SECOND AMENDED AND RESTATED

AGREEMENT AND PLAN OF REORGANIZATION

among

FINISAR CORPORATION,
a Delaware corporation
("Finisar"),

TRANSWAVE FIBER, INC.,
a California corporation
("Transwave"),

and

CERTAIN PRINCIPAL SHAREHOLDERS
of
Transwave

Dated March 19, 2001


TABLE OF CONTENTS

 
   
   
  Page
ARTICLE I THE MERGER   C-5
    Section 1.1   Effective Time of the Merger   C-5
    Section 1.2   Closing   C-5
    Section 1.3   Effects of the Merger   C-6
    Section 1.4   Directors and Officers   C-6

ARTICLE II CONVERSION OF SECURITIES

 

C-6
    Section 2.1   Certain Definitions   C-6
    Section 2.2   Conversion of Capital Stock   C-7
    Section 2.3   Criteria For Determining Achievement of Milestones   C-7
    Section 2.4   Exchange of Certificates   C-8
    Section 2.5   Escrow   C-9
    Section 2.6   Restricted Shares   C-10
    Section 2.7   Dissenters' Rights   C-10
    Section 2.8   Conversion of Finisar Preferred Stock   C-11
    Section 2.9   Representations, Warranties, Covenants and Agreements   C-11

ARTICLE III REPRESENTATIONS AND WARRANTIES OF TRANSWAVE

 

C-12
    Section 3.1   Organization, Standing and Power   C-12
    Section 3.2   Transwave Capital Structure   C-12
    Section 3.3   Authority; Required Filings and Consents   C-13
    Section 3.4   Financial Statements   C-13
    Section 3.5   Absence of Undisclosed Liabilities   C-14
    Section 3.6   Accounts Receivable   C-14
    Section 3.7   Inventories   C-14
    Section 3.8   Absence of Certain Changes or Events   C-14
    Section 3.9   Taxes   C-15
    Section 3.10   Tangible Assets and Real Property   C-17
    Section 3.11   Intellectual Property   C-17
    Section 3.12   Bank Accounts   C-19
    Section 3.13   Contracts   C-19
    Section 3.14   Labor Difficulties   C-20
    Section 3.15   Trade Regulation   C-20
    Section 3.16   Environmental Matters   C-20
    Section 3.17   Employee Benefit Plans   C-21
    Section 3.18   Compliance with Laws   C-22
    Section 3.19   Employees and Consultants   C-22
    Section 3.20   Litigation   C-22
    Section 3.21   Restrictions on Business Activities   C-22
    Section 3.22   Governmental Authorization   C-22
    Section 3.23   Insurance   C-22
    Section 3.24   Interested Party Transactions   C-22
    Section 3.25   No Existing Discussions   C-23
    Section 3.26   Real Property Holding Corporation   C-23
    Section 3.27   Corporate Documents   C-23
    Section 3.28   No Misrepresentation   C-23

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF FINISAR

 

C-24
    Section 4.1   Organization   C-24

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    Section 4.2   Finisar Capital Structure   C-24
    Section 4.3   Authority; No Conflict; Required Filings and Consents   C-24
    Section 4.4   SEC Filings; Financial Statements   C-25
    Section 4.5   Absence of Undisclosed Liabilities   C-26
    Section 4.6   Absence of Certain Changes or Events   C-26
    Section 4.7   Litigation   C-26
    Section 4.8   No Misrepresentation   C-26

ARTICLE V CONDUCT OF BUSINESS

 

C-27
    Section 5.1   Covenants of Transwave   C-27
    Section 5.2   Cooperation   C-28

ARTICLE VI ADDITIONAL AGREEMENTS

 

C-29
    Section 6.1   No Solicitation   C-29
    Section 6.2   Consents   C-29
    Section 6.3   Access to Information   C-29
    Section 6.4   Legal Conditions to Merger   C-30
    Section 6.5   Public Disclosure   C-30
    Section 6.6   Tax-Free Reorganization   C-30
    Section 6.7   Nasdaq Quotation   C-30
    Section 6.8   Securities Law Matters   C-30
    Section 6.9   Employment Matters   C-32
    Section 6.10   Stock Options   C-32
    Section 6.11   Finisar Plans   C-33
    Section 6.12   Employee Retention Pool   C-33
    Section 6.13   Brokers or Finders   C-33
    Section 6.14   Additional Agreements; Reasonable Efforts   C-34
    Section 6.15   Expenses   C-34

ARTICLE VII CONDITIONS TO MERGER

 

C-34
    Section 7.1   Conditions to Each Party's Obligation to Effect the Merger   C-34
    Section 7.2   Additional Conditions to Obligations of Finisar   C-35
    Section 7.3   Additional Conditions to Obligations of Transwave   C-36

ARTICLE VIII TERMINATION AND AMENDMENT

 

C-37
    Section 8.1   Termination   C-37
    Section 8.2   Effect of Termination   C-37
    Section 8.3   Amendment   C-37
    Section 8.4   Extension; Waiver   C-38

