As filed with the Securities and Exchange Commission on February 6, 1997
Registration No. 333-18565
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
______________
EMCORE CORPORATION
(Exact name of Registrant as specified in its charter)
________________________
<TABLE>
<S> <C> <C>
New Jersey 3670 22-2746503
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
394 Elizabeth Avenue, Somerset, New Jersey 08873
(908) 271-9090
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
<PAGE>
_____________________
Thomas G. Werthan
EMCORE Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08873
(908) 271-9090
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<PAGE>
Ellen B. Corenswet, Esq.
Kevin Keogh, Esq. Babak Yaghmaie, Esq.
White & Case Brobeck, Phleger & Harrison LLP
1155 Avenue of the Americas 1633 Broadway
New York, New York 10036 New York, New York 10019
(212) 819-8200 (212) 581-1600
Approximate date of commencement of proposed sale to the public: as soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. ___
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same
offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ___
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
[ART]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
This Prospectus contains certain statements of a forward-looking
nature relating to future events, such as developments of processes and
commencement of production, or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
projections and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically
consider the various factors identified in this Prospectus, including the
matters set forth under the heading "Risk Factors" which could cause actual
results to differ materially from those indicated by such forward-looking
statements.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any state.
Prospectus SUBJECT TO COMPLETION, DATED FEBRUARY __, 1997
________, 1997
2,500,000 SHARES
[EMCORE LOGO]
EMCORE CORPORATION
COMMON STOCK
All the 2,500,000 shares of Common Stock offered hereby (the
"Offering") are being issued and sold by EMCORE Corporation ("EMCORE" or
the "Company").
Prior to the Offering, there has been no public market for the Common
Stock of the Company. It is currently anticipated that the initial public
offering price will be between $9.00 and $11.00 per share. See "Underwrit-
ing" for a discussion of the factors considered in determining the initial
public offering price.
The Company has applied for quotation of the Common Stock on the
Nasdaq National Market under the symbol "EMKR."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
Price Underwriting Proceeds
to the Discounts and to the
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . $____ $____ $____
Total (3) . . . . . . . . . . . . $_______ $_______ $_______
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
<PAGE>
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at $710,000 which will be paid by
the Company.
<PAGE>
(3) The Company has granted the several Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to 375,000
additional shares of Common Stock solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
__________, __________ and __________. See "Underwriting."
The shares of Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters
and subject to various prior conditions, including their right to reject
orders in whole or in part. It is expected that delivery of the share
certificates will be made in New York, New York on or about __________,
1997.
DONALDSON, LUFKIN & JENRETTE NEEDHAM & COMPANY, INC.
SECURITIES CORPORATION
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors" and the Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. Except as
otherwise indicated, (a) all references to fiscal years of the Company in
this Prospectus refer to fiscal years ended on September 30 and (b) all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and reflects a 3.4:1 reverse stock split of the
Common Stock effective February 3, 1997.
THE COMPANY
EMCORE, founded in 1984, designs and develops compound
semiconductor materials, such as gallium arsenide, and process technology
and is a leading manufacturer of production systems used to fabricate
compound semiconductor wafers. The Company provides its customers, both in
the U.S. and internationally, with materials science expertise, process
technology and compound semiconductor production systems that enable the
manufacture of commercial volumes of high-performance electronic and
optoelectronic devices. In 1996, in response to the growing need of its
customers to cost effectively get to market faster with high volumes of new
and improved high-performance products, the Company expanded its product
offerings to include the design and production of wafers and package-ready
devices. The Company believes that it is the only company that offers such
a broad range of products and services to the compound semiconductor
industry.
Recent advances in information technologies have created a growing
need for power-efficient, high- performance electronic systems that operate
at very high frequencies, have increased storage, computational and display
capabilities, and can be produced cost-effectively in commercial volumes.
In the past, electronic systems manufacturers relied on advances in silicon
semiconductor technology to meet many of these demands. However, the
newest generation of high-performance electronic and optoelectronic
applications require certain performance and functions which are generally
not achievable using silicon-based components.
Compound semiconductors have emerged as an enabling technology to
meet the complex requirements of today's advanced information systems.
