UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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Finisar Corporation

(Name of Registrant as Specified In Its Charter)

 

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1389 Moffett Park Drive

Sunnyvale, California 94089

 

October 8, 2009

 

Dear Stockholder:

 

You are cordially invited to attend this year’s annual meeting of stockholders on Wednesday, November 18, 2009 at 10:00 a.m., local time. The meeting will be held at the offices of DLA Piper LLP (US), located at 2000 University Avenue, East Palo Alto, California.

 

We are pleased to take advantage of the new U.S. Securities and Exchange Commission rule allowing companies to furnish proxy materials to their stockholders over the Internet. We believe that this new delivery process will expedite stockholders’ receipt of proxy materials and lower the costs and reduce the environmental impact of our annual meeting. On October 8, 2009, we mailed to our stockholders (other than those who previously requested electronic or paper delivery) a Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our proxy materials, including our Proxy Statement and Annual Report on Form 10-K for the fiscal year ended April 30, 2009. The Notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. If you received your annual meeting materials by mail, the Notice of Annual Meeting of Stockholders, Proxy Statement, Annual Report to Stockholders and proxy card were enclosed.

 

The matters to be acted upon are described in the Notice of Annual Meeting of Stockholders and Proxy Statement. Following the formal business of the meeting, we will report on our company’s operations and respond to questions from stockholders.

 

Whether or not you plan to attend the meeting, your vote is very important and we encourage you to vote promptly and submit your proxy by Internet, telephone or mail, as described in the proxy materials. If you attend the meeting you will, of course, have the right to revoke the proxy and vote your shares in person. If you hold your shares through an account with a brokerage firm, bank or other nominee, please follow the instructions you receive from them to vote your shares.

 

We look forward to seeing you at the annual meeting.

 

Very truly yours,

 

 

Jerry S. Rawls

Chairman of the Board

 

 

Eitan Gertel

Chief Executive Officer

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held Wednesday, November 18, 2009

 

The Annual Meeting of stockholders of Finisar Corporation, a Delaware corporation, will be held on Wednesday, November 18, 2009, at 10:00 a.m., local time, at the offices of DLA Piper LLP (US), 2000 University Avenue, East Palo Alto, California 94303, for the following purposes:

 

1. To elect two Class I directors to hold office for a three-year term and until their respective successors are elected and qualified.

 

2. To approve an amendment to the 1999 Employee Stock Purchase Plan and the 1999 International Employee Stock Purchase Plan to increase the number of shares of our common stock reserved for issuance thereunder by 250,000 shares, such additional shares to be used solely for issuance to participating employees on December 15, 2009, the next scheduled purchase date under the plans.

 

3. To approve the adoption of the 2009 Employee Stock Purchase Plan and the 2009 International Employee Stock Purchase Plan and authorize the reservation of 2,500,000 shares of our common stock for issuance under such plans and automatic annual increases of 125,000 shares in the number of shares of our common stock reserved for issuance under such plans on May 1 of each year beginning with May 1, 2010 and continuing through May 1, 2015.

 

4. To ratify the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending April 30, 2010.

 

5. To transact such other business as may properly come before the meeting or any adjournment or postponement of the meeting.

 

Stockholders of record at the close of business on September 29, 2009 are entitled to notice of, and to vote at, this meeting and any adjournment or postponement. For ten days prior to the meeting, a complete list of stockholders entitled to vote at the meeting will be available for examination by any stockholder, for any purpose relating to the meeting, during ordinary business hours at our principal offices located at 1389 Moffett Park Drive, Sunnyvale, California 94089.

 

Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the Annual Meeting of Stockholders, we urge you to vote and submit your proxy as promptly as possible in order to assure the presence of a quorum. You may vote by telephone, Internet or mail. If you vote by telephone or Internet, you do not have to mail in your proxy card. Voting in advance will not prevent you from voting in person at the meeting.

 

 

Christopher E. Brown

Secretary

 

Sunnyvale, California

October 8, 2009

 

 

 

 

 

TABLE OF CONTENTS

 

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS

 

The accompanying proxy is solicited by the board of directors of Finisar Corporation, a Delaware corporation, for use at the annual meeting of stockholders to be held on Wednesday, November 18, 2009, at 10:00 a.m., local time, or at any adjournment or postponement thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. This proxy statement and related materials are first being made available to stockholders of the Company on or about October 8, 2009. References in this proxy statement to the “Company,” “we,” “our,” “us” and “Finisar” are to Finisar Corporation and to the “annual meeting” are to the 2009 Annual Meeting of Stockholders. When we refer to the Company’s fiscal year, we mean the annual period ending on April 30. This proxy statement covers our fiscal 2009, which was from May 1, 2008 through April 30, 2009 (“fiscal 2009”).

 

The number of shares outstanding on the record date for the annual meeting, and all other share and per share information in this proxy statement, reflects a one-for-eight reverse split of our common stock that was effective on September 25, 2009.

 

Record Date.  Our board of directors has fixed the close of business on September 29, 2009 as the record date for determination of stockholders entitled to notice of and to vote at the meeting and any adjournment thereof. As of the record date, we had 64,644,961 shares of common stock outstanding and entitled to vote, held by approximately 425 holders of record.

 

Internet Availability of Annual Meeting Materials.  This year, we are pleased to take advantage of the rules adopted by the U.S. Securities and Exchange Commission (“SEC”) allowing companies to furnish proxy materials over the Internet to their stockholders rather than mailing paper copies of those materials to each stockholder. On October 8, 2009, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials directing stockholders to a web site where they can access our proxy statement for the 2009 annual meeting and the Annual Report for the fiscal year ended April 30, 2009 and view instructions on how to vote via the Internet or by phone. If you would prefer to receive a paper copy of our proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials.

 

Quorum/Vote Required.  A majority of the shares of common stock issued and outstanding as of the record date must be represented, either in person or by proxy, to constitute a quorum for the transaction of business at the meeting. Votes for and against, abstentions and “broker non-votes” (shares held by a broker or nominee that does not have the authority, either express or discretionary, to vote on a particular matter) will each be counted as present for purposes of determining the presence of a quorum. Abstentions will have no effect on the outcome of the election of directors and will be counted as against votes with respect to any proposals other than the election of directors. Broker non-votes are not counted (except for quorum purposes) and will have no effect on the result of the vote on any proposal. If a quorum is present, the two nominees for director receiving the highest number of votes will be elected as Class I directors. If a quorum is present, approvals of all other proposals, and all other matters that properly come before the meeting, require the affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote on such proposals. Proxies and ballots will be received and tabulated by the inspector of elections for the annual meting.

 

Voting of Proxies.  Holders of shares of common stock are entitled to cast one vote per share on all matters submitted to a vote of stockholders. All shares of common stock represented by properly executed proxies received before or at the meeting will, unless the proxies are revoked, be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated on a properly executed proxy card, the shares will be voted “FOR”: (1) the election of management’s nominees for director listed in Proposal No. 1; (2) the amendment of the 1999 Employee Stock Purchase Plan and the 1999 International Employee Stock Purchase Plan to increase the number of shares of common stock reserved for issuance thereunder by 250,000 shares; (3) the adoption of the 2009 Employee Stock Purchase Plan and the 2009 International Employee Stock Purchase Plan and authorization of the reservation of 2,500,000 shares of our common stock for issuance thereunder and automatic annual increases of 125,000 shares of our common stock reserved for issuance thereunder on May 1 of each year beginning with May 1, 2010 and

continuing through May 1, 2015; and (4) the ratification of the selection of Ernst & Young LLP as our independent auditors for the fiscal year ending April 30, 2010.

 

If your shares are directly registered in your name with American Stock Transfer & Trust Company, you have three ways to vote.

 

 

Many banks and brokerage firms have a process for their beneficial owners to provide instructions over the telephone or via the Internet. Your voting form from your broker or bank will contain instructions for voting.

 

If your shares are held in an account at a brokerage firm or bank, that brokerage firm or bank may vote your shares on the election of directors and the proposal to ratify our independent auditors, but will not be permitted to vote your shares with respect to Proposals No. 2 and 3 unless you provide instructions as to how to vote your shares. If an executed proxy card is returned by a broker or bank holding shares which indicates that the broker or bank has not received voting instructions and does not have discretionary authority to vote on the proposals, the shares will be considered present at the meeting for purposes of determining the presence of a quorum, but will not be considered to have been voted in favor of the proposals. Your broker or bank will vote your shares on Proposals No. 2 and 3 only if you provide instructions on how to vote by following the information provided to you by your broker. Please note that if your shares are held of record by a broker, bank or nominee and you wish to vote at the meeting, you will not be permitted to vote in person unless you first obtain a proxy issued in your name from the record holder.

 

Votes submitted by telephone or via the Internet must be received by 11:59 p.m., Eastern Time, on November 17, 2009. Submitting your proxy by telephone or via the Internet will not affect your right to vote in person should you decide to attend the annual meeting.

 

A stockholder who delivers an executed proxy has the power to revoke his or her proxy at any time before it is exercised by (i) executing and delivering to the Secretary of Finisar, at 1389 Moffett Park Drive, Sunnyvale, California 94089, a written instrument revoking the proxy or a duly executed proxy with a later date, or (ii) by attending the meeting and voting in person. Attendance at the meeting will not in and of itself constitute revocation of a proxy. Please note, however, that if a stockholder’s shares are held of record by a broker, bank or other nominee and that stockholder wishes to vote at the annual meeting, the stockholder must bring to the annual meeting a letter from the broker, bank or other nominee confirming such stockholder’s beneficial ownership of the shares.

 

Solicitation of Proxies.  We will bear the cost of soliciting proxies. In addition to soliciting stockholders by mail, we will request banks, brokers and other intermediaries holding shares of our common stock beneficially owned by others to obtain proxies from the beneficial owners and will reimburse them for their reasonable expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone, telegram and other electronic means, advertisements and personal solicitation by our directors, officers and employees. No additional compensation will be paid to directors, officers or employees for such solicitation. We have also retained MacKenzie Partners, Inc. to assist in the solicitation of proxies. We will pay MacKenzie Partners, Inc. $7,500 plus reasonable expenses for its services.

