived from our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The selected financial data as of December 31,2013, 2012 and 2011, and for the fiscal years ended December 31, 2012 and 2011 are derived from audited financial statements not included in this AnnualReport on Form 10-K. This financial data should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition andResults of Operations, and the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. These historicalresults are not necessarily indicative of the results to be expected in the future.On March 5, 2013, we completed the sale of our cable access HFC business to Aurora Networks. As such, the results of operations associated with cableaccess HFC business are presented as discontinued operations in our Consolidated Statements of Operations for all periods presented. Year ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share amounts)Consolidated Statements of Operations Data Net revenue$377,027 $433,557 $461,940 $476,871 $490,874Cost of revenue (1)174,315 221,209 241,495 256,339 254,058 Gross profit(2)202,712 212,348 220,445 220,532 236,816Operating expenses: Research and development87,545 93,061 99,938 102,627 99,314 Selling, general and administrative120,960 131,322 134,014 127,117 127,077 Amortization of intangibles5,783 6,775 8,096 8,705 8,918 Restructuring and asset impairment charges (1)1,372 2,761 1,421 — — Total operating expenses215,660 233,919 243,469 238,449 235,309Income (loss) from operations(12,948) (21,571) (23,024) (17,917) 1,507Interest income (expense), net (7)(333) 132 219 515 374Other expense, net(282) (356) (347) (293) (514)Loss on impairment of long-term investment (3)(2,505) — — — —Income (loss) from continuing operations before income taxes(16,068) (21,795) (23,152) (17,695) 1,367Provision for (benefit from) income taxes (4)(5)(407) 24,453 (44,741) (1,506) (651)Income (loss) from continuing operations (6)$(15,661) $(46,248) $21,589 $(16,189) $2,018Net income (loss) per share from continuing operations: Basic$(0.18) $(0.50) $0.20 $(0.14) $0.02 Diluted$(0.18) $(0.50) $0.20 $(0.14) $0.02Shares used in per share calculation: Basic87,514 92,508 106,529 116,457 115,175 Diluted87,514 92,508 107,808 116,457 116,427 As of December 31, 2015 2014 2013 2012 2011 (In thousands)Consolidated Balance Sheet Data Cash, cash equivalents and short-term investments$152,794 $104,879 $170,581 $201,176 $161,837Working capital$201,250 $142,754 $243,650 $293,978 $279,060Total assets$524,957 $480,518 $606,084 $717,531 $734,166Convertible debt, long-term(7)$98,295 $— $— $— $—Stockholders’ equity$328,168 $371,813 $494,166 $553,413 $564,316______________________________________________________________________________________________________35Table of Contents(1) Starting 2013, we implemented a series of restructuring activities. In 2015, the restructuring and related charges were $1.5 million, of which $1.4million is included in operating expenses and $0.1 million is included in cost of revenue. In 2014, the restructuring and impairment charges were $3.1million, of which $2.8 million is included in operating expenses and $0.3 million was included in cost of revenue. In 2013, the restructuring charges were$2.2 million, of which $1.4 million is included in operating expenses and $0.8 million is included in cost of revenue (See Note 11, “Restructuring and AssetImpairment Charges,” of the notes to our Consolidated Financial Statements for detail information).(2) Gross margin increased to 53.8% in 2015 compared to 49.0% in 2014. The increase in gross margin was primarily due to decreased expenses related toamortization, operational efficiencies and product mix shifts in our product portfolio. The expense related to amortization of intangibles included in cost ofrevenue decreased from $13.7 million in 2014 to $0.7 million in 2015, due to majority of the purchased tangible assets becoming fully amortized.(3) In 2015, we recorded an impairment charge of $2.5 million for our investment in VJU iTV Development GmbH (“VJU”) as a result of our assessmentthat this investment was impaired on an other-than-temporary basis (See Note 5, “Investments in Other Equity Securities,” of the notes to our ConsolidatedFinancial Statements for additional information).(4) In 2014, we recorded a net increase in valuation allowance of $29.0 million in 2014 against U.S. net deferred tax assets. A history of operating losses inrecent years has led to uncertainty with respect to our ability to realize certain of our net deferred tax assets. This unfavorable impact was partially offset bythe release of $9.0 million of tax reserves in 2014, including accrued interests and penalties, for our 2010 tax year in the United States, as a result of theexpiration of the statute of limitation for that tax year.(5) In 2013, we released $39.0 million of tax reserves, including accrued interests and penalties, for our 2008 and 2009 tax years in the United States, as aresult of the expiration of the statute of limitations for those tax years.(6) Income (loss) from continuing operations for 2015, 2014, 2013, 2012 and 2011 included stock-based compensation expense of $15.6 million, $17.3million, $16.0 million, $18.4 million and $20.3 million, respectively.(7) In December 2015, we issued $128.25 million aggregate principal amount of convertible senior notes due December 2020 (“the Notes”) through aprivate placement with a financial institution. The Notes bear interest at 4.00% per annum, which is payable semiannually in arrears on June 1 and December1 of each year, commencing June 1, 2016. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated theconversion option associated with the Notes recording $26.9 million in stockholders’ equity. We incurred approximately $4.1 million of debt issuance costsin connection with the issuance of the Notes, which we recorded as a deduction to the carrying amount of the Notes and $0.8 million of debt issuance costswas allocated to stockholders’ equity. The resulting net debt discount, difference between the principal amount of the Notes and the carrying value of theNotes, of $30.2 million is amortized to interest expenses at an effective interest rate of 9.94% over the contractual term of the Notes. In 2015, we recorded$240,000 of coupon interest expense and $216,000 of interest expenses related to the amortization of debt discount. (See Note 12, “Convertible Notes andCredit Facility,” of the notes to our Consolidated Financial Statements for additional information on the Notes).36Table of ContentsItem 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussioncontains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in theforward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and thoselisted under Item 1A, Risks Factors.Business OverviewAt Harmonic, we design, manufacture and sell versatile and high performance video infrastructure products and system solutions that enable ourcustomers to efficiently create, prepare and deliver a full range of video and broadband services to consumer devices, including televisions, personalcomputers, laptops, tablets and smart phones.We do business in three geographic regions: Americas, EMEA, and APAC. Prior to the fourth quarter of 2014, we operated our business in onereportable segment and starting in the fourth quarter of 2014, we changed our operating segments to align with our internal structure. The new reportingstructure consists of two operating segments: Video and Cable Edge. Our Video business sells video processing and production and playout solutions andservices worldwide to cable operators and satellite and telecommunications (telco) Pay-TV service providers, which we refer to collectively as “serviceproviders,” as well as to broadcast and media companies, including streaming new media companies. Our Cable Edge business sells cable edge solutions andrelated services, primarily to cable operators globally. We believe these changes provide investors with increased financial reporting transparency and enablebetter insight into the market and performance trends driving our business.Historically, our revenue has been dependent upon capital spending in the cable, satellite, telco, broadcast and media industries, including streamingmedia. Our customers’ capital spending patterns are dependent on a variety of factors, including but not limited to: economic conditions in the U.S. andinternational markets; access to financing; annual budget cycles of each of the industries we serve; impact of industry consolidations; and customerssuspending or reducing capital spending in anticipation of new products or new standards, new industry trends and/or technology shifts. If our productportfolio and product development plans do not position us well to capture an increased portion of the capital spending in the markets on which we compete,our revenue may decline. As we attempt to further diversify our customer base in these markets, we may need to continue to build alliances with otherequipment manufacturers, content providers, resellers and system integrators, managed services providers and software developers; adapt our products fornew applications; take orders at prices resulting in lower margins; and build internal expertise to handle the particular operational, payment, financing and/orcontractual demands of our customers, which could result in higher operating costs for us. Implementation issues with our products or those of other vendorshave caused in the past, and may cause in the future, delays in project completion for our customers and delay our recognition of revenue.A majority of our revenue has been derived from relatively few customers, due in part to the consolidation of our service provider customers. Sales toour ten largest customers in 2015, 2014 and 2013 accounted for approximately 32%, 35% and 31% of our revenue, respectively. Although we are attemptingto broaden our customer base by penetrating new markets and further expanding internationally, we expect to see continuing industry consolidation andcustomer concentration. During 2015, 2014 and 2013, revenue from Comcast accounted for 12%, 16% and 12%, of our revenue, respectively. The loss ofComcast or any other significant customer, any material reduction in orders by Comcast or any significant customer, or our failure to qualify our newproducts with a significant customer could materially and adversely affect our operating results, financial condition and cash flows.Our 2015 revenue was affected by several external factors hampering our customers’ demand. Among these factors was service provider consolidationimpacting several of our historical top ten customers in 2015. We also continue to experience currency-driven delays, particularly in parts of Asia, Europe,Latin America and the Middle East. And across geographies, we continue to work with both service provider and media customers who are making buyingdecisions much more slowly than they have historically as they grapple with several significant business and technology transitions such as the emergingover-the-top and data center strategies. Primarily as a result of the confluence of these factors our net revenue decreased 13% from $434 million in 2014 to$377 million in 2015. The strengthening of the U.S. dollar negatively impacted our revenue from EMEA in 2015, while the customer consolidationsnegatively impacted our revenues from all regions in 2015, but primarily the Americas region.Our Video product revenue declined in both 2015 and 2014, primarily due to our customers’ longer buying cycle as they have been, and continue to becautious investing in new technologies, such as next-generation IP architecture, Ultra HD and 4K. We believe a material and growing portion of theopportunities in our video business pipeline are linked to a migration to37Table of ContentsIP workflows and the distribution of linear and on-demand, over-the-top, new skinny bundle, and new mobile video services and we are committed tocontinue our market leadership in this business. We are steadily transitioning our video business to be more software-centric, with converged traditional pay-TV and over-the-top services playing an increasingly central role. Our VOS platform, which is enabling video compression delivered to our customers assoftware, is gaining market momentum, and was the key to several competitive IPTV and over-the-top wins in the fourth quarter of 2015. We anticipate theongoing video business transition to software will likely compress top-line growth in the video business, but will expand gross margins and operating profit.In addition, our market position, technology differentiation and financial performance will all be enhanced through the Thomson Video Networks (“TVN”)acquisition.On December 7, 2015, we signed a binding offer, in the form of a “put” option agreement, to acquire TVN.Our Cable Edge strategy is primarily to become a major player in the approximately $2 billion CCAP market by delivering innovative new DOCSIS 3.1CMTS technology, that we call CableOS. Our Cable Edge segment, after a successful launch, in 2014 saw an unexpected decline stemming from theunexpectedly strong spending pullback associated with a handful of consolidations in the cable industry and from a slackening of demand as some of ourcustomers are still preparing to make new investments in the converged data and video DOCSIS 3.1 CCAP market. While these trends present challenges forus, we believe we have made some significant progress on DOCSIS 3.1 CMTS technology. During the fourth quarter of 2015, we met our internal developmentmilestones and successfully demonstrated full DOCSIS 3.1 interoperability at one of our major customer’s site. In addition, we received our first multi-million-dollar financial commitment from a Tier 1 international operator. We remain firmly committed to our business strategy and we believe we are on trackto make our first CableOS shipments in the second half of 2016. Meanwhile, we expect 2016 global demand for our legacy EdgeQAM technology to besimilar to the depressed level that we saw in the back half of 2015.As a result of the decreases in our net revenue in 2015 and 2014, we implemented a series of restructuring plans to bring our operating expenses more inline with net revenues, while simultaneously implementing extensive, company-wide expense control programs (See Note 11, “Restructuring and AssetImpairment Charges,” of the notes to our Consolidated Financial Statements for additional information).We ended the year with $152.8 million in cash, cash equivalents and short-term investments, including the net proceeds of approximately $124.7million from the sale and issuance of convertible notes, which we completed on December 14, 2015 in a private placement (“the Notes”). During 2015, wegenerated $6.4 million cash from operations, used $72.9 million to repurchase our common stock and completed the issuance of the Notes. (See Note 12,“Convertible Notes and Credit Facilities,” of the notes to our Consolidated Financial Statements for additional information on the Notes).In December 2015, we issued $128.25 million aggregate principal amount of the Notes maturing December 2020. The Notes bear interest at a fixed rateof 4.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2016. Concurrent with the issuance of theNotes, we used $49.9 million of the net proceeds from the Notes to repurchase 11.1 million shares of our common stock. The remaining net proceeds of theNotes were used to fund the TVN acquisition, which was completed on February 29, 2016.We expect that our current sources of liquidity together with our current projections of cash flow from operatingactivities will provide us adequate liquidity based on our current plans.Recent DevelopmentsOn February 11, 2016, pursuant to the terms of the Put Option Agreement, one of our subsidiaries entered into a securities purchase agreement (the“SPA”) with TVN’s shareholders (the “Sellers”) to purchase 100% of the share capital and voting rights of TVN, on a non-diluted basis. On February 29,2016, we completed the acquisition of TVN for total cash consideration of approximately $76.5 million. There may be additional post-closing payments inamounts respectively capped to (i) the difference between €76 million (as converted from euros into U.S. dollars) and $75 million, with respect to anadjustment based on TVN’s 2015 revenue, and (ii) $5 million with respect to an adjustment based on TVN’s 2015 backlog that ships during the first half of2016, all of which at such times and under the circumstances set forth in the SPA.Critical Accounting Policies, Judgments and EstimatesThe preparation of financial statements and related disclosures requires Harmonic to make judgments, assumptions and estimates that affect thereported amounts of assets and liabilities, the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements andaccompanying notes. Material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates weremade. See Note 2 of the notes to our Consolidated Financial Statements for details of our accounting policies. Critical accounting policies, judgments andestimates that we believe have the most significant impact on Harmonic’s financial statements are set forth below:38Table of Contents•Revenue recognition;•Valuation of inventories;•Impairment of goodwill or long-lived assets;•Assessment of the probability of the outcome of current litigation;•Accounting for income taxes; and•Stock-based compensation.Revenue RecognitionHarmonic’s principal sources of revenue are from the sale of hardware, software, hardware and software maintenance contracts, and the sale of end-to-end solutions, encompassing design, manufacture, test, integration and installation of products. Harmonic recognizes revenue when persuasive evidence ofan arrangement exists, delivery has occurred or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured.We generally use contracts and customer purchase orders to determine the existence of an arrangement. Shipping documents and customer acceptance,when applicable, are used to verify delivery. We assess whether the sales price is fixed or determinable based on the payment terms associated with thetransaction and whether the price is subject to refund or adjustment. We assess collectability based primarily on the creditworthiness of the customer, asdetermined by credit checks and analysis, as well as the customer’s payment history.Significant management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accountingperiod. Because of the concentrated nature of our customer base, different judgments or estimates made for any one large contract or customer could result inmaterial differences in the amount and timing of revenue recognized in any particular period.We have multiple-element revenue arrangements that include hardware and software essential to the hardware product’s functionality, non-essentialsoftware, services and support. We allocate revenue to all deliverables based on their relative selling prices. We determine the relative selling prices by firstconsidering vendor-specific objective evidence of fair value (“VSOE”), if it exists; otherwise third-party evidence (“TPE”) of the selling price is used. Whenwe are unable to establish selling price using VSOE or TPE, we use our best estimate of selling price (“BESP”) in our allocation of arrangement consideration.The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. BESP is generallyused for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company’s process for determining BESPinvolves management’s judgment, and considers multiple factors that may vary over time, depending upon the unique facts and circumstances related to eachdeliverable. If the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consideradditional factors, the Company’s BESP may also change. Once revenue is allocated to all deliverables based on their relative selling prices, revenue relatedto hardware elements (hardware, essential software and related services) are recognized using a relative selling price allocation and non-essential software andrelated services are recognized under the residual method.Sales of stand-alone software that are not considered essential to the functionality of the hardware continue to be subject to the software revenuerecognition guidance. In accordance with the software revenue recognition guidance, the Company applies the residual method to recognize revenue for thedelivered elements in stand-alone software transactions. Under the residual method, the amount of revenue allocated to delivered elements equals the totalarrangement consideration, less the aggregate fair value of any undelivered elements, typically maintenance, provided that VSOE of fair value exists for allundelivered elements. We establish fair value by reference to the price the customer is required to pay when an item is sold separately, using contractuallystated, substantive renewal rates, when applicable, or the price of recently completed stand alone sales transactions. Accordingly, the determination as towhether appropriate objective and reliable evidence of fair value exists can impact the timing of revenue recognition for an arrangement.Solution sales for the design, manufacture, test, integration and installation of products are accounted for in accordance with applicable guidance onaccounting for performance of construction/production contracts, using the percentage-of-completion method of accounting when various requirements forthe use of this accounting guidance exist. Under the percentage-of-completion method, our revenue recognized reflects the portion of the anticipated contractrevenue that has been earned, equal to the ratio of actual labor hours expended to total estimated labor hours to complete the project. Costs are recognizedproportionally to the labor hours incurred. Management believes that, for each such project, labor hours expended in proportion to total estimated hours atcompletion represents the most reliable and meaningful measure for determining a project’s progress toward completion. This requires us to estimate, at theoutset of each project, a detailed project plan and39Table of Contentsassociated labor hour estimates for that project. For contracts that include customized services for which labor costs are not reasonably estimable, theCompany uses the completed contract method of accounting. Under the completed contract method, 100% of the contract’s revenue and cost is recognizedupon the completion of all services under the contract. If the estimated costs to complete a project exceed the total contract amount, indicating a loss, theentire anticipated loss is recognized. Our application of the percentage-of-completion method of accounting is subject to our estimates of labor hours tocomplete each project. In the event that actual results differ from these estimates or we adjust these estimates in future periods, our operating results, financialposition or cash flows for a particular period could be adversely affected.Revenue on shipments to resellers and systems integrators is generally recognized on delivery. Allowances are provided for estimated returns and suchallowances are adjusted periodically to reflect actual and anticipated experience. Resellers and systems integrators purchase our products for specific capitalequipment projects of the end-user and do not hold inventory. They perform functions that include importation, delivery to the end-customer, installation orintegration, and post-sales service and support. Our agreements with these resellers and systems integrators have terms which are generally consistent with thestandard terms and conditions for the sale of our equipment to end users and do not provide for product rotation or pricing allowances, as are typically foundin agreements with stocking resellers. We have long-term relationships with most of these resellers and systems integrators and substantial experience withsimilar sales of similar products. We do have instances of accepting product returns from resellers and system integrators. However, such returns typicallyoccur in instances where the system integrator has designed a product into a project for the end user, but the integrator requests permission to return thecomponent as it does not meet the specific project’s functional requirements. Such returns are made solely at our discretion, as our agreements with resellersand system integrators do not provide for return rights. We have extensive experience monitoring product returns from our resellers, and, accordingly, wehave concluded that the amount of future returns can be reasonably estimated in accordance with applicable accounting guidance. If the actual future returnswere to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.Valuation of InventoriesWe state inventories at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis.We write down the cost of excess or obsolete inventory to net realizable value based on future demand forecasts and historical consumption. If there were tobe a sudden and significant decrease in demand for our products, or if there were a higher incidence of inventory obsolescence because of rapidly changingtechnology and customer requirements, we could be required to record additional charges for excess and obsolete inventory and our gross margin could beadversely affected. Inventory management is of critical importance in order to balance the need to maintain strategic inventory levels to ensure competitivelead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements.Impairment of Goodwill or Long-lived AssetsGoodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed.We test for goodwill impairment at the reporting unit level, which is the same as our operating segment, on an annual basis in the fourth quarter of each of ourfiscal years, and at any other time at which events occur or circumstances indicate that the carrying amount of goodwill may exceed its fair value.The provisions of the accounting standard for goodwill and other intangibles allows us to first assess qualitative factors to determine whether it isnecessary to perform the two-step quantitative goodwill impairment test. Various factors are considered in the qualitative assessment, includingmacroeconomic conditions, financial performance, or a sustained decrease in share price. If as a result of the qualitative assessment, it is deemed more likelythan not that the fair value of a reporting unit is less than its carrying amount, management will perform the quantitative test.We use a two-step process to determine the amount of goodwill impairment. The first step requires comparing the fair value of the reporting unit to itsnet book value, including goodwill. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step ofthe process, which is performed only if a potential impairment exists, involves determining the difference between the fair value of the reporting unit’s netassets other than goodwill and the fair value of the reporting unit. If this difference is less than the net book value of goodwill, an impairment exists and isrecorded.In the first step, the fair value of each of our reporting units is determined using both the income and market valuation approaches. Under the incomeapproach, the fair value of the reporting unit is based on the present value of estimated future cash flows that the reporting unit is expected to generate overits remaining life. Under the market approach, the value of the reporting unit is based on an analysis that compares the value of the reporting unit to values ofpublicly-traded companies in similar lines of business. In the application of the income and market valuation approaches, we are required to make estimatesof future operating trends and judgments on discount rates and other variables. Determining the fair value of a reporting unit is40Table of Contentshighly judgmental in nature and involves the use of significant estimates and assumptions. We base our fair value estimates on assumptions we believe to bereasonable but that are unpredictable and inherently uncertain. Actual future results related to assumed variables could differ from these estimates. Inaddition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reportingunits.Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flowprojections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions.The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and theuncertainty related to the business's ability to execute on the projected cash flows. Under the market approach, we estimate the fair value based on marketmultiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reportingunits, and then apply a control premium which is determined by considering control premiums offered as part of the acquisitions that have occurred in marketsegments that are comparable with our reporting units.During the fourth quarter of 2015, we performed the first step of goodwill impairment testing for our two reporting units and concluded that goodwillwas not impaired as the Video and Cable Edge reporting units had estimated fair values in excess of their carrying value by approximately 87% and 42%,respectively. We have not recorded any impairment charges related to goodwill for any prior periods. Because the Cable Edge reporting unit has an estimatedfair value that is not substantially in excess of its carrying value, we will continue to monitor this reporting unit for risk of impairment in future periods.Our market capitalization has declined so far in 2016. A significant decline in a company’s stock price may suggest that an adverse change in thebusiness climate may have caused the fair value of one or more reporting units to fall below their carrying value. Significant judgment has been applied todetermine whether stock price declines are a short-term swing or a long-term trend. We believe that the decline in our stock price will not be sustained as itonly fluctuated below the 2015 level for a short period. Additionally, we believe that the fluctuation in market capitalization was driven by general marketmovement and not company specific factors. We believe that the fair value established during the 2015 annual goodwill impairment testing for its Video andCable Edge reporting units were reasonable and no triggering event subsequent to the 2015 annual assessment exists. However, a sustained decline in ourstock price may lead to a triggering event for goodwill impairment in 2016.We evaluate the recoverability of intangible assets and other long-lived assets when indicators of impairment are present. When impairment indicatorsare present, we evaluate the recoverability of intangible assets and other long-lived assets on the basis of undiscounted cash flows expected to result from theuse of each asset group and its eventual disposition. If the undiscounted expected future cash flows are less than the carrying amount of the asset, animpairment loss is recognized in order to writedown the carrying value of the asset to its estimated fair market value.In connection with restructuring actions initiated during 2014, we recorded an impairment charge of $1.1 million in fiscal 2014 related to softwaredevelopment costs incurred for a discontinued IT project. In 2015, we recorded an impairment charge of $2.5 million for our investment in VJU as wedetermined that the entire investment in VJU was impaired on an other-than-temporary basis. Factors considered included the severity of the impairment,expected cash flows and recent events specific to VJU. We have not recorded any other significant impairment charges related to intangible assets or long-lived assets for any prior periods (See Note 5, “Investments in Other Equity Securities,” of the notes to our Consolidated Financial Statements for additionalinformation of VJU investment).Assessment of the Probability of the outcome of Current LitigationFrom time to time, we are involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigations in theordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employmentand other matters. We assess potential liabilities in connection with each lawsuit and threatened lawsuits and accrue an estimated loss for these losscontingencies if both of the following conditions are met: information available prior to issuance of the financial statements indicates that it is probable thata liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While certain matters to which we area party specify the damages claimed, such claims may not represent reasonably probable losses. Given the inherent uncertainties of litigation, the ultimateoutcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated.In October 2011, Avid Technology, Inc. (“Avid”) filed a complaint in the United States District Court for the District of Delaware alleging thatHarmonic’s Media Grid product infringes two patents held by Avid. A jury trial on this complaint commenced on January 23, 2014 and, on February 4, 2014,the jury returned a unanimous verdict in our favor, rejecting Avid’s infringement allegations in their entirety. On May 23, 2014, Avid filed a post-trial motionasking the court to set aside the jury’s verdict, and the judge issued an order on December 17, 2014, denying the motion. On January 5, 2015, Avid filed anappeal41Table of Contentswith respect to the jury’s verdict with the Federal Circuit, which was docketed on January 9, 2015, as Case No. 2015-1246. Avid filed its opening brief withrespect to this appeal on March 24, 2015, we filed our response brief on May 7, 2015, and Avid filed its reply brief on June 16, 2015. Oral arguments wereheld on December 11, 2015. On January 29, 2016, the Federal Circuit issued an order vacating the verdict of noninfringement and remanding the case to thetrial court for a new trial on infringement. On February 26, 2016, Harmonic filed a request for rehearing and rehearing en banc at the Federal Circuit.In June 2012, Avid served a subsequent complaint in the United States District Court for the District of Delaware alleging that Harmonic’s Spectrumproduct infringes one patent held by Avid. The complaint seeks injunctive relief and unspecified damages. On September 25, 2013, the U.S. Patent Trial andAppeal Board (“PTAB”) authorized an inter partes review to be instituted as to claims 1-16 of the patent asserted in this second complaint. A hearing beforethe PTAB was conducted on May 20, 2014. On July 10, 2014, the PTAB issued a decision finding claims 1 - 10 invalid and claims 11 - 16 not invalid. Wefiled an appeal with respect to the PTAB’s decision on claims 11 - 16, on September 11, 2014. The appeal was docketed with the Federal Circuit on October22, 2014, as Case No. 2015-1072, and we filed our opening brief with respect to this appeal on January 29, 2015. Avid and PTAB each filed a response briefon April 27, 2015, and we filed a reply brief on May 28, 2015. Oral arguments were held on October 8, 2015. The Federal Circuit issued an order on March 1,2016, affirming the PTAB’s decision. The litigation is currently stayed.An unfavorable outcome on any litigation matters could require us to pay substantial damages, or, in connection with any intellectual propertyinfringement claims, could require us to pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, oran unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on our business, operatingresults, financial position and cash flows.Accounting for Income TaxesIn preparing our financial statements, we estimate our income taxes for each of the jurisdictions in which we operate. This involves estimating ouractual current tax exposures and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax andaccounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheet.Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and our futuretaxable income for purposes of assessing our ability to realize any future benefit from our deferred tax assets. A history of operating losses in recent years hasled to uncertainty with respect to our ability to realize certain of our net deferred tax assets, and as a result we applied our full valuation allowance against ourU.S. net deferred tax assets as of December 31, 2015. In the event that actual results differ from these estimates or we adjust these estimates in future periods,our operating results and financial position could be materially affected.We are subject to examination of our income tax returns by various tax authorities on a periodic basis. We regularly assess the likelihood of adverseoutcomes resulting from such examinations to determine the adequacy of our provision for income taxes. We apply the provisions of the applicableaccounting guidance regarding accounting for uncertainty in income taxes, which requires application of a more-likely-than-not threshold to the recognitionand derecognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefitmeasured at the largest amount of such tax benefit that, in our judgment, is more than fifty percent likely to be realized upon settlement. It further requiresthat a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the period in which suchdetermination is made.We file U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations during which such tax returns may beaudited and adjusted by the relevant tax authorities. The U.S. Internal Revenue Service has concluded its audit for our 2008, 2009 and 2010 tax years. Thestatute of limitations on our 2008 and 2009, and 2010 and 2011 corporate income tax returns expired in September of 2013, 2014 and 2015, respectively. Asa result, we released $39.0 million of related tax reserves, including accrued interests and penalties, for the 2008 and 2009 tax years in 2013. Additionally, wereleased $9.0 million and $0.5 million of related tax reserves, including accrued interests and penalties, for the 2010 and 2011 tax years in 2014 and 2015,respectively.The 2012 through 2015 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreignjurisdictions, the 2007 through 2015 tax years generally remain subject to examination by their respective tax authorities. We are currently underexamination by the U.S. Internal Revenue Service for our 2012 federal income tax return, which commenced officially in August 2015, and so far there hasbeen no proposed adjustment received for the audit. In addition, one of our subsidiaries is under audit for the 2012 and 2013 tax years, which commenced inthe first quarter of 2015, by the Israel tax authority. If, upon the conclusion of these audits, the ultimate determination of taxes owed in the United States orIsrael is for an amount in excess of the tax provision the Company has recorded in the applicable period, the Company’s42Table of Contentsoverall tax expense, effective tax rate, operating results and cash flow could be materially and adversely impacted in the period of adjustment.On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expensein an intercompany cost-sharing arrangement. A final decision was entered by the U.S. Tax Court on December 1, 2015. On February 19, 2016, the U.S.Internal Revenue Service filed a notice of appeal in Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015), to the Ninth Circuit Court of Appeal. The NinthCircuit will decide whether a regulation that mandates that stock-based compensation costs related to the intangible development activity of a qualified costsharing arrangement (QCSA) must be included in the joint cost pool of the QCSA (the “all costs rule”) is consistent with the arm’s length standard asenunciated under section 482. We concluded that no adjustment to the consolidated financial statements as of December 31, 2015 is appropriate at this timedue to the uncertainties with respect to the ultimate resolution of this case.We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position isaudited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, webelieve that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the related interest and penalties, in light ofchanging facts and circumstances. If our estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. Ifpayment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period whenwe determine the liabilities are no longer necessary. Any changes in estimate, or settlement of any particular position, could have a material impact on ouroperating results, financial condition and cash flows.Stock-based CompensationWe measure and recognize compensation expense for all stock-based compensation awards made to employees and directors, including stock options,restricted stock units and awards related to our Employee Stock Purchase Plan (“ESPP”), based upon the grant-date fair value of those awards. The grant datefair value of restricted stock units is based on the fair value of our common stock on the date of grant. The grant date fair value of our stock options and ESPPis estimated using the Black-Scholes option pricing model.The determination of fair value of stock options and ESPP on the date of grant, using an option-pricing model, is affected by our stock price, as well asassumptions regarding a number of highly complex and subjective variables. These variables include our expected stock price volatility over the term of theawards, actual and projected employee stock option exercise behaviors, risk-free interest rates, and expected dividends. We estimated the expected life of theawards based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractuallife of the options and purchase rights. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of theawards. We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, our expecteddividend yield is zero.Stock-based compensation expense recognized in the Consolidated Statement of Operations is based on awards ultimately expected to vest andtherefore has been reduced for estimated forfeitures. The stock-based compensation guidance requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.If factors change and we employ different assumptions to determine the fair value of our stock-based compensation awards granted in future periods, thecompensation expense that we record under it may differ significantly from what we have recorded in the current period.See Note 13, “Employee Benefit Plans and Stock-based Compensation,” of the notes to our Consolidated Financial Statements for additionalinformation.Results of OperationsNet RevenuePrior to the fourth quarter of 2014, we operated our business in one reportable segment. Beginning in the fourth quarter of 2014, we changed ouroperating segments to align with how our chief operating decision maker, which for us is our Chief Executive Officer, evaluates the financial informationused to allocate resources and assess our performance. The new reporting structure consists of two operating segments: Video and Cable Edge. As a result, thesegment information presented has been conformed to the new operating segments for all prior periods. The Video segment sells video processing andproduction and playout solutions and services worldwide to service providers as well as to broadcast and media companies, including43Table of Contentsstreaming new media companies. The Cable Edge segment sells cable edge solutions and related services to cable operators globally.The following table presents the breakdown of revenue by segments for each of the three years ended December 31, 2015, 2014 and 2013 (in thousands,except percentages): Year ended December 31, 2015 2014 2013 2015 vs. 2014 2014 vs. 2013Video$291,779 $326,756 $381,994 $(34,977)(11)% $(55,238)(14)%Cable Edge85,248 106,801 79,946 (21,553)(20)% 26,85534 % Total net revenue$377,027 $433,557 $461,940 $(56,530)(13)% $(28,383)(6)% Segment revenue as a % of total net revenue: Video77% 75% 83% Cable Edge23% 25% 17% The following table presents the breakdown of revenue by geographical region for each of the three years ended December 31, 2015, 2014 and 2013 (inthousands, except percentages): Year ended December 31, 2015 2014 2013 2015 vs. 2014 2014 vs. 2013Americas$212,568 $245,849 $237,799 $(33,281)(14)% $8,0503 %EMEA92,422 109,645 140,929 (17,223)(16)% (31,284)(22)%APAC72,037 78,063 83,212 (6,026)(8)% (5,149)(6)% Total net revenue$377,027 $433,557 $461,940 $(56,530)(13)% $(28,383)(6)% Regional revenue as a % of total net revenue: Americas56% 57% 51% EMEA25% 25% 31% APAC19% 18% 18% Fiscal 2015 compared to Fiscal 2014Our Video segment net revenue decreased $35.0 million, or 11%, in 2015 compared to 2014. This decrease was primarily attributable to a $44.2 milliondecrease in video product revenue, offset partially by a $9.2 million increase in video service revenue. Starting in 2014, we experienced the investment pauseof several of our customers as they looked ahead towards the industry’s transition to Ultra HD and high-efficiency video coding (“HEVC”) compression andnew virtualized architectures for video processing and this negative factor extended into 2015 as we see our customer making investment decisions muchslower than before. The consolidation of some of our customers in the North America and EMEA regions also contributed to the spending pause weexperienced, particularly in the second half of 2015. In addition, the strengthening of the U.S. dollar contributed to the decline in our international videobusiness, as over half of our video product revenue was derived from international customers. The increases in our service revenue were primarily due to anincrease in the installed base of equipment being serviced for our customers, primarily in the Americas, in both the service provider and the broadcast andmedia markets.Our Cable Edge segment net revenue decreased $21.6 million, or 20%, in 2015 compared to 2014. Revenue decreased in both our edgeQAM productsas well as the new NSG Pro CCAP products in 2015 compared to 2014. The decrease was primarily due to lower spending associated with the consolidationsof certain cable operators, both in the United States and Europe, particularly in the second half of 2015, which led to a delay in several of our anticipatedlarge projects as well as some decrease in demand as some of our customers looked ahead to our new next generation CCAP technologies. We are currentlydeveloping solutions based on DOCSIS 3.1 CCAP architectures, with initial product deployment scheduled for second half of 2016.44Table of ContentsNet revenue in the Americas decreased $33.3 million, or 14%, in 2015 compared to 2014 primarily due to the decreased demand for both our videoprocessing products and Cable Edge products and the unfavorable impacts from industry consolidations and spending delays ahead of new next generationproduct technologies and architectures. This technology spending pause also contributed to the continued decline in net revenue in EMEA and APAC in2015. APAC net revenue decreased $6.0 million, or 8%, in 2015 compared to 2014, primarily due to softer demand for our video processing products offset inpart by increased revenue from our Cable Edge products. EMEA net revenue decreased $17.2 million, or 16%, in 2015 compared to 2014 with decreasesacross all product categories. The fragile economic and geopolitical climates in EMEA persisted in 2015 and coupled with the strengthening of the U.S.dollar, primarily drove the overall decline in revenue throughout pockets of Europe and Russia. EMEA revenue was also negatively impacted by industryconsolidation in the second half of 2015.Fiscal 2014 compared to Fiscal 2013Our Video segment net revenue decreased $55.2 million, or 14%, in 2014 compared to 2013. This decrease was primarily attributable to a $59.5 milliondecrease in video product revenue, offset partially by a $4.3 million increase in video service revenue. Net revenue for our video processing productsdeclined at nearly twice the rate of our production and playout products during 2014, primarily due to the spending pause of several of our customers as theylooked ahead towards the industry’s transition to Ultra HD and HEVC compression, compounded by our customers’ adoption of next-generation videoprocessing architectures, which corresponded with the launch of our software-based VOS platform in April 2014. The decrease in video segment net revenuewas also impacted by EMEA’s softening macroeconomic conditions in 2014. The increase in video service revenue was primarily attributable to increasedmaintenance revenue across all regions, except EMEA.Our Cable Edge segment net revenue increased $26.9 million, or 34%, in 2014 compared to 2013. This increase was primarily attributable to increasedsales of our NSG products, including the new NSG Pro CCAP product that was launched in the fourth quarter of 2013 and purchased by our largest U.S. cablecustomer. The continued increases in worldwide demand for Narrowcast edgeQAMs paired with our strategic initiative and introduction of NSG Pro platformdrove the strong demand for our NSG products in the service provider market.Net revenue in the Americas increased $8.1 million, or 3%, in 2014 compared to 2013 primarily due to increased sales of our cable edge products toNorth American cable operators, offset partially by decreased sales of our production and playout products to the North American broadcast and mediamarket, which was primarily due to the spending pause ahead of the key technology transitions in the video products. This technology spending pause alsocontributed to the decline in net revenue in EMEA and APAC in 2014. APAC net revenue decreased $5.1 million, or 6%, in 2014 compared to 2013 andEMEA net revenue decreased $31.3 million, or 22%, in 2014 compared to 2013. The decrease in EMEA net revenue was attributable to extraordinaryeconomic and geopolitical unrest in this region, more specifically, Russia, Africa and pockets of the Middle East, which decreased significantly in 2014,impacting overall softness throughout Europe.Gross ProfitThe following presents the gross profit and gross profit as a percentage of net revenue (“gross margin”) for each of the three years ended December 31,2015, 2014 and 2013 (in thousands, except percentages): Year ended December 31, 2015 2014 2013 2015 vs. 2014 2014 vs. 2013Gross profit$202,712 $212,348 $220,445 $(9,636)(5)% $(8,097)(4)%As a percentage of net revenue (“grossmargin”)53.8% 49.0% 47.7% Gross margin increased to 53.8% in 2015 compared to 49.0% in 2014. The increase in gross margin was primarily due to decreased expenses related toamortization, operational efficiencies and product mix shifts in our product portfolio. The expense related to amortization of intangibles included in cost ofrevenue decreased from $13.7 million in 2014 to $0.7 million in 2015, primarily due to the majority of our purchased tangible assets becoming fullyamortized.Gross margin increased to 49.0% in 2014 compared to 47.7% in 2013 despite a steep revenue mix shift in 2014 toward our lower margin cable edgeproducts. The increase in gross margin was primarily due to the closing of several high-value transactions in 2014 and a higher proportion of software-richproduct sales in 2014 as well as decreased expenses related to amortization of intangibles. The expense related to amortization of intangibles included in costof revenue decreased from $19.2 million in 2013 to $13.7 million in 2014, due to certain purchased tangible assets becoming fully amortized.45Table of ContentsResearch and DevelopmentOur research and development expense consists primarily of employee salaries and related expenses, contractors and outside consultants, supplies andmaterials, equipment depreciation and facilities costs, all associated with the design and development of new products and enhancements of existingproducts. The following table presents the research and development expenses and the expense as a percentage of net revenue for each of the three yearsended December 31, 2015, 2014 and 2013 (in thousands, except percentages): Year ended December 31, 2015 2014 2013 2015 vs. 2014 2014 vs. 2013Research and development$87,545 $93,061 $99,938 $(5,516)(6)% $(6,877)(7)%As a percentage of net revenue23.2% 21.5% 21.6% The $5.5 million, or 6%, decrease in research and development expense in 2015 compared to 2014 was primarily attributable to decreased headcountand related expenses as a result of our worldwide workforce reduction related to our restructuring plans, and to a lesser extent, due to a favorable impact fromthe strengthened U.S. dollar on our spending denominated in Israeli shekels, reimbursement of research and development expenses for work performed forone of our customers, and decreased depreciation for testing equipment.The $6.9 million, or 7%, decrease in research and development expense in 2014 compared to 2013 was primarily attributable to decreased headcountand related expenses, and to a lesser extent, decreased prototype materials costs and decreased facilities and other expenses. The decrease in headcountrelated expenses was primarily a result of our restructuring programs implemented in fiscal 2013. The decreases in research and development expenses in2014 were offset partially by increased expenses on consulting and outside engineering services primarily related to increased shift of research anddevelopment resources to lower cost facilities.Selling, General and AdministrativeThe following table presents the selling, general and administrative expenses and the expense as a percentage of net revenue for each of the three yearsended December 31, 2015, 2014 and 2013 (in thousands, except percentages): Year ended December 31, 2015 2014 2013 2015 vs. 2014 2014 vs. 2013Selling, general and administrative$120,960 $131,322 $134,014 $(10,362)(8)% $(2,692)(2)%As a percentage of net revenue32.1% 30.3% 29.0% The $10.4 million, or 8%, decrease in selling, general and administrative expenses in 2015 compared to 2014 was primarily attributable to decreasedheadcount and related expenses as a result of our worldwide workforce reduction related to our restructuring plans and lower variable employeecompensation related expenses as well as decreased depreciation for demonstration equipment and cost containment effort in sales and marketing relatedexpenses. These decreases were offset in part by $1.4 million increase in legal and professional expenses in connection with the acquisition of TVN. See Note20, “Subsequent Event-TVN Acquisition” of the notes to our Consolidated Financial Statements for additional information on the acquisition.The $2.7 million, or 2%, decrease in selling, general and administrative expenses in 2014 compared to 2013 was primarily attributable to decreasedlegal and other professional fees, and to a lesser extent, decreased headcount and related expense and decreased third-party commission expense. In 2013, wehad higher legal fees related to our legal proceedings with Avid as well as the legal costs attributable to shareholder activist activity in the second quarter of2013. These decreases were offset partially by increased facilities rental and other operating expense and increased depreciation for our demonstrationequipment.Segment Operating IncomeThe following table presents a breakdown of operating income by segment for each of the three years ended December 31, 2015, 2014 and 2013 (inthousands, except percentages):46Table of Contents Year ended December 31, 2015 2014 2013 2015 vs. 2014 2014 vs. 2013Video$13,529 $18,073 $24,583 $(4,544)(25)% $(6,510)(26)%Cable Edge(1,599) 1,239 (1,282) (2,838)(229)% 2,521(197)%Total segment operating income$11,930 $19,312 $23,301 (7,382)(38)% (3,989)(17)% Segment operating income (loss) as a % of segment revenue: Video5 % 6% 6 % Cable Edge(2)% 1% (2)% The following table presents a reconciliation of total segment operating income to consolidated loss from continuing operations before income taxes(in thousands): Year ended December 31, 2015 2014 2013Total operating income by segment$11,930 $19,312 $23,301Unallocated corporate expenses(2,794) (3,076) (2,994)Stock-based compensation(15,582) (17,287) (16,002)Amortization of intangibles(6,502) (20,520) (27,329)Consolidated operating loss(12,948) (21,571) (23,024)Non-operating loss(3,120) (224) (128)Loss from continuing operations before income taxes$(16,068) $(21,795) $(23,152)Fiscal 2015 compared to Fiscal 2014Video segment operating income decreased $4.5 million, or 25%, in 2015 compared to 2014 and operating margin decreased from 6% in 2014 to 5% in2015. The decrease was primarily attributable to an 11% decrease in Video segment revenue, offset in part by the favorable impact from a reduction inoperating expenses primarily due to decreased headcount and employee variable compensation related expenses, depreciation for demonstration equipmentand cost containment effort in sales and marketing related expenses, as well as efficiencies from manufacturing and overhead spending.Cable Edge segment operating income decreased $2.8 million, or 229%, in 2015 compared to 2014 and operating margin decreased from 1% in 2014 to(2)% in 2015. The unfavorable impact from a 20% decrease in Cable Edge segment revenue was primarily offset by efficiencies from manufacturing andoverhead spending, especially for our NSG Pro products as well as lower research and development expenses.Fiscal 2014 compared to Fiscal 2013Video segment operating income decreased $6.5 million, or 26%, in 2014 compared to 2013 primarily attributable to lower sales volume in 2014.Despite decreased sales volume in 2014, Video segment operating margin remained at 6% in 2014 primarily due to the closing of several high-valuetransactions in 2014 and a higher proportions of software-rich product sales in 2014.Cable Edge segment operating income increased $2.5 million, or 197%, in 2014 compared to 2013 and operating margin increased from (2)% in 2013to 1% in 2014. The increase in Cable Edge operating income and margin in 2014 was attributable to a higher sales volume in 2014, a higher proportion ofsoftware-rich product sales in 2014, and continued improvements to our supply chain and manufacturing processes.Amortization of IntangiblesAmortization of intangibles was $5.8 million, $6.8 million and $8.1 million during 2015, 2014 and 2013 respectively. The decreases in theamortization of intangibles expense in each year were primarily due to certain purchased tangible assets becoming fully amortized.47Table of ContentsRestructuring and Asset Impairment ChargesWe implemented several restructuring plans in the past few years and recorded restructuring and asset impairment charges of $1.5 million, $3.1 millionand $2.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. The goal of these plans was to bring operational expenses toappropriate levels relative to its net revenues, while simultaneously implementing extensive company-wide expense control programs.We account for our restructuring plans under the authoritative guidance for exit or disposal activities. The restructuring and asset impairment chargesare included in “Product cost of revenue” and “Operating expenses-restructuring and asset impairment charges” in the Consolidated Statements ofOperations. The following table summarizes the restructuring and asset impairment charges (in thousands): Year ended December 31, 2015 2014 2013Product cost of revenue$113 $315 $823Operating expenses-Restructuring and asset impairment charges1,372 2,761 1,421Total$1,485 $3,076 $2,244The restructuring charges of $1.5 million in 2015 were under the Harmonic 2015 Restructuring Plan which primarily consisted of severance andbenefits for the termination of 37 employees worldwide.The restructuring and asset impairment charges of $3.1 million in 2014 consisted of $2.2 million and $0.9 million incurred under the Harmonic 2015Restructuring Plan and Harmonic 2013 Restructuring Plan, respectively. The Harmonic 2015 Restructuring Plan was approved and initiated in the fourthquarter of 2014 and the charges recorded under this Plan in 2014 consisted of $1.1 million fixed asset impairment charge related to software developmentcosts incurred for a discontinued project, $0.6 million of severance and benefits related to the termination of 19 employees worldwide, $0.3 million of excessmaterials costs associated with the termination of a research and development project and $0.1 million of other charges. The $0.9 million restructuring andasset impairment charges recorded in 2014 related to the Harmonic 2013 Restructuring Plan which commenced in 2013 and extended through the thirdquarter of 2014 consisted primarily of severance and benefits related to the termination of 25 employees worldwide.The restructuring charges of $2.2 million in 2013 were under the Harmonic 2013 Restructuring Plan and consisted of $1.7 million severance andbenefits related to the termination of 85 employees worldwide. In addition, we wrote-down, to its estimated net realizable value, leasehold improvements andfurniture related to our Milpitas warehouse by $0.1 million, and wrote-down inventory to reflect $0.4 million of obsolete inventories arising from therestructuring of our Israel facilities.See Note 11, “Restructuring and Asset Impairment Charges,” of the notes to our Consolidated Financial Statements for additional information.Interest Income (Expense), NetInterest income (expense), net was $(0.3) million, $0.1 million and $0.2 million during 2015, 2014 and 2013, respectively. Interest expense increasedin 2015 reflecting the additional interest expense associated with the convertible senior notes issued in December 2015.In December 2015, we issued $128.25 million aggregate principal amount of convertible senior notes due 2020 (“the Notes”) through a privateplacement with a financial institution. The Notes bear interest at 4.00% per annum, which is payable semiannually in arrears on June 1 and December 1 ofeach year, commencing June 1, 2016. In accordance with accounting guidance on embedded conversion features, we valued and bifurcated the conversionoption associated with the Notes recording $26.9 million in stockholders’ equity. We incurred approximately $4.1 million of debt issuance costs inconnection with the issuance of the Notes which we recorded as a deduction to the carrying amount of the Notes and $0.8 million of debt issuance costs wasallocated to stockholders’ equity. The resulting net debt discount, difference between the principal amount of the Notes and the carrying value of the Notes,of $30.2 million is amortized to interest expenses at an effective interest rate of 9.94% over the contractual term of the Notes. In 2015, we recorded $240,000of coupon interest expense and $216,000 of interest expenses related to the amortization of debt discount. (See Note 12, “Convertible Notes and CreditFacility,” of the notes to our Consolidated Financial Statements for additional information on the Notes).Other Expense, Net48Table of ContentsOther expense, net was $0.3 million, $0.4 million and $0.3 million during 2015, 2014 and 2013, respectively. Other expense, net is primarilycomprised of foreign exchange gains and losses on cash, accounts receivable and intercompany balances denominated in currencies other than the U.S.dollar. To mitigate the volatility related to fluctuations in the foreign exchange rates, we enter into various foreign currency forward contracts. The gain (loss)on foreign currency is driven by the fluctuations in the foreign currency exchanges rates, primarily the Euro, British pound, Japanese yen and Israeli shekels.Loss on Impairment of Long-term InvestmentWe attended a VJU board meeting on March 5, 2015 as an observer. At that meeting, we were made aware of significant decreases in VJU’s businessprospects, VJU’S existing working capital and prospects for additional funding, compared to the prior information we had received from VJU. Based on ourassessment, we determined that our investment in VJU was impaired on an other-than-temporary basis. Factors considered included the severity of theimpairment and recent events specific to VJU. Based on our assessment of VJU’s expected cash flows, the entire investment is expected to be non-recoverable. As a result, we recorded an impairment charge of $2.5 million in the first quarter of 2015. Our impairment loss in VJU is limited to our initial costof investment of $2.5 million as well as the $0.1 million of research and development cost expensed in September 2014.For the years ended December 31, 2015 and 2014, we recorded $0.8 million and $0.7 million, respectively, of unrealized losses in accumulated othercomprehensive loss relating to our investment in Vislink. We determined that there was no impairment indicators existing at December 31, 2015 that wouldindicate that the Vislink investment was impaired and we believe the decline in the fair value of Vislink investment was not other than temporary. However,sustained depression of Vislink’s stock price coupled with deterioration in financial condition and near term prospects of the investment may lead to another-than-temporary impairment assessment in 2016. As of December 31, 2015, our maximum exposure to loss from the Vislink investment was limited toour initial investment cost of $3.3 million.See Note 5, “Investments in Other Equity Securities” of the notes to our Consolidated Financial Statements for additional information.Income TaxesWe reported the following operating results for each of the three years ended December 31, 2015, 2014 and 2013 (in thousands, except percentages): Year ended December 31, 2015 2014 2013Loss from continuing operations before income taxes(16,068) (21,795) (23,152)Provision for (benefit from) income taxes(407) 24,453 (44,741)Effective income tax rate3% (112)% 193%Our effective tax rate generally differs from the U.S. federal statutory rate of 35% due to favorable tax rates associated with certain earnings from ouroperations in lower tax jurisdictions throughout the world. In addition, our effective tax rates vary in each period primarily due to specific one-time, discreteitems that affected the tax rate in the respective period.In 2015, our effective income tax rate of 3% differed from the U.S. federal statutory rate of 35%, primarily due to a difference in foreign tax rates and ourlosses generated in the United States for the year received no tax benefit as a result of a full valuation allowance against all of our U.S. deferred tax assets, aswell as adjustments relating to our 2014 U.S. federal tax return filed in September 2015 and a reversal of uncertain tax positions resulting from the expirationof statutes of limitations. In addition, the impairment of the VJU investment (see Note 5, “Investments in Other Equity Securities”) received no tax benefit.In 2014, as a result of cumulated losses in the recent years and the analysis of all available positive and negative evidence, we recorded a full valuationallowance against the beginning of year U.S. net deferred tax assets of $34.0 million. In addition, in 2014, we carried back our 2013 federal net operating lossto 2011 resulting in a tax refund. Certain federal R&D credits were also freed up as a result and utilized to offset income tax reserves as a result of theadoption of ASU 2013-11. These two events reduced the valuation allowance by approximately $5.0 million and led to the net change of valuationallowance of $29.0 million. This unfavorable net impact was offset partially by a tax benefit of $9.0 million associated with the release of tax reservesincluding accrued interest and penalties, for our 2010 tax year in the United States, as a result of the expiration of the applicable statute of limitation for thatyear.49Table of ContentsIn 2013, the benefit from income taxes included a release of $39.0 million of tax reserves, including accrued interests and penalties, for our 2008 and2009 tax years in the United States, as a result of the expiration of the applicable statute of limitations for those tax years. In addition, in 2013, we recorded a$2.4 million tax benefit from the reinstatement of the 2012 U.S. federal research tax credit.For a reconciliation of our effective tax rate to the U.S. federal statutory rate of 35% and further explanation of our provision for taxes, see Note 15,“Income Taxes,” of the notes to our Consolidated Financial Statements.Discontinued OperationsOn February 18, 2013, the Company entered into an Asset Purchase Agreement with Aurora pursuant to which the Company agreed to sell its cableaccess HFC business for $46 million in cash. On March 5, 2013, the sale transaction closed and the Company received gross proceeds of $46 million from thesale and recorded a net gain of $14.7 million in connection with the sale. See Note 3, “Discontinued Operations” of the notes to our Consolidated FinancialStatements for additional information.Liquidity and Capital ResourcesOur primary sources of liquidity are cash generated from operations and funds available from financing obtained from capital markets. Cash generatedfrom operations is dependent on a number of factors, including the timing of billings and collections, our operating results, the timing and amount of tax andother liability payment.In 2015, we generated cash from operations of $6.4 million and obtained $124.7 million of net proceeds from the issuance of the Notes. As of December31, 2015, our cash and cash equivalents totaled $126.2 million, and our short-term investments totaled $26.6 million, of which $27.9 million of the cash andcash equivalents balance was held in our foreign subsidiaries. At present, such foreign funds are considered to be indefinitely reinvested in foreign countriesto the extent of indefinitely reinvested foreign earnings. In the event funds from foreign operations are needed to fund cash needs in the United States and ifU.S. taxes have not already been previously accrued, we would be required to accrue and pay additional U.S. taxes in order to repatriate these funds.In December 2015, we issued $128.25 million aggregate principal amount of the Notes. We incurred approximately $4.1 million of debt issuance cost,of which $3.5 million was paid in 2015 and the remainder will be paid in the first quarter of 2016. The Notes bear interest at a fixed rate of 4.00% per year,payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2016 and mature on December 1, 2020. Concurrent with theissuance of the Notes, we used $49.9 million of the net proceeds from the Notes to repurchase 11.1 million shares of our common stock. The remaining netproceeds from the Notes was used to fund our acquisition of TVN, which was completed on February 29, 2016. (See Note 20, “Subsequent Event-TVNAcquisition,” of the notes to our Consolidated Financial Statements for additional information on TVN Acquisition).On December 22, 2014, we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”) for a $20.0million revolving credit facility, with a sublimit of $10.0 million for the issuance of commercial and standby letters of credit on our behalf. Revolving loansunder the Credit Agreement may be borrowed, repaid and re-borrowed until December 22, 2015, at which time all amounts borrowed must be repaid. OnDecember 7, 2015, we entered into a first amendment to the Credit Agreement with JPMorgan to permit us to incur the indebtedness related to issuance of theNotes. On December 15, 2015, we entered into a second amendment to the Credit Agreement with JPMorgan to extend the expiration date of the CreditAgreement to February 20, 2016. We did not renew the Credit Agreement and it duly expired on February 20, 2016. There were no borrowings under theCredit Agreement during the year ended December 31, 2015. As of December 31, 2015, we were in compliance with the covenants under the CreditAgreement.We believe that existing funds combined with cash provided by future operating activities are adequate to satisfy our working capital, potentialacquisitions and capital expenditure requirements and other contractual obligations for the foreseeable future, including at least the next 12 months.However, if our expectations are incorrect, we may need to raise additional funds to fund our operations, to take advantage of unanticipated strategicopportunities or to strengthen our financial position. In the future, we may enter into other arrangements for potential investments in, or acquisitions of,complementary businesses, services or technologies, which could require us to seek additional equity or debt financing. Additional funds may not beavailable on terms favorable to us or at all.50Table of Contents Year ended December 31, 2015 2014 2013 (In thousands)Net cash provided by operating activities$6,351 $47,369 $53,759Net cash provided by (used in) investing activities(10,414) 27,799 51,094Net cash provided by (used in) financing activities57,533 (92,007) (111,202)Effect of exchange rate changes on cash and cash equivalents(312) (458) 8Net increase (decrease) in cash and cash equivalents$53,158 $(17,297) $(6,341)Operating ActivitiesOur cash flows from operating activities will continue to be affected principally by our profitability, working capital requirements, and the continuedgrowth in revenue and timing of billing and cash collections. Our largest source of operating cash flows is cash collections from our customers. Our primaryuses of cash from operating activities are for personnel related expenditures, purchases of inventory and rent payments.Net cash provided by operating activities was $6.4 million in 2015, a decrease of $41.0 million compared to 2014, which resulted from our net loss of$15.7 million, adjusted for non-cash items of $41.8 million and a $19.8 million decrease in cash associated with the net change in operating assets andliabilities. The non-cash items primarily consisted of amortization of intangibles, stock-based compensation, depreciation, and a $2.5 million impairmentloss on long-term investment. The net change in operating assets and liabilities primarily included increases in prepaid and other current assets andinventories, as well as decreases in accrued and other liabilities and deferred revenue, which were offset in part by an increase in accounts payable. Theincrease in prepaid and other current assets was primarily due to an $8.5 million advance payment made to an inventory supplier in 2015 in order to securemore favorable pricing from the supplier and this amount is anticipated to be offset against accounts payable owed to this supplier in the first quarter of 2017.The increase in inventories was mainly driven by inventory built up for our new NSG Pro products. The decrease in accrued liabilities was primarily due tolower accruals for salaries and benefits as well as bonus and commissions resulting from the reduction of our worldwide workforce related to our restructuringplans. The decrease in deferred revenue was primarily due to the timing of periodic service and support billings for annual contracts.Net cash provided by operations was $47.4 million in 2014, a decrease of $6.4 million compared to 2013, which resulted from our net loss of $46.2million, adjusted for non-cash items of $93.6 million. The non-cash items primarily consisted of amortization of intangibles, stock-based compensation,depreciation and change in deferred income taxes. Deferred income taxes decreased $32.2 million primarily related to the increase in U.S. federal andCalifornia tax valuation allowance as a result of our history of recent operating losses that has led to uncertainty with respect to our ability to realize certainof our net deferred tax assets. The net change in operating assets and liabilities in 2014 were minimal. The increase in deferred revenue due to the timing ofperiodic service and support billings for annual contracts was offset by a decrease in income tax payable primarily due to the reversal of federal income taxreserves as a result of the expiration of the statute of limitation and a decrease in accrued liabilities primarily due to lower accrual for headcount relatedexpenses as well as an increase in prepaid and other assets of $3.3 million primarily related to an advance payment for software license purchases paid toVislink, plc (“Vislink”), a U.K. public company listed on the AIM exchange (see Note 5, “Investments in Other Equity Securities” of the notes to ourConsolidated Financial Statements for additional information).We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in ouroperating results, shipment linearity, accounts receivable collections performance, inventory and supply chain management, income tax reservesadjustments, and the timing and amount of compensation and other payments. We usually pay our annual incentive compensation to employees in the firstquarter.Investing ActivitiesNet cash used in investing activities during 2015 was $10.4 million, a decrease of $38.2 million compared to cash provided by investing activities of$27.8 million in 2014. The decrease was primarily due to lower proceeds from net sales of available-for-sale investments in 2015 as well as higher capitalexpenditures in 2015.Net cash provided by investing activities during 2014 was $27.8 million, a decrease of $23.3 million compared to 2013. The decrease was primarily dueto net proceeds from the sale of discontinued operations of $43.5 million received in 2013 and the purchases of long-term investments of $9.4 million in2014, offset in part by lower capital expenditures and lower net purchases of available-for-sale investments in 2014.Financing Activities51Table of ContentsNet cash provided by financing activities during 2015 was $57.5 million, an increase of $149.5 million compared to 2014. The increase was primarilydue to net proceeds of $124.7 million from the sale and issuance of the Notes in December 2015 as well as lower amount of cash used for share repurchases in2015 and to a lesser extent, higher net proceeds from sale of shares through equity incentive plans during 2015. Cash used for share repurchases in 2015 was$72.9 million, consisting of $23.0 million under our regular common stock repurchase program and $49.9 million of the net proceeds from the issuance of theNotes.Net cash used in financing activities during 2014 was $92.0 million, a decrease of $19.2 million compared to 2013. The decrease was primarily due tolower amount of cash used for share repurchases in 2014, and to a lesser extent, higher net proceeds from sale of shares through equity incentive plans during2013, compared to 2014.Off-Balance Sheet ArrangementsNone as of December 31, 2015.Contractual Obligations and CommitmentsFuture payments under contractual obligations and other commercial commitments, as of December 31, 2015 are as follows (in thousands): Payments Due by Period TotalAmountsCommitted 1 Year orLess 2 -3 Years 4-5 Years Over 5 YearsConvertible debt$128,250 $— $— $128,250 $—Interest on convertible debt25,462 4,942 10,260 10,260 —Operating leases (1)45,537 10,784 19,988 14,089 676Purchase commitments (2)15,295 15,295 — — — Total contractual obligations$214,544 $31,021 $30,248 $152,599 $676Other commercial commitments: Standby letters of credit$678 $678 $— $— $— Indemnification obligations (3)— — — — — Total commercial commitments$678 $678 $— $— $—(1) We lease facilities under operating leases expiring through November 2022. Certain of these leases provide for renewal option for periods rangingfrom one to five years in the normal course of business and we may exercise the renewal option.(2) During the normal course of business, in order to reduce manufacturing lead times and ensure adequate component supply, we enter into agreementswith certain contract manufacturers and suppliers that allow them to procure inventory and services based upon criteria as defined by the Company.