ARTICLE IX ESCROW AND INDEMNIFICATION

 

C-38
    Section 9.1   Survival of Representations and Warranties   C-38
    Section 9.2   Indemnification by Principal Shareholders   C-38
    Section 9.3   Procedures for Indemnification   C-39
    Section 9.4   Defense of Third Party Claims   C-39
    Section 9.5   Manner of Indemnification   C-40
    Section 9.6   Appointment of Shareholders' Representative   C-40

ARTICLE X GENERAL PROVISIONS

 

C-41
    Section 10.1   Notices   C-41
    Section 10.2   Interpretation   C-41
    Section 10.3   Counterparts   C-42
    Section 10.4   Severability   C-42

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    Section 10.5   Entire Agreement   C-43
    Section 10.6   Governing Law   C-43
    Section 10.7   Assignment   C-43
    Section 10.8   Third Party Beneficiaries   C-43

EXHIBITS

 

 

 

 

Exhibit A

 

Transwave Operating Plan

 

 
Exhibit B   Form of Escrow Agreement    
Exhibit C-1   Form of Lock-Up Agreement for Principal Shareholders and Holders of Transwave Preferred Stock    
Exhibit C-2   Form of Lock-Up Agreement for Holders of Transwave Common Stock (other than Principal Shareholders)    
Exhibit D   Form of Affiliate Agreement    
Exhibit E   Form of Employment Agreement    
Exhibit F   Form of Noncompetition Agreement    
Exhibit G   Form of Opinion of Pacific Law Group LLP    
Exhibit H   Form of Opinion of Gray Cary Ware & Freidenrich LLP    
Exhibit I   Form of Certificate of Designation    

SCHEDULES

 

 

 

 

Schedule 6.8(f)

 

Transwave Affiliates

 

 
Schedule 6.9(b)   Transwave Employees to be Offered Employment    
Schedule 6.10(d)   Schedule of New Finisar Options    
Schedule 6.15   Estimated Transwave Transaction Expenses    
Schedule 7.2(e)   Schedule of Third Party Consents    

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SECOND AMENDED AND RESTATED

AGREEMENT AND PLAN OF REORGANIZATION

    THIS SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of March 19, 2001, by and among Finisar Corporation, a Delaware corporation ("Finisar"), Transwave Fiber, Inc., a California corporation ("Transwave"), and Forrest Duan, Pin He and Yan Zhou, certain major shareholders of Transwave (the "Principal Shareholders").

RECITALS

    WHEREAS, the Boards of Directors of Finisar and Transwave deem it advisable and in the best interests of each corporation and its respective shareholders that Finisar and Transwave combine in order to advance the long-term business interests of Finisar and Transwave;

    WHEREAS, Finisar, Transwave and the Principal Shareholders entered into an Agreement and Plan of Reorganization dated November 20, 2000 (the "Original Reorganization Agreement");

    WHEREAS, Finisar, Transwave and the Principal Shareholders amended the Original Reorganization Agreement by entering into an Amended and Restated Agreement and Plan of Reorganization dated February 14, 2001 (the "Amended Reorganization Agreement");

    WHERAS, Finisar, Transwave and the Principal Shareholders desire to further amend and restate the Amended Reorganization Agreement;

    WHEREAS, the combination of Finisar and Transwave shall be effected by the terms of this Agreement through a transaction (the "Merger") in which Transwave will merge with and into Finisar and the shareholders of Transwave will become shareholders of Finisar; and

    WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").

    NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:

ARTICLE I

THE MERGER

    Section 1.1  Effective Time of the Merger.  Subject to the provisions of this Agreement, an Agreement and Plan of Merger (the "Agreement of Merger") in such form as is required by the relevant provisions of the California General Corporation Law ("GCL") shall be duly prepared, executed and acknowledged by Transwave and by Finisar as the Surviving Corporation (as defined in Section 1.3(a)) and delivered to the California Secretary of State for filing, along with certificates of officers (the "Officers' Certificates") of the Constituent Corporations (as defined in Section 1.3(a)), as soon as practicable on or after the Closing Date (as defined in Section 1.2). The Merger shall become effective upon the filing of the Agreement of Merger and the Officers' Certificates with the California Secretary of State (the "Effective Time").

    Section 1.2  Closing.  The closing of the Merger (the "Closing") will take place at 1:00 p.m., Pacific Time, on a date to be specified by Finisar and Transwave (the "Closing Date"), which shall be no later than the second business day after satisfaction of the latest to occur of the conditions set forth in Sections 7.1, 7.2(b) (other than the delivery of the officers' certificate referred to therein) and 7.3(b) (other than the delivery of the officers' certificate referred to therein), provided that the other closing conditions set forth in Article VII have been met or waived as provided in Article VII at or prior to

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the Closing, at the offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, CA 94301 unless another date or place is agreed to in writing by Finisar and Transwave.

    Section 1.3  Effects of the Merger.  

    Section 1.4  Directors and Officers.  The initial directors and officers of the Surviving Corporation shall be the directors and officers of Finisar, each of whom will hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, in each case until their respective successors are duly elected or appointed.