 

ELECTION OF DIRECTORS

 

Our board of directors is currently composed of nine directors. Our Certificate of Incorporation provides that the terms of office of the members of the board of directors will be divided into three classes: Class I, whose term will expire at this annual meeting of stockholders; Class II, whose term will expire at the annual meeting of stockholders to be held in 2010; and Class III, whose term will expire at the annual meeting of stockholders to be

held in 2011. At each annual meeting of stockholders, directors are elected for a term of three years to succeed those directors whose terms expire at the annual meeting.

 

The terms of the Class I directors will expire on the date of the upcoming annual meeting. The current Class I members of the board of directors are Roger C. Ferguson, Morgan Jones and Larry D. Mitchell. On September 9, 2009, Mr. Jones informed the Company that he will be retiring from service on the board of directors as of the date of the annual meeting and will not stand for re-election at the annual meeting. The Nominating and Governance Committee intends to conduct a search for qualified candidates to serve on the board of directors and its committees, but has not identified a candidate to recommend to fill the vacancy that will result from Mr. Jones’ retirement. Accordingly, two persons are to be elected to serve as Class I directors of the board of directors at the meeting. Management’s nominees for election by the stockholders to those two positions are the two continuing Class I members of the board of directors: Roger C. Ferguson and Larry D. Mitchell. If elected, each nominee will serve as a director until our annual meeting of stockholders in 2012 and until their respective successors are elected and qualified. If any of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election (although we know of no reason to anticipate that this will occur), the proxies may be voted for such substitute nominees as we may designate. The proxies cannot vote for more than two persons. If a quorum is present and voting, the two nominees for Class I director receiving the highest number of votes will be elected as Class I directors.

 

The board of directors recommends a vote “FOR” the nominees named above.

 

The following table sets forth information regarding our current directors, including the nominees for Class I directors to be elected at this meeting, as of September 29, 2009.

 

 

Roger C. Ferguson has served as a member of our board of directors since August 1999. From June 1999 to December 2001, Mr. Ferguson served as Chief Executive Officer of Semio Corp., an early stage software company. Mr. Ferguson served as a principal in VenCraft, LLC, a venture capital partnership, from July 1997 to August 2002. From August 1993 to July 1997, Mr. Ferguson was Chief Executive Officer of DataTools, Inc., a database software company. From 1987 to 1993, Mr. Ferguson served as Chief Operating Officer of Network General Inc., a network analysis company. Mr. Ferguson holds a B.A. in Psychology from Dartmouth College and an M.B.A. from the Amos Tuck School at Dartmouth.

 

Larry D. Mitchell has served as a member of our board of directors since October 1999 and has served as Lead Director since August 2008. Mr. Mitchell was employed by the Hewlett-Packard Company for 29 years, retiring in October 1997 as a site General Manager in Roseville, California, a position he held for three years. During the 26 years prior to October 1994, Mr. Mitchell served in a variety of management positions with Hewlett-Packard. Currently, Mr. Mitchell is Director of Operations for SP Communications, a startup electronics company. Mr. Mitchell also served on the Board of Directors of Placer Sierra Bancshares, until its acquisition by Wells Fargo Bank in June 2007, and served as Chairman from August 2006 until June 2007. Mr. Mitchell holds a B.A. in Engineering Science from Dartmouth College and an M.B.A. from the Stanford Graduate School of Business.

 

Christopher Crespi has served as a member of our board of directors since the completion of the Optium Corporation merger in August 2008. Mr. Crespi served as a director of Optium from November 2005 through the completion of the merger. Mr. Crespi is co-founder and president of Pacific Realm, LLC, a small investment fund which invests in private growth companies and equity funds. Mr. Crespi worked as managing director of Banc of America Securities LLC from November 1999 until his retirement in January 2004. Mr. Crespi holds a B.S.E.E. from the University of California at Davis and an M.B.A. from Kellogg Graduate School of Management at Northwestern University.

 

David C. Fries has served as a member of our board of directors since June 2005. Dr. Fries has been employed by VantagePoint Venture Partners, a venture capital investment firm, since August 2001 where he currently serves as a Managing Director. Prior to joining VantagePoint, he was the Chief Executive Officer of Productivity Solutions, Inc., a Florida-based developer of automated checkout technologies for food and discount retailers, from 1995 to 1999. For seven years prior to that, he was a general partner of Canaan Partners, a venture capital firm. Dr. Fries served 17 years in numerous executive roles in engineering, manufacturing, senior management and finance at General Electric Company, including directing GE Venture Capital’s California operation, which later became Canaan Partners. Dr. Fries holds a B.S. in Chemistry from Florida Atlantic University and a Ph.D. in Physical Chemistry from Case Western Reserve University.

 

Robert N. Stephens has served as a member of our board of directors since August 2005. Mr. Stephens served as the Chief Executive Officer since April 1999 and President since October 1998 of Adaptec, Inc., a storage solutions provider, until his retirement in May 2005. Mr. Stephens joined Adaptec in November 1995 as Chief Operating Officer. Before joining Adaptec, Mr. Stephens was the founder and Chief Executive Officer of Power I/O, a company that developed serial interface solutions and silicon expertise for high-speed data networking, that was acquired by Adaptec in 1995. Prior to founding Power I/O, Mr. Stephens was President and Chief Executive Officer of Emulex Corporation, which designs, develops and supplies Fibre Channel host bus adapters. Before joining Emulex, Mr. Stephens was Senior Vice President, General Manager, and founder of the Microcomputer Products Group at Western Digital Corporation. He began his career at IBM, where he served over 15 years in a variety of management positions. Mr. Stephens holds a B.A. in Philosophy and Psychology and an M.S. in Industrial Psychology from San Jose State University.

 

Eitan Gertel has served as our Chief Executive Officer and as a director since the completion of the Optium merger in August 2008. Mr. Gertel served as Optium’s President and as a director from March 2001 and as Chief Executive Officer and Chairman of the Board of Optium from February 2004 through the completion of the merger. Mr. Gertel worked as President and General Manager of the former transmission systems division of JDS Uniphase Corporation from 1995 to 2001. JDSU is a provider of broadband test and management solutions and optical products. Mr. Gertel holds a B.S.E.E. from Drexel University.

 

Jerry S. Rawls has served as a member of our board of directors since March 1989 and as our Chairman of the Board since January 2006. Mr. Rawls served as our Chief Executive Officer from August 1999 until the completion of the Optium merger in August 2008. Mr. Rawls also served as our President from April 2003 until the completion of the Optium merger and previously held that title from April 1989 to September 2002. From September 1968 to February 1989, Mr. Rawls was employed by Raychem Corporation, a materials science and engineering company, where he held various management positions including Division General Manager of the Aerospace Products Division and Interconnection Systems Division. Mr. Rawls holds a B.S. in Mechanical Engineering from Texas Tech University and an M.S. in Industrial Administration from Purdue University.

 

Dominique Trempont has served as a member of our board of directors since August 2005. Mr. Trempont is a member of the board of directors of 3Com Corporation, a networking company, and chairs its Finance and Audit Committee. He is also a member of the board of directors of Energy Recovery, Inc., a manufacturer of efficient energy recovery devices utilized in the water desalination industry, and chairs its Audit Committee and its Nominating and Governance Committee. Mr. Trempont was CEO in residence at Battery Ventures from August 2003 until June 2004. Prior to joining Battery Ventures, Mr. Trempont was Chairman, President and Chief

Executive Officer of Kanisa, Inc., a software company focused on enterprise self-service applications, from November 1999 to November 2002. Mr. Trempont was President and Chief Executive Officer of Gemplus Corporation, a smart card company, from May 1997 to June 1999. Prior to Gemplus, Mr. Trempont served as Chief Financial Officer and head of Operations at NeXT Software. Mr. Trempont began his career at Raychem Corporation, a materials science and engineering company focused on telecommunications, electronics, automotive and other industries. Mr. Trempont received an undergraduate degree in Economics from College Saint Louis (Belgium), a B.A. in Business Administration and Computer Sciences from the University of Louvain (Belgium), with high honors, and a masters in Business Administration from INSEAD (France/Singapore).

 

Morgan Jones has served as a member of our board of directors since the completion of the Optium merger in August 2008. Mr. Jones is a Class I director and has announced his decision not to stand for re-election at the annual meeting. Mr. Jones served as a director of Optium from November 2000 through the completion of the merger. Mr. Jones is a general partner of Battery Ventures, a venture capital firm. Mr. Jones has been with Battery Ventures since 1996. Mr. Jones holds a B.S. in Engineering Science from Harvard University and an M.S. in Electrical Engineering from Stanford University.

 

The board of directors has determined that, other than Jerry S. Rawls, our Chairman of the Board, and Eitan Gertel, our Chief Executive Officer, each of the current members of the board is “independent” in accordance with the applicable SEC rules and listing standards of the Nasdaq Stock Market as currently in effect.

 

The board of directors held 12 meetings during the fiscal year ended April 30, 2009. The board of directors has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. During the last fiscal year, no director attended fewer than 75% of the total number of meetings of the board and all of the committees of the board on which such director served during that period.

 

Audit Committee.  The members of the Audit Committee during fiscal 2009 were Messrs. Ferguson, Mitchell and Trempont and, following the completion of the Optium merger in August 2008, Mr. Crespi. Each of the members of the Audit Committee is independent for purposes of the Nasdaq listing standards as they apply to audit committee members. Messrs. Ferguson and Trempont are audit committee financial experts, as defined in the rules of the SEC. The functions of the Audit Committee include overseeing the quality of our financial reports and other financial information and our compliance with legal and regulatory requirements; appointing and evaluating our independent auditors, including reviewing their independence, qualifications and performance and reviewing and approving the terms of their engagement for audit services and non-audit services; and establishing and observing complaint procedures regarding accounting, internal auditing controls and auditing matters. The Audit Committee held 13 meetings during the fiscal year ended April 30, 2009.