(3) We indemnify our officers and the members of our Board pursuant to our bylaws and contractual indemnity agreements. We also indemnify some ofour suppliers and most of our customers for specified intellectual property matters and some of our other vendors, such as building contractors, pursuantto certain parameters and restrictions. The scope of these indemnities varies, but, in some instances, includes indemnification for defense costs, damagesand other expenses (including reasonable attorneys’ fees).Due to the uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at December 31, 2015, we areunable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority. Therefore, approximately $3.9 million ofunrecognized tax benefits classified as “Income taxes payable, long-term” in the accompanying Consolidated Balance Sheet as of December 31, 2015, hadbeen excluded from the contractual obligations table above. See Note 15, “Income Taxes” of the notes to our Consolidated Financial Statements for adiscussion on income taxes.New Accounting Pronouncements52Table of ContentsSee Note 2 of the accompanying Consolidated Financial Statements for a full description of recent accounting pronouncements, including therespective expected dates of adoption and effects on results of operations and financial condition.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Foreign Currency Exchange RiskWe operate in international markets, which expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. Dollarand various foreign currencies.We have certain international customers who are billed in their local currency, primarily the Euro, British pound and Japanese yen. Sales denominatedin foreign currencies were approximately 12%, 10%, and 12% of net revenue in 2015, 2014 and 2013, respectively. In addition, a portion of our operatingexpenses, primarily the cost of personnel to deliver technical support on our products and professional services, sales and sales support and research anddevelopment, are denominated in foreign currencies, primarily the Israeli shekel. We use derivative instruments, primarily forward contracts, to manageexposures to foreign currency exchange rates and we do not enter into foreign currency forward contracts for trading purposes.Derivatives Designated as Hedging Instruments (Cash Flow Hedges)Beginning December 2014, we entered into forward currency contracts to hedge forecasted operating expenses and service cost related to employeesalaries and benefits denominated in Israeli shekels (“ILS”) for our subsidiaries in Israel. These ILS forward contacts mature generally within 12 months andare designated as cash flow hedges. The effective portion of the gains or losses on the derivative is reported as a component of “Accumulated othercomprehensive income (loss)” (“AOCI”) in the Consolidated Balance Sheet and subsequently reclassified into earnings in the same period during which thehedged transactions are recognized in earnings. If the hedge program becomes ineffective or if the underlying forecasted transaction does not occur for anyreason, or it becomes probable that it will not occur, the gain or loss on the related derivative will be reclassified from AOCI to earnings immediately.Derivatives Not Designated as Hedging Instruments (Balance Sheet Hedges)We also enter into forward currency contracts to hedge foreign currency denominated monetary assets and liabilities. These derivative instruments aremarked to market through earnings every period and mature generally within three months. Changes in the fair value of these foreign currency forwardcontracts are recognized in “Other income (expense), net” in the Consolidated Statement of Operations, net and are largely offset by the changes in the fairvalue of the assets or liabilities being hedged. The U.S. dollar equivalent of all outstanding notional amounts of foreign currency forward contracts are summarized as follows (in thousands): December 31, 2015 2014Derivatives designated as cash flow hedges: Purchase $12,984 $16,903Derivatives not designated as hedging instruments: Purchase $6,942 $1,043 Sell $11,332 $4,925Interest Rate RiskOur exposure to market risk for changes in interest rates relates primarily to our investment portfolio of marketable debt securities of various issuers,types and maturities and to our borrowings under the bank line of credit facility. As of December 31, 2015, our cash, cash equivalents and short-terminvestments balance was $152.8 million and we have no borrowings under the bank line of credit during the year ended December 31, 2015. Our short-terminvestments are classified as available for sale53Table of Contentsand are carried at estimated fair value with unrealized gains and losses reported in “accumulated other comprehensive income (loss)”. For the years endedDecember 31, 2015, 2014 and 2013, realized gains and realized losses from the sale of investments were not material. As of December 31, 2015, we had$128.25 million aggregate principal amount of the Notes outstanding, which have a fixed coupon rate.Our cash, cash equivalents and short-term investments are held for working capital purposes. We do not use derivative financial instruments in ourinvestment portfolio. We have an investment portfolio of fixed income securities that are classified as “available-for-sale securities.” These securities, like allfixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. We attempt to limit this exposure by investingprimarily in short-term and investment-grade instruments with original maturities of less than two years. Due to the short duration and conservative nature ofour investment portfolio, a movement of 10% in market interest rates would not have a material impact on our operating results and the total value of theportfolio over the next fiscal year. If overall interest rates had fallen by 10% during fiscal 2015, our interest income on cash, cash equivalents and short-terminvestments would have declined by less than $0.1 million assuming consistent investment levels.For the years ended December 31, 2015 and 2014, we recorded $0.8 million and $0.7 million, respectively, of unrealized losses in accumulated othercomprehensive loss relating to our investment in Vislink (See Note 5, “Investments in Other Equity Securities,” of the notes to our Consolidated FinancialStatements for additional information). We determined that there was no impairment indicators existing at December 31, 2015 that would indicate that theVislink investment was impaired and we believe the decline in the fair value of Vislink investment was not other than temporary. However, sustaineddepression of Vislink’s stock price coupled with deterioration in financial condition and near term prospects of the investment may lead to an other-than-temporary impairment assessment in 2016. As of December 31, 2015, our maximum exposure to loss from the Vislink investment was limited to our initialinvestment cost of $3.3 million.54Table of ContentsItem 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAIndex to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm56Consolidated Balance Sheets57Consolidated Statements of Operations58Consolidated Statements of Comprehensive Income (Loss)59Consolidated Statements of Stockholders’ Equity60Consolidated Statements of Cash Flows61Notes to Consolidated Financial Statements6255Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Harmonic Inc.:In our opinion, the accompanying Consolidated Balance Sheets and the related Consolidated Statements of Operations, Consolidated Statements ofComprehensive Income (Loss), Consolidated Statements of Stockholders’ Equity, and Consolidated Statements of Cash Flows present fairly, in all materialrespects, the financial position of Harmonic Inc. and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of their operations andtheir cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the UnitedStates of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on InternalControl over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’sinternal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Ouraudit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that amaterial weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits alsoincluded performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for ouropinions.As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it classifies deferred tax assets andliabilities on the consolidated balance sheet in 2015.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate./S/ PRICEWATERHOUSECOOPERS LLPPRICEWATERHOUSECOOPERS LLPSan Jose, CaliforniaMarch 24, 201656Table of ContentsHARMONIC INC.CONSOLIDATED BALANCE SHEETS(In thousands, except per share data) December 31, 2015 2014ASSETS Current assets: Cash and cash equivalents$126,190 $73,032 Short-term investments26,604 31,847 Accounts receivable, net69,515 74,144 Inventories38,819 32,747 Deferred tax assets, short-term— 3,375 Prepaid expenses and other current assets25,003 17,539Total current assets286,131 232,684Property and equipment, net27,012 27,221Goodwill197,781 197,884Intangibles, net4,097 10,599Other assets9,936 12,130Total assets$524,957 $480,518LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable$19,364 $15,318 Income taxes payable307 893 Deferred revenue33,856 38,601 Accrued liabilities31,354 35,118Total current liabilities84,881 89,930Convertible debt, long-term98,295 —Income taxes payable, long-term3,886 4,969Deferred tax liabilities, long-term— 3,095Other non-current liabilities9,727 10,711Total liabilities196,789 108,705Commitments and contingencies (Note 18) Stockholders’ equity: Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding— — Common stock, $0.001 par value, 150,000 shares authorized; 76,015 and 87,700 shares issued andoutstanding at December 31, 2015 and 2014, respectively76 88 Additional paid-in capital2,236,418 2,261,952 Accumulated deficit(1,903,908) (1,888,247) Accumulated other comprehensive loss(4,418) (1,980)Total stockholders’ equity328,168 371,813Total liabilities and stockholders’ equity$524,957 $480,518The accompanying notes are an integral part of these consolidated financial statements.57Table of ContentsHARMONIC INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Year ended December 31, 2015 2014 2013Revenue: Product$276,876 $343,186 $376,598 Service100,151 90,371 85,342Total net revenue377,027 433,557 461,940Cost of revenue: Product121,988 172,280 196,766 Service52,327 48,929 44,729Total cost of revenue174,315 221,209 241,495Total gross profit202,712 212,348 220,445Operating expenses: Research and development87,545 93,061 99,938 Selling, general and administrative120,960 131,322 134,014 Amortization of intangibles5,783 6,775 8,096 Restructuring and asset impairment charges1,372 2,761 1,421Total operating expenses215,660 233,919 243,469Loss from operations(12,948) (21,571) (23,024)Interest (expense) income, net(333) 132 219Other expense, net(282) (356) (347)Loss on impairment of long-term investment(2,505) — —Loss from continuing operations before income taxes(16,068) (21,795) (23,152)Provision for (benefit from) income taxes(407) 24,453 (44,741)Income (loss) from continuing operations(15,661) (46,248) 21,589Income from discontinued operations, net of taxes (including gain on disposal of $14,663,net of taxes, for the year ended December 31, 2013)— — 15,438Net income (loss)$(15,661) $(46,248) $37,027Basic net income (loss) per share from: Continuing operations$(0.18) $(0.50) $0.20 Discontinued operations$— $— $0.14Net income (loss)$(0.18) $(0.50) $0.35Diluted net income (loss) per share from: Continuing operations$(0.18) $(0.50) $0.20 Discontinued operations$— $— $0.14Net income (loss)$(0.18) $(0.50) $0.34Shares used in per share calculations: Basic87,514 92,508 106,529Diluted87,514 92,508 107,808The accompanying notes are an integral part of these consolidated financial statements.58Table of ContentsHARMONIC INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands) Year ended December 31, 2015 2014 2013Net income (loss)$(15,661) $(46,248) $37,027Other comprehensive income (loss), before tax: Change in unrealized gain (loss) on cash flow hedges: Unrealized gain (loss), net arising during the period(133) 311 — Gains reclassified into earnings(424) — — (557) 311 — Change in unrealized gains (loss) on available-for-sale securities(785) (815) 4 Change in foreign currency translation adjustments(1,111) (1,281) 260Other comprehensive income (loss) before tax(2,453) (1,785) 264Provision for (benefit from) income taxes(15) (14) 8Other comprehensive income (loss), net of tax(2,438) (1,771) 256Total comprehensive income (loss)$(18,099) $(48,019) $37,283The accompanying notes are an integral part of these consolidated financial statements.59Table of ContentsHARMONIC INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands) Common Stock AdditionalPaid-inCapital AccumulatedDeficit AccumulatedOtherComprehensiveLoss TotalStockholders’Equity Shares Amount Balance at December 31, 2012114,193 $114 $2,432,790 $(1,879,026) $(465) $553,413Net income— — — 37,027 — 37,027Other comprehensive income, net of tax— — — — 256 256Issuance of Common Stock under option, stock award andpurchase plans3,482 3 5,183 — — 5,186Repurchase of Common Stock(18,262) (18) (116,511) — — (116,529)Stock-based compensation— — 16,089 — — 16,089Reduction in excess tax benefits from stock-basedcompensation— — (1,276) — — (1,276)Balance at December 31, 201399,413 99 2,336,275 (1,841,999) (209) 494,166Net loss— — — (46,248) — (46,248)Other comprehensive loss, net of tax— — — — (1,771) (1,771)Issuance of Common Stock under option, stock award andpurchase plans2,181 2 1,104 — — 1,106Repurchase of Common Stock(13,894) (13) (93,115) — — (93,128)Stock-based compensation— — 17,287 — — 17,287Excess tax benefits from stock-based compensation— — 401 — — 401Balance at December 31, 201487,700 88 2,261,952 (1,888,247) (1,980) 371,813Net loss— — — (15,661) — (15,661)Other comprehensive loss, net of tax— — — — (2,438) (2,438)Issuance of Common Stock under option, stock award andpurchase plans2,855 3 5,670 — — 5,673Repurchase of Common Stock(14,540) (15) (72,848) — — (72,863)Stock-based compensation— — 15,582 — — 15,582Conversion feature of convertible notes due 2020— — 26,062 — — 26,062Balance at December 31, 201576,015 $76 $2,236,418 $(1,903,908) $(4,418) $328,168The accompanying notes are an integral part of these consolidated financial statements.60Table of ContentsHARMONIC INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year ended December 31, 2015 2014 2013Cash flows from operating activities: Net income (loss)$(15,661) $(46,248) $37,027Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization of intangibles6,502 20,520 27,329 Depreciation13,241 16,459 16,641 Stock-based compensation15,582 17,287 16,089 Amortization of discount on convertible debt216 — — Gain on sale of discontinued operations, net of tax— — (14,663) Restructuring, asset impairment and (gain) loss on retirement of fixed assets641 1,622 244 Loss on impairment of long-term investment2,505 — — Deferred income taxes, net(512) 32,163 (8,537) Provision for doubtful accounts, returns and discounts2,034 1,943 960 Provision for excess and obsolete inventories1,585 2,569 3,475 Excess tax benefits from stock-based compensation— (15) (141) Other non-cash adjustments, net— 1,108 2,098 Changes in assets and liabilities: Accounts receivable2,595 (1,035) 9,908 Inventories(5,954) 1,610 13,290 Prepaid expenses and other assets(8,206) (3,332) 1,807 Accounts payable4,683 56 (3,363) Deferred revenues(4,541) 11,162 (1,922) Income taxes payable(1,637) (7,094) (40,546) Accrued and other liabilities(6,722) (1,406) (5,937)Net cash provided by operating activities6,351 47,369 53,759Cash flows from investing activities: Purchases of investments(25,261) (26,599) (78,764) Proceeds from maturities of investments30,379 60,811 63,034 Proceeds from sales of investments— 13,045 37,890 Purchases of property and equipment(14,356) (10,065) (14,581) Proceeds from sale of discontinued operations, net of selling costs— — 43,515 Purchases of long-term investments(85) (9,393) — Restricted cash(1,091) — —Net cash provided by (used in) investing activities(10,414) 27,799 51,094Cash flows from financing activities: Proceeds from convertible debt128,250 — — Payment of convertible debt issuance cost(3,527) — — Proceeds from common stock issued to employees9,222 4,742 8,521 Payment of tax withholding obligations related to net share settlements of restricted stock units(3,549) (3,636) (3,335) Payments for repurchases of common stock(72,863) (93,128) (116,529) Excess tax benefits from stock-based compensation— 15 141Net cash provided by (used in) financing activities57,533 (92,007) (111,202)Effect of exchange rate changes on cash and cash equivalents(312) (458) 8Net increase (decrease) in cash and cash equivalents53,158 (17,297) (6,341)Cash and cash equivalents at beginning of period73,032 90,329 96,670Cash and cash equivalents at end of period$126,190 $73,032 $90,329Supplemental disclosures of cash flow information: Income tax payments, net$952 $1,926 $4,341Supplemental schedule of non-cash investing and financing activities: Capital expenditures incurred but not yet paid$235 $854 $434 Debt issuance costs incurred but not yet paid582 — —The accompanying notes are an integral part of these consolidated financial statements.61Table of ContentsHARMONIC INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1: DESCRIPTION OF BUSINESSHarmonic Inc. (“Harmonic” or the “Company”) designs, manufactures and sells versatile and high performance video infrastructure products and systemsolutions that enable its customers to efficiently create, prepare and deliver a full range of video services to televisions and other devices, such as personalcomputers, laptops, tablets and smart phones. Our products generally fall into three principal categories: video production platforms and playout solutions,video processing solutions and cable edge solutions. Harmonic also provides technical support and professional services to its customers worldwide. We sellour products and services to cable operators, broadcast and media companies, satellite and telecommunications (telco) Pay-TV service providers andstreaming new media companies.NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe accompanying consolidated financial statements of Harmonic include the accounts of the Company and its wholly-owned subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated in consolidation. The Company’s fiscal quarters are based on 13-week periods,except for the fourth quarter which ends on December 31.Discontinued OperationsOn March 5, 2013, the Company completed the sale of its cable access hybrid-fiber coaxial (“HFC”) business to Aurora Networks (“Aurora”) for $46.0million in cash. The results of operations associated with the cable access HFC business were presented as discontinued operations in its condensedconsolidated financial statements as described in Note 3, “Discontinued Operations”. There were no operating activities associated with the cable access HFCbusiness after December 31, 2013. Unless noted otherwise, all discussions herein with respect to the Company’s audited consolidated financial statementsrelate to the Company’s continuing operations.Use of EstimatesThe preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.Reclassifications / Out-of-Period AdjustmentsStarting in the second quarter of 2015, in lieu of presenting the amortization of investment premium as a positive adjustment in the reconciliation ofnet income to operating cash flows, the entire cash flow, including premium is now reflected as an investing outflow, akin to a return of capital. TheCompany adopted this new classification method on a prospective basis starting 2015 because the new classification method does not have a material impactto the Company’s Consolidated Statements of Cash Flow for all prior periods effected.Cash and Cash Equivalents and Short-term investmentsCash and cash equivalents include all cash and highly liquid investments with maturities of three months or less at the date of purchase. The carryingamount of cash and cash equivalents approximates fair value because of the short maturity of those instruments.Restricted Cash and DepositsAs of December 31, 2015, the Company had $1.1 million of total restricted cash. The restricted cash balances are held as cash collateral security forcertain bank guarantees and it is included in “Prepaid expenses and other current assets” in the Company’s Consolidated Balance Sheet. These restrictedfunds are invested in bank deposits and cannot be withdrawn from the Company’s accounts without the prior written consent of the applicable secured party.Short-Term InvestmentsThe Company’s short-term investments, which are classified as available-for-sale securities, comprised primarily of U.S. federal government bonds,state, municipal and local government agencies bonds, corporate bonds, commercial paper and62Table of Contentscertificates of deposit, with stated maturities greater than three months from the date of purchase. The Company may or may not hold these securities untilmaturity because after considering the Company’s liquidity requirements, the Company may sell these securities prior to their stated maturities. Since thesesecurities are considered as available to support current operations, the Company classifies securities with maturities beyond 12 months as current assetsunder short-term investments in the Consolidated Balance Sheets.Short-term investments are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss) in theConsolidated Balance Sheet. The specific identification method is used to determine the cost of securities disposed of, with realized gains and lossesreflected in other income (expense), net in the Company’s Consolidated Statements of Operations. The Company monitors its investment portfolio forimpairment on a periodic basis. In the event a decline in value is determined to be other than temporary, an impairment charge is recorded. The Companyconsiders current market conditions, as well as the likelihood that it would need to sell its investments prior to a recovery of par value, when determining if aloss is other than temporary.Investments in Equity SecuritiesFrom time to time, the Company may acquire certain equity investments for the promotion of business and strategic objectives and these investmentsmay be in marketable equity securities or non-marketable equity securities. The Company accounts for its investments in entities that it does not havesignificant influence under the cost method. Investments in equity securities are carried at fair value if the fair value of the security is readily determinable.Equity investments carried at fair value are classified as long-term investments and included in “Other assets” in the Company’s Consolidated Balance Sheet.Unrealized gains and losses, net of taxes, on the long-term investments are included in the Company’s Consolidated Balance Sheet as a component ofaccumulated other comprehensive income (loss). Investments in equity securities that do not qualify for fair value accounting or equity method accountingare accounted for under the cost method. In accordance with the cost method, the Company’s initial investment is recorded at cost and the Company reviewsall of its cost method investments quarterly to determine if impairment indicators exist. Cost method investments are classified as long-term investments andincluded in “Other assets” in the Company’s Consolidated Balance Sheet.Variable Interest EntitiesFrom time to time, the Company may enter into investments in entities that are considered variable interest entities under Accounting StandardsCodification (ASC) Topic 810. If the Company is the primary beneficiary of a variable interest entity (“VIE”), it is required to consolidate it. To determine ifthe Company is the primary beneficiary of a VIE, the Company evaluates whether it has (1) the power to direct the activities that most significantly impactthe VIE’s economic performance, and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant tothe VIE. The assessment of whether the Company is the primary beneficiary of its VIE requires significant assumptions and judgments. The Company hasconcluded that none of the Company’s equity investments require consolidation as they are either not variable interest entities or, of the equity investmentsthat are variable interest entities, the Company is not considered to be the primary beneficiary based on an assessment performed by management.Concentrations of Credit Risk/Major Customers/Supplier ConcentrationFinancial instruments which subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investmentsand accounts receivable. Cash, cash equivalents and short-term investments are invested in short-term, highly liquid, investment-grade obligations ofcommercial or governmental issuers, in accordance with the Company’s investment policy. The investment policy limits the amount of credit exposure toany one financial institution, commercial or governmental issuer. The Company’s accounts receivable are derived from sales to cable, satellite, telco, andbroadcast and media companies. The Company generally does not require collateral from its customers, and performs ongoing credit evaluations of itscustomers and provides for expected losses. The Company maintains an allowance for doubtful accounts based upon the expected collectability of itsaccounts receivable. No customers had a balance greater than 10% of the Company’s net accounts receivable balance as of December 31, 2015 and 2014. Inthe years ended December 31, 2015, 2014 and 2013, sales to Comcast accounted for 12%, 16% and 12% of the Company’s net revenue, respectively, and noother single customer accounts for more than 10% of total net revenue.Certain of the components and subassemblies included in the Company’s products are obtained from a single source or a limited group of suppliers.Although the Company seeks to reduce dependence on those sole source and limited source suppliers, the partial or complete loss of certain of these sourcescould have at least a temporary adverse effect on the Company’s results of operations and damage customer relationships.Revenue Recognition63Table of ContentsThe Company’s principal sources of revenue are from the sale of hardware, software, hardware and software maintenance contracts, and end-to-endsolutions, encompassing design, manufacture, test, integration and installation of products. The Company recognizes revenue when persuasive evidence ofan arrangement exists, delivery has occurred or services have been provided, the sale price is fixed or determinable, and collectability is reasonably assured.Revenue from the sale of hardware and software products is recognized when risk of loss and title have transferred. For most of the Company’s productsales, these criteria are met at the time the product is shipped or delivery has occurred. Revenue from distributors and system integrators is recognized ondelivery of the related products, provided all other revenue recognition criteria have been met. The Company’s agreements with these distributors and systemintegrators have terms which are generally consistent with the standard terms and conditions for the sale of the Company’s equipment to end users, and donot provide for product rotation or pricing allowances, as are typically found in agreements with stocking distributors. The Company accrues for sales returnsand other allowances based on probable customer returns.Deferred revenue includes billings in excess of revenue recognized, net of deferred cost of revenue, and invoiced amounts remain deferred untilapplicable revenue recognition criteria are met.Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of revenue in the Company’s ConsolidatedStatements of Operations. Costs associated with services are generally recognized as incurred.The Company recognizes revenue from the sale of hardware products and software bundled with hardware that is essential to the functionality of thehardware in accordance with applicable revenue recognition accounting guidance. For the sale of stand-alone software products, bundled with hardware butnot essential to the functionality of the hardware, revenue is allocated between the hardware, including essential software and related elements, and the non-essential software and related elements. Revenue for the hardware and essential software elements are recognized under the relative allocation method.Revenue for the non-essential software and related elements are recognized under the residual method in accordance with software accounting guidance.Revenue associated with service and maintenance agreements is recognized on a straight-line basis over the period in which the services are performed,generally one year. The Company recognizes revenue associated with solution sales using the percentage of completion or completed contract methods ofaccounting. Further details of these accounting policies are described below.Multiple Element Arrangements. The Company has revenue arrangements that include hardware and software essential to the hardware product’sfunctionality, and non-essential software, services and support. For transactions originating or materially modified, beginning January 1, 2011, the Companyhas applied the accounting guidance that requires the Company to allocate revenue to all deliverables based on their relative selling prices. For transactionsoriginating prior to January 1, 2011, the Company applied software revenue recognition accounting guidance, as described in the “Software” section below.The Company determines the relative selling prices by first considering vendor-specific objective evidence of fair value (“VSOE”), if it exists; otherwisethird-party evidence (“TPE”) of the selling price is used. If neither VSOE nor TPE exists for a deliverable, the Company uses a best estimate of the sellingprice (“BESP”) for that deliverable. Once revenue is allocated to all deliverables based on their relative selling prices, revenue related to hardware elements(hardware, essential software and related services) are recognized using a relative selling price allocation and non-essential software and related services arerecognized under the residual method.Harmonic has established VSOE for certain elements of its arrangements based on either historical stand-alone sales to third parties or stated renewalrates for maintenance. The Company has VSOE of fair value for maintenance, training and certain professional services.TPE is determined based on competitor prices for similar deliverables when sold separately. The Company is typically not able to determine TPE forcompetitors’ products or services. Generally, the Company’s go-to-market strategy differs from that of its competitors’ and the Company’s offerings contain asignificant level of differentiation, such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company isunable to reliably determine what competitor similar products’ selling prices are on a stand-alone basis.When the Company is unable to establish fair value of non-software deliverables using VSOE or TPE, the Company uses BESP in its allocation ofarrangement consideration. The objective of using BESP is to determine the price at which the Company would transact a sale if the product or service weresold on a stand-alone basis. The Company determines BESP for a product or service by considering multiple factors, including, but not limited to, pricingpractices, market conditions, competitive landscape, internal costs, geographies and gross margin. The determination of BESP is made through consultationwith Company’s management, taking into consideration the Company’s go-to-market strategy.Software. Sales of stand-alone software that are not considered essential to the functionality of the hardware continue to be subject to the softwarerevenue recognition guidance.64Table of ContentsIn accordance with the software revenue recognition guidance, the Company applies the residual method to recognize revenue for the deliveredelements in stand-alone software transactions. Under the residual method, the amount of revenue allocated to delivered elements equals the total arrangementconsideration, less the aggregate fair value of any undelivered elements, typically maintenance, provided that vendor specific objective evidence (“VSOE”)of fair value exists for all undelivered elements. VSOE of fair value is based on the price charged when the element is sold separately or, in the case ofmaintenance, substantive renewal rates for maintenance.Solution Sales. Solution sales for the design, manufacture, test, integration and installation of products, including equipment acquired from thirdparties to be integrated with Harmonic’s products, that are customized to meet the customer’s specifications are accounted for in accordance with applicableguidance on accounting for performance of construction/production contracts. Accordingly, for each arrangement that the Company enters into that includesboth products and services, the Company performs a detailed evaluation to determine whether the arrangement should be accounted for under guidance forconstruction/production contracts or, alternatively, for arrangements that do not involve significant production, modification or customization, under otherapplicable accounting guidance. The Company has a long-standing history of entering into contractual arrangements to deliver the solution sales described.At the outset of each arrangement accounted for as a single arrangement, the Company develops a detailed project plan and associated labor hourestimates for each project. The Company believes that, based on its historical experience, it has the ability to make labor cost estimates that are sufficientlydependable to justify the use of the percentage-of-completion method of accounting. Under the percentage-of-completion method, revenue recognizedreflects the portion of the anticipated contract revenue that has been earned, equal to the ratio of actual labor hours expended to total estimated labor hours tocomplete the project. Costs are recognized proportionally to the labor hours incurred. For contracts that include customized services for which labor costs arenot reasonably estimable, the Company uses the completed contract method of accounting. Under the completed contract method, 100% of the contract’srevenue and cost is recognized upon the completion of all services under the contract. If the estimated costs to complete a project exceed the total contractamount, indicating a loss, the entire anticipated loss is recognized.InventoriesInventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis.The cost of inventories is comprised of material, labor and manufacturing overhead. The Company’s manufacturing overhead standards for product costs arecalculated assuming full absorption of forecasted spending over projected volumes. The Company establishes provisions for excess and obsolete inventoriesto reduce such inventories to their estimated net realizable value after evaluation of historical sales, future demand and market conditions, expected productlife cycles and current inventory levels. Such provisions are charged to cost of revenue in the Company’s Consolidated Statements of Operations.Capitalized Software Development CostsCosts related to research and development are generally charged to expense as incurred. Capitalization of material software development costs beginswhen a product’s technological feasibility has been established. To date, the time period between achieving technological feasibility, which the Companyhas defined as the establishment of a working model, which typically occurs when beta testing commences, and the general availability of such software hasbeen short, and, as such, software development costs qualifying for capitalization have been insignificant.The Company incurs costs associated with developing software for internal use and for which no plan exists to market the software externally. TheCompany capitalizes the costs as part of property and equipment and recognizes the associated depreciation over the software’s estimated useful life ofgenerally three years. Capitalized software costs for internal use have been insignificant in each of the periods presented.Property and EquipmentProperty and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful livesof the assets. Estimated useful lives are five years for furniture and fixtures, three years for software developed for internal use and typically four years formachinery and equipment. Depreciation and amortization for leasehold improvements are computed using the shorter of the remaining useful lives of theassets, up to ten years, or the lease term of the respective assets.GoodwillGoodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed.The Company tests for goodwill impairment at the reporting unit level on an annual basis in65Table of Contentsthe fourth quarter of each of its fiscal years, and at any other time at which events occur or circumstances indicate that the carrying amount of goodwill mayexceed its fair value. The Company uses a two-step process to determine the amount of goodwill impairment. The first step requires comparing the fair valueof the reporting unit to its net book value, including goodwill. A potential impairment exists if the fair value of the reporting unit is lower than its net bookvalue. The second step of the process, which is performed only if a potential impairment exists, involves determining the difference between the fair value ofthe reporting unit’s net assets other than goodwill and the fair value of the reporting unit. If this difference is less than the net book value of goodwill, animpairment exists and is recorded.In fiscal 2013, the Company performed goodwill impairment test as a single reporting unit. In fiscal 2014, due to a change in the Company’s reportingstructure, the goodwill impairment is tested at its two reporting units, which are the same as the operating segments (see Note 17, “Segment Information,Geographic Information and Customer Concentration” for additional information on operating segments). Goodwill is assigned to the reporting units usingthe relative fair values of the reporting units and the fair values of the reporting units were determined utilizing a blend of the income approach and themarket approach. There was no impairment of goodwill resulting from the Company’s fiscal 2015 annual impairment testing in the fourth quarter of 2015(See Note 8, “Goodwill and Identified Intangible Assets” for additional information).Long-lived AssetsLong-lived assets represent property and equipment and purchased intangible assets. Purchased intangible assets from business combinations and assetacquisitions include customer contracts, trademarks and trade names, and maintenance agreements and related relationships, the amortization of which ischarged to general and administrative expenses, and core technology and developed technology, the amortization of which is charged to cost of revenue. TheCompany evaluates the recoverability of intangible assets and other long-lived assets when indicators of impairment are present. When impairment indicatorsare present, the Company evaluates the recoverability of intangible assets and other long-lived assets on the basis of undiscounted cash flows expected toresult from the use of each asset group and its eventual disposition. If the undiscounted expected future cash flows are less than the carrying amount of theasset, an impairment loss is recognized in order to writedown the carrying value of the asset to its estimated fair market value.In connection with restructuring actions initiated during 2014, the Company recorded a fixed assets impairment charge of $1.1 million in fiscal 2014related to software development costs incurred for a discontinued project.Foreign CurrencyThe functional currency of the Company’s Israeli, Cayman and Swiss operations is the U.S. dollar. All other foreign subsidiaries use the respective localcurrency as the functional currency. When the local currency is the functional currency, gains and losses from translation of these foreign currency financialstatements into U.S. dollars are recorded as a separate component of other comprehensive loss in stockholders’ equity.For subsidiaries where the functional currency is the U.S. dollar, monetary assets and liabilities denominated in currencies other than the U.S. dollar areremeasured into U.S. dollars using exchange rates prevailing on the balance sheet date. The remeasurement gains and losses are included in other income(expense), net in the Company’s Consolidated Statements of Operations. The Company recorded remeasurement losses of $0.5 million, $0.4 million and $0.5million for the years ended December 31, 2015, 2014 and 2013, respectively.Derivative InstrumentsThe Company enters into derivative instruments, primarily foreign currency forward contracts, to minimize the short-term impact of foreign currencyexchange rate fluctuations on certain foreign currency denominated assets and liabilities as well as certain foreign currencies denominated expenses. TheCompany does not enter into derivative instruments for trading purposes and these derivatives generally have maturities within twelve months.The derivative instruments are recorded at fair value in prepaid expenses and other current assets or accrued liabilities in the Company’s ConsolidatedBalance Sheet. For derivative instruments designated and qualifying as cash flow hedges of forecasted foreign currency denominated transactions expectedto occur within twelve months, the effective portion of the gain or loss on these hedges is reported as a component of “Accumulated other comprehensiveincome (loss)” in stockholders’ equity, and is reclassified into earnings when the hedged transaction affects earnings. If the transaction being hedged fails tooccur, or if a portion of any derivative is (or becomes) ineffective, the gain or loss on the associated financial instrument is recorded immediately in earnings.For derivative instruments used to hedge existing foreign currency denominated assets or liabilities, the gains or losses on these hedges are recordedimmediately in earnings to offset the changes in the fair value of the assets or liabilities being hedged.Fair Value of Financial Instruments66Table of ContentsThe carrying value of the Company’s financial instruments, including cash equivalents, restricted cash, short-term investments, accounts receivable,accounts payable and accrued liabilities, approximate fair value due to their short maturities.Restructuring and Related ChargesThe Company’s restructuring charges consist primarily of employee severance, one-time termination benefits related to the reduction of its workforce,lease exit costs, and other costs. Liabilities for costs associated with a restructuring activity are recognized when the liability is incurred and are measured atfair value. One-time termination benefits are expensed at the date the entity notifies the employee, unless the employee must provide future service, in whichcase the benefits are expensed ratably over the future service period. Termination benefits are calculated based on regional benefit practices and localstatutory requirements. Costs to terminate a lease before the end of its term are recognized when the entity terminates the contract in accordance with thecontract terms. The Company determines the excess facilities accrual based on expected cash payments, under the applicable facility lease, reduced by anyestimated sublease rental income for such facility. Other costs primarily consist of costs to write down the values of inventories and leasehold improvementwrite-down as a result of restructuring activities (see Note 11, “Restructuring and Asset Impairment Charges” for additional information).WarrantyThe Company accrues for estimated warranty costs at the time of revenue recognition and records such accrued liabilities as part of cost of revenue.Management periodically reviews its warranty liability and adjusts the accrued liability based on the terms of warranties provided to customers, historicaland anticipated warranty claims experience, and estimates of the timing and cost of warranty claims.Advertising ExpensesAll advertising costs are expensed as incurred and included in “Selling, general and administrative expenses” in the Company’s ConsolidatedStatements of Operations. Advertising expense was $1.4 million, $0.2 million and $0.4 million for the years ended December 31, 2015, 2014 and 2013,respectively.Stock-based Compensation ExpenseThe Company measures and recognizes compensation expense for all stock-based compensation awards made to employees and directors, includingstock options, restricted stock units and awards related to the Company’s Employee Stock Purchase Plan (“ESPP”), based upon the grant-date fair value ofthose awards.Applicable accounting guidance requires companies to estimate the fair value of stock-based compensation awards on the date of grant. The value ofthe portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s ConsolidatedStatements of Operations.The fair value of stock options is estimated at grant date using the Black-Scholes option pricing model. The Company’s determination of fair value ofstock options on the date of grant, using an option pricing model, is affected by the Company’s stock price, as well as the assumptions regarding a number ofhighly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of theawards and projected employee stock option exercise behaviors. The fair value of each restricted stock unit grant is based on the underlying value of theCompany’s common stock on the date of grant.Income TaxesIn preparing the Company’s financial statements, the Company estimates the income taxes for each of the jurisdictions in which the Company operates.This involves estimating the Company’s actual current tax exposures and assessing temporary and permanent differences resulting from differing treatment ofitems, such as reserves and accruals, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included withinthe Company’s Consolidated Balance Sheet.The Company’s income tax policy is to record the estimated future tax effects of temporary differences between the tax bases of assets and liabilitiesand amounts reported in the Company’s accompanying Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards. The Companyfollows the guidelines set forth in the applicable accounting guidance regarding the recoverability of any tax assets recorded on the Consolidated BalanceSheet and provides any necessary allowances as required. Determining necessary allowances requires the Company to make assessments about the timing offuture events, including the probability of expected future taxable income and available tax planning opportunities. A history of operating losses in recentyears has led to uncertainty with respect to our ability to realize certain of our net deferred tax assets, and as a result we applied full valuation allowanceagainst our U.S. net deferred tax assets as of December 31, 2015. In the67Table of Contentsevent that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company’s operating results and financialposition could be materially affected.The Company is subject to examination of its income tax returns by various tax authorities on a periodic basis. The Company regularly assesses thelikelihood of adverse outcomes resulting from such examinations to determine the adequacy of its provision for income taxes. The Company has applied theprovisions of the applicable accounting guidance on accounting for uncertainty in income taxes, which requires application of a more-likely-than-notthreshold to the recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits theCompany to recognize a tax benefit measured at the largest amount of tax benefit that, in the Company’s judgment, is more than 50% likely to be realizedupon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earningsin the period of such change.The Company files annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain taxposition is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain taxposition, the Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves and penalties, as wellas the related interest, in light of changing facts and circumstances. Changes in the Company’s assessment of its uncertain tax positions or settlement of anyparticular position could materially and adversely impact the Company’s income tax rate, operating results, financial position and cash flows.Segment ReportingOperating segments are defined as components of an enterprise that engage in business activities for which separate financial information is availableand is evaluated by the Chief Operating Decision Maker (“CODM”), which for the Company is its Chief Executive Officer, in deciding how to allocateresources and assess performance. Prior to the fourth quarter of 2014, the Company operated its business in one reportable segment. With effect from thefourth quarter of 2014, the Company changed its operating segments to align with how the CODM evaluates the financial information used to allocateresources and assess performance of the Company. The new reporting structure consists of two operating segments: Video and Cable Edge. All prior periodsegment information presented has been conformed to the new operating segments.Comprehensive Income (Loss)Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includescumulative translation adjustments, unrealized gains and losses on certain foreign currency forward contracts that qualify as cash flow hedges and available-for-sale securities.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance for revenue recognition, requiring an entity torecognize the amount of revenue that reflects the consideration to which it expects to be entitled for the transfer of promised goods or services to customers.The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either theretrospective or cumulative effect transition method. The original effective date for this new standard would have required the Company to adopt beginningin its first quarter of 2018. In August 2015, the FASB issued an accounting standard update for the deferral of the effective date by one year and permits earlyadoption, but not before the original effective date. Accordingly, the Company may adopt the standard in either its first quarter of 2018 or 2019. The newrevenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date ofadoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on its consolidated financialstatements.In November 2014, the FASB issued an accounting standard update for determining when separation of certain embedded derivative features in ahybrid financial instrument is required. An entity will continue to evaluate whether the economic characteristics and risks of the embedded derivative featureare clearly and closely related to those of the host contract, among other relevant criteria. The amendments clarify how current GAAP should be interpreted inevaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The accountingstandard update will be effective for the Company beginning in the first quarter of fiscal 2016 and early adoption is permitted. The adoption of thisaccounting standard update will not impact the Company’s financial position, results of operations or cash flows.In February 2015, the FASB issued an accounting standard update that changes the analysis that a reporting entity must perform to determine whether itshould consolidate certain types of legal entities. This accounting standard update will be68Table of Contentseffective for the Company beginning in the first quarter of fiscal 2016 and early adoption is permitted. The adoption of this new guidance is not expected tohave a material impact on the Company’s consolidated financial statements.In April 2015, the FASB issued an accounting standard update that requires debt issuance costs to be presented as a direct deduction from the carryingamount of the related debt liability, consistent with the presentation of debt discounts. Prior to this accounting update, debt issuance costs were required tobe presented as deferred charge assets, separate from the related debt liability. This accounting standard update does not change the recognition andmeasurement requirements for debt issuance costs. The Company early-adopted this accounting standard update as of the end of its fiscal 2015 in connectionwith the convertible senior notes issued in December 2015 (see Note 12, “Convertible Notes and Credit Facilities”), resulting in the classification of $3.2million of unamortized debt issuance costs as a deduction from long-term liability on its Consolidated Balance Sheet at December 31, 2015. Other than thistransaction, the adoption of this accounting standard update did not have an impact on the Company’s consolidated financial statements.In July 2015, the FASB issued an accounting standard update that requires inventory to be measured at the lower of cost and net realizable value. Netrealizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, andtransportation. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2017 and early adoption ispermitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.In November 2015, the FASB issued an accounting standard update that all deferred tax assets and liabilities, along with any related valuationallowance, be classified as non-current on the balance sheet. The accounting standard update will be effective for the Company beginning in the first quarterof fiscal 2017 and early adoption is permitted. The Company early-adopted prospectively this accounting standard update as of the end of its fiscal 2015,resulting in $15.9 million of net deferred tax assets, along with its related valuation allowance, being classified as non-current on the Consolidated BalanceSheet as of December 31, 2015. Other than this reclassification, the adoption of this accounting standard update did not have an impact on the Company’sconsolidated financial statements.In January 2016, the FASB issued an accounting standard update which requires equity investments to be measured at fair value with changes in fairvalue recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring aqualitative assessment to identify impairment. The accounting standard update also updates certain presentation and disclosure requirements. Thisaccounting standard update will be effective for the Company beginning in the first quarter of fiscal 2018 and early adoption is permitted. The Company iscurrently evaluating the impact of this accounting standard update on its consolidated financial statements.In February 2016, the FASB amends the existing accounting standard for lease accounting. Under this guidance, lessees and lessors should apply a“right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance sheet leases. This newleases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with anoption to use certain transition relief. The new standard will be effective for the Company beginning in the first quarter of fiscal 2019 and early adoption ispermitted. The Company is currently evaluating the methods and impact of adopting the new leases standard on its consolidated financial statements.NOTE 3: DISCONTINUED OPERATIONSIn February 2013, the Company entered into an Asset Purchase Agreement with Aurora pursuant to which the Company agreed to sell its cable accessHFC business for $46 million in cash. On March 5, 2013, the sale transaction closed and the Company received gross proceeds of $46 million from the saleand recorded a net gain of $14.7 million in connection with the sale. The gain was included in income from discontinued operations, net of tax in theConsolidated Statement of Operations for the year ended December 31, 2013.In accordance with ASC 205 “Presentation of financial statements – Discontinued Operations”, a business is classified as a discontinued operationwhen: (i) the operations and cash flows of the business can be clearly distinguished and have been or will be eliminated from our ongoing operations; (ii) thebusiness has either been disposed of or is classified as held for sale; and (iii) the Company will not have any significant continuing involvement in theoperations of the business after the disposal transactions.In March 2013, the Company entered into a transition services agreement (‘TSA”) with Aurora to provide contract manufacturing and other varioussupport, including providing order fulfillment, taking warranty calls, attending to product returns from customers, providing cost accounting analysis,receiving payments from customers and remitting such payments to Aurora. The TSA fees were a fixed amount per month and were determined based on theCompany’s estimated cost of69Table of Contentsdelivering the transition services. In addition, in April 2013, the Company and Aurora signed a sublease agreement for the Company’s Milpitas warehouse forthe remaining period of the lease.The Company determined that the cash flows generated from these transactions were both insignificant and were considered indirect cash flows. As aresult, the sale of the cable access HFC business was appropriately presented as discontinued operations. The TSA ended in October 2013 and the billing toAurora was recorded in the Condensed Consolidated Statements of Operations under income from continuing operations as an offset to the expenses incurredto deliver the transition services. The table below provides details on the income statement caption under which the TSA billing was recorded (in thousands): Year ended December 31, 2013Product cost of revenue$577Research and development21Selling, general and administrative379 Total TSA billing to Aurora$977The Company recorded a gain of $14.7 million for the year ended December 31, 2013, in connection with the sale of the cable access HFC business,calculated as follows (in thousands):Gross Proceeds $46,000Less : Carrying value of net assets Inventories, net$10,579 Prepaid expenses and other current assets612 Property and equipment, net1,194 Goodwill de-recognized14,547 Deferred revenue(4,499) Accrued liabilities(939) Total net assets sold and de-recognized $21,494Less : Selling cost 2,485Less : Tax effect 7,358 Gain on disposal, net of tax $14,663Upon the sale of the cable access HFC business, approximately $14.5 million of the carrying value of goodwill was allocated to the cable access HFCbusiness based on the relative fair value of the cable access HFC business to the fair value of the Company. The Company had one reporting unit in 2013.The remaining carrying value of goodwill was tested for impairment, and the Company determined that goodwill was not impaired as of March 29, 2013.The results of operations associated with the cable access HFC business are presented as discontinued operations in the Company’s ConsolidatedStatements of Operations for all periods presented. There were no operating activities associated with the cable access HFC business after December 31, 2013.Revenue and the components of net income related to the discontinued operations for the year ended December 31, 2013 was as follows (in thousands): Year ended December31 2013Revenue $9,717Operating income $539 Less : Benefit from income taxes (236) Add : Gain on disposal, net of tax 14,663Income from discontinued operations, net of taxes $15,438NOTE 4: SHORT-TERM INVESTMENTS70Table of ContentsThe following table summarizes the Company’s short-term investments (in thousands): AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair ValueAs of December 31, 2015 Corporate bonds$25,557 $— $(52) $25,505Commercial paper1,099 — — 1,099 Total short-term investments$26,656 $— $(52) $26,604As of December 31, 2014 State, municipal and local government agencies bonds$13,946 $16 $(1) $13,961Corporate bonds17,899 3 (16) 17,886 Total short-term investments$31,845 $19 $(17) $31,847The following table summarizes the maturities of the Company’s short-term investments (in thousands): December 31, 2015 2014Less than one year$19,642 $30,946Due in 1 - 2 years6,962 901 Total short-term investments$26,604 $31,847Short-term investments are used to fund the Company’s current operations. In the event the Company needs or desires to access funds from the short-term investments that it holds, it is possible that the Company may not be able to do so due to market conditions. If a buyer is found, but is unwilling topurchase the investments at par or the Company’s cost, it may incur a loss. Further, rating downgrades of the security issuer or the third parties insuring suchinvestments may require the Company to adjust the carrying value of these investments through an impairment charge. The Company’s inability to sell all orsome of the Company’s short-term investments at par or the Company’s cost, or rating downgrades of issuers or insurers of these securities, could adverselyaffect the Company’s results of operations or financial condition.For the years ended December 31, 2015, 2014 and 2013, realized gains and realized losses from the sale of short-term investments were not material.At December 31, 2015 and 2014, $5.4 million and $8.6 million, respectively, of investments in equity securities of other privately and publicly heldcompanies are considered as long-term investments and are included in “other assets” in the Consolidated Balance sheet (See Note 5, “Investments in OtherEquity Securities” for additional information).Impairment of Short-term InvestmentsThe Company monitors its investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fairvalue and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment isestablished. A decline of fair value below amortized costs of debt securities is considered other-than temporary if the Company has the intent to sell thesecurity or it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis. At the presenttime, the Company does not intend to sell its investments that have unrealized losses in accumulated other comprehensive loss. In addition, the Companydoes not believe that it is more likely than not that it will be required to sell its investments that have unrealized losses in accumulated other comprehensiveloss before the Company recovers the principal amounts invested. The Company believes that the unrealized losses are temporary and do not require another-than-temporary impairment, based on its evaluation of available evidence as of December 31, 2015.As of December 31, 2015, there were no individual available-for-sale securities in a material unrealized loss position and the amount of unrealizedlosses on the total investment balance was insignificant.NOTE 5: INVESTMENTS IN OTHER EQUITY SECURITIESFrom time to time, the Company may acquire certain equity investments for the promotion of business objectives and these investments are classified aslong-term investments and included in “Other assets” in the Consolidated Balance Sheet.71Table of ContentsOn September 2, 2014, the Company acquired a 3.3% interest in Vislink plc (“Vislink”), a U.K. public company listed on the AIM exchange, for $3.3million, and also made a $3.3 million prepayment to Vislink for future software license purchases. As of December 31, 2015, there was no outstandingbalance in the prepayment to Vislink for future software license purchase. The investment in Vislink is being accounted for as a cost method investment asthe Company does not have significant influence over the operational and financial policies of Vislink. Since the Vislink investment is also an available-for-sale security, its value is marked to market for the difference in fair value at period end. The carrying value of Vislink was $1.8 million and $2.6 million as ofDecember 31, 2015 and December 31, 2014, respectively, and Vislink’s accumulated unrealized loss, net of taxes was $1.5 million and $0.7 million as ofDecember 31, 2015 and December 31, 2014, respectively. The accumulated unrealized loss is included in the Consolidated Balance Sheet as a component of“Accumulated other comprehensive income (loss)”.The Company assessed this available-for-sale investment that was in a gross unrealized loss position on an individual basis to determine if the declinein fair value was other than temporary. The assessment as to the nature of a decline in fair value is based on, among other things, the length of time and theextent to which the market value has been less than the Company’s cost basis; the financial condition and near-term prospects of the investment; and theCompany’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. As a result of theseassessments, it is determined that the decline in fair value of Vislink was not other than temporary and did not record any impairment charges as of December31, 2015. However, sustained depression of Vislink’s stock price coupled with deterioration in financial condition and near term prospects of the investmentmay lead to an other-than-temporary impairment assessment in 2016. The Company’s maximum exposure to loss from the Vislink investment as of December31, 2015 was limited to its initial investment cost of $3.3 million.Unconsolidated Variable Interest Entities (“VIE”)VJUOn September 26, 2014, the Company acquired a 19.8% interest in VJU ITV Development GmbH (“VJU”), a software company based in Austria, for$2.5 million. Since VJU’s equity is deemed not sufficient to permit it to finance its activities without additional support from its shareholders, VJU isconsidered a variable interest entity (“VIE”). The Company determined that it is not the primary beneficiary of VJU because its financial interest in VJU’sequity and its research and development agreement with VJU do not empower the Company to direct VJU’s activities that will most significantly impactVJU’s economic performance. VJU is accounted for as a cost method investment as the Company does not have significant influence over the operational andfinancial policies of VJU.The Company attended a VJU board meeting on March 5, 2015 as an observer. At that meeting, the Company was made aware of significant decreasesin VJU’s business prospects, VJU’s existing working capital and prospects for additional funding, compared to the prior information the Company hadreceived from VJU. Based on the Company’s assessment, the Company determined that its investment in VJU was impaired on an other-than-temporary basis.Factors considered included the severity of the impairment and recent events specific to VJU. Based on the Company’s assessment of VJU’s expected cashflows, the entire investment is expected to be non-recoverable. As a result, the Company recorded an impairment charge of $2.5 million in the first quarter of2015. The Company’s impairment loss in VJU is limited to its initial cost of investment of $2.5 million as well as the $0.1 million research and developmentcost expensed in September 2014.At VJU’s shareholders meeting held on October 15, 2015, additional contributions by existing shareholders were approved. The Company did notprovide additional contributions to VJU, and as a result, the Company‘s equity interest in VJU decreased from to 19.8% to 9.9%.EDCOn October 22, 2014, the Company acquired an 18.4% interest in Encoding.com, Inc. (“EDC”), a video transcoding service company headquartered inSan Francisco, California, for $3.5 million by subscribing to EDC’s Series B preferred stock. Since EDC’s equity is deemed not sufficient to permit it tofinance its activities without additional support from its shareholders, EDC is considered a VIE. The Company determined that it is not the primarybeneficiary of EDC because its financial interest in EDC’s equity does not empower the Company to direct EDC’s activities that will most significantlyimpact EDC’s economic performance. In addition, the Company determined that its investment in EDC’s Series B preferred stock does not have the risk andreward characteristics that are substantially similar to EDC’s common stock. Therefore, Harmonic does not hold an investment in EDC’s common stock or in-substance common stock. According to the applicable accounting guidance, EDC investment is accounted for as a cost-method investment and as ofDecember 31, 2015 and December 31, 2014, the carrying value of EDC was $3.6 million and $3.5 million, respectively.The following table presents the carrying values and maximum exposure of the unconsolidated VIEs as of December 31, 2015 (in thousands):72Table of Contents Carrying Value Maximum exposure toloss(1)VJU$— $—EDC (2)3,593 3,593Total$3,593 $3,593(1) The Company did not provide financial support to any of its unconsolidated VIEs during the year ended December 31, 2015. As of December 31,2015, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of itsunconsolidated VIEs.(2) The Company’s maximum exposure to loss with respect to EDC as of December 31, 2015 was limited to the investment cost of $3.6 million,including $0.1 million of transaction costs.Each reporting period, the Company reviews all of its unconsolidated VIE investments to determine whether there are any reconsideration events thatmay result in the Company being a primary beneficiary of the unconsolidated VIE which would then require the Company to consolidate the VIE. TheCompany also reviews all its cost-method investments at each reporting period to determine whether a significant event of change in circumstances hasoccurred that may have an adverse effect on the fair value of each investment.NOTE 6: DERIVATIVES AND HEDGING ACTIVITIESThe Company uses forward contracts, to manage exposures to foreign currency exchange rates. The Company’s primary objective in holding derivativeinstruments is to reduce the volatility of earnings and cash flows associated with fluctuations in foreign currency exchange rates and the Company does notuse derivative instruments for trading purposes. The use of derivative instruments expose the Company to credit risk to the extent that the counterparties maybe unable to meet their contractual obligations, as such, the potential risk of loss with any one counterparty is closely monitored by the Company.Derivatives Designated as Hedging Instruments (Cash Flow Hedges)Beginning in December 2014, the Company entered into forward currency contracts to hedge forecasted operating expenses and service costs related toemployee salaries and benefits denominated in Israeli shekels (“ILS”) for its subsidiaries in Israel. These ILS forward contacts mature generally within twelvemonths and are designated as cash flow hedges. For derivatives that are designated as hedges of forecasted foreign currency denominated operating expensesand service costs, the Company assesses effectiveness based on changes in spot currency exchange rates. Changes in spot rates on the derivative are recordedas a component of “Accumulated other comprehensive income (loss)” (“AOCI”) in the Consolidated Balance Sheet until such time as the hedged transactionimpacts earnings. The change in fair value of the forward points, which reflects the interest rate differential between the two countries on the derivative, isexcluded from the effectiveness assessment. Gains or losses on the derivative representing either hedge ineffectiveness or hedge components excluded fromthe assessment of effectiveness are recognized in current earnings.Derivatives Not Designated as Hedging Instruments (Balance Sheet Hedges)Balance sheet hedges consist of foreign currency forward contracts, mature generally within three months, are carried at fair value and they are used tominimize the short-term impact of foreign currency exchange rate fluctuation on cash and certain trade and inter-company receivables and payables. Changesin the fair value of these foreign currency forward contracts are recognized in “Other income (expense), net” in the Consolidated Statement of Operations andare largely offset by the changes in the fair value of the assets or liabilities being hedged.The locations and amounts of designated and non-designated derivative instruments’ gains and losses reported in the Company’s ConsolidatedStatements of Operations were as follows (in thousands):73Table of Contents Years ended December 31, Financial StatementLocation 2015 2014 2013Derivatives designated as hedging instruments: Gains (losses) in AOCI on derivatives (effective portion) AOCI $(133) $311 $— Gains reclassified from AOCI into income (effective portion) Cost of Revenue $59 Operating Expense 365 Total $424 $— $— Gains (losses) recognized in income on derivatives (amount excludedfrom effectiveness testing) Other income (expense),net $(87) $18 $—Derivatives not designated as hedging instruments: Gains (losses) recognized in income Other income (expense),net $344 $(72) $596The Company anticipates the AOCI balance of $133,000 at December 31, 2015, relating to net unrealized losses from cash flow hedges, will bereclassified to earnings within the next twelve months.The U.S. dollar equivalent of all outstanding notional amounts of foreign currency forward contracts are summarized as follows (in thousands): December 31, 2015 2014Derivatives designated as cash flow hedges: Purchase $12,984 $16,903Derivatives not designated as hedging instruments: Purchase $6,942 $1,043 Sell $11,332 $4,925The locations and fair value amounts of the Company’s derivative instruments reported in its Consolidated Balance Sheets are as follows (inthousands): Asset Derivatives Asset Liabilities Balance Sheet Location December 31,2015 December 31,2014 Balance SheetLocation December 31,2015 December 31,2014Derivatives designated as hedginginstruments: Foreign currency contracts Prepaid expenses and othercurrent assets $13 $329 AccruedLiabilities $281 $— $13 $329 $281 $— Derivatives not designated ashedging instruments: Foreign currency contracts Prepaid expenses and othercurrent assets $100 $12 AccruedLiabilities $90 $7 $100 $12 $90 $7Total derivatives $113 $341 $371 $7Offsetting of Derivative Assets and LiabilitiesThe Company recognizes all derivative instruments on a gross basis in the Consolidated Balance Sheets. However, the arrangements with itscounterparties allows for net settlement, which are designed to reduce credit risk by permitting net settlement with the same counterparty. As of December 31,2015, information related to the offsetting arrangements was as follows (in thousands):74Table of Contents Gross Amounts of DerivativesNot Offset in the ConsolidatedBalance Sheets Gross Amounts ofDerivatives Gross Amounts ofDerivatives Offsetin the ConsolidatedBalance Sheets Net Amounts ofDerivatives Presentedin the ConsolidatedBalance Sheets FinancialInstrument CashCollateralPledged Net AmountDerivative Assets $113 — $113 $(113) — $—Derivative Liabilities $371 — $371 $(113) — $258As of December 31, 2014, there was no potential effect of rights of offset associated with the outstanding foreign currency forward contracts that wouldresult in a net derivative asset or net derivative liability.In connection with the foreign currency derivatives entered in Israel, the Company’s subsidiaries in Israel are required to maintain a compensatingbalance with their bank at the end of each month. These compensating balance arrangements do not legally restrict the use of cash and as of December 31,2015, the total compensating balance maintained was $2.5 million.NOTE 7: FAIR VALUE MEASUREMENTSThe applicable accounting guidance establishes a framework for measuring fair value and requires disclosure about the fair value measurements ofassets and liabilities. This guidance requires the Company to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well asfair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fair valuehierarchy as described below.The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, in the principal or mostadvantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date.Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Theguidance describes three levels of inputs that may be used to measure fair value:•Level 1 — Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are notactive, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.The Company primarily uses broker quotes for valuation of its short-term investments. The forward exchange contracts are classified as Level 2because they are valued using quoted market prices and other observable data for similar instruments in an active market.•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The Company uses the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevantinformation generated by market transactions involving identical or comparable assets or liabilities. The fair value of the Company’s convertible notes isinfluenced by interest rates, the Company’s stock price and stock price volatility. The estimated fair value of the Company’s convertible notes based on amarket approach was approximately $123.1 million as of December 31, 2015, and represents a Level 2 valuation. (See Note 12, “Convertible Notes andCredit Facilities-4.0% Convertible Senior Notes” for additional information on the convertible notes.)During the years ended December 31, 2015, 2014 and 2013 there were no nonrecurring fair value measurements of assets and liabilities subsequent toinitial recognition.The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value based on the three-tier fair valuehierarchy (in thousands):75Table of Contents Level 1 Level 2 Level 3 TotalAs of December 31, 2015 Cash equivalents Money market funds$53,434 $— $— $53,434 U.S. Treasury bills24,998 — — 24,998Short-term investments Corporate bonds— 25,505 — 25,505 Commercial paper— 1,099 — 1,099Prepaids and other current assets Time deposit pledged for credit card facility 580 580 Derivative assets— 113 — 113Other assets Long-term investment1,840 — — 1,840Total assets measured and recorded at fair value$80,272 $27,297 $— $107,569Accrued liabilities Derivative liabilities$— $371 $— $371Total liabilities measured and recorded at fair value$— $371 $— $371 Level 1 Level 2 Level 3 TotalAs of December 31, 2014 Cash equivalents Money market funds$23,121 $— $— $23,121Short-term investments State, municipal and local government agencies bonds— 13,961 — 13,961 Corporate bonds— 17,886 — 17,886Prepaids and other current assets Derivative assets— 341 — 341Other assets Long-term investment2,606 — — 2,606Total assets measured and recorded at fair value$25,727 $32,188 $— $57,915Accrued liabilities Derivative liabilities$— $7 $— $7Total liabilities measured and recorded at fair value$— $7 $— $7NOTE 8: GOODWILL AND IDENTIFIED INTANGIBLE ASSETSGoodwillGoodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed.The Company tests for goodwill impairment at the reporting unit level on an annual basis, or more frequently if events or changes in circumstances indicatethat the asset is more likely than not impaired. The Company’s annual goodwill impairment test is performed in the fiscal fourth quarter, with a testing date atthe end of fiscal October.Prior to the fourth quarter of 2014, the Company operated its business in one reportable segment. Effective in fourth quarter of 2014, the Companychanged its operating segments to align with how the Company’s Chief Operating Decision Maker evaluates the financial information used to allocateresources and assess performance of the Company. The new reporting structure consists of two operating segments: Video and Cable Edge. The followingtable presents goodwill by reportable segments (in thousands):76Table of Contents Video Cable Edge TotalBalance as of December 31, 2014 $136,975 $60,909 $197,884 Foreign currency translation adjustment (71) (32) (103)Balance as of December 31, 2015 $136,904 $60,877 $197,781The Company performs its annual goodwill impairment review of its two reporting units, which are the same as its operating segments, during the fourthfiscal quarter of 2015. It is concluded that goodwill was not impaired as the Video and Cable Edge reporting units had estimated fair values in excess of theircarrying value by approximately 87% and 42%, respectively. In addition, the Company has not recorded any impairment charges related to goodwill for anyprior periods. Because the Cable Edge reporting unit has an estimated fair value that is not substantially in excess of its carrying value, the Company willcontinue to monitor this reporting unit for risk of impairment in future periods.The Company’s market capitalization has declined so far in 2016. A significant decline in a company’s stock price may suggest that an adverse changein the business climate may have caused the fair value of one or more reporting units to fall below their carrying value. Significant judgment has beenapplied to determine whether stock price declines are a short-term swing or a long-term trend. The Company believes that the decline in its stock price willnot be sustained as it only fluctuated below the 2015 level for a short period. Additionally, the Company believes that the fluctuation in marketcapitalization is driven by general market movement and not company specific factors. The Company believes that the fair value established during the 2015annual goodwill impairment testing for its Video and Cable Edge reporting units were reasonable and no triggering event subsequent to the 2015 annualassessment exists. However, a sustained decline in the Company stock price may lead to a triggering event for goodwill impairment in 2016.Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities toreporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate thefair value of reporting units include estimating future cash flows and determining appropriate discount rates, growth rates, an appropriate control premiumand other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit whichcould trigger impairment. If the Company’s assumptions and related estimates change in the future, or if the Company’s reporting structure changes or otherevents and circumstances change (e.g. such as a sustained decrease in the Company’s stock price), the Company may be required to record impairmentcharges in future periods. Any impairment charges that the Company may take in the future could be material to its results of operations and financialcondition.Identified Intangible AssetsThe following is a summary of identified intangible assets (in thousands): December 31, 2015 December 31, 2014 Range ofUseful Lives GrossCarryingAmount AccumulatedAmortization NetCarryingAmount GrossCarryingAmount AccumulatedAmortization NetCarryingAmountIdentifiable intangibles: Developed core technology4-6 years $10,987 $(10,987) $— $136,145 $(135,426) $719Customer relationships/contracts5-6 years 29,200 (25,752) 3,448 67,098 (58,784) 8,314Trademarks and tradenames4-5 years — — — 11,361 (11,361) —Maintenance agreements and relatedrelationships6-7 years 5,500 (4,851) 649 7,100 (5,534) 1,566Total identifiable intangibles $45,687 $(41,590) $4,097 $221,704 $(211,105) $10,599As of December 31, 2015, certain fully amortized intangible assets have been removed from both the gross and accumulated amortization amounts. Thebalance of intangibles, net of $4.1 million at December 31, 2015 will be fully amortized in 2016 and recorded in operating expenses.Amortization expense for the identifiable purchased intangible assets for the years ended December 31, 2015, 2014 and 2013 was allocated as follows(in thousands):77Table of ContentsDecember 31,2015 2014 2013Included in cost of revenue$719 $13,745 $19,233Included in operating expenses5,783 6,775 8,096 Total amortization expense$6,502 $20,520 $27,329NOTE 9: ACCOUNTS RECEIVABLEAccounts receivable, net of allowances, consisted of the following (in thousands): December 31, 2015 2014Accounts receivable, net: Accounts receivable$73,855 $81,201 Less: allowance for doubtful accounts and sales returns(4,340) (7,057) Total$69,515 $74,144Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The Company generally does not require collateral and performsongoing credit evaluations of its customers and provides for expected losses. The Company maintains an allowance for doubtful accounts based upon theexpected collectability of its accounts receivable. The expectation of collectability is based on the Company’s review of credit profiles of customers,contractual terms and conditions, current economic trends and historical payment experience.The following is a summary of activity in allowances for doubtful accounts and sales returns for the three years ended December 31, 2015, 2014 and2013 (in thousands): Balance atBeginning ofPeriod Charges toRevenue Charges(Credits) toExpense Additions to(Deductionsfrom) Reserves Balance at Endof PeriodYear ended December 31, 2015$7,057 $1,826 $208 $(4,751) $4,3402014$8,214 $2,181 $(238) $(3,100) $7,0572013$9,595 $537 $423 $(2,341) $8,214NOTE 10: CERTAIN BALANCE SHEET COMPONENTSThe following tables provide details of selected balance sheet components (in thousands): December 31, 2015 2014Prepaid expenses and other current assets: Prepaid inventories to contract manufacturer (1)$8,500 $— Prepaid software license to Vislink (2)— 1,233 Other prepayments8,736 9,713 Deferred cost of revenue4,601 2,524 Income tax receivable1,770 2,316 Restricted cash (3)1,093 — Other303 1,753 Total$25,003 $17,53978Table of Contents(1) From time to time, the Company makes advance payment to a supplier for future inventory in order to secure more favorable pricing. The Companyanticipates that this amount will be offset in the first quarter of 2017 against the accounts payable owed to this supplier.(2) The prepaid inventories were related to prepayment for software licenses made to Vislink (see Note 5, “Investments in Other Equity Securities” foradditional information on Vislink).(3) The restricted cash balances are held as cash collateral security for certain bank guarantees. These restricted funds are invested in bank deposits andcannot be withdrawn from the Company’s accounts without the prior written consent of the applicable secured party. December 31, 2015 2014Inventories: Raw materials$5,421 $1,422 Work-in-process1,950 1,255 Finished goods31,448 30,070 Total$38,819 $32,747 December 31, 2015 2014Property and equipment, net: Furniture and fixtures$7,808 $7,691 Machinery and equipment93,010 86,766 Capitalized software29,391 29,265 Leasehold improvements10,000 8,140 Property and equipment, gross140,209 131,862 Less: accumulated depreciation and amortization(113,197) (104,641) Total$27,012 $27,221 December 31, 2015 2014Accrued liabilities: Accrued compensation$4,688 $6,655 Accrued incentive compensation3,476 5,125 Accrued warranty3,913 4,242 Other19,277 19,096 Total$31,354 $35,118 December 31, 2015 2014Other non-current Liabilities: Deferred rent, long-term$6,340 $7,501 Deferred revenue, long-term3,093 2,890 Other294 320 Total$9,727 $10,711NOTE 11: RESTRUCTURING AND ASSET IMPAIRMENT CHARGESThe Company implemented several restructuring plans in the past few years and recorded restructuring and asset impairment charges of $1.5 million,$3.1 million and $2.2 million for the years ended December 31, 2015, 2014 and 2013,79Table of Contentsrespectively. The goal of these plans was to bring its operational expenses to appropriate levels relative to its net revenues, while simultaneouslyimplementing extensive company-wide expense control programs.The restructuring charges of $1.5 million in 2015 were primarily related to the 2015 restructuring plan implemented during fourth quarter of 2014. Ofthe $3.1 million restructuring charges recorded in 2014, $2.2 million was recorded in the fourth quarter of 2014 related to the 2015 restructuring plan and theremaining $0.9 million, as well as the restructuring charges of $2.2 million recorded in 2013, were related to restructuring plan implemented in 2013.The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The restructuring and asset impairmentcharges are included in “Product cost of revenue” and “Operating expenses-restructuring and asset impairment charges” in the Consolidated Statements ofOperations. The following table summarizes the restructuring and asset impairment charges (in thousands): Year ended December 31, 2015 2014 2013Product cost of revenue$113 $315 $823Operating expenses-Restructuring and asset impairment charges1,372 2,761 1,421 Total$1,485 $3,076 $2,244Harmonic 2015 RestructuringIn the fourth quarter of 2014, the Company implemented a restructuring plan (the “Harmonic 2015 Restructuring Plan”) to reduce operating costs andthe planned restructuring activities involve headcount reduction, exiting certain operating facilities and disposing excess assets. The Company recorded $2.2million of restructuring and asset impairment charges under this plan in fiscal 2014 consisting primarily of a fixed asset impairment charge related to softwaredevelopment costs incurred for a discontinued information technology (“IT”) project; severance and benefits related to the termination of 19 employeesworldwide and other charges. In fiscal 2015, the Company recorded an additional $1.5 million of restructuring charges under this plan consisting primarily ofseverance and benefits for the termination of 37 employees worldwide. The Company expects to complete its actions under this plan by early 2016.The following table summarizes the activities in the Harmonic 2015 restructuring accrual during the years ended December 31, 2015 and 2014 (inthousands): Termination ofan informationtechnology("IT") project Severance andbenefits Termination of aresearch anddevelopmentproject Other charges TotalCharges for 2015 Restructuring Plan$1,138 $599 $307 $125 $2,169Cash payments— (294) (307) — (601)Non-cash write-offs(1,138) — — (108) (1,246)Balance at December 31, 2014— 305 — 17 322Charges for 2015 Restructuring Plan— 1,413 — 204 1,617Adjustments to restructuring provisions— (126) — (6) (132)Cash payments— (1,328) — (13) (1,341)Non-cash write-offs— — — (202) (202)Balance at December 31, 2015$— $264 $— $— $264The Company anticipates that the remaining restructuring accrual balance of $0.3 million will be paid out in 2016.Harmonic 2013 RestructuringThe Company implemented a series of restructuring plans in 2013 to reduce costs and improve efficiencies and the actions extended through the thirdquarter of fiscal 2014. The Company recorded restructuring charges of $2.2 million in fiscal 2013 under this plan consisting primarily of severance andbenefits related to the termination of 85 employees worldwide and, to a lesser extent, the costs associated with writing down some of its inventory to netrealizable value due to restructuring activities in its Israel facilities. The Company recorded an additional $0.9 million restructuring charges in fiscal 2014under this80Table of Contentsplan primarily for severance and benefits related to the termination of 25 employees worldwide.The following table summarizes the activities in the Harmonic 2013 restructuring accrual during the years ended December 31, 2014 and 2013 (inthousands): Severance Impairment ofLeaseholdImprovement ObsoleteInventories Termination of aResearch andDevelopmentProject Excess Facilities TotalCharges for 2013 Restructuring Plan$1,663 $101 $404 $— $— $2,168Adjustments to restructuring provisions29 48 — — — 77Cash payments(1,513) — — — — (1,513)Non-cash write-offs— (149) (404) — — (553)Balance at December 31, 2013179 — — — — 179Charges for 2013 Restructuring Plan829 — — 63 32 924Adjustments to restructuring provisions(17) — — — — (17)Cash payments(991) — — (63) (32) (1,086)Balance at December 31, 2014$— $— $— $— $— $—HFC RestructuringAs a result of the sale of the cable access HFC business in March 2013, the Company recorded $0.6 million of restructuring charge under “Income fromdiscontinued operations” in fiscal 2013. The restructuring charge consisted primarily of severance and benefits related to 19 employees terminated by theCompany and Aurora.The following table summarizes the activities in the HFC restructuring accrual during the years ended December 31, 2014 and 2013 (in thousands): Severance ContractTermination TotalCharges for HFC Restructuring Plan recorded in discontinued operations$403 $124 $527Adjustments to restructuring provisions102 (29) 73Cash payments(492) (95) (587)Balance at December 31, 201313 — 13Cash payments(13) — (13)Balance at December 31, 2014$— $— $—NOTE 12: CONVERTIBLE NOTES AND CREDIT FACILITIES4.00% Convertible Senior NotesIn December 2015, the Company issued $128.25 million aggregate principal amount of unsecured convertible senior notes due 2020 (the “offering” or“Notes”, as applicable) through a private placement with a financial institution. The Notes do not contain any financial covenants. The Notes bear interest ata fixed rate of 4.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2016. The Notes will mature onDecember 1, 2020, unless earlier repurchased or converted. The Company incurred approximately $4.1 million of debt issuance cost, of which $3.5 millionwas paid in 2015 and the remainder will be paid in the first quarter of 2016.Concurrent with the closing of the offering, the Company used $49.9 million of the net proceeds to repurchase 11.1 million shares of the Company’scommon stock from purchasers of the offering in privately negotiated transactions effected through the initial purchaser or its affiliate as the Company’sagent. Additionally, the Company used the remaining net proceeds from the offering to fund the Thomson Video Networks SAS (“TVN”) acquisition, whichcompleted on February 29, 2016 (see “Note 20, Subsequent Event-TVN Acquisition” for additional information).Subject to satisfaction of certain conditions and during certain periods, the Notes will be convertible at the option of81Table of Contentsholders into cash, shares of the Company’s common stock or a combination thereof, at the Company’s election, at an initial conversion rate of 173.9978shares of Common Stock per $1,000 principal amount of Notes (which is equivalent to an initial conversion price of approximately $5.75 per share). Theconversion rate and the corresponding conversion price will be subject to adjustment upon the occurrence of certain events, but will not be adjusted for anyaccrued and unpaid interest.Prior to September 1, 2020, the Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after thefiscal quarter ending on April 3, 2016 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscalquarter is greater than or equal to 130% of the conversion price of the Notes on each applicable trading day; (2) during the five business day period after anyfive consecutive trading day period (the “ measurement period ”) in which the trading price per $1,000 principal amount of Notes for each trading day of themeasurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each suchtrading day; or (3) upon the occurrence of specified corporate events. Commencing on September 1, 2020 until the close of business on the second scheduledtrading day immediately preceding the maturity date, the Notes will be convertible in multiples of $1,000 principal amount regardless of the foregoingcircumstances.If a fundamental change occurs, holders of the Notes may require the Company to purchase all or any portion of their Notes for cash at a repurchaseprice equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental changerepurchase date. In addition, if specific corporate events occur prior to the maturity date, the conversion rate may be increased for a holder who elects toconvert the Notes in connection with such a corporate event.In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liabilitycomponent was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of theequity component representing the conversion option was determined by deducting the fair value of the liability component from the initial proceeds of theNotes as a whole. The difference between the initial proceeds of the Notes and the liability component (the “debt discount”) of $26.9 million, is amortized tointerest expense using the effective interest method over the term of the Notes. The equity component of the Notes is included in additional paid-in capital inthe Consolidated Balance Sheets and is not remeasured as long as it continues to meet the conditions for equity classification.In accounting for the transaction costs related to the issuance of the Notes, the Company allocated the total amount incurred to the liability and equitycomponents using the same proportions as the proceeds from the Notes. Transaction costs attributable to the liability component were recorded as a directdeduction from the carrying amount of the debt liability in long-term liability in the Consolidated Balance Sheets and are being amortized to interestexpense in the Consolidated Statements of Operations using the effective interest method over the term of the Notes. Transaction costs attributable to theequity component were netted with the equity component of the Notes in additional paid-in capital in the Consolidated Balance Sheets. The Companyrecorded liability issuance costs, or debt issuance costs, of $3.2 million and equity issuance costs of $0.9 million.The following table presents the components of the Notes as of December 31, 2015 (in thousands, except for years and percentages):Liability: Principal amount$128,250 Less: Debt discount, net of amortization(26,732) Less: Debt issuance costs, net of amortization(3,223) Carrying amount$98,295 Remaining amortization period (years)4.9 years Effective interest rate on liability component9.94% Equity: Value of conversion option$26,925 Less: Equity issuance costs(863) Carrying amount$26,06282Table of ContentsThe following table presents interest expense recognized related to the Notes for the year ended December 31, 2015 (in thousands):Contractual interest expense$240Amortization of debt discount193Amortization of debt issuance costs23 Total interest expense recognized$456Credit FacilitiesOn December 22, 2014, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”) for a$20.0 million revolving credit facility, with a sublimit of $10.0 million for the issuance of commercial and standby letters of credit on the Company’s behalf.Revolving loans under the Credit Agreement may be borrowed, repaid and re-borrowed until December 22, 2015, at which time all amounts borrowed mustbe repaid. On December 7, 2015, the Company entered into a first amendment to the Credit Agreement with JPMorgan to permit the Company to incur theindebtedness related to issuance of the Notes mentioned above. On December 15, 2015, the Company entered into a second amendment to the CreditAgreement with JPMorgan to extend the expiration date of the Credit Agreement to February 20, 2016. The Company did not renew the Credit Agreementand it duly expired on February 20, 2016. There were no borrowings under the Credit Agreement during the year ended December 31, 2015. As of December31, 2015, the Company was in compliance with the covenants under the Credit Agreement.NOTE 13: EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATIONThe Company’s stock benefit plans include the employee stock purchase plan and current active stock plans adopted in 1995 and 2002 as well as onestock plan assumed through an acquisition in 2010. Other than the employee stock purchase plan, the 1995 stock plan and the 2002 director plan describedbelow, the other inactive plans have no shares available for future grant. As of December 31, 2015, for the stock plan assumed through an acquisition,129,385 shares were reserved for issuance.Employee Stock Plans1995 Stock PlanThe 1995 Stock Plan provides for the grant of incentive stock options, non-statutory stock options and restricted stock units (“RSUs”). Incentive stockoptions may be granted only to employees. All other awards may be granted to employees and consultants. Under the terms of the 1995 Stock Plan, incentivestock options may be granted at prices not less than 100% of the fair value of the Company’s common stock on the date of grant and non-statutory stockoptions may be granted at prices not less than 85% of the fair value of the Company’s common stock on the date of grant. RSUs have no exercise price. Bothoptions and RSUs vest over a period of time as determined by the Board, generally two to four years, and expire seven years from date of grant. Optionsgranted prior to February 2006 expire ten years from the date of grant. Grants of RSUs and any non-statutory stock options issued at prices less than the fairmarket value on the date of grant decrease the plan reserve 1.5 shares for every unit or share granted and any forfeitures of these awards due to their notvesting would increase the plan reserve by 1.5 shares for every unit or share forfeited. As of December 31, 2015, an aggregate of 13,065,852 shares ofcommon stock were reserved for issuance under the 1995 Stock Plan, of which 5,524,259 shares remained available for grant.2002 Director PlanThe 2002 Director Plan provides for the grant of non-statutory stock options and RSUs to non-employee directors of the Company. Under the terms ofthe 2002 Director Plan, non-statutory stock options may be granted at prices not less than 100% of the fair value of the Company’s common stock on the dateof grant. RSUs have no exercise price. Both options and RSUs vest over a period of time as determined by the Board, generally three years for the initial grantand one year for subsequent grants to a non-employee director, and expire seven years from date of grant. Grants of RSUs decrease the plan reserve 1.5 sharesfor every unit granted and any forfeitures of these awards due to their not vesting would increase the plan reserve by 1.5 shares for every unit forfeited. InNovember 2015, the authorized number of shares under the 2002 Director plan was increased from 2,000,000 to 2,350,000. As of December 31, 2015, anaggregate of 810,230 shares of common stock were reserved for issuance under the 2002 Director Plan, of which 625,244 shares remained available for grant.Employee Stock Purchase PlanThe 2002 Employee Stock Purchase Plan (“ESPP”) provides for the issuance of share purchase rights to employees of the Company. The ESPP isintended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue83Table of ContentsCode. The ESPP enables employees to purchase shares at 85% of the fair market value of the Common Stock at the beginning or end of the offering period,whichever is lower. Offering periods generally begin on the first trading day on or after January 1 and July 1 of each year. Employees may participate throughpayroll deductions of 1% to 10% of their earnings. In the event that there are insufficient shares in the plan to fully fund the issuance, the available shareswill be allocated across all participants based on their contributions relative to the total contributions received for the offering period. Under the ESPP,888,152, 440,040 and 1,230,851 shares were issued during fiscal 2015, 2014 and 2013, respectively, representing $5.2 million, $2.7 million, and $4.8million in contributions. As of December 31, 2015, 671,848 shares were reserved for future purchases by eligible employees.Stock Options and Restricted Stock UnitsThe following table summarizes the Company’s stock option and restricted stock unit activity during the year ended December 31, 2015 (in thousands,except per share amounts): Stock OptionsOutstanding Restricted Stock UnitsOutstanding SharesAvailablefor Grant NumberofShares WeightedAverageExercisePrice NumberofUnits WeightedAverageGrant DateFair ValueBalance at December 31, 20147,480 7,255 $6.65 2,241 $6.40Authorized350 — — — —Granted(4,471) 1,378 7.29 2,062 7.05Options exercised— (750) 5.31 — —Shares released— — — (1,721) 6.47Forfeited or canceled2,791 (2,209) 7.73 (400) 6.79Balance at December 31, 20156,150 5,674 $6.56 2,182 $6.99The following table summarizes information about stock options outstanding as of December 31, 2015 (in thousands, except per share amounts andterm): NumberofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm (Years) AggregateIntrinsicValueVested and expected to vest5,463 $6.55 3.4 $236Exercisable3,708 6.42 2.4 236The intrinsic value of options vested and expected to vest and exercisable as of December 31, 2015 is calculated based on the difference between theexercise price and the fair value of the Company’s common stock as of December 31, 2015. The intrinsic value of options exercised during the years endedDecember 31, 2015, 2014 and 2013 was $1.7 million, $0.8 million and $2.3 million, respectively, and is calculated based on the difference between theexercise price and the fair value of the Company’s common stock as of the exercise date.The following table summarizes information about restricted stock units outstanding as of December 31, 2015 (in thousands, except term): Number ofSharesUnderlyingRestrictedStock Units WeightedAverageRemainingVesting Period(Years) AggregateFairValueVested and expected to vest1,909 0.7 $8,035The fair value of restricted stock units vested and expected to vest as of December 31, 2015 is calculated based on the fair value of the Company’scommon stock as of December 31, 2015.Stock-based CompensationThe following table summarizes stock-based compensation expense for all plans (in thousands):84Table of Contents Year ended December 31, 2015 2014 2013Employee stock-based compensation in: Cost of revenue$1,862 $2,359 $2,411 Research and development expense4,435 4,844 4,431 Selling, general and administrative expense9,285 10,084 9,160 Total stock-based compensation in operating expense13,720 14,928 13,591Total employee stock-based compensation recognized in loss from continuing operations$15,582 $17,287 $16,002As of December 31, 2015, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to unvested stock options andrestricted stock units was $11.9 million and is expected to be recognized over a weighted-average period of 1.9 years.Valuation AssumptionsThe Company estimates the fair value of employee stock options and ESPP shares using a Black-Scholes option valuation model. At the date of grant,the Company estimated the fair value of each stock option grant and purchase right granted under the ESPP using the following weighted averageassumptions: Employee Stock Options ESPP 2015 2014 2013 2015 2014 2013Expected term (in years)4.65 4.70 4.70 0.50 0.50 0.50Volatility38% 40% 50% 34% 32% 31%Risk-free interest rate1.5% 1.7% 0.9% 0.3% 0.1% 0.2%Dividend yield0.0% 0.0% 0.0% 0.0% 0.0% 0.0%The expected term of the employee stock option represents the weighted-average period that the stock options are expected to remain outstanding. Thecomputation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The expected term of the stock purchase right under ESPP represents theperiod of time from the beginning of the offering period to the purchase date. The Company uses its historical volatility for a period equivalent to theexpected term of the options to estimate the expected volatility. The risk-free interest rate that the Company uses in the Black-Scholes option valuationmodel is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company has never declared or paid any cashdividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ fromthose estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for thoseawards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, whichare generally the vesting periods.The weighted-average fair value per share of options granted for the years ended December 31, 2015, 2014 and 2013 was $2.51, $2.36 and $2.55,respectively. The fair value of all stock options vested during the years ended December 31, 2015, 2014 and 2013 was $3.0 million, $3.2 million and $3.3million, respectively.The estimated weighted-average fair value per share of stock purchase rights granted for the years ended December 31, 2015, 2014 and 2013 was $1.69,$1.79 and $1.21, respectively.The total realized tax benefit attributable to stock options exercised during the years ended December 31, 2014 and 2013, was $15,000 and $141,000,respectively. We realized no income tax benefit from stock option exercises for the year ended December 31, 2015 due to recurring losses and valuationallowances. As required, we present excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.The estimated fair value of restricted stock units is based on the market price of the Company’s common stock on the grant date. The fair value of allrestricted stock units issued during the years ended December 31, 2015, 2014 and 2013 was $11.1 million, $12.0 million and $11.9 million, respectively.401(k) Plan85Table of ContentsThe Company has a retirement/savings plan which qualifies as a thrift plan under Section 401(k) of the Internal Revenue Code. This plan allowsparticipants to contribute up to the applicable Internal Revenue Code limitations under the plan. The Company can make discretionary contributions to theplan of 25% of the first 4% contributed by eligible participants, up to a maximum contribution per participant of $1,000 per year. The Company’scontributions to the plan was $0.4 million for each of the fiscal year from 2013 through 2015.NOTE 14: STOCKHOLDERS’ EQUITYPreferred StockHarmonic has 5,000,000 authorized shares of preferred stock. No shares of preferred stock were issued or outstanding in any of the periods presented.Common Stock RepurchasesIn April 2012, the Board approved a stock repurchase program that provided for the repurchase of up to $25 million of the Company’s outstandingcommon stock. Under the program, the Company is authorized to repurchase shares of common stock in open market transactions or pursuant to any tradingplan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. From time to time, the Board may approve further increases to the programand the amount approved for this program was increased to $300 million periodically through May 2014 and the repurchase period has been extendedthrough the end of 2016. The timing and actual number of shares repurchased, if any, will depend on a variety of factors, including the price and availabilityof our shares, trading volume and general market conditions. The purchases are funded from available working capital. The program may be suspended ordiscontinued at any time without prior notice.During the years ended December 31, 2015, 2014 and 2013, the Company repurchased from open market transactions 3.4 million, 13.9 million and 6.3million shares of its common stock, respectively, at a total cost of $23.0 million, $93.1 million and $40.6 million, respectively, and at an average share priceof $6.70, $6.70 and $6.48, respectively. In addition, $76.0 million, including $1.0 million of expenses, was spent in the “modified Dutch auction” tenderoffer, which closed on May 24, 2013. Under the tender offer, the Company repurchased 12.0 million shares of its common stock at $6.25 per share. Theremaining authorized amount for repurchases under this program was $45.7 million as of December 31, 2015. The excess of cost over par value for therepurchase of the Company’s common stock is recorded to additional paid-in-capital. Common stock repurchased under the program was recorded basedupon the trade date for accounting purposes. All common shares repurchased under this program have been retired.Additionally, on December 8, 2015, the Board approved the use of part of the proceeds from the sale and issuance of the Notes, issued on December 14,2105, (see Note 12, “Convertible Notes and Credit Facilities” for additional information on the Notes) to repurchase shares of the Company’s common stockfrom purchasers of the Note offering in privately negotiated transactions effected through the initial purchaser or its affiliate as the Company’s agent.Repurchases of 11.1 million shares of the Company’s common stock effected concurrently with the Note offering was completed on December 14, 2015 at aprice of $4.49 per share for an aggregate purchase price of $49.9 million.Accumulated Other Comprehensive LossThe components of accumulated other comprehensive loss were as follows (in thousands): December 31, 2015 2014Foreign currency translation adjustments$(2,634) $(1,523)Unrealized loss on investments, net of taxes(1,538) (768)Unrealized gain (loss) on cash flow hedges(1)(246) 311 Total accumulated other comprehensive loss$(4,418) $(1,980)(1) See Consolidated Statements of Comprehensive Income or Loss for the amounts related to cash flow hedges that were reclassified into theConsolidated Statements of Operations for the periods presented.NOTE 15: INCOME TAXESLoss from continuing operations before income taxes consists of the following (in thousands):86Table of Contents Year ended December 31, 2015 2014 2013United States$(16,826) $(15,515) $(31,521)International758 (6,280) 8,369Loss from continuing operations before income taxes$(16,068) $(21,795) $(23,152)The components of the provision for (benefit from) income taxes consist of the following (in thousands): Year ended December 31, 2015 2014 2013Current: Federal$(1,981) $(11,525) $(38,243)State120 8 93International1,966 1,619 1,988Deferred: Federal— 25,722 (10,543)State— 8,249 3,023International(512) 380 (1,059)Total provision for (benefit from) income taxes$(407) $24,453 $(44,741)The differences between the provision for (benefit from) income taxes computed at the U.S. federal statutory rate at 35% and the Company’s actualprovision for (benefit from) income taxes are as follows (in thousands): Year ended December 31, 2015 2014 2013Benefit from for income taxes at U.S. Federal statutory rate$(5,624) $(7,628) $(8,103)State taxes120 5,368 2,940Differential in rates on foreign earnings1,584 4,311 (1,396)Non-deductible amortization expense947 3,138 4,311Change in valuation allowance2,230 26,053 (996)Change in liabilities for uncertain tax positions(1,083) (8,126) (35,742)Non-deductible stock-based compensation1,398 1,665 981Research and development tax credits(178) (841) (5,044)Non-deductible meals and entertainment395 361 346Non-deductible acquisition cost457 — —Adjustments related to tax positions taken during prior years(781) — (1,154)Tax-exempt investment income— — (304)Other128 152 (580) Total provision for (benefit from) income taxes$(407) $24,453 $(44,741)The Company operates in multiple jurisdictions and its profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax ratemay be affected by changes in or interpretations of tax laws and tax agreements in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters such as the ability to realize deferred taxassets. The Company’s effective tax rate varies from year to year primarily due to the absence of several onetime, discrete items that benefited or decrementedthe tax rates in the previous years.In 2015, the Company had worldwide consolidated loss before tax of $16.1 million and tax benefit of $0.4 million, with an effective income tax rate of3%. The Company’s 2015 effective income tax rate differed from the U.S. federal statutory rate of 35% primarily due to a difference in foreign tax rates andthe Company’s U.S. losses generated for the year received no tax benefit as a result of a full valuation allowance against all of its U.S. deferred tax assets, aswell as adjustments relating to its 2014 U.S. federal tax return filed in September 2015 and the reversal of uncertain tax positions resulting from theexpiration of statutes of limitations. In addition, the impairment of the VJU investment (see Note 5, “Investments in Other Equity Securities”) received no taxbenefit.87Table of ContentsIn 2014, as a result of cumulated losses in the recent years and the analysis of all available positive and negative evidence, the Company recorded a fullvaluation allowance against the beginning of year U.S. net deferred tax assets of $34.0 million. In addition, in 2014, the Company carried back its 2013federal net operating loss to 2011 resulting in a tax refund. Certain federal R&D credits were also freed up as a result and utilized to offset income tax reservesas a result of the adoption of the ASU 2013-11. These two events reduced the valuation allowance by approximately $5.0 million and led to the net change ofvaluation allowance of $29.0 million. This unfavorable net impact was offset partially by a tax benefit of $9.0 million associated with the release of taxreserves including accrued interest and penalties, for our 2010 tax year in the United States, as a result of the expiration of the applicable statute of limitationfor that year.The benefit from income taxes for 2013 included a release of $39.0 million of tax reserves, including accrued interests and penalties, for our 2008 and2009 tax years in the United States, as a result of the expiration of the applicable statute of limitations for those tax years. In addition, in 2013, the Companyrecorded a $2.4 million tax benefit arising from the reinstatement of the 2012 United States federal research tax credit.The components of net deferred tax assets included in the Consolidated Balance Sheets are as follows (in thousands): December 31, 2015 2014Deferred tax assets: Reserves and accruals$16,413 $21,048 Net operating loss carryovers27,023 24,946 Research and development credit carryovers27,595 26,404 Deferred stock-based compensation5,834 6,727 Other tax credits2,738 2,738 Gross deferred tax assets79,603 81,863 Valuation allowance(64,545) (75,199) Gross deferred tax assets after valuation allowance15,058 6,664Deferred tax liabilities: Depreciation and amortization(1,189) (2,137) Intangibles(899) (2,228) Convertible notes(10,233) — Other(510) (589) Gross deferred tax liabilities(12,831) (4,954) Net deferred tax assets$2,227 $1,710The following table summarizes the activity related to the Company’s valuation allowance (in thousands): Year ended December 31, 2015 2014 2013Balance at beginning of period$75,199 $38,644 $34,347 Additions3,068 39,556 6,364 Deductions(13,722) (3,001) (2,067)Balance at end of period$64,545 $75,199 $38,644Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors asrecent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination asto the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for incometaxes in the period in which such determination is made.In 2015, the Company continued to record a valuation allowance against all of its United States deferred tax assets as well as its net operating lossesgenerated in 2015 due to significant cumulative losses in the United States, resulting in a net increase in valuation allowance of $3.1 million. This increase invaluation allowance is offset partially by the release of $0.9 million valuation allowance against one of its Israel subsidiaries due to cumulative incomegenerated in the recent years as well as the analysis of all available positive and negative evidence. Additionally, in December 2015, the Company issued$128.25 million of the Notes which led to the establishment of $10.3 million of net deferred tax liability associated with the equity component88Table of Contentsof the Notes and its related debt issuance costs which were recorded in the Company’s stockholders’ equity according to the applicable accounting guidance.(see Note 12, “Convertible Notes and Credit Facilities” for additional information on the Notes). This deferred tax liability has led to a net reduction ofvaluation allowance of an equal amount. As of December 31, 2015, the Company had a valuation allowance of $64.5 million against substantially all of itsU.S. federal, California and other state and to a lesser extent, foreign net deferred tax assets, related to net operating loss carryforwards and R&D tax creditcarryforwards.In November 2015, the FASB issued an accounting standard update that all deferred tax assets and liabilities, along with any related valuationallowance, be classified as non-current on the balance sheet. The accounting standard update will be effective for the Company beginning in the first quarterof fiscal 2017 and early adoption is permitted. The Company early-adopted this accounting standard update as of the end of its fiscal 2015 on a prospectivebasis, resulting in $15.9 million of net deferred tax assets, along with its related valuation allowance, being classified from current assets to non-current assetson the Consolidated Balance Sheet as of December 31, 2015. Other than this reclassification, the adoption of this accounting standard update did not have animpact on the Company’s consolidated financial statements.As of December 31, 2015, the Company had $81.1 million, $11.8 million, $39.4 million and $11.8 million of foreign, U.S. federal, U.S. California state,and U.S. other states net operating loss carryforwards (“NOL”), respectively. There is no expiration to the utilization of the foreign NOL, while the U.S. federaland California NOL will begin to expire at various dates beginning in 2016 through 2035, if not utilized. As of December 31, 2015, the U.S. federal andCalifornia NOL included approximately $1.4 million and $6.4 million relating to stock options tax deductions. These amounts are not included in theCompany’s gross or net deferred tax assets pursuant to applicable accounting guidance and, if and when realized, through a reduction in income tax payable,will be accounted for as a credit to additional paid-in capital.As of December 31, 2015, the Company had U.S. federal and California state tax credit carryforwards of approximately $9.2 million and $31.3 million,respectively. If not utilized, the U.S. federal tax credit carryforwards will begin to expire in 2031, while the California tax credit forward will not expire. Inaddition, as of December 31, 2015, the Company had U.S. federal alternative minimum tax (“AMT”) credit carryforward of approximately $2.7 million, whichwill not expire.The Company has not provided U.S. federal and California state income taxes, as well as foreign withholding taxes, on approximately $8.3 million ofcumulative undistributed earnings for certain non-U.S. subsidiaries, because such earnings are intended to be indefinitely reinvested. Determination of theamount of unrecognized deferred tax liability for temporary differences related to investment in these non-U.S. subsidiaries that are essentially permanent induration is not practicable.The Company applies the provisions of the applicable accounting guidance regarding accounting for uncertainty in income taxes, which requiresapplication of a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. If the recognition threshold is met, theapplicable accounting guidance permits the recognition of a tax benefit measured at the largest amount of such tax benefit that, in our judgment, is more thanfifty percent likely to be realized upon settlement. It further requires that a change in judgment related to the expected ultimate resolution of uncertain taxpositions be recognized in earnings in the period in which such determination is made. The Company will continue to review its tax positions and providefor, or reverse, unrecognized tax benefits as issues arise. As of December 31, 2015, the Company had $15.6 million that would favorably impact the effectivetax rate in future periods if recognized. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in millions): Year ended December 31, 2015 2014 2013Balance at beginning of period$15.7 $24.2 $52.1 Increase in balance related to tax positions taken during current year0.7 1.0 5.4 Decrease in balance as a result of a lapse of the applicable statues of limitations(0.9) (9.5) (1.3) Decrease in balance due to settlement with tax authorities— — (32.1) Increase in balance related to tax positions taken during prior years0.3 — 0.1 Decrease in balance related to tax positions taken during prior years(0.2) — —Balance at end of period$15.6 $15.7 $24.2The Company recognizes interest and penalties related to unrecognized tax positions in income tax expenses on the Consolidated Statements ofOperations. The net interest and penalties reduction recorded for the years ended December 31, 2015, 2014 and 2013 related to unrecognized tax benefits was($31,000), ($1.0) million and ($5.6) million, respectively. The net reduction in interest and penalties in 2015, 2014 and 2013 was attributable to the reversalof accrued interest and penalties of $0.2 million, $1.8 million and $7.5 million, respectively, due to decreases in unrecognized tax benefits resulting from theexpiration of the statutes of limitations on the Company’s U.S. corporate tax returns for 2008 through 2011 tax years. The89Table of ContentsCompany had approximately $0.5 million of accrued interest and penalties related to uncertain tax positions as of December 31, 2015 and December 31,2014.The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations during which such tax returnsmay be audited and adjusted by the relevant tax authorities. The U.S. Internal Revenue Service has concluded its audit for the 2008, 2009 and 2010 tax years.The statute of limitations on the Company’s 2008 and 2009, and 2010 and 2011 corporate income tax returns expired in September of 2013, 2014 and 2015,respectively. As a result, the Company released $39.0 million of related tax reserves, including accrued interests and penalties, for the 2008 and 2009 taxyears in 2013. Additionally, the Company released $9.0 million and $0.5 million of related tax reserves, including accrued interests and penalties, for the2010 and 2011 tax years in 2014 and 2015, respectively.The 2012 through 2015 tax years generally remain subject to examination by U.S. federal and most state tax authorities. In significant foreignjurisdictions, the 2007 through 2015 tax years generally remain subject to examination by their respective tax authorities. The Company is currently underexamination by the U.S. Internal Revenue Service for its 2012 federal income tax return, which commenced officially in August 2015, and so far there hasbeen no proposed adjustment received for the audit. In addition, a subsidiary of the Company is under audit for the 2012 and 2013 tax years, whichcommenced in the first quarter of 2015, by the Israel tax authority. If, upon the conclusion of these audits, the ultimate determination of taxes owed in theUnited States or Israel is for an amount in excess of the tax provision the Company has recorded in the applicable period, the Company’s overall tax expense,effective tax rate, operating results and cash flow could be materially and adversely impacted in the period of adjustment.On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expensein an intercompany cost-sharing arrangement. A final decision was entered by the U.S. Tax Court on December 1, 2015. On February 19, 2016, the U.S.Internal Revenue Service filed a notice of appeal in Altera Corp. v. Commissioner, 145 T.C. No. 3 (2015), to the Ninth Circuit Court of Appeal. The NinthCircuit will decide whether a regulation that mandates that stock-based compensation costs related to the intangible development activity of a qualified costsharing arrangement (QCSA) must be included in the joint cost pool of the QCSA (the “all costs rule”) is consistent with the arm’s length standard asenunciated under section 482. The Company concluded that no adjustment to the consolidated financial statements as of December 31, 2015 is appropriateat this time due to the uncertainties with respect to the ultimate resolution of this case.The Company’s operations in Switzerland are subject to a reduced tax rate under the Switzerland tax holiday which requires various thresholds ofinvestment and employment in Switzerland. The Company has met these various thresholds and the Switzerland tax holiday is effective through the end of2018. The income tax benefits attributable to the Switzerland holiday were estimated to be approximately $0.7 million, $0.7 million and $1.5 million in2015, 2014 and 2013, respectively, increasing diluted earnings per share by approximately $0.008, $0.008 and $0.014 in 2015, 2014 and 2013, respectively.NOTE 16: NET INCOME (LOSS) PER SHAREBasic net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the applicable period by theweighted average number of common shares outstanding during the period. Potentially dilutive shares, consisting of outstanding stock options, restrictedstock units, ESPP plan awards as well as the Notes, are excluded from the net income (loss) per share computations when their effect is anti-dilutive.The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):90Table of Contents December 31, 2015 2014 2013Numerator: Income (loss) from continuing operations$(15,661) $(46,248) $21,589 Income from discontinued operations— — 15,438 Net income (loss)$(15,661) $(46,248) $37,027Denominator: Weighted average shares outstanding: Basic87,514 92,508 106,529 Effect of dilutive securities from stock options, restricted stock units and ESPP— — 1,279 Diluted87,514 92,508 107,808Basic net income (loss) per share from: Continuing operations$(0.18) $(0.50) $0.20 Discontinued operations$— $— $0.14 Net income (loss)$(0.18) $(0.50) $0.35Diluted net income (loss) per share from: Continuing operations$(0.18) $(0.50) $0.20 Discontinued operations$— $— $0.14 Net income (loss)$(0.18) $(0.50) $0.34The diluted net loss per share is the same as basic net loss per share for the years ended December 31, 2015 and 2014 because potential common sharesare only considered when their effect would be dilutive. The following table presents the potential weighted common shares outstanding that were excludedfrom the computation of basic and diluted net loss per share calculations (in thousands): December 31, 2015 2014 2013Stock options6,460 7,115 6,454Restricted stock units2,178 2,066 437Employee stock purchase plan518 346 175 Total9,156 9,527 7,066Also excluded from the table above are the Notes, which are convertible under certain conditions (see Note 12, Convertible Notes and Credit Facilitiesfor additional information on the Notes) into an aggregate of 22,304,348 shares of common stock. Since the Company’s intent is to settle the principalamount of the Notes in cash, the treasury stock method is being used to calculate any potential dilutive effect of the conversion spread on diluted net incomeper share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share when the Company’s average market price of itscommon stock for a given period exceeds the conversion price of $5.75 per share.NOTE 17: SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND CUSTOMER CONCENTRATIONSegment InformationOperating segments are defined as components of an enterprise that engage in business activities for which separate financial information is availableand evaluated by the Company’s CODM, which for the Company is its Chief Executive Officer, in deciding how to allocate resources and assess performance.Based on our internal reporting structure, the Company consists of two operating segments: Video and Cable Edge, and prior to the fourth quarter of 2014,the Company operated its business in only one reportable segment. The operating segments were determined based on the nature of the products offered. TheVideo segment sells video processing and production and playout solutions and services worldwide to broadcast and media companies, streaming new mediacompanies, cable operators, and satellite and telecommunications (telco) Pay-TV service providers. The Cable Edge segment sells cable edge solutions andrelated services to cable operators globally.91Table of ContentsThe Company does not allocate amortization of intangibles, stock-based compensation, restructuring and asset impairment charges, and certain othernon-recurring charges to the operating income for each segment because management does not include this information in the measurement of theperformance of the operating segments. A measure of assets by segment is not applicable as segment assets are not included in the discrete financialinformation provided to the CODM.The following tables provide summary financial information by reportable segment (in thousands): Year ended December 31, 2015 2014 2013Net revenue: Video$291,779 $326,756 $381,994 Cable Edge85,248 106,801 79,946Total consolidated net revenue$377,027 $433,557 $461,940 Operating income (loss): Video$13,529 $18,073$24,583 Cable Edge(1,599) 1,239 (1,282)Total segment operating income11,930 19,312 23,301Unallocated corporate expenses(2,794) (3,076) (2,994)Stock-based compensation(15,582) (17,287) (16,002)Amortization of intangibles(6,502) (20,520) (27,329)Loss from operations(12,948) (21,571) (23,024)Non-operating expense(3,120) (224) (128)Loss from continuing operations before income taxes$(16,068) $(21,795) $(23,152)Unallocated corporate expenses include certain corporate-level operating expenses and charges such as restructuring and asset impairment charges,transaction costs associated with the potential TVN acquisition (See Note 20, “Subsequent Event-TVN Acquisition” for additional information), and proxycontest related expenses.Geographic InformationRevenue by geographic region, based on the location at which each sale originates, and property and equipment, net by geographic region, aresummarized as follows (in thousands): Year ended December 31, 2015 2014 2013Net revenue: United States$175,466 $206,610 $199,790 Other countries201,561 226,947 262,150 Total$377,027 $433,557 $461,940Other than the U.S., no country accounted for 10% or more of the Company’s net revenues for the years ended December 31, 2015, 2014, and 2013. As of December 31, 2015 2014Property and equipment, net: United States$17,086 $19,148 Israel7,560 4,888 Other countries2,366 3,185 Total$27,012 $27,221Customer ConcentrationNet revenue from Comcast accounted for 12%, 16% and 12%, respectively, of the Company’s total net revenue during the years ended December 31,2015, 2014 and 2013. Other than Comcast, no customer accounted for 10% or more of the Company’s total net revenue for any of the above periods.92Table of ContentsNOTE 18: COMMITMENTS AND CONTINGENCIESLeasesThe Company leases its facilities under non-cancelable operating leases which expire at various dates through November 2022. In addition, theCompany leases vehicles and phones in Israel under non-cancelable operating leases, the last of which expires in 2018. Total rent expense related to theseoperating leases was $9.0 million, $9.8 million and $9.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. Future minimum leasepayments under non-cancelable operating leases at December 31, 2015, are as follows (in thousands): Operating LeasesYear ending December 31, 2016$10,784201710,24720189,74120198,35520205,734Thereafter676Total minimum payments$45,537WarrantiesThe Company accrues for estimated warranty costs at the time of product shipment. Management periodically reviews the estimated fair value of itswarranty liability and records adjustments based on the terms of warranties provided to customers, historical and anticipated warranty claims experience, andestimates of the timing and cost of warranty claims. Activity for the Company’s warranty accrual, which is included in accrued liabilities, is summarizedbelow (in thousands): Year ended December 31, 2015 2014 2013Balance at beginning of period$4,242 $3,606 $4,292 Transfer to Aurora as part of the sale of discontinued operations— — (939) Accrual for current period warranties5,470 7,278 7,192 Changes in liability related to pre-existing warranties(92) 3 (35) Warranty costs incurred(5,707) (6,645) (6,904)Balance at end of period$3,913 $4,242 $3,606Standby Letters of Credit and GuaranteesThe Company’s financial guarantees consisted of standby letters of credit and bank guarantees. As of December 31, 2015, the Company had $0.7million of standby letters of credit outstanding primarily related to its credit card facility in Switzerland and, to a lesser extent, performance bond and staterequirements imposed on employers. In addition, the Company had $0.4 million bank guarantees outstanding in Israel, primarily related to building leases.IndemnificationThe Company is obligated to indemnify its officers and the members of its Board pursuant to its bylaws and contractual indemnity agreements. TheCompany also indemnifies some of its suppliers and most of its customers for specified intellectual property matters pursuant to certain contractualarrangements, subject to certain limitations. The scope of these indemnities varies, but, in some instances, includes indemnification for damages andexpenses (including reasonable attorneys’ fees). There have been no amounts accrued in respect of the indemnification provisions through December 31,2015.RoyaltiesThe Company has licensed certain technologies from various companies. It incorporates these technologies into its own products and is required to payroyalties for such use, usually based on shipment of the related products. In addition, the Company has obtained research and development grants undervarious Israeli government programs that require the payment of royalties on sales of certain products resulting from such research. During the years endedDecember 31, 2015, 2014 and 2013 royalty expenses were $2.9 million, $3.2 million and $4.4 million, respectively, and they are included in product cost ofrevenue in the Company’s Consolidated Statements of Operations.93Table of ContentsPurchase Commitments with Contract Manufacturers and VendorsThe Company relies on a limited number of contract manufacturers and suppliers to provide manufacturing services for a substantial majority of itsproducts. In addition, some components, sub-assemblies and modules are obtained from a sole supplier or limited group of suppliers. During the normalcourse of business, in order to reduce manufacturing lead times and ensure adequate component supply, the Company enters into agreements with certaincontract manufacturers and suppliers that allow them to procure inventory and services based upon criteria as defined by the Company. The Company had$15.3 million of non-cancelable purchase commitments as of December 31, 2015.NOTE 19: LEGAL PROCEEDINGSFrom time to time, the Company is involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigationsin the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial,employment, and other matters. The Company assesses potential liabilities in connection with each lawsuit and threatened lawsuits and accrues an estimatedloss for these loss contingencies if both of the following conditions are met: information available prior to issuance of the financial statements indicates thatit is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While certainmatters to which the Company is a party specify the damages claimed, such claims may not represent reasonably probable losses. Given the inherentuncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any,be reasonably estimated.In October 2011, Avid Technology, Inc. (“Avid”) filed a complaint in the United States District Court for the District of Delaware alleging thatHarmonic’s Media Grid product infringes two patents held by Avid. A jury trial on this complaint commenced on January 23, 2014 and, on February 4, 2014,the jury returned a unanimous verdict in favor of Harmonic, rejecting Avid’s infringement allegations in their entirety. On May 23, 2014, Avid filed a post-trial motion asking the court to set aside the jury’s verdict, and the judge issued an order on December 17, 2014, denying the motion. On January 5, 2015,Avid filed an appeal with respect to the jury’s verdict with the Federal Circuit, which was docketed on January 9, 2015, as Case No. 2015-1246. Avid filed itsopening brief with respect to this appeal on March 24, 2015, the Company filed its response brief on May 7, 2015, and Avid filed its reply brief on June 16,2015. Oral arguments were held on December 11, 2015. On January 29, 2016, the Federal Circuit issued an order vacating the verdict of noninfringement andremanding the case to the trial court for a new trial on infringement. On February 26, 2016, Harmonic filed a request for rehearing and rehearing en banc at theFederal Circuit.In June 2012, Avid served a subsequent complaint in the United States District Court for the District of Delaware alleging that Harmonic’s Spectrumproduct infringes one patent held by Avid. The complaint seeks injunctive relief and unspecified damages. On September 25, 2013, the U.S. Patent Trial andAppeal Board (“PTAB”) authorized an inter partes review to be instituted as to claims 1-16 of the patent asserted in this second complaint. A hearing beforethe PTAB was conducted on May 20, 2014. On July 10, 2014, the PTAB issued a decision finding claims 1-10 invalid and claims 11-16 not invalid.Harmonic filed an appeal with respect to the PTAB’s decision on claims 11-16 on September 11, 2014. The appeal was docketed with the Federal Circuit onOctober 22, 2014, as Case No. 2015-1072, and Harmonic filed its opening brief with respect to this appeal on January 29, 2015. Avid and PTAB each filed aresponse brief on April 27, 2015, and the Company filed a reply brief on May 28, 2015. Oral arguments were held on October 8, 2015. The Federal Circuitissued an order on March 1, 2016, affirming the PTAB’s decision. The litigation is currently stayed.An unfavorable outcome on any litigation matters could require that Harmonic pay substantial damages, or, in connection with any intellectualproperty infringement claims, could require that the Company pay ongoing royalty payments or could prevent the Company from selling certain of itsproducts. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a materialadverse effect on Harmonic’s business, operating results, financial position and cash flows.NOTE 20: SUBSEQUENT EVENTTVN AcquisitionOn February 11, 2016, pursuant to the terms of the Put Option Agreement, one of our subsidiaries entered into a securities purchase agreement (the“SPA”) with TVN’s shareholders (the “Sellers”) to purchase 100% of the share capital and voting rights of TVN, on a non-diluted basis. On February 29,2016, the Company completed the acquisition of TVN for total cash consideration of approximately $76.5 million. There may be additional post-closingpayments in amounts respectively capped to (i) the difference between €76 million (as converted from euros into U.S. dollars) and $75 million, with respectto an adjustment based on TVN’s 2015 revenue, and (ii) $5 million with respect to an adjustment based on TVN’s 2015 backlog that ships during the firsthalf of 2016, all of which at such times and under the circumstances set forth in the SPA. After paying the94Table of ContentsTVN purchase consideration on February 29, 2016, the aggregated balance of the Company’s cash, cash equivalents and short-term investments wasapproximately $70 million.The initial accounting for this business combination is in progress as of the date of this Form 10-K filing.95Table of ContentsSELECTED QUARTERLY FINANCIAL DATA(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)The following table sets forth our unaudited quarterly Consolidated Statement of Operations data for each of the eight quarters ended December 31,2015. In management’s opinion, the data has been prepared on the same basis as the audited Consolidated Financial Statements included in this report, andreflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this data. Fiscal 2015 1st Quarter (3) 2nd Quarter 3rd Quarter (2) 4th Quarter (1) (In thousands, except per share amounts)Quarterly Data: Net revenue$104,016 $103,103 $83,305 $86,603Gross profit55,028 54,385 46,231 47,068Net loss$(2,657) $(994) $(4,811) $(7,199)Net loss per share: Basic$(0.03) $(0.01) $(0.05) $(0.08) Diluted$(0.03) $(0.01) $(0.05) $(0.08)Shares used in per share calculations: Basic88,655 88,426 87,991 84,932 Diluted88,655 88,426 87,991 84,932 Fiscal 2014 1st Quarter 2nd Quarter (1) 3rd Quarter (1) (2) 4th Quarter (1) (In thousands, except per share amounts)Quarterly Data: Net revenue$108,032 $109,589 $108,061 $107,875Gross profit52,312 49,817 53,428 56,791Net income (loss)$(5,410) $(37,062) $1,078 $(4,854)Net income (loss) per share: Basic$(0.06) $(0.39) $0.01 $(0.06) Diluted$(0.06) $(0.39) $0.01 $(0.06)Shares used in per share calculations: Basic97,921 93,966 90,618 88,012 Diluted97,921 93,966 91,800 88,012(1) A history of operating losses in recent years has led to uncertainty with respect to the Company’s ability to realize certain net deferred tax assets, and as aresult, the Company recorded increased valuation allowances of $24.5 million, $4.2 million and $0.3 million, in the second, third and fourth quarters of fiscal2014, respectively, against its U.S. net deferred tax assets. In 2015, the Company continued to record a valuation allowance against all of its U.S. net deferredtax assets, resulting in an increase in valuation allowance of $3.1 million in the fourth quarter of fiscal 2015. This increase in valuation allowance is offsetpartially by the release of $0.9 million valuation allowance against one of its Israel subsidiaries due to cumulative income generated in recent years.(2) In the third quarter of fiscal 2015 and 2014, the Company recorded tax benefits of $0.5 million and $9.0 million, respectively, resulting from theexpiration of the applicable statute of limitations relating to the tax audits in the U.S. for the years of 2011 and 2010, respectively.(3) In the first quarter of fiscal 2015, the Company recorded an impairment charge of $2.5 million for its investment in VJU iTV Development GmbH as aresult of its assessment that this investment was impaired on an other-than-temporary basis (See Note 5, “Investments in Other Equity Securities,” of the notesto our Consolidated Financial Statements for additional information).96Table of ContentsItem 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.Item 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure thatinformation required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating ourdisclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controlsand procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controlsand procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events,and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief FinancialOfficer have concluded that our disclosure controls and procedures were effective.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) underthe Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on thecriteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on the Company’s assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 2015. TheCompany’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued a report on the effectiveness of the Company’s internalcontrol over financial reporting, which appears in Part II, Item 8 of this Form 10-K.Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting that occurred during the fourth quarter of fiscal year 2015 that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting.Item 9B.OTHER INFORMATIONNone.PART IIICertain information required by Part III is omitted from this Annual Report on Form 10-K pursuant to Instruction G to Exchange Act Form 10-K, and theRegistrant will file its definitive Proxy Statement for its 2016 Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of1934, as amended (the “2016 Proxy Statement”), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, andcertain information included in the 2016 Proxy Statement is incorporated herein by reference.Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item will be set forth in the 2016 Proxy Statement and is incorporated herein by reference.97Table of ContentsHarmonic has adopted a Code of Business Conduct and Ethics for Senior Operational and Financial Leadership (the “Code”), which applies to its ChiefExecutive Officer, its Chief Financial Officer, its Corporate Controller and other senior operational and financial management. The Code is available on theCompany’s website at www.harmonicinc.com.Harmonic intends to satisfy the disclosure requirement under Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethicsby posting such information on our website, at the address specified above, and, to the extent required by the listing standards of the NASDAQ Global SelectMarket, by filing a Current Report on Form 8-K with the Securities and Exchange Commission disclosing such information.Item 11.EXECUTIVE COMPENSATIONThe information required by this item will be set forth in the 2016 Proxy Statement and is incorporated herein by reference.Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSInformation related to security ownership of certain beneficial owners and security ownership of management and related stockholder matters will beset forth in the 2016 Proxy Statement and is incorporated herein by reference.Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by this item will be set forth in the 2016 Proxy Statement and is incorporated herein by reference.Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item will be set forth in the 2016 Proxy Statement and is incorporated herein by reference.PART IVItem 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES1. Financial Statements. See Index to Consolidated Financial Statements in Item 8 on page 55 of this Annual Report on Form 10-K.2. Financial Statement Schedules. Financial statement schedules have been omitted because the information is not required to be set forth herein, is notapplicable or is included in the financial statements or the notes thereto.3. Exhibits. The documents listed in the Exhibit Index of this Annual Report on Form 10-K are filed herewith or are incorporated by reference in thisAnnual Report on Form 10-K, in each case as indicated therein.98Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant, Harmonic Inc., a Delaware corporation, hasduly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State ofCalifornia, on March 24, 2016.HARMONIC INC. By:/s/ PATRICK J. HARSHMAN Patrick J. Harshman President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated.SignatureTitleDate /s/ PATRICK J. HARSHMANPresident & Chief Executive Officer (Principal Executive Officer)March 24, 2016(Patrick J. Harshman) /s/ HAROLD L. COVERTChief Financial OfficerMarch 24, 2016(Harold L. Covert)(Principal Financial and Accounting Officer) /s/ PATRICK GALLAGHERChairmanMarch 24, 2016(Patrick Gallagher) /s/ E. FLOYD KVAMMEDirectorMarch 24, 2016(E. Floyd Kvamme) /s/ WILLIAM REDDERSENDirectorMarch 24, 2016(William Reddersen) /s/ SUSAN G. SWENSONDirectorMarch 24, 2016(Susan G. Swenson ) /s/ MITZI REAUGHDirectorMarch 24, 2016(Mitzi Reaugh) /s/ NIKOS THEODOSOPOULOSDirectorMarch 24, 2016(Nikos Theodosopoulos) 99Table of ContentsEXHIBIT INDEXThe following Exhibits to this report are filed herewith or, as shown below, are incorporated herein by reference.ExhibitNumber 2.1(xiii)Asset Purchase Agreement, dated as of February 18, 2013, by and between Harmonic Inc. and Aurora Networks 3.1(ii)Certificate of Incorporation of Harmonic Inc., as amended 3.2(xxii)Amended and Restated Bylaws of Harmonic Inc. 4.1(i)Form of Common Stock Certificate 4.2(iii)Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock of Harmonic Inc. 4.3(xxi)Indenture, dated December 14, 2015, by and between the Company and U.S. Bank National Association 4.4(xxi)Form of 4.00% Senior Convertible Note due 2020 (included in Exhibit 4.3) 10.1(i)*Form of Indemnification Agreement 10.2(xii)*1995 Stock Plan, as amended and restated on June 27, 2012 10.3(iv)*1999 Non-statutory Stock Option Plan 10.4(xix)*2002 Director Stock Plan, as amended and restated on June 29, 2015 10.5(xv)*2002 Employee Stock Purchase Plan 10.6(v)*Change of Control Severance Agreement between Harmonic Inc. and Patrick Harshman, effective May 30, 2006 10.7(vi)*Change of Control Severance Agreement between Harmonic Inc. and Neven Haltmayer, effective April 19, 2007 10.8(vii)*Change of Control Severance Agreement between Harmonic Inc. and Nimrod Ben-Natan, effective April 11, 2008 10.9(viii)*Harmonic Inc. 2002 Director Stock Plan Restricted Stock Unit Agreement 10.10(viii)Professional Service Agreement between Harmonic Inc. and Plexus Services Corp., dated September 22, 2003 10.11(viii)Amendment, dated January 6, 2006, to the Professional Services Agreement for Manufacturing between Harmonic Inc. and PlexusServices Corp., dated September 22, 2003 10.12(viii)Addendum 1, dated November 26, 2007, to the Professional Services Agreement between Harmonic Inc. and Plexus Services Corp., datedSeptember 22, 2003 10.13(ix)*Harmonic Inc. 1995 Stock Plan Restricted Stock Unit Agreement 10.14(x)Lease Agreement between Harmonic Inc. and CRP North First Street, L.L.C. dated December 15, 2009 10.15(xi)*Omneon Video Networks, Inc. 1998 Stock Option Plan (as amended through February 27, 2007) 10.16(xi)*Omneon, Inc. 2008 Equity Incentive Plan 10.17(xvii)*Letter Agreement with Bart Spriester, dated July 29, 2014 10.18(xvii)*Change of Control Severance Agreement between Harmonic Inc. and Bart Spriester, effective September 10, 2014 10.19(xvi)Credit Agreement dated December 22, 2014, between Harmonic Inc. and JPMorgan Chase Bank, N.A. 10.20(xiv)Amendment No. 3 to Loan Agreement between Harmonic Inc. and Silicon Valley Bank 10.21(xviii)*Offer Letter Agreement with Harold Covert, dated October 22, 2015 100Table of Contents10.22(xviii)*Change of Control Severance Agreement between Harmonic Inc. and Harold Covert, dated October 27, 2015 10.23 (xx)First Amendment to Credit Agreement, dated as of December 7, 2015, by and between Harmonic Inc. and JPMorgan Chase Bank, N.A. 10.24 (xx)Purchase Agreement, dated as of December 8, 2015, by and between Harmonic Inc. and Merrill Lynch, Pierce, Fenner & SmithIncorporated 10.25Put Option Agreement, dated as of December 7, 2015, by and between Harmonic Inc. and Mr. Eric Louvet, Mr. Eric Gallier, Mr. Jean-MarcGuiot, Mr. Claude Perron, Mrs. Crystele Trévisan-Jallu, Mrs. Delphine Sauvion, Mr. Marc Procureur, Mr. Christophe Delahousse, Mr.Hervé Congard, Mr. Arnaud de Puyfontaine, FPCI Winch Capital 3, Montalivet Networks and FPCI CIC Mezzanine 3 10.26Securities Purchase Agreement, dated as of February 11, 2016, by and between Harmonic International AG and Mr. Eric Louvet, Mr. EricGallier, Mr. Jean-Marc Guiot, Mr. Claude Perron, Mrs. Crystele Trévisan-Jallu, Mrs. Delphine Sauvion, Mr. Marc Procureur, Mr.Christophe Delahousse, Mr. Hervé Congard, Mr. Arnaud de Puyfontaine, FPCI Winch Capital 3, Montalivet Networks and FPCI CICMezzanine 3 for the acquisition of Thomson Video Networks 21.1Subsidiaries of Harmonic Inc. 23.1Consent of Independent Registered Public Accounting Firm 31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 32.2Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 101The following materials from Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in ExtensibleBusiness Reporting Language (XBRL): Consolidated Balance Sheets at December 31, 2015 and December 31, 2014; (ii) ConsolidatedStatements of Operations for the Years Ended December 31, 2015, December 31, 2014 and December 31, 2013; (iii) ConsolidatedStatements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, December 31, 2014 and December 31, 2013 (iv)Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015, December 31, 2014 and December 31, 2013,(v) Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, December 31, 2014 and December 31, 2013; and (vi)Notes to Consolidated Financial Statements.*Indicates a management contract or compensatory plan or arrangement relating to executive officers or directors of the Company.(i)Previously filed as an Exhibit to the Company’s Registration Statement on Form S-1 No. 33-90752.(ii)Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.(iii)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated July 25, 2002.(iv)Previously filed as an Exhibit to the Company’s Current Report on Form S-8 dated June 5, 2003.(v)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated May 31, 2006.(vi)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated April 19, 2007.(vii)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated April 16, 2008.(viii)Previously filed as an Exhibit to the Company’s Current Annual Report on Form 10-K for the year ended December 31, 2008.(ix)Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2009.101Table of Contents(x)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated December 18, 2009.(xi)Previously filed as an Exhibit to the Company’s Registration Statement on Form S-8 dated September 21, 2010.(xii)Previously filed as an Exhibit to the Company’s Registration Statement on Form S-8, dated July 30, 2012.(xiii)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated March 11, 2013.(xiv)Previously filed as an Exhibit to the Company’s Current Report on Form 10-Q for the quarter ended September 26, 2014.(xv)Previously filed as an Exhibit to the Company’s Registration Statement on Form S-8 dated November 7, 2014.(xvi)Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated December 19, 2014.(xvii)Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.(xviii) Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated October 21, 2015.(xix) Previously filed as an Exhibit to the Company’s Registration Statement on Form S-8 dated November 6, 2015.(xx) Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated December 7, 2015.(xxi) Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated December 14, 2015.(xxii) Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2015.102EXHIBIT 10.25STRICTLY CONFIDENTIALDecember 7, 2015For the attention of each of the Persons identified in Schedule 0 hereto(hereinafter collectively referred to as the "Sellers")Re: Offer to PurchaseDear Sirs:Capitalized terms used in this letter (the "Letter") shall, unless otherwise defined herein, have the meanings ascribed to them in the saleand purchase agreement in the final and agreed form (together with its own schedules, appendices and exhibits) attached hereto asSchedule 1 (the "Securities Purchase Agreement").Following our recent discussions in relation to the acquisition of all (and not less than all) of the Transferred Securities(the "Transaction"), we hereby submit the following irrevocable and binding offer (promesse unilatérale d’achat) which the Sellers’Representative (on behalf of all the Sellers) may, at the Sellers’ sole discretion, elect to accept in accordance with the procedures andsubject to the terms set out below, and whereby:•we (the "Offeror"), irrevocably and subject to the terms and conditions set out below (and, in particular, subject to the terms ofClauses 3(b), 9(b) and 12), undertake to procure that Harmonic Europe, a company (société par actions simplifiée) organizedunder the laws of France, having a share capital of €40,000 and its registered office at 50, rue Camille Desmoulins, 92130 Issy-les-Moulineaux (France), and registered with the French Registry of Commerce and Companies under number 410 618 748RCS Nanterre ("Harmonic Europe"), which is one of our Affiliates, acquires, and•Harmonic Europe, irrevocably and subject to the terms and conditions set out below (and, in particular, subject to the terms ofClauses 3(b), 9(b) and 12), undertakes to acquire,in accordance with, and subject to, the terms and conditions of the Securities Purchase Agreement, all (and not less than all) of theTransferred Securities, free and clear from all Liens, from the Sellers (the "Put Option");it being expressly specified and agreed by the parties to this Letter that the Offeror and Harmonic Europe may at any time during theperiod from the date hereof until (and including) the actual date of execution of the Securities Purchase Agreement (or, failing thedelivery of an Exercise Notice, the Expiry Date, or, in case of termination of this Letter in accordance with the provisions ofClauses 3(b), 9(b) and 12, the date of receipt by the Sellers’ Representative of the termination notice served by the Offeror) jointlynotify the Sellers’ Representative of their decision to substitute any other Affiliate of the Offeror, including any new companyincorporated by the Offeror or any Affiliate of the Offeror for that purpose, for Harmonic Europe for purposes of (i) this Letter, (ii) thesignature of the Securities Purchase Agreement as "Purchaser" (as defined under the Securities Purchase Agreement) and therefore(iii) the completion of the Transaction, Harmonic Europe or such other existing or newly formed Affiliate of the Offeror beinghereinafter referred to as the "Purchaser".1.DURATION AND EXERCISE OF THE PUT OPTION(a)The Put Option enters into force on the date hereof simultaneously with the countersignature of this Letter by all the Sellers andKepler M2, a company (société par actions simplifiée) organized under the laws of France, having a share capital of €3,635,805and its registered office at 15, rue Trébois, 92300 Levallois-Perret (France), and registered with the French Registry ofCommerce and Companies under number 531 550 242 RCS Nanterre ("Kepler M2"), and will remain valid until the earlier ofthe following dates (the "Expiry Date"):(i)8:00 pm, Paris time, the tenth (10th) Business Day after the date (such latter date being hereinafter referred to as the"Exercise Period Opening Date") on which the TVN’s works’ council (comité d'entreprise) (a) will have given its expressopinion on the Transaction or (b) in the absence of such express opinion, will have been deemed pursuant to applicableLaws to have rendered its opinion, as the case may be; and(ii)8:00 pm, Paris time, March 31, 2016.