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Prepared by MERRILL CORPORATION

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Exhibit 10.17    
  

REGISTRATION RIGHTS AGREEMENT  

Dated
as of October 15, 2001 

among

Finisar
Corporation, 

Merrill
Lynch, Pierce, Fenner & Smith

Incorporated, 

J.P.
Morgan Securities Inc. 

and 

CIBC
World Markets Corp. 

REGISTRATION RIGHTS AGREEMENT  

    This Registration Rights Agreement (the "Agreement") is made and entered into this 15th day of
October, 2001, among Finisar Corporation, a Delaware corporation (the "Company"), Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
Securities Inc. and CIBC World Markets Corp. (each, an "Initial Purchaser," and collectively, the "Initial
Purchasers"). 

    This
Agreement is made pursuant to that certain Purchase Agreement, dated October 9, 2001, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial Purchasers of up to an aggregate of $125 million principal amount of the Company's
51/4% Convertible Subordinated Notes due 2008 (the "Notes"), including $25,000,000 aggregate principal amount of Notes as to which the
Initial Purchasers have exercised their over-allotment option set forth in Section 2(b) of the Purchase Agreement. In order to induce the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the Initial Purchasers' obligations thereunder, the Company has agreed to provide to the Initial Purchasers and their direct and indirect
transferees and assigns the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement. 

    In
consideration of the foregoing, the parties hereto agree as follows: 

    1.  Definitions.  

    As
used in this Agreement, the following capitalized defined terms shall have the following meanings: 

    "1933 Act" shall mean the Securities Act of 1933, as amended from time to time, and the rules and regulations of the SEC promulgated
thereunder. 

    "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the SEC
promulgated thereunder. 

    "Additional Interest" shall have the meaning set forth in Section 2.4 hereof. 

    "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement. 

    "Common Stock" shall mean common stock, $0.001 par value per share, of the Company. 

    "Company" shall have the meaning set forth in the preamble to this Agreement and also includes the Company's successors. 

    "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company; provided, however, that any
such depositary must have an address in The Borough of Manhattan, The City of New York. 

    "Effectiveness Period" shall have the meaning set forth in Section 2.1(a) hereof. 

    "Effectiveness Target Date" shall mean the one hundred eightieth (180th) day after the Closing Date. 

    "Event Date" shall have the meaning set forth in Section 2.4 hereof. 

    "Filing Date" shall mean the ninetieth (90th) day after the Closing Date. 

    "Holder" shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and
direct and indirect transferees who become registered owners of Registrable Securities under the Indenture. 

    "Indenture" shall mean the Indenture relating to the Securities, dated as of October 15, 2001, between the Company and U.S. Bank
Trust, National Association, as trustee, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. 

    "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the
preamble to this Agreement. 

 

    "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of Registrable Securities outstanding;
provided, that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its
affiliates (as such term is defined in Rule 405 under the 1933 Act) shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage. 

    "NASD" shall mean the National Association of Securities Dealers, Inc. 

    "Notes" shall have the meaning set forth in the preamble to this Agreement. 

    "Person" shall mean an individual, partnership, corporation, limited liability company, joint venture, trust or unincorporated
organization, or a government or agency or political subdivision thereof. 

    "Prospectus" shall mean the prospectus included in any Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and
all other amendments and supplements to any such prospectus, including post-effective amendments, and in each case including all material incorporated or deemed to be incorporated by
reference therein. 

    "Purchase Agreement" shall have the meaning set forth in the preamble to this Agreement. 

    "Registrable Securities" shall mean the Notes and the shares of Common Stock into which the Notes are convertible, upon original
issuance thereof, and at all times subsequent thereto; provided, however, that any Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to
such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities shall have
been sold to the public pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, or (iii) such Securities shall have ceased to be
outstanding. 

    "Registration Default" shall have the meaning set forth in Section 2.4 hereof. 

    "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC, stock exchange or NASD registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state or other
securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with qualification of any
Registrable Securities under state or other securities or blue sky laws and any filing with and review by the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing,
word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements, certificates
representing the Securities and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of
any of the Registrable Securities on any securities exchange or exchanges or on any quotation system, (v) all rating agency fees, (vi) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vii) the fees and disbursements of counsel for the Company and the fees and expenses of independent public accountants for the
Company or for any other Person, business or assets whose financial statements are included in any Registration Statement or Prospectus, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (viii) the fees and expenses of a "qualified independent underwriter" as defined by Conduct Rule 2720 of the NASD (if
required by the NASD rules) and the fees and disbursements of its counsel, (ix) the fees and expenses of the Trustee, any registrar, any depositary, any paying agent, any escrow agent or any
custodian, in each case including their respective counsel, (x) the reasonable fees and disbursements of one law firm representing the Holders of Registrable 

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Securities and (xi) the reasonable fees and expenses of the Initial Purchasers in connection with the Shelf Registration, including the reasonable fees and expenses of one counsel to the
Initial Purchasers, and (xii) any fees and disbursements of the underwriters customarily paid by issuers or sellers of securities and the fees and expenses of any special experts retained by
the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and any transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by a Holder. 

