NPTN NeoPhotonics Corporation

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When	June 5, 2018, at 10:00 a.m. Pacific Time.
Where	Our principal office located at 2911 Zanker Road, San Jose, California 95134 USA.
Items of Business	Ÿ Election of the three Class II directors nominated by our board of directors to serve for a three-year term or until their successors are elected and qualified (Proposal No. 1); Ÿ Ratification of the selection by our Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018 (Proposal No. 2); and Ÿ To conduct such other business as may properly come before the meeting or any adjournment or postponement thereof.
Record Date	You are entitled to vote if you are a stockholder of record at the close of business on April 6, 2018.
Voting by Proxy	The board of directors is soliciting your proxy to assure that a quorum is present and that your shares are represented and voted at the meeting. Please see “Questions and Answers About These Proxy Materials and Voting” in the accompanying Proxy Statement for information on submitting your proxy over the internet, by telephone, or by mail. If you later decide to vote at the meeting, information on revoking your proxy prior to the meeting is also provided. Please note that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.
Attendance at Meeting	If you plan to attend, please be sure to indicate your attendance when prompted during your internet or telephone submission.
Recommendations	The board of directors recommends that you vote: Ÿ “FOR” each of our nominees for Class II director (Proposal No. 1); and Ÿ “FOR” the ratification of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018 (Proposal No. 2).

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1.	Election of three nominees for Class II director named in this proxy statement to serve until the 2021 Annual Meeting of Stockholders or until their successors have been duly elected and qualified; and

2.	Ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018;

1.	“ FOR ” the election of each of the three nominees named in this proxy statement to serve on the board of directors; and

2.	“ FOR ” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.

•	To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.

•	To vote via the internet, go to “www.voteproxy.com” to complete an electronic proxy card and follow the steps outlined on the secured website. Your vote must be received by 11:59 P.M. Eastern Time on June 4, 2018, to be counted.

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•	To vote by telephone, dial toll-free +1-800-776-9437 within the United States, Canada and Puerto Rico using a touch-tone phone and follow the instructions provided by the recorded message. Your vote must be received by 11:59 P.M. Eastern Time on June 4, 2018, to be counted.

•	To vote by mail, you may do so by first requesting printed copies of the proxy materials by mail and then filling out the proxy card and sending it back in the envelope provided. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct.

•	“ FOR ” the election of each of the three nominees named in this proxy statement to serve on the board of directors; and

•	“ FOR ” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2018.

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•	You may grant a subsequent proxy by telephone or through the internet, provided that your subsequent proxy must be received by 11:59 P.M. Eastern Time on June 4, 2018;

•	You may submit another properly completed proxy bearing a later date, which must be received before the final vote;

•	You may send a written notice of revocation to our principal executive offices at 2911 Zanker Road, San Jose, California 95134 USA, attention Judi L. Otteson, Vice President & General Counsel, which must be received before the final vote; or

•	You may attend the Annual Meeting and notify the election officials at the Annual Meeting that you wish to revoke your proxy and vote in person. Simply attending the Annual Meeting will not, by itself, revoke your proxy.

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For the election of directors, Proposal No. 1, the three nominees receiving the most “FOR” votes (from the holders of shares present in person or represented by proxy and entitled to vote on the election of directors) will be elected. Only votes “FOR” or “WITHHOLD” will affect the outcome. Broker non-votes will have no effect. Proxies may not be voted for a greater number of persons than the number of nominees named.

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To be approved, Proposal No. 2, the ratification of the selection by the Audit Committee of the Board of Directors of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2018, must receive “FOR” votes from the holders of a majority of shares present and entitled to vote either in person or by proxy. If you “ABSTAIN” from voting, it will have the same effect as an “AGAINST” vote.

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PROPOSAL 1

ELECTION OF DIRECTORS

Our board of directors is divided into three classes. Our bylaws permit our board of directors to establish by resolution the authorized number of directors, and seven directors are currently authorized. Our directors hold office until their successors have been elected and qualified or appointed, or the earlier of their death, resignation or removal. Vacancies on our board of directors may be filled only by persons elected by a majority of the remaining directors unless the board of directors determines by resolution that any such vacancies shall be filled by the stockholders. A director elected by the board of directors to fill a vacancy in a class shall serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified.

At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the class whose term is then expiring.

Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the Annual Meeting. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of each of Messrs. Abbe, Carano and Sophie. Proxies may not be voted for a greater number of persons than the number of nominees named. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, shares that would have been voted for that nominee will instead will be voted for the election of such substitute nominee as our Nominating and Corporate Governance Committee may propose. Messrs. Abbe, Carano and Sophie have each agreed to serve if elected.

Our Corporate Governance Guidelines have a Policy regarding Voting For Election of Directors in Uncontested Elections. This policy provides that in an uncontested election of directors, our board of directors shall nominate for election or re-election as director only those candidates who have tendered an irrevocable resignation as a director, which resignation shall be conditioned upon both (1) such director having failed to receive more “for” votes than “withheld” votes in an uncontested election and (2) acceptance by our board of directors of such resignation. If, in an uncontested election, a director fails to receive more “for” votes than “withheld” votes for election, then the board’s Nominating and Corporate Governance Committee will act to determine whether to recommend to the board that the board accept the director’s conditional resignation. The committee must submit such recommendation for prompt consideration by the Board, and the Board will act on the committee’s recommendation within 60 days following certification of the stockholder vote. In making their decision, the Nominating and Corporate Governance Committee and the board will evaluate the best interests of the Company and its stockholders and shall consider all factors and information deemed relevant. A director shall not participate in the Nominating and Corporate Governance Committee recommendation or Board action regarding whether to accept the conditional resignation of such director. If the Board shall determine not to accept the resignation of a director, the Board will promptly disclose its decision-making process and decision to reject the conditional resignation in a Form 8-K furnished to the Securities and Exchange Commission. A copy of our Corporate Governance Guidelines (including the director resignation policy) is available on our website at http://IR.neophotonics.com .

The following table sets forth the names, ages and positions of our directors as of April 6, 2018, the record date:

Name		Age		Position
Timothy S. Jenks		62		President, Chief Executive Officer, Director and Chairman of the Board of Directors
Charles J. Abbe (1)(2)		77		Lead Independent Director
Dmitry Akhanov (1)		42		Director
Bandel L. Carano (1)		56		Director
Rajiv Ramaswami (3)		52		Director
Michael J. Sophie (2)(3)		60		Director
Ihab Tarazi (2)(3)		51		Director

(1)      Member of the Nominating and Corporate Governance Committee.

(2)      Member of the Audit Committee.

(3)      Member of the Compensation Committee.

There are no familial relationships among our directors and executive officers.

NeoPhotonics encourages, but does not require, its directors to attend the annual meetings of stockholders. It is therefore up to each director whether to attend. One of our seven directors then in office attended the 2017 Annual Meeting.

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The following includes a brief biography of each nominee standing for election to the board of directors at the Annual Meeting, with each biography including information regarding the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and the board of directors to determine that the applicable nominee should serve as a member of our board of directors.

Class II directors nominees for election for a three-year term expiring at the 2021 Annual Meeting of stockholders

Charles J. Abbe has served as a member of our board of directors since October 2012 and has been our lead independent director since June 2013. Mr. Abbe served as president and chief operating officer and as director of JDS Uniphase Corporation from February 2000 until his retirement in June 2001. He was employed previously as president, chief executive officer and director at Optical Coating Laboratory, Inc. from 1998 until the company merged with JDS Uniphase in February 2000, and as vice president and general manager of its principal operating division from 1996 to 1998. From 1990 to 1996, he served in several positions of increasing responsibility, including senior vice president, electronics sector, at Raychem Corporation. Mr. Abbe practiced business consulting with McKinsey & Company from 1971 to 1989. Mr. Abbe holds both a Master of Science degree and a Bachelor of Science degree in chemical engineering from Cornell University and a master of business administration degree from Stanford University. Mr. Abbe was a director of CoSine Communications, Inc. until its merger in January 2016. Mr. Abbe was originally recommended by Mr. Jenks to our nominating committee in 2012 for consideration as a potential independent director, based on Mr. Abbe’s substantial experience as an executive and director of other public companies in our industry and Mr. Jenks’ having previously worked with Mr. Abbe at Raychem Corporation in the 1990’s. Our nominating committee then fully evaluated Mr. Abbe’s qualifications and recommended his appointment as a director to our full board of directors, which made such appointment in October 2012. Mr. Abbe’s experience enables him to provide our board of directors with important strategic counsel and guidance.

Bandel L. Carano has served as a member of our board of directors since March 2004. Since 1987, Mr. Carano has been a General Partner of Oak Investment Partners, a venture capital firm he joined in 1985. Mr. Carano is also a director of Boston Power, Inc., Airspan Networks Inc. and Kratos Defense and Security Solutions, Inc. In addition, Mr. Carano has previously invested in and served on the board of directors of public companies including Tele Atlas BV, Synopsys, Inc., FiberTower Corporation, Virata, Inc. and Polycom, Inc. Mr. Carano also serves on the Investment Advisory Board of the Stanford Engineering Venture Fund. Mr. Carano holds both a Master of Science degree and a Bachelor of Science degree in electrical engineering from Stanford University. As a venture capitalist, Mr. Carano has been involved with numerous technology companies in the telecommunications, wireless, rich media and semiconductor industries including 2Wire, Inc., Avici Systems, Qtera Corporation, Sentient Networks, Inc. and Wellfleet Communications, among others. Mr. Carano’s years of venture capital investing, his experience as a director of various public companies and his insights in building these businesses provide valuable perspective to the board of directors.

Michael J. Sophie has been a member of our board of directors since November 2006. Mr. Sophie served as a director of Pericom Semiconductor Corporation from August 2008 through November 2015. From July 2012 through May 2016, Mr. Sophie served as chairman of the board of directors and the Audit Committee Chairman for SkyCross, Inc., a private global wireless antenna solutions company. Mr. Sophie served as interim President and Chief Executive Officer of Proxim Wireless Corporation, a provider of wireless broadband technologies, from October 2011 to February 2012. From March 2003 to January 2007, Mr. Sophie served on the board of directors of McDATA Corporation Ltd., a provider of storage networking solutions. He was employed at UTStarcom Inc., a global seller of telecommunications hardware and software products, serving as its Chief Financial Officer from August 1999 through May 2005, and as Chief Operating Officer from June 2005 through May 2006. Mr. Sophie held executive positions at P-Com, Inc., a developer of network access systems, from August 1993 to August 1999, including Vice President of Finance, Chief Financial Officer and Group President. From 1989 through 1993, Mr. Sophie was Vice President of Finance at Loral Fairchild Corp., a defense electronics and communications company. He holds a Bachelor of Science degree from California State University, Chico and a master of business administration degree from the University of Santa Clara. On May 1, 2008, the Securities and Exchange Commission issued an order in which UTStarcom, its then Chief Executive Officer, and Mr. Sophie, its former Chief Financial Officer, were to cease and desist from causing or committing violations of federal securities laws described in the order relating to filing accurate periodic reports with the SEC, making and keeping accurate books and records, devising and maintaining adequate internal accounting controls, and accurately providing the officer’s certification of a publicly traded company. Mr. Sophie paid a civil fine of $75,000 and consented to the order without admitting or denying the findings (other than SEC jurisdiction). The order did not prevent Mr. Sophie from serving as an officer or director of a publicly traded company. Mr. Sophie brings to our board of directors valuable capabilities in financial understanding, business perspective and U.S.-China cross border experience. Mr. Sophie provides an important role in keeping our board of directors current with audit issues, collaborating with our independent registered public accounting firm and management team and providing guidance and advice on our financial position.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” ALL CLASS II DIRECTOR NOMINEES.

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ADDITIONAL INFORMATION ABOUT THE BOARD OF DIRECTORS

AND CERTAIN CORPORATE GOVERNANCE MATTERS

In addition to the three Class II director nominees, our board of directors consists of four other directors in two other classes who will continue in office after the Annual Meeting with terms expiring in 2019 and 2020. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control. Under Delaware law, our directors may be removed for cause by the affirmative vote of the holders of a majority of our voting stock.

The following includes a brief biography of each other director composing the remainder of the board of directors with terms expiring as shown, with each biography including information regarding the experiences, qualifications, attributes or skills that caused the board of directors to determine that the applicable director should serve as a member of our board of directors.

Class III directors continuing in office until the 2019 Annual Meeting of stockholders

Rajiv Ramaswami  has served as a member of our board of directors since March 2014. Since April 2016, Dr. Ramaswami has served as Chief Operating Officer, Products and Cloud Services of the networking and security business of VMware, Inc., a global leader in cloud infrastructure and business mobility. Before that, he was executive vice president and general manager of the Infrastructure & Networking Group of Broadcom Corporation, a semiconductor company, from 2010. Previously he was Vice President and General Manager of the Cloud Services and Switching Technology Group at Cisco Systems, Inc., where he also served as Vice President and General Manager for a variety of business units in Optical, Switching and Storage Networking. Prior to joining Cisco, he served in various technical and leadership positions at Xros, Tellabs and IBM’s Thomas J. Watson Research Center. Dr. Ramaswami holds both a Master of Science degree and a Ph.D. degree in Electrical Engineering from the University of California, Berkeley and a B. Tech. degree from the Indian Institute of Technology in Madras. Mr. Ramaswami’s technical expertise and background in engineering contribute to our board of directors’ understanding and consideration of opportunities involving our company and the markets we serve.

Ihab Tarazi   has served as a member of our board of directors since October 2015. Mr. Tarazi is currently an Entrepreneur in Residence at Sutter Hill Ventures. Previously, he served as the Chief Technology Officer of Equinix, Inc., a global interconnection and data center company, leading the next generation technology and innovation function and contributing to the company’s cloud initiatives from October 2013 through October 2017 and was Vice President of Enterprise Network Services at Verizon Communications, Inc., from January 2006 to August 2013. Prior to Verizon, Mr. Tarazi served as Vice President of Global Network Planning and in other roles at MCI Communications.  Mr. Tarazi earned both a master’s degree in telecommunications management from Southern Methodist University and a B.S. in electrical engineering and telecommunications from the University of Maryland.  He served as Chairman of the Board for Metro Ethernet Forum (MEF), Chairman of the Board for the Southern Cross Submarine Cable System and a board member of the Australia Japan Submarine Cable System. Mr. Tarazi brings to our Board of Directors valuable capabilities and knowledge in network planning and engineering, telecom carrier operations and data center architectures. His technical expertise and background adds value to our Board of Directors in understanding of opportunities in the telecom carrier and data center markets we serve.

Class I directors continuing in office until the 2021 Annual Meeting of stockholders

Timothy S. Jenks has served as our President and Chief Executive Officer and as a member of our board of directors since April 1998. From November 2002 until August 2005, Mr. Jenks also served as Chief Executive Officer of NanoGram Corporation, a nanomaterials applications company that we spun out, and served on its board of directors until July 2010 when it was acquired by Teijin Corporation. From November 2002 until March 2003, Mr. Jenks served as Chief Executive Officer and director of NanoGram Devices Corporation, a medical device battery company that we spun out and that was acquired by Greatbatch, Inc. in 2004. From 1985 until 1998, Mr. Jenks served in positions of increasing responsibility at Raychem Corporation, a California-based materials engineering company which was acquired by Tyco International Ltd. (now TE Connectivity Ltd.) in 1998. From March 2010 until June 2011, Mr. Jenks served as a director of Ignis ASA, an optical technology company in Norway that was acquired by Finisar Corporation in 2011. Mr. Jenks is a former naval officer, and holds a master of business administration degree from the Stanford Graduate School of Business, a Master of Science degree in nuclear engineering from the Massachusetts Institute of Technology and a Bachelor of Science degree in mechanical engineering and marine engineering from the U.S. Naval Academy. Mr. Jenks additionally is on the board of directors of Grabit, Inc., a privately-held company focused on robotic productivity solutions. Mr. Jenks brings to our board of directors demonstrated leadership and management ability at senior levels; years of experience in engineered components industries and leadership in engineering and manufacturing business operations around the world. He also brings continuity to our board and deep historic knowledge of our company through his tenure as Chief Executive Officer.

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Dmitry Akhanov has served as a member of our board of directors since July 2013. Since December 2010, Mr. Akhanov has been the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Joint Stock Company (formerly Open Joint Stock Company “RUSNANO”), or Rusnano, a Russian state instrument dedicated to fostering the growth of the nanotechnology industry in Russia. Previously, from October 2007 through August 2008, Mr. Akhanov was the Head of the Russian Federal Energy Agency, which was responsible for the implementation of national energy policy and management of state-owned energy assets (oil & gas, coal and electricity industries). As the head of the Strategy Department of RAO “UES”, from June 2002 through October 2007, Mr. Akhanov was actively involved in developing and implementing strategy for the restructuring of the electricity sector of Russia, and forming a new industry structure and electricity market model. In conjunction with this, Mr. Akhanov also implemented a number of corporate projects for the separation, merger and acquisition of major energy companies in Russia. Mr. Akhanov has extensive experience in strategic planning, corporate finance and investor relations. Mr. Akhanov brings to our board of directors valuable experience in doing business in the Russian Federation and managing complex technology projects, as well as dealing with cross-border business operations. Mr. Akhanov holds a Bachelor’s Degree in economics and law and a Master’s Degree in economics from the Peoples’ Friendship University in Russia.