ARTICLE II

CONVERSION OF SECURITIES

    Section 2.1  Certain Definitions.  For purposes of this Agreement, the following terms shall have the meanings set forth below:

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    Section 2.2  Conversion of Capital Stock.  As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of Transwave or capital stock of Finisar:

    Section 2.3  Criteria For Determining Achievement of Milestones.  The achievement of each of the Milestones shall be determined on the basis of the criteria set forth in the Transwave Operating Plan.

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    Section 2.4  Exchange of Certificates.  The procedures for exchanging outstanding shares of Transwave Capital Stock for Finisar Preferred Stock pursuant to the Merger are as follows:

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    Section 2.5  Escrow.  

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    Section 2.6  Restricted Shares.  The Restricted Shares shall be subject to a lock-up agreement which restricts the transfer of the Restricted Shares during the period ending on the first anniversary of the Closing Date. As to those Restricted Shares issued to the Principal Shareholders and the holders of Transwave Preferred Stock, (a) one-half of such Restricted Shares shall be released from the transfer restrictions on the one-hundred-eightieth day following the Closing Date and (b) all of the Restricted Shares shall be released from the transfer restrictions on the first anniversary of the Closing Date. As to those Restricted Shares issued to the holders of Transwave Common Stock (other than Principal Shareholders), one-half of the Restricted Shares shall not be subject to any transfer restrictions and one-half of the Restricted Shares shall be released from the transfer restrictions on the one-hundred-eightieth day following the Closing Date. As a condition to the delivery of the Restricted Shares, each shareholder must execute and deliver a Lock-Up Agreement in substantially the form attached hereto as Exhibit C-1 or Exhibit C-2, as appropriate.

    Section 2.7  Dissenters' Rights.  In the event the Merger becomes effective without the approval of the holders of 100% of the outstanding shares of Transwave Common Stock, any shares of Transwave Common Stock held by shareholders who properly exercise and perfect the dissenters' rights set forth in Chapter 13 of the GCL ("Dissenting Shares") shall not be converted pursuant to Section 2.2, but shall instead be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the provisions of the GCL. Finisar shall have the right to control all negotiations and proceedings with respect to the determination of the fair value of the Transwave Common Stock. Transwave agrees that, without the prior written consent of Finisar or as required under the GCL, it will not voluntarily make any payment with respect to, or determine or offer to determine, the fair value of the Transwave Common Stock. Each holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the provisions of the GCL, becomes entitled to payment of the fair value of Transwave Common Stock shall receive payment therefor (but only after the fair value therefor shall have been agreed upon or finally determined pursuant to the provisions of the GCL). In the event that any holder of Transwave Common Stock fails to make an effective demand for payment or otherwise loses his, her or its status as a Dissenting Shareholder, Finisar shall, as of the later of the Effective Time or the occurrence of such event, issue and deliver, upon surrender by such Dissenting Shareholder of his, her or its Certificate(s), the shares of Finisar Capital Stock and cash, including any cash payment in lieu of fractional shares, in each case without interest thereon, to which such Dissenting Shareholder would have been entitled under Section 2.2.

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    Section 2.8  Conversion of Finisar Preferred Stock.  Prior to the Closing, Finisar shall file a Certificate of Designation to its Certificate of Incorporation in substantially the form attached hereto as Exhibit I for the purpose of establishing and designating the rights and preferences of the Finisar Preferred Stock to be issued pursuant to Section 2.2 hereof, including the automatic conversion of the Finisar Preferred Stock into Finisar Common Stock immediately upon the filing of a certificate of amendment to Finisar's Certificate of Incorporation to increase the authorized shares of Finisar Common Stock to a number of shares sufficient to create a reserve of Finisar Common Stock to allow for the conversion of the Finisar Preferred Stock to be issued in the Merger into Finisar Common Stock on a three-for-one basis, subject to adjustment for stock splits, combinations, stock dividends and the like (the "Automatic Conversion").

    Section 2.9  Representations, Warranties, Covenants and Agreements.  Solely for the purposes of Articles III, IV, V, VI, and VII hereof, the Transwave Disclosure Schedule and the Finisar Disclosure Schedule (as each is defined herein), the representations and warranties, covenants, agreements and all other provisions contained therein shall be deemed to have been made and entered into as of November 20, 2000 and the phrases "the date hereof" and "the date of this Agreement" therein shall mean November 20, 2000.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF TRANSWAVE

    Except as disclosed in the disclosure schedule provided to Finisar on or before the date of this Agreement (the "Transwave Disclosure Schedule"), Transwave and each of the Principal Shareholders, jointly and severally, represent and warrant to Finisar as follows:

    Section 3.1  Organization, Standing and Power.  Transwave is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has all requisite corporate power to own, lease and operate its properties and to carry on its business as currently being conducted and as currently proposed to be conducted, and is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its operations requires such qualification, except where the failure to so qualify has not and will not have a Material Adverse Effect (as defined in Section 10.2(a)) on Transwave. Transwave has delivered true and correct copies of the Articles of Incorporation and Bylaws of Transwave, each as amended to date, to Finisar. Transwave is not in violation of any of the provisions of its Articles of Incorporation, Bylaws or other charter documents. Except as set forth in the Transwave Disclosure Schedule, Transwave does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. Copies of the charter documents of each of the entities listed on the Transwave Disclosure Schedule in which Transwave owns an equity interest, each as amended to date, have been provided to Finisar.