    "Registration Statement" shall mean any registration statement of the Company pursuant to the provisions of Section 2 of this
Agreement that covers all of the Registrable Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated
or deemed to be incorporated by reference therein. 

    "SEC" shall mean the Securities and Exchange Commission or any successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission. 

    "Securities" shall mean the Notes and the shares of Common Stock into which the Notes are convertible, upon original issuance thereof,
and at all times subsequent thereto. 

    "Shelf Registration" shall have the meaning set forth in Section 2 hereof. 

    "TIA" shall mean the Trust Indenture Act of 1939, as amended from time to time, and the rules and regulations of the SEC promulgated
thereunder. 

    "Trustee" shall mean the trustee with respect to the Securities under the Indenture. 

    "Underwriters" shall have the meaning set forth in Section 4(a) hereof. 

    For
purposes of this Agreement, (i) all references in this Agreement to any Registration Statement or Prospectus or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the SEC pursuant to its Electronic Data Gathering, Analysis and Retrieval system; (ii) all references in this Agreement to financial statements and
schedules and other information which is "contained", "included" or "stated" in any Registration Statement or Prospectus (or other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information which is incorporated or deemed to be incorporated by reference in such Registration Statement or Prospectus, as the case may be; and
(iii) all references in this Agreement to amendments or supplements to any Registration Statement or Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act
which is incorporated or deemed to be incorporated by reference in such Registration Statement or Prospectus, as the case may be. 

    2.  Registration Under the 1933 Act.  

    2.1  Shelf Registration.  

    (a) As
promptly as practicable, but no later than the Filing Date, the Company shall file with the SEC, a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 under
the 1933 Act covering all of the Registrable Securities (the "Shelf Registration"). The Shelf Registration shall be on Form S-3 under
the 1933 Act or another appropriate form permitting registration of such Registrable Securities for resale by the Holders in the manner or manners reasonably designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit any securities other than Registrable Securities to be included in the Shelf Registration. The Company shall use its best
efforts to cause the Registration Statement to be declared effective by the SEC as promptly as practicable, but no later than the Effectiveness Target Date, and to keep such 

3

 

Registration Statement continuously effective, supplemented and amended as required, in order to permit the Prospectus forming a part thereof to be useable by the Holders until the earliest of
(i) the date that is two years after the last date of original issuance of any of the Notes, (ii) the date when the Holders are able to sell all of their Securities immediately without
restriction pursuant to the volume limitation provisions of Rule 144 under the 1933 Act or otherwise, or (iii) all of the Registrable Securities covered by the Registration Statement
have been sold pursuant to the Registration Statement (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the
Registration Statement shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the 1933 Act and as otherwise
provided herein. 

    (b) Notwithstanding
any other provisions hereof, the Company shall use its best efforts to ensure that (i) any Registration Statement and any amendment thereto
and any Prospectus forming a part thereof and any supplements thereto complies in all material respects with the 1933 Act, (ii) any Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming a part of any Registration Statement and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 

    (c) The
Company further agrees, if necessary, to supplement or amend the Registration Statement, as required by Section 3(b) below, and to furnish to the Holders
of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 

    2.2  Expenses.  The Company shall pay all Registration Expenses in connection with the Shelf Registration
and any Registration Statement. Each Holder shall pay all fees and disbursements of its counsel other than as set forth in the preceding sentence or in the definition of Registration Expenses and all
underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Registration Statement. 

    2.3  Effectiveness.  

    (a) The
Company shall be deemed not to have used its best efforts to cause the Registration Statement to become, or to remain, effective during the requisite period set
forth herein if the Company voluntarily takes any action that would, or omits to take any action which omission would result in any such Registration Statement not being declared effective or
remaining effective, or in the Holders of Registrable Securities covered thereby not being able to offer and sell such Registrable Securities during that period as and to the extent contemplated
hereby, unless such action is required by applicable law. 

    (b) The
Registration Statement shall not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has
been declared effective, the offering of Registrable Securities pursuant to the Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any
other governmental agency or court, such Registration Statement shall be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities pursuant
to such Registration Statement may legally resume. 