(b)Subject to Clauses 13(e), 13(f), 17 through 19 and 22, the Put Option and this Letter will automatically terminate as at theExpiry Date, unless (i) the Put Option is exercised in accordance with Clauses 1(c) and 13 below or (ii) the Sellers’Representative (on behalf of all the Sellers) and the Offeror mutually and expressly agree in writing to postpone the Expiry Dateafter the execution of this Letter.(c)This Put Option may be exercised by the Sellers’ Representative (on behalf of all the Sellers) in accordance with the provisionsof Clause 13, between the Exercise Period Opening Date (included) and the Expiry Date (included).2.FINAL PRICE(a)The final purchase price to be paid by the Purchaser to the Sellers for all (and not less than all) of the Transferred Securities (the"Final Price") shall be the result of the aggregation of the Adjusted Initial Price and of the Additional Price, as defined below:The "Adjusted Initial Price" shall be:(i)US Dollars 75,000,000 (seventy five millions) (the "Enterprise Value");(ii)adding the amount of Net Cash (if such amount is positive), as converted from Euros into US Dollars by using theClosing Exchange Rate, or subtracting the absolute value of the amount of Net Cash (if such amount is negative), asconverted from Euros into US Dollars by using the Closing Exchange Rate;(iii)adding the amount of the Working Capital Adjustment, as converted from Euros into US Dollars by using the ClosingExchange Rate, corresponding to (a) an increase of the amount of the Adjusted Initial Price if this amount is positive and(b) a decrease of the amount of the Adjusted Initial Price if this amount is negative;(iv)adding the amount of ManCo Net Cash (if such amount is positive), as converted from Euros into US Dollars by usingthe Closing Exchange Rate, or subtracting the absolute value of the amount of ManCo Net Cash (if such amount isnegative), as converted from Euros into US Dollars by using the Closing Exchange Rate; and(v)adding the amount of the ManCo Working Capital Adjustment, as converted from Euros into US Dollars by using theClosing Exchange Rate, corresponding to (a) an-2-increase of the amount of the Adjusted Initial Price if this amount is positive and (b) a decrease of the amount of theAdjusted Initial Price if this amount is negative.The "Additional Price" shall be the sum of:(i)the Revenues Adjustment, if any; and(ii)the Backlog Adjustment, if any.(b)On the Closing Date, the Purchaser shall pay in accordance with the provisions of the Securities Purchase Agreement the"Estimated Initial Price", which shall be equal to:(i)the Enterprise Value,(ii)plus the Estimated Net Cash (if positive), as converted from Euros into US Dollars by using the Pre-Closing ExchangeRate, or minus the absolute value of the Estimated Net Cash (if negative), as converted from Euros into US Dollars byusing the Pre-Closing Exchange Rate;(iii)plus the Estimated Working Capital Adjustment, as converted from Euros into US Dollars by using the Pre-ClosingExchange Rate, corresponding to (a) an increase of the amount of the Estimated Initial Price if this amount is positiveand (b) a decrease of the amount of the Estimated Initial Price if this amount is negative;(iv)plus the Estimated ManCo Net Cash (if positive), as converted from Euros into US Dollars by using the Pre-ClosingExchange Rate, or minus the absolute value of the Estimated ManCo Net Cash (if negative), as converted from Eurosinto US Dollars by using the Pre-Closing Exchange Rate; and(v)plus the Estimated ManCo Working Capital Adjustment, as converted from Euros into US Dollars by using the Pre-Closing Exchange Rate, corresponding to (a) an increase of the amount of the Estimated Initial Price if this amount ispositive and (b) a decrease of the amount of the Estimated Initial Price if this amount is negative.(c)The Adjusted Initial Price shall be finally determined and the Initial Price Adjustment, if any, paid after the Closing Date inaccordance with the provisions of the Securities Purchase Agreement.(d)The Revenues Adjustment (if any) and the Backlog Adjustment (if any) shall be determined and paid after the Closing Date inaccordance with the provisions of the Securities Purchase Agreement.(e)The allocation among the Sellers of the Final Price and of the Estimated Initial Price, the Initial Price Adjustment, the RevenuesAdjustment and the Backlog Adjustment shall be made in accordance with the provisions of Section 2.9 of the SecuritiesPurchase Agreement under the sole and exclusive responsibility of the Sellers and the Purchaser and the Target Companies shallincur no liability whatsoever in respect thereto.3.FINANCING(a)Subject to Clause 3(b), the Offeror undertakes to procure that as of the Closing Date, the Purchaser will have immediatelyavailable, on an unconditional basis, the sufficient cash resources required to proceed with the payment of the Closing Paymentsand of any expenses incurred by or on behalf of the Purchaser in connection with the transactions contemplated by theSecurities Purchase Agreement.-3-(b)In the event that the Offeror is not able to obtain a written commitment for at least one hundred million US Dollars($100,000,000) of financing within three (3) Business Days following the public announcement of the Transaction by theOfferor and in any case by no later than December 10, 2015 (PST), for any reason whatsoever, the Offeror may elect, withoutincurring any liability whatsoever in such respect, notwithstanding any provisions to the contrary in this Letter and provided,however, that the Offeror complies with its obligations under Clause 3(c), which the parties to this Letter expressly acknowledgeand agree, to terminate this Letter (subject to Clauses 3(c), 13(f), 17 through 19 and 22, which shall survive such termination)upon written notice served by the Offeror to the Sellers’ Representative, such notice to be served no later than December 10,2015 (PST).(c)Should the Offeror, as is its right, decide to terminate this Letter pursuant to Clause 3(b) above, and provided that (i) the Sellershave complied with all of their material obligations hereunder (including, but not limited to, the obligation to serve in due timethe Break-Up Fee Notice) and (ii) the Offeror has not been able to obtain a written commitment for at least one hundred millionUS Dollars ($100,000,000) of financing within three (3) Business Days following the public announcement of the Transactionby the Offeror and in any case by no later than December 10, 2015 (PST) for any reason whatsoever other than any event,change, occurrence, circumstance, effect, state of affairs or fact which constitutes a Material Adverse Change, the Offerorhereby undertakes to pay or to procure that any of its Affiliate pays, within thirty (30) calendar days of the date of receipt by theOfferor of the Break-Up Fee Notice, a five millions Euros (€5,000,000) break-up fee (the "Break-Up Fee") to the Sellers, bywire transfer of immediately available Euro funds to such accounts of the Sellers as shall have been notified to the Offeror bythe Sellers’ Representative for such purpose within five (5) Business Days of the date of receipt by the Sellers’ Representative ofthe termination notice served by the Offeror in accordance with Clause 3(b), together with the allocation of the amount of theBreak-Up Fee among the Sellers (the "Break-Up Fee Notice"). Such allocation shall be made under the sole and exclusiveresponsibility of the Sellers and the Offeror and its Affiliates shall incur no liability in respect thereto.The parties to this Letter expressly acknowledge and agree that notwithstanding anything to the contrary in this Letter, shouldthe Offeror, as is its right, decide to terminate this Letter pursuant to Clause 3(b) above, (i) the provisions of this Clause 3(c)shall survive such termination and (ii) the Break-Up Fee shall be the exclusive remedy of the Sellers against the Offeror inrespect of such termination.4.INFORMATION AND CONSULTATION OF THE TVN’s WORKS' COUNCIL(a)We acknowledge that no exercise of the Put Option by the Sellers’ Representative (on behalf of all the Sellers) can in any eventever take place without the TVN’s works’ council (comité d'entreprise) first being informed and consulted in respect of theTransaction and delivering its opinion on such Transaction or being deemed to have done so pursuant to applicable Laws (the"Information and Consultation Process").(b)The Sellers undertake (i) to procure that (x) an information meeting of the TVN’s work’s council be held on December 11, 2015(the "Information Meeting"), (y) the information document (entitled "economical note") relating to the Transaction be providedto the TVN’s work’s council no later than during the Information Meeting and (z) that the first meeting of the Information andConsultation Process be held during the week of December 14, 2015 and the TVN’s work’s council be convened in timelymanner by TVN to such effect, (ii) to keep us regularly informed of the progress of the Information and Consultation Processand (iii) to procure that TVN conducts the Information and Consultation Process diligently.(c)In respect of the Information and Consultation Process, the Offeror undertakes to:-4-(i)deliver to the Sellers’ Representative and TVN any reasonable information relating to the Offeror and, where applicable,its Affiliates (including the Purchaser), as may be reasonably requested by the TVN’s works’ council;(ii)provide, to the extent practicable, timely answers to any reasonable question relevant to the Transaction submitted to theOfferor by TVN in connection with the Information and Consultation Process; and(iii)procure the appropriate authorized representatives of the Offeror selected by us to attend the meetings of the TVN’sworks’ council convened in connection with the Information and Consultation Process or meet with the relevantemployees and employee representatives where and when reasonably requested by the Sellers’ Representative and/orTVN.(d)Each of the parties to this Letter undertakes to provide the other parties with all reasonable assistance in connection with theInformation and Consultation Process, including but not limited to, in respect of the preparation of the information anddocuments required for the Information Meeting. The parties to this Letter understand and acknowledge the importance of theirdiligent, professional and timely participation in the Information and Consultation Process. Nevertheless, the Sellersacknowledge that under no circumstances shall the Offeror (which is listed) and its Affiliates (including the Purchaser) orConnected Persons be obliged to provide any private or confidential information.(e)The Sellers' Representative shall promptly give notice to the Offeror and the Purchaser of the full completion of the Informationand Consultation Process and provide them with any evidence thereof, and in any event within two (2) Business Days ofbecoming aware of the same.5.COMPLIANCE WITH "HAMON LAW"(a)The Sellers undertake to procure that the Holding complies with its information obligation under article L. 23-10-1 et seq. of theFrench Commercial Code as soon as practicable, and in any event no later than December 11, 2015.(b)Mr. Procureur, as sole employee of the Holding as of the date hereof, undertakes to notify in accordance with applicable Lawsthe Holding of his irrevocable decision not to make an acquisition offer with respect to the Holding as soon as practicable fromthe satisfaction by the Holding of its information obligation under article L. 23-10-1 et seq. of the French Commercial Code, andin any event no later than December 11, 2015.(c)The Sellers' Representative shall promptly give notice to the Offeror and the Purchaser that the provisions of this Clause 5 havebeen definitively complied with and provide them with any evidence thereof, and in any event within two (2) Business Days ofbecoming aware of the same.6.FMEF CLEARANCE(a)Each of the parties to this Letter acknowledges the importance that the Condition Precedent set out in Section 3.1(a) of theSecurities Purchase Agreement be fulfilled as soon as possible and the Sellers confirm that they are not aware of any reason thatmay prevent the obtaining of the FMEF Clearance on or prior to the Long Stop Date.-5-(b)The Offeror agrees to:(i)as soon as possible after the date hereof and in any event no later than December 18, 2015 and at its own expense, makerelevant filings or pre-filings and contacts with the French Ministry for the Economy and Finance with respect to theTransaction in order to obtain the FMEF Clearance, within any terms provided by applicable Laws, and supply promptlyany additional information and documentary material that may be requested by the French Ministry for the Economyand Finance;(ii)keep the Sellers' Representative regularly informed of the processing of these filings or pre-filings and inform promptlythe Sellers' Representative if it becomes aware of anything that could result in the FMEF Clearance being delayed ordenied;(iii)promptly provide the Sellers' Representative with the relevant (non-privileged or non-commercially sensitive)documents concerning the filings or pre-filings referred to above, together with any and all additional (includingdocumentary) material that may be requested by the French Ministry for the Economy and Finance in connection withthe FMEF Clearance (subject to confidential information contained therein), provided, in each case, that such documentsand additional material relate to, or include information about, the Target Companies prior to Closing, and use itscommercially reasonable endeavors to, prior to any such filings or pre-filings with, and communications to, the FrenchMinistry for the Economy and Finance, (a) give to the Sellers’ Representative a reasonable opportunity to discuss thecontent of such documents and additional material and (b) take into account its reasonable comments and suggestions;(iv)give to the Sellers’ Representative the opportunity to participate in any meeting for which its presence is required by theFrench Ministry for the Economy and Finance; and(v)use its commercially reasonable endeavors in order to obtain the FMEF Clearance.(c)The Sellers acknowledge that the above mentioned filings or pre-filings will require the cooperation and supply of informationby the Target Companies and agree to co-operate and to cause the relevant Target Companies to co-operate with the Offeror,upon its reasonable request, in providing promptly to the Offeror and its advisors such assistance as may be reasonablynecessary for the Offeror to make the relevant filings or pre-filings and obtain the FMEF Clearance, including but not limited to,in respect of the preparation of the information and documents and/or of the attendance to any meeting that may be required inthis context.(d)The Offeror (until the actual date of execution of the Securities Purchase Agreement (excluded)) or the Purchaser (from theactual date of execution of the Securities Purchase Agreement (included)) shall promptly give notice to the Sellers'Representative of the satisfaction of the Condition Precedent specified in Section 3.1(a) of the Securities Purchase Agreementand in any event within two (2) Business Days of becoming aware of the same.7.REQUIRED FINANCIALS(a)The Sellers acknowledge the importance for the Offeror that the Condition Precedent set out in Section 3.1(b) of the SecuritiesPurchase Agreement be fulfilled as soon as possible and confirm that they are not aware of any reason that may prevent thedelivery of the Required Financials on or prior to the Long Stop Date.-6-(b)The Sellers agree to:(i)as soon as possible after the date hereof and in any event no later than December 18, 2015, cause the RequiredFinancials to be prepared and audited by such internationally recognized independent accounting firm as shall havebeen chosen by the Offeror for such purpose and supply promptly, or cause to be promptly supplied, any informationand documentary material that may be requested by such independent accounting firm;(ii)keep the Offeror regularly informed of the processing of the preparation and audit of the Required Financials and informpromptly the Offeror if they become aware of anything that could result in the delivery of the Required Financials beingdelayed or compromised; and(iii)promptly provide the Offeror, upon its request, with any information and documentary material used in, or necessaryfor, the preparation and audit of the Required Financials, and with any information and documentary material that maybe requested by the independent accounting firm.(c)The Sellers agree to do all reasonable things necessary or appropriate under applicable Laws to deliver the Required Financialsto the Purchaser on or prior to the Long Stop Date.(d)The Offeror acknowledges that the delivery of the Required Financials will require cooperation and agrees to co-operate withthe Sellers, upon the reasonable request of the Sellers’ Representative, in providing promptly to the Sellers such assistance asmay be reasonably necessary for the Sellers to deliver the Required Financials, including but not limited to, by making areasonable number of expert consultants available to the Sellers to contribute to the preparation and audit of the RequiredFinancials.8.IP RECOVERY(a)The Sellers acknowledge the importance for the Offeror and the Purchaser that the Condition Precedent set out in Section 3.1(c)of the Securities Purchase Agreement be fulfilled on the Closing Date, prior to Closing, and confirm that they are not aware ofany reason that may prevent (i) the execution of the IP Agreement without any further delay and (ii) the full completion of theIP Recovery on or prior to the Long Stop Date.(b)The Sellers agree to:(i)as soon as possible after the date hereof and in any event prior to the delivery of any Exercise Notice, procure that theIP Agreement be executed by Kepler and France Brevets;(ii)on the Closing Date and prior to Closing, procure that the Notice of Voluntary Termination (as defined under theIP Agreement) be delivered by Kepler to France Brevets and received by the latter, such Notice of VoluntaryTermination to include any notice by Kepler of its decision (x) to use its right of designation of a Designated Transferee(as defined under the IP Agreement) under article 8 of the IP Agreement, provided and only in the event that the Sellers’Representative receives an IP Substitution Notice at least five (5) Business Days prior to the Closing Date, and (y) todesignate such Entity as mentioned in the IP Substitution Notice for such purpose;(iii)on the Closing Date and prior to Closing, procure that the Transfer Price (as defined under the IP Agreement) be paid byKepler to France Brevets by wire transfer of-7-immediately available funds to the bank account indicated for such purpose in the IP Agreement;(iv)on the Closing Date and prior to Closing, deliver to the Purchaser two (2) original copies of the Assignment of PatentRights dated as of the Closing Date to be entered into by and between France Brevets and Kepler (or such Entity asindicated in the IP Substitution Notice) duly signed by France Brevets; and(v)keep the Offeror and the Purchaser regularly informed of the execution of the IP Agreement and of the processing of theIP Recovery and inform promptly the Offeror and the Purchaser if they become aware of anything that could result in theexecution of the IP Agreement and/or the full completion of the IP Recovery being delayed or compromised.(c)The Sellers agree to do all reasonable things necessary or appropriate under applicable Laws to procure that the IP Recovery befully completed on or prior to the Long Stop Date.(d)The Sellers' Representative shall promptly give notice to the Offeror and the Purchaser of the execution of the IP Agreement andin any event within two (2) Business Days of becoming aware of the same, such notice to include a certified copy of theIP Agreement duly executed by Kepler and France Brevets.9.NOTIFICATIONS(a)During the period from the date of this Letter (included) to the actual date of execution of the Securities Purchase Agreement(or, failing the delivery of an Exercise Notice, the Expiry Date, or, in case of termination of this Letter in accordance with theprovisions of Clauses 3(b), 9(b) and 12, the date of receipt by the Sellers’ Representative of the termination notice served by theOfferor), the Sellers’ Representative shall promptly notify the Offeror and the Purchaser of the occurrence (or non-occurrence)of any event, the occurrence (or non-occurrence) of which constitutes or would be likely to constitute:(i)a breach or inaccuracy of any representations and warranties to be made by the Sellers under Section 8 of the SecuritiesPurchase Agreement; or(ii)a Material Adverse Change;such notice by the Sellers’ Representative to include (i) all relevant details to provide disclosure as complete and fair as possibleto the Offeror and the Purchaser of such development and (ii) if applicable, an updated version of any impacted Schedule to theSecurities Purchase Agreement.(b)In the event that the Offeror and the Purchaser are notified pursuant to paragraph (a) above of the occurrence (or non-occurrence) of an event, the occurrence (or non-occurrence) of which constitutes a Material Adverse Change, the Offeror mayelect, without incurring any liability whatsoever in such respect, notwithstanding any provisions to the contrary in this Letter,which the parties to this Letter expressly acknowledge and agree, to terminate this Letter (subject to Clauses 13(f), 17 through19 and 22, which shall survive such termination) upon written notice served to the Sellers’ Representative.10.PERMITTED TRANSFERS PRIOR TO SIGNING(a)During the period from the date of this Letter (included) to the date of delivery of an Exercise Notice (or, failing the delivery ofan Exercise Notice, the Expiry Date, or, in case of termination of this Letter in accordance with the provisions of Clauses 3(b),9(b) and 12,-8-the date of receipt by the Sellers’ Representative of the termination notice served by the Offeror), each of Mr. Delahousse andMr. Congard shall be entitled to proceed with the following transfers of Ordinary Shares he owns on the date hereof, within thelimit of 604,226 Ordinary Shares for Mr. Delahousse and within the limit of 725,026 Ordinary Shares for Mr. Congard(the "Permitted Transfers"):(i)a contribution in kind to an Entity having the following characteristics from the date of completion of the contribution inkind (included) to the Closing Date (included) (a "Personal Holding"): (w) being a French société par actions simplifiée,(x) being wholly owned by him, (y) the only legal representative of which being himself and (z) with no other assets(except for cash) and no financial debts or liabilities towards third parties (except with respect to incorporation andregistration costs); and/or(ii)donations to his spouse and/or first-degree adult descendants (descendants au premier degré majeurs)(the "Beneficiaries");provided, however, that:(i)such Permitted Transfers are made in compliance with the provisions of the Holding’s by-laws, the applicable ExistingShareholders' Documents and the terms and conditions of the OBSAs, or the relevant waivers are duly obtained prior totheir completion; and(ii)such Permitted Transfers are fully completed prior to the date of delivery of an Exercise Notice; and(iii)prior and as a condition to the completion of any such Permitted Transfer, the relevant Personal Holding or Beneficiaryirrevocably undertakes towards all the parties to this Letter, subject to the sending by the Sellers’ Representative of anExercise Notice between the Exercise Period Opening Date (included) and the Expiry Date (included) and subject to theterms of this Letter (and, in particular, subject to the terms of Clauses 3(b), 9(b) and 12), to execute the SecuritiesPurchase Agreement on the Signing Date, at the time and location specified in the Exercise Notice, or at such other timeand/or location as may be agreed upon in writing by the Sellers’ Representative and the Offeror prior to or on theSigning Date; and(iv)the documentation relating to any such Permitted Transfer provides that:(A)the relevant Personal Holding (i) irrevocably undertakes to promptly transfer back to, where applicable,Mr. Delahousse or Mr. Congard, the Ordinary Shares transferred to it, should it cease for any reason whatsoeverto qualify as Personal Holding under this Letter, (ii) acknowledges and agrees that forced execution (exécutionforcée) of this obligation may be requested and (iii) irrevocably waives its rights under article 1142 of the FrenchCivil Code; and(B)the relevant Personal Holding or Beneficiary (i) irrevocably undertakes to promptly transfer back to, whereapplicable, Mr. Delahousse or Mr. Congard, the Ordinary Shares transferred to it, should it not proceed with theexecution of the Securities Purchase Agreement, as to be updated prior to its execution to take into account thecompletion of any such Permitted Transfer, on the Signing Date, at the time and location specified in theExercise Notice, or at such other time and/or location as may be agreed upon in writing by the Sellers’Representative and the Offeror prior to or on the Signing Date, (ii) acknowledges and agrees that forcedexecution (exécution forcée) of this-9-obligation may be requested and (iii) irrevocably waives its rights under article 1142 of the French CivilCode; and(C)the relevant Personal Holding or Beneficiary (i) irrevocably undertakes to promptly transfer back to, whereapplicable, Mr. Delahousse or Mr. Congard, the Ordinary Shares transferred to it, should it not comply with anyof its obligations under the Securities Purchase Agreement, as to be updated prior to its execution to take intoaccount the completion of any such Permitted Transfer, (ii) acknowledges and agrees that forced execution(exécution forcée) of this obligation may be requested and (iii) irrevocably waives its rights under article 1142 ofthe French Civil Code; and(v)upon consummation of, and as a condition to, any such Permitted Transfer, the relevant Personal Holding or Beneficiaryexecutes and delivers in accordance with Clause 19 below, to each party to this Letter an accession agreement, pursuantto which it adheres to this Letter with the same rights and obligations as, where applicable, Mr. Delahousse (save for hisrights and obligations in his quality as Sellers’ Representative) and Mr. Congard (save for his rights and obligations inhis quality as Sellers’ Representative, should Mr. Delahousse be unable to perform his duties in acting as the Sellers’Representative for any reason whatsoever) for purposes of this Letter, and such Personal Holding or Beneficiary willthereafter be deemed to be a party to this Letter with the same rights and obligations as, where applicable,Mr. Delahousse (save for his rights and obligations in his quality as Sellers’ Representative) or Mr. Congard (save for hisrights and obligations in his quality as Sellers’ Representative, should Mr. Delahousse be unable to perform his duties inacting as the Sellers’ Representative for any reason whatsoever) for purposes of this Letter; and(vi)the Securities Purchase Agreement, as to be updated prior to its execution to take into account the completion of anysuch Permitted Transfer, shall include a provision stating that each of Mr. Delahousse and Mr. Congard is actingseverally and jointly (conjointement et solidairement) with his Personal Holding and/or Beneficiaries for purposes of theSecurities Purchase Agreement;all the above in a form, manner and content satisfactory to the Offeror; andprovided always that:the Offeror is notified by the Sellers’ Representative of any such contemplated Permitted Transfer at least fifteen (15) BusinessDays prior to its completion, and provided in a timely manner with the draft documentation relating thereto, so as to allow it toreview and comment on it prior to its signature. In such respect, each of Mr. Delahousse and Mr. Congard undertakes to providethe Offeror with the draft documentation relating to any such contemplated Permitted Transfer in a timely manner, and theparties to this Letter (other than the Offeror and Harmonic Europe) undertake to provide promptly the Offeror with any and allsuch documents as may be needed by the Offeror to perform its review.(b)Should a Personal Holding cease for any reason whatsoever to qualify as Personal Holding under this Letter (A), or should aPersonal Holding or Beneficiary not proceed with the execution of the Securities Purchase Agreement, as to be updated prior toits execution to take into account the completion of any such Permitted Transfer, on the Signing Date, at the time and locationspecified in the Exercise Notice, or at such other time and/or location as may be agreed upon in writing by the Sellers’Representative and the Offeror prior to or on the Signing Date (B), or should a Personal Holding or Beneficiary not comply withany of its obligations under the Securities Purchase Agreement, as to be updated prior to its execution to-10-take into account the completion of any such Permitted Transfer (C), each of Mr. Delahousse or Mr. Congard, where applicable,hereby undertakes, as to (A) above, to notify immediately the other parties to this Letter of the same, and as to (A), (B) and (C)above, to repurchase all the Ordinary Shares transferred to the said Personal Holding or Beneficiary, acknowledges and agreesthat forced execution (exécution forcée) of this last obligation may be requested and irrevocably waives its rights under article1142 of the French Civil Code. Each of Mr. Delahousse and Mr. Congard hereby agrees to act severally and jointly(conjointement et solidairement) with his Personal Holding and/or Beneficiaries for purposes of this Letter from the date ofexecution by the latter of any accession agreements pursuant to which they adhere to this Letter.11.PERMITTED AMENDMENTS TO SCHEDULE 4.3(a)(iv) TO THE SECURITIES PURCHASE AGREEMENT(a)Within two (2) Business Days of the receipt of an Exercise Notice, the Offeror may notify to the Sellers’ Representative arevised version of Schedule 4.3(a)(iv) to the Securities Purchase Agreement, provided, however, that such revised version(i) only includes modifications with respect to the legal representatives, officers, directors, members of a board, committee orother corporate body of the Target Companies other than Kepler M2, Financière Kepler, Kepler and TVN, and therefore(ii) takes over the content of Schedule 4.3(a)(iv) to the Securities Purchase Agreement as appended as of the date hereof withrespect to the legal representatives, officers, directors, members of a board, committee or other corporate body of Kepler M2,Financière Kepler, Kepler and TVN, it being expressly specified, for the avoidance of doubt, that such revised version mayinclude modifications with respect to any offices Mr. Delahousse and Mr. Congard may have within the Target Companies otherthan Kepler M2, Financière Kepler, Kepler and TVN, which the parties to this Letter expressly acknowledge and agree. Suchrevised version of Schedule 4.3(a)(iv) to the Securities Purchase Agreement shall be hereinafter referred to as the "NewSchedule 4.3(a)(iv)".(b)Should the Offeror notify to the Sellers’ Representative a New Schedule 4.3(a)(iv) within the above-mentioned timeframe, suchNew Schedule 4.3(a)(iv) shall, with effect from (and including) the date of such notice, automatically supersede Schedule 4.3(a)(iv) to the Securities Purchase Agreement as appended as of the date hereof, so that any reference to Schedule 4.3(a)(iv) to theSecurities Purchase Agreement shall be construed as a reference to the New Schedule 4.3(a)(iv), which the parties to this Letterexpressly acknowledge and agree. With effect from (and including) the date of such notice, Schedule 4.3(a)(iv) to the SecuritiesPurchase Agreement as appended as of the date hereof shall be modified, restated and replaced in its entirety by New Schedule4.3(a)(iv), which the parties to this Letter expressly acknowledge and agree.(c)The parties to this Letter hereby agree that should the Offeror notify to the Sellers’ Representative a New Schedule 4.3(a)(iv)within two (2) Business Days of the receipt of an Exercise Notice, such New Schedule 4.3(a)(iv) shall be appended to theexecution version of the Securities Purchase Agreement on the Signing Date.12.CONDITIONS PRECEDENT TO SIGNING(a)The obligations of the Offeror and the Purchaser under the Put Option shall be subject to the fulfillment or waiver (in whole orin part) by the Offeror on the Signing Date at the latest of the following conditions (the "Conditions Precedent to Signing"):(i)a written commitment for at least one hundred million US Dollars ($100,000,000) of financing shall have been obtainedby the Offeror on the earlier of (x) the expiry of a three (3)-Business Day period following the public announcement ofthe Transaction-11-by the Offeror and in any case no later than December 10, 2015 (PST) and (y) the date of the Exercise Notice;(ii)the IP Agreement shall have been duly executed by Kepler and France Brevets and a certified copy of the IP Agreementduly executed by Kepler and France Brevets shall have been provided to the Offeror and the Purchaser, in both cases onthe date of the Exercise Notice at the latest;(iii)the Information and Consultation Process shall have been fully completed and evidence thereof shall have beenprovided to the Offeror and the Purchaser, in both cases on the date of the Exercise Notice at the latest;(iv)the provisions of paragraphs (a) and (b) of Clause 5 of this Letter shall have been definitively complied with andevidence thereof shall have been provided to the Offeror and the Purchaser, in both cases on the date of the ExerciseNotice at the latest;(v)no Material Adverse Change shall have occurred prior to or on the Signing Date; and(vi)no Permitted Transfer shall have been completed in breach of Clause 10 prior to or on the Signing Date.(b)In the event that any and all Conditions Precedent to Signing are not fulfilled or validly waived on the Signing Date at the latest,the Offeror may elect, without incurring any liability whatsoever in such respect, notwithstanding any provisions to the contraryin this Letter, which the parties to this Letter expressly acknowledge and agree, to terminate this Letter (subject to Clauses 3(c)(ifapplicable), 13(f), 17 through 19 and 22, which shall survive such termination) upon written notice served to the Sellers’Representative, in which case the Securities Purchase Agreement shall not be executed.13.EXERCISE OF THE PUT OPTION - EXECUTION OF THE SECURITIES PURCHASE AGREEMENT(a)If the Sellers decide to exercise the Put Option, the Sellers’ Representative shall do so on behalf of all the Sellers by notifyingthe Offeror and the Purchaser in writing of the Sellers’ decision between the Exercise Period Opening Date (included) and theExpiry Date (included) (the "Exercise Notice"), in the form attached to this Letter as Schedule 2.(b)The Exercise Notice shall specify the date (being a Business Day no sooner than the fifth (5th) Business Day and no later thanthe tenth (10th) Business Day after the date on which the notice was sent) on which the Securities Purchase Agreement is to beexecuted, unless the Offeror and the Sellers’ Representative agree in writing on another date prior to or on such date (either ofsuch dates, the "Signing Date"), and the time and location in Paris at which the Securities Purchase Agreement is to be executed,unless otherwise agreed in writing by the Sellers’ Representative and the Offeror prior to or on the Signing Date.(c)In any case, subject to the sending of the Exercise Notice between the Exercise Period Opening Date (included) and the ExpiryDate (included) and subject to the terms of this Letter (and, in particular, subject to the terms of Clauses 3(b), 9(b) and 12), weirrevocably undertake to procure that the Purchaser executes, and the Purchaser hereby irrevocably undertakes to execute theSecurities Purchase Agreement, and we irrevocably undertake to execute the Securities Purchase Agreement for the solepurpose of Section 11.4 of the Securities Purchase Agreement, on the Signing Date, at the time and location specified in theExercise Notice, or at such other time and/or location as may be agreed upon in writing by the Sellers’ Representative and theOfferor prior to or on the Signing Date.-12-(d)We acknowledge that as of the date hereof, the Sellers accept the benefit of the Put Option without undertaking to exercise it.Until the Sellers’ Representative’s exercise of the Put Option on behalf of all the Sellers, the Sellers will therefore not becommitted to sell the Transferred Securities to the Purchaser and will not be bound by any obligation in connection with theTransaction.(e)In connection with the significant amount of fees and expenses incurred by the Offeror on behalf of the Purchaser and/or by thePurchaser since the beginning of our discussions for the purposes of evaluating the Transaction and preparing this Letter(together with its Schedules), the Sellers hereby undertake, individually and not jointly (conjointement mais non solidairement),to reimburse to the Purchaser (or to the Offeror or to such other Affiliate of the Offeror and within such proportions as thePurchaser and the Offeror may jointly notify to the Sellers’ Representative for such purpose), within thirty (30) calendar days of,where applicable, the Expiry Date or the Signing Date, those fees and expenses, in a maximum aggregate amount of fivemillions Euros (€5,000,000) and provided that the relevant supporting documents are provided to the Sellers’ Representative,each of them within the limit of its Portion (as such term is defined below) of such fees and expenses, (A) should the Sellers’Representative (on behalf of all the Sellers): (i) refuse any proposition by the Offeror to postpone the date mentioned inClause 1(a)(ii) pursuant to Clause 1(b) by at least one (1) month, where the Exercise Period Opening Date may not occur beforeMarch 31, 2016 for a reason beyond the Offeror’s control; or (ii) decide, as is the Sellers’ right, not to exercise the Put Optionon behalf of all the Sellers between the Exercise Period Opening Date (included) and the Expiry Date (included), provided thatthe Offeror has complied with all of its material obligations hereunder, or (B) should any Seller or Kepler M2 not proceed withthe execution of the Securities Purchase Agreement on the Signing Date, in the event that the Put Option is exercised by theSellers’ Representative on behalf of all the Sellers between the Exercise Period Opening Date (included) and the Expiry Date(included). For the avoidance of doubt, it is expressly specified that in the event that the Put Option and this Letter terminate atthe date mentioned in Clause 1(a)(ii) (as postponed pursuant to (A)(i) above, as the case may be) in accordance with Clause 1(b)above prior to the occurrence of the Exercise Period Opening Date for any reason beyond the Sellers’ control, the Sellers shallnot be liable for any reimbursement of fees and expenses whatsoever.For the purpose of the preceding paragraph, "Portion", when used with respect to a Seller, shall mean the fraction having fornumerator, the portion of the Adjusted Enterprise Value (as such term is defined below) which would have been allocable to theTransferred Securities (other than the Mezzanine Bonds, if any) owned by such Seller by application of the provisions ofSection 2.9 of the Securities Purchase Agreement (i) as if the Final Price was equal to the Enterprise Value (without any net cashor working capital adjustment), (ii) as of, where applicable, the Expiry Date or the Signing Date and (iii) by using the foreignexchange rate of Euros converted into US Dollars as of, where applicable, the Expiry Date or the Signing Date, as determinedon the basis of the Euro foreign exchange reference rate of the European Central Bank as updated by 3 p.m. C.E.T. on, whereapplicable, the Expiry Date or the Signing Date, and for denominator, the Adjusted Enterprise Value.For the purpose of the preceding paragraph, "Adjusted Enterprise Value" shall mean the Enterprise Value less the value as of,where applicable, the Expiry Date or the Signing Date, of the Mezzanine Debt, as converted from Euros into US Dollars byusing the foreign exchange rate of Euros converted into US Dollars as of, where applicable, the Expiry Date or the SigningDate, as determined on the basis of the Euro foreign exchange reference rate of the European Central Bank as updated by 3p.m. C.E.T. on, where applicable, the Expiry Date or the Signing Date.The parties to this Letter expressly acknowledge and agree that notwithstanding anything to the contrary in this Letter, theprovisions of this Clause 13(e) shall survive any termination of-13-this Letter, (A) should the Sellers’ Representative (on behalf of all the Sellers): (i) refuse any proposition by the Offeror topostpone the date mentioned in Clause 1(a)(ii) pursuant to Clause 1(b) by at least one (1) month, where the Exercise PeriodOpening Date may not occur before March 31, 2016 for a reason beyond the Offeror’s control; or (ii) decide, as is the Sellers’right, not to exercise the Put Option on behalf of all the Sellers between the Exercise Period Opening Date (included) and theExpiry Date (included), provided that the Offeror has complied with all of its material obligations hereunder, or (B) should anySeller or Kepler M2 not proceed with the execution of the Securities Purchase Agreement on the Signing Date, in the event thatthe Put Option is exercised by the Sellers’ Representative on behalf of all the Sellers between the Exercise Period Opening Date(included) and the Expiry Date (included).(f)Subject to the provisions of Clause 13(e) above, each party to this Letter shall be responsible for payment of all fees and costsincurred by it or on its behalf in connection with the negotiation, preparation and signing of this Letter (and its Schedules) andthe consummation of the transactions contemplated hereby, including the fees and disbursements of its financial advisors,accountants and attorneys.(g)In any case, each party to this Letter agrees to be bound by the specific commitments expressly made by it under this Letter, asthe case may be.(h)Subject to the sending by the Sellers’ Representative of the Exercise Notice between the Exercise Period Opening Date(included) and the Expiry Date (included) and subject to the terms of this Letter (and, in particular, subject to the terms ofClauses 3(b), 9(b) and 12), Kepler M2 hereby irrevocably undertakes to execute, and the Sellers undertake to procure thatKepler M2 executes, the Securities Purchase Agreement for the sole purpose of Sections 5.1 to 5.5, 5.9 and 5.12 of theSecurities Purchase Agreement on the Signing Date, at the time and location specified in the Exercise Notice, or at such othertime and/or location as may be agreed upon in writing by the Sellers’ Representative and the Offeror prior to or on the SigningDate.14.MANAGEMENT SINCE THE DATE HEREOF(a)As from the date hereof (included) and until (and including) the actual date of execution of the Securities Purchase Agreement(or, failing the delivery of an Exercise Notice, the Expiry Date, or, in case of termination of this Letter in accordance with theprovisions of Clauses 3(b), 9(b) and 12, the date of receipt by the Sellers’ Representative of the termination notice served by theOfferor), except as may be (x) required by applicable Laws or any Governmental Authority, or (y) expressly contemplated inthis Letter or in the Securities Purchase Agreement, or (z) consented to in writing by the Offeror and the Purchaser (whichconsent shall not be unreasonably withheld or delayed, having due consideration for the interests of the Group Companies andManCo), the Sellers and ManCo, within the limits of their respective authority as shareholder, officer, director or employee ofthe Target Companies, undertake to:(i)procure that the Target Companies will carry on their activities only in the ordinary course of business, with due careand attention as bon père de famille (de façon prudente, diligente et soigneuse) and in substantially the same manner asheretofore conducted, so as to preserve in all material respects their businesses and their relationships with Third Partiesincluding their customers; and(ii)without limiting the general scope of paragraph (i) above, prevent each of the Group Companies and ManCo fromtaking or committing to take any of the actions set forth in Sections 5.9(b)(i) to 5.9(b)(xxiv) of the Securities PurchaseAgreement.-14-(b)For the purposes of granting any consents which may be requested by the Sellers' Representative, a Group Company or ManCopursuant to this Clause 14, the Offeror and the Purchaser hereby designate Mr. Shahar Bar with immediate effect and representand warrant to, and agree with, the Sellers' Representative, each of the Sellers and Kepler M2 that Mr. Shahar Bar shall have fullcapacity and right to give any such consents on behalf of the Offeror and the Purchaser during the term of this Letter. Withinthree (3) Business Days of receipt of any request for consent by the Sellers' Representative, a Group Company or ManCo,Mr. Shahar Bar, on behalf of the Offeror and the Purchaser, shall have the right to notify the Sellers' Representative, the relevantGroup Company or ManCo that the Offeror and the Purchaser object to the proposed action (which notice of objection shallindicate their reasons for so objecting). If Mr. Shahar Bar, on behalf of the Offeror and the Purchaser, shall not have notified theSellers' Representative, the relevant Group Company or ManCo, as the case may be, of the objection of the Offeror and thePurchaser to a proposed action within such period of three (3) Business Days, the Offeror and the Purchaser shall be deemed tohave consented to such proposed action.15.ACCESS TO THE TARGET COMPANIESDuring the period from the date hereof (included) to the actual date of execution of the Securities Purchase Agreement (or,failing the delivery of an Exercise Notice, the Expiry Date, or, in case of termination of this Letter in accordance with theprovisions of Clauses 3(b), 9(b) and 12, the date of receipt by the Sellers’ Representative of the termination notice served by theOfferor), upon the reasonable written request of the Offeror and/or the Purchaser and subject to compliance by the Offerorand/or the Purchaser and their advisors with the terms of the Confidentiality Agreement, the Sellers' Representative (on behalf ofall the Sellers) shall use its commercially reasonable endeavors to arrange for the Offeror and/or the Purchaser and theirrepresentatives and agents to be granted reasonable access during normal business hours to each Target Company's documentsand senior management as the Offeror and/or the Purchaser may reasonably require in order to ensure a timely and efficientClosing of the Transaction, provided that such access shall not interfere with the normal business and operations of the TargetCompanies.16.EXCLUSITIVITY (a)In consideration for the Put Option granted under this Letter, during the period from the date hereof (included) to the actual dateof execution of the Securities Purchase Agreement (or, failing the delivery of an Exercise Notice, the Expiry Date, or, in case oftermination of this Letter in accordance with the provisions of Clauses 3(b), 9(b) and 12, the date of receipt by the Sellers’Representative of the termination notice served by the Offeror), the Sellers shall not, and shall procure that the TargetCompanies shall not, directly or indirectly:(i)enter into a Contract for the transfer, by any means, of substantial assets of any of the Target Companies or acquisition ofall or part of the equity interests in or of any of the Target Companies, the merger, spin-off, contribution, businesscombination, recapitalization, or similar transaction involving any of the Target Companies other than the transactionscontemplated by the Securities Purchase Agreement (any of the foregoing being referred to as an "AcquisitionProposal");(ii)solicit, initiate or encourage any inquiries or proposals that constitute or could reasonably constitute an AcquisitionProposal;(iii)initiate or engage in negotiations with any Person (or group of Persons) other than the Offeror and the Purchaser (a"Potential Bidder") concerning any Acquisition Proposal; provided, however, to the extent that any of the foregoing havealready occurred, they shall be suspended or terminated during the period from the date-15-hereof to the Closing (or, failing the delivery of an Exercise Notice, the Expiry Date, or, in case of termination of thisLetter in accordance with the provisions of Clauses 3(b), 9(b) and 12, the date of receipt by the Sellers’ Representative ofthe termination notice served by the Offeror); and(iv)undertake any action which may jeopardize the Transaction.(b)During the period from the date hereof (included) to the actual date of execution of the Securities Purchase Agreement (or,failing the delivery of an Exercise Notice, the Expiry Date, or, in case of termination of this Letter in accordance with theprovisions of Clauses 3(b), 9(b) and 12, the date of receipt by the Sellers’ Representative of the termination notice served by theOfferor), the Sellers shall, and shall procure that the Target Companies shall, immediately notify the Offeror and the Purchaserof any contacts received by them or any of their representatives or advisors or Affiliates or Connected Persons from a PotentialBidder to discuss or negotiate a possible Acquisition Proposal. Such notice shall indicate in reasonable detail the identity of thePotential Bidder and the content of the discussion or Acquisition Proposal, if one was made.(c)Notwithstanding the provisions of paragraphs (a) and (b) above, the Holding shall be entitled to inform its employees of thepossibility to present an acquisition offer in accordance with Clause 5 and provide them with any reasonable information theymay request in such context.(d)The Sellers may terminate this exclusivity undertaking with immediate effect upon written notice served by the Sellers’Representative to the Offeror in the event that the Purchaser fails to execute the Securities Purchase Agreement and/or theOfferor fails to execute the Securities Purchase Agreement for the sole purpose of Section 11.4 of the Securities PurchaseAgreement, on the Signing Date, provided that all the Conditions Precedent to Signing are satisfied or validly waived on theSigning Date at the latest and this Letter has not been previously terminated pursuant to Clauses 3(b) and 9(b) above.17.CONFIDENTIALITY(a)The existence and terms of this Letter as well as the status of the Transaction process, the terms and conditions, or any other factor information with respect to the Transaction shall be kept strictly confidential and shall not be disclosed by the parties to thisLetter to any third party other than the Affiliates and Connected Persons of the parties to this Letter, except as may be required(i) by applicable Laws or any Governmental Authority or (ii) for the due performance of any obligation under this Letter(including for the purposes of Clauses 3 and 10).(b)Sections 11.2.1 and 11.2.2(a) of the Securities Purchase Agreement shall apply mutatis mutandis to this Letter and from the datehereof.18.SELLERS' REPRESENTATIVE(a)Mr. Delahousse is hereby unconditionally, irrevocably and exclusively appointed as the representative of the Sellers for thepurposes of any consent, notice, action or step to be given, conducted or taken hereunder for which this Letter expresslyprovides that such consent, notice, action or step is to be given, conducted or taken by the Sellers’ Representative. In all caseswhere this Letter so refers to a consent, notice, action or step to be given, conducted or taken by the Sellers’ Representative,Mr. Delahousse shall be the sole Person entitled to act in the name and for the account (“au nom et pour le compte”) of allSellers, in the capacity of the Sellers’ joint representative (“mandataire commun”) in accordance with article 1984 et seq. of theFrench Civil Code. The Sellers shall be bound by any decision and act of the Sellers’ Representative made in accordance withthis Letter. The Sellers’ Representative shall-16-be appointed for the term of this Letter and shall not be revoked by the Sellers during such term. Mr. Delahousse hereby acceptsand undertakes to act as Sellers’ Representative for the term of this Letter. The Offeror and the Purchaser shall not be bound ordeemed to be bound by any separate agreement or arrangement between the Sellers to which the Offeror and the Purchaser arenot a party.(b)Notwithstanding anything to the contrary in this Letter, should Mr. Delahousse, hereby appointed, be unable to perform hisduties in acting as the Sellers’ Representative, for any reason whatsoever, Mr. Congard will replace him as Sellers’Representative. In such case, Mr. Congard must notify to each Seller, to the Offeror and to the Purchaser that he is henceforthacting as the Sellers’ Representative.(c)Should Mr. Congard be unable to perform his duties to act as the Sellers’ Representative, for any reason whatsoever, the Sellers’Representative will be appointed among the Sellers by the Sellers. If the Sellers do not reach an agreement within ten (10) daysof the date Mr. Congard has ceased to perform his duties as Sellers’ Representative, then the Sellers’ Representative shall beappointed among the Sellers by the President of the Commercial Court of Paris ruling in summary form (statuant en référé),such ruling being unchallengeable in appeal.19.NOTICESSection 11.8 of the Securities Purchase Agreement shall apply mutatis mutandis to this Letter, all notices and othercommunications under this Letter to be made to the relevant party to this Letter at its address, E-mail address or fax number setforth below:If to the Offeror, to: Harmonic Inc.4300 North First StreetSan Jose, CA 95134, United States of AmericaAttn: Timothy Chu, General CounselE-mail: tim.chu@harmonicinc.com andharmoniclegal@harmonicinc.comWith a copy to: Shearman & Sterling LLP114, avenue des Champs-Elysées75008 Paris, FranceAttn: Nicolas BombrunE-mail: Nicolas.Bombrun@Shearman.comPhone: +33.1.53.89.48.48Fax: +33.1.42.99.78.00If to the Purchaser, to: Harmonic Europe SAS50, rue Camille Desmoulins92130 Issy-les-Moulineaux, FranceAttn: Raphael SegurE-mail: Raphael.Segur@harmonicinc.com andharmoniclegal@harmonicinc.com-17-With a copy to: Shearman & Sterling LLP114, avenue des Champs-Elysées75008 Paris, FranceAttn: Nicolas BombrunE-mail: Nicolas.Bombrun@Shearman.comPhone: +33.1.53.89.48.48Fax: +33.1.42.99.78.00If to a Seller, to: The Sellers’ RepresentativeMr. Delahousse15, rue Trévois92300 Levallois-Perret, FranceAttn: Christophe DelahousseE-mail: christophe.delahousse@thomson-networks.comFax: +33.01.34.25.96.80With a copy to: Orrick Rambaud Martel31 avenue Pierre 1er de Serbie75782 Paris cedex 16, FranceAttn: Saam GolshaniE-mail: sgolshani@orrick.comPhone: +33 1 53 53 75 00Fax: + 33 1 53 53 75 01or to such other Persons or at such other addresses or fax numbers as hereafter may be furnished by any party to this Letter bylike notice to the others.20.REPRESENTATION AND WARRANTIES OF THE OFFERORThe Offeror hereby makes the following representations and warranties to the Sellers, each of which is true and correct as of thedate of this Letter:(a)The Offeror is a corporation duly organized and validly existing under the laws of the State of Delaware, is not in a state ofinsolvency (en état de cessation des paiements), nor subject to any Bankruptcy Proceedings and no facts exist that would resultin any such event occurring. The Offeror has the corporate power and authority to enter into this Letter, to perform itsobligations hereunder and to consummate the transactions contemplated hereby.(b)The execution of this Letter and the consummation of the transactions contemplated hereby have been duly authorized by thecompetent corporate bodies of the Offeror, and no other corporate action on the part of the Offeror is necessary to authorize theexecution of this Letter or the consummation of any of the transactions contemplated hereby.(c)This Letter has been duly executed by the Offeror and constitutes, and shall constitute, legal, valid and binding obligations ofthe Offeror, enforceable against it in accordance with its terms.(d)Neither the entering into of this Letter nor the performance by the Offeror of its obligations hereunder, nor the consummation ofthe transactions contemplated herein does or will:(i)conflict with or violate any provision of the Organizational Documents of the Offeror;-18-(ii)violate, conflict with or result in the breach or termination of, or constitute a default or event of default (or an eventwhich with notice, lapse of time, or both, would constitute a default or event of default), under the terms of, anyContracts or Governmental Authorizations to which the Offeror or any of its Affiliates is a party or by which the Offeroror any of its Affiliates is bound; or(iii)subject to the obtaining of the FMEF Clearance, constitute a violation by the Offeror or any of its Affiliates of anyapplicable Laws or Judgments, except for any such matters that would not, either individually or in the aggregate, have amaterial adverse effect on the ability of the Offeror to perform its obligations under this Letter.(e)Other than the FMEF Clearance, no Governmental Authorization or other third party consent is required to be made or obtainedby the Offeror or any of its Affiliates prior to the Closing in connection with: (a) the entering into of this Letter by the Offeror,(b) the performance by the Offeror of its obligations hereunder, or (c) the consummation of any of the transactionscontemplated by this Letter.21.REPRESENTATION AND WARRANTIES OF THE SELLERSEach Seller hereby makes the following representations and warranties to the Offeror, each of which is true and correct as of thedate of this Letter:(a)Each Seller which is not an individual is duly organized, validly existing and in good standing under the Laws of its jurisdictionof incorporation or formation and has all requisite corporate power and authority to own its assets and conduct its business as ithas been and is now being conducted.(b)Each Seller which is not an individual is not or has not been in a state of insolvency (en état de cessation des paiements), norsubject to any Bankruptcy Proceedings and no facts exist that would result in any such event occurring.(c)Each Seller has the legal capacity or corporate power and authority and all rights to enter into this Letter, to perform itsobligations hereunder and to consummate the transactions contemplated hereby.(d)The execution of this Letter and the consummation of the transactions contemplated hereby have been duly authorized by thecompetent corporate bodies of each Seller which is not an individual, and no other corporate action on the part of each of suchSeller is necessary to authorize the execution of this Letter or the consummation of any of the transactions contemplated hereby.(e)This Letter has been duly executed by each Seller and constitutes, and shall constitute, legal, valid and binding obligations ofeach Seller, enforceable against it in accordance with its terms.(f)Neither the entering into of this Agreement, nor the performance by each Seller of its obligations hereunder, nor theconsummation of the transactions contemplated herein does or will:(i)conflict with or violate any provision of the Organizational Documents of the relevant Seller (if such Seller is not anindividual);(ii)violate, conflict with or result in the breach or termination of, or constitute a default or event of default (or an eventwhich with notice, lapse of time, or both, would constitute a default or event of default), under the terms of, anyContracts or-19-Governmental Authorizations to which the relevant Seller or any of its Affiliates (other than the Target Companies) is aparty or by which such Seller or any of its Affiliates (other than the Target Companies) is bound; or(iii)subject to the obtaining of the FMEF Clearance, constitute a violation by the relevant Seller or any of its Affiliates (otherthan the Target Companies) of any applicable Laws or Judgments, except for any such matters that would not, eitherindividually or in the aggregate, have a material adverse effect on the ability of such Seller to perform its obligationsunder this Letter.(g)Other than the FMEF Clearance, no Governmental Authorization or other third party consent is required to be made or obtainedby each Seller or any of its Affiliates (other than the Target Companies) prior to the Closing in connection with: (a) the enteringinto of this Letter by the relevant Seller, (b) the performance by the relevant Seller of its obligations hereunder, or (c) theconsummation of any of the transactions contemplated by this Letter.22.GOVERNING LAW(a)This Letter and any contractual or non-contractual obligation arising out of or in connection with this Letter shall be governedby, and construed in accordance with, French law.(b)All disputes arising out of or in connection with this Letter (including without limitation with respect to the existence, validity,performance, termination and interpretation of this Letter and any non-contractual obligation arising out of or in connection withthis Letter) shall be submitted to the exclusive jurisdiction of the Commercial Court of Paris.Yours faithfully.-20-Signed on December 7, 2015 by:___________________________Harmonic Inc.By: Mr. Patrick HarshmanPosition: CEOSigned on December 7, 2015 by:___________________________Harmonic Europe SASRepresented by Harmonic International AGBy: Mr. Raphael SegurPosition: Member and President of the Board of DirectorsCountersigned on December 7, 2015 by:KEPLER M2:___________________________KEPLER M2Being a party to this Letter for the sole purpose of Clauses 13(h) and 14By: Mr. Christophe DelahoussePosition: PresidentAnd each of the Sellers: Mr. Eric LouvetRepresented by Mr. Christophe Delahousse Mr. Eric GallierRepresented by Mr. Christophe Delahousse Mr. Jean-Marc GuiotRepresented by Mr. Christophe Delahousse Mr. Claude PerronRepresented by Mr. Christophe Delahousse Mrs. Crystele Trévisan-JalluRepresented by Mr. Christophe Delahousse Mrs. Delphine SauvionRepresented by Mr. Christophe Delahousse Mr. Marc ProcureurRepresented by Mr. Christophe Delahousse Mr. Christophe Delahousse Mr. Hervé CongardRepresented by Mr. Christophe Delahousse Countersigned on December 7, 2015 by:And each of the Sellers (continuation):FPCI Winch Capital 3Represented by Edmond de Rothschild InvestmentPartnersItself represented by: Mr. Sylvain CharignonTitle: Gérant Montalivet NetworksRepresented by Edmond de Rothschild InvestmentPartnersItself represented by: Mr. Sylvain CharignonTitle: Gérant FPCI CIC Mezzanine 3Represented by CM-CIC Private DebtItself represented by: Mr. Sylvain Charignon Mr. Arnaud de PuyfontaineRepresented by Mr. Sylvain CharignonSchedule 0Sellers1)Mr. Eric Louvet, a French citizen, born on March 31, 1972 at Caen (14000), residing at 252, rue Saint-Malo, 35700 Rennes(France), referred to herein as “Mr. Louvet”, represented by Mr. Christophe Delahousse, duly authorized for the purpose hereof;2)Mr. Eric Gallier, a French citizen, born on July 10, 1963 at Rennes (35000), residing at 11, rue des Conrois, 35200 Rennes(France), referred to herein as “Mr. Gallier”, represented by Mr. Christophe Delahousse, duly authorized for the purpose hereof;3)Mr. Jean-Marc Guiot, a French citizen, born on April 2, 1964 at L’Haÿ-les-Roses (94240), residing at 21, rue Jules Renard,35760 Saint Grégoire (France), referred to herein as “Mr. Guiot”, represented by Mr. Christophe Delahousse, duly authorized forthe purpose hereof;4)Mr. Claude Perron, a French citizen, born on July 16, 1958 at Loudeac (22600), residing at 11, allée de la Ferme, 35830 Betton(France), referred to herein as “Mr. Perron”, represented by Mr. Christophe Delahousse, duly authorized for the purpose hereof;5)Mrs. Crystèle Trévisan-Jallu, a French citizen, born on December 9, 1974 at Saint-Malo (35), residing at 2, rue de la Bobinais,35170 Bruz (France), referred to herein as “Mrs. Trévisan-Jallu”, represented by Mr. Christophe Delahousse, duly authorized forthe purpose hereof;6)Mr. Marc Procureur, a French citizen, born on March 10, 1970 at Paris (75011), residing at 30, rue Michelet, 35700 Rennes(France), referred to herein as “Mr. Procureur”, represented by Mr. Christophe Delahousse, duly authorized for the purposehereof;7)Mrs. Delphine Sauvion, a French citizen, born on April 21, 1977 at Toulouse (31), residing at 52, rue de la Coussaye, 95880Enghien-les-Bains (France), referred to herein as “Mrs. Sauvion”, represented by Mr. Christophe Delahousse, duly authorized forthe purpose hereof;8)Mr. Christophe Delahousse, a French citizen, born on September 8, 1965 at Calais (62100), residing at 15, rue Trévois, 92300Levallois-Perret (France), referred to herein as “Mr. Delahousse”;9)Mr. Hervé Congard, a French citizen, born on March 29, 1964 at Lannion (56000), residing at 16, rue Blaise Pascal, 56100Lorient (France), referred to herein as “Mr. Congard”, represented by Mr. Christophe Delahousse, duly authorized for the purposehereof;10)Winch Capital 3, a fonds professionnel de capital investissement (FPCI) governed by the French Code monétaire et financier(referred to herein as “FPCI Winch Capital 3”), represented by its management company (société de gestion), Edmond deRothschild Investment Partners, a company (société en commandite par actions) organized under the laws of France, having ashare capital of €501,500 and its registered office at 47, rue du Faubourg Saint-Honoré, 75008 Paris (France), registered with theFrench Registry of Commerce and Companies under number 444 071 989 RCS Paris (“EDRIP”), itself represented by Mr. SylvainCharignon, duly authorized for the purpose hereof;11)Montalivet Networks, a company (société par actions simplifiée) organized under the laws of France, having a share capital of€100 and its registered office at 10, rue du Colisée, 75008 Paris (France), registered with the French Registry of Commerce andCompanies under number 805 017 845 RCS Paris (referred to herein as “Montalivet Networks”), represented by EDRIP, itselfrepresented by Mr. Sylvain Charignon, duly authorized for the purpose hereof;12)Mr. Arnaud de Puyfontaine, a French citizen born on April 26, 1964 at Paris (75008) and residing at 37, rue du Général Foy,75008 Paris (France), referred to herein as “Mr. de Puyfontaine”, represented by Mr. Sylvain Charignon, duly authorized for thepurpose hereof; and13)FPCI CIC Mezzanine 3, a fonds professionnel de capital investissement (FPCI) governed by the French Code monétaire etfinancier (referred to herein as “FPCI CIC Mezzanine 3”), represented by its management company (société de gestion), CM-CICPrivate Debt, a company (société par actions simplifiée) organized under the laws of France, having a share capital of €625,000and its registered office at 4, rue Gaillon, 75002 Paris (France), registered with the French Registry of Commerce and Companiesunder number 503 110 595 RCS Paris, itself represented by Mr. Sylvain Charignon, duly authorized for the purpose hereof.-2-Schedule 1Securities Purchase AgreementSchedule 2Exercise Notice[Letterhead of the Sellers’ Representative]PRIVATE AND CONFIDENTIAL[•], 2016To:Harmonic Inc.4300 North First StreetSan Jose, CA 95134, United States of AmericaAttn: Timothy Chu, General CounselE-mail: tim.chu@harmonicinc.com andharmoniclegal@harmonicinc.comAnd: Harmonic Europe50, rue Camille Desmoulins92130 Issy-les-Moulineaux, FranceAttn: Raphael SegurE-mail: Raphael.Segur@harmonicinc.com andharmoniclegal@harmonicinc.comCc:Shearman & Sterling LLP114, avenue des Champs-Elysées75008 Paris, FranceAttn: Nicolas BombrunE-mail: Nicolas.Bombrun@Shearman.comFax: +33.1.42.99.78.00By E-mail and by registered mail (postage prepaid, return receipt requested)Re: Project Tahoe - Exercise NoticeDear Sirs,Reference is made to the offer letter dated December 7, 2015 entered into by and between the Offeror, the Purchaser, Kepler M2 andthe Sellers (the "Put Option Agreement"). Capitalized terms in this letter (the "Exercise Notice") shall, unless otherwise defined herein,have the meanings ascribed to them in the Put Option Agreement.In accordance with the provisions of Clauses 1, 9, 11, 12, 13, 19 and 22 of the Put Option Agreement, we hereby:(i)Notify the Offeror and the Purchaser of the Sellers’ decision to exercise the Put Option;(ii)Confirm to the Offeror and the Purchaser that:•the IP Agreement has been duly executed by Kepler and France Brevets and a certified copy of the IP Agreement dulyexecuted by Kepler and France Brevets has been provided to the Offeror and the Purchaser, in both cases on or prior tothe date hereof;•the Information and Consultation Process has been fully completed and evidence thereof has been provided to theOfferor and the Purchaser, in both cases on or prior to the date hereof;•the provisions of paragraphs (a) and (b) of Clause 5 of the Put Option Agreement have been definitively complied withand evidence thereof has been provided to the Offeror and the Purchaser, in both cases on or prior to the date hereof;•as of the date hereof, save for what has been set forth in the Securities Purchase Agreement or notified pursuant toClause 9(a) of the Put Option Agreement as constituting or being likely to constitute a Material Adverse Change, nocircumstance, event or fact has occurred since the Reference Date that constitutes or would be likely to constitute aMaterial Adverse Change;•pursuant to Clause 9(a)(ii) of the Put Option Agreement, the Offeror and the Purchaser will be promptly notified of theoccurrence (or non-occurrence) between the date hereof (included) and the actual date of execution of the SecuritiesPurchase Agreement (included) of any event, the occurrence (or non-occurrence) of which constitutes or would belikely to constitute a Material Adverse Change;•as of the date hereof, no Permitted Transfer has been completed in breach of Clause 10 prior to or on the Signing Date;•pursuant to Clause 10, no Permitted Transfer will be completed from the date hereof (included); and•pursuant to Clause 11, should the Offeror notify to the Sellers’ Representative a New Schedule 4.3(a)(iv) within two (2)Business Days of the receipt of this Exercise Notice, such New Schedule 4.3(a)(iv) will, with effect from (and including)the date of such notice, automatically supersede Schedule 4.3(a)(iv) to the Securities Purchase Agreement as appendedas of the date of the Put Option Agreement, so that any reference to Schedule 4.3(a)(iv) to the Securities PurchaseAgreement will be construed as a reference to the New Schedule 4.3(a)(iv). With effect from (and including) the date ofsuch notice, Schedule 4.3(a)(iv) to the Securities Purchase Agreement as appended as of the date of the Put OptionAgreement will be modified, restated and replaced in its entirety by New Schedule 4.3(a)(iv) and therefore we confirmthat the New Schedule 4.3(a)(iv) will be appended to the execution version of the Securities Purchase Agreement on theSigning Date.