Previous Selection of Directors

In July 2013 our board of directors appointed Dmitry Akhanov as a director in connection with a rights agreement with Rusnano granting Rusnano the right to designate one nominee to our board of directors, subject to the terms and conditions set forth in the rights agreement. Pursuant to the rights agreement, such nominee must (1) be qualified and suitable to serve as a member of our board of directors under all our applicable corporate governance policies or guidelines and applicable legal, regulatory and stock market requirements, and (2) be reasonably acceptable to a majority of the other members of our board of directors and our independent auditors. Rusnano has designated Mr. Akhanov as its nominee to our board of directors, and our board of directors has confirmed that Mr. Akhanov has met the qualifications required under the rights agreement.

Prior to the initial public offering of our common stock, which occurred in February 2011, we had entered into a voting agreement with certain holders of our common stock and preferred stock. Pursuant to this voting agreement, Mr. Carano and Mr. Sophie were elected as directors. This voting agreement terminated upon completion of our initial public offering, and there are no further contractual arrangements regarding the election of our directors of which we are aware.

Director Independence

Our common stock is listed on the New York Stock Exchange. Under the rules of the New York Stock Exchange, independent directors must compose a majority of a listed company’s board of directors within a specified period following that company’s listing date in conjunction with its initial public offering. In addition, the rules of the New York Stock Exchange require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. Audit Committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934. Under the rules of the New York Stock Exchange, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Our board of directors has previously undertaken a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that each of Messrs. Abbe, Akhanov, Carano, Ramaswami, Sophie, and Tarazi are “independent directors” as defined under the rules of the New York Stock Exchange, constituting a majority of independent directors of our board of directors as required by the rules of the New York Stock Exchange. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.

Board Leadership Structure

Our board of directors is currently chaired by our President and Chief Executive Officer, Mr. Jenks. Our board of directors appointed Mr. Abbe as lead independent director in June 2013, succeeding Mr. Sophie who had served in such position since the closing of our initial public offering in February 2011. The board of directors believes that combining the positions of Chief Executive Officer and chairman of the board of directors, or Chairman, helps to ensure that the board of directors and management act with a common purpose. The board of directors further believes that combining the positions of Chief Executive Officer and Chairman provides a single, clear chain of command to execute our strategic initiatives and business plans. In addition, the board of directors believes that a combined Chief Executive Officer and Chairman is better positioned to act as a bridge between management and the board of directors, facilitating the regular flow of information. In light of our Chief Executive Officer’s extensive history with and knowledge of our company, and because the board of directors’ lead independent director is empowered to play a significant role in the leadership and in reinforcement of the independence of the board of directors, the board of directors believes that it is advantageous for NeoPhotonics to combine the positions of Chief Executive Officer and Chairman.

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The responsibilities of the lead independent director include: with the Chairman, establishing the agenda for regular board of directors meetings and serving as chairman of such meetings in the absence of the Chairman; establishing the agenda for meetings of the independent directors; coordinating with the committee chairs regarding meeting agendas and informational requirements; presiding over meetings of the independent directors; presiding over any portions of meetings of the board of directors at which the evaluation or compensation of the Chief Executive Officer is presented or discussed; presiding over any portions of meetings of the board of directors at which the performance of the board of directors is presented or discussed; and coordinating the activities of the other independent directors and performing such other duties as may be established or delegated by the Chairman. As a result, the board of directors believes that the lead independent director can help ensure the effective independent functioning of the board of directors in its oversight responsibilities.

Role of the Board in Risk Oversight

One of the key functions of the board of directors is informed oversight of our various processes for managing risk. The board of directors administers this oversight function directly through the board of directors as a whole, as well as through the standing committees of the board of directors that address risks associated with their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing risk exposure in our strategic plans, development programs, corporate goals and operating plans. Our Audit Committee has the responsibility to consider and discuss our major exposures to financial risk and the steps our management takes to monitor and control these exposures, including guidelines, policies and processes. The Audit Committee also monitors our compliance with various legal and regulatory requirements, monitors our whistleblower system, and oversees the performance of our internal audit function. Our Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance guidelines and policies. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. In addition, the board of directors meets with certain members of our executive team, including the heads of our different organizational functions, who discuss the risks and exposures involved in their respective areas of responsibility as well as any developments that could impact our risk profile or other aspects of our business.

Meetings of the Board of Directors

Our board of directors met ten times during the fiscal year ended December 31, 2017. All incumbent directors attended at least 75 percent of the aggregate of the meetings of the board of directors and the committees on which they served held during the period for which they were a director and committee member, respectively, except that Mr. Tarazi was absent from 3 out of 5 Compensation Committee meetings.

As required under applicable New York Stock Exchange listing standards, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. Our lead independent director generally presides over the executive sessions.

Board Committees

Our board of directors has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below.

•	Audit Committee. Our Audit Committee oversees our corporate accounting and financial reporting processes. For that purpose, our Audit Committee, among other things:

•	evaluates the qualifications and performance of our independent registered public accounting firm;

•	determines and approves the scope of engagement and compensation of our independent registered public accounting firm;

•	confers with management and our independent registered public accounting firm regarding the effectiveness of our internal control over financial reporting; and

•	establishes procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.

Our Audit Committee also has certain responsibilities, including without limitation, the following:

•	selecting and hiring the independent registered public accounting firm;

•	supervising and evaluating the independent registered public accounting firm;

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•	approving audit and non-audit services and fees;

•	reviewing and discussing with management and the independent registered public accounting firm our annual audited and quarterly financial statements, the results of the independent audit and the quarterly reviews, and the reports and certifications regarding internal control over financial reporting and disclosure controls; and

•	reviewing reports and communications from the independent registered public accounting firm.

The Audit Committee met twenty three times during the fiscal year ended December 31, 2017. The current members of our Audit Committee are Messrs. Abbe, Sophie and Tarazi. Our board of directors has determined that Messrs. Abbe and Sophie are each an “audit committee financial expert” as defined under applicable Securities and Exchange Commission rules. Mr. Sophie also serves as the chairman of our Audit Committee. Our board of directors has considered the independence and other characteristics of each member of our Audit Committee.

The Audit Committee has a written charter, which can be found on our corporate website at http://IR.neophotonics.com. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.

Compensation Committee . Our Compensation Committee oversees our corporate compensation policies, plans and benefits programs. The functions of this committee include:

•	reviewing and approving the compensation and other terms of employment of our executive officers and senior members of management and reviewing and approving corporate performance goals and objectives relevant to such compensation;

•	reviewing and approving the compensation of our directors;

•	administering our stock option plans, stock purchase plans, compensation plans and similar programs, including the adoption, amendment and termination of such plans; and

•	identifying and developing internal employees with the potential to fill executive or management positions.

See “Compensation Discussion and Analysis” in this proxy statement for further information regarding our Compensation Committee’s processes.

The Compensation Committee met five times during the fiscal year ended December 31, 2017. The current members of our Compensation Committee are Messrs. Sophie, Ramaswami and Tarazi. Mr. Ramaswami currently serves as the chairman of our Compensation Committee. Effective as of April 1, 2018, Mr. Sophie replaced Mr. Abbe as a member of the Compensation Committee, and Mr. Ramaswami replaced Mr. Abbe as chairman of the Compensation Committee. We believe that each member of our Compensation Committee meets the requirements for independence under the current requirements of the New York Stock Exchange, is a non-employee director as defined by Rule 16b-3 promulgated under the Exchange Act, and is an outside director as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

The Compensation Committee has a written charter, which can be found on our corporate website at http://IR.neophotonics.com. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.

Nominating and Corporate Governance Committee . Our Nominating and Corporate Governance Committee currently consists of Messrs. Carano, Abbe and Akhanov, each of whom is a non-employee member of our board of directors. Mr. Carano serves as the chairman of our Nominating and Corporate Governance Committee. Effective as of April 1, 2018, Mr. Abbe joined the Nominating and Corporate Governance Committee. Our board of directors has determined that each of the directors serving on our Nominating and Corporate Governance Committee is independent within the meaning of the listing standards of the New York Stock Exchange. The functions of this committee include:

•	assessing the performance of our management and our board of directors;

•	identifying, reviewing, and evaluating candidates to serve on our board of directors, including nominations by stockholders of candidates for election to our board of directors;

•	reviewing and evaluating incumbent directors;

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•	making recommendations to our board of directors regarding the membership of the committees of the board of directors; and

•	developing a set of corporate governance principles.

The Nominating and Corporate Governance Committee met once during the fiscal year ended December 31, 2017. The Nominating and Corporate Governance Committee has a written charter, which can be found on our corporate website at http://IR.neophotonics.com. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.

Board Selection

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, having the highest personal integrity and ethics, possessing relevant expertise, having sufficient time, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our stockholders. The Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time. Candidates for director nominees, including incumbent directors and candidates for vacancies on the board of directors, are reviewed in the context of the current composition of the board of directors, our operating requirements and the long-term interests of stockholders. In selecting candidates and existing directors for service on the board of directors, the minimum general criteria set forth below will be considered; specific additional criteria may be added with respect to specific searches. An acceptable candidate may not fully satisfy all of the criteria, but is expected to satisfy nearly all of them.

Candidates for director nominees are reviewed in the context of the current composition of the board of directors, the operating requirements of NeoPhotonics and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the board of directors and NeoPhotonics, to maintain a balance of knowledge, experience and capability. While the Nominating and Corporate Governance Committee does not have a formal policy with respect to the diversity of the members of the board of directors, diversity is typically one of a number of factors that the Nominating and Corporate Governance Committee takes into account in identifying nominees as it is important that the members of the board of directors represent diverse viewpoints. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews such directors’ overall service to NeoPhotonics during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is independent for New York Stock Exchange purposes. To date, the Nominating and Corporate Governance Committee has not rejected a timely director nominee from a stockholder or stockholders holding more than 5 percent of our voting stock.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether the candidate was recommended by a stockholder or not. Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the board of directors and for inclusion in a proxy statement may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address: 2911 Zanker Road, San Jose, California 95134 USA at least 120 days prior to the anniversary date of the mailing of our proxy statement for the prior year’s annual meeting of stockholders. Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record owner of our stock. Any submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.

Communications with the Board of Directors

We have not adopted a formal process for stockholder communications with the board of directors. However, since we make every reasonable effort to ensure that the views of stockholders are heard by the board of directors or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner, it is the view of the board that such formal process is not needed. Our stockholders may direct communications to a particular director or to the directors generally, in care of NeoPhotonics Corporation, 2911 Zanker Road, San Jose, California 95134 USA.

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In addition, any interested person, including any stockholder, may communicate directly with our non-management directors. Persons interested in communicating directly with our non-management directors regarding any concerns or issues may do so by addressing correspondence to a particular director, or to our non-management directors generally, in care of NeoPhotonics Corporation, 2911 Zanker Road, San Jose, California 95134 USA. If no particular director is named, letters will be forwarded, depending upon the subject matter, to the Lead Independent Director, or the Chair of the Audit Committee, Compensation Committee, or Nominating and Corporate Governance Committee.

Corporate Governance

Our board of directors has adopted Corporate Governance Guidelines (the “Guidelines”) that outline, among other matters, the role of the board of directors and the responsibilities of various committees of the board of directors. These Guidelines are available, along with other important corporate governance materials, on our website at http://IR.neophotonics.com . The Guidelines assure that the board of directors will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of our management. The Guidelines are also intended to align the interests of directors and management with those of our stockholders. The Guidelines set forth the practices the board of directors intends to follow with respect to board composition and selection, the role of the board of directors, director orientation and education, director compensation, board meetings and involvement of senior management, board committees, Chief Executive Officer performance evaluation and succession planning and board assessment.

Policy Regarding Voting For Election of Directors in Uncontested Elections

Our Guidelines have a Policy regarding Voting For Election of Directors in Uncontested Elections. This policy provides that in an uncontested election of directors, our board of directors shall nominate for election or re-election as director only those candidates who have tendered an irrevocable resignation as a director, which resignation shall be conditioned upon both (1) such director having failed to receive more “for” votes than “withheld” votes in an uncontested election and (2) acceptance by our board of directors of such resignation. If, in an uncontested election, a director fails to receive more “for” votes than “withheld” votes for election, then the board’s Nominating and Corporate Governance Committee will act to determine whether to recommend to the board that the board accept the director’s conditional resignation. The committee must submit such recommendation for prompt consideration by the Board, and the Board will act on the committee’s recommendation within 60 days following certification of the stockholder vote. In making their decision, the Nominating and Corporate Governance Committee and the board will evaluate the best interests of the Company and its stockholders and shall consider all factors and information deemed relevant. A director shall not participate in the Nominating and Corporate Governance Committee recommendation or Board action regarding whether to accept the conditional resignation of such director. If the Board shall determine not to accept the resignation of a director, the Board will promptly disclose its decision-making process and decision to reject the conditional resignation in a Form 8-K furnished to the Securities and Exchange Commission. A copy of our Corporate Governance Guidelines (including the director resignation policy) is available on our website at http://IR.neophotonics.com .

Code of Business Conduct and Ethics

Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics is available on our website at http://IR.neophotonics.com . We intend to disclose future amendments to the code of business conduct and ethics, or any waivers of its requirements, on our website to the extent permitted by the applicable rules and exchange requirements. The inclusion of our website address in this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.

AUDIT COMMITEE REPORT*

Communications with Management and Independent Registered Public Accounting Firm

The Audit Committee has reviewed and discussed our audited financial statements with management. In addition, the Audit Committee has discussed with Deloitte & Touche LLP, our independent registered public accounting firm, the matters required to be discussed pursuant to applicable auditing standards, which include, among other items, matters related to the conduct of the audits of our financial statements and internal controls. The Audit Committee has also received the written disclosures and letter required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte & Touche LLP’s communications with the Audit Committee concerning independence. The Audit Committee has reviewed Deloitte & Touche LLP’s independence from NeoPhotonics Corporation, including whether Deloitte & Touche LLP’s provision of non-audit services was compatible with that independence.

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Recommendation Regarding Financial Statements

Based on the review and discussions referred to above, the Audit Committee unanimously recommended to our board of directors that NeoPhotonics Corporation’s audited fiscal 2017 financial statements be included in our Annual Report on Form 10-K for fiscal 2017.

From the members of our Audit Committee:

Michael J. Sophie, Chairman

Charles J. Abbe

Ihab Tarazi

*This report shall not constitute “soliciting material,” shall not be deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any of our other filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate this report by reference therein.  

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PROPOSAL 2

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of our board of directors has selected Deloitte & Touche LLP, our independent registered public accounting firm, to audit our consolidated financial statements and internal controls for the fiscal year ending December 31, 2018. Deloitte & Touche LLP has audited our consolidated financial statements and internal controls since fiscal 2013. You are being asked to ratify the Audit Committee’s selection of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2018.

We expect that a Deloitte & Touche LLP representative will be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions.

Stockholder ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. Our board of directors is submitting the selection of Deloitte & Touche LLP to our stockholders for ratification as a matter of good corporate governance. However, the Audit Committee is not bound by a vote either for or against this proposal. The Audit Committee will consider a vote against Deloitte & Touche LLP by the stockholders in selecting our independent registered public accounting firm in the future. Even if the stockholders do ratify the appointment, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it believes that such a change would be in the best interest of NeoPhotonics and our stockholders.

Stockholder approval of this Proposal 2 requires a “FOR” vote from at least a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote. An “ABSTENTION” vote will have the same effect as a vote “AGAINST” this Proposal 2. Discretionary votes by brokers, banks and related agents on this routine proposal will be counted towards the quorum requirement and will affect the outcome of the vote.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP TO SERVE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2018.

Principal accountant fees and services

The following table presents fees for services provided by Deloitte & Touche LLP for the years ended December 31, 2016 and 2017. All fees described below were approved by the Audit Committee.

Accountant		Year		Audit Fees(1)				Audit-Related Fees (2)				Tax Fees (3)				All Other Fees				Total Fees
Deloitte & Touche LLP		2017		$	2,020,715			$	211,422			$	736			$	1,895			$	2,234,768
		2016		$	2,106,179			$	510,180			$	165,476			$	2,000			$	2,783,835

(1)	“Audit Fees” consist of fees for professional services provided in connection with the audit of our financial statements, our internal control over financial reporting and the review of our quarterly financial statements.

(2)

“Audit-Related Fees” consists of assurance and related services reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” Audit-related fees for 2016 pertained to a registration statement filed with the SEC in connection with a potential public offering of shares of our common stock, acquisition and asset-sale activities and other audit related procedures.

(3)	“Tax Fees” consists of fees for tax compliance services.

Pre-approval Policies and Procedures

Pursuant to applicable Securities and Exchange Commission rules, the Audit Committee is required to pre-approve all audit and non-audit services to be performed by our independent registered public accounting firm, with the exception of non-audit services that account for no more than five percent of the total fees paid to our independent registered public accounting firm that are subsequently ratified by the Audit Committee.

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MANAGEMENT

Executive Officers

The following table sets forth the names, ages and positions of our executive officers as of April 6, 2018, the record date:

Name		Age		Position
Timothy S. Jenks		62		President, Chief Executive Officer, Director and Chairman of the Board of Directors
Elizabeth Eby		54		Senior Vice President, Finance and Chief Financial Officer
Yang Chiah Yee		51		Senior Vice President of Global Sales
Dr. Chi Yue (“Raymond”) Cheung		50		Senior Vice President and Chief Operating Officer
Dr. Wupen Yuen		48		Senior Vice President and General Manager

Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no familial relationships among our directors and executive officers. The biographical information of Timothy S. Jenks, our President and Chief Executive Officer, can be found in Proposal 1 in this proxy statement under the section entitled “Class I directors continuing in office until the 2020 Annual Meeting.” Set forth below is biographical information, including the experiences, qualifications, attributes and skills of our other executive officers.