    2.4  Interest.  In the event that (a) the Registration Statement has not been filed with the SEC
on or prior to the Filing Date, (b) the Registration Statement is not declared effective by the SEC on or prior to the Effectiveness Target Date, (c) the Registration Statement has been 

4

 

declared effective by the SEC and such Registration Statement ceases to be effective or usable at any time during the Effectiveness Period for any reason without being succeeded within five business
days by a post-effective amendment to such Registration Statement or a report filed with the SEC pursuant to the 1934 Act that cures such failure or (d) the Company suspends the use
of any Prospectus related to the Registration Statement for a period exceeding thirty (30) days in any consecutive three-month period or exceeding an aggregate of ninety (90) days in any
consecutive twelve-month period (each such event referred to in clauses (a) through (d) above, a "Registration Default"), then the
interest rate borne by the Notes shall be increased ("Additional Interest") by one-quarter of one percent (0.25%) per annum upon the
occurrence of each Registration Default, which rate will increase by an additional one half of one percent (0.50%) from and after the ninety-first (91st) day following the occurrence of
such Registration Default, provided that the aggregate increase in such interest rate will in no event exceed one half of one percent (0.50%) per annum. Upon the cure of such Registration Default, the
accrual of Additional Interest will cease and the interest rate will revert to the original rate so long as no other Registration Default shall have occurred and shall be continuing at such time and
the Company is otherwise in compliance with this Agreement; provided, however, that, if after any such reduction in interest rate, one or more Registration Defaults shall again occur, the interest
rate shall again be increased pursuant to the foregoing provisions. A Registration Default under clause (a) above shall be cured on the date that the Shelf Registration is filed with the SEC; a
Registration Default under clause (b) above shall be cured on the date that the Shelf Registration is declared effective by the SEC; a Registration Default under clause (c) above shall
be cured on the date the Shelf Registration is declared effective or useable; and a Registration Default under clause (d) above shall be cured on the date the Prospectus is declared useable by
the Company. 

    The
Company shall notify the Trustee within three business days after each and every date on which a Registration Default occurs (an "Event
Date"). Additional Interest shall be paid by the Company to the Holders by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on
or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each
interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest
shall be deemed to accrue from and including the day following the applicable Event Date. 

    2.5  Specific Enforcement.  Without limiting the remedies available to the Initial Purchasers and the
Holders, the Company acknowledges that any failure by the Company to comply with its obligations under this Section 2 may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or
any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under this Section 2. 

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    3.  Registration Procedures.  

    In
connection with the obligations of the Company with respect to the Shelf Registration and the Registration Statement pursuant to Section 2 hereof, the Company shall: 

    (a) prepare
and file with the SEC a Registration Statement within the period specified in Section 2, on the appropriate form under the 1933 Act, which
form (i) shall be selected by the Company, (ii) shall be available for the sale of the Registrable Securities by the selling Holders thereof, and (iii) shall comply as to form in
all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by
reference therein, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; 

    (b) prepare
and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to
keep such Registration Statement effective for the applicable period; cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provision then in force) under the 1933 Act; and comply with the provisions of the 1933 Act and the 1934 Act with respect to the disposition of all securities covered
by a Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof; 

    (c) (i) notify
each Holder of Registrable Securities, at least five business days prior to filing, that a Registration Statement with respect to the Registrable
Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method elected by the Majority Holders; (ii) furnish to
each Holder of Registrable Securities, to counsel for the Holders, to counsel for the Initial Purchasers and to each underwriter of an underwritten offering of Registrable Securities, if any, without
charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder, counsel or underwriter may reasonably
request, including financial statements and schedules and, if such Holder, counsel or underwriter so requests, all exhibits (including those incorporated by reference) in order to facilitate the
public sale or other disposition of the Registrable Securities; and (iii) the Company hereby consents to the use of the Prospectus, including each preliminary Prospectus, or any amendment or
supplement thereto by each of the Holders and underwriters of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by any Prospectus or any amendment
or supplement thereto; 

    (d) use
its best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder
of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request, to cooperate with the Holders and the
underwriters of any Registrable Securities in connection with any filings required to be made with the NASD, to keep each such registration or qualification effective during the period such
Registration Statement is required to be effective, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each
such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d) or (ii) take any action which would subject it to general service of process
or taxation in any such jurisdiction if it is not then so subject; 

6

 

    (e) notify each Holder of Registrable Securities and counsel for such Holder promptly and, if requested by such Holder or counsel, confirm such advice in writing
promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments or supplements to a Registration Statement or Prospectus or for additional information after a Registration Statement
has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to such offering cease to be true and correct in all material
respects, (v) of the happening of any event or the discovery of any facts during the period a Registration Statement is effective which makes any statement made in such Registration Statement
or the related Prospectus untrue in any material respect or which constitutes an omission to state a material fact in such Registration Statement or Prospectus or which requires the making of any
changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by
the Company that a post-effective amendment to a Registration Statement would be appropriate; 

    (f)  furnish
counsel for the Holders of Registrable Securities and counsel for any underwriters of Registrable Securities copies of any comment letters received from
the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; 

    (g) make
every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement as soon as practicable and provide
immediate notice to each Holder of the withdrawal of any such order; 

    (h) furnish
to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and schedules (without documents incorporated or deemed to be incorporated therein by reference or exhibits thereto, unless
requested); 

    (i)  cooperate
with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities
to be sold and not bearing any restrictive legends; and cause such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and in a form eligible for
deposit with the Depositary and registered in such names as the selling Holders or the underwriters, if any, may reasonably request in writing at least three business days prior to the closing of any
sale of Registrable Securities; 