 

Compensation Committee.  The members of the Compensation Committee during fiscal 2009 were Messrs. Ferguson, Fries, Mitchell and Stephens until the completion of the Optium merger; thereafter, the Compensation Committee was composed of Messrs. Fries, Jones, Stephens and Trempont. Each of the members of the Compensation Committee is independent for purposes of the Nasdaq listing standards. The Compensation Committee reviews and approves the compensation and benefits of our executive officers and establishes and reviews general policies relating to compensation and benefits of our employees. For additional information about the Compensation Committee, see “Executive Compensation and Related Matters — Compensation Discussion and Analysis” below. The Compensation Committee held 11 meetings during the fiscal year ended April 30, 2009.

 

Nominating and Governance Committee.  The members of the Nominating and Governance Committee during fiscal 2009 were Messrs. Ferguson, Fries, Mitchell and Stephens. Each of the members of the Nominating and Governance Committee is independent for purposes of the Nasdaq listing standards. The Nominating and Governance Committee considers qualified candidates for appointment and nomination for election to the board of directors and makes recommendations concerning such candidates, develops corporate governance principles for

recommendation to the board of directors and oversees the regular evaluation of our directors and management. The Nominating and Governance Committee held ten meetings during the fiscal year ended April 30, 2009.

 

Nominations of candidates for election as directors may be made by the board of directors or by stockholders. The Nominating and Governance Committee is responsible for, among other things, the selection and recommendation to the board of directors of nominees for election as directors.

 

When considering the nomination of directors for election at an annual meeting, the Nominating and Governance Committee reviews the needs of the board of directors for various skills, background, experience and expected contributions and the qualification standards established from time to time by the Nominating and Governance Committee. When reviewing potential nominees, including incumbents, the Nominating and Governance Committee considers the perceived needs of the board of directors, the candidate’s relevant background, experience and skills and expected contributions to the board of directors. The Nominating and Governance Committee also seeks appropriate input from the Chairman of the Board and the Chief Executive Officer in assessing the needs of the board of directors for relevant background, experience and skills of its members.

 

The Nominating and Governance Committee’s goal is to assemble a board of directors that brings to Finisar a diversity of experience at policy-making levels in business and technology, and in areas that are relevant to Finisar’s global activities. Directors should possess the highest personal and professional ethics, integrity and values and be committed to representing the long-term interests of our stockholders. They must have an inquisitive and objective outlook and mature judgment. They must also have experience in positions with a high degree of responsibility and be leaders in the companies or institutions with which they are or have been affiliated. Director candidates must have sufficient time available in the judgment of the Nominating and Governance Committee to perform all board and committee responsibilities that will be expected of them. Members of the board of directors are expected to rigorously prepare for, attend and participate in all meetings of the board of directors and applicable committees. Other than the foregoing, there are no specific minimum criteria for director nominees, although the Nominating and Governance Committee believes that it is preferable that a majority of the board of directors meet the definition of “independent director” set forth in Nasdaq and SEC rules. The Nominating and Governance Committee also believes it appropriate for one or more key members of the Company’s management, including the Chief Executive Officer, to serve on the board of directors.

 

The Nominating and Governance Committee will consider candidates for directors proposed by directors or management, and will evaluate any such candidates against the criteria and pursuant to the policies and procedures set forth above. If the Nominating and Governance Committee believes that the board of directors requires additional candidates for nomination, the Nominating and Governance Committee may engage, as appropriate, a third party search firm to assist in identifying qualified candidates. All incumbent directors and nominees will be required to submit a completed directors’ and officers’ questionnaire as part of the nominating process. The process may also include interviews and additional background and reference checks for non-incumbent nominees, at the discretion of the Nominating and Governance Committee.

 

The Nominating and Governance Committee will also consider candidates for directors recommended by a stockholder, provided that any such recommendation is sent in writing to the board of directors, c/o Corporate Secretary, 1389 Moffett Park Drive, Sunnyvale, California 94089-1113; Fax: (408) 745-6097; Email address: corporate.secretary@finisar.com, at least 120 days prior to the anniversary of the date definitive proxy materials were mailed to stockholders in connection with the prior year’s annual meeting of stockholders and contains the following information:

 

 

The Nominating and Governance Committee will evaluate any candidates recommended by stockholders against the same criteria and pursuant to the same policies and procedures applicable to the evaluation of candidates proposed by directors or management.

 

In addition, stockholders may make direct nominations of directors for election at an annual meeting, provided the advance notice requirements set forth in our bylaws have been met. Under our bylaws, written notice of such nomination, including certain information and representations specified in the bylaws, must be delivered to our principal executive offices, addressed to the Corporate Secretary, at least 120 days prior to the anniversary of the date definitive proxy materials were mailed to stockholders in connection with the prior year’s annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been advanced by more than 30 days from the date contemplated at the time of the previous year’s proxy statement, such notice must be received not later than the close of business on the 10th day following the day on which the public announcement of the date of such meeting is first made.

 

Stockholders may communicate with the board of directors, or any individual director, by transmitting correspondence by mail, facsimile or email, addressed as follows: Board of Directors or individual director, c/o Corporate Secretary, 1389 Moffett Park Drive, Sunnyvale, California 94089-1113; Fax: (408) 745-6097; Email Address: corporate.secretary@finisar.com. The Corporate Secretary will maintain a log of such communications and will transmit as soon as practicable such communications to the board of directors or to the identified director(s), although communications that are abusive, in bad taste or that present safety or security concerns may be handled differently, as determined by the Corporate Secretary.

 

We will make every effort to schedule our annual meeting of stockholders at a time and date to accommodate attendance by directors taking into account the directors’ schedules. All directors are encouraged to attend our annual meeting of stockholders. Three directors attended our last annual meeting of stockholders held on August 28, 2008.

 

Our board of directors has adopted a Code of Ethics, or the Code, that outlines the principles of legal and ethical business conduct under which we do business. The Code, which is applicable to all directors, employees and officers of Finisar, is available at http://investor.finisar.com/governance.cfm. Any substantive amendment or waiver of the Code may be made only by the board of directors upon a recommendation of the Audit Committee, and will be disclosed on our website. In addition, disclosure of any waiver of the Code for directors and executive officers will also be made by the filing of a Form 8-K with the SEC.

 

Our board of directors has also adopted a written charter for each of the Audit Committee, Compensation Committee and Nominating and Governance Committee. Each charter is available on our website at http://investor.finisar.com/governance.cfm.

 

APPROVAL OF AN AMENDMENT TO THE
1999 EMPLOYEE STOCK PURCHASE PLAN AND THE
1999 INTERNATIONAL STOCK PURCHASE PLAN TO INCREASE THE SHARES RESERVED FOR
ISSUANCE THEREUNDER BY 250,000 SHARES

 

At the annual meeting, the stockholders will be asked to approve an amendment to the Finisar Corporation 1999 Employee Stock Purchase Plan (the “1999 Plan”) and the parallel International Employee Stock Purchase Plan (the “1999 International Plan” and, collectively, the “Plans”) to increase the number of shares of common stock reserved for issuance under the Plans by an aggregate of 250,000 shares, such additional shares to be used solely for issuance to participating employees on December 15, 2009, the next scheduled purchase date under the Plans.

Under the Plans, eligible employees of Finisar and any participating parent or subsidiary companies (whether now existing or subsequently established) have the opportunity to purchase shares of our common stock at periodic intervals through their accumulated periodic payroll deductions. The next scheduled purchase date under the Plans is December 15, 2009. An aggregate of 203,454 shares of common stock currently remain available for issuance under the Plans. Based on the current employee enrollment in the Plans, and assuming that shares will be purchased at a weighted average purchase price of $2.96 per share (based on the fair market value of our common stock at the beginning of the applicable offering period), a total of approximately 700,000 shares of common stock would be required for issuance on the December 15, 2009 purchase date and the shares reserved for issuance under the Plans would need to be increased by approximately 500,000 shares. Subject to stockholder approval, our board of directors has approved an increase of 250,000 in the number of shares reserved for issuance under the Plans, which would allow us to issue up to 453,454 shares of common stock on the December 15, 2009 purchase date. In limiting the increase in the shares reserved for issuance under the Plans, the board considered the important employee benefit that purchasing shares under the Plans represents, particularly in light of a 10% salary reduction affecting most of our U.S.-based employees, that has been in effect since February 2009 and is to be reversed on November 2, 2009. The board also considered the significant increase in the trading price of our common stock since the beginning of the offering period and the fact that approximately 800,000 shares had been purchased under the Plans on the June 15, 2009 purchase date.

 

We believe that participation in the Plans is an important benefit that allows us to retain and reward eligible employees. This is particularly important at this time when a 10% salary reduction has been in effect for most of our U.S. employees.

 

Our board of directors approved the amendment to the Plans on September 9, 2009, subject to stockholder approval at the annual meeting. If this proposal is approved, these additional shares will be issued to participating employees on the December 15, 2009 purchase date and the Plans will terminate following such issuance. Our board has also adopted new employee stock purchase plans to be effective December 16, 2009, subject to stockholder approval, as described in Proposal No. 3 below.

 

Our employees located in the United States participate in the 1999 Plan. The employees of our non-U.S. subsidiaries participate in the 1999 International Plan. The following is a summary of the principal features of the 1999 Plan, as amended. The terms of the 1999 International Plan are generally similar to the terms of the 1999 Plan. The summary, however, does not purport to be a complete description of all the provisions of the 1999 Plan and is qualified in its entirety by reference to the 1999 Plan itself which is attached to this proxy statement as Appendix A.

 

The 1999 Plan is administered either by our board of directors or by a committee of one or more board members appointed by the board. Any such appointed committee may have administrative authority to adopt administrative rules and procedures and to interpret the provisions of the entire 1999 Plan, or to any specified provisions delegated to it by the board. The term “plan administrator,” as used in this summary, refers to either our board of directors or such board committee, to the extent such entity is acting within the scope of its administrative authority under the 1999 Plan.

