2010 Annual Report€¦ · years have been reclassiﬁed as a discontinued operation in this year’s annual report. ... ing and switching capabilities to DWDM and other optics applications

2010 Annual Report

Dear Finisar Stockholders,

Fiscal 2010 marked another memorable, record-breaking year for Finisar. It was the first full year of operat-

ing results following our merger with Optium in August 2008. While that transaction was completed just as

the global financial crisis was beginning to unfold, the merits of undertaking the merger in terms of industry

consolidation, the diversification of our business and the synergies that were created, are clearly evident in

our financial results.

Our total revenues reached $629.9 million for the fiscal year ended April 30, 2010, up $132.8 million, or 26.7%,

from $497.1 million in the prior year. These record sales underscored Finisar’s position as the world’s largest

supplier of optical components and subsystems to the communications industry. Of the $132.8 million increase

in revenues, the sale of products for higher speed applications equal to or greater than 10 Gbps increased

$72.6 million, or 41.3%; the sale of wavelength selective switches (WSS) and reconfiguarable optical add-drop

multiplexers (ROADMs) increased $50.2 million, or 226.1%; the sale of products for analog and CATV applica-

tions increased $9.7 million, or 103.4%; and the sale of products for applications less than 10 Gbps were approxi-

mately unchanged. Largely as a result of the merger with Optium, our revenues are now more diversified with a

little more than half driven by business enterprises as they upgrade and build out new data centers. The balance

of our business is primarily driven by telecom, wireless and CATV service providers as they increasingly deploy

fiber optic technologies in an effort to keep up with the enormous growth in bandwidth demand.

One of the challenges Finisar faced during the past year was a strong resurgence in customer demand as the

financial crisis began to ease. Revenues increased sequentially each quarter by 19.8%, 13.2%, 14.6% and 12.9%,

respectively, as we raced to increase capacity. Our growth during the past year also reflects our gain of addition-

al market share, particularly for higher speed applications at 10 Gbps or more and for our WSS/ROADMs.

We also made great progress in profitability during the past year as we successfully transitioned the manufac-

turing of many products obtained in the Optium merger to our factories in Malaysia and China. As our revenues

reached record levels in the last half of the year, we became profitable on a GAAP basis, and our operating

margins reached 8.5% and 9.7% on a non-GAAP basis in the last two quarters of the year. In recognition of that

progress, we established a new set of quarterly financial targets for fiscal 2011 with higher levels of profitability.

In the first quarter of fiscal 2010, we sold our Network Tools Division for a gain in an all cash transaction. Al-

though that division was an important part of our company for almost 20 years, it accounted for only about 8%

of our total revenues following the merger with Optium. The financial results of that division for all previous

years have been reclassified as a discontinued operation in this year’s annual report.

We restructured our balance sheet during fiscal 2010 to significantly strengthen our ability to withstand

future economic headwinds. In August 2009, we completed exchange offers through which we exchanged

$47.5 million of our outstanding convertible notes that would have matured in October 2010 for approximately

$24.9 million in cash and approximately 3.5 million shares of our common stock. We repurchased an additional

$64.9 million of our outstanding convertible notes during the year for cash. In October 2009, we negotiated

a new $70 million senior secured revolving credit facility with a major lender and sold $100 million of new

convertible senior notes due in 2029 with mandatory redemption dates beginning in 2014. In March 2010, we

sold 9.8 million shares of our common stock in an underwritten public offering raising $131.1 million in net

proceeds. The net result of all these transactions was to put us in a positive net cash position at the end of fiscal

2010, while reducing our total level of debt and extending its underlying maturity.

We should remember that the seeds for our growth at the top line during the past year were planted long ago

by our marketing and engineering teams. Our growth in market share for 10 Gbps applications during the

past year was the result of our introduction of a number of new products at the end of fiscal 2009. The success

of our product development efforts during fiscal 2010 was also evident as we were among the first to deliver

alpha units of a CFP transponder module for 100 Gbps applications. In addition, we entered the parallel optics

data center market with our Quadwire™ product for transmitting signals at 40 Gbps and our C.wire™ product

for 150 Gbps applications. According to industry analyst Lightcounting, this parallel market alone promises to

expand our addressable market by almost $200 million in calendar 2012. During fiscal 2010, we received initial

orders for our GPON product for fiber-to-the-home applications and also introduced a new line of optical test

instruments called WaveShaper based on our liquid crystal on silicon (LCoS), technology used in making our

WSS/ROADM products.

Research and development expenses on a non-GAAP basis were 14% of revenues last year. While that is a little

higher than we would like, the cost of developing the ICs and optical subassemblies for many of our high speed

applications has become increasingly expensive. In the future, Finisar will develop production versions of the

40 Gbps and 100 Gbps CFP module as well as 16 Gbps transceivers for next generation data storage equipment.

We also expect to introduce new versions of our WSS and ROADM linecard products that will address access

applications at the edge of the network as well as versions of these products with smaller footprints, improved

performance, and greater functionality. We believe that our commitment to ongoing research and development

is essential to our continued growth.

The underlying demand for bandwidth continues unabated. Cisco Systems estimates that the world’s total IP

traffic grew 45% in calendar 2009, in spite of it not being a particularly outstanding year in economic terms, and

it is expected to grow four-fold through 2014, representing a 34% annual growth rate. Advanced internet video

consisting of HD and 3D is expected to grow 23-fold between 2009 and 2014. That’s an 87% annual growth rate.

Globally, mobile data traffic is expected to grow 39 times between 2009 and 2014. All these trends should help

optics garner a larger share of capital spending by network operators.

We would like to thank our customers and stockholders for their continuing confidence, our suppliers for their

continuing support, and our employees for their dedication to excellence and commitment to meeting the

ambitious goals we have set for ourselves in the coming year.

Finally, we would like to acknowledge the passing of one of our directors, Larry Mitchell. Larry was a trusted

advisor for this Company from 1999, before our initial public offering, until his passing in 2010. He served as our

Lead Director since 2008. A tribute to Larry is included in this year’s annual report.

SincerelySincerely,

Jerry S. Rawls Eitan Gertel

Executive Chairman of the Board Chief Executive Officer

LARRY D. MITCHELL SEPT. 16, 1942 - JAN. 22, 2010

Larry Mitchell served as a director of Finisar from 1999, before the company’s initial public offering, until his

passing in January 2010. He served as our Lead Director since 2008. His years of service to the Company are

deeply appreciated and his counsel will be sorely missed.

Mr. Mitchell’s background included a prolific 29-year career with Hewlett-Packard starting in 1968 when he

joined the Systems Integration Group of the Cupertino Division. Along the way, he became the Operations

Manager of HP Puerto Rico, the General Manager of the Roseville Terminal Division, and HP Roseville Site Man-

ager. He retired from HP in 1997. He held an MBA from Stanford University and a BA from Dartmouth College.

His family and friends honor the exemplary, lifelong attributes of Mr. Mitchell through the establishment of the

Larry D. Mitchell Memorial Scholarship Fund at the Placer Community Foundation. Contributions made to this end -

dowed fund (contact www.placercf.org) will provide scholarships to encourage students at Placer High School

and Analy High School to pursue college education. Mr. Mitchell’s love and dedication to his wife Denise, their

two sons and other members of his family, years of community service, and steadfast commitment to his work

mark the qualities of a legacy that will be passed on to students through the Larry D. Mitchell Memorial Scholar-

ship Fund.

TRANSCEIVERS AND TRANSPONDERS have made Finisar the world’s largest supplier of plug-gable optical modules. Finisar has taken a major role in transforming the data communications and telecom-munications equipment market from utilizing discrete optical components to leveraging the design and pay-as-you-grow flexibility offered by pluggable modules.

ACTIVE COMPONENTSData communication and sensor application VCSELs (Vertical Cavity Surface Emitting Lasers) are semicon-ductor lasers that provide many advances in optical communications. Finisar has led the industry in high volume VCSEL technology since introducing the first commercially available VCSEL in 1996.

PASSIVE COMPONENTS Finisar offers a wide variety of passive optical compo-nents for use in both datacom and telecommunication applications, including optical isolators, interleav-ers, prisms, couplers, waveplates, and circulators for wavelength management in WDM systems and fiber amplifiers.

WSS ROADM MODULES Finisar has taken reconfigurable optical add/drop multiplexers (ROADMs) to the next level by providing greater flexibility and control in dynamically switch-ing traffic from one optical link to another and across multiple wavelengths in the network.

OPTICAL INSTRUMENTATIONThe WaveShaper™r family of optical processors is anew breed of instrument – the industry’s first program-mable optical processors that bring advanced filter-ing and switching capabilities to DWDM and otheroptics applications.

ANALOG AND CABLE TVFinisar offers high-performance optical network products used in different modes of delivering both analog and digital signals over optical fiber in cable TV, telecommunications and private networks.

ACTIVE CABLES Finisar’s active cables accelerate storage, data, and high-performance computing connectivity. Our com-plete product line includes Laserwire™ for applicationsup to 10 Gbps, Quadwire™ for 40GbE and InfiniBandQDR, and C.wire™ for 100GbE and InfiniBand 12xQDR.

HISTORY OF INNOVATION

1992 First to market with 850 nm 1.25 Gbps transceivers for multimode fiber

First to market with transceivers with digital diagnostics1996

1997 First to market with transceivers using 850 nm VCSELs

First to market with SFP transceivers20002001 First to market with CWDM GBIC transceivers

Initiation of 10 Gbps XFP MSA

First to market with 1000Base-T GBIC transceiversFirst to market with DWDM GBIC transceiversFirst to market with XFP transceivers

2002

2003 First to demonstrate 40 km DWDM XFP transceiversOptium delivers first 10 Gbps full band tunable transponder (merged 2008)

First to demonstrate 80 km DWDM and 300 meter EDC XFP transceiversFirst to market with RoHS/lead-free 4 Gbps Fibre Channel SFP transceivers

2004

2005 First to demonstrate 8 Gbps Fibre Channel SFP transceiversOptium delivers first fully field reconfigurable WSS ROADM module (merged 2008)

2006 50 millionth VCSEL shipped10 millionth transceiver/transponder shipped

2007 First narrowly tunable long-reach CML™ butterfly transmitter for DWDM networksFirst 10 Gbps serial active optical cable

2008 250,000th SFP+ transceiver shipped First public demonstration of 17 Gbps VCSEL technologyFirst public demonstration of 10 Gbps DWDM XFP with CML technologyOptium delivers first volume shipments of DPSK 40 Gbps 300-pin modules (merged 2008)Introduced 40 Gbps active optical cable

First to ship 50 GHz Wavelength Selective Switch (WSS) with Dynamic Reconfigurability

2009

2010

First 150 Gbps parallel active optical cable

Introduced WaveShaper, the industry’s first programmable optical processor familyFirst to Demonstrate 40 GbE LR4 CFP transceiver over 10 km of optical fiber

First successful network field trial with Verizon, Juniper, and NEC transmitting 100 Gbps traffic from a CFP module100 millionth VCSEL shipped

XFP

SFF

XENPAK

Active Cables

300-PIN

SFP+

GBIC

X2

Active Components

WSS ROADM

SFP

PON

XPAK

Passive Components

ROADM Linecards

Defining the Future of Optical Communications

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended April 30, 2010

ORn TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to

000-27999(Commission File No.)

Finisar Corporation(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction ofincorporation or organization)

94-3038428(I.R.S. Employer

Identification No.)

1389 Moffett Park DriveSunnyvale, California

(Address of principal executive offices)

94089(Zip Code)

Registrant’s telephone number, including area code:408-548-1000

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common stock, $.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¥ No nIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes n No ¥Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ¥ No n

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files). Yes n No n

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. n

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the ExchangeAct. (Check one):Large accelerated filer n Accelerated filer ¥ Non-accelerated filer n Smaller reporting company n

(Do not check if a smaller reporting company)Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes n No ¥As of November 1, 2009, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant

was approximately $473,822,500 based on the closing sales price of the registrant’s common stock as reported on the NASDAQ Stock Market onOctober 30, 2009 of $7.45 per share. Shares of common stock held by officers, directors and holders of more than ten percent of the outstandingcommon stock have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliatestatus is not necessarily a conclusive determination for other purposes.

As of June 10, 2010, there were 75,885,979 shares of the registrant’s common stock, $.001 par value, issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2010 annual meeting of stockholders are incorporated by reference in Part IIIhereof.

(This page intentionally left blank)

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED APRIL 30, 2010

Page

Forward Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

PART IItem 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Item 4. (Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation . . . . 35

Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . 53

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . 106

Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

PART IIIItem 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . 109

Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

PART IVItem 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

i


FORWARD LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities LitigationReform Act of 1995. We use words like “anticipates,” “believes,” “plans,” “expects,” “future,” “intends” and similarexpressions to identify these forward-looking statements. We have based these forward-looking statements on ourcurrent expectations and projections about future events; however, our business and operations are subject to avariety of risks and uncertainties, and, consequently, actual results may materially differ from those projected byany forward-looking statements. As a result, you should not place undue reliance on these forward-lookingstatements since they may not occur.

Certain factors that could cause actual results to differ from those projected are discussed in “Item 1A. RiskFactors.” We undertake no obligation to publicly update or revise any forward-looking statements, whether as aresult of new information or future events.

1

PART I

Item 1. Business

Overview

We are a leading provider of optical subsystems and components that are used to interconnect equipment inshort-distance local area networks, or LANs, and storage area networks, or SANs, and longer distance metropolitanarea networks, or MANs, fiber-to-the-home networks, or FTTx, cable television networks, or CATV, and wide areanetworks, or WANs. Our optical subsystems consist primarily of transmitters, receivers, transceivers and tran-sponders which provide the fundamental optical-electrical interface for connecting the equipment used in buildingthese networks, including switches, routers and file servers used in wireline networks as well as antennas and basestations for wireless networks. These products rely on the use of semiconductor lasers and photodetectors inconjunction with integrated circuit design and novel packaging technology to provide a cost-effective means fortransmitting and receiving digital signals over fiber optic cable at speeds ranging from less than 1 gigabit persecond, or Gbps, to 100Gbps, using a wide range of network protocols and physical configurations over distances of70 meters to 200 kilometers. We supply optical transceivers and transponders that allow point-to-point commu-nications on a fiber using a single specified wavelength or, bundled with multiplexing technologies, can be used tosupply multi-gigabit bandwidth over several wavelengths on the same fiber. We also provide products that are usedfor dynamically switching network traffic from one optical wavelength to another across multiple wavelengthswithout first converting to an electrical signal, known as wavelength selective switches, or WSS. These products aresometimes combined with other components and sold as linecards, also known as reconfigurable optical add/dropmultiplexers, or ROADMs. Our line of optical components consists primarily of packaged lasers and photodetectorsused in transceivers, primarily for LAN and SAN applications, and passive optical components used in buildingMANs. Demand for our products is largely driven by the continually growing need for additional bandwidth createdby the ongoing proliferation of data and video traffic that must be handled by both wireline and wireless networks.

Our manufacturing operations are vertically integrated and we utilize internal sources for many of the keycomponents used in making our products including lasers, photodetectors and integrated circuits, or ICs, designedby our own internal IC engineering teams. We also have internal assembly and test capabilities that make use ofinternally designed equipment for the automated testing of our optical subsystems and components.

We sell our optical products to manufacturers of storage systems, networking equipment and telecommu-nication equipment or their contract manufacturers, such as Alcatel-Lucent, Brocade, Cisco Systems, EMC,Emulex, Ericsson, Hewlett-Packard Company, Huawei, IBM, Juniper, Qlogic, Siemens and Tellabs. Thesecustomers, in turn, sell their systems to businesses and to wireline and wireless telecommunications serviceproviders and cable TV operators, collectively referred to as carriers.

We were incorporated in California in April 1987 and reincorporated in Delaware in November 1999. Ourprincipal executive offices are located at 1389 Moffett Park Drive, Sunnyvale, California 94089, and our telephonenumber at that location is (408) 548-1000.

All references to “Finisar,” “the Company,” “we,” “us” or “our” are references to Finisar Corporation and itsconsolidated subsidiaries, collectively, except as otherwise indicated or where the context otherwise requires.

Recent Developments

Sale of Network Tools Division

We formerly sold a line of network performance test systems through our Network Tools Division. In the firstquarter of fiscal 2010, we sold substantially all of the assets of our Network Tools Division to JDS UniphaseCorporation (“JDSU”) for approximately $40.7 million in cash and other consideration. We recorded a net gain onthe sale of the business of $35.9 million before income taxes, which is included in income (loss) from discontinuedoperations, net of income tax, in our consolidated statements of operations. The assets, liabilities and results ofoperations related to the business have been classified as discontinued operations in our consolidated financialstatements for all periods presented. The cash flows associated with the discontinued operations have not beenseparately disclosed in our consolidated statements of cash flow.

2

Industry Background and Markets

Industry Background

Computer networks are frequently described in terms of the distance they span and by the hardware andsoftware protocols used to transport and store data. The physical medium through which signals are best transmittedover these networks depends on the amount of data to be transmitted, expressed as Gbps, and the distance involved.Voice-grade copper wire can only support connections of about 1.2 miles without the use of repeaters to amplify thesignal, whereas optical systems can carry signals in excess of 60 miles without further processing. Early computernetworks had relatively limited performance requirements, short connection distances and low transmission speedsand, therefore, relied almost exclusively on copper wire as the medium of choice. At speeds of more than 1 Gbps,the ability of copper wire to transmit more than 300 meters is limited due to the loss of signal over distance as well asinterference from external signal generating equipment. The proliferation of electronic commerce, communicationsand broadband entertainment has resulted in the digitization and accumulation of enormous amounts of data. Thus,while copper continues to be the primary medium used for delivering signals to the desktop, even at 1 Gbps, theneed to quickly transmit, store and retrieve large blocks of data across networks in a cost-effective manner hasincreasingly required enterprises and service providers to use fiber optic technology to transmit data at higherspeeds over greater distances and to expand the capacity of their networks. There are three principal categories ofnetworks: LANs and SANs, MANs and WANs. According to industry analyst Lightcounting Inc. (“Lightcount-ing”), total sales of transceivers and transponder products for use in these networks were estimated to beapproximately $2.0 billion in 2009. According to industry analyst Ovum, sales of WSS components in 2009were estimated to be approximately $127 million (which includes only sales of individual WSS components butdoes not include sales of complete ROADM subsystems).

LANs and SANs

A LAN typically consists of a group of computers and other devices that share the resources of one or moreprocessors or servers within a small geographic area and are connected through the use of hubs (used forbroadcasting data within a LAN), switches (used for sending data to a specific destination in a LAN) and routers(used as gateways to route data packets between two or more LANs or other large networks). LANs typically use theEthernet protocol to transport data packets across the network at distances of up to 500 meters at speeds of 1 to 10Gbps.

A SAN is a high-speed subnetwork embedded within a LAN where critical data stored on devices such as diskarrays, optical disks and tape backup devices is made available to all servers on the LAN thereby freeing thenetwork servers to deliver business applications, increasing network capacity and improving response time. SANswere originally developed using the Fibre Channel protocol designed for storing and retrieving large blocks of data.A number of new storage technologies have been introduced to lower the cost and complexity of deploying FibreChannel-based storage networks. Since its introduction in 2003, small and medium size storage networks have beendeveloped based on the Internet Small Computer System Interface protocol, or iSCSI. In 2007, the Fibre Channelover Ethernet standard, or FCoE, was introduced which enables Fibre Channel data packets to be encapsulatedwithin Enhanced Ethernet frames. This standard utilizes the additional bandwidth created at transmission speeds of10 Gbps and higher to combine different types of data traffic for storage (Fibre Channel), LAN traffic (TCP/IP) andvarious server clustering protocols (Infiniband) that previously required their own separate infrastructure within adata center. As a result, FCoE enables the creation of a single converged network within a data center, rather thantwo or three networks as previously required. In addition, the FCoE protocol utilizes recently developed Ethernet-based technology for transmitting signals at speeds of 40 and 100 Gbps.

Due to the cost effectiveness of the optical technologies involved, transceivers for both LANs and SANs havebeen developed using vertical cavity surface emitting lasers, or VCSELs, to transmit and receive signals at the 850nanometer, or nm, wavelength over relatively short distances through multi-mode fiber. Most LANs and SANsoperating today at 1, 2, 4 and 8 Gbps over distances of up to 70 meters, incorporate this VCSEL technology. Thesame technology is now being employed to build FCoE and iSCSI-based LANs and SANs operating at 10 Gbps.

A new market has emerged in recent years for the use of parallel optics technologies for high-capacitytelecommunications applications to connect with core internet protocol, or IP, routers, in the data center to

3

interconnect SANs and servers and for high-performance computing clusters. This technology makes use of anarray of lasers and photodetectors, instead of one per transceiver, to boost the amount of data that can be transmittedover a single fiber over very short distances. Optical interconnects provide an attractive alternative to bulky coppercables as data rate and port densities increase allowing for fewer connections. Like the transceivers used for LANsand SANs, parallel optical solutions rely primarily on the use of VCSEL technology. A variation of parallel opticstechnology called active optical cable, or AOC, was introduced by several vendors in late 2007. These productseliminate the use of fiber connectors used in other parallel optical modules by bonding the fibers directly to theoptical subassembly. According to Lightcounting, demand for AOCs is expected to equal or exceed demand forother parallel optical solutions by 2012.

According to Lightcounting, sales of transceivers used for LAN and SAN applications incorporating opticaltechnologies to generate and receive signals up to 500 meters were estimated to be approximately $574 million in2009. Of this total, approximately $536 million represented the market for transceivers and transponders usingserial transmission technologies while $38 million represented our addressable market for sales of opticalinterconnects using parallel optics technology.

The demand for optical subsystems and components used in building LANs and SANs is driven primarily bythe need of business enterprises to meet the increasing demands for information which must be stored and retrievedin a timely manner and made available to users located within a building or campus. Because SANs enable thesharing of resources thereby reducing the required investment in storage infrastructure, the continued growth instored data is expected to result in the ongoing centralization of storage and the need to deploy larger SANs. Thecentralization of storage, in turn, is increasing the demand for higher-bandwidth solutions to provide faster, moreefficient interconnection of data storage systems with servers and LANs as well as the need to connect at higherspeeds over longer distances for disaster recovery applications.

MANs and WANs

A MAN is a regional data network typically covering an area of up to 50 kilometers in diameter that allows thesharing of computing resources on a regional basis within a town or city. These Metro networks are typicallyarranged in a ring configuration that can ultimately transmit data around metropolitan areas over hundreds ofkilometers. MANs typically use the SONET and SDH communications standards to encapsulate data to betransmitted over fiber optic cable due to the widespread use of this standard in legacy telecommunication networks.However, MANs can also be built using the Ethernet standard, also known as Metro Ethernet, which can typicallyresult in savings to the network operator in terms of network infrastructure and operating costs.

The portion of a MAN that connects a LAN or SAN to a public data network is frequently referred to as theLast Mile or Access portion of a network. There are several means that carriers employ to provide integrated voice,video and data services to customers over this portion of the network. The more popular means include CATV andpassive optical networks, or PONs. Both PONs and CATV employ the use of fiber optic technologies in providingthese services. Today, there are three standardized versions of PON based on network speeds: Broadband PON, orBPON, operating at .6 Gbps, Ethernet PON, or EPON, operating at 1 Gbps and Gigabit PON, or GPON, operating at2.5 Gbps. While EPON products currently dominate the market due to their early adoption in Japan and SouthKorea, according to Lightcounting, the demand for GPON products will surpass all other types by 2011.

CATV is a shared cable system that uses RF signals to deliver services over a tree-and-branch topology inwhich multiple households within a neighborhood share the same cable. While early CATV systems were allcoaxial cable, current systems increasingly employ fiber optic cable to overcome attenuation of signals over longdistances and problems related to aging components. Fiber optic cable also provides more bandwidth for futureexpansion. This dual system is called a hybrid fiber coax, or HFC. Due to the shared-nature of a CATV network andthe use of RF signal technology, these networks typically utilize analog lasers in conjunction with optical amplifiersto deliver these services.

A wide area network, or WAN, is a geographically dispersed data communications network that typicallyincludes the use of a public shared user network such as the telephone system, although a WAN can also be builtusing leased lines or satellites. Similar to MANs, a terrestrial WAN uses the SONET/SDH communicationsstandard to transmit information over longer distances due to its use in legacy telecommunication networks.

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According to Lightcounting, total sales of transceiver and transponder products for longer distance MANsusing the Ethernet and Fibre Channel protocols in 2009 were approximately $349 million; sales of transceivers andtransponders used in building MANs and WANs that are compliant with the SONET/SDH protocol wereapproximately $841 million and the addressable market for sales of products used in building fiber-to-the-home/curb networks, or FTTx, was approximately $218 million.

According to Ovum, sales of WSS components in 2009 were estimated to be approximately $127 million(which include only sales of individual WSS components, but does not include sales of complete ROADMsubsystems) and represents one of the fastest growing product solutions as a result of the ability of ROADMs toenable flexible bandwidth management in MANs.

The demand for products used to build MANs is driven primarily by service providers as they seek to upgradeor build new networks to handle the growth in the bandwidth demands of business and residential users. The CiscoVisual Network Index is that company’s ongoing effort to forecast the growth and use of IP networking worldwide.According to this index, the amount of bandwidth usage devoted to transmitting IP traffic is expected to increase bya factor of four from 2009 to 2014, approaching 64 exabytes per month in 2014, compared to approximately 15exabytes per month in 2009.

Demand for Optical Products Used in Wireless Networks

Wireless networks typically use fiber optic transmission to backhaul wireless traffic to the central office forswitching. According to the Cisco Visual Network Index, mobile data traffic alone is expected to roughly doubleeach year from 2008 through 2013 largely as a result of the deployment of mobile network devices which offerenhanced communication services, including the ability to download video files as well as offering voice, data andinternet connectivity. To meet these bandwidth demands, next generation wireless networks, or 3G, are beingdeployed which expand the use of fiber optic technologies from backhauling mobile traffic out of base stations tobeing used in cellular towers to reduce the weight of copper-based solutions while expanding their bandwidthcapabilities.

Business Strategy

We have become a leading supplier of optical products to manufacturers of LAN and SAN networkingequipment due in part to our early work in the development of the Fibre Channel standard in the mid-1990s as wellas our pioneering work in developing transceivers using VCSEL technology. As part of our business strategy, wecontinue to actively serve on various standards committees in helping to influence the use of new cost-effectiveoptical technologies. In more recent years, we have become a leading vendor in SONET/SDH, WDM and ROADMnetworking equipment, due largely to our efforts with respect to XFP form factor modules, our expertise indesigning tunable modules, and our novel approach to WSS modules using liquid crystal on silicon, or LCoS.

We have developed a vertically integrated business model that operates best when our module and laserproduction facilities are highly utilized. In order to maintain our position as a leading supplier of fiber opticsubsystems and components, we are continuing to pursue the following business strategies:

• Continue to Invest in or Acquire Critical Technologies. Our years of engineering experience, our multi-disciplinary technical expertise and our participation in the development of industry standards have enabledus to become a leader in the design and development of fiber optic subsystems and components. We havedeveloped and acquired critical skills that we believe are essential to maintain a technological lead in ourmarkets including high speed semiconductor laser design and wafer fabrication, complex logic and mixedsignal integrated circuit design, optical subassembly design, software coding, system design, and manu-facturing test design. In the process of investing in or acquiring critical technologies, we have obtained anumber of U.S. and foreign patents with other patent applications pending. We intend to maintain ourtechnological leadership through continual enhancement of our existing products and the development oracquisition of new products, especially those capable of higher speed transmission of data, with greatercapacity, over longer distances.

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• Expand Our Broad Product Line of Optical Subsystems. We offer one of the broadest portfolios of opticalsubsystems which support a wide range of speeds, fiber types, voltages, wavelengths, distances andfunctionality and are available in a variety of industry standard packaging configurations, or form factors.Our optical subsystems are designed to comply with key networking protocols such as Fibre Channel,Gigabit Ethernet (including 1Gig, 10Gig, 40Gig and 100Gig Ethernet) and SONET/SDH and to plugdirectly into standard port configurations used in our customers’ products. The breadth of our opticalsubsystems product line is important to many of our customers who are seeking to consolidate their supplysources for a wide range of networking products for diverse applications, and we are focused on the ongoingexpansion of our product line to add key products to meet our customers’ needs, particularly for 10GigEthernet and SONET/SDH applications. Where time-to-market considerations are especially important inorder to secure or enhance our supplier relationships with key customers, we may elect to acquire additionalproduct lines.

• Leverage Core Competencies Across Multiple, High-Growth Markets. We believe that fiber optic tech-nology will remain the transmission technology of choice for multiple data communication markets,including 1 Gigabit Ethernet and 10Gig, 40Gig and 100Gig Ethernet-based LANs and MANs, FibreChannel-based SANs and SONET/SDH-based MANs and WANs. These markets are characterized bydifferentiated applications with unique design criteria such as product function, performance, cost, in-system monitoring, size limitations, physical medium and software. We intend to target opportunities whereour core competencies in high-speed data transmission protocols can be leveraged into leadership positionsas these technologies are extended across multiple data communications applications and into other marketsand industries such as automotive and consumer electronics products.

• Strengthen and Expand Customer Relationships. Over the past 20 years, we have established valuablerelationships and a loyal base of customers by providing high-quality products and superior service. Ourservice-oriented approach has allowed us to work closely with leading data and storage network systemmanufacturers, understand and address their current needs and anticipate their future requirements. Weintend to leverage our relationships with our existing customers as they enter new, high-speed datacommunications markets.

• Continue to Strengthen Our Lower-Cost Manufacturing Capabilities. We believe that new markets can becreated by the introduction of new, lower-cost, high value-added products. Lower product costs can beachieved through the introduction of new technologies, product design or market presence. Access to low-cost manufacturing resources is a key factor in the ability to offer a lower-cost product solution. We havemanufacturing facilities in Ipoh, Malaysia and Shanghai, China in order to take advantage of lower-cost, off-shore labor while protecting access to our intellectual property and know-how. In addition, access to criticalunderlying technologies, such as our laser manufacturing and IC design capabilities enables us to accelerateour product development efforts to be able to introduce new low cost products more quickly. We continue toseek ways to lower our production costs through improved product design, improved manufacturing andtesting processes and increased vertical integration.

Products

Our optical subsystems are integrated into our customers’ systems and used for both short- and intermediate-distance fiber optic communications applications.

Our family of optical subsystem products consists of transmitters, receivers, transceivers and transpondersprincipally based on the Gigabit Ethernet, Fibre Channel and SONET/SDH protocols. A transmitter convertselectrical signals into optical signals for transmission over fiber optics. Receivers incorporating photo detectorsconvert incoming optical signals into electric signals. A transceiver combines both transmitter and receiverfunctions in a single device. A transponder includes an IC to provide the serializer-deserializer function thatotherwise resides in the customer’s equipment if a transceiver is used. Our optical subsystem products perform thesefunctions with high reliability and data integrity and support a wide range of protocols, transmission speeds, fibertypes, wavelengths, transmission distances, physical configurations and software enhancements.

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Our high-speed fiber optic subsystems are engineered to deliver value-added functionality and intelligence.Most of our optical subsystem products include a microprocessor with proprietary embedded software that allowscustomers to monitor transmitted and received optical power, temperature, drive current and other link parametersof each port on their systems in real time. In addition, our intelligent optical subsystems are used by some enterprisenetworking and storage system manufacturers to enhance the ability of their systems to diagnose and correctabnormalities in fiber optic networks.

For SAN applications which rely on the Fibre Channel standard, we currently provide a wide range of opticalsubsystems for transmission applications at 1 to 8 Gbps. We currently provide optical subsystems for datanetworking applications for LANs and MANs based on the Ethernet standard for transmitting signals at 1 to 10Gbps using the SFP, SFP+, and XFP form factors. We are also qualified for shipping products for 10 Gbps Ethernetsolutions using the legacy Xenpak and newer X2 form factors which make use of the XAUI electrical interface. ForSONET/SDH-based MANs, we supply optical subsystems which are capable of transmitting at 2.5, 10 and 40 Gbps.We also offer products that operate at less than 1 Gbps for these SONET/SDH networks.

We also offer a full line of optical subsystems for MANs using WDM technologies. Our CWDM subsystemsinclude every major optical transport component needed to support a MAN, including transceivers, optical add/dropmultiplexers, or OADMs, for adding and dropping wavelengths in a network without the need to convert to anelectrical signal and multiplexers/demultiplexers for SONET/SDH, Gigabit Ethernet and Fibre Channel protocols.CWDM-based optical subsystems allow network operators to scale the amount of bandwidth offered on anincremental basis, thus providing additional cost savings during the early stages of deploying new IP-based systems.For DWDM systems, we offer DWDM-based transceivers in the SFP, XFP and 300 pin form factors.

As a result of several acquisitions, we have gained access to leading-edge technology for the manufacture of anumber of active and passive optical components including VCSELs, FP lasers, DFB lasers, PIN detectors, fusedfiber couplers, isolators, filters, polarization beam combiners, interleavers and linear semiconductor opticalamplifiers. Most of these optical components are used internally in the manufacture of our optical subsystems.We currently sell VCSELs and limited quantities of other components in the so-called “merchant market” to othersubsystems manufacturers.

Of the estimated $2.0 billion market for transceivers and transponders in calendar 2009, our sales oftransceiver and transponder products for LAN, SAN and MAN applications totaled approximately $463 million,excluding sales of optical components. Of this amount, approximately $217 million was from sales of products forshort-distance LAN and SAN applications and $246 million was from sales of products for longer distance MANnetworks for Ethernet, Fibre Channel and SONET/SDH network protocols.

We recently began to offer products used in building fiber-to-the-home/curb networks and for parallel opticsapplications such as backplanes for switches and routers. According to Lightcounting, the addressable market forthese products was over $256 million in calendar 2009.

We offer a WSS ROADM, a dynamic wavelength processor in a highly configurable platform for wavelengthmanagement in a DWDM telecommunications network. These capabilities are made possible in part through theuse of unique LCoS technology currently used in making microdisplays and certain projection television sets. Thistechnology provides a highly flexible WSS switch capable of operating on both 50 and 100 GHz InternationalTelecommunications Union grids, the capability for in-service upgrades of functionality and integration ofadditional system functionality, including drop and continue, channel monitoring and channel contouring.

Customers

To date, our revenues have been principally derived from sales of optical subsystems and components to abroad base of original equipment manufacturers, or OEMs, distributors and system integrators. Sales of products forLAN and SAN applications represented 43%, 44% and 54% of our total revenues in fiscal 2010, 2009 and 2008,respectively.

Sales to our top three customers represented approximately 30%, 32% and 36% of our total revenues in fiscal2010, 2009 and 2008, respectively. Sales to Cisco Systems accounted for 16%, 16% and 22% of our total revenues

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in fiscal 2010, 2009 and 2008, respectively. No other customer accounted for more than 10% of our total revenues inany of these years.

Technology

The development of high quality fiber optic subsystems and components for high-speed data communicationsrequires multidisciplinary expertise in the following technology areas:

High Frequency Integrated Circuit Design. Our fiber optic subsystems development efforts are sup-ported by an engineering team that specialized in analog/digital integrated circuit design. This group works inboth silicon, or Si, CMOS, and silicon germanium, or SiGe, BiCMOS, semiconductor technologies wherecircuit element frequencies are very fast and can be as high as 40 Gbps. We have designed proprietary circuitsincluding laser drivers, receiver pre-and post-amplifiers and controller circuits for handling digital diagnosticsat 1, 2, 4, 8, 10 and 49 Gbps. We are also investing in designing LCoS based ICs for our WSS products. Theseadvanced semiconductor devices provide significant cost advantages and will be critical in the development offuture products capable of even faster data rates.

Optical Subassembly and Mechanical Design. We established ourselves as a low-cost design leaderbeginning with our initial Gbps optical subsystems in 1992. From that base we have developed single-modelaser alignment approaches and low-cost, all-metal packaging techniques for improved EMI performance andenvironmental tolerance. We develop our own component and packaging designs and integrate these designswith proprietary manufacturing processes that allow our products to be manufactured in high volume.

System Design. The design of all of our products requires a combination of sophisticated technicalcompetencies — optical engineering, high-speed electrical design, digital and analog application specific IC,or ASIC design and firmware and software engineering. We have built an organization of people with skills inall of these areas. It is the integration of these technical competencies that enables us to produce products thatmeet the needs of our customers. Our combination of these technical competencies has enabled us to designand manufacture optical modules and subsystems.

Manufacturing System Design. Hardware, firmware and software design skills are utilized to providespecialized manufacturing test systems for our internal use. These test systems are optimized for test capacityand broad test coverage. We use automated, software-controlled testing to enhance the field reliability of allFinisar products and to reduce the level of capital expenditures that would otherwise be required to purchasethese test systems.

Optoelectronic Device Design and Wafer Fabrication. The ability to manufacture our own opticalcomponents can provide significant cost savings while the ability to create unique component designs,enhances our competitive position in terms of performance, time-to-market and intellectual property. Wedesign and manufacture a number of active components that are used in our optical subsystems. Ouracquisition of Honeywell’s VCSEL Optical Products business unit in March 2004 provided us with waferfabrication capability for designing and manufacturing all of the 850nm VCSEL components used in our shortdistance transceivers for LAN and SAN applications. These applications represented approximately 43% ofour optical subsystem revenues in fiscal 2010. The acquisition of Genoa Corporation in April 2003 provided uswith a state-of-the-art foundry for the manufacture of PIN detectors and 1310 nm FP and DFB lasers used inour longer distance transceivers, although we continue to rely on third-party suppliers for a portion of our DFBlaser requirements. These longer distance transceiver products comprised approximately 46% of our opticalsubsystem revenues in fiscal 2010.

Competition

Several of our competitors in the optical subsystems and components market have recently been acquired orannounced plans to be acquired. These announcements reflect an ongoing realignment of industry capacity withmarket demand in order to restore the financial health of the optics industry. Despite this trend, the market for

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optical subsystems and components for use in LANs, SANs, MANs and WANs remains highly competitive. Webelieve the principal competitive factors in these markets are:

• product performance, features, functionality and reliability;

• price/performance characteristics;

• timeliness of new product introductions;

• breadth of product line;

• adoption of emerging industry standards;

• service and support;

• size and scope of distribution network;

• brand name;

• access to customers; and

• size of installed customer base.

Competition in the market for optical subsystems and components varies by market segment. Our principalcompetitors for optical transceivers sold for applications based on the Fibre Channel and Ethernet protocols includeAvago Technologies (formerly part of Agilent Technologies) and JDSU. Our principal competitors for opticaltransceivers sold for MAN, WAN and telecom applications based on the SONET/SDH protocols include Oclaro(formed with the merger of Bookham and Avanex), Opnext and Sumitomo. Our principal competitors for WSSROADM products include CoAdna, JDSU, Oclaro and Oplink. Our principal competitors for CATV productsinclude AOI and Emcore. We believe we compete favorably with our competitors with respect to most of theforegoing factors based, in part, upon our broad product line, our sizeable installed base, our significant verticalintegration and our lower-cost manufacturing facilities in Ipoh, Malaysia and Shanghai, China. We believe that therecent introduction of a number of products for 10GigE and parallel and recent design-wins with our WSS ROADMproducts have strengthened our position in the optical subsystem market.

Sales, Marketing and Technical Support

For sales of our optical subsystems and components, we utilize a direct sales force augmented by one world-wide distributor, ten international distributors, three domestic distributors, 17 domestic manufacturers’ represen-tatives and three international manufacturers’ representatives. Our direct sales force maintains close contact withour customers and provides technical support to our manufacturers’ representatives. In our international markets,our direct sales force works with local resellers who assist us in providing support and maintenance in the territoriesthey cover.

Our marketing efforts are focused on increasing awareness of our product offerings for optical subsystems andour brand name. Key components of our marketing efforts include:

• continuing our active participation in industry associations and standards committees to promote and furtherenhance Gigabit Ethernet, Fibre Channel and SONET/SDH/OTN technologies, promote standardization inthe LAN, SAN and MAN markets, and increase our visibility as industry experts; and

• leveraging major trade show events and LAN, SAN and MAN conferences to promote our broad productlines;

In addition, our marketing group provides marketing support services for our executive staff, our direct salesforce and our manufacturers’ representatives and resellers. Through our marketing activities, we provide technicaland strategic sales support to our direct sales personnel and resellers, including in-depth product presentations,technical manuals, sales tools, pricing, marketing communications, marketing research, trademark administrationand other support functions.

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A high level of continuing service and support is critical to our objective of developing long-term customerrelationships. We emphasize customer service and technical support in order to provide our customers and their endusers with the knowledge and resources necessary to successfully utilize our product line. Our customer serviceorganization utilizes a technical team of field and factory applications engineers, technical marketing personneland, when required, product design engineers. We provide extensive customer support throughout the qualificationand sale process. In addition, we provide many resources through our World Wide Web site, including productdocumentation and technical information. We intend to continue to provide our customers with comprehensiveproduct support and believe it is critical to remaining competitive.

Backlog

A substantial portion of our revenues is derived from sales to OEMs and system integrators through hubarrangements where revenue is generated as inventory that resides at these customers or their contract manufac-turers is drawn down. Visibility as to future customer demand is limited in these situations. Most of our otherrevenues are derived from sales pursuant to individual purchase orders which remain subject to negotiation withrespect to delivery schedules and are generally cancelable without significant penalties. Manufacturing capacityand availability of key components can also impact the timing and amount of revenue ultimately recognized undersuch sale arrangements. Accordingly, we do not believe that the backlog of undelivered product under thesepurchase orders are a meaningful indicator of our future financial performance.

Manufacturing

We manufacture most of our optical subsystems at our production facility in Ipoh, Malaysia. This facilityconsists of 640,000 square feet, of which 240,000 square feet is suitable for cleanroom operations. The acquisitionof this facility has allowed us to transfer most of our manufacturing processes from contract manufacturers to alower-cost manufacturing facility and to maintain greater control over our intellectual property. We expect tocontinue to use contract manufacturers for a portion of our manufacturing needs. We conduct a portion of our newproduct introduction operations at our Ipoh, Malaysia facility. We manufacture certain passive optical componentsused in our long wavelength products for MAN applications as well as ROADM linecards at our facility inShanghai, China which we expanded to 150,000 square feet in October 2008. We also manufacture our WSSproducts in our 33,000 square foot facility in Waterloo, Australia and certain CATV and telecommunicationsproducts in our 81,000 square foot facility in Horsham, Pennsylvania. We continue to conduct a portion of our newproduct introduction activities at our Sunnyvale, California and Horsham, Pennsylvania facilities. In Sunnyvale, wealso conduct supply chain management for certain components, quality assurance and documentation controloperations. We maintain an international purchasing office in Shenzen, China. We conduct wafer fabricationoperations for the manufacture of VCSELs used in LAN and SAN applications at our facility in Allen, Texas. Weconduct wafer fabrication operations for the manufacture of long wavelength FP and DFB lasers at our facility inFremont, California.

We design and develop a number of the key components of our products, including photodetectors, lasers,ASICs, printed circuit boards and software. In addition, our manufacturing team works closely with our engineers tomanage the supply chain. To assure the quality and reliability of our products, we conduct product testing and burn-in at our facilities in conjunction with inspection and the use of testing and statistical process controls. In addition,most of our optical subsystems have an intelligent interface that allows us to monitor product quality during themanufacturing process. Our facilities in Sunnyvale, Fremont, Allen, Shanghai, Ipoh, Horsham and Australia arequalified under ISO 9001-9002.

Although we use standard parts and components for our products where possible, we currently purchaseseveral key components from single or limited sources. Our principal single source components purchased fromexternal suppliers include ASICs and certain DFB lasers that we do not manufacture internally. In addition, all of theshort wavelength VCSEL lasers used in our LAN and SAN products are currently produced at our facility in Allen,Texas. Generally, purchase commitments with our single or limited source suppliers are on a purchase order basis.We generally try to maintain a buffer inventory of key components. However, any interruption or delay in the supplyof any of these components, or the inability to procure these components from alternate sources at acceptable prices

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and within a reasonable time, would substantially harm our business. In addition, qualifying additional supplierscan be time-consuming and expensive and may increase the likelihood of errors.

We use a rolling 12-month forecast of anticipated product orders to determine our material requirements. Leadtimes for materials and components we order vary significantly, and depend on factors such as the demand for suchcomponents in relation to each supplier’s manufacturing capacity, internal manufacturing capacity, contract termsand demand for a component at a given time.

Research and Development

In fiscal 2010, 2009 and 2008, our research and development expenses related to our continuing operationswere $94.8 million, $80.1 million and $63.0 million, respectively. We believe that our future success depends on ourability to continue to enhance our existing products and to develop new products that maintain technologicalcompetitiveness. We focus our product development activities on addressing the evolving needs of our customerswithin the LAN, SAN, MAN and WAN markets, although we also are seeking to leverage our core competencies bydeveloping products for other applications. We work closely with our OEMs and system integrators to monitorchanges in the marketplace. We design our products around current industry standards and will continue to supportemerging standards that are consistent with our product strategy. Our research and development groups are alignedwith our various product lines, and we also have specific groups devoted to ASIC design and test, subsystem design,and software design. Our product development operations include the active involvement of our manufacturingengineers who examine each product for its manufacturability, predicted reliability, expected lifetime andmanufacturing costs.

We believe that our research and development efforts are key to our ability to maintain technical compet-itiveness and to deliver innovative products that address the needs of the market. However, there can be no assurancethat our product development efforts will result in commercially successful products, or that our products will not berendered obsolete by changing technology or new product announcements by other companies.

Intellectual Property

Our success and ability to compete is dependent in part on our proprietary technology. We rely on acombination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements andlicensing arrangements, to establish and protect our proprietary rights. We currently own approximately 1,000issued U.S. patents and approximately 300 patent applications with additional foreign counterparts. We cannotassure you that any patents will issue as a result of pending patent applications or that our issued patents will beupheld. Any infringement of our proprietary rights could result in significant litigation costs, and any failure toadequately protect our proprietary rights could result in our competitors offering similar products, potentiallyresulting in loss of a competitive advantage and decreased revenues. Despite our efforts to protect our proprietaryrights, existing patent, copyright, trademark and trade secret laws afford only limited protection. In addition, thelaws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the UnitedStates. Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use informationthat we regard as proprietary. Accordingly, we may not be able to prevent misappropriation of our technology ordeter others from developing similar technology. Furthermore, policing the unauthorized use of our products isdifficult. We have been involved in extensive litigation to enforce certain of our patents and are currently engaged insuch litigation. See “Item 3. Legal Proceedings”. Additional litigation may be necessary in the future to enforce ourintellectual property rights or to determine the validity and scope of the proprietary rights of others. This litigationcould result in substantial costs and diversion of resources and could significantly harm our business.

The networking industry is characterized by the existence of a large number of patents and frequent litigationbased on allegations of patent infringement. From time to time, other parties may assert patent, copyright,trademark and other intellectual property rights to technologies and in various jurisdictions that are important to ourbusiness. Any claims asserting that our products infringe or may infringe proprietary rights of third parties, ifdetermined adversely to us, could significantly harm our business. Any such claims, with or without merit, could betime-consuming, result in costly litigation, divert the efforts of our technical and management personnel, causeproduct shipment delays or require us to enter into royalty or licensing agreements, any of which could significantly

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harm our business. Royalty or licensing agreements, if required, may not be available on terms acceptable to us, if atall. In addition, our agreements with our customers typically require us to indemnify our customers from anyexpense or liability resulting from claimed infringement of third party intellectual property rights. In the event aclaim against us was successful and we could not obtain a license to the relevant technology on acceptable terms orlicense a substitute technology or redesign our products to avoid infringement, our business would be significantlyharmed.

Employees

As of April 30, 2010, we employed approximately 6,893 full-time employees, 658 of whom were located in theUnited States and 5,827 of whom were located at our production facilities in Ipoh, Malaysia and Shanghai, China.We also from time to time employ part-time employees and hire contractors. Our employees are not represented byany union, and we have never experienced a work stoppage. Certain of our employees in our Waterloo, Australiafacility are subject to a collective agreement not involving a union. We believe that there is a positive employeerelations environment within the company.

Available Information

Our website is located at www.finisar.com. Electronic copies of our annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuantto Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available, free of charge, on our website as soonas practicable after we electronically file such material with the Securities and Exchange Commission. The contentsof our website are not incorporated by reference in this Annual Report on Form 10-K.

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Item 1A. Risk Factors

OUR FUTURE PERFORMANCE IS SUBJECT TO A VARIETY OF RISKS, INCLUDING THOSEDESCRIBED BELOW. IFANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULDBE HARMED AND THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE. YOU SHOULDALSO REFER TO THE OTHER INFORMATION CONTAINED IN THIS REPORT, INCLUDING OURCONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES.

Our quarterly revenues and operating results fluctuate due to a variety of factors, which may result involatility or a decline in the price of our stock.

Our quarterly operating results have varied significantly due to a number of factors, including:

• fluctuation in demand for our products;

• the timing of new product introductions or enhancements by us and our competitors;

• the level of market acceptance of new and enhanced versions of our products;

• the timing or cancellation of large customer orders;

• the length and variability of the sales cycle for our products;

• pricing policy changes by us and our competitors and suppliers;

• the availability of development funding and the timing of development revenue;

• changes in the mix of products sold;

• increased competition in product lines, and competitive pricing pressures; and

• the evolving and unpredictable nature of the markets for products incorporating our optical components andsubsystems.

We expect that our operating results will continue to fluctuate in the future as a result of these factors and avariety of other factors, including:

• fluctuations in manufacturing yields;

• the emergence of new industry standards;

• failure to anticipate changing customer product requirements;

• the loss or gain of important customers;

• product obsolescence; and

• the amount of research and development expenses associated with new product introductions.

Our operating results could also be harmed by:

• the continuation or worsening of the current global economic slowdown or economic conditions in variousgeographic areas where we or our customers do business;

• acts of terrorism and international conflicts or domestic crises;

• other conditions affecting the timing of customer orders; or

• a downturn in the markets for our customers’ products, particularly the data storage and networking andtelecommunications components markets.

We may experience a delay in generating or recognizing revenues for a number of reasons. Orders at thebeginning of each quarter typically represent a small percentage of expected revenues for that quarter and aregenerally cancelable with minimal notice. Accordingly, we depend on obtaining orders during each quarter forshipment in that quarter to achieve our revenue objectives. Failure to ship these products by the end of a quarter may

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adversely affect our operating results. Furthermore, our customer agreements typically provide that the customermay delay scheduled delivery dates and cancel orders within specified timeframes without significant penalty.Because we base our operating expenses on anticipated revenue trends and a high percentage of our expenses arefixed in the short term, any delay in generating or recognizing forecasted revenues could significantly harm ourbusiness. It is likely that in some future quarters our operating results will again decrease from the previous quarteror fall below the expectations of securities analysts and investors. In this event, it is likely that the trading price ofour common stock would significantly decline.

As a result of these factors, our operating results may vary significantly from quarter to quarter. Accordingly,we believe that period-to-period comparisons of our results of operations are not meaningful and should not berelied upon as indications of future performance. Any shortfall in revenues or net income from levels expected bythe investment community could cause a decline in the trading price of our stock.

We may lose sales if our suppliers or independent contract manufacturers fail to meet our needs or goout of business.