    (j)  upon
the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as
practicable after the occurrence of such an event, use its best efforts to prepare a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company agrees to notify each Holder to suspend use of the Prospectus as 

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promptly as practicable after the occurrence of such an event, and each Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct
such misstatement or omission. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus, as
amended or supplemented, as such Holder may reasonably request; 

    (k) obtain
CUSIP numbers for all Registrable Securities not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates
for the Registrable Securities in a form eligible for deposit with the Depositary; 

    (l)  (i) cause
the Indenture to be qualified under the TIA in connection with the registration of the Registrable Securities, (ii) cooperate with the
Trustee and the Holders to effect such changes, if any, to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and
use its best efforts to cause the Trustee to execute, all documents as may
be required to effect such changes, if any, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; 

    (m) enter
into agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of
such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration; 

    (i)  make
such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by such Holders and underwriters; 

    (ii) in
connection with any underwritten offering, seek to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters, if any, and the Holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling
Holder (where reasonably possible) and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters
as may be reasonably requested by such Holders and underwriters; 

    (iii) in
connection with any underwritten offering, seek to obtain "comfort letters" and updates thereof with respect to such Registration Statement and the Prospectus
included therein, all amendments and supplements thereto and all documents incorporated or deemed to be incorporated by referenced therein from the Company's independent certified public accountants
and (where reasonably possible) from the independent certified public accountants for any other Person or any business or assets whose financial statements are included or incorporated by reference in
the Registration Statement or Prospectus, each addressed to the underwriters, if any, and (where reasonably possible) to have such letter addressed to the selling Holders of Registrable Securities,
such letters to be in customary form and covering matters of the type customarily covered in "comfort letters" to underwriters in connection with similar underwritten offerings; 

    (iv) enter
into securities sales agreements with the Holders and agents of the Holders providing for, among other things, the appointment of such agents for the selling
Holders for the purpose of soliciting purchases of Registrable Securities, which agreements shall be in form, substance and scope customary for similar offerings; 

8

 

    (v) if an underwriting agreement is entered into in the case of any underwritten offering, cause the same to set forth indemnification and contribution provisions and
procedures substantially equivalent to the indemnification and contribution provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be
indemnified pursuant to Section 4 hereof or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and 

    (vi) deliver
such other documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in
principal amount of the Registrable Securities being sold and the managing underwriters, if any. 

The
above shall be done at (i) the effectiveness of such Registration Statement (and, if appropriate, each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder; 

    (n) make
available for inspection by representatives of the Holders of the Registrable Securities and any underwriters participating in any disposition pursuant to a
Registration Statement and any counsel or accountant retained by such Holders or underwriters, all financial and other records, documents and properties of the Company reasonably requested by any such
Persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special
counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the
Initial Purchasers; 

    (o) a
reasonable time prior to filing any Registration Statement, any Prospectus forming a part thereof, any amendment to such Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document upon request to the Holders of Registrable Securities, to the Initial Purchasers, to the underwriter or underwriters of an underwritten
offering of Registrable Securities, if any, and to counsel for any such Holders, the Initial Purchasers or underwriters, and make such changes in any such document prior to the filing thereof as the
Holders of Registrable Securities, the Initial Purchasers, the counsel to the Holders or the underwriter or underwriters or any of their respective counsel may reasonably request; cause the
representatives of the Company to be available for discussion of such documents as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such
Holders or any underwriter; and shall not at any time make any filing of any such document of which such Holders, the Initial Purchasers on behalf of such Holders, their counsel or any underwriter
shall not have previously been advised and furnished a copy or to which the Majority Holders, the Initial Purchasers on behalf of the Holders, their counsel or any underwriter shall reasonably object
within a reasonable time period; 

    (p) use
its best efforts to cause all Registrable Securities to be listed on any securities exchange on which similar debt or equity securities issued by the Company
are then listed, if any; 

    (q) use
its best efforts to cause the Registrable Securities to be rated with the appropriate rating agencies, if so requested by the Majority Holders or by the
underwriter or underwriters of an underwritten offering of Registrable Securities, if any, unless the Registrable Securities are already so rated; 

    (r) otherwise
comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings
statement covering at least twelve (12) months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; and 

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    (s) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter and its counsel
(including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD). 

    The
Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Company such information
regarding such Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing. 

    Each
Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Sections 3(e)(ii),
3(e)(iii) or 3(e)(v) through 3(e)(vii) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until receipt by
such Holder of (i) the copies of the supplemented or amended Prospectus contemplated by Section 3(j) hereof or (ii) written notice from the Company that the Shelf Registration is
once again effective or that no supplement or amendment is required. If so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. Nothing in this
paragraph shall prevent that accrual of Additional Interest on any Securities. 

    In
the event that the Company fails to file any Registration Statement and maintain the effectiveness of any such Registration Statement as provided herein, the Company shall not file
any Registration Statement with respect to any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than Registrable Securities. 

    If
any of the Registrable Securities covered by any Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that
will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering and shall be reasonably acceptable to the Company. No Holder of Registrable
Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements. 