    Section 3.2  Transwave Capital Structure.  

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    Section 3.3  Authority; Required Filings and Consents.  

    Section 3.4  Financial Statements.  Transwave has delivered to Finisar its unaudited financial statements, including statements of operations and cash flows for the nine-month period ended September 30, 2000 and a balance sheet as of September 30, 2000 (the "Balance Sheet Date") (collectively, the "Transwave Financial Statements"). The Transwave Financial Statements were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved, except that the unaudited Transwave Financial Statements do not contain footnotes. The Transwave Financial Statements present fairly in all material respects the financial position of Transwave as of the respective dates and the results of its operations and cash flows for the periods indicated, subject, in the case of unaudited financial statements, to normal year-end audit adjustments. Transwave maintains, and until the Effective Time will continue to maintain, a standard system of accounting established and administered in accordance with GAAP.

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    Section 3.5  Absence of Undisclosed Liabilities.  Transwave does not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, other than (i) liabilities reflected or provided for on the balance sheet as of the Balance Sheet Date (the "Transwave Balance Sheet") contained in the Transwave Financial Statements, (ii) liabilities contemplated by this Agreement or described in the Transwave Disclosure Schedule, and (iii) normal or recurring liabilities incurred since the Balance Sheet Date in the ordinary course of business consistent with past practices.

    Section 3.6  Accounts Receivable.  The accounts receivable shown on the Transwave Balance Sheet arose in the ordinary course of business and have been collected or are collectible in the book amounts thereof, less an amount not in excess of the allowance for doubtful accounts and returns provided for in the Transwave Balance Sheet. The accounts receivable of Transwave arising after the Balance Sheet Date and prior to the Closing Date arose, or will arise, in the ordinary course of business and have been collected or will be collectible in the book amounts thereof, less allowances for doubtful accounts and returns determined in accordance with GAAP and the past practices of Transwave. None of such accounts receivable is subject to any claim of offset or recoupment or counterclaim, and Transwave has no knowledge of any specific facts that would be likely to give rise to any such claim. No amount of such accounts receivable is contingent upon the performance by Transwave of any obligation and no agreement for deduction or discount has been made with respect to any such accounts receivable.

    Section 3.7  Inventories.  The inventories shown on the Transwave Balance Sheet or thereafter acquired by Transwave consist of items of a quantity and quality usable or salable in the ordinary course of business. Since the Balance Sheet Date, Transwave has continued to replenish inventories in a normal and customary manner consistent with past practices. Transwave has not received notice that it will experience in the foreseeable future any difficulty in obtaining, in the desired quantity and quality and at a reasonable price and upon reasonable terms and conditions, the supplies or component products required for the manufacture, assembly or production of its products. The value at which inventories are carried reflect the inventory valuation policy of Transwave, which is consistent with its past practice and in accordance with GAAP. Due provision has been made on the books of Transwave, consistent with past practices, to provide for all slow-moving, obsolete, or unusable inventories at their estimated useful or scrap values, and such inventory reserves are adequate to provide for such slow-moving, obsolete or unusable inventory and inventory shrinkage.

    Section 3.8  Absence of Certain Changes or Events.  Since the Balance Sheet Date, Transwave has conducted its business in the ordinary course and in a manner consistent with past practices and, since such date, Transwave has not:

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    Section 3.9  Taxes.  

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    Section 3.10  Tangible Assets and Real Property.  

    Section 3.11  Intellectual Property.  

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    Section 3.12  Bank Accounts.  The Transwave Disclosure Schedule sets forth the names and locations of all banks and other financial institutions at which Transwave maintains accounts of any nature, the type of accounts maintained at each such institution and the names of all persons authorized to draw thereon or make withdrawals therefrom.

    Section 3.13  Contracts.  

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    Section 3.14  Labor Difficulties.  Transwave is not engaged in any unfair labor practice or in violation of any applicable laws respecting employment, employment practices or terms and conditions of employment. There is no unfair labor practice complaint against Transwave pending or, to Transwave's knowledge, threatened before any Governmental Entity. There is no strike, labor dispute, slowdown, or stoppage pending or, to Transwave's knowledge, threatened against Transwave. Transwave is not now and has never been subject to any union organizing activities. Transwave has not experienced any work stoppage or other labor difficulty. To Transwave's knowledge, the consummation of the transactions contemplated by this Agreement will not have a material adverse effect on its relations with Transwave employees.