We currently purchase a number of key components used in the manufacture of our products from single orlimited sources, and we rely on several independent contract manufacturers to supply us with certain keysubassemblies, including lasers, modulators, and printed circuit boards. We depend on these sources to meetour production needs. Moreover, we depend on the quality of the components and subassemblies that they supply tous, over which we have limited control. Several of our suppliers are or may become financially unstable as the resultof current global market conditions. In addition, from time to time we have encountered shortages and delays inobtaining components. We are currently encountering such shortages and expect to encounter additional shortagesand delays in the future. Recently, many of our suppliers have extended lead times for many of their products as theresult of significantly reducing capacity in light of the global slowdown in demand. This reduction in capacity hasreduced the ability of many suppliers to respond to increases in demand. If we cannot supply products due to a lackof components, or are unable to redesign products with other components in a timely manner, our business will besignificantly harmed. We generally have no long-term contracts with any of our component suppliers or contractmanufacturers. As a result, a supplier or contract manufacturer can discontinue supplying components or sub-assemblies to us without penalty. If a supplier were to discontinue supplying a key component or cease operations,our business may be harmed by the resulting product manufacturing and delivery delays. We are also subject topotential delays in the development by our suppliers of key components which may affect our ability to introducenew products. Similarly, disruptions in the services provided by our contract manufacturers or the transition to othersuppliers of these services could lead to supply chain problems or delays in the delivery of our products. Theseproblems or delays could damage our relationships with our customers and adversely affect our business.

We use rolling forecasts based on anticipated product orders to determine our component and subassemblyrequirements. Lead times for materials and components that we order vary significantly and depend on factors suchas specific supplier requirements, contract terms and current market demand for particular components. If weoverestimate our component requirements, we may have excess inventory, which would increase our costs. If weunderestimate our component requirements, we may have inadequate inventory, which could interrupt ourmanufacturing and delay delivery of our products to our customers. Any of these occurrences could significantlyharm our business.

If we are unable to realize anticipated cost savings from the transfer of certain manufacturing operationsto our overseas locations and increased use of internally-manufactured components our results ofoperations could be harmed.

As part of our initiatives to reduce the cost of revenues planned for the next several quarters, we expect torealize significant cost savings through (i) the transfer of certain product manufacturing operations to lower cost off-shore locations and (ii) product engineering changes to enable the broader use of internally-manufacturedcomponents. The transfer of production to overseas locations may be more difficult and costly than we currentlyanticipate which could result in increased transfer costs and time delays. Further, following transfer, we mayexperience lower manufacturing yields than those historically achieved in our U.S. manufacturing locations. Inaddition, the engineering changes required for the use of internally-manufactured components may be more

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technically-challenging than we anticipate and customer acceptance of such changes could be delayed. If we fail toachieve the planned product manufacturing transfer and increase in internally-manufactured component use withinour currently anticipated timeframe, or if our manufacturing yields decrease as a result, we may be unsuccessful inachieving cost savings or such savings will be less than anticipated, and our results of operations could be harmed.

Failure to accurately forecast our revenues could result in additional charges for obsolete or excessinventories or non-cancellable purchase commitments.

We base many of our operating decisions, and enter into purchase commitments, on the basis of anticipatedrevenue trends which are highly unpredictable. Some of our purchase commitments are not cancelable, and in somecases we are required to recognize a charge representing the amount of material or capital equipment purchased orordered which exceeds our actual requirements. In the past, we have sometimes experienced significant growthfollowed by a significant decrease in customer demand such as occurred in fiscal 2001, when revenues increased by181% followed by a decrease of 22% in fiscal 2002. Based on projected revenue trends during these periods, weacquired inventories and entered into purchase commitments in order to meet anticipated increases in demand forour products which did not materialize. As a result, we recorded significant charges for obsolete and excessinventories and non-cancelable purchase commitments which contributed to substantial operating losses in fiscal2002. Should revenues in future periods again fall substantially below our expectations, or should we fail again toaccurately forecast changes in demand mix, we could be required to record additional charges for obsolete or excessinventories or non-cancelable purchase commitments.

If we encounter sustained yield problems or other delays in the production or delivery of our internally-manufactured components or in the final assembly and test of our transceiver products, we may lose salesand damage our customer relationships.

Our manufacturing operations are highly vertically integrated. In order to reduce our manufacturing costs, wehave acquired a number of companies, and business units of other companies, that manufacture optical componentsincorporated in our optical subsystem products and have developed our own facilities for the final assembly andtesting of our products. For example, we design and manufacture many critical components including all of theshort wavelength VCSEL lasers incorporated in transceivers used for LAN/SAN applications at our waferfabrication facility in Allen, Texas and manufacture a portion of our internal requirements for longer wavelengthlasers at our wafer fabrication facility in Fremont, California. We assemble and test most of our transceiver productsat our facility in Ipoh, Malaysia. As a result of this vertical integration, we have become increasingly dependent onour internal production capabilities. The manufacture of critical components, including the fabrication of wafers,and the assembly and testing of our products, involve highly complex processes. For example, minute levels ofcontaminants in the manufacturing environment, difficulties in the fabrication process or other factors can cause asubstantial portion of the components on a wafer to be nonfunctional. These problems may be difficult to detect atan early stage of the manufacturing process and often are time-consuming and expensive to correct. From time totime, we have experienced problems achieving acceptable yields at our wafer fabrication facilities, resulting indelays in the availability of components. Moreover, an increase in the rejection rate of products during the qualitycontrol process before, during or after manufacture, results in lower yields and margins. In addition, changes inmanufacturing processes required as a result of changes in product specifications, changing customer needs and theintroduction of new product lines have historically significantly reduced our manufacturing yields, resulting in lowor negative margins on those products. Poor manufacturing yields over a prolonged period of time could adverselyaffect our ability to deliver our subsystem products to our customers and could also affect our sale of components tocustomers in the merchant market. Our inability to supply components to meet our internal needs could harm ourrelationships with customers and have an adverse effect on our business.

We are dependent on widespread market acceptance of our optical subsystems and components, and ourrevenues will decline if the markets for these products do not expand as expected.

We derive all of our revenue from sales of our optical subsystems and components. Accordingly, widespreadacceptance of these products is critical to our future success. If the market does not continue to accept our opticalsubsystems and components, our revenues will decline significantly. Our future success also ultimately depends on

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the continued growth of the communications industry and, in particular, the continued expansion of globalinformation networks, particularly those directly or indirectly dependent upon a fiber optics infrastructure. As partof that growth, we are relying on increasing demand for voice, video and other data delivered over high-bandwidthnetwork systems as well as commitments by network systems vendors to invest in the expansion of the globalinformation network. As network usage and bandwidth demand increase, so does the need for advanced opticalnetworks to provide the required bandwidth. Without network and bandwidth growth, the need for opticalsubsystems and components, and hence our future growth as a manufacturer of these products, will be jeopardized,and our business would be significantly harmed.

Many of these factors are beyond our control. In addition, in order to achieve widespread market acceptance,we must differentiate ourselves from our competition through product offerings and brand name recognition. Wecannot assure you that we will be successful in making this differentiation or achieving widespread acceptance ofour products. Failure of our existing or future products to maintain and achieve widespread levels of marketacceptance will significantly impair our revenue growth.

We depend on large purchases from a few significant customers, and any loss, cancellation, reduction ordelay in purchases by these customers could harm our business.

A small number of customers have consistently accounted for a significant portion of our revenues. Forexample, sales to our top five customers represented 43% of our revenues in fiscal 2010 and 42% of our revenues infiscal 2009. Our success will depend on our continued ability to develop and manage relationships with our majorcustomers. Although we are attempting to expand our customer base, we expect that significant customerconcentration will continue for the foreseeable future. We may not be able to offset any decline in revenues fromour existing major customers with revenues from new customers, and our quarterly results may be volatile becausewe are dependent on large orders from these customers that may be reduced or delayed.

The markets in which we have historically sold our optical subsystems and components products aredominated by a relatively small number of systems manufacturers, thereby limiting the number of our potentialcustomers. Recent consolidation of portions of our customer base, including telecommunications systems man-ufacturers and potential future consolidation, may have a material adverse impact on our business. Our dependenceon large orders from a relatively small number of customers makes our relationship with each customer criticallyimportant to our business. We cannot assure you that we will be able to retain our largest customers, that we will beable to attract additional customers or that our customers will be successful in selling their products that incorporateour products. We have in the past experienced delays and reductions in orders from some of our major customers. Inaddition, our customers have in the past sought price concessions from us, and we expect that they will continue todo so in the future. Expense reduction measures that we have implemented over the past several years, andadditional action we may take to reduce costs, may adversely affect our ability to introduce new and improvedproducts which may, in turn, adversely affect our relationships with some of our key customers. Further, some of ourcustomers may in the future shift their purchases of products from us to our competitors or to joint ventures betweenthese customers and our competitors. The loss of one or more of our largest customers, any reduction or delay insales to these customers, our inability to successfully develop relationships with additional customers or future priceconcessions that we may make could significantly harm our business.

Because we do not have long-term contracts with our customers, our customers may cease purchasingour products at any time if we fail to meet our customers’ needs.

Typically, we do not have long-term contracts with our customers. As a result, our agreements with ourcustomers do not provide any assurance of future sales. Accordingly:

• our customers can stop purchasing our products at any time without penalty;

• our customers are free to purchase products from our competitors; and

• our customers are not required to make minimum purchases.

Sales are typically made pursuant to inventory hub arrangements under which customers may draw downinventory to satisfy their demand as needed or pursuant to individual purchase orders, often with extremely short

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lead times. If we are unable to fulfill these orders in a timely manner, it is likely that we will lose sales andcustomers. If our major customers stop purchasing our products for any reason, our business and results ofoperations would be harmed.

We may not be able to obtain additional capital in the future, and failure to do so may harm our business.

We believe that our existing balances of cash, cash equivalents and short-term investments, together with thecash expected to be generated from future operations and borrowings under our bank credit facility, will besufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months. Wemay, however, require additional financing to fund our operations in the future or to repay or otherwise retire ouroutstanding 5% convertible debt in the aggregate principal amount of $100 million which is subject to redemptionby the holders in October 2014, 2016, 2019 and 2024. Due to the unpredictable nature of the capital markets,particularly in the technology sector, we cannot assure you that we will be able to raise additional capital if andwhen it is required, especially if we experience disappointing operating results. If adequate capital is not available tous as required, or is not available on favorable terms, we could be required to significantly reduce or restructure ourbusiness operations. If we do raise additional funds through the issuance of equity or convertible debt securities, thepercentage ownership of our existing stockholders could be significantly diluted, and these newly-issued securitiesmay have rights, preferences or privileges senior to those of existing stockholders.

The markets for our products are subject to rapid technological change, and to compete effectively wemust continually introduce new products that achieve market acceptance.

The markets for our products are characterized by rapid technological change, frequent new product introduc-tions, substantial capital investment, changes in customer requirements and evolving industry standards with respectto the protocols used in data communications, telecommunications and cable TV networks. Our future performancewill depend on the successful development, introduction and market acceptance of new and enhanced products thataddress these changes as well as current and potential customer requirements. For example, the market for opticalsubsystems is currently characterized by a trend toward the adoption of “pluggable” modules and subsystems that donot require customized interconnections and by the development of more complex and integrated optical subsystems.We expect that new technologies will emerge as competition and the need for higher and more cost-effectivebandwidth increases. The introduction of new and enhanced products may cause our customers to defer or cancelorders for existing products. In addition, a slowdown in demand for existing products ahead of a new productintroduction could result in a write-down in the value of inventory on hand related to existing products. We have in thepast experienced a slowdown in demand for existing products and delays in new product development and such delaysmay occur in the future. To the extent customers defer or cancel orders for existing products due to a slowdown indemand or in the expectation of a new product release or if there is any delay in development or introduction of ournew products or enhancements of our products, our operating results would suffer. We also may not be able to developthe underlying core technologies necessary to create new products and enhancements, or to license these technologiesfrom third parties. Product development delays may result from numerous factors, including:

• changing product specifications and customer requirements;

• unanticipated engineering complexities;

• expense reduction measures we have implemented, and others we may implement, to conserve our cash andattempt to achieve and sustain profitability;

• difficulties in hiring and retaining necessary technical personnel;

• difficulties in reallocating engineering resources and overcoming resource limitations; and

• changing market or competitive product requirements.

The development of new, technologically advanced products is a complex and uncertain process requiring highlevels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipationof technological and market trends. The introduction of new products also requires significant investment to rampup production capacity, for which benefit will not be realized if customer demand does not develop as expected.

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Ramping of production capacity also entails risks of delays which can limit our ability to realize the full benefit ofthe new product introduction. We cannot assure you that we will be able to identify, develop, manufacture, market orsupport new or enhanced products successfully, if at all, or on a timely basis. Further, we cannot assure you that ournew products will gain market acceptance or that we will be able to respond effectively to product announcementsby competitors, technological changes or emerging industry standards. Any failure to respond to technologicalchange would significantly harm our business.

Continued competition in our markets may lead to an accelerated reduction in our prices, revenues andmarket share.

The end markets for optical products have experienced significant industry consolidation during the past fewyears while the industry that supplies these customers has experienced less consolidation. As a result, the marketsfor optical subsystems and components are highly competitive. Our current competitors include a number ofdomestic and international companies, many of which have substantially greater financial, technical, marketing anddistribution resources and brand name recognition than we have. Increased consolidation in our industry, should itoccur, will reduce the number of our competitors but would be likely to further strengthen surviving industryparticipants. We may not be able to compete successfully against either current or future competitors. Companiescompeting with us may introduce products that are competitively priced, have increased performance or func-tionality, or incorporate technological advances and may be able to react quicker to changing customer require-ments and expectations. There is also the risk that network systems vendors may re-enter the subsystem market andbegin to manufacture the optical subsystems incorporated in their network systems. Increased competition couldresult in significant price erosion, reduced revenue, lower margins or loss of market share, any of which wouldsignificantly harm our business. Our principal competitors for optical transceivers sold for applications based on theFibre Channel and Ethernet protocols include Avago Technologies (formerly part of Agilent Technologies) andJDSU. Our principal competitors for optical transceivers sold for MAN, WAN and telecom applications based onthe SONET/SDH protocols include Oclaro (formed with the merger of Bookham and Avanex), Opnext andSumitomo. Our principal competitors for WSS ROADM products include CoAdna, JDSU, Oclaro and Oplink. Ourprincipal competitors for CATV products include AOI and Emcore. Our competitors continue to introduceimproved products and we will have to do the same to remain competitive.

Decreases in average selling prices of our products may reduce our gross margins.

The market for optical subsystems is characterized by declining average selling prices resulting from factorssuch as increased competition, overcapacity, the introduction of new products and increased unit volumes asmanufacturers continue to deploy network and storage systems. We have in the past experienced, and in the futuremay experience, substantial period-to-period fluctuations in operating results due to declining average sellingprices. We anticipate that average selling prices will decrease in the future in response to product introductions bycompetitors or us, or by other factors, including pricing pressures from significant customers. Therefore, in order toachieve and sustain profitable operations, we must continue to develop and introduce on a timely basis new productsthat incorporate features that can be sold at higher average selling prices. Failure to do so could cause our revenuesand gross margins to decline, which would result in additional operating losses and significantly harm our business.

We may be unable to reduce the cost of our products sufficiently to enable us to compete with others. Our costreduction efforts may not allow us to keep pace with competitive pricing pressures and could adversely affect ourmargins. In order to remain competitive, we must continually reduce the cost of manufacturing our products throughdesign and engineering changes. We may not be successful in redesigning our products or delivering our products tomarket in a timely manner. We cannot assure you that any redesign will result in sufficient cost reductions to allowus to reduce the price of our products to remain competitive or improve our gross margins.

Shifts in our product mix may result in declines in gross margins.

Our optical products sold for longer distance MAN and telecom applications typically have higher grossmargins than our products for shorter distance LAN or SAN applications. Gross margins on individual productsfluctuate over the product’s life cycle. Our overall gross margins have fluctuated from period to period as a result of

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shifts in product mix, the introduction of new products, decreases in average selling prices for older products andour ability to reduce product costs, and these fluctuations are expected to continue in the future.

Our customers often evaluate our products for long and variable periods, which causes the timing of ourrevenues and results of operations to be unpredictable.

The period of time between our initial contact with a customer and the receipt of an actual purchase order mayspan a year or more. During this time, customers may perform, or require us to perform, extensive and lengthyevaluation and testing of our products before purchasing and using the products in their equipment. These productsoften take substantial time to develop because of their complexity and because customer specifications sometimeschange during the development cycle. Our customers do not typically share information on the duration ormagnitude of these qualification procedures. The length of these qualification processes also may vary substantiallyby product and customer, and, thus, cause our results of operations to be unpredictable. While our potentialcustomers are qualifying our products and before they place an order with us, we may incur substantial research anddevelopment and sales and marketing expenses and expend significant management effort. Even after incurringsuch costs we ultimately may not sell any products to such potential customers. In addition, these qualificationprocesses often make it difficult to obtain new customers, as customers are reluctant to expend the resourcesnecessary to qualify a new supplier if they have one or more existing qualified sources. Once our products have beenqualified, the agreements that we enter into with our customers typically contain no minimum purchase commit-ments. Failure of our customers to incorporate our products into their systems would significantly harm ourbusiness.

We will lose sales if we are unable to obtain government authorization to export certain of our products,and we would be subject to legal and regulatory consequences if we do not comply with applicable exportcontrol laws and regulations.

Exports of certain of our products are subject to export controls imposed by the U.S. Government andadministered by the United States Departments of State and Commerce. In certain instances, these regulations mayrequire pre-shipment authorization from the administering department. For products subject to the ExportAdministration Regulations, or EAR, administered by the Department of Commerce’s Bureau of Industry andSecurity, the requirement for a license is dependent on the type and end use of the product, the final destination, theidentity of the end user and whether a license exception might apply. Virtually all exports of products subject to theInternational Traffic in Arms Regulations, or ITAR, administered by the Department of State’s Directorate ofDefense Trade Controls, require a license. Certain of our fiber optics products are subject to EAR and certain of ourRF over fiber products, as well as certain products developed with government funding, are currently subject toITAR. Products developed and manufactured in our foreign locations are subject to export controls of the applicableforeign nation.

Given the current global political climate, obtaining export licenses can be difficult and time-consuming.Failure to obtain export licenses for these shipments could significantly reduce our revenue and materiallyadversely affect our business, financial condition and results of operations. Compliance with U.S. Governmentregulations may also subject us to additional fees and costs. The absence of comparable restrictions on competitorsin other countries may adversely affect our competitive position.

During mid-2007, Optium became aware that certain of its analog RF over fiber products may, depending onend use and customization, be subject to ITAR. Accordingly, Optium filed a detailed voluntary disclosure with theUnited States Department of State describing the details of possible inadvertent ITAR violations with respect to theexport of a limited number of certain prototype products, as well as related technical data and defense services.Optium may have also made unauthorized transfers of ITAR-restricted technical data and defense services toforeign persons in the workplace. Additional information has been provided upon request to the Department of Statewith respect to this matter. In late 2008, a grand jury subpoena from the office of the U.S. Attorney for the EasternDistrict of Pennsylvania was received requesting documents from 2005 through the present referring to, relating toor involving the subject matter of the above referenced voluntary disclosure and export activities.

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While the Department of State encourages voluntary disclosures and generally affords parties mitigating creditunder such circumstances, we nevertheless could be subject to continued investigation and potential regulatoryconsequences ranging from a no-action letter, government oversight of facilities and export transactions, monetarypenalties, and in extreme cases, debarment from government contracting, denial of export privileges and criminalsanctions, any of which would adversely affect our results of operations and cash flow. The Department of State andU.S. Attorney inquiries may require us to expend significant management time and incur significant legal and otherexpenses. We cannot predict how long it will take or how much more time and resources we will have to expend toresolve these government inquiries, nor can we predict the outcome of these inquiries.

We depend on facilities located outside of the United States to manufacture a substantial portion of ourproducts, which subjects us to additional risks.

In addition to our principal manufacturing facility in Malaysia, we operate smaller facilities in Australia,China, Israel and Singapore. We also rely on several contract manufacturers located in Asia for our supply of keysubassemblies. Each of these facilities and manufacturers subjects us to additional risks associated with interna-tional manufacturing, including:

• unexpected changes in regulatory requirements;

• legal uncertainties regarding liability, tariffs and other trade barriers;

• inadequate protection of intellectual property in some countries;

• greater incidence of shipping delays;

• greater difficulty in overseeing manufacturing operations;

• greater difficulty in hiring and retaining direct labor;

• greater difficulty in hiring talent needed to oversee manufacturing operations;

• potential political and economic instability; and

• the outbreak of infectious diseases such as the H1N1 influenza virus and/or severe acute respiratorysyndrome, or SARS, which could result in travel restrictions or the closure of our facilities or the facilities ofour customers and suppliers.

Any of these factors could significantly impair our ability to source our contract manufacturing requirementsinternationally.

Our future operating results may be subject to volatility as a result of exposure to foreign exchange risks.

We are exposed to foreign exchange risks. Foreign currency fluctuations may affect both our revenues and ourcosts and expenses and significantly affect our operating results. Prices for our products are currently denominatedin U.S. dollars for sales to our customers throughout the world. If there is a significant devaluation of the currency ina specific country relative to the dollar, the prices of our products will increase relative to that country’s currency,our products may be less competitive in that country and our revenues may be adversely affected.

Although we price our products in U.S. dollars, portions of both our cost of revenues and operating expensesare incurred in foreign currencies, principally the Malaysian ringgit, the Chinese yuan, the Australian dollar and theIsraeli shekel. As a result, we bear the risk that the rate of inflation in one or more countries will exceed the rate ofthe devaluation of that country’s currency in relation to the U.S. dollar, which would increase our costs as expressedin U.S. dollars. To date, we have not engaged in currency hedging transactions to decrease the risk of financialexposure from fluctuations in foreign exchange rates.

Our business and future operating results are subject to a wide range of uncertainties arising out of thecontinuing threat of terrorist attacks and ongoing military actions in the Middle East.

Like other U.S. companies, our business and operating results are subject to uncertainties arising out of thecontinuing threat of terrorist attacks on the United States and ongoing military actions in the Middle East, including

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the economic consequences of the war in Afghanistan and Iraq or additional terrorist activities and associatedpolitical instability, and the impact of heightened security concerns on domestic and international travel andcommerce. In particular, due to these uncertainties we are subject to:

• increased risks related to the operations of our manufacturing facilities in Malaysia;

• greater risks of disruption in the operations of our China, Singapore and Israeli facilities and our Asiancontract manufacturers, including contract manufacturers located in Thailand, and more frequent instancesof shipping delays; and

• the risk that future tightening of immigration controls may adversely affect the residence status ofnon-U.S. engineers and other key technical employees in our U.S. facilities or our ability to hire newnon-U.S. employees in such facilities.

Past and future acquisitions could be difficult to integrate, disrupt our business, dilute stockholder valueand harm our operating results.

In addition to our combination with Optium in August 2008, we have completed the acquisition of tenprivately-held companies and certain businesses and assets from six other companies since October 2000. Wecontinue to review opportunities to acquire other businesses, product lines or technologies that would complementour current products, expand the breadth of our markets or enhance our technical capabilities, or that may otherwiseoffer growth opportunities, and we from time to time make proposals and offers, and take other steps, to acquirebusinesses, products and technologies.

The Optium merger and several of our other past acquisitions have been material, and acquisitions that we maycomplete in the future may be material. In 13 of our 17 acquisitions, we issued common stock or notes convertibleinto common stock as all or a portion of the consideration. The issuance of common stock or other equity securitiesby us in connection with any future acquisition would dilute our stockholders’ percentage ownership.

Other risks associated with acquiring the operations of other companies include:

• problems assimilating the purchased operations, technologies or products;

• unanticipated costs associated with the acquisition;

• diversion of management’s attention from our core business;

• adverse effects on existing business relationships with suppliers and customers;

• risks associated with entering markets in which we have no or limited prior experience; and

• potential loss of key employees of purchased organizations.

Not all of our past acquisitions have been successful. In the past, we have subsequently sold some of the assetsacquired in prior acquisitions, discontinued product lines and closed acquired facilities. As a result of theseactivities, we incurred significant restructuring charges and charges for the write-down of assets associated withthose acquisitions. Through fiscal 2009, we have written off all of the goodwill associated with past acquisitions.We cannot assure you that we will be successful in overcoming problems encountered in connection with morerecently completed acquisitions or potential future acquisitions, and our inability to do so could significantly harmour business. In addition, to the extent that the economic benefits associated with any of our completed or futureacquisitions diminish in the future, we may be required to record additional write downs of goodwill, intangibleassets or other assets associated with such acquisitions, which would adversely affect our operating results.

We have made and may continue to make strategic investments which may not be successful, may resultin the loss of all or part of our invested capital and may adversely affect our operating results.

Since inception we have made minority equity investments in early-stage technology companies, totalingapproximately $56 million. Our investments in these early stage companies were primarily motivated by our desireto gain early access to new technology. We intend to review additional opportunities to make strategic equityinvestments in pre-public companies where we believe such investments will provide us with opportunities to gain

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access to important technologies or otherwise enhance important commercial relationships. We have little or noinfluence over the early-stage companies in which we have made or may make these strategic, minority equityinvestments. Each of these investments in pre-public companies involves a high degree of risk. We may not besuccessful in achieving the financial, technological or commercial advantage upon which any given investment ispremised, and failure by the early-stage company to achieve its own business objectives or to raise capital needed onacceptable economic terms could result in a loss of all or part of our invested capital. Between fiscal 2003 and 2010,we wrote off an aggregate of $26.8 million in six investments which became impaired and reclassified $4.2 millionof another investment to goodwill as the investment was deemed to have no value. We may be required to write offall or a portion of the $12.3 million in such investments remaining on our balance sheet as of April 30, 2010 in futureperiods.

Our ability to utilize certain net operating loss carryforwards and tax credit carryforwards may be limitedunder Section 382 of the Internal Revenue Code.

As of April 30, 2010, we had net operating loss, or NOL, carryforward amounts of approximately $485 millionfor U.S. federal income tax purposes and $160.5 million for state income tax purposes, and U.S. federal and state taxcredit carryforward amounts of approximately $14.7 million for U.S. federal income tax purposes and $10.1 millionfor state income tax purposes. The federal and state tax credit carryforwards will expire at various dates beginning in2010 through 2029 and of such carry forwards $2.2 million will expire in the next five years. The federal and stateNOLs carryforwards will expire at various dates beginning in 2011 through 2029 and of such carry forwards$94.6 million will expire in the next five years. Utilization of these NOL and tax credit carryforward amounts maybe subject to a substantial annual limitation if the ownership change limitations under Section 382 of the InternalRevenue Code and similar state provisions are triggered by changes in the ownership of our capital stock. Such anannual limitation could result in the expiration of the NOL and tax credit carryforward amounts before utilization.

Because of competition for technical personnel, we may not be able to recruit or retain necessarypersonnel.

We believe our future success will depend in large part upon our ability to attract and retain highly skilledmanagerial, technical, sales and marketing, finance and manufacturing personnel. In particular, we may need toincrease the number of technical staff members with experience in high-speed networking applications as wefurther develop our product lines. Competition for these highly skilled employees in our industry is intense. Inmaking employment decisions, particularly in the high-technology industries, job candidates often consider thevalue of the equity they are to receive in connection with their employment. Therefore, significant volatility in theprice of our common stock may adversely affect our ability to attract or retain technical personnel. Furthermore,changes to accounting principles generally accepted in the United States relating to the expensing of stock optionsmay limit our ability to grant the sizes or types of stock awards that job candidates may require to acceptemployment with us. Our failure to attract and retain these qualified employees could significantly harm ourbusiness. The loss of the services of any of our qualified employees, the inability to attract or retain qualifiedpersonnel in the future or delays in hiring required personnel could hinder the development and introduction of andnegatively impact our ability to sell our products. In addition, employees may leave our company and subsequentlycompete against us. Moreover, companies in our industry whose employees accept positions with competitorsfrequently claim that their competitors have engaged in unfair hiring practices. We have been subject to claims ofthis type and may be subject to such claims in the future as we seek to hire qualified personnel. Some of these claimsmay result in material litigation. We could incur substantial costs in defending ourselves against these claims,regardless of their merits.

Our failure to protect our intellectual property may significantly harm our business.

Our success and ability to compete is dependent in part on our proprietary technology. We rely on acombination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements to establishand protect our proprietary rights. We license certain of our proprietary technology, including our digital diagnosticstechnology, to customers who include current and potential competitors, and we rely largely on provisions of ourlicensing agreements to protect our intellectual property rights in this technology. Although a number of patents

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have been issued to us, we have obtained a number of other patents as a result of our acquisitions, and we have filedapplications for additional patents, we cannot assure you that any patents will issue as a result of pending patentapplications or that our issued patents will be upheld. Additionally, significant technology used in our product linesis not the subject of any patent protection, and we may be unable to obtain patent protection on such technology inthe future. Any infringement of our proprietary rights could result in significant litigation costs, and any failure toadequately protect our proprietary rights could result in our competitors offering similar products, potentiallyresulting in loss of a competitive advantage and decreased revenues.

Despite our efforts to protect our proprietary rights, existing patent, copyright, trademark and trade secret lawsafford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights tothe same extent as do the laws of the United States. Attempts may be made to copy or reverse engineer aspects of ourproducts or to obtain and use information that we regard as proprietary. Accordingly, we may not be able to preventmisappropriation of our technology or deter others from developing similar technology. Furthermore, policing theunauthorized use of our products is difficult and expensive. We are currently engaged in pending litigation toenforce certain of our patents, and additional litigation may be necessary in the future to enforce our intellectualproperty rights or to determine the validity and scope of the proprietary rights of others. In connection with thepending litigation, substantial management time has been, and will continue to be, expended. In addition, we haveincurred, and we expect to continue to incur, substantial legal expenses in connection with these pending lawsuits.These costs and this diversion of resources could significantly harm our business.

Claims that we infringe third-party intellectual property rights could result in significant expenses orrestrictions on our ability to sell our products.

The networking industry is characterized by the existence of a large number of patents and frequent litigationbased on allegations of patent infringement. We have been involved in the past as a defendant in patent infringementlawsuits, and we were recently found liable in a patent infringement lawsuit filed against Optium by JDSU andEmcore Corporation. This suit involved two of our cable television products, each of which has been redesigned. Inaddition, in connection with a patent infringement lawsuit that we initiated in January 2010 against SourcePhotonics, MRV Communications, NeoPhotonics and Oplink, each of Source Photonics and NeoPhotonics raisedcounterclaims alleging patent infringement by us. The Source Photonics counterclaims were raised against certainof our transceiver products and the NeoPhotonics counterclaims were raised against certain of our WSS products.While, as a result of various procedural events in this lawsuit, these patent counterclaims are not currently beingasserted against us, such claims may be re-asserted against us in the future. From time to time, other parties mayassert patent, copyright, trademark and other intellectual property rights to technologies and in various jurisdictionsthat are important to our business. Any claims asserting that our products infringe or may infringe proprietary rightsof third parties, if determined adversely to us, could significantly harm our business. Any claims, with or withoutmerit, could be time-consuming, result in costly litigation, divert the efforts of our technical and managementpersonnel, cause product shipment delays or require us to enter into royalty or licensing agreements, any of whichcould significantly harm our business. In addition, our agreements with our customers typically require us toindemnify our customers from any expense or liability resulting from claimed infringement of third partyintellectual property rights. In the event a claim against us was successful and we could not obtain a license tothe relevant technology on acceptable terms or license a substitute technology or redesign our products to avoidinfringement, our business would be significantly harmed.

Numerous patents in our industry are held by others, including academic institutions and competitors. Opticalsubsystem suppliers may seek to gain a competitive advantage or other third parties may seek an economic return ontheir intellectual property portfolios by making infringement claims against us. In the future, we may need to obtainlicense rights to patents or other intellectual property held by others to the extent necessary for our business. Unlesswe are able to obtain those licenses on commercially reasonable terms, patents or other intellectual property held byothers could inhibit our development of new products. Licenses granting us the right to use third party technologymay not be available on commercially reasonable terms, if at all. Generally, a license, if granted, would includepayments of up-front fees, ongoing royalties or both. These payments or other terms could have a significantadverse impact on our operating results.

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Our products may contain defects that may cause us to incur significant costs, divert our attention fromproduct development efforts and result in a loss of customers.

Our products are complex and defects may be found from time to time. Networking products frequentlycontain undetected software or hardware defects when first introduced or as new versions are released. In addition,our products are often embedded in or deployed in conjunction with our customers’ products which incorporate avariety of components produced by third parties. As a result, when problems occur, it may be difficult to identify thesource of the problem. These problems may cause us to incur significant damages or warranty and repair costs,divert the attention of our engineering personnel from our product development efforts and cause significantcustomer relation problems or loss of customers, all of which would harm our business.

We are subject to pending shareholder derivative legal proceedings.

We have been named as a nominal defendant in several purported shareholder derivative lawsuits concerningthe granting of stock options. These cases have been consolidated into two proceedings pending in federal and statecourts in California. The plaintiffs in all of these cases have alleged that certain current or former officers anddirectors of Finisar caused it to grant stock options at less than fair market value, contrary to our public statements(including statements in our financial statements), and that, as a result, those officers and directors are liable toFinisar. No specific amount of damages has been alleged and, by the nature of the lawsuits no damages will bealleged, against Finisar. On May 22, 2007, the state court granted our motion to stay the state court action pendingresolution of the consolidated federal court action. On August 28, 2007, we and the individual defendants filedmotions to dismiss the complaint which were granted on January 11, 2008. On May 12, 2008, the plaintiffs filed afurther amended complaint in the federal court action. On July 1, 2008, we and the individual defendants filedmotions to dismiss the amended complaint. On September 22, 2009, the Court granted the motions to dismiss. Theplaintiffs are appealing this order. We will continue to incur legal fees in this case, including expenses for thereimbursement of legal fees of present and former officers and directors under indemnification obligations. Theexpense of continuing to defend such litigation may be significant. The amount of time to resolve these lawsuits isunpredictable and these actions may divert management’s attention from the day-to-day operations of our business,which could adversely affect our business, results of operations and cash flows.

Our business and future operating results may be adversely affected by events outside our control.

Our business and operating results are vulnerable to events outside of our control, such as earthquakes, fire,power loss, telecommunications failures and uncertainties arising out of terrorist attacks in the United States andoverseas. Our corporate headquarters and a portion of our manufacturing operations are located in California.California in particular has been vulnerable to natural disasters, such as earthquakes, fires and floods, and other riskswhich at times have disrupted the local economy and posed physical risks to our property. We are also dependent oncommunications links with our overseas manufacturing locations and would be significantly harmed if these linkswere interrupted for any significant length of time. We presently do not have adequate redundant, multiple sitecapacity if any of these events were to occur, nor can we be certain that the insurance we maintain against theseevents would be adequate.

The conversion of our outstanding convertible subordinated notes would result in substantial dilution toour current stockholders.

As of April 30, 2010, we had outstanding 5.0% Convertible Senior Notes due 2029 in the principal amount of$100.0 million, 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes due 2010 in the principal amount of $25.7 million and21⁄1

2⁄⁄ % Convertible Subordinated Notes due 2010 in the principal amount of $3.9 million. The $100.0 million inprincipal amount of our 5.0% Senior Notes are convertible, at the option of the holder, at any time on or prior tomaturity into shares of our common stock at a conversion price of $10.68 per share. The $3.9 million in principalamount of our 21⁄1

2⁄⁄ % Convertible Subordinated Notes are convertible, at the option of the holder, at any time on orprior to maturity into shares of our common stock at a conversion price of $29.64 per share. The $25.7 million inprincipal amount of our 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes are convertible at a conversion price of$26.24, with the underlying principal payable in cash, upon the trading price of our common stock reaching $39.36for a period of time. An aggregate of approximately 9,821,000 shares of common stock would be issued upon the

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conversion of all outstanding convertible notes at these exchange rates, which would dilute the voting power andownership percentage of our existing stockholders. We have previously entered into privately negotiated trans-actions with certain holders of our convertible notes for the repurchase of notes in exchange for a greater number ofshares of our common stock than would have been issued had the principal amount of the notes been converted atthe original conversion rate specified in the notes, thus resulting in more dilution. We may enter into similartransactions in the future and, if we do so, there will be additional dilution to the voting power and percentageownership of our existing stockholders.

Delaware law, our charter documents and our stockholder rights plan contain provisions that coulddiscourage or prevent a potential takeover, even if such a transaction would be beneficial to ourstockholders.

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

• authorizing the board of directors to issue additional preferred stock;

• prohibiting cumulative voting in the election of directors;

• limiting the persons who may call special meetings of stockholders;

• prohibiting stockholder actions by written consent;

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

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

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

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

We are subject to the provisions of Section 203 of the Delaware General Corporation Law which limit the rightof a corporation to engage in a business combination with a holder of 15% or more of the corporation’s outstandingvoting securities, or certain affiliated persons.

In addition, in September 2002, our board of directors adopted a stockholder rights plan under which ourstockholders received one share purchase right for each share of our common stock held by them. Subject to certainexceptions, the rights become exercisable when a person or group (other than certain exempt persons) acquires, orannounces its intention to commence a tender or exchange offer upon completion of which such person or groupwould acquire, 20% or more of our common stock without prior board approval. Should such an event occur, then,unless the rights are redeemed or have expired, our stockholders, other than the acquirer, will be entitled to purchaseshares of our common stock at a 50% discount from its then-Current Market Price (as defined) or, in the case ofcertain business combinations, purchase the common stock of the acquirer at a 50% discount.

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

We do not currently intend to pay dividends on Finisar common stock and, consequently, a stockholder’sability to achieve a return on such stockholder’s investment will depend on appreciation in the price ofthe common stock.

We have never declared or paid any cash dividends on Finisar common stock and we do not currently intend todo so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth.

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Therefore, a stockholder is not likely to receive any dividends on such stockholder’s common stock for theforeseeable future. In addition, our credit facility with Wells Fargo LLC contains restrictions on our ability to paydividends.

Our stock price has been and is likely to continue to be volatile.

The trading price of our common stock has been and is likely to continue to be subject to large fluctuations. Ourstock price may increase or decrease in response to a number of events and factors, including:

• trends in our industry and the markets in which we operate;

• changes in the market price of the products we sell;

• changes in financial estimates and recommendations by securities analysts;

• acquisitions and financings;

• quarterly variations in our operating results;

• the operating and stock price performance of other companies that investors in our common stock may deemcomparable; and

• purchases or sales of blocks of our common stock.

Part of this volatility is attributable to the current state of the stock market, in which wide price swings arecommon. This volatility may adversely affect the prices of our common stock regardless of our operatingperformance. If any of the foregoing occurs, our stock price could fall and we may be exposed to class actionlawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Our principal facilities are located in California, Pennsylvania, Texas, Malaysia and China.

Information regarding our principal properties as of April 30, 2010 is as follows:

Location Use Size(Square Foot)

OwnedIpoh, Malaysia . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing operations 640,000

LeasedSunnyvale, California . . . . . . . . . . . . . . . . . . . Corporate headquarters, research and

development, sales and marketing, general andadministrative and limited manufacturingoperations 92,000

Fremont, California . . . . . . . . . . . . . . . . . . . . Wafer fabrication operations 44,000WW

Boston, Massachusetts . . . . . . . . . . . . . . . . . . Research and development 25,000

Champaign, Illinois . . . . . . . . . . . . . . . . . . . . Research and development 2,500

Shanghai, China . . . . . . . . . . . . . . . . . . . . . . . General administrative and manufacturingoperations of our subsidiary, Transwave Fiber(Shanghai) Inc. 152,000

Shenzhen, China . . . . . . . . . . . . . . . . . . . . . . Manufacturing operations 8,659

Allen, Texas . . . . . . . . . . . . . . . . . . . . . . . . . Principal manufacturing operations for ourAOC division. A portion of this facility iscurrently subleased. 160,000

Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development and logistics 13,600

Hyderabad, India . . . . . . . . . . . . . . . . . . . . . . Information technology support center 6,230

Horsham, Pennsylvania . . . . . . . . . . . . . . . . . Manufacturing, research and development,engineering, sales and administration,executive offices 80,970

Waterloo, Australia . . . . . . . . . . . . . . . . . . . . Manufacturing, research and development,engineering, administration offices 32,798

Waterloo, Australia . . . . . . . . . . . . . . . . . . . . Research and development 4,682

Nes Ziona, Israel . . . . . . . . . . . . . . . . . . . . . . Research and development, engineering andmanufacturing operations 16,670

We believe our principal facilities are in good condition and are suitable and adequate to accommodate ourneeds for the foreseeable future.

Item 3. Legal Proceedings

Stock Option Derivative Litigation

On November 30, 2006, we announced that we had undertaken a voluntary review of our historical stockoption grant practices subsequent to our initial public offering in November 1999. The review was initiated bysenior management, and preliminary results of the review were discussed with the Audit Committee of our board ofdirectors. Based on the preliminary results of the review, senior management concluded, and the Audit Committeeagreed, that it was likely that the measurement dates for certain stock option grants differed from the recorded grantdates for such awards and that we would likely need to restate our historical financial statements to record non-cashcharges for compensation expense relating to some past stock option grants. The Audit Committee thereafterconducted a further investigation and engaged independent legal counsel and financial advisors to assist in thatinvestigation. The Audit Committee concluded that measurement dates for certain option grants differed from therecorded grant dates for such awards. Our management, in conjunction with the Audit Committee, conducted afurther review to finalize revised measurement dates and determine the appropriate accounting adjustments to ourhistorical financial statements. The announcement of the investigation resulted in delays in filing our quarterly

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reports on Form 10-Q for the quarters ended October 29, 2006, January 28, 2007, and January 27, 2008, and ourannual report on Form 10-K for the fiscal year ended April 30, 2007. On December 4, 2007, we filed all four of thesereports which included revised financial statements.

Following our announcement on November 30, 2006 that the Audit Committee of the board of directors hadvoluntarily commenced an investigation of our historical stock option grant practices, we were named as a nominaldefendant in several shareholder derivative cases. These cases have been consolidated into two proceedings pendingin federal and state courts in California. The federal court cases have been consolidated in the United States DistrictCourt for the Northern District of California. The state court cases have been consolidated in the Superior Court ofCalifornia for the County of Santa Clara. The plaintiffs in all cases have alleged that certain of our current or formerofficers and directors caused us to grant stock options at less than fair market value, contrary to our publicstatements (including our financial statements), and that, as a result, those officers and directors are liable to us. Nospecific amount of damages has been alleged, and by the nature of the lawsuits, no damages will be alleged againstus. On May 22, 2007, the state court granted our motion to stay the state court action pending resolution of theconsolidated federal court action. On June 12, 2007, the plaintiffs in the federal court case filed an amendedcomplaint to reflect the results of the stock option investigation announced by the Audit Committee in June 2007.On August 28, 2007, we and the individual defendants filed motions to dismiss the complaint. On January 11, 2008,the Court granted the motions to dismiss, with leave to amend. On May 12, 2008, the plaintiffs filed an amendedcomplaint. We and the individual defendants filed motions to dismiss the amended complaint on July 1, 2008. TheCourt granted the motions to dismiss on September 22, 2009, and entered judgment in favor of the defendants. Theplaintiffs have appealed the judgment to the United States Court of Appeal for the Ninth Circuit.

Securities Class Action

A securities class action lawsuit was filed on November 30, 2001 in the United States District Court for theSouthern District of New York, purportedly on behalf of all persons who purchased our common stock fromNovember 17, 1999 through December 6, 2000. The complaint named as defendants Finisar, Jerry S. Rawls, ourPresident and Chief Executive Officer, Frank H. Levinson, our former Chairman of the Board and Chief TechnicalOfficer, Stephen K. Workman, our Senior Vice President, Corporate Development and Investor Relations and ourformer Senior Vice President and Chief Financial Officer, and an investment banking firm that served as anunderwriter for our initial public offering in November 1999 and a secondary offering in April 2000. The complaint,as subsequently amended, alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b)and 20(b) of the Securities Exchange Act of 1934, on the grounds that the prospectuses incorporated in theregistration statements for the offerings failed to disclose, among other things, that (i) the underwriter had solicitedand received excessive and undisclosed commissions from certain investors in exchange for which the underwriterallocated to those investors material portions of the shares of our stock sold in the offerings and (ii) the underwriterhad entered into agreements with customers whereby the underwriter agreed to allocate shares of our stock sold inthe offerings to those customers in exchange for which the customers agreed to purchase additional shares of ourstock in the aftermarket at pre-determined prices. No specific damages are claimed. Similar allegations have beenmade in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000, which wereconsolidated for pretrial purposes. In October 2002, all claims against the individual defendants were dismissedwithout prejudice. On February 19, 2003, the Court denied defendants’ motion to dismiss the complaint.

In February 2009, the parties reached an understanding regarding the principal elements of a settlement,subject to formal documentation and Court approval. Under the settlement, the underwriter defendants will pay atotal of $486 million, and the issuer defendants and their insurers will pay a total of $100 million to settle all of thecases. On August 25, 2009, we funded approximately $327,000 with respect to our pro rata share of the issuers’contribution to the settlement and certain costs. This amount was accrued in the financial statements during the firstquarter of fiscal 2010. On October 2, 2009, the Court granted approval of the settlement and on November 19, 2009the Court entered final judgment. The judgment has been appealed by certain individual class members.

Section 16(b) Lawsuit

A lawsuit was filed on October 3, 2007 in the United States District Court for the Western District ofWashington by Vanessa Simmonds, a purported holder of our common stock, against two investment banking firms

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that served as underwriters for the initial public offering of our common stock in November 1999. None of ourofficers, directors or employees were named as defendants in the complaint. On February 28, 2008, the plaintifffiled an amended complaint. The complaint, as amended, alleges that: (i) the defendants, other underwriters of theoffering, and unspecified officers, directors and our principal shareholders constituted a “group” that owned inexcess of 10% of our outstanding common stock between November 11, 1999 and November 20, 2000; (ii) thedefendants were therefore subject to the “short swing” prohibitions of Section 16(b) of the Securities Exchange Actof 1934; and (iii) the defendants engaged in purchases and sales, or sales and purchases, of our common stock withinperiods of less than six months in violation of the provisions of Section 16(b). The complaint seeks disgorgement ofall profits allegedly received by the defendants, with interest and attorneys fees, for transactions in violation ofSection 16(b). Finisar, as the statutory beneficiary of any potential Section 16(b) recovery, is named as a nominaldefendant in the complaint.

This case is one of 54 lawsuits containing similar allegations relating to initial public offerings of technologycompany issuers, which were coordinated (but not consolidated) by the Court. On July 25, 2008, the real defendantsin all 54 cases filed a consolidated motion to dismiss, and a majority of the nominal defendants (including we) fileda consolidated motion to dismiss, the amended complaints. On March 19, 2009, the Court dismissed the amendedcomplaints naming the nominal defendants that had moved to dismiss, without prejudice, because the plaintiff hadnot properly demanded action by their respective boards of directors before filing suit; and dismissed the amendedcomplaints naming nominal defendants that had not moved to dismiss, with prejudice, finding the claims time-barred by the applicable statute of limitation. Also on March 19, 2009, the Court entered judgment against theplaintiff in all 54 cases. The plaintiff has appealed the order and judgments. The real defendants have cross-appealedthe dismissal of certain amended complaints without prejudice, contending that dismissal should have been withprejudice because the amended complaints are barred by the applicable statute of limitation.

JDSU/Emcore Patent Litigation

On September 11, 2006, JDSU and Emcore Corporation filed a complaint in the United States District Courtfor the Western District of Pennsylvania alleging that certain cable television transmission products acquired inconnection with our acquisition of Optium Corporation, specifically our 1550 nm HFC externally modulatedtransmitter, in addition to possibly “products as yet unidentified,” infringe two U.S. patents, referred to as the “‘003and ‘071 Patents.” On March 14, 2007, JDSU and Emcore filed a second complaint in the United States DistrictCourt for the Western District of Pennsylvania alleging that our 1550 nm HFC quadrature amplitude modulatedtransmitter used in cable television applications, in addition to possibly “products as yet unidentified,” infringes onanother U.S. patent, referred to as the “‘374 Patent”. On December 10, 2007, we filed a complaint in the UnitedStates District Court for the Western District of Pennsylvania seeking a declaration that the patents asserted againstour HFC externally modulated transmitter are unenforceable due to inequitable conduct committed by the patentapplicants and/or the attorneys or agents during prosecution. On February 18, 2009, the Court granted JDSU’s andEmcore’s motion for summary judgment dismissing our declaratory judgment action on inequitable conduct. Wehave appealed this ruling.

A trial with respect to the remaining two actions was held in October 2009. On November 1, 2009, the jurydelivered its verdict that we had infringed the ‘003 and the ‘071 Patents as well as the ‘374 Patent. In addition, the juryfound that our infringement of the ‘003 and the ‘071 Patents was willful. The jury determined that, with respect to the‘003 and the ‘071 Patents, Emcore was entitled to $974,364 in damages and JDSU was entitled to $622,440 indamages, and, with respect to the ‘374 Patent, Emcore was entitled to $1,800,000 in damages. The Court declined toenhance the damages award with respect to the ‘003 and ‘071 Patents as a result of the jury’s determination that ourinfringement was willful. In addition, the Court declined to issue a permanent injunction against further manufactureor sale of the products found to have infringed the patents-in-suit. We are appealing on several grounds.

Based on our review of the record in this case, including discussion with and analysis by counsel of the basesfor our appeal, we have determined that we have a number of strong arguments available on appeal and, althoughthere can be no assurance as to the ultimate outcome, we believe that the judgment against us will ultimately bereversed, or remanded for a new trial in which we believe we would prevail. As a result, we have concluded that it isnot probable that Emcore and JDSU will ultimately prevail in this matter; therefore, we have not recorded anyliability for this judgment.

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Digital Diagnostics Patent Litigation

On January 5, 2010, we filed a complaint for patent infringement in the United States District Court for theNorthern District of California. The complaint alleges that certain optoelectronic transceivers from SourcePhotonics, Inc., MRV Communications, Inc., Neophotonics Corp. and Oplink Communications, Inc. infringeeleven Finisar patents. As described in further detail below, this suit is no longer pending against MRV Com-munications, NeoPhotonics or Oplink. The complaint asks the Court to enter judgment (a) that the defendants haveinfringed, actively induced infringement of, and/or contributorily infringed the patents-in-suit, (b) preliminarily andpermanently enjoining the defendants from further infringement of the patents-in-suit, or, to the extent not soenjoined, ordering the defendants to pay compulsory ongoing royalties for any continuing infringement of thepatents-in-suit, (c) ordering that the defendants account, and pay actual damages (but no less than a reasonableroyalty), to us for the defendants’ infringement of the patents-in-suit, (d) declaring that the defendants are willfullyinfringing one or more of the patents-in-suit and ordering that the defendants pay treble damages to us, (e) orderingthat the defendants pay our costs, expenses, and interest, including prejudgment interest, (f) declaring that this is anexceptional case and awarding us our attorneys’ fees and expenses, and (g) granting such other and further relief asthe Court deems just and appropriate, or that we may be entitled to as a matter of law or equity.