Executive Officers

Elizabeth Eby has served as our Senior Vice President, Finance and Chief Financial Officer since August 2017. Ms. Eby worked at Intel Corporation, a semiconductor company, from July 1991 to August 2017, where she served as Vice President of Finance and Group Chief Financial Officer for the Internet of Things Group from September 2016 to August 2017.  Previously, Ms. Eby held several other positions at Intel, including as Vice President, Corporate Finance Planning, Reporting & Staffs from April 2014 to September 2016, as Director, Corporate Planning and Reporting from May 2010 to April 2014, as Director, Finance & Administration Asia Pacific from 2005 to 2010, and as Mobile Processor Group Controller from 2002 to 2005.  Ms. Eby has a Master of Science in Industrial Administration degree from Carnegie Mellon University and a Bachelor of Science in Applied Mathematics from the University of Michigan.

Yang Chiah Yee has served as our Senior Vice President of Global Sales since March 2018. Since January 2017, Mr. Yee has served as Board member for Rohinni LLC, a private company that manufactures micro LED lighting products. Mr.Yee served previously as Senior Vice President of Worldwide Sales at IDEX ASA, a biometrics company specializing in fingerprint recognition technology, from August 2016 to February 2017. Prior to IDEX ASA, Mr. Yee served as Vice President of Worldwide Sales at Atmel Corporation, a semiconductor company, from May 2011 to March 2016 and Vice President of Sales, Asia from March 2008 to April 2011. Before Atmel, he served as Vice President of APAC Sales at Xilinx, Inc. and President of APAC at Memec, a semiconductor distribution company. Mr. Yee received his Bachelor of Electrical Engineering from Nanyang Technological Institute, National University of Singapore and is a graduate of the Stanford-NUS Executive program.

Raymond Cheung, Ph.D. has served as our Senior Vice President and Chief Operating Officer since October 2012 and is an employee of NeoPhotonics (China) Co., Ltd. Previously, he served as our Vice President and Chief Operating Officer from November 2008 to October 2012 and prior to that as our Vice President of Product Engineering from August 2007 to November 2008. From April 2004 until May 2007, Dr. Cheung served as Director of SAE Magnetics (HK) Ltd., a hard disc drive magnetic heads design and manufacturing company, and was responsible for manufacturing operations in Dongguan, China. Dr. Cheung has also held various senior technical, operations and management positions with Hong Kong Applied Science & Technology Research Institute and Philips Semiconductor. Dr. Cheung holds a doctorate degree in materials and mechanics from Cambridge University (UK) and a bachelor of engineering degree in mechanical engineering from King’s College London (UK).

Wupen Yuen, Ph.D. has served as our Senior Vice President and General Manager since August 2014. Mr. Yuen previously served as our Senior Vice President of Product and Technology Development from October 2012 to August 2014, as our Vice President of Product Development and Engineering from September 2006 to October 2012 and prior to that as our Director of Business Development since joining us in January 2005. From August 2002 until December 2004, Dr. Yuen served as Chief Technology Officer of Bandwidth9, Inc., a telecommunications tunable laser company. Dr. Yuen holds a doctorate degree in

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electrical engineering and a master of science in electrical engineering from Stanford University and a bachelor of science in electrical engineering from National Taiwan University.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of our common stock as of February 28, 2018, by:

•	each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock;

•	each of our named executive officers as set forth in the Summary Compensation Table in this proxy statement;

•	each of our directors; and

•	all executive officers and directors as a group.

The percentage ownership information shown in the table below is based upon 44,278,392 shares of common stock outstanding as of February 28, 2018.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of shares to persons who possess sole or shared voting or investment power with respect to such shares. The information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, the number of shares of common stock deemed outstanding includes (i) restricted stock units (RSUs) held by the person that vest within 60 days after February 28, 2018 and (ii) shares issuable upon exercise of options and warrants held by the respective person or group which may be exercised or converted within 60 days after February 28, 2018. These shares are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage ownership of that person or entity, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person or entity.

Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person’s spouse. Unless otherwise indicated below, the address of each person listed on the table is c/o NeoPhotonics Corporation, 2911 Zanker Road, San Jose, California 95134 USA.

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			Beneficial ownership
Name and Address of Beneficial Owner			Total Shares of Common Stock		Percent
5% Stockholders:
Funds affiliated with Oak Investment Partners (1)			5,571,335		12.6%
525 University Avenue, Suite 1300, Palo Alto, CA 94301
Joint Stock Company “RUSNANO” (2)			4,222,905		9.5%
Prospect 60-letiya Oktyabrya 10a, 117036, Moscow, Russian Federation
Quentec Asset Management LLC			2,697,106		6.1%
575 Lexington Avenue 31st floor New York, NY 10022
Dimensional Fund Advisors LP			2,689,448		6.1%
6300 Bee Cave Road, Building One, Austin, TX 78746
AWM Investment Company, Inc.			2,340,183		5.3%
527 Madison Avenue Suite 2600, New York, NY 10022
Royce & Associates, LP			2,274,658		5.1%
745 Fifth Avenue, New York, NY 10151
Named executive officers and directors:
Timothy S. Jenks (3)			776,189		1.7%
Elizabeth Eby			—		*
Sandra Waechter			—		*
Clyde R. Wallin (4)			—		*
Benjamin L. Sitler (5)			402,619		*
Dr. Raymond Cheung (6)			124,750		*
Dr. Wupen Yuen (7)			314,476		*
Charles J. Abbe (8)			96,324		*
Dmitry Akhanov (9)			32,723		*
Bandel L. Carano (10)			5,618,036		12.7%
Rajiv Ramaswami (11)			37,483		*
Michael J. Sophie (12)			52,327		*
Ihab Tarazi (13)			11,579		*
All executive officers and directors as a group (13 people) (14)			7,466,506		16.7%

*Represents less than 1%.

(1)

Includes 1,622,872 shares beneficially owned by Oak Investment Partners IX, Limited Partnership (“Oak IX”); 17,291 shares beneficially owned by Oak IX Affiliates Fund, Limited Partnership (“Oak IX Affiliates”); 38,947 shares beneficially owned by Oak IX Affiliates Fund—A, Limited Partnership (“Oak IX Affiliates-A”); 3,731,759 shares beneficially owned by Oak Investment Partners X, Limited Partnership (“Oak X”); 59,911 shares beneficially owned by Oak X Affiliates Fund, Limited Partnership (“Oak X Affiliates”); and 100,555 shares beneficially owned by Oak Investment Partners XI, Limited Partnership (“Oak XI”). Each of these entities has sole voting and investment power with respect to the shares they beneficially own. Oak Associates IX, LLC is the general partner of Oak IX, Oak IX Affiliates, LLC is the general partner of each of Oak IX Affiliates and Oak IX Affiliates-A, Oak Associates X, LLC is the general partner of Oak X, Oak X Affiliates, LLC is the general partner of Oak X Affiliates, and Oak Associates XI, LLC is the general partner of Oak XI. As the general partner, these entities have shared voting and investment power over the shares held by the entity for which they are the general partner. Each of Bandel L. Carano (one of our directors), Edward F. Glassmeyer, Fredric W. Harman and Ann H. Lamont are managing members of each of the general partners described above, and are each deemed to have shared voting and investment power over the shares held by the various funds, and therefore the entire 5,571,335 shares.

(2)

Rusnano is a joint stock company organized under the laws of the Russian Federation. The supervisory board of Rusnano has sole voting and investment power with respect to the shares beneficially owned by Rusnano. The Russian Federation owns 100% of Rusnano. Dmitry Akhanov, a member of our board of directors, is the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Rusnano, but he disclaims beneficial ownership of these shares.

(3)	Consists of 12,500 restricted stock units that may be settled in shares of common stock within 60 days of February 28, 2018, 462,335 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28,

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2018 and 278,473 shares of common stock. In addition 16,007 shares of common stock were held by family members and 6,874 shares of common stock were held in trusts that belong to his family members.

(4)	Mr. Wallin resigned his position as Senior Vice President and Chief Financial Officer effective as of May 15, 2017.

(5)	Includes 281,408 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 121,211 shares of common stock. Mr. Sitler resigned his position as Senior Vice President of Global Sales effective as of February 28, 2018.

(6)	Consists of 5,500 restricted stock units that may be settled in shares of common stock within 60 days of February 28, 2018 and 119,250 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018.

(7)	Consists of 5,500 restricted stock units that may be settled in shares of common stock within 60 days of February 28, 2018, 265,755 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 43,221 shares of common stock.

(8)	Includes 22,314 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 74,010 shares of common stock.

(9)	Includes 19,495 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 13,228 shares of common stock. Although Mr. Akhanov is the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Rusnano, he has no voting or dispositive power over any shares held by Rusnano.

(10)	Includes the shares of common stock detailed in Note (1) above held by the fund entities affiliated with Oak Investment Partners. Also includes 46,701 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018.

(11)	Includes 24,255 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 13,228 shares of common stock.

(12)	Includes 38,009 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 14,318 shares of common stock.

(13)	Includes 8,923 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and 2,656 shares of common stock.

(14)	Includes 1,311,945 shares of common stock issuable upon the exercise of options exercisable within 60 days of February 28, 2018 and restricted stock units that may be settled in shares of common stock within 60 days of February 28, 2018.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, executive officers and greater than ten percent beneficial owners of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, executive officers and greater than ten percent stockholders are required by the rules and regulations of the Securities and Exchange Commission to furnish us with copies of all Section 16(a) reports they file. Based solely on a review of the copies of these reports furnished to us, we are not aware of any required Section 16(a) reports that were not filed on a timely basis.

 

Copies of the insider trading reports as filed with the Securities and Exchange Commission are available at http://IR.neophotonics.com .

EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain information with respect to our equity compensation plans in effect as of December 31, 2017.

Plan Category		Number of securities to be issued upon exercise of outstanding options and rights			Weighted-average exercise price of outstanding options (1)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)			(b)				(c)
Equity compensation plans approved by security holders (2)		5,783,533			$	5.65			1,188,478			(3)
Equity compensation plans not approved by security holders (4)(5)		554,633			$	4.64			49,331			(5)

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(1)

Consists solely of outstanding options as there is no exercise price for outstanding restricted stock units. Our common stock was not publicly traded prior to our initial public offering in February 2011, and the exercise price of the options granted prior to our initial public offering was determined by our board of directors on the grant date based on its determination of the fair market value of our common stock on such grant date.

(2)	Consists of our 2004 Stock Option Plan, our 2010 Equity Incentive Plan (the “2010 Plan”) and our 2010 Employee Stock Purchase Plan.

(3)

The number of shares of our common stock reserved for issuance under the 2010 Plan will automatically increase on January 1st each year, starting on January 1, 2012 and continuing through January 1, 2020, by 3.5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, or such lesser number of shares of common stock as determined by our board of directors. Pursuant to the evergreen provision contained therein, in January 2017, an additional 1,488,411 shares of our common stock were added to the 2010 Plan. Our 2010 Employee Stock Purchase Plan became effective upon the consummation of our initial public offering in February 2011 and the number of shares of our common stock reserved for issuance under the 2010 Employee Stock Purchase Plan will automatically increase on January 1st each year, starting on January 1, 2012 and continuing through January 1, 2020, in an amount equal to the lesser of (a) 3.5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) 600,000 shares of our common stock or (c) such lesser number of shares of common stock as determined by our board of directors. Pursuant to a resolution of our board of directors, no additional shares of our common stock were added to the 2010 Employee Stock Purchase Plan in January 2017.

(4)	Consists solely of our 2011 Inducement Award Plan.

(5)	In January 2018, an additional 400,000 shares of our common stock were added to the 2011 Inducement Award Plan.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis discusses the principles underlying our executive compensation program and the policies and practices that contributed to our executive compensation actions and decisions for 2017, and the most important factors relevant to an analysis of these policies and practices. It also provides qualitative information regarding the manner and context in which compensation was paid and awarded to and earned by our executive officers and places in perspective the data presented in the compensation tables and accompanying narrative below.

This Compensation Discussion and Analysis provides information about the material components of our executive compensation program for the following executive officers, to whom we refer collectively in this discussion as our “named executive officers”.

•	Timothy S. Jenks, our President and Chief Executive Officer (our “CEO”);

•	Elizabeth Eby, our Senior Vice President, Finance and Chief Financial Officer;

•	Benjamin L. Sitler, our Senior Vice President of Global Sales in 2017;

•	Dr. Raymond Cheung, our Senior Vice President and Chief Operating Officer;

•	Dr. Wupen Yuen, our Senior Vice President and General Manager;

•	Clyde R. Wallin, our former Senior Vice President and Chief Financial Officer for a portion of 2017;

•	Sandra A. Waechter, our Interim Chief Financial Officer for a portion of 2017; and

2017 Management Changes

On March 31, 2017, Mr. Wallin notified us of his intention to resign as our Senior Vice President and Chief Financial Officer, effective on May 15, 2017.

On May 15, 2017, Ms. Waechter was appointed as our Interim Chief Financial Officer, after which date Mr. Wallin provided certain transition and consulting services to us for a three month period to ensure the smooth transition of his duties and responsibilities.

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On August 15, 2017, Ms. Eby was appointed as our Senior Vice President, Finance and Chief Financial Officer, effective August 14, 2017, replacing Ms. Waechter. Ms. Waechter remained us to assist with the transition and various other financial and accounting matters until September 30 2017.

On December 14, 2017, we mutually agreed with Mr. Sitler for his resignation of his position as our Senior Vice President of Global Sales, effective as of February 28, 2018.

Executive Summary

We are a leading designer and manufacturer of optoelectronic products that transmit, receive and switch high speed digital optical signals for communications networks. Our products address the highest speed over distance applications and are designed for 100G and beyond data rates, such as at 200G, 400G, 600G and, in the near future, 1.2 Terabits per second, for telecom and hyper-scale data center or content provider networks.

In 2017, we achieved the following financial and operational results:

•	Our High Speed Products for data rates of 100G and beyond comprised 83% of our revenues in 2017;

•	Closed the asset sale of our Low Speed Transceiver product lines in January 2017.

•	Achieved annual revenues of $292.9 million, compared to $411.4 million in 2016, which represented a year-over-year decline of 29% compared to 2016 which was driven primarily due to a reduction in demand from China market and lower revenue that resulted from the sale of assets related to our Low Speed Transceiver Products' assets;

•	Continued to introduce new product solutions for the highest speed communications networks in telecom and datacenter applications.

•	Took actions to sell or discontinue certain products that were not meeting corporate profitability targets while continuing to ramp new and 100G and beyond products.

2017 Executive Compensation Highlights

Consistent with our business results and our competitive marketplace for executive talent, our compensation committee took the following actions with respect to the 2017 compensation of our Named Executive Officers, with the details of these actions discussed further below:

•	Base Salary - We maintained the base salaries of our named executive officers at their 2016 levels, except for an increase in the base salary of Mr. Yuen.

•	Annual Cash Bonuses - We did not pay an annual cash bonus in 2017 because we did not achieve a threshold level of performance under our bonus plan.

•	Long-Term Incentive Compensation - We granted long-term incentive compensation opportunities in the form of options to purchase shares of our common stock and service-vesting RSUs.

Appointment of Ms. Eby as Chief Financial Officer

In August 2017, Ms. Eby was appointed our Senior Vice President, Finance and Chief Financial Officer, effective as of August 14, 2017. Pursuant to the terms and conditions of her employment offer letter dated July 13, 2017, her initial compensation arrangements were as follows:

•	An annual base salary of $340,000;

•	An annual cash bonus under our annual bonus plan targeted at 60% of her annual base salary, with actual bonus payments based on our performance against target levels set by our board of directors (or the compensation committee), and paid at the discretion of our board of directors or compensation committee;

•	An option to purchase 184,500 shares of our common stock, vesting over four years subject to her continuous employment, with one-quarter of the shares subject to the option vesting after one year of continuous service and

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1/48th of the shares vesting monthly thereafter subject to her continuous service to us through the applicable vesting date;

•	A restricted stock unit award that may be settled for 123,000 shares of our common stock, vesting over four years subject to her continuous employment, with one-quarter of the shares subject to the award vesting on each anniversary of her employment start date, subject to her continuous employment with us through the applicable vesting date;

•	An additional restricted stock unit award that may be settled for 50,000 shares of our common stock, with 100% of the shares subject to the award vesting on the first anniversary of her employment start date, subject to her continuous employment with us through the applicable vesting date; and

•	A cash payment in the amount of $75,000 representing a “sign-on” bonus.

In addition, Ms. Eby entered into a retention agreement with us providing for severance payments and benefits in the event of an involuntary termination of her employment, including an involuntary termination of her employment in connection with a change in control. For a detailed description of the terms of this retention agreement, as well as an estimate of the potential payments and benefits payable under the agreement, see “Management-Potential Payments Upon Termination or Change in Control” below.

In establishing the initial compensation arrangements for Ms. Eby, we took into consideration the requisite experience and skills that a qualified candidate would need to manage a growing business in a dynamic and ever-changing environment, the competitive market for similar positions at other comparable companies based on a review of compensation survey data and the need to integrate her into our existing executive compensation structure, balancing both competitive and internal equity considerations.