(iii)Specify that the Securities Purchase Agreement is to be executed on [•], 2016, unless the Sellers’ Representative and the Offeroragree in writing on another date prior to or on such date, and at [•] [a.m./p.m.] (Paris time), at the offices of Shearman & SterlingLLP, 114, avenue des Champs-Elysées, 75008 Paris (France), unless otherwise agreed between the Sellers’ Representative andthe Offeror in writing prior to or on the Signing Date.Pursuant to Clause 22 of the Put Option Agreement, this Exercise Notice and any contractual or non-contractual obligation arising outof or in connection with this Exercise Notice shall be governed by, and construed in accordance with, French law. All disputes arisingout of or in connection with this-2-Exercise Notice (including without limitation with respect to the existence, validity, performance, termination and interpretation of thisExercise Notice and any non-contractual obligation arising out of or in connection with this Exercise Notice) shall be submitted to theexclusive jurisdiction of the Commercial Court of Paris.Sincerely yours,By: _________________________Name: Mr. Christophe DelahousseTitle: Sellers’ Representative-3-EXHIBIT 10.26SALE AND PURCHASE AGREEMENTVOLUME I / IIHARMONIC INTERNATIONAL AGANDHARMONIC INC.ANDFPCI WINCH CAPITAL 3ARNAUD DE PUYFONTAINECHRISTOPHE DELAHOUSSELAURE DELAHOUSSECAMILLE DELAHOUSSEEDOUARD DELAHOUSSECONSTANCE DELAHOUSSEHERVÉ CONGARDLOUIS CONGARDANNE CONGARDERIC LOUVETERIC GALLIERJEAN-MARC GUIOTCLAUDE PERRONCRYSTELE TRÉVISAN-JALLUMARC PROCUREURDELPHINE SAUVIONMONTALIVET NETWORKS SASFPCI CIC MEZZANINE 3ANDKEPLER M2DATED FEBRUARY 11, 2016CONTENTS1.DEFINITIONS – INTERPRETATION5 1.1Definitions5 1.2Principles of Interpretation52.SALE AND PURCHASE OF THE TRANSFERRED SECURITIES6 2.1Sale and Purchase of the Transferred Securities6 2.2Final Price6 2.3Estimated Initial Price7 2.4Payment of the Estimated Initial Price at Closing7 2.5Post-Closing Determination of the Adjusted Initial Price8 2.6Post-Closing Payment of the Initial Price Adjustment11 2.7Post-Closing Determination of the Additional Price12 2.8Post-Closing Payment of the Additional Price13 2.9Allocation among the Sellers of the Final Price and of the Estimated Initial Price, the Initial PriceAdjustment, the Revenues Adjustment and the Backlog Adjustment143.CONDITIONS PRECEDENT15 3.1Conditions Precedent15 3.2Responsibility for Satisfaction16 3.3Satisfaction or Non Satisfaction18 3.4Transfer of Ownership214.CLOSING21 4.1Date and Place of Closing21 4.2Closing Payments21 4.3Closing Deliveries21 4.4Matters at Closing255.PRE-CLOSING MATTERS25 5.1No Transfer of the Ordinary Shares, the ORAs, the OCRs, the OBSAs and the ManCo Shares, nor of theTransferred Securities25 5.2Modification of the Holding’s by-laws25 5.3Modification of the Terms and Conditions of the ORAs26 5.4Modification of the Terms and Conditions of the OCRs26 5.5Repayment of the ORAs26 5.6No Conversion of the OCRs26i 5.7No Exercise of the Mezzanine Warrants26 5.8Pre-Closing Statement26 5.9Management between the date hereof and the Closing Date27 5.10Notifications30 5.11Access to Target Companies30 5.12Existing Shareholders’ Documents31 5.13Exclusivity31 5.14Prior Approval under Change of Control Provisions326.POST-CLOSING COVENANTS32 6.1SEC Filing32 6.2Records32 6.3Non Solicitation33 6.4Non Bashing337.REPRESENTATIONS OF THE PURCHASER33 7.1Organization, Authority and Validity33 7.2No Breach34 7.3Governmental Authorizations, Consent34 7.4Financing34 7.5Acknowledgements348.REPRESENTATION OF THE SELLERS35 8.1General Representations by each Seller Individually35 8.2Additional Representations by the Sellers Individually but not Jointly (conjointement mais nonsolidairement)37 8.3Additional Representations by the ManCo Shareholders Individually but not Jointly (conjointement maisnon solidairement)599.INDEMNIFICATION62 9.1Principle62 9.2Calculation63 9.3Exclusions - Limitations65 9.4Claim Notices67 9.5Claims Involving Third Parties68 9.6Duty to Mitigate69 9.7Disclosures69 9.8Payment70 9.9Collateral71ii 9.10Exclusivity of Remedy7110.TERMINATION72 10.1Primary Causes72 10.2Non-Occurrence of the Closing73 10.3Effect of Termination7311.GENERAL PROVISIONS73 11.1Cooperation73 11.2Confidentiality73 11.3Absence of Third-Party Rights - Assignment74 11.4Guarantee of the Purchaser’s payment obligations74 11.5Entire Agreement75 11.6Waivers and Amendments75 11.7Severability76 11.8Notices and Communications76 11.9Sellers’ Representative77 11.10Parties acting Severally and Jointly (conjointement et solidairement)78 11.11Costs and Expenses78 11.12Governing Law and Disputes78 11.13Language78 11.14Volume II79iiiSALE AND PURCHASE AGREEMENTThis sale and purchase agreement (this “Agreement”) is made and entered into on February 11, 2016 by and between:EACH OF:1)Mr. Eric Louvet, a French citizen, born on March 31, 1972 at Caen (14000), residing at 252, rue Saint-Malo, 35700 Rennes(France), hereinafter referred to as “Mr. Louvet”, represented by Mr. Christophe Delahousse, duly authorized for the purposehereof;2)Mr. Eric Gallier, a French citizen, born on July 10, 1963 at Rennes (35000), residing at 11, rue des Conrois, 35200 Rennes(France), hereinafter referred to as “Mr. Gallier”, represented by Mr. Christophe Delahousse, duly authorized for the purposehereof;3)Mr. Jean-Marc Guiot, a French citizen, born on April 2, 1964 at L’Haÿ-les-Roses (94240), residing at 21, rue Jules Renard,35760 Saint Grégoire (France), hereinafter referred to as “Mr. Guiot”, represented by Mr. Christophe Delahousse, duly authorizedfor the purpose hereof;4)Mr. Claude Perron, a French citizen, born on July 16, 1958 at Loudeac (22600), residing at 11, allée de la Ferme, 35830 Betton(France), hereinafter referred to as “Mr. Perron”, represented by Mr. Christophe Delahousse, duly authorized for the purposehereof;5)Mrs. Crystèle Trévisan-Jallu, a French citizen, born on December 9, 1974 at Saint-Malo (35), residing at 2, rue de la Bobinais,35170 Bruz (France), hereinafter referred to as “Mrs. Trévisan-Jallu”, represented by Mr. Christophe Delahousse, duly authorizedfor the purpose hereof;6)Mr. Marc Procureur, a French citizen, born on March 10, 1970 at Paris (75011), residing at 30, rue Michelet, 35700 Rennes(France), hereinafter referred to as “Mr. Procureur”, represented by Mr. Christophe Delahousse, duly authorized for the purposehereof;7)Mrs. Delphine Sauvion, a French citizen, born on April 21, 1977 at Toulouse (31), residing at 52, rue de la Coussaye, 95880Enghien-les-Bains (France), hereinafter referred to as “Mrs. Sauvion”, represented by Mr. Christophe Delahousse, duly authorizedfor the purpose hereof;8)Mr. Christophe Delahousse, a French citizen, born on September 8, 1965 at Calais (62100), residing at 15, rue Trébois, 92300Levallois-Perret (France), hereinafter referred to as “Mr. Delahousse”;9)Mrs. Laure de Robien (married name: Delahousse), a French citizen, born on May 23, 1966 at Amiens (80000), residing at 15,rue Trébois, 92300 Levallois-Perret (France), hereinafter referred to as “Mrs. Laure Delahousse”, represented by Mr. ChristopheDelahousse, duly authorized for the purpose hereof;10)Mrs. Camille Delahousse (married name: Lefebvre), a French citizen, born on September 17, 1991 at Amiens (80000), residingat 37 ter, rue de Villiers, 92200 Neuilly-sur-Seine (France), hereinafter referred to as “Mrs. Camille Delahousse”, represented byMr. Christophe Delahousse, duly authorized for the purpose hereof;11)Mr. Edouard Delahousse, a French citizen, born on August 26, 1993 at Amiens (80000), residing at 15, rue Trébois, 92300Levallois-Perret (France), hereinafter referred to as “Mr. Edouard Delahousse”, represented by Mr. Christophe Delahousse, dulyauthorized for the purpose hereof;12)Mrs. Constance Delahousse, a French citizen, born on July 10, 1995 at Amiens (80000), residing at 15, rue Trébois, 92300Levallois-Perret (France), hereinafter referred to as “Mrs. Constance Delahousse”, represented by Mr. Christophe Delahousse, dulyauthorized for the purpose hereof;The Party 8) acting severally and jointly (conjointement et solidairement) with the Parties 9) to 12) for the purposes of thisAgreement;13)Mr. Hervé Congard, a French citizen, born on March 29, 1964 at Lannion (22300), residing at 16, rue Blaise Pascal, 56100Lorient (France), hereinafter referred to as “Mr. Congard”, represented by Mr. Christophe Delahousse, duly authorized for thepurpose hereof;14)Mr. Louis Congard, a French citizen, born on July 20, 1994 at Hennebont (56700), residing at 16, rue Blaise Pascal, 56100Lorient (France), hereinafter referred to as “Mr. Louis Congard”, represented by Mr. Christophe Delahousse, duly authorized forthe purpose hereof;15)Mrs. Anne Congard, a French citizen, born on August 20, 1996 at Pont-l’Abbé (29120), residing at 16, rue Blaise Pascal, 56100Lorient (France), hereinafter referred to as “Mrs. Anne Congard”, represented by Mr. Christophe Delahousse, duly authorized forthe purpose hereof;The Party 13) acting severally and jointly (conjointement et solidairement) with the Parties 14) to 15) for the purposes of thisAgreement;16)Winch Capital 3, a fonds professionnel de capital investissement (FPCI) governed by the French Code monétaire et financier,represented by its management company (société de gestion), Edmond de Rothschild Investment Partners, a company (société encommandite par actions) organized under the laws of France, having a share capital of €501,500 and its registered office at 47, ruedu Faubourg Saint-Honoré, 75008 Paris (France), registered with the French Registry of Commerce and Companies under number444 071 989 RCS Paris (“EDRIP”), represented by Mr. Sylvain Charignon, duly authorized for the purpose hereof (hereinafterreferred to as “FPCI Winch Capital 3”);17)Montalivet Networks, a company (société par actions simplifiée) organized under the laws of France, having a share capital of€100 and its registered office at 10, rue du Colisée, 75008 Paris (France), registered with the French Registry of Commerce andCompanies under number 805 017 845 RCS Paris, represented by EDRIP, itself represented by Mr. Sylvain Charignon, dulyauthorized for the purpose hereof (hereinafter referred to as “Montalivet Networks”);FPCI Winch Capital 3 acting severally and jointly (conjointement et solidairement) with Montalivet Networks for the purposes ofthis Agreement;18)Mr. Arnaud de Puyfontaine, a French citizen born on April 26, 1964 at Paris (75008) and residing at 37, rue du Général Foy,75008 Paris (France), hereinafter referred to as “Mr. de Puyfontaine”, represented by Mr. Sylvain Charignon or Mr. LaurentTourtois or Mr. Thomas Duteil, each of them being duly authorized for the purpose hereof;19)FPCI CIC Mezzanine 3, a fonds professionnel de capital investissement (FPCI) governed by the French Code monétaire etfinancier, represented by its management company (société de gestion),2CM-CIC Private Debt, a company (société par actions simplifiée) organized under the laws of France, having a share capital of€625,000 and its registered office at 4, rue Gaillon, 75002 Paris (France), registered with the French Registry of Commerce andCompanies under number 503 110 595 RCS Paris (“CM-CIC Private Debt”), represented by Mr. Sylvain Charignon orMr. Laurent Tourtois or Mr. Thomas Duteil, each of them being duly authorized for the purpose hereof (hereinafter referred to as“FPCI CIC Mezzanine 3”);The Parties 1) to 19) are hereinafter collectively referred to as the “Sellers” and individually as a “Seller”.OF THE FIRST PART,AND:20)Harmonic International AG, a company (limited company) organized under the laws of Switzerland, having a share capital ofCHF 100,200 and its registered office at Avenue de la Gare 12, 1700 Fribourg (Switzerland), and registered with the Register ofCommerce of Fribourg under the Company Identification Number (UID) CHE-114.530.405, represented by Mr. Raphael Segur,duly authorized for the purpose hereof (hereinafter referred to as the “Purchaser”),OF THE SECOND PART,The Sellers and the Purchaser are hereinafter referred to collectively as the “Parties” and, individually, as a “Party”.AND IN THE PRESENCE OF:21)Harmonic Inc., a company organized under the laws of the United States of America, having its registered office at 4300 NorthFirst Street, San Jose, CA 95134, represented by Mr. Patrick Harshman, duly authorized for the purpose hereof (hereinafter referredto as the “Mother Company”), entering into this agreement for the sole purpose of Section 11.4; and22)Kepler M2, a company (société par actions simplifiée) organized under the laws of France, having a share capital of €3,635,805and its registered office at 15, rue Trébois, 92300 Levallois-Perret (France), registered with the French Registry of Commerce andCompanies under number 531 550 242 RCS Nanterre, represented by Mr. Delahousse, duly authorized for the purposes hereof(hereinafter referred to as “Kepler M2” or “ManCo”), being a party to this Agreement for the sole purpose of Sections 5.1 to 5.5,5.9 and 5.12.3RECITALSWHEREAS:A.Financière Kepler is a company (société par actions simplifiée) organized under the laws of France, having a share capital of€10,553,578 and its registered office at 9, avenue des Trois Fontaines - Immeuble Cergy Etoile, 95000 Cergy (France), andregistered with the French Registry of Commerce and Companies under number 805 017 951 RCS Pontoise (“FinanciereKepler” or the “Holding”).B.On the date hereof, the Sellers (other than Mr. Louvet, Mr. Gallier, Mr. Guiot, Mr. Perron, Mrs. Trévisan-Jallu, Mr. Procureurand Mrs. Sauvion) and Kepler M2 collectively hold 100% of the Ordinary Shares, ORAs, OCRs and OBSAs (as such terms andsuch other capitalized terms as are used without definition in these Recitals are defined in Schedule 1.1 (Definitions)),representing 100% of the share capital and voting rights of Financière Kepler on a fully diluted basis, and, individually, thenumber of Ordinary Shares, ORAs, OCRs and OBSAs set forth opposite their respective names in the table appearing onSchedule B (Allocation of the Securities of the Holding as of the date hereof).C.On the date hereof, the ManCo Shareholders collectively hold 100% of the ManCo Shares, representing 100% of the sharecapital and voting rights of ManCo, and, individually, the number of ManCo Shares set forth opposite their respective names inthe table appearing on Schedule C (Allocation of the ManCo Shares as of the date hereof).D.On the date hereof, Financière Kepler holds 5,817,000 ordinary shares (actions ordinaires) of Kepler, a company (société paractions simplifiée) organized under the laws of France, having a share capital of €5,817,000 and its registered office located at9, avenue des Trois Fontaines - Immeuble Cergy Etoile, 95000 Cergy (France), and registered with the French Registry ofCommerce and Companies under number 531 086 411 RCS Pontoise (“Kepler” or the “Company”), representing 100% of theshare capital and voting rights of the Company.E.On the date hereof, (i) Financière Kepler and Kepler hold 568,954 ordinary shares (actions ordinaires) of Thomson VideoNetworks, a company (société par actions simplifiée) organized under the laws of France, having a share capital of €5,689,540and its registered office located at 57, rue Clément Ader, 35510 Cesson-Sévigné (France), and registered with the FrenchRegistry of Commerce and Companies under number 477 555 718 RCS Rennes (“TVN”), representing 100% of the sharecapital and voting rights of TVN on a non-diluted basis, and (ii) FCPE TVN Investissement, a fonds commun de placementd’entreprise governed by the French Code monétaire et financier, registered with the French Market Authority (Autorité desMarchés Financiers) under number FCE20120073 and managed by Equalis Capital France SAS (517 705 679 RCS Paris),registered as management company (société de gestion) with the French Market Authority (Autorité des Marchés Financiers)under number GP-09000014, holds 100% of the TVN ORANs. On the date hereof, the 568,954 ordinary shares (actionsordinaires) of TVN and the TVN ORANs represent 100% of the share capital and voting rights of TVN on a fully diluted basis.F.On the date hereof, TVN holds the companies set out in the chart appearing on Schedule F (Chart of the Group Companies),such companies, TVN, the Company and the Holding being hereinafter collectively referred to as the “Group Companies” andindividually as a “Group Company”.4G.As part of the proposed acquisition of the Transferred Securities, the Purchaser has had access to and has been able to review anumber of documents and information of a financial, accounting, fiscal, legal and operational nature concerning ManCo and theGroup Companies during (i) a due diligence investigation carried out from September 8, 2015 to December 4, 2015 and (ii)management presentations to which the Purchaser and its Affiliates were invited. All these documents and information arecontained in a CD Rom delivered by the Holding to the Purchaser with a copy to the Sellers’ Representative and are referred toin this Agreement as the “Data Room”.H.The Sellers (each as to the Transferred Securities which such Seller will own at Closing) desire to sell, and the Purchaser desiresto purchase, all the Transferred Securities upon the terms and subject to the conditions hereinafter set forth (the “Transaction”).I.Applicable workers' representatives bodies of the Group Companies have been informed and consulted in respect of theTransaction, and have given their opinion on the Transaction.NOW, THEREFORE, THE PARTIES HERETO HAVE AGREED AS FOLLOWS:1.DEFINITIONS - Interpretation1.1DefinitionsIn addition to such terms as are defined elsewhere in this Agreement, wherever used in this Agreement (including the Recitals) andunless the context otherwise requires, capitalized terms shall have the meaning ascribed to them in Schedule 1.1 (Definitions).1.2Principles of Interpretation(a)The words “includes” and “including” shall mean including without limitation.(b)Any reference herein to “Preamble”, “Recitals”, “Volume”, “Section”, “Subsection”, “Paragraph” or “Schedule” shall be deemed areference to the preamble, the recitals, a volume, a section, a subsection or a paragraph of, or a schedule to this Agreement unlessotherwise specified.(c)Headings to Sections or Paragraphs and Schedules are for information only and are to be ignored in construing the same unless thecontext otherwise requires.(d)Definitions given for a noun also apply mutatis mutandis to verbs, adjectives and adverbs that have the same root and vice versa.(e)Words denoting the singular shall include the plural and vice versa and words denoting any gender shall include all genders.(f)This Agreement is comprised of Volume I and Volume II. The Schedules to this Agreement shall be deemed to be a part of thisAgreement, and references to “this Agreement” shall be deemed to include the same. The Disclosure Schedules are arranged insections and paragraphs corresponding to the numbered and lettered Sections and Paragraphs of this Agreement.5(g)The provisions of Articles 640 to 642 of the French Code of Civil Procedure (Code de procédure civile) shall be applied to calculatethe period of time within which or following which any act is to be done or step taken, provided that for purposes of this Agreement,the references in Article 642 to “un jour férié ou chômé” and “premier jour ouvrable” shall be interpreted by reference to thedefinition of “Business Day” appearing herein.(h)Unless the context otherwise requires, any reference to a statutory provision shall include such provision as it exists and is construedas of the date of this Agreement.(i)Any reference to “written” or “writing” includes any methods of representing words (including, but not limited to, any E-mails,leaflets, papers, notes, any writing on an electronic or visual display screen or any other writing, whether or not in a transitory form).(j)Unless otherwise expressly provided for herein, a reference to a specific time of day shall be to local time in Paris, France.2.SALE AND PURCHASE OF THE TRANSFERRED SECURITIES2.1Sale and Purchase of the Transferred SecuritiesSubject to the terms and conditions of this Agreement, at the Closing, each of the Sellers (each as to the Transferred Securities whichsuch Seller will own on the Closing Date) agrees to sell and deliver to the Purchaser, and the Purchaser agrees to purchase from eachof the Sellers, all of the Transferred Securities outstanding at the Closing, free and clear of all Liens, with all rights and benefitsattached or accruing to them at the Closing (including, without limitation, the right to receive all dividends or distributions declared,made or paid on or after the Closing Date).2.2Final PriceThe final purchase price to be paid by the Purchaser to the Sellers for the sale of the Transferred Securities under this Agreementshall be the sum of the Adjusted Initial Price and the Additional Price (the result of such sum being hereinafter referred to as the“Final Price”), respectively defined as follows:2.2.1The “Adjusted Initial Price” shall be:(i)US Dollars 75,000,000 (seventy five millions) (the “Enterprise Value”);(ii)adding the amount of Net Cash (if such amount is positive), as converted from Euros into US Dollars by using the ClosingExchange Rate, or subtracting the absolute value of the amount of Net Cash (if such amount is negative), as converted fromEuros into US Dollars by using the Closing Exchange Rate;(iii)adding the amount of the Working Capital Adjustment, as converted from Euros into US Dollars by using the ClosingExchange Rate, corresponding to (a) an increase of the amount of the Adjusted Initial Price if this amount is positive and(b) a decrease of the amount of the Adjusted Initial Price if this amount is negative;6(iv)adding the amount of ManCo Net Cash (if such amount is positive), as converted from Euros into US Dollars by using theClosing Exchange Rate, or subtracting the absolute value of the amount of ManCo Net Cash (if such amount is negative), asconverted from Euros into US Dollars by using the Closing Exchange Rate; and(v)adding the amount of the ManCo Working Capital Adjustment, as converted from Euros into US Dollars by using the ClosingExchange Rate, corresponding to (a) an increase of the amount of the Adjusted Initial Price if this amount is positive and(b) a decrease of the amount of the Adjusted Initial Price if this amount is negative.2.2.2The “Additional Price” shall be the sum of:(i)the Revenues Adjustment, if any; and(ii)the Backlog Adjustment, if any.2.3Estimated Initial PricePending final determination of the Adjusted Initial Price on the basis of the Purchaser Completion Statement, the aggregate amount inUS Dollars to be paid by the Purchaser on the Closing Date in consideration for all the Transferred Securities (the “Estimated InitialPrice”) shall be equal to:(i)the Enterprise Value of US Dollars 75,000,000;(ii)plus the Estimated Net Cash (if positive), as converted from Euros into US Dollars by using the Pre-Closing Exchange Rate,or minus the absolute value of the Estimated Net Cash (if negative), as converted from Euros into US Dollars by using thePre-Closing Exchange Rate;(iii)plus the Estimated Working Capital Adjustment, as converted from Euros into US Dollars by using the Pre-Closing ExchangeRate, corresponding to (a) an increase of the amount of the Estimated Initial Price if this amount is positive and (b) a decreaseof the amount of the Estimated Initial Price if this amount is negative;(iv)plus the Estimated ManCo Net Cash (if positive), as converted from Euros into US Dollars by using the Pre-ClosingExchange Rate, or minus the absolute value of the Estimated ManCo Net Cash (if negative), as converted from Euros into USDollars by using the Pre-Closing Exchange Rate; and(v)plus the Estimated ManCo Working Capital Adjustment, as converted from Euros into US Dollars by using the Pre-ClosingExchange Rate, corresponding to (a) an increase of the amount of the Estimated Initial Price if this amount is positive and (b)a decrease of the amount of the Estimated Initial Price if this amount is negative.2.4Payment of the Estimated Initial Price at ClosingOn the Closing Date, the Purchaser shall pay the Estimated Initial Price as follows:(a)US Dollars 13,500,000, as converted from US Dollars into Euros by using the Escrow Pre-Closing Exchange Rate (the “Amount inEscrow”), by wire transfer of immediately available Euro funds into the Escrow Account, pursuant to the provisions of the EscrowAgreement, such Amount in Escrow being released pursuant to the Escrow Agreement and Sections 2.6, 3.3(d) and 9.9 below; and7(b)the remaining portion of the Estimated Initial Price, if any, to the Sellers by wire transfer of immediately available US Dollar funds tosuch accounts of the Sellers as shall have been notified to the Purchaser by the Sellers’ Representative for such purpose in the Pre-Closing Statement, together with the allocation of the remaining portion of the Estimated Initial Price among the Sellers. Suchallocation shall be made under the sole and exclusive responsibility of the Sellers in accordance with the provisions of Section 2.9below and the Purchaser and the Target Companies shall incur no liability whatsoever in respect thereto, it being expressly specifiedthat:•each Seller (other than FPCI Winch Capital 3 and Montalivet Networks) shall in no event be granted an amount higher thanan amount equal to 100% of the portion of the Estimated Initial Price allocated to the Transferred Securities it owns pursuantto the provisions of Section 2.9 below less its Allocable Fraction of US Dollars 13,500,000;•FPCI Winch Capital 3 shall in no event be granted an amount higher than an amount equal to 100% of the portion of theEstimated Initial Price allocated to the Transferred Securities it owns pursuant to the provisions of Section 2.9 below less thesum of (i) its Allocable Fraction of US Dollars 13,500,000 and (ii) Montalivet Networks’ Allocable Fraction of US Dollars13,500,000; and•Montalivet Networks shall in no event be granted an amount higher than an amount equal to 100% of the portion of theEstimated Initial Price allocated to the Transferred Securities it owns pursuant to the provisions of Section 2.9 below.2.5Post-Closing Determination of the Adjusted Initial PriceThe Adjusted Initial Price shall be calculated after the Closing in accordance with the following provisions:2.5.1Draft Purchaser Completion StatementWithin ninety (90) days after the Closing Date, the Purchaser shall draw up the Closing Accounts and provide them to the Sellers’Representative together with a written draft statement (the “Purchaser Completion Statement”) setting out:(a)its determination, in accordance with the Closing Accounts Accounting Principles, of (A) the amounts of (i) the Cash, the Debt andthe Net Cash, (ii) the Working Capital, the Normative Working Capital and the Working Capital Adjustment, (iii) the ManCo Cash,the ManCo Debt and the ManCo Net Cash, (iv) the ManCo Working Capital, the ManCo Normative Working Capital and the ManCoWorking Capital Adjustment and of (B) the Closing Exchange Rate, together with reasonable details and supporting documentationto such calculations; and(b)its determination of the Adjusted Initial Price calculated in accordance with Section 2.2.1 above and of the resulting Initial PriceAdjustment.2.5.2Review of the draft Purchaser Completion Statement by the Sellers’ Representative(a)The Sellers’ Representative shall be entitled to review the Closing Accounts and the draft Purchaser Completion Statement and shall,within thirty (30) Business Days after receipt of the same, notify the Purchaser in writing (an “Objection Notice”) whether or not itaccepts the draft Purchaser Completion Statement for the purposes of this Agreement. An Objection Notice shall set out in reasonabledetails and with supporting documentation those items of the draft Purchaser Completion Statement on which the Sellers’Representative disagrees (the “Disputed Items”), the reasons for such disagreement and the8adjustments (and the reasons for such adjustments) which, in the Sellers’ Representative opinion, should be made to the DisputedItems in order for the draft Purchaser Completion Statement to comply with the requirements of this Agreement. Except for theDisputed Items specifically set out in the Objection Notice, the Sellers shall be deemed to have agreed the draft PurchaserCompletion Statement in full. If, by the expiry of such period of thirty (30) Business Days, no Objection Notice is received by thePurchaser or the Sellers’ Representative has notified in writing the Purchaser that it agrees with the draft Purchaser CompletionStatement, such draft Purchaser Completion Statement will constitute the Purchaser Completion Statement for the purposes of thisAgreement and shall be final and binding on the Parties.(b)If the Sellers’ Representative serves an Objection Notice in accordance with Paragraph (a) above, the Purchaser and the Sellers’Representative shall discuss in good faith the objections of the Sellers’ Representative on the Disputed Items and shall use theirreasonable endeavors to reach an agreement on the adjustments (if any) to be made to the Disputed Items, within ten (10) BusinessDays after receipt by the Purchaser of the Objection Notice. In the case of such an agreement within the above-mentioned timeframe,the draft Purchaser Completion Statement as agreed pursuant to this Paragraph will constitute the Purchaser Completion Statement forthe purposes of this Agreement and shall be final and binding on the Parties.2.5.3Failure to agree on the Purchaser Completion StatementIf the Sellers’ Representative and the Purchaser do not reach an agreement within the period referred to in Section 2.5.2(b) above,then the unresolved Disputed Items may be referred (on the application of either the Sellers’ Representative or the Purchaser) fordetermination to such partner leading the audit or valuation practice in Paris of an internationally recognized independent audit orvaluation firm as the Sellers’ Representative and the Purchaser shall agree within ten (10) Business Days following the expiry of theabove-mentioned period or, failing such an agreement, appointed in the capacity of a tiers arbitre mandataire in accordance with theprovisions of article 1592 of the French Civil Code by the President of the Tribunal de Commerce de Paris ruling under the form ofsummary proceedings without recourse (statuant en la forme des référés et sans recours possible), each of the Purchaser and theSellers’ Representative having the opportunity to be heard (the “Firm”).2.5.4Procedures applicable to the determination of the Adjusted Initial Price by the Firm(a)Following appointment of the Firm, the Sellers’ Representative and the Purchaser shall each promptly (and in any event within ten(10) Business Days after the acceptance by the Firm of its mission) prepare a written statement setting out their respective position oneach unresolved Disputed Items. This statement shall include the relevant supporting documents (including the Closing Accounts,the draft Purchaser Completion Statement and the Objection Notice) and shall be submitted to the Firm, with a copy to the otherParty, for final determination.(b)The mission of the Firm shall be limited to the review and resolution of the unresolved Disputed Items based solely upon theelements presented by the Sellers’ Representative and the Purchaser and shall not be carried out by independent review. Indetermining each unresolved Disputed Item, the Firm may not assign value to such unresolved Disputed Item greater than the greatervalue allowed to such unresolved Disputed Item by either the Sellers’ Representative or the Purchaser or lesser than the lower valueallowed to such Disputed Item by either of the Sellers’ Representative or the Purchaser.(c)The Firm shall act pursuant to the provisions of article 1592 of the French Civil Code and its decision shall be final and binding onthe Parties and shall not be subject to any recourse before a court or arbitration9tribunal (absent any gross (grossière) or manifest (manifeste) mistake, fraud or fraudulent misrepresentation) except as necessary toenforce such decision.(d)The Firm shall make its decision after due hearings of the Purchaser and the Sellers’ Representative to which the latter shall beinvited with a prior notice period of at least five (5) Business Days. The Firm shall deliver to the Sellers’ Representative and thePurchaser a final report stating its decision within twenty (20) Business Days after acceptance by the Firm of its appointmenthereunder.(e)The decision of the Firm shall be grounded. In particular, the Firm’s final report shall include the final Purchaser CompletionStatement for the purposes of this Agreement which shall include the elements mentioned in Section 2.5.1 above, and specify inreasonable details what adjustments, if any, have been made to the draft Purchaser Completion Statement in respect of theunresolved Disputed Items.(f)The Sellers and the Purchaser shall each be responsible for their own costs in connection with the preparation, review and agreementor determination of (i) the Cash, the Debt and the Net Cash, (ii) the Working Capital, the Normative Working Capital and theWorking Capital Adjustment, (iii) the ManCo Cash, the ManCo Debt and the ManCo Net Cash, (iv) the ManCo Working Capital, theManCo Normative Working Capital and the ManCo Working Capital Adjustment and (v) the Closing Exchange Rate and thePurchaser Completion Statement. The fees and expenses of the Firm shall be paid by the Party which proposed Adjusted Initial Priceis farthest in US Dollars amount from the final determination thereof by the Firm.2.5.5Principles to be applied by the Parties and the Firm(a)The Purchaser and the Sellers’ Representative agree to promptly provide each other and, where applicable, the Firm with suchinformation and documentation in or under their respective possession or control or in the possession or control of their Affiliates(including access at all reasonable times to their personnel, books, records and files and other relevant information (includingworking papers of the auditors)) and such cooperation and assistance, as may be reasonably required to enable the preparation,review and agreement of the Purchaser Completion Statement. The Purchaser and the Sellers shall, following the Closing Datethrough the date on which the Purchaser Completion Statement is agreed or determined in accordance with the precedingParagraphs, take all actions necessary or desirable to maintain and preserve the books, records and auditors’ working papers in orunder their possession or control on which the Pre-Closing Statement was based or on which the Purchaser Completion Statement isto be based so as not to impede or delay the review, objection, if any, agreement and determination of the Purchaser CompletionStatement in accordance with the preceding Paragraphs.(b)The Firm shall guarantee due process (respect du principe du contradictoire) to the Sellers’ Representative and the Purchaser. In thisrespect, the Firm shall communicate to the Sellers’ Representative and/or to the Purchaser, as the case may be, any information anddocuments that were communicated to it by the Sellers’ Representative and/or the Purchaser, as the case may be, with respect to theresolution of the unresolved Disputed Items.(c)The Sellers’ Representative and the Purchaser hereby authorize each other, their respective advisers and accountants and the Firm totake copies of all information provided under Paragraph (a) above, provided that such Persons shall be bound by confidentialityundertakings consistent with the provisions of Section 11.2 below.10(d)For purposes of the review and resolution of the unresolved Disputed Items, the Firm shall be bound by and shall apply thedefinitions, formula and other terms set forth in this Agreement and more specifically in this Section 2.5.2.6Post-Closing Payment of the Initial Price Adjustment(a)If and to the extent the amount equal to the difference between the Adjusted Initial Price as resulting from the Purchaser CompletionStatement and the Estimated Initial Price is positive (the “Upward Adjustment”), then the Purchaser shall, in accordance withprovisions of Paragraph (c) below, pay the Upward Adjustment to the Sellers by wire transfer of immediately available US Dollarfunds to such accounts of the Sellers as shall have been notified by the Sellers’ Representative to the Purchaser for such purpose atthe latest five (5) Business Days after the date on which the Purchaser Completion Statement is agreed or determined in accordancewith the provisions of Section 2.5 above, together with the allocation of the Upward Adjustment among the Sellers. Such allocationshall be made under the sole and exclusive responsibility of the Sellers in accordance with the provisions of Section 2.9 below andthe Purchaser and the Target Companies shall incur no liability whatsoever in respect thereto.(b)If and to the extent the amount equal to the difference between the Adjusted Initial Price as resulting from the Purchaser CompletionStatement and the Estimated Initial Price is negative (the “Downward Adjustment”), then:(i)If the absolute value of the Downward Adjustment, as converted from US Dollars into Euros by using the Escrow ClosingExchange Rate, is lower than the Amount in Escrow, then the Amount in Escrow shall be partially released to the Purchaserin accordance with the provisions of the Escrow Agreement, up to an amount corresponding to the absolute value of theDownward Adjustment, as converted from US Dollars into Euros by using the Escrow Closing Exchange Rate;(ii)If the absolute value of the Downward Adjustment, as converted from US Dollars into Euros by using the Escrow ClosingExchange Rate, is equal to the Amount in Escrow, then the Amount in Escrow shall be fully released to the Purchaser inaccordance with the provisions of the Escrow Agreement;(iii)If the absolute value of the Downward Adjustment, as converted from US Dollars into Euros by using the Escrow ClosingExchange Rate, is greater than the Amount in Escrow, then:(A)the Amount in Escrow shall be fully released to the Purchaser in accordance with the provisions of the EscrowAgreement; and(B)the Sellers shall, in accordance with provisions of Paragraph (c) below, pay the amount by which the absolute valueof the Downward Adjustment exceeds the Amount in Escrow, as converted from Euros into US Dollars by using theClosing Exchange Rate, to the Purchaser by wire transfer of immediately available US Dollar funds to such accountof the Purchaser as shall have been notified by the Purchaser to the Sellers’ Representative for such purpose at thelatest five (5) Business Days after the date on which the Purchaser Completion Statement is agreed or determined inaccordance with the provisions of Section 2.5 above. The allocation among the Sellers of the amount to be paid to thePurchaser pursuant to this Paragraph (B), which shall be notified by the Sellers’ Representative to the Purchaser at thelatest five (5) Business Days after the date on which the Purchaser Completion Statement is agreed or determined inaccordance with the provisions of Section 2.5 above, shall be made under the sole and exclusive responsibility11of the Sellers in accordance with the provisions of Section 2.9 below and the Purchaser and the Target Companiesshall incur no liability whatsoever in respect thereto.(c)Any and all payments pursuant to the preceding Paragraphs of this Section 2.6 shall be made within ten (10) Business Days from thedate on which the Purchaser Completion Statement is agreed or determined in accordance with the provisions of Section 2.5 above, itbeing specified that the Sellers’ Representative and the Purchaser shall serve to the escrow agent under the Escrow Agreement allnecessary or appropriate notices in order to ensure the release of the Amount in Escrow in due time and proportion pursuant to thisSection 2.6. Any payment required to be made pursuant to this Section 2.6 which is not made before the expiry of a thirty-day (30)period from its due date, shall carry interest at the rate of ten (10) percent per annum (on the basis of a year of 365 days) from thedue date for payment until (and including) the date of actual payment.(d)The allocation of any payment to be made by or to the Sellers pursuant to this Section 2.6 shall comply with the provisions ofSection 2.9.(e)All interests or revenue of any nature whatsoever deriving from the Amount in Escrow shall be allocated among the Purchaser andthe Sellers (other than Montalivet Networks) pro rata the portion of the principal of the Amount in Escrow to be released to each ofthem pursuant to the Escrow Agreement, this Section 2.6 and Sections 3.3(d) and 9.9 below.(f)Any payment made by the Sellers pursuant to this Section 2.6 through the release of all or part of the Amount in Escrow shall bedeemed, for the amount corresponding to the portion of the Downward Adjustment allocated to Montalivet Networks in accordancewith the provisions of Section 2.9, if any, which is not paid in cash by Montalivet Networks to the Purchaser pursuant toSection 2.6(b)(iii)(B) above as the case may be, to be made by FPCI Winch Capital 3 for the account of Montalivet Networks, whicheach Party hereto expressly acknowledges and agrees. FPCI Winch Capital 3 shall be solely and exclusively responsible forrecovering such amount from Montalivet Networks and the Purchaser and the Target Companies shall incur no liability whatsoeverin respect to such payment by FPCI Winch Capital 3 for the account of Montalivet Networks.(g)For the sake of clarity, the Sellers and the Purchaser hereby agree that any Initial Price Adjustment and any payment in connectiontherewith shall be deemed to constitute an adjustment to the Final Price, and agree to treat any such payment as such for all Taxes,accounting and financial reporting purposes.2.7Post-Closing Determination of the Additional Price2.7.1Calculation of the Revenues AdjustmentThe Revenues Adjustment (as this term is defined below) shall be calculated as promptly as practicable after the date on which the2015 Consolidated Accounts are available and in any event within ninety (90) days after the Closing, in accordance with thefollowing provisions:(a)Within ninety (90) days after the Closing, the Purchaser shall deliver to the Sellers’ Representative the 2015 Consolidated Accountsand prepare in good faith a draft statement (the “Revenues Adjustment Statement”) showing (i) the combined revenues of theGroup Companies for the fiscal year ended on December 31, 2015 calculated in accordance with French GAAP and on a basisconsistent with the calculation as at the Reference Date set forth in Schedule 2.7.1(a) (Calculation of the combined revenues of theGroup Companies as at the Reference Date), and converted from Euros into US Dollars by using the Closing Average ExchangeRate (the “2015 Actual Revenues”), and (ii) the difference, if any, between12such 2015 Actual Revenues and the Enterprise Value (the “Revenues Adjustment”), it being agreed that the amount of theRevenues Adjustment will be capped to the difference between €76,000,000 (converted from Euros into US Dollars by using theClosing Average Exchange Rate) and the Enterprise Value. (b)The Sellers’ Representative shall notify the Purchaser in writing within thirty (30) Business Days after the receipt of the draftRevenues Adjustment Statement whether or not it accepts the Revenues Adjustment stated therein. The provisions of Sections 2.5.2to 2.5.5 shall apply mutatis mutandis to the determination of the Revenues Adjustment; for the purpose of the foregoing, in suchSections “Purchaser Completion Statement” shall read “Revenues Adjustment Statement” and the “Adjusted Initial Price” shall read“Revenues Adjustment”.2.7.2Calculation of the Backlog AdjustmentThe Backlog Adjustment (as this term is defined below) shall be calculated within five (5) Business Days following the date of thelast shipment of the Product Backlog of the Group Companies as of December 31, 2015 and in any event no later than within five(5) Business Days after June 30, 2016 in accordance with the following provisions:(a)Within five (5) Business Days following the date of the last shipment of the Product Backlog of the Group Companies as ofDecember 31, 2015 and in any event within five (5) Business Days after June 30, 2016, the Purchaser shall prepare in good faith anddeliver to the Sellers’ Representative a draft statement (the “Backlog Adjustment Statement”) indicating (i) the Product Backlog ofthe Group Companies as of December 31, 2015 (the “2015 Product Backlog”) calculated consistently with past practice andexclusively in accordance with the calculation as at the Reference Date set forth in Schedule 2.7.2(a) (Calculation of the ProductBacklog of the Group Companies as of December 31, 2014 and as at the Reference Date) and, (ii) in the event such 2015 ProductBacklog exceeds the Product Backlog of the Group Companies as of December 31, 2014 as set out in Schedule 2.7.2(a), the portionof such excess, if any, which has actually been shipped during the first two quarters of 2016 (such portion, as converted from Eurosinto US Dollars by using the Closing Average Exchange Rate, being hereinafter referred to as the “Backlog Adjustment”), it beingagreed that the Backlog Adjustment shall in any event be capped to an amount of USD 5,000,000.(b)The Sellers’ Representative shall notify the Purchaser in writing within thirty (30) Business Days after the receipt of the draft BacklogAdjustment Statement whether or not it accepts the Backlog Adjustment stated therein. The provisions of Sections 2.5.2 to 2.5.5 shallapply mutatis mutandis to the determination of the Backlog Adjustment; for the purpose of the foregoing, in such Sections“Purchaser Completion Statement” shall read “Backlog Adjustment Statement” and the “Adjusted Initial Price” shall read “BacklogAdjustment”.2.8Post-Closing Payment of the Additional Price(a)The Revenues Adjustment, if any, shall be due by the Purchaser to the Sellers only if the following conditions are met, on the basisof the 2015 Consolidated Accounts:(i)The Consolidated Net Result as at 31 December 2015 is positive; and(ii)The Gross Margin as at 31 December 2015 is at least equal to 45%.13(b)The Backlog Adjustment, if any, shall be due by the Purchaser to the Sellers only if the Average Standard Margin, as calculated inaccordance with Schedule 1.1(F) (Average Standard Margin) and on the basis of the 2015 Consolidated Accounts, for all theProduct Backlog is at least of 50%.(c)The Purchaser shall pay, by wire transfer of immediately available US Dollar funds, within ten (10) Business Days from the date onwhich the Revenues Adjustment is agreed or determined in accordance with the provisions of Section 2.7.1 above, the full amount ofthe Revenues Adjustment, if any, to such accounts of Sellers as shall have been notified by the Sellers’ Representative to thePurchaser for such purpose at the latest five (5) Business Days after the date on which the Revenues Adjustment is agreed ordetermined in accordance with the provisions of Section 2.7.1 above, together with the allocation of the Revenues Adjustmentamong the Sellers. Such allocation shall be made under the sole and exclusive responsibility of the Sellers in accordance with theprovisions of Section 2.9 below and the Purchaser and the Target Companies shall incur no liability whatsoever in respect thereto.(d)The Purchaser shall pay, by wire transfer of immediately available US Dollar funds, within ten (10) Business Days from the date onwhich the Backlog Adjustment is agreed or determined in accordance with the provisions of Section 2.7.2 above, the full amount ofthe Backlog Adjustment, if any, to such accounts of the Sellers as shall have been notified by the Sellers’ Representative to thePurchaser for such purpose at the latest five (5) Business Days after the date on which the Backlog Adjustment is agreed ordetermined in accordance with the provisions of Section 2.7.2 above, together with the allocation of the Backlog Adjustment amongthe Sellers. Such allocation shall be made under the sole and exclusive responsibility of the Sellers in accordance with the provisionsof Section 2.9 below and the Purchaser and the Target Companies shall incur no liability whatsoever in respect thereto.(e)Any amount due and payable by the Purchaser to the Sellers under this Section 2.8 may be offset against any and all amounts dueand unpaid by the Sellers to the Purchaser under Sections 2.6, 3.3(d) and 9.8 (in the two last cases, as converted from Euros intoUS Dollars by using the Closing Average Exchange Rate).(f)For the sake of clarity, the Sellers and the Purchaser hereby agree that any Additional Price and any payment in connection therewithshall be deemed to constitute an adjustment to the Final Price, and agree to treat any such payment as such for all Taxes, accountingand financial reporting purposes.2.9Allocation among the Sellers of the Final Price and of the Estimated Initial Price, the Initial Price Adjustment, the RevenuesAdjustment and the Backlog Adjustment(a)The Final Price shall be allocated among the Sellers based upon the number and category of Transferred Securities sold by eachSeller to the Purchaser in accordance with the unit price per category of Transferred Securities, as determined pursuant to theformulas reflecting their respective terms and conditions, as modified pursuant to this Agreement as the case may be, set forth inSchedule 2.9 (Allocation among the Sellers of the Final Price and of the Estimated Initial Price, the Initial Price Adjustment, theRevenues Adjustment and the Backlog Adjustment), it being specified that:•The final value in US Dollars of 100% of the Holding Shares, OCRs and OBSAs shall be equal to:▪Enterprise Value;14▪Plus Net Cash (if positive), as converted from Euros into US Dollars by using the Closing Exchange Rate, or less theabsolute value of Net Cash (if negative), as converted from Euros into US Dollars by using the Closing ExchangeRate;▪Plus Working Capital Adjustment (if positive), as converted from Euros into US Dollars by using the ClosingExchange Rate, or less the absolute value of Working Capital Adjustment (if negative), as converted from Euros intoUS Dollars by using the Closing Exchange Rate;▪Plus Revenues Adjustment (if any);▪Plus Backlog Adjustment (if any).•The final value in US Dollars of 100% of the ManCo Shares shall be equal to:▪The final value of the Ordinary Shares held by ManCo at Closing, as determined based upon what is mentionedabove;▪Plus ManCo Net Cash (if positive), as converted from Euros into US Dollars by using the Closing Exchange Rate, orless the absolute value of ManCo Net Cash (if negative), as converted from Euros into US Dollars by using theClosing Exchange Rate;▪Plus ManCo Working Capital Adjustment (if positive), as converted from Euros into US Dollars by using the ClosingExchange Rate, or less the absolute value of ManCo Working Capital Adjustment (if negative), as converted fromEuros into US Dollars by using the Closing Exchange Rate.(b)The Estimated Initial Price, the Initial Price Adjustment, the Revenues Adjustment and the Backlog Adjustment shall be allocatedamong the Sellers based upon the principles set forth in Paragraph (a) above and in accordance with the provisions of Schedule 2.9specifically relating to such allocations.(c)The allocation among the Sellers of the Final Price and of the Estimated Initial Price, the Initial Price Adjustment, the RevenuesAdjustment and the Backlog Adjustment shall be made in accordance with the provisions of this Section under the sole andexclusive responsibility of the Sellers and the Purchaser and the Target Companies shall incur no liability whatsoever in respectthereto.3.CONDITIONS PRECEDENT3.1Conditions PrecedentThe respective obligations of each Party under this Agreement shall be subject to the fulfillment or waiver by mutual agreement ofthe Purchaser and the Sellers’ Representative of the condition set forth in Paragraph (a) below.The obligations of the Purchaser under this Agreement shall be subject to the fulfillment or waiver (in whole or in part) by thePurchaser of the conditions set forth in Paragraphs (b) to (d) below (said conditions, together with the condition set forth inParagraph (a) below, the “Conditions Precedent”).15(a)The FMEF Clearance shall have been obtained and shall be in full force and effect;(b)The Required Financials shall have been delivered to the Purchaser;(c)The IP Recovery shall have been fully completed ; and(d)No Material Adverse Change shall have occurred.3.2Responsibility for Satisfaction3.2.1FMEF Clearance(a)Each Party acknowledges the importance that the Condition Precedent set out in Section 3.1(a) be fulfilled as soon as possible andthe Sellers confirm that they are not aware of any reason that may prevent the obtaining of the FMEF Clearance on or prior to theLong Stop Date.(b)The Purchaser agrees to:(i)as soon as possible after the date hereof and in any event no later than eight (8) Business Days after the date hereof and at itsown expense, make relevant filings and contacts with the French Ministry for the Economy and Finance with respect to theTransaction in order to obtain the FMEF Clearance, within any terms provided by applicable Laws, and supply promptly anyadditional information and documentary material that may be requested by the French Ministry for the Economy andFinance;(ii)keep the Sellers’ Representative regularly informed of the processing of these filings and inform promptly the Sellers’Representative if it becomes aware of anything that could result in the FMEF Clearance being delayed or denied;(iii)promptly provide the Sellers’ Representative with the relevant (non-privileged or non-commercially sensitive) documentsconcerning the filings referred to above, together with any and all additional (including documentary) material that may berequested by the French Ministry for the Economy and Finance in connection with the FMEF Clearance (subject toconfidential information contained therein), provided, in each case, that such documents and additional material relate to, orinclude information about, the Target Companies prior to Closing, and use its commercially reasonable endeavors to, prior toany such filings with, and communications to, the French Ministry for the Economy and Finance, (a) give to the Sellers’Representative a reasonable opportunity to discuss the content of such documents and additional material and (b) take intoaccount its reasonable comments and suggestions;(iv)give to the Sellers’ Representative the opportunity to participate in any meeting for which its presence is required by theFrench Ministry for the Economy and Finance; and(v)use its commercially reasonable endeavors in order to obtain the FMEF Clearance.(c)The Sellers acknowledge that the above mentioned filings will require the cooperation and supply of information by the TargetCompanies and agree to co-operate and to cause the relevant Target Companies to co-operate with the Purchaser, upon its reasonablerequest, in providing promptly to the Purchaser and its advisors such assistance as may be reasonably necessary for the Purchaser tomake the relevant filings16and obtain the FMEF Clearance, including but not limited to, in respect of the preparation of the information and documents and/orof the attendance to any meeting that may be required in this context.3.2.2Required Financials(a)The Sellers acknowledge the importance for the Purchaser that the Condition Precedent set out in Section 3.1(b) be fulfilled as soonas possible and confirm that they are not aware of any reason that may prevent the delivery of the Required Financials on or prior tothe Long Stop Date.(b)The Sellers agree to:(i)as soon as possible after the date hereof and in any event within eight (8) Business Days from the date of this Agreement,cause the Required Financials to be prepared and audited by such internationally recognized independent accounting firm asshall have been chosen by the Purchaser for such purpose and to supply promptly, or cause to be promptly supplied, anyinformation and documentary material that may be requested by such independent accounting firm;(ii)keep the Purchaser regularly informed of the processing of the preparation and audit of the Required Financials and informpromptly the Purchaser if they become aware of anything that could result in the delivery of the Required Financials beingdelayed or compromised; and(iii)promptly provide the Purchaser, upon its request, with any information and documentary material used in, or necessary for,the preparation and audit of the Required Financials, and with any information and documentary material that may berequested by the independent accounting firm.(c)The Sellers agree to do all reasonable things necessary or appropriate under applicable Laws to deliver the Required Financials to thePurchaser on or prior to the Long Stop Date.(d)The Purchaser acknowledges that the delivery of the Required Financials will require cooperation and agrees to co-operate with theSellers, upon the reasonable request of the Sellers’ Representative, in providing promptly to the Sellers such assistance as may bereasonably necessary for the Sellers to deliver the Required Financials, including but not limited to, by making a reasonable numberof expert consultants available to the Sellers to contribute to the preparation and audit of the Required Financials.3.2.3IP Recovery(a)The Sellers acknowledge the importance for the Purchaser that the Condition Precedent set out in Section 3.1(c) be fulfilled on theClosing Date, prior to Closing, and confirm that they are not aware of any reason that may prevent the full completion of theIP Recovery on or prior to the Long Stop Date.(b)The Sellers agree to:(i)on the Closing Date and prior to Closing, procure that the Notice of Voluntary Termination (as defined under theIP Agreement) be delivered by Kepler to France Brevets and received by the latter, such Notice of Voluntary Termination toinclude any notice by Kepler of its decision (x) to use its right of designation of a Designated Transferee (as defined underthe IP Agreement) under article 8 of the IP Agreement, provided and only in the event that the Sellers’ Representativereceives an IP Substitution Notice at least five (5) Business Days prior to the Closing Date, and (y) to designate such Entity asmentioned in the IP Substitution Notice for such purpose;17(ii)on the Closing Date and prior to Closing, procure that the Transfer Price (as defined under the IP Agreement) be paid byKepler to France Brevets by wire transfer of immediately available funds to the bank account indicated for such purpose inthe IP Agreement;(iii)on the Closing Date and prior to Closing, deliver to the Purchaser two (2) original copies of the Assignment of Patent Rightsdated as of the Closing Date to be entered into by and between France Brevets and Kepler (or such Entity as indicated in theIP Substitution Notice) duly signed by France Brevets; and(iv)keep the Purchaser regularly informed of the processing of the IP Recovery and to inform promptly the Purchaser if theybecome aware of anything that could result in the full completion of the IP Recovery being delayed or compromised.(c)The Sellers agree to do all reasonable things necessary or appropriate under applicable Laws to procure that the IP Recovery be fullycompleted on or prior to the Long Stop Date.3.3Satisfaction or Non Satisfaction(a)The Purchaser shall promptly give notice to the Sellers’ Representative of the satisfaction of the Condition Precedent specified inSection 3.1(a) and in any event within two (2) Business Days of becoming aware of the same.(b)If the Closing does not occur on the Long Stop Date at the latest because one or several Conditions Precedent specified inSection 3.1 above are not satisfied (or waived in whole or in part either by the Sellers’ Representative and the Purchaser with respectto Section 3.1(a) or by the Purchaser with respect to Sections 3.1(b) to 3.1(d)), this Agreement may be terminated in accordance withSection 10.2.(c)The Purchaser and the Sellers’ Representative may in any event agree to postpone the Long Stop Date.(d)Should the IP Recovery not be completed on the Closing Date, prior to Closing, for any reason whatsoever, and should the Purchaserdecide to waive the Condition Precedent specified in Section 3.1(c) and the absence of delivery at Closing of any of the documentslisted in Sections 4.3(a)(xxiv) to 4.3(a)(xxvi), and to proceed with Closing, the Sellers, notwithstanding anything to the contrary inthis Agreement, hereby expressly agree and undertake to indemnify the Purchaser on a Euro for Euro basis for any and all PurchaserIP Recovery Cost and Expenses, the final amount of which will be known after Purchaser IP Recovery Full Completion, as follows:(i)Until (but excluding) the date of delivery by the Purchaser to the Sellers’ Representative of the draft Purchaser CompletionStatement:The Purchaser shall be indemnified on a Euro for Euro basis through the Adjusted Initial Price’s post-Closing determinationmechanism by being hereby expressly entitled to include in the amount of Debt the amount of any Purchaser IP RecoveryCost and Expenses paid or incurred after the Closing Date and until (but excluding) the date of delivery by the Purchaser tothe Sellers’ Representative of the draft Purchaser Completion Statement, provided that the relevant supporting documents areprovided by the Purchaser to the Sellers’ Representative together with the draft Purchaser Completion Statement, it beingexpressly agreed that the Sellers’ Representative (on behalf of all the Sellers) shall not be entitled to challenge or object to theamount of the Purchaser IP Recovery Cost and Expenses added to the amount of Debt pursuant to this Paragraph (i), whichthe Sellers expressly acknowledge and agree, provided that such amount exactly corresponds to18the supporting documents provided to the Sellers’ Representative, failing which such amount shall only be adjusted so thatsuch amount is in line with the supporting documents provided to the Sellers’ Representative; and(ii)From (and including) the date of delivery by the Purchaser to the Sellers’ Representative of the draft Purchaser CompletionStatement:If and to the extent that for any reason whatsoever, not all the Purchaser IP Recovery Cost and Expenses have been includedin the amount of Debt for the purpose of the determination of the Adjusted Initial Price and of the resulting Initial PriceAdjustment as mentioned in the final Purchaser Completion Statement, the Purchaser shall:•if the Purchaser IP Recovery Full Completion takes place prior to the date of delivery by the Purchaser to the Sellers’Representative of the draft Purchaser Completion Statement, within thirty (30) calendar days of the date of deliveryby the Purchaser to the Sellers’ Representative of the draft Purchaser Completion Statement, and, if the PurchaserIP Recovery Full Completion takes place after the date of delivery by the Purchaser to the Sellers’ Representative ofthe draft Purchaser Completion Statement, within thirty (30) calendar days of the Purchaser IP Recovery FullCompletion,notify to the Sellers’ Representative the amount of the difference between any and all Purchaser IP Recovery Costand Expenses and the Purchaser IP Recovery Cost and Expenses actually included in the definition of Debt andtherefore taken into account for the determination of the Adjusted Initial Price and of the resulting Initial PriceAdjustment as mentioned in the final Purchaser Completion Statement (the “Remaining Purchaser IP RecoveryCost and Expenses”), such notice to include reasonable details and supporting documentation to the calculation ofthe amount of the Remaining Purchaser IP Recovery Cost and Expenses (the “Remaining Purchaser IP RecoveryCost and Expenses Notice”).The Remaining Purchaser IP Recovery Cost and Expenses Notice shall be final and binding upon the Parties and shallnot be challengeable by the Sellers’ Representative (on behalf of all the Sellers) nor by any Seller in any waywhatsoever (absent any gross (grossière) or manifest (manifeste) mistake, fraud or fraudulent misrepresentation); and•be indemnified by the Sellers on a Euro for Euro basis for the Remaining Purchaser IP Recovery Cost and Expensesas follows:(A)If the amount of the Remaining Purchaser IP Recovery Cost and Expenses is lower than the amount remainingin the Escrow Account, then the Amount in Escrow shall be partially released to the Purchaser in accordancewith the provisions of the Escrow Agreement, up to an amount corresponding to the Remaining PurchaserIP Recovery Cost and Expenses;(B)If the amount of the Remaining Purchaser IP Recovery Cost and Expenses is equal to the amount remaining inthe Escrow Account, then the Amount in Escrow shall be fully released to the Purchaser in accordance withthe provisions of the Escrow Agreement; and19(C)If the amount of the Remaining Purchaser IP Recovery Cost and Expenses is greater than the amountremaining in the Escrow Account, then: (x) the Amount in Escrow shall be fully released to the Purchaser inaccordance with the provisions of the Escrow Agreement, and (y) the Sellers shall, in accordance withprovisions of Paragraph (iii) below, pay the amount by which the Remaining Purchaser IP Recovery Cost andExpenses exceed the amount remaining in the Escrow Account to the Purchaser by wire transfer ofimmediately available Euro funds to such account of the Purchaser as shall have been notified by thePurchaser to the Sellers’ Representative for such purpose at the latest five (5) Business Days after the date ofthe Remaining Purchaser IP Recovery Cost and Expenses Notice. The allocation among the Sellers of theamount to be paid to the Purchaser pursuant to this Paragraph (C)(y), which shall be notified by the Sellers’Representative to the Purchaser at the latest five (5) Business Days after the date of the Remaining PurchaserIP Recovery Cost and Expenses Notice, shall be made under the sole and exclusive responsibility of theSellers on a basis consistent with the provisions of Section 2.9 below and the Purchaser and the TargetCompanies shall incur no liability whatsoever in respect thereto.(iii)Any and all payments pursuant to Section 3.3(d)(ii) above shall be made within ten (10) Business Days from the date of theRemaining Purchaser IP Recovery Cost and Expenses Notice, it being specified that the Sellers’ Representative and thePurchaser shall serve to the escrow agent under the Escrow Agreement all necessary or appropriate notices in order to ensurethe release of the Amount in Escrow in due time and proportion pursuant to Section 3.3(d)(ii). Any payment required to bemade pursuant to Section 3.3(d)(ii) which is not made before the expiry of a thirty-day (30) period from its due date, shallcarry interest at the rate of ten (10) percent per annum (on the basis of a year of 365 days) from the due date for paymentuntil (and including) the date of actual payment.(iv)All interests or revenue of any nature whatsoever deriving from the Amount in Escrow shall be allocated among thePurchaser and the Sellers (other than Montalivet Networks) pro rata the portion of the principal of the Amount in Escrow tobe released to each of them pursuant to the Escrow Agreement, Section 2.6, Section 3.3(d)(ii) and Section 9.9.(v)Any payment made by the Sellers pursuant to Section 3.3(d)(ii) above through the release of all or part of the amountremaining in the Escrow Account shall be deemed, for the amount corresponding to the portion of the Remaining PurchaserIP Recovery Cost and Expenses allocated to Montalivet Networks in accordance with the provisions of Section 2.9, which isnot paid in cash by Montalivet Networks to the Purchaser pursuant to Section 3.3(d)(ii)(C)(y) above as the case may be, to bemade by FPCI Winch Capital 3 for the account of Montalivet Networks, which each Party hereto expressly acknowledgesand agrees. FPCI Winch Capital 3 shall be solely and exclusively responsible for recovering such amount from MontalivetNetworks and the Purchaser and the Target Companies shall incur no liability whatsoever in respect to such payment by FPCIWinch Capital 3 for the account of Montalivet Networks.(vi)The Purchaser shall have the right, but not the obligation, to offset any amount due to it by the Sellers under Section 3.3(d)(ii), as converted from Euros into US Dollars by using the Closing Average Exchange Rate, against any amount which mayremain payable to the Sellers under this Agreement.20(vii)For the sake of clarity, the Sellers and the Purchaser hereby agree that any payment pursuant to Section 3.3(d)(ii) shall bedeemed to constitute an adjustment to the Final Price, and agree to treat any such payment as such for all Taxes, accountingand financial reporting purposes.3.4Transfer of OwnershipFor the avoidance of doubt, and notwithstanding article 1179 of the French Civil Code (Code civil), ownership of the TransferredSecurities shall only pass to the Purchaser at the Closing, without any retroactive effect, upon full payment of the Closing Payments.4.CLOSING4.1Date and Place of ClosingProvided that (x) each of the Conditions Precedent set forth in Section 3.1 is either satisfied or waived and (y) this Agreement has notbeen previously terminated pursuant to Section 10.1, the Closing shall take place:(a)at the offices of Shearman & Sterling LLP located at 114, avenue des Champs Elysées, 75008 Paris (France) or at such other place asthe Purchaser and the Sellers’ Representative may agree upon in writing; and(b)at a date and time to be set by agreement between the Purchaser and the Sellers’ Representative, or failing such agreement, at9.00 a.m. on the earlier of (i) the seventh (7th) Business Day following the day on which all of the Conditions Precedent set forth inSections 3.1(a) and (b) are satisfied or waived and (ii) the Long Stop Date. The date on which the Closing shall take place is referredto herein as the “Closing Date”.4.2Closing PaymentsThe following payments (the “Closing Payments”) shall be made at Closing:(a)Payment of the Estimated Initial Price. On the Closing Date, the Purchaser shall pay the Estimated Initial Price in accordance with theprovisions of Section 2.4 above.(b)Repayment of the Existing Indebtedness. On the Closing Date, the Purchaser shall pay for and on behalf of the relevant TargetCompanies the full amount of the Existing Indebtedness by wire transfer of immediately available Euro funds to such accounts asshall have been notified to the Purchaser by the Sellers’ Representative for such purpose in the Pre-Closing Statement.4.3Closing Deliveries(a)At Closing, the Sellers’ Representative shall deliver to the Purchaser:(i)original copies of duly completed and signed transfer forms (ordres de mouvement) in favor of the Purchaser with respect tothe Transferred Securities effecting the transfer to the Purchaser of all the Transferred Securities as from the Closing Date;21(ii)original copies of duly completed and signed tax transfer forms (formulaires Cerfa n°2759 DGI) in respect of all the Sharesto be sold in accordance with the terms of this Agreement (three (3) original copies per Seller selling Holding Shares andthree (3) original copies per ManCo Shareholder), it being expressly agreed that the Purchaser shall sign such forms;(iii)the up-to-date transfer registers (registres des mouvements de titres) and security holders’ accounts (fiches individuelles detitulaires de titres) of the Holding and ManCo duly indicating (a) the full completion of the repayment of the ORAs into NewOrdinary Shares on the Closing Date, prior to Closing, and (b) the transfer as of the Closing Date to the Purchaser of all theTransferred Securities to be transferred at Closing, free and clear of all Liens, as well as the up-to-date transfer registers(registres des mouvements de titres) and security holders’ accounts (fiches individuelles de titulaires de titres) of Kepler andTVN duly indicating the release as of the Closing Date of the pledges granted on the shares of Kepler and TVN held by theHolding under and/or pursuant to the terms and conditions of the OBSAs;(iv)original copies of the unconditional resignation letters, effective as of the Closing Date, of the Persons listed inSchedule 4.3(a)(iv) (Persons to resign with effect as of the Closing Date), from their offices as legal representatives, officers,directors, members of a board, committee or other corporate body of the Target Companies, whereby such Personsacknowledge that no sums are owed to them by the relevant Target Company and irrevocably waive any claims or moniesagainst said Target Company as from the Closing Date;(v)the original minutes books of the shareholders’ meetings and of the meetings or decisions of other existing corporate bodiesof the Holding and ManCo;(vi)certified copies of the minutes of any meeting of the applicable workers’ representatives bodies (instances représentatives dupersonnel) of the Group Companies evidencing that the information and consultation process relating to the Transaction hasbeen duly completed prior to the date hereof;(vii)one (1) original copy of a duly executed irrevocable release letter from the OBSAs holder, or its agent under the terms andconditions of the OBSAs, confirming that the pledges granted by the Holding on the shares of Kepler and TVN it holds, aswell as any other Liens granted under and/or pursuant to the terms and conditions of the OBSAs, will be released subject onlyto, and simultaneously with the payment in accordance with the provisions of Section 2.4 above of the portion of theEstimated Initial Price corresponding to the purchase of any and all the Mezzanine Bonds for an amount equal to the amountof the Mezzanine Debt, as converted from Euros into US Dollars by using the Pre-Closing Exchange Rate;(viii)twenty (20) original copies of the escrow agreement, the final draft (subject to the comments of the escrow agent under theEscrow Agreement) of which is attached hereto as Schedule 4.3(a)(viii) (the “Escrow Agreement”), duly signed by theSellers and the escrow agent under the Escrow Agreement;(ix)a certified copy of the minutes of the decisions of ManCo’s president approving the transfer to the Purchaser of 100% of theshare capital and voting rights of ManCo;(x)notwithstanding the provisions of article 9.2 of the by-laws of ManCo, a certified copy of the minutes of the decisions ofManCo’s shareholders taken unanimously in accordance with article22L. 227-19 of the French Commercial Code (Code de commerce) expressly releasing the lock-up provided for by article 9.2 ofthe by-laws of ManCo;(xi)a certified copy of the minutes of any meeting of the Holding’s monitoring committee (comité de suivi) evidencing the priorapproval by such committee of (a) the Transaction, (b) the implementation and full completion of the IP Recovery prior toClosing, (c) the modification with effect prior to Closing of the Holding’s by-laws, the terms and conditions of the ORAs andthe terms and conditions of the OCRs in accordance with the provisions of this Agreement and (d) the repayment prior toClosing of the ORAs and the completion prior to Closing of the correlative share capital increase of the Holding;(xii)a certified copy of a duly executed letter from the OBSAs holder, or its agent under the terms and conditions of the OBSAs,evidencing its prior approval of (a) the Transaction, (b) the implementation and full completion of the IP Recovery prior toClosing, (c) the modification with effect prior to Closing of the Holding’s by-laws, the terms and conditions of the ORAs andthe terms and conditions of the OCRs in accordance with the provisions of this Agreement and (d) the repayment prior toClosing of the ORAs and the completion prior to Closing of the correlative share capital increase of the Holding;(xiii)a certified copy of the minutes of the decisions of the Holding’s shareholders deciding the modification of the by-laws of theHolding in accordance with the new by-laws of the Holding, the final draft of which is attached hereto as Schedule 4.3(a)(xiii) (the “New Holding By-Laws”);(xiv)certified copies of (a) the minutes of the decisions of the Holding’s shareholders deciding, subject to the approval thereof bythe holders of ORAs, the modification of the ORAs in accordance with the new terms and conditions of the ORAs, the finaldraft of which is attached hereto as Schedule 4.3(a)(xiv) (the “New Terms and Conditions of the ORAs”), and (b) theminutes of the decisions of the holders of ORAs approving the modification of the terms and conditions of the ORAs inaccordance with the New Terms and Conditions of the ORAs;(xv)certified copies of (a) the minutes of the decisions of the Holding’s shareholders deciding, subject to the approval thereof bythe holders of OCRs, the modification of the OCRs in accordance with the new terms and conditions of the OCRs, the finaldraft of which is attached hereto as Schedule 4.3(a)(xv) (the “New Terms and Conditions of the OCRs”), and (b) theminutes of the decisions of the holders of OCRs approving the modification of the terms and conditions of the OCRs inaccordance with the New Terms and Conditions of the OCRs;(xvi)certified copies of (a) the duly completed and signed subscription forms (bulletins de souscription) effecting the subscriptionfor all the New Ordinary Shares prior to Closing and (b) the minutes of the decisions of the relevant Holding’s corporatebody acknowledging the completion prior to Closing of the share capital increase resulting from the repayment of the ORAs;(xvii)a true and complete list of all material actions that must be taken within 90 days of the Closing Date with respect to any of theRegistered IP;(xviii)a certified copy of the agreement terminating as of the Closing Date that certain inter-creditors’ agreement entered into onOctober 17, 2014 by and between, inter alios, the main creditors of the Holding, as amended from time to time (the “ExistingInter-Creditors’ Agreement”), whereby each party to the Existing Inter-Creditors’ Agreement notably acknowledges that allof its rights under the Existing Inter-Creditors’ Agreement have been fully satisfied and that it has23no claim and waives its rights in this respect against the other parties to the Existing Inter-Creditors’ Agreement and any ofthe Target Companies;(xix)a duly certified certificate from the Sellers’ Representative (on behalf of the Sellers) confirming as of the Closing Date thatsave for what has been set forth in this Agreement or notified pursuant to Section 5.10 of this Agreement as constituting orbeing likely to constitute a Material Adverse Change, no circumstance, event or fact has occurred since the Reference Datethat constitutes or would be likely to constitute a Material Adverse Change;(xx)one (1) original copy of a letter by the lessor under that certain real estate lease agreement entered into on September 28,2011 by and between TVN and SCI Cergy Etoile evidencing the prior approval, without any conditions, obligations orrequirements, by the latter of the transfer of ManCo’s registered office to the address of the property leased thereunderpursuant to any domiciliation agreement (contrat de domiciliation) to be entered into by and between ManCo and TVN witheffect from or after the Closing Date;(xxi)a certified copy of the duly executed amendment dated as of or prior to the Closing Date to the patent sublicense agreemententered into on July 12, 2011 by and between Kepler and TVN, the final draft of which is attached hereto as Schedule 4.3(a)(xxi) (the “Amendment to the Patent Sublicense Agreement”);(xxii)one (1) original copy of the L-Bis extract of the TVN’s branch which premises are located in Brest, as duly updatedaccording to the exact address of the rented premises appearing in that certain real estate lease agreement entered into onJanuary 5, 2012 by and between TVN and Diderot Développement;(xxiii)upon delivery by the Purchaser of any evidence of the full payment of the Closing Payment referred to in Section 4.2(a) inaccordance with the provisions of Section 2.4, one (1) original copy of a duly executed confirmatory release letter from theOBSAs holder, or its agent under the terms and conditions of the OBSAs, confirming the full, final and irrevocable release asof the Closing Date of the pledges granted by the Holding on the shares of Kepler and TVN it holds, as well as of any otherLiens granted under and/or pursuant to the terms and conditions of the OBSAs;(xxiv)a certified copy of the Notice of Voluntary Termination (as defined under the IP Agreement) served by Kepler to FranceBrevets in accordance with Section 3.2.3(b)(i), together with evidence of the receipt by France Brevets of the same on theClosing Date;(xxv)evidence of the full payment by Kepler of the Transfer Price (as defined under the IP Agreement) in accordance withSection 3.2.3(b)(ii); and(xxvi)two (2) original copies of the Assignment of Patent Rights dated as of the Closing Date to be entered into by and betweenFrance Brevets and Kepler (or such Entity as indicated in the IP Substitution Notice) duly signed by France Brevets.(b)At Closing, the Purchaser shall deliver to the Sellers’ Representative:(i)evidence of the fulfillment of the Condition Precedent set forth in Section 3.1(a);(ii)evidence of the full payment of the Closing Payments in accordance with Section 4.2;(iii)twenty (20) original copies of the Escrow Agreement, duly signed by the Purchaser and the escrow agent under the EscrowAgreement; and24(iv)certified copies of all authorizations necessary for the Purchaser for the execution and consummation of this Agreement andthe other Transaction Documents.4.4Matters at ClosingAll actions to be taken and all documents to be executed and delivered by the Parties at the Closing in accordance with this Section 4shall be deemed to have been taken and executed simultaneously, and, therefore, no actions or proceedings shall be deemed takennor any documents shall be deemed executed or delivered until all have been taken, executed and delivered, and title to theTransferred Securities shall not be transferred to the Purchaser which shall have no property rights or interest in the TransferredSecurities unless and until the Closing actually takes place and the Closing Payments have been effectively received by the intendedrecipients thereof.5.PRE-CLOSING MATTERS5.1No Transfer of the Ordinary Shares, the ORAs, the OCRs, the OBSAs and the ManCo Shares, nor of the TransferredSecurities(a)Subject to the provisions of Paragraphs (b) and (c) below, during the period from the date of this Agreement to the Closing, each ofthe Sellers and ManCo undertakes not to transfer any of the Ordinary Shares, ORAs, OCRs, OBSAs or ManCo Shares it holds on thedate hereof, nor any of the Transferred Securities it will own (including, for the avoidance of doubt, those acquired pursuant toParagraphs (b) and (c) below), to any Person other than the Purchaser or any of its Affiliates.(b)Notwithstanding anything to the contrary in this Agreement, during the period from the date of this Agreement to the Closing, eachof Mrs. Laure Delahousse, Mrs. Camille Delahousse, Mr. Edouard Delahousse and Mrs. Constance Delahousse, on the one hand, andeach of Mr. Louis Congard and Mrs. Anne Congard, on the other hand, (i) irrevocably undertakes towards the other Parties topromptly transfer back to, where applicable, Mr. Delahousse or Mr. Congard, the Ordinary Shares transferred to him/her by the latterpursuant to the Put Option Agreement, should he/she not comply with any of his/her obligations under this Agreement,(ii) acknowledges and agrees that forced execution (execution forcée) of this obligation may be requested and (iii) irrevocablywaives his/her rights under article 1142 of the French Civil Code in such respect.(c)During the period from the date of this Agreement to the Closing, should any of Mrs. Laure Delahousse, Mrs. Camille Delahousse,Mr. Edouard Delahousse and Mrs. Constance Delahousse, on the one hand, or any of Mr. Louis Congard and Mrs. Anne Congard,on the other hand, not comply with any of his/her obligations under this Agreement, each of Mr. Delahousse or Mr. Congard, whereapplicable, (i) irrevocably undertakes towards the other Parties to promptly repurchase all the Ordinary Shares transferred to him/herpursuant to the Put Option Agreement, (ii) acknowledges and agrees that forced execution (execution forcée) of this obligation maybe requested and (iii) irrevocably waives his rights under article 1142 of the French Civil Code in such respect.5.2Modification of the Holding’s by-lawsEach of the Sellers and Kepler M2, in its quality, where applicable, as (a) holder of Holding Shares, ManCo Shares, ORAs, OCRs orOBSAs, or (b) president of ManCo or the Holding, or (c) holder of Securities of the Holding having the ability under the ExistingHolding Shareholders’ Agreement to25present candidates among which the members of the Holding’s monitoring committee (comité de suivi) are appointed by theHolding’s shareholders, undertakes to procure that the New Holding By-Laws be in full force and effect on the Closing Date, prior toClosing.5.3Modification of the Terms and Conditions of the ORAsEach of the Sellers and Kepler M2, in its quality, where applicable, as (a) holder of Holding Shares, ManCo Shares, ORAs, OCRs orOBSAs, or (b) president of ManCo or the Holding, or (c) holder of Securities of the Holding having the ability under the ExistingHolding Shareholders’ Agreement to present candidates among which the members of the Holding’s monitoring committee (comitéde suivi) are appointed by the Holding’s shareholders, undertakes to procure that the terms and conditions of the ORAs be modifiedin accordance with the New Terms and Conditions of the ORAs with effect prior to Closing and prior to their repayment inaccordance with the provisions of Section 5.5 below.5.4Modification of the Terms and Conditions of the OCRsEach of the Sellers and Kepler M2, in its quality, where applicable, as (a) holder of Holding Shares, ManCo Shares, ORAs, OCRs orOBSAs, or (b) president of ManCo or the Holding, or (c) holder of Securities of the Holding having the ability under the ExistingHolding Shareholders’ Agreement to present candidates among which the members of the Holding’s monitoring committee (comitéde suivi) are appointed by the Holding’s shareholders, undertakes to procure that the terms and conditions of the OCRs be modifiedin accordance with the New Terms and Conditions of the OCRs with effect prior to Closing.5.5Repayment of the ORAsEach of the Sellers and Kepler M2, in its quality, where applicable, as (a) holder of Holding Shares, ManCo Shares, ORAs, OCRs orOBSAs, or (b) president of ManCo or the Holding, or (c) holder of Securities of the Holding having the ability under the ExistingHolding Shareholders’ Agreement to present candidates among which the members of the Holding’s monitoring committee (comitéde suivi) are appointed by the Holding’s shareholders, undertakes to procure that the repayment of the ORAs into New OrdinaryShares be fully completed and such completion acknowledged on the Closing Date, prior to Closing.5.6No Conversion of the OCRsDuring the period from the date of this Agreement to the Closing, each of Montalivet Networks and Mr. de Puyfontaine undertakesnot to convert any of the OCRs it holds on the date hereof.5.7No Exercise of the Mezzanine WarrantsDuring the period from the date of this Agreement to the Closing, FPCI CIC Mezzanine 3 undertakes not to exercise any of theMezzanine Warrants it holds on the date hereof.5.8Pre-Closing Statement(a)No later than five (5) Business Days prior to the Closing Date, the Sellers’ Representative shall deliver to the Purchaser a statementprepared pursuant to Schedule 5.8 (the “Pre-Closing Statement”) setting forth:(i)its determination, in accordance with the Closing Accounts Accounting Principles, of (A) the amounts of (i) the EstimatedCash, the Estimated Debt and the Estimated Net Cash, (ii) the Estimated Working Capital, the Estimated Normative WorkingCapital and the Estimated Working Capital Adjustment, (iii) the Estimated ManCo Cash, the Estimated ManCo Debt and theEstimated ManCo Net Cash, (iv) the Estimated ManCo Working Capital, the Estimated ManCo Normative Working Capitaland the Estimated ManCo Working Capital Adjustment and of (B) the26Pre-Closing Exchange Rate, together with such reasonable details and documentation as the Sellers have in support of thecalculation of such estimates;(ii)its determination of the Estimated Initial Price calculated in accordance with Section 2.3 above;(iii)an updated version as at the Closing Date and immediately prior to the completion of the transfer to the Purchaser of theTransferred Securities of the table appearing on Schedule B and/or of the table appearing on Schedule C;(iv)the allocation of the Estimated Initial Price among the Sellers, as well as the allocation of the portion of the Estimated InitialPrice to be paid on the Closing Date by the Purchaser to each of the Sellers pursuant to Sections 2.4(b) and 4.2 above by wiretransfer of immediately available US Dollar funds promptly after payment of the Amount in Escrow into the Escrow Account,together with the corresponding dollar-denominated bank accounts of the Sellers into which the relevant portion of theremaining portion of the Estimated Initial Price shall be paid; and(v)the total amount of the Existing Indebtedness as at the Closing Date and immediately prior to Closing, and the portion of theExisting Indebtedness due by each Target Company to each lender under the Existing Loan Agreements, together with thecorresponding euro-denominated bank accounts of the lenders under the Existing Loan Agreements into which theirrespective portion of the Existing Indebtedness shall be paid on the Closing Date by the Purchaser (for and on behalf of therelevant Target Companies) by wire transfer of immediately available Euro funds pursuant to Section 4.2 above.