    Section 3.15  Trade Regulation.  Transwave has not terminated its relationship with or refused to ship Transwave Products to any dealer, distributor, third party marketing entity or customer which had theretofore paid or been obligated to pay Transwave in excess of $10,000 over any consecutive twelve (12) month period. All of the prices charged by Transwave in connection with the marketing or sale of any of its products or services have been in compliance, in all material respects, with all applicable laws and regulations. No claims have been asserted or, to Transwave's knowledge, threatened against Transwave with respect to the wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other material violation of any laws or regulations relating to anti-competitive practices or unfair trade practices of any kind.

    Section 3.16  Environmental Matters.  

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    Section 3.17  Employee Benefit Plans.  

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    Section 3.18  Compliance with Laws.  Transwave has complied with, is not in violation of, and has not received any notices of violation with respect to, any statute, law or regulation applicable to the ownership or operation of its business.

    Section 3.19  Employees and Consultants.  The Transwave Disclosure Schedule contains a list of the names of all employees and consultants of Transwave as of the date of this Agreement and their salaries or wages, other compensation, dates of employment and positions.

    Section 3.20  Litigation.  There is no action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal or, to Transwave's knowledge, threatened against Transwave or any of its properties or officers or directors (in their capacities as such). There is no judgment, decree or order against Transwave or, to its knowledge, any of its directors or officers (in their capacities as such) that could prevent, enjoin or materially alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on Transwave.

    Section 3.21  Restrictions on Business Activities.  There is no agreement, judgment, injunction, order or decree binding upon Transwave which has or could reasonably be expected to have the effect of prohibiting or materially impairing any current or future business practice of Transwave, any acquisition of property by Transwave or the conduct of business by Transwave as currently being conducted or as currently proposed to be conducted.

    Section 3.22  Governmental Authorization.  Transwave has obtained each governmental consent, license, permit, grant or other authorization of a Governmental Entity that is required for the operation of the business of Transwave (collectively, the "Transwave Authorizations"), and all of such Transwave Authorizations are in full force and effect.

    Section 3.23  Insurance.  Transwave has insurance policies of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of Transwave. The Transwave Disclosure Schedule contains a list of all such policies. There is no material claim pending under any of such policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies. All premiums due and payable under all such policies have been paid, and Transwave is otherwise in compliance with the terms of such policies. Transwave has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.

    Section 3.24  Interested Party Transactions.  

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    Section 3.25  No Existing Discussions.  As of the date hereof, Transwave is not engaged, directly or indirectly, in any discussions or negotiations with any party other than Finisar with respect to a Transwave Acquisition Proposal (as defined in Section 6.1).

    Section 3.26  Real Property Holding Corporation.  Transwave is not a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code.

    Section 3.27  Corporate Documents.  Transwave has furnished to Finisar, or its representatives, for its examination (i) its minute book containing all records required to be set forth of all proceedings, consents, actions, and meetings of the shareholders, the Board of Directors and any committees thereof and (ii) all permits, orders, and consents issued by any Governmental Entity with respect to Transwave. The corporate minute books and other corporate records of Transwave are complete and accurate in all material respects, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same. All actions reflected in such books and records were duly and validly taken in material compliance with the laws of the applicable jurisdiction. Transwave has delivered or made available to Finisar or its representatives true and complete copies of all documents which are referred to in this Article III or in the Transwave Disclosure Schedule.

    Section 3.28  No Misrepresentation.  No representation or warranty by Transwave in this Agreement, or any statement, certificate or schedule furnished or to be furnished by or on behalf of Transwave pursuant to this Agreement, when taken together, contains or shall contain any untrue statement of a material fact or omits or shall omit to state a material fact required to be stated therein or necessary in order to make such statements, in light of the circumstances under which they were made, not misleading.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF FINISAR

    Except as set forth in the disclosure schedule delivered by Finisar to Transwave on or before the date of this Agreement (the "Finisar Disclosure Schedule"), Finisar represents and warrants to Transwave as follows:

    Section 4.1  Organization.  Finisar is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite corporate power to own, lease and operate its property and to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on Finisar.

    Section 4.2  Finisar Capital Structure.  

    Section 4.3  Authority; No Conflict; Required Filings and Consents.  

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    Section 4.4  SEC Filings; Financial Statements.  

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    Section 4.5  Absence of Undisclosed Liabilities.  Finisar and its Subsidiaries do not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the aggregate would be reasonably likely to have a Material Adverse Effect on Finisar, other than (i) liabilities reflected or provided for on the Finisar Balance Sheet, (ii) liabilities specifically contemplated by this Agreement, or described in the Finisar Disclosure Schedule or Finisar SEC Reports, and (iii) normal or recurring liabilities incurred since July 31, 2000 in the ordinary course of business consistent with past practices.

    Section 4.6  Absence of Certain Changes or Events.  Since July 31, 2000, Finisar has not suffered any event or occurrence that has had a Material Adverse Effect on Finisar.

    Section 4.7  Litigation.  Except as described in the Finisar SEC Reports, there is no action, suit or proceeding, claim, arbitration or investigation against Finisar pending or as to which Finisar has received any written notice of assertion, which is reasonably likely to have a Material Adverse Effect on Finisar or a material adverse effect on the ability of Finisar to consummate the transactions contemplated by this Agreement.