 

The maximum number of shares of common stock reserved for issuance under the Plans is currently limited to 2,343,750 shares. Under the terms of the Plans as previously approved by the stockholders, the shares reserved for issuance under the Plans will automatically increase by 125,000 shares on May 1, 2010. As of September 30, 2009, 2,140,296 shares of common stock had been issued under the Plans and 203,454 shares remained available for issuance. If Proposal No. 2 is approved, a total of 453,454 shares of common stock will be available for issuance under the Plans and these shares will be used solely for issuance on the December 15, 2009 purchase date; following such issuance, the Plans will terminate. If Proposal No. 2 is not approved, the 203,454 shares of common stock currently available for issuance under the Plans will be issued to participating employees on the December 15, 2009 purchase date on a pro-rata basis and, if the new employee stock purchase plans subject to Proposal No. 3 are approved at the annual meeting, the Plans will terminate following such issuance. If the new employee stock purchase plans subject to Proposal No. 3 are not approved at the annual meeting, the Plans will remain in effect until

all shares of common stock reserved for issuance under the Plans (including the automatic share increase on May 1, 2010) have been issued.

 

The shares issuable under the 1999 Plan may be made available from authorized but unissued shares of our common stock or from shares of common stock repurchased by us, including shares repurchased on the open market. The reserved shares will also be used to fund stock purchases under the 1999 International Plan, and any shares issued under the 1999 International Plan will reduce, on a share-for-share basis, the number of shares available for subsequent issuance under the 1999 Plan.

 

In the event that any change is made to our outstanding common stock (whether by reason of any recapitalization, stock dividend, stock split, exchange or combination of shares or other change in corporate structure effected without our receipt of consideration), appropriate adjustments will be made to (i) the maximum number and class of securities issuable under the Plans, (ii) the number and class of securities by which the share reserve is to increase automatically each calendar year, and (iii) the number and class of securities and the price per share in effect under each outstanding purchase right. Such adjustments will be made in such a manner to prevent the dilution or enlargement of benefits under the Plans or the outstanding purchase rights thereunder, and such adjustments will be final, binding and conclusive.

 

Shares of our common stock are offered under the 1999 Plan through a series of offering periods. Two separate offering periods take place each year. The first offering period has a duration of approximately 12 months and in general runs from December 16 to December 15 in the succeeding year. The second offering period has a duration of approximately six months and in general runs from June 16 to December 15 each year. The 12-month offering period is comprised of two six-month purchase intervals. The first purchase interval generally runs from December 16 to June 15 in the succeeding year, and the second interval will generally run from June 16 to December 15 each year. The six-month offering period which begins on or about June 16 each year consists of a single six-month purchase interval coterminous with its six-month duration. The plan administrator may, however, establish a different duration for one or more offering periods or the purchase intervals within those periods or different beginning or ending dates for such offering periods or purchase intervals; however, no offering period may have a duration in excess of 27 months.

 

The current offering periods commenced on December 16, 2008 and June 16, 2009 and will end on December 15, 2009.

 

At the time a participant joins an offering period, he or she is granted a purchase right to acquire shares of our common stock on the last day of each purchase interval within that offering period. All payroll deductions collected from the participant for each purchase interval are automatically applied to the purchase of common stock at the end of that purchase interval, subject to certain limitations.

 

Any individual who is employed, whether in the United States or in any of our foreign locations, on a basis under which he or she is regularly expected to work for more than 20 hours per week for more than five months per calendar year in our employ or in the employ of any participating parent or subsidiary corporation (including any corporation which subsequently becomes such at any time during the term of the 1999 Plan) is eligible to participate in the 1999 Plan. To the extent required by local law, foreign employees who are expected to work for less than 20 hours per week or less than five months per calendar year will be allowed to participate in the 1999 International Plan. Each individual who is an eligible employee on the start date of any offering period may enter that offering period on such start date.

 

As of September 30, 2009, approximately 680 employees, including all seven executive officers, were eligible to participate in the 1999 Plan and the 1999 International Plan.

 

Each participant may authorize periodic payroll deductions in any multiple of 1.0% (up to a maximum of 20%) of his or her cash earnings to be applied to the acquisition of common stock semi-annually at the end of each purchase interval. Accordingly, on each semi-annual purchase date (generally June 15 and December 15 each year), the payroll deductions of each participant accumulated for the purchase interval ending on that purchase date will automatically be applied to the purchase of whole shares of common stock at the purchase price in effect for the participant for that purchase date. The plan administrator will have the discretionary authority to change the percentage contribution rates in effect for one or more subsequent offering periods. To the extent payroll deductions are prohibited under local law, participants in the 1999 International Plan may be permitted to pay for the shares by check or through other approved methods at the end of the purchase interval.

 

Payroll deductions made in currency other than U.S. dollars will be converted into such dollars on the date or dates and at the exchange rate determined by the plan administrator prior to the start of the offering period in which those deductions are made.

 

The purchase price of the common stock acquired on each semi-annual purchase date within that offering period will not be less than 85% of the lower of (i) the fair market value per share of our common stock on the start date of that offering period or (ii) the fair market value on the semi-annual purchase date.

 

The fair market value per share of our common stock on any particular date under the 1999 Plan will be deemed to be equal to the closing selling price per share on such date on the Nasdaq Global Select Market. On September 30, 2009, the fair market value of our common stock determined on such basis was $9.68 per share.

 

The 1999 Plan imposes certain limitations upon a participant’s rights to acquire common stock, including the following limitations:

 

 

A participant may withdraw from the 1999 Plan at any time, and his or her accumulated payroll deductions will be refunded as soon as practicable after the withdrawal. In such event, the individual may not rejoin the 1999 Plan until the start of a new offering period.

 

A participant’s purchase right will immediately terminate upon his or her cessation of employment or loss of eligible employee status. Any payroll deductions which the participant may have made for the purchase interval in

which such cessation of employment or loss of eligibility occurs will be refunded and will not be applied to the purchase of common stock.

 

No participant will have any stockholder rights with respect to the shares covered by his or her purchase rights until the shares are actually purchased on the participant’s behalf and the participant has become a holder of record of the purchased shares. No adjustment will be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.

 

No purchase rights will be assignable or transferable by the participant, and the purchase rights will be exercisable only by the participant.

 

Should we be acquired by a merger or a sale of all or substantially all of our assets or securities possessing more than 50% of the total combined voting power of our outstanding securities, then the successor entity (or its parent corporation) may assume our obligations under the 1999 Plan and the outstanding purchase rights. In the event of such assumption, each purchase right will be appropriately adjusted to preclude any dilution or enlargement of benefits thereunder, and the accumulated payroll deductions will automatically be applied to the purchase of shares of common stock (or such other securities as may then be subject to the purchase rights) on the next scheduled purchase date.

 

If the outstanding purchase rights are not assumed, we will accelerate the next purchase date in each of the then current offering periods to a date before the closing date on which we are to be acquired, and the accumulated payroll deductions will automatically be applied to the purchase of shares of our common stock. The purchase price will be equal to 85% (or any higher percentage in effect for those offering periods) of the lower of (i) the fair market value per share of common stock on the start date of the offering period in which the participant is enrolled at the time of such acquisition or (ii) the fair market value per share of common stock on the date the shares are purchased.

 

Should the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the 1999 Plan or the maximum number of shares purchasable in total by all participants in the 1999 Plan on any one purchase date, then the plan administrator will make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each participant, to the extent in excess of the aggregate purchase price payable for the common stock pro-rated to such individual, will be refunded.

 

Our board of directors may amend or terminate the 1999 Plan at any time. However, no amendment may adversely affect outstanding purchase rights, except to the extent necessary to qualify the 1999 Plan as an “employee stock purchase plan” pursuant to Section 423 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or to effect any required qualification or registration of the shares offered under the 1999 Plan pursuant to applicable federal, state or foreign securities laws. In addition, the board may not, without stockholder approval, (i) increase the number of shares issuable under the 1999 Plan (except permissible adjustments in the event of changes to our capitalization) or (ii) change the entities that may be designated by the board as participating corporations.

 

Unless earlier terminated by our board of directors, the 1999 Plan will terminate on the date on which all shares available for issuance thereunder are sold pursuant to exercised purchase rights.

 

Our current named executive officers are not current participants in the Plans. If this proposal is approved, 453,454 shares will be purchased on the December 15, 2009 purchase date by all employees, including officers who are not named executive officers, as a group (approximately 350 persons), based on the current rate of enrollment and assuming a weighted average purchase price of $2.96 per share.

 

The actual number of shares to be purchased may vary depending on changes to payroll deductions and the actual purchase price. In addition, if this proposal is not approved, a significantly lower number of shares will be purchased by these individuals and groups.

 

The following table sets forth, as to our current named executive officers and the other groups indicated, the number of shares of our common stock purchased under the Plans from May 1, 2008 through June 16, 2009, together with the weighted average purchase price per share paid for the purchased shares.

 

 

The 1999 Plan is intended to be an “employee stock purchase plan” within the meaning of Section 423 of the Code. Under a plan which so qualifies, no taxable income will be recognized by a participant subject to U.S. taxation, and no deductions will be allowable to us, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until there is a sale or other disposition of the shares acquired under the 1999 Plan or in the event the participant should die while still owning the purchased shares.

 

If a participant sells or otherwise disposes of the purchased shares within two years after the start date of the offering period in which such shares were acquired or within one year after the purchase date on which those shares were actually acquired, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the shares on the purchase date exceeded the purchase price paid for those shares, and we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal in amount to such excess.

 

If a participant sells or disposes of the purchased shares more than two years after the start date of the offering period in which the shares were acquired and more than one year after the purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the lesser of (i) the amount by which the fair market value of the shares on the sale or disposition date exceeded the purchase price paid for those shares or (ii) 15% of the fair market value of the shares on the start date of that offering period; and any additional gain upon the disposition will be taxed as a long-term capital gain. We will not be entitled to an income tax deduction with respect to such disposition.

 

If a participant still owns the purchased shares at the time of death, the lesser of (i) the amount by which the fair market value of the shares on the date of death exceeds the purchase price or (ii) 15% of the fair market value of the shares on the start date of the offering period in which those shares were acquired will constitute ordinary income in the year of death.

 

The income taxation consequences to participants and to us (or our foreign subsidiaries) with respect to participation in the 1999 International Plan may vary by country. Generally, participants are subject to taxation at the time of purchase of the shares. The employing foreign subsidiary may in some cases be entitled to a deduction in the tax year in which a participant recognizes taxable income.