Executive Compensation Policies and Practices

We endeavor to maintain sound governance standards consistent with our executive compensation policies and practices. Our Compensation Committee evaluates our executive compensation program on an ongoing basis to ensure that it is consistent with our short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. The following policies and practices were in effect during 2017:

•	Independent Compensation Committee . Our Compensation Committee comprises solely of independent directors;

•	Compensation Committee Advisor . Our Compensation Committee has periodically engaged its own independent compensation consultant to assist with its executive compensation review. This consultant was engaged by the Compensation Committee to provide these services in 2017;

•	Executive Compensation Review . Our Compensation Committee conducts a periodic review and approval of our compensation strategy, including a review of our compensation peer group used for comparative purposes and a review of our compensation-related risk profile to ensure that our compensation-related risks are not reasonably likely to have a material adverse effect on the Company;

•	Compensation At-Risk . Our executive compensation program is designed so that a significant portion of compensation is “at risk” based on corporate performance, as well as equity-based to align the interests of our executive officers and stockholders;

•	Limited Perquisites . We provide only limited perquisites or other personal benefits to our executive officers;

•	No Tax Reimbursements . We do not provide any tax reimbursement payments (including “gross-ups”) on any perquisites or other personal benefits;

•	No Special Health or Welfare Benefits . Our U.S. executive officers participate in broad-based company-sponsored health and welfare benefits programs on the same basis as our other full-time, U.S. salaried employees;

•	No Post-Employment Tax Reimbursements . We do not provide any tax reimbursement payments (including “gross-ups”) on any post-employment payments or benefits;

•	“Double-Trigger” Change-in-Control Arrangements . All change-in-control payments and benefits are based on a “double-trigger” arrangement (that is, they require both a change-in-control of the Company plus a qualifying termination of employment before payments and benefits are paid);

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•

Multi-Year Vesting Requirements . Other than RSUs granted as part of year-end bonuses in lieu of cash and the special one-time RSU award for 50,000 shares granted to Ms. Eby in connection with her appointment as chief financial officer, the equity awards granted to our executive officers vest or are earned over multi-year periods, consistent with current market practice and our retention objectives;

•	Stock Ownership Guidelines . We require our CEO and U.S.-based executive officers to maintain a minimum level of ownership in our common stock; and

•	Hedging Prohibited . We prohibit our executive officers and other employees from hedging or engaging in other inherently speculative transactions with respect to their holdings of Company securities.

Recent Stockholder Advisory Vote on Named Executive Officer Compensation

We conducted our most recent stockholder advisory vote on the compensation of our Named Executive Officers (commonly known as a “Say-on-Pay” vote) at our 2017 Annual Meeting of Stockholders. Our stockholders approved the compensation of our Named Executive Officers with approximately 97.3% of the votes cast in favor of the proposal. Previously, at our 2011 and 2014 Annual Meetings of Stockholders, approximately 95.3% and 98.6% of the votes cast were voted in favor of our executive compensation program.

We believe that the results of our three Say-on-Pay votes reflect our stockholders’ support of our compensation approach, specifically our efforts to attract, retain and motivate our executive officers. Accordingly, we made no significant design changes to our executive compensation program as a result of the 2017 Say-on-Pay vote.

In addition, we conducted a separate stockholder advisory vote on the frequency of future stockholder advisory votes regarding the compensation of our Named Executive Officers (commonly known as a “Say-When-on-Pay” vote) at our 2017 Annual Meeting of Stockholders. Our stockholders expressed a preference for continuing to hold future Say-on-Pay votes on an triennial, rather than an annual or biennial, basis. In recognition of this preference and other factors considered, our Board of Directors determined that we should continue to hold our Say-on-Pay votes on a triennial basis.

We value the opinions of our stockholders and will continue to consider the outcome of future Say-on-Pay votes, as well as feedback received throughout the year, when making compensation decisions for our executive officers, including our Named Executive Officers. Further, to the extent there is any significant vote in favor of one frequency over the other options, even if less than a majority, our Board of Directors will consider our stockholders’ concerns and evaluate any appropriate next steps. Subject to the evaluation of our Board of Directors, we expect that after the 2018 Annual Meeting, our next Say-on-Pay vote will take place at our 2020 Annual Meeting of Stockholders and our next Say-When-on-Pay vote will take place at our 2023 Annual Meeting of Stockholders.

Compensation Philosophy and Objectives

Our executive compensation program consists of four primary components - base salary, an annual cash bonus opportunity, long-term incentive compensation in the form of equity awards and post-employment compensation arrangements. We also provide our U.S.-based executive officers with the same health and welfare benefits that are available to all U.S. salaried employees. In China, Dr. Cheung (our Senior Vice President and Chief Operating Officer) is provided the same health and welfare benefits that are provided to the top tier of salaried employees in southern China, and additionally is provided access to Hong Kong health services.

Our executive compensation program is designed to achieve the following objectives:

•	provide total compensation packages that attract, motivate, reward, and retain exceptional executive-level talent;

•	establish a direct and meaningful link between corporate, individual and team performance and the compensation payable in respect of such performance;

•	provide strong incentives for our executive officers create stockholder value; and

•	align the financial interests of our executive officers with those of our stockholders.

While our Compensation Committee (or our Board of Directors, as applicable) reviews the total compensation package for each of our executive officers, including each of our Named Executive Officers, in connection with the decisions it makes each year regarding each individual compensation component, generally the amount of any one compensation component is

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determined independent of the amount of any other component. Our Compensation Committee performs at least an annual review of our executive officers’ target total direct compensation opportunities to determine whether they meet our compensation objectives.

Compensation-Setting Process

Role of our Compensation Committee

Our Compensation Committee oversees our executive compensation program in relation to our competitive marketplace for talent (including our executive compensation policies and practices), approves the compensation of our executive officers and administers our various employee stock plans. Specifically, our Compensation Committee is responsible for:

•	reviewing and approving the compensation and other terms of employment of our executive officers, including our Named Executive Officers, and other senior members of management, and reviewing and approving corporate performance goals and objectives relevant to such compensation; and

•	administering our stock option plans, stock purchase plans, compensation plans, and similar programs, including the adoption, amendment and termination of such plans.

Our Compensation Committee approved target annual cash bonus opportunities for 2017 performance in July 2017 and determined annual cash bonus payments based on 2017 performance for our key employees in March 2018. The committee determined not to pay an annual cash bonus for 2017 to our named executive officers because we did not achieve a threshold level of performance under our bonus plan.

Our Compensation Committee’s objective of maintaining an executive compensation program that is competitive includes a balance between motivating and retaining our executive officers and maintaining a reasonable and responsible cost structure. Our Compensation Committee does not establish a specific target percentile for the target total direct compensation opportunities of our executive officers, including our Named Executive Officers (that is, we do not engage in “benchmarking” as that term is commonly used). When setting the amount of each compensation component for our executive officers, our Compensation Committee (or the independent members of our Board of Directors, as applicable) considers a number of factors, the importance of any one of which may vary in any given year, including:

▪	corporate and/or individual performance, as we believe this encourages our executive officers to focus on achieving our business objectives;

▪	the need to motivate our executive officers to address particular business challenges that are unique within any given year;

▪

the experiences and individual knowledge of the members of our Compensation Committee (or the independent members of our Board of Directors, as applicable) regarding compensation of similarly-situated executives at other companies (with reference to third party surveys), as we believe this approach helps us to compete in hiring and retaining the best possible talent while at the same time maintaining a reasonable and responsible cost structure;

▪	internal pay parity of the compensation paid to one executive officer as compared to another, as we believe this contributes to retention and a spirit of teamwork among our executive officers;

▪	the performance of each individual executive officer, based on a subjective assessment of his or her contributions to our overall performance, ability to lead his or her business unit or function, work as part of a team and reflect our core values;

▪	the potential dilutive effect on our stockholders generally from equity awards granted to our executive officers;

▪	common pay practices and local economic conditions in foreign countries where an executive officer may work;

▪	broader economic conditions, to ensure that our pay strategies are effective yet responsible, particularly in the face of any unanticipated consequences of the broader economy on our business;

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▪	individual negotiations with our executive officers, particularly in connection with their initial compensation package, as these individuals may be leaving meaningful compensation opportunities at their prior employer to work for us, as well as negotiations upon their departure, as we recognize the benefit to our stockholders of smooth transitions; and

▪	recommendations provided by our CEO for his direct reports.

    

These factors provide the framework for compensation decision-making and final decisions regarding the compensation opportunity for our executive officers, including our Named Executive Officers.

Our Compensation Committee may, at its discretion and in accordance with the philosophy of making all information available to our Board of Directors, present executive compensation matters to the entire Board of Directors for their review and approval.

In the course of its deliberations, in any given year, our Compensation Committee may review and consider materials such as our financial reports and projections, operational data, tax and accounting information regarding potential compensation, executive stock ownership information, analyses of historical executive compensation levels, and current company-wide compensation levels, competitive market data and the recommendations of our CEO.

Role of our Management

For our executive officers other than our CEO, our Compensation Committee solicits and considers the performance evaluations and compensation recommendations submitted by our CEO. In the case of our CEO, the non-employee members of our Board of Directors evaluate his performance and our Compensation Committee determines whether to make any adjustments to his compensation.

Our human resources and finance departments work with our CEO to propose for the consideration and approval of our Compensation Committee the design of our executive compensation program, to recommend changes to existing compensation components, to recommend financial and other performance measures and related target levels to be achieved under our incentive compensation plans, to prepare analyses of financial data and other briefing materials and, ultimately, to implement the decisions of our Compensation Committee or our Board of Directors, as applicable.

No executive officer, including no Named Executive Officer, was present or participated directly in the final determinations or deliberations of our Compensation Committee or our Board of Directors, as applicable regarding the amount or component of his or her own 2017 compensation package.

Role of our Compensation Consultant

For 2017, our Compensation Committee engaged Compensia, a national compensation consulting firm, to assist it in its deliberations on the compensation payable to our executive officers, including our Named Executive Officers. Our Compensation Committee may also consider input from Compensia on the compensation payable to non-employee members of our Board of Directors.

The nature and scope of services of Compensia’s services in 2017 included the following:

•	providing advice regarding best practices and market trends in executive compensation;

•	assisting with the design of our equity compensation program, and other executive compensation arrangements, as needed;

•	preparing for and attending meetings of our Compensation Committee, as requested by the committee Chair;

•	working with our management and human resource personnel to obtain any information needed about us to provide its working with our management and human resource personnel to obtain any information needed about us to provide its services;

•	revising and updating the peer group of companies against which compensation matters are reviewed, and

•	producing a report on executive compensation regarding the relative market positions of each component of

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compensation for each of our executive officers.

The Company pays the cost for Compensia’s services. In April 2017, our Compensation Committee reviewed the independence of Compensia pursuant to the criteria set forth in Exchange Act Rule 10C-1 and the applicable listing standards of The New York Stock Exchange. Our Compensation Committee determined that the work of Compensia did not give rise to any conflict of interest.

Competitive Positioning

For purposes of evaluating our executive compensation against the competitive market, our Compensation Committee reviews and considers the compensation levels and practices of a group of comparable technology companies. This data is drawn from a select group of peer companies developed by the Compensation Committee, as well as compensation survey data. The companies comprising the compensation peer group are selected on the basis of their similarity to us in size (as determined largely by revenue and market capitalization), business strategy and industry. Our Compensation Committee reviews the compensation peer group in years when it requests a peer assessment of executive compensation and makes adjustments to its composition, taking into account changes in both our business and the businesses of the companies in the peer group.

In connection with its review of our executive compensation program in July 2017 and its determinations with respect to the compensation of our executive officers, including our Named Executive Officers, our Compensation Committee used an analysis of the compensation practices of a compensation peer group of 20 technology companies, which was developed with the assistance of Compensia. The companies in this compensation peer group were selected in June 2017 on the basis of their similarity to us using the following criteria:

•	similar industry - companies that design and manufacture technology equipment with a preference for companies in the communications equipment and semiconductor and other hardware sectors;

•	similar revenue size - ~0.5x to ~2.0x our last four fiscal quarter revenue of approximately $386 million (ranging from approximately $200 million to approximately $800 million, with median revenues of approximately $367 million);

•	similar market capitalization - ~0.33x to ~3.0x our market capitalization of approximately $350 million (ranging from approximately $100 million to approximately $1.1 billion, with a median market capitalization of approximately $427 million); and

•	similar size - companies with a number of employees that approximates our employee population of approximately 2,400 full-time equivalent employees.

The compensation peer group for 2017 consisted of the following companies:

Alpha and Omega Semiconductor	Inphi Corporation
Bel Fuse, Inc.	IXYS Corporation
CalAmp Corporation	Lattice Semiconductor Corporation
Calix, Inc.	Novanta, Inc.
Cohu, Inc.	Oclaro, Inc.
Commtech Communications, Inc.	ShoreTel, Inc.
Daktronics	Sigma Designs, Inc.
Digi International, Inc.	Sonus Networks, Inc.
Extreme Networks, Inc.	Vishay Precision Group, Inc.
Harmonic, Inc.	Xcerra Corporation

To analyze the compensation practices of the companies in the compensation peer group, Compensia gathered data from public filings of the peer companies. This data, supplemented with a custom analysis of compensation data for technology companies of similar revenue size drawn from a third party study, was then used by our Compensation Committee as a reference when evaluating our current compensation levels in the course of its deliberations on compensation design and amounts.

This compensation analysis was used by our Compensation Committee to develop a subjective representation of the “competitive market” with respect to current executive compensation levels and related policies and practices. Our

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Compensation Committee then evaluated how its contemplated compensation actions and decisions compared to the competitive market.

We do not believe that it is appropriate to make compensation decisions, whether regarding base salaries or short-term or long-term incentive compensation, only upon any type of benchmarking to a peer or other representative group of companies. Our Compensation Committee believes that information regarding the compensation practices at other companies is useful in at least two respects. First, our Compensation Committee recognizes that our compensation policies and practices must be competitive in the marketplace. Second, this information is useful in assessing the reasonableness and appropriateness of individual executive compensation elements and of our overall executive compensation packages. This information is only one of several factors that our Compensation Committee considers, however, in making its decisions with respect to the compensation of our executive officers.

Our Compensation Committee reviews our compensation peer group at least annually and makes adjustments to its composition, taking into account changes in both our business and the businesses of the companies in the peer group.

Compensation Components

Our executive compensation program has four primary components-base salary, an annual cash bonus opportunity, long-term incentive compensation in the form of equity awards and post-employment compensation arrangements. We also provide our executive officers with the same health and welfare benefits that are available to all salaried employees in the country in which they reside. The following table summarizes the factors which were material to the decisions of our Compensation Committee in 2017 and the reasons such compensation component is provided.

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Compensation Component		Objectives		Material Factors
Base salary		Ÿ Attract and retain experienced executive officers within the affordability of business performance		Ÿ Board members’ experience and knowledge Ÿ Historical negotiations and base salary levels Ÿ Broader market conditions Ÿ Compensation paid at other publicly-traded technology companies based on competitive market data Ÿ Ability to afford
Annual cash bonus opportunity		Ÿ Retain exceptional talent Ÿ Motivate executive officers to achieve corporate objectives Ÿ Link corporate and individual performance with compensation paid Ÿ Provide incentives to promote our growth and create stockholder value Ÿ Align the financial interests of the executive officers with those of our stockholders		Ÿ Board members’ experience and knowledge Ÿ Level of achievement of corporate objectives, particularly in light of broader market conditions Ÿ Subjective review of each executive officer’s overall individual performance Ÿ Internal pay equity Ÿ Broader market conditions Ÿ Balance Sheet and expected future cash flows
Long-term incentive compensation		Ÿ Retain exceptional talent Ÿ Motivate executive officers to achieve longer-term corporate objectives Ÿ Link corporate and individual performance with compensation paid Ÿ Provide incentives to promote our growth and create stockholder value Ÿ Align the financial interests of the executive officers with those of our stockholders		Ÿ Board members’ experience and knowledge Ÿ Level of achievement of corporate objectives, particularly in light of broader market conditions Ÿ Internal pay equity Ÿ The potential dilutive effect on our stockholders Ÿ Compensation paid at other publicly-traded technology companies based on competitive market data
Post-employment compensation		Ÿ Retain exceptional talent· Ÿ Motivate executive officers to achieve corporate objectives, which may in any given year include completion of a strategic transaction Ÿ Align the financial interests of the executive officers with those of our stockholders, that is, the completion of a desired transaction without regard to executive’s own compensation/job security		Ÿ Board members’ experience and knowledge Ÿ Internal pay equity Ÿ Historical individual negotiations with executive officers

The following table illustrates the proportions of base salary, target annual cash bonus opportunity and equity awards granted to our Named Executive Officers in 2017:

Named Executive Officer		Base Salary			Target Annual Cash Bonus Opportunity			Equity Awards
Mr. Jenks		24	%		24	%		51	%
Mr. Wallin (1)		—	%		—	%		—	%
Ms. Eby (2)		—	%		—	%		—	%
Mr. Sitler		41	%		25	%		34	%
Dr. Cheung		42	%		25	%		33	%
Dr. Yuen		41	%		25	%		34	%

(1)	Mr. Wallin resigned his position as our Senior Vice President and Chief Financial Officer effective May 15, 2017.

(2)	Ms. Eby was appointed as our Senior Vice President, Finance and Chief Financial Officer effective August 14, 2017.

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Base Salary

In July 2017, our Compensation Committee reviewed the base salaries of our executive officers, including our Named Executive Officers. As part of this review, our Compensation Committee considered information from Compensia regarding the expected range for annual base salary increases in 2017. After considering the competitive market data provided by Compensia, as well as the collective knowledge and experience of its members on compensating individuals in positions held by the executives at other companies, and the factors described above, our Compensation Committee decided to maintain the base salaries of our executive officers at their 2016 levels, with one exception. The Compensation Committee increased the annual base salary of Dr. Yuen to $335,000, effective as of July 1, 2017.