    Section 4.8  No Misrepresentation.  No representation or warranty by Finisar in this Agreement, or any statement, certificate or schedule furnished or to be furnished by or on behalf of Finisar pursuant to this Agreement, when taken together, contains or shall contain any untrue statement of a material fact or omits or shall omit to state a material fact required to be stated therein or necessary in order to make such statements, in light of the circumstances under which they were made, not misleading.

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ARTICLE V

CONDUCT OF BUSINESS

    Section 5.1  Covenants of Transwave.  During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, Transwave agrees (except to the extent that Finisar shall otherwise consent in writing), to carry on its business in the usual, regular and ordinary course in substantially the same manner as previously conducted, to pay its debts and Taxes when due, to pay or perform its other obligations when due (subject to good faith disputes with respect to such obligations), and, to the extent consistent with such business, to use all commercially reasonable efforts consistent with past practices and policies to (i) preserve intact its present business organization, (ii) keep available the services of its present officers and key employees and (iii) preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having business dealings with it. Transwave shall promptly notify Finisar of any event or occurrence not in the ordinary course of business of Transwave where such event or occurrence would result in a breach of any covenant of Transwave set forth in this Agreement or cause any representation or warranty of Transwave set forth in this Agreement to be untrue as of the date of, or giving effect to, such event or occurrence. Except as expressly contemplated by this Agreement, or set forth on the Transwave Disclosure Schedule, Transwave shall not, without the prior written consent of Finisar:

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    Section 5.2  Cooperation.  Subject to compliance with applicable law, from the date hereof until the Effective Time, each of Finisar and Transwave shall confer on a regular and frequent basis with one or more representatives of the other party to report operational matters of materiality and the general status of ongoing operations and shall promptly provide the other party or its counsel with copies of all filings made by such party with any Governmental Entity in connection with this Agreement, the Merger and the transactions contemplated hereby.

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ARTICLE VI

ADDITIONAL AGREEMENTS

    Section 6.1  No Solicitation.  

    Section 6.2  Consents.  Each of Finisar and Transwave shall use all reasonable efforts to obtain all necessary consents, waivers and approvals under any of Finisar's or Transwave's material agreements, contracts, licenses or leases as may be necessary or advisable to consummate the Merger and the other transactions contemplated by this Agreement.

    Section 6.3  Access to Information.  Upon reasonable notice, Transwave shall afford to the officers, employees, accountants, counsel and other representatives of Finisar, reasonable access, during

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normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records and, during such period, Transwave shall furnish promptly to Finisar or its representatives all other information concerning its business, properties and personnel as such other party may reasonably request. Unless otherwise required by law, the parties will treat any such information which is nonpublic in confidence in accordance with the Nondisclosure Agreement effective as of June 17, 2000 (the "Confidentiality Agreement") between Finisar and Transwave, which Confidentiality Agreement shall continue in full force and effect in accordance with its terms. No information or knowledge obtained in any investigation pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty contained in this Agreement or the conditions to the obligations of the parties to consummate the Merger.

    Section 6.4  Legal Conditions to Merger.  Each of Finisar and Transwave will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on itself with respect to the Merger (which actions shall include, without limitation, furnishing all information in connection with approvals of or filings with any Governmental Entity) and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon either of them or any of their Subsidiaries in connection with the Merger. Each of Finisar and Transwave will take all reasonable actions necessary to obtain (and will cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other third party, required to be obtained or made by Transwave, Finisar or any of their Subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement and to enable the Closing to occur as promptly as practicable.

    Section 6.5  Public Disclosure.  Finisar and Transwave shall consult with each other before issuing any press release or otherwise making any public statement with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or by the rules or regulations of the SEC or the NNM.

    Section 6.6  Tax-Free Reorganization.  Finisar and Transwave each intend that the Merger shall qualify for treatment as a reorganization within the meaning of Section 368(a) of the Code. Finisar and Transwave each agree to refrain from taking any action inconsistent with such intended treatment.

    Section 6.7  Nasdaq Quotation.  Finisar agrees to continue the quotation of Finisar Common Stock on the NNM during the term of this Agreement. Finisar shall use its best efforts to cause the shares of Finisar Common Stock to be issued upon the conversion of the Finisar Preferred Stock and such other shares required to be reserved in connection with the Merger to be approved for quotation on the NNM, subject to official notice of issuance, prior to the Closing Date.

    Section 6.8  Securities Law Matters.  

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    Section 6.9  Employment Matters.  

    Section 6.10  Stock Options.  

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    Section 6.11  Finisar Plans.  All Transwave employees who remain employees of Finisar, Transwave or any other Subsidiary of Finisar following the Effective Time shall be entitled to participate in all employee benefit plans and programs (the "Finisar Plans") that are available to other Finisar employees holding comparable positions. To the extent permitted by the Finisar Plans, each participant shall be given full credit for such participant's period of continuous service with Transwave prior to the Effective Time. To the extent permitted by law, Finisar shall amend the Finisar Plans, as necessary, to provide for such participation. In the case of medical and health insurance coverage, Finisar shall cause the Surviving Corporation to continue to insure Transwave employees under Transwave's existing insurance plans or provide them with the opportunity to participate in Finisar Plans providing generally comparable medical and health insurance coverage.