 

Pursuant to the accounting principles that are applicable to employee stock purchase plans, the fair value of each purchase right granted under the 1999 Plan is charged as a direct compensation expense to our reported earnings over the offering period to which that purchase right pertains. The fair value of each such purchase right will be determined as of its grant date.

 

The affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on this proposal is required for approval of the amendment to the 1999 Plan and the 1999 International Plan. The approval of this proposal is not a condition to the approval of any other proposals submitted to the stockholders, nor is the approval of any other proposals submitted to the stockholders a condition to the approval of this proposal. Should stockholder approval not be obtained, the proposed increase of 250,000 shares in the number of shares reserved for issuance under the Plans will not be implemented and no purchase rights will be granted on the basis of such increase, the 203,454 shares currently available for issuance under the Plans will be issued to participating employees on the December 15, 2009 purchase date on a pro rata basis, and if the new employee stock purchase plans subject to Proposal No. 3 are approved at the annual meeting, the Plans will terminate following such issuance. However, if the new employee stock purchase plans subject to Proposal No. 3 are not approved at the annual meeting, the Plans as in effect prior to the share increase which is the subject of this proposal will continue to remain in effect, and stock purchases will continue to be made pursuant to the provisions of the Plans until the Plans terminate or all shares of common stock reserved for issuance under the Plans (including the automatic share increase on May 1, 2010) have been issued.

 

Our board of directors believes that it is in our best interests to continue providing our employees with the opportunity to acquire an ownership interest in us through their participation in the Plans and thereby encourage them to remain in our employ and more closely align their interests with those of our stockholders.

 

The board of directors unanimously recommends that you vote “FOR” approval of the amendment to the 1999 Plan and 1999 International Plan.

 

APPROVAL OF ADOPTION OF THE

2009 EMPLOYEE STOCK PURCHASE PLAN AND THE

2009 INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN

 

The stockholders are being asked to approve the adoption of a new 2009 Employee Stock Purchase Plan (the “Purchase Plan”) and a parallel 2009 International Employee Stock Purchase Plan (the “2009 International Plan” and, collectively, the “2009 Plans”). The 2009 Plans were adopted by our board of directors on September 9, 2009, subject to stockholder approval at the annual meeting.

 

We have previously implemented the Finisar Corporation 1999 Employee Stock Purchase Plan and 1999 International Employee Stock Purchase Plan (collectively, the “Prior Plans”). 203,454 shares of common stock remain available for issuance under the Prior Plans. As described in Proposal No. 2 above, the stockholders are being asked to approve an increase in the number of shares reserved for issuance under the Prior Plans, such additional shares to be used solely for issuance to participating employees on December 15, 2009, the next

scheduled purchase date under the Prior Plans. If Proposal No. 2 and Proposal No. 3 are both approved, the Prior Plans will terminate following the December 15, 2009 purchase date. If Proposal No. 2 is approved and Proposal No. 3 is not approved, the shares reserved for issuance under the Prior Plans will be increased and the Prior Plans will remain in effect until they terminate or all shares reserved for issuance under the Prior Plans have been issued. If Proposal No. 2 is not approved and Proposal No. 3 is approved, the Prior Plans will terminate following the December 15, 2009 purchase date. If neither Proposal No. 2 nor Proposal No. 3 is approved, the Prior Plans will remain in effect until they terminate or all shares reserved for issuance under the Prior Plans have been issued. If Proposal No. 3 is approved, the 2009 Plans will become effective with the offering period commencing on December 16, 2009.

 

The new 2009 Plans will allow us to continue to provide an incentive to attract, retain and reward eligible employees of the Company and any participating parent or subsidiary companies (whether now existing or subsequently established) through the opportunity to purchase shares of common stock at semi-annual intervals through their accumulated periodic payroll deductions.

 

Our employees located in the United States will participate in the Purchase Plan. The employees of our non-U.S. subsidiaries will participate in the 2009 International Plan. The following is a summary of the principal features of the Purchase Plan. The terms of the 2009 International Plan are generally similar to the terms of the Purchase Plan. The summary, however, does not purport to be a complete description of all the provisions of the Purchase Plan and is qualified in its entirety by reference to the Purchase Plan itself which is attached to this proxy statement as Appendix B.

 

The Purchase Plan will be administered either by our board of directors or by a committee of one or more board members appointed by the board. Any such appointed committee may have administrative authority to adopt administrative rules and procedures and to interpret the provisions of the entire Purchase Plan, or to any specified provisions delegated to it by the board. The term “plan administrator,” as used in this summary, refers to either our board of directors or such board committee, to the extent such entity is acting within the scope of its administrative authority under the Purchase Plan.

 

The maximum number of shares of common stock reserved for issuance over the term of the Purchase Plan will initially be limited to 2,500,000 shares. On the first day of May in each subsequent calendar year, beginning with calendar year 2010 and continuing through the 2015 calendar year, the share reserve will automatically increase by 125,000 shares of our common stock. The shares issuable under the Purchase Plan may be made available from authorized but unissued shares of our common stock or from shares of common stock repurchased by us, including shares repurchased on the open market. The reserved shares will also be used to fund stock purchases under the 2009 International Plan, and any shares issued under the 2009 International Plan will reduce, on a share-for-share basis, the number of shares available for subsequent issuance under the Purchase Plan.

 

In the event that any change is made to our outstanding common stock (whether by reason of any recapitalization, stock dividend, stock split, exchange or combination of shares or other change in corporate structure effected without our receipt of consideration), appropriate adjustments will be made to (i) the maximum number and class of securities issuable under the 2009 Plans, (ii) the number and class of securities by which the share reserve is to increase automatically each calendar year, and (iii) the number and class of securities and the price per share in effect under each outstanding purchase right. Such adjustments will be made in such a manner to prevent the dilution or enlargement of benefits under the 2009 Plans or the outstanding purchase rights thereunder, and such adjustments will be final, binding and conclusive.

 

Shares of our common stock will be offered under the Purchase Plan through a series of offering periods. Two separate offering periods will take place each year. The first offering period will have a duration of approximately 12 months and in general will run from December 16 to December 15 in the succeeding year. The second offering

period will have a duration of approximately six months and in general will run from June 16 to December 15 each year. The 12-month offering period will be comprised of two six-month purchase intervals. The first purchase interval will generally run from December 16 to June 15 in the succeeding year, and the second interval will generally run from June 16 to December 15 each year. The six-month offering period which begins on or about June 16 each year will consist of a single six-month purchase interval coterminous with its six-month duration. The plan administrator may, however, establish a different duration for one or more offering periods or the purchase intervals within those periods or different beginning or ending dates for such offering periods or purchase intervals; however, no offering period may have a duration in excess of 27 months.

 

The first offering period will commence on December 16, 2009 and end on December 15, 2010.

 

At the time a participant joins an offering period, he or she will be granted a purchase right to acquire shares of our common stock on the last day of each purchase interval within that offering period. All payroll deductions collected from the participant for each purchase interval will be automatically applied to the purchase of common stock at the end of that purchase interval, subject to certain limitations.

 

Any individual who is employed, whether in the United States or in any of our foreign locations, on a basis under which he or she is regularly expected to work for more than 20 hours per week for more than five months per calendar year in our employ or in the employ of any participating parent or subsidiary corporation (including any corporation which subsequently becomes such at any time during the term of the Purchase Plan) will be eligible to participate in the Purchase Plan. To the extent required by local law, foreign employees who are expected to work for less than 20 hours per week or less than five months per calendar year will be allowed to participate in the 2009 International Plan. Each individual who is an eligible employee on the start date of any offering period may enter that offering period on such start date.

 

As of September 30, 2009, if the 2009 Plans had been in effect, approximately 680 employees, including all seven executive officers, would have been eligible to participate in the Purchase Plan and the 2009 International Plan.

 

Each participant may authorize periodic payroll deductions in any multiple of 1.0% (up to a maximum of 20%) of his or her cash earnings to be applied to the acquisition of common stock semi-annually at the end of each purchase interval. Accordingly, on each semi-annual purchase date (generally June 15 and December 15 each year), the payroll deductions of each participant accumulated for the purchase interval ending on that purchase date will automatically be applied to the purchase of whole shares of common stock at the purchase price in effect for the participant for that purchase date. The plan administrator will have the discretionary authority to change the percentage contribution rates in effect for one or more subsequent offering periods. To the extent payroll deductions are prohibited under local law, participants in the 2009 International Plan may be permitted to pay for the shares by check or through other approved methods at the end of the purchase interval.

 

Payroll deductions made in currency other than U.S. dollars will be converted into such dollars on the date or dates and at the exchange rate determined by the plan administrator prior to the start of the offering period in which those deductions are made.

 

The purchase price of the common stock acquired on each semi-annual purchase date within that offering period will be not less than 85% of the lower of (i) the fair market value per share of our common stock on the start date of that offering period or (ii) the fair market value on the semi-annual purchase date.

 

The fair market value per share of our common stock on any particular date under the Purchase Plan will be deemed to be equal to the closing selling price per share on such date on the Nasdaq Global Select Market. On September 30, 2009, the fair market value of our common stock determined on such basis was $9.68 per share.

 

The Purchase Plan imposes certain limitations upon a participant’s rights to acquire common stock, including the following limitations:

 

 

A participant may withdraw from the Purchase Plan at any time, and his or her accumulated payroll deductions will be refunded as soon as practicable after the withdrawal. In such event, the individual may not rejoin the Purchase Plan until the start of a new offering period.

 

A participant’s purchase right will immediately terminate upon his or her cessation of employment or loss of eligible employee status. Any payroll deductions which the participant may have made for the purchase interval in which such cessation of employment or loss of eligibility occurs will be refunded and will not be applied to the purchase of common stock.

 

No participant will have any stockholder rights with respect to the shares covered by his or her purchase rights until the shares are actually purchased on the participant’s behalf and the participant has become a holder of record of the purchased shares. No adjustment will be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.

 

No purchase rights will be assignable or transferable by the participant, and the purchase rights will be exercisable only by the participant.