On March 23, 2010, each defendant filed a first amended answer in which they denied the allegations of thecomplaint and asserted affirmative defenses including non-infringement, invalidity, statute of limitations, pros-ecution history estoppel, laches, estoppel and “other defenses.” Each defendant also asserted counterclaims againstus seeking declaratory judgment of invalidity for each of the patents asserted in the complaint, declaratory judgmentof unenforceability for certain of the patents asserted in the complaint, alleging monopolization of “the DigitalDiagnostics Technology Market” in violation of Section 2 of the Sherman Act, attempted monopolization of “theOptical Transceiver Market” in violation of Section 2 of the Sherman Act, breach of contract, and unfaircompetition. Source Photonics, Inc. also asserted counterclaims alleging that certain of our optoelectronictransceivers infringe two of its patents. NeoPhotonics Corp. also asserted counterclaims alleging that certain ofour wavelength selective switches infringe two of its patents. Each defendant asked the Court to enter judgment(a) denying us relief and dismissing the complaint with prejudice, (b) granting declaratory judgment that ourasserted patents are invalid, (c) awarding attorneys’ fees and reasonable expenses, (d) awarding compensatorydamages for our allegedly anticompetitive conduct, and trebling such damages, (e) permanently enjoining us fromallegedly monopolizing or attempting to monopolize the United States markets for optical transceiver and digitaldiagnostics technology for such transceivers, (f) awarding attorneys’ fees and costs, (g) granting declaratoryjudgment that certain of our asserted patents are unenforceable, (h) for damages resulting from our alleged breach ofcontract, (i) permanently enjoining us from engaging in allegedly unfair competition, (j) restoring money and/orproperty that we have allegedly acquired by means of such unfair competition, (k) awarding all costs, expenses andinterest, including prejudgment interest and (l) for such additional relief as the Court may deem just and proper.Source Photonics, Inc. and NeoPhotonics Corp. each asked the Court in addition to enter judgment (m) finding thatwe have infringed, actively induced the infringement of, and/or contributed to the infringement of each of theirrespective asserted patents, (n) awarding damages not less than a reasonable royalty, and (o) permanently enjoiningus from such alleged infringement. NeoPhotonics Corp. also asked the Court to enter judgment trebling damages forour allegedly willful infringement of one of their two asserted patents. We filed a motion to dismiss the defendants’non-patent counterclaims or, in the alternative, to sever and stay those counterclaims and to strike certain of thedefendants’ affirmative defenses on April 13, 2010. The defendants filed their opposition to our motion on April 29,2010, and we filed our reply on May 6, 2010.

On May 5, 2010, the Court entered an order finding that the defendants had been improperly joined in a singlesuit and dismissed each of the defendants except Source Photonics, Inc. without prejudice to our re-filing our claimsagainst the other dismissed defendants in separate suits. On May 18, 2010, Source Photonics, Inc. filed a secondamended answer that restated certain of its affirmative defenses and counterclaims, omitted the affirmative defensesof prosecution history estoppel and “other defenses,” and omitted both patent counterclaims. The relief SourcePhotonics, Inc. asks from the Court was revised accordingly. Although Source Photonics did not include its patentcounterclaims in its Second Amended Answer, Source Photonics’ trial counsel subsequently indicated that theywould attempt to have these claims added back into the suit.

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On May 19, 2010, the Court granted Source Photonics, Inc. leave to file the second amended answer, andbifurcated and stayed all discovery and proceedings related to Source Photonics, Inc.’s counterclaims for declar-atory judgment of unenforceability for certain of the patents asserted in the complaint, and alleged monopolizationof “the Digital Diagnostics Technology Market” in violation of Section 2 of the Sherman Act, attemptedmonopolization of “the Optical Transceiver Market” in violation of Section 2 of the Sherman Act, breach ofcontract, and unfair competition pending resolution of our patent infringement claims. The Court allowed us towithdraw our motion to dismiss Source Photonics, Inc.’s non-patent counterclaims without prejudice to our refilingthis motion to dismiss after the stay has been lifted.

A claim construction hearing is currently scheduled for October 6, 2010, and the case is currently scheduled fortrial on July 25, 2011.

Export Compliance

During mid-2007, Optium became aware that certain of its analog RF over fiber products may, depending onend use and customization, be subject to the International Traffic in Arms Regulations, or ITAR. Accordingly,Optium filed a detailed voluntary disclosure with the United States Department of State describing the details ofpossible inadvertent ITAR violations with respect to the export of a limited number of certain prototype products, aswell as related technical data and defense services. Optium may have also made unauthorized transfers of ITAR-restricted technical data and defense services to foreign persons in the workplace. Additional information has beenprovided upon request to the Department of State with respect to this matter. In late 2008, a grand jury subpoenafrom the office of the U.S. Attorney for the Eastern District of Pennsylvania was received requesting documentsfrom 2005 through the present referring to, relating to or involving the subject matter of the above referencedvoluntary disclosure and export activities.

While the Department of State encourages voluntary disclosures and generally affords parties mitigating creditunder such circumstances, we nevertheless could be subject to continued investigation and potential regulatoryconsequences ranging from a no-action letter, government oversight of facilities and export transactions, monetarypenalties, and in extreme cases, debarment from government contracting, denial of export privileges and criminalsanctions, any of which would adversely affect our results of operations and cash flow. The Department of State andU.S. Attorney inquiries may require us to expend significant management time and incur significant legal and otherexpenses. We cannot predict how long it will take or how much more time and resources we will have to expend toresolve these government inquiries, nor can we predict the outcome of these inquiries.

Other Litigation

In the ordinary course of business, we are a party to litigation, claims and assessments in addition to thosedescribed above. Based on information currently available, management does not believe the impact of these othermatters will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 4. (Removed and Reserved)

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Executive Officers of the Registrant

Information concerning our current executive officers as of June 30, 2010 is as follows:

Name Position(s) Age

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . . Chairman of the Board 65

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer 48

Kurt Adzema. . . . . . . . . . . . . . . . . . . . . Senior Vice President, Finance and Chief FinancialOfficer

41

Mark Colyar . . . . . . . . . . . . . . . . . . . . . Senior Vice President, Operations and Engineering 46

Todd Swanson . . . . . . . . . . . . . . . . . . . . Senior Vice President, Sales and Marketing 38

Stephen K. Workman. . . . . . . . . . . . . . . Senior Vice President, Corporate Development andInvestor Relations

59

Joseph A. Young . . . . . . . . . . . . . . . . . . Senior Vice President, Operations and Engineering 53

Christopher E. Brown . . . . . . . . . . . . . . Vice President, General Counsel and Secretary 42

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

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

Kurt Adzema has served as the Company’s Senior Vice President, Finance and Chief Financial Officer sinceMarch 2010. Mr. Adzema joined the Company in January 2005 and served as the Company’s Vice President ofStrategy and Corporate Development prior to his appointment as Senior Vice President, Finance and ChiefFinancial Officer. Prior to joining the Company, he held various positions at SVB Alliant, a subsidiary of SiliconValley Bank which advised technology companies on merger and acquisition transactions, at MontgomerySecurities/Banc of America Securities, an investment banking firm, and in the financial restructuring group ofSmith Barney. Mr. Adzema holds a B.A. in Mathematics from the University of Michigan and an M.B.A. from theWharton School at the University of Pennsylvania.

Mark Colyar has served as our Senior Vice President, Operations and Engineering since the completion of theOptium merger in August 2008. Mr. Colyar served as Optium’s Senior Vice President of Engineering from April2001 through the completion of the merger and also served as General Manager of Optium’s U.S. operations fromFebruary 2004 through the completion of the merger. Mr. Colyar served in various positions at JDSU’s former TSDdivision from November 1995 to April 2001, including Director of Sales and Marketing, Vice President ofEngineering 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. Swansonjoined us in 2002 and served as Product Line Manager, Director of Marketing and Vice President, Sales andMarketing for our Optics Division prior to his appointment as Senior Vice President. Mr. Swanson served as ProductLine Manager for Princeton Lightwave, a laser company, from June 2001 until he joined Finisar. Mr. Swansonserved as Director of Marketing (on a part-time basis while he was studying for his M.B.A.) for Aegis Semicon-ductor, a manufacturer of optical semiconductor devices, from December 2000 through June 2001. From July 1995to August 1999, Mr. Swanson was employed by Hewlett-Packard Company as project leader and project manager in

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the Automotive Lighting Group of the Optoelectronics Division. Mr. Swanson holds a B.S. in MechanicalEngineering 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, Corporate Development and Investor Relationssince March 2010. Mr. Workman served as our Senior Vice President, Finance and Chief Financial Officer fromSeptember 2002 until March 2010 and as our Vice President, Finance and Chief Financial Officer from March 1999to September 2002. Mr. Workman also served as our Secretary from August 1999 until August 2008. FromNovember 1989 to March 1999, Mr. Workman served as Chief Financial Officer at Ortel Corporation. Mr. Workmanholds 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 ofthe Optium merger in August 2008. Mr. Young served as our Senior Vice President and General Manager, OpticsDivision 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 PlatformDivision of Intel Corporation from May 2001 to October 2004. Mr. Young served as Vice President of Operations ofLightLogic, Inc. from September 2000 to May 2001, when it was acquired by Intel, and as Vice President ofOperations of Lexar Media, Inc. from December 1999 to September 2000. Mr. Young was employed from March1983 to December 1999 by Tyco/ Raychem, where he served in various positions, including his last position asDirector of Worldwide Operations for the OEM Electronics Division of Raychem Corporation. Mr. Young holds aB.S. in Industrial Engineering from Rensselaer Polytechnic Institute, an M.S. in Operations Research from theUniversity 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 ofthe Optium merger in August 2008. Mr. Brown served as Optium’s General Counsel and Vice President ofCorporate Development from August 2006 through the completion of the merger. Prior to that, Mr. Brown was apartner at the law firm of Goodwin Procter LLP from January 2005 to August 2006, a partner at the law firm ofMcDermott, Will & Emery from January 2003 to January 2005 and an associate at McDermott, Will & Emery fromMarch 2000 to January 2003. Mr. Brown holds a B.A. in Economics and a B.A. in Political Science from theUniversity of Massachusetts at Amherst and a J.D. from Boston College Law School.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities

Since our initial public offering on November 11, 1999, our common stock has traded on the Nasdaq NationalMarket under the symbol “FNSR.” The following table sets forth the range of high and low closing sales prices ofour common stock for the periods indicated:

High Low

Fiscal 2010 Quarter Ended:April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16.92 $10.04

January 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11.47 $ 7.19

November 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.64 $ 4.88

August 2, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.88 $ 3.60

Fiscal 2009 Quarter Ended:April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.76 $ 1.68

February 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.68 $ 2.32

November 2, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.12 $ 4.48

August 3, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15.04 $ 9.52

According to records of our transfer agent, we had 400 stockholders of record as of May 30, 2010 and webelieve there is a substantially greater number of beneficial holders. We have never declared or paid dividends onour common stock and currently do not intend to pay dividends in the foreseeable future so that we may reinvest ourearnings in the development of our business. The payment of dividends in the future will be at the discretion of theBoard of Directors.

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Item 6. Selected Financial Data

You should read the following selected financial data in conjunction with “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and thenotes thereto included elsewhere in this report. The statement of operations data set forth below for the fiscal yearsended April 30, 2010, 2009 and 2008 and the balance sheet data as of April 30, 2010 and 2009 are derived from, andare qualified by reference to, our audited consolidated financial statements included elsewhere in this report. Thestatement of operations data set forth below for the fiscal years ended April 30, 2007 and 2006 and the balance sheetdata as of April 30, 2008, 2007 and 2006 are derived from audited financial statements not included in this report.

2010 2009 2008 2007 2006Fiscal Years Ended April 30,

(In thousands, except per share data)

Statement of Operations Data:Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $629,880 $ 497,058 $401,625 $381,263 $325,956

Loss from continuing operations . . . . . . . . . . . $ (22,806) $(262,492) $ (32,844) $ (41,360) $ (30,763)

Net loss per share from continuing operations-basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.35) $ (4.99) $ (0.85) $ (1.07) $ (0.85)

Net loss per share from continuing operations-diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.35) $ (4.99) $ (0.85) $ (1.07) $ (0.85)

Balance Sheet Data:Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $626,730 $ 380,388 $479,740 $532,382 $496,878

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . $ 19,250 $ 21,412 $ 5,638 $ 7,535 $ 9,571

Convertible notes . . . . . . . . . . . . . . . . . . . . . . $128,839 $ 134,255 $238,487 $241,946 $238,275

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Management’s discussion and analysis of financial condition and results of operation, or MD&A, is providedas a supplement to the accompanying consolidated financial statements and footnotes to help provide an under-standing of our financial condition, changes in our financial condition and results of operations. The MD&A isorganized as follows:

• Forward-looking statements. This section discusses how forward-looking statements made by us in theMD&A and elsewhere in this report are based on management’s present expectations about future events andare inherently susceptible to uncertainty and changes in circumstances.

• Business Overview. This section provides an introductory overview and context for the discussion andanalysis that follows in MD&A.

• Recent Developments. This section summarizes recent developments that affect our financial conditionand operating results.

• Critical Accounting Policies and Estimates. This section discusses those accounting policies that are bothconsidered important to our financial condition and operating results and require significant judgment andestimates on the part of management in their application.

• Results of Operations. This section provides analysis of the Company’s results of operations for the threefiscal years ended April 30, 2010. A brief description is provided of transactions and events that impactcomparability of the results being analyzed.

• Financial Condition and Liquidity. This section provides an analysis of our cash position and cash flows,as well as a discussion of our financing arrangements and financial commitments.

Forward Looking Statements

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actualresults could differ substantially from those anticipated in these forward-looking statements as a result of many

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factors, including those set forth under “Item 1A. Risk Factors.” The following discussion should be read togetherwith our consolidated financial statements and related notes thereto included elsewhere in this document.

Business Overview

We are a leading provider of optical subsystems and components that are used to interconnect equipment inshort-distance local area networks, or LANs, and storage area networks, or SANs, and longer distance metropolitanarea networks, or MANs, fiber-to-the-home networks, or FTTx, cable television networks, or CATV, and wide areanetworks, or WANs. Our optical subsystems consist primarily of transmitters, receivers, transceivers and tran-sponders which provide the fundamental optical-electrical interface for connecting the equipment used in buildingthese networks, including switches, routers and file servers used in wireline networks as well as antennas and basestations for wireless networks. These products rely on the use of semiconductor lasers and photodetectors inconjunction with integrated circuit design and novel packaging technology to provide a cost-effective means fortransmitting and receiving digital signals over fiber optic cable at speeds ranging from less than 1 gigabit persecond, or Gbps, to 100Gbps, using a wide range of network protocols and physical configurations over distances of70 meters to 200 kilometers. We supply optical transceivers and transponders that allow point-to-point commu-nications on a fiber using a single specified wavelength or, bundled with multiplexing technologies, can be used tosupply multi-gigabit bandwidth over several wavelengths on the same fiber. We also provide products that are usedfor dynamically switching network traffic from one optical wavelength to another across multiple wavelengthswithout first converting to an electrical signal, known as wavelength selective switches, or WSS. These products aresometimes combined with other components and sold as linecards, also known as reconfigurable optical add/dropmultiplexers, or ROADMs. Our line of optical components consists primarily of packaged lasers and photodetectorsused in transceivers, primarily for LAN and SAN applications, and passive optical components used in buildingMANs. Demand for our products is largely driven by the continually growing need for additional bandwidth createdby the ongoing proliferation of data and video traffic that must be handled by both wireline and wireless networks.

Our manufacturing operations are vertically integrated and we utilize internal sources for many of the keycomponents used in making our products including lasers, photodetectors and integrated circuits, or ICs, designedby our own internal IC engineering teams. We also have internal assembly and test capabilities that make use ofinternally designed equipment for the automated testing of our optical subsystems and components.

We sell our optical products to manufacturers of storage systems, networking equipment and telecommu-nication equipment or their contract manufacturers, such as Alcatel-Lucent, Brocade, Cisco Systems, EMC,Emulex, Ericsson, Hewlett-Packard Company, Huawei, IBM, Juniper, Qlogic, Siemens and Tellabs. Thesecustomers, in turn, sell their systems to businesses and to wireline and wireless telecommunications serviceproviders and cable TV operators, collectively referred to as carriers.

We sell our products through our direct sales force, with the support of our manufacturers’ representatives,directly to domestic customers and indirectly through distribution channels to international customers. Theevaluation and qualification cycle prior to the initial sale of our optical subsystems may span a year or more.

Our cost of revenues consists of materials, salaries and related expenses for manufacturing personnel,manufacturing overhead, warranty expense, inventory adjustments for obsolete and excess inventory and theamortization of acquired developed technology associated with acquisitions that we have made. As a result ofbuilding a vertically integrated business model, our manufacturing cost structure has become more fixed. While thiscan be beneficial during periods when demand is strong, it can be more difficult to reduce costs during periods whendemand for our products is weak, product mix is unfavorable or selling prices are generally lower. While we haveundertaken measures to reduce our operating costs there can be no assurance that we will be able to reduce our costof revenues enough to achieve or sustain profitability.

Our gross profit margins vary among our product families. Our optical products sold for longer distance MANand telecom applications typically have higher gross margins than our products for shorter distance LAN and SANapplications. Our overall gross margins have fluctuated from period to period as a result of overall revenue levels,shifts in product mix, the introduction of new products, decreases in average selling prices and our ability to reduceproduct costs.

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Since October 2000, we have completed the acquisition of ten privately-held companies and certain businessesand assets from six other companies in order to broaden our product offerings and provide new sources of revenue,production capabilities and access to advanced technologies that we believe will enable us to reduce our productcosts and develop innovative and more highly integrated product platforms while accelerating the timeframerequired to develop such products.

Recent Developments

Combination with Optium Corporation

On August 29, 2008, we completed a business combination with Optium Corporation, a leading designer andmanufacturer of high performance optical subsystems for use in telecommunications and cable TV networksystems, through the merger of Optium with a wholly-owned subsidiary of Finisar. We believe that the combinationof the two companies created the world’s largest supplier of optical components, modules and subsystems for thecommunications industry and will leverage the Finisar’s leadership position in the storage and data networkingsectors of the industry and Optium’s leadership position in the telecommunications and CATV sectors to create amore competitive industry participant. In addition, as a result of the combination, we expect to realize cost synergiesrelated to operating expenses and manufacturing costs resulting from (1) the transfer of production to lower costlocations, (2) improved purchasing power associated with being a larger company and (3) cost synergies associatedwith the integration of components into product designs previously purchased in the open market by Optium. Weaccounted for the combination using the purchase method of accounting and as a result have included the operatingresults of Optium in our consolidated financial results since the August 29, 2008 consummation date. At the closingof the merger, we issued 20,101,082 shares of Finisar common stock, valued at approximately $242.8 million, inexchange for all of the outstanding common stock of Optium. The value of the shares issued was calculated usingthe five day average of the closing price of the Company’s common stock from the second trading day before themerger announcement date on May 16, 2008 through the second trading day following the announcement, or $12.08per share.

Sale of Network Tools Division

On July 15, 2009, we completed the sale of substantially all of the assets of our Network Tools Division toJDSU. We received $40.6 million in cash and recorded a net gain on sale of the business of $36.1 million beforeincome taxes in the first quarter of fiscal 2010. The assets, liabilities and operating results related to this business,have been classified as discontinued operations in the consolidated financial statements for all periods presented.

Following the completion of the sale, we no longer offer network performance test products. These productsaccounted for $37.3 million, $38.6 million and $44.2 million in revenues during fiscal 2007, 2008 and 2009,respectively. Gross profit and operating profit margins on sales of network performance test products were generallyhigher than on our optical subsystem and component products.

Exchange Offers

On August 11, 2009, we completed exchange offers under which we exchanged $33.1 million aggregateprincipal amount of our outstanding 21⁄1

2⁄⁄ % Convertible Subordinated Notes due 2010 and $14.4 million aggregateprincipal of our outstanding 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes due 2010 for an aggregate of approx-imately $24.9 million in cash and approximately 3.5 million shares of our common stock.

Reverse Stock Split

On September 25, 2009, we effected a one-for-eight reverse split of our common stock.

New Credit Facility

On October 2, 2009, we entered into an agreement with Wells Fargo Foothill, LLC to establish a new$70 million senior secured revolving credit facility to finance working capital and to refinance existing indebt-edness, including the repurchase or repayment of our outstanding convertible notes. Borrowings under the credit

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facility bear interest at rates based on the prime rate and LIBOR plus variable margins, under which applicableinterest rates currently range from 5.75% to 7.00% per annum. Borrowings are guaranteed by Finisar’s U.S. sub-sidiaries and secured by substantially all of the assets of Finisar and its U.S. subsidiaries. The credit facility maturesfour years following the date of the agreement, subject to certain conditions.

Convertible Debt Financing

On October 15, 2009 we sold $100 million aggregate principal amount of a new series of 5.0% ConvertibleSenior Notes due 2029.

Repurchase of Convertible Notes

Between September 8, 2009 and April 30, 2010, we purchased $51.9 million aggregate principal amount of our21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes due 2010 and $13.0 million aggregate principal amount of our21⁄1

2⁄⁄ % Convertible Subordinated Notes due 2010 in privately negotiated transactions.

Common Stock Offering

On March 23, 2010, we completed the sale of 9,787,093 shares of our common stock at a price to the public of$14.00 per share. Total gross proceeds of the offering were $137.0 million. Net proceeds to the Company afterdeducting underwriting discounts and commissions and offering expenses were $131.1 million.

Critical Accounting Policies

The preparation of our financial statements and related disclosures require that we make estimates, assump-tions and judgments that can have a significant impact on our revenue and operating results, as well as on the valueof certain assets and contingent liabilities on our balance sheet. We believe that the estimates, assumptions andjudgments involved in the accounting policies described below have the greatest potential impact on our financialstatements and, therefore, consider these to be our critical accounting policies. See Note 2 to our consolidatedfinancial statements included elsewhere in this report for more information about these critical accounting policies,as well as a description of other significant accounting policies. We believe there have been no material changes toour critical accounting policies during the fiscal year ended April 30, 2010 compared to prior years other than theadoption of authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) for accountingfor convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). SeeNote 1 to our consolidated financial statements.

Revenue Recognition, Warranty and Sales Returns

We recognize revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed tothe customer, generally upon shipment, the price is fixed or determinable and collectability is reasonably assured.

At the time revenue is recognized, we establish an accrual for estimated warranty expenses associated with oursales, recorded as a component of cost of revenues. Our standard warranty period usually extends 12 months fromthe date of sale although it can extend for longer periods of three to five years for certain products sold to certaincustomers. Our warranty accrual represents our best estimate of the amounts necessary to settle future and existingclaims on products sold as of the balance sheet date. While we believe that our warranty accrual is adequate and thatthe judgment applied is appropriate, such amounts estimated to be due and payable could differ materially fromwhat actually transpire in the future. If our actual warranty costs are greater than the accrual, costs of revenue willincrease in the future. We also provide an allowance for estimated customer returns, which is netted against revenue.This provision is based on our historical returns, analysis of credit memo data and our return policies. If thehistorical data used by us to calculate the estimated sales returns does not properly reflect future returns, revenuecould be reduced in the future.

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Allowance for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstanceswhere, subsequent to delivery, we become aware of a customer’s potential inability to meet its obligations, werecord a specific allowance for the doubtful account to reduce the net recognized receivable to the amount wereasonably believe will be collected. For all other customers, we recognize an allowance for doubtful accountsbased on the length of time the receivables are past due and historical actual bad debt history. A material adversechange in a major customer’s ability to meet its financial obligations to us could result in a material reduction in theestimated amount of accounts receivable that can ultimately be collected and an increase in our general andadministrative expenses for the shortfall.

Slow Moving and Obsolete Inventories

We make inventory commitment and purchase decisions based upon sales forecasts. To mitigate the com-ponent supply constraints that have existed in the past and to fill orders with non-standard configurations, we buildinventory levels for certain items with long lead times and enter into certain longer-term commitments for certainitems. We permanently write off 100% of the cost of inventory that we specifically identify and consider obsolete orexcessive to fulfill future sales estimates. We define obsolete inventory as inventory that will no longer be used inthe manufacturing process. We periodically discard obsolete inventory. Excess inventory is generally defined asinventory in excess of projected usage, and is determined using our best estimate of future demand at the time, basedupon information then available to us. In making these assessments, we are required to make judgments as to thefuture demand for current or committed inventory levels. We assume that the last twelve months demand isgenerally indicative of the demand for the next twelve months. In addition to the 12-month demand forecast, we alsoconsider:

• parts and subassemblies that can be used in alternative finished products;

• parts and subassemblies that are unlikely to be engineered out of our products; and

• known design changes which would reduce our ability to use the inventory as planned.

Significant differences between our estimates and judgments regarding future timing of product transitions,volume and mix of customer demand for our products and actual timing, volume and demand mix may result inadditional write-offs in the future, or additional usage of previously written-off inventory in future periods for whichwe would benefit from a reduced cost of revenues in those future periods.

Investment in Equity Securities

For strategic reasons, we may make minority investments in private or public companies or extend loans orreceive equity or debt from these companies for services rendered or assets sold. Our minority investments in privatecompanies are primarily motivated by our desire to gain early access to new technology. Our investments in thesecompanies are passive in nature in that we generally do not obtain representation on the boards of directors. Ourinvestments have generally been part of a larger financing in which the terms were negotiated by other investors,typically venture capital investors. These investments are generally made in exchange for preferred stock with aliquidation preference that helps protect the underlying value of our investment. At the time we made ourinvestments, in most cases the companies had not completed development of their products and we did not enter intoany significant supply agreements with the companies in which we invested. In determining if and when a decline inthe market value of these investments below their carrying value is other-than-temporary, we evaluate the marketconditions, offering prices, trends of earnings and cash flows, price multiples, prospects for liquidity and other keymeasures of performance. Our policy is to recognize an impairment in the value of its minority equity investmentswhen clear evidence of an impairment exists, such as (a) the completion of a new equity financing that may indicatea new value for the investment, (b) the failure to complete a new equity financing arrangement after seeking to raiseadditional funds or (c) the commencement of proceedings under which the assets of the business may be placed inreceivership or liquidated to satisfy the claims of debt and equity stakeholders. Future adverse changes in marketconditions or poor operating results at any of the companies in which we hold a minority position could result in animpairment of our investment and/or an inability to recover the carrying value of these investments.

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Goodwill, Intangibles and Other Long-Lived Assets

Goodwill, purchased technology, and other intangible assets resulting from acquisitions are accounted forunder the purchase method. Intangible assets with finite lives are amortized over their estimated useful lives.Amortization of purchased technology and other intangibles has been provided on a straight-line basis over periodsranging from three to ten years.

Goodwill is assessed for impairment annually or more frequently when an event occurs or circumstanceschange between annual tests that would more likely than not reduce the fair value of the reporting unit below itscarrying value. Goodwill is tested for impairment at the reporting unit level at adoption and at least annuallythereafter, utilizing a two-step methodology. The initial step requires us to determine the fair value of each reportingunit and compare it to the carrying value, including goodwill, of such unit. If the fair value of the reporting unitexceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reportingunit exceeds its fair value, the goodwill of the unit may be impaired. The amount, if any, of the impairment is thenmeasured in the second step in which we determine the implied value of goodwill based on the allocation of theestimated fair value determined in the initial step to all assets and liabilities of the reporting unit.

We are required to make judgments about the recoverability of our long-lived assets, other than goodwill,whenever events or changes in circumstances indicate that the carrying value of these assets may be impaired or notrecoverable. In order to make such judgments, we are required to make assumptions about the value of these assetsin the future including future prospects for earnings and cash flows. If impairment is indicated, we write those assetsdown to their fair value which is generally determined based on discounted cash flows. Judgments and assumptionsabout the future are complex, subjective and can be affected by a variety of factors including industry and economictrends, our market position and the competitive environment of the businesses in which we operate.

At April 30, 2010, goodwill and intangible assets were $0 million and $23 million, respectively. During fiscal2009, we recorded $150 million of additional goodwill resulting from the combination with Optium. However, wealso recorded $238.5 million of impairment charges for goodwill and other intangible assets as discussed underResults of Operation.

Stock-Based Compensation Expense

Stock-based compensation cost for all stock-based payment awards made to employees and directorsincluding employee stock options and employee stock purchases under our Employee Stock Purchase Plan ismeasured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basisover the requisite service period, which is generally the vesting period. Compensation expense for expected-to-veststock-based awards that were granted on or prior to April 30, 2006 was valued under the multiple-option approachand will continue to be amortized using the accelerated attribution method. Subsequent to April 30, 2006,compensation expense for expected-to-vest stock-based awards is valued under the single-option approach andamortized on a straight-line basis, net of estimated forfeitures.

We estimate the fair value of stock-based payment awards on the date of grant using the Black-Scholes optionpricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense overthe requisite service periods in our consolidated statements of operations.

The determination of the fair value of stock-based awards on the date of grant using an option pricing model isaffected by our stock price as well as assumptions regarding a number of complex and subjective variables. Thesevariables include our expected stock price volatility over the expected term of the awards, actual and projectedemployee stock option exercise behaviors, the risk-free interest rate, estimated forfeitures and expected dividends.

We estimate the expected term of options granted by calculating the average term from our historical stockoption exercise experience. We calculate the volatility factor based on our historical stock prices. We base the risk-free interest rate on zero-coupon yields implied from U.S. Treasury issues with remaining terms similar to theexpected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and thereforeuse an expected dividend yield of zero in the option pricing model. We are required to estimate forfeitures at thetime of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We

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use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only forthose awards that are expected to vest.

We measure the fair value of restricted stock units using the market value on the grant date.

If we use different assumptions for estimating stock-based compensation expense in future periods or if actualforfeitures differ materially from our estimated forfeitures, the change in our stock-based compensation expensecould materially affect our operating income, net income and net income per share.

Restructuring Accrual

We are required to recognize liability for costs associated with an exit or disposal activity when the liability isincurred. We calculate facilities consolidation charges using estimates that are based upon the remaining futurelease commitments for vacated facilities from the date of facility consolidation, net of estimated future subleaseincome. The estimated costs of vacating the leased facilities are based on market information and trend analyses,including information obtained from third party real estate sources.

Accounting for Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, income tax expenseis recognized for the amount of taxes payable or refundable for the current year. Deferred tax assets and liabilitiesare recognized using enacted tax rates for the effect of temporary differences between the book and tax bases ofrecorded assets and liabilities and their reported amounts, along with net operating loss carryforwards and creditcarryforwards. We reduce the deferred tax assets by recording a valuation allowance if it is more likely than not thata portion of the deferred tax asset will not be realized.

We provide for income taxes based upon the geographic composition of worldwide earnings and taxregulations governing each region. The calculation of tax liabilities involves significant judgment in estimatingthe impact of uncertainties in the application of complex tax laws. Also, our current effective tax rate assumes thatUnited States income taxes are not provided for the undistributed earnings of non-United States subsidiaries. Weintend to indefinitely reinvest the earnings of all foreign corporate subsidiaries accumulated in fiscal 2008 andsubsequent years.

Our assumptions, judgments and estimates relative to the current provision for income taxes take into accountcurrent tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conductedby foreign and domestic tax authorities. We have established reserves for income taxes to address potentialexposures involving tax positions that could be challenged by tax authorities. Although we believe our assumptions,judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution ofany future tax audits could significantly impact the amounts provided for income taxes in our consolidated financialstatements.

Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into accountpredictions of the amount and category of future taxable income, such as income from operations or capital gainsincome. Actual operating results and the underlying amount and category of income in future years could render ourcurrent assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions,judgments and estimates mentioned above could cause our actual income tax obligations to differ from ourestimates, thus materially impacting our financial position and results of operations.

Pending Adoption of New Accounting Standards

In April 2010, the FASB issued revised guidance to clarify that an employee share-based payment award withan exercise price denominated in the currency of a market in which a substantial portion of the entity’s equitysecurities trade should not be considered to contain a condition that is not a market, performance, or servicecondition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. Theamendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginningon or after December 15, 2010. The amendments in this update should be applied by recording a cumulative-effectadjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for

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all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if theamendments had been applied consistently since the inception of the award. The cumulative-effect adjustmentshould be presented separately. Earlier application is permitted. We do not believe the adoption of this guidance willhave a material impact on our consolidated financial statements.

In January 2010, the FASB issued revised guidance intended to improve disclosures related to fair valuemeasurements. New disclosures under this guidance require (a) an entity to disclose separately the amounts ofsignificant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for thetransfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e.present the activity on a gross basis rather than net) in the reconciliation for fair value measurements usingsignificant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for thelevel of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures aboutthe valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair valuemeasurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure areeffective for us beginning May 2010, except for the disclosure requirements related to the purchases, sales,issuances and settlements in the rollforward activity of Level 3 fair value measurements which will be effective forus beginning May 2011. We do not believe the adoption of this guidance will have a material impact on ourconsolidated financial statements.

In October 2009, the FASB amended the accounting standards for revenue recognition to remove tangibleproducts containing software components and nonsoftware components that function together to deliver theproduct’s essential functionality from the scope of industry-specific software revenue recognition guidance. InOctober 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(i) provide updated guidance on whether multiple deliverables exist, how the deliverables in anarrangement should be separated, and how the consideration should be allocated;

(ii) require an entity to allocate revenue in an arrangement using estimated selling prices (ESP) ofdeliverables if a vendor does not have vendor-specific objective evidence of selling price (VSOE) or third-party evidence of selling price (TPE); and

(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relativeselling price method.

The accounting changes summarized in this guidance are effective for fiscal years beginning on or after June 15,2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application.We do not believe the adoption of this guidance will have a material impact on our consolidated financialstatements.

In June 2009, the FASB issued revised guidance to improve the relevance, representational faithfulness, andcomparability of the information that a reporting entity provides in its financial statements about a transfer offinancial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and atransferor’s continuing involvement, if any, in transferred financial assets. This guidance must be applied as of thebeginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interimperiods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlierapplication is prohibited. It must be applied to transfers occurring on or after the effective date. We are currentlyevaluating the potential impact, if any, of the adoption of this guidance on our consolidated results of operations andfinancial condition.

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Results of Operations

The following table sets forth certain statement of operations data as a percentage of total revenues for theperiods indicated:

2010 2009 2008Fiscal Years Ended April 30

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70.7 70.8 70.2

Impairment of acquired developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.3 —

Amortization of acquired developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.0 1.1

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.5 27.9 28.7

Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.0 16.1 15.7

Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 5.6 6.7

General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 7.2 9.6

Acquired in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2.1 —

Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 — —

Amortization of purchased intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.3 0.4 0.3

Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 48.0 —

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.7 79.4 32.3

Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 (51.5) (3.6)

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.3 1.4

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.4) (2.9) (5.4)

Gain (loss) on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.0) 0.6 —

Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.3) (0.7) —

Loss from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . (3.9) (54.2) (7.6)

Provision (benefit) for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.3) (1.4) 0.6

Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.6) (52.8) (8.2)

Income (loss) from discontinued operations, net of income taxes . . . . . . . . . . . . . . . 5.8 0.4 (11.5)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2% (52.4)% (19.7)%

Comparison of Fiscal Years Ended April 30, 2010 and 2009

Revenues. Revenues increased $132.8 million, or 26.7%, to $629.9 million in fiscal 2010 compared to$497.1 million in fiscal 2009. The increase reflects the impact of a combination of factors including increasedspending on infrastructure by business enterprises and telecommunications companies as they deal with theongoing growth in bandwidth through their networks as well as improvement in general economic conditions thatcontributed to an increase in information technology infrastructure spending. Additionally, we believe that weachieved an increase in our market share, particularly for higher speed products, due in part to the qualification ofseveral products for higher speed applications at certain customers and our entry into new markets.

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The following table sets forth the changes in revenues by market segment and speed (in thousands):

2010 2009 Change % ChangeFor Fiscal Year Ended April 30,

Transceivers, transponders & components

Greater than 10 Gbps:

LAN/SAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,765 $ 37,086 $ 43,679 117.8%

Metro/Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,797 138,844 28,953 20.9%

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,562 175,930 72,632 41.3%

Less than 10 Gbps:

LAN/SAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,582 181,571 6,011 3.3%

Metro/Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,228 107,965 (5,737) -5.3%

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,810 289,536 274 0.1%

Total transceivers, transponders & components . . . . . . . . . . . 538,372 465,466 72,906 15.7%

ROADM linecards and WSS modules . . . . . . . . . . . . . . . . . . 72,402 22,200 50,202 226.1%

CATV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,106 9,392 9,714 103.4%

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $629,880 $497,058 $132,822 26.7%

Impairment and Amortization of Acquired Developed Technology. Impairment and amortization of acquireddeveloped technology, components of cost of revenues, decreased $1.4 million, or 22.5%, to $4.8 million in fiscal2010 compared to $6.2 million in fiscal 2009. The decrease was primarily due to the $1.2 million impairment in thefourth quarter of fiscal 2009 for intellectual property related to our acquisition of Kodeos Communications Inc.

Gross Profit. Gross profit increased $40.9 million, or 29.5%, to $179.7 million in fiscal 2010 compared to$138.8 million in fiscal 2009. The increase in gross profit was primarily due to the $132.8 million increase inrevenues. Gross profit as a percentage of total revenues was 28.5% in fiscal 2010 compared to 27.9% in fiscal 2009.We recorded charges of $23.0 million for obsolete and excess inventory in fiscal 2010 compared to $14.4 million infiscal 2009. We sold inventory that was written-off in previous periods resulting in a benefit of $15.1 million infiscal 2010 and $8.1 million in fiscal 2009. As a result, we recognized a net charge of $7.9 million in fiscal 2010compared to $6.3 million in fiscal 2009. Manufacturing overhead included stock-based compensation charges of$4.2 million in fiscal 2010 and $3.3 million in fiscal 2009. Excluding amortization of acquired developedtechnology, the net impact of excess and obsolete inventory charges and stock-based compensation charges, grossprofit would have been $196.6 million, or 31.2% of revenue, in fiscal 2010 compared to $154.5 million, or 31.1% ofrevenue in fiscal 2009. The slight increase in gross margin percentage primarily reflects the benefits of highermanufacturing unit volume and the increase in sales of higher margin ROADM products offset by the unfavorableimpact of lower pricing on some products, lower manufacturing yields on certain new higher speed components andmodules and the impact of selling certain lower margin Optium products for the full fiscal year compared to onlyeight months in fiscal 2009 as the Optium merger closed at the end of August 2008.

Research and Development Expenses. Research and development expenses increased $14.7 million, or18.3%, to $94.8 million in fiscal 2010 compared to $80.1 million in fiscal 2009. The increase was primarily due tothe additional four months of expenses of approximately $6.2 million from Optium operations following the mergerwhich are included in fiscal 2010, higher project costs and increases in employee salaries and bonuses. Included inresearch and development expenses were stock-based compensation charges of $5.5 million in fiscal 2010 and$5.6 million in fiscal 2009. Research and development expenses as a percent of revenues decreased slightly to15.0% in fiscal 2010 compared to 16.1% in fiscal 2009.

Sales and Marketing Expenses. Sales and marketing expenses increased $3.0 million, or 10.7%, to$30.7 million in fiscal 2010 compared to $27.7 million in fiscal 2009. The increase was primarily due to increasedsales commissions as a result of the increase in revenue, partially offset by cost synergies realized as a result of theOptium merger. Included in sales and marketing expenses were stock-based compensation charges of $1.9 million

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in fiscal 2010 and $1.7 million in fiscal 2009. Sales and marketing expenses as a percent of revenues decreased to4.9% in fiscal 2010 compared to 5.6% in fiscal 2009.

General and Administrative Expenses. General and administrative expenses increased $954,000 or 2.7%, to$36.8 million in fiscal 2010 compared to $35.8 million in fiscal 2009, primarily due to the additional four months ofexpenses from Optium operations following the merger which are included in fiscal 2010 offset by cost synergiesrealized as a result of the Optium merger. Included in general and administrative expenses were stock-basedcompensation charges of $3.4 million in fiscal 2010 and $2.9 million in fiscal 2009. General and administrativeexpenses as a percent of revenues decreased to 5.8% in fiscal 2010 compared to 7.2% in fiscal 2009.

Acquired In-process Research and Development. In-process research and development, or IPR&D, expensesrelated to the Optium merger were $10.5 million in fiscal 2009. The were no IPR&D expenses in fiscal 2010.

Amortization of Purchased Intangibles. Amortization of purchased intangibles decreased $117,000, or 5.5%,to $2.0 million in fiscal 2010 compared to $2.1 million in fiscal 2009. The decrease was primarily due to the sale ofassets, including all intangible assets, of our Network Tools Division to JDSU.

Impairment of Goodwill. As a result of the financial liquidity crisis, the economic recession, reductions inour internal revenue and operating forecasts and a substantial reduction in our market capitalization, during fiscal2009, we performed an analysis to determine if there was an indication of impairment of our intangible assets.Based on this analysis, we determined that the goodwill related to our optical subsystems and components reportingunit was impaired and had an implied fair value of $0 compared to its carrying value. Accordingly, we recordedimpairment charges of $178.8 million during the second quarter of fiscal 2009. Following the completion ofgoodwill impairment analyses, we recorded additional charges of $46.5 million in the third quarter of fiscal 2009and $13.2 million in the fourth quarter of fiscal 2009. As a result of these impairment charges, as of April 30, 2009the carrying value of our goodwill was zero.

Restructuring Costs. As a result of moving certain manufacturing activities from our facility in Allen, Texasto our lower cost manufacturing facility in Ipoh, Malaysia, we have determined that approximately 32% of the spacein the Allen facility is no longer required for manufacturing. As a result, we closed that portion of the facility in thesecond quarter of fiscal 2010 and are actively searching for a tenant to sublease the vacated space. As a result, werecorded a restructuring charge of $4.2 million in the second quarter of fiscal 2010 which represents the presentvalue of the lease payments for that portion of the facility that we are obligated to make over the remaining leaseterm. No restructuring charges were recorded in fiscal 2009.

Interest Income. Interest income decreased $1.6 million, or 91.8%, to $144,000 in fiscal 2010 compared to$1.8 million in fiscal 2009. The decrease was due primarily to lower cash balances as a result of the principalrepayment of $92.0 million of our 51⁄1

4⁄⁄ % Convertible Subordinated Notes due 2008 in the second quarter of fiscal2009 and, to a lesser extent, lower interest rates.

Interest Expense. Interest expense decreased $5.6 million, or 38.6%, to $9.0 million in fiscal 2010 comparedto $14.6 million in fiscal 2009. The decrease was primarily related to lower outstanding debt due to the principalrepayment of $92.0 million on our 51⁄1

4⁄⁄ % Convertible Subordinated Notes due 2008 in the second quarter of fiscal2009, repayment of $47.5 million of aggregate principal amount of our 21⁄1

2⁄⁄ % Convertible Subordinated Notes due2010 and our 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes due 2010 pursuant to exchange offers in the secondquarter of fiscal 2010 and repurchases of $13.0 million principal amount of our 21⁄1

2⁄⁄ % Convertible SubordinatedNotes and $51.9 million of our 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes in the second quarter of fiscal 2010.Included in interest expense for fiscal 2010 were non-cash charges of $3.0 million related to the accounting for oursenior convertible notes due to the adoption of FASB authoritative guidance which requires us to separately accountfor the liability (debt) and equity (conversion option) components of our 2.5% senior subordinated convertible notesthat may be settled in cash (or other assets) on conversion in a manner that reflects our non-convertible debtborrowing rate. The separation of the conversion option created an original issue discount in the bond componentwhich is to be accreted as interest expense over the term of the instrument using the interest method, resulting in anincrease in interest expense. Included in interest expense for fiscal 2009 were a non-cash charge of $4.9 millionrelated to the accounting for our senior convertible notes and a non-cash charge of $1.8 million to amortize thebeneficial conversion feature of the convertible notes due in October 2008.

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Gain and Loss on Repurchase/Purchase of Convertible Notes. During fiscal 2010, we recorded a $25.0 mil-lion loss related to the repurchase of certain convertible notes. On August 11, 2009, we retired $33.1 million, or66.2%, of the $50.0 million aggregate outstanding principal amount of our 21⁄1

2⁄⁄ % Convertible Subordinated Notesdue 2010 and $14.4 million, or approximately 15.7%, of the $92.0 million aggregate outstanding principal amountof our 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes due 2010 pursuant to exchange offers which commenced onJuly 9, 2009. The consideration for the exchange consisted of (i) $525 in cash and (ii) 596 shares of our commonstock per $1,000 principal amount of notes. We issued approximately 3.5 million shares of common stock and paidout approximately $24.9 million in cash to the former holders of notes in the exchange offers. The totalconsideration paid in the exchange was approximately $4.7 million less than the par value of the notes retired.This exchange was considered to be an induced conversion in accordance with FASB authoritative guidance and theretirement of the notes was accounted for as if they had been converted according to their original terms, with thatvalue compared to the fair value of the consideration paid in the exchange offers. The original conversion price ofthe notes was $30.08 per share. Accordingly, although the trading price of our common stock was $5.04 at the timeof the exchange, we recorded a loss on debt extinguishment of $23.7 million in the quarter ended November 1, 2009.The additional $1.4 million of loss on debt extinguishment was primarily due to expenses incurred in connectionwith the exchange offers.

During fiscal 2009, we recorded a $3.1 million gain on the repurchase of certain convertible notes. The gainwas related to the repurchase of $8.0 million in principal amount of our 2.5% convertible notes due October 15,2010 that we purchased at a discount to par value of 50.1%.

Other Income (Expense), Net. Other expense was $1.9 million in fiscal 2010 compared to $3.7 million infiscal 2009. Other expense in fiscal 2010 was primarily related to a $2 million other-than-temporary write-down of aminority interest investment. Other expense in fiscal 2009 was primarily due to unrealized non-cash foreignexchange losses of $1.6 million related to the re-measurement of a $17.8 million note re-payable in U.S. dollarswhich is recorded on the books of our subsidiary in Malaysia whose functional currency is the Malaysian ringgit anda $1.2 million other-than-temporary write-down of a minority investment during the period.

Provision for Income Taxes. We recorded income tax benefits of $1.6 million and of $7.0 million for fiscal2010 and fiscal 2009, respectively. The income tax benefit for fiscal 2010 included minimum state taxes of$400,000, federal refundable credits of $500,000 and foreign income tax benefit of $1.5 million arising in certainforeign jurisdictions in which the Company conducts business. The income tax benefit for fiscal 2009 included anon-cash benefit arising from the reversal of previously recorded deferred tax liabilities related to tax amortizationof goodwill for which no financial statement amortization had occurred.

Discontinued Operations. As discussed above, on July 15, 2009, we completed the sale of certain assetsrelated to our Network Tools Division to JDSU. We agreed to perform certain manufacturing activities for JDSUunder a transition services agreement entered into at the time of the sale. The expenses associated with the transitionservices agreement have been classified as results of discontinued operations. During fiscal 2010, we incurred netoperating income from discontinued operations of $36.9 million, including a gain of $35.9 million on the sale and anet operating gain of $1.0 million. Net operating expenses associated with the transition services agreement fromJuly 15, 2009 through April 30, 2010 were $142,000, which included an adjustment of $165,000 recorded as anadjustment to the gain on sale of discontinued operations.

Comparison of Fiscal Years Ended April 30, 2009 and 2008

Revenues. Revenues increased $95.4 million, or 23.8%, to $497.1 million in fiscal 2009 compared to$401.6 million in fiscal 2008. The increase was primarily due to the inclusion of $91.3 million in revenue in fiscal2009 as a result of our merger with Optium which was consummated on August 29, 2008.

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The following table sets forth the changes in revenues by market segment and speed (in thousands):

2009 2008 Change % ChangeFor Fiscal Year Ended April 30,

Transceivers, transponders & components

Greater than 10 Gbps:

LAN/SAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,086 $ 30,419 $ 6,667 21.9%Metro/Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,844 66,418 72,426 109.0%

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,930 96,837 79,093 81.7%

Less than 10 Gbps:

LAN/SAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,571 187,679 (6,108) - 3.3%

Metro/Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,965 116,533 (8,568) - 7.4%

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289,536 304,212 (14,676) - 4.8%

Total transceivers, transponders & components . . . . . . . . . . . 465,466 401,049 64,417 16.1%

ROADM linecards and WSS modules . . . . . . . . . . . . . . . . . . 22,200 — 22,200 100.0%

CATV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,392 576 8,816 1530.6%

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $497,058 $401,625 $ 95,433 23.8%

Impairment and Amortization of Acquired Developed Technology. Amortization and impairment of acquireddeveloped technology, components of cost of revenues, increased $1.5 million, or 31.9%, to $6.2 million in fiscal2009 compared to $4.7 million in fiscal 2008. The increase was primarily due to the $1.2 million impairment in thefourth quarter of fiscal 2009 for intellectual property related to our acquisition of Kodeos Communications Inc.

Gross Profit. Gross profit increased $23.6 million, or 20.5% to $138.8 million in fiscal 2009 compared to$115.2 million in fiscal 2008. The increase in gross profit was partially due to the inclusion of $23.4 million of grossprofits from Optium’s operations for eight months of the twelve month period ended April 30, 2009. Gross profit asa percentage of total revenues was 27.9% in fiscal 2009 compared to 28.7% in fiscal 2008. We recorded charges of$14.4 million for obsolete and excess inventory in fiscal 2009 compared to $12.1 million in fiscal 2008. We soldinventory that had been written-off in previous periods resulting in a benefit of $8.1 million in fiscal 2009 and$6.0 million in fiscal 2008. As a result, we recognized a net charge of $6.3 million in fiscal 2009 compared to$6.1 million in fiscal 2008. Manufacturing overhead included stock-based compensation charges of $3.3 million infiscal 2009 and $2.9 million in fiscal 2008. Additionally, manufacturing overhead in fiscal 2008 included$1.0 million of other payroll related charges associated with the completion of our previously reported stockoption investigation. Excluding amortization of acquired developed technology, the net impact of excess andobsolete inventory charges, stock-based compensation charges and other stock option related charges, gross profitwould have been $154.5 million, or 31.1% of revenues, in fiscal 2009 compared to $129.9 million, or 32.3% ofrevenues, in fiscal 2008. The decrease in adjusted gross profit margin was primarily due to inclusion of Optium’soperating results for the eight months ended April 30, 2009.

Research and Development Expenses. Research and development expenses increased $17.0 million, or27.1%, to $80.1 million in fiscal 2009 compared to $63.1 million in fiscal 2008. The increase was primarily due to$13.9 million in expenses related to Optium’s operations following the merger and an increase in employee relatedexpenses and costs of materials associated with new product development. Included in research and developmentexpenses were stock-based compensation charges of $5.6 million in fiscal 2009 and $3.5 million fiscal 2008.Additionally, research and development expenses in fiscal 2008 included payroll related charges of $2.6 millionincurred in connection with the completion of our stock option investigation. Research and development expensesas a percent of revenues increased to 16.1% in fiscal 2009 compared to 15.7% in fiscal 2008.

Sales and Marketing Expenses. Sales and marketing expenses increased $717,000, or 2.7%, to $27.7 millionin fiscal 2009 compared to $27.0 million in fiscal 2008. The slight increase in sales and marketing expenses wasprimarily due to payroll related expenses related to the Optium merger. Included in sales and marketing expenseswere stock-based compensation charges of $1.7 million in fiscal 2009 and $1.3 million in fiscal 2008. Additionally,

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sales and marketing expenses in fiscal 2008 included payroll related charges of $676,000 incurred in connectionwith the completion of our stock option investigation. Sales and marketing expenses as a percent of revenuesdecreased to 5.6% in fiscal 2009 compared to 6.7% fiscal 2008.

General and Administrative Expenses. General and administrative expenses decreased $2.5 million, or6.6%, to $35.8 million in fiscal 2009 compared to $38.3 million in fiscal 2008. The decrease was primarily due to a$7.9 million decrease in legal and consulting fees as a result of the completion of our stock option investigation anda $2.0 million reduction in litigation and intellectual property related legal fees. This decrease was partially offsetby the addition of $5.4 million in expenses primarily related to Optium’s operations following the merger and otherpersonnel and IT related spending. Included in general and administrative expenses were stock-based compensationcharges of $2.9 million in fiscal 2009 and $1.9 million in fiscal 2008. Additionally, general and administrativeexpenses for fiscal 2008 included payroll related charges of $1.1 million incurred in connection with the completionof our stock option investigation. General and administrative expenses as a percent of revenues decreased to 7.2% infiscal 2009 compared to 9.5% in fiscal 2008.