(b)In case of disagreement on any of the estimated amounts listed in Paragraphs 5.8(a)(i) and 5.8(a)(ii) above (the “EstimatedAmounts”) as set forth in the Pre-Closing Statement, the Purchaser shall notify the Sellers’ Representative its disagreement andprovide the Sellers’ Representative with the reasons for such disagreement and the adjustments that, in its opinion, should be made tothe disputed items. The Purchaser and the Sellers’ Representative shall discuss in good faith the objections of the Purchaser on suchdisputed items and shall use their reasonable endeavors to reach an agreement on the adjustments to be made to the EstimatedAmounts prior to Closing. In the event such an agreement is reached, a revised version of the Pre-Closing Statement will besubstituted to the one provided to the Purchaser pursuant to Paragraph (a) above. In the absence of such an agreement, the Pre-Closing Statement provided to the Purchaser pursuant to Paragraph (a) above shall prevail.(c)The allocation of the Estimated Initial Price among the Sellers shall be made under the sole and exclusive responsibility of the Sellersin accordance with the provisions of Section 2.9 above and the Purchaser and the Target Companies shall incur no liabilitywhatsoever in respect thereto.5.9Management between the date hereof and the Closing DateDuring the period from the date of this Agreement to the Closing, except as may be (x) required by applicable Laws or anyGovernmental Authority or (y) expressly contemplated elsewhere in this Agreement, or (z) consented to in writing by the Purchaser(which consent shall not be unreasonably withheld or delayed, having due consideration for the interests of the Group Companiesand ManCo), the Sellers and ManCo, within the limits of their respective authority as shareholder, officer, director or employee of theTarget Companies, undertake to:27(a)procure that the Target Companies will carry on their activities only in the ordinary course of business, with due care and attention asbon père de famille (de façon prudente, diligente et soigneuse) and in substantially the same manner as heretofore conducted, so asto preserve in all material respects their businesses and their relationships with Third Parties including their customers; and(b)without limiting the general scope of Paragraph (a) above, prevent each of the Group Companies and ManCo from:(i)amending its Organizational Documents (except for adopting the New Holding By-Laws and acknowledging the Holding’sshare capital increase resulting from the repayment of the ORAs);(ii)declaring, setting aside, making or paying any dividend, interim dividend or other distribution in respect of its share capital(in cash or otherwise), purchasing or redeeming any shares in its share capital or otherwise decreasing its share capital;(iii)issuing or selling any shares in its share capital or any options, warrants or other rights to purchase any such shares or anySecurities convertible into or exchangeable for such shares; provided that, for the avoidance of doubt, nothing herein shallprevent (x) a Seller from transferring Transferred Securities pursuant to Section 5.1 and (y) the Holding from issuing NewOrdinary Shares for repayment of the ORAs;(iv)except as expressly provided herein, amending or waiving any provisions of the terms and conditions of and/or subscriptionagreements applicable to any of the Securities of the Holding, ManCo and TVN or amending the terms and conditions of theExisting Loan Agreements;(v)acquiring Securities issued by an Entity which is not a Target Company or any business of an Entity which is not a TargetCompany or merging with or into another Entity which is not a Target Company;(vi)except as expressly provided herein, acquiring or disposing (or agreeing to acquire or dispose) of any asset having a totalvalue in excess of hundred thousand Euros (€100,000), acquiring or setting up companies or joint ventures, approving awinding-up, merger, split-up, contribution or sale of business as a whole or of any divisions or change of corporate form;(vii)creating any Lien on any asset or incurring additional indebtedness or off-balance sheet liabilities or granting any loan, otherthan (x) in the ordinary course of business and in accordance with past practices of the Target Companies, (y) only bydrawing on existing lines of credit, and (z) to the extent permitted under the terms and conditions of the OBSAs, ormodifying, as compared to past practice, or reimbursing or prepaying voluntarily any indebtedness;(viii)managing its working capital in a way that would be inconsistent with past practices;(ix)amending or waiving any provisions or making any written request requiring the approval of requisite lenders under theterms and conditions of the OBSAs, to the exception of purely technical matters in relation with the transactions contemplatedunder this Agreement;28(x)entering into any Guarantee, indemnity or other agreement to secure the obligation of any third party other than anotherTarget Company in the ordinary course of business;(xi)entering into any agreement or arrangement or performing any transactions with any of its Affiliates or of the Sellers or theirAffiliates or Connected Persons that are not enacted during the ordinary course of business and on an arms’ length basis oramending existing agreements or arrangements entered into with any of its Affiliates or of the Sellers or their Affiliates orConnected Persons;(xii)amending or terminating any Material Contract or making a significant change in the business relationship with anysignificant customers or suppliers;(xiii)entering into, other than in the ordinary course of business, any agreement with any existing or new client/customerinvolving a total amount in excess of one million Euros (€1,000,000) or accepting, other than in the ordinary course ofbusiness, any new order from a client for an amount in excess of one million Euros (€1,000,000);(xiv)placing any new order before a supplier for an amount in excess of five hundred thousand Euros (€500,000);(xv)except as expressly provided herein and safe for what falls within the scope of Paragraphs (xiii) and (xiv) above, incurring orentering into any agreement or commitment involving any capital expenditure or liabilities or any undertaking in excess of anamount of three hundred thousand Euros (€300,000) or with a fixed duration exceeding twelve months;(xvi)launching any new activities or new products or becoming involved in any new research and development program forwhich it may bear costs in excess of one hundred fifty thousand euros (€ 150,000);(xvii)terminating, suffering any cancellation, termination or non-renewal of any of its Insurance Policies unless simultaneouslyreplaced by other policies providing substantially the same coverage;(xviii)transferring, other than in the ordinary course of business, cash or cash equivalents to any Seller or any of its Affiliates orConnected Persons;(xix)hiring any new employee or terminating any employee, for a gross annual remuneration and other benefits in excess of fiftythousand Euros (€50,000) individually;(xx)making any amendment to the terms and conditions of employment or services (including, without limitation, remuneration,benefits, severance payments and other benefits) of any employee, legal representative, officer, director, member of a board,committee or other corporate body of any Target Company, or providing or agreeing to provide any gratuitous payment orbenefit, representing an amount superior to (a) ten thousand Euros (€10,000) per individual or Entity concerned and to(b) hundred thousand Euros (€100,000) in the aggregate;(xxi)concluding any agreement, plan or arrangement with labour unions or for the benefit of the employees generally resulting inan increase of the compensation payable or to become payable to the employees of any Target Company or an increase ofthe other benefits;29(xxii)making any single payment exceeding in total one hundred thousand Euros (€100,000), excluding payments made in theordinary course of business in respect of employees, Taxes and rents and purchases of good and services;(xxiii)amending its accounting or tax principles and methods;(xxiv)making any settlement or undertaking to make any such settlement in any Proceedings, except to the extent that the financialconsequences thereof had been fully reserved for in its accounts; and(xxv)committing to take any of the actions set forth in the foregoing Pargraphs (i) through (xxiv).For the purposes of granting any consents which may be requested by the Sellers’ Representative, a Group Company or ManCopursuant to this Section 5.9, the Purchaser hereby designates Mr. Shahar Bar with immediate effect and represents and warrants to,and agrees with, the Sellers’ Representative, each of the Sellers and ManCo that Mr. Shahar Bar shall have full capacity and right togive any such consents on behalf of the Purchaser during the term of this Agreement. Within three (3) Business Days of receipt ofany request for consent by the Sellers’ Representative, a Group Company or ManCo, Mr. Shahar Bar, on behalf of the Purchaser,shall have the right to notify the Sellers’ Representative, the relevant Group Company or ManCo that the Purchaser objects to theproposed action (which notice of objection shall indicate its reasons for so objecting). If Mr. Shahar Bar, on behalf of the Purchaser,shall not have notified the Sellers’ Representative, the relevant Group Company or ManCo, as the case may be, of the Purchaser’sobjection to a proposed action within such period of three (3) Business Days, the Purchaser shall be deemed to have consented tosuch proposed action.5.10Notifications(a)During the period from the date of this Agreement to the Closing, the Sellers’ Representative shall promptly notify the Purchaser ofthe occurrence (or non-occurrence) of any event, the occurrence (or non-occurrence) of which constitutes or would be likely toconstitute:(i)a breach or inaccuracy of any representations and warranties made by the Sellers under Section 8; or(ii)a Material Adverse Change;such notice by the Sellers’ Representative to include (i) all relevant details to provide disclosure as complete and fair as possible tothe Purchaser of such development and (ii) if applicable, an updated version of any impacted Schedule.(b)In the event that the Purchaser is notified pursuant to Paragraph (a) above of the occurrence (or non-occurrence) of an event, theoccurrence (or non-occurrence) of which constitutes a Material Adverse Change, the Purchaser may elect not to proceed to Closingand to terminate this Agreement in accordance with Section 10.1.5.11Access to Target CompaniesDuring the period from the date of this Agreement to the Closing, upon the reasonable written request of the Purchaser and subject tocompliance by the Purchaser and its advisors with the terms of the Confidentiality Agreement, the Sellers’ Representative (on behalfof all the Sellers) shall use its commercially reasonable endeavors to arrange for the Purchaser and its representatives and agents tobe30granted reasonable access during normal business hours to each Target Company’s documents and senior management as thePurchaser may reasonably require in order to ensure a timely and efficient Closing of the Transaction, provided that such access shallnot interfere with the normal business and operations of the Target Companies.5.12Existing Shareholders’ Documents(a)During the period from and including the date hereof until and including the Closing Date, each of the Sellers and Kepler M2undertakes not to exercise and to waive any of its rights under the Existing Shareholders’ Documents to which it is a party, theHolding’s by-laws, the New Holding By-Laws and Kepler M2’s by-laws that may prevent the consummation of the transactionscontemplated by this Agreement.(b)Each of the Sellers and Kepler M2, in its quality as (a) holder of Holding Shares, ManCo Shares, ORAs, OCRs or OBSAs, or(b) president of ManCo or the Holding, or (c) holder of Securities of the Holding having the ability under the Existing HoldingShareholders’ Agreement to present candidates among which the members of the Holding’s monitoring committee (comité de suivi)are appointed by the Holding’s shareholders, undertakes, where applicable, (A) to be present or represented, or to have the membersof the Holding’s monitoring committee (comité de suivi) which it has proposed be present or represented, for the corporate decisionsmentioned in Section 4.3 and to exercise all available voting rights to vote in favor of such decisions or (B) to take the corporatedecisions mentioned in Section 4.3.(c)Each of the Sellers and Kepler M2 acknowledges and accepts that the Existing Shareholders’ Documents to which it is a party shallautomatically terminate at the Closing, provided that all the transactions contemplated hereby have been completed. If so, each of theSellers and Kepler M2 acknowledges that all of its rights under the Existing Shareholders’ Documents have been fully satisfied andthat it has no claim and waives its rights in this respect against the Holding, Kepler M2 and the other Sellers.(d)Should this Agreement terminate and/or the transactions contemplated hereby be abandoned for any reason whatsoever, then theExisting Shareholders’ Documents shall remain in full force and effect and the Sellers and Kepler M2 shall be automatically releasedfrom their undertaking set forth in Paragraphs (a), (b) and (c) of this Section 5.12.5.13Exclusivity(a)During the period from the date of this Agreement to the Closing, the Sellers shall not, and shall procure that the Target Companiesshall not, directly or indirectly:(i)enter into a Contract for the transfer, by any means, of substantial assets of any of the Target Companies or acquisition of allor part of the equity interests in or of any of the Target Companies, the merger, spin-off, contribution, business combination,recapitalization, or similar transaction involving any of the Target Companies other than the transactions contemplatedhereby (any of the foregoing being referred to as an “Acquisition Proposal”);(ii)solicit, initiate or encourage any inquiries or proposals that constitute or could reasonably constitute an Acquisition Proposal;31(iii)initiate or engage in negotiations with any Person (or group of Persons) other than the Purchaser or its Affiliates (a “PotentialBidder”) concerning any Acquisition Proposal; provided, however, to the extent that any of the foregoing have alreadyoccurred, they shall be suspended or terminated during the period from the date of this Agreement to the Closing; and(iv)undertake any action which may jeopardize the Transaction.(b)During the period from the date of this Agreement to the Closing, the Sellers shall, and shall procure that the Target Companies shall,immediately notify the Purchaser of any contacts received by them or any of their representatives or advisors or Affiliates orConnected Persons from a Potential Bidder to discuss or negotiate a possible Acquisition Proposal. Such notice shall indicate inreasonable detail the identity of the Potential Bidder and the content of the discussion or Acquisition Proposal, if one was made.5.14Prior Approval under Change of Control ProvisionsPrior to the Closing Date and, in case of failure to obtain such prior approvals or consents prior to Closing, after the Closing Date, theSellers undertake to use their best efforts to, prior to Closing, obtain, and, after Closing, assist the Purchaser and the TargetCompanies in obtaining any Third Parties’ approvals or consents under provisions of agreements in full force and effect to whichany of the Target Companies is a party, pursuant to which (a) said agreements may, as a result of the Transaction, be terminated or(b) the performance or renewal of said agreements (including conditions thereof) may, as a result of the Transaction, be otherwiseaffected.6.POST-CLOSING COVENANTS6.1SEC FilingThe Purchaser (or any of its Affiliates) shall be entitled to include the Required Financials and/or any information contained in theRequired Financials in a filing made by the Purchaser (or any of its Affiliates) with the SEC after Closing, should this be necessary orappropriate in connection with the Purchaser (or any of its Affiliates) satisfying its reporting obligations under the Securities Act of1933, as amended, or the Securities Exchange Act of 1934, as amended, which the Sellers expressly acknowledge and agree,provided that the Purchaser shall notify the Sellers’ Representative prior to any such inclusion and shall use its commerciallyreasonable endeavors to consult in good faith with the Sellers’ Representative about any such inclusion and to take into account thereasonable comments and suggestions made by the Sellers’ Representative in respect of any such inclusion.6.2RecordsDuring the period from the Closing Date through the fifth anniversary of the Closing Date:(a)The Purchaser shall not, and shall procure that no member of the Target Companies does, destroy or otherwise dispose of any of thebooks and records of any Target Company existing as of the Closing Date, except with the prior written consent of the Seller, whichconsent shall not be unreasonably withheld ; and(b)The Purchaser shall grant to the Sellers and their respective representatives and agents, and shall procure that the Target Companiesgrant to the Sellers and their respective representatives and agents, upon written32request, reasonable access (including the right to make extracts and take copies at the requesting Party’s cost) to such books andrecords of any Target Company existing as of the Closing Date (to the extent the relevant Target Company is controlled by thePurchaser at the date of the request), for periods prior to and including the Closing Date, during normal business hours, as may bereasonably requested by any Seller to the extent that the related information is reasonably required by the Sellers in connection withany Proceedings brought by or involving a Governmental Authority, provided that such access shall not interfere with the normalbusiness and operations of the Target Companies.6.3Non SolicitationEach of the Sellers undertakes, on its behalf and on behalf of its Affiliates, for a period from the date hereof until the secondanniversary of the date hereof, not to, directly or indirectly, alone or jointly with or through any other Person, solicit or encouragethe officers, managers or employees in a skilled or managerial position of the Target Companies to leave their current or futurepositions within the Target Companies, or hire or contract for services with such Persons directly or indirectly.6.4Non BashingEach Seller undertakes not to, directly or indirectly, do or say anything which might be harmful to the business of the TargetCompanies, or which may lead a Person who has dealt with the Target Companies or the business of the Target Companies to ceaseto deal with the Target Companies or the business of the Target Companies (or materially reduce its relations) on terms substantiallyequivalent to those previously offered or at all.Each Party commits not to make any communication or statement in public or to any media whatsoever regardless of its nature orsupport, likely to damage directly or indirectly the image, reputation or affairs of any of the other Parties.7.REPRESENTATIONS OF THE PURCHASERThe Purchaser hereby represents and warrants to the Seller, as of the date hereof and as of the Closing Date (except for suchrepresentations which are expressly made as of the date hereof or as of the Closing Date and are therefore made on such a dateonly), as set forth below.7.1Organization, Authority and Validity7.1.1The Purchaser is a company (société par actions simplifiée) duly organized and validly existing under the laws of France, is notin a state of insolvency (en état de cessation des paiements), nor subject to any Bankruptcy Proceedings and no facts exist thatwould result in any such event occurring. The Purchaser has the corporate power and authority to enter into this Agreement andthe other Transaction Documents to which it is a party, as the case may be, to perform its obligations hereunder and thereunderand to consummate the transactions contemplated hereby and thereby.7.1.2The execution of this Agreement and of the other Transaction Documents to which the Purchaser is a party, as the case may be,and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the competentcorporate bodies of the Purchaser, and no other corporate action on the part of the Purchaser is necessary to authorize theexecution of this Agreement or of the other Transaction Documents to which the Purchaser is a party, as the case may be, or theconsummation of any of the transactions contemplated hereby and thereby.337.1.3This Agreement and the other Transaction Documents to which the Purchaser is a party, as the case may be, have been dulyexecuted by the Purchaser and constitute, and shall constitute, legal, valid and binding obligations of the Purchaser, enforceableagainst it in accordance with their respective terms.7.2No BreachNeither the entering into of this Agreement or of the other Transaction Documents to which the Purchaser is a party, as the case maybe, nor the performance by the Purchaser of its obligations hereunder or thereunder, nor the consummation of the transactionscontemplated herein or therein does or will:(a)conflict with or violate any provision of the Organizational Documents of the Purchaser;(b)violate, conflict with or result in the breach or termination of, or constitute a default or event of default (or an event which withnotice, lapse of time, or both, would constitute a default or event of default), under the terms of, any Contracts or GovernmentalAuthorizations to which the Purchaser or any of its Affiliates is a party or by which the Purchaser or any of its Affiliates is bound; or(c)subject to the obtaining of the FMEF Clearance, constitute a violation by the Purchaser or any of its Affiliates of any applicable Lawsor Judgments, except for any such matters that would not, either individually or in the aggregate, have a material adverse effect onthe ability of the Purchaser to perform its obligations under this Agreement or the other Transaction Documents to which it is a party,as the case may be.7.3Governmental Authorizations, ConsentOther than the FMEF Clearance, no Governmental Authorization or other third party consent is required to be made or obtained bythe Purchaser or any of its Affiliates prior to the Closing in connection with: (a) the entering into of this Agreement by the Purchaser,(b) the performance by the Purchaser of its obligations hereunder, or (c) the consummation of any of the transactions contemplatedby this Agreement.7.4FinancingAs of the Closing Date, the Purchaser will have immediately available, on an unconditional basis, the sufficient cash resourcesrequired to proceed with the payment of the Closing Payments and of any expenses incurred by the Purchaser in connection with thetransactions contemplated by this Agreement.7.5Acknowledgements(a)The Purchaser acknowledges and agrees that:(i)it and its advisors carried out an independent due diligence of the Target Companies consisting in (x) reviewing andanalyzing the documents communicated to the Purchaser and its advisors or made available to them in the Data Room and(y) asking written and oral questions and analyzing the answers to such questions and documents relating thereto;34(ii)it and its advisors have had access to the senior management of the Target Companies, notably during managementpresentations; and(iii)in entering into this Agreement, it has relied (a) upon its own review and analysis of the documents and information madeavailable to it and its advisors in the Data Room or otherwise communicated to it and its advisors, (b) upon the discussions itand its advisors have had with the management of the Target Companies, (c) upon the representations and warranties of theSellers expressly set forth in this Agreement and (d) upon its own analysis of the Target Companies and the business of theTarget Companies.(b)In connection with its investigations of the Target Companies, the Purchaser may have received from the Sellers, the TargetCompanies and/or their respective Affiliates or Connected Persons certain projections, forecasts and/or business plan information onthe Target Companies. The Purchaser acknowledges that the Sellers and their Connected Persons do not make any representation orwarranty, whether express or implied, neither with respect to such projections, forecasts and/or business plan information nor withrespect to market perspectives, products’ adequacy to Target Company’s markets and future financial or business prospects of theTarget Companies.(c)The Purchaser further acknowledges that no representations and warranties have been made in connection with this Agreement otherthan those expressly set forth in this Agreement and that the representations and warranties expressly set forth in this Agreement inany event supersede any earlier representations and warranties, which may have been made in connection with this Agreement.8.REPRESENTATION OF THE SELLERS8.1General Representations by each Seller IndividuallyEach of the Sellers hereby represents and warrants, except as set forth or included in the Disclosure Schedules, to the Purchaser (withrespect to this Section 8.1, only as to itself (and not as to any other Seller), in its name and on its own behalf, or only as to theOrdinary Shares, ORAs, OCRs, OBSAs and ManCo Shares it owns and to the Transferred Securities it will own), as of the datehereof and as of the Closing Date (except for such representations which are expressly made as of the date hereof or as of theClosing Date and are therefore made on such date only), as set forth below.8.1.1Organization, Authority and Validity(a)Each Seller which is not an individual is duly organized, validly existing and in good standing under the Laws of its jurisdiction ofincorporation or formation and has all requisite corporate power and authority to own its assets and conduct its business as it hasbeen and is now being conducted.(b)Each Seller which is not an individual is not or has not been in a state of insolvency (en état de cessation des paiements), nor subjectto any Bankruptcy Proceedings and no facts exist that would result in any such event occurring.(c)Each Seller has the legal capacity or corporate power and authority and all rights to enter into this Agreement and the otherTransaction Documents to which it is a party, as the case may be, to perform its obligations hereunder and thereunder and toconsummate the transactions contemplated hereby and thereby.35(d)The execution of this Agreement and of the other Transaction Documents to which the relevant Seller is a party, as the case may be,and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the competent corporatebodies of each Seller which is not an individual, and no other corporate action on the part of each of such Sellers is necessary toauthorize the execution of this Agreement or of the other Transaction Documents to which the relevant Seller is a party, as the casemay be, or the consummation of any of the transactions contemplated hereby and thereby.(e)This Agreement and the other Transaction Documents to which the relevant Seller is a party, as the case may be, have been dulyexecuted by each Seller and constitute, and shall constitute, legal, valid and binding obligations of each Seller, enforceable against itin accordance with their respective terms.8.1.2No breachNeither the entering into of this Agreement or of the other Transaction Documents to which each Seller is a party, as the case maybe, nor the performance by each Seller of its obligations hereunder or thereunder, nor the consummation of the transactionscontemplated herein or therein does or will:(a)conflict with or violate any provision of the Organizational Documents of the relevant Seller (if such Seller is not an individual);(b)violate, conflict with or result in the breach or termination of, or constitute a default or event of default (or an event which withnotice, lapse of time, or both, would constitute a default or event of default), under the terms of, any Contracts or GovernmentalAuthorizations to which the relevant Seller or any of its Affiliates (other than the Target Companies) is a party or by which suchSeller or any of its Affiliates (other than the Target Companies) is bound; or(c)subject to the obtaining of the FMEF Clearance, constitute a violation by the relevant Seller or any of its Affiliates (other than theTarget Companies) of any applicable Laws or Judgments, except for any such matters that would not, either individually or in theaggregate, have a material adverse effect on the ability of such Seller to perform its obligations under this Agreement or the otherTransaction Documents to which it is a party, as the case may be.8.1.3Governmental Authorizations, ConsentOther than the FMEF Clearance, no Governmental Authorization or other third party consent is required to be made or obtained byeach Seller or any of its Affiliates (other than the Target Companies) prior to the Closing in connection with: (a) the entering into ofthis Agreement by the relevant Seller, (b) the performance by the relevant Seller of its obligations hereunder, or (c) theconsummation of any of the transactions contemplated by this Agreement.8.1.4Transferred Securities(a)On the date hereof, each Seller has full and valid title to the number of Ordinary Shares, ORAs, OCRs and OBSAs set out opposite itsname in Schedule B and/or to the number of ManCo Shares set out opposite its name in Schedule C, which are, on the date hereof,validly issued, fully paid up and validly owned by the relevant Seller. Each Permitted Transfer (as such term is defined under the PutOption Agreement) has been made by, where applicable, Mr. Delahousse or Mr. Congard in compliance with the provisions of theHolding’s by-laws, the applicable Existing Shareholders’ Documents, the terms and conditions of the OBSAs and the provisions ofthe Existing Inter-Creditors’ Agreement.36(b)On the Closing Date and immediately prior to Closing, each Seller will have full and valid title to the number and category ofTransferred Securities set out opposite its name in the updated version as at the Closing Date and immediately prior to the completionof the transfer of the Transferred Securities of Schedule B and Schedule C, as notified by the Sellers’ Representative to the Purchaserin the Pre-Closing Statement, which it will sell to the Purchaser, and such Transferred Securities will, on the Closing Date andimmediately prior to Closing, be validly issued, fully paid up, validly owned by the relevant Seller, freely transferable to thePurchaser and free and clear of any Lien.8.1.5Specific Representation by FPCI Winch Capital 3 regarding Montalivet NetworksFPCI Winch Capital 3 holds 100% of the share capital and voting rights of Montalivet Networks on a fully diluted basis and will,until the payment obligations of Montalivet Networks provided under Sections 2.6 and 3.3(d)(ii) above are irrevocably andindefeasibly performed in accordance with the provisions of this Agreement, (i) continue to be the sole owner of 100% of the sharecapital and voting rights of Montalivet Networks on a fully diluted basis and (ii) refrain from liquidating or winding-up MontalivetNetworks or, more generally, taking or committing to take any action which would, immediately or in the future, result in MontalivetNetworks not existing anymore. Notwithstanding anything to the contrary in this Agreement, FPCI Winch Capital 3 herebyundertakes to indemnify and hold harmless the Purchaser, on a “euro” for “euro” basis (without application of any multiple orformula) from any Loss incurred by the Purchaser or any of the Group Companies in connection with any breach or inaccuracy ofthe representation and warranty made by it under this Section 8.1.5.8.2Additional Representations by the Sellers Individually but not Jointly (conjointement mais non solidairement)(a)With respect to Subsections 8.2.1, 8.2.22, 8.2.23 and 8.2.25 below, the Sellers hereby represent and warrant individually and notjointly (conjointement mais non solidairement) (but, for the avoidance of doubt, without prejudice to the provisions of Section 11.10,which shall apply), except as set forth or included in the Disclosure Schedules, to the Purchaser, as of the date hereof and as of theClosing Date (except for such representations which are expressly made as of the date hereof or as of the Closing Date and aretherefore made on such date only), as set forth below.(b)With respect to any Subsection of this Section 8.2 other than Subsections 8.2.1, 8.2.22, 8.2.23 and 8.2.25 below, the Sellers (otherthan FPCI Winch Capital 3, Montalivet Networks, Mr. de Puyfontaine and FPCI CIC Mezzanine 3) hereby represent and warrantindividually and not jointly (conjointement mais non solidairement) (but, for the avoidance of doubt, without prejudice to theprovisions of Section 11.10, which shall apply), except as set forth or included in the Disclosure Schedules, to the Purchaser, as ofthe date hereof and as of the Closing Date (except for such representations which are expressly made as of the date hereof or as ofthe Closing Date and are therefore made on such date only), as set forth below, it being expressly specified and agreed thatnotwithstanding the foregoing, each Indemnifying Seller (including FPCI Winch Capital 3, Mr. de Puyfontaine and FPCI CICMezzanine 3) shall indemnify and hold harmless the Purchaser against and in respect of any and all Losses arising out of a breach ofany representation and warranty made under the Subsections referred to above in accordance with the provisions of Section 9 below.8.2.1Capital Structure - Transaction Perimeter(a)The Ordinary Shares, ORAs, OCRs and OBSAs represent 100% of the capital and voting rights of the Holding on a fully dilutedbasis. On the Closing Date, except for the Holding Shares, the OCRs and the OBSAs, the Holding has not issued, nor approved theissuance of, any shares, warrants or Securities of37any nature whatsoever; and there are no options or other agreements or undertakings pursuant to which the Holding is or maybecome obliged to issue any shares, warrants or other Securities of any nature whatsoever.(b)The ownership of the share capital of the Group Companies other than the Holding is as shown in Schedule F (Chart of the GroupCompanies) and, except for minority interests owned as short-term investments (such as valeurs mobilières de placement), none ofthe Group Companies holds any other interest, directly or indirectly, in any Entity which is not listed in Schedule F, nor is a party toany agreement relating thereto.(c)The capital of each of the Group Companies other than the Holding, together with a true and complete list of their respective Securityholders and the number of Securities issued by any of such Group Companies and held by each Security holder is set out inSchedule 8.2.1(c) (Security holding of the Group Companies other than the Holding). None of the Group Companies other than theHolding has issued any Securities other than those identified in Schedule 8.2.1(c). There are no agreements providing for theissuance by any of the Group Companies of other Securities.(d)The share capital of each of the Group Companies other than the Holding is validly issued and fully paid-up, and save for theTVN ORANs, there exist no Securities, options or other rights owned by third parties giving access immediately or in the future tothe share capital of the Group Companies other than the Holding.(e)None of the Securities issued by the Group Companies is listed on any stock exchange or registered on any unlisted market. None ofthe Group Companies has made or taken any steps to make any public offering (offre au public) of Securities.(f)Subject to the release of the Liens existing in relation to the terms and conditions of the OBSAs upon completion of the Transaction,the Securities owned by each of the Group Companies in another Group Company are free and clear of all Liens.(g)Each Group Company is duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation orformation, and has all requisite corporate power and authority to own its assets and conduct its business as it has been and is nowbeing conducted by the Sellers.(h)None of the Group Companies is or has been insolvent (en état de cessation de paiements) nor subject to any BankruptcyProceedings and no facts exist that would result in any such event occurring.8.2.2Group Companies(a)A true, accurate and complete copy of the by-laws and of the certificates of incorporation of each Group Company is set out inSchedule 8.2.2(a) (By-laws and certificates of incorporation of the Group Companies).(b)The management bodies of each Group Company have taken all decisions required by applicable Laws. All topics relating to theGroup Companies required to be transacted or discussed by the management bodies of the Group Companies pursuant to applicableLaws and their respective by-laws have been transacted and discussed by such bodies. More generally, all corporate decisions madeby the management bodies of each Group Company have been made when required by and in compliance with applicable Laws,their respective by-laws and with any agreements to which such Group Company is a party. All38publications, filings, registrations or other formalities related to such corporate decisions have been performed in compliance withapplicable Laws.(c)All registers, minutes, books, accounting and corporate documents of each Group Company have been properly and regularlymaintained, are in the possession of the relevant Group Company and give a true, accurate and complete view of the activities ofeach Group Company as required by applicable Laws.(d)None of the Group Companies serves as a legal or de facto manager in any Entity other than the Group Companies. None of theGroup Companies has any outstanding (conditional or not) obligation or liability with respect to any of its former shareholdings orinvolvement as a legal or de facto manager in any Entity whatsoever.(e)Save for the Existing Holding Shareholders’ Agreement, which shall automatically terminate at Closing pursuant to Section 5.12above, none of the Group Companies has entered into any agreements governing their rights and obligations as shareholder of anyEntity.8.2.3Accounts(a)The individual corporate Accounts of each Group Company, as attached as Schedule 8.2.3(a) (Individual corporate Accounts of theGroup Companies):(i)have been prepared on a consistent basis in accordance with French GAAP;(ii)are accurate and complete (réguliers et sincères) and present a true and fair view (donnent une image fidèle) of the assets,financial condition and results of operations of such Group Company, in compliance with the provisions of article L. 123-14of the French Commercial Code or any applicable Laws, as of the date and for the periods covered thereby;(iii)when audited, have been certified without qualification by the statutory auditors of such Group Company and, when relatingto a full financial year, have been approved at the ordinary general meeting of its shareholders without (x) qualification (sansréserve) or (y) modification in accordance with applicable Laws and such Group Company’s by-laws.(b)The combined Accounts of the Group Companies, as attached as Schedule 8.2.3(b) (Combined Accounts of the Group Companies):(i)have been prepared on a consistent basis in accordance with French GAAP;(ii)are accurate and complete (réguliers et sincères) and present a true and fair view (donnent une image fidèle) of the assets,financial condition and results of operations of the group formed by the Group Companies included in the scope of thecombination, in compliance with the provisions of article L. 233-21 of the French Commercial Code, as of the date and forthe periods covered thereby.(c)All liabilities of any Group Company, whether contingent or not, are duly reflected in the Accounts in accordance with, and to theextent required by, French GAAP and are adequately provided for or reserved against in the Accounts in accordance with FrenchGAAP.(d)All expenses and foreseeable losses pertaining to all Contracts have been fully provided for in the Accounts.(e)The Required Financials relating to the Group Companies, when delivered, will (i) have been derived from the books and records ofthe Group Companies, (ii) be true and correct in all material respects and39(iii) fairly present the consolidated financial position, results of operations and cash flows of the Group Companies at the date and forthe periods indicated therein, except as indicated in the footnotes thereto.8.2.4Financial Matters(a)Schedule 8.2.4(a) (Existing Indebtedness under which any Group Company is a debtor) provides a true and complete description ofall existing Indebtedness under which any Group Company is a debtor. Schedule 8.2.4(a) indicates, for each Indebtedness, theidentity of the lender(s), the initial principal amount, the outstanding principal amount as of the Reference Date, the applicableinterest rate and the modalities and final repayment date, as well as a description of any Liens granted by any Group Company tosecure such Indebtedness or any Guarantees granted by any Group Company or any other Person in connection with suchIndebtedness.(b)Schedule 8.2.4(b) (Existing Indebtedness under which any Group Company is a creditor) provides a true and complete descriptionof all existing Indebtedness under which any Group Company is a creditor, except for usual terms of payments granted to theircustomers.(c)Since the Reference Date, none of the Group Companies has agreed to cancel any debt (abandon de créances) or has benefited froma cancellation of debt, which contains a provision for repayment in the event that such Group Company’s financial situationimproves (clause de retour à meilleure fortune).(d)Schedule 8.2.4(d) (Bank accounts and safes of the Group Companies and related delegation of powers) provides a true andcomplete list of the credit institutions with which the Group Companies have a bank account or a safe, together with the accountnumbers, the names of the Persons having access to said accounts and safes and being authorized to perform transactions involvingsaid accounts safes and the balance of said accounts and safes.(e)Schedule 8.2.4(e) (Other delegation of powers granted by the Group Companies) provides a true and complete list of all delegationof powers granted by the Group Companies for purposes other than the operation of the bank accounts and safes referred to inSubsection (d) above, with details of the powers granted and a description of the functions held by the beneficiaries of suchdelegation.(f)There is no obligation pending or that may arise pursuant to any earn-out or similar mechanism to which any Group Company wasor is a party in any capacity. No liability may arise for any Group Company pursuant to any earn-out or similar mechanism, whetheror not as a consequence of the execution or performance of the obligations under this Agreement.(g)None of the Group Companies has performed any action nor failed or omitted to perform any action or take any measures that couldgive rise to a decrease of the assets or an additional liability of a Group Company not specifically recorded in the Accounts.(h)There is no hedging contract or similar arrangements.8.2.5Off Balance Sheet Arrangements(a)Except as set out in Schedule 8.2.5(a) (Off balance sheet arrangements of the Group Companies), none of the Group Companies hasany off balance sheet arrangements (engagements hors-bilan), and, in particular, none of them has:(i)granted any Guarantees or Liens in favor of any Person;40(ii)entered into any agreement for deferred or conditional payments (other than agreements entered into in the ordinary courseof business) including payments pursuant to warranties given in connection with the acquisition or transfer of any Securitiesor other assets;(iii)entered into any agreement with respect to pensions, additional retirement payments (compléments de retraite) and similarindemnities to the benefit of their current or former employees or Managers;(iv)participated in any transactions relating to the carrying of Securities, interest rate or exchange rate swap agreements orentered into any arrangements made on a future market; or(v)entered into any financial leases.(b)Subject to the exceptions stated in Schedule 8.2.5(a), the off balance sheet arrangements identified in Schedule 8.2.5(a) have beenentered into by the Group Companies in the ordinary course of business on an arm’s length basis.(c)Except as set out in Schedule 8.2.5(a), upon consummation of the Transaction, none of the Group Companies will be a party to anyagreement that restricts its capability to grant any Liens over its assets or any other Guarantee.8.2.6Receivables(a)All receivables of the Group Companies reflected in the Accounts have been and/or will have been generated in the ordinary courseof business, as the case may be.(b)Schedule 8.2.6(b) (Overdue Receivables) sets out the list of all receivables of an amount superior to fifty thousand Euros (€50,000)and the corresponding provisions recorded in the Accounts, and which, as of the date hereof, have not been paid within a period of180 days as from the date on which they became due and payable, it being specified that it will be updated as of the Closing Date inorder to reflect all receivables of an amount superior to fifty thousand Euros (€50,000) net of the corresponding provisions, asrecorded in the Accounts, which, as of the Closing Date, have not been paid within a period of 180 days as from the date on whichthey became due and payable (the “Overdue Receivables”).(c)To the Sellers’ Knowledge, the receivables, other than the Overdue Receivables, are fully recoverable within the terms of payment ofthe agreements from which they respectively arise. All such receivables other than the Overdue Receivables shall be paid pursuant tothe terms and conditions of the agreements from which they respectively arise, in full, for an amount at least equal to their facevalue, net of the corresponding reserves for doubtful debt, if any, recorded in the Accounts, in accordance with French GAAP.(d)Except as set out in Schedule 8.2.6(d) (Assigned, securitized, discounted or otherwise transferred receivables of the GroupCompanies), none of the receivables of an amount superior to fifty thousand Euros (€50,000), have been assigned, securitized,discounted or otherwise transferred as a guarantee or are subject to any Liens or any payment delegation.(e)The receivables existing among Group Companies are accounted for separately as set out in Schedule 8.2.6(e) (Receivables amongthe Group Companies).418.2.7InventoryThe Inventory of each of the Group Companies is in good condition, ordinary wear and tear excepted, of such quality and quantityas reasonably necessary for the conduct by each such Group Companies of their activities in the ordinary course of businessconsistent with past practices. The Inventory of each Group Company is composed of goods that can be used by such GroupCompany for their intended purposes or sold by such Group Company in the ordinary course of business. Each Group Company hasvalid and marketable title to its Inventory, free and clear of any Liens.8.2.8Personal Property(a)Schedule 8.2.8(a) (Owned Personal Property) provides a true and complete list of all movable property, installation, items ofmachinery, vehicles and equipment owned by each Group Company, with a net accounting value exceeding fifty thousand Euros(€50,000) per asset (the “Owned Personal Property”).(b)The Owned Personal Property of the Group Companies is fully and validly owned by the Group Companies (except for those that aresubject to a retention of title clause (clause de réserve de propriété)), free and clear of any Liens.(c)Schedule 8.2.8(c) (Agreements relating to the Leased Personal Property) provides a true and complete copy of all agreementsrelating to the lease, leasing or use of any leased movable property, installation, items of machinery, vehicles and equipment (the“Leased Personal Property”) to which a Group Company (whether as a lessee or sub lessee) is a party, with a net accounting valueexceeding fifty thousand Euros (€50,000) per Leased Personal Property.(d)All Owned Personal Property and Leased Personal Property are in a good operating condition and normal state of maintenance andrepair, ordinary wear and tear excepted, and suitable for their intended purposes in compliance with applicable Laws.(e)The Group Companies’ businesses (fonds de commerce) have been regularly and properly operated, in compliance with applicableLaws, so as to maintain their activities and safeguard their existence. The Group Companies have full and valid ownership over suchbusinesses, and except as set forth in Schedule 8.2.8(e) (Liens on businesses of the Group Companies), such businesses shall be freeand clear of any Liens on the Closing Date, and the Group Companies operate such businesses directly. The ownership titles to suchbusinesses have, to the extent required by applicable Laws, been duly registered with the competent commerce and companiesregistry (Registre du commerce et des Sociétés) or foreign equivalent. Except as set forth in Schedule 8.2.8(e), there are no matters orcircumstances likely to restrict the operation or sale of any of such businesses by the Group Companies.8.2.9Real Property(a)No real property is owned by any of the Group Companies. None of the Group Companies has entered into any agreement toacquire neither any real property nor any rights to use, occupy or lease any real property other than the Real Property.(b)Schedule 8.2.9(b)(1) (Real Property Leases) provides a true and complete copy of all Real Property Leases. Except as set forth inSchedule 8.2.9(b)(2), (Uncapped Real Property Leases) none of the Real Property Leases has a duration which, as a result of arenewal by tacit agreement, is equal to or exceeds twelve years. The Real Property Leases provide each Group Company with validoccupational rights on the leased Real Property, as well as, for commercial leases, valid commercial ownership rights (propriété42commerciale) and, for financial leases, a valid option to acquire the Real Property upon expiration of the lease.(c)The Group Companies do not need to own, use or occupy any real property other than the Real Property, in order to conduct theiractivities as currently conducted by the Sellers. Except as set out in Schedule 8.2.9(c) (Third-parties’ rights to the Real Property), noPerson other than the Group Companies has any right to any of the Real Property.(d)The Group Companies presently occupy and have always occupied the Real Property in compliance with applicable Laws and theterms of the Real Property Leases.(e)To the Sellers’ Knowledge, the utilities and equipment of the premises, including water, electricity, telephone, cable, internet access,required for the use, occupancy and operation of the Real Property leased by the Group Companies pursuant to the Real PropertyLeases are adequate for the conduct of the activities of the Group Companies as currently conducted. The leased Real Property issuitable for its intended purposes in compliance with applicable Laws. To the Sellers’ Knowledge, there are no material latent defectsor adverse physical condition affecting the Real Property. Neither the Sellers nor any of the Group Companies have received anynotice of a mise en conformité or of any similar requirements from any Person to carry out, at the expense of any Group Company,any repairs or improvements on the leased Real Property. All repairs or improvements required to be carried out on the leased RealProperty, have been fully reserved for in the Accounts.(f)Each Group Company is in peaceful possession of its leased Real Property and has received no written notice that there may bezoning regulations, rights-of-way, easements or other contractual or legal restrictions that preclude or restrict the ability of the GroupCompanies to use the Real Property in the scope and manner as currently conducted.(g)To the Sellers’ Knowledge, there are no circumstances which may result in any liability to a Group Company in connection with anyReal Property currently or formerly used or occupied by it.8.2.10Intellectual Property(a)Schedule 8.2.10(a) (List of Intellectual Property Rights) provides a true and complete list of all Intellectual Property Rights owned byeach Group Company or otherwise used in its business, including all FB Held Patent Rights, and except, for Software, generallyavailable off-the-shelf software, and Publicly Available Software. Without limiting the foregoing, Schedule 8.2.10(a) provides: (i) foreach patent and patent application, the patent number or application serial number for each jurisdiction in which the patent orapplication has been filed, the date filed or granted, and the present status thereof; (ii) for each registered trademark, trade name orservice mark, the application serial number or registration number, for each country, province and state, and the class of goodscovered; (iii) for any URL or domain name, the registration date, any renewal date and name of registry; (iv) for each registeredmask work, the date of first commercial exploitation, the registration number and date of registration, for each by country, provinceand state; and (v) for each registered copyrighted work, the number and date of registration for each by country, province and statein which a copyright application has been registered.(b)When owned by a Group Company, such Intellectual Property Rights or Technology are fully and validly owned by the GroupCompany concerned, free and clear of any Liens. Except as set out in Schedule 8.2.10(b)(1) (Limitation of the use of the GroupCompanies' Intellectual Property), the Sellers and the Group Companies are not bound by, and no Group Companies IntellectualProperty or Group Companies Technology is subject to, any agreement or arrangement containing any covenant or other provisionthat43in any way limits or restricts the ability of any of the Group Companies to use, exploit, assert or enforce any Group CompaniesIntellectual Property owned by such Group Company or Group Companies Technology held by such Group Company anywhere inthe world. To the Sellers’ Knowledge and except as set out in Schedule 8.2.10(a), the Group Companies have a valid andenforceable right or license to use any and all other Intellectual Property Rights and Technology not owned by any Group Companyand used in the conduct of their businesses, and, except as set out in Schedule 8.2.10(b)(2) (Termination of licensed IntellectualProperty Rights) and except for the termination of the licenses granted to Kepler under the PLA1 Agreement however solely to theextent of the FB Held Patent Rights transferred to Kepler pursuant to the IP Agreement, all such licensed Intellectual Property Rightsand rights to use Technology are not terminable and will not cease to be valid and enforceable rights of the Group Companies byreason of the execution, delivery and performance of this Agreement, or the consummation of the transactions contemplated hereby.(c)In all relevant jurisdictions, the Group Companies and, with respect to the FB Held Patent Rights, to the Sellers’ Knowledge, FranceBrevets, have taken, all actions reasonably necessary to properly file, maintain and protect the Group Companies IntellectualProperty, excluding the Abandoned Patents, and performed all other formalities required by applicable Laws in connection with suchGroup Companies Intellectual Property, including, for the FB Held Patent Rights which are not Abandoned Patents, payment in fulland in due time of all applicable registration, renewal and maintenance fees and expenses to the relevant Governmental Authority,filing of applicable statements of use, timely response to office actions and disclosure of any required information, and allassignments (and licenses where required) of the Group Companies Intellectual Property have been duly recorded with theappropriate Governmental Authorities. The lists of all material actions that must be taken within 90 days of the Closing Date withrespect to any of the Registered IP referred to in Section 4.3(a)(xvii) above are true and complete as of the Closing Date. Withoutlimiting the foregoing, the Group Companies and, to the Sellers’ Knowledge, France Brevets, have taken all actions reasonablynecessary to develop, maintain and protect the FB Held Patent Rights, including without limitation ensuring that the number of PatentFamilies in the FB Held Patent Rights was in no event and at any time less than twenty-eight (28), and that the FB Held Patent Rightswhich are not Abandoned Patents are not expired, cancelled, or abandoned.(d)Schedule 8.2.10(d) (License Agreements) provides:(i)a true and complete list of all licenses, sublicenses, and other Contracts under which any of the Group Companies is grantedrights in any third-party Technology or Intellectual Property Rights (excluding any Publicly Available Software)(i) embedded or incorporated into or distributed with any Group Companies Product, (ii) used by any of the GroupCompanies in the development or support of any Group Companies Product, or (iii) used or held for use by any of the GroupCompanies for any other purpose (excluding, for purposes of clause (iii) only, any generally available, off-the-shelf Softwarelicensed by any of the Group Companies on standard terms);(ii)a summary of any of the Group Companies’ remaining payment and accounting obligations, if any, with respect to each ofthe licences, sublicences and Contracts listed on Schedule 8.2.10(d), excluding agreements for generally available, off-the-shelf Software licensed by any of the Group Companies on standard terms;(iii)a true and complete list of all licenses, sublicenses or other agreements under which any of the Group Companies or, withrespect to the FB Held Patent Rights, France Brevets or any of France Brevets Affiliates, has granted rights, licenses orinterests in the Group Companies Intellectual Property or Group Companies Technology to others except for the licensesgranted to customers for the use of Products. Without limiting the foregoing, Schedule 8.2.10(d) provides a true and44complete list of all licenses, sublicenses, or other agreements under which any of the Group Companies has granted rights,licenses or interests in the FB Held Patent Rights and/or the Thomson Trademark.(e)Schedule 8.2.10(e) (Source Code Agreements) provides a true and complete list of (A) all agreements pursuant to which any of theGroup Companies has provided Source Code owned by the Group Companies or detailed design documentation of any GroupCompanies Product or any material part thereof owned by the Group Companies to a third party, and (B) all third parties to whomany of the Group Companies has granted a contingent right to receive the Source Code of any Group Companies Product or anymaterial part thereof, or contingent right to manufacture the Group Companies Products and Services, whether pursuant to an escrowarrangement or otherwise. Except as set out in Schedule 8.2.10(e), none of the Group Companies has directly or indirectly grantedany rights, licenses or interests in the Source Code of its Software, or has provided or disclosed the Source Code to any third party.Schedule 8.2.10(e) provides a complete and accurate list of all Source Code deposited by any of the Group Companies at the Agencede Protection des Programmes or any other escrow agency, and these deposits have been duly updated for each new major versionof the software of said Source Code.(f)Schedule 8.2.10(f) (Products and Services) provides a true and complete list of all Group Companies Products and Services as of thedate hereof.(g)The Group Companies do not need any Intellectual Property Rights or Technology other than those identified in Schedule 8.2.10(a)in order to conduct their businesses as conducted until now, including the design, manufacture, license and sale of all GroupCompanies Products and Services. Except as set out in Schedule 8.2.10(d), no Person other than the Group Companies has any rightto any such Intellectual Property Rights.(h)The Group Companies have taken reasonable steps consistent with industry standard practices to safeguard and maintain the secrecy,confidentiality, and value of all trade secrets and confidential information that are material to their businesses. None of the GroupCompanies has disclosed any of their confidential information to any other Person except where a legally binding, fully enforceable,confidentiality agreement in respect of such disclosure is in place. Without limiting the foregoing, (i) Intellectual Property Rightsowned or used by the Group Companies have been kept strictly confidential where such confidentiality was required to maintaintheir value, (ii) there has been, to the Sellers’ Knowledge, no misappropriation of any trade secrets or other confidential IntellectualProperty Rights or Technology used in connection with the businesses of the Group Companies by any Person; (iii) to the Sellers’Knowledge, no employee, independent contractor or agent of any of the Group Companies has misappropriated any trade secrets ofany other Person in the course of performance as an employee, independent contractor or agent of the businesses of the GroupCompanies; and (iv) neither the Group Companies, nor any employee, independent contractor or agent of any of the GroupCompanies is in default or breach of any term of any employment agreement, nondisclosure agreement, assignment of inventionagreement or similar agreement, or contract relating in any way to the protection, ownership, development, use or transfer of theGroup Companies Intellectual Property or Group Companies Technology.(i)Except as set out in Schedule 8.2.10(i) (Third Parties and Employees IP Rights), all third parties (such as, without limitation,consultants) and employees having contributed since May 1, 2011 to the discovery or development of any of the Group CompaniesIntellectual Property and Group Companies Technology, including third parties and employees having participated in the inventionsprotected by the Group Companies Intellectual Property, did so either within the scope of his/her employment as part of his/her“mission inventive”, or pursuant to a written consultancy agreement such that, subject to and in accordance45with applicable Laws and/or pursuant to such consultancy agreement, all Intellectual Property Rights arising therefrom and to theextent thereof became the sole and exclusive property of the Company. Except as set out in Schedule 8.2.10(i), no employee orformer employee of any of the Group Companies is entitled under any contractual provision or under any applicable Law to validlyclaim any right over an Intellectual Property Right resulting from an invention or a creation performed within his/her professionalactivities. No outstanding amount is currently owned by any of the Group Companies in relation to such work under any contractualprovision, and all third parties and employees having participated in the inventions protected by Group Companies IntellectualProperty have been appropriately compensated in accordance with applicable Laws and the applicable Collective Agreements.(j)Except as set forth in Schedule 8.2.10 (j) (Intellectual Property Claims), there are no pending or, to the Sellers’ Knowledge,threatened in writing claim, action, dispute, or Proceedings against any of the Group Companies, any of their employees, or, withrespect to the FB Held Patent Rights, to the Sellers’ Knowledge, France Brevets, (i) alleging infringement, misappropriation or anyother violation of any Intellectual Property Rights of any Person by any of the Group Companies or any of their respective productsor services, or (ii) challenging the scope, ownership, validity, or enforceability of any of the Group Companies Intellectual Propertyor of any of the Group Companies’ rights under or to the Intellectual Property Rights and Technology licensed to the concernedGroup Company and used in or necessary for the conduct of its business as presently conducted. Without limiting the foregoing, nointerference, opposition, reexamination, inter-partes review, post-grant review, or other Proceeding initiated by a third party is or hasbeen pending in which the scope, validity, or enforceability of any of the Group Companies Intellectual Property is being or hasbeen challenged. None of the Group Companies Intellectual Property has been found invalid or unenforceable in whole or in part.Neither the Group Companies Intellectual Property nor the Group Companies Technology is subject to any outstanding judgment,decree, order, writ, award, injunction or determination of an arbitrator or a Governmental Authority (other than office actions andcorrespondence regarding pending patent applications and trademark applications) restricting the rights of any of the GroupCompanies with respect thereto or, with respect to the FB Held Patent Rights, restricting the rights of France Brevets. To the Sellers’Knowledge, the use of Group Companies Intellectual Property or Group Companies Technology by any of the Group Companiesdoes not infringe upon or misappropriate, breach or otherwise conflict with the Intellectual Property Rights or Technology of anythird party, including by way of counterfeit or unfair competition. Neither the Sellers nor any of the Group Companies has receivedany notice alleging any such infringement or misappropriation.(k)Except as set out in Schedule 8.2.10(k) (Publicly Available Software), no Group Companies Product (including any GroupCompanies Product currently under development) contains any Publicly Available Software. All Publicly Available Software used byany of the Group Companies has been used by the Group Companies in its entirety and without modification. The Group Companieshave taken all reasonable steps consistent with industry standard practices to avoid incorporation in a Group Companies Product, orotherwise use of, Publicly Available Software in a manner that would require, or condition the use, distribution or otherwise makingcommercially available of any Group Companies Product on (x) the disclosure, licensing or distribution of any other Softwarecombined, distributed or otherwise made commercially available with such Publicly Available Software in Source Code form, or(y) the licensing or otherwise making available such Publicly Available Software and/or of other Software combined, distributed orotherwise made commercially available with such Publicly Available Software, or any associated Intellectual Property Rights, on aroyalty free basis.46(l)None of the Group Companies Products contains any Harmful Code, and the Group Companies have used commercially reasonableefforts to prevent the introduction of such Harmful Code to all Software that is incorporated in or provided with the GroupCompanies Products and Services.(m)No funding, facilities, or personnel of any Governmental Authority or educational institution were, since May 1, 2011, used, directlyor indirectly, to develop or create, in whole or in part, any of the Group Companies Intellectual Property, the Group CompaniesTechnology, or the Group Companies Products and Services.(n)Except as set out in Schedule 8.2.10(n) (Standard Essential Patent Declarations), none of the Sellers, the Group Companies, and tothe Sellers’ Knowledge, France Brevets or France Brevets Affiliates, has made any written submission to, and is subject to anyagreement with, any standards bodies or other entities that would obligate the Sellers or the Group Companies, any successor to orassignee of any of the Group Companies, or France Brevets or France Brevets Affiliates, to grant licenses to or otherwise impair itscontrol of the Group Companies Intellectual Property, the Group Companies Technology, or the Group Companies Products andServices.(o)To the Sellers’ Knowledge, the Group Companies Products and Services do not (a) contain any defect or error in design, materials orworkmanship that would materially and adversely affect the use, functionality, or performance of such Group Companies Productsand Services; or (b) fail to comply with any applicable warranty or other contractual commitment relating to the use, functionality, orperformance of such Group Companies Products and Services.(p)The Sellers and Group Companies have obtained all approvals necessary for exporting the Group Companies Products and Servicesoutside of France in accordance with all applicable Laws, export control, embargo and other regulations, and importing the GroupCompanies Products and Services into any country in which the Group Companies Products and Services are now sold or licensedfor use, and all such export and import approvals in France and throughout the world are valid, current, outstanding and in full forceand effect.(q)On the date hereof, to the Sellers’ Knowledge, France Brevets owns all right, title, and interest in and to the FB Held Patent Rights,including without limitation all rights, title and interest in the FB Held Patent Rights to sue for infringement thereof. To the Sellers’Knowledge, France Brevets has not created any Liens or Encumbrances on the FB Held Patent Rights since it entered into the PLA1Agreement. With respect to FB Held Patent Rights, France Brevets and France Brevets Affiliates are not bound by, and no FB HeldPatent Rights is subject to, any agreement or arrangement containing any covenant or other provision that in any way limits orrestricts the ability of France Brevets or France Brevets Affiliates to use, exploit, assert or enforce any FB Held Patent Rightsanywhere in the world. Without limiting the foregoing, neither Kepler nor the transferee(s) of the FB Held Patent Rights pursuant tothe IP Agreement will be subject to a covenant or any other provision that in any way limits or restricts its ability to use, exploit,assert or enforce any FB Held Patent Rights anywhere in the world as a result of the IP Agreement, or any transaction entered into byFrance Brevets related to the FB Held Patent Rights.(r)No Person has interfered with, infringed upon or misappropriated any of Group Companies Intellectual Property or GroupCompanies Technology, or is currently doing so, and the Group Companies have taken all necessary steps to protect the IntellectualProperty Rights they own or use against any such infringements. There is no current or threatened in writing claim, dispute, orProceedings against any third party relating to the infringement or other violation of the Group Companies Intellectual Property orGroup Companies Technology by third parties. With respect to FB Held Patent Rights, France Brevets or any of France BrevetsAffiliates has not put a third party on notice of actual or potential infringement47of any of the FB Held Patent Rights or initiated enforcement actions with respect to any of the FB Held Patent Rights.(s)On the Closing Date, (i) all operations and transactions relating to the implementation and full completion of the IP Recovery willhave been validly completed, in accordance with all applicable Laws and with this Agreement, and (ii) France Brevets and FranceBrevets Affiliates will cease to have any right, title and interest in and to FB Held Patent Rights, including any Abandoned Patents inthe FB Held Patent Rights.(t)There shall be no additional consideration for the license granted by Thomson Licensing SAS (383 461 191 RCS Nanterre) under thePatent Cross-License Agreement entered into on May 3, 2011 by and between Kepler and Thomson Licensing (the “PCLA”), of anynature whatsoever, whether for the past, or for the future as a result of the completion of the Transaction, including but not limited to,the acquisition of the control of the Target Companies by the Mother Company, claimed by Thomson Licensing within a period ofone (1) year from the date of execution of the Put Option Agreement, nor further to any sales audit conducted by or for the accountof Thomson Licensing pursuant to the PCLA during such one (1)-year period (the “Specific Thomson Licensing Occurrence”).Notwithstanding anything to the contrary in this Agreement, the Sellers shall indemnify and hold harmless the Purchaser, on a “euro”for “euro” basis (without application of any multiple or formula), from any Loss incurred by the Purchaser or any of the GroupCompanies in connection with any Specific Thomson Licensing Occurrence, subject only to a specific deductible (franchise) of onemillion Euros (€1,000,000) (the “Specific Thomson Licensing Indemnity”), unless, but only to the extent that, any such Loss is dueto, or increased by (in which case the Specific Thomson Licensing Indemnity shall be due and be reduced to the extent of suchincrease), any external growth transaction other than the Transaction completed by any means whatsoever by any entity of the groupcontrolled by the Mother Company (including, after Closing, any Target Company) within a one (1)-year period from the date ofexecution of the Put Option Agreement. Each Party undertakes not to make any contact, of any nature whatsoever, with ThomsonLicensing aiming at, or being reasonably expected to result in, a Specific Thomson Licensing Occurrence, without involving thePurchaser (if the contacting Party is a Seller) or the Sellers’ Representative (if the contacting Party is the Purchaser).8.2.11Information Technology - Data Protection(a)All records and all data and information of the Group Companies are recorded, stored, maintained or operated or otherwise heldexclusively by the Group Companies or by service providers retained by the Group Companies pursuant to Contracts, a list of whichis provided in Schedule 8.2.11(a) (Data Storage).(b)The Group Companies fully comply with the requirements of all applicable Laws concerning rights in respect of privacy andpersonal data. The personal data of third parties processed by the Group Companies and/or transferred to the Purchaser has beenlawfully obtained and/or otherwise processed pursuant to applicable data privacy and protection Laws and the Purchaser, the GroupCompanies and their Affiliates will, as of the Closing Date, be entitled to use the same and grant such rights therein towards itscustomers and business partners in the manner practiced by the Group Companies in the past.(c)There are no compliance measures by data protection authorities pending against any of the Group Companies which could have animpact on the Group Companies and no such compliance measures have been taken during the preceding three (3) years.(d)The Group Companies have valid support agreements with the suppliers of the information technology systems, pertaining to theGroup Companies, under which preventative and corrective maintenance48services, software upgrades and help desk services for the information technology systems are provided to the Group Companies.(e)The computer hardware, Software and data used by the Group Companies can be replaced or substituted without material disruptionto the business of the Group Companies. In the three (3) years prior to the date of the Agreement, there have been no computersoftware interruptions which have had a material effect on the business of any Group Company.(f)The Group Companies have adequate procedures to ensure internal and external security of the computer hardware, computersoftware and data, including procedures for preventing unauthorized access, preventing the introduction of a virus and taking andstoring on-site or off-site back-up copies of the computer software and data.8.2.12Agreements(a)All agreements entered into by any of the Group Companies after December 31, 2010 (a “Group Companies Agreement” orcollectively, the “Group Companies Agreements”) are valid and in full force and effect, except for those Group CompaniesAgreements that are terminated, enforceable in accordance with their terms and conditions and in compliance with applicable Laws.The Group Companies have always complied with all their obligations under the Group Companies Agreements.(b)Schedule 8.2.12(b) (Material Contracts) sets out a true and complete list of all Material Contracts. Schedule 8.2.12(b) specifies foreach Material Contract the name of the concerned Group Company, the registration number in the Group Companies’ ERP, the dateof registration in the Group Companies’ ERP, the name of the customer, the revenues recognized as of the Reference Date and thecurrency.(c)All Material Contracts are valid and in full force and effect, enforceable in accordance with their terms and conditions and incompliance with applicable Laws. The Group Companies have always complied with all their obligations under the MaterialContracts. None of the Group Companies have waived any right under any Material Contract.