10

 
    4.  Indemnification and Contribution.  

    (a) The
Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each Person who participates as an underwriter (each, an
"Underwriter") and each Person, if any, who controls any Initial Purchaser, Holder or Underwriter within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows: 

    (i)  against
any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Registrable Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or any omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising
out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or any omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; 

    (ii) against
any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation,
or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and 

    (iii) against
any and all expense whatsoever, as incurred (including the reasonable fees and disbursements of counsel chosen by any indemnified party), reasonably
incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; 

provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Initial Purchasers, any Holder or
Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). 

    (b) Each
Holder, severally but not jointly, agrees to indemnify and hold harmless the Company, the Initial Purchasers, each Underwriter and the other selling Holders,
and each of their respective directors and officers, and each Person, if any, who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a)
hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any Prospectus
included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. 

11

 

    (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in
respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel
to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this
Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party. 

    (d) If
at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is
entered into more than forty-five (45) days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the
terms of such settlement at least thirty (30) days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement. 

    (e) If
the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of
any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and
expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or omissions that resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable
considerations. 

    The
relative fault of such indemnifying party or parties on the one hand and the indemnified party or parties on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or
parties or such indemnified party or parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 

    (f)  The
Company, the Holders and the Initial Purchasers agree that it would not be just or equitable if contribution pursuant to this Section 4 were determined
by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations
referred to in paragraph (e) above. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4
shall be deemed to include any legal or 

12

 

other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. 

    Notwithstanding
the provisions of this Section 4, no Initial Purchaser, Holder or Underwriter shall be required to contribute any amount in excess of the amount by which the
total price at which Registrable Securities sold by it pursuant to a Registration Statement were offered exceeds the amount of any damages that such Initial Purchaser, Holder or Underwriter has
otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. 

    No
Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation. 

    For
purposes of this Section 4, each Person, if any, who controls an Initial Purchaser, Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser, Holder or Underwriter, as the case may be, and each director of the Company, each officer of the
Company who signed the Registration Statement and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as the Company. The respective obligations of the Initial Purchasers, Holders, and Underwriters to contribute pursuant to this Section 4 are several in
proportion to the principal amount of Securities sold by them pursuant to a Registration Statement and not joint. 

    The
indemnity and contribution provisions contained in this Section 4 shall remain operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Initial Purchaser, Holder or Underwriter or any Person controlling any Initial Purchaser, Holder or Underwriter, or by or on behalf
of the Company, its officers, or directors or any Person controlling the Company, and (iii) any sale of Registrable Securities pursuant to a Registration Statement. 

    5.  Miscellaneous.  

     5.1  Rule 144 and Rule 144A.  For so long as the Company is subject
to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file all reports required to be filed by it under the 1933 Act and Section 13(a) or
15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder, that if it ceases to be so required to file such reports, it will upon the request of any Holder or beneficial owner
of Registrable Securities (a) make publicly available such information (including, without limitation, the information specified in Rule 144A(d)(4) under the 1933 Act) as is necessary to
permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver or cause to be delivered, promptly following a request by any Holder or beneficial owner of Registrable Securities or
any prospective purchaser or transferee designated by such Holder or beneficial owner, such information (including, without limitation, the information specified in Rule 144A(d)(4) under the
1933 Act) as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder or beneficial owner of Registrable Securities may
reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its
Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time
to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request
of any Holder or beneficial owner of Registrable Securities, the 

13

 

Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 

    5.2  No Inconsistent Agreements.  The Company has not entered into nor will the Company on or after the
date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not and will not in any way conflict with and are not and will not be inconsistent with the rights granted to the holders of any of the Company's
other issued and outstanding securities under any other agreements entered into by the Company or any of its subsidiaries. 

    5.3  Amendments and Waivers.  The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of
Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 

    5.4  Notices.  All notices and other communications provided for or permitted hereunder shall be made in
writing by hand delivery, registered first-class mail, telecopier or any courier guaranteeing overnight delivery (a) if to a Holder (other than the Initial Purchasers), at the most current
address set forth on the records of the registrar under the Indenture, (b) if to an Initial Purchaser, at the most current address given by such Initial Purchaser to the Company by means of a
notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to such Initial Purchaser,
(c) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of
this Section 5.4, and (d) if to any Underwriter, at the most current address given by such Underwriter to the Company by means of a notice given in accordance with the provisions of this
Section 5.4, which address initially is the address set forth in the applicable underwriting agreement. 

    All
such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the
mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. 

    Copies
of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. 

    5.5  Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the
successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking
and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be
entitled to receive the benefits hereof. 

    5.6  Third Party Beneficiaries.  The Initial Purchasers (even if the Initial Purchasers are not Holders
of Registrable Securities) shall be third party beneficiaries of the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement 

14

 

necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the
Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to
protect its rights hereunder. 