The base salaries of the named executive officers for 2017 were as follows:

Named Executive Officer		2016 Base Salary ($)				2017 Base Salary ($)				Percentage Adjustment
Mr. Jenks		$	500,000			$	500,000			—	%
Mr. Wallin (1)		$	325,000			$	—			—	%
Ms. Eby (2)		$	—			$	340,000			N/A
Mr. Sitler		$	290,000			$	290,000			—	%
Dr. Cheung (3)		$	361,000			$	347,115			—	%
Dr. Yuen		$	312,000			$	335,000			7.4	%

(1)	Mr. Wallin resigned his position as our Senior Vice President and Chief Financial Officer effective May 15, 2017 and was therefore not included in the July 2017 determinations.

(2)	Ms. Eby was appointed as our Senior Vice President and Chief Financial Officer effective August 14, 2017. Her base salary is listed on an annualized basis.

(3)	Dr. Cheung’s base salary is calculated in U.S. dollars at the average exchange rate for the applicable year. Dr. Cheung’s actual base salary was paid in RMB, the legal currency of the People’s Republic of China. Dr. Cheung’s adjusted base salary represents a 0% increase over his prior year base salary under the RMB currency in which he is paid.

Annual Cash Bonuses

Each year, we seek to motivate our executive officers, including our Named Executive Officers, to successfully execute our annual financial and operational objectives through an annual bonus opportunity. In designing these bonus opportunities, our CEO works with our Compensation Committee to develop appropriate performance objectives and related target levels, which are then reviewed and approved by our Board of Directors. The performance measures and related payout levels are determined based on management’s business forecast both at the corporate and business unit levels, as reviewed and approved by our Board of Directors.

In May 2017, our Compensation Committee reviewed and approved an annual cash bonus plan for 2017 (the “2017 Bonus Plan”) for our executive officers and other key employees. The 2017 Bonus Plan was proposed by our management following discussions with our Compensation Committee and after taking into consideration the objectives set forth in our 2017 annual operating plan. Our Compensation Committee designed the 2017 Bonus Plan so that bonus payments would be based in part on our actual achievements measured against a set of pre-established corporate performance objectives, including completion of various research and development milestones during the year.

Target Annual Cash Bonus Opportunities

In July 2017, our Compensation Committee reviewed and adjusted the target annual bonus opportunities for our executive officers, including our Named Executive Officers, for purposes of the 2017 Bonus Plan. The target annual cash bonus opportunities for our Named Executive Officers were as follows:

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Named Executive Officer		2017 Target Annual Cash Bonus Opportunity  (as a percentage of base salary)		2017 Target Annual Cash Bonus Opportunity ($)
Mr. Jenks		100%		$	500,000
Mr. Wallin (1)		—%		$	—
Mr. Sitler		60%		$	174,000
Dr. Cheung (2)		60%		$	208,269
Dr. Yuen		60%		$	201,000

(1)	Mr. Wallin resigned his position as our Senior Vice President and Chief Financial Officer effective May 15, 2017.

(2)	Dr. Cheung’s target annual cash bonus opportunity is calculated in U.S. dollars at the average exchange rate for the year. Dr. Cheung’s actual annual bonus payment, if any, is paid in RMB, the legal currency of the People’s Republic of China.

These target annual cash bonus opportunities were determined by our Compensation Committee based on its members’ collective knowledge and experiences, the recommendations of our CEO (except with respect to his own target annual cash bonus opportunity) and considerations for internal pay equity. That is, while our Compensation Committee generally believes compensation for our executive officers should increase with their level of responsibility, it also recognized that achievement of the corporate performance objectives underlying the 2017 Bonus Plan would require a team effort among management, and, therefore, the target annual cash bonus opportunities should fall within a narrow range, with the largest percentage awarded to our CEO in light of his overall responsibility for the successful execution of our annual operating plan.

Corporate Performance Objectives

Our Compensation Committee structured the 2017 Bonus Plan so that a pool for the payment of bonuses would be funded throughout the year based on our Compensation Committee’s assessment of our overall corporate performance as measured against a set of pre-established corporate performance objectives, including completion of various research and development milestones during the year. Each of these research and development milestones had certain target performance specifications and completion dates. The criteria for assessment included timely and cost-effective delivery of named products to the target performance specifications and to the target development stage. The assessment was to be made based on timeliness, budget adherence, technical risk assessment and potential customer impact.

Our Compensation Committee selected these operational performance objectives because it believed they were the best indicators of our ability to successfully execute our annual operating plan and factors critical to improving our competitive position and increasing the value of our common stock. Our Compensation Committee believed these objectives, therefore, best aligned the financial interests of our executive officers, including our Named Executive Officers, with those of the stockholders.

Although expressed as a potential payment outcome, the target levels for these operational performance objectives were merely non-binding guidelines to be used by our Compensation Committee as one factor in determining the actual bonuses payments, if any, to be made to our executive officers and other participants under the 2017 Bonus Plan. In approving the 2017 Bonus Plan, our Compensation Committee did not assign a specific dollar payment amount to any of the corporate performance objectives or to its assessment of individual performance achievements. Instead, as in prior years, our Compensation Committee intended to determine actual bonus payments for 2017 based upon the subjective judgment of its members as to the appropriate bonus amounts after assessing:

•	our actual corporate performance as compared against the expected progress for each corporate performance objective; and

•	an evaluation of whether each executive officer had performed his or her duties and responsibilities in a satisfactory manner; and

•	Our overall budget (that is, the appropriate level of bonuses to pay after consideration of the broader economic conditions and our balance sheet and expected cash flows).

Under the 2017 Bonus Plan, our Compensation Committee reserved the discretion to award up to 50% of the bonus payments actually earned by our executive officers and other participants for 2017 in the form of restricted stock unit awards.

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2017 Annual Cash Bonus Payments

In March 2018, our Compensation Committee reviewed our actual performance during 2017 against each of the corporate performance objectives, as well as other aspects of our corporate and each executive officer and other participant’s individual performance, and determined that there would not be an annual cash bonus payment for 2017 performance for our executive officers.

Long-Term Incentive Compensation

We use equity awards in the form of options to purchase shares of our common stock and time-based restricted stock unit awards that may be settled for shares of our common stock to ensure that our executive officers, including our Named Executive Officers, have a continuing stake in our long-term success. We structure our long-term incentive compensation in the form of equity awards because we believe that if our executive officers own shares of our common stock with values that are significant to them, they will have an incentive to act to maximize longer-term stockholder value instead of short-term gain. We also believe that equity awards are an integral component of our efforts to attract exceptional executive officers and employees.

We believe that properly structured long-term incentive compensation arrangements work to align the long-term interests of our executive officers and stockholders by creating a strong, direct link between their compensation and stock price appreciation. Our options to purchase shares of our common stock, which are granted with exercise prices equal to the fair market value of our common stock on the date of grant, provide an appropriate long-term incentive for our executive officers, since the options reward them only to the extent that our stock price grows and stockholders realize value following their grant date.

Our time-based restricted stock unit awards that may be settled for shares of our common stock will increase or decrease in value to the same extent as our common stock. Our Compensation Committee recognizes that full value awards, such as restricted stock unit awards, have a greater intrinsic value to our executive officers than stock options and, therefore, may have an increased retention effect. Stock options may provide even greater motivation than full value awards to drive stockholder return, however, which is why our Compensation Committee also grants such equity awards.

In determining the size of the equity awards granted in 2017 to our executive officers, including our Named Executive Officers, as well as the mix of stock options and restricted stock unit awards, our Compensation Committee made its decisions based primarily on its members’ experience and knowledge, equity compensation data provided by Compensia, internal pay equity (that is, generally similar award sizes as among our executive officers, with larger awards to our CEO in light of his roles and responsibilities), our performance (that is, the progress as of the date of grant toward the achievement of the financial measures described above under the discussion of the 2017 Bonus Plan) and the potential dilutive effect on our stockholders and the other factors described above.  These factors were considered as a whole, without any specific weighting or formula.

In July 2017, our Compensation Committee approved the grant of the following equity awards to our Named Executive Officers:

Named Executive Officer		Options to Purchase Shares of Common Stock (Number of Shares)		Time-Based Restricted Stock Unit Awards    (Number of Shares)		Aggregate Grant Date Fair Value ($)
Mr. Jenks		110,790		64,420		$	1,057,578
Ms. Eby (1)		—		—		$	—
Mr. Sitler		25,530		14,850		$	243,747
Dr. Cheung		29,000		16,860		$	276,809
Dr. Yuen		29,000		16,860		$	276,809

(1) Ms. Eby did not receive an annual equity award as part of the Compensation Committee’s annual executive compensation review as she received equity awards at the time she was appointed as our Senior Vice President, Finance and Chief Financial Officer in August 2017.

Health and Welfare Benefits

We provide the following benefits to our executive officers, including our Named Executive Officers, based in the United States, on the same terms and conditions as provided to all other eligible employees:

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•	medical, dental and vision insurance, basic life insurance;

•	medical and dependent care flexible spending accounts;

•	short-term and long-term disability, accidental death and dismemberment insurance;

•	a Section 401(k) defined contribution plan for U.S.-based employees; and

•	a nonqualified deferred compensation plan for certain of our U.S. employees, including our U.S.-based executive officers to provide them an opportunity to defer certain compensation on a pre-tax basis and accumulate tax-deferred earnings.

We believe these benefits are consistent with benefits provided by other companies based on the experiences and individual knowledge of the members of our Compensation Committee regarding the compensation of similarly-situated executives at other companies and help us to attract and retain high quality executives.

In addition, Dr. Cheung’s annual compensation includes RMB 54,000 ($7,988 based on an average exchange rate of RMB 6.76 per U.S. dollar in 2017) to cover the cost of family health insurance premiums in the People’s Republic of China and RMB 9,290 ($1,374 based on an average exchange rate of RMB 6.76 per U.S. dollar in 2017) to cover the cost of commercial medical insurance.

Perquisites and Other Personal Benefits

Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Consequently, we provide only limited perquisites or other personal benefits to our executive officers, including our Named Executive Officers. In considering potential perquisites, our Compensation Committee reviews the cost to us as compared to the perceived value of providing such benefits.

In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective and for recruitment, motivation or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by our Compensation Committee.

Post-Employment Compensation Arrangements

Each of our Named Executive Officers is eligible to receive payments and benefits in the event of certain involuntary terminations of employment, including a termination of employment in connection with a change in control of the Company, under the terms of his or her respective severance agreement that, in the case of our Named Executive Officers other than Ms. Eby, was updated in August 2016. These agreements (and the payments and benefits offered under each such agreement) reflect the negotiations of each of the Named Executive Officer as well as a desire to have internal parity among our executive officers with respect to their potential post-employment compensation arrangements. We consider these arrangements to be critical to attracting and retaining high caliber executives.

In addition, we believe that providing certain payments and benefits and partial vesting acceleration of outstanding and unvested equity awards in the event of a termination of employment in connection with a change in control of the Company, if structured appropriately, serve to minimize the distractions to an executive officer and reduce the risk that a Named Executive Officer terminates his employment with us before an acquisition is consummated.

We believe that these arrangements allow our Named Executive Officers to focus on continuing normal business operations and, in the case of change in control payments and benefits, on the success of a potential business combination, rather than being distracted by how business decisions that may be in the best interest of our stockholders will impact each Named Executive Officer’s own financial security. That is, we believe that these arrangements help ensure stability among our Named Executive Officers, and will help enable them to maintain a balanced perspective in making overall business decisions during periods of uncertainty.

For a detailed description of these arrangements with our Named Executive Officers, as well as an estimate of the potential payments and benefits payable under these arrangements, see “Management-Potential Payments Upon Termination or Change in Control” below.

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Employee Stock Plans

Under the terms of our employee stock plans and agreements with our executive officers, including our Named Executive Officers, the vesting of outstanding and unvested stock options and restricted stock unit awards is partially accelerated in the event of certain material corporate transactions, where equity awards are not assumed or substituted, as well as in the event of certain involuntary terminations of employment following certain material corporate transactions (such as a change of control).

We believe these accelerated vesting provisions are appropriate in light of the collective knowledge and experiences of the members of our Compensation Committee on compensating individuals in the positions held by our executive officers at other companies (without reference to any specific compensation peer group or any specific level of compensation), and, therefore, allow us to attract and retain high quality executive officers, and, in the case of accelerated vesting upon certain involuntary terminations of employment following a change in control of the Company, the accelerated vesting allows our executive officers to focus on closing a transaction that may be in the best interest of our stockholders even though the transaction may otherwise result in a termination of their employment and, absent such accelerated vesting, a forfeiture of their unvested equity awards.

Severance Agreement with Mr. Wallin

On March 31, 2017, Mr. Wallin notified us of his intention to resign his position as our Senior Vice President and Chief Financial Officer, effective on May 15, 2017. In connection with his resignation, Mr. Wallin entered into a written separation agreement with us on April 4, 2017. Pursuant to the terms of his separation agreement, Mr. Wallin maintained his current compensation arrangements and benefit plan eligibility with us through May 15, 2017 and, subject to his execution of a general release of claims, we agreed to provide Mr. Wallin the severance payments and benefits specified in his retention agreement dated August 5, 2016 as follows:

•	a lump-sum cash payment in the amount of $325,000 (equal to his then-current annual base salary);

•	a cash payment in the amount of $72,000, which he could, but was not required to, use towards continued health coverage; and

•	accelerated vesting of his outstanding and unvested time-based equity awards as if the awards continued to vest for a period of 18 months following the date of his termination of employment.

In addition, after May 15, 2017, Mr. Wallin agreed to provide consulting services to us as requested by us for a three-month transition period at an hourly rate of $300 per hour, including consulting on Company matters during his employment relationship with us and the transition of his assignments. Any outstanding vested and exercisable stock options as of Mr. Wallin’s separation date generally remained exercisable for a period of three months following the termination of his consulting services.  Mr. Wallin’s equity awards did not continue to vest during his consulting period.

Severance Agreement with Mr. Sitler

On December 14, 2017, we mutually agreed with Mr. Sitler for his resignation of his position as our Senior Vice President of Global Sales, effective on February 28, 2018. In connection with his transition, Mr. Sitler entered into a written separation agreement with us on December 20, 2017. Pursuant to the terms of his separation agreement, Mr. Sitler was to continue his current compensation arrangements and benefit plan eligibility with us through February 28, 2018. Subject to his execution of a general release of claims, we agreed to provide Mr. Sitler with the severance benefits specified in his retention agreement dated August 5, 2016 as follows:

▪	a lump-sum cash payment in the amount of $290,000 (equal to his then-current annual base salary);

▪	a cash payment in the amount of $72,000, which he could, but is not required to use, towards continued health coverage; and

▪	accelerated vesting of his outstanding and unvested time-based equity awards as if the awards continued to vest for a period of 18 months following the date of his termination of employment.

Other Compensation Policies

Stock Ownership Guidelines

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As part of our overall corporate governance policies, and to align the interests of our executive officers with the interests of our stockholders, our Board of Directors believes that our executive officers should have a significant financial stake in the Company. Accordingly, in October 2017, our Compensation Committee recommended that our stock ownership guidelines be amended to provide that:

▪	our Chief Executive Officer own shares of our common stock with a value equal to or exceeding three times his or her then-current annual base salary; and

▪	our U.S.-based executive officers who are required to file reports of securities ownership and changes in ownership under Section 16 of the Securities Exchange Act of 1934 own shares of our common stock with a value equal to or exceeding his or her then-current annual base salary.

Our Chief Executive Officer and each Section 16 Officer is to attain his or her required ownership level within two years from the later of October 24, 2017 or the date he or she became an executive officers subject to Section 16 of the Securities Exchange Act of 1934.

Our board of directors approved the foregoing amended stock ownership guidelines in February 2018.

Our board of directors may evaluate, in its discretion, whether this requirement should be waived in the case of an executive officer, who, because of his or her personal circumstances, would incur a hardship by complying with this requirement.

As of December 31, 2017, our CEO’s beneficial ownership of shares of our common stock exceeded his required ownership level.

Hedging Prohibition Policy

We have adopted a policy that prohibits our executive officers, including our Named Executive Officers, other members of management, and the non-employee members of our Board of Directors from engaging in short sales, transactions in put or call options, hedging transactions or other inherently speculative transactions with respect to our securities. We adopted this policy as a matter of good corporate governance and because, by not allowing these individuals to engage in such transactions, they are subject to the full risks of ownership of their unvested equity awards. As a result, their equity compensation is strongly correlated to stock price performance over the vesting period.

Equity Award Grant Policy

It is our policy not to intentionally accelerate or delay the public release of material information in consideration of a pending equity award to allow the recipient to benefit from a more favorable stock price. Typically, “new hire” equity awards are made on the 15th of the month following the date of hire.

Compensation Recovery Policy

At this time, we do not have a formal policy regarding the adjustment or recovery of awards or payments if the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of the award or payment. We intend to adopt a general compensation recovery (“clawback”) policy covering our annual and long-term incentive award plans and arrangements once the Securities and Exchange Commission adopts final rules implementing the requirement of Section 954 of the Dodd-Frank Act.

Tax and Accounting Considerations

Deductibility of Compensation

Generally, Section 162(m) of the Code disallows a federal income tax deduction for public corporations of remuneration in excess of $1 million paid in any fiscal year to certain specified executive officers. For taxable years beginning before January 1, 2018, (i) these executive officers consisted of a public corporation’s chief executive officer and up to three other executive officers (other than the chief financial officer) whose compensation is required to be disclosed to stockholders under the Securities Exchange Act of 1934 because they are our most highly-compensated executive officers and (ii) qualifying “performance-based compensation” was not subject to this deduction limit if specified requirements are met. In this latter regard, the compensation

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income realized upon the exercise of stock options granted under a stockholder-approved stock option plan in a taxable years beginning before January 1, 2018 generally would be deductible so long as the options are granted by a committee whose members are non-employee directors and certain other conditions are satisfied.