Compound semiconductor devices operate at much higher speeds than silicon
devices with lower power consumption and less noise and distortion. In
addition, unlike silicon-based devices, compound semiconductor devices have
optoelectronic capabilities that enable them to emit and detect light. As
a result, electronics manufacturers are increasingly integrating compound
semiconductor devices into their products in order to achieve higher
performance in a wide variety of applications, including wireless
communica-tions, telecommunications, computers, and consumer and automotive
electronics.
Historically, developers of compound semiconductor devices have met
capacity needs with in-house systems and technologies. However, the
requirements for the production of commercial volumes of high- performance
compound semiconductor devices have often exceeded the capabilities of such
in-house solutions. The Company believes that wafers fabricated using
metal organic chemical vapor deposition ("MOCVD") possess better
uniformity, as well as better optical and electronic properties, than
wafers fabricated by traditional methods. The Company believes that its
proprietary TurboDiscTM MOCVD system provides a low cost of ownership and
is the critical enabling process step in the volume manufacture of high-
performance electronic and optoelectronic devices.
The Company's objective is to capitalize on its position as a
<PAGE>
leading developer of MOCVD process technology and production systems to
become a leading supplier of wafers and package-ready devices. In 1995,
the Company had a 26% share of the market for sales of MOCVD systems,
according to VLSI Research Inc., which regularly publishes research on this
market. In addition, the Company seeks to form strategic alliances with
customers in order to obtain long-term development and high volume
production contracts. The Company currently has a strategic relationship
with General Motors Corporation ("General Motors") to develop and
manufacture magneto-resistive ("MR") sensor products for use in automotive
applications. In addition, the Company has been integrally involved in the
development of solar cell technologies for telecommunications satellites
and transmitter and display technologies for wireless communications
applications.
The Company works closely with its customers in designing and
developing materials processes to be used in production systems for its
customers' end-use applications. The Company has sold more than 180
systems worldwide to a broad base of leading electronics manufacturers,
including: Spectrolab Inc. (a subsidiary of Hughes Electronics Company,
"Hughes-Spectrolab"), General Motors, Hewlett Packard Co., Lucent
Technologies, Inc., Motorola, Inc., Rockwell International Corp.
("Rockwell"), Samsung Co., Siemens AG, L.M. Ericsson AB, Texas Instruments
Incorporated and thirteen of the largest electronics manufacturers in
Japan. In fiscal 1996, only one customer, Hughes-Spectrolab, accounted for
more than 10% of the Company's revenues; sales to this customer accounted
for 23.6% of the Company's revenues. The Company's systems are used by
these customers to manufacture epitaxial wafers which are then processed
into components used in a variety of end-use products, including: cellular
telephones, pagers, personal communication service ("PCS") handsets, direct
broadcast satellite ("DBS") systems, CD-ROMs, digital versatile disks
("DVDs"), flat-panel displays and electronic automotive components.
<PAGE>
THE OFFERING
Common Stock offered
by the Company . . . . . . . . 2,500,000 Shares
Common Stock to
be outstanding after
the Offering . . . . . . . . . 5,494,461 Shares(1)
Use of Proceeds . . . . . . . . To repay outstanding debt, expand
manufacturing facilities and for other
general corporate purposes. See "Use
of Proceeds."
Proposed Nasdaq National
Market symbol . . . . . . . . . EMKR
<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
1994 1995 1996 1995 1996
(IN THOUSANDS (UNAUDITED)
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues . . . . . . . . . . $9,038 $18,137 $27,779 $4,255 $8,591
Gross profit . . . . . . . . . . . 3,825 8,210 9,172 1,473 1,867
Operating (loss) income . . . . . 116 1,906 (2,753) (831) (2,585)
Net (loss) income . . . . . . . . . (170) 1,516 (3,176) (885) (3,798)
Pro forma net (loss) income per
share(4) . . . . . . . . . . . . . (.55)
Pro forma shares used in computing
net (loss) income per share(4) . . 6,938
</TABLE>
<PAGE>
<TABLE>
AS OF DECEMBER 31, 1996
ACTUAL AS ADJUSTED(2)(3)
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C>
Working capital . . . . . . . . . ($1,961) $20,579
Total assets . . . . . . . . . . 29,283 51,823
Long-term debt, net . . . . . . . 9,063 9,063
Shareholders' equity . . . . . . 324 22,863
</TABLE>
__________________________
(1) Excludes: (i) 647,059 shares of Common Stock reserved for issuance
under the Company's 1995 Incentive and Non-Statutory Stock Option
Plan, as amended, of which 464,017 shares are subject to outstanding
options at exercise prices varying from $3.03 per share to $10.20 per
share, (ii) warrants to purchase 9,103 shares of Common Stock at an
exercise price of $17.00 per share, exercisable until July 24, 1997,
(iii) warrants to purchase 2,330,784 shares of Common Stock at an
exercise price of $4.08 per share, exercisable until May 1, 2001 and
(iv) warrants to purchase 1,225,490 shares of Common Stock at an
exercise price of $10.20 per share, exercisable until September 1,
2001. See "Management -- Stock Option Plan," "Description of Capital
Stock -- Warrants" and Note 12 of the Notes to Financial Statements.