 

Should we be acquired by a merger or a sale of all or substantially all of our assets or securities possessing more than 50% of the total combined voting power of our outstanding securities, then the successor entity (or its parent corporation) may assume our obligations under the Purchase Plan and the outstanding purchase rights. In the event

of such assumption, each purchase right will be appropriately adjusted to preclude any dilution or enlargement of benefits thereunder, and the accumulated payroll deductions will automatically be applied to the purchase of shares of common stock (or such other securities as may then be subject to the purchase rights) on the next scheduled purchase date.

 

If the outstanding purchase rights are not assumed, we will accelerate the next purchase date in each of the then current offering periods to a date before the closing date on which we are to be acquired, and the accumulated payroll deductions will automatically be applied to the purchase of shares of our common stock. The purchase price will be equal to 85% (or any higher percentage in effect for those offering periods) of the lower of (i) the fair market value per share of common stock on the start date of the offering period in which the participant is enrolled at the time of such acquisition or (ii) the fair market value per share of common stock on the date the shares are purchased.

 

Should the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Purchase Plan or the maximum number of shares purchasable in total by all participants in the Purchase Plan on any one purchase date, then the plan administrator will make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each participant, to the extent in excess of the aggregate purchase price payable for the common stock pro-rated to such individual, will be refunded.

 

Our board of directors may amend or terminate the Purchase Plan at any time. However, no amendment may adversely affect outstanding purchase rights, except to the extent necessary to qualify the Purchase Plan as an “employee stock purchase plan” pursuant to Section 423 of the Code or to effect any required qualification or registration of the shares offered under the Purchase Plan pursuant to applicable federal, state or foreign securities laws. In addition, the board may not, without stockholder approval, (i) increase the number of shares issuable under the Purchase Plan (except permissible adjustments in the event of changes to our capitalization) or (ii) change the entities that may be designated by the board as participating corporations.

 

Unless earlier terminated by our board of directors, the Purchase Plan will terminate upon the earliest to occur of (i) December 15, 2019, (ii) the date on which all shares available for issuance thereunder are sold pursuant to exercised purchase rights or (iii) the date on which all purchase rights are exercised in connection with a change in control.

 

No purchase rights will be granted, and no shares of our common stock will be issued under the Purchase Plan, unless the Purchase Plan is approved by the stockholders at the annual meeting.

 

The following table sets forth, as to our current named executive officers and the other groups indicated, the number of shares of our common stock purchased under the Prior Plans from May 1, 2008 through June 16, 2009, together with the weighted average purchase price paid per share.

 

 

The Purchase Plan is intended to be an “employee stock purchase plan” within the meaning of Section 423 of the Code. Under a plan which so qualifies, no taxable income will be recognized by a participant subject to U.S. taxation, and no deductions will be allowable to us, upon either the grant or the exercise of the purchase rights. Taxable income will not be recognized until there is a sale or other disposition of the shares acquired under the Purchase Plan or in the event the participant should die while still owning the purchased shares.

 

If a participant sells or otherwise disposes of the purchased shares within two years after the start date of the offering period in which such shares were acquired or within one year after the purchase date on which those shares were actually acquired, then the participant will recognize ordinary income in the year of sale or disposition equal to the amount by which the fair market value of the shares on the purchase date exceeded the purchase price paid for those shares, and we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal in amount to such excess.

 

If a participant sells or disposes of the purchased shares more than two years after the start date of the offering period in which the shares were acquired and more than one year after the purchase date of those shares, then the participant will recognize ordinary income in the year of sale or disposition equal to the lesser of (i) the amount by which the fair market value of the shares on the sale or disposition date exceeded the purchase price paid for those shares or (ii) 15% of the fair market value of the shares on the start date of that offering period; and any additional gain upon the disposition will be taxed as a long-term capital gain. We will not be entitled to an income tax deduction with respect to such disposition.

 

If a participant still owns the purchased shares at the time of death, the lesser of (i) the amount by which the fair market value of the shares on the date of death exceeds the purchase price or (ii) 15% of the fair market value of the shares on the start date of the offering period in which those shares were acquired will constitute ordinary income in the year of death.

 

The income taxation consequences to participants and to us (or our foreign subsidiaries) with respect to participation in the 2009 International Plan may vary by country. Generally, participants are subject to taxation at the time of purchase. The employing foreign subsidiary may in some cases be entitled to a deduction in the tax year in which a participant recognizes taxable income.

 

Pursuant to the accounting principles that are applicable to employee stock purchase plans, the fair value of each purchase right granted under the Purchase Plan is charged as a direct compensation expense to our reported

earnings over the offering period to which that purchase right pertains. The fair value of each such purchase right will be determined as of its grant date.

 

The affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on this proposal is required for approval of the adoption of the Purchase Plan and the 2009 International Plan. The approval of this proposal is not a condition to the approval of any other proposals submitted to the stockholders, nor is the approval of any other proposals submitted to the stockholders a condition to the approval of this proposal. Should such stockholder approval not be obtained, then the Purchase Plan and the 2009 International Plan will not be implemented.

 

Our board of directors believes that it is in our best interests to continue providing our employees with the opportunity to acquire an ownership interest in us through their participation in the Purchase Plan and thereby encourage them to remain in our employ and more closely align their interests with those of our stockholders.

 

The board of directors unanimously recommends that you vote “FOR” approval of the adoption of the Purchase Plan and the 2009 International Plan.

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

 

The Audit Committee of our board of directors has selected Ernst & Young LLP to serve as independent auditors to audit the consolidated financial statements of Finisar for the fiscal year ending April 30, 2010. Ernst & Young LLP has acted in such capacity since its appointment in fiscal year 1999. A representative of Ernst & Young LLP is expected to be present at the annual meeting, with the opportunity to make a statement if the representative desires to do so, and is expected to be available to respond to appropriate questions.

 

The following table sets forth the aggregate fees billed to us for the fiscal years ended April 30, 2009 and April 30, 2008 by our principal accounting firm, Ernst & Young LLP:

 

 

 

 

The Audit Committee has determined that all services performed by Ernst & Young LLP are compatible with maintaining the independence of Ernst & Young LLP. The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services provided by the independent registered public

accounting firm. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it. The Audit Committee has delegated to the chair of the Audit Committee the authority to approve permitted services, provided that the chair reports any decisions to the Audit Committee at its next scheduled meeting. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval process.

 

The affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the annual meeting is required for approval of this proposal. If the stockholders do not approve the ratification of the appointment of Ernst & Young LLP as our auditors, the Audit Committee will re-consider its selection.

 

The board of directors unanimously recommends that you vote “FOR” the ratification of the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending April 30, 2010.

 

The following table sets forth information known to us regarding the beneficial ownership of our common stock as of August 31, 2009 by:

 

 

 

 

 

The following table sets forth information regarding our current executive officers as of September 29, 2009.

 

 

Information concerning Messrs. Rawls and Gertel is set forth under Proposal No. 1 “Election of Directors” above.

 

Mark Colyar has served as our Senior Vice President, Operations and Engineering since the completion of the Optium merger in August 2008. Mr. Colyar served as Optium’s Senior Vice President of Engineering from April 2001 through the completion of the merger and also served as General Manager of Optium’s U.S. operations from February 2004 through the completion of the merger. Mr. Colyar served in various positions at JDSU’s former TSD division from November 1995 to April 2001, including Director of Sales and Marketing, Vice President of Engineering and Vice President of Operations. Mr. Colyar holds a B.S.E.E. from Drexel University.

 

Todd Swanson has served as our Senior Vice President, Sales and Marketing since August 2008. Mr. Swanson joined us in 2002 and served as Product Line Manager and Director of Marketing for our Optics Division prior to his appointment as Senior Vice President. Mr. Swanson served as Director of Marketing (on a part-time basis while he was studying for his M.B.A.) for Aegis Semiconductor, a manufacturer of optical semiconductor devices, from December 2000 through June 2001. From July 1995 to August 1999, Mr. Swanson was employed by Hewlett-Packard Company as project leader and project manager in the Automotive Lighting Group of the Optoelectronics Division. Mr. Swanson holds a B.S. in Mechanical Engineering from the University of Wisconsin and an M.B.A. from the Massachusetts Institute of Technology.

 

Stephen K. Workman has served as our Senior Vice President, Finance and Chief Financial Officer since September 2002 and as our Vice President, Finance and Chief Financial Officer from March 1999 to September 2002. Mr. Workman also served as our Secretary from August 1999 until August 2008. From November 1989 to March 1999, Mr. Workman served as Chief Financial Officer at Ortel Corporation. Mr. Workman holds a B.S. in Engineering Science and an M.S. in Industrial Administration from Purdue University.

 

Joseph A. Young has served as our Senior Vice President, Operations and Engineering since the completion of the Optium merger in August 2008. Mr. Young served as our Senior Vice President and General Manager, Optics Division from June 2005 to August 2008. Mr. Young joined us in October 2004 as our Senior Vice President, Operations. Prior to joining the Company, Mr. Young served as Director of Enterprise Products, Optical Platform Division of Intel Corporation from May 2001 to October 2004. Mr. Young served as Vice President of Operations of LightLogic, Inc. from September 2000 to May 2001, when it was acquired by Intel, and as Vice President of Operations of Lexar Media, Inc. from December 1999 to September 2000. Mr. Young was employed from March 1983 to December 1999 by Tyco/Raychem, where he served in various positions, including his last position as Director of Worldwide Operations for the OEM Electronics Division of Raychem Corporation. Mr. Young holds a B.S. in Industrial Engineering from Rensselaer Polytechnic Institute, an M.S. in Operations Research from the University of New Haven and an M.B.A. from the Wharton School at the University of Pennsylvania.

 

Christopher E. Brown has served as our Vice President, General Counsel and Secretary since the completion of the Optium merger in August 2008. Mr. Brown served as Optium’s General Counsel and Vice President of Corporate Development from August 2006 through the completion of the merger. Prior to that, Mr. Brown was a partner at the law firm of Goodwin Procter LLP from January 2005 to August 2006, and a partner at the law firm of McDermott, Will & Emery from January 2003 to January 2005. Mr. Brown holds a B.A. in Economics and a B.A. in Political Science from the University of Massachusetts at Amherst and a J.D. from Boston College Law School.