Pursuant to the Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017 (the “Tax Act”), for taxable years beginning after December 31, 2017, the remuneration of a public corporation’s chief financial officer is also subject to the deduction limit. In addition, subject to certain transition rules (which apply to remuneration provided pursuant to written binding contracts which were in effect on November 2, 2017 and which are not subsequently modified in any material respect), for taxable years beginning after December 31, 2017, the exemption from the deduction limit for “performance-based compensation” is no longer available. Consequently, for fiscal years beginning after December 31, 2017, all remuneration in excess of $1 million paid to a specified executive will not be deductible.

In establishing the cash and equity incentive compensation plans and arrangements for our executive officers, including our Named Executive Officers, our Compensation Committee considers a variety of relevant factors, including the potential impact of the Section 162(m) deduction limit. However, our Compensation Committee will not necessarily limit executive compensation to that which is or may be deductible under Section 162(m). The deductibility of some types of compensation depends upon the timing of an executive officer’s vesting or exercise of previously granted rights. Further, interpretations of and changes in the tax laws, and other factors beyond our Compensation Committee’s control also affect the deductibility of compensation. Our Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent consistent with its compensation objectives.

To maintain flexibility to compensate our executive officers in a manner designed to promote our short-term and long-term corporate goals and objectives, our Compensation Committee has not adopted a policy that all compensation must be deductible. Our Compensation Committee believes it is important to maintain cash and equity incentive compensation at the requisite level to attract and retain the individuals essential to our financial success, even if all or part of that compensation may not be deductible by reason of the Section 162(m) limit. From time to time, our Compensation Committee may approve compensation for our Named Executive Officers that does not comply with an exemption from the deduction limit when it believes that such compensation is consistent with the goals of our executive compensation program and is in the best interests of the Company and our stockholders.

Nonqualified Deferred Compensation

Our Compensation Committee takes into account whether components of the compensation for our executive officers will be adversely impacted by the penalty tax imposed by Section 409A of the Code, and aims to structure these components to be compliant with or exempt from Section 409A to avoid such potential adverse tax consequences.

“Golden Parachute” Payments

Sections 280G and 4999 of the Code provide that executive officers and members of our Board of Directors who hold significant equity interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in connection with a change in control of the Company that exceeds certain prescribed limits, and that we, or a successor, may forfeit a deduction on the amounts subject to this additional tax. We did not provide any executive officer, including any Named Executive Officer, with a “gross-up” or other reimbursement payment for any tax liability that he or she might owe as a result of the application of Sections 280G or 4999 during 2017 and we have not agreed and are not otherwise obligated to provide any Named Executive Officer with such a “gross-up” or other reimbursement.

Accounting for Stock-Based Compensation

We follow Financial Accounting Standard Board Accounting Standards Codification Topic 718 (“ASC Topic 718”) for our stock-based compensation awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and members of our Board of Directors, including stock options, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the stock option or other award.

COMPENSATION COMMITTEE REPORT

Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on our Compensation Committee’s review of, and the discussions with management

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with respect to, the Compensation Discussion and Analysis, our Compensation Committee recommended to our board of directors that the Compensation Discussion and Analysis be included in our proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

From the members of our Compensation Committee:

Charles J. Abbe (member until April 1, 2018)

Rajiv Ramaswami

Michael Sophie (member effective as of April 1, 2018)

Ihab Tarazi

Compensation Risk Assessment

From time to time, our board of directors and our Compensation Committee review the potential risks associated with the structure and design of our various compensation plans. In July 2017, our Compensation Committee reviewed the material compensation plans and arrangements for all employees and determined that none of our compensation policies and practices is reasonably likely to have a material adverse effect on the Company.

Overall, our board of directors believes that our compensation programs generally contain a balance of fixed and variable features, as well as complementary performance measures and reasonable goals, all of which operate to mitigate risk and reduce the likelihood of employees engaging in excessive risk-taking behavior with respect to the compensation-related aspects of their jobs. In addition, our material compensation plans and arrangements operate within the corporate governance and review structure that serves and supports our risk mitigation practices.

Pay-Ratio Information

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the related SEC rule (the “Rule”), we are required to provide to our shareholders specified disclosure regarding the relationship of CEO total compensation to the total compensation of our median employee, referred to as “pay-ratio” disclosure.

For fiscal 2017,

▪	the median of the annual total compensation of all our employees (other than the CEO) was $56,960; and

▪	the annual total compensation of our CEO, as reported in the Summary Compensation Table included in this Proxy Statement, was $1,564,785.

▪	Based on this information, the ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 27.47 to 1.

The pay ratio above represents our reasonable estimate calculated in a manner consistent with the Rule and applicable guidance. The Rule and guidance provide significant flexibility in how companies identify the median employee, and each company may use a different methodology and make different assumptions particular to that company. As a result, as the SEC explained when it adopted the Rule, in considering the pay-ratio disclosure, shareholders should keep in mind that the Rule was not designed to facilitate comparisons of pay ratios among different companies, even companies within the same industry, but rather to allow shareholders to better understand and assess each particular company’s compensation practices and pay-ratio disclosures.

Set forth below is a description of the methodology, including any material assumptions, adjustments and estimates, that we used to identify the median employee for purposes of the Rule.

To determine our total population of employees as of December 31, 2017, we included all full-time and part-time employees. Approximately 260 of our 1,445 employees are located in the U.S., while approximately 1,034 employees are located in China, approximately 122 employees are located in Japan, and approximately 29 employees are located in other countries.

To identify the “median employee” from our employee population as determined above, we compared the aggregate amount of each employee’s annual base pay (using a reasonable estimate of the hours worked during 2017 for hourly employees and actual salary paid for the remaining employees), the annual cash incentive awards and the grant date fair value of equity awards granted in 2017. In making this determination, we annualized the compensation of employees who were

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employed by us for less than the entire fiscal year. This compensation measure was consistently applied to all employees included in the calculation and reasonably reflects the annual compensation of employees. Because we do not maintain a defined benefit or other actuarial plan for our employees and do not provide company matching contributions to employees participating in our 401(k) plan, the median employee’s annual total compensation did not include amounts attributable to these arrangements.

Using this approach, we selected the employee at the median of our employee population, who was an Assistant Process Engineer, based in China. We then calculated annual total compensation for this employee using the same methodology used to calculate annual total compensation for the named executive officers as set forth in the Summary Compensation Table. We determined that the employee’s annual total compensation for the fiscal year ended December 31, 2017 was $56,960 (excluding any estimated retirement and health benefits).

Summary Compensation Table

The following table provides information for the years ended December 31, 2017, 2016 and 2015, regarding the compensation of our principal executive officer, principal financial officer, and each of our three other most highly compensated persons serving as executive officers, or our named executive officers, for 2017.

Name and principal position		Year		Salary ($)			Bonus ($)  (1)			Option awards ($) (2)			Stock awards ($) (2)			Non-Equity Incentive Plan Compensation ($)  (3)			Non-Qualified Deferred Compensation Earnings ($)			All Other Compensation ($)			Total ($)
Timothy S. Jenks		2017		500,000						537,708			519,869			—			—			7,208			1,564,785
President and Chief Executive Officer		2016		486,538			—			547,980			674,850			385,000			—			1,500			2,095,868
		2015		435,481			—			340,275			569,223			600,000			—			2,308			1,947,287
Elizabeth Eby		2017		117,692			—			653,554			1,018,970			—			—			373			1,790,589
Senior Vice President, Finance and Chief Financial Officer
Sandra Waechter		2017								—			—			—						229,250		(4)	229,250
Interim Chief Financial Officer
Clyde R. Wallin		2017		137,374						—			—			—			—			400,307		(7)	537,681
Senior Vice President and Chief Financial Officer		2016		313,346			—			219,192			196,320			127,125			120,085			1,500			857,483
		2015		294,442			—			136,110			223,892			180,000			59,654			1,500			835,944
Dr. Raymond Cheung		2017		320,436		(5)				140,749			136,060			—			—			9,253		(8)	606,498
Senior Vice President and Chief Operating Officer		2016		319,764		(5)	—			219,192			196,320			147,500		(6)	—			9,528		(8)	892,304
		2015		325,948		(5)	—			149,721			255,820			262,711		(6)	—			10,036		(8)	1,004,236
Dr. Wupen Yuen		2017		322,615						140,749			136,060			—			—			4,702			604,126
Senior Vice   President and General Manager		2016		302,846			—			219,192			196,320			147,500			—			3,500			869,358
		2015		284,461			—			149,721			233,067			225,000			—			3,493			895,742
Benjamin L. Sitler		2017		290,000						123,907			119,840			—			—			7,089			540,836
Senior Vice President of Global Sales		2016		268,650			—			219,192			196,320			121,650			—			3,192			809,004
		2015		268,865			—			108,888			178,359			170,000			—			3,269			729,381

(1)	The bonus amounts for named executive officers are included in the non-equity incentive plan compensation column in this table.

(2)

Amount reflects the aggregate grant date fair value of the awards granted, calculated in accordance with applicable accounting guidance for share based payment transactions. The valuation assumptions used in determining such amounts are described in Note 15 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 9, 2018. These amounts do not reflect the actual economic value realized by the named executive officers.

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(3)	The amounts in this column are performance-based bonuses in respect of performance for the years ended December 31, 2017, 2016 and 2015, but were actually paid in the following year. We did not pay any performance-based bonuses in 2018 to our named executive officers for the year ended December 31, 2017.

(4)	Ms. Wachter’s compensation was paid to Kainos Consulting LLC, for whom she is a contractor.

(5)	Dr. Cheung’s salary in 2015, 2016 and 2017 was RMB 2,029,800, RMB 2,124,000 and RMB 2,166,000, respectively. Conversion to U.S. dollars is based on an average exchange rate of RMB 6.2274, RMB 6.6424 and RMB 6.7595 per U.S. dollar in 2015, 2016 and 2017, respectively.

(6)	Dr. Cheung’s bonus in 2015 and 2016 was RMB 1,636,000 and RMB 979,753, respectively. Conversion to U.S. dollars is based on an average exchange rate of RMB 6.2274 and RMB 6.6424 per U.S. dollar in 2015 and 2016, respectively.

(7)	Includes $2,000 of Company contributions to Mr. Wallin’s 401(k) Plan and, in connection with his separation from the Company and execution of a general release of claims, a single lump-sum payment of $325,000 and a cash payment in the amount of $72,000 which Mr. Wallin may, but is not required to, use towards continued health coverage.

(8)	Represents medical insurance and family health insurance premiums of RMB 62,498, RMB 63,290 and RMB 62,545 in 2015, 2016 and 2017, respectively. Conversion to U.S. dollars is based on an average exchange rate of RMB 6.2274, RMB 6.6424 and RMB 6.7595 per U.S. dollar in 2015, 2016 and 2017, respectively.

Non-Qualified Deferred Compensation Plan

The following table provides information regarding to the activity in our non-qualified deferred compensation plan for each of our named executive officers who participated in such plan during the year ended December 31, 2017:

Name		Executive contributions in last fiscal year		Company contributions in last fiscal year		Aggregate earnings in last fiscal year		Aggregate withdrawals/distributions		Aggregate balance at last fiscal year end
Clyde R. Wallin		$89,787		$—		$27,760		$308,839		$—

Grants of Plan-Based Awards

The following table provides information regarding grants of plan-based awards to each of our named executive officers during the year ended December 31, 2017.

Grants of Plan-Based Awards For Fiscal Year 2017

				Estimated Future Payouts Under Non-Equity Incentive Plan Awards  (1)
Name		Grant Date		Target ($)				All Other Stock Awards: Number of Shares of Stock or Units (#) (2)			All Other Option Awards: Number of Securities Underlying Options (#) (3)			Exercise price of option awards  ($ per share) (2)(3)		Grant Date Fair value of Restricted Stock Units And Options Awards ($) (4)
Timothy S. Jenks		7/31/2017		$	500,000			64,420						$—		$	519,869
		7/31/2017						—			110,790			$8.07		$	537,708
Elizabeth Eby		8/15/2017		$	—			173,000						$—		$	1,018,970
		8/15/2017						—			184,500			$5.89		$	653,554
Clyde R. Wallin				$	—			—						$—		$	—
Benjamin L. Sitler		7/31/2017		$	174,000			14,850						$—		$	119,840
		7/31/2017						—			25,530			$8.07		$	123,907
Dr. Raymond Cheung		7/31/2017		$	208,269			16,860						$—		$	136,060
		7/31/2017						—			29,000			$8.07		$	140,749
Dr. Wupen Yuen		7/31/2017		$	201,000			16,860						$—		$	136,060
		7/31/2017						—			29,000			$8.07		$	140,749

(1)

Reflects target awards under our 2017 Bonus Plan for 2017 performance, as described further in the section titled “Compensation Discussion and Analysis” above. There were no thresholds or maximum amounts under the 2017 Bonus Plan for the named executive officers.  Actual awards under the 2017 Bonus Plan are reported under the heading “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table above.

(2)	RSUs were granted with no exercise price.

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(3)	Options were granted with an exercise price equal to 100% of the fair market value on the date of grant, which was determined by reference to the closing sales price of our common stock on the New York Stock Exchange on the grant date.

(4)

In accordance with Securities and Exchange Commission rules, this column represents the aggregate grant date fair value of each equity award, calculated in accordance with applicable accounting guidance for stock-based payment transactions. For each stock award, the grant date fair value is calculated using the closing price of our common stock on the grant date. The valuation assumptions used in determining the grant date fair value of the option awards are described in Note 15 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 9, 2018. These amounts do not reflect the actual economic value realized by the named executive officers.

The material terms of the named executive officers’ annual compensation, including base salaries, bonus opportunities, equity awards and potential severance benefits are described in greater detail below under the section titled “Employment agreements.” The explanations of the amounts of compensation awarded in 2017, including how each individual element of compensation was determined, are set forth above in the section titled “Compensation Discussion and Analysis.” As discussed in greater detail in “Compensation Discussion and Analysis,” the number of stock option awards and restricted stock units granted is determined by our board of directors based on a number of subjective factors. Typically, restricted stock units granted to our named executive officers vest over 36 months with 1/3rd of the shares vesting on each anniversary of the date of grant and stock option grants to our named executive officers vest over 48 months with 25% of the options vesting on the first anniversary of the date of grant and the remainder vesting monthly over the next 36 months, and in each case subject to continued employment (except as such vesting may be partially accelerated upon certain material corporate transactions or involuntary terminations of employment). However, both the RSUs and stock options granted in July 2017 vest over 36 months with 1/3rd of the shares vesting on each anniversary of the date of grant. The stock option grants and the restricted stock unit grants were made under our 2010 Equity Incentive Plan. We did not pay dividends on our common stock during 2017.

Outstanding Equity Awards at December 31, 2017 

The following table presents certain information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2017. All vesting is generally contingent upon continued employment with us, except as such vesting may be partially accelerated upon certain material corporate transactions or involuntary terminations of employment.

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		Option Awards												Stock Awards
Name		Number of securities underlying unexercised options exercisable (1)			Number of securities underlying unexercised options unexercisable			Option exercise price (2)  ($)				Option expiration date		Number of shares of stock that have not vested (#)			Market value of shares of stock that have not vested (6)
Timothy S. Jenks		75,000			—			$	3.30			10/7/2024		25,000		(5)	$	164,500
		16,799			—			3.50				1/26/2020		38,500		(4)	253,330
		18,000			—			3.50				12/12/2020		64,420		(3)	423,884
		9,757			—			3.50				5/27/2019
		14,500			—			3.50				7/30/2022
		36,000			—			3.50				8/1/2021
		50,000			—			3.50				9/17/2023
		41,286			—			4.25				11/4/2018		—			—
		22,242			—			4.25				5/27/2019		—			—
		100,000			—			5.11				12/11/2022		—			—
		37,501		(5)	37,499		(5)	7.59				10/26/2025		—			—
		—		(3)	110,790		(3)	8.07				7/31/2027		—			—
		22,500		(4)	52,500		(4)	12.27				8/1/2026		—			—
Elizabeth Eby		—			184,500		(8)	5.89				8/14/2027		50,000		(7)	329,000
														123,000		(9)	809,340
Clyde R. Wallin (10)		—			—			—						—			—
Benjamin L. Sitler		28,800			—			3.30				10/7/2024		8,000		(5)	52,640
		8,400			—			3.50				1/26/2020		11,200		(4)	73,696
		16,594			—			3.50				11/4/2018		14,850		(3)	97,713
		12,000			—			3.50				12/12/2020		—			—
		595			—			3.50				5/14/2018		—			—
		23,999			—			3.50				5/27/2019		—			—
		10,000			—			3.50				7/30/2022		—			—
		15,000			—			3.50				8/1/2021		—			—
		20,000			—			3.50				9/17/2023		—			—
		75,000			—			5.11				12/11/2022		—			—
		12,000		(5)	12,000		(5)	7.59				10/26/2025		—			—
		—		(3)	25,530		(3)	8.07				7/31/2027		—			—
		9,000		(4)	21,000		(4)	12.27				8/1/2026		—			—
Dr. Raymond Cheung		25,000			—			3.30				10/7/2024		11,000		(5)	72,380
		6,000			—			3.50				1/26/2020		11,200		(4)	73,696
		5,000			—			3.50				11/3/2018		16,860		(3)	110,939
		5,000			—			3.50				11/4/2018		—			—
		6,000			—			3.50				12/12/2020		—			—
		12,000			—			3.50				5/27/2019		—			—
		5,000			—			3.50				7/30/2022		—			—
		9,000			—			3.50				8/1/2021		—			—
		12,500			—			3.50				9/17/2023		—			—
		75,000			—			5.11				12/11/2022		—			—
		16,500		(5)	16,500		(5)	7.59				10/26/2025		—			—
		—		(3)	29,000		(3)	8.07				7/31/2027		—			—
		9,000		(4)	21,000		(4)	12.27				8/1/2026		—			—
Dr. Wupen Yuen		40,000			—			3.30				10/7/2024		11,000		(5)	72,380
		11,200			—			3.50				1/26/2020		11,200		(4)	73,696
		16,403			—			3.50				11/4/2018		16,860		(3)	110,939
		12,000			—			3.50				12/12/2020		—			—
		403			—			3.50				5/14/2018		—			—
		23,999			—			3.50				5/27/2019		—			—
		10,000			—			3.50				7/30/2022		—			—
		18,000			—			3.50				8/1/2021		—			—
		25,000			—			3.50				9/17/2023		—			—
		75,000			—			5.11				12/11/2022		—			—
		16,500		(5)	16,500		(5)	7.59				10/26/2025		—			—
		—		(3)	29,000		(3)	8.07				7/31/2027		—			—
		9,000		(4)	21,000		(4)	12.27				8/1/2026		—			—

(1)	Unless otherwise noted, shares subject to the stock option are vested in full.