(2) In October 1996, the Company established a $10.0 million demand note
facility with First Union National Bank. As of December 31, 1996, the
Company had drawn down $6 million from this facility. The Company
intends to use part of the net proceeds of the Offering to pay down
the balance outstanding under this facility. See "Use of Proceeds."
(3) Reflect the sale by the Company of the 2,500,000 shares of Common
Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company and
the application of the estimated net proceeds thereof. See "Use of
Proceeds."
(4) Pro forma adjustment for net (loss) income per share and shares used
in computing net (loss) income per share assumes: (i) 2,994,461 shares
of Common Stock, which represents the actual weighted average shares
of Common Stock outstanding, (ii) 2,500,000 shares of Common Stock to
be issued by the Company in the Offering and (iii) 1,443,936
equivalent shares of Common Stock to reflect the Common Stock purchase
warrants and stock options issued during the twelve months preceding
the filing date of the registration statement relating to the
Company's initial public offering, using the treasury stock method.
RISK FACTORS
An investment in the Common Stock offered by this Prospectus involves a
high degree of risk. Risks involved in an investment in the Common Stock
include, without limitation: risks related to expansion of the Company's
business, risks related to continued growth, risks arising from the need to
increase manufacturing capacity, the Company's history of operating losses,
<PAGE>
fluctuations in the Company's operating results, risks related to customer
concentration, risks relating to the lengthy sales and qualification cycles
for the Company's products, risks related to the Company's reliance on
trade secrets, risks related to the Company's dependence on limited product
offerings, manufacturing risks, risks from reliance on international sales,
risks arising from rapid technological change, risks regarding the
acceptance of new compound semiconductor technology by customers, risks of
increased competition, risks from continued existence of a control group,
risks related to dependence on key employees, risks related to
environmental regulation, risks arising from the absence of a public
market, risks of uncertainty of additional funding, and risks of certain
anti-takeover provisions, See "Risk Factors."
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other matters described
in this Prospectus, prospective investors should carefully consider the
following factors before making a decision to purchase the Common Stock
offered hereby.
Risks Related to Expansion of Business. The Company has recently
experienced a significant increase in the demand for its compound
semiconductor production systems. There can be no assurance that the
market for compound semiconductor production systems will continue to grow
or that the Company will be able to continue to develop compound semicon-
ductor systems for the market or that it will be able to meet market
demands or maintain and expand its customer base for such products. A
failure to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has
also recently expanded its operations to include the production of compound
semiconductor wafers and package-ready devices. The Company's expansion
into the production of such new products involves substantial capital
expenditures and a significant risk that management will be unsuccessful.
The Company presently anticipates utilizing a significant portion of the
net proceeds of the Offering for such expenditures. The development,
production and sale of compound semiconductor wafers and package-ready
devices entail yield, process and capacity-related risks that differ from
those associated with the development, production and sale of the Company's
compound semiconductor production systems. The markets for compound
semiconductor wafers and package-ready devices are in a relatively early
stage of development. There can be no assurance that these markets will
continue to grow or that the Company will be successful in developing or
marketing such products. The Company's failure to successfully develop or
market such products could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Products."
Risks Related to Continued Growth. The Company has recently
experienced a period of rapid growth, has added new personnel and intends
to continue to expand. For example, the number of the Company's employees
has increased from 95 as of September 30, 1995 to 185 as of September 30,
1996. Because of the level of scientific and management expertise
necessary to support such growth, the Company must recruit and retain
highly qualified and well-trained technical and management personnel.