Acquired In-process Research and Development. In-process research and development from continuingoperations, or IPR&D, expenses related to the Optium merger were $10.5 million in fiscal 2009. There were noIPR&D charges in fiscal 2008.

Amortization of Purchased Intangibles. Amortization of purchased intangibles increased $953,000, or79.9%, to $2.1 million in fiscal 2009 compared to $1.2 million in fiscal 2008. The increase was primarily dueto $1.6 million of amortization of additional intangible assets acquired in the Optium merger, partially offset by areduction in amortization of certain assets associated with our AZNA and Kodeos acquisitions.

Impairment of Goodwill and Intangible Assets. The number of shares to be exchanged in the Optium mergerwas fixed at 6.262 shares of our common stock for each share of Optium common stock. The closing price of ourcommon stock on May 16, 2008 was $12.24, while a five-day average used to calculate the consideration paid in themerger was $12.08. The preliminary allocation of the merger consideration resulted in the recognition of anadditional $150 million of goodwill which, when combined with the $88 million of goodwill acquired prior to themerger, resulted in a total goodwill balance of approximately $238 million. The actual operating results and outlookfor both companies between the date of the definitive agreement and the effective date of the merger had notchanged to any significant degree, with both companies separately reporting record revenues for their interimquarters.

Between the effective date of the merger and November 2, 2008, the end of the second quarter of fiscal 2009,we concluded that there were sufficient indicators to require an interim goodwill impairment analysis. Among theseindicators were a significant deterioration in the macroeconomic environment largely caused by the widespreadunavailability of business and consumer credit, a significant decrease in our market capitalization as a result of adecrease in the trading price of our common stock to $4.88 at the end of the quarter and a decrease in internalexpectations for near-term revenues, especially those expected to result from the Optium merger. For purposes ofthis analysis, our estimates of fair value were based on a combination of the income approach, which estimates thefair value of our reporting units based on future discounted cash flows, and the market approach, which estimatesthe fair value of our reporting units based on comparable market prices. As of the filing of our quarterly report onForm 10-Q for the second quarter of fiscal 2009, we had not completed our analysis due to the complexities involvedin determining the implied fair value of the goodwill for the optical subsystems and components reporting unit,which is based on the determination of the fair value of all assets and liabilities of this reporting unit. However,based on the work performed through the date of the filing, we concluded that an impairment loss was probable andcould be reasonably estimated. Accordingly, we recorded a $178.8 million non-cash goodwill impairment charge,representing our best estimate of the impairment loss during the second quarter of fiscal 2009.

While finalizing our impairment analysis during the third quarter of fiscal 2009, we concluded that there wereadditional indicators sufficient to require another interim goodwill impairment analysis. Among these indicatorswere a worsening of the macroeconomic environment largely caused by the unavailability of business and consumercredit, an additional decrease in our market capitalization as a result of a decrease in the trading price of ourcommon stock to $4.08 at the end of the quarter and a further decrease in internal expectations for near-termrevenues. For purposes of this analysis, our estimates of fair value were again based on a combination of the income

48

approach and the market approach. As of the filing of our quarterly report on Form 10-Q for the third quarter offiscal 2009, we had not completed our analysis due to the complexities involved in determining the implied fairvalue of the goodwill for the optical subsystems and components reporting unit. However, based on the workperformed through the date of the filing, we concluded that an impairment loss was probable and could bereasonably estimated. Accordingly, we recorded an additional $46.5 million non-cash goodwill impairment charge,representing our best estimate of the impairment loss during the third quarter of fiscal 2009.

As of the first day of the fourth quarter of fiscal 2009, the Company performed the required annual impairmenttesting of goodwill and indefinite-lived intangible assets and determined that the remaining balance of goodwill of$13.2 million was impaired and accordingly recognized an additional impairment charge of $13.2 million in thefourth quarter of fiscal 2009.

During fiscal 2009, we recorded a total of $238.5 million in goodwill impairment charges. At April 30, 2009,the carrying value of goodwill was zero.

Interest Income. Interest income decreased $4.0 million, or 69.6%, to $1.8 million in fiscal 2009 compared to$5.8 million in fiscal 2008. This decrease was due to decreases in our cash balances, primarily as a result of theprincipal repayment of $100.0 million on our 51⁄1

4⁄⁄ % convertible notes due October 15, 2008.

Interest Expense. Interest expense decreased $7.3 million, or 33.3%, to $14.6 million in fiscal 2009compared to $21.9 million in fiscal 2008. This decrease was primarily related to the principal repayment of$100.0 million on our 51⁄1

4⁄⁄ % convertible notes due October 15, 2008. Of the total interest expense for fiscal 2009 andfiscal 2008, approximately $7.9 million and $12.3 million, respectively, was related to our convertible subordinatednotes due in 2008 and 2010 and other borrowings, $1.8 million and $4.9 million, respectively, represented a non-cash charge to amortize the beneficial conversion feature of the notes due in 2008, and $4.9 million and$4.6 million, respectively, represented a non-cash charge related to the adoption of FASB authoritative guidancefor accounting for convertible debt instruments that may be settled in cash upon conversion.

Gain on Debt Repurchase. During fiscal 2009, we repurchased $8.0 million in principal value of our 2.5%convertible notes due October 15, 2010 at a discount to par value of 50.1% and recorded a gain on the repurchase of$3.1 million.

Other Income (Expense), Net. Other expense from continuing operations was $3.7 million in fiscal 2009compared to other income of $113,000 in fiscal 2008. The increase in other expense in fiscal 2009 was primarily dueto unrealized non-cash foreign exchange losses of $1.6 million related to the re-measurement of a $17.8 million notere-payable in U.S. dollars which is recorded on the books of our subsidiary in Malaysia whose functional currency isthe Malaysian ringgit and, a loss of $1.0 million on disposal of fixed assets and a loss of $796,000 on impairment ofan investment in equity security.

Provision for Income Taxes. We recorded an income tax benefit of $7.0 million for fiscal 2009 whichincluded a non-cash benefit of $7.8 million from the reversal of previously recorded deferred tax liabilities as aresult of the impairment of goodwill in fiscal 2009 and current tax expense of $900,000 for minimum federal, stateand foreign income taxes arising in certain foreign jurisdictions in which we conduct business. We recorded anincome tax provision of $2.2 million for fiscal 2008. The income tax provision for fiscal 2008 included a non-cashcharge $1.8 million for deferred tax liabilities that were recorded for tax amortization of goodwill for which nofinancial statement amortization has occurred and current tax expense of $500,000 for minimum federal and statetaxes and foreign income taxes arising in certain foreign jurisdictions in which we conduct business. Due to theuncertainty regarding the timing and extent of our future profitability, we have recorded a valuation allowance tooffset our deferred tax assets which represent future income tax benefits associated with our operating losses. Therecan be no assurance that our deferred tax assets subject to the valuation allowance will ever be realized.

Income/Loss from Discontinued Operations, Net of Taxes. Income from discontinued operations increased$48.3 million to $2.1 million in fiscal 2009 compared to a loss of $46.2 million in fiscal 2008. Based on our annualgoodwill impairment analysis in fiscal 2008, we determined that the goodwill related to our network performancetest systems reporting unit was impaired and had an estimated implied fair value of zero. As a result, we recorded anestimated impairment charge of $40.1 million in the fourth quarter of fiscal 2008.

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Liquidity and Capital Resources

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $11.8 million in fiscal 2010 compared to $370,000 in fiscal2009 and $34.6 million in fiscal 2008. Cash provided by operating activities in fiscal 2010 consisted of net income,adjusted for depreciation, amortization and other non-cash charges and benefits totaling $44.4 million offset by$46.8 million of funding of additional working capital which was primarily related to increases in accountsreceivable and inventories offset by an increase in accounts payable. Accounts receivable increased by $45.8 millionprimarily due to the increase in shipments and no sales of accounts receivable under our non-recourse accountsreceivable purchase agreement with Silicon Valley Bank which was terminated in October 2009. We sold$37.7 million of accounts receivable under this agreement in fiscal 2009. Inventory increased by $26.7 millionand accounts payable increased by $28.4 million due to an increase in purchases to support increased sales.

Net cash provided by operating activities in fiscal 2009 consisted of our net loss of $260.3 million adjusted forgoodwill impairment charges, depreciation, amortization and other non-cash related items totaling $310.7 millionoffset by a $49.9 million increase in working capital levels which were primarily related to an increase in accountsreceivable and decreases in other accrued liabilities, accrued compensation and deferred income taxes. In fiscal2009, accrued liabilities decreased by $9.8 million primarily due to our $11.2 million reduction in financing liabilityrelated to the termination of a sale-leaseback agreement with the landlord for one of our facilities located inSunnyvale, California. This decrease was partially offset by an increase in liability relating to the sales of accountsreceivable made under our non-recourse accounts receivable sales agreement with Silicon Valley Bank. Accruedcompensation decreased by $4.6 million due to reduced salaries and bonuses under a salary reduction plan that weannounced in the fourth quarter of fiscal 2009, lower headcount and the reversal of $800,000 of accrued payroll taxliability relating to the stock compensation investigation which was completed during fiscal 2009. Deferred incometaxes decreased mainly because of a $7.8 million reversal of previously recorded deferred tax liabilities as a result ofthe impairment of goodwill in fiscal 2009. Accounts receivable increased by $33.4 million primarily due to increasein revenues.

Net cash provided by operating activities in fiscal 2008 consisted of our net loss of $79.0 million adjusted forgoodwill impairment charges, depreciation, amortization and other non-cash related items totaling $95.6 millionand a $18.1 million decrease in working capital levels which were primarily related to a decrease in accountsreceivable and an increase in other accrued liabilities, accounts payable and accrued compensation partially offsetby increase in other assets and inventories. Accounts receivable decreased by $8.9 million primarily due to the saleof receivables, partially offset by an increase in revenues. Accounts payable increased by $1.4 million primarily dueto timing of payments. The increase in accrued compensation by $3.8 million was primarily due to employee stockpurchase plan withholding and higher payroll related accruals. Inventories increased by $1.2 million due toincreases in revenues and unit volume. The $5.5 million increase in other assets was primarily related to an increasein receivables from subcontractors due to an increased volume of business with them.

Cash Flows from Investing Activities

Net cash provided by investing activities totaled $10.7 million in fiscal 2010 compared to $45.0 million infiscal 2009 and $5.0 million in fiscal 2008. Net cash provided by investing activities in fiscal 2010 was primarilydue to the $40.7 million received from sale of the assets of our Network Tools Division to JDSU on July 15, 2009.We also received $1.2 million in cash in the first quarter of fiscal 2010 from the sale a promissory note and all of thepreferred stock that we received as consideration for the sale of a product line in the first quarter of fiscal 2009.These receipts were partially offset by $31.4 million of expenditures for capital equipment. Net cash provided byinvesting activities in fiscal 2009 was primarily related to $38.4 million in net maturities of available-for-saleinvestments and $30.1 million of cash obtained as a result of the Optium merger, offset by $23.9 million ofpurchases of equipment to support production expansion. Cash provided by investing activities in fiscal 2008primarily consisted of $30.8 million in proceeds from net sales of short-term investments, $1.6 million in proceedsfrom the sale of an equity investment, $600,000 in proceeds from the sale of property and equipment and $600,000in maturity of restricted securities which was partially offset by purchases of equipment of $27.2 million to support

50

increased production volumes and a $2.0 million equity investment in a private company accounted for under thecost method.

Cash Flows from Financing Activities

Net cash provided by financing activities totaled $147.5 million in fiscal 2010 compared to net cash used infinancing activities of $87.7 million in fiscal 2009 and $16.3 million in fiscal 2008. Cash provided by financingactivities in fiscal 2010 primarily consisted of $98.1 million in proceeds from the issuance of our 5.0% ConvertibleSenior Notes due 2029, $131.1 million in proceeds from our common stock offering, $5.5 million from bankborrowings by our Chinese subsidiary and $8.4 million from the exercise of stock options and purchases under ouremployee stock purchase plan, partially offset by $88.0 million of cash used to purchase outstanding convertiblenotes and $7.7 million of repayments of long-term debt. Cash used in financing activities in fiscal 2009 primarilyreflected repayments of $107.9 million on our outstanding convertible notes and $4.2 million of bank borrowings,partially offset by proceeds of $20.0 million from bank borrowings and $4.5 million from the exercise of stockoptions and purchases under our employee stock purchase plan. The $107.9 million of repayments on ourconvertible notes included retirement of $92 million principal amount of our outstanding 51⁄1

4⁄⁄ % convertiblesubordinated notes, through a combination of private purchases and repayment at maturity, and the repurchaseof $8.0 million principal amount of our 21⁄1

2⁄⁄ % convertible notes at a discount resulting in a realized gain of$3.1 million. Cash used by financing activities in fiscal 2008 primarily consisted of repurchases of $8.2 million inprincipal amount of our outstanding 51⁄1

4⁄⁄ % convertible notes due in October 2008, repayment of $6.0 million ofconvertible notes issued in conjunction with the AZNA acquisition and repayments of $2.0 million under anequipment loan, partially offset by proceeds from the exercise of employee stock options.

Contractual Obligations and Commercial Commitment

Our contractual obligations at April 30, 2010 totaled $215.9 million, as shown in the following table (inthousands):

Contractual Obligations TotalLess Than

1 Year1-3

Years3-5

YearsAfter

5 Years

Payments Due by Period

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,250 $ 4,000 $13,500 $ 1,750 $ —

Convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . 129,581 29,581 — — 100,000

Interest on debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 24,156 5,944 10,690 7,522 —

Operating leases(a) . . . . . . . . . . . . . . . . . . . . . . . . 42,210 6,665 9,570 7,312 18,663

Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . 722 722 — — —

Total contractual obligations . . . . . . . . . . . . . . . . . $215,919 $46,912 $33,760 $16,584 $118,663

(a) Includes operating lease obligations that have been accrued as restructuring charges.

At April 30, 2010, total long-term debt and principal amounts due under convertible debt were $148.8 million,compared to $163.4 million at April 30, 2009.

Long-term debt principally consists of borrowings by our Malaysian subsidiary under two separate loanagreements entered into with a Malaysian bank in July 2008. The first loan is payable in 20 equal quarterlyinstallments of $750,000 beginning in January 2009 and the second loan is payable in 20 equal quarterlyinstallments of $250,000 beginning in October 2008. Both loans are secured by certain property of our Malaysiansubsidiary, guaranteed by us and subject to certain covenants. We and our subsidiary were in compliance with allcovenants associated with these loans as of April 30, 2010. At April 30, 2010, the principal balance outstandingunder these loans was $13.8 million. Long-term debt also includes borrowings by our Chinese subsidiary under aloan agreement entered in with a bank in China in January 2010. Under this agreement, our Chinese subsidiaryborrowed a total of $5.5 million at an initial interest rate of 2.6% per annum. The loan is payable in full on January 6,2013. Interest is payable quarterly.

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Convertible debt consists of a series of convertible subordinated notes in the aggregate principal amount of$3.9 million due October 15, 2010, a series of convertible senior subordinated notes in the aggregate principalamount of $25.7 million due October 15, 2010 and a series of convertible senior notes in the aggregate principalamount of $100.0 million due October 15, 2029. The notes are convertible by the holders at any time prior tomaturity into shares of our common stock at specified conversion prices. The notes are redeemable by us, in wholeor in part at any time on or after October 22, 2014 if the last reported sale price per share of our common stockexceeds 130% of the conversion price for at least 20 trading days within a period of 30 consecutive trading daysending within five trading days of the date on which we provide the notice of redemption.. The notes are also subjectto redemption by the holders in October 2014, 2016, 2019 and 2024. Aggregate annual interest payments on allseries of the notes are approximately $5.7 million.

Interest on debt consists of the scheduled interest payments on our long-term and convertible debt.

Operating lease obligations consist primarily of base rents for facilities we occupy at various locations.

Purchase obligations are related to materials purchased and held by subcontractors on our behalf to fulfill thesubcontractors’ purchase order obligations at their facilities. Our policy with respect to all purchase obligations is torecord losses, if any, when they are probable and reasonably estimable. We believe we have made adequateprovision for potential exposure related to inventory purchased by subcontractors which may go unused. Estimatedlosses on purchase obligations of $722,000 have been expensed and recorded on the consolidated balance sheet asnon-cancelable purchase obligations as of April 30, 2010.

Sources of Liquidity and Capital Resource Requirements

At April 30, 2010, our principal sources of liquidity consisted of $207.0 million of cash and cash equivalentsand an aggregate of $66.6 million available under our credit facility with Wells Fargo Foothill, LLC, subject tocertain restrictions and limitations.

On October 2, 2009, we entered into an agreement with Wells Fargo Foothill, LLC to establish a four-year$70 million senior secured revolving credit facility to finance working capital and to refinance existing indebt-edness, including the repurchase or repayment of our remaining outstanding convertible notes. Borrowings underthe credit facility bear interest at rates based on the prime rate and LIBOR plus variable margins, under whichapplicable interest rates currently range from 5.75% to 7.00% per annum. Borrowings are guaranteed by ourU.S. subsidiaries and secured by substantially all of our assets and those of our U.S. subsidiaries. The credit facilitymatures four years following the date of the agreement, subject to certain conditions. As of April 30, 2010, theavailability of credit under the facility was reduced by $3.4 million for outstanding letters of credit secured underthis agreement. On October 23, 2009, we terminated agreements with Silicon Valley Bank under which variouscredit facilities had previously been available to us.

We believe that our existing balances of cash, cash equivalents and short-term investments, together with thecash expected to be generated from future operations and borrowings under our bank credit facility, will besufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months. Wemay, however, require additional financing to fund our operations in the future or to repay or otherwise retire all ofour outstanding 5% convertible notes due 2029, in the aggregate principal amount of $100 million which is subjectto redemption by the holders in October 2014, 2016, 2019 and 2024. A significant contraction in the capital markets,particularly in the technology sector, may make it difficult for us to raise additional capital if and when it is required,especially if we experience disappointing operating results. If adequate capital is not available to us as required, or isnot available on favorable terms, our business, financial condition and results of operations will be adverselyaffected.

Off-Balance-Sheet Arrangements

At April 30, 2010 and April 30, 2009, we did not have any off-balance sheet arrangements or relationships withunconsolidated entities or financial partnerships, such as entities often referred to as structured finance or specialpurpose entities, which are typically established for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As of April 30, 2010, our exposure to market risk for changes in interest rates related primarily to our long-termdebt.

The following table summarizes principal cash flows and related weighted average interest rates by expectedmaturity dates and fair market value of the debt securities issued by us as of April 30, 2010 (in thousands).

2011 2012 2013 2014 20152016 and

Thereafter Total Cost

FairMarketValue

Fiscal Years Ended April 30,

LiabilitiesLong-term debt:

Fixed rate debt . . . . . . $29,581 — — — — — $ 29,581 $ 29,491

Average interest rate . . 2.50% — — — — — 2.50% —

Fixed rate . . . . . . . . . . $ — — — — — $100,000 $100,000 $159,220

Average interest rate . . — — — — — 5.00% 5.00%

Variable rate debt. . . . . $ 4,000 $4,000 $9,500 $1,750 — — $ 19,250 $ 18,183Average interest rate . . 3.24% 3.24% 3.24% 3.24% — — 3.24%

Our variable rate debt were primarily dependent upon LIBOR rates. A hypothetical 10% change in interestrates would not have a material impact on our financial position, results of operations or cash flows.

We invest in equity instruments of privately-held companies for business and strategic purposes. Theseinvestments are included in other long-term assets and are accounted for under the cost method when our ownershipinterest is less than 20% and we do not have the ability to exercise significant influence. At April 30, 2010, we hadinvestments in four privately-held companies that totaled $12.3 million and were accounted for under the costmethod. For these non-quoted investments, our policy is to regularly review the assumptions underlying theoperating performance and cash flow forecasts in assessing the carrying values. We identify and record impairmentlosses when events and circumstances indicate that such assets are impaired. There were impairment losses on theseassets of $2.0 million during fiscal 2010. We concluded that there were sufficient indicators during the secondquarter of fiscal 2010 to require an investment impairment analysis of our investment in one of these companies.Among these indicators was the completion of a new round of equity financing by the investee and the resultantconversion of the Company’s preferred stock holdings to common stock. We determined that the value of ourminority equity investment was impaired and recorded a $2.0 million impairment loss as other expense during thesecond quarter of fiscal 2010. No impairment losses were recorded in fiscal 2009 and fiscal 2008. If our investmentin a privately-held company becomes readily marketable upon the company’s completion of an initial publicoffering or its acquisition by another company, our investment would be subject to significant fluctuations in fairmarket value due to the volatility of the stock market.

We have subsidiaries located in China, Malaysia, Europe, Israel, Australia and Singapore. Due to the relativevolume of transactions through these subsidiaries, we do not believe that we have significant exposure to foreigncurrency exchange risks. We currently do not use derivative financial instruments to mitigate this exposure. Wecontinue to review this issue and may consider hedging certain foreign exchange risks through the use of currencyforwards or options in future years.

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Item 8. Financial Statements and Supplementary Data

FINISAR CORPORATION CONSOLIDATED FINANCIAL STATEMENTS INDEX

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Consolidated Statement of Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Financial Information by Quarter (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and StockholdersFinisar Corporation

We have audited the accompanying consolidated balance sheets of Finisar Corporation as of April 30, 2010and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of thethree years in the period ended April 30, 2010. Our audits also included the financial statement schedule listed in theIndex at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Finisar Corporation at April 30, 2010 and 2009, and the consolidated resultsof its operations and its cash flows for each of the three years in the period ended April 30, 2010, in conformity withU.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, whenconsidered in relation to the basic financial statements taken as a whole, presents fairly in all material respects theinformation set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of Finisar Corporation’s internal control over financial reporting as of April 30,2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated July 1, 2010 expressed an unqualifiedopinion thereon.

/s/ Ernst & Young LLP

San Jose, CaliforniaJuly 1, 2010

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FINISAR CORPORATION

CONSOLIDATED BALANCE SHEETS

2010 2009April 30,

(In thousands, except share andper share data)

ASSETSCurrent assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 207,024 $ 37,221Accounts receivable, net of allowance for doubtful accounts of $2,085 at April 30,

2010 and $1,069 at April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,617 81,820Accounts receivable, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,855 10,033Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,525 107,764Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,194 6,795Current assets associated with discontinued operations . . . . . . . . . . . . . . . . . . . . . — 4,863

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,215 248,496Property, equipment and improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,214 81,606Purchased technology, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,689 16,459Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,713 13,427Minority investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,289 14,289Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,610 2,584Non-current assets associated with discontinued operations . . . . . . . . . . . . . . . . . . . — 3,527

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 626,730 $ 380,388

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:

Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,838 $ 48,421Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,289 11,428Other accrued liabilities (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,076 30,513Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,571 1,703Current portion of convertible debt (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,839 —Current portion of long-term debt (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 6,107Non-cancelable purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 2,965Current liabilities associated with discontinued operations . . . . . . . . . . . . . . . . . . — 3,160

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,335 104,297Long-term liabilities:

Convertible notes, net of current portion (Note 12) . . . . . . . . . . . . . . . . . . . . . . . 100,000 134,255Long-term debt, net of current portion (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . 15,250 15,305Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,893 2,511Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606 1,149Non-current liabilities associated with discontinued operations . . . . . . . . . . . . . . . — 650

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,084 258,167Stockholders’ equity:

Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issuedand outstanding at April 30, 2010 and April 30, 2009. . . . . . . . . . . . . . . . . . . . — —

Common stock, $0.001 par value, 750,000,000 shares authorized,75,824,913 shares issued and outstanding at April 30, 2010 and59,686,507 shares issued and outstanding at April 30, 2009 . . . . . . . . . . . . . . . 76 60

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,030,373 1,831,224Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,791 2,662Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,697,594) (1,711,725)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,646 122,221Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 626,730 $ 380,388

See accompanying notes.

56

FINISAR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

2010 2009 2008Fiscal Years Ended April 30,


Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $629,880 $ 497,058 $401,625

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,370 352,096 281,770

Impairment of acquired developed technology . . . . . . . . . . . . . . . . . . . . — 1,248 —

Amortization of acquired developed technology . . . . . . . . . . . . . . . . . . . 4,769 4,907 4,667

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,741 138,807 115,188

Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,770 80,136 63,067

Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,702 27,730 27,013

General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,772 35,818 38,343

Acquired in-process research and development . . . . . . . . . . . . . . . . . . — 10,500 —

Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,173 — —

Amortization of purchased intangibles . . . . . . . . . . . . . . . . . . . . . . . . 2,028 2,145 1,192

Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . . . — 238,507 —

Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,445 394,836 129,615

Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,296 (256,029) (14,427)

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 1,762 5,805

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,957) (14,597) (21,876)

Gain (loss) on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,039) 3,064 —

Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,890) (3,654) (113)

Loss from continuing operations before income taxes . . . . . . . . . . . . . . . (24,446) (269,454) (30,611)

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,640) (6,962) 2,233

Loss from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,806) (262,492) (32,844)

Income (loss) from discontinued operations, net of income taxes . . . . . . . $ 36,937 $ 2,149 $ (46,169)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,131 $(260,343) $ (79,013)

Net income (loss) per share — basic and diluted

Basic:Loss per share from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ (0.35) $ (4.99) $ (0.85)

Income (loss) per share from discontinued operations . . . . . . . . . . . . . . . $ 0.57 $ 0.04 $ (1.20)

Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ (4.95) $ (2.05)

Diluted:

Loss per share from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ (0.35) $ (4.99) $ (0.85)

Income (loss) per share from discontinued operations . . . . . . . . . . . . . . . $ 0.57 $ 0.04 $ (1.20)

Net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ (4.95) $ (2.05)

Shares used in computing net income (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,952 52,557 38,585

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,952 52,557 38,585


57

FINISAR CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Shares Amount

AdditionalPaid-inCapital

OtherComprehensive

Income(Loss)

AccumulatedDeficit

TotalStockholders’

Equity

Common Stock

(In thousands, except share data)

Balance at April 30, 2007 . . . . . . . . . . . . . . . . . 38,579,122 $39 $1,549,101 $11,162 $(1,372,369) $ 187,933

Exercise of warrants, stock options, net ofrepurchase of unvested shares . . . . . . . . . . . . . 25,781 — 179 — — 179

Employee share-based compensation expense . . . . — — 10,740 — — 10,740Change in unrealized loss on available-for-sale

investments . . . . . . . . . . . . . . . . . . . . . . . . . — — — (4,165) — (4,165)Change in cumulative foreign currency translation

adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 5,976 — 5,976Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (79,013) (79,013)Comprehensive loss . . . . . . . . . . . . . . . . . . . . . (77,202)Balance at April 30, 2008 . . . . . . . . . . . . . . . . . 38,604,903 $39 $1,560,020 $12,973 $(1,451,382) $ 121,650

Exercise of stock options and restricted stockissued under restricted stock awards plan . . . . . 352,981 — 1,138 — — 1,138

Issuance of common stock through employee stockpurchase plan . . . . . . . . . . . . . . . . . . . . . . . . 627,541 1 3,385 — — 3,386

Employee share-based compensation expense . . . . — — 14,894 — — 14,894Assumption of stock options related to acquisition

of Optium . . . . . . . . . . . . . . . . . . . . . . . . . . — — 8,986 — — 8,986Issuance of stock related to acquisition of

Optium . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,101,082 20 242,801 — — 242,821Change in unrealized loss on available-for-sale

investments . . . . . . . . . . . . . . . . . . . . . . . . . — — — (925) — (925)Change in cumulative foreign currency translation

adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (9,386) — (9,386)Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (260,343) (260,343)Comprehensive loss . . . . . . . . . . . . . . . . . . . . . (270,654)Balance at April 30, 2009 . . . . . . . . . . . . . . . . . 59,686,507 $60 $1,831,224 $ 2,662 $(1,711,725) $ 122,221

Exercise of stock options, warrants and restrictedstock issued under restricted stock awardsplan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555,694 1 4,861 — — 4,862

Issuance of common stock through employee stockpurchase plan . . . . . . . . . . . . . . . . . . . . . . . . 1,256,571 1 3,604 — — 3,605

Employee share-based compensation expense . . . . — — 15,860 — — 15,860Income tax benefit on exercise of stock options . . . — — 112 — — 112Shares issued on conversion of convertible debt. . . 3,539,048 4 16,379 — — 16,383Reacquisition of convertible debt equity

component . . . . . . . . . . . . . . . . . . . . . . . . . . — — (226) — — (226)Loss on conversion of convertible debt . . . . . . . . — — 27,477 — — 27,477Common stock offering . . . . . . . . . . . . . . . . . . . 9,787,093 10 131,082 — — 131,092Change in unrealized loss on available-for-sale

investments . . . . . . . . . . . . . . . . . . . . . . . . . — — — 21 — 21Change in cumulative foreign currency translation

adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . — — — 13,108 — 13,108Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 14,131 14,131Comprehensive income . . . . . . . . . . . . . . . . . . . 27,260Balance at April 30, 2010 . . . . . . . . . . . . . . . . . 75,824,913 $76 $2,030,373 $15,791 $(1,697,594) $ 348,646


58

FINISAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)Operating activitiesNet income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,131 $(260,343) $(79,013)Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,530 30,340 25,192Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,650 14,978 11,564Amortization of beneficial conversion feature of convertible notes . . . . . . . . . . . . . . . . . . . . . . — 1,817 4,943Non-cash interest cost on 2.5% convertible senior subordinated notes . . . . . . . . . . . . . . . . . . . . 3,033 4,910 4,640Acquired in-process research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,500 —Amortization of purchased technology and finite lived intangibles . . . . . . . . . . . . . . . . . . . . . . 2,105 2,687 1,749Amortization of acquired developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,940 6,038 6,501Impairment of acquired developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,248 —Impairment of minority investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 — —Loss (gain) on sale or retirement of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 996 (516)Other than temporary decline in fair market value of equity security . . . . . . . . . . . . . . . . . . . . — 1,920 —Loss (gain) on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,552 (3,063) 238Gain on remeasurement of derivative liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,135) 1,135Loss (gain) on sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (375) — —Loss (gain) on sale of a product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,250) 919 —Gain on sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,053) —Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 238,507 40,106

Changes in operating assets and liabilities:Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,797) (33,399) 8,891Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,655) 459 (1,159)Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,230) 922 (5,496)Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,999) (7,277) 1,756Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,417 4,396 1,432Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,500 (4,611) 3,847Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,728) (9,759) 9,021Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,666 (680) (214)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,767 370 34,617

Investing activitiesPurchases of property, equipment and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,408) (23,918) (27,198)Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 229 643Sale of available- for-sale and held-to-maturity investments, net . . . . . . . . . . . . . . . . . . . . . . . . . — 38,534 30,804Proceeds from sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 102 1,584Purchase of minority investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (2,000)Maturity of restricted securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 625Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (375) — —Proceeds from disposal of product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,250 — —Proceeds from sale of discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,683 — —Purchases of subsidiaries, net of cash assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 30,137 521

Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,558 45,084 4,979

Financing activitiesProceeds from term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,500 20,000 —Net proceeds from issuance of 5% convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,057 — —Repayments of liability related to sale-leaseback of building . . . . . . . . . . . . . . . . . . . . . . . . . . . — (101) (359)Repayment of convertible notes issued in connection with acquisition . . . . . . . . . . . . . . . . . . . . . — (11,918) (5,959)Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,663) (4,225) (1,897)Repayment of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (87,951) (95,956) (8,224)Net proceeds from common stock offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,090 — —Proceeds from exercise of stock options and stock purchase plan, net of repurchase of unvested

shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,445 4,525 179

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147,478 (87,675) (16,260)

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,803 (42,221) 23,336Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,221 79,442 56,106

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $207,024 $ 37,221 $ 79,442

Supplemental disclosure of cash flow informationCash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,305 $ 6,776 $ 9,190Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 711 $ 1,100 $ 182Issuance of common stock and assumption of options and warrants in connection with merger . . . . . — $ 251,382 —Issuance of common stock for repayment of convertible debt . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,383 — —

See accompanying notes

59

FINISAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Description of Business

Finisar Corporation (“the Company”) was incorporated in California in April 1987 and reincorporated inDelaware in November 1999. The Company is a leading provider of optical subsystems and components that areused to interconnect equipment in local area networks, or LANs, storage area networks, or SANs, metropolitan areanetworks, or MANs, fiber-to-the-home networks, or FTTx, cable television networks, or CATV, and wide areanetworks, or WANs. The Company’s optical subsystems consist primarily of transmitters, receivers, transceiversand transponders which provide the fundamental optical-electrical interface for connecting the equipment used inbuilding these networks, including switches, routers and file servers used in wireline networks as well as antennasand base stations for wireless networks. These products rely on the use of digital and analog RF semiconductorlasers in conjunction with integrated circuit design and novel packaging technology to provide a cost-effectivemeans for transmitting and receiving digital signals over fiber optic cable at speeds ranging from less than 1 gigabitper second, or Gbps, to 100 Gbps using a wide range of network protocols and physical configurations overdistances from 70 meters up to 200 kilometers. The Company supplies optical transceivers and transponders thatallow point-to-point communications on a fiber using a single specified wavelength or, bundled with multiplexingtechnologies, can be used to supply multi-gigabit bandwith over several wavelengths on the same fiber. TheCompany also provides products that are used for dynamically switching network traffic from one optical link toanother across multiple wavelengths without first converting to an electrical signal, known as wavelength selectiveswitches, or WSS. These products are sometimes combined with other components and sold as linecards, alsoknown as reconfigurable optical add/drop multiplexers, or ROADMs. The Company’s line of optical componentsconsists primarily of packaged lasers and photodetectors used in transceivers, primarily for LAN and SANapplications, and passive optical components used in building MANs. Demand for the Company’s products islargely driven by the continually growing need for additional bandwidth created by the ongoing proliferation of dataand video traffic that must be handled by both wireline and wireless networks.

The Company’s manufacturing operations are vertically integrated and internal assembly and test capabilitiesfor the Company’s optical subsystem products, as well as key components used in those subsystems. The Companyutilizes its internal sources for many of the key components used in making its products including lasers,photodetectors and integrated circuits, or ICs, designed by its own internal IC engineering teams. The Companyalso has internal assembly and test capabilities that make use of internally designed equipment for the automatedtesting of the optical subsystems and components.

The Company sells its optical subsystem and component products to manufacturers of storage systems,networking equipment and telecommunication equipment or their contract manufacturers, such as Alcatel-Lucent,Brocade, Cisco Systems, EMC, Emulex, Ericsson, Hewlett-Packard Company, Huawei, IBM, Juniper, Qlogic,Siemens and Tellabs. These customers in turn sell their systems to businesses and to wireline and wirelesstelecommunications service providers and cable TV operators, collectively referred to as carriers.

The Company formerly provided network performance test systems through its Network Tools Division. OnJuly 15, 2009, the Company consummated the sale of substantially all of the assets of the Network Tools Division toJDS Uniphase Corporation (“JDSU”). In accordance with the accounting guidance provided by FinancialAccounting Standards Board (“FASB”), the operating results of this business and the associated assets andliabilities are reported as discontinued operations in the accompanying consolidated financial statements for allperiods presented. See Note 3 for further details regarding the sale of the assets of the division.

The consolidated financial statements include the accounts of Finisar Corporation and its wholly-ownedsubsidiaries (collectively “Finisar” or the “Company”). Intercompany accounts and transactions have beeneliminated in consolidation.

60

Fiscal Periods

The Company maintains its financial records on the basis of a fiscal year ending on April 30, with fiscalquarters ending on the Sunday closest to the end of the period. The first three quarters of fiscal 2010 ended onAugust 2, 2009, November 1, 2009, and January 31, 2010. The first three quarters of fiscal 2009 ended on August 3,2008, November 2, 2009 and February 1, 2009, respectively. The first three quarters of fiscal 2008 ended on July 29,2007, October 28, 2007, and January 27, 2008.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the current yearpresentation. These changes had no impact on previously reported net income or retained earnings.

Convertible Senior Subordinated Notes

In May 2008, the Company adopted authoritative guidance issued by the FASB for accounting for convertibledebt instruments that may be settled in cash upon conversion (including partial cash settlement). This guidanceaddresses instruments commonly referred to as Instrument C which requires the issuer to settle the principal amountin cash and the conversion spread in cash or net shares at the issuer’s option. It requires that issuers of theseinstruments account for their liability and equity components separately by bifurcating the conversion option fromthe debt instrument, classifying the conversion option in equity and then accreting the resulting discount on the debtas additional interest expense over the expected life of the debt. It is effective for fiscal years beginning afterDecember 15, 2008 and interim periods within those fiscal years and requires retrospective application to all periodspresented. On May 1, 2009, the Company adopted the provisions of this accounting pronouncement on aretrospective basis and as a result has recorded additional interest expense of $4.9 million in fiscal 2009 and$4.6 million in fiscal 2008, in its consolidated statement of operations. In addition, the retrospective adoption of thisguidance decreased debt issuance costs included in other assets by an aggregate of $313,000, decreased convertiblesenior notes, net included in long-term liabilities by $7.7 million, and increased total stockholders’ equity by$7.4 million after a charge of $12.1 million to accumulated deficit on its consolidated balance sheet as of April 30,2009. See Note 12 for the impact of the adoption of this guidance on prior period balances.

Reverse Stock Split

On September 25, 2009, the Company effected a 1-for-8 reverse split of its common stock. The number ofauthorized shares of common stock was not changed. The reverse stock split reduced the Company’s issued andoutstanding shares of common stock as of September 25, 2009 from 517,161,351 shares to 64,645,169 shares.

All share and per-share information in the accompanying financial statements have been restated retroactivelyto reflect the reverse stock split. The common stock and additional paid-in capital accounts at April 30, 2009, 2008and 2007 were adjusted retroactively to reflect the reverse stock split.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Actual results could differ from these estimates.

2. Summary of Significant Accounting Policies

Revenue Recognition

The Company’s revenue transactions consist predominately of sales of products to customers. Productrevenues are generally recognized in the period in which persuasive evidence of an arrangement exists, title

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and risk of loss have passed to the customer, generally upon shipment, the price is fixed or determinable, andcollectability is reasonably assured.

At the time revenue is recognized, the Company establishes an accrual for estimated warranty expensesassociated with sales, recorded as a component of cost of revenues. The Company’s customers and distributorsgenerally do not have return rights. However, the Company has established an allowance for estimated customerreturns, based on historical experience, which is netted against revenue.

Sales to certain distributors are made under agreements providing distributor price adjustments and rights ofreturn under certain circumstances. Revenue and costs relating to sales to distributors with price protection and rightsof return are deferred until products are sold by the distributors to end customers. Revenue recognition depends onnotification from the distributor that product has been sold to the end customer. Also reported by the distributor areproduct resale price, quantity and end customer shipment information, as well as inventory on hand. Deferred revenueon shipments to distributors reflects the effects of distributor price adjustments and the amount of gross marginexpected to be realized when distributors sell-through products purchased from us. Accounts receivable fromdistributors are recognized and inventory is relieved when title to inventories transfers, typically upon shipment fromus at which point we have a legally enforceable right to collection under normal payment terms.

The Company’s discontinued operations had some arrangements with multiple elements and related arrange-ments with the same customer. Such arrangements were divided into separate units of accounting if certain criteriawere met, including whether the delivered item had stand-alone value to the customer and whether there wasobjective and reliable evidence of the fair value of the undelivered items. The consideration received was allocatedamong the separate units of accounting based on their respective fair values, and the applicable revenue recognitioncriteria was applied to each of the separate units. In cases where there was objective and reliable evidence of the fairvalue of the undelivered item in an arrangement but no such evidence for the delivered item, the residual methodwas used to allocate the arrangement consideration. For units of accounting which included more than onedeliverable, the Company generally recognized all revenue and cost of revenue for the unit of accounting over theperiod in which the last undelivered item was delivered.

Segment Reporting

FASB’s authoritative guidance regarding segment reporting establishes standards for the way that public businessenterprises report information about operating segments in annual financial statements and requires that thoseenterprises report selected information about operating segments in interim financial reports. It also establishesstandards for related disclosures about products and services, geographic areas and major customers. Prior to the firstquarter of fiscal 2010, the Company had determined that it operated in two segments consisting of optical subsystemsand components and network test systems. After the sale of the assets of the Network Tools Division to JDSU in thefirst quarter of fiscal 2010, the Company has one reportable segment comprising optical subsystems and components.Optical subsystems consist primarily of transceivers sold to manufacturers of storage and networking equipment forSANs and LANs and MAN applications. Optical subsystems also include multiplexers, de-multiplexers and opticaladd/drop modules for use in MAN applications. Optical components consist primarily of packaged lasers and photo-detectors which are incorporated in transceivers, primarily for LAN and SAN applications.

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk include cash,cash equivalents, and accounts receivable. The Company places its cash, cash equivalents with high-credit qualityfinancial institutions. Such investments are generally in excess of FDIC insurance limits.

Concentrations of credit risk, with respect to accounts receivable, exist to the extent of amounts presented inthe financial statements. Generally, the Company does not require collateral or other security to support customerreceivables. The Company performs periodic credit evaluations of its customers and maintains an allowance for

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potential credit losses based on historical experience and other information available to management. Losses to datehave not been material. The Company’s five largest customers represented 44% and 48% of total accountsreceivable at April 30, 2010 and April 30, 2009, respectively. As of April 30, 2010, two customers accounted for12% and 10%, respectively, of total accounts receivable. As of April 30, 2009, two customers accounted for 19%and 17%, respectively, of total accounts receivable.

The Company sells products primarily to customers located in Asia and North America. Sales to theCompany’s five largest customers represented 43%, 42% and 44% of total revenues during fiscal 2010, 2009and 2008 respectively. One customer, Cisco Systems, represented more than 10% of total revenues during each ofthese periods.

Current Vulnerabilities Due to Certain Concentrations

Included in the Company’s consolidated balance sheet at April 30, 2010 are the net assets of the Company’smanufacturing operations located overseas at its Ipoh, Malaysia, Shanghai, China and Australia manufacturingfacilities and which total approximately $101.1 million.

Foreign Currency Translation

The functional currency of our foreign subsidiaries is the local currency. Assets and liabilities denominated inforeign currencies are translated using the exchange rate on the balance sheet dates. Revenues and expenses aretranslated using average exchange rates prevailing during the year. Any translation adjustments resulting from thisprocess are shown separately as a component of accumulated other comprehensive income (loss). Foreign currencytransaction gains and losses are included in the determination of net loss.

Research and Development

Research and development expenditures are charged to operations as incurred.

Shipping and Handling Costs

The Company records costs related to shipping and handling in cost of sales for all periods presented.

Cash and Cash Equivalents

Finisar’s cash equivalents consist of money market funds and highly liquid short-term investments withqualified financial institutions. Finisar considers all highly liquid investments with an original maturity from thedate of purchase of three months or less to be cash equivalents.

Investments

Available-for-Sale Investments

Investments with original maturities of greater than three months and remaining maturities of less than oneyear are classified as short-term investments. All of the Company’s short-term investments are classified asavailable-for-sale. Available-for-sale investments also consist of equity securities. Available-for-sale securities arestated at market value, which approximates fair value, and unrealized holding gains and losses, net of the related taxeffect, are excluded from earnings and are reported as a separate component of accumulated other comprehensiveincome until realized. A decline in the market value of the security below cost that is deemed other than temporary ischarged to earnings, resulting in the establishment of a new cost basis for the security.

Other Investments

The Company uses the cost method of accounting for investments in companies that do not have a readilydeterminable fair value in which it holds an interest of less than 20% and over which it does not have the ability toexercise significant influence. For entities in which the Company holds an interest of greater than 20% or in which

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the Company does have the ability to exercise significant influence, the Company uses the equity method. Indetermining if and when a decline in the market value of these investments below their carrying value isother-than-temporary, the Company evaluates the market conditions, offering prices, trends of earnings and cashflows, price multiples, prospects for liquidity and other key measures of performance. The Company’s policy is torecognize an impairment in the value of its minority equity investments when clear evidence of an impairmentexists, such as (a) the completion of a new equity financing that may indicate a new value for the investment, (b) thefailure to complete a new equity financing arrangement after seeking to raise additional funds or (c) thecommencement of proceedings under which the assets of the business may be placed in receivership or liquidatedto satisfy the claims of debt and equity stakeholders. The Company’s minority investments in private companies aregenerally made in exchange for preferred stock with a liquidation preference that is intended to help protect theunderlying value of its investment.

Fair Value Accounting

FASB authoritative guidance regarding fair valuation defines fair value and establishes a framework formeasuring fair value and expands the related disclosure requirements. The guidance requires or permits fair valuemeasurements with certain exclusions. It provides that a fair value measurement assumes that the transaction to sellan asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principalmarket, the most advantageous market for the asset or liability in an orderly transaction between market participantson the measurement date. The guidance establishes a valuation hierarchy for disclosure of the inputs to valuationused to measure fair value. Valuation techniques used to measure fair value under this guidance must maximize theuse of observable inputs and minimize the use of unobservable inputs. It describes a fair value hierarchy based onthree levels of inputs, of which the first two are considered observable and the last unobservable, that may be used tomeasure fair value which are the following:

Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that areobservable for the asset or liability, either directly or indirectly through market corroboration, for substantiallythe full term of the financial instrument; and

Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets andliabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based onthe lowest level input that is significant to the fair value measurement.

The Company’s Level 1 assets include instruments valued based on quoted market prices in active marketswhich generally include money market funds, corporate publicly traded equity securities on major exchanges andU.S. Treasury notes. The Company classifies items in Level 2 if the investments are valued using observable inputsto quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources withreasonable levels of price transparency. These investments include: government agencies, corporate bonds andcommercial paper. See Note 6 for additional details regarding the fair value of the Company’s investments.

The Company did not hold financial assets and liabilities which were valued using unobservable inputs as ofApril 30, 2010 or April 30, 2009.

Allowance for Doubtful Accounts

The Company evaluates the collectability of its accounts receivable based on a combination of factors. Incircumstances where, subsequent to delivery, the Company becomes aware of a customer’s potential inability tomeet its obligations, it records a specific allowance for the doubtful account to reduce the net recognized receivableto the amount the Company reasonably believes will be collected. For all other customers, the Company recognizesan allowance for doubtful accounts based on the length of time the receivables are past due and historical actual baddebt history. A material adverse change in a major customer’s ability to meet its financial obligations to the

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Company could result in a material reduction in the estimated amount of accounts receivable that can ultimately becollected and an increase in the Company’s general and administrative expenses for the shortfall.

Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market.

The Company permanently writes down to its estimated net realizable value the cost of inventory that theCompany specifically identifies and considers obsolete or excessive to fulfill future sales estimates. The Companydefines obsolete inventory as inventory that will no longer be used in the manufacturing process. Excess inventory isgenerally defined as inventory in excess of projected usage and is determined using management’s best estimate offuture demand, based upon information then available to the Company. The Company also considers: (1) parts andsubassemblies that can be used in alternative finished products, (2) parts and subassemblies that are unlikely to beengineered out of the Company’s products, and (3) known design changes which would reduce the Company’sability to use the inventory as planned.

In quantifying the amount of excess inventory, the Company assumes that the last twelve months of demand isgenerally indicative of the demand for the next twelve months. Inventory on hand that is in excess of that demand iswritten down to its estimated net realizable value. Obligations to purchase inventory acquired by subcontractorsbased on forecasts provided by the Company are recognized at the time such obligations arise.

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost, net of accumulated depreciation and amortization.Property, plant, equipment and improvements are depreciated on a straight-line basis over the estimated useful livesof the assets, generally three years to seven years, except for buildings which are depreciated over 25 years. Land iscarried at acquisition cost and not depreciated. Leased land is depreciated over the life of the lease.

Goodwill and Other Intangible Assets

Goodwill, purchased technology and other intangible assets resulting from acquisitions are accounted forunder the purchase method. Intangible assets with finite lives are amortized over their estimated useful lives.Amortization of purchased technology and other intangibles has been provided on a straight-line basis over periodsranging from three to ten years. Goodwill is assessed for impairment annually or more frequently when an eventoccurs or circumstances change between annual impairment tests that would more likely than not reduce the fairvalue of the reporting unit holding the goodwill below its carrying value.

Accounting for the Impairment of Long-Lived Assets

The Company periodically evaluates whether changes have occurred to long-lived assets that would requirerevision of the remaining estimated useful life of the property, improvements and finite-lived intangible assets orrender them not recoverable. If such circumstances arise, the Company uses an estimate of the undiscounted valueof expected future operating cash flows to determine whether the long-lived assets are impaired. If the aggregateundiscounted cash flows are less than the carrying amount of the assets, the resulting impairment charge to berecorded is calculated based on the excess of the carrying value of the assets over the fair value of such assets, withthe fair value determined based on an estimate of discounted future cash flows.

Restructuring Costs

The Company recognizes liability for exit and disposal activities when the liability is incurred. Facilitiesconsolidation charges are calculated using estimates and are based upon the remaining future lease commitmentsfor vacated facilities from the date of facility consolidation, net of estimated future sublease income. The estimated

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costs of vacating these leased facilities are based on market information and trend analyses, including informationobtained from third party real estate sources.

Stock-Based Compensation Expense

The Company measures and recognizes compensation expense for all stock-based payment awards made toemployees and directors including employee stock options and employee stock purchases under the Company’sEmployee Stock Purchase Plan based on estimated fair values. The Company uses the Black-Scholes option pricingmodel to determine the fair value of stock based awards. The value of the portion of the award that is ultimatelyexpected to vest is recognized as expense over the requisite service periods in the consolidated statements ofoperations.

Compensation expense for expected-to-vest stock-based awards that were granted on or prior to April 30, 2006was valued under the multiple-option approach and will continue to be amortized using the accelerated attributionmethod. Subsequent to April 30, 2006, compensation expense for expected-to-vest stock-based awards is valuedunder the single-option approach and amortized on a straight-line basis, net of estimated forfeitures.

Net Income (Loss) Per Share

Basic net income (loss) per share has been computed using the weighted-average number of shares of commonstock outstanding during the period. Diluted net income (loss) per share has been computed using the weighted-average number of shares of common stock and dilutive potential common shares from options, restricted stockunits and warrants (under the treasury stock method) and convertible notes (on an as-if-converted basis) outstandingduring the period.

The following table presents common shares related to potentially dilutive securities excluded from thecalculation of diluted net income (loss) per share from continuing operations because they are anti-dilutive (inthousands):


Employee stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,718 $ 693 $1,284

Conversion of convertible subordinated notes . . . . . . . . . . . . . . . . . . . . 662 1,687 3,957

Conversion of 5% convertible senior notes due 2029 . . . . . . . . . . . . . . 5,124 — —

Conversion of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,117

Warrants assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 38 3

$7,538 $2,418 $6,361

Comprehensive Income (Loss)

FASB authoritative guidance establishes rules for reporting and display of comprehensive income or loss andits components and requires unrealized gains or losses on the Company’s available-for-sale securities and foreigncurrency translation adjustments to be included in comprehensive income (loss).

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The components of comprehensive loss were as follows (in thousands):


Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,131 $(260,343) $(79,013)

Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . 13,108 (9,386) 5,976

Change in unrealized gain (loss) on securities, net ofreclassification adjustments for realized gain/(loss) . . . . . . . . . 21 (925) (4,165)

Comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $27,260 $(270,654) $(77,202)

Included in the determination of net income (loss) was a loss of $1.3 million, a loss of $700,000 and a gain onforeign exchange transactions of $100,000 for the fiscal years ended April 30, 2010, 2009 and 2008, respectively.