(d)Except as set out in Schedule 8.2.12(d) (Affected rights and obligations under Group Companies Agreements and MaterialContracts), there are no circumstances (including as a result of the Transaction) which would:(i)challenge or reduce any rights of any Group Company under any Group Companies Agreement or Material Contract orincrease any of its obligations thereunder;(ii)constitute a breach or default under any such Group Companies Agreement or Material Contract;(iii)result in, or authorize, the voidance, termination, suspension, acceleration of any payment, payment of late-payment interest,penalties or indemnities of any kind under any such Group Companies Agreement or Material Contract; or(iv)otherwise affect the performance or renewal of any such Group Companies Agreement or Material Contract.49(e)Except as set out in Schedule 8.2.12(e) (Specific Contracts), there are no agreements (including any Group Companies Agreement orMaterial Contract) or any commitment whatsoever to enter into an agreement having one or more of the following characteristics:(i)the termination of which would result in a Material Adverse Change; or(ii)requiring performance after December 31, 2016; or(iii)the termination by the Group Companies of which is subject to (a) prior notice equal to or longer than six (6) months and/or(b) payment by the Group Companies of a contractual penalty or indemnity of any nature whatsoever in excess of fiftythousand Euros (€50,000) (VAT included); or(iv)involving a payment or a series of payments by the Group Companies in excess of fifty thousand Euros (€50,000) (VATincluded) in the aggregate until December 31, 2016; or(v)entered into with any Governmental Authority; or(vi)relating to the granting of subsidies or other financial assistance to any of the Group Companies; or(vii)containing a change of control, acceleration or similar provision that would be triggered by the completion of Transaction orunder which the rights and/or obligations of any Group Company may be adversely affected by the completion of theTransaction; or(viii)limiting the freedom of a Group Company to develop technology, to do business or to compete, or prohibiting or restrictingthe conduct of certain activities or pursuant to which a Group Company confers or is granted with an exclusivity; or(ix)entered into under conditions other than at arm's length, involving obligations, restrictions or expenditures of an unusual,onerous or exceptional nature of an amount in excess of fifty thousand Euros (€50,000) (VAT included) for the GroupCompanies other than in the ordinary and usual course of business; or(x)involving agency or distributorship, involving partnership, joint venture, consortium, joint development, shareholders orsimilar arrangements; or(xi)being loss making except, as to commercial agreements, for losses provided or recorded in the Accounts; or(xii)being to result in unlimited liability or joint and several liability of any Group Company; or explicitly providing forcontractual penalties or liquidated damages of an amount in excess of fifty thousand Euros (€50,000) (VAT included); or(xiii)having liability or litigation risk for an amount in excess of fifty thousand Euros (€50,000) (VAT included); or(xiv)having the effect or purpose of sharing profits or revenues with third parties or the payment of commission or otherremuneration calculated by reference to profit or turnover, which may result50in a payment by the Group Companies of more than fifty thousand Euros (€50,000) (VAT included); or(xv)having no volume discount clauses, where any Group Company is the customer, or having volume discount clauses, whereany Group Company is the supplier, or having most favored customer clauses.(f)All arrangements with employees/ customers/ third parties are in writing and there has not been any verbal commitment of any kindto any party.8.2.13Commercial Relations(a)Schedule 8.2.13(a) (Largest Suppliers and Customers) provides a true and complete list of (i) the ten (10) largest suppliers of theGroup Companies taken as a whole in terms of purchase on the basis of the Accounts, and (ii) of the twenty (20) largest customers ofthe Group Companies taken as a whole in terms of sales on the basis of the Accounts and with an aggregate value for each customersuperior to five hundred and forty-five thousand Euros (€545,000).(b)There are no agreements that may oblige any Group Company, whether immediately or in the future, to accept imposed purchaseprices to which such Group Company has not previously agreed to.(c)Except as indicated in Schedule 8.2.13(c) (Modifications of the commercial relations), none of the Sellers or the Group Companieshas been informed in writing that any customer or supplier of any Group Company has decided or intends to cease, reduce orotherwise adversely modify, whether immediately or in the future, its commercial relationship with any Group Company for anyreason other than in the ordinary course of business.(d)Except as indicated in Schedule 8.2.13(d) (Events impacting the Group Companies’ supplies), to the Sellers’ Knowledge, there areno events or circumstances other than those arising from the general economic situation that may endanger the Group Companies’supplies or outlets, or the conditions applicable thereto.(e)Neither any of the Sellers nor its Affiliates is engaged, directly or indirectly, in the businesses of the Group Companies other thanthrough the Group Companies.8.2.14Sales Representatives Independent Contractors(a)Schedule 8.2.14(a) (List and description of the Group Companies’ sales support activities agreements) provides a true and completelist of all the Group Companies’ sales support activities agreements entered into by and between (i) any Group Company and(ii) sales representatives independent contractors or sales support providers (the Persons listed in (ii) hereinabove, the “SalesRepresentatives Independent Contractors”), together with reasonable detail on the main terms of said sales support activitiesagreements (including duration, territory, products concerned, rate of commission).(b)No commercial agency agreement has been entered into by any of the Group Companies.(c)Any amounts superior to fifty thousand Euros (€50,000) owed to Sales Representatives Independent Contractors have been dulypaid in time by the Group Companies or are fully reserved for in the Accounts and the Group Companies have no outstandingliabilities superior to fifty thousand Euros (€50,000) towards any current or former Sales Representatives Independent Contractors,including those resulting51from the termination or breach of its agreement. There are no Proceedings pending or, to the Sellers’ Knowledge, threatened inwriting involving the Group Companies and any of their former or current Sales Representatives Independent Contractors.(d)No employment agreement has been entered into by any Group Company with current or former Sales Representatives IndependentContractors and none of the Group Companies have granted any loans or other financial assistance to their Sales RepresentativesIndependent Contractors.(e)There are no individuals and companies working as independent contractors for any of the Group Companies other than the SalesRepresentatives Independent Contractors.8.2.15Insurance Policies(a)Schedule 8.2.15(a) (Insurance Policies) provides a true and complete list of the insurance policies maintained by the GroupCompanies or to which any Group Company is a named insured or otherwise the beneficiary of the coverage which will be availableon and after the Closing Date (the “Insurance Policies”). Schedule 8.2.15(a) specifies for each Insurance Policy the name of theinsurance company, the policy number, a description of the scope, nature and amount of the risk covered, the duration of the policy,the annual premium amount and the amount of the deductible, if any.(b)All Insurance Policies are valid and in full force and effect. Unless modified by the Purchaser, the Insurance Policies which will beavailable after the Closing Date will remain valid and in full force for any incident covered by Insurance Policies with a cause ororigin in an event which occurred prior to the Closing Date, whether known or unknown at such date.(c)Each Group Company benefits from insurance coverage with solvent insurance companies that are in scope and amount customaryand reasonable for the businesses in which it has been or is engaged, in accordance with past practices and the businesses of theGroup Companies as conducted until now. Each Group Company is validly insured for all material risks which may result from theconduct of its activities, including without limitation, for the acts of its Managers or employees and in respect of those risks relatingto the possession or use of assets which it owns or uses (including loss of earnings, exceptional loss or liability).(d)All premiums due with respect to such Insurance Policies have been paid on time and the Group Companies have made the adequatereserves for the amount of such premiums in the Accounts.(e)The Group Companies have not breached any material provisions of the Insurance Policies and have properly declared any incidentwhich might give rise to an indemnification under any of the Insurance Policies.(f)There is no outstanding claim under any such Insurance Policies. The Group Companies have not suffered any damages nor know ofany fact that might give rise to an increase of any insurance premium or deductible as currently applied under the Insurance Policies.Schedule 8.2.15(f) (Insurance Claims) further sets out the incidents in respect of which any Group Company has made claims underthe Insurance Policies for the last three (3) years together with the amount of payments made under such Insurance Policies inrespect thereof.(g)None of the Group Companies has done anything or received any notification and, to the Sellers’ Knowledge, there are nocircumstances that would result in the termination of any Insurance Policy,52reduce the insurance coverage there under, prevent the renewal of any policy on its existing terms or otherwise modify anyInsurance Policy in an adverse manner for the Group Companies.8.2.16Tax, Social Security and Customs(a)Except as indicated in Schedule 8.2.16(a) (Exceptions to Tax, Social Security and Customs Declarations):(i)the Group Companies have kept all Tax documentation, information, software or hardware required to be kept by applicableTax Law;(ii)the Group Companies have timely filed with the appropriate Governmental Authorities any and all Tax Returns that wererequired to be filed by or on behalf of such Group Company on or before the Closing, and each such Tax Return, was and iscomplete and correct, including in respect of the amount, existence and possibility to use the Tax losses, Tax credits andcarried-back receivables of the Group Companies, it being specified that this possibility to use Tax losses, Tax credits andcarried-back receivables is subject to the Group Companies making taxable profits in future tax years and refraining fromtaking any action in the future leading to the loss of these Tax losses, Tax credits and carried-back receivables;(iii)the Group Companies have timely paid all Taxes shown to be payable in such Tax Returns; and(iv)the reserves for accrued Tax liabilities set forth in the Accounts are, in accordance with the French GAAP, adequate to pay allTaxes due in connection with their respective date.(b)Except as indicated in Schedule 8.2.16(b) (Tax Audits), none of the Group Companies:(i)has been nor is the subject of any Tax audit, reassessment or litigation relating any of the financial years ended or ending onDecember 31, 2012, 2013, 2014 or 2015; and(ii)has received any request for information from any Tax Authority.(c)The Group Companies listed in Schedule 8.2.16(c) (Perimeter of Tax Consolidation Regime) have validly and timely opted for thetax consolidation regime (“intégration fiscale”) with the Holding as the parent company of the tax consolidated group.(d)None of the Group Companies is acting as Tax representative for any company other than one of the Group Companies.(e)None of the Group Companies benefit from any Tax ruling or similar arrangement granted by any Tax Authority.(f)The transactions carried out by any Group Company with any of the Sellers and any related party of the relevant Group Company(within the meaning of Article 39.12 of the French Tax code) have been carried out at arm’s length.(g)Except as set forth in Schedule 8.2.16(g) (Tax Costs generated by the Performance of this Agreement), neither the performance byeach of the Sellers of its obligations hereunder, nor the consummation of the transactions contemplated herein (including the pre-Closing transactions described in Section 5), will generate any Tax cost for any of the Group Companies.53(h)The “CIR” and “CICE” Tax credit receivables recorded in the individual corporate Accounts of the relevant Group Companies arevalid, fully recoverable and will not be successfully challenged by any Governmental Authority or Tax Authority.8.2.17Labor Matters(a)Schedule 8.2.17(a) (List of the Employees of the Companies) provides a true and complete list of (i) all individuals employed by theGroup Companies and indicates for each of them, their duties, term of office, seniority and a description of their compensationdetails (including any fringe benefits, pensions, bonuses, incentive schemes, accrued paid holidays and working time related benefits(R.T.T.)).(b)None of the Managers or Key Employees of the Group Companies has resigned or has informed the Sellers or, to the Sellers’Knowledge, any Group Company of his/her intention to resign in writing. None of them has been dismissed or is subject to adismissal procedure which is pending.(c)Schedule 8.2.17(c) (List of the Collective Agreements) provides a true and complete list of all collective agreements applicable toeach Group Company (the “Collective Agreements”). Collective Agreements shall include in particular the applicable nationalcollective bargaining (conventions collectives) and company agreements (accords collectifs) and any agreements established withstaff representatives (accords atypiques) or with the employees (referendum) or description of companies practices (usages). Inparticular, it provides true and complete copies of the following Collective Agreements:(i)retirement, profit sharing, growth sharing, company savings plans, retirement bonus, stock purchase or stock option plans, orany other similar agreement for the benefit of their respective employees or Managers;(ii)any document describing the remuneration policy, including premiums, bonuses, commissions, incentive schemes, andadvantages in kind, awarded to all of the staff or certain categories thereof or to the Managers;(iii)any unilateral undertaking or other regional, local, company or business branch practices (usages), that provide foradvantages exceeding those resulting from applicable Laws or collective bargaining agreements.(d)All Collective Agreements entered into at any Group Company’s level comply with applicable Laws, have been regularly filed,whenever required, are valid and in full force and effect. The Group Companies comply and have complied with and performed theirobligations under these Collective Agreements and, to the Sellers’ Knowledge, none of the Group Companies has received anynotices, claims or litigation from the Governmental Authorities, staff representatives or employees in this respect.(e)All Group Companies have, in due time, regularly entered into all mandatory collective agreements or action plans.(f)None of the Group Companies has contracted any pension benefit obligations for any of their employees or Managers.54(g)The Group Companies do not participate in or contribute to any (i) retirement plans; (ii) profit-sharing bonus or other incentiveschemes; or (iii) other benefit plans, in all instances, other than those which are compulsory under applicable Laws and CollectiveAgreements.(h)Standard forms of employment agreements used by the Group Companies are set out in Schedule 8.2.17(h) (Standard Forms ofEmployment Contracts). The terms and conditions of the employment contracts between each Group Company and its employees, aswell as the conditions of employment of any employee of the Companies, comply with applicable Laws and the CollectiveAgreements.(i)Schedule 8.2.17(i) (Specific Employment Contracts) provides a true and complete copy of the employment contracts entered intowith the Key Employees and with the Managers/company officers of the Group Companies. Schedule 8.2.17(i) further provides atable identifying all employees of the Group Companies who benefit from advantages in excess of those arising from applicableLaws or the Collective Agreements such as defined benefit retirement schemes or golden parachutes payments or whoseemployment contract otherwise differs from the standard form of employment contract set out in Schedule 8.2.17(h).(j)Except as indicated in Schedule 8.2.17(j) (Extra Notice Period or Indemnity in Employment Contracts), none of the GroupCompanies has entered into any Contracts or undertaking with any of its employees or company officers which provide, in the eventof termination, for a notice period or payment of an indemnity which exceeds that provided for by applicable Laws and CollectiveAgreements.(k)Except for the annual increase subject to conditions decided as of July 1, 2016 amounting to 1% of the employees’ gross monthlysalary, neither the Sellers nor any Group Companies have undertaken to increase the rates of remuneration or to grant a bonus oradvantage of any kind or pay any compensation to any of its employees or Managers as a result of the completion of the Transactionor otherwise after the date hereof, other than as imposed by applicable Laws or by the Collective Agreements.(l)The Group Companies have no outstanding liabilities or obligations towards their former employees or Managers, including undersettlement agreements.(m)No Group Company has entered into any agreement which could lead to the reclassification of the relationship with any individualas an employment contract with any Group Company or which could be considered as illegal lending or bargaining of employees, inthe past three years. None of the Group Companies has received any written notices, claims or litigation from the GovernmentalAuthorities, staff representatives, or employees in this respect, in the past three years.(n)No Group Company has entered into any subcontracting agreement which could lead to the reclassification of the relationship withany individual as an employment contract with any Group Company or which could be considered as illegal lending or bargainingof employees, in the past three years. None of the Group Companies has received any notices, claims or litigation from theGovernmental Authorities, staff representatives, or employees in this respect, in the past three years.(o)All amounts owing to any Managers or employees of any Group Companies (including under benefit plans or retirement indemnitiesaccrued to the employees) for all periods ending on or prior to the Closing Date will have been timely paid in full or will have beenfully reserved for or provided as off-balance sheet commitments in the Closing Accounts. No work accident or any professionaldisease has occurred that is likely to trigger an increase of the insurance rate in any of the Group Companies. There has been noagreement of any kind such as would increase the rates of social contributions. In particular, no work55related accident insurance increase (taux majoré de cotisation d’accident du travail) has been applied or is likely to be applied to anyof the Group Companies.(p)Except as set forth in Schedule 8.2.17(p) (Compliance with labor Laws), the Group Companies are and have been in compliancewith all applicable Laws relating to labor and social security matters and none of the Group Companies has received any notices,claims or litigation from the Governmental Authorities, staff representatives, or employees in this respect, in the past three years. Inthat respect, the Seller has duly informed and consulted the existing works’ council, in connection with the entering into of thisAgreement and the transactions provided for herein and said works’ council has accordingly issued an opinion in compliance withapplicable Laws.(q)All of the Group Companies have taken any and all necessary actions under applicable Laws related to working time related benefits(R.T.T.) and holiday pays and have paid all amounts due to any employees in accordance with applicable Laws and none of theGroup Companies has received any notices, claims or litigation from the Governmental Authorities, staff representatives, oremployees in this respect, in the past three years. All related costs or expenses are adequately provided in the Accounts and/or theClosing Accounts, as appropriate.(r)There are no pending or, to the Sellers’ Knowledge, threatened in writing Proceedings instituted by the Labor Administration(Inspection du Travail ou DIRECCTE), the Social Security Administration (URSSAF) or any Governmental Authority competent forapplicable labor Laws, union or employees’ representatives, a current or former employee nor involving any Group Company andany of its present or former employees or Managers for a stated amount greater than ten thousand Euros (€10,000). No union or staffrepresentative has expressed during meetings with Management or through leaflets any threat of claim against any Group Company.(s)None of the Group Companies has made any undertakings, including undertakings to maintain or to terminate any employmentsagreements, within the context of any redundancy plan (plan de sauvegarde de l’emploi, or former plan social), an unemploymentplan that has not been performed in full or fully reserved for in the Accounts and/or the Closing Accounts, as appropriate. None ofthe Group Companies incurs any liability towards any of its employees or Managers or any former employees or Managers nor isliable to make any payment to any of them including by way of damages.(t)There is no pending or, to the Sellers’ Knowledge, threatened in writing labor strike, work stoppage or other organized disturbanceor disruption of the labor force of any of the Group Companies. Schedule 8.2.17(t) (Description of Previous Strikes or LaborConflicts) identifies in reasonable details any such event that has occurred in the past three years.8.2.18Environment(a)To the Sellers’ Knowledge, there are no circumstances that could be expected to result in liabilities of any Group Company arisingunder or relating to environmental protection or Environmental Laws.(b)No hazardous substances (such as asbestos) prohibited or regulated by any Environmental Laws or Governmental Authority existsor, to the Sellers’ Knowledge, have ever existed on any Real Property owned or occupied by any of the Group Companies (whetherin the buildings or on the ground or underground) and no hazardous wastes of any kind are or, to the Sellers’ Knowledge, have beenstored or otherwise released on or from any such Real Property.56(c)Schedule 8.2.18(c) (List of Environmental Reports) provides a true and complete copy of all environmental reports issued by or onbehalf of the Group Companies or which relate directly or indirectly to the activities of any Group Company. The cost of complianceby all Group Companies with Environmental Laws, with the provisions of the corresponding Governmental Authorizations or withthe recommendations contained in any such environmental reports, is sufficiently provided for in the Accounts.(d)All Group Companies have at all times in the past sold, transferred, transported or arranged for the transportation, treated forelimination or arranged for the treatment or elimination of hazardous substances or wastes in compliance with the EnvironmentalLaws.8.2.19Litigation(a)Except as set forth in Schedule 8.2.19(a) (Pending or foreseen Proceedings), there are no Proceedings of any kind, currentlypending or, to the Sellers’ Knowledge, possibly foreseen, involving any Group Company or to which any Group Company is aparty.(b)No administrative, judicial or arbitration decisions have been rendered against any Group Company that may result in a MaterialAdverse Change.(c)None of the Group Companies are or have been subject to any Proceedings which could prevent or delay the consummation ormodify the terms of the Transaction.(d)No matter exists which may give rise to the criminal liability of any Group Company and/or any of its Managers resulting in a Loss.8.2.20Products and Services Liability(a)There is no pending or, to the Sellers’ Knowledge, threatened in writing Proceedings against any Group Company relating to thequality of the products or services sold, manufactured, delivered or performed by sub-contractors of any of the Group Companies(the “Products and Services”). To the Sellers’ Knowledge, none of the Group Companies may incur any liability as a result of thesale, manufacture, delivery or performance of the Products and Services.(b)None of the Products and Services has any hidden or apparent faults or defects for which the customers can claim any damagesunder the relevant agreements. The Products and Services conform to applicable Laws, contractual commitments, standards andnorms (including safety standards) applicable to them.(c)Except as set forth in Schedule 8.2.20(c) (Warranty granted with respect to the Products and Services), no warranty has beengranted with respect to the Products and Services pursuant to which the Group Companies would be liable beyond the limits andperiods provided for by the general conditions of sale provided by the contractual documentation applicable to such Products andServices and set out in Schedule 8.2.20(c).8.2.21Compliance with Laws(a)All Governmental Authorizations required for the Group Companies to conduct their activities and own, build, operate or use theirassets, as now being conducted or owned, built, operated or used, have been obtained in compliance with applicable Laws and are infull force and effect. Schedule 8.2.21(a) (Governmental Authorizations) provides a true and complete list of all such GovernmentalAuthorizations.57(b)Each Group Company has conducted its activities and owned, built, operated or used its assets in compliance with all applicableLaws. To the Sellers’ Knowledge, there are no circumstances that may result in the withdrawal, suspension, non-renewal ormodification of any Governmental Authorizations referred to in Paragraph (a) above.(c)Neither the Sellers nor, to the Sellers’ Knowledge, the Group Companies favored by any means a deceitful justification of the originof the assets or income of any offence’s perpetrator (auteur d’un crime ou d’un délit) whose offence provided such perpetrator adirect or indirect benefit, nor helped a transaction aiming at the investment, concealment or conversion of the direct or indirectbenefit of any offence.8.2.22Relations with the Sellers(a)Upon the Closing Date, neither the Sellers, nor any Affiliate of the Sellers, save for in respect of (i) the employment contracts enteredinto with any Group Company and/or (ii) the corporate mandates and offices exercised within any Group Company, which willremain in force notwithstanding Closing:(i)will hold, either together or separately, directly or indirectly, in whole or in part, any property, assets or rights whatsoever thatany Group Company needs to own, use, exercise or benefit from for purposes of carrying out all or part of its activities; or(ii)will be a creditor or debtor of any Group Company or will be able, whether currently or in the future (on the basis of therelationships existing on or prior to the Closing Date), to exercise any claim or right against any Group Company or owe anyobligation to any of them; or(iii)will have granted any Guarantee to secure any Group Company’s undertakings, or is the beneficiary of any Guaranteegranted by any Group Company; or(iv)generally, will have entered into any agreement with any Group Company.(b)As of the Closing Date, and except as otherwise provided for in this Agreement, there is no agreements or arrangements in force orlikely to produce some effects between any of the Group Companies, on the one hand, and any of the Sellers, on the other hand. Allthe transactions pursuant to such agreements and arrangements have been properly and duly settled and there remain no exposurewhatsoever for any of the Group Companies pursuant thereto.8.2.23No Undisclosed Agreements with Managers and Key EmployeesThere will at Closing be no in force Contracts, agreements, plans or arrangements of the Sellers or any of their Affiliates orConnected Persons entered into among themselves or with Managers or Key Employees of any of the Group Companies notdisclosed herein, including with respect to the allocation among the Sellers of the Final Price, the Estimated Initial Price, the InitialPrice Adjustment, the Revenues Adjustment, the Backlog Adjustment and any Refund.8.2.24Management since the Reference Date(a)Except as set forth in Schedule 8.2.24(a) (Management of the Group Companies since the Reference Date), since the ReferenceDate, the Group Companies have carried on their activities only in the ordinary course of business, with due care and attention asbon père de famille (de façon prudente, diligente et soigneuse) and in substantially the same manner as theretofore conducted andnone of the Group Companies has taken nor committed to take any of the actions set forth in Section 5.9(b) above, except58as may have been (x) required by applicable Laws or any Governmental Authority or (y) expressly contemplated elsewhere in thisAgreement, or (z) consented to in writing by the Purchaser in accordance with the provisions of Section 5.9.(b)Since the Reference Date, no circumstance, event or fact relating to any of the Group Companies has occurred that may constitute aMaterial Adverse Change.8.2.25Intermediaries(a)None of the Group Companies have any liability or obligation to pay any fees or commissions to any broker, finder, agent oradvisor, including attorneys and statutory auditors, with respect to any of the transactions contemplated by this Agreement or relatingto the Transaction.(b)All professional fees or any other amounts due by any of the Group Companies to any advisors, including to attorneys and statutoryauditors, have been paid and none of these advisors has any claim against such Group Company.8.2.26Completeness of Representations and Warranties(a)The Sellers have not omitted to disclose or misstated to the Purchaser during the negotiation of the Transaction any materialcircumstances, events or facts whatsoever concerning the Group Companies or the Ordinary Shares, the ORAs, the OCRs and theOBSAs, nor the Transferred Securities other than the ManCo Shares.(b)The Sellers have taken all necessary actions to obtain from the Group Companies all information necessary to enable them to makethe representations contained in this Section 8.2.(c)There is no circumstance, event or fact relating to any of the Group Companies that may constitute a Material Adverse Change thathas not been set forth in this Agreement.8.3Additional Representations by the ManCo Shareholders Individually but not Jointly (conjointement mais non solidairement)The ManCo Shareholders hereby represent and warrant individually and not jointly (conjointement mais non solidairement) (but, forthe avoidance of doubt, without prejudice to the provisions of Section 11.10, which shall apply), except as set forth or included inthe Disclosures Schedules, to the Purchaser, as of the date hereof and as of the Closing Date (except for such representations whichare expressly made as of the date hereof or as of the Closing Date and are therefore made on such date only), as set forth below.8.3.1ManCoManCo is a company (société par actions simplifiée) duly organized, validly existing and in good standing under the laws of Franceand has all requisite corporate power and authority to own its assets and conduct its activities as they have been and are now beingconducted.(a)A true, accurate and complete copy of the by-laws and of the certificate of incorporation of ManCo is set out in Schedule 8.3.1(b)(By-laws and Certificate of Incorporation of ManCo).(b)ManCo is not nor has been in a state of insolvency (en état de cessation des paiements), nor subject to any Bankruptcy Proceedingsand no facts exist that would result in any such event occurring. There is no reason which could lead ManCo to incur its nullity or itsdissolution (other than voluntary).59(c)Since its incorporation, ManCo exists and operates validly and regularly, in compliance with applicable Laws.(d)Since its incorporation, ManCo has not carried out any activities other than the management of its cash and of its shareholding in theHolding.(e)All corporate decisions made by the management bodies of ManCo have always been made in compliance with its by-laws and theapplicable Laws, duly recorded in the corporate registers that will be provided to the Purchaser on the Closing Date and all requiredregistration formalities or filings have been performed. The share transfer registers and shareholders’ accounts that will be providedto the Purchaser on the Closing Date have been properly and regularly maintained.8.3.2The ManCo Shares(a)The ManCo Shares represent 100% of the share capital and voting rights of ManCo.(b)Except for the ManCo Shares, ManCo has not issued, nor approved the issuance of, any shares, warrants or Securities of any naturewhatsoever; and there are no options or other agreements or undertakings pursuant to which ManCo is or may become obligated toissue any shares, warrants or other Securities of any nature whatsoever.8.3.3ManCo’s Accounts(a)The Accounts of ManCo, as attached as Schedule 8.3.3(a) (Accounts of ManCo):(i)have been prepared on a consistent basis in accordance with French GAAP;(ii)are accurate and complete (réguliers et sincères) and present a true and fair view (donnent une image fidèle) of the assets,financial condition and results of operations of ManCo, in compliance with the provisions of article L. 123-14 of the FrenchCommercial Code, as of the date and for the periods covered thereby; and(iii)for the fiscal year ended on December 31, 2014, have been approved at the ordinary general meeting of its shareholderswithout qualification (sans réserve) or modification in accordance with applicable Laws and ManCo’s by-laws.(b)ManCo has no liabilities, of any kind, that are not reflected in the Accounts other than those incurred in the ordinary course ofbusiness since the Reference Date. The aggregate amount of all liabilities of ManCo does not exceed €10,000.(c)ManCo has not granted any security, warranty or other off balance sheet undertakings.(d)ManCo owns 3,635,755 Ordinary Shares. Except for the 3,635,755 Ordinary Shares it holds, ManCo does not (i) hold any otherinterest, directly or indirectly, in any Entity, nor (ii) have any asset other than cash, as the case may be.(e)ManCo’s net assets exceed €3,625,755.(f)The Required Financials relating to ManCo, when delivered, will (i) have been derived from the books and records of ManCo, (ii) betrue and correct in all material respects and (iii) fairly present the financial position, results of operations and cash flows of ManCo atthe date and for the periods indicated therein, except as indicated in the footnotes thereto.608.3.4Tax MattersManCo has kept all Tax documentation, information, software or hardware required to be kept by applicable Tax Law. ManCo hastimely filed with the appropriate Governmental Authorities any and all Tax Returns that were required to be filed by or on behalf ofManCo on or before the Closing, and each such Tax Return, was and is complete and correct. ManCo has timely paid all Taxesshown to be payable in such Tax Returns.8.3.5 EmployeesManCo has no employees and is not linked to any supplier or service provider. It has no liabilities of any kind towards formerdirectors, employees or other suppliers.8.3.6 ContractsExcept for the Existing Loan Agreements which shall automatically terminate at Closing pursuant to Section 5.12 above, providedthat all the transactions contemplated hereby have been completed, ManCo has not entered into any Contracts that are still in force orlikely to produce some effects.8.3.7 Litigation(a)There are and have been no Proceedings of any kind, currently pending or, to the Manco Shareholders’ Knowledge, possiblyforeseen, involving ManCo or to which ManCo is a party.(b)Neither ManCo nor any of its Managers may incur any joint, indefinite or criminal liabilities resulting in a Loss.8.3.8 Management since the Reference Date(a)Since the Reference Date, ManCo has carried on its activities only in the ordinary course of business, with due care and attention asbon père de famille (de façon prudente, diligente et soigneuse) and in substantially the same manner as theretofore conducted andhas not taken nor committed to take any of the actions set forth in Section 5.9(b) above, except as may have been (x) required byapplicable Laws or any Governmental Authority or (y) expressly contemplated elsewhere in this Agreement, or (z) consented to inwriting by the Purchaser in accordance with the provisions of Section 5.9.(b)Since the Reference Date, no circumstance, event or fact relating to ManCo has occurred that may constitute a Material AdverseChange.8.3.9 Intermediaries(a)ManCo has no liability or obligation to pay any fees or commissions to any broker, finder, agent or advisor, including attorneys andchartered accountants, with respect to any of the transactions contemplated by this Agreement or relating to the Transaction.(b)All professional fees or any other amounts due by ManCo to any advisors, including to attorneys and chartered accountants, havebeen paid and none of these advisors has any claim against ManCo.618.3.10Completeness of Representations and Warranties(a)The ManCo Shareholders have not omitted to disclose or misstated to the Purchaser during the negotiation of the Transaction anymaterial circumstances, events or facts whatsoever concerning ManCo or the ManCo Shares.(b)The ManCo Shareholders have taken all necessary actions to obtain from ManCo all information necessary to enable them to makethe representations contained in this Section 8.3.(c)There is no circumstance, event or fact relating to ManCo that may constitute a Material Adverse Change that has not been set forthin this Agreement.9.INDEMNIFICATION9.1Principle(a)Liability of each Indemnifying Seller IndividuallyFrom and after the Closing and subject to the provisions of this Section 9, each Indemnifying Seller undertakes, only as to itself andonly as to the Ordinary Shares, ORAs, OCRs, OBSAs and ManCo Shares it owns and to the Transferred Securities it will own, toindemnify and hold harmless the Purchaser, on a “euro” for “euro” basis (without application of any multiple or formula), from anyLoss incurred or suffered by the Purchaser or any of the Target Companies in connection with any breach or inaccuracy of, oromission in, the representations and warranties made by each such Indemnifying Seller in Section 8.1 (for the avoidance of doubt,notwithstanding any disclosure of the same to the Purchaser (or any of its Affiliates) prior to Closing pursuant to Section 5.10(a)and/or clause 9(a) of the Put Option Agreement).In addition, FPCI Winch Capital 3 hereby expressly undertakes, from and after the Closing and subject to the provisions of thisSection 9, to indemnify and hold harmless the Purchaser, on a “euro” for “euro” basis (without application of any multiple orformula), from any Loss incurred or suffered by the Purchaser or any of the Target Companies in connection with any breach orinaccuracy of, or omission in, the representations and warranties made by Montalivet Networks in Section 8.1 (for the avoidance ofdoubt, notwithstanding any disclosure of the same to the Purchaser (or any of its Affiliates) prior to Closing pursuant toSection 5.10(a) and/or clause 9(a) of the Put Option Agreement).(b)Liability of the Indemnifying Sellers Individually but not Jointly (conjointement mais non solidairement)From and after the Closing and subject to the provisions of this Section 9, the Indemnifying Sellers (including FPCI Winch Capital 3,Mr. de Puyfontaine and FPCI CIC Mezzanine 3) undertake, individually but not jointly (conjointement mais non solidairement) (but,for the avoidance of doubt, without prejudice to the provisions of Section 11.10, which shall apply), to indemnify and hold harmlessthe Purchaser, on a “euro” for “euro” basis (without application of any multiple or formula), from any Loss incurred or suffered bythe Purchaser or any of the Target Companies in connection with any breach or inaccuracy of, or omission in, the representationsand warranties made in Section 8.2 (for the avoidance of doubt, notwithstanding any disclosure of the same to the Purchaser (or anyof its Affiliates) prior to Closing pursuant to Section 5.10(a) and/or clause 9(a) of the Put Option Agreement), irrespective of whethersuch representations and warranties were made by all the Sellers (including Montalivet Networks) or by the62Sellers other than FPCI Winch Capital 3, Montalivet Networks, Mr. de Puyfontaine and FPCI CIC Mezzanine 3 and including, for theavoidance of doubt, to the extent of which any such representations and warranties has been made by Montalivet Networks.(c)Liability of the ManCo Shareholders Individually but not Jointly (conjointement mais non solidairement)From and after the Closing and subject to the provisions of this Section 9, the ManCo Shareholders undertake, individually but notjointly (conjointement mais non solidairement) (but, for the avoidance of doubt, without prejudice to the provisions of Section 11.10,which shall apply), to indemnify and hold harmless the Purchaser, on a “euro” for “euro” basis (without application of any multipleor formula), from any Loss incurred or suffered by the Purchaser or any of the Target Companies in connection with any breach orinaccuracy of, or omission in, the representations and warranties made in Section 8.3 (for the avoidance of doubt, notwithstandingany disclosure of the same to the Purchaser (or any of its Affiliates) prior to Closing pursuant to Section 5.10(a) and/or clause 9(a) ofthe Put Option Agreement).(d)The Parties hereby agree that any sums relating to a Loss due by an Indemnifying Seller pursuant to the preceding Paragraphs (the“Refund”) shall be paid to the Purchaser (or to the relevant Target Company, at the Purchaser’s election).(e)With respect to any Refunds paid pursuant to Sections 9.1(a) and 9.1(b) above, such payments shall be deemed to constitute anadjustment to the Final Price and, with respect to any Refunds paid pursuant to Section 9.1(c) above, such payments shall be deemedto constitute an adjustment to the Final Price within the limit of the portion of the Final Price represented by the ManCo Shares.9.2Calculation(a)In calculating the amount of the Refund relating to any Loss incurred or suffered by the Purchaser or any of the Target Companies,the following amounts shall be deducted:(i)any Tax benefit effectively realized by the Purchaser or the relevant Target Companies attributable to (and that would nothave arisen but for) the matter, event or circumstance giving rise to such Loss, provided that a Tax benefit shall be deemed tobe realized only if it gives rise to a reduction of the amount of corporate Tax that would have been effectively paid in theabsence of such Loss, on account of the financial year in which the Loss is accounted for;(ii)any sum paid to the Purchaser or any Target Company net of any applicable income Tax (whether as indemnity or otherwise)by a Third Party in relation to such Loss, including any insurance proceeds (netted against deductibles, retroactive premiums,increases of premiums resulting from the matter, event or circumstance underlying such Loss over a period of twelve (12)months, collection costs and other costs associated with making or pursuing any such claims, as applicable);(iii)any sum relating to such Loss actually taken into account for the determination of the Adjusted Initial Price as mentioned inthe Purchaser Completion Statement, as agreed or determined in accordance with the provisions of Section 2.5 above;63(iv)any provision or reserve made in the Accounts in relation to the matter, event or circumstance which gave rise to such Loss.(b)The amount of the Refund shall be increased by the amount of any Taxes which could be owed by the Purchaser or the relevantTarget Companies as a result of the payment of such Refund.(c)If and to the extent that any Loss is the result of (i) a Tax reassessment of a Target Company relating to the fiscal years ended onDecember 31, 2012, 2013, 2014 or 2015 whose sole effect is to shift a Tax liability from one fiscal year to another, or (ii) a Taxreassessment relating to value added tax that can be recovered by the relevant Target Company, the Refund shall be limited to theamount of any penalty or interest charge in relation thereto due by the relevant Target Company.(d)For purposes of determining the amount of the Refund relating to any Loss under this Agreement, any amount which is not a Euroamount shall be converted from the relevant foreign currency into Euros by using the Relevant Exchange Rate.(e)If the Indemnifying Sellers pay to or for the benefit of the Purchaser or the concerned Target Company an amount in respect of anyClaim and the concerned Target Company subsequently receives from any other Person any payment in respect of the matter givingrise to such Claim, the Purchaser shall thereupon pay to the Indemnifying Sellers an amount equal to the payment received (except tothe extent that the liability of the Indemnifying Sellers in respect of the Claim was reduced to take account of such payment) less anycosts and expenses incurred by the Purchaser and/or the concerned Target Company in this respect. Such payment shall be made tosuch accounts of Indemnifying Sellers as shall be notified by the Sellers’ Representative to the Purchaser for such purpose, togetherwith the allocation of the amount of such payment among the Indemnifying Sellers. Such allocation shall be made under the sole andexclusive responsibility of the Sellers and the Purchaser and the Target Companies shall incur no liability whatsoever in respectthereto.(f)The Purchaser hereby undertakes to inform, and to cause the relevant Target Companies to inform, in a timely manner the Sellers’Representative of the occurrence of any element which may be taken into account for purposes of Sections 9.2(a), 9.2(b), 9.2(c) and9.2(e). Any Refund shall only be owed for the net amount of any Loss calculated (i) after deduction or addition, as the case may be,of the items referred to in Sections 9.2(a) and 9.2(b) and (ii) taking into account the provisions of Section 9.2(c).(g)Solely for purposes of determining the amount of the Refund relating to any Loss under this Agreement, the representations,warranties, covenants and agreements of the Parties set forth in this Agreement shall be considered without regard to anyqualification based on “materiality” or “Material Adverse Change” or terms of similar import.(h)Notwithstanding anything to the contrary contained in this Agreement, neither any Seller nor the Sellers’ Representative (on behalfof all the Sellers) shall have any right of contribution, indemnification or similar right from or against any Target Company withrespect to any Claim arising in connection with any acts or omissions occurring at or prior to the Closing, and effective as of theClosing. Each Seller and the Sellers’ Representative hereby waive and release the Target Companies, the Purchaser and each of theirrespective Affiliates from any such right of contribution, indemnification or similar right from or against any Target Company withrespect to any Claim against such Seller or the Sellers’ Representative (on behalf of all the Sellers).649.3Exclusions - Limitations9.3.1Exclusions(a)The Indemnifying Sellers shall have no liability under this Section 9 in respect of any Loss which shall occur or be increased (but inthis case only to the extent of such increase) as a result of:(i)any retrospective change in any applicable Law occurring on or after Closing;(ii)any change in valuation rules or accounting or Tax policies, practices and methods of any of the Target Companiescompared to those used when preparing the Accounts occurring after Closing, except where such change is required tocomply with applicable Laws;(iii)any voluntary act, negligence, omission or transaction carried out on or after Closing by or at the written request of or withthe written consent of the Purchaser or any of its Affiliates or any of their successors in title or assignees;(iv)any action made by the Sellers or their Affiliates (including any of the Target Companies) pursuant to, or in accordance withthis Agreement, it being specified that such exclusion shall not apply to any action made in the context of the preparation,audit and delivery of the Required Financials and of the implementation and completion of the IP Recovery or pursuant toSections 5.1 to 5.5 of this Agreement;(v)any damages solely attributable to diminution of value or lost profits or opportunities.(b)The Indemnifying Sellers shall have no liability under this Section 9 in respect of any Loss incurred or suffered in connection withany breach or inaccuracy of, or omission in, a given representation and warranty in the event that such Loss occurs or is increased(but in this case only to the extent of such increase) as a result of any fact, event or circumstances which has been set forth in theDisclosure Schedules (i) expressly referring to such representation and warranty through a specific reference to the correspondingnumber of Subsection of Section 8 and letter of Paragraph of such Subsection and (ii) stating that it is an exception to suchrepresentation and warranty.(c)Notwithstanding the fact that a Loss may result from a breach or inaccuracy of more than one of the representations and warrantiesof the Sellers hereunder, the Indemnifying Sellers’ liability may only recover once in respect of such Loss (i.e., no double recovery).9.3.2Limitations(a)ThresholdsExcept as provided under Paragraph (d), no Refund shall be due under this Section 9, unless and only to the extent that the amountfor which the Indemnifying Sellers may be liable under this Section 9, after application of the provisions of Section 9.2, exceeds:(i)in respect of any single Claim other than Claims with respect to any Loss caused by, arising from or related to any breach orinaccuracy of, or omission in, any representation or warranty made under Section 8.2.17, an individual amount of fiftythousand Euros (€50,000), provided that such amount shall constitute a threshold (seuil de déclenchement) and not adeductible (franchise), the Indemnifying Sellers being liable for the total amount of such Loss and not only for the amount65of such Loss in excess of such threshold (it being agreed that a series of Losses arising from common origins shall beaggregated and treated as a single Loss);(ii)in respect of any single Claim with respect to any Loss caused by, arising from or related to any breach or inaccuracy of, oromission in, any representation or warranty made under Section 8.2.17, an individual amount of ten thousand Euros(€10,000), provided that such amount shall constitute a threshold (seuil de déclenchement) and not a deductible (franchise),the Indemnifying Sellers being liable for the total amount of such Loss and not only for the amount of such Loss in excess ofsuch threshold (it being agreed that a series of Losses arising from common origins shall be aggregated and treated as asingle Loss); and(iii)in the aggregate, in respect of all Claims, a cumulative threshold of an amount of three hundred and fifty thousand Euros(€350,000), provided that such amount shall constitute a threshold (seuil de déclenchement) and not a deductible (franchise),the Indemnifying Sellers being liable under this Section 9 when such threshold is reached and then for the entire amount ofthe Losses and not only for the amount of the Losses which is in excess of such threshold;it being specified that none of such thresholds shall be applicable with respect to any Loss caused by, arising from or related to anybreach or inaccuracy of, or omission in, any representation or warranty made under Sections 8.1, 8.2.1, 8.2.10(t), 8.2.16(g),8.2.16(h), 8.2.24 and 8.3.(b)CapExcept as provided under Paragraph (d), the aggregate amount of the Refund for which the Indemnifying Sellers may be liable underthis Section 9 shall in any circumstances be limited to:(i)the Final Price, as converted from US Dollars into Euros by using the Escrow Closing Average Exchange Rate, in respect ofany breach of the representations or warranties made under Sections 8.1, 8.2.1, 8.2.10(t), 8.2.16(g) and 8.2.16(h); and(ii)US Dollars 13,500,000, as converted from US Dollars into Euros by using the Escrow Closing Average Exchange Rate, inrespect of any breach of the representations or warranties made under Section 8.2 other than the representations or warrantiesmade under Sections 8.2.1, 8.2.10(t), 8.2.16(g) and 8.2.16(h);it being expressly specified that (i) such two caps shall be deemed independent so as the consummation of one of them shall notconsummate the other and (ii) no cap shall apply in respect of any breach of the representations or warranties made underSection 8.3.Notwithstanding the foregoing:(i)the overall amount of Refund for which the Indemnifying Sellers (collectively) may be liable under this Section 9 in respectof any breach of the representations or warranties made under Section 8 other than the representations or warranties madeunder Section 8.3 shall be limited to the Final Price, as converted from US Dollars into Euros by using the Escrow ClosingAverage Exchange Rate;(ii)the overall amount of Refund for which each Indemnifying Seller (other than FPCI Winch Capital 3) may be liable under thisSection 9 in respect of any breach of the representations or66warranties made under Section 8 other than the representations or warranties made under Section 8.3 shall be limited to suchIndemnifying Seller’s Allocable Fraction of the Final Price, as converted from US Dollars into Euros by using the EscrowClosing Average Exchange Rate;(iii)the overall amount of Refund for which FPCI Winch Capital 3 may be liable under this Section 9 in respect of any breach ofthe representations or warranties made under Section 8 other than the representations or warranties made under Section 8.3shall be limited to the sum of (i) its Allocable Fraction of the Final Price and (ii) Montalivet Networks’ Allocable Fraction ofthe Final Price, as converted from US Dollars into Euros by using the Escrow Closing Average Exchange Rate;(iv)the overall amount of Refund for which each ManCo Shareholder may be liable under this Section 9 in respect of any breachof the representations or warranties made under Section 8.3 shall be limited to such ManCo Shareholder’s Allocable ManCoFraction of the overall amount of Refund for which the ManCo Shareholders (collectively) may be liable under this Section 9in respect of any breach of the representations or warranties made under Section 8.3.(c)Time Limitations(i)A Claim may give right to a Refund if notice of such Claim is made before the date which is eighteen (18) months after theClosing Date, except for Claims made pursuant to Sections 8.1, 8.2.1, 8.2.16, 8.2.17 and 8.3 which may be made until thirty(30) Business Days after the expiration of the applicable statute of limitations with respect thereto.(ii)The Indemnifying Sellers’ obligations under this Section 9 shall continue as to any matter as to which a Claim is submitted inwriting to the Sellers’ Representative prior to the time limitations specified above and identified as a Claim (regardless of thefact that the amount of the potential Loss or Refund is not precisely known or determined at the time of the correspondingClaim Notice) until such time as such Claims and matters are resolved.(d)Fraud and Willful MisconductThe Indemnifying Sellers hereby expressly acknowledge that none of the limitations contained in Section 9.3 shall apply to and limitin any manner any Claim that arises as a result of fraud or willful misconduct by the Sellers or their Affiliates (including the TargetCompanies) prior to the Closing, or any Person whose liability the Sellers or their Affiliates (including the Target Companies) mayhave retained or assumed either contractually, by operation of applicable Law, or otherwise.9.4Claim Notices(a)In the event that the Purchaser considers in good faith that it has a claim to receive a Refund from the Indemnifying Sellers under thisSection 9 (a “Claim”), then the Purchaser shall send to the Sellers’ Representative a written notice (a “Claim Notice”) which shallspecify:(i)the grounds for such Claim (including whether or not the Claim is based on a Third Party Claim); and(ii)to the extent possible at the time of the Claim Notice, the amount or the estimated amount of the Loss giving rise to suchClaim and of the Refund claimed in respect thereto;67all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which a right to be paidis claimed, and such available supporting evidence as may reasonably be needed by the Indemnifying Sellers to assess the merits ofthe Claim and, to the extent possible, the computation of the Refund or the estimate of the Loss giving rise to the Claim.(b)The Claim Notice shall be sent by the Purchaser to the Sellers’ Representative:(i)if the Claim arises in connection with any claims, verifications or judicial or administrative proceedings by any Third Party (a“Third Party Claim”); within twenty (20) Business Days after receipt by the relevant Target Company of actual notice ofsuch Third Party Claim or, if required by the circumstances (e.g.; in the case of emergency proceedings or when a responseto notification must be given within a time period in order to avoid a forfeiture of rights), within a shorter period, ifpracticable, to enable the Sellers’ Representative to exercise its rights hereunder to participate in the defense of the relevantTarget Company’s interests; and(ii)for any other Claims, no later than thirty (30) Business Days after the Purchaser or the relevant Target Company firstbecomes aware of the facts upon which the Claim is based;provided that any failure to notify a Claim in due time shall have no consequence on the validity of such Claim nor shall relieve theIndemnifying Sellers of any liability they may have to the Purchaser in respect of such Claim. In addition, the failure to notify aClaim in due time shall not reduce the amount of the Loss to be covered by the Indemnifying Sellers in respect to such Claim nor theamount of the Refund relating to such Loss, except to the sole extent that such failure results in an increase of such Loss and onlywithin the limit of the amount of such increase.(c)The Sellers’ Representative (on behalf of the relevant Indemnifying Seller or of all the Indemnifying Sellers or of all theManCo Shareholders) may object in whole or in part to a Claim in a written statement (providing explanations with supportingevidence as may reasonably be required to assess the merits of such objection) (the “Response”) within thirty (30) days (or suchshorter period of time to permit the Purchaser to take the necessary action as required by the circumstances or to meet proceduraldeadlines) after receipt of the corresponding Claim Notice, failing which it shall be irrevocably deemed to have agreed upon suchClaim on behalf of the relevant Indemnifying Seller, of all the Indemnifying Sellers or of all the ManCo Shareholders, as the casemay be. In case of objection notified by the Sellers’ Representative in accordance with the provisions of this Paragraph, the Sellers’Representative and the Purchaser shall meet within thirty (30) days (or such shorter period of time to permit the Purchaser to take thenecessary action as required by the circumstances or to meet procedural deadlines) following the receipt of the Response by thePurchaser in order to attempt in good faith to reach an agreement with respect to (i) the validity of the Claim and/or, (ii) if thecorresponding Claim Notice included the Purchaser’s final determination of the amount of the Loss giving rise to such Claim and ofthe Refund claimed in respect thereto and in the event that such amounts are disputed, the amount of such Claim. If no suchagreement can be reached after good faith negotiations within a period of thirty (30) days following the receipt by the Purchaser ofthe Response relating to the corresponding Claim Notice, the dispute may be settled in accordance with the provisions ofSection 11.12.9.5Claims Involving Third Parties(a)In the event of a Third Party Claim, the procedure described in this Section 9.5 shall apply and the Purchaser shall (i) provide to theSellers’ Representative any relevant documentation(s) sent by the Third Party in question giving notice of the Third Party Claim, (ii)keep the Sellers’ Representative informed of any development of the Third Party Claim, (iii) provide the Sellers’ Representative (atthe Sellers’ expense) with copies of all relevant documents and such other information relating to the Third Party68Claim in its possession as may be reasonably requested by the Sellers’ Representative, and (iv) consider to the extent possible, butwithout any obligation to follow, any reasonable advice or suggestions provided by the Sellers’ Representative.(b)Whenever the Purchaser or a Target Company is entitled to recover any amounts which could be or has been the subject of a Claimhereunder, the Purchaser shall make its, and shall cause the relevant Target Company to make its reasonable efforts to avoid ormitigate any Loss, including prosecuting diligently and in good faith any claim that it or any of the Target Companies may have toreceive indemnification or any other recovery (including insurance proceeds) from any Third Party.(c)The Sellers’ Representative (on behalf of the relevant Indemnifying Seller, of all the Indemnifying Sellers or of all the ManCoShareholders) may participate, at the Sellers’ expense, in the defense of any Third Party Claim with counsel of its choice, who shallcooperate with the counsel of the Purchaser or the Target Company concerned. The Sellers’ Representative shall exercise its rightsunder this Section 9.5 reasonably, in good faith and taking into account the reasonable corporate and commercial interests of theTarget Companies. The Purchaser shall provide and shall cause the Target Companies to provide the Sellers’ Representative with allinformation or documents in relation to the Third Party claim which the Sellers’ Representative may reasonably request. The Sellers’Representative shall notify the Purchaser of its intent to participate to the defense of such Third Party Claim within twenty (20)Business Days from the date of receipt of the Claim Notice. Failing the receipt by the Purchaser of such notification within suchperiod of time, the Sellers’ Representative shall be deemed having waived its rights to participate to the defense of the given ThirdParty Claim.(d)The Purchaser, acting reasonably and in good faith, may, and may cause the Target Companies to, make any admission of liability,agreement, settlement or compromise with any third Party in relation to any Third Party Claim after having informed and obtainedthe prior written consent of the Sellers’ Representative, which consent shall not be unreasonably withheld.(e)The Purchaser shall ensure that the Sellers’ Representative and its advisors are given such information and documents relating to theThird Party Claim as the Sellers’ Representative and its advisors may reasonably require in connection therewith.9.6Duty to MitigateThe Parties shall procure that all reasonable steps are taken and all reasonable assistance is given to avoid or mitigate any Loss whichin the absence of mitigation might give rise to a liability in respect of any Claim. The Indemnifying Sellers shall not be liable for anyincrease in the amount of a Loss (but only to the extent of such increase) if and to the extent such increase is attributable to theabsence of mitigation of the Loss by the Purchaser.9.7Disclosures(a)No Indemnifying Seller shall be released, in all or in part, from its obligations to pay a Refund to the Purchaser in connection with aClaim by invoking any lack of awareness of the facts in question. Notwithstanding the foregoing, the Indemnifying Sellers mayinvoke the lack of awareness of the facts giving rise to a Claim each time a representation or warranty granted under this Agreementstarts with or includes the following expression: “to the Sellers’ Knowledge”.(b)Notwithstanding anything to the contrary in this Agreement, the Indemnifying Sellers shall not be released, in all or in part, fromtheir obligation to indemnify the Purchaser in connection therewith by invoking69any knowledge that the Purchaser has, may have or should have of the facts giving rise to the Claim (including as a result of anyinvestigations made by the Purchaser or any oral or written disclosure made by the Sellers or their Affiliates (including the TargetCompanies) or their respective Connected Persons during the due diligence, whether through the Data Room or otherwise, thenegotiations, pursuant to Section 5.10 above or clause 9 of the Put Option Agreement, in this Agreement or in the Schedules theretoother than the relevant Disclosure Schedules). Without limiting the generality of the foregoing, any representation and warranty ofthe Sellers made under Section 8 is subject only to the corresponding Disclosure Schedules.(c)The approval by the Purchaser, as shareholder of ManCo, of the Holding or otherwise, of the financial statements of any of theTarget Companies related to any period ending on or after the Closing Date shall not constitute, where applicable, a waiver by thePurchaser of its right to indemnification under this Section 9.9.8Payment(a)Subject to the limitations set forth in Section 9.3 above, payments of Refunds shall be made in Euros as follows:(i)in connection with a Third Party Claim, within ten (10) Business Days following receipt by the Sellers’ Representative of anotice sent by the Purchaser evidencing that the amount of the Third Party Claim is being due and payable as a result of afinal enforceable and non-appealable decision of the court or as a result of the execution of a settlement agreement; and(ii)in connection with any other Claim, within fifteen (15) Business Days following the date on which the Sellers’ Representativeand the Purchaser are or are deemed to be in agreement on the validity and the amount of the Claim in accordance withSection 9.4 above, or in the event of a disagreement between the Sellers’ Representative and the Purchaser, following thedate (i) of the final enforceable and non-appealable decision rendered in accordance with Section 9.4 and Section 11.12 inrespect of such disagreement or (ii) of execution by the Sellers’ Representative and the Purchaser of any settlementagreement with respect to such disagreement.(b)The Purchaser or the Target Companies shall have the right, but not the obligation, to offset any amount due to it by theIndemnifying Sellers under this Section 9.8, as converted from Euros into US Dollars by using the Closing Average Exchange Rate,against any amount which may remain payable to the Sellers under this Agreement.(c)Any payment required to be made pursuant to this Section 9.8 which is not made before the expiry of a thirty-day (30) period fromits due date, shall carry interest at the rate of ten (10) percent per annum (on the basis of a year of 365 days) from the due date forpayment until (and including) the date of actual payment.(d)The rules of allocation of the Refund among the Indemnifying Sellers shall be determined in accordance with Sections 2.9, 9.1 and9.3.2(b) above, it being expressly specified, for the avoidance of doubt, that:•Each Indemnifying Seller shall be fully liable for the payment of any Refund relating to a Loss incurred or suffered by thePurchaser or any of the Target Companies in connection with any breach or inaccuracy of, or omission in, the representationsand warranties made by such Seller in Section 8.1;70•FPCI Winch Capital 3 shall be fully liable for the payment of any Refund relating to a Loss incurred or suffered by thePurchaser or any of the Target Companies in connection with any breach or inaccuracy of, or omission in, the representationsand warranties made by Montalivet Networks in Section 8.1;•Without prejudice to the provisions of Section 11.10 below, which shall apply, for the payment of any Refund relating to aLoss incurred or suffered by the Purchaser or any of the Target Companies in connection with any breach or inaccuracy of,or omission in, the representations and warranties made by the Sellers individually but not jointly (conjointement mais nonsolidairement) in Section 8.2, (i) each Indemnifying Seller (other than FPCI Winch Capital 3) shall be liable for its AllocableFraction of such Refund and (ii) FPCI Winch Capital 3 shall be liable for the sum of (x) its Allocable Fraction of such Refundand (y) Montalivet Networks’ Allocable Fraction of such Refund; and•Without prejudice to the provisions of Section 11.10 below, which shall apply, for the payment of any Refund relating to aLoss incurred or suffered by the Purchaser or any of the Target Companies in connection with any breach or inaccuracy of,or omission in, the representations and warranties made by the ManCo Shareholders individually but not jointly(conjointement mais non solidairement) in Section 8.3, each ManCo Shareholder shall be liable for its AllocableManCo Fraction of such Refund.9.9Collateral(a)On the Closing Date and as guarantee of any Sellers’ payment obligations under Section 2.6, Section 3.3(d) and this Section 9, theIndemnifying Sellers and the Purchaser shall enter into the Escrow Agreement and the Purchaser shall transfer the Amount in Escrowto the Escrow Account in accordance with the provisions of Section 2.4, as security for the Downward Adjustment (if any), theRemaining Purchaser IP Recovery Cost and Expenses and the Claims made under this Section 9. All interests or revenue of anynature whatsoever deriving from the Amount in Escrow shall be allocated among the Purchaser and the Indemnifying Sellers prorata the portion of the principal of the Amount in Escrow to be released to each of them pursuant to the Escrow Agreement,Sections 2.6 and 3.3(d) above and this Section 9.9.(b)The Amount in Escrow shall be kept and shall remain in the Escrow Account pursuant to the provisions of the Escrow Agreement.Such agreement shall provide that the Amount in Escrow be released in all or in part to the Purchaser in accordance with Sections 2.6and 3.3(d) above and as soon as any payment is due by any Indemnifying Seller pursuant to Section 9.8, upon notification of theSellers’ Representative and the Purchaser to such effect. It shall only be released to the Sellers upon joint notification of the Sellers’Representative and the Purchaser in respect thereto.(c)To the extent that the amount remaining in the Escrow Account is insufficient to satisfy in full any amount due to the Purchaserpursuant to Section 9.8, the excess shall be paid within the timeframe provided for in Section 9.8(a) to the Purchaser by the relevantIndemnifying Sellers by wire transfer in immediately available Euro funds to the bank account(s) whose details shall be notified bythe Purchaser to the Sellers’ Representative no later than five (5) Business Days in advance.9.10Exclusivity of Remedy(a)Save in the event of fraud, fraudulent misrepresentation (dol) or dishonesty of the Sellers, the indemnification provided for in thisSection 9 shall be after the Closing Date the exclusive remedy of the71Purchaser against the Indemnifying Sellers in respect of the indemnification of any Loss arising out of a breach of the representationsand warranties of the Sellers set forth in Section 8 and the Purchaser hereby waives any right that it may have to rescission ortermination of this Agreement in such respect.(b)Notwithstanding anything to the contrary in this Agreement, (i) all rights and/or remedies available under applicable Laws shallremain available to the Purchaser in case of breach by any Seller of any of its covenants, undertakings or obligations (other than therepresentations and warranties of the Sellers set forth in Section 8) under this Agreement (including as Sellers’ Representative),including the right to claim damages, and (ii) nothing herein shall prevent the Purchaser from seeking and obtaining injunction reliefor specific performance (exécution forcée) in respect of any obligation under this Agreement and the other Transaction Documents,which the Sellers expressly acknowledge. In such respect, each Seller hereby waives irrevocably its rights under Article 1142 of theFrench Civil Code (Code civil).10.TERMINATION10.1Primary CausesThis Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Closing:(a)by mutual written consent of the Purchaser and the Sellers’ Representative (on behalf of all the Sellers);(b)by either the Purchaser or the Sellers’ Representative (on behalf of all the Sellers) upon written notice served to the non-terminatingParty, if any permanent injunction or action by any Governmental Authority of competent jurisdiction prohibiting consummation ofthe transactions contemplated by this Agreement shall have been issued or taken and shall have become final and non-appealable;(c)by the Sellers’ Representative (on behalf of all the Sellers) (so long as none of the Sellers is at such time in breach of any of itsmaterial representations, warranties, covenants or agreements contained in this Agreement) upon written notice served to thePurchaser, if (i) the Purchaser shall fail to comply with its obligations set forth in Section 3 on a timely basis and/or with itsobligations set forth in Section 4 before the end of the Closing Date, and (ii) such failure to comply has not been cured within five(5) Business Days after the notice by the Sellers’ Representative to the Purchaser of the said failure to comply, it being expresslyagreed that such termination would be in addition to and without prejudice to all other rights and/or remedies available to the Sellersagainst the Purchaser including the right to claim damages;(d)by the Purchaser (so long as the Purchaser is not at such time in breach of any of its material representations, warranties, covenantsor agreements contained in this Agreement) upon written notice served to the Sellers’ Representative, if (i) any of the Sellers shall failto comply with its obligations set forth in Section 3 on a timely basis and/or with its obligations set forth in Section 4 before the endof the Closing Date, and (ii) such failure to comply has not been cured within five (5) Business Days after the notice by thePurchaser to the Sellers’ Representative of the said failure to comply, it being expressly agreed that such termination would be inaddition to and without prejudice to all other rights and/or remedies available to the Purchaser against the Sellers including the rightto claim damages;72(e)by the Purchaser upon written notice served to the Sellers’ Representative, in accordance with the provisions of Section 5.10(b).10.2Non-Occurrence of the Closing(a)This Agreement may be terminated by the Purchaser upon written notice served to Sellers’ Representative on the Business Dayfollowing the Long Stop Date, in the event that the Closing does not take place on or before the Long Stop Date, because theConditions Precedent set forth in Sections 3.1(b) to 3.1(d) are not satisfied or validly waived; or(b)This Agreement may be terminated by either the Purchaser or the Sellers’ Representative (on behalf of all the Sellers) upon writtennotice served to the non-terminating Party on the Business Day following the Long Stop Date, in the event that the Closing does nottake place on or before the Long Stop Date for any reason other than the non-satisfaction (and absence of waiver) of the ConditionsPrecedent set forth in Sections 3.1(b) to 3.1(d), unless such eventuality shall be due to the breach by the Party (or Parties) seeking toterminate this Agreement of any of the covenants, agreements or other undertakings set forth in this Agreement to be performed orobserved by such Party (or Parties) prior thereto.10.3Effect of TerminationIf this Agreement is terminated pursuant to Sections 10.1 or 10.2, no Party hereto (or any of its Affiliates and Connected Persons)will have any liability or further obligation under this Agreement to any other Party to this Agreement, except for (a) any liability thatshall have accrued prior to such termination, (b) any liability arising out of any breach of this Agreement prior to such terminationand (c) the obligations set forth in Section 11 (General Provisions), which shall survive termination (save for Section 11.1).11.GENERAL PROVISIONS11.1CooperationEach of the Parties hereby undertakes to make every effort to take all measures or to ensure that all measures necessary or advisableunder applicable Laws are taken in a timely manner for the consummation of the transactions contemplated by this Agreement.11.2Confidentiality11.2.1Public Announcements(a)As from the date of this Agreement, neither any of the Sellers nor the Purchaser shall, and the Sellers and the Purchaser shall procurethat none of their respective Affiliates, representatives or advisors shall, issue or cause the publication of any press release or otherpublic announcement or disclosure with respect to this Agreement or the transactions contemplated hereby without the prior writtenconsent of the Purchaser (if the requesting Party is a Seller) or the Sellers’ Representative (if the requesting Party is the Purchaser),which consent shall not be unreasonably withheld, except that each Party (or any of its Affiliates) shall be permitted to make suchpublic announcements as may be required by applicable Law.73(b)In the event any such press release, public announcement or other disclosure is required by applicable Law to be made by any Party(or any Affiliate of any Party), the relevant Party shall notify the Purchaser (if the requesting Party is a Seller) or the Sellers’Representative (if the requesting Party is the Purchaser) prior to the issuance or making of any such press release, publicannouncement or other disclosure and shall use its commercially reasonable endeavors to consult in good faith with the Purchaser orthe Sellers’ Representative (as the case may be) and to take into account the reasonable requirements of the Purchaser or the Sellers’Representative (as the case may be) as to the timing, contents and manner of making any such press release, public announcement orother disclosure.(c)Except to the extent that the Sellers or any Target Company is required by applicable Law to make any such communication, theSellers’ Representative and the Purchaser shall consult with each other concerning the means by which the Target Companies’customers and suppliers and others having dealings with the Target Companies will be informed of the transactions contemplated bythis Agreement.11.2.2Non-Disclosure(a)Each Party shall, and shall procure that its Affiliates, keep confidential all information provided to them by or on behalf of the otherParties (or their Affiliates) or otherwise obtained by them in connection with this Agreement which relates to such other Parties (ortheir Affiliates), except: (i) as may be required by applicable Laws or any Governmental Authority; and (ii) regarding anyinformation which may be or become known to the public other than because of a breach of the non-disclosure obligation thereon.