    5.7  Restriction on Resales.  If (i) the Company or any of its subsidiaries or affiliates (as
defined in Rule 144 under the 1933 Act) shall redeem, purchase or otherwise acquire any Registrable Security which is a "restricted security" within the meaning of Rule 144 under the
1933 Act, the Company will deliver or cause to be delivered such Registrable Security to the Trustee for cancellation and neither the Company nor any of its subsidiaries or affiliates will hold or
resell such Registrable Security or issue any new Security to replace the same. 

    5.8  Headings.  The headings in this Agreement are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. 

    5.9  Severability.  In the event that any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby. 

    5.10  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS THEREOF.

    5.11  Counterparts.  This Agreement may be executed in any number of counterparts and by the parties
hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 

15

 

    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. 

	 	 	FINISAR CORPORATION
	

 	
 	

By:	
 	

Jerry S. Rawls
 Name:

Title:

Confirmed
and accepted as of the date first above written: 

MERRILL
LYNCH, PIERCE, FENNER & SMITH

INCORPORATED 

J.P.
MORGAN SECURITIES INC.

CIBC WORLD MARKETS CORP. 

	BY:	 	MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED	 	 
	

By:	
 	

Stephen Miller
 Name: Stephen Miller

Title: Vice President	
 	

 

16

QuickLinks

Exhibit 10.17<Page>

Exhibit 10 (h)
Outside Director Stock Purchase Agreement

                            WOODWARD GOVERNOR COMPANY

                    OUTSIDE DIRECTOR STOCK PURCHASE AGREEMENT

                                                                     Dated as of
                                                                    May 16, 2001

WOODWARD GOVERNOR COMPANY
Attention:  Mr. John Halbrook, President
5001 North Second Street
Rockford, IL  61111

Dear Mr. Halbrook:

The undersigned, Paul Donovan, understands that you, Woodward Governor Company,
a Delaware corporation (the "Company") is authorized to issue 60,000,000 shares,
designated Common Stock of the par value of $0.00875 per share (the "Company
Stock"), of which as of May 16, 2001, (i) 11,319,356 shares were issued and
outstanding, and (ii) 840,644 shares were issued but are not outstanding and are
owned and held by the Company as treasury shares.

In accordance with the Company's Director Stock Ownership Guideline, the Company
is authorized to sell treasury shares of the Company Stock to each of its
directors who are not officers, members or employees of the Company (the
"Outside Directors"). The aggregate purchase price to me for the shares of
Company Stock I purchase will be One Hundred Ten Thousand, Nine Hundred
Eighty-two and 78/100 Dollars ($110,982.78) (the "Purchase Price"). The price
per shall be equal to the Fair Market Value of such stock as quoted on the
Nasdaq National Market at the close of business on the date of this agreement.
The shares of the company Stock to be purchased by me hereunder shall be the
number of whole shares of Company Stock which may be acquired for the Purchase
Price based upon the Fair Market Value per share as of the Purchase Date (the
"Shares").

I confirm my agreement with the Company as follows in connection with my
purchase of the Shares. Accordingly, the Company confirms its agreement with me.

     (1) PURCHASE OF SHARES. Subject to the terms and conditions herein set
     forth, I agree to purchase from the Company, and the Company agrees to sell
     to me, the number of Shares which may be purchased for the Purchase Price
     at a price per share equal to the Fair Market Value per share as of the
     Purchase Date.

     (2) PAYMENT OF PURCHASE PRICE. In payment of the Purchase Price, I agree to
     deliver to the Company within 10 days following the Purchase Date a
     Non-Interest Bearing Installment Note from me in the amount of the Purchase
     Price dated the Purchase Date and payable to your order, expressed to
     mature as follows: Immediate application of prior

<Page>

     fees held by my request in the amount of $11,700.00, plus $2,000.00 on the
     20th day of May, 2001, and $2,000.00 on the same day of each and every
     succeeding month thereafter to and including a final installment on the
     20th day of June, 2005, such note to be in the form of the Non-Interest
     Installment Note from me which is attached hereto as Exhibit A and hereby
     made a part hereof (the "Installment Note"). The remaining balance on the
     Installment Note will be accelerated in the event I cease to be an Outside
     Director of the Company for any reason and shall be payable 90 days
     thereafter.

     (3) PURCHASE DATE. The purchase and sale provided for herein shall be
     consummated and closed at the office of the Company, 5001 North Second
     Street, Rockford, Illinois 61111, commencing at 11:00 a.m., Rockford local
     time, on May 17, 2001.

     (4) ASSIGNMENT OF RETAINER FEES. I agree that commencing as of the Purchase
     Date, and on each of the next 60 payment dates thereafter, the Company may
     withhold and retain the monthly retainer fees due me from the company for
     my service as a member of the Board of Directors of the Company (the
     "Retainer Fees") in satisfaction of the payment of the Purchase Price for
     the Shares under the Installment Note. I hereby sell, assign, convey and
     transfer to the Company all my right, title and interest to any and all
     payments due me as Retainer Fees, including any and all increases thereof.
     The assignment of Retainer Fees shall be effective as of the Purchase Date
     until the Installment Note is paid and satisfied in full.