    Section 6.12  Employee Retention Pool.  Finisar shall establish a pool of cash in the aggregate amount of $1,000,000 (the "Retention Pool") for retention of Transwave employees. The Retention Pool shall be allocated among the Transwave employees in accordance with a schedule to be mutually agreed upon by Finisar and Transwave prior to the Closing Date.

    Section 6.13  Brokers or Finders.  Each of Finisar and Transwave represents, as to itself, its Subsidiaries and its Affiliates, that no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, and each of Finisar and Transwave agrees to indemnify and hold the other harmless from and against any and all claims, liabilities or obligations with respect to any other fees, commissions or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or its Affiliate.

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    Section 6.14  Additional Agreements; Reasonable Efforts.  Subject to the terms and conditions of this Agreement, each of the parties agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including cooperating fully with the other party, including by provision of information. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of either of the Constituent Corporations, the proper officers and directors of each party to this Agreement shall take all such necessary action.

    Section 6.15  Expenses.  The parties shall each pay their own legal, accounting, financial advisory and consulting fees and other out-of-pocket expenses related to the negotiation, preparation and carrying out of this Agreement and the transactions herein contemplated. In the event the Merger is consummated all legal, accounting, financial advisory and consulting fees and expenses incurred by Transwave (whether paid or accrued) relating to the negotiation, preparation and carrying out of this Agreement and the transactions contemplated hereby, and obtaining all authorizations, consents, orders or approvals of, or declarations or filings with, all Governmental Entities in connection with such transactions (the "Transwave Transaction Expenses") shall be borne by the former security holders of Transwave, as hereinafter provided. Schedule 6.15 hereto sets forth Transwave's current estimate of the total Transwave Transaction Expenses which Transwave expects to incur (the "Estimated Transwave Transaction Expenses"). Transwave shall provide an updated schedule of Estimated Transwave Transaction Expenses not later than two (2) business days prior to the Closing (the "Closing Transwave Transaction Expense Schedule"). In the event that the amount of the Transwave Transaction Expenses as set forth on the Closing Transwave Transaction Expense Schedule exceeds the Estimated Transwave Transaction Expenses, the Exchange Ratios shall be adjusted proportionately so that such excess Transwave Transaction Expenses are borne by the former security holders of Transwave in the form of a reduction in the aggregate amount of the Merger consideration. In the event the Transwave Transaction Expenses actually incurred by Transwave exceed the amount shown on the Closing Transwave Transaction Expense Schedule, Finisar shall be entitled to assert a claim against the Escrow Shares pursuant to Article IX hereof in order to recover all such additional expenses.

ARTICLE VII

CONDITIONS TO MERGER

    Section 7.1  Conditions to Each Party's Obligation to Effect the Merger.  The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of the following conditions:

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    Section 7.2  Additional Conditions to Obligations of Finisar.  The obligation of Finisar to effect the Merger are subject to the satisfaction of each of the following conditions, any of which may be waived in writing exclusively by Finisar:

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    Section 7.3  Additional Conditions to Obligations of Transwave.  The obligation of Transwave to effect the Merger is subject to the satisfaction of each of the following conditions, any of which may be waived, in writing, exclusively by Transwave:

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ARTICLE VIII

TERMINATION AND AMENDMENT

    Section 8.1  Termination.  This Agreement may be terminated at any time prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(e), by written notice by the terminating party to the other party):

    Section 8.2  Effect of Termination.  In the event of termination of this Agreement as provided in Section 8.1, there shall be no liability or obligation on the part of Finisar or Transwave or their respective officers, directors, shareholders or Affiliates, except to the extent that such termination results from the willful breach by a party of any of its representations, warranties or covenants set forth in this Agreement; provided that the provisions of Sections 6.13 and 6.15 of this Agreement, the confidentiality provisions set forth herein and in the Confidentiality Agreement and the non-competition provisions set forth in the Confidentiality Agreement shall remain in full force and effect and survive any termination of this Agreement.

    Section 8.3  Amendment.  This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of Transwave, but, after any such approval, no amendment shall be made which by law requires further approval by such shareholders

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without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

    Section 8.4  Extension; Waiver.  At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party.

ARTICLE IX

ESCROW AND INDEMNIFICATION

    Section 9.1  Survival of Representations and Warranties.  If the Merger occurs, all of the representations and warranties contained in this Agreement shall survive the Closing Date. No action may be brought with respect to this Agreement or the transactions contemplated hereby unless (i) an Indemnification Claim is made under Section 9.3 on or before the date that is twelve (12) months following the Closing Date (the "Termination Date") or (ii) except for claims under Section 9.2(d), as allowed by law.

    Section 9.2  Indemnification by Principal Shareholders.  

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    Section 9.3  Procedures for Indemnification.  