The components of accumulated other comprehensive loss, net of taxes, were as follows (in thousands):

2010 2009April 30,

Net unrealized gains/(losses) on available-for-sale securities . . . . . . . . . . . . . . . . $ — $ (21)

Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,791 2,683

Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,791 $2,662

Income Taxes

The Company uses the liability method to account for income taxes. Under this method, income tax expense isrecognized for the amount of taxes payable or refundable for the current year. Deferred tax assets and liabilities arerecognized using enacted tax rates for the effect of temporary differences between the book and tax bases ofrecorded assets and liabilities and their reported amounts, along with net operating loss carryforwards and creditcarryforwards. This method also requires that deferred tax assets be reduced by a valuation allowance if it is morelikely than not that a portion of the deferred tax asset will not be realized.

The Company provides for income taxes based upon the geographic composition of worldwide earnings andtax regulations governing each region. The calculation of tax liabilities involves significant judgment in estimatingthe impact of uncertainties in the application of complex tax laws. Also, the Company’s current effective tax rateassumes that United States income taxes are not provided for the undistributed earnings of non-United Statessubsidiaries. The Company intends to indefinitely reinvest the earnings of all foreign corporate subsidiariesaccumulated in fiscal 2010 and subsequent years.

Recent Adoption of New Accounting Standards

In the first quarter of fiscal 2010, the Company adopted authoritative guidance issued by the FASB foraccounting for convertible debt instruments that may be settled in cash upon conversion (including partial cashsettlement). The guidance specifies that issuers of convertible debt instruments that may be settled in cash uponconversion should separately account for the liability and equity components in a manner that will reflect theentity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. See Note 12 fora discussion of the impact of the adoption of this guidance on the Company’s financial position and results ofoperations.

In May 2009, the Company adopted authoritative guidance issued by the FASB regarding subsequent eventsthat established general standards of accounting for and disclosure of events that occur after the balance sheet datebut before financial statements are issued. This guidance was subsequently amended in February 2010 to no longer

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require disclosure of the date through which an entity has evaluated subsequent events. The Company’s adoption ofthis guidance did not have a material impact on the Company’s consolidated financial statements and notes thereto.

In April 2009, the FASB issued revised guidance requiring interim disclosures about fair value of financialinstruments. This guidance requires fair value disclosures in both interim and annual financial statements in order toprovide more timely information about the effects of current market conditions on financial instruments. TheCompany adopted these standards as of May 1, 2009. The adoption of this guidance had no impact on theCompany’s financial condition, results of operations or cash flows. See Note 18 for further discussion and relateddisclosures.

In the first quarter of fiscal 2010, the Company adopted revised accounting guidance which addresses theaccounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent(“non-controlling interests”), the amount of consolidated net income attributable to the parent and to thenoncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrollingequity investments when a subsidiary is deconsolidated. This guidance also establishes disclosure requirements thatclearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.The adoption of this standard had no impact on the Company’s financial condition, results of operations or cashflows.

In the first quarter of fiscal 2010, the Company adopted the revised accounting guidance for businesscombinations, which established principles and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controllinginterest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquiredin the business combination and determining what information to disclose to enable users of the financial statementto evaluate the nature and financial effects of the business combination. The impact of this accounting guidance andits relevant updates on the Company’s results of operations or financial position will vary depending on eachspecific business combination or asset purchase consummated after May 1, 2009. No business combinations wereconsummated in fiscal 2010 by the Company.

Pending Adoption of New Accounting Standards

In April 2010, the FASB issued revised guidance to clarify that an employee share-based payment award withan exercise price denominated in the currency of a market in which a substantial portion of the entity’s equitysecurities trades should not be considered to contain a condition that is not a market, performance or servicecondition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. Theamendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginningon or after December 15, 2010. The revised guidance should be implemented by recording a cumulative-effectadjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated forall awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if theamendments had been applied consistently since the inception of the award. The cumulative-effect adjustmentshould be presented separately. Earlier application is permitted. The Company believes the adoption of thisguidance will not have a material impact on its consolidated financial statements.

In January 2010, the FASB issued revised guidance intended to improve disclosures related to fair valuemeasurements. New disclosures under this guidance require (a) an entity to disclose separately the amounts ofsignificant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for thetransfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e.present the activity on a gross basis rather than net) in the reconciliation for fair value measurements usingsignificant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for thelevel of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures aboutthe valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair valuemeasurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure are

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effective for the Company beginning May 2010, except for the disclosure requirements related to the purchases,sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements. Those disclosurerequirements are effective for the Company beginning May 2011. The Company believes the adoption of thisguidance will not have a material impact on its consolidated financial statements.

In October 2009, the FASB amended the accounting standards for revenue recognition to remove tangibleproducts containing software components and nonsoftware components that function together to deliver theproduct’s essential functionality from the scope of industry-specific software revenue recognition guidance. InOctober 2009, the FASB also amended the accounting standards for multiple deliverable revenue arrangements to:

(iv) provide updated guidance on whether multiple deliverables exist, how the deliverables in anarrangement should be separated, and how the consideration should be allocated;

(v) require an entity to allocate revenue in an arrangement using estimated selling prices (ESP) ofdeliverables if a vendor does not have vendor-specific objective evidence of selling price (VSOE) or third-party evidence of selling price (TPE); and

(vi) eliminate the use of the residual method and require an entity to allocate revenue using the relativeselling price method.

The accounting changes summarized in this guidance are effective for fiscal years beginning on or after June 15,2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application.The Company believes the adoption of this guidance will not have a material impact on its consolidated financialstatements.

In June 2009, the FASB issued revised guidance to improve the relevance, representational faithfulness andcomparability of the information that a reporting entity provides in its financial statements about a transfer offinancial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and atransferor’s continuing involvement, if any, in transferred financial assets. This guidance must be applied as of thebeginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interimperiods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlierapplication is prohibited. It must be applied to transfers occurring on or after the effective date. The Company iscurrently evaluating the potential impact, if any, of the adoption of this guidance on its consolidated results ofoperations and financial condition.

3. Discontinued Operations

During the first quarter of fiscal 2010, the Company completed the sale of substantially all of the assets of itsNetwork Tools Division to JDSU. The Company received $40.6 million in cash and recorded a net gain on sale ofthe business of $35.9 million before income taxes, which is included in income from discontinued operations, net oftax, in the Company’s consolidated statements of operations. The assets and liabilities and results of operationrelated to this business have been classified as discontinued operations in the consolidated financial statements forall periods presented. As a result, the prior period comparative financial statements have been restated. TheCompany has elected not to separately disclose the cash flows associated with the discontinued operations in thecondensed consolidated statements of cash flows.

The following table summarizes results from discontinued operations (in thousands):


Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,753 $44,179 $ 38,555

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,963 29,571 26,331

Income (loss) from discontinued operations(1) . . . . . . . . . . . . . . . . 36,937 2,149 (46,169)

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(1) Income form discontinued operations of $36.9 million in fiscal 2010 includes gain on sale of discontinuedoperations of $35.9 million.

The following table summarizes assets and liabilities classified as discontinued operations (in thousands):

April 30, 2009

ASSETSCurrent assets:

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 327Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,536

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,863Purchased technology, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889Property, plant and improvements, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,434

Total assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,390

LIABILITIESCurrent liabilities:

Warranty accrual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,960

3,160Non-current liabilities associated with discontinued operations

Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650

Total liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,810

The following table summarizes the gain on sale of discontinued operations (in thousands):

Gross proceeds from sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,683

Assets sold

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,814)

Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,460)

Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (845)

Liabilities transferred

Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,102

Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Other charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (90)

$35,888

In connection with the sale of the assets of the Network Tools Division, the Company entered into a transitionservices agreement with the buyer under which the Company agreed to provide manufacturing services to the buyerduring a transition period. The buyer will reimburse the Company for material costs plus 10% for the first sixmonths, plus 12% for the first three months of any extension and plus 15% for the second three months of anyextension. The buyer will also pay the Company a fixed fee of $50,000 per month to cover manufacturing overheadand direct labor costs. Under the agreement, the buyer will also pay a fixed fee for leasing the Company’s facilitiesand a service fee for the use of the Company’s information technology, communication services and employeeservices. The duration for which these services will be provided is not expected to be more than twelve months.

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Total operating expenses incurred in relation to the transition services agreement from July 15, 2009 throughApril 30, 2010 were $142,000, which included an adjustment of $165,000 recorded to the gain on sale ofdiscontinued operations.

4. Business Combinations and Asset Acquisitions

Acquisition of Optium

On August 29, 2008, the Company consummated a combination with Optium Corporation, a leading designerand manufacturer of high performance optical subsystems for use in telecommunications and cable TV networksystems, through the merger of Optium with a wholly-owned subsidiary of the Company. The Company’smanagement and board of directors believe that the combination of the two companies created the world’s largestsupplier of optical components, modules and subsystems for the communications industry and will leverage theCompany’s leadership position in the storage and data networking sectors of the industry and Optium’s leadershipposition in the telecommunications and CATV sectors to create a more competitive industry participant. In addition,as a result of the combination, management believes that the Company should be able to realize cost synergiesrelated to operating expenses and manufacturing costs resulting from (1) the transfer of production to lower costlocations, (2) improved purchasing power associated with being a larger company and (3) cost synergies associatedwith the integration of internally manufactured components into product designs in place of components previouslypurchased by Optium in the open market. The Company has accounted for the combination using the purchasemethod of accounting and as a result has included the operating results of Optium in its consolidated financialresults since the August 29, 2008 consummation date. The following table summarizes the components of the totalpurchase price (in thousands):

Fair value of Finisar common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $242,821

Fair value of vested Optium stock options and warrants assumed . . . . . . . . . . . . . . . . . . . 8,561

Direct transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,431

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $253,813

At the closing of the merger, the Company issued 20,101,082 shares of its common stock valued atapproximately $242.8 million in exchange for all of the outstanding common stock of Optium. The value ofthe shares issued was calculated using the five day average of the closing price of the Company’s common stockfrom the second trading day before the merger announcement date on May 16, 2008 through the second trading dayfollowing the announcement, or $12.08 per share. There were approximately 2,150,325 shares of the Company’scommon stock issuable upon the exercise of the outstanding options, warrants and restricted stock awards itassumed in accordance with the terms of the merger agreement. The number of shares was calculated based on thefixed conversion ratio of 0.7827 shares of Finisar common stock for each share of Optium common stock. Thepurchase price includes $8.6 million representing the fair market value of the vested options and warrants assumed.

The Company also expects to recognize approximately $5.1 million of non-cash stock-based compensationexpense related to the unvested options assumed on the acquisition date. This expense will be recognized beginningfrom the acquisition date over the remaining service periods of the options. As of April 30, 2010, $1.3 million of thisexpense remained unrecognized and is expected to be recognized over the weighted average remaining recognitionperiod of 6 months. The stock options and warrants were valued using the Black-Scholes option pricing modelbased on the following weighted average assumptions:

Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.17 - 4.5%

Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 - 136%

Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 - 6 years

Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%

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Direct transaction costs include estimated legal and accounting fees and other external costs directly related tothe merger.

Purchase Price Allocation

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based ontheir estimated fair values at the acquisition date of August 29, 2008. The excess of the purchase price over the fairvalue of the net assets acquired was allocated to goodwill. The Company believes the fair value assigned to theassets acquired and liabilities assumed was based on reasonable assumptions. The total purchase price has beenallocated to the fair value of assets acquired and liabilities assumed as follows (in thousands):

Tangible assets acquired and liabilities assumed:

Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,825

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,233

Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,129

Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889

Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47,005)

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (973)

Net tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,098

Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,100

In-process research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,500

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,115

Total purchase price allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $253,813

Identifiable Intangible Assets

Intangible assets consist primarily of developed technology, customer relationships and trademarks. Devel-oped technology is comprised of products that have reached technological feasibility and are a part of Optium’sproduct lines. This proprietary know-how can be leveraged to develop new technology and products and improveour existing products. Customer relationships represent Optium’s underlying relationships with its customers.Trademarks represent the fair value of brand name recognition associated with the marketing of Optium’s products.The fair values of identified intangible assets were calculated using an income approach and estimates andassumptions provided by both Finisar and Optium management. The rates utilized to discount net cash flows to theirpresent values were based on the Company’s weighted average cost of capital and ranged from 15% to 30%. Thisdiscount rate was determined after consideration for the Company’s rate of return on debt capital and equity and theweighted average return on invested capital. The amounts assigned to developed technology, customer relation-ships, and trademarks were $12.1 million, $11.9 million and $1.1 million, respectively. The Company amortizesdeveloped technology, customer relationships, and trademarks on a straight-line basis over their weighted averageexpected useful life of 10, 5, and 1 years, respectively. Developed technology is amortized into cost of sales whilecustomer relationships and trademarks are amortized into operating expenses.

In-Process Research and Development

The Company expensed in-process research and development (“IPR&D”) upon acquisition as it representedincomplete Optium research and development projects that had not reached technological feasibility and had noalternative future use as of the date of the merger. Technological feasibility is established when an enterprise hascompleted all planning, designing, coding, and testing activities that are necessary to establish that a product can beproduced to meet its design specifications including functions, features, and technical performance requirements. Thevalue assigned to IPR&D of $10.5 million was determined by considering the importance of each project to the

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Company’s overall development plan, estimating costs to develop the purchased IPR&D into commercially viableproducts, estimating the resulting net cash flows from the projects when completed and discounting the net cash flowsto their present values based on the percentage of completion of the IPR&D projects as of the date of the merger.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of theCompany and Optium on a pro forma basis after giving effect to the merger with Optium at the beginning of each periodpresented. The pro forma information is for informational purposes only and is not necessarily indicative of the results ofrroperations that would have been achieved if the merger had happened at the beginning of each of the periods presented.aa

The unaudited pro forma financial information for fiscal 2009 combines the historical results of the Companyfor fiscal 2009 with the historical results of Optium for one month ended August 29, 2008 and the three monthsended August 2, 2008. The unaudited pro forma financial information for fiscal 2008 combines the historical resultsof the Company for fiscal 2008 with the historical results of Optium for twelve months ended April 30, 2008.

The following pro forma financial information for all periods presented includes purchase accountingadjustments for amortization charges from acquired identifiable intangible assets, depreciation on acquiredproperty and equipment and other non-recurring acquisition related costs (unaudited; in thousands, except pershare information):

2009 2008Fiscal Year Ended April 30,

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 549,050 $548,651Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(259,579) $ (84,131)

Net loss per share — basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4.38) $ (1.43)

5. Intangible Assets Including Goodwill

Goodwill

The following table reflects changes in the carrying amount of goodwill (in thousands):

Balance at April 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,843

Reduction related to acquisition of subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (601)

Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Balance at April 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,242

Addition related to acquisition of subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,265

Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (238,507)

Balance at April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Addition related to acquisition of subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

Balance at April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

During fiscal 2008, the Company recorded a $601,000 reduction of goodwill due primarily to claims forindemnification related to the acquisition of Kodeos Communication Inc. in April 2007. The Company performedits annual assessment of goodwill as of the first day of the fourth quarter of fiscal 2008. No goodwill impairment losswas recorded for fiscal 2008.

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During the first quarter of fiscal 2009, the Company recorded an additional $150 million of goodwill related tothe acquisition of Optium which, when combined with the $88 million in goodwill acquired prior to the acquisition,resulted in a total goodwill balance of approximately $238 million. During the second quarter of fiscal 2009, theCompany concluded that there were sufficient indicators to require an interim goodwill impairment analysis.Among these indicators were a significant deterioration in the macroeconomic environment largely caused by thewidespread unavailability of business and consumer credit, a significant decrease in the Company’s marketcapitalization as a result of a decrease in the trading price of its common stock to $4.88 at the end of the quarter and adecrease in internal expectations for near term revenues, especially those expected to result from the Optiummerger. For the purposes of this analysis, the Company’s estimates of fair value were based on a combination of theincome approach, which estimates the fair value of its reporting units based on future discounted cash flows, and themarket approach, which estimates the fair value of its reporting units based on comparable market prices. As of thefiling of its quarterly report on Form 10-Q for the second quarter of fiscal 2009, the Company had not completed itsanalysis due to the complexities involved in determining the implied fair value of the goodwill for the opticalsubsystems and components reporting unit, which is based on the determination of the fair value of all assets andliabilities of this reporting unit. However, based on the work performed through the date of the filing, the Companyconcluded that an impairment loss was probable and could be reasonably estimated. Accordingly, it recorded a$178.8 million non-cash goodwill impairment charge, representing its best estimate of the impairment loss duringthe second quarter of fiscal 2009.

While finalizing its impairment analysis during the third quarter of fiscal 2009, the Company concluded thatthere were additional indicators sufficient to require another interim goodwill impairment analysis. Among theseindicators were a worsening of the macroeconomic environment largely caused by the unavailability of businessand consumer credit, an additional decrease in the Company’s market capitalization as a result of a decrease in thetrading price of its common stock to $4.08 at the end of the quarter and a further decrease in internal expectations fornear term revenues. For purposes of this analysis, the Company’s estimates of fair value were again based on acombination of the income approach and the market approach. As of the filing of its quarterly report on Form 10-Qfor the third quarter of fiscal 2009, the Company had not completed its analysis due to the complexities involved indetermining the implied fair value of the goodwill for the optical subsystems and components reporting unit, whichis based on the determination of the fair value of all assets and liabilities of this reporting unit. However, based onthe work performed through the date of the filing, the Company concluded that an impairment loss was probable andcould be reasonably estimated. Accordingly, it recorded an additional $46.5 million non-cash goodwill impairmentcharge, representing its best estimate of the impairment loss during the third quarter of fiscal 2009.

As of the first day of the fourth quarter of fiscal 2009, the Company performed the required annual impairmenttesting of goodwill and indefinite-lived intangible assets and determined that the remaining balance of goodwill of$13.2 million was impaired and accordingly recognized an additional impairment charge of $13.2 million in thefourth quarter of fiscal 2009.

During fiscal 2009, the Company recorded $238.5 million in goodwill impairment charges. At April 30, 2010and April 30, 2009 the carrying value of goodwill was zero.

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Intangible Assets

The following table reflects intangible assets subject to amortization as of April 30, 2010 and April 30, 2009(in thousands):

GrossCarryingAmount

AccumulatedAmortization

NetCarryingAmount

April 30, 2010

Purchased technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,936 $(64,247) $11,689

Purchased trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172 (1,172) —

Purchased customer relationships. . . . . . . . . . . . . . . . . . . . . . . . 15,970 (4,569) 11,401

Purchased patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 (63) 312

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $93,453 $(70,051) $23,402

GrossCarryingAmount

AccumulatedAmortization

NetCarryingAmount

April 30, 2009

Purchased technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,936 $(59,477) $16,459

Purchased trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172 (806) 366

Purchased customer relationships. . . . . . . . . . . . . . . . . . . . . . . . 15,970 (2,909) 13,061

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $93,078 $(63,192) $29,886

The amortization expense on these intangible assets was $6.9 million, $7.1 million and $5.8 million for fiscal2010, fiscal 2009 and fiscal 2008, respectively.

During the fourth quarter of fiscal 2009, the Company determined that the net carrying value of technologyacquired from Kodeos had been impaired and had a fair value of zero. Accordingly, an impairment charge of$1.2 million was recorded against the remaining net book value of these assets during the fourth quarter of fiscal 2009.

Estimated amortization expense for each of the next five fiscal years ending April 30, is as follows (inthousands):

Year Amount

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,227

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,410

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,998

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,346

2015 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,421

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,402

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6. Investments

Available-for-sale Securities

The following table presents a summary of the Company’s available-for-sale investments measured at fairvalue on a recurring basis as of April 30, 2010 (in thousands):

Assets Measured at Fair Value on a Recurring Basis

QuotedPrices in

ActiveMarkets for

IdenticalAssets

SignificantOther

ObservableRemaining

Inputs

SignificantUnobservable

Inputs Total(Level 1) (Level 2) (Level 3)

Cash equivalents:

Money market funds. . . . . . . . . . . . . . . . . . . . . . . . . . $140,014 $— $— $140,014

Total cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $140,014 $— $— $140,014

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,010

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . $207,024

Reported as:Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $207,024


The following table presents the summary of the Company’s available-for-sale investments measured at fairvalue on a recurring basis as of April 30, 2009 (in thousands):

Assets Measured at Fair Value on a Recurring Basis

QuotedPrices in

ActiveMarkets for

IdenticalAssets

SignificantOther

ObservableRemaining

Inputs

SignificantUnobservable

Inputs Total(Level 1) (Level 2) (Level 3)

Cash equivalents:Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . $25 $— — $ 25

Total cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $25 $— $— 25

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,196


The Company monitors its investment portfolio for impairment on a periodic basis. In order to determinewhether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration andextent to which the fair value has been less than the carrying value; the Company’s financial condition and businessoutlook, including key operational and cash flow metrics, current market conditions and future trends in its industry;the Company’s relative competitive position within the industry; and the Company’s intent and ability to retain theinvestment for a period of time sufficient to allow for any anticipated recovery in fair value. A decline in the marketvalue of the security below cost that is deemed other than temporary is charged to earnings, resulting in theestablishment of a new cost basis for the security. The decline in value of these investments, shown in the tablebelow as “Gross Unrealized Losses,” is primarily related to changes in interest rates and is considered to betemporary in nature. Gross Unrealized Losses are reported in other comprehensive income. The number ofinvestments that have been in a continuous unrealized loss position for more than twelve months is not material.

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The gross realized gains and losses for fiscal 2010 and 2009 were immaterial. Realized gains and losses werecalculated based on the specific identification method.

Sale of Available-for-sale Equity Securities

During fiscal 2008, the Company disposed of 2.9 million shares of stock held by the Company asavailable-for-sale securities, through open market sales and a privately negotiated transaction with a third partyand recognized a loss of approximately $848,000. During fiscal 2008, the Company also granted an option to a thirdparty to acquire the remaining 3.8 million shares held by the Company. The Company determined that this optionshould be accounted for under the provisions of FASB authoritative guidance relating to derivatives and hedging,which requires the Company to calculate the fair value of the option at the end of each reporting period, upon theexercise of the option or at the time the option expires and recognize the change in fair value through other income(expense), net. During the first quarter of fiscal 2009, the third party did not exercise its option to purchase any of theshares and the option expired. Accordingly, the Company reduced the carrying value of the option liability to zeroand recorded $1.1 million of other income during the first quarter and also recorded a $700,000 loss as the Companydetermined that the carrying value of these shares was other than temporarily impaired. During the second quarter offiscal 2009, the Company sold 300,000 shares of this investment for $90,000 resulting in a realized loss of $12,000and classified the remaining 3.5 million shares as available-for-sale securities. The Company determined that as ofNovember 2, 2008, the full carrying value of these shares was other-than-temporarily impaired and it recorded a lossof $1.2 million during the second quarter of fiscal 2009.

7. Minority Investments

Cost Method Investments

Included in minority investments at April 30, 2009 is $14.3 million representing the carrying value of theCompany’s minority investment in four privately held companies accounted for under the cost method. TheCompany concluded that there were sufficient indicators during the second quarter of fiscal 2010 to require aninvestment impairment analysis of its investment in one of these companies. Among these indicators was thecompletion of a new round of equity financing by the investee and the resultant conversion of the Company’spreferred stock holdings to common stock. The Company determined that the value of its minority equityinvestment was impaired and recorded a $2.0 million impairment loss as other expense during the second quarterof fiscal 2010. At April 30, 2010 the carrying value of minority investments was $12.3 million and was comprised ofthe Company’s minority investment in three privately held companies.

During the first half of fiscal 2009, the Company completed the sale of a product line to a third party inexchange for an 11% equity interest in the acquiring company in the form of preferred stock and a note convertibleinto preferred stock. This product line was related to the Company’s Network Tools Division, the remaining assetsof which were sold to JDSU in the first quarter of fiscal 2010 and accounted for as discontinued operations. Foraccounting purposes, no value was originally placed on the equity interest due to the uncertainty in the recov-erability of this investment and note. The sale included the transfer of certain assets and liabilities and the retentionof certain obligations related to the sale of the product line resulting in a net loss of approximately $919,000 whichwas included in operating expenses. In the first quarter of fiscal 2010, the Company sold the note and all of thepreferred stock to the buyer of the product line for $1.2 million in cash and recorded the $1.2 million as income fromdiscontinued operations.

During fiscal 2009 and 2008, the Company did not record any charges for impairments in the value of theseminority investments.

The Company’s investments in these early stage companies were primarily motivated by its desire to gain earlyaccess to new technology. The Company’s investments were passive in nature in that the Company generally did notobtain representation on the board of directors of the companies in which it invested. At the time the Company made

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its investments, in most cases the companies had not completed development of their products and the Company didnot enter into any significant supply agreements with any of the companies in which it invested.

8. Inventories

Inventories consist of the following (in thousands):

2010 2009April 30,

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,780 $ 36,678

Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,352 36,065

Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,393 35,021

Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $139,525 $107,764

In fiscal 2010, the Company recorded charges of $23.0 million for excess and obsolete inventory and soldinventory components that were written-off in prior periods of $15.1 million, resulting in a net charge to cost ofrevenues of $7.9 million. In fiscal 2009, the Company recorded charges of $14.4 million for excess and obsoleteinventory and sold inventory components that were written-off in prior periods of $8.1 million, resulting in a netcharge to cost of revenues of $6.3 million. In fiscal 2008, the Company recorded charges of $12.1 million for excessand obsolete inventory and sold inventory components that were written-off in prior periods of $6.0 million,resulting in a net charge to cost of revenues of $6.1 million.

The Company has expensed and recorded on the balance sheet as non-cancelable purchase obligations of$722,000 as of April 30, 2010. These purchase obligations are related to materials purchased and held bysubcontractors on behalf of the Company to fulfill the subcontractors’ obligations at their facilities under theCompany’s purchase orders.

9. Property, Equipment and Improvements

Property, equipment and improvements consist of the following (in thousands):

2010 2009April 30,

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,337 $ 7,416

Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,236 33,232

Office equipment, furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,853 3,739Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,894 154,505

Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,699 17,246

Construction-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,190 445

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,209 216,583

Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . (160,995) (134,977)

Property, equipment and improvements (net) . . . . . . . . . . . . . . . . . . . . . . . $ 89,214 $ 81,606

10. Sale-leaseback and Impairment of Tangible Assets

During fiscal 2005, the Company recorded an impairment charge of $18.8 million to write down the carryingvalue of one of its corporate office facilities located in Sunnyvale, California upon entering into a sale-leasebackagreement. The property was written down to its appraised value, which was based on the work of an independentappraiser in conjunction with the sale-leaseback agreement. Due to retention by the Company of an option to

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10. Sale-leaseback and Impairment of Tangible Assets

During fiscal 2005, the Company recorded an impairment charge of $18.8 million to write down the carryingvalue of one of its corporate office facilities located in Sunnyvale, California upon entering into a sale-leasebackagreement. The property was written down to its appraised value, which was based on the work of an independentappraiser in conjunction with the sale-leaseback agreement. Due to retention by the Company of an option toacquire the leased properties at fair value at the end of the fifth year of the lease, the sale-leaseback transaction wasrecorded in the quarter ended April 30, 2005 as a financing transaction under which the sale would not be recordeduntil the option expired or was otherwise terminated.

During the first quarter of fiscal 2009, the Company amended the sale-leaseback agreement with the landlordto immediately terminate the Company’s option to acquire the leased properties. Accordingly, the Companyfinalized the sale of the property by disposing of the remaining net book value of the facility and the correspondingvalue of the land resulting in a loss on disposal of approximately $12.2 million. This loss was offset by an$11.9 million reduction in the carrying value of the financing liability and other related accounts, resulting in therecognition of a net loss on the sale of this property of approximately $343,000 during the first quarter of fiscal2009.

11. Other accrued liabilities

Accrued liabilities consist of the following (in thousands):

2010 2009April 30,

Warranty accrual (Note 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,472 $ 6,413

Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,604 24,100

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,076 $30,513

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12. Convertible Debt

The Company’s convertible subordinated and senior subordinated notes as of April 30, 2010 and 2009 aresummarized as follows (in thousands):

DescriptionCarryingAmount

InterestRate

Due inFiscal year

As of April 30, 2010Convertible senior notes due 2029 . . . . . . . . . . . . . . . . . . . . . . . . $100,000 5.00% 2030

Convertible subordinated notes due 2010 . . . . . . . . . . . . . . . . . . . 3,900 2.50% 2011

Convertible senior subordinated notes due 2010 . . . . . . . . . . . . . . 25,681 2.50% 2011

Unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (742)

Convertible senior subordinated notes, net. . . . . . . . . . . . . . . . . . . 24,939

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128,839

As of April 30, 2009Convertible subordinated notes due 2010 . . . . . . . . . . . . . . . . . . . $ 50,000 2.50% 2011

Convertible senior subordinated notes due 2010 . . . . . . . . . . . . . . 92,000 2.50% 2011

Unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,745)

Convertible senior subordinated notes, net. . . . . . . . . . . . . . . . . . . 84,255

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $134,255

5.0% Convertible Senior Notes Due 2029

On October 15, 2009, the Company sold $100 million aggregate principal amount of 5.0% Convertible SeniorNotes due 2029. The notes will mature on October 15, 2029, unless earlier repurchased, redeemed or converted.Interest on the notes is payable semi-annually in arrears at a rate of 5.0% per annum on each April 15 andOctober 15, beginning on April 15, 2010. The notes are senior unsecured and unsubordinated obligations of theCompany, and rank equally in right of payment with the Company’s other unsecured and unsubordinatedindebtedness, but are effectively subordinated to the Company’s secured indebtedness and liabilities to the extentof the value of the collateral securing those obligations, and structurally subordinated to the indebtedness and otherliabilities of the Company’s subsidiaries. Holders may convert the notes into shares of the Company’s commonstock, at their option, at any time prior to the close of business on the trading day before the stated maturity date. Theinitial conversion rate is 93.6768 shares of Common Stock per $1,000 principal amount of the notes (equivalent toan initial conversion price of approximately $10.68 per share of common stock), subject to adjustment upon theoccurrence of certain events. Upon conversion of the notes, holders will receive shares of common stock unless theCompany obtains consent from a majority of the holders to deliver cash or a combination of cash and shares ofcommon stock in satisfaction of its conversion obligation. If a holder elects to convert the notes in connection with a“fundamental change” (as defined in the indenture) that occurs prior to October 15, 2014, the conversion rateapplicable to the notes will be increased as provided in the indenture.

Holders may require the Company to redeem, for cash, all or part of their notes upon a “fundamental change”at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaidinterest up to, but excluding, the redemption date. Holders may also require the Company to redeem, for cash, any oftheir notes on October 15, 2014, October 15, 2016, October 15, 2019 and October 15, 2024 at a redemption priceequal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest up to, butexcluding, the redemption date.

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The Company has the right to redeem the notes in whole or in part at a redemption price equal to 100% of theprincipal amount of the notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemptiondate, at any time on or after October 22, 2014 if the last reported sale price per share of the Company’s commonstock exceeds 130% of the conversion price for at least 20 trading days within a period of 30 consecutive tradingdays ending within five trading days of the date on which the Company provides the notice of redemption.

The Company considered the embedded derivative in the notes, that is, the conversion feature, and concludedthat it is indexed to the Company’s common stock and would be classified as equity, were it to be accounted forseparately and thus is not required to be bifurcated and accounted for separately from the debt.

The Company also considered the Company’s call feature and the holders’ put feature in the event of a changein control under the provisions of FASB authoritative guidance, and concluded that they need not be accounted forseparately from the debt.

Unamortized debt issuance costs associated with these notes at April 30, 2010 was $1.7 million. Amortizationof prepaid debt issuance costs are classified as other income (expense), net on the consolidated statements ofoperations. Amortization of prepaid debt issuance costs during fiscal 2010 was $212,000.

Convertible Subordinated Notes Due 2008

On October 15, 2001, the Company sold $125 million aggregate principal amount of 51⁄14⁄⁄ % convertible

subordinated notes due October 15, 2008. Interest on the notes was 51⁄14⁄⁄ % per annum on the principal amount,

payable semiannually on April 15 and October 15. The notes were convertible, at the option of the holder, at anytime on or prior to maturity into shares of the Company’s common stock at a conversion price of $44.16 per share,which is equal to a conversion rate of approximately 22.644 shares per $1,000 principal amount of notes. Theconversion price was subject to adjustment.

Because the market value of the Company’s common stock rose above the conversion price between the daythe notes were priced and the day the proceeds were collected, the Company recorded a discount of $38.3 millionrelated to the intrinsic value of the beneficial conversion feature. This amount was being amortized to interestexpense over the life of the convertible notes, or sooner upon conversion. During fiscal 2009 and 2008, theCompany recorded interest expense amortization of $1.8 million and $4.9 million, respectively.

During the fourth quarter of fiscal 2008, the Company repurchased $8.2 million in principal amount plus$200,000 of accrued interest of its 51⁄1

4⁄⁄ % convertible subordinated notes due October 2008 for approximately$8.3 million in cash. In connection with the purchase, the Company recorded additional non-cash interest ofapproximately $215,000 representing the remaining unamortized discount for the beneficial conversion featurerelated to the repurchased convertible notes. In addition, the Company recorded a charge of $23,000 related tounamortized debt issue costs related to these notes.

During the second quarter of fiscal 2009, the Company retired, through a combination of cash purchases in privatetransactions and repayment upon maturity, the remaining $92.0 million of outstanding principal and the accrued interestunder these notes and recorded a loss on debt extinguishment of $231,000 in connection with these transactions.

Unamortized debt issuance costs associated with these notes at April 30, 2010 and 2009, respectively, was $0.Amortization of prepaid debt issuance costs are classified as other income (expense), net on the consolidatedstatements of operations. Amortization of prepaid debt issuance costs were $225,000 for the year ended April 30,2009 and $566,000 for the year ended April 30, 2008.

Convertible Subordinated Notes Due 2010

On October 15, 2003, the Company sold $150 million aggregate principal amount of 21⁄12⁄⁄ % convertible

subordinated notes due October 15, 2010. Interest on the notes is 21⁄12⁄⁄ % per annum, payable semiannually on April

15 and October 15. The notes are convertible, at the option of the holder, at any time on or prior to maturity into

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shares of the Company’s common stock at a conversion price of $29.64 per share, which is equal to a conversion rateof approximately 33.738 shares per $1,000 principal amount of notes. The conversion price is subject to adjustment.

In separate, privately-negotiated transactions on October 6, 2006, the Company exchanged $100 million inprincipal amount of its outstanding 21⁄1

2⁄⁄ % convertible subordinated notes due 2010 for a new series of notesdescribed below. The exchange primarily resulted in the elimination of a single-day put option which would haveallowed the holders of the original notes to require the Company to repurchase some or all of the notes, for cash orcommon stock of the Company (at the option of the Company), on October 15, 2007. The exchange was treated asthe extinguishment of the original debt and issuance of new debt. Accordingly, the Company recorded a non-cashloss on debt extinguishment of $31.6 million during the second quarter of fiscal 2007 which included $1.9 million ofunamortized debt issuance costs related to the $100 million of the notes that were exchanged. The remaining$50 million in outstanding principal amount of the original notes were not modified, and had been classified as acurrent liability as a result of the put option. On October 15, 2007, none of the note holders exercised the right torequire the Company to repurchase these notes, and the put option terminated. Accordingly, the Companyreclassified the $50 million in principal amount to long-term liabilities. As of April 30, 2010, $3.9 million ofprincipal amount of these notes was outstanding.

The notes are subordinated to all of the Company’s existing and future senior indebtedness and effectivelysubordinated to all existing and future indebtedness and other liabilities of its subsidiaries. Because the notes aresubordinated, in the event of bankruptcy, liquidation, dissolution or acceleration of payment on the senior indebt-edness, holders of the notes will not receive any payment until holders of the senior indebtedness have been paid infull. The indenture does not limit the incurrence by the Company or its subsidiaries of senior indebtedness or otherindebtedness. The Company may redeem the notes, in whole or in part, at any time up to, but not including, thematurity date at specified redemption prices, plus accrued and unpaid interest, if the closing price of the Company’scommon stock exceeds $44.48 per share for at least 20 trading days within a period of 30 consecutive trading days.

Upon a change in control of the Company, each holder of the notes may require the Company to repurchasesome or all of the notes at a repurchase price equal to 100% of the principal amount of the notes plus accrued andunpaid interest. The Company may, at its option, pay all or a portion of the repurchase price in shares of theCompany’s common stock valued at 95% of the average of the closing sales prices of its common stock for the fivetrading days immediately preceding and including the third trading day prior to the date the Company is required torepurchase the notes. The Company cannot pay the repurchase price in common stock unless the Company satisfiesthe conditions described in the indenture under which the notes have been issued.

Unamortized debt issuance costs associated with these notes were $8,495 and $341,350 at April 30, 2010 and2009, respectively. Amortization of prepaid debt issuance costs are classified as other income (expense), net on theconsolidated statements of operations. Amortization of prepaid debt issuance costs were $125,528 in fiscal 2010,$234,000 in fiscal 2009 and $234,000 in fiscal 2008.

Repurchase of Convertible Subordinated Notes

During fiscal 2010, the Company repurchased $13.0 million principal amount of the 21⁄12⁄⁄ % convertible subor-

dinated notes due 2010 in privately negotiated transactions for a total purchase price of $12.7 million plus accruedinterest of $11,000 and recorded a gain on debt extinguishment of $308,000 in connection with these transactions.

Exchange Offer

On August 11, 2009, the Company exchanged $33.1 million principal amount of the 21⁄12⁄⁄ % convertible

subordinated notes due 2010 pursuant to exchange offers which commenced on July 9, 2009. Additionalinformation regarding settlement of the exchange offer is set forth in the paragraph entitled “Settlement ofExchange Offers” below.

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FINISAR CORPORATION


Convertible Senior Subordinated Notes Due 2010

On October 6, 2006, the Company entered into separate, privately-negotiated, exchange agreements with certainholders of its existing 21⁄1

2⁄⁄ % Convertible Subordinated Notes due 2010 (the “Old Notes”), pursuant to which holders ofan aggregate of $100 million of the Old Notes agreed to exchange their Old Notes for $100 million in aggregateprincipal amount of a new series of 21⁄1

2⁄⁄ % Convertible Senior Subordinated Notes due 2010 (the “New Notes”), plusaccrued and unpaid interest on the Old Notes at the day prior to the closing of the exchange. Interest on the New Notesis 21⁄1

2⁄⁄ % per annum, payable semiannually on April 15 and October 15. The New Notes become convertible, at theoption of the holder, upon the Company’s common stock reaching $39.36 for a period of time at a conversion price of$26.24 per share, which is equal to a rate of approximately 38.1132 shares of Finisar common stock per $1,000principal amount of the New Notes. The conversion price is subject to adjustment. This exchange was treated as theissuance of new debt. As of April 30, 2010, $25.7 million of principal amount of these notes was outstanding.

The New Notes contain a net share settlement feature which requires that, upon conversion of the New Notesinto common stock of the Company, Finisar will pay holders in cash for up to the principal amount of the convertedNew Notes and that any amounts in excess of the cash amount will be settled in shares of Finisar common stock.

The New Notes are subordinated to all of the Company’s existing and future senior indebtedness and effectivelysubordinated to all existing and future indebtedness and other liabilities of its subsidiaries. Because the New Notes aresubordinated, in the event of bankruptcy, liquidation, dissolution or acceleration of payment on the senior indebt-edness, holders of the New Notes will not receive any payment until holders of the senior indebtedness have been paidin full. The indenture does not limit the incurrence by the Company or its subsidiaries of senior indebtedness or otherindebtedness. The Company may redeem the New Notes, in whole or in part, at any time up to, but not including, thematurity date at specified redemption prices, plus accrued and unpaid interest, if the closing price of the Company’scommon stock exceeds $39.36 per share for at least 20 trading days within a period of 30 consecutive trading days.

Upon a change in control of the Company, each holder of the New Notes may require the Company to repurchasesome or all of the New Notes at a repurchase price equal to 100% of the principal amount of the New Notes plusaccrued and unpaid interest. The Company may, at its option, pay all or a portion of the repurchase price in shares ofthe Company’s common stock valued at 95% of the average of the closing sales prices of its common stock for the fivetrading days immediately preceding and including the third trading day prior to the date the Company is required torepurchase the New Notes. The Company cannot pay the repurchase price in common stock unless the Companysatisfies the conditions described in the indenture under which the New Notes have been issued.

The Company agreed to use its best efforts to file a shelf registration statement covering the New Notes and thecommon stock issuable upon conversion of the stock and keep such registration statement effective until two yearsafter the latest date on which the Company issued New Notes (or such earlier date when the holders of the NewNotes and the common stock issuable upon conversion of the New Notes are able to sell their securities immediatelypursuant to Rule 144(k) under the Securities Act). If the Company did not comply with these registrationobligations, the Company is required to pay liquidated damages to the holders of the New Notes or the commonstock issuable upon conversion. The Company did not comply with these registration requirements and accruedliquidated damages of $830,822. None of the liquidated damages have been paid and as of April 30, 2010 andApril 30, 2009, the entire accrued balance of $830,822, respectively, was outstanding.

The Company considered the embedded derivative in the New Notes, that is, the conversion feature, andconcluded that it is indexed to the Company’s common stock and would be classified as equity, were it to beaccounted for separately and thus is not required to be bifurcated and accounted for separately from the debt.

The Company also considered the Company’s call feature and the holders’ put feature in the event of a changein control under the provisions of FASB authoritative guidance, and concluded that they need not be accounted forseparately from the debt.

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During fiscal 2007, the Company incurred fees of approximately $2 million related to the exchangetransactions which were capitalized and will be amortized over the life of the New Notes.

Unamortized debt issuance costs associated with the New Notes were $36,479 and $408,000 at April 30, 2010and 2009, respectively. Amortization of prepaid loan costs are classified as other income (expense), net on theconsolidated statement of operations. Debt issuance costs related to debt that is extinguished during the period iswritten off as loss on debt extinguishment. Amortization of prepaid loan costs were $163,000 in fiscal 2010,$331,000 in fiscal 2009 and $296,000 in fiscal 2008.

Repurchase of the New Notes

In the third quarter of fiscal 2009, the Company purchased $8.0 million in principal amount of the New Notes,together with accrued interest, in privately negotiated transactions for approximately $3.9 million in cash. Inconnection with the purchase, the Company recorded a gain of approximately $3.1 million. During fiscal 2010, theCompany repurchased an aggregate of $51.9 million principal amount of the New Notes in privately negotiatedtransactions for a total purchase price of $50.3 million plus accrued interest of $183,000 and recorded a loss on debtextinguishment of $1.3 million in connection with these transactions.

Exchange Offer

On August 11, 2009, the Company exchanged approximately $14.4 million principal amount of the New Notespursuant to exchange offers which commenced on July 9, 2009. Additional information regarding settlement of theexchange offer is set forth in the paragraph entitled “Settlement of Exchange Offers” below.

As discussed in Note 1, in fiscal 2009 the Company adopted authoritative guidance issued by the FASB foraccounting for convertible debt instruments that may be settled in cash upon conversion (including partial cashsettlement) which requires the issuer of certain convertible debt instruments that may be settled in cash (or otherassets) on conversion to separately account for the liability (debt) and equity (conversion option) components of theinstrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The separation of theconversion option creates an original issue discount in the bond component which is to be accreted as interestexpense over the term of the instrument using the interest method, resulting in an increase in interest expense and adecrease in net income and earnings per share. The provisions of this accounting guidance apply to the New Notesand the Company has accounted for the debt and equity components of the notes to reflect the estimatednonconvertible debt borrowing rate at the date of issuance of 8.59%. It requires retrospective application to allperiods presented. Accordingly, prior period balances have been restated to effectively record a debt discount equalto the fair value of the equity component and an increase to paid-in capital for the fair value of the equity componentas of the date of issuance of the underlying notes. Prior period balances have also been adjusted to provide for theamortization of the debt discount through interest expense (non-cash interest cost).

The guidance also requires the debt issuance costs to be allocated to the equity component based on thepercentage split between the liability and equity component of the debt. Accordingly, the Company has allocated$700,000 of the total debt issuance costs of $1.9 million to the equity component. The remaining $1.2 million ofdebt issuance cost will continue to be amortized over the expected life of the debt on a straight line basis. Priorperiod amounts of amortization of debt issuance costs have been adjusted accordingly.

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The following table reflects the Company’s previously reported amounts, along with the adjusted amountsreflecting the adoption of this accounting guidance:

Consolidated Statement of Operations (Unaudited)

As Reported As Adjusted Effect of Change(In thousands, except per share data)

Fiscal Year Ended April 30, 2009Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,687 $ 14,597 $ 4,910

Loss from continuing operations . . . . . . . . . . . . . . . . . . (256,957) (262,492) (5,535)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (254,808) (260,343) (5,535)Loss per share from continuing operations:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.89) (4.99) (0.10)

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.89) (4.99) (0.10)

As Reported As Adjusted Effect of Change(In thousands, except per share data)

Fiscal Year Ended April 30, 2008Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,236 $ 21,876 $ 4,640

Loss from continuing operations . . . . . . . . . . . . . . . . (28,389) (32,844) (4,455)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,558) (79,013) (4,455)

Loss per share from continuing operations:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.74) (0.85) (0.11)

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.74) (0.85) (0.11)

Consolidated Balance Sheet (Unaudited)

As Reported As Adjusted Effect of Change(In thousands)

As of April 30, 2009Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,897 $ 2,584 $ (313)

Convertible notes, net of current portion . . . . . . . . . . 142,000 134,255 (7,745)

Additional paid in capital . . . . . . . . . . . . . . . . . . . . . 1,811,715 *1,831,224 19,509

Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (1,699,648) (1,711,725) (12,077)

* Includes adjustment of $417,000 due to reverse stock split effected on September 25, 2009.

At April 30, 2010, the if-converted value of the New Notes did not exceed the principal balance. At April 30,2010, the $742,000 unamortized debt discount had a remaining amortization period of approximately 5 months.

The following table provides additional information about the New Notes that may be settled for cash (inthousands):

April 30,2010

April 30,2009

Carrying amount of the equity component . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,283 $19,509

Effective interest rate on liability component . . . . . . . . . . . . . . . . . . . . . . . . . . 8.59% 8.59%

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The following table presents the associated interest expense related to the New Notes that may be settled incash, which consists of both the contractual interest coupon (cash interest cost) and amortization of the discount onthe liability (non-cash interest cost) (in thousands):

2010 2009 2008For Fiscal Years Ended April 30,

Non-cash interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,033 $4,910 $4,640

Cash interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,402 2,433 2,500

$4,435 $7,343 $7,140

Settlement of Exchange Offers

On August 11, 2009, the Company exchanged approximately $47.5 million aggregate principal amount of its21⁄1

2⁄⁄ % convertible senior subordinated notes due 2010 and its 21⁄12⁄⁄ % Convertible Subordinated Notes due 2010

pursuant to exchange offers which commenced on July 9, 2009 at a price of $870 for each $1,000 principal amountof notes. The consideration for the exchange consisted of (i) $525 in cash and (ii) 596 shares of the Company’scommon stock per $1,000 principal amount of notes. The Company issued approximately 3.5 million shares ofcommon stock and paid out approximately $24.9 million in cash to the former holders of notes validly tendered andnot withdrawn in the exchange offers. The Company settled $33.1 million, or 66.2%, of the $50.0 million aggregateoutstanding principal amount of 21⁄1

2⁄⁄ % convertible subordinated notes due 2010; and $14.4 million, or approxi-mately 15.7%, of the $92.0 million aggregate outstanding principal amount of 21⁄1

2⁄⁄ % convertible senior subordinatednotes due 2010. The total consideration paid in the exchange was approximately $4.7 million less than the par valueof the notes retired. In accordance with the provisions of ASC 470-20, this exchange was considered to be aninduced conversion and the retirement of the notes was accounted for as if they had been converted according totheir original terms, with that value compared to the fair value of the consideration paid in the exchange offers. Theoriginal conversion price of the notes was $30.08 per share. Accordingly, the Company recorded loss on debtextinguishment of $23.7 million. The Company incurred $1.5 million of expenses in connection with the exchangeoffers which was recorded as a loss on debt extinguishment in the consolidated statement of operations.

13. Long-term Debt

Malaysian Bank Loan

In July 2008, the Company’s Malaysian subsidiary entered into two separate loan agreements with a Malaysianbank. Under these agreements, the Company’s Malaysian subsidiary borrowed a total of $20 million at an initialinterest rate of 5.05% per annum. The first loan is payable in 20 equal quarterly installments of $750,000 beginningin January 2009, and the second loan is payable in 20 equal quarterly installments of $250,000 beginning in October2008. Both loans are secured by certain property of the Company’s Malaysian subsidiary, guaranteed by theCompany and subject to certain covenants. The Company and its subsidiary were in compliance with all covenantsassociated with these loans as of April 30, 2010 and April 30, 2009.

The following table provides information regarding the current and long-term portion of the remainingprincipal outstanding under these notes as of the respective dates (in thousands):

April 30,2010

April 30,2009

Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000 $ 4,000

Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,750 13,750

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,750 $17,750

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Chinese Bank Loan

In January 2010, the Company’s Chinese subsidiary entered into a loan agreement with a bank in China. Underthis agreement, the Company’s Chinese subsidiary borrowed a total of $4.5 million at an initial interest rate of 2.6%per annum. In April 2010, the Chinese subsidiary borrowed an additional $1.0 million from the bank. The loan ispayable on January 6, 2013. Interest is payable quarterly.

14. Short-term Debt

On October 2, 2009, the Company entered into an agreement with Wells Fargo Foothill, LLC to establish a newfour-year $70 million senior secured revolving credit facility. Borrowings under the credit facility bear interest atrates based on the prime rate and LIBOR plus variable margins, under which applicable interest rates currentlyrange from 5.75% to 7.00% per annum. Borrowings are guaranteed by the Company’s U.S. subsidiaries and securedby substantially all of the assets of the Company and its U.S. subsidiaries. The credit facility matures four yearsfollowing the date of the agreement, subject to certain conditions. The Company was in compliance with allcovenants associated with this facility as of April 30, 2010. As of April 30, 2010, the availability of credit under thefacility was reduced by $3.4 million for outstanding letters of credit secured under the agreement.

15. Commitments

The Company’s future commitments at April 30, 2010 included minimum payments under non-cancelableoperating lease agreements as follows (in thousands):

TotalLess Than

1 Year 1-3 Years 4-5 YearsAfter

5 Years

Payments Due by Period

Operating leases(a) . . . . . . . . . . . . . . . . . . $42,210 $6,665 $9,570 $7,312 $18,663

(a) Includes operating lease obligations that have been accrued as restructuring charges.

Rent expense under the non-cancelable operating leases was approximately $6.5 million, $5.7 million and$3.5 million for the years ended April 30, 2010, 2009 and 2008, respectively. The Company subleases a portion ofits facilities that it considers to be in excess of its requirements. Sublease income was $439,000, $727,000 and$542,000 for the years ended April 30, 2010, 2009 and 2008, respectively. Certain leases have scheduled rentincreases which have been included in the above table. Other leases contain provisions to adjust rental rates forinflation during their terms, most of which are based on to-be-published indices. Rents subject to these adjustmentsare included in the above table based on current rates.