     (5) PREPAYMENT. The unpaid monthly installments of the Purchase Price for
     Shares to be purchased by me hereunder may be prepaid by me in whole or in
     part at any time. In case of any prepayment of the Purchase Price in part,
     such prepayment shall be applied to the installments hereof in the inverse
     order of their respective maturities. Any monthly Retainer Fees in excess
     of $2,000.00 shall be applied by the Company as a prepayment hereunder.

     (6) ISSUANCE OF STOCK CERTIFICATE. On the Purchase Date, the Company shall
     issue to me a stock certificate evidencing the number of Shares purchased
     by me hereunder.

     (7) TRANSFERABILITY AND CONTINUING OBLIGATION. The rights granted me
     hereunder may not be sold, pledged, assigned, transferred or otherwise
     disposed of in any manner whatsoever. Only I shall have the right to
     purchase Shares hereunder. Furthermore, except as mutually agreed otherwise
     by the parties hereto, I understand and agree that my obligation under the
     Installment Note and this Agreement are with recourse and binding on me
     individually until satisfied in full, including without limitation, in the
     event (i) of my death, or (ii) that I am no longer an Outside Director for
     any reason.

     (8) FINANCIAL RISKS. I acknowledge that I have received all information
     which I deem necessary and appropriate to evaluate the financial risks
     inherent in my purchase of Shares hereunder, and I acknowledge that I have
     satisfactory and complete information concerning the business, operations,
     and finances of the Company in response to all my inquiries in respect
     thereof.

     (9) INVESTMENT REPRESENTATION. I represent and warrant that the Shares
     acquired by me pursuant to this agreement (i) will be acquired by me for my
     own account, (ii) will be

<Page>

     acquired by me for investment and not with a view to, or for sale in
     connection with, any distribution thereof, (iii) will be acquired by me
     with no present intention of selling or distributing such shares. I agree
     that I will not dispose of the Shares purchased by me hereunder in such a
     manner as will violate the Securities Act of 1933, as amended, or any
     applicable rules and regulations thereunder and until and unless the
     Company shall have been furnished with an opinion of counsel satisfactory
     to it to the effect that any proposed disposition of such shares may be
     effected without such violation. I agree that all certificates evidencing
     the Shares acquired by me hereunder will be marked with a legend as
     follows:

               "The shares evidenced by this Certificate have not been
          registered under the Securities Act of 1933, as amended. The shares
          evidenced hereby may not be sold, transferred, pledged or hypothecated
          in the absence of an effective registration statement for the shares
          under the Securities Act of 1933, as amended, or an opinion of counsel
          satisfactory to the Corporation prior to the proposed transaction that
          registration is not required under said Act."

     I represent that I have been informed by the Company and understand that
     the Shares acquired by me hereunder will not be registered under the
     Securities Act of 1933, as amended, and that the Company does not
     contemplate and is not legally required to file any such registration.
     Accordingly, in connection with any future resale of the Shares acquired by
     me hereunder I acknowledge that my attention has been directed to Rule 144
     under the Securities Act of 1933, as amended, and that I have been advised
     that the Shares acquired by me hereunder must be held indefinitely unless
     they are subsequently registered under the Securities Act of 1933, as
     amended, or an exemption from such registration is available.

     (10) NOTICES. All notices, requests, demands and other communication
     hereunder shall be in writing and shall be deemed to have been duly given
     when delivered personally or when deposited in the United States mail,
     registered or certified, return receipt requested, postage prepaid,
     addressed as follows:

          (a)  if to me, to:

               Mr. Paul Donovan
               2515 Cherokee Trail
               Rockford, IL  61107

          (b)  if to you, to:

               Woodward Governor Company
               5001 North Second Street
               Rockford, Illinois 61111
               Attention:  Stephen P. Carter, Treasurer

     or to such other address or addresses as you or I may communicate in
     writing to the other by notice given pursuant to the provisions of this
     paragraph (10). Written notice given by

<Page>

     any other method shall be deemed effective only when actually received by
     the party to whom given.

     (11) MISCELLANEOUS. This Agreement (i) constitutes the entire agreement
     between you and me with respect to the subject matter hereof, (ii) shall
     not be assigned or transferred by your or me, (iii) shall be governed in
     all respects by the laws of the State of Illinois, and (iv) may be executed
     in two or more counterparts which together shall constitute a single
     instrument.

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to me the enclosed copy of this Outside Director Stock
Purchase Agreement whereupon it shall become a binding agreement between us.

                                       Very truly yours,

                                       By ________________________________
                                             Paul Donovan

The foregoing is hereby confirmed
and agreed to as of the 16th day of
May, 2001.