There may be only a limited number of persons with the requisite skills to
serve in these positions, and it may become increasingly difficult for the
Company to hire such personnel over time. The Company's expansion may also
significantly strain management, financial, sales and marketing and other
personnel and systems. In order to effectively manage its growth, the
Company must continue to enhance its systems and controls and successfully
expand, train and manage its employee base. There can be no assurance that
the Company will be able to manage this expansion effectively or will be
able to recruit, train and retain sufficient technical and managerial
personnel. Any failure to manage the Company's growth properly could have
a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Risks Arising from the Need to Increase Manufacturing Capacity. The
Company currently anticipates increasing its manufacturing capacity to meet
the demand for its compound semiconductor production systems and wafers and
package-ready devices by expanding its existing production facility for its
new product offerings and instituting a third shift at its facility. This
<PAGE>
increase will require substantial capital expenditures. The Company
presently anticipates utilizing a significant portion of the net proceeds
of the Offering for such expenditures. There can be no assurance that the
Company will be successful in increasing its manufacturing capacity in time
to meet the demand for its production systems or wafers and package-ready
devices. In addition, the Company's success is in large part dependent on
its ability to manufacture its products, particularly its wafers and
package-ready devices, in high volumes and on a timely basis. In addition,
commercial production of the Company's wafers and package-ready devices
requires the achievement of adequate competitive yield levels. The failure
of the Company to increase its manufacturing capacity, or to manufacture
its products in high volumes, in a timely manner, or at sufficient yield
levels, would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds" and
"Business -- Manufacturing."
History of Operating Losses; Uncertainty of Profitability. The Company
has been in operation since 1984 and had an accumulated deficit of $18.1
million at September 30, 1996. In fiscal 1996, and the first quarter of
fiscal 1997, the Company incurred consolidated net losses of $3.2 million
and $3.8 million, respectively, which primarily resulted from significant
initial operating expenses related to the Company's expansion to include
the production of compound semiconductor wafers and package-ready devices
and for the quarter ending December 31, 1996, $1.0 million of imputed
warrant interest, non-cash. The Company has increased its expense levels
to support anticipated growth in demand for each of its compound semicon-
ductor production systems, wafer and package-ready device product
offerings, including the hiring of additional manufacturing, research,
engineering, sales, and administrative personnel and has also increased its
investments in inventory and capital equipment. As a result, the Company
is dependent upon increasing revenues and profit margins to achieve profit-
ability. If the Company's sales and profit margins do not increase to
support the higher levels of operating expenses, the Company's business,
financial condition and results of operations would be materially adversely
affected. There can be no assurance that the Company will ever again
achieve profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
and the Notes thereto.
Substantial Losses Incurred in First Fiscal Quarter of 1997. The
Company has incurred a loss of $3.8 million in the quarter ending December
31, 1996. The loss was primarily attributable to continuing start-up
expenses associated with the Company's two new product lines, in addition
to $1 million of imputed warrant interest, non-cash. There can be no
assurance that the Company will reverse its losses or cease reporting
quarterly losses or that the Company's capital expenditures incurred in
connection with the initiation of new product offerings will yield net
revenues. The failure to report positive results from the two new product
offerings could have a material adverse effect on the Company's business,
financial condition and results of operation.