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16. Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments presents amounts that have beendetermined using available market information and appropriate valuation methodologies. The estimated fair valuesof the Company’s financial instruments as of April 30, 2010 and April 30, 2009 are as follows (in thousands):

CarryingAmount Fair Value

CarryingAmount Fair Value

April 30, 2010 April 30, 2009

Financial assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $207,024 $207,024 $ 37,221 $37,221

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,024 207,024 37,221 37,221

Financial liabilities:

Convertible notes. . . . . . . . . . . . . . . . . . . . . . . . . . 128,839 188,710 134,255 78,100

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,250 18,183 21,412 19,267

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,089 $206,893 $155,667 $97,367

Cash and cash equivalents — The fair value of cash and cash equivalents approximates its carrying value.

Convertible notes — The fair value of Convertible Notes is based on their market price in open market as onApril 30, 2010.

Long-term debt — The fair value of long-term debt is determined by discounting the contractual cash flows atthe current rates charged for similar debt instruments.

The Company has not estimated the fair value of its minority investments as it is not practicable to estimate thefair value of these investments because of the lack of a quoted market price and the inability to estimate fair valuewithout incurring excessive costs. As of April 30, 2010 the carrying value of its minority investments is$12.3 million which management believes is not impaired as of April 30, 2010.

17. Stockholders’ Equity

Common Stock and Preferred Stock

As of April 30, 2010, Finisar is authorized to issue 750,000,000 shares of $0.001 par value common stock and5,000,000 shares of $0.001 par value preferred stock. The board of directors has the authority to issue theundesignated preferred stock in one or more series and to fix the rights, preferences, privileges and restrictionsthereof. The holder of each share of common stock has the right to one vote and is entitled to receive dividends whenand as declared by the Company’s Board of Directors. The Company has never declared or paid dividends on itscommon stock.

Common stock subject to future issuance as of April 30, 2010 is as follows:

Conversion of convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,494,875

Exercise of outstanding options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,482,809

Vesting of restricted stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,152

Available for grant under stock compensation plans. . . . . . . . . . . . . . . . . . . . . . . . . . 5,960,960

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,157,796

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Common Stock Offering

On March 23, 2010, the Company completed the sale of 9,787,093 shares of its common stock at a price to thepublic of $14.00 per share. Total gross proceeds of the offering were $137.0 million. Net proceeds to the Companyafter deducting underwriting discounts and commissions and offering expenses were $131.1 million.

Warrants

In connection with the acquisition of Optium in fiscal 2009, the Company assumed outstanding warrants topurchase stock of Optium as a part of the consideration paid to Optium’s equity holders. The assumed warrantsentitled the holders to purchase an aggregate of 37,961 shares of Finisar common stock at an exercise price of $0.80per share. During fiscal 2010 warrants to purchase 378 shares of Finisar common stock were exercised.

Preferred Stock

The Company has authority to issue up to 5,000,000 shares of preferred stock, $0.001 par value. The preferredstock may be issued in one or more series having such rights, preferences and privileges as may be designated by theCompany’s board of directors. In September 2002, the Company’s board of directors designated 500,000 shares ofits preferred stock as Series RP Preferred Stock, which is reserved for issuance under the Company’s stockholderrights plan described below. As of April 30, 2010 and 2009, no shares of the Company’s preferred stock were issuedand outstanding.

Stockholder Rights Plan

In September 2002, Finisar’s board of directors adopted a stockholder rights plan. Under the rights plan,stockholders received one share purchase right for each share of Finisar common stock held. The rights, which willinitially trade with the common stock, effectively allow Finisar stockholders to acquire Finisar common stock at adiscount from the then current market value when a person or group acquires 20% or more of Finisar’s commonstock without prior board approval. When the rights become exercisable, Finisar stockholders, other than theacquirer, become entitled to exercise the rights, at an exercise price of $112.00 per right, for the purchase of one-thousandth of a share of Finisar Series RP Preferred Stock or, in lieu of the purchase of Series RP Preferred Stock,Finisar common stock having a market value of twice the exercise price of the rights. Alternatively, when the rightsbecome exercisable, the board of directors may authorize the issuance of one share of Finisar common stock inexchange for each right that is then exercisable. In addition, in the event of certain business combinations, the rightspermit the purchase of the common stock of an acquirer at a 50% discount. Rights held by the acquirer will becomenull and void in each case. Prior to a person or group acquiring 20%, the rights can be redeemed for $0.008 each byaction of the board of directors.

The rights plan contains an exception to the 20% ownership threshold for Finisar’s founder, former Chairmanof the Board and former Chief Technical Officer, Frank H. Levinson. Under the terms of the rights plan,Dr. Levinson and certain related persons and trusts are permitted to acquire additional shares of Finisar commonstock up to an aggregate amount of 30% of Finisar’s outstanding common stock, without prior board approval.

Employee Stock Purchase Plan

In fiscal 2010, the Company’s 1999 Employee Stock Purchase Plan (the “1999 Purchase Plan”) expired sinceall the shares available under the plan were issued. The 1999 Purchase Plan permitted eligible employees topurchase Finisar common stock through payroll deductions, which could not exceed 20% of the employee’s totalcompensation. Stock was purchased under the plan at a price equal to 85% of the fair market value of Finisarcommon stock on either the first or the last day of the offering period, whichever was lower. During fiscal 2010 andfiscal 2009, the Company issued 1,256,400 shares and 627,540 shares, respectively, under the 1999 Purchase Plan.No shares were issued under the plan in fiscal 2008.

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In September 2009, the Company’s board of directors adopted the 2009 Employee Stock Purchase Plan, whichincludes its sub-plan, the International Employee Stock Purchase Plan (together the “Purchase Plan”), under which2,500,000 shares of the Company’s common stock have been reserved for issuance. The Purchase Plan wasapproved by the Company’s stockholders in November 2009. The Purchase Plan permits eligible employees topurchase Finisar common stock through payroll deductions, which may not exceed 20% of the employee’s totalcompensation. Stock may be purchased under the plan at a price equal to 85% of the fair market value of Finisarcommon stock on either the first or the last day of the offering period, whichever is lower. During fiscal 20103,693 shares were issued under the Purchase Plan.

Employee Stock Option Plans

In September 1999, Finisar’s 1999 Stock Option Plan was adopted by the board of directors and approved bythe stockholders. An amendment and restatement of the 1999 Stock Option Plan, including renaming it the 2005Stock Incentive Plan (the “2005 Plan”), was approved by the board of directors in September 2005 and by thestockholders in October 2005. A total of 2,625,000 shares of common stock were initially reserved for issuanceunder the 2005 Plan. The share reserve automatically increases on May 1 of each calendar year by a number ofshares equal to 5% of the number of shares of Finisar’s common stock issued and outstanding as of the immediatelypreceding April 30, subject to certain restrictions on the aggregate maximum number of shares that may be issuedpursuant to incentive stock options. The types of stock-based awards available under the 2005 Plan includes stockoptions, stock appreciation rights, restricted stock units (“RSUs”) and other stock-based awards which vest upon theattainment of designated performance goals or the satisfaction of specified service requirements or, in the case ofcertain RSUs or other stock-based awards, become payable upon the expiration of a designated time periodfollowing such vesting events. Options generally vest over five years and have a maximum term of 10 years. As ofApril 30, 2010 and 2009, no shares were subject to repurchase.

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A summary of activity under the Company’s employee stock option plans is as follows:

Number ofShares

Number ofShares

Weighted-AverageExercise

Price

Weighted-AverageRemaining

ContractualTerm

AggregateIntrinsicValue(1)

SharesAvailablefor Grant

Options Outstanding

(In years) ($000’s)

Balance at April 30, 2007 . . . . . . . . . . 3,601,895 5,764,889 $20.64

Increase in authorized shares . . . . . . . . . 1,928,952 —Options granted . . . . . . . . . . . . . . . . . . (2,956,081) 2,956,081 $19.36RSUs granted . . . . . . . . . . . . . . . . . . . . (37,650) — —Options exercised . . . . . . . . . . . . . . . . . (23,163) $ 8.48Options canceled . . . . . . . . . . . . . . . . . 2,090,749 (2,090,699) $17.04

Balance at April 30, 2008 . . . . . . . . . . 4,627,866 6,607,108 $21.20

Increase in authorized shares . . . . . . . . . 1,930,150 — —Options assumed on acquisition of

Optium . . . . . . . . . . . . . . . . . . . . . . . — 1,868,926 $10.96Options granted . . . . . . . . . . . . . . . . . . (2,919,221) 2,919,221 $ 4.16RSUs granted . . . . . . . . . . . . . . . . . . . . (1,573,711) — —Options exercised . . . . . . . . . . . . . . . . . — (183,908) $ 6.08RSUs canceled . . . . . . . . . . . . . . . . . . . 58,562 — —Options canceled . . . . . . . . . . . . . . . . . 1,530,037 (1,530,037) $19.36

Balance at April 30, 2009 . . . . . . . . . . 3,653,683 9,681,309 $14.64

Increase in authorized shares . . . . . . . . . 2,984,325 — —Options granted . . . . . . . . . . . . . . . . . . (1,290,344) 1,290,344 $ 8.36RSUs granted . . . . . . . . . . . . . . . . . . . . (1,087,410) — —Options exercised . . . . . . . . . . . . . . . . . (824,313) $ 5.90RSUs canceled . . . . . . . . . . . . . . . . . . . 165,314 — —Options canceled . . . . . . . . . . . . . . . . . 1,535,392 (1,664,535) $19.21

Balance at April 30, 2010 . . . . . . . . . . 5,960,960 8,482,805 $13.67 6.69 $43,448

(1) Represents the difference between the exercise price and the value of Finisar common stock at April 30, 2010.

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The following table summarizes significant ranges of outstanding and exercisable options as of April 30, 2010:

Range of Exercise PricesNumber

Outstanding

Weighted-Average

RemainingContractual Life


PriceNumber

Exercisable


Price

Options Outstanding Options Exercisable

(In years)

$ 0.16 — $ 2.72 . . . . . . . . . . . . . . . . . . 584,497 7.86 $ 1.21 498,999 $ 0.95$ 3.04 — $ 3.36 . . . . . . . . . . . . . . . . . . 1,629,408 8.41 $ 3.36 735,851 $ 3.36$ 3.92 — $ 8.08 . . . . . . . . . . . . . . . . . . 360,371 7.09 $ 6.90 279,517 $ 6.95$ 8.29 — $ 8.29 . . . . . . . . . . . . . . . . . . 1,123,773 9.48 $ 8.29 — $ —$ 8.32 — $ 11.84 . . . . . . . . . . . . . . . . . . 927,769 5.21 $ 10.33 785,792 $ 10.44$11.92 — $ 14.88 . . . . . . . . . . . . . . . . . . 1,522,630 4.42 $ 13.77 1,357,765 $ 13.79$15.36 — $ 17.36 . . . . . . . . . . . . . . . . . . 228,329 4.07 $ 15.64 222,375 $ 15.60$17.52 — $ 24.80 . . . . . . . . . . . . . . . . . . 1,120,274 6.58 $ 22.04 738,201 $ 22.02$25.12 — $ 37.12 . . . . . . . . . . . . . . . . . . 853,493 5.95 $ 29.57 588,653 $ 29.52$37.52 — $839.68 . . . . . . . . . . . . . . . . . . 132,261 2.44 $105.53 115,895 $114.97

8,482,805 6.69 5,323,048

The Company’s vested and expected-to-vest stock options and exercisable stock options as of April 30, 2010are summarized in the following table:

Number ofShares


Price

Weighted-Average

RemainingContractual

TermAggregate

Intrinsic Value(In years) ($000’s)

Vested and expected-to-vest options . . . . . . . . 7,706,822 $14.01 6.49 $38,518

Exercisable options . . . . . . . . . . . . . . . . . . . . . 5,323,048 $15.45 5.63 $22,912

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on theCompany’s closing stock price of $14.96 as of April 30, 2010, which would have been received by the optionholders had all option holders exercised their options as of that date. The total number of in-the-money optionsexercisable as of April 30, 2010 was approximately 3.7 million. The fair value of options vested during fiscal 2010was $10.2 million.

Restricted Stock Units

During fiscal 2010, 2009 and 2008, the Company issued 1.1 million, 1.6 million and 37,650 RSUs,respectively, under the 2005 Plan. Typically, vesting of RSUs occurs over one to four years and is subject tothe employee’s continuing service to the Company. The fair value of these awards of $9.1 million, $8.2 million and$0.5 million for fiscal 2010, fiscal 2009 and fiscal 2008, respectively, was determined using the fair market value ofthe Company’s common stock on the date of the grant and is recognized as compensation expense under a straightline method over the awards’ vesting period.

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A summary of the changes in RSUs outstanding under the Company’s employee stock plans is as follows:

Shares

Weighted-Average GrantDate Fair Value

Nonvested at April 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,650 $12.48

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,573,711 $ 5.20

Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (171,162) $ 4.64

Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58,562) $ 8.32

Nonvested at April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,381,637 $ 5.36

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,087,410 $ 8.33

Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,084,581) $ 3.83

Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (165,314) $ 5.05

Nonvested at April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,152 $ 9.41

The aggregate intrinsic value of RSUs outstanding at April 30, 2010 was $18.2 million. The fair value of RSUsvested during fiscal 2010 was $4.5 million.

As of April 30, 2010, the Company had $5.7 million of unrecognized compensation expense, net of estimatedforfeitures, related to RSUs grants. These expenses are expected to be recognized over a weighted-average period of40 months. As of April 30, 2010, $7.2 million in compensation expense related to RSUs has been recognized to date.

Valuation and Expense Information Under SFAS 123R

The Company measures and recognizes compensation expense for all stock-based payment awards made tothe Company’s employees and directors including employee stock options and employee stock purchases based onestimated fair values.

The following table summarizes stock-based compensation expense related to employee stock options andemployee stock purchases for the fiscal years ended April 30, 2010, 2009 and 2008 which was reflected in theCompany’s operating results (in thousands):


Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,212 $ 3,267 $2,933

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,518 5,576 3,467

Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,858 1,681 1,325

General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,357 2,917 1,860

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,945 $13,441 $9,585

The total stock-based compensation capitalized as part of inventory was $520,828 and $614,555 as of April 30,2010 and 2009, respectively.

As of April 30, 2010, total compensation cost, net of estimated forfeitures, related to unvested stock options notyet recognized was $17.8 million which is expected to be recognized over the next 29 months on a weighted-average basis.

Compensation expense for expected-to-vest stock-based awards that were granted on or prior to April 30, 2006was valued under the multiple-option approach and will continue to be amortized using the accelerated attributionmethod. Subsequent to April 30, 2006, compensation expense for expected-to-vest stock-based awards is valuedunder the single-option approach and amortized on a straight-line basis, net of estimated forfeitures.

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The fair value of options granted in fiscal 2010, 2009 and 2008 was estimated at the date of grant using theBlack-Scholes option-pricing model with the following weighted-average assumptions:

2010 2009 2008 2010 2009 2008Year Ended April 30,

Employee Stock Option PlansYear Ended April 30,

Employee Stock Purchase Plan

Expected term (in years) . . . . . . . . . . . 5.22 5.26 5.44 0.75 0.75 0.75

Volatility . . . . . . . . . . . . . . . . . . . . . . . 83% 79% 86% 93% - 109% 102% 57%

Risk-free interest rate. . . . . . . . . . . . . . 2.36% 1.96% 4.03% 0.2 - 0.5% 0.45% 3.34%

Dividend yield . . . . . . . . . . . . . . . . . . . 0% 0% 0% 0% 0% 0%

The expected term represents the period that the Company’s stock-based awards are expected to be outstandingand was determined based on the Company’s historical experience with similar awards, giving consideration to thecontractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior asinfluenced by changes to the terms of its stock- based awards.

The Company calculated the volatility factor based on the Company’s historical stock prices.

The Company bases the risk-free interest rate used in the Black-Scholes option-pricing model on constantmaturity bonds from the Federal Reserve in which the maturity approximates the expected term.

The Black-Scholes option-pricing model calls for a single expected dividend yield as an input. The Companyhas not issued any dividends.

As stock-based compensation expense recognized in the consolidated statement of operations for fiscal 2010,2009 and 2008 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates. Forfeitures were estimated based on historical experience.

The weighted-average grant-date per share fair value of options granted in fiscal 2010, 2009 and 2008 was$5.70, $2.64 and $16.64, respectively. The weighted-average estimated per share fair value of shares granted underthe 1999 Purchase Plan in fiscal 2010, 2009 and 2008 was $1.53, $1.68 and $4.00, respectively.

The Black-Scholes option-pricing model requires the input of highly subjective assumptions, including theexpected life of the stock-based award and the stock price volatility. The assumptions listed above representmanagement’s best estimates, but these estimates involve inherent uncertainties and the application of managementjudgment. As a result, if other assumptions had been used, recorded stock-based compensation expense could havebeen materially different from that depicted above. In addition, the Company is required to estimate the expectedforfeiture rate and only recognize expense for those shares expected to vest. If the actual forfeiture rate is materiallydifferent from this estimate, the stock-based compensation expense could be materially different.

Amendment of Certain Stock Options

During the third quarter of fiscal 2008, the Company completed a tender offer to holders of certain optionsgranted under the 1999 Stock Option Plan and the 2005 Plan that had original exercise prices per share that were lessthan the fair market value per share of the common stock underlying the option on the option’s grant date, asdetermined by the Company for financial accounting purposes. Under this offer, employees subject to taxation inthe United States had the opportunity to cancel these options and exchange them for new options with an adjustedexercise price equal to the fair market value per share of the Company’s common stock on the corrected date of grantso as to avoid unfavorable tax consequences under Internal Revenue Code Section 409A. The Company alsocommitted to issue restricted stock units to those optionees accepting the offer whose new options have exerciseprices that exceed the exercise price of the cancelled options, in order to compensate the optionees for the increasein the exercise price. In connection with the offer, the Company canceled and replaced options to purchase

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1.78 million shares of its common stock and committed to issue 37,650 RSUs to offer participants. The Companyrecorded a charge of $371,000 related to the issuance of the RSUs, which was recorded as operating expense for thethird quarter of fiscal 2008.

Impact of Certain Stock Option Restatement Items

Because virtually all holders of options issued by the Company were neither involved in nor aware of itsaccounting treatment of stock options, the Company has taken and intends to take actions to deal with certainadverse tax consequences that may be incurred by the holders of certain incorrectly priced options due to aninvestigation into its historical stock option grant practices, as more fully described in “Note 22. PendingLitigation — Stock Option Derivative Litigation.” The primary adverse tax consequence is that incorrectly pricedstock options vesting after December 31, 2004 may subject the option holder to a penalty income tax under InternalRevenue Code Section 409A (and, as applicable, similar penalty taxes under California and other state tax laws).During the third quarter of fiscal 2008, the Company recorded a charge of $3.9 million representing the employeeincome tax liability that has been assumed by the Company related to the option exchange program, which wasdesigned to avoid the adverse consequences of Section 409A. As of April 30, 2010, $353,000 of this income taxliability was unpaid.

18. Employee Benefit Plan

The Company maintains a defined contribution retirement plan under the provisions of Section 401(k) of theInternal Revenue Code which covers all eligible employees. Employees are eligible to participate in the plan on thefirst day of the month immediately following twelve months of service with Finisar.

Under the plan, each participant may contribute up to 20% of his or her pre-tax gross compensation up to astatutory limit, which was $15,500 for calendar year 2008 and $16,500 for calendar year 2009 and calendar year2010. All amounts contributed by participants and earnings on participant contributions are fully vested at all times.The Company may contribute an amount equal to one-half of the first 6% of each participant’s contribution. TheCompany suspended contributions to the plan beginning in the fourth quarter of fiscal 2009. The Company’sexpenses related to this plan were $0, $1,591,000 and $1,523,000 for the fiscal years ended April 30, 2010, 2009 and2008, respectively.

19. Income Taxes

The components of income tax expense (benefit) consist of the following (in thousands):


Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (538) $ (225) $ —

State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 86 157

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495 1,023 320

359 884 477

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (7,135) 1,491

State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (711) 265

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,999) — —

(1,999) (7,846) 1,756

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $(1,640) $(6,962) $2,233

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Income (loss) from continuing operations before income taxes consists of the following (in thousands):


U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(49,076) $(286,214) $(40,435)

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,630 16,760 9,824

$(24,446) $(269,454) $(30,611)

A reconciliation of the income tax provision at the federal statutory rate and the effective rate is as follows:

2010 2009 2008

Fiscal Years EndedApril 30,

Expected income tax provision (benefit) at U.S. federal statutory rate . . . . . (35.0)% (35.0)% (35.0)%

Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 1.3 8.7

Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 20.4 38.6

Debt conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.0 — —

Tax gain convertible note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 — —

Non-deductible interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 0.6 8.5

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 10.3 (3.5)

Foreign (income) taxed at different rates . . . . . . . . . . . . . . . . . . . . . . . . . . . (41.4) (1.8) (10.2)

In-process R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 1.6 —

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.7) — 0.2

(6.7)% (2.6)% 7.3%

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The components of deferred taxes consist of the following (in thousands):


Deferred tax assets:

Inventory adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,779 $ 9,556 $ 9,228

Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,366 12,025 12,524

Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,075 12,014 9,525

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . 160,710 166,944 147,447

Gain/loss on investments under equity or cost method . . . . . . 11,654 10,981 10,587

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . (707) 3,944 4,417

Purchase accounting for intangible assets . . . . . . . . . . . . . . . 3,476 4,161 14,263

Capital loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . — 709 1,005

Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,913 22,524 —

Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,676 5,753 6,658

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,943 248,611 215,654

Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (229,201) (237,456) (200,919)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,742 11,155 14,735

Deferred tax liabilities:

Goodwill amortization for tax . . . . . . . . . . . . . . . . . . . . . . . . — — (7,846)

Tax basis difference on convertible debt . . . . . . . . . . . . . . . . (2,431) (7,995) (9,638)

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . — — (92)

Debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (313) (3,160) (5,005)

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . — — —

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (2,744) (11,155) (22,581)

Total net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . $ 1,999 $ — $ (7,846)

Realization of deferred tax assets is dependent upon future taxable earnings, the timing and amount of whichare uncertain. Due to operating losses in previous years, management has established a valuation allowance for theportion of the deferred tax assets for which it is not more likely than not that the deferred tax assets will be realizablein future periods. At present, the Company’s management believes that it is more likely than not that approximately$2.0 million of net deferred tax assets, related to foreign jurisdiction, are expected to be realized within the nextyear; accordingly, a deferred tax asset is shown in the accompanying consolidated balance sheets and a valuationallowance has been established against the remaining deferred tax assets. The Company’s valuation allowanceincreased/(decreased) from the prior year by approximately ($8.3) million, $34.7 million and ($1.1) million in fiscalyears 2010, 2009 and 2008, respectively.

As of April 30, 2010, approximately $18.3 million of deferred tax assets, which is not included in the abovetable, was attributable to certain employee stock option deductions. When realized, the benefit of the tax deductionrelated to these options will be accounted for as a credit to stockholders’ equity rather than as a reduction of theincome tax provision.

At April 30, 2010, the Company had federal, state and foreign net operating loss carryforwards of approx-imately $484.5 million, $160.5 million and $8.4 million, respectively, and federal and state tax credit carryforwardsof approximately $14.7 million, and $10.5 million, respectively. The net operating loss and tax credit carryforwardswill expire at various dates beginning in 2010, if not utilized. Utilization of the Company’s U.S. net operating loss

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and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership changelimitations set forth in Internal Revenue Code Section 382 and similar state provisions. Such an annual limitationcould result in the expiration of the net operating loss and tax credit carryforwards before utilization.

The Company’s manufacturing operations in Malaysia operate under a tax holiday which expires in beginningof fiscal 2012. This tax holiday has had no effect on the Company’s net loss and net loss per share in fiscal 2008,2009 and 2010 due to a cumulative net operating loss position within the tax holiday period.

As of April 30, 2010, there was no provision for U.S. income taxes for undistributed earnings of the Company’sforeign subsidiaries as it is currently the Company’s intention to reinvest these earnings indefinitely in operationsoutside the United States. The Company believes it is not practicable to determine the Company’s tax liability thatmay arise in the event of a future repatriation. If repatriated, these earnings could result in a tax expense at thecurrent U.S. federal statutory tax rate of 35%, subject to available net operating losses and other factors. Tax onundistributed earnings may also be reduced by foreign tax credits that may be generated in connection with therepatriation of earnings.

The amount of gross unrecognized tax benefits as of April 30, 2009 and April 30, 2010 was $12.5 million and$12.6 million, respectively.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is as follows (inthousands):

Gross unrecognized tax benefits balance at April 30, 2009 . . . . . . . . . . . . . . . . . . $12,474

Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . 361

Deductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . (215)

Gross unrecognized tax benefits balance at April 30, 2010 . . . . . . . . . . . . . . . . . . $12,620

Excluding the effects of recorded valuation allowances for deferred tax assets, $10.6 million of the unrec-ognized tax benefits would favorably impact the effective tax rate in future periods if recognized.

It is the Company’s belief that no significant changes in the unrecognized tax benefit positions will occurwithin 12 months of April 30, 2010.

The Company records interest and penalties related to unrecognized tax benefits in income tax expense. AtApril 30, 2010, there were no accrued interest or penalties related to uncertain tax positions. The Companyestimated no interest or penalties for the year ended April 30, 2010.

The Company and its subsidiaries are subject to taxation in various state jurisdictions as well as the U.S. TheCompany’s U.S. federal and state income tax returns are generally not subject to examination by the tax authoritiesfor tax years before 2004. For all federal and state net operating loss and credit carryovers, the statute of limitationsdoes not begin until the carryover items are utilized. The taxing authorities can examine the validity of the carryoveritems and if necessary, adjustments may be made to the carryover items. The Company’s Malaysia, Singapore andChina income tax returns are generally not subject to examination by the tax authorities for tax years before 2005,2003 and 2005, respectively. The Company’s Israel subsidiary received a tax assessment from Israel Tax Authority(ITA) for tax years ended 2005 to 2007. The Company has filed an appeal and anticipates no material tax liability.

20. Segments

Prior to the first quarter of fiscal 2010, the Company’s Chief Executive Officer and Chairman of the Boardviewed its business as having two principal operating segments, consisting of optical subsystems and components,and network performance test systems. After the sale of the assets of the Network Tools Division to JDSU in the firstquarter of fiscal 2010, the Company has one reportable segment consisting of optical subsystems and components.

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Optical subsystems consist primarily of transceivers sold to manufacturers of storage and networkingequipment for SANs and LANs and MAN applications. Optical subsystems also include multiplexers, de-multiplexers and optical add/drop modules for use in MAN applications. Optical components consist primarilyof packaged lasers and photo-detectors which are incorporated in transceivers, primarily for LAN and SANapplications.

21. Geographic Information

The following is a summary of operations within geographic areas based on the location of the entitypurchasing the Company’s products (in thousands):


Revenues from sales to unaffiliated customers:

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $221,789 $147,352 $ 94,214

Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,991 90,669 108,166

China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,722 75,860 46,637

Rest of the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,378 183,177 152,608

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $629,880 $497,058 $401,625

Revenues generated in the United States are all from sales to customers located in the United States.

The following is a summary of long-lived assets within geographic areas based on the location of the assets (inthousands):

April 30,2010

April 30,2009

Long-lived assets

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,975 $ 83,118

Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,575 28,067

Rest of the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,965 17,180

$130,515 $128,365

22. Pending Litigation

Stock Option Derivative Litigation

On November 30, 2006, the Company announced that it had undertaken a voluntary review of its historicalstock option grant practices subsequent to its initial public offering in November 1999. The review was initiated bysenior management, and preliminary results of the review were discussed with the Audit Committee of theCompany’s board of directors. Based on the preliminary results of the review, senior management concluded, andthe Audit Committee agreed, that it was likely that the measurement dates for certain stock option grants differedfrom the recorded grant dates for such awards and that the Company would likely need to restate its historicalfinancial statements to record non-cash charges for compensation expense relating to some past stock option grants.The Audit Committee thereafter conducted a further investigation and engaged independent legal counsel andfinancial advisors to assist in that investigation. The Audit Committee concluded that measurement dates for certainoption grants differed from the recorded grant dates for such awards. The Company’s management, in conjunctionwith the Audit Committee, conducted a further review to finalize revised measurement dates and determine theappropriate accounting adjustments to its historical financial statements. The announcement of the investigationresulted in delays in filing the Company’s quarterly reports on Form 10-Q for the quarters ended October 29, 2006,

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January 28, 2007, and January 27, 2008, and the Company’s annual report on Form 10-K for the fiscal year endedApril 30, 2007. On December 4, 2007, the Company filed all four of these reports which included revised financialstatements.

Following the Company’s announcement on November 30, 2006 that the Audit Committee of the board ofdirectors had voluntarily commenced an investigation of the Company’s historical stock option grant practices, theCompany was named as a nominal defendant in several shareholder derivative cases. These cases have beenconsolidated into two proceedings pending in federal and state courts in California. The federal court cases havebeen consolidated in the United States District Court for the Northern District of California. The state court caseshave been consolidated in the Superior Court of California for the County of Santa Clara. The plaintiffs in all caseshave alleged that certain of the Company’s current or former officers and directors caused the Company to grantstock options at less than fair market value, contrary to the Company’s public statements (including its financialstatements), and that, as a result, those officers and directors are liable to the Company. No specific amount ofdamages has been alleged, and by the nature of the lawsuits, no damages will be alleged against the Company. OnMay 22, 2007, the state court granted the Company’s motion to stay the state court action pending resolution of theconsolidated federal court action. On June 12, 2007, the plaintiffs in the federal court case filed an amendedcomplaint to reflect the results of the stock option investigation announced by the Audit Committee in June 2007.On August 28, 2007, the Company and the individual defendants filed motions to dismiss the complaint. OnJanuary 11, 2008, the Court granted the motions to dismiss, with leave to amend. On May 12, 2008, the plaintiffsfiled an amended complaint. The Company and the individual defendants filed motions to dismiss the amendedcomplaint on July 1, 2008. The Court granted the motions to dismiss on September 22, 2009, and entered judgmentin favor of the defendants. The plaintiffs have appealed the judgment to the United States Court of Appeal for theNinth Circuit.

Securities Class Action

A securities class action lawsuit was filed on November 30, 2001 in the United States District Court for theSouthern District of New York, purportedly on behalf of all persons who purchased the Company’s common stockfrom November 17, 1999 through December 6, 2000. The complaint named as defendants the Company, Jerry S.Rawls, its President and Chief Executive Officer, Frank H. Levinson, its former Chairman of the Board and ChiefTechnical Officer, Stephen K. Workman, its Senior Vice President, Corporate Development and Investor Relationsand its former Senior Vice President and Chief Financial Officer, and an investment banking firm that served as anunderwriter for the Company’s initial public offering in November 1999 and a secondary offering in April 2000.The complaint, as subsequently amended, alleges violations of Sections 11 and 15 of the Securities Act of 1933 andSections 10(b) and 20(b) of the Securities Exchange Act of 1934, on the grounds that the prospectuses incorporatedin the registration statements for the offerings failed to disclose, among other things, that (i) the underwriter hadsolicited and received excessive and undisclosed commissions from certain investors in exchange for which theunderwriter allocated to those investors material portions of the shares of the Company’s stock sold in the offeringsand (ii) the underwriter had entered into agreements with customers whereby the underwriter agreed to allocateshares of the Company’s stock sold in the offerings to those customers in exchange for which the customers agreedto purchase additional shares of the Company’s stock in the aftermarket at pre-determined prices. No specificdamages are claimed. Similar allegations have been made in lawsuits relating to more than 300 other initial publicofferings conducted in 1999 and 2000, which were consolidated for pretrial purposes. In October 2002, all claimsagainst the individual defendants were dismissed without prejudice. On February 19, 2003, the Court denieddefendants’ motion to dismiss the complaint.

In February 2009, the parties reached an understanding regarding the principal elements of a settlement,subject to formal documentation and Court approval. Under the settlement, the underwriter defendants will pay atotal of $486 million, and the issuer defendants and their insurers will pay a total of $100 million to settle all of thecases. On August 25, 2009, the Company funded approximately $327,000 with respect to its pro rata share of theissuers’ contribution to the settlement and certain costs. This amount was accrued in the financial statements during

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the first quarter of fiscal 2010. On October 2, 2009, the Court granted approval of the settlement and onNovember 19, 2009 the Court entered final judgment. The judgment has been appealed by certain individualclass members.

Section 16(b) Lawsuit

A lawsuit was filed on October 3, 2007 in the United States District Court for the Western District ofWashington by Vanessa Simmonds, a purported holder of the Company’s common stock, against two investmentbanking firms that served as underwriters for the initial public offering of the Company’s common stock inNovember 1999. None of the Company’s officers, directors or employees were named as defendants in thecomplaint. On February 28, 2008, the plaintiff filed an amended complaint. The complaint, as amended, allegesthat: (i) the defendants, other underwriters of the offering, and unspecified officers, directors and the Company’sprincipal shareholders constituted a “group” that owned in excess of 10% of the Company’s outstanding commonstock between November 11, 1999 and November 20, 2000; (ii) the defendants were therefore subject to the “shortswing” prohibitions of Section 16(b) of the Securities Exchange Act of 1934; and (iii) the defendants engaged inpurchases and sales, or sales and purchases, of the Company’s common stock within periods of less than six monthsin violation of the provisions of Section 16(b). The complaint seeks disgorgement of all profits allegedly received bythe defendants, with interest and attorneys fees, for transactions in violation of Section 16(b). The Company, as thestatutory beneficiary of any potential Section 16(b) recovery, is named as a nominal defendant in the complaint.

This case is one of 54 lawsuits containing similar allegations relating to initial public offerings of technologycompany issuers, which were coordinated (but not consolidated) by the Court. On July 25, 2008, the real defendantsin all 54 cases filed a consolidated motion to dismiss, and a majority of the nominal defendants (including theCompany) filed a consolidated motion to dismiss, the amended complaints. On March 19, 2009, the Courtdismissed the amended complaints naming the nominal defendants that had moved to dismiss, without prejudice,because the plaintiff had not properly demanded action by their respective boards of directors before filing suit; anddismissed the amended complaints naming nominal defendants that had not moved to dismiss, with prejudice,finding the claims time-barred by the applicable statute of limitation. Also on March 19, 2009, the Court enteredjudgment against the plaintiff in all 54 cases. The plaintiff has appealed the order and judgments. The realdefendants have cross-appealed the dismissal of certain amended complaints without prejudice, contending thatdismissal should have been with prejudice because the amended complaints are barred by the applicable statute oflimitation.

JDSU/Emcore Patent Litigation

On September 11, 2006, JDSU and Emcore Corporation filed a complaint in the United States District Courtfor the Western District of Pennsylvania alleging that certain cable television transmission products acquired inconnection with the Company’s acquisition of Optium Corporation, specifically the Company’s 1550 nm HFCexternally modulated transmitter, in addition to possibly “products as yet unidentified,” infringe two U.S. patents,referred to as the ‘‘‘003 and ‘071 Patents.” On March 14, 2007, JDSU and Emcore filed a second complaint in theUnited States District Court for the Western District of Pennsylvania alleging that the Company’s 1550 nm HFCquadrature amplitude modulated transmitter used in cable television applications, in addition to possibly “productsas yet unidentified,” infringes on another U.S. patent, referred to as the ‘‘‘374 Patent”. On December 10, 2007, theCompany filed a complaint in the United States District Court for the Western District of Pennsylvania seeking adeclaration that the patents asserted against the Company’s HFC externally modulated transmitter are unenforce-able due to inequitable conduct committed by the patent applicants and/or the attorneys or agents duringprosecution. On February 18, 2009, the Court granted JDSU’s and Emcore’s motion for summary judgmentdismissing the Company’s declaratory judgment action on inequitable conduct. The Company has appealed thisruling.

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A trial with respect to the remaining two actions was held in October 2009. On November 1, 2009, the jurydelivered its verdict that the Company had infringed the ‘003 and the ‘071 Patents as well as the ‘374 Patent. Inaddition, the jury found that the Company’s infringement of the ‘003 and the ‘071 Patents was willful. The jurydetermined that, with respect to the ‘003 and the ‘071 Patents, Emcore was entitled to $974,364 in damages andJDSU was entitled to $622,440 in damages, and, with respect to the ‘374 Patent, Emcore was entitled to $1,800,000in damages. The Court declined to enhance the damages award with respect to the ‘003 and ‘071 Patents as a resultof the jury’s determination that the Company’s infringement was willful. In addition the Court declined to issue apermanent injunction against further manufacture or sale of the products found to have infringed the patents-in-suit.The Company is appealing on several grounds.

Based on the Company’s review of the record in this case, including discussion with and analysis by counsel ofthe bases for the Company’s appeal, the Company has determined that it has a number of strong arguments availableon appeal and, although there can be no assurance as to the ultimate outcome, the Company believes that thejudgment against it will ultimately be reversed, or remanded for a new trial in which the Company believes it wouldprevail. As a result, the Company has concluded that it is not probable that Emcore and JDSU will ultimately prevailin this matter; therefore, the Company has not recorded any liability for this judgment.

Digital Diagnostics Patent Litigation

On January 5, 2010, the Company filed a complaint for patent infringement in the United States District Courtfor the Northern District of California. The complaint alleges that certain optoelectronic transceivers from SourcePhotonics, Inc., MRV Communications, Inc., Neophotonics Corp. and Oplink Communications, Inc. infringeeleven Finisar patents. As described in further detail below, this suit is no longer pending against MRV Com-munications, NeoPhotonics or Oplink. The complaint asks the Court to enter judgment (a) that the defendants haveinfringed, actively induced infringement of, and/or contributorily infringed the patents-in-suit, (b) preliminarily andpermanently enjoining the defendants from further infringement of the patents-in-suit, or, to the extent not soenjoined, ordering the defendants to pay compulsory ongoing royalties for any continuing infringement of thepatents-in-suit, (c) ordering that the defendants account, and pay actual damages (but no less than a reasonableroyalty), to the Company for the defendants’ infringement of the patents-in-suit, (d) declaring that the defendantsare willfully infringing one or more of the patents-in-suit and ordering that the defendants pay treble damages to theCompany, (e) ordering that the defendants pay the Company’s costs, expenses, and interest, including prejudgmentinterest, (f) declaring that this is an exceptional case and awarding the Company its attorneys’ fees and expenses,and (g) granting such other and further relief as the Court deems just and appropriate, or that the Company may beentitled to as a matter of law or equity.

On March 23, 2010, each defendant filed a first amended answer in which they denied the allegations of thecomplaint and asserted affirmative defenses including non-infringement, invalidity, statute of limitations, prosecutionhistory estoppel, laches, estoppel and “other defenses.” Each defendant also asserted counterclaims against theCompany seeking declaratory judgment of invalidity for each of the patents asserted in the complaint, declaratoryjudgment of unenforceability for certain of the patents asserted in the complaint, alleging monopolization of “theDigital Diagnostics Technology Market” in violation of Section 2 of the Sherman Act, attempted monopolization of“the Optical Transceiver Market” in violation of Section 2 of the Sherman Act, breach of contract, and unfaircompetition. Source Photonics, Inc. also asserted counterclaims alleging that certain of the Company’s optoelectronictransceivers infringe two of its patents. NeoPhotonics Corp. also asserted counterclaims alleging that certain of theCompany’s wavelength selective switches infringe two of its patents. Each defendant asked the Court to enterjudgment (a) denying the Company relief and dismissing the complaint with prejudice, (b) granting declaratoryjudgment that the Company’s asserted patents are invalid, (c) awarding attorneys’ fees and reasonable expenses,(d) awarding compensatory damages for the Company’s allegedly anticompetitive conduct, and trebling suchdamages, (e) permanently enjoining the Company from allegedly monopolizing or attempting to monopolize theUnited States markets for optical transceiver and digital diagnostics technology for such transceivers, (f) awardingattorneys’ fees and costs, (g) granting declaratory judgment that certain of the Company’s asserted patents are

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unenforceable, (h) for damages resulting from the Company’s alleged breach of contract, (i) permanently enjoiningthe Company from engaging in allegedly unfair competition, (j) restoring money and/or property that the Companyhas allegedly acquired by means of such unfair competition, (k) awarding all costs, expenses and interest, includingprejudgment interest, and (l) for such additional relief as the Court may deem just and proper. Source Photonics, Inc.and NeoPhotonics Corp. each asked the Court in addition to enter judgment (m) finding that the Company hasinfringed, actively induced the infringement of, and/or contributed to the infringement of each of their respectiveasserted patents, (n) awarding damages not less than a reasonable royalty, and (o) permanently enjoining the Companyfrom such alleged infringement. NeoPhotonics Corp. also asked the Court to enter judgment trebling damages for theCompany’s allegedly willful infringement of one of its two asserted patents. The Company filed a motion to dismissthe defendants’ non-patent counterclaims or, in the alternative, to sever and stay those counterclaims and to strikecertain of the defendants’ affirmative defenses on April 13, 2010. The defendants filed their opposition to theCompany’s motion on April 29, 2010, and the Company filed its reply on May 6, 2010.

On May 5, 2010, the Court entered an order finding that the defendants had been improperly joined in a singlesuit and dismissed each of the defendants except Source Photonics, Inc. without prejudice to the Company’s re-filing its claims against the other dismissed defendants in separate suits. On May 18, 2010, Source Photonics, Inc.filed a second amended answer that restated certain of its affirmative defenses and counterclaims, omitted theaffirmative defenses of prosecution history estoppel and “other defenses,” and omitted both patent counterclaims.The relief Source Photonics, Inc. asks from the Court was revised accordingly. Although Source Photonics did notinclude its patent counterclaims in its Second Amended Answer, Source Photonics’ trial counsel subsequentlyindicated that they would attempt to have these claims added back into the suit.

On May 19, 2010, the Court granted Source Photonics, Inc. leave to file the second amended answer, andbifurcated and stayed all discovery and proceedings related to Source Photonics, Inc.’s counterclaims for declar-atory judgment of unenforceability for certain of the patents asserted in the complaint, alleged monopolization of“the Digital Diagnostics Technology Market” in violation of Section 2 of the Sherman Act, attempted monop-olization of “the Optical Transceiver Market” in violation of Section 2 of the Sherman Act, breach of contract, andunfair competition pending resolution of the Company’s patent infringement claims. The Court allowed theCompany to withdraw its motion to dismiss Source Photonics, Inc.’s non-patent counterclaims without prejudice tothe Company refiling a motion to dismiss after the stay has been lifted.

A claim construction hearing is currently scheduled for October 6, 2010, and the case is currently scheduled fortrial on July 25, 2011.

Export Compliance

During mid-2007, Optium became aware that certain of its analog RF over fiber products may, depending onend use and customization, be subject to the International Traffic in Arms Regulations, or ITAR. Accordingly,Optium filed a detailed voluntary disclosure with the United States Department of State describing the details ofpossible inadvertent ITAR violations with respect to the export of a limited number of certain prototype products, aswell as related technical data and defense services. Optium may have also made unauthorized transfers of ITAR-restricted technical data and defense services to foreign persons in the workplace. Additional information has beenprovided upon request to the Department of State with respect to this matter. In late 2008, a grand jury subpoenafrom the office of the U.S. Attorney for the Eastern District of Pennsylvania was received requesting documentsfrom 2005 through the present referring to, relating to or involving the subject matter of the above referencedvoluntary disclosure and export activities.

While the Department of State encourages voluntary disclosures and generally affords parties mitigating creditunder such circumstances, the Company nevertheless could be subject to continued investigation and potential regulatoryconsequences ranging from a no-action letter, government oversight of facilities and export transactions, monetarypenalties, and in extreme cases, debarment from government contracting, denial of export privileges and criminalsanctions, any of which would adversely affect the Company’s results of operations and cash flow. The Department of

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State and U.S. Attorney inquiries may require the Company to expend significant management time and incur significantlegal and other expenses. The Company cannot predict how long it will take or how much more time and resources it willhave to expend to resolve these government inquiries, nor can it predict the outcome of these inquiries.

Other Litigation

In the ordinary course of business, the Company is a party to litigation, claims and assessments in addition tothose described above. Based on information currently available, management does not believe the impact of theseother matters will have a material adverse effect on its business, financial condition, results of operations or cashflows of the Company.

23. Restructuring Charges

During the second quarter of fiscal 2006, the Company consolidated its Sunnyvale facilities into one building andpermanently exited a portion of its Scotts Valley facility. As a result of these activities, the Company recordedrestructuring charges of approximately $3.1 million. These restructuring charges included $290,000 of miscellaneouscosts required to effect the closures and approximately $2.8 million of non-cancelable facility lease payments. Of the$3.1 million in restructuring charges, $1.9 million related to the Company’s optical subsystems and componentssegment and $1.2 million related to discontinued operations. During the first quarter of fiscal 2009, the Companyrecorded additional restructuring charges of $600,000 for lease payments for the remaining portion of the ScottsValley facility that had been used for a product line of its discontinued operations which was sold in first quarter offiscal 2009. During the second quarter of fiscal 2010, the Company recorded restructuring charges of $4.2 million forthe non-cancelable facility lease relating to the abandoned and unused portion of its facility in Allen, Texas.

The following table summarizes the activities of the restructuring accrual during fiscal 2010 (in thousands):

Balance as of April 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850

Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,173

Adjustment to deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

Cash payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (655)

Balance as of April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,664

As of April 30, 2010, $4.7 million of committed facilities payments related to restructuring activities remainedaccrued, of which $581,000 is expected to be fully utilized in the next twelve months and $4.1 million to be paid outfrom fiscal 2011 through fiscal 2020.

.

24. Warranty

The Company generally offers a one year limited warranty for its products. The specific terms and conditions ofthese warranties vary depending upon the product sold. The Company estimates the costs that may be incurred underits basic limited warranty and records a liability in the amount of such costs based on revenue recognized. Factors thataffect the Company’s warranty liability include the historical and anticipated rates of warranty claims. The Companyperiodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

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Changes in the Company’s warranty liability during the period are as follows (in thousands):

2010 2009April 30,

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,413 $ 1,932

Warranty liability acquired on merger with Optium . . . . . . . . . . . . . . . . . . . . . . — 2,884

Additions during the period based on product sold . . . . . . . . . . . . . . . . . . . . . . 3,902 2,151Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,631) (1,297)

Changes in liability for pre-existing warranties, including expirations. . . . . . . . . (3,212) 743

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,472 $ 6,413

25. Related Parties

Frank H. Levinson, the Company’s former Chairman of the Board and Chief Technical Officer and a memberof the Company’s board of directors until August 29, 2008, is a member of the board of directors of Fabrinet, Inc., aprivately held contract manufacturer. In June 2000, the Company entered into a volume supply agreement, at rateswhich the Company believes to be market, with Fabrinet under which Fabrinet serves as a contract manufacturer forthe Company. In addition, Fabrinet purchases certain products from the Company. The Company recordedpurchases of $28.5 million from Fabrinet during the four months ending August 29, 2008 and Fabrinet purchasedproducts from the Company totaling to $16.2 million. During the fiscal year ended April 30, 2008 the Companyrecorded purchases from Fabrinet of approximately $70.2 million and Fabrinet purchased products from theCompany totaling approximately $33.6 million.

During fiscal 2010, the Company paid a sales and marketing consultant, who is the brother of the ChiefExecutive Officer of the Company, $160,000 in cash compensation.

Amounts paid to related parties represented values considered by management to be fair and reasonable,reflective of an arm’s length transaction.

26. Guarantees and Indemnifications

Upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations itassumes under that guarantee. As permitted under Delaware law and in accordance with the Company’s Bylaws, theCompany indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while theofficer or director is or was serving at the Company’s request in such capacity. The term of the indemnificationperiod is for the officer’s or director’s lifetime. The Company may terminate the indemnification agreements withits officers and directors upon 90 days written notice, but termination will not affect claims for indemnificationrelating to events occurring prior to the effective date of termination. The maximum amount of potential futureindemnification is unlimited; however, the Company has a director and officer liability insurance policy that mayenable it to recover a portion of any future amounts paid.

The Company enters into indemnification obligations under its agreements with other companies in itsordinary course of business, including agreements with customers, business partners, and insurers. Under theseprovisions the Company generally indemnifies and holds harmless the indemnified party for losses suffered orincurred by the indemnified party as a result of the Company’s activities or the use of the Company’s products.These indemnification provisions generally survive termination of the underlying agreement. In some cases, themaximum potential amount of future payments the Company could be required to make under these indemni-fication provisions is unlimited.

105

FINISAR CORPORATION


The Company believes the fair value of these indemnification agreements is minimal. Accordingly, theCompany has not recorded any liabilities for these agreements as of April 30, 2010. To date, the Company has notincurred material costs to defend lawsuits or settle claims related to these indemnification agreements.

During the first quarter of fiscal 2009, the Company’s Malaysian subsidiary entered into loan agreements witha Malaysian bank (See Note 13. Long-term Debt) for which the Company has provided corporate guarantees. TheCompany guaranteed loan payments of up to $23.1 million in the event of non-payment by its Malaysian subsidiary.These guarantees are effective during the term of these loans. The principal balance of this loan outstanding as ofApril 30, 2010 was $13.8 million.

27. Financial Information by Quarter (Unaudited)

Summarized quarterly data for fiscal 2010 and 2009 are as follows:

April 30,2010

Jan 31,2010

Nov 1,2009

Aug 2,2009

April 30,2009(3)

Feb 1,2009(2)

Nov 2,2008(1)

Aug 3,2008

Three Months Ended


Revenues . . . . . . . . . . . . . . $188,490 $166,935 $145,730 $128,725 $107,457 $126,081 $ 147,746 $115,774Gross profit . . . . . . . . . . . . . $ 58,851 $ 51,695 $ 39,793 $ 29,402 $ 23,223 $ 34,837 $ 39,957 $ 40,789Income (loss) from

operations . . . . . . . . . . . . $ 12,919 $ 9,126 $ (1,963) $ (8,786) $ (24,076) $ (49,673) $(190,140) $ 7,860Income (loss) from

continuing operations . . . . $ 14,111 $ 5,616 $ (31,417) $ (11,116) $ (27,004) $ (49,295) $(189,135) $ 2,942Income (loss) from

discontinued operations . . . $ 56 $ (131) $ (67) $ 37,079 $ 1,246 $ (87) $ 1,115 $ (125)Net income (loss) . . . . . . . . . $ 14,167 $ 5,485 $ (31,484) $ 25,963 $ (25,758) $ (49,382) $(188,020) $ 2,817Basic:Income (loss) per share from

continuing operations . . . . $ 0.20 $ 0.09 $ (0.49) $ (0.18) $ (0.45) $ (0.83) $ (3.55) $ 0.08Income (loss) per share from

discontinued operations . . . $ 0.00 $ (0.00) $ (0.00) $ 0.62 $ 0.02 $ (0.00) $ 0.02 $ (0.00)Net income (loss) per share . . $ 0.20 $ 0.09 $ (0.49) $ 0.44 $ (0.43) $ (0.83) $ (3.53) $ 0.08Diluted:Income (loss) per share from

continuing operations . . . . $ 0.19 $ 0.08 $ (0.49) $ (0.18) $ (0.45) $ (0.83) $ (3.55) $ 0.08Income (loss) per share from

discontinued operations . . . $ 0.00 $ (0.00) $ (0.00) $ 0.62 $ 0.02 $ (0.00) $ 0.02 $ (0.00)Net income (loss) per share . . $ 0.19 $ 0.08 $ (0.49) $ 0.44 $ (0.43) $ (0.83) $ (3.53) $ 0.08Shares used in computing net

income (loss) per shareBasic . . . . . . . . . . . . . . . . 70,596 65,113 64,198 60,181 59,622 59,350 53,325 38,767Diluted . . . . . . . . . . . . . . 82,351 66,719 64,198 60,181 59,622 59,350 53,325 38,952

(1) The net loss in the second quarter of fiscal 2009 includes a non-cash impairment charge of $178.8 million toreduce the carrying value of goodwill. It also includes $10.5 million of acquired in-process research anddevelopment expenses related to the Optium merger.