WOODWARD GOVERNOR COMPANY

By _______________________________
   John A. Halbrook, President

<Page>

                              NON-INTEREST BEARING
                            SECURED INSTALLMENT NOTE

$110,982.78                                                         May 16, 2001

     For value received, Paul Donovan (hereinafter referred to as the "Payor"),
hereby promises to pay to the order of WOODWARD GOVERNOR COMPANY, a Delaware
corporation (hereinafter referred to as the "Payee"), the principal sum of One
Hundred Ten Thousand, Nine Hundred Eighty-two and 78/100 Dollars ($110,982.78)
in lawful money of the United States of America in installments as follows:

          Immediate application of prior fees held by my request in the amount
          of $11,700.00, plus Two Thousand Dollars ($2,000.00) on the 20th day
          of May, 2001, and the same amount on the same day of each and every
          succeeding month thereafter to and including a final installment on
          the 20th day of June, 2005.

     In the event the Payor ceases to be a member of the Board of Directors of
the Payee for any reason, then, at the option of the Payee, the entire unpaid
principal of this Note shall become due and payable ninety (90) days after the
date the Payor ceases to be a director.

     If the Payor shall default in the making of any payment of principal due
hereunder and such default shall continue for more than ten (10) days after
notice thereof to the Payor from the Payee, then, at the option of the Payee,
all unpaid principal of this Note shall become immediately due and payable.

     Notwithstanding anything to the contrary contained in this Note, in the
event of an uncorrected payment default after a ten (10) day notice thereof to
the Payor from the Payee, the Payor promises to pay interest to the Payee on all
unpaid principal for the period after the date of such default until payment in
full thereof, at the rate of seven percent (7.0%) per annum.

     Except as specifically provided herein, this Note shall be non-interest
bearing for the period hereof.

     All payments of principal of this Note shall be made to the Payee at 5001
North Second Street, Rockford, Illinois 61111, or at such other place or places
as the holder hereof may direct from time to time.

     This Note is issued under and pursuant to that certain Outside Director
Stock Purchase Agreement, dated as of May 16, 2001, between the Payor and the
Payee (the "Purchase

                                    EXHIBIT A

<Page>

Agreement"). In accordance therewith, it is contemplated that this Note may be
satisfied by the assignment from the Payor to the Payee of retainer fees due the
Payor for service as a member of the Woodward Governor Company Board of
Directors pursuant to Section 4 of the Purchase Agreement; PROVIDED, HOWEVER,
all obligations hereunder are with full recourse to the Payor hereof.

     The Payor hereby promises to pay on demand all costs of collection,
including, without limitation, court costs and attorneys' fees paid or incurred
by the Payee in enforcing this Note.

     The Payor may prepay, without notice, all or any part of the unpaid
principal of this Note at any time, and from time to time, without payment of
any penalty or premium on account of such prepayment. Any monthly Retainer Fees
in excess of $2,000.00 assigned pursuant to the Purchase Agreement shall be
applied by the Payee as a prepayment hereunder. In case of any prepayment of
this Note in part, such prepayment shall be applied to the installments hereof
in inverse order of their respective maturities.

     The parties hereto, including the maker and all endorsers and guarantors of
this Note, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance or
enforcement of this Note.

     All notices and other communications to be given or made pursuant to this
Note shall be in writing and shall be deemed to have been duly given if
personally delivered or mailed by registered or certified mail, postage prepaid,
return receipt requested, and addressed to the Payor at the address set forth in
the Purchase Agreement.

     This Note shall be governed by and construed in accordance with the laws of
the State of Illinois.

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly
executed as of the day and year first above written.

                                       ----------------------------------
                                       Paul Donovan

<Page>

               ELECTION TO INCLUDE VALUE OF RESTRICTED PROPERTY IN
             GROSS INCOME IN YEAR OF TRANSFER UNDER CODE SECTION 83 (b)

The undersigned hereby elects pursuant to Section 83(b) of the Internal
Revenue Code with respect to the property described below and supplies the
following information in accordance with the regulations promulgated
thereunder:

1.   The name, address and taxpayer identification number of the undersigned
     are:

          Paul Donovan
          2515 Cherokee Trail
          Rockford, IL  61107
          SS# ###-##-####

2.   Description of property with respect to which the election is being made:

          1,502 shares of Common Stock,
          par value $0.00875 per share, of Woodward Governor Company.

3.   The date on which property was transferred is May 18, 2001.

          The taxable year to which this election relates is calendar year 2001.

4.   The nature of the restriction(s) to which the property is subject to:

          The property is nontransferable in the taxpayer's hands, by virtue of
          language to that effect stamped on the stock certificate.
          Section 16(b) of The Securities and Exchange Act of 1934 and SEC Rule
          144.

5.   Fair market value:

          The fair market value at the time of transfer (determined without
          regard to any restrictions) of the property with respect to which this
          election is being made is $73.89 per share.

6.   Amount paid for property:

          The amount paid by taxpayer for said property is $73.89 per share.

7.   Furnishing statement to employer:

          A copy of this statement has been furnished to Woodward Governor
          Company.

     -----------------------               -----------------------------------
     Date                                  Name: Paul Donovan

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