Fluctuations in Operating Results. Historically, the Company has
derived substantially all of its revenues from the sale of compound
semiconductor production systems which typically have list prices ranging
from approximately $350,000 to $2.5 million per system. At the Company's
current revenue level, each shipment of a compound semiconductor production
system or failure to make a shipment can have a material effect on the
Company's quarterly or annual results of operations. A cancellation,
rescheduling or delay in a system shipment near the end of a particular
quarter could cause net revenues in that quarter to fall significantly
below the Company's expectations and could materially adversely affect the
Company's operating results for such quarter. The Company's policy is to
maintain positive relationships with its customers by responding promptly
<PAGE>
and effectively to warranty claims. Since the occurrence of warranty
claims is unpredictable, the Company's prompt action in response to such
claims could cause the Company's operating results to fluctuate
unexpectedly. The Company maintains reserves against warranty claims;
however, an unexpectedly high level of warranty claims in a particular
quarter could have a material adverse effect on the Company's business,
financial condition and results of operation for that quarter. The Company
anticipates that any revenues derived in the future from its recently-
established wafer and package-ready device products will be subject to
similar risks. Other factors which may lead to fluctuations in the
Company's quarterly and annual operating results include: market
acceptance of the Company's and its customers' products; the number of
compound semiconductor production systems, wafers or package-ready devices
being manufactured during any particular period; the mix of sales by
product and by distribution channel; the timing of announcement and
introduction of new compound semiconductor production systems, wafers or
package-ready devices by the Company and its competitors; a downturn in the
market for products incorporating compound semiconductors; variations in
the configuration of production systems; changes in the design or process
conditions for the production of wafers or package-ready devices; product
discounts and changes in pricing; delays in deliveries from suppliers;
delays in orders due to customers' financial difficulties; and volatility
in the compound semiconductor industries and the markets served by the
Company's customers. In addition, customers may face competing capital
budget considerations, thus making the timing of customer orders uneven and
difficult to predict. There can be no assurance that the Company will be
able to achieve a rate of growth or level of revenues in any future period
commensurate with its level of expenses. It is likely that, in some future
quarter or quarters, the Company's operating results may be below the
expectations of analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Related to Customer Concentration. A small number of customers
have historically accounted for a substantial portion of the Company's
revenues, and the Company expects a significant portion of its future sales
to remain concentrated within a limited number of customers. Sales of the
Company's production systems to Hughes-Spectrolab, accounted for
approximately 28.9% and 23.6% of the Company's revenues in fiscal 1995 and
1996, respectively. Hughes-Spectrolab is currently the Company's largest
purchaser of compound semiconductor production systems. General Motors is
currently the Company's sole customer for package-ready devices.
Currently, the Company is only deriving revenues from the fabrication of
its wafers for use in connection with the package-ready devices being sold
to General Motors. There can be no assurance that the Company will succeed
in marketing its wafers and package-ready devices to any customer other
than General Motors. Failure by the Company to provide wafers and package-
ready devices for customers other than General Motors would have a material
adverse effect on the Company's business, financial condition and results
of operations. In addition, the loss of, or a significant reduction of
orders from, Hughes-Spectrolab or General Motors would have a material
adverse effect on the Company's business, financial condition and results
of operations. There can be no assurance that the Company will be able to
retain these or other major customers or that such customers will not
cancel, delay or reschedule orders. Any reduction or delay in orders from
any of the Company's significant customers, including reductions or delays
due to market, economic or competitive conditions in compound
semiconductor-related industries, or the loss of any such customers, would
have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Customers."
Risks Related to Lengthy Sales and Qualification Cycles. Sales of the
<PAGE>
Company's compound semiconductor production systems depend, in significant
part, upon the decision of a prospective customer to increase its
manufacturing capacity, which typically involves a significant capital
commitment by the customer. The amount of time from the initial contact
with the customer to the customer's placement of an order is typically two
to nine months or longer. The Company often experiences delays in
obtaining system sales orders while customers evaluate and receive
approvals for the purchase of compound semiconductor production systems.
Such delays may include the time necessary to plan, design or complete a
new or expanded compound semiconductor fabrication facility. Due to these
factors, the Company's compound semiconductor systems typically have a
lengthy sales cycle during which the Company may expend substantial funds
and sales, marketing and management effort. There can be no assurance that
any of these expenditures or efforts on the part of the Company will result
in sales. Although the Company has a limited operating history for wafer
and package-ready device fabrication, the Company anticipates that such
products will have similarly lengthy sales cycles and will therefore be
subject to risks substantially similar to those inherent in the lengthy
sales cycles for compound semiconductor systems. In addition, the sales
cycle for wafers and package-ready devices also includes a period of two to
six months during which the Company develops the formula of materials
necessary to meet the customer's specifications and qualifies the materials
which may also require the delivery of samples. There can be no assurance
that the Company will successfully develop an appropriate product in
accordance with customer specifications. See "Business -- Products," "--
Sales and Marketing" and "-- Competition."