 

Overview

 

The following discussion explains our compensation philosophy, objectives and procedures and describes the forms of compensation awarded to our Chairman of the Board, our Chief Executive Officer, our Chief Financial Officer, and each of our three other most highly-compensated executives (determined as of April 30, 2009), including our former Senior Vice President and General Manager, Network Tools Division, whose employment with us terminated effective July 15, 2009 upon the sale of assets of our former Network Tools Division. We refer to these individuals as our “named executive officers.” This discussion focuses on the information contained in the tables and related footnotes and narrative included below, primarily for our 2009 fiscal year, but also contains information regarding compensation actions taken before and after fiscal 2009 to the extent that information enhances the understanding of our executive compensation disclosure.

 

Philosophy, Objectives and Procedures

 

Our fundamental compensation philosophy is to align the compensation of our senior management with our annual and long-term business objectives and performance and to offer compensation that will enable us to attract, retain, and appropriately reward executive officers whose contributions are necessary for our long-term success. We seek to reward our executive officers’ contributions to achieving revenue growth, increasing operating profits and controlling costs. We operate in a very competitive environment for executive talent, and we believe that our compensation packages must be competitive when compared to our peers and must also be perceived as fair, when considered both externally and internally.

 

The Compensation Committee of our board of directors oversees the design and administration of our executive compensation program. The principal elements of the program are base salary, annual cash bonuses and equity-based incentives which, to date, have been in the form of stock options and restricted stock units, or RSUs. In general, the Compensation Committee’s policy is that the base salary component of our executive officer compensation package should approximate the median compensation paid by our peer companies while incentive compensation, in the form of annual cash bonuses and equity awards, should provide an opportunity for our executive officers to earn total compensation exceeding the median based on their individual performance and Finisar’s operating results exceeding targeted objectives.

 

Generally, the Compensation Committee reviews the compensation of our executive officers in the early part of each fiscal year and takes action at that time to award cash bonuses for the preceding fiscal year, to set base salaries and target bonuses for the current year and to consider long-term incentives in the form of stock-based awards. In setting our executive officers’ total compensation, the Compensation Committee considers individual and company performance, as well as compensation surveys, including the Radford Executive Survey, and other market information regarding compensation paid by comparable companies, including industry peers Avanex Corporation, Bookham, Inc., Oplink Communications, Inc. and Opnext, Inc.

 

In its annual review of compensation for our executive officers, the Compensation Committee considers compensation data and analyses assembled and prepared by our Human Resources staff. In reviewing the performance of our Chairman of the Board and our Chief Executive Officer, the Committee solicits input from the other non-employee members of the board of directors. For the other executive officers, the Chairman and the Chief Executive Officer provide the Compensation Committee with a review of each individual’s performance and contributions over the past year and make recommendations regarding their compensation, that the Compensation Committee considers.

 

In some years, the Compensation Committee retains compensation consultants to assist it in its review of executive officer compensation. The Compensation Committee engaged J. Richard & Co., a compensation consulting company, in connection with its annual review of executive officer compensation at the beginning of fiscal 2009.

Forms of Compensation

 

In order to align executive compensation with our compensation philosophy, our executive officer compensation package contains three primary elements: base salary, annual cash bonuses and equity-based incentives. In addition, we provide to our executive officers a variety of benefits that are available generally to other salaried employees. The basic elements of our executive compensation package are generally the same among all of our named executive officers.

 

Base Salaries

 

Base salaries for our executive officers are initially set based on negotiation with the individual executive officer at the time of his or her recruitment and with reference to salaries for comparable positions in the fiber optics industry for individuals of similar education and background to those of the executive officer being recruited. We also give consideration to the individual’s experience, reputation in his or her industry and expected contributions to Finisar. Salaries are reviewed annually by the Compensation Committee and adjustments are made based on (i) salary recommendations of our Chairman of the Board and our Chief Executive Officer, (ii) the Compensation Committee’s assessment of the individual performance of the executive officers during the previous fiscal year, (iii) Finisar’s financial results for the previous fiscal year and (iv) changes in competitive pay levels, based on compensation data and analyses assembled and prepared by our Human Relations staff and, in years when a compensation consultant is engaged to assist the Compensation Committee, reports by such consultant.

 

The Compensation Committee engaged J. Richard & Co., a compensation consulting firm, to assist in its review of executive compensation for fiscal 2009 and to prepare a report regarding compensation data for comparable companies, including our industry peers. The first phase of the Compensation Committee’s review of executive compensation was completed in July 2008, in conjunction with our annual company-wide compensation review. At that time, the Compensation Committee awarded bonuses to our executive officers in recognition of their contributions during fiscal 2008. However, in light of the then pending combination with Optium Corporation, at that time the Compensation Committee determined to conduct a broader review of executive compensation policy after the completion of the Optium merger, taking into account Optium’s historical compensation practices, changes in management responsibilities, the increased size of the combined company and other factors.

 

In December 2008, the Compensation Committee established base salaries for fiscal 2009. Our Chairman received a 4.5% increase in his annual base salary, our Chief Executive Officer received a 9.9% increase in his annual base salary, and our other named executive officers received increases in base salary which ranged between 4.4% and 4.6%, all effective as of July 15, 2008.

 

In February 2009, in light of deteriorating global market conditions and their effect on our then current and prospective operating results and financial condition, the Compensation Committee determined to temporarily reduce the base salaries of our Chairman, Chief Executive Officer and all other executive officers by 10%. This determination was not based on individual performance, but was made as part of a broad-based 10% reduction in base salary that affected all of our U.S.-based employees (provided that no base salary was reduced below $50,000). On September 9, 2009, the Compensation Committee approved the reversal of the 10% reduction in executive officer salaries, effective on November 2, 2009, concurrently with the reversal of the broad-based salary reduction affecting other employees.

 

Cash Bonuses

 

Under our compensation policy, a substantial component of each executive officer’s potential annual compensation takes the form of a performance-based cash bonus. The amounts of cash bonuses paid to our executive officers, other than the Chairman and the Chief Executive Officer, are determined by the Compensation Committee, in consultation with the Chairman and Chief Executive Officer, based on Finisar’s financial performance and the achievement of the officer’s individual performance objectives. The amounts of cash bonuses paid to the Chairman and the Chief Executive Officer are determined by the Compensation Committee, without participation by the Chairman or the Chief Executive Officer, based on the same factors.

In December 2008, the Compensation Committee established the following target bonuses for the named executive officers for fiscal 2009:

 

 

The Compensation Committee also established the methodology for the calculation of individual bonuses. Under this methodology, the bonus for each executive officer, other than the Chairman and the Chief Executive Officer, was to be based 70% on the achievement of goals to improve Finisar’s cash balance as of the end of fiscal 2009 and 30% on the achievement of individual performance goals established by the Chairman and the Chief Executive Officer. The bonuses for the Chairman and the Chief Executive Officer were to be based 70% on the achievement of goals to improve Finisar’s cash balance as of the end of fiscal 2009 and 30% on such other considerations as the Compensation Committee, in its discretion, shall determine. The Compensation Committee subsequently determined that the portion of the fiscal 2009 target bonuses related to the improvement in the Company’s cash position would be based on the year-to-year improvement in the Company’s annual cash flow, with any percentage improvement multiplied by 0.70 and the resulting fraction multiplied by the amount of the target bonus. These target bonuses were equal to 100% of each executive officer’s base salary for fiscal 2009 and represented increases of between 4.4% and 4.6% over the target bonuses for these executive officers in fiscal 2008 and increases of between 344% and 658% over the bonuses they were actually awarded for their services in fiscal 2008. The Compensation Committee determined that the increased target bonuses and revised methodology were appropriate to better align our executive compensation package with those of our peer companies and our financial priorities for fiscal 2009.

 

We did not achieve the improvement in annual cash flows in fiscal 2009 upon which a portion of the cash bonuses payable under the formula were to be based. We also did not achieve our other financial goals for fiscal 2009 or the individual performance goals established for the executive officers other than the Chairman and the Chief Executive Officer. For that reason, and consistent with its decision to implement the reductions in base salaries described above, the Compensation Committee determined that no cash bonuses with respect to fiscal 2009 would be paid to any of our executive officers.

 

On September 9, 2009, the Compensation Committee adopted an executive officer bonus plan for the fiscal year ending April 30, 2010 (the “FY10 Plan”). Under the FY10 Plan, like the previous plan, each executive officer will be eligible to receive a target cash bonus of up to 100% of the executive officer’s annual base salary. The amount, if any, of an executive officer’s annual bonus under the FY10 Plan will be based 70% on the percentage increase of Finisar’s operating cash flow in fiscal 2010 over the previous fiscal year and 30% on a discretionary determination by the Compensation Committee of the applicable executive officer’s performance and achievement of individual goals for the fiscal year. In addition, notwithstanding the achievement of increased operating cash flow and/or individual performance goals, no executive officer will be entitled to a bonus under the FY10 Plan unless cash bonuses are granted generally to non-executive officer employees with respect to the fiscal year ending April 30, 2010.

 

Equity-based Incentives

 

Longer term incentives are provided through equity-based awards granted under Finisar’s 2005 Stock Incentive Plan, which reward executives and other employees through the growth in value of our stock. To date, these awards have been in the form of stock options and RSUs. The Compensation Committee believes that employee equity ownership is highly motivating, provides an important incentive for employees to build stockholder value and provides each executive officer with a significant incentive to manage Finisar from the perspective of an owner with an equity stake in the company.

All stock option awards to our employees, including executive officers, are granted at fair market value on the date of grant, and will provide value to the executive officers only when the price of our common stock increases over the exercise price. We have established a policy whereby stock options and other equity awards to our employees, including executive officers, are generally granted by the Compensation Committee at regular quarterly meetings with an effective date that is the later of the third trading day following the public announcement of Finisar’s financial results for the preceding quarter or the date of the meeting at which the grant is approved.

 

The vesting of stock options and RSUs held by our named executive officers is subject to acceleration pursuant to the terms of the Finisar Executive Retention and Severance Plan described below and, with respect to Eitan Gertel, our Chief Executive Officer, and Mark Colyar, our Senior Vice President, Operations and Engineering, pursuant to their employment agreements with us as described below.