(2) The net loss in the third quarter of fiscal 2009 includes a non-cash impairment charge of $46.5 million to reducethe carrying value of goodwill.

(3) The net loss in the fourth quarter of fiscal 2009 includes a non-cash impairment charge of $13.2 million toreduce the carrying value of goodwill.

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FINISAR CORPORATION


ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

ITEM 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Attached as exhibits to this report are certifications of our Chairman of the Board and our Chief ExecutiveOfficer, our co-principal executive officers, and our Chief Financial Officer, which are required in accordance withRule 13a-14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls andProcedures” section includes information concerning the controls and controls evaluation referred to in thecertifications, and it should be read in conjunction with the certifications for a more complete understanding of thetopics presented.

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of April 30, 2010, our management, with the participation of our Chairman ofthe Board, Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls andprocedures were effective as of the end of the period covered by this report for the purpose of ensuring that theinformation required to be disclosed by us in this report is made known to them by others on a timely basis, and thatthe information is accumulated and communicated to our management in order to allow timely decisions regardingrequired disclosure, and that such information is recorded, processed, summarized, and reported by us within thetime periods specified in the SEC’s rules.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assuranceregarding the reliability of our financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles, and includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expendituresof the company are being made only in accordance with authorizations of management and directors of thecompany; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chairman of the Board,Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of ourinternal control over financial reporting as of April 30, 2010. Management based its assessment on the criteria setforth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”). Based on this assessment, management determined that we maintained effectiveinternal control over financial reporting as of April 30, 2010.

The effectiveness of internal control over financial reporting as of April 30, 2010 has been audited by Ernst &Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

107

Changes in Internal Control

Cycle counting of parts in inventory is an important financial control process that is conducted at all of ourprimary manufacturing facilities throughout the fiscal year. During the quarter ended February 1, 2009, the cyclecounting process at our Ipoh, Malaysia manufacturing facility was discontinued as a result of discrepancies notedbetween the actual physical location of a number of parts compared to their location as indicated by ourmanagement information systems. Because of the failure of this control, we augmented our inventory proceduresshortly after the end of the quarter to include physical inventory counts covering a substantial portion of theinventory held at this site in order to verify quantities on hand at each period end. We evaluated the cause ofdiscrepancies in the cycle counting process at the Ipoh facility, made appropriate operational and system changesand restarted the cycle count process for finished goods during the quarter ended April 30, 2009. Additionalimprovements to our inventory systems and controls at our Ipoh facility and our other facilities were made duringfiscal 2010. We will continue to augment the process with additional physical inventory counts as warranted untilthe cycle count process is fully operational once again. Other than these changes in inventory procedures, there wereno changes in our internal control over financial reporting during the quarter ended April 30, 2010 that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

108

Report of Independent Registered Public Accounting FirmOn Internal Control Over Financial Reporting

The Board of Directors and Stockholders of Finisar Corporation:

We have audited Finisar Corporation’s internal control over financial reporting as of April 30, 2010, based oncriteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Orga-nizations of the Treadway Commission (the COSO criteria). Finisar Corporation’s management is responsible formaintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Annual Report on Internal ControlOver Financial Reporting. Our responsibility is to express an opinion on the company’s internal control overfinancial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance aboutwhether effective internal control over financial reporting was maintained in all material respects. Our auditincluded obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, testing and evaluating the design and operating effectiveness of internal control based on theassessed risk, and performing such other procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion, Finisar Corporation maintained, in all material respects, effective internal control over financialreporting as of April 30, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheets of Finisar Corporation as of April 30, 2010 and 2009, and therelated consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in theperiod ended April 30, 2010 and our report dated July 1, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

San Jose, CAJuly 1, 2010

109

ITEM 9B. Other Information

None.

PART III

The SEC allows us to include information required in this report by referring to other documents or reports wehave already filed or will soon be filing. This is called “incorporation by reference.” We intend to file our definitiveproxy statement for our 2010 annual meeting of stockholders (the “Proxy Statement”) pursuant to Regulation 14Anot later than 120 days after the end of the fiscal year covered by this report, and certain information to be containedtherein is incorporated in this report by reference.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item is incorporated by reference from the sections captioned “Pro-posal No. 1 — Election of Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership ReportingCompliance” to be contained in the Proxy Statement. The information under the heading “Executive Officers of theRegistrant” in Part I of this report is also incorporated by reference in this section.

Item 11. Executive Compensation

The information required by this item is incorporated by reference from the sections captioned “DirectorCompensation” and “Executive Compensation and Related Matters” to be contained in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters

The information required by this item is incorporated by reference from the sections captioned “PrincipalStockholders and Share Ownership by Management” and “Equity Compensation Plan Information” to be containedin the Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from the sections captioned “CorporateGovernance” and “Certain Relationships and Related Transactions” to be contained in the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by this item is incorporated by reference from the section captioned“Proposal No. 2 — Ratification of Appointment of Independent Auditors” to be contained in the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) (1) Financial Statements: See “Finisar Corporation Consolidated Financial Statements Index” in Part II,Item 8 of this report.

(2) Financial Statement Schedules

110

Schedule II — Consolidated Valuation and Qualifying Accounts

Balance atBeginningof Period

Balance Acquired onMerger with Optium

AdditionsCharged to

Cost andExpenses Write-Offs

Balance atEnd ofPeriod

Allowance for doubtful accounts

Year ended April 30, 2010 . . . . . . . . $1,069 $ — $1,016 $ — $2,085Year ended April 30, 2009 . . . . . . . . $ 635 $210 $ 361 $ (137) $1,069

Year ended April 30, 2008 . . . . . . . . $1,607 $ — $ 239 $(1,211) $ 635

(b) Exhibits

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of thisreport.

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by theparties to the agreements that have been made solely for the benefit of the parties to the agreement. Theserepresentations and warranties:

• may have been qualified by disclosures that were made to the other parties in connection with the negotiationof the agreements, which disclosures are not necessarily reflected in the agreements;

• may apply standards of materiality that differ from those of a reasonable investor; and

• were made only as of specified dates contained in the agreements and are subject to subsequent devel-opments and changed circumstances.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date thatthese representations and warranties were made or at any other time. Investors should not rely on them as statementsof fact.

111

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City ofSunnyvale, State of California, on this 1st day of July, 2010.

FINISAR CORPORATION

By /s/ Jerry S. Rawls

Jerry S. RawlsChairman of the Board of Directors(Co-Principal Executive Officer)

POWER OF ATTORNEY

Know all persons by these presents, that each person whose signature appears below constitutes and appointsJerry S. Rawls, Eitan Gertel and Kurt Adzema, and each of them, as such person’s true and lawful attorneys-in-factand agents, with full power of substitution and resubstitution, for such person and in such person’s name, place andstead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file same, with allexhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform eachand every act and thing requisite and necessary to be done in connection therewith, as fully to all intents andpurposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-factand agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by thefollowing persons in the capacities and on the dates indicated:

Signature Title Date

/s/ Jerry S. Rawls

Jerry S. Rawls

Chairman of the Board of Directors(Co-Principal Executive Officer)

July 1, 2010

/s/ Eitan Gertel

Eitan Gertel

Chief Executive Officer(Co-Principal Executive Officer)

July 1, 2010

/s/ Kurt Adzema

Kurt Adzema

Senior Vice President and Chief FinancialOfficer (Principal Financial and Accounting

Officer)

July 1, 2010

Michael C. Child

Director

/s/ Christopher J. Crespi

Christopher J. Crespi

Director July 1, 2010

/s/ Roger C. Ferguson

Roger C. Ferguson


/s/ David C. Fries

David C. Fries


112

Signature Title Date

/s/ Thomas E. Pardun

Thomas E. Pardun


/s/ Robert N. Stephens

Robert N. Stephens


/s/ Dominique Trempont

Dominique Trempont


113

EXHIBIT INDEX

ExhibitNumber Exhibit Title

1.1 Underwriting Agreement, dated March 17, 2010, by and among Finisar Corporation, the sellingstockholders named in Schedule I thereto, and Morgan Stanley & Co. Incorporated and Jeffries &Co., Inc., as representatives of the several underwriters named in Schedule II thereto(1)

2.1 Agreement and Plan of Reorganization, dated as of May 15, 2008, by and among Registrant, FigCombination Corporation and Optium Corporation(2)

3.1 Amended and Restated Bylaws of Registrant(3)

3.2 Restated Certificate of Incorporation of Registrant(4)

3.3 Certificate of Amendment to Restated Certificate of Incorporation of Registrant, filed with the DelawareSecretary of State on June 19, 2001(5)

3.4 Certificate of Elimination regarding the Registrant’s Series A Preferred Stock(6)

3.5 Certificate of Designation(7)

3.6 Certificate of Amendment to Restated Certificate of Incorporation of Registrant, filed with the DelawareSecretary of State on May 11, 2005(8)

3.7 Certificate of Amendment of the Restated Certificate of Incorporation of Registrant(9)

3.8 Amended and Restated Certificate of Incorporation of Registrant

4.1 Specimen certificate representing the common stock(10)

4.2 Form of Rights Agreement between the Registrant and American Stock Transfer and Trust Company, asRights Agent (including as Exhibit A the form of Certificate of Designation, Preferences and Rights of theTerms of the Series RP Preferred Stock, as Exhibit B the form of Right Certificate, and as Exhibit C theSummary of Terms of Rights Agreement)(11)

4.3 Indenture between the Registrant and U.S. Bank Trust National Association, a national bankingassociation, dated October 15, 2003(12)

4.4 Indenture between the Registrant and U.S. Bank Trust National Association, a national bankingassociation, dated October 12, 2006(13)

4.5 Indenture dated as of October 15, 2009, by and between Finisar Corporation and Wells Fargo Bank,National Association(14)

10.1 Form of Indemnity Agreement between Registrant and Registrant’s directors and officers(15)

10.2* 1989 Stock Option Plan(16)

10.3* 1999 Stock Option Plan(17)

10.4* 1999 Employee Stock Purchase Plan, as amended(18)

10.5 Purchase Agreement by and between FSI International, Inc. and Finisar Corporation, dated February 4,2005(19)

10.6 Assignment and Assumption of Purchase and Sale Agreement between Finisar Corporation and Finisar(CA-TX) Limited Partnership, dated February 4, 2005(20)

10.7 Lease Agreement by and between Finisar (CA-TX) Limited Partnership and Finisar Corporation, datedFebruary 4, 2005(21)

10.8* Finisar Corporation 2005 Stock Incentive Plan, as amended(22)

10.9* Form of Stock Option Agreement for options granted under the 2005 Stock Incentive Plan(23)

10.10* International Employee Stock Purchase Plan(24)

10.11* Optium Corporation 2000 Stock Incentive Plan(25)

10.12* Optium Corporation 2006 Stock Option and Incentive Plan and Israeli Addendum to 2006 Stock Optionand Incentive Plan(26)

10.13* Form of Amended and Restated Warrant to Purchase Common Stock(27)

10.14* Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and EitanGertel(28)

114


10.15* Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation andChristopher Brown(29)

10.16* Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and MarkColyar(30)

10.17 First Amendment to lease for 200 Precision Road, Horsham, PA by and between Horsham PropertyAssoc., L.P. and Optium Corporation dated January 4, 2008(31)

10.18* Form of Deferred Stock Award for Israeli grantees under Optium Corporation 2006 Stock Option andIncentive Plan(32)

10.19* Form of Deferred Stock Award for directors under Optium Corporation 2006 Stock Option and IncentivePlan(33)

10.20* Form of Stock Option Grant Notice under the Optium Corporation 2006 Stock Option and IncentivePlan(34)

10.21* Form of Stock Option Grant Notice for Australian Employees under the Optium Corporation 2006 StockOption and Incentive Plan(35)

10.22* Form of Employee Incentive Stock Option Agreement under the Optium Corporation 2006 Stock Optionand Incentive Plan(36)

10.23* Form of Employee Non-Qualified Stock Option Agreement under the Optium Corporation 2006 StockOption and Incentive Plan(37)

10.24* Form of Non-Employee Non-Qualified Stock Option Agreement under the Optium Corporation 2006Stock Option and Incentive Plan(38)

10.25* Form of Australian Employee Non-Qualified Stock Option Agreement under the Optium Corporation2006 Stock Option and Incentive Plan(39)

10.26* Form of Deferred Stock Award under Optium Corporation 2006 Stock Option and Incentive Plan(40)

10.27 Lease Agreement, dated December 7, 2007, by and between Charvic Pty Ltd and Optium Australia PtyLimited for premises located at 244 Young Street, Waterloo, NSW, Australia(41)

10.28 Lease Agreement between Optium Corporation and 200 Precision Drive Investors, LLC for the premiseslocated at 200 Precision Drive, Horsham, Pennsylvania, dated September 26, 2006(42)

10.29 Unprotected Lease Agreement by and among Kailight Photonics, Ltd., Niber Promotions andInvestments, Ltd., Atido Holding Ltd. and Roller Electric Works, Ltd. dated May 11, 2006(43)

10.30* Employment Agreement between Optium Corporation and Eitan Gertel, dated as of April 14, 2006(44)

10.31* Employment Agreement between Optium Corporation and Mark Colyar, dated as of April 14, 2006(45)

10.32* Employment Agreement between Optium Corporation and Christopher Brown, dated as of August 28,2006(46)

10.33* Stock Option and Grant Notice, dated March 3, 2007, for Eitan Gertel(47)

10.34* Stock Option and Grant Notice, dated March 3, 2007, for Mark Colyar(48)

10.35* Stock Option and Grant Notice, dated March 3, 2007, for Christopher Brown(49)

10.36* Stock Option and Grant Notices, dated March 14, 2006, February 14, 2006, June 23, 2005 and May 1,2003, for Eitan Gertel(50)

10.37* Stock Option and Grant Notices, dated April 14, 2006, April 5, 2005, March 1, 2004 and May 1, 2003, forMark Colyar(51)

10.38* Stock Option and Grant Notices, dated August 28, 2006, for Christopher Brown(52)

10.39* Deferred Stock Award Agreement, dated September 25, 2007, for Eitan Gertel(53)

10.40* Deferred Stock Award Agreement, dated September 25, 2007, for Mark Colyar(54)

10.41* Deferred Stock Award Agreement, dated September 25, 2007, for Christopher Brown(55)

10.42* Deferred Stock Award Agreement, dated August 25, 2008, for Eitan Gertel(56)

10.43* Deferred Stock Award Agreement, dated August 25, 2008, for Mark Colyar(57)

10.44* Deferred Stock Award Agreement, dated August 25, 2008, for Christopher Brown(58)

115


10.45* Finisar Executive Retention and Severance Plan, as Amended and Restated Effective January 1, 2009(59)

10.46* Amended and Restated Executive Employment Agreement between Finisar Corporation and ChristopherBrown, dated December 31, 2008(60)

10.47* Amended and Restated Executive Employment Agreement between Finisar Corporation and MarkColyar, dated December 31, 2008(61)

10.48* Amended and Restated Executive Employment Agreement between Finisar Corporation and Eitan Gertel,dated December 31, 2008(62)

10.49* Form of Restricted Stock Unit Issuance Agreement(63)

10.50* Form of Restricted Stock Unit Issuance Agreement — Officers(64)

10.51* Form of Restricted Stock Unit Issuance Agreement — International(65)

10.52* Form of Restricted Stock Unit Issuance Agreement — Israel(66)

10.53 Asset Purchase Agreement dated as of July 8, 2009 by and between Finisar Corporation and JDS UniphaseCorporation(67)

10.54 Credit Agreement dated October 2, 2009 by and among Finisar Corporation, Optium Corporation andWells Fargo Foothill, LLC(68)

10.55 Security Agreement dated October 2, 2009, among Finisar Corporation, Optium Corporation, AZNALLC, Finisar Sales, Inc., Kailight Photonics, Inc. and Wells Fargo Foothill, LLC(69)

10.56 Purchase Agreement dated October 8, 2009, by and between Finisar Corporation and Piper Jaffray & Co.,as amended by a letter agreement dated October 12, 2009(70)

10.57 Registration Rights Agreement dated as of October 15, 2009, by and between Finisar Corporation andPiper Jaffray & Co.(71)

10.58* Finisar Corporation 2009 Employee Stock Purchase Plan(72)

10.59* Finisar Corporation 2009 International Employee Stock Purchase Plan(73)

10.60 First Amendment to Credit Agreement dated January 7, 2010 by and among Finisar Corporation, OptiumCorporation and Wells Fargo Foothill, LLC(74)

10.61 Loan Contract dated January 6, 2010 by and between Finisar Shanghai Inc. and Xiamen InternationalBank, Shanghai Branch(75)

10.62 Second Amendment to Credit Agreement dated April 16, 2010 by and among Finisar Corporation,Optium Corporation and Wells Fargo Foothill, LLC

21 List of Subsidiaries of the Registrant

23.1 Consent of Independent Registered Public Accounting Firm

24 Power of Attorney (incorporated by reference to the signature page of this Annual Report)

31.1 Certification of Co-Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002

31.2 Certification of Co-Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002

31.3 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Co-Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Co-Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002

32.3 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

* Compensatory plan or management contract

(1) Incorporated by reference to Exhibit 1.1 to Registrant’s Current Report on Form 8-K filed March 18, 2010.

(2) Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed May 16, 2008.

116

(3) Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed December 4, 2007.

(4) Incorporated by reference to Exhibit 3.5 to Registrant’s Registration Statement on Form S-1/A filedOctober 19, 1999 (File No. 333-87017).

(5) Incorporated by reference to Exhibit 3.6 to Registrant’s Annual Report on Form 10-K filed July 18, 2001.

(6) Incorporated by reference to Exhibit 3.8 to Registrant’s Registration Statement on Form S-3 filedDecember 18, 2001 (File No. 333-75380).

(7) Incorporated by reference to Exhibit 99.2 to Registrant’s Registration Statement on Form 8-A12G filed onSeptember 27, 2002.

(8) Incorporated by reference to Exhibit 3.3 to Registrant’s Registration Statement on Form S-3 filed May 18,2005 (File No. 333-125034).

(9) Incorporated by reference to Exhibit 3.8 to Registrant’s Current Report on Form 8-K filed September 28, 2009.

(10) Incorporated by reference to the same numbered exhibit to Registrant’s Quarterly Report on Form 10-Q filedDecember 10, 2009.

(11) Incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed September 27, 2002.

(12) Incorporated by reference to Exhibit 4.4 to Registrant’s Quarterly Report on Form 10-Q filed December 10,2003.

(13) Incorporated by reference to Exhibit 4.8 to Registrant’s Current Report on Form 8-K filed October 17, 2006.




(17) Incorporated by reference to Exhibit 10.3 to Registrant’s Registration Statement on Form S-1 filedSeptember 13, 1999 (File No. 333-87017).


(19) Incorporated by reference to Exhibit 10.23 to Registrant’s Current Report on Form 8-K filed February 9, 2005.




(23) Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed June 14, 2005.

(24) Incorporated by reference to Exhibit 99.2 to Registrant’s Registration Statement on Form S-8 filed May 23,2005 (File No. 333-125147).

(25) Incorporated by reference to Exhibit 99.1 to Registrant’s Registration Statement on Form S-8 filed onSeptember 19, 2008.



(28) Incorporated by reference to Exhibit 10.1 to Optium Corporation’s Quarterly Report on Form 10-Q filed onMarch 13, 2008.



117


(32) Incorporated by reference to Exhibit 10.1 to Optium Corporation’s Quarterly Report on Form 10-Q filed onDecember 13, 2007.








(40) Incorporated by reference to Exhibit 10.1 to Optium Corporation’s Current Report on Form 8-K filed onSeptember 28, 2007.


(42) Incorporated by reference to Exhibit 10.23 to Optium Corporation’s Registration Statement on Form S-1/A(333-135472) filed on October 11, 2006.

(43) Incorporated by reference to Exhibit 10.1 to Optium Corporation’s Current Report on Form 8-K filed onMay 21, 2007.

(44) Incorporated by reference to Exhibit 10.17 to Optium Corporation’s Registration Statement onForm S-1 (333-135472) filed on June 29, 2006.

(45) Incorporated by reference to Exhibit 10.18 to Optium Corporation’s Registration Statement onForm S-1 (333-135472) filed on June 29, 2006.

(46) Incorporated by reference to Exhibit 10.22 to Optium Corporation’s Registration Statement on Form S-1/A(333-135472) filed on September 28, 2006.




(50) Incorporated by reference to Exhibit 10.36 to Optium Corporation’s Annual Report on Form 10-K filed onOctober 24, 2007.




118






(59) Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed on January 7, 2009.




(63) Incorporated by reference to Exhibit 10.61 to Registrant’s Quarterly Report on Form 10-Q filed March 12,2009.




(67) Incorporated by reference to Exhibit 10.65 to Registrant’s Current Report on Form 8-K filed July 16, 2009.

(68) Incorporated by reference to Exhibit 10.1 to Registrant’s Amendment to Quarterly Report on Form 10-Q/Afiled January 11, 2010.






(74) Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed March 3, 2010.

(75) Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed March 3, 2010.

119


UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K/A(Amendment No. 1)

¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended April 30, 2010

n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to

000-27999(Commission File No.)

Finisar Corporation(Exact name of Registrant as specified in its charter)

Delaware(State or other jurisdiction ofincorporation or organization)

94-3038428(I.R.S. Employer

Identification No.)

1389 Moffett Park DriveSunnyvale, California

(Address of principal executive offices)

94089(Zip Code)

Registrant’s telephone number, including area code:408-548-1000

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to section 12(g) of the Act:Common stock, $.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¥ No nIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes n No ¥Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ¥ No n

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files). Yes n No n

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. n

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the ExchangeAct. (Check one):Large accelerated filer n Accelerated filer ¥ Non-accelerated filer n

(Do not check if a smaller reporting company)Smaller reporting company n

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes n No ¥As of November 1, 2009, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant

was approximately $473,822,500, based on the closing sales price of the registrant’s common stock as reported on the Nasdaq Stock Market onOctober 30, 2009 of $7.45 per share. Shares of common stock held by officers, directors and holders of more than ten percent of the outstandingcommon stock have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliatestatus is not necessarily a conclusive determination for other purposes.

As of July 31, 2010, there were 76,483,100 shares of the registrant’s common stock, $.001 par value, issued and outstanding.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K ofFinisar Corporation (“Finisar”) for the fiscal year ended April 30, 2010, originally filed with the Securities andExchange Commission (the “SEC”) on July 1, 2010 (the “Original Filing”). We are filing this Amendment for thepurpose of providing the information required by and not included in Part III of the Original Filing because we willnot file our definitive proxy statement within 120 days after the end of our fiscal year on April 30, 2010. Inconnection with the filing of this Amendment and pursuant to the rules of the SEC, we are including certaincurrently dated certifications with this Amendment.

The reference on the cover of the Original Filing to the incorporation by reference of the Proxy Statement intoPart III of the Original Filing is hereby deleted. We have also updated the information on the cover of the OriginalFiling as to our issued and outstanding shares of common stock to July 31, 2010. Except as expressly set forth in thisAmendment, we are not amending any other part of the Original Filing.

All references to “Finisar,” “the Company,” “we,” “us” or “our” are references to Finisar Corporation and itsconsolidated subsidiaries, collectively, except as otherwise indicated or where the context otherwise requires.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors

The following table sets forth information concerning our current directors as of August 15, 2010.

Name Position with Finisar Age Director Since

Michael C. Child . . . . . . . . . . . . . . . . . . . . . . Director 55 2010

Christopher J. Crespi. . . . . . . . . . . . . . . . . . . . Director 47 2008

Roger C. Ferguson . . . . . . . . . . . . . . . . . . . . . Director 67 1999

David C. Fries . . . . . . . . . . . . . . . . . . . . . . . . Director 65 2005

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer andDirector

48 2008

Thomas E. Pardun . . . . . . . . . . . . . . . . . . . . . Director 66 2009

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . . . . . . Chairman of the Board 66 1989

Robert N. Stephens . . . . . . . . . . . . . . . . . . . . . Director 64 2005

Dominique Trempont . . . . . . . . . . . . . . . . . . . Director 56 2005

Michael C. Child has served as a member of our board of directors since June 2010. Mr. Child has beenemployed by TA Associates, Inc., a private equity firm, since 1982 where he currently serves as a ManagingDirector. Mr. Child previously served as a director of Finisar from November 1998 until October 2005. Mr. Childalso serves on the board of directors of IPG Photonics, which designs and manufactures high performance fiberlasers and amplifiers, and served on the board of directors of Eagle Test Systems, a manufacturer of highperformance automated test equipment for the semiconductor industry, from 2003 until November 2008 when itwas acquired by Teradyne, Inc. Mr. Child holds a B.S. in Electrical Engineering from the University of California atDavis and an M.B.A. from the Stanford Graduate School of Business. Mr. Child has more than 25 years’ experienceinvesting in and acquiring technology and technology-related companies and has served on the boards of directorsof numerous public and private companies, including companies in the fiber optics and semiconductor industries.This broad financial and industry experience enables Mr. Child to make a valuable contribution to the board. He alsobrings significant knowledge regarding the Company and its operations from his previous years of service on ourboard.

Christopher J. Crespi has served as a member of our board of directors since the completion of the Optiummerger in August 2008. Mr. Crespi served as a director of Optium from November 2005 through the completion ofthe merger. Since July 2010, Mr. Crespi has been a research analyst for Auriga USA, LLC, a wholly ownedsubsidiary of Auriga Securities S.V., an investment firm. Since May 2004, Mr. Crespi has served as president ofPacific Realm, LLC, a small investment fund which invests in private growth companies and equity funds, which heco-founded. Mr. Crespi worked as managing director of Banc of America Securities LLC from November 1999until his retirement in January 2004. Mr. Crespi served as a director of Sirenza Microdevices, Inc., a supplier ofradio frequency components for commercial communications, consumer and aerospace, defense and homelandsecurity markets, from January 2006 until November 2007 when it was acquired by RF Micro Devices, Inc.Mr. Crespi holds a B.S.E.E. from the University of California at Davis and an M.B.A. from Kellogg GraduateSchool of Management at Northwestern University. Mr. Crespi’s broad experience in the financial and investmentindustries, and as a director of public companies, enables him to provide financing and industry expertise as well asoutside director experience to the board.

Roger C. Ferguson has served as a member of our board of directors since August 1999. From June 1999 toDecember 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 softwarecompany. From 1987 to 1993, Mr. Ferguson served as Chief Operating Officer of Network General Inc., a networkanalysis company. Mr. Ferguson holds a B.A. in Psychology from Dartmouth College and an M.B.A. from theAmos Tuck School at Dartmouth. Mr. Ferguson brings senior leadership experience and strategic and financial

3

expertise to the board from his prior work as a senior executive of a public company and several private companiesand as chief financial officer of a public company. Mr. Ferguson has extensive experience in both the hardware andsoftware segments of the computer and telecommunications industries.

David C. Fries has served as a member of our board of directors since June 2005. Dr. Fries has been employedby VantagePoint Venture Partners, a venture capital investment firm, since August 2001 where he currently servesas 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 to1999. For seven years prior to that, he was a general partner of Canaan Partners, a venture capital firm. Dr. Friesserved 17 years in numerous executive roles in engineering, manufacturing, senior management and finance atGeneral Electric Company, including directing GE Venture Capital’s California operation, which later becameCanaan Partners. Dr. Fries served as a director of Aviza Technology, Inc., a supplier of advanced semiconductorequipment and process technologies for the global semiconductor industry, from 2003 until November 2007.Dr. Fries holds a B.S. in Chemistry from Florida Atlantic University and a Ph.D. in Physical Chemistry from CaseWestern Reserve University. Dr. Fries brings to the board extensive management and finance experience in severalindustry and operational areas from his prior experience as an executive of several companies and a venture capitalinvestor.

Eitan Gertel has served as our Chief Executive Officer and as a director since the completion of the Optiummerger in August 2008. Mr. Gertel served as Optium’s President and as a director from March 2001 and as ChiefExecutive Officer and Chairman of the Board of Optium from February 2004 through the completion of the merger.Mr. Gertel served as President and General Manager of the former transmission systems division of JDS UniphaseCorporation from 1995 to 2001. JDSU is a provider of broadband test and management solutions and opticalproducts. Mr. Gertel holds a B.S.E.E. from Drexel University. As our Chief Executive Officer, Mr. Gertel brings tothe board significant senior leadership, industry and technical experience. As Chief Executive Officer, Mr. Gertel isin a position to provide the board with insight and information related to the Company’s business and operations andto participate in the ongoing review of strategic issues.

Thomas E. Pardun has served as a member of our board of directors since December 2009. Mr. Pardun iscurrently the Chairman of the Board of Directors of Western Digital Corporation, a manufacturer of hard-disk drivesfor the personal computer and home entertainment markets. Mr. Pardun has served in this capacity fromJanuary 2000 to January 2002 and again since April 2007. Mr. Pardun was President of MediaOne International,Asia-Pacific (previously U.S. West International, Asia-Pacific, a subsidiary of U.S. West, Inc.), an owner/operatorof international properties in cable television, telephone services and wireless communications companies, fromMay 1996 until his retirement in July 2000. Prior to 1996, Mr. Pardun served as President and CEO of U.S. WestMultimedia Communications, a communications company. Before joining U.S. West, Mr. Pardun was President ofthe Central Group for Sprint, as well as President of Sprint’s West Division, and Senior Vice President of BusinessDevelopment for United Telecom, a predecessor company to Sprint. Mr. Pardun also held a variety of managementpositions during a 19-year tenure with IBM, concluding as Director of product-line evaluation. He is also a directorof CalAmp Corporation, Occam Networks, Inc. and MaxLinear, Inc. Mr. Pardun holds a B.B.A. in BusinessAdministration from the University of Iowa. Mr. Pardun brings to the board extensive management and operationsexperience in the computer and telecommunications industries, including marketing and product developmentexpertise, as well as his service in senior management positions.

Jerry S. Rawls has served as a member of our board of directors since March 1989 and as our Chairman of theBoard since January 2006. Mr. Rawls served as our Chief Executive Officer from August 1999 until the completionof the Optium merger in August 2008. Mr. Rawls also served as our President from April 2003 until the completionof the Optium merger and previously held that title from April 1989 to September 2002. From September 1968 toFebruary 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 ProductsDivision and Interconnection Systems Division. Mr. Rawls holds a B.S. in Mechanical Engineering from TexasTech University and an M.S. in Industrial Administration from Purdue University. Mr. Rawls’ tenure with Finisarsince 1989, including 19 years as President and/or Chief Executive Officer, provides him personal knowledge of theCompany’s history since shortly after its founding. This experience, together with his management and industry

4

experience, enables him to provide the board with a unique perspective on the Company’s business and operationsand strategic issues.

Robert N. Stephens has served as a member of our board of directors since August 2005 and as our LeadDirector since March 2010. Mr. Stephens served as the Chief Executive Officer since April 1999 and President sinceOctober 1998 of Adaptec, Inc., a storage solutions provider, until his retirement in May 2005. Mr. Stephens joinedAdaptec in November 1995 as Chief Operating Officer. Before joining Adaptec, Mr. Stephens was the founder andchief executive officer of Power I/O, a company that developed serial interface solutions and silicon expertise forhigh-speed data networking, that was acquired by Adaptec in 1995. Prior to founding Power I/O, Mr. Stephens wasPresident and CEO of Emulex Corporation, which designs, develops and supplies Fibre Channel host bus adapters.Before joining Emulex, Mr. Stephens was Senior Vice President, General Manger, and founder of the Microcom-puter Products Group at Western Digital Corporation. He began his career at IBM, where he served over 15 years ina variety of management positions. Mr. Stephens holds a B.A. in Philosophy and Psychology and an M.S. inIndustrial Psychology from San Jose State University. Mr. Stephens brings to the board executive and industryexperience in a number of strategic and operational areas through his service as Chief Executive Officer of Adaptec,Power I/O and Emulex and in executive roles at Western Digital.

Dominique Trempont has served as a member of our board of directors since August 2005. Mr. Trempont isalso a member of the board of directors of Energy Recovery, Inc., a manufacturer of efficient energy recoverydevices utilized in the water desalination industry, and chairs its Audit Committee and its Nominating andGovernance Committee. He also serves on the board of directors of Real Networks, Inc., which provides productsand services to enable consumers to save, store and access digital media on many different devices. Mr. Trempontserved as a director of 3Com Corporation from 2006 until April 2010 when it was acquired by Hewlett-PackardCompany. Mr. Trempont was CEO in residence at Battery Ventures from August 2003 until June 2004. Prior tojoining Battery Ventures, Mr. Trempont was Chairman, President and Chief Executive Officer of Kanisa, Inc., asoftware 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, fromMay 1997 to June 1999. Prior to Gemplus, Mr. Trempont served as Chief Financial Officer and head of Operationsat NeXT Software. Mr. Trempont began his career at Raychem Corporation. Mr. Trempont received an under-graduate degree in Economics from College Saint Louis (Belgium), a B.A. in Business Administration andComputer Sciences from the University of Louvain (Belgium), with high honors, and a Master in BusinessAdministration from INSEAD (France/Singapore). Mr. Trempont brings to the board broad executive and financialexperience, including expertise in accounting and financial reporting, through his service as Chief ExecutiveOfficer of Kanisa and Gemplus, as Chief Financial Officer of NeXT, his service on the boards of other publicly-heldtechnology companies and his service on the audit committees of Energy Recovery and 3Com Corporation.

There are no family relationships between any of our directors or executive officers.

Executive Officers

The following table sets forth information concerning our current executive officers as of August 15, 2010.

Name Position(s) with Finisar Age

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . . Chairman of the Board 66

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer 48

Kurt Adzema. . . . . . . . . . . . . . . . . . . . . Senior Vice President, Finance and Chief FinancialOfficer

41

Mark Colyar . . . . . . . . . . . . . . . . . . . . . Senior Vice President, Operations and Engineering 46

Todd Swanson . . . . . . . . . . . . . . . . . . . . Senior Vice President, Sales and Marketing 39

Stephen K. Workman. . . . . . . . . . . . . . . Senior Vice President, Corporate Development andInvestor Relations

59

Joseph A. Young . . . . . . . . . . . . . . . . . . Senior Vice President, Operations and Engineering 53

Christopher E. Brown . . . . . . . . . . . . . . Vice President, General Counsel and Secretary 42

For background information on Messrs. Rawls and Gertel, see “Directors” above.

5

Kurt Adzema has served as our Senior Vice President, Finance and Chief Financial Officer since March 2010.Mr. Adzema joined us in January 2005 and served as our Vice President of Strategy and Corporate Developmentprior to his appointment as Senior Vice President, Finance and Chief Financial Officer. Prior to joining theCompany, he held various positions at SVB Alliant, a subsidiary of Silicon Valley Bank which advised technologycompanies on M&A transactions, at Montgomery Securities/Banc of America Securities, an investment bankingfirm, and in the financial restructuring group of Smith Barney. Mr. Adzema holds a B.A. in Mathematics from theUniversity of Michigan and an M.B.A. from the Wharton School at the University of Pennsylvania.

Mark Colyar has served as our Senior Vice President, Operations and Engineering since the completion of theOptium merger in August 2008. Mr. Colyar served as Optium’s Senior Vice President of Engineering fromApril 2001 through the completion of the merger and also served as General Manager of Optium’s U.S. operationsfrom February 2004 through the completion of the merger. Mr. Colyar served in various positions at JDSU’s formerTSD division from November 1995 to April 2001, including Director of Sales and Marketing, Vice President ofEngineering 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. Swansonjoined us in 2002 and served as Product Line Manager and Director of Marketing and Vice President, Sales andMarketing for our Optics Division prior to his appointment as Senior Vice President. Mr. Swanson served as ProductLine Manager for Princeton Lightwave, a laser company, from June 2001 until he joined Finisar. Mr. Swansonserved as Director of Marketing (on a part-time basis while he was studying for his M.B.A.) for Aegis Semicon-ductor, a manufacturer of optical semiconductor devices, from December 2000 through June 2001. From July 1995to August 1999, Mr. Swanson was employed by Hewlett-Packard Company as project leader and project manager inthe Automotive Lighting Group of the Optoelectronics Division. Mr. Swanson holds a B.S. in MechanicalEngineering 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, Corporate Development and Investor Relationssince March 2010. Mr. Workman served as our Senior Vice President, Finance and Chief Financial Officer fromSeptember 2002 until March 2010 and as our Vice President, Finance and Chief Financial Officer from March 1999to September 2002. Mr. Workman also served as our Secretary from August 1999 until August 2008. FromNovember 1989 to March 1999, Mr. Workman served as Chief Financial Officer at Ortel Corporation. Mr. Workmanholds 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 ofthe Optium merger in August 2008. Mr. Young served as our Senior Vice President and General Manager, OpticsDivision from June 2005 to August 2008. Mr. Young joined us in October 2004 as our Senior Vice President,Operations. Prior to joining Finisar, Mr. Young served as Director of Enterprise Products, Optical Platform Divisionof Intel Corporation from May 2001 to October 2004. Mr. Young served as Vice President of Operations ofLightLogic, Inc. from September 2000 to May 2001, when it was acquired by Intel, and as Vice President ofOperations of Lexar Media, Inc. from December 1999 to September 2000. Mr. Young was employed from March1983 to December 1999 by Tyco/ Raychem, where he served in various positions, including his last position asDirector of Worldwide Operations for the OEM Electronics Division of Raychem Corporation. Mr. Young holds aB.S. in Industrial Engineering from Rensselaer Polytechnic Institute, an M.S. in Operations Research from theUniversity 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 ofthe Optium merger in August 2008. Mr. Brown served as Optium’s General Counsel and Vice President ofCorporate Development from August 2006 through the completion of the merger. Prior to that, Mr. Brown was apartner at the law firms of Goodwin Procter LLP and McDermott, Will & Emery. Mr. Brown holds a B.A. inEconomics and a B.A. in Political Science from the University of Massachusetts at Amherst and a J.D. from BostonCollege Law School.

Audit Committee and Financial Experts

The board of directors has a standing Audit Committee. The members of the Audit Committee during fiscal2010 were Messrs. Crespi, Ferguson, Pardun (beginning in March 2010) and Trempont and, until his death inJanuary 2010, Larry D. Mitchell. Mr. Child was appointed to the Audit Committee in August 2010. Each of the

6

members of the Audit Committee is independent for purposes of the Nasdaq listing standards as they apply to auditcommittee members. Messrs. Ferguson and Trempont are audit committee financial experts, as defined in the rulesof the Securities and Exchange Commission. The functions of the Audit Committee include overseeing the qualityof 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 andperformance 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 auditingmatters.

Code of Ethics

We have a Code of Ethics, or the Code, that applies to all of our employees, officers and directors. The Code isavailable at http://investor.finisar.com/governance.cfm. If we make any substantive amendments to the Code orgrant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose thenature of the amendment or waiver on our website, as well as via any other means then required by Nasdaq listingstandards or applicable law.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directorsand persons who beneficially own more than 10% of our common stock to file initial reports of ownership andreports of changes in ownership with the SEC. Such persons are required by SEC regulations to furnish us copies ofall Section 16(a) forms filed by such person.

Based solely on our review of such forms furnished to us, and written representations from certain reportingpersons, we believe that all filing requirements applicable to our executive officers, directors and more than 10%stockholders during the fiscal year ended April 30, 2010 were satisfied, with the exception of one Form 4 report foreach of Christopher J. Crespi, Roger C. Ferguson, David C. Fries, Larry D. Mitchell, Robert N. Stephens andDominique Trempont, each reporting one transaction, and one Form 4 report for each of Todd Swanson and JosephA. Young, each reporting two transactions, that were filed late.

Item 11. Executive Compensation

Compensation Discussion and Analysis

Overview

The following discussion explains our compensation philosophy, objectives and procedures and describes theforms of compensation awarded to our Chairman of the Board, our Chief Executive Officer, each of the executiveswho served as our Chief Financial Officer during the fiscal year ended April 30, 2010, and each of our three othermost highly-compensated executives (determined as of April 30, 2010). We refer to these individuals as our “namedexecutive officers.” This discussion focuses on the information contained in the tables and related footnotes andnarrative included below, primarily for our 2010 fiscal year, but also contains information regarding compensationactions taken before and after fiscal 2010 to the extent we believe such information enhances our executivecompensation disclosure.

Philosophy, Objectives and Procedures

Our fundamental compensation philosophy is to align the compensation of our senior management with ourannual 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. Weseek to reward our executive officers’ contributions to achieving revenue growth, increasing operating profits andcontrolling costs. We operate in a very competitive environment for executive talent, and we believe that ourcompensation packages must be competitive when compared to our peers and should also be aligned with ourstockholders’ short and long-term interests.

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The Compensation Committee of our board of directors oversees the design and administration of ourexecutive compensation program. The principal elements of the program are base salary, annual cash bonuses andequity-based incentives which, to date, have been in the form of stock options and restricted stock units, or RSUs. Ingeneral, the Compensation Committee’s policy is that the base salary component of our executive officercompensation package should be comparable to the compensation paid by peer companies to officers withcomparable responsibilities 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 totalcompensation of their counterparts at peer companies based on their individual performance and Finisar’s operatingresults exceeding targeted objectives.

Generally, the Compensation Committee reviews the compensation of our executive officers in the early partof each fiscal year and takes action at that time to award cash bonuses for the preceding fiscal year, to set basesalaries and target bonuses for the current year and to consider long-term incentives in the form of equity-basedawards. In setting our executive officers’ total compensation, the Compensation Committee considers individualand company performance, as well as compensation surveys, including the Radford Executive Survey, and othermarket information regarding compensation paid by comparable companies, including our industry peers.

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

In some years, the Compensation Committee retains compensation consultants to assist it in its review ofexecutive officer compensation. The Compensation Committee engaged J. Richard & Co., a compensationconsulting firm, in connection with its annual review of executive officer compensation at the beginning of fiscal2009. In part because of temporary, across-the-board salary reductions that were in effect at the beginning of fiscal2010, the Compensation Committee did not engage a compensation consultant in connection with its review ofexecutive officer compensation for fiscal 2010. The Compensation Committee engaged Assets Unlimited, Inc., acompensation consulting firm, in connection with its review at the beginning of fiscal 2011. The CompensationCommittee reviewed cash and equity compensation analyses prepared by Assets Unlimited, Inc. and met with arepresentative of that firm.

Forms of Compensation

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

Base Salaries

Base salaries for our executive officers are initially set based on negotiation with the individual executiveofficer at the time of his or her recruitment and with reference to salaries for comparable positions in the fiber opticsindustry for individuals of similar education and background to those of the executive officer being recruited. Wealso give consideration to the individual’s experience, track record of contribution in his or her industry andexpected contributions to Finisar. Salaries are reviewed annually by the Compensation Committee, typically at thebeginning of the fiscal year, and adjustments are made based on (i) salary recommendations of our Chairman of theBoard and our Chief Executive Officer, (ii) the Compensation Committee’s assessment of the individual perfor-mance of the executive officers during the previous fiscal year, (iii) Finisar’s financial results for the previous fiscalyear and (iv) changes in competitive pay levels, based on compensation data and analyses assembled and prepared

8

by our Human Relations staff and, in years when a compensation consultant is engaged to assist the CompensationCommittee, reports by such consultant.

In February 2009, in light of deteriorating global market conditions and their effect on our then current andprospective operating results and financial condition, the Compensation Committee determined to temporarilyreduce the base salaries of our Chairman, Chief Executive Officer and all other executive officers by 10%. Thisdetermination was not based on individual performance, but was made as part of a broad-based 10% reduction inbase salary that affected all of our U.S.-based employees (provided that no base salary was reduced below $50,000).This across-the-board salary reduction remained in effect throughout the first half of fiscal 2010. In September2009, the Compensation Committee approved the reversal of the 10% reduction in officer salaries, effectiveNovember 2, 2009, concurrently with the reversal of the broad-based salary reduction affecting other employees.During the second half of fiscal 2010, our executive officers received base salaries at the levels in effect at thebeginning of fiscal 2009.

The Compensation Committee engaged Assets Unlimited, Inc., a compensation consulting firm, to assist in itsreview of executive compensation for fiscal 2011. Assets Unlimited, Inc. prepared a report including a summary ofcompensation data for the following companies, including our industry peers and similarly-sized companies in ourbroader industry group (the “Peer Companies”):

Applied Micro Circuits Netgear QLogic

Atheros Communications Novellus Quantum Corp.

Cadence Design Oclaro Smart Modular

Coherent Omnivision Triquint

Equinix Opnext Varian

Intersil Plantronics

MRV Communications PMC Sierra

In considering executive compensation levels for fiscal 2011, the Compensation Committee took into accountits general compensation philosophy, as described above and various other considerations, including the following:

• the officers’ salary history, including the across-the-board salary reduction that had been in effect during thefirst half of fiscal 2010;

• specific contributions of individual officers during fiscal 2010, changes in their duties and responsibilitiesand their expected contributions during fiscal 2011; and

• the Company’s financial performance during fiscal 2010 and the then-current outlook for fiscal 2011.

The Committee also considered the report of Assets Unlimited, Inc. on Peer Company compensation and otheravailable compensation data for comparable companies. In reviewing that data, the Committee took into accountdifferences between the actual responsibilities of the Finisar officers and those typical for the generic categorieslisted in the reports and the recent change in Finisar’s peer group status as a result of increased revenues resultingfrom the Optium merger.

On the basis of its review, in June 2010, the Compensation Committee set new base salaries for our executiveofficers for fiscal 2011, with increases of between 4% and 5% over the levels in effect during fiscal 2009 and 2010(excluding the period in which the temporary salary reduction was in force). The fiscal 2011 base salaries of the

9

named executive officers and data on base salaries of officers of comparable companies that the Committeeconsidered are as follows:

NameFiscal 2011Base Salary

MedianPeer CompanyBase Salary(1)

MedianRadford

Base Salary(2)

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $461,760 $531,692 $603,000

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $461,760 $531,692 $603,000

Joseph A. Young . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $369,200 $304,750 $334,400

Kurt Adzema . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $294,000 $318,327 $330,000

Mark Colyar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $293,436 $304,750 $334,400

Todd Swanson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $285,000 $306,923 $350,000

Stephen K. Workman . . . . . . . . . . . . . . . . . . . . . . . . . . $282,880 $224,662 $208,613

(1) Based on data compiled by Assets Unlimited, Inc. for base salaries of officers with comparable duties at thePeer Companies.

(2) Based on data from the Radford Executive Survey for base salaries of officers with comparable duties atcompanies with annual revenues of between $500 million and $1 billion.

Cash Bonuses

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

In September 2009, the Compensation Committee adopted an executive officer bonus plan for the fiscal yearended April 30, 2010 (the “Fiscal 2010 Bonus Plan”). Under the Fiscal 2010 Bonus Plan, like previous plans, eachexecutive officer was eligible to receive a target cash bonus of up to 100% of the executive officer’s annual basesalary. The amount, if any, of an executive officer’s annual bonus under the Fiscal 2010 Bonus Plan was to be based70% 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 performanceand achievement of individual goals for the fiscal year. In addition, notwithstanding the achievement of increasedoperating cash flow and/or individual performance goals, no executive officer was entitled to receive a bonus underthe Fiscal 2010 Bonus Plan unless cash bonuses were granted generally to non-executive officer employees withrespect to the fiscal year ended April 30, 2010.

We did not achieve an increase in operating cash flow in fiscal 2010 over the previous year, due principally to thesignificant investment in accounts payable and working capital that had been required to support our growth in thesecond half of the fiscal year. Accordingly, no bonuses became payable under the formula-based portion of the Fiscal2010 Bonus Plan. However, the Compensation Committee took note of Finisar’s improved financial performance inthe second half of the fiscal year as well as management’s success in completing several significant transactions thatsubstantially improved its balance sheet. After considering these factors and the individual performance of theexecutive officers, the Committee granted the maximum discretionary bonus, of 30% of each executive officer’s basesalary, payable under the Fiscal 2010 Bonus Plan. Original target bonuses for each of the named executive officers

10

under the Fiscal 2010 Bonus Plan, bonuses actually paid under the plan for their services during fiscal 2010 and dataon bonuses and non-equity compensation paid by comparable companies were as follows:

NameFiscal 2010

Target BonusFiscal 2010Bonus Paid

MedianPeer GroupNon-Equity

IncentiveCompensation(1)

MedianRadford Non-

Equity IncentiveCompensation(2)

Jerry S. Rawls . . . . . . . . . . . . . . . . . . $440,000 $133,200 $271,531 $483,000

Eitan Gertel . . . . . . . . . . . . . . . . . . . . $440,000 $133,200 $271,531 $483,000

Joseph A. Young . . . . . . . . . . . . . . . . $335,000 $106,500 $ 73,959 $167,000

Mark Colyar . . . . . . . . . . . . . . . . . . . $282,150 $ 84,645 $ 73,959 $167,000

Kurt Adzema . . . . . . . . . . . . . . . . . . . $280,000 $ 84,000 $ 10,000 $ 62,773

Todd Swanson . . . . . . . . . . . . . . . . . . $272,000 $ 81,600 $264,201 $213,200

Stephen K. Workman . . . . . . . . . . . . . $272,000 $ 81,600 $ 99,631 $239,920

(1) Based on data compiled by Assets Unlimited, Inc. for bonuses and other non-equity incentive payments toofficers with comparable duties at the Peer Companies.

(2) Based on data from the Radford Executive Survey for bonuses and other non-equity incentive payments toofficers with comparable duties at companies with annual revenues of between $500 million and $1 billion.

In June 2010, the Compensation Committee adopted an executive bonus plan for the fiscal ending April 30,2011 (the “Fiscal 2011 Bonus Plan”). Under the Fiscal 2011 Bonus Plan, the aggregate target bonuses forMessrs. Rawls and Gertel are 100% of their annual base salary, and the aggregate target bonus for each of the othernamed executive officers is 60% of their annual base salary. The aggregate bonus for each executive officer underthe Fiscal 2011 Bonus Plan will be based 70% on Finisar’s achievement of the pre-bonus non-GAAP operatingincome called for by its fiscal 2011 operating plan and 30% on a discretionary determination by the CompensationCommittee of the applicable executive officer’s performance and achievement of individual goals for the fiscal year.Finisar must achieve at least 58% of its pre-bonus non-GAAP operating income target before a portion of thequantitative bonus can be earned; the amount of the bonus will increase on a linear basis thereafter, with no limit onthe amount of the quantitative bonus that may be earned. If Finisar achieves its pre-bonus non-GAAP operatingincome target, the amount of the quantitative portion of the bonus for each executive officer will equal 70% of theaggregate target bonus for each named executive officer. If Finisar exceeds its pre-bonus non-GAAP operatingincome target, the amount of the quantitative bonus for each executive officer will exceed 70% of the aggregatetarget bonus. Any bonus amounts earned under the Fiscal 2011 Bonus Plan are expected to be paid in cash. TheCompensation Committee believes that achieving the formula-based portion of the target bonuses will be difficult.Achieving or exceeding the pre-bonus non-GAAP operating income called for in our fiscal 2011 operating plan willbe dependent upon realizing significant revenue and operating income growth in the face of operational challengesand an environment of economic uncertainty. It will also be dependent on increased sales of our customers’ productsover which we have no control. Finisar has achieved or exceeded the non-GAAP operating income called for in itsoriginal annual operating plan in two of its last five fiscal years.