Risks Related to Reliance on Trade Secrets; No Assurance of Continued
Intellectual Property Protections. The Company's success and competitive
position both for sales of production systems and for wafers and package-
ready devices depend on whether it can maintain trade secrets, patents and
other intellectual property protections. Trade secrets are routinely
employed in the Company's manufacturing processes. A "trade secret"
includes information that has value to the extent it is not generally
known, not readily ascertainable by others through legitimate means, and
protected in a way that maintains its secrecy. In order to protect its
trade secrets, the Company takes certain measures to ensure their secrecy,
such as executing non-disclosure agreements with its employees, customers
and suppliers. Reliance on trade secrets is only an effective business
practice insofar as (i) trade secrets remain undisclosed and (ii) a
proprietary product or process is not reverse engineered or independently
developed. The Company's inability to maintain its trade secrets relating
to the systems production technology and operation could have a material
adverse effect on the ability of the Company to sell its production
systems. There can be no assurance that these trade secrets will remain
undisclosed, that the Company's non-disclosure agreements will not be
breached, that there will be adequate remedies for any such breach, or that
the Company's production systems, process and operations will not be
reverse engineered or independently developed. There can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology. Sales of the Company's wafers and package-ready devices
depends heavily on the Company's trade secrets related to its MOCVD
technology and processes. Failure to maintain trade secrets in this area
would have a material adverse effect on the sales of the Company's wafer
and package-ready devices. Although the Company holds six U.S. patents,
these patents do not claim any material aspect of the current or planned
commercial versions of the Company's systems, wafers or package-ready
devices. The Company is actively pursuing patents on its recent
inventions, but there can be no assurance that patents will be issued from
any pending applications, or that the claims in any existing or future
patents issued or licensed to the Company will not be challenged, invali-
dated or circumvented, or that any of the Company's pending or future
patent applications will result in an issued patent with the scope of the
<PAGE>
claims sought by the Company, if at all. The Company has not been notified
and is not aware of any third parties that are infringing its intellectual
property right, or that the Company is infringing intellectual property
rights of third parties, but there can be no assurance that the Company
will not face such claims or infringements in the future. There can be no
assurance that the Company will be successful in any resulting litigation
or obtaining a license on commercially reasonable terms, if at all, or will
not be prevented from engaging in certain activities. Defense and
prosecution of infringement claims can be expensive and time consuming,
regardless of outcome, and can result in the diversion of substantial
financial, management and other resources of the Company. In addition, the
laws of certain other countries may not protect the Company's intellectual
property to the same extent as the laws of the United States. See
"Business -- Intellectual Property."
Risks Arising from Reversal of Declaratory Judgment in Rockwell Patent
Litigation. To permit sales of its MOCVD production systems, the Company
was in 1992 granted a non-exclusive license (the "Rockwell License") under
U.S. patent number 4,368,098 (the "Rockwell Patent") issued on January 11,
1983 to Rockwell. The Rockwell Patent claimed, among other things,
intellectual property rights in the general use of MOCVD in unspecified
applications and expires in 2000. In October 1996, the Company initiated
discussions with Rockwell to receive additional licenses to permit the
Company to utilize MOCVD technology to manufacture and sell certain wafers
and package-ready devices. On November 15, 1996, in litigation not
involving the Company, the Rockwell Patent was declared invalid by the U.S.
Court of Federal Claims. The Company believes that Rockwell will appeal
this judgment. In the event the foregoing judgment is reversed by a court
of appeal, the Company may be liable to Rockwell for royalty payments, as
well as other amounts which the Company may ultimately be deemed to owe
Rockwell in connection with the sales of its systems, wafers and package-
ready devices. Moreover, the Company may require additional licenses from
Rockwell under the Rockwell Patent in order to manufacture and sell certain
wafers and package-ready devices. There can be no assurance that the
foregoing judgment will not be reversed, that the Rockwell License can be
maintained or that licenses for wafers and package-ready devices can be
obtained or maintained on commercially feasible terms, if at all. The
failure to maintain or obtain such licenses could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Intellectual Property."
Risks Related to Dependence on Limited Product Offerings. To date,
substantially all of the Company's revenues have resulted from sales of its
TurboDiscTM systems. The Company anticipates that a significant portion of
its revenues in fiscal 1997 will be derived from the sale of these systems.
The Company has recently developed the capacity to produce compound
semiconductor wafers and package-ready devices. The Company's future
success depends on whether it can develop and introduce in a timely manner
new products, including improvements to its existing products, which
compete effectively on the basis of price and performance and which
adequately address customer requirements. The success of new product
introductions is dependent upon several factors, including timely
completion of new product designs, achievement of acceptable yields and
market acceptance. No assurance can be given that the Company's product
and process development efforts will be successful or that its new products
will achieve market acceptance. To the extent that such new product
introductions do not occur in a timely manner or the Company's or its
customers' products do not achieve market acceptance, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "Business -- Products."