    Section 9.4  Defense of Third Party Claims.  Should any claim be made or suit or proceeding be instituted against an Indemnitee which, if prosecuted successfully, would be a matter for which such Indemnitee is entitled to indemnification under this Article IX (a "Third Party Claim"), the obligations and liabilities of the parties hereunder with respect to such Third Party Claim shall be subject to the following terms and conditions:

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    Section 9.5  Manner of Indemnification.  

    Section 9.6  Appointment of Shareholders' Representative.  For purposes of this Agreement, the Principal Shareholders hereby consent to the appointment of Forrest Duan as the representative and attorney-in-fact for and on behalf of the Principal Shareholders (the "Shareholders' Representative"), and to the taking by the Shareholders' Representative of any and all actions and the making of any decisions required or permitted to be taken by him under this Agreement or the Escrow Agreement, including, without limitation, the exercise of the power to (i) execute the Escrow Agreement on behalf of the Principal Shareholders, (ii) authorize delivery to Finisar of Escrow Shares in satisfaction of Indemnification Claims, (iii) agree to, negotiate, enter into settlements and compromises of and comply with orders of courts and awards of arbitrators with respect to such Indemnification Claims, (iv) resolve any Indemnification Claims and (v) take all actions necessary in the judgment of the Shareholders' Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement and the Escrow Agreement. Accordingly, the Shareholders' Representative has unlimited authority and power to act on behalf of each Principal Shareholder with respect to this Agreement and the Escrow Agreement and the disposition, settlement or other handling of all Indemnification Claims, rights or obligations arising from and taken pursuant to this Agreement. The Principal Shareholders will be bound by all actions taken by the Shareholders' Representative in connection with this Agreement, and Finisar shall be entitled to rely on any action or decision of the Shareholders' Representative. The Shareholders' Representative will incur no liability with respect to any action taken or suffered by him in reliance upon any notice, direction, instruction, consent, statement or other document believed by him to be genuine and to have been signed by the proper person (and shall have no responsibility to determine the authenticity thereof), nor for any other action or inaction, except his own willful misconduct or bad faith. In all questions arising under this Agreement or the Escrow Agreement, the Representative may rely on the advice of counsel, and the Shareholders' Representative will not be liable to anyone for anything done, omitted or suffered in good faith by the Shareholders' Representative based on such advice. Except as expressly provided herein, the Shareholders' Representative will not be required to take any action involving any expense unless the payment of such expense is made or provided for in a manner satisfactory to him. At any time during the term of the Escrow Agreement, holders of a majority of the Escrow Shares subject to Indemnification Claims under this Article IX may, by written consent, appoint a new representative as the Shareholders' Representative by sending notice and a copy of the written consent appointing such new representative signed by holders of a majority of the Escrow Shares to Finisar and the Escrow Agent. Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by Finisar and the Escrow Agent.

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ARTICLE X

GENERAL PROVISIONS

    Section 10.1  Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or within seventy-two (72) hours after being mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

    Section 10.2  Interpretation.  

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    Section 10.3  Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original as against any party whose signature appears on such counterpart and all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

    Section 10.4  Severability.  In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable

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provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.

    Section 10.5  Entire Agreement.  This Agreement (including the schedules and exhibits hereto and the other documents delivered pursuant hereto) constitutes the entire agreement among the parties concerning the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, other than the Confidentiality Agreement.

    Section 10.6  Governing Law.  This Agreement shall be governed and construed in accordance with the laws of the State of California without regard to any applicable conflicts of law principles.

    Section 10.7  Assignment.  Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.

    Section 10.8  Third Party Beneficiaries.  Nothing contained in this Agreement is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns, any rights, remedies or obligations under, or by reason of this Agreement, except that (i) the persons who are shareholders of Transwave immediately prior to the Effective Time (and their successors and assigns) are express intended third party beneficiaries of Articles I, II and IV, Sections 6.6 and 6.7 and Article IX, (ii) the persons who hold Transwave Options immediately prior to the Effective Time (and their lawful successors and assigns) are express intended third party beneficiaries of Section 6.10, and (iii) each of the foregoing persons is an express intended third party beneficiary of Article X, to the extent relevant to any of the foregoing, and as such are entitled to rely on the provisions hereof as if a party hereto.

    [SIGNATURE PAGE FOLLOWS]

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    IN WITNESS WHEREOF, Finisar and Transwave have caused this Agreement to be signed by their respective officers thereunto duly authorized, and the Principal Shareholders have signed this Agreement, as of the date first written above.

TRANSWAVE FIBER, INC.   FINISAR CORPORATION

By:

 

/s/ 
F. DUAN   

 

By:

 

/s/ 
JERRY S. RAWLS   
    Forrest Duan       Jerry S. Rawls
    President and Chief Executive Officer       President and Chief Executive Officer

PRINCIPAL SHAREHOLDERS

 

 

 

 

/s/ 
F. DUAN   

 

 

 

 
Forrest Duan        

/s/ 
PING HE   

 

 

 

 
Ping He        

/s/ 
YAN ZHOU   

 

 

 

 
Yan Zhou        

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Source: OneCLE Business Contracts.