Equity-based Incentives

Longer term incentives are provided through equity-based awards granted under Finisar’s 2005 StockIncentive 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 thatemployee equity ownership is highly motivating, provides an important incentive for employees to build stock-holder value and provides each executive officer with a significant incentive to manage Finisar from the perspectiveof 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 thedate of grant, and will provide value to the executive officers only when the price of our common stock increasesover the exercise price. We have established a policy whereby stock options and other equity awards to ouremployees, including executive officers, are generally granted by the Compensation Committee at regular quarterly

11

meetings with an effective date that is the later of the third trading day following the public announcement ofFinisar’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 pursuantto the terms of the Finisar Executive Retention and Severance Plan described below and, with respect to one stockoption held by each of Eitan Gertel, our Chief Executive Officer, and Mark Colyar, our Senior Vice President,Operations and Engineering, pursuant to the applicable stock option agreement as described below

The size of the stock option and RSU awards granted to each executive officer during fiscal 2010 was set by theCompensation Committee at levels that were intended to create a meaningful opportunity for stock ownership basedupon the individual’s current position, the individual’s personal performance in recent periods, the individual’spotential for future responsibility and promotion over the option term, comparison of award levels in prior years andcomparison of award levels earned by executives at our peer companies and similarly-sized companies in ourbroader industry group. The Compensation Committee also took into account the number of unvested options andRSUs 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 2010, our executiveofficers received two separate equity awards: (i) a regular annual grant of stock options and RSUs in December 2009based on the factors described above, with the relative weight given to each of these factors varying from individualto individual, and (ii) a special grant of stock options and RSUs in December 2009 in light of concerns of theCompensation Committee with respect to the diminished incentive value of outstanding stock options held by ouremployees, including our executive officers, with exercise prices greater than the 52-week high trading price ofFinisar common stock as of the grant date, based on the employee’s holdings of such stock options.

During fiscal 2010, equity-based incentives accounted for approximately 66% of the total compensation of ourChairman, approximately 53% of the total compensation of our Chief Executive Officer and an average ofapproximately 52% of the total compensation of our other named executive officers.

In connection with its review of executive officer compensation in June 2011, the Compensation Committeetook into account the same general criteria considered in fiscal 2010 as well as the report of Assets Unlimited, Inc.and equity compensation data for the Peer Companies that it had compiled. Based on its review, the CompensationCommittee granted RSUs to each of our executive officers. The RSUs vest in annual installments over a four-yearperiod, subject to the officers’ continued service. The numbers of shares of our common stock underlying the RSUsgranted to the named executive officers were as follows:

Name RSU Shares

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,140

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,140

Joseph A. Young. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,872

Kurt Adzema . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000

Mark Colyar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000

Todd Swanson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000

Stephen K. Workman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000

Other Benefits and Perquisites

Our named executive officers and other executives are generally eligible to receive the same health and welfarebenefits offered to all employees in the geographic area in which they are based. We also offer participation in ourdefined contribution 401(k) plan. We currently provide no other perquisites to our named executive officers or otherexecutive officers.

During fiscal 2010, personal benefits accounted for less than 2% of the total compensation of our Chairman,our Chief Executive Officer and our other named executive officers.

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Executive Retention and Severance Plan

Our executive officers and certain other key executives designated by the Compensation Committee areeligible to participate in the Finisar Executive Retention and Severance Plan adopted by the CompensationCommittee in February 2003. The Compensation Committee determined to provide change in control arrangementsin order to mitigate some of the risk that exists for executives working in an environment where there is ameaningful possibility that Finisar could be acquired or the subject of another transaction that would result in achange in its control. Finisar’s change in control and severance arrangements are intended to attract and retainqualified executives who may have attractive alternatives absent these arrangements. The change in controlarrangements are also intended to mitigate potential disincentives to the consideration and execution of anacquisition or similar transaction, particularly where the services of these executive officers may not be required bythe acquirer. We believe that our change in control benefits are comparable to the provisions and benefit levels ofother 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 twoyears base salary and health and medical benefits for two years in the event their employment is terminated inconnection with a change in control of Finisar. In addition, in the event of a change in control, vesting of stockoptions held by participants in the plan will be accelerated by one year, if the options are assumed by the acquiringcompany. If the options are not assumed by the acquirer, or if the participant’s employment is terminated inconnection with the change in control, vesting of the options will be accelerated in full. Upon any other terminationof employment, participants are entitled only to accrued salary and any other vested benefits through the date oftermination.

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

Accounting for Executive Compensation

We account for equity compensation paid to our employees under FASB ASC Topic 718, which requires us tomeasure and record an expense over the service period of the award. Accounting rules also require us to record cashcompensation 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 Internal Revenue Codein 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. Theequity awards 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 Committeereserves the right to provide for compensation to executive officers that may not be fully deductible.

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Report of the Compensation Committee

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 CompensationDiscussion and Analysis be included in this annual report.

COMPENSATION COMMITTEE

David C. Fries (Chair)Michael C. ChildRobert N. StephensDominique Trempont

Compensation Committee Interlocks and Insider Participation in Compensation Decisions

The members of the Compensation Committee during fiscal 2010 were David C. Fries, Robert N. Stephens,Dominque Trempont and, until the annual meeting of stockholders in November 2009, Morgan Jones, a formerdirector who declined to stand for re-election. Michael C. Child was appointed to the Compensation Committee inJune 2010. None of the members of the Compensation Committee are or have been an officer or employee ofFinisar. During fiscal 2010, no member of the Compensation Committee had any relationship with Finisar requiringdisclosure under Item 404 of Regulation S-K. During fiscal 2010, none of Finisar’s executive officers served on thecompensation committee (or its equivalent) or board of directors of another entity any of whose executive officersserved on Finisar’s Compensation Committee or Board of Directors.

14

Summary Compensation Information

The following table presents certain summary information concerning compensation paid or accrued by us forservices rendered in all capacities during the fiscal year ended April 30, 2010 for (i) our Chairman of the Board, ourChief Executive Officer and each of the executives who served as our Chief Financial Officer during the year and(ii) our three other most highly compensated executives (determined as of April 30, 2010) (collectively, the “namedexecutive officers”):

Summary Compensation Table for Fiscal 2010

Name and Principal Position Fiscal Year Salary Bonus

Non-EquityIncentive PlanCompensation Equity Awards(1) Total(1)

Jerry S. Rawls(2) . . . . . . . . . . . . . . 2010 $420,092 — $133,200 $1,063,108 $1,616,400Chairman of the Board 2009 438,881 — — 367,950 806,831

2008 418,269 $100,000 — 779,520 1,297,789

Eitan Gertel(3) . . . . . . . . . . . . . . . . 2010 420,092 — 133,200 621,496 1,174,789Chief Executive Officer 2009 293,516 — — 263,052 556,568

Kurt Adzema(4) . . . . . . . . . . . . . . . 2010 264,923 — 84,000 247,589 596,512Senior Vice President, Finance andChief Financial Officer

Stephen K. Workman(5) . . . . . . . . . 2010 257,354 — 81,600 380,795 719,749Senior Vice President, Corporate 2009 263,892 — — 83,558 347,450Development and InvestorRelations

2008 257,310 40,000 — 146,160 443,470

Mark Colyar(6) . . . . . . . . . . . . . . . 2010 266,957 — 84,645 410,757 762,359Senior Vice President, 2009 185,062 — — 135,703 320,765Operations and Engineering

Todd Swanson . . . . . . . . . . . . . . . . 2010 257,354 — 81,600 470,624 809,578Senior Vice President, Sales andMarketing

Joseph A. Young . . . . . . . . . . . . . . 2010 335,885 — 106,500 471,978 914,363Senior Vice President, 2009 344,548 — — 173,938 518,486Operations and Engineering 2008 335,961 75,000 — 389,760 800,721

(1) Includes stock option and RSU awards. Valuation based on the grant date fair value of the equity awardscomputed in accordance with FASB ASC Topic 718. The assumptions used by us with respect to the valuationof option grants are set forth in “Finisar Corporation Consolidated Financial Statements — Notes to FinancialStatements — Note 17 — Stockholders’ Equity” included in this annual report on Form 10-K. As a result ofrecent changes in SEC disclosure rules, amounts reported in the table for equity awards in fiscal 2008 and 2009differ from amounts previously reported in the Summary Compensation Tables for the same person in thoseyears.

(2) Mr. Rawls also served as our President and Chief Executive officer until the completion of the Optium merger inAugust 2008.

(3) Mr. Gertel became our Chief Executive Officer upon the completion of the Optium merger in August 2008.

(4) Mr. Adzema became our Senior Vice President, Finance and Chief Financial Officer in March 2010.

(5) Mr. Workman served as our Senior Vice President, Finance and Chief Financial Officer until March 2010, whenhe was appointed Senior Vice President, Corporate Development and Investor Relations.

(6) Mr. Colyar became our Senior Vice President, Operations and Engineering upon the completion of the Optiummerger in August 2008.

15

Grants of Plan-Based Awards

The following table sets forth certain information with respect to options and RSUs granted during or for theyear ended April 30, 2010 to each of our named executive officers.

Grants of Plan-Based Awards in or for Fiscal 2010

Name Grant Date Threshold Target Maximum

AllOtherStock

Awards:Number ofShares ofStock or

Units

All OtherOption

Awards:Number ofSecurities

UnderlyingOptions

Exerciseor BasePrice ofOptionAwards

($/Share)

GrantDateFair

Value ofStock and

OptionAwards ($)

Estimated Future Payouts UnderNon-Equity Incentive Plan Awards(1)

Jerry S. Rawls . . . . . . . . . . . . . — — $444,000 $444,000 — — — —12/8/2009 — — — — 76,250 8.29 430,99612/8/2009 — — — 76,250 — — 632,113

Eitan Gertel . . . . . . . . . . . . . . . — — 444,000 444,000 — — — —12/8/2009 — — — — 44,576 8.29 251,96112/8/2009 — — — 44,576 — — 369,535

Kurt Adzema . . . . . . . . . . . . . . — — 280,000 280,000 — — — —12/8/2009 — — — — 17,758 8.29 100,37512/8/2009 — — — 17,758 — — 147,214

Stephen K. Workman . . . . . . . . — — 272,000 272,000 — — — —12/8/2009 — — — — 27,312 8.29 154,37812/8/2009 — — — 27,312 — — 226,416

Mark Colyar . . . . . . . . . . . . . . — — 282,150 282,150 — — — —12/8/2009 — — — — 29,461 8.29 166,52512/8/2009 — — — 29,461 — — 244,232

Todd Swanson . . . . . . . . . . . . . — — 272,000 272,000 — — — —12/8/2009 — — — — 56,052 8.29 316,82812/8/2009 — — — 18,552 — — 153,796

Joseph A. Young . . . . . . . . . . . — — 355,000 355,000 — — — —12/8/2009 — — — — 33,852 8.29 191,34512/8/2009 — — — 33,852 — — 280,633

(1) Represents the dollar value of the applicable range (threshold, target and maximum amounts) of potential cashbonuses payable to each named executive officer for fiscal 2010 under the executive officer bonus plan for fiscal2010 (the “Fiscal 2010 Bonus Plan”). Additional information regarding the Fiscal 2010 Bonus Plan is set forthabove under “Compensation Discussion and Analysis.” The actual amount paid to each executive officer forfiscal 2010 is set forth in the Summary Compensation Table under the heading “Non-Equity Incentive PlanCompensation.”

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Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the number of securities underlying outstanding equity awards for each of ournamed executive officers as of the end of our fiscal year on April 30, 2010. Unless otherwise specified, options vestat a rate of 20% over five years from the date of grant. Market value for RSUs is determined by multiplying thenumber of shares by the closing price of Finisar common stock on the Nasdaq Global Select Market on the lasttrading day of the fiscal year ($14.96 on April 30, 2010).

Outstanding Equity Awards at Fiscal Year-End 2010

Name

Number ofSecurities

UnderlyingOptions

(#)

Number ofSecurities

UnderlyingOptions (#)

Unexercisable

ExercisePrice per

ShareExpiration

Date

EquityIncentive

PlanAwards:

Number ofUnearned

Shares,Units orOther

Rights ThatHave Not

Vested

Equity IncentivePlan Awards:

MarketValue orPayout

Value ofUnearned

Shares,Units

or OtherRights That

Have NotVested

Option Awards Stock Awards

Jerry S. Rawls. . . . . . . . . . . . . . . . 124,999 — $13.84 6/7/201225,000 — 15.60 8/27/201350,000 — 15.36 6/2/201450,000 12,499(1) 9.76 6/8/201530,000 19,999(2) 37.04 6/6/201620,000 30,000(3) 21.68 9/7/201777,536 81,572(4) 3.36 12/12/2018

— 45,000(5) 8.29 12/8/2019— 31,250(6) 8.29 12/8/2019

45,000(7) $673,20031,250(8) 467,500

Eitan Gertel . . . . . . . . . . . . . . . . . 205,308 —(9) $ 0.64 4/30/201381,536 —(9) 1.36 6/22/201597,843 —(9) 6.88 2/13/201632,614 —(9) 7.36 3/13/201668,482 20,359(10) 26.64 2/28/201750,685 60,689(4) 3.36 12/12/2018

— 13,326(5) 8.29 12/8/2019— 31,250(6) 8.29 12/8/2019

13,326(7) $199,35731,250(8) 467,500

Kurt Adzema . . . . . . . . . . . . . . . . 36,562 — $10.16 4/18/201512,499 — 14.08 11/23/2015

7,499 1,875(11) 24.80 9/8/2016407 271(12) 25.68 3/8/2017

5,000 7,500(3) 21.68 9/7/20171,406 2,344(13) 10.08 9/11/20188,469 10,991(4) 3.36 12/12/2018

— 5,258(5) 8.29 12/8/2019— 12,500(6) 8.29 12/8/2019

2,1890(14) $ 32,7475,258(7) 78,660

12,500(8) 187,000

17

Name

Number ofSecurities

UnderlyingOptions

(#)

Number ofSecurities

UnderlyingOptions (#)

Unexercisable

ExercisePrice per

ShareExpiration

Date

EquityIncentive

PlanAwards:

Number ofUnearned

Shares,Units orOther

Rights ThatHave Not

Vested

Equity IncentivePlan Awards:

MarketValue orPayout

Value ofUnearned

Shares,Units

or OtherRights That

Have NotVested

Option Awards Stock Awards

Stephen K. Workman . . . . . . . . . . . 12,499 — $14.40 6/19/20138,124 — 14.40 6/19/2013

24,999 — 14.40 6/19/20139,374 — 15.60 8/27/2013

25,000 — 15.36 6/2/20145,625 3,750(2) 37.04 6/6/20163,752 5,622(3) 21.68 9/7/2017

28,285 28,079(4) 3.36 12/12/2018— 14,812(5) 8.29 12/8/2019— 12,500(6) 8.29 12/8/2019

14,812(7) $221,58812,500(8) 187,000

Mark Colyar . . . . . . . . . . . . . . . . . 44,029 —(9) $ 0.64 4/30/201313,046 —(9) 1.04 2/28/201429,352 —(9) 1.20 4/4/201571,752 —(9) 11.84 4/13/201619,007 5,649(15) 26.64 2/28/201728,210 28,248(4) 3.36 12/12/2018

— 14,461(5) 8.29 12/8/2019— 15,000(6) 8.29 12/8/2019

14,461(7) $216,33715,000(8) 224,400

Todd Swanson . . . . . . . . . . . . . . . 6,250 — $14.32 8/25/20133,750 — 9.60 8/16/2014

— 2,500(16) 8.32 8/10/20156,249 — 14.08 11/23/20153,000 750(11) 24.80 9/8/2016

408 271(12) 25.68 3/8/20171,201 1,798(3) 21.68 9/7/2017

300 450(17) 14.88 12/10/2017338 562(13) 10.08 9/11/2018

7,655 19,633(4) 3.36 12/12/2018— 3,552(5) 8.29 12/8/2019— 52,500(6) 8.29 12/8/2019

526(14) $ 7,8693,552(7) 53,138

15,000(8) 224,400Joseph A. Young . . . . . . . . . . . . . . 49,999 — $11.76 10/29/2014

20,000 5,000(1) 9.76 6/8/201515,001 9,999(2) 37.04 6/6/2016

408 270(12) 25.68 3/8/201710,001 14,999(3) 21.68 9/7/201736,315 36,180(4) 3.36 12/12/2018

— 15,102(5) 8.29 12/8/2019— 18,750(6) 8.29 12/8/2019

15,102.00(7) $225,92618,750.00(8) 280,500

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(1) The option was granted on June 8, 2005 and became fully vested on June 8, 2010.

(2) The option was granted on June 2, 2006 and will become fully vested on June 2, 2011, assuming continuedemployment with Finisar.

(3) The option was granted on September 7, 2007 and will become fully vested on September 7, 2012, assumingcontinued employment with Finisar.

(4) The option was granted on December 12, 2008. The option became exercisable as to 25% of the shares onAugust 12, 2009 and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterlyanniversaries thereafter, to be fully vested on August 12, 2012, assuming continued employment with Finisar.

(5) The option was granted on December 8, 2009. The option will become exercisable as to 25% of the shares onDecember 8, 2010 and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterlyanniversaries thereafter, to be fully vested on December 8, 2013, assuming continued employment withFinisar.

(6) The option was granted on December 8, 2009. The option will become exercisable as to 25% of the shares onSeptember 1, 2010 and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterlyanniversaries thereafter, to be fully vested on September 1, 2013, assuming continued employment withFinisar.

(7) The RSU was granted on December 8, 2009. The RSU will vest as to 25% of the shares on December 8, 2010and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterly anniversariesthereafter, to be fully vested on December 8, 2013, assuming continued employment with Finisar.

(8) The RSU was granted on December 8, 2009. The RSU will vest as to 25% of the shares on September 1, 2010and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterly anniversariesthereafter, to be fully vested on September 1, 2013, assuming continued employment with Finisar.

(9) The option was granted by Optium and was assumed by us upon the closing of the Optium merger.

(10) The option was granted by Optium and was assumed by us upon the closing of the Optium merger. The optionbecame exercisable as to 25% of the shares on March 1, 2008 and vests monthly thereafter, to be fully vestedon March 1, 2011, assuming continued employment with Finisar. The terms of this stock option award alsoprovide for the acceleration of vesting of (a) 25% of the shares subject to the original grant (or 100% of theremaining unvested portion if less) following termination without Cause or for Constructive Termination priorto an Acquisition (each term as defined in the optionee’s employment agreement) and (b) 100% of theremaining unvested portion following termination of employment without Cause or for Constructive Ter-mination within one year of an Acquisition (each term as defined in the optionee’s employment agreement).

(11) The option was granted on September 8, 2006. The option became exercisable as to 20% of the shares onSeptember 8, 2006 and vests annually with respect to an additional 20% of the shares, to be fully vested onSeptember 8, 2010, assuming continued employment with Finisar.

(12) The option was granted on March 8, 2007 and will become fully vested on March 8, 2012, assuming continuedemployment with Finisar.

(13) The option was granted on September 11, 2008. The option become exercisable as to 25% of the shares onSeptember 11, 2009 and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterlyanniversaries thereafter, to be fully vested on September 11, 2012, assuming continued employment withFinisar.

(14) The RSU was granted on September 11, 2008. The RSU vested as to 25% of the shares on September 11, 2009and vests with respect to an additional 6.25% of the shares on each of the next 12 quarterly anniversariesthereafter, to be fully vested on September 11, 2012, assuming continued employment with Finisar.

(15) The option was granted by Optium and was assumed by us upon the closing of the Optium merger. The optionbecame exercisable as to 25% of the shares on March 1, 2008 and vests monthly thereafter, to be fully vestedon March 1, 2011, assuming continued employment with Finisar. The terms of this stock option award alsoprovide for the acceleration of vesting of 25% of the shares subject to the original grant (or 100% of theremaining unvested portion if less) following termination of employment without Cause or for Constructive

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Termination within one year of an Acquisition (each term as defined in the Optium option plan or anysuperseding employment agreement).

(16) The option was granted on August 10, 2005 and became fully vested on June 27, 2010.

(17) The option was granted on December 10, 2007 and will become fully vested on December 10, 2012, assumingcontinued employment with Finisar.

Option Exercises and Stock Vested

The following table provides information on stock option exercises by our named executive officers andvesting of RSUs held by them during the fiscal year ended April 30, 2010.

Option Exercises and Stock Vested in Fiscal 2010

Name

Number ofShares

Acquiredon Exercise (#)

ValueRealized

on Exercise(1)

Number ofShares

Acquiredon Vesting (#)

ValueRealized

on Vesting(2)

Option Awards Restricted Stock Unit Awards

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . — — 6,725 $ 85,744

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . — — 21,892 189,863

Kurt Adzema . . . . . . . . . . . . . . . . . . . . 5,662 $ 76,097 5,548 45,902

Stephen K. Workman . . . . . . . . . . . . . . — — 4,125 52,594

Mark Colyar . . . . . . . . . . . . . . . . . . . . . — — 11,124 101,522

Todd Swanson . . . . . . . . . . . . . . . . . . . 22,769 292,575 4,439 55,384

Joseph A. Young . . . . . . . . . . . . . . . . . . — — 5,375 68,531

(1) Based on the difference between the closing sale price of Finisar’s common stock on the date of exercise and theexercise price.

(2) Based on the closing sale price of Finisar’s common stock on the vesting date.

Potential Payments Upon Termination or Change in Control

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

We have employment agreements with Eitan Gertel and Mark Colyar, as well as a stock option agreement witheach of them, that provide for cash payments and/or acceleration of vesting following certain termination events.Except as described below and in “— Executive Retention and Severance Plan,” no named executive officer isentitled to any cash payments and/or acceleration of vesting following a change in control of Finisar unless atermination event also occurs.

The tables below set forth the cash payments and the intrinsic value (that is, the value based upon our stockprice on April 30, 2010, minus any exercise price) of any equity incentives subject to acceleration of vesting thatMessrs. Gertel and Colyar would be entitled to receive in the event that such executive officer (i) had beenterminated by us without cause on April 30, 2010, (ii) had resigned following a demotion, reduction in base salary orinvoluntary relocation, referred to as a resignation for good reason, on April 30, 2010 or (iii) had been terminated asthe result of death or disability. The value of the acceleration of vesting of equity incentives as of April 30, 2010utilizes a per share value of our common stock of $14.96, the closing price of our common stock on the NasdaqGlobal Select Market on April 30, 2010. In each case, the amounts set forth in the tables below are subject to anydeferrals required under Section 409A of the Internal Revenue Code of 1986, as amended (the “Internal RevenueCode”), and do not include any life insurance proceeds in the event of death or disability benefits in the event ofdisability.

Eitan Gertel. Mr. Gertel, our Chief Executive Officer, executed an employment agreement with Optium onApril 14, 2006, which was assumed by us at the time of the Optium merger and was amended and restated effectiveDecember 31, 2008. The initial term of the agreement was three years, provided that the term of the agreement is

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automatically extended for an additional term of one year on the third anniversary and each subsequent anniversaryof the commencement date unless either party gives not less than 90 days notice prior to the expiration of the termthat it does not wish to extend the agreement. The agreement entitles Mr. Gertel to a base salary of $444,000, subjectto adjustment as provided in the agreement, and other incentive compensation as determined by the board ofdirectors. In the event that Mr. Gertel is terminated without cause or if we give notice that we do not intend to extendthe employment agreement, we will be obligated to pay him one year severance, which in all cases includes basesalary, bonus as calculated in the agreement and accrued paid time off. In addition, if he resigns for good reason, wewill be obligated to pay him one year severance. A partially vested stock option held by Mr. Gertel that was alsoassumed in connection with the Optium merger provides for the acceleration of vesting of all or a portion of theunvested options upon any of the termination events described above.

Payments and Benefits

InvoluntaryTermination

Without Cause

VoluntaryTermination

forGood Reason

TerminationUpon Death

TerminationUpon

Disability

Cash severance . . . . . . . . . . . . . . . . . . . . . $690,340 $690,340 $ — $ —

Health care benefits. . . . . . . . . . . . . . . . . . 19,808 19,808 19,808 19,808

Acceleration of options . . . . . . . . . . . . . . . 0(1) 0(1) — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $710,148 $710,148 $19,808 $19,808

(1) The exercise price of the option subject to acceleration was greater than the closing sales price of Finisarcommon stock on April 30, 2010, which was $14.96 per share.

Mark Colyar. Mr. Colyar, our Senior Vice President, Operations and Engineering, executed an employmentagreement with Optium on April 14, 2006, which was assumed by us at the time of the Optium merger and wasamended and restated effective December 31, 2008. The initial term of the agreement was two years, provided thatthe term of the agreement is automatically extended for an additional term of one year on the second anniversary andeach subsequent anniversary of the commencement date unless either party gives not less than 90 days notice priorto the expiration of the term that it does not wish to extend the agreement. The agreement entitles Mr. Colyar to abase salary of $281,500, subject to adjustment as provided in the agreement, and other incentive compensation asdetermined by the board of directors. In the event that Mr. Colyar is terminated without cause or if we give noticethat 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. A partiallyvested stock option held by Mr. Colyar that was also assumed in connection with the Optium merger provides for theacceleration of vesting of all or a portion of the unvested options upon any of the termination events describedabove.

Payments and Benefits

InvoluntaryTermination

Without Cause

VoluntaryTermination

forGood Reason

TerminationUpon Death

TerminationUpon

Disability

Cash severance . . . . . . . . . . . . . . . . . . . . . $360,126 $ — $ — $ —

Health care benefits. . . . . . . . . . . . . . . . . . 19,808 19,808 19,808 19,808

Acceleration of options . . . . . . . . . . . . . . . 0(1) 0(1) — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $379,934 $19,808 $19,808 $19,808

(1) The exercise price of the option subject to acceleration was greater than the closing sales prices of Finisarcommon stock on April 30, 2010, which was $14.96 per share.

Executive Retention and Severance Plan

Our executive officers, including our named executive officers, are eligible to participate in the FinisarExecutive Retention and Severance Plan. This plan provides that in the event of a qualifying termination each of theparticipating executives will be entitled to receive (i) a lump sum payment equal to two years’ base salary(excluding bonus) and (ii) medical, dental and insurance coverage for two years, or reimbursement of premiums for

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COBRA continuation coverage during such period. A qualifying termination is defined as an involuntarytermination other than for cause or a voluntary termination for good reason upon or within 18 months followinga change in control, as such terms are defined in the plan. In addition, the plan provides that the vesting of stockoptions and RSUs held by eligible officers will be accelerated as follows: (i) one year of accelerated vesting upon achange of control, if the options are assumed by a successor corporation, (ii) 100% accelerated vesting if the optionsare not assumed by a successor corporation, and (iii) 100% accelerated vesting upon a qualifying termination. In theevent the employment of any of our named executive officers were to be terminated without cause or for goodreason, within 18 months following a change in control of Finisar, each as of April 30, 2010, the named executiveofficers would be entitled to payments in the amounts set forth opposite their name in the following table:

Name Cash Severance

Jerry S. Rawls . . . . . . . . . . . . . . . . . . . . . . . . . . $37,717 per month for 24 months

Eitan Gertel . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,935 per month for 24 months

Kurt Adzema . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,933 per month for 24 months

Stephen K. Workman . . . . . . . . . . . . . . . . . . . . . $23,877 per month for 24 months

Mark Colyar . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,448 per month for 24 months

Todd Swanson . . . . . . . . . . . . . . . . . . . . . . . . . . $24,145 per month for 24 months

Joseph A. Young . . . . . . . . . . . . . . . . . . . . . . . . $31,183 per month for 24 months

Benefits to Messrs. Gertel and Colyar under the Executive Retention and Severance Plan will be reduced by theamount of comparable benefits to which they are entitled under the employment agreements described above.

We are not obligated to make any cash payments to these executives if their employment is terminated by us forcause or by the executive other than for good reason. No severance or benefits are provided for any of the executiveofficers in the event of death or disability. A change in control does not affect the amount or timing of these cashseverance payments.

In the event the employment of any of our named executive officers were to be terminated without cause or forgood reason within 18 months following a change in control of Finisar, each as of April 30, 2010, the namedexecutives would be entitled to accelerated vesting of their outstanding stock options and RSUs as described in thefollowing table:

Name Value of Equity Awards:(1)

Jerry S. Rawls . . . . . . . . . . . . . . Accelerated vesting of 220,320 options with a value of$1,519,818 and 76,250 RSUs with a value of $1,140,700.

Eitan Gertel. . . . . . . . . . . . . . . . Accelerated vesting of 125,624 options with a value of$1,001,314 and 44,576 RSUs with a value of $666,857.

Kurt Adzema. . . . . . . . . . . . . . . Accelerated vesting of 40,739 options with a value of $252,531and 19,947 RSUs with a value of $298,407.

Stephen K. Workman. . . . . . . . . Accelerated vesting of 64,763 options with a value of $507,887and 27,312 RSUs with a value of $408,588.

Mark Colyar . . . . . . . . . . . . . . . Accelerated vesting of 63,358 options with a value of $524,182and 29,461 RSUs with a value of $440,737.

Todd Swanson . . . . . . . . . . . . . . Accelerated vesting of 82,016 options with a value of $620,988and 19,078 RSUs with a value of $285,407.

Joseph A. Young . . . . . . . . . . . . Accelerated vesting of 100,300 options with a value of $671,481and 33,852 RSUs with a value of $506,426.

(1) Potential incremental gains are net values based on (i) the aggregate difference between the respective exerciseprices of options and the closing sale price of Finisar common stock on April 30, 2010 ($14.96 per share) and(ii) the number of shares underlying RSUs multiplied by the closing sale price of Finisar common stock onApril 30, 2010.

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Director Compensation

Under our policy for the compensation of non-employee directors that was in effect during fiscal 2010, non-employee directors (other than Morgan Jones, who declined compensation) were entitled to receive an annualretainer of $30,000 and $2,000 for attendance in person ($1,000 for attendance by telephone) at each meeting of theboard of directors or its committees (with regular quarterly meetings of the board of directors and committeemeetings held on the day of such regular board meetings considered to be a single meeting). The Lead Director wasentitled to receive an additional amount of $20,000 per year for serving in that capacity. In addition, members of thestanding committees of the board were entitled to receive annual retainers, payable quarterly, in the followingamounts:

Committee ChairOther

Members

Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 $10,000

Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 7,500

Nominating and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 6,000

In February 2009, in connection with the broad-based 10% reduction in base salaries of our employees, all cashcompensation payable to non-employee directors was temporarily reduced by 10% from the amounts describedabove. On September 9, 2009, the board of directors determined to reverse the 10% reduction in non-employeedirector compensation, effective November 2, 2009, concurrently with the reversal of the broad-based 10% salaryreductions affecting most of our U.S.-based employees.

Under the policy in effect during fiscal 2010, all new, non-employee directors were granted an option topurchase 8,750 shares of our common stock upon their initial election to the board and an option to purchase3,750 shares of our common stock and an RSU for 1,250 shares on an annual basis thereafter. The grant of theannual options and RSUs to non-employee directors was generally made at the first meeting of the board ofdirectors in each fiscal year. The initial options vest over a period of three years from the date of grant, and theannual options and RSUs vest on the first anniversary of the date of grant. As with all options, the per-share exerciseprice of each such option equals the fair market value of a share of common stock on the date of grant. In addition tothe annual grants made during fiscal 2010, in September 2009, to partially address the diminished incentive value oftheir outstanding options, the board approved a special award of options and RSUs to the non-employee directorsbased on the number of shares of underlying outstanding stock options having exercise prices greater than the52-week high trading price of Finisar common stock as of the grant date.

In June 2010, the board of directors approved a revised policy for the compensation of non-employee directors.Under the revised policy, effective May 1, 2010 non-employee directors receive an increased annual retainer of$50,000 but no longer receive additional per-meeting fees for attendance at board and committee meetings. TheLead Director receives an additional amount of $10,000 per year for serving in that capacity. In addition, membersof the standing committees of the board receive annual retainers, payable quarterly, in the following amounts.

Committee ChairOther

Members

Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 $8,000

Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 5,000

Nominating and Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 5,000

Under both the former and current policy, we also reimburse directors for their reasonable expenses incurred inattending meetings of the board and its committees.

In addition, under the revised policy all new non-employee directors will receive an RSU award with a value of$100,000 upon their initial election to the board and an additional RSU award with a value of $50,000 on an annualbasis thereafter. The grant of the annual RSU awards will generally be made at the first meeting of the board in eachfiscal year. The initial RSU awards vest over a period of three years from the date of grant, and the annual RSUawards vest on the first anniversary of the date of grant. The number of shares subject to each RSU award will bedetermined based on the per share value of our common stock on the date of grant.

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The following table presents the compensation paid to our non-employee directors during or for the fiscal yearended April 30, 2010:

Director Compensation Table

NameFees Earned or

Paid in CashStock

Awards(1)Option

Awards(1)(2)All Other

CompensationTotal

Compensation

Christopher J. Crespi . . . . . . . . . . . . $60,600 $ 9,100 $17,986 $— $ 87,686

Roger C. Ferguson . . . . . . . . . . . . . . 82,200 27,300 29,977 — 139,477

David C. Fries . . . . . . . . . . . . . . . . . 62,750 21,840 26,380 — 110,970

Morgan Jones . . . . . . . . . . . . . . . . . . — — — — —

Larry D. Mitchell . . . . . . . . . . . . . . . 62,651 43,680 40,769 — 147,100

Thomas E. Pardun . . . . . . . . . . . . . . 17,500 16,625 78,688 — 112,813

Robert N. Stephens . . . . . . . . . . . . . . 62,251 21,840 26,380 — 110,471

Dominique Trempont . . . . . . . . . . . . 68,026 21,840 26,380 — 116,246

(1) Valuation based on the grant date fair value of the equity awards computed in accordance with FASB ASC Topic718. The assumptions used by us with respect to the valuation of option grants are set forth in “FinisarCorporation Consolidated Financial Statements — Notes to Financial Statements — Note 17 — Stockholders’Equity” included in this annual report on Form 10-K.

(2) The following table sets forth certain information with respect to the stock options and RSUs granted during thefiscal year ended April 30, 2010 to each non-employee member of our board of directors:

Name Grant Date

Number ofShares of

Common StockUnderlyingOptions and

Stock Awards

ExercisePrice of

Options andStock Awards

($/Share)

Grant DateFair Value ofOption and

Stock Awards

Christopher J. Crespi . . . . . . . . . . . . . . . . 9/15/2009 3,750(1) $ 7.28 $17,986

9/15/2009 1,250(2) — 9,100

Roger C. Ferguson . . . . . . . . . . . . . . . . . 9/15/2009 6,250(1) 7.28 29,977

9/15/2009 3,750(2) — 27,300David C. Fries . . . . . . . . . . . . . . . . . . . . 9/15/2009 5,500(1) 7.28 26,380

9/15/2009 3,000(2) — 21,840

Morgan Jones . . . . . . . . . . . . . . . . . . . . . — — — —

Larry D. Mitchell . . . . . . . . . . . . . . . . . . 9/15/2009 8,500(1) 7.28 40,769

9/15/2009 6,000(2) — 43,680

Thomas E. Pardun. . . . . . . . . . . . . . . . . . 3/8/2010 8,750(3) 13.30 78,688

3/8/2010 1,250(2) — 16,625

Robert N. Stephens . . . . . . . . . . . . . . . . . 9/15/2009 5,500(1) 7.28 26,380

9/15/2009 3,000(2) — 21,840

Dominique Trempont . . . . . . . . . . . . . . . 9/15/2009 5,500(1) 7.28 26,380

9/15/2009 3,000(2) — 21,840

(1) Stock option awards; includes both annual awards and the special award, if any, described above.

(2) RSU awards; includes both annual awards and the special award, if any, described above.

(3) Initial stock option award granted upon Mr. Pardun’s election to the board.

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The non-employee directors held the following numbers of stock options and unvested RSUs as of April 30,2010.

NameStock OptionsOutstanding

Unvested RestrictedStock UnitsOutstanding

Christopher J. Crespi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,939 1,250

Roger C. Ferguson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,209 3,333

David C. Fries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,247 3,000

Thomas E. Pardun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,750 1,250

Robert N. Stephens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,166 3,000

Dominique Trempont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,833 2,708

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters

Security Ownership of Certain Beneficial Owners.

The following table sets forth information known to us regarding the beneficial ownership of our commonstock as of July 31, 2010 by:

• each of our directors;

• each of our executive officers named in the Summary Compensation Table for Fiscal 2010 in “Item 11.Executive Compensation” above; and

• all of our executive officers and directors as a group.

To our knowledge, there are no stockholders who beneficially own more than 5% of our common stock.

Name of Beneficial Owner(1) Number Percentage

Shares of Common StockBeneficially Owned(1)

DirectorsJerry S. Rawls(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,153,473 1.50%

Eitan Gertel(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932,316 1.21%

Michael C. Child(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,979 *

Christopher J. Crespi(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,478 *

Roger C. Ferguson(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,474 *

David C. Fries(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,611 *

Thomas E. Pardun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — *

Robert N. Stephens(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,780 *

Dominique Trempont(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,317 *

Named Executive Officers :Kurt Adzema(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,366 *

Mark Colyar(11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272,435 *

Todd Swanson(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,066 *

Stephen K. Workman(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,758 *

Joseph A. Young(14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,436 *

All executive officers and directors as a group (15 persons)(15) . . . . . . . . 3,109,354 3.97%

* Less than 1%.

(1) The address of each of the named individuals is: c/o Finisar Corporation, 1389 Moffett Park Drive, Sunnyvale,CA 94089. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes

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voting or investment power with respect to securities. All shares of common stock subject to optionsexercisable within 60 days following July 31, 2010 and restricted stock units (RSUs) that vest within thatperiod are deemed to be outstanding and beneficially owned by the person holding those options for thepurpose of computing the number of shares beneficially owned and the percentage of ownership of thatperson. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computingthe percentage ownership of any other person. Accordingly, percent ownership is based on 76,483,100 sharesof common stock outstanding as of July 31, 2010 plus any shares issuable pursuant to options held by theperson or group in question which may be exercised within 60 days following July 31, 2010 and RSUs that vestwithin that period. Except as indicated in the other footnotes to the table and subject to applicable communityproperty laws, based on information provided by the persons named in the table, these persons have sole votingand investment power with respect to all shares of the common stock shown as beneficially owned by them.

(2) Includes 346,648 shares held by The Rawls Family, L.P. Mr. Rawls is the president of the Rawls ManagementCorporation, the general partner of The Rawls Family, L.P. Includes (a) 435,344 shares issuable upon exerciseof options exercisable within 60 days following July 31, 2010 and (b) 7,813 RSUs that vest within 60 daysfollowing July 31, 2010.

(3) Includes (a) 565,064 shares issuable upon exercise of options exercisable within 60 days followingJuly 31, 2010, (b) 7,813 RSUs that vest within 60 days following July 31, 2010 and (c) 31,907 sharesissuable upon exercise of a warrant that is currently exercisable.

(4) Includes 5,061 shares held by the Child Family Trust.

(5) Includes (a) 30,221 shares issuable upon exercise of options exercisable within 60 days following July 31, 2010and (b) 1,250 RSUs that vest within 60 days following July 31, 2010.






(11) Includes (a) 219,785 shares issuable upon exercise of options exercisable within 60 days followingJuly 31, 2010, (b) 3,750 RSUs that vest within 60 days following July 31, 2010 and (c) 5,676 shares issuableupon exercise of a warrant that is currently exercisable.


(13) Includes (a) 132,554 shares issuable upon exercise of options exercisable within 60 days followingJuly 31, 2010 and (b) 3,125 RSUs that vest within 60 days following July 31, 2010.

(14) Includes (a) 161,748 shares issuable upon exercise of options exercisable within 60 days followingJuly 31, 2010, (b) 4,688 RSUs that vest within 60 days following July 31, 2010.

(15) Includes (a) 1,871,117 shares issuable upon exercise of options exercisable within 60 days followingJuly 31, 2010, (b) 44,353 RSUs that vest within 60 days following July 31, 2010 and (c) 37,583 sharesissuable upon exercise of warrants that are currently exercisable.

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Equity Compensation Plan Information

We currently maintain four compensation plans that provide for the issuance of our common stock to officers,directors, other employees or consultants. These consist of the 2005 Stock Incentive Plan, the 2009 Employee StockPurchase Plan and the 2009 International Employee Stock Purchase Plan, which have been approved by ourstockholders, and the 2001 Nonstatutory Stock Option Plan, or the 2001 Plan, which has not been approved by ourstockholders. The following table sets forth information regarding outstanding options and shares reserved forfuture issuance under the foregoing plans as of April 30, 2010:

Plan Category

Number of Shares tobe Issued Upon

Exercise ofOutstanding

Options, Warrantsand Rights

(a)

Weighted-AverageExercise Price of

OutstandingOptions, Warrants

and Rights(b)

Number of SharesRemaining Availablefor Future Issuance

Under EquityCompensation Plans(Excluding Shares

Reflected in Column(a))(c)

Equity compensation plans approved bystockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,183,136 $11.91 8,062,686(1)

Equity compensation plan not approved bystockholders(2)(3) . . . . . . . . . . . . . . . . . . . . . . 133,404 $22.50 394,581

(1) Consists of shares available for future issuance under the plans. In accordance with the terms of the 2009Employee Stock Purchase Plan, the number of shares available for issuance under the 2009 Employee StockPurchase Plan and the 2009 International Employee Stock Purchase Plan will increase by 125,000 shares onMay 1 of each calendar year until and including May 1, 2015. In accordance with the terms of the 2005 StockIncentive Plan, the number of shares of our common stock available for issuance under the 2005 Stock IncentivePlan will increase on May 1 of each calendar year until and including May 1, 2015 by an amount equal to fivepercent (5%) of the number of shares of our common stock outstanding as of the preceding April 30.

(2) Excludes options assumed by us in connection with acquisitions of other companies. As of April 30, 2010,1,423,378 shares of our common stock were issuable upon exercise of these assumed options, at a weightedaverage exercise price of $10.89 per share. No additional awards may be granted under the plans pursuant towhich these assumed equity rights were granted.

(3) A total of 731,250 shares of our common stock have been reserved for issuance under the 2001 Plan. As ofApril 30, 2010, a total of 203,265 shares of common stock had been issued upon the exercise of options grantedunder the 2001 Plan.

Material Features of the 2001 Nonstatutory Stock Option Plan

As of April 30, 2010, 394,581 shares of our common stock were reserved for issuance under the 2001 Plan. The2001 Plan was adopted by our board on February 16, 2001 and provides for the granting of nonstatutory stockoptions to employees and consultants with an exercise price per share not less than 85% of the fair market value ofour common stock on the date of grant. However, no person is eligible to be granted an option under the 2001 Planwhose eligibility would require approval of the 2001 Plan by our stockholders. Options granted under the 2001 Plangenerally have a ten-year term and vest at the rate of 20% of the shares on the first anniversary of the date of grantand 20% of the shares each additional year thereafter until fully vested. Some of the options that have been grantedunder the 2001 Plan are subject to full acceleration of vesting in the event of a change in control of Finisar.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

Pursuant to our Code of Ethics, our executive officers, directors and employees are to avoid conflicts ofinterest, except with the approval of the board of directors. A related party transaction would be a conflict ofinterest. The board has delegated to the Audit Committee the authority to review and approve related partytransactions. In approving or rejecting a proposed transaction, the Audit Committee will consider the relevant factsand circumstances and, if applicable, the impact of the proposed transaction on the director’s independence. The

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Audit Committee will approve only those transactions that, in light of known circumstances, are in, or are notinconsistent with, our best interests, as the Audit Committee determines in the good faith exercise of its discretion.

Other than as described below and the compensation arrangements and other arrangements described in“Item 11. Executive Compensation” above, in our fiscal year ended April 30, 2010 there were no, and there is notcurrently proposed, any transaction or series of similar transactions to which we were or will be a party in which theamount involved exceeded or will exceed $120,000 in which any director, any executive officer, any holder of 5% ormore of our capital stock or any member of their immediate family had or will have a direct or indirect materialinterest.

Guy Gertel, the brother of Eitan Gertel, our Chief Executive Officer, provided sales and marketing services toOptium through GHG Technologies, a company he owns. Subsequent to the Optium merger in August 2008, GHGTechnologies has continued to provide such services to Finisar. For services rendered during fiscal 2010, we paidGHG Technologies $160,000 in cash compensation. In addition, the Company granted to Guy Gertel, for noadditional consideration, 1,160 restricted stock units with a fair market value of $9,616, which vest as follows: withrespect to 456 of the shares, 25% on September 1, 2010 and an additional 6.25% on each of the next 12 quarterlyanniversaries thereafter, to be fully vested on September 1, 2013; and with respect to the remaining 704 shares, 25%on December 8, 2010 and an additional 6.25% on each of the next 12 quarterly anniversaries thereafter, to be fullyvested on December 8, 2013, in each case subject to Mr. Gertel’s continuing to provide services to Finisar. Webelieve that the cash payments to GHG were fair and reasonable and were comparable to that which would havebeen paid to an unaffiliated party in an arms’ length transaction. The restricted stock unit awards to Guy Gertel wereconsistent with the type and size of grants made to our other sales professionals.

Independence of Directors

The board of directors has determined that, other than Jerry S. Rawls, our Chairman of the Board, and EitanGertel, our Chief Executive Officer, each of the current members of the board is an “independent director” forpurposes of the Nasdaq Marketplace Rules and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as theterm applies to membership on the board of directors and the various committees of the board of directors.

Item 14. Principal Accountant Fees and Services

The following table sets forth the aggregate fees billed to us for the fiscal years ended April 30, 2010 andApril 30, 2009 by our principal accounting firm, Ernst & Young LLP:

Year EndedApril 30, 2010

Year EndedApril 30, 2009

Audit fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,452,000 $2,650,000

Audit-related fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 26,000

Tax fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,200 100,000

Total Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,470,200 $2,776,000

(1) Audit fees consist of fees billed for professional services rendered for the audit of our consolidated annualfinancial statements, internal control over financial reporting and the review of the interim consolidatedfinancial statements included in quarterly reports and services that are normally provided by Ernst & YoungLLP in connection with statutory and regulatory filings or engagements, consultations in connection withacquisitions and concerning financial reporting, and attest services.

(2) Audit-related fees consist of fees billed for assurance and related services that are reasonably related to theperformance of the audit or review of our consolidated financial statements and are not reported under “AuditFees.” This category includes fees related to employee benefit plan audits and financial due diligence.

(3) Tax fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning(domestic and international). These services include assistance regarding federal, state and international taxcompliance, acquisitions and international tax planning.

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The Audit Committee has determined that all services performed by Ernst & Young LLP are compatible withmaintaining the independence of Ernst & Young LLP. The Audit Committee has adopted a policy that requiresadvance approval of all audit, audit-related, tax and other services provided by the independent registered publicaccounting firm. The policy provides for pre-approval by the Audit Committee of specifically defined audit andnon-audit services. Unless the specific service has been pre-approved with respect to that year, the Audit Committeemust approve the permitted service before the independent registered public accounting firm is engaged to performit. The Audit Committee has delegated to the chair of the Audit Committee the authority to approve permittedservices, provided that the chair reports any decisions to the Audit Committee at its next scheduled meeting. Theindependent registered public accounting firm and management are required to periodically report to the AuditCommittee regarding the extent of services provided by the independent registered public accounting firm inaccordance with this pre-approval process.

PART IV

Item 15. Exhibits and Financial Statement Schedules

Exhibits

The following documents are filed as part of this report:

31.1 Certification of Co-Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).

31.2 Certification of Co-Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).

31.3 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City ofSunnyvale, State of California, on this 27th day of August, 2010.

FINISAR CORPORATION

By /s/ Kurt Adzema

Kurt AdzemaSenior Vice President, Finance andChief Financial Officer(Principal Financial and Accounting Officer)

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COMPARISON OF STOCKHOLDER RETURN

Set forth below is a line graph comparing the annual percentage change in the cumulative total return on ourcommon stock with the cumulative total returns of the Nasdaq Stock Market (U.S. Companies) and the AmexNetworking Index for the period commencing on April 30, 2005 and ending on April 30, 2010, and assumes thereinvestment of dividends, if any.

COMPARISON OF CUMULATIVE TOTAL RETURN FROMAPRIL 30, 2005 THROUGH APRIL 30, 2010 (1);

FINISAR, NASDAQ INDEX AND AMEX NETWORKING INDEX

0

50

100

150

200

250

400

300

2005 2006 2007 2008 2009 2010

Finisar Corporation NASDAQ Stock Market (US Companies) AMEX Networking Index

2005 2006 2007 2008 2009 2010

FINISAR CORP 273.00 �22.98 �62.71 �51.11 183.29

100.00 373.00 287.29 107.14 52.38 148.40

NASDAQ Stock Market (U.S. Companies) 21.39 9.08 �5.50 �42.63 44.29

100.00 121.39 132.42 125.14 71.79 103.58

AMEX Networking Index 34.01 1.53 �13.40 �19.10 46.61

100.00 134.01 136.05 117.82 95.31 139.74

(1) Assumes that $100.00 was invested on April 30, 2005, at the market price of our stock on such date, in ourcommon stock and each index. No cash dividends have been declared on our common stock. Stockholderreturns over the indicated period should not be considered indicative of future stockholder returns.


BOARD OF DIRECTORSMichael C. ChildManaging Director, TA Associates

Chris CrespiCo-founder and President, Pacific Realm, LLC

Roger C. FergusonPrincipal, VenCraft, LLC, Chairman, Semio Inc.

David C. FriesManaging Director, Co-Head, Semiconductor & Components Practice, VantagePoint Venture Partners

Eitan GertelChief Executive Officer, Finisar Corporation

Tom PardunChairman of Western Digital Corporation

Jerry S. RawlsChairman of the Board, Finisar Corporation

Robert N. StephensFormer CEO & President, Adaptec, Inc.

Dominique TrempontFormer CEO, Kanisa Corporation

EXECUTIVE OFFICERSKurt AdzemaChief Financial Officer

Chris BrownVice President and General Counsel

Mark ColyarSenior Vice President and General Manager

Eitan GertelChief Executive Officer

Jerry S. RawlsExecutive Chairman

Todd SwansonSenior Vice President, Sales and Marketing

Stephen K. WorkmanSenior Vice President, Corporate Developmentand Investor Relations

Joseph YoungSenior Vice President and General Manager,Optics Group

INVESTOR INFORMATIONFinisar Common Stock trades on the NASDAQ Global Select Marketsm under the symbol FNSR.

INQUIRIES CONCERNING THE COMPANYFinisar welcomes inquiries from its stockholdersand other interested investors. For additional copies of this report, the form 10-K, or other information please contact:

Finisar CorporationInvestor Relations1389 Moffett Park DriveSunnyvale, CA 94089-1133Telephone: 408-542-5050Email: [email protected]

Background information on the Company and its prod-ucts, financial information, and our online annual reportsas well as other information that may be of interest to in-vestors can be found on our website at www.finisar.com

TRANSFER AGENTQuestions regarding misplaced stock certificates, changes of address or the consolidation of accounts should be addressed to the Company’s transfer agent:

American Stock Transfer and Trust Company59 Maiden LaneNew York, NY 10038Telephone: 800-937-5449www.amstock.com

INDEPENDENT AUDITORSErnst & Young LLPPalo Alto, California

LEGAL COUNSELDLA Piper US LLPEast Palo Alto, California

CORPORATE HEADQUARTERSFinisar Corporation1389 Moffett Park DriveSunnyvale, CA 94089-1133Telephone: 408-548-1000Facsimile: 408-543-0083

Documents

2010 Annual Report€¦ · years have been reclassiﬁed as a discontinued operation in this year’s annual report. ... ing and switching capabilities to DWDM and other optics applications