 

The size of the option and RSU awards granted to each executive officer in fiscal 2009 was set by the Compensation Committee at a level that was intended to create a meaningful opportunity for stock ownership based upon the individual’s current position, the individual’s personal performance in recent periods, the individual’s potential for future responsibility and promotion over the option term, comparison of award levels in prior years and comparison of award levels earned by executives at our peer companies and similarly-sized companies in our broader industry group. The Compensation Committee also took into account the number of unvested options and RSUs held by the executive officer in order to maintain an appropriate level of retention value for that individual. The relative weight given to each of these factors varied from individual to individual. In fiscal 2009, our executive officers received three separate equity-based awards: (1) a regular annual long-term equity incentive award granted in September and December 2008 based on the factors described above, with the relative weight given to each of these factors varying from individual to individual, (ii) a special stock option award granted in December 2008 in light of concerns of the Compensation Committee with respect to the diminished incentive value of outstanding stock options held by our employees, including our executive officers, with exercise prices higher than the current market value based on the relative holdings of such stock options, and (iii) a special RSU award granted in February 2009 intended to partially compensate for the 10% salary reduction applicable to a substantial majority of our U.S.-based employees, including our executive officers.

 

During fiscal 2009, equity-based incentives accounted for approximately 56.6% of the total compensation of our Chairman, approximately 71.7% of the total compensation of our Chief Executive Officer and an average of approximately 44.0% of the total compensation of our other named executive officers.

 

In connection with its pending review of executive officer compensation, the Compensation Committee will consider the grant of additional equity incentive awards.

 

Other Benefits and Perquisites

 

Our named executive officers and other executives are generally eligible to receive the same general health and welfare benefits offered to all employees in the geographic area in which they are based, including participation in our defined contribution 401(k) plan and company paid premiums for a life insurance policy in an amount equal to the employee’s base salary (capped at $150,000). We currently provide no other perquisites to our named executive officers or other executive officers.

 

During fiscal 2009, personal benefits and perquisites accounted for less than 1.6% of the total compensation of our Chairman, our Chief Executive Officer and our other named executive officers.

 

Executive Retention and Severance Plan

 

Our executive officers and certain other key executives designated by the Compensation Committee are eligible to participate in the Finisar Executive Retention and Severance Plan adopted by the Compensation Committee in February 2003. The Compensation Committee determined to provide change in control arrangements in order to mitigate some of the risk that exists for executives working in an environment where there is a meaningful possibility that Finisar could be acquired or the subject of another transaction that would result in a change in its control. Finisar’s change in control and severance arrangements are intended to attract and retain qualified executives who may have attractive alternatives absent these arrangements. The change in control

arrangements are also intended to mitigate potential disincentives to the consideration and execution of an acquisition or similar transaction, particularly where the services of these executive officers may not be required by the acquirer. We believe that our change in control benefits are comparable to the provisions and benefit levels of other companies in our industry which disclose similar plans in their public filings.

 

Participants in this plan who are executive officers are entitled to receive cash severance payments equal to two years base salary and health and medical benefits for two years in the event their employment is terminated in connection with a change in control of Finisar. In addition, in the event of a change in control, vesting of stock options held by participants in the plan will be accelerated by one year, if the options are assumed by the acquiring company. If the options are not assumed by the acquirer, or if the participant’s employment is terminated in connection with the change in control, vesting of the options will be accelerated in full. Upon any other termination of employment, participants are entitled only to accrued salary and any other vested benefits through the date of termination.

 

Our executive officers who were former officers of Optium are parties to employment agreements and equity incentive agreements that they entered into with Optium and that were assumed by Finisar in connection with the Optium merger. See “Potential Payments Upon Termination or Change of Control” below. Benefits to these officers under the Executive Retention and Severance Plan will be reduced by the amount of comparable benefits to which they are entitled under such agreements.

 

Accounting for Executive Compensation

 

We account for equity compensation paid to our employees under the rules of Statement of Financial Accounting Standards No. 123R, which requires us to measure and record an expense over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.

 

Tax Considerations

 

The Compensation Committee intends to consider the impact of Section 162(m) of the Code in determining the mix of elements of future executive compensation. This section limits the deductibility of non-performance based compensation paid to each of Finisar’s named executive officers to $1 million annually. The stock options granted to our executive officers are intended to be treated as performance-based compensation, which is exempt from the limitation on deductibility under current federal tax law. The Compensation Committee reserves the right to provide for compensation to executive officers that may not be fully deductible.

 

We have reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on such reviews and discussions, we recommended to the board of directors that the Compensation Discussion and Analysis be included in Finisar’s Annual Report on Form 10-K for the fiscal year ended April 30, 2009.

 

COMPENSATION COMMITTEE

 

David C. Fries (Chair)

Morgan Jones

Robert N. Stephens

Dominique Trempont

 

The Compensation Committee during fiscal 2009 was composed of Roger C. Ferguson, David C. Fries, Larry D. Mitchell and Robert N. Stephens until the completion of the Optium merger in August 2008; thereafter, the Compensation Committee was composed of David C. Fries, Morgan Jones, Robert N. Stephens and Dominique Trempont. No member of the Compensation Committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.

 

The following table presents certain summary information concerning compensation paid or accrued by us for services rendered in all capacities during the fiscal year ended April 30, 2009 for (i) our Chairman of the Board, our Chief Executive Officer and our Chief Financial Officer and (ii) our three other most highly compensated executives (determined as of April 30, 2009) (collectively, the “named executive officers”):

 

Summary Compensation Table

 

 

 

 

 

The following table sets forth certain information with respect to options and RSUs granted during or for the year ended April 30, 2009 to each of our named executive officers:

 

Grant of Plan-Based Awards Table

 

 

 

 

The following table summarizes the number of securities underlying outstanding equity awards for each of our named executive officers as of the end of our fiscal year on April 30, 2009:

 

Outstanding Equity Awards at Fiscal Year-End Table

 

 

 

 

 

There were no exercises of options to purchase our common stock in the fiscal year ended April 30, 2009 by our named executive officers. The following table summarizes the number of RSUs held by such persons that vested during the fiscal year ended April 30, 2009.

 

Option Exercises and Stock Vested

 

 

Cash Payments and/or Acceleration of Vesting Following Certain Termination Events

 

We have employment agreements, as well as equity incentive agreements, with Eitan Gertel and Mark Colyar that provide for cash payments and/or acceleration of vesting following certain termination events. Except as described below in this section and under “Executive Retention and Severance Plan,” no named executive officer is entitled to any cash payments and/or acceleration of vesting following a change in control of Finisar unless a termination event also occurs.

 

The tables below set forth the cash payments and the intrinsic value (that is, the value based upon our stock price on April 30, 2009, minus any exercise price) of any equity incentives subject to acceleration of vesting that Messrs. Gertel and Colyar would be entitled to receive in the event that such executive officer (i) had been terminated by us without cause on April 30, 2009, (ii) had resigned following a demotion, reduction in base salary or involuntary relocation, referred to as a resignation for good reason, on April 30, 2009, (iii) had been terminated by us without cause on April 30, 2009, (iv) had resigned for good reason on April 30, 2009 or (v) had been terminated as the result of death or disability. The value of the acceleration of vesting of equity incentives as of April 30, 2009 utilizes a per share value of our common stock of $5.28, the closing price of our common stock on the Nasdaq Global Select Market on April 30, 2009. In each case, the amounts set forth in the tables below are subject to any deferrals required under Section 409A of the Code, and do not include any life insurance proceeds in the event of death or disability benefits in the event of disability.

 

Eitan Gertel.  Mr. Gertel, our Chief Executive Officer, executed an employment agreement with Optium on April 14, 2006, which was assumed by us at the time of the Optium merger and was amended and restated effective December 31, 2008. The initial term of the agreement was three years, provided that the term of the agreement is automatically extended for an additional term of one year on the third anniversary and each subsequent anniversary of the commencement date unless either party gives not less than 90 days notice prior to the expiration of the term that it does not wish to extend the agreement. The agreement entitles Mr. Gertel to a base salary of $444,000, subject

to adjustment as provided in the agreement, and other incentive compensation as determined by the board of directors. In the event that Mr. Gertel is terminated without cause or if we give notice that we do not intend to extend the employment agreement, we will be obligated to pay him one year severance, which in all cases includes base salary, bonus as calculated in the agreement and accrued paid time off, and two years severance if such termination had occurred within one year following the Optium merger (or prior to August 29, 2009). In addition, if he resigns for good reason, we will be obligated to pay him one year severance (two years if such termination had occurred prior to August 29, 2009). Certain of Mr. Gertel’s equity incentive agreements provide for the acceleration of vesting of all or a portion of the unvested equity incentives upon any of the termination events described above. Mr. Gertel’s employment agreement also entitles him to receive a payment equal to any excise taxes (with a full gross-up) he would have incurred under Section 4999 of the Code as a result of any payments made to him in connection with a termination without cause or resignation for good reason prior to August 29, 2009.

 

 

 

 

Mark Colyar.  Mr. Colyar, our Senior Vice President, Operations and Engineering, executed an employment agreement with Optium on April 14, 2006, which was assumed by us at the time of the Optium merger and was amended and restated effective December 31, 2008. The initial term of the agreement was two years, provided that the term of the agreement is automatically extended for an additional term of one year on the second anniversary and each subsequent anniversary of the commencement date unless either party gives not less than 90 days notice prior to the expiration of the term that it does not wish to extend the agreement. The agreement entitles Mr. Colyar to a base salary of $281,500, subject to adjustment as provided in the agreement, and other incentive compensation as determined by the board of directors. In the event that Mr. Colyar is terminated without cause or if we give notice that we do not intend to extend the employment agreement, we will be obligated to pay him one year severance, which in all cases includes base salary, bonus as calculated in the agreement and accrued paid time off. If Mr. Colyar had resigned for good reason within 12 months following the Optium merger, we also would have been obligated to pay him one year severance. Certain of Mr. Colyar’s equity incentive agreements provide for the acceleration of vesting of all or a portion of the unvested equity incentives upon any of the termination events described above.