(b)Each of the Sellers undertakes, on its behalf and on behalf of its Affiliates, for a period from the Closing Date until the thirdanniversary of the Closing Date, not to disclose to any Person any confidential information relating to any Target Companies or theirbusiness, in particular in respect of business strategy, customers and suppliers, except as may be required by applicable Laws or anyGovernmental Authority.11.3Absence of Third-Party Rights - AssignmentExcept as expressly provided herein, this Agreement shall inure to the benefit of, and be binding upon, the Parties hereto and theirrespective successors and assigns; provided, however, that none of the Parties shall assign any of its rights or delegate any of itsobligations created under this Agreement without the prior written consent of the other Parties. Notwithstanding anything to thecontrary in this Agreement (including the foregoing), the Purchaser is entitled to assign any or all of its rights, interests, orobligations hereunder to any other Affiliate of the Mother Company, including any new company incorporated by the MotherCompany or any Affiliate of the Mother Company for that purpose, without having to obtain the consent of the other Parties, whichsuch other Parties hereby expressly acknowledge and agree.11.4Guarantee of the Purchaser’s payment obligations(a)The Mother Company hereby unconditionally guarantees to the Sellers (as a “caution solidaire”) (the “Mother CompanyGuarantee”) the performance of the Purchaser’s payment obligations under the terms of this Agreement (the “GuaranteedObligations”).(b)The Mother Company undertakes with the Sellers that, if and whenever the Purchaser does not pay any amount when due under thisAgreement, it shall pay such amount within five (5) Business Days following receipt of a written notification sent by the Sellers’Representative specifying that the Purchaser did not perform any Guaranteed Obligation when due under this Agreement.74(c)The Mother Company hereby irrevocably and expressly undertakes not to exercise, and waives to the fullest extent lawful:(i)Any right that it may have under Articles 2298 (bénéfice de discussion) and 2303 (bénéfice de division) of the French CivilCode;(ii)Any rights that it may have under Article 2316 of the French Civil Code to take any action against the Purchaser in the eventof any extension of any date for payment of any amount due, owing or payable to the Sellers under this Agreement or anyother time indulgence granted by the Sellers to the Purchaser, which is made without the consent of the Mother Company;and(iii)Any rights that it may have at any time with respect to any indulgence, release of payment, whether in whole or in part, orany other measures imposed on any of the creditors generally of the Purchaser in a bankruptcy, insolvency, liquidation orsimilar or analogous proceeding.(d)The Mother Company shall not be entitled to transfer or assign its rights and obligations under this Mother Company Guaranteewithout the prior consent of the Sellers’ Representative. Notwithstanding the foregoing, this Mother Company Guarantee shallremain in full force and effect in case of merger, spin-off or any other operation which entails universal transfer of asset(transmission universelle du patrimoine) and which is affecting the Purchaser.(e)This Mother Company Guarantee shall remain in full force and effect as long as any Guaranteed Obligation has not been irrevocablyand indefeasibly paid in full.11.5Entire AgreementThis Agreement (including its Schedules and together with the Confidentiality Agreement and the Put Option Agreement) representsthe entire agreement and understanding of the Parties with reference to the transactions set forth herein and no representations orwarranties have been made in connection with this Agreement other than those expressly set forth herein. This Agreementsupersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements other than the PutOption Agreement between the Parties relating to the subject matter of this Agreement and all prior drafts of this Agreement, all ofwhich are merged into this Agreement. No prior drafts of this Agreement may be used to show the intent of the parties in connectionwith this Agreement or shall otherwise be admissible into evidence in any proceeding or other legal action involving this Agreement.11.6Waivers and AmendmentsNo modification of or amendment to this Agreement shall be valid unless set forth in an instrument in writing signed by each of theParties hereto referring specifically to this Agreement and stating the Parties’ intention to modify or amend the same. Any waiver ofany term or condition of this Agreement must be set forth in an instrument in writing signed by the waiving Party and must referspecifically to the term or condition to be waived and to the circumstances of such waiver. No such waiver shall be deemed toconstitute a waiver applicable either to other circumstances involving the same term or condition or to any other term or condition ofthis Agreement.7511.7SeverabilityThis Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect thevalidity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid orunenforceable term or provision, the Parties hereto intend that there shall be added as a part of this Agreement a provision as similarin terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.11.8Notices and Communications(a)Except as otherwise specifically provided for hereunder, all notices and other communications required or permitted to be given ormade pursuant to this Agreement shall be in writing in the English language and shall be: (x) delivered by hand against anacknowledgement of delivery dated and signed by the recipient; (y) sent by an overnight courier service of recognized internationalstanding (all charges paid); or (z) sent by E-mail or facsimile transmission and confirmed by registered mail (postage prepaid, returnreceipt requested) (lettre recommandée avec demande d’avis de réception) posted no later than the following Business Day, to therelevant Party at its address, E-mail address and/or fax number set forth below:If to the Purchaser, to: Harmonic International AGAvenue de la Gare 121700 Fribourg, SwitzerlandAttn: Raphael SegurE-mails: Raphael.Segur@harmonicinc.com andharmoniclegal@harmonicinc.comWith a copy to: Harmonic Inc.4300 North First StreetSan Jose, CA 95134, United States of AmericaAttn: Timothy Chu, General CounselE-mails: tim.chu@harmonicinc.com andharmoniclegal@harmonicinc.comAnd to: Shearman & Sterling LLP114, avenue des Champs-Elysées75008 Paris, FranceAttn : Nicolas BombrunE-mail : Nicolas.Bombrun@Shearman.comPhone: +33.1.53.89.48.48Fax: +33.1.42.99.78.00If to a Seller, to: The Sellers’ RepresentativeMr. Delahousse15, rue Trébois92300 Levallois-Perret, France76Attn: Christophe DelahousseE-mail: christophe.delahousse@thomson-networks.comFax: +33.01.34.25.96.80With a copy to: Orrick Rambaud Martel31 avenue Pierre 1er de Serbie75782 Paris cedex 16, FranceAttn : Saam GolshaniE-mail: sgolshani@orrick.comPhone: +33 1 53 53 75 00Fax : + 33 1 53 53 75 01or to such other Persons or at such other addresses and/or fax numbers as hereafter may be furnished by the Purchaser or the Sellers’Representative by like notice to the other.(b)A notice or a communication shall be deemed to have been received:(i)at the time of delivery if delivered personally;(ii)at the time of delivery or transmission (if such delivery or transmission is confirmed) if sent by E-mail or by fax;(iii)two (2) Business Days after the time and date of mailing if sent by pre-paid inland registered mail; or(iv)five (5) Business Days after the time and date of mailing if sent by pre-paid registered airmail;provided that if deemed receipt of any notice or communication occurs after 7:00 p.m. or is not on a Business Day, deemed receiptof the Notice shall be 9:00 a.m. on the next Business Day. References to time in this Section 11.8 are to local time in the country ofthe addressee.11.9Sellers’ Representative(a)Mr. Delahousse is hereby unconditionally, irrevocably and exclusively appointed as the representative of the Sellers for the purposesof any consent, notice, action or step to be given, conducted or taken hereunder for which this Agreement expressly provides thatsuch consent, notice, action or step is to be given, conducted or taken by the Sellers’ Representative. In all cases where theAgreement so refers to a consent, notice, action or step to be given, conducted or taken by the Sellers’ Representative,Mr. Delahousse shall be the sole Person entitled to act in the name and for the account (“au nom et pour le compte”) of all Sellers, inthe capacity of the Sellers’ joint representative (“mandataire commun”) in accordance with article 1984 et seq. of the French CivilCode. The Sellers shall be bound by any decision and act of the Sellers’ Representative made in accordance with this Agreement.The Sellers’ Representative shall be appointed for the term of this Agreement and shall not be revoked by the Sellers during suchterm. Mr. Delahousse hereby accepts and undertakes to act as Sellers’ Representative for the term of this Agreement. The Purchasershall not be bound or deemed to be bound by any separate agreement or arrangement between the Sellers to which the Purchaser isnot a party.(b)Notwithstanding anything to the contrary in this Agreement, should Mr. Delahousse, hereby appointed, be unable to perform hisduties in acting as the Sellers’ Representative, for any reason whatsoever,77Mr. Congard will replace him as Sellers’ Representative. In such case, Mr. Congard must notify to each Seller and to the Purchaserthat he is henceforth acting as the Sellers’ Representative.Should Mr. Congard be unable to perform his duties to act as the Sellers’ Representative, for any reason whatsoever, the Sellers’Representative will be appointed among the Sellers by the Sellers. If the Sellers do not reach an agreement within ten (10) days of thedate Mr. Congard has ceased to perform his duties as Sellers’ Representative, then the Sellers’ Representative shall be appointedamong the Sellers by the President of the Commercial Court of Paris ruling in summary form (statuant en référé), such ruling beingunchallengeable in appeal.11.10Parties acting Severally and Jointly (conjointement et solidairement)(a)Notwithstanding anything to the contrary in this Agreement, Mr. Delahousse is acting severally and jointly (conjointement etsolidairement) with Mrs. Laure Delahousse, Mrs. Camille Delahousse, Mr. Edouard Delahousse and Mrs. Constance Delahousse forpurposes of this Agreement.(b)Notwithstanding anything to the contrary in this Agreement, Mr. Congard is acting severally and jointly (conjointement etsolidairement) with Mr. Louis Congard and Mrs. Anne Congard for purposes of this Agreement.(c)Notwithstanding anything to the contrary in this Agreement, FPCI Winch Capital 3 is acting severally and jointly (conjointement etsolidairement) with Montalivet Networks for purposes of this Agreement.11.11Costs and Expenses(a)The Purchaser and the Sellers shall each be responsible for payment of all fees and costs respectively incurred in connection with thenegotiation, preparation and signing of this Agreement and the consummation of the transactions contemplated hereby, including thefees and disbursements of their respective financial advisors, accountants and attorneys.(b)Any transfer or stamp taxes (including any droits d’enregistrement) or similar levies that may become payable as a result of thesigning of this Agreement or the transfer of the Shares pursuant hereto shall be borne by the Purchaser and shall be paid on a timelybasis in compliance with all statutory requirements. The Purchaser shall provide the Sellers’ Representative with evidence of thepayment of any such taxes or levies promptly upon the written request of the Sellers’ Representative.11.12Governing Law and DisputesThis Agreement shall be exclusively governed by and construed in accordance with the laws of France. Any dispute, controversy,proceedings or claim of whatever nature arising out of or in any way relating to this Agreement (or any matters contemplated underthis Agreement) or its formation or its validity or its interpretation or its performance shall be submitted to the sole and exclusivejurisdiction of the Commercial Court of Paris (Tribunal de Commerce de Paris).11.13LanguageThe Language of this Agreement and the transactions envisaged by it is English and all notices, demands, requests, statements,certificates or other documents or communications in connection with this Agreement and the transactions envisaged by it shall be inEnglish unless otherwise agreed.7811.14Volume IIVolume II of this Agreement, which is comprised of Schedules 8.2.1(c) to 8.3.3(a) to this Agreement, is contained in a CD-Romentitled “Sale and Purchase Agreement dated February 11, 2016 - Volume II/II” reproduced in twenty-two (22) copies, each ofwhich has been signed in the name and on behalf of all Parties to this Agreement by their respective authorized signatories on thedate hereof, which each Party hereto expressly acknowledges and agrees.* **Made in Paris, on February 11, 2016, in twenty-two (22) original copies.[Signatures on the following pages]79Signed on February 11, 2016 by:KEPLER M2:___________________________ KEPLER M2Being a party to this Agreement for the sole purpose of Sections 5.1 to 5.5, 5.9 and 5.12By: Mr. Christophe DelahoussePosition: PresidentAND EACH OF THE SELLERS: Mr. Eric LouvetRepresented by Mr. Christophe Delahousse Mr. Eric GallierRepresented by Mr. Christophe DelahousseMr. Jean-Marc GuiotRepresented by Mr. Christophe Delahousse Mr. Claude PerronRepresented by Mr. Christophe DelahousseMrs. Crystele Trévisan-JalluRepresented by Mr. Christophe Delahousse Mrs. Delphine SauvionRepresented by Mr. Christophe DelahousseMr. Marc ProcureurRepresented by Mr. Christophe Delahousse Mr. Christophe DelahousseSigned on February 11, 2016 by:AND EACH OF THE SELLERS (CONTINUATION): Mrs. Laure DelahousseRepresented by Mr. Christophe Delahousse Mrs. Camille DelahousseRepresented by Mr. Christophe DelahousseMr. Edouard DelahousseRepresented by Mr. Christophe Delahousse Mrs. Constance DelahousseRepresented by Mr. Christophe DelahousseMr. Hervé CongardRepresented by Mr. Christophe Delahousse Mr. Louis CongardRepresented by Mr. Christophe DelahousseMrs. Anne CongardRepresented by Mr. Christophe Delahousse Signed on February 11, 2016 by:AND EACH OF THE SELLERS (CONTINUATION): FPCI Winch Capital 3Represented by Edmond de Rothschild Investment PartnersSCAItself represented by: Mr. Sylvain CharignonTitle: Gérant Montalivet NetworksRepresented by Edmond de Rothschild InvestmentPartners SCARepresented by: Mr. Sylvain CharignonTitle: GérantFPCI CIC Mezzanine 3Represented by CM-CIC Private Debt SASItself represented by: Mr. Sylvain Charignon or Mr. LaurentTourtois or Mr. Thomas Duteil, each of them being dulyauthorized for the purpose hereof Mr. Arnaud de PuyfontaineRepresented by: Mr. Sylvain Charignon or Mr. LaurentTourtois or Mr. Thomas Duteil, each of them being dulyauthorized for the purpose hereofSigned on February 11, 2016 by:THE PURCHASER:___________________________ HARMONIC INTERNATIONAL AGBy: Mr. Raphael SegurPosition: Member and President of the Board of DirectorsSigned on February 11, 2016 by:HARMONIC INC.:___________________________ HARMONIC INC.Entering into this agreement for the sole purpose of Section 11.4By: Mr. Patrick HarshmanPosition: CEOSCHEDULE 1.1DefinitionsIn addition to such terms as are defined elsewhere in this Agreement, wherever used in this Agreement (including the Recitals) andunless the context otherwise requires, the following terms shall have the following meanings:“2015 Actual Revenues”has the meaning ascribed to it in Section 2.7.1(a). “2015 Consolidated Accounts”shall mean, with respect to the Group Companies, the audited consolidated balance sheet(« bilan ») and profit and loss accounts (« compte de résultat ») (together with the notesattached thereto) of the Holding in respect of the financial year ending on December 31,2015, prepared in accordance with French GAAP and certified by the Holding’s statutoryauditors. “2015 Product Backlog”has the meaning ascribed to it in Section 2.7.2(a). “Abandoned Patents”shall mean Patents in FB Held Patent Rights, which have lapsed or have been abandoned byFrance Brevets, with the agreement of Kepler. "Accounts"shall mean:(A) with respect to the Group Companies, the unaudited combined balance sheet (« bilan »)and profit and loss accounts (« compte de résultat ») of the Holding as ofDecember 31, 2014 prepared by PricewaterhouseCoopers in accordance with FrenchGAAP and as of the Reference Date prepared in accordance with French GAAP; (B) with respect to each Target Company (other than the Holding, ManCo, Thomson VideoNetworks Asia Pacific Pte Ltd, Thomson Video Networks India Private Limited,Thomson Video Networks Italia Srl, Thomson Video Networks Espana S.L. andThomson Video Networks do Brasil Ltda):(a) that Target Company’s audited balance sheet (« bilan ») and profit and lossaccounts (« compte de résultat ») (together with the notes attached thereto) asof December 31, 2014, prepared in accordance with French GAAP andcertified by that Target Company’s statutory auditor(s), and(b) that Target Company’s unaudited balance sheet (« bilan ») and profit and lossaccounts (« compte de résultat ») as of the Reference Date prepared inaccordance with French GAAP; (C) with respect to Thomson Video Networks Asia Pacific Pte Ltd:(a) that Target Company’s audited balance sheet (« bilan ») and profit and lossaccounts (« compte de résultat ») (together with the notes attached thereto) asof December 31, 2014, prepared in accordance with French GAAP andcertified by that Target Company’s statutory auditor(s), (b) the unaudited balance sheet (« bilan ») and profit and loss accounts (« compte derésultat ») as of the Reference Date prepared in accordance with FrenchGAAP of that Target Company’s principal place of business, and (c) the unaudited balance sheet (« bilan ») and profit and loss accounts (« compte derésultat ») as of the Reference Date prepared in accordance with FrenchGAAP of that Target Company’s branch located in Taiwan; (D) with respect to Thomson Video Networks India Private Limited:(a) that Target Company’s audited balance sheet (« bilan ») and profit and lossaccounts (« compte de résultat ») (together with the notes attached thereto) asof March 31, 2014, prepared in accordance with French GAAP and certifiedby that Target Company’s statutory auditor(s), and(b) that Target Company’s unaudited balance sheet (« bilan ») and profit and lossaccounts (« compte de résultat ») as of the Reference Date prepared inaccordance with French GAAP; (E) with respect to each of Thomson Video Networks Italia Srl, Thomson Video NetworksEspana S.L. and Thomson Video Networks do Brasil Ltda, that Target Company’sunaudited balance sheet (« bilan ») and profit and loss accounts (« compte derésultat ») as of December 31, 2014 and as of the Reference Date prepared inaccordance with French GAAP; and(F) with respect to each of the Holding and ManCo, that Target Company’s unauditedbalance sheet (« bilan ») and profit and loss accounts (« compte de résultat ») as ofDecember 31, 2014 and as of the Reference Date prepared byPricewaterhouseCoopers in accordance with French GAAP. “Acquisition Proposal”has the meaning ascribed to it in Section 5.13. “Additional Price”has the meaning ascribed to it in Section 2.2.2. “Adjusted Initial Price”has the meaning ascribed to it in Section 2.2.1. “Adjusted Final Price”shall mean the Final Price less the portion of the Adjusted Initial Price corresponding to thepurchase of any and all the Mezzanine Bonds for an amount equal to the amount of theMezzanine Debt, as converted from Euros into US Dollars by using the Closing ExchangeRate.2 “Affiliates”when used with reference to a specified Person, shall mean any other Person that directly orindirectly through one or more intermediaries controls, is controlled by, controlling or isunder common control with, such specified Person; for the purpose of this definition, controlhas the meaning set forth in Article L. 233-3 of the French Commercial Code (Code decommerce); it being specified that a fund shall be deemed controlled by the companymanaging or advising such fund. “Agreement”has the meaning ascribed to it in the Preamble. “Allocable Fraction”when used with respect to a Seller, shall mean the fraction having for numerator, the portionof the Adjusted Final Price allocated to the Transferred Securities other than the MezzanineBonds (if any) owned by such Seller in accordance with Section 2.9, and for denominator, theAdjusted Final Price, except that in relation to any Claim made by the Purchaser hereunderthat (i) a Seller has breached any of its representations or warranties set forth in Section 8.1,such fraction shall be deemed to be equal to one (1) and (ii) a ManCo Shareholder hasbreached any of the representations or warranties set forth in Section 8.3, such fraction shallinstead be a fraction (the “Allocable ManCo Fraction”) having for numerator, the number ofManCo Shares held by such ManCo Shareholder at the Closing and (y) for denominator, thetotal number of outstanding ManCo Shares. “Allocable ManCo Fraction”has the meaning ascribed to it in the definition of Allocable Fraction. “Amendment to the PatentSublicense Agreement”has the meaning ascribed to it in Section 4.3(a)(xxi). “Amount in Escrow”has the meaning ascribed to it in Section 2.4. “Assignment of Patent Rights”shall mean the assignment of patent rights document, the form of which is attached asExhibit D to the IP Agreement. “Average Standard Margin”shall mean the difference between (A) 100% and (B) the fraction having for numerator, thestandard Thomson branded products costs and for denominator, the total Thomson brandedproducts net revenues (it being specified, for the avoidance of doubt, that commission fees tosales personnel shall not be part of the calculation of the Average Standard Margin forpurposes of this Agreement).The Average Standard Margin shall be calculated exclusively in accordance with the exampleof calculation set out in Schedule 1.1(F) – Average Standard Margin. “Backlog Adjustment”has the meaning ascribed to it in Section 2.7.2(a).3 “Backlog Adjustment Statement”has the meaning ascribed to it in Section 2.7.2(a). “Bankruptcy Proceedings”shall mean a “procédure d’alerte”, “mandat ad hoc”, “conciliation”, “procédure desauvegarde”, “procédure de sauvegarde accelérée”, “procédure de sauvegarde financièreaccelérée”, “redressement judiciaire”, “liquidation judiciaire”, “suspension provisoire despoursuites”, “cessation des paiements”, or voluntary reorganization or any similarproceedings under applicable Laws in any competent jurisdiction. “Business Day”shall mean every day except Saturdays, Sundays and statutory holidays in Paris, France, andin San Jose, California, United States of America, on which commercial banking institutionsare open for ordinary banking business in Paris and San Jose. “Cash”shall mean, with respect to the Group Companies (on an aggregated basis), as at the close ofbusiness on the Closing Date (but without taking into account the consummation of thetransaction contemplated hereby), cash plus the positive balance of any bank accounts, othercash accounts, cash deposit accounts, current asset investments and readily marketableSecurities (such items (including cash), the “Cash Items”), calculated exclusively inaccordance with Schedule 1.1(A) – Cash. For the avoidance of doubt, “Cash” (i) shall becalculated net of issued but uncleared checks and drafts, (ii) shall include checks, other wiretransfers and drafts deposited or available for deposit for the account of the Group Companiesand (iii) shall exclude all amounts funded by the Purchaser or any of its Affiliates to theGroup Companies at or after the Closing, as the case may be.Notwithstanding the foregoing and in accordance with what is mentioned in Schedule 1.1(A)– Cash, for the purposes of this definition of “Cash”:- an amount corresponding to any sums paid by the Group Companies on or prior to theClosing Date in relation to the preparation, audit and delivery to the Purchaser of theRequired Financials shall be added to the total amount corresponding to the sum of allCash Items; and- an amount corresponding to 50% of the net amount of the “CIR” and “CICE” Tax credits(i.e., of the R&D Tax credit and of the Tax credit for competitiveness andemployment) shall be added to the total amount corresponding to the sum of all CashItems.For the avoidance of doubt, it is expressly specified that any payment made on the ClosingDate by the Group Companies in relation to the IP Recovery (including the payment of theTransfer Price, as defined under the IP Agreement) shall, unlike any such payment that wouldbe made prior to the Closing Date, not be taken into account for the purposes of thisdefinition of “Cash” (and shall, if necessary, be neutralized for the purposes of thedetermination of the total amount of “Cash”), since any such payment made on the ClosingDate is already taken into account in the definition of “Debt” (by being expressly included asa “Debt” item); there shall be no double counting. 4“Claim”has the meaning ascribed to it in Section 9.4. “Claim Notice”has the meaning ascribed to it in Section 9.4. “Closing”shall mean the completion of the sale and purchase of the Transferred Securities and thetransfer of ownership (transfert de propriété) of the Transferred Securities to the Purchaserpursuant to Section 4. “Closing Accounts”shall mean (i) the unaudited combined balance sheet (« bilan ») and profit and loss accounts(« compte de résultat ») of the Group Companies as of the Closing Date and (ii) the unauditedbalance sheet (« bilan ») and profit and loss accounts (« compte de résultat ») of ManCo as ofthe Closing Date, prepared in accordance with the Closing Accounts Accounting Principles. “Closing Accounts AccountingPrinciples”shall mean (i) the specific policies, conventions and assumptions set out in Schedule 1.1(B) –Specific Principles and (ii) to the extent not covered by (i), French GAAP. “Closing Date”has the meaning ascribed to it in Section 4.1. “Closing Exchange Rate”shall mean the foreign exchange rate of Euros converted into US Dollars as at the ClosingDate, as determined on the basis of the Euro foreign exchange reference rate of the EuropeanCentral Bank as updated by 3 p.m. C.E.T. on the Closing Date. “Closing Average Exchange Rate”shall mean the average between the foreign exchange rate of Euros converted into US Dollarsas of August 10, 2015 and the foreign exchange rate of Euros converted into US Dollars as atthe Closing Date, as determined on the basis of the Euro foreign exchange reference rate ofthe European Central Bank as updated by 3 p.m. C.E.T. on, respectively, August 10, 2015and the Closing Date. “Closing Payments”has the meaning ascribed to it in Section 4.2. “CM-CIC Private Debt”has the meaning ascribed to it in the Preamble. “Collective Agreements”has the meaning ascribed to it in Section 8.2.17(c). “Company”has the meaning ascribed to it in Paragraph D of the Recitals. “Conditions Precedent”has the meaning ascribed to it in Section 3.1. “Confidentiality Agreement”shall mean the mutual non-disclosure agreement entered into on January 19, 2015 by andbetween an Affiliate of the Purchaser (in its name and in the name and on behalf of itsAffiliates (as defined thereunder)) and TVN (in its name and in the name and on behalf of itsAffiliates (as defined thereunder)). 5“Connected Persons”when used with reference to a specified Person, shall mean the general partners, agents,directors, employees, representatives, auditors and advisors of such specified Person. “Consolidated Net Result”shall mean the operating result +/- financial result +/- non-current result + taxes. Allaggregates are calculated excluding one-off costs. It is calculated in accordance with FrenchGAAP and on a basis consistent with Schedule 1.1(C) – Gross Margin and ConsolidatedNet Result. “Contract”shall mean any written or oral contract, agreement, obligation, promise, commitment or otherundertaking. “Data Room”has the meaning ascribed to it in Paragraph G of the Recitals. “Debt”shall mean the aggregation of the combined liabilities for the Group Companies existing as atthe close of business on the Closing Date (but without taking into account the consummationof the transaction contemplated hereby), prepared in accordance with the Closing AccountsAccounting Principles and calculated exclusively in accordance with Schedule 1.1(D) – Debt.Notwithstanding the foregoing and in accordance with what is mentioned in Schedule 1.1(D)– Debt, for the purposes of this definition of “Debt”:- any payment made on the Closing Date by the Group Companies in relation to theIP Recovery (including the payment of the Transfer Price, as defined under theIP Agreement), as well as any outstanding and unpaid amounts owing as at theClosing Date by the Group Companies in relation to the IP Recovery (including, forthe avoidance of doubt, the cost of any formalities, registrations and measuresrequired by applicable Laws to operate or benefit of the IP Recovery and anyreasonable attorney and consultants fees, costs and other expenses incurred in relationto such formalities, registrations and measures), as the case may be, shall be included;- any payment made on the Closing Date by the Group Companies in relation to theredemption of TVN ORANs, as the case may be, as well as any outstanding andunpaid amounts owing as at the Closing Date by the Group Companies in relation tothe redemption of TVN ORANs, as the case may be, shall be included;- any outstanding and unpaid sums owing as at the Closing Date (after deduction of anypayment made on the Closing Date, as the case may be) by the Group Companies inrelation to the preparation, audit and delivery to the Purchaser of the RequiredFinancials shall be excluded; and- any outstanding and unpaid sums owing as at the Closing Date by the Group Companiespursuant to the terms and conditions of the OBSAs, of the OCRs and of the ORAsshall be excluded. 6“Disclosure Schedules”shall mean, with respect to any representation and warranty made by the relevant Sellersunder Section 8, the Schedules (i) expressly referring to such representation and warrantythrough a specific reference to the corresponding number of Subsection of Section 8 and letterof Paragraph of such Subsection and (ii) stating that it is an exception to such representationand warranty. “Disputed Items”has the meaning ascribed to it in Section 2.5.2. “Downward Adjustment”has the meaning ascribed to it in Section 2.6. “EDRIP”has the meaning ascribed to it in the Preamble. “Encumbrances”shall mean any mortgage, blocking lien or blocking encumbrance such as an exclusivelicense, a pick right, or a first to buy option, or other blocking restriction on use, exploitationor transfer. “Entity”shall mean any corporation, company (société), partnership (limited or general), joint venture,trust, association, economic interest group (groupement d’intérêt économique) or otherorganization, enterprise or entity, whether or not vested with the attributes of a legal person(personne morale). “Enterprise Value”has the meaning ascribed to it in Section 2.2.1. “Environmental Laws”shall mean all applicable Laws relating to environmental protection (including protection ofair, water, soil and sub-soil, hygiene and public health, noise or protection of properties andindividual safety (sécurité des biens et des personnes)), and the provisions of the French CivilCode relating to liability for one’s own account (responsabilité du fait personnel), on accountof a third party (responsabilité du fait des tiers), on account of goods (responsabilité du faitdes choses) and for nuisances (troubles du voisinage), as such Laws are applicable to anyGroup Company on or prior to the Closing Date. “Escrow Account”shall have the meaning ascribed to it under the Escrow Agreement. “Escrow Agreement”has the meaning ascribed to it in Section 4.3(a)(viii). “Escrow Closing Average ExchangeRate”shall mean (A) one (1), divided by (B) the Closing Average Exchange Rate. “Escrow Closing Exchange Rate”shall mean (A) one (1), divided by (B) the Closing Exchange Rate. “Escrow Pre-Closing ExchangeRate”shall mean (A) one (1), divided by (B) the Pre-Closing Exchange Rate. 7“Estimated Amounts”has the meaning ascribed to it in Section 5.8. “Estimated Cash”shall mean the Cash as of the Closing Date as estimated in good faith by the Sellers for thepurpose of determining the Estimated Initial Price and reviewed by the Purchaser inaccordance with Section 5.8. “Estimated Debt”shall mean the Debt as of the Closing Date as estimated in good faith by the Sellers for thepurpose of determining the Estimated Initial Price and reviewed by the Purchaser inaccordance with Section 5.8. “Estimated Initial Price”has the meaning ascribed to it in Section 2.3. “Estimated ManCo Cash”shall mean the ManCo Cash as of the Closing Date as estimated in good faith by the Sellersfor the purpose of determining the Estimated Initial Price and reviewed by the Purchaser inaccordance with Section 5.8. “Estimated ManCo Debt”shall mean the ManCo Debt as of the Closing Date as estimated in good faith by the Sellersfor the purpose of determining the Estimated Initial Price and reviewed by the Purchaser inaccordance with Section 5.8. “Estimated ManCo Net Cash”shall mean Estimated ManCo Cash minus Estimated ManCo Debt. “Estimated ManCo NormativeWorking Capital”shall mean the ManCo Normative Working Capital as of the Closing Date as estimated ingood faith by the Sellers on the basis of the Estimated ManCo Working Capital for thepurpose of determining the Estimated Initial Price and reviewed by the Purchaser inaccordance with Section 5.8. “Estimated ManCo WorkingCapital”shall mean the ManCo Working Capital as of the Closing Date as estimated in good faith bythe Sellers for the purpose of determining the Estimated Initial Price and reviewed by thePurchaser in accordance with Section 5.8. “Estimated ManCo WorkingCapital Adjustment”shall mean Estimated ManCo Working Capital minus Estimated ManCo Normative WorkingCapital. “Estimated Net Cash”shall mean Estimated Cash minus Estimated Debt. “Estimated Normative WorkingCapital”shall mean the Normative Working Capital as of the Closing Date as estimated in good faithby the Sellers on the basis of the Estimated Working Capital for the purpose of determiningthe Estimated Initial Price and reviewed by the Purchaser in accordance with Section 5.8. “Estimated Working Capital”shall mean the Working Capital as of the Closing Date as estimated in good faith by theSellers for the purpose of determining the Estimated Initial Price and reviewed by thePurchaser in accordance with Section 5.8. 8“Estimated Working CapitalAdjustment”shall mean Estimated Working Capital minus Estimated Normative Working Capital. “Existing Holding Shareholders’Agreement”shall mean the shareholders’ agreement entered into on October 17, 2014 by and between thedirect and indirect holders of Securities issued by the Holding (including ManCo and itsshareholders) as amended from time to time. “Existing Indebtedness”shall mean all outstanding and unpaid amounts owing as at the Closing Date (in principal,interest, penalties and any other sums) by the Target Companies pursuant to, or in connectionwith, the Existing Loan Agreements (including, without limitation, all breakage costs (if any)due in connection with the voluntary prepayment of any sums due by the Target Companiespursuant to, or in connection with the Existing Loan Agreements), as determined inaccordance with the terms of the Existing Loan Agreements. “Existing Inter-Creditors’Agreement”has the meaning ascribed to it in Section 4.3(a)(xviii). "Existing Loan Agreements"- the shareholder’s loan agreement dated January 21, 2015 entered into by and betweenKepler M2 and Mr. Delahousse, pursuant to which a loan of €1,080 has been grantedby Mr. Delahousse to Kepler M2;- the shareholder’s loan agreement dated January 21, 2015 entered into by and betweenKepler M2 and Mr. Congard, pursuant to which a loan of €1,060 has been granted byMr. Congard to Kepler M2;- the shareholder’s loan agreement dated January 21, 2015 entered into by and betweenKepler M2 and Mr. Louvet, pursuant to which a loan of €790 has been granted byMr. Louvet to Kepler M2;- the shareholder’s loan agreement dated January 21, 2015 entered into by and betweenKepler M2 and Mr. Gallier, pursuant to which a loan of €710 has been granted byMr. Gallier to Kepler M2;- the shareholder’s loan agreement dated January 21, 2015 entered into by and betweenKepler M2 and Mr. Guiot, pursuant to which a loan of €440 has been granted byMr. Guiot to Kepler M2; - the shareholder’s loan agreement dated January 21, 2015entered into by and between Kepler M2 and Mr. Perron, pursuant to which a loan of€440 has been granted by Mr. Perron to Kepler M2;- the shareholder’s loan agreement dated January 21, 2015 entered into by and betweenKepler M2 and Mrs. Trevisan-Jallu, pursuant to which a loan of €400 has beengranted by Mrs. Trevisan-Jallu to Kepler M2; 9“Existing Loan Agreements”- the shareholder’s loan agreement dated March 31, 2015 entered into by and betweenKepler M2 and Mr. Procureur, pursuant to which a loan of €290 has been granted byMr. Procureur to Kepler M2;- the shareholder’s loan agreement dated March 31, 2015 entered into by and betweenKepler M2 and Mrs. Sauvion, pursuant to which a loan of €60 has been granted byMrs. Sauvion to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Delahousse, pursuant to which a loan of €413 has been grantedby Mr. Delahousse to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Congard, pursuant to which a loan of €404 has been granted byMr. Congard to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Louvet, pursuant to which a loan of €299 has been granted byMr. Louvet to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Gallier, pursuant to which a loan of €268 has been granted byMr. Gallier to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Guiot, pursuant to which a loan of €166 has been granted byMr. Guiot to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Perron, pursuant to which a loan of €166 has been granted byMr. Perron to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mrs. Trevisan-Jallu, pursuant to which a loan of €152 has beengranted by Mrs. Trevisan-Jallu to Kepler M2;- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mr. Procureur, pursuant to which a loan of €110 has been granted byMr. Procureur to Kepler M2; and- the shareholder’s loan agreement dated October 20, 2015 entered into by and betweenKepler M2 and Mrs. Sauvion, pursuant to which a loan of €22 has been granted byMrs. Sauvion to Kepler M2.10 “Existing Shareholders’Documents”shall mean, collectively, the Existing Loan Agreements, the Existing Holding Shareholders’Agreement and any agreement made among Sellers and/or Kepler M2 restricting in any waythe free transfer of the Transferred Securities. “FB Held Patent Rights”shall mean any and all (i) Patents owned, held, developed, or acquired by assignment, byFrance Brevets further to the substituting Kepler in the PAA Agreement by exercisingpursuant to the PLA1 Agreement the substitution faculty provided in the PAA Agreement, (ii)Patents filed in the name of France Brevets or any of France Brevets Affiliates, based oninventions originating from any of the Group Companies, and (iii) rights to inventionsoriginating from any of the Group Companies and held by France Brevets or any of FranceBrevets Affiliates pursuant to a transfer of rights from any of the Group Companies to FranceBrevets or any of France Brevets Affiliates, (iv) however excluding, in any of (i) and (ii),(A) any and all Patents which France Brevets sold, assigned, transferred or conveyed untoPersons other than any of the Group Companies or France Brevets Affiliates, and (B) any andall Patents which France Brevets agreed and undertook to sell, assign, transfer or convey untoPersons other than any of the Group Companies or France Brevets Affiliates, for each of (i),(ii), (iii), and (iv), prior to the transfer of FB Held Patent Rights pursuant to the IP Agreement. “Final Price”has the meaning ascribed to it in Section 2.2. “Financière Kepler”has the meaning ascribed to it in Paragraph A of the Recitals. “Firm”has the meaning ascribed to it in Section 2.5.3. “FMEF Clearance”shall mean the obtaining of (i) a foreign investment prior authorization, without anyconditions, obligations or requirements, from the French Ministry for the Economy andFinance in accordance with the French decree no. 2014-479 dated 14 May 2014 and theprovisions of articles L. 151-1 et seq. and R. 153-1 et seq. of the French monetary andfinancial code; or (ii) a letter from the French Minister of Economy and Finance indicatingthat the activity of the Group Companies does not fall under the scope of the provisions ofarticle L. 151-3 of the French monetary and financial code and that accordingly, thecontemplated Transaction is exempted from the obtaining of the foreign investment priorauthorization required by articles L. 151-1 et seq. and R. 153-1 et seq. of the same code; or(iii) any implicit authorization, if the French Minister of Economy and Finance fails to replywithin two (2) months as of the day when the French Minister of Economy and Financejudges that the information delivered to it by the Purchaser for the authorization-makingprocess is sufficient. “FPCI Winch Capital 3”has the meaning ascribed to it in the Preamble. “FPCI CIC Mezzanine 3”has the meaning ascribed to it in the Preamble. “France Brevets”shall mean France Brevets, a company (société par actions simplifiée) organized under thelaws of France, having a share capital of €90,000,000 and its registered office at 47, rue de laVictoire, 75009 Paris (France), registered with the French Registry of Commerce andCompanies under number 531 129 195 RCS Paris.11 “France Brevets Affiliates”shall mean any Affiliates of France Brevets including any Entity of the Caisse des Dépôts etConsignations group specialized in intellectual property management. “French GAAP”shall mean the accounting rules, methods and principles generally accepted in France whichwere applicable at the Reference Date. “Governmental Authority”shall mean any court or government (federal, state, local, national, foreign, provincial orsupranational) or any political subdivision thereof, including, without limitation, anydepartment, commission, ministry, board, bureau, agency, authority, tribunal or arbitral body,exercising executive, legislative, judicial, regulatory or administrative authority, including anyself-regulatory authority or quasi-governmental entity established to perform any of thesefunctions. “Governmental Authorization”shall mean any approval, declaration, consent, permit, ruling, waiver, exemption or otherauthorization (including the lapse, without objection, of a prescribed time under a statute orregulation that states that a transaction may be implemented if a prescribed time lapsesfollowing the giving of notice without an objection being made) issued, granted, given orotherwise made available by or under the authority of any Governmental Authority orpursuant to any Law. “Gross Margin”shall mean (A) the difference between (a) total sales less (b) costs of goods sold (COGS),divided by (B) total sales. Cost of goods sold (COGS) relates to direct costs associated toproduction of goods sold and include the cost of the materials or third parties equipment aswell as direct labors costs (manufacturing, competence center, field services), transport &custom duties, commercial fees, prototypes, costs of subcontractor for integration, pricematerial variances, inventory depreciation and costs for specific feature development. It iscalculated in accordance with French GAAP and on a basis consistent with Schedule 1.1(C) –Gross Margin and Consolidated Net Result. “Group Companies” or “GroupCompany”has the meaning ascribed to it in Paragraph F of the Recitals. “Group Companies Agreements”has the meaning ascribed to it in Section 8.2.12(a). “Group Companies IntellectualProperty”shall mean (i) any and all Intellectual Property Rights owned, held, developed, or acquired byassignment, by any of the Group Companies, and (ii) FB Held Patent Rights. “Group Companies Product” or“Group Companies Products andServices”shall mean all products, systems and services sold or offered for sale by any of the GroupCompanies. 12“Group Companies Technology”shall mean any and all Technology owned, held, developed, or acquired by assignment, byany of the Group Companies. “Guarantee”shall mean any guarantee, joint undertaking (caution, aval), comfort letter, letter of credit, orany obligation, whether actual or contingent, to guarantee the repayment of or assume anyIndebtedness of any Person or pertaining, directly or indirectly, to maintain the ability of aPerson to meet any of its Indebtedness. “Guaranteed Obligations”has the meaning ascribed to it in Section 11.4. “Harmful Code”shall mean any program, routine, device or other feature, such as but not limited to any “backdoor,” “drop dead device,” “Trojan Horse,” “virus,” “worm,” “spyware,” or “adware” (assuch terms are commonly understood in the software industry) or any other code designed orintended to have, or capable of performing or facilitating, any of the following functions:(i) disrupting, disabling, harming, or otherwise impeding in any manner the operation of, orproviding unauthorized access to, a computer system or network or other device on whichsuch code is stored or installed; or (ii) compromising the privacy or data security of a user ordamaging or destroying any data or file without the user’s consent. “Holding”has the meaning ascribed to it in Paragraph A of the Recitals. “Holding Shares”shall mean, collectively, the Ordinary Shares and the New Ordinary Shares. “Indebtedness”shall mean any debt or other obligation (whether incurred jointly, severally as principal or assurety or in any other capacity whatsoever) for the payment or repayment of moneyborrowed, whether present or future, actual or contingent. “Indemnifying Sellers”shall mean all the Sellers except Montalivet Networks. “Initial Price Adjustment”shall mean the difference between the Adjusted Initial Price as resulting from the PurchaserCompletion Statement and the Estimated Initial Price. “IP Agreement”shall mean the agreement dated December 9, 2015 entered into by and between FranceBrevets and Kepler, the final draft of which is attached hereto as Schedule 1.1(G) –IP Agreement. “IP Recovery”shall mean the transfer and conveyance to Kepler or its Designated Transferee (as definedunder the IP Agreement) of all rights, title and interest France Brevets and France BrevetsAffiliates have in and to FB Held Patent Rights, including any Abandoned Patents in the FBHeld Patent Rights, pursuant to the IP Agreement and the Assignment of Patent Rights, uponfull payment by Kepler of the Transfer Price (as defined under the IP Agreement). “IP Substitution Notice”shall mean any notice served by the Purchaser to the Sellers’ Representative to substitute anyEntity, the corporate name, registered office and, if applicable, registration number of whichshall be indicated in the notice, for Kepler for the purpose of the completion of theIP Recovery.13 “Intellectual Property Rights”shall mean (i) inventions, whether or not patented or patentable, reduced to practice or madethe subject of one or more pending patent applications, and all improvements thereto, (ii)patent rights, patents and patent applications (including all extensions, divisions, renewals,reissues, substitutions, continuations, continuations-in-part, and reexaminations thereof)registered or applied for in France and all other nations throughout the world, (iii) trademarks,service marks, trade dress, logos, slogans, trade names and corporate names (whether or notregistered in France and all other nations throughout the world), including all variations,derivations, combinations, registrations and applications for registration or renewals of theforegoing and all goodwill associated therewith, (iv) copyrights and rights under copyrights(in both published and unpublished works, whether or not registered) and registrations andapplications for registration or renewals thereof, including without limitation all compilations,and Software (including all underlying and related source and object codes), manuals andother documentation, and all derivative works, translations, adaptations, and combinations ofthe above, regardless of the medium of fixation or means of expression, (v) mask work rightsand registrations and applications for registration or renewals thereof, (vi) trade secrets and,whether or not confidential, business information (including pricing and cost information,business and marketing plans and customer and supplier lists), technology and know-how(including manufacturing and production processes and techniques and research anddevelopment information), (vii) industrial designs (whether or not registered), (viii) rights indatabases (including sui generis rights in databases) and data collections (includingknowledge databases, customer lists and customer databases), whether registered orunregistered, and any applications for registration therefor, (ix) domain names, URL anddomain name registrations, (x) all rights in all of the foregoing provided by treaties,conventions and common law, (xi) all rights to sue or recover and retain damages and costsand attorneys’ fees for past, present and future infringement or misappropriation of any of theforegoing, and (xii) other proprietary or intellectual property rights now known or hereafterrecognized in any jurisdiction. “Insurance Policies”has the meaning ascribed to it in Section 8.2.15. “Inventory”means the goods (semi-finished goods, finished goods, or residual goods), merchandise,supplies, works in process and raw materials. “Judgment”shall mean any award, decision, injunction, judgment, order or ruling entered, issued, madeor rendered by any Governmental Authority or by any arbitrator enforceable as of therelevant date. “Kepler”has the meaning ascribed to it in Paragraph D of the Recitals. “Kepler M2”has the meaning ascribed to it in the Preamble. 14“Key Employees”shall mean Claude Perron, Eric Louvet, Christophe Cailteaux, Crystele Trevisan, DelphineSauvion, Eric Gallier, Jean- Marie Guiot, Marc Procureur, Christophe Delahousse and HervéCongard. “Law”shall mean any law, statute, regulation, rule, ordinance, principle of common law, order,decree or Judgment of any Governmental Authority (including any judicial or administrativeinterpretation thereof) in force, fully implemented and enforceable as of the relevant date(including any SEC requirements and NASDAQ rules). “Leased Personal Properties”has the meaning ascribed to it in Section 8.2.8(c). “Liens”shall mean any pledge of real or personal property (nantissement or gage), mortgage(hypothèque), lien (privilège), right of retention (droit de rétention), charge (charge),ownership right (démembrement), easement or right of way (servitude), joint possession(indivision), dismemberment of the right of ownership (démembrement de propriété), pre-emptive rights, options, or other security (sûreté) or similar third-party rights which has thepurpose or the effect of restricting the ownership, the use or the transferability of the relevantasset or security (excluding, for the avoidance of doubt, any pledge, lien, right, charge orother security created or granted by the Purchaser or any of its Affiliates). “Long Stop Date”shall mean July 29, 2016. “Loss”shall mean any and all claims (préjudices), losses (pertes), damages, liabilities, Judgments,fines, penalties, interest, costs, expenses and disbursements (including any reasonableattorney, accountant and consultant fees, costs and other expenses incurred in connectionwith the investigation, collection, prosecution, defense, compromise and settlement of anyaction, suit, proceeding or claim (including, for the avoidance of doubt, in connection withany proceedings initiated in order to obtain payment of a Refund under Section 9)) suffered orincurred by the Purchaser, its Affiliates or any of the Target Companies (including, for theavoidance of doubt, any reduction or decrease of any relief, allowance, deduction or Taxcredit), provided that a Loss shall qualify as “préjudice direct” under French Law. “Manager”as to any Entity, shall mean the representatives (mandataires sociaux) (including thechairmen (présidents), directors and members of the board (administrateurs et membres duDirectoire), managers (gérants), executive officers, managing directors (directeurs généraux)and delegate managing directors (directeurs généraux délégués) as well as members of thesupervisory board. “ManCo”has the meaning ascribed to it in the Preamble. 15“ManCo Cash”shall mean, with respect to ManCo, as at the close of business on the Closing Date (withouttaking into account the consummation of the transaction contemplated hereby), cash plus thepositive balance of any bank accounts, other cash accounts, cash deposit accounts, currentasset investments and readily marketable Securities, calculated exclusively in accordance withSchedule 1.1(E) – ManCo Cash – ManCo Debt – ManCo Working Capital. For theavoidance of doubt, ManCo Cash (i) shall be calculated net of issued but uncleared checksand drafts, (ii) shall include checks, other wire transfers and drafts deposited or available fordeposit for the account of ManCo and (iii) shall exclude all amounts funded by the Purchaseror any of its Affiliates to ManCo at or after the Closing, as the case may be. “ManCo Debt”shall mean the aggregate amount of financial liabilities and indebtedness of ManCo existingas at the close of business on the Closing Date (without taking into account the consummationof the transaction contemplated hereby), prepared in accordance with the Closing AccountsAccounting Principles and calculated exclusively in accordance with Schedule 1.1(E) –ManCo Cash – ManCo Debt – ManCo Working Capital. “ManCo Net Cash”shall mean ManCo Cash minus ManCo Debt. “ManCo Normative WorkingCapital”shall mean the average of the ManCo Working Capital calculated monthly over the last twelve(12) months prior to the Closing Date. “ManCo Shares”means the outstanding 3,635,805 ordinary shares (actions ordinaires), nominal value €1, inthe share capital of ManCo. “ManCo Shareholders”means the Sellers which will sell ManCo Shares at Closing. “Manco Shareholders’ Knowledge”shall mean the actual knowledge at the date hereof of the Manco Shareholders. “ManCo Working Capital”shall mean the aggregate amount (positive or negative) as calculated by deducting the currentliabilities of ManCo required to be reflected on the face of a balance sheet prepared inaccordance with the Closing Accounts Accounting Principles (such current liabilitiesexcluding any amount already included in the ManCo Debt) as at close of business on thedate as of which it is calculated (but without taking into account the consummation of thetransaction contemplated hereby when such date is the Closing Date), from the current assetsof ManCo required to be reflected on the face of a balance sheet prepared in accordance withthe Closing Accounts Accounting Principles (such current assets excluding ManCo Cash) asat close of business on the date as of which it is calculated (but without taking into accountthe consummation of the transaction contemplated hereby when such date is the ClosingDate), as calculated in accordance with Schedule 1.1(E) – ManCo Cash – ManCo Debt –ManCo Working Capital. 16“ManCo Working CapitalAdjustment”shall mean ManCo Working Capital as of the Closing Date minus ManCo Normative WorkingCapital as of the Closing Date. “Material Adverse Change”shall mean any event, change, occurrence, circumstance, effect, state of affairs or fact(an “Event”) which individually or together with any one or more other Events, has or couldreasonably be expected to result in a material adverse effect on the business, assets,operations, activities, liabilities (including contingent liabilities), properties, conditions(financial or otherwise), results of operations of the Target Companies, taken as a whole,provided, however, that such Material Adverse Change shall not include (i) any failure of anyof the Target Companies to meet its internal earnings, revenues or other projections orforecasts (it being understood and agreed that any Event giving rise to such failure shall betaken into account in determining whether there has been a Material Adverse Change), (ii) anEvent generally affecting the industry in which the Target Companies operate, (iii) anychange in the French or global economy, or capital, financial or Securities markets generally,including changes in interest or exchange rates, (iv) any change in law or regulation in thegeographic regions in which the Target Companies do business, (v) any act of war or ofterrorism outside of the geographic regions in which the Target Companies do business, (vi)any action taken at the written request of the Purchaser or pursuant to this Agreement, (vii)earthquakes, hurricanes or other natural disasters outside of the geographic regions in whichthe Target Companies do business, (viii) any damage or destruction of any Target Company’sproperty that is substantially covered and indemnified by insurance, provided such Event inthe case of each of the clauses (ii), (iii), (iv), (v), (vi), (vii) and (viii) do not materially ordisproportionately affect the Target Companies, taken as a whole, relative to other participantsin the industry in which the Target Companies operate.However, it is agreed that the Friday November 13th Paris terrorist events do not constitute an“Event” for the purpose of the “Material Adverse Change” definition. “Material Contracts”shall mean any Contracts (including, for the avoidance of doubt, purchase orders) in full forceand effect to which any Group Company is a party entered into with any of the one hundredeleven (111) largest customers of the Group Companies on the basis of the Accountsand representing, together with other Contracts entered into with any of the one hundredeleven (111) largest customers of the Group Companies on the basis of the Accounts, 80% ofthe combined revenues of the Group Companies as set out in the Accounts. “Mezzanine Bonds”shall mean the outstanding 50 bonds (obligations) issued by the Holding on October 17, 2014in the aggregate principal amount of €5,000,000, and fully subscribed and paid up on thesame date, to which were originally attached the Mezzanine Warrants. 17“Mezzanine Debt”shall mean all outstanding and unpaid amounts owing as at the Closing Date (in principal,interest, penalties and any other sums) by the Holding pursuant to, or in connection with, theterms and conditions of the Mezzanine Bonds (modalités des obligations), as determined inaccordance with the terms and conditions of the Mezzanine Bonds (modalités desobligations). “Mezzanine Warrants”shall mean, collectively, the outstanding 623,600 mezzanine warrants A and the outstanding340,400 mezzanine warrants B originally attached to the Mezzanine Bonds. “Montalivet Networks”has the meaning ascribed to it in the Preamble. “Mother Company”has the meaning ascribed to it in the Preamble. “Mother Company Guarantee”has the meaning ascribed to it in Section 11.4. “Net Cash”shall mean Cash minus Debt. “New Holding By-Laws”has the meaning ascribed to it in Section 4.3(a)(xiii). “New Ordinary Shares”means the new ordinary shares (actions ordinaires) of the Holding to be issued prior toClosing for repayment of the ORAs in accordance with their terms and conditions, asmodified pursuant to this Agreement. “New Terms and Conditions of theOCRs”has the meaning ascribed to it in Section 4.3(a)(xv). “New Terms and Conditions of theORAs”has the meaning ascribed to it in Section 4.3(a)(xiv). “Normative Working Capital”shall mean the average of the Working Capital calculated monthly over the last twelve (12)months prior to the Closing Date. “Objection Notice”has the meaning ascribed to it in Section 2.5.2. “OBSAs”shall mean, collectively, the Mezzanine Bonds and the Mezzanine Warrants (whether or notstill attached to the Mezzanine Bonds). “OCRs”shall mean the outstanding 6,468,118 bonds convertible into shares or redeemable in cash(obligations convertibles en actions ou remboursables) issued by the Holding on October 17,2014, and fully subscribed and paid up on the same date. 18“ORAs”shall mean the outstanding 1,296,866 bonds redeemable in shares (obligations remboursablesen actions) issued by the Holding on October 17, 2014, and fully subscribed and paid up onthe same date, to be repaid in New Ordinary Shares prior to Closing in accordance with theirterms and conditions, as modified pursuant to this Agreement. “Ordinary Shares”shall mean the outstanding 10,553,578 ordinary shares (actions ordinaires), nominal value€1, in the share capital of Financière Kepler. “Organizational Documents”shall mean when used with respect to (x) any company (société) or other incorporated Entity,the memorandum and articles of association (statuts), charter or similar constitutive documentof such company (société) or other incorporated Entity, as the case may be filed with therelevant commercial registry, company registrar or other Governmental Authority, as thesame may be amended, supplemented or otherwise modified from time to time, and (y) anypartnership or other unincorporated Entity, its certificate of formation, partnership agreement,governing agreement (contrat constitutif) and/or similar constitutive document, as the samemay be amended, supplemented or otherwise modified from time to time. “Overdue Receivables”has the meaning ascribed to it in Section 8.2.6(b). “Owned Personal Properties”has the meaning ascribed to it in Section 8.2.8(a). “PAA Agreement”shall mean that certain Patent Assignment Agreement dated May 3, 2011, entered into byThomson Licensing SAS and Kepler. “Parties”has the meaning ascribed to it in the Preamble. “Patent”shall mean in any country worldwide, (i) registered patents, patent applications (including USprovisional applications filed with the United States Trademark and Patent Office or USPTO),(ii) utility model rights, (iii) any patent or utility model rights that derive from any of theforegoing, (iv) published applications for any of the foregoing, (v) any reissue, re-examination, extension, renewal, continuation, continuation in part, and division of any of theforegoing; and foreign counterparts to any of the foregoing. “Patent Family”shall mean an assembly of Patents claiming or benefiting from, at least partly, the samepriority under the Paris Convention, the TRIPS Agreement, the European Patent Convention,or any similar agreement. “PCLA”has the meaning ascribed to it in Section 8.2.10(t). “Person”shall mean a natural person, Entity, or Governmental Authority. 19“PLA1 Agreement”shall mean that certain Cooperation and Patent License Agreement Professional Head EndProducts, dated October 7, 2011, entered into by France Brevets and Kepler, as amended bythe “Amendment to the Cooperation and Patent License Agreement Professional Head EndProducts”, dated October 21, 2011, and by the “Amendment N°2 to the Cooperation andPatent License Agreement Professional Head End Products”, dated December 31, 2014. “Potential Bidder”has the meaning ascribed to it in Section 5.13. “Pre-Closing Exchange Rate”shall mean the foreign exchange rate of Euros converted into US Dollars as at the BusinessDay immediately preceding the date of the Pre-Closing Statement, as determined on the basisof the Euro foreign exchange reference rate of the European Central Bank as updated by3 p.m. C.E.T. on the Business Day immediately preceding the date of the Pre-ClosingStatement. “Pre-Closing Statement”has the meaning ascribed to it in Section 5.8. “Proceedings”shall mean any action, audit, hearing, inquiry, investigation, claim, complaint, litigation,proceedings or suit (whether civil, administrative, or criminal) commenced, brought,conducted or heard by or before any Governmental Authority or arbitrator. “Products and Services”has the meaning ascribed to it in Section 8.2.20(a). “Product Backlog”shall mean all orders items for Thomson branded products including associated softwareregistered into the Group Companies’ ERP and not yet converted into revenue. “Publicly Available Software”shall mean: (A) any Software that contains, or is derived in any manner in whole or in partfrom, any Software that is distributed as free Software, open source Software (e.g. Linux) orunder similar licensing or distribution models; or (B) any Software that may require as acondition of use, modification or distribution that such Software or other Softwareincorporated into, derived from or distributed with such Software: (i) be disclosed ordistributed in Source Code form; (ii) be licensed for the purpose of making derivative works;or (iii) be redistributable at no charge. “Purchaser”has the meaning ascribed to it in the Preamble. “Purchaser Completion Statement”has the meaning ascribed to it in Section 2.5.1. “Purchaser IP Recovery”shall mean the transfer and conveyance to any Entity of the group controlled by the MotherCompany (including, but not limited to, any Group Company) of all rights, title and interestFrance Brevets and France Brevets Affiliates have in and to FB Held Patent Rights, includingany Abandoned Patents in the FB Held Patent Rights after the Closing Date. 20“Purchaser IP Recovery Cost andExpenses”shall mean any cost and expenses paid or incurred by the Purchaser or any of its Affiliates(including, but not limited to, any Group Company) in relation to the Purchaser IP Recovery(including, for the avoidance of doubt, the aggregate price in consideration thereof paid, to bepaid or due to France Brevets and/or France Brevets Affiliates, as well as the cost of anyformalities, registrations and measures required by applicable Laws to operate or benefit ofthe Purchaser IP Recovery and any reasonable attorney and consultants fees, costs and otherexpenses paid or incurred in relation to such formalities, registrations and measures). “Purchaser IP Recovery FullCompletion”shall mean the full completion of the Purchaser IP Recovery, as well as of any and allformalities, registrations and measures required by applicable Laws to operate or benefit ofthe Purchaser IP Recovery. “Put Option Agreement”shall mean the put option agreement entered into on December 7, 2015 by and between, interalios, the Mother Company and the Sellers. “Real Property”shall mean all real property (including land, buildings, fixtures (immeubles par destination)and fittings (immeubles par incorporation) used or occupied by each Group Company. “Real Property Leases”shall mean all leases relating to Real Property (including commercial leases, long-term leases(baux emphytéotiques), construction leases (baux à construction), financial leases (credit-baux)) and any other right of occupation of any Real Property benefiting to or granted by aGroup Company. “Reference Date”shall mean September 30, 2015. “Refund”has the meaning ascribed to it in Section 9.1. “Registered IP”shall mean all French, international and foreign Intellectual Property Rights that have beenrecorded or registered in any applicable jurisdiction or is otherwise the subject of anapplication, certificate, filing, registration or other document issued, filed with, or recorded byany Governmental Authority, and is owned by, under obligation of assignment to, or filed inthe name of, any of the Group Companies or France Brevets, including, without limitation, FBHeld Patent Rights. “Relevant Exchange Rate”shall mean (A) one (1), divided by (B) the foreign exchange rate of Euros converted into therelevant foreign currency as at the Closing Date, as determined on the basis of the relevantEuro foreign exchange reference rate of the European Central Bank as updated by 3 p.m.C.E.T. on the Closing Date. “Remaining Purchaser IP RecoveryCost and Expenses”has the meaning ascribed to it in Section 3.3(d)(ii). “Remaining Purchaser IP RecoveryCost and Expenses Notice”has the meaning ascribed to it in Section 3.3(d)(ii).21 “Required Financials”shall mean the audited statements of income, of changes in net assets and of cash flows ofHolding and ManCo for such historical annual and interim periods as may be required byPurchaser, which are needed by the Purchaser for the purpose of the satisfaction of itsreporting obligations under the Securities Act of 1933, as amended, or the SecuritiesExchange Act of 1934, as amended, and which will (i) have been prepared in accordancewith the books of account and other financial records of Holding and ManCo, (ii) have beenprepared in accordance with U.S. GAAP, (iii) present fairly, in all material respects, thefinancial condition and results of operations of Holding and ManCo as of the dates thereofand for the periods covered by such statements, (iv) be accompanied by the unqualifiedopinion of an internationally recognized independent accounting firm to such effect and(v) conform in all material respects to the requirements of the SEC’s Regulation S-X. “Response”has the meaning ascribed to it in Section 9.4. “Revenues Adjustment”has the meaning ascribed to it in Section 2.7.1(a). “Revenues Adjustment Statement”has the meaning ascribed to it in Section 2.7.1(a). “Sales Representatives IndependentContractors”has the meaning ascribed to it in Section 8.2.14. “SEC”shall mean the United States Securities and Exchange Commission. “Securities”shall mean (i) any security, issued or to be issued, by an Entity, which may entitle its holder,directly or indirectly, immediately or in the future, to a portion of the share capital, profits,liquidation profits or voting rights of an Entity (including any share, preferred share, warrants,convertible bonds (including bonds convertible into shares or redeemable in cash), bondsredeemable (including bonds redeemable in shares and bonds redeemable in shares or incash), bonds with warrants attached, or bonds convertible or redeemable into TransferredSecurities), (ii) any preferential subscription or allotment rights relating to an issuance of suchsecurities or (iii) any division of such securities, including into bare ownership or usufruct. “Sellers”has the meaning ascribed to it in the Preamble. “Sellers’ Knowledge”shall mean the actual knowledge at the date hereof of the Parties listed 1 to 9 (included) ofthis Agreement. “Sellers’ Representative”shall mean the Person appointed as joint representative of the Sellers for the purpose of theAgreement, pursuant to Section 11.9, namely Mr. Delahousse or any of his successors. “Shares”shall mean, collectively, the ManCo Shares and the Holding Shares (other than the OrdinaryShares held by ManCo). 22“Software”shall mean computer software, firmware, programs and databases in any form, includingInternet web sites, web content and links, Source Code, executable code, tools, developerskits, utilities, graphical user interfaces, menus, images, icons, and forms, and all versions,updates, corrections, enhancements and modifications thereof, and all related documentation,developer notes, comments and annotations related thereto. “Source Code”shall mean any software in human readable form such as it is normally used to enablemodifications to be made to it (including, but not limited to, comments and procedural codesuch as job control language and scripts to control compilation and installation). “Specific Thomson LicensingIndemnity”has the meaning ascribed to it in Section 8.2.10(t). “Specific Thomson LicensingOccurrence”has the meaning ascribed to it in Section 8.2.10(t). “Target Companies”shall mean, collectively, ManCo and the Group Companies. “Tax” or “Taxes”shall mean all forms of taxation, duties, levies, imposts and social security charges, whetherdirect or indirect including, without limitation, corporate income tax, wage withholding tax,national social security contributions and employee social security contributions, value addedtax, customs and excise duties, capital tax and other legal transaction taxes, dividendwithholding tax, land taxes, environmental taxes and duties and any other type of taxes orduties payable by virtue of any applicable national, regional or local law or regulation andwhich may be due directly or by virtue of joint and several liability in any relevantjurisdiction; together with any interest, penalties, surcharges or fines relating thereto, due,payable, levied, withheld, imposed upon or claimed to be owed in any relevant jurisdiction,and all amounts payable with respect to any taxes pursuant to an agreement, arrangement orany other legal obligation, including payment as a secondary liability besides or for theaccount of any other Person, notably profit sharing schemes (including in particular“Participation des salariés” and “Intéressement”), including interest, penalties and othercharges in addition thereto. “Tax Authority”shall mean, with respect to any Taxes the authority (whether governmental or not) legally incharge of imposing, regulating, administrating and/or collecting any Taxes (including for theavoidance of doubt a social security authority). “Tax Returns”shall mean all returns, reports (including elections, declarations, statements, disclosures,claims for refunds, schedules, estimates and information returns) and other information filedor required to be filed with any Tax Authority relating to Taxes, or any specific mention orformality in a commercial document (including without limitation invoices and registers)required, including any schedule or attachment, and any amendment. 23“Technology”shall mean copies and tangible embodiments of Intellectual Property Rights, whether inelectronic, written or other media, including Software, technical documentation,specifications, designs, bills of material, build instructions, test reports, schematics,algorithms, application programming interfaces, user interfaces, routines, formulae, testvectors, ip cores, mask works, tooling requirements, databases, lab notebooks, inventiondisclosures, processes, prototypes, samples, studies, or other know-how and other works ofauthorship. “Third-Party”shall mean any Person other than the Parties, the Target Companies, the Sellers’ Affiliates andthe Purchaser’s Affiliates. “Third Party Claim”has the meaning ascribed to it in Section 9.4. “Thomson Trademark”shall mean the Trademarks, as such term is defined in that certain THOMSON TrademarkLicense Agreement Professional Head End Products, dated May 3, 2011, betweenTechnicolor S.A. and Thomson Video Networks. “Transaction”has the meaning ascribed to it in Paragraph H of the Recitals. “Transaction Documents”shall mean this Agreement, the Escrow Agreement and the agreement terminating the ExistingInter-Creditors’ Agreement referred to in Section 4.3(a)(xviii). “Transferred Securities”means (i) all the Holding Shares other than the Ordinary Shares held by ManCo, (ii) all theOCRs, (iii) all the OBSAs and (iv) all the ManCo Shares. “TVN”has the meaning ascribed to it in Paragraph E of the Recitals. “TVN ORANs”means the outstanding 18,243 bonds redeemable in shares or in cash (obligationsremboursables en actions ou en numéraire) issued by TVN on May 25, 2012, and fullysubscribed and paid up on July 20, 2012. “Upward Adjustment”has the meaning ascribed to it in Section 2.6. “Working Capital”shall mean the aggregate amount (positive or negative) as calculated by deducting the currentliabilities of the Group Companies required to be reflected on the face of a balance sheetprepared in accordance with the Closing Accounts Accounting Principles (such currentliabilities excluding any amount already included in the Debt) as at close of business on thedate as of which it is calculated (but without taking into account the consummation of thetransaction contemplated hereby when such date is the Closing Date), from the current assetsof the Group Companies required to be reflected on the face of a balance sheet prepared inaccordance with the Closing Accounts Accounting Principles (such current assets excludingCash) as at close of business on the date as of which it is calculated (but without taking intoaccount the consummation of the transaction contemplated hereby when such date is theClosing Date), as calculated in accordance with Schedule 1.1(H) – Working Capital.24 “Working Capital Adjustment”shall mean the difference between the amount of Working Capital as at Closing Dateminus the amount of the Normative Working Capital as at Closing Date.25Exhibit 21.1HARMONIC INC. AND SUBSIDIARIESSUBSIDIARIES OF THE REGISTRANT Name State or Other Jurisdictionof Incorporation Percent of Voting SecuritiesOwned by HarmonicHarmonic Delaware, L.L.C. U.S.A. 100%Harmonic Europe S.A.S. France 100%Harmonic Germany GmbH Germany 100%Harmonic Global Limited Cayman Islands 100%Harmonic Japan GK Japan 100%Harmonic India Private Limited India 100%Harmonic International A.G. Switzerland 100%Harmonic International Inc. U.S.A. 100%Harmonic International Limited Bermuda 100%Harmonic Lightwaves (Israel) Ltd. Israel 100%Harmonic Poland Sp. Z.o.o Poland 100%Harmonic Singapore P.T.E. Ltd. Singapore 100%Harmonic Spain SL Spain 100%Harmonic Technologies (HK) Limited Hong Kong 100%Harmonic (UK) Limited United Kingdom 100%Harmonic Video Networks Ltd. Israel 100%Harmonic Video Systems Ltd. Israel 100%Horizon Acquisition Ltd. Israel 100%Harmonic Brasil LTDA Brazil 100%Harmonic S.R.I. Argentina 100%Harmonic Mexico International Mexico 100%Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos.333-182931, 333-176211, 333-159877, 333-105873,333-91464, 333-84720, 333-59248, 333-43160, 333-86649, 333-65051, 333-44265, 333-136425, 333-116467, 333-38025, 333-140935, 333-154715, 333-19777-99, 333-167197, 333-169505, 333-192089, 333-200032 and 333-207866) of Harmonic Inc. of our report dated March 24, 2016 relating to thefinancial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPPricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 24, 2016Exhibit 31.1HARMONIC INC.CERTIFICATIONI, Patrick J. Harshman, certify that:1.I have reviewed this Annual Report on Form 10-K of Harmonic Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 24, 2016By:/s/ Patrick J. Harshman Patrick J. Harshman President and Chief Executive Officer (Principal Executive Officer)Exhibit 31.2HARMONIC INC.CERTIFICATIONI, Harold Covert, certify that:1.I have reviewed this Annual Report on Form 10-K of Harmonic Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 24, 2016By:/s/ Harold Covert Harold Covert Chief Financial Officer (Principal Financial Officer)Exhibit 32.1HARMONIC INC.CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002As of the date hereof, I, Patrick J. Harshman, President and Chief Executive Officer of Harmonic Inc. (the “Company”), certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of the Company on Form 10-K for the fiscal yearended December 31, 2015, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying suchReport and shall not be deemed filed pursuant to the Securities Exchange Act of 1934, as amended.Date: March 24, 2016/s/ Patrick J. HarshmanPatrick J. HarshmanPresident and Chief Executive Officer(Principal Executive Officer)Exhibit 32.2HARMONIC INC.CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002As of the date hereof, I, Harold Covert, Chief Financial Officer of Harmonic Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the annual report of the Company on Form 10-K for the fiscal year ended December 31,2015, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operationsof the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit accompanying such Report and shall notbe deemed filed pursuant to the Securities Exchange Act of 1934, as amended.Date: March 24, 2016/s/ Harold CovertHarold CovertChief Financial Officer(Principal Financial Officer)

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