(2)	Our common stock was not publicly traded prior to our initial public offering in February 2011, and the exercise price of the awards granted prior to our initial public offering was determined by our board of directors on the grant date based on its determination of the fair market value of our common stock on such grant date. The exercise price of the awards

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granted after our initial public offering in February 2011 was determined by reference to the closing sales price of our common stock on the grant date.  

(3)	1/3rd of the underlying shares shall vest on each year anniversary of the Vesting Commencement Dates, subject to the recipient's continued service through such date.

(4)	The restricted stock units subject to the award vest over a three year period, with 30%, 30% and 40% of the shares subject to the grants vesting on the first, second and third anniversaries of the vesting commencement date, respectively.

(5)	The shares subject to the stock option or restricted stock units vest over a three-year period, with one-half of the shares subject to the grants vested on April 27, 2017, one-fourth of the shares subject to the grants vesting on April 27, 2018 and one-fourth of the shares subject to the grants vesting on October 27, 2018.

(6)	Value calculated based on the closing price of our common stock on December 29, 2017, which was the last trading day of 2017, of $6.58 per share.

(7)	100% of the underlying shares shall vest on the one-year anniversary of the Vesting Commencement Date of August 2017, subject to the recipient's continued service through such date.

(8)	25% of the underlying shares shall vest on the one year anniversary of the Vesting Commencement Date of August 2017, and 1/48th of the shares shall vest each month thereafter, subject to the recipient's continued service through such date.

(9)	25% of the underlying shares shall vest on each year anniversary of the Vesting Commencement Date of August 2017, subject to the recipient's continued service through such date.

(10)	Mr. Wallin resigned his position as Senior Vice President and Chief Financial Officer effective as of May 15, 2017.

Option Exercises and Stock Vested During Fiscal 2017 

The following table shows information regarding option exercises and the vesting of restricted stock held by our named executive officers during 2017.

		Stock Options						Stock Awards
Name		Number of shares acquired on exercise (#)			Value realized on exercise ($) (1)			Number of shares acquired on vesting (#)			Value realized on vesting ($) (2)
Timothy S. Jenks		152,940			724,694			41,500			325,140
Elizabeth Eby		—			—			—			—
Clyde R. Wallin		75,800			220,606			29,600			262,564
Benjamin L. Sitler		37,400			171,905			12,800			100,368
Dr. Raymond Cheung		10,000			41,500			15,800			124,218
Dr. Wupen Yuen		30,000			120,140			15,800			124,218

(1)	The value realized on vesting equals (a) the closing price per share of our common stock as reported on the New York Stock Exchange on the vesting date less the exercise price per share, multiplied by (b) the gross number of shares acquired on exercise.

(2)	The value realized on vesting equals the closing price per share of our common stock as reported on the New York Stock Exchange on the vesting date multiplied by the gross number of shares acquired on vesting.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Employment Agreements

Definitions . Except as otherwise expressly set forth below, for purposes of the current retention agreements entered into with our named executive officers, the following definitions apply:

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

“Change in Control” means the occurrence of any of the following events: (i) any person becomes the beneficial owner, directly or indirectly, of our securities representing 50% or more of the total voting power represented by our then-outstanding

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voting securities; (ii) the consummation of the sale or disposition of all or substantially all of our assets; (iii) the consummation of a merger or consolidation with any other entity, other than a merger or consolidation that would result in our voting securities outstanding immediately prior thereto continuing to represent at least 60% of the total voting power represented by our voting securities or the voting securities of such surviving entity (or its parent) outstanding immediately after such merger or consolidation; or (iv) certain changes affecting the majority of the directors of our board of directors.

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

“Good Reason” means the named executive officer’s voluntary resignation from all positions he holds with us, effective within 90 days after the occurrence of: (i) a material reduction or other material adverse change in the named executive officer’s job duties, responsibilities, authority or requirements, including the removal of such job duties, responsibilities, authority or requirements; (ii) any material reduction of the named executive officer’s annual base compensation; (iii) our requiring the named executive officer to move his primary work location to a location that increases his one-way commute by more than 50 miles from our then-current location; or (iv) our failure to obtain the assumption, in all material respects, of the retention agreement by any of our successors; provided that the named executive officer must provide written notice to us of the existence of one of these conditions within 60 days after its initial existence, and we must be provided with a period of 30 days during which we may cure the circumstances giving rise to the condition, in which case no Good Reason will exist.

“Involuntary Termination” means (i) any termination of the named executive officer’s employment by us without Cause (other than by reason of death or Disability) or (ii) the named executive officer’s resignation for Good Reason.

Timothy S. Jenks .  On March 30, 2010, we entered into an employment letter agreement with Mr. Jenks. Prior to the execution of this letter agreement, we had not entered into a binding offer letter with Mr. Jenks. Pursuant to this letter agreement, Mr. Jenks continues to serve, on an at-will basis, as our Chairman, Chief Executive Officer and President. This employment letter agreement originally provided for an annual base salary of $320,000 per year, subject to periodic review and adjustment. The letter also indicates Mr. Jenks’ general eligibility for annual variable pay based on our performance, stock awards and long-term incentives.

Effective as of August 5, 2016, we entered into a retention agreement with Mr. Jenks, which replaced a prior severance rights agreement with Mr. Jenks dated as of April 30, 2012. The retention agreement provides for the payment of severance benefits to Mr. Jenks in the event of the termination of his employment as described below.

Involuntary termination generally . The retention agreement provides that upon an Involuntary Termination of Mr. Jenks’ employment, subject to his execution of a binding release of claims, Mr. Jenks would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 100% of his target bonus for the year of termination and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (including, a waiver of any performance-based criteria).

Involuntary termination following a change in control . The agreement also provides that upon an Involuntary Termination of Mr. Jenks’ employment within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Jenks would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards will accelerate in full (including, a waiver of any performance-based criteria).

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

Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Mr. Jenks’ employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.

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Elizabeth Eby. On July 17, 2017, we entered into an offer letter with Ms. Eby to serve as our Senior Vice President and Chief Financial Officer, on an at-will basis. The offer letter provided for an initial annual base salary of $340,000 per year, subject to periodic review and adjustment. The letter also indicates Ms. Eby’s general eligibility for annual variable pay based on our performance, stock awards and long term incentives.

Effective as of August 14, 2017, we entered into a retention agreement with Ms. Eby, which was amended on November 6, 2017. The retention agreement (as amended) provides for the payment of severance benefits to Ms. Eby in the event of the termination of her employment as described below.

Involuntary termination generally . Under the retention agreement, if Ms. Eby’s employment terminates as a result of Involuntary Termination, and provided that Ms. Eby provides a valid and effective release of all employment related claims, Ms. Eby would receive the following severance benefits: (1) a lump sum severance payment equal to: (A) 100% of her base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Ms. Eby’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service with the Company over the 18 month period following termination (but no waiver of any performance-based criteria).

Involuntary termination following a change in control. Under the retention agreement, if Ms. Eby’s employment terminates as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Ms. Eby provides a valid and effective release of all employment related claims, Ms. Eby would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 100% her base salary, (B) 100% of her target bonus for the year of termination, and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Ms. Eby’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service with the Company over the 24 month period following the effective date of the Change in Control (but no waiver of any performance-based criteria).

Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Ms. Eby’s employment terminates due to her death while she is outside of her country of residence (for any reason), if necessary to provide for total death benefits equal to two times her then-current annual base salary.

Clyde R. Wallin .  In December 2013, we entered into an offer letter with Mr. Wallin to serve as our Senior Vice President and Chief Financial Officer, on an at-will basis. The offer letter provided for an initial annual base salary of $285,000 per year, subject to periodic review and adjustment. The letter also indicates Mr. Wallin’s general eligibility for annual variable pay based on our performance, stock awards and long term incentives.

On April 4, 2017, we entered into a separation agreement with Mr. Wallin that superseded all prior agreements providing for severance benefits, including the retention agreement described below, pursuant to which Mr. Wallin agreed to remain our Chief Financial Officer through May 15, 2017. After May 15, 2017, Mr. Wallin agreed to provide consulting services to us for a three-month transition period as requested by the Company.

Effective as of August 5, 2016, we entered into a retention agreement with Mr. Wallin, which was subsequently superseded by his separation agreement. The April 2017 separation agreement provided materially the same severance benefits specified in Mr. Wallin’s August 2016 retention agreement. The August 2016 retention agreement would have provided for the payment of severance benefits to Mr. Wallin in the event of the termination of his employment as described below.

Involuntary termination generally . Under the superseded retention agreement, if Mr. Wallin’s employment terminated as a result of Involuntary Termination, and provided that Mr. Wallin provided a valid and effective release of all employment related claims, Mr. Wallin would have received the following severance benefits: (1) a lump sum severance payment equal to: (A) 100% of his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Wallin’s outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service over the 18 month period following termination (but no waiver of any performance based criteria).

Involuntary termination following a change in control . Under the superseded retention agreement, if Mr. Wallin’s employment terminated as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Mr. Wallin provided a valid and effective release of all employment related claims, Mr. Wallin would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 150% his base salary, (B) 100% of his target bonus for the year of termination, and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be

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used for, continued health insurance); and (2) the vesting of all of Mr. Wallin’s outstanding equity awards would accelerate in full (but no waiver of any performance-based criteria).

Finally, the superseded agreement provided for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Mr. Wallin’s employment terminated due to his death while he was outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.

Benjamin L. Sitler .  Mr. Sitler’s employment with us was on an at-will basis. On December 20, 2017, we entered into a separation agreement with Mr. Sitler pursuant to which we mutually agreed that Mr. Sitler would resign from his role as Senior Vice President of Global Sales effective as of February 28, 2018. The separation agreement superseded all prior agreements providing for severance benefits, including the retention agreement described below. Effective as of August 5, 2016, we entered into a retention agreement with Mr. Sitler that was subsequently superseded by his separation agreement. The retention agreement provided for the payment of severance benefits to Mr. Sitler in the event of the termination of his employment as described below.

Involuntary termination generally . Under the superseded retention agreement, if Mr. Sitler’s employment terminated as a result of Involuntary Termination, and provided that Mr. Sitler provided a valid and effective release of all employment related claims, Mr. Sitler would have received the following severance benefits: (1) a lump sum severance payment equal to: (A) 100% of his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service with the Company over the 18 month period following termination (but no waiver of any performance-based criteria).

Involuntary termination following a change in control . Under the superseded retention agreement, if Mr. Sitler’s employment terminated as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Mr. Sitler provided a valid and effective release of all employment related claims, Mr. Sitler would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 150% his base salary, (B) 100% of his target bonus for the year of termination, and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards would accelerate in full (but no waiver of any performance-based criteria).

Finally, the agreement provided for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Mr. Sitler’s employment terminated due to his death while he was outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.

Dr. Raymond Cheung .  On August 14, 2007, consistent with local labor laws in China, we entered into a fixed-term labor contract with Dr. Cheung which expired on June 30, 2012, and effective as of July 1, 2012, we entered into a new fixed-term labor contract with Dr. Cheung which is set to expire on June 30, 2016, unless terminated prior to such date upon any of the following: (i) Dr. Cheung reaches retirement; (ii) Dr. Cheung dies or has been pronounced dead or missing by a Chinese court; (iii) our bankruptcy; (iv) the revocation of our business license, termination of our business, or our dissolution; or (v) as required by law. Upon the ordinary course expiration of the term of employment, if Dr. Cheung is still employed by us, the labor contract will remain valid until the labor contract is renewed or until either party rescinds the employment relationship.

Effective as of August 5, 2016, we entered into a retention agreement with Dr. Cheung. The retention agreement provides for the payment of severance benefits to Dr. Cheung in the event of the termination of his employment as described below.

Involuntary termination generally . Under the retention agreement, if Dr. Cheung’s employment terminates as a result of Involuntary Termination, and provided that Dr. Cheung provides a valid and effective release of all employment related claims, Dr. Cheung would receive the following severance benefits: (1) a lump sum severance payment equal to: (A) 200% of his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18 month period following termination (but no waiver of any performance-based criteria).

Involuntary termination following a change in control . Under the retention agreement, if Dr. Cheung’s employment terminates as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Dr. Cheung provides a valid and effective release of all employment related claims, Dr. Cheung would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary, (B) 200% of his target bonus for the year of

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termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards will accelerate in full (but no waiver of any performance-based criteria).

Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under the Company’s life insurance policies, in the event that Dr. Cheung’s employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.

Dr. Wupen Yuen .  In January 2005, we entered into an offer letter with Dr. Yuen to serve as our Director of Business Development on an at-will basis. The offer letter provided for an initial annual base salary of $165,000 per year, subject to periodic review and adjustment.

Effective as of August 5, 2016, we entered into a retention agreement with Dr. Yuen. The retention agreement provides for the payment of severance benefits to Dr. Yuen in the event of the termination of his employment as described below.

Involuntary termination generally . Under the retention agreement, if Dr. Yuen’s employment terminates as a result of Involuntary Termination, and provided that Dr. Yuen provides a valid and effective release of all employment related claims, Dr. Yuen would receive the following severance benefits: (1) a lump sum severance payment equal to: (A) 200% of his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards will accelerate as to the number of shares that would have vested subject to continued service over the 18 month period following termination (but no waiver of any performance-based criteria).

Involuntary termination following a change in control . Under the retention agreement, if Dr. Yuen’s employment terminates as a result of Involuntary Termination on or within 12 months following a Change in Control, and provided that Dr. Yuen provides a valid and effective release of all employment related claims, Dr. Yuen would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards will accelerate in full (but no waiver of any performance-based criteria).

Finally, the agreement provides for a supplemental cash payment, in addition to any death benefits payable under our life insurance policies, in the event that Dr. Yuen’s employment terminates due to his death while he is outside of his country of residence (for any reason), if necessary to provide for total death benefits equal to two times his then-current annual base salary.

Potential Payments upon Termination or Change in Control

Based on the Retention Agreements as discussed in the section above entitled “Executive Compensation—Employment Agreements,” the following table describes the payments that we would have made to our named executive officers in connection with certain terminations of employment and/or certain corporate transactions like a Change in Control, if such events had occurred on December 31, 2017, the last business day of our most recently completed fiscal year. All severance benefits are contingent upon the individual’s execution of a general release of all claims.

Potential payments upon involuntary termination, not in connection with a change in control. 

Timothy S. Jenks . Under the retention agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Mr. Jenks would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 100% of his target bonus for the year of termination and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (including, a waiver of any performance-based criteria).

Elizabeth Eby .  Under the retention agreement effective August 14, 2017, upon an Involuntary Termination and subject to her execution of a binding release of claims, Ms. Eby would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 100% her base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of , but not required to be used for, continued health insurance); and (2) the vesting of all of Ms. Eby’s outstanding equity awards

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would accelerate as to the number of shares that would have vested subject to continued service with the Company over the 18 month period following termination (but no waiver of any performance-based criteria).

Clyde R. Wallin. The retention agreement with Mr. Wallin was superseded on April 4, 2017 by his separation agreement and he was not an employee as of December 31, 2017.

Benjamin L. Sitler . The retention agreement with Mr. Sitler was superseded on December 20, 2017 by his separation agreement. Under the superseded retention agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Mr. Sitler would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 100% his base salary and (B) a cash payment equal to $72,000 (intended to assist in the payment of , but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service with the Company over the 18 month period following termination (but no waiver of any performance-based criteria).

Dr. Raymond Cheung . Under the retention agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Dr. Cheung would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary and (B) a  cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (but no waiver of any performance-based criteria).

Dr. Wupen Yuen . Under the severance rights agreement effective August 5, 2016, upon an Involuntary Termination and subject to his execution of a binding release of claims, Dr. Yuen would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% his base salary and (B) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards would accelerate as to the number of shares that would have vested subject to continued service over the 18-month period following termination (but no waiver of any performance-based criteria).

Potential payments upon a change in control, stock awards not assumed.

Pursuant to our 2004 Stock Option Plan and our 2010 Equity Incentive Plan, in the event that there had been a change in control (as defined in the 2004 Stock Option Plan and the 2010 Equity Incentive Plan in a manner that is generally consistent with the definition set forth above) on December 31, 2017, and if the surviving or acquiring corporation had elected not assume or substitute for outstanding options (or assume the repurchase rights held in respect of shares purchased under such options, as applicable), the vesting of outstanding options held by each of our named executive officers on such date would have accelerated as to that number of shares that would otherwise have vested and become exercisable as of December 31, 2018, that is, the date that is 12 months after the date of the change in control.

Potential payments upon a change in control concurrent with an involuntary termination of employment.

Timothy S. Jenks . Under the retention agreement that was in effect on December 31, 2017, upon an Involuntary Termination of Mr. Jenks’ employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Jenks would receive the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Jenks’ outstanding equity awards would have accelerated in full (including a waiver of any performance-based criteria).

Elizabeth Eby. Under the retention agreement in effect on December 31, 2017, upon an Involuntary Termination of Ms. Eby’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to her execution of a binding release of claims, Ms. Eby would have received severance benefits the following severance benefits: (1) a lump sum severance payment equal to (A) to 100% of her base salary, (B) 100% of her target bonus for the year of termination and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Ms. Eby’s outstanding equity awards would have accelerated as to the number of shares that would have vested subject to continued service over the 24-month period following the effective date of the Change in Control (but no waiver of any performance-based criteria).

Clyde R. Wallin. The retention agreement with Mr. Wallin was superseded on April 4, 2017 by his separation agreement. Mr. Wallin was not an employee as of December 31, 2017.

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Benjamin L. Sitler . The retention agreement with Mr. Sitler was superseded on December 20, 2017 by his separation agreement. Under the superseded retention agreement in effect on December 31, 2017, upon an Involuntary Termination of Mr. Sitler’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Mr. Sitler would have received severance benefits the following severance benefits: (1) a lump sum severance payment equal to (A) to 150% of his base salary, (B) 100% of his target bonus for the year of termination and (C) a cash payment equal to $72,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Mr. Sitler’s outstanding equity awards would have accelerated in full (but no waiver of any performance-based criteria).

Dr. Raymond Cheung . Under the retention agreement in effect on December 31, 2017, upon an Involuntary Termination of Dr. Cheung’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control, and subject to his execution of a binding release of claims, Dr. Cheung would have received the following severance benefits: (1) a lump sum severance payment equal to (A) 200% of his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Cheung’s outstanding equity awards would have accelerated would have accelerated in full (but no waiver of any performance-based criteria)

Dr. Wupen Yuen . Under the retention agreement in effect on December 31, 2017, upon an Involuntary Termination of Dr. Yuen’s employment or as a result of a successor failing to assume our obligations under the retention agreement, in either case within 12 months following a Change in Control and subject to his execution of a binding release of claims, Dr. Yuen would have received the following severance benefits: (1) a lump sum severance payment equal to (A) to 200% of his base salary, (B) 200% of his target bonus for the year of termination, and (C) a cash payment equal to $144,000 (intended to assist in the payment of, but not required to be used for, continued health insurance); and (2) the vesting of all of Dr. Yuen’s outstanding equity awards would have accelerated would have accelerated in full (but no waiver of any performance-based criteria).

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Potential payments upon termination or change in control

The following table shows the amounts each of our named executive officers would receive in the event of his termination and/or upon a change in control, assuming the event took place on December 31, 2017, the last business day of our most recently completed fiscal year. All severance benefits are contingent upon the individual’s execution of a general release of all claims.

Named Executive Officer		Termination or Change in Control Event   (1)		Salary ($)			Bonus ($)			Benefits ($)			Equity Acceleration ($) (2)			Total ($)
Timothy S. Jenks		Ÿ Involuntary termination		1,000,000		(3)	500,000		(4)	144,000		(5)	414,369			2,058,369
		Ÿ Change in control—awards assumed and involuntary termination (8)		1,000,000		(3)	1,000,000		(6)	144,000		(5)	841,714			2,985,714
		Ÿ Change in control—awards not assumed and involuntary termination (9)		1,000,000		(3)	1,000,000		(6)	144,000		(5)	841,714			2,985,714
		Ÿ Change in control—awards not assumed and employment continues (10)		—			—			—			414,369			414,369
Elizabeth Eby		Ÿ Involuntary termination		340,000		(7)	—			72,000		(5)	589,683			1,001,683
		Ÿ Change in control—awards assumed and involuntary termination (8)		340,000		(7)	204,000		(13)	72,000		(5)	807,931			1,423,931
		Ÿ Change in control—awards not assumed and involuntary termination (9)		340,000		(7)	204,000		(13)	72,000		(5)	807,931			1,423,931
		Ÿ Change in control—awards not assumed and employment continues (10)		—			—			—			589,683			589,683
Clyde R. Wallin (11)		Ÿ Involuntary termination
		Ÿ Change in control—awards assumed and involuntary termination (8)
		Ÿ Change in control—awards not assumed and involuntary termination (9)
		Ÿ Change in control—awards not assumed and employment continues (10)
Benjamin L. Sitler (12)		Ÿ Involuntary termination
		Ÿ Change in control—awards assumed and involuntary termination (8)
		Ÿ Change in control—awards not assumed and involuntary termination (9)
		Ÿ Change in control—awards not assumed and employment continues (10)
Dr. Raymond Cheung		Ÿ Involuntary termination		694,230		(3)	—			144,000		(5)	140,944			979,174
		Ÿ Change in control—awards assumed and involuntary termination (8)		694,230		(3)	416,538		(6)	144,000		(5)	257,015			1,511,783
		Ÿ Change in control—awards not assumed and involuntary termination (9)		694,230		(3)	416,538		(6)	144,000		(5)	257,015			1,511,783
		Ÿ Change in control—awards not assumed and employment continues (10)		—			—			—			140,944			140,944
Dr. Wupen Yuen		Ÿ Involuntary termination		670,000		(3)	—			144,000		(5)	140,944			954,944
		Ÿ Change in control—awards assumed and involuntary termination (8)		670,000		(3)	402,000		(6)	144,000		(5)	257,015			1,473,015
		Ÿ Change in control—awards not assumed and involuntary termination (9)		670,000		(3)	402,000		(6)	144,000		(5)	257,015			1,473,015
		Ÿ Change in control—awards not assumed and employment continues (10)		—			—			—			140,944			140,944

(1)	No compensation is payable where there is a change in control, awards are assumed and employment continues.

(2)	The value realized is the gain that our named executive officers would receive, calculated as the difference between the closing price per share of our common stock on December 31, 2017, of $6.58 per share, and the exercise price of the named executive officers’ unvested options or awards subject to acceleration upon or following the applicable event.

(3)	Represents 200% of base salary calculated at a rate in effect on December 31, 2017.

(4)	Represents 100% of target bonus for such named executive officer for 2017.

(5)	Represents a cash payment that is intended to assist in the payment of, but not required to be used for, continued health insurance.

(6)	Represents 200% of target bonus for such named executive officer for 2017.

(7)	Represents 100% of base salary calculated at a rate in effect on December 31, 2017.

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(8)	Represents benefits received by such named executive officer upon a change in control in which the surviving or acquiring entity elects to assume or substitute outstanding options or awards concurrent with an involuntary termination of employment of such named executive officer.

(9)	Represents benefits received by such named executive officer upon a change in control in which the surviving or acquiring corporation elected not to assume or substitute outstanding options or awards concurrent with an involuntary termination of employment of such named executive officer.

(10)	Represents benefits received by such named executive officer upon a change in control in which the surviving or acquiring corporation elected not to assume or substitute outstanding options or awards and such named executive officer’s employment continues.

(11)	Effective as of May 15, 2017, Mr. Wallin resigned from his position as Senior Vice President and Chief Financial Officer.

(12)	On December 14, 2017, we mutually agreed with Mr. Sitler that Mr. Sitler would resign from his role as Senior Vice President of Global Sales of the Company, effective as of February 28, 2018 in order to pursue other opportunities. Mr. Sitler continued to serve in his position through February 28, 2018.

(13)	Ms. Eby was appointed our Senior Vice President, Finance and Chief Financial Officer, effective as of August 14, 2017. Bonus amount represents 100% of target bonus for 2017 which may be prorated to her effective date of employment, August 14, 2017.

DIRECTOR COMPENSATION

Non-Employee Director Compensation Policy effective January 2017

On January 18, 2017, our board of directors approved an updated non-employee director compensation policy, effective January 2017 and as recommended by the compensation committee of the board.  As updated, the policy provides the following compensation package for our non-employee directors.

Cash Compensation

Annual retainer		$	42,500
Additional retainer Audit Committee chair		20,000
Additional retainer Audit Committee member		10,000
Additional retainer Compensation Committee chair		15,000
Additional retainer Compensation Committee member		5,500
Additional retainer Nominating and Corporate Governance Committee chair		10,000
Additional retainer Nominating and Corporate Governance Committee member		4,600
Additional retainer for Lead Independent Director		7,500
Additional payment for Technical Advisory Board per regular meeting		2,500			(1)

(1)	If meeting requires one day or more of travel, then amount paid will be $5,000.

Equity Compensation . Our non-employee director compensation policy provides that on the date of each annual stockholders’ meeting, each non-employee director will receive (A) a grant of an option to purchase that number of shares of our common stock with a target value equal to (1) $37,500 (for 2017) and $47,000 (for 2018 and thereafter), which shall vest ratably over 12 months and (B) a grant of restricted stock units covering that number of shares of our common stock equal to (1) $37,500 (for 2017) and $47,000 (for 2018 and thereafter) divided by (2) the fair market value of a share of our common stock on the date of such grant, which shall vest on the 12 month anniversary of the date of grant. Each of the option grants shall have an exercise price equal to the fair market value of our common stock on the date of grant. Target value for the stock option grants will be calculated using a Black-Scholes model and based on a 30-day trading average (ending the day before the grant date).

Director Compensation Table

The following table sets forth information regarding fees paid to our non-employee directors for their service on our board of directors during the year ended December 31, 2017.

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	Fees Earned or Paid in Cash ($)				Option Awards ($) (1)				Stock Awards ($) (1)				Total ($)
Charles J. Abbe	$	61,000			$	41,539			$	37,499			$	140,038
Dmitry Akhanov	42,000				41,539				37,499				121,038
Bandel Carano (2)	45,000				41,539				—				86,539
Michael J. Sophie	60,000				41,539				37,499				139,038
Ihab Tarazi	54,000				41,539				37,499				133,038
Rajiv Ramaswami	42,000				41,539				37,499				121,038

(1)

Amounts reflect the grant date fair value of stock options and stock awards (restricted stock units) granted in 2017 calculated in accordance with applicable accounting guidance for share-based payment transactions. Only one stock option and only one restricted stock unit award was granted to each non-employee director in 2017. The valuation assumptions used in determining such amounts are described in Note 15 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 9, 2018.

(2)	Bandel Carano has elected not to receive restricted stock unit award as part of his non-employee director compensation.

As of December 31, 2017, our non-employee directors held outstanding stock options and stock awards as follows:

Name		Stock Options			Stock Awards
Charles J. Abbe		23,568			4,076
Dmitry Akhanov		20,749			4,076
Bandel L. Carano		47,955			—
Michael J. Sophie		39,263			4,076
Ihab Tarazi		10,177			4,076
Rajiv Ramaswami		25,509			4,076

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our Compensation Committee currently consists of Messrs. Sophie (effective as of April 1, 2018), Tarazi and Ramaswami. Mr. Abbe also served on the Compensation Committee in 2017 and until April 1, 2018. None of the members of our Compensation Committee have, at any time, been one of our officers or employees. None of our executive officers serve, or in the past year have served, as a member of the board of directors or Compensation Committee of any entity that has one or more executive officers who serve on our board of directors or Compensation Committee.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Party Transactions

The following is a summary of transactions since January 1, 2017, to which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required under the “Executive Compensation” and “Management—Director Compensation” sections of this proxy statement.

Agreements with Rusnano

In April 2012, we entered into a share purchase agreement with Rusnano, pursuant to which we agreed to sell and issue an aggregate of 4,972,905 shares of common stock at a purchase price of $8.00 per share for aggregate gross proceeds of approximately $39,783,240. Immediately after the closing of such transaction, Rusnano owned approximately 16.7% of our issued and outstanding common stock. See “Security Ownership of Certain Beneficial Owners and Management” for additional information about Rusnano. Dmitry Akhanov, a member of our board of directors, is the President and Chief Executive Officer of Rusnano USA, Inc., a U.S. subsidiary of Rusnano.

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In connection with the foregoing transaction, we entered into a rights agreement with Rusnano pursuant to which we agreed to, among other matters: (i) file one or more registration statements covering the resale of shares of our common stock held by Rusnano prior to the expiration of a lock-up agreement between us and Rusnano, (ii) grant piggyback registration rights to Rusnano for shares of our common stock held by Rusnano following the expiration of the lock-up agreement in the event we propose to register shares in an underwritten offering, (iii) grant Rusnano the right to designate one nominee for our board of directors, (iv) grant Rusnano a right of first offer to purchase its pro rata share of all equity securities (subject to an exclusion for shares issued in a public offering and other customary exceptions set forth therein) that we may propose to sell and issue after the date of the rights agreement, and (v) make a $30.0 million investment towards our Russian operations (the “investment commitment”).

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

•

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

•	By December 31, 2016, if the actual cumulative investment and spending to our Russian subsidiaries was less than $18.8 million, we would have been subject to a $1.5 million penalty within 30 days after the end of the applicable cure period. We fulfilled this milestone and contributed over $18.8 million in cash and assets to our Russian subsidiaries as of December 31, 2016;

•

At the end of 2016, we would have been subject to pay an exit fee of $3.5 million to Rusnano should we had decided to cease the operations of our Russian subsidiaries, provided that the cumulative investments and spending including the tangible asset transfers, other than intangible asset transfers which was limited to a maximum valuation of $5.7 million, exceeded $10.0 million. Since we did not cease the operations of our Russian subsidiaries at the end of 2016, we were not held liable for the $3.5 million penalty; and

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

We also entered into a Commitment to File Registration Statement and Related Waiver of Registration Rights with Rusnano on December 18, 2014, whereby Rusnano waived certain registration rights in connection with a potential offering by us of shares of our common stock, and we committed to file with the SEC a resale registration statement on Form S-1 covering the resale of all shares of our common stock held by Rusnano. We filed such resale registration statement in April 2015, which is no longer effective. We filed a resale registration statement in 2016 on Form S-3 covering the same amount of shares held by Rusnano.

In August 2016, we also entered into a Letter of Agreement with Rusnano, signed and effective August 2, 2016, whereby we committed to establish a 10G SFP+ transceiver line in Russia in 2017 and to undertake related capital expenditures of approximately $100,000 (which will not be counted toward our overall $30 million investment commitment under the rights

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agreement). Since our transceiver business was recently sold by us in January 2017, we intend to undertake such expense by spending the $100,000 commitment in another manner to be discussed and agreed between the parties.

Indemnification of Officers and Directors

Our certificate of incorporation includes a provision that eliminates, to the fullest extent permitted by law, the personal liability of a director for monetary damages resulting from breach of his fiduciary duty as a director.

Our bylaws provide that:

•	we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;

•	we may indemnify our other employees and agents as provided in indemnification contracts entered into between us and our employees and agents;

•	we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and

•	the rights conferred in the bylaws are not exclusive.

In addition to the indemnification required in our certificate of incorporation and bylaws, we have entered into indemnity agreements with each of our current directors and officers. These agreements provide for the indemnification of our directors and officers for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We have also obtained directors’ and officers’ insurance to cover our directors, officers and some of our employees for liabilities, including liabilities under securities laws. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers.

At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

Policies and Procedures for Related Party Transactions

We believe that we executed all of the transactions set forth above on terms no less favorable to us than we could have obtained from unaffiliated third parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates, are approved by the Audit Committee of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties.

All related party transactions will be reviewed and approved by our Audit Committee. Pursuant to our code of business conduct and ethics, the Audit Committee is responsible for approving, prior to our entry into any transaction involving related parties, all transactions in which we are a participant and in which any parties related to us has or will have a direct or indirect material interest. In reviewing and approving these transactions, our Audit Committee will obtain, or will direct our management to obtain on its behalf, all information that the committee believes to be relevant and important to a review of the transaction prior to its approval.

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OTHER MATTERS

We know of no other business that will be presented at the Annual Meeting. If any other business is properly brought before the Annual Meeting, it is intended that proxies in the accompanying form will be voted in accordance with the judgment of the persons voting the proxies.

Whether or not you intend to be present at the Annual Meeting, we urge you to submit your voted proxy promptly.

By order of the board of directors,

Timothy S. Jenks

President, Chief Executive Officer and

Chairman of the Board of Directors

San Jose, California

Dated: April 19, 2018

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission, is available without charge upon written request to Judi L. Otteson, Vice President & General Counsel, NeoPhotonics Corporation, 2911 Zanker Road, San Jose, California 95134 USA.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on June 5, 2018, at our principal office located at 2911 Zanker Road, San Jose, California 95314 USA.

The proxy statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission are available at http://IR.neophotonics.com .

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ANNEX A

DIRECTIONS TO THE ANNUAL MEETING OF STOCKHOLDERS OF

NEOPHOTONICS CORPORATION

FROM SAN JOSE		FROM SAN FRANCISCO		FROM OAKLAND
Take 101 northbound. Take exit 392 at Montague Expy. Merge onto Montague Expy. Turn right at Zanker Road. Turn right into NeoPhotonics’ parking lot. Proceed to the building at 2911 Zanker to check in.		Take 101 southbound. Take exit 392 at Montague Expy. Merge onto Montague Expy. Turn right at Zanker Road. Turn right into NeoPhotonics’ parking lot. Proceed to the building at 2911 Zanker to check in.		Take 880 southbound. Take exit 7 at Montague Expy. Merge onto Montague Expy. Turn left at Zanker Road. Turn right into NeoPhotonics’ parking lot. Proceed to the building at 2911 Zanker to check in.

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