Manufacturing Risks. The manufacture of systems, wafers and package-
ready devices are each subject to significant risks. The manufacture of
<PAGE>
systems is a highly complex and precise process. The Company increasingly
outsources the fabrication of certain components and sub-assemblies of the
systems it manufactures. Any impairment in the supply of these components
or sub-assemblies would have a material adverse effect on revenues derived
from sales of the Company's systems. In addition, any reduction in the
precision of these components will result in sub-standard end products and
would cause delays and interruptions in the production cycle. To the
extent the Company experiences shipment delays for its systems or wafers or
package-ready devices, the Company's operating results would be materially
adversely affected. The Company relies exclusively on its own production
capabilities for manufacturing wafers and package-ready devices, and such
operations are subject to additional manufacturing risks. Minute
impurities, difficulties in the production process, defects in the
epitaxial growth of the package-ready devices' constituent compounds, wafer
breakage or other factors can cause a substantial percentage of wafers and
package-ready devices to be rejected or numerous package-ready devices on
each wafer to be nonfunctional. Such factors may result in lower than
expected production yields, which would delay product shipments and
materially adversely affect the Company's operating results. There can be
no assurance that the Company will maintain acceptable production yields in
the future. Because the majority of the Company's costs of manufacture are
relatively fixed, the number of shippable package-ready devices per wafer
for a given product is critical to the Company's operating results.
Additionally, because the Company manufactures all of its products at its
facility in Somerset, New Jersey, and such components, products and systems
are not readily available from other sources, any interruption in
manufacturing resulting from fire, natural disaster, equipment failures or
otherwise would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business --
Manufacturing."
Reliance on International Sales; Reliance on Single Distributor. Sales
to customers located outside the United States accounted for approximately
58.6%, 36.0% and 42.5% of the Company's revenues in fiscal 1994, 1995 and
1996, respectively. The Company believes that such international sales
will continue to account for a significant percentage of the Company's
revenues. In particular, to market and service its systems in seven Asian
countries, the Company relies on a single marketing, distribution and
service provider, Hakuto & Co., Ltd. ("Hakuto"). A substantial portion of
the Company's sales of systems in Asia is to Hakuto. The Company's
agreement with Hakuto has an initial term of seven years but allows for
earlier termination upon 60 days notice. Furthermore, the agreement is
presently under renegotiation. There can be no assurance that Hakuto will
continue to adequately and effectively market and service the Company's
systems. Termination of the Company's relationship with Hakuto would
result in significant delays or interruption in the Company's marketing and
service programs in Asia and would have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company competes with its competitors for relationships with reliable
international distributors. There can be no assurance that international
distributors, including Hakuto, will not market products in competition
with the Company's in the future or will not otherwise reduce or
discontinue their relationships with or support of the Company and its
products, or that the Company will be able to attract and retain qualified
international distributors in the future. The inability of the Company to
obtain qualified new international distributors could have a material
adverse effect on the Company's business, financial condition and results
of operations. In general, the Company's international sales are subject
to risks different from domestic U.S. sales, including U.S. and
international regulatory requirements and policy changes, U.S. and
international export controls, political and economic instability,
increased installation costs, difficulties in accounts receivable
collection, exchange rates affecting end-market purchasers, tariffs and
<PAGE>
other barriers, extended payment terms, difficulty in staffing and managing
international operations, dependence on and difficulties in managing inter-
national distributors or representatives and potentially adverse tax
consequences. In particular, exports of the Company's products to certain
destinations, such as the People's Republic of China, Malaysia and Taiwan,
may require pre-shipment authorization from U.S. export control authorities
including the U.S. Departments of Commerce and State. Authorization may be
conditioned on end-use restrictions. The Company, on certain occasions,
has been denied authorization, particularly with respect to the People's
Republic of China, and there is no assurance that export licenses will be
granted in the future. Failure to receive such authorizations could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, although the Company seeks to meet
technical standards established by non-U.S. regulatory bodies, there can be
no assurance that the Company will be able to comply with such standards in
the future. In addition, the laws of certain countries may not protect the
Company's trade secrets and intellectual property to the same extent as the
laws of the United States. See "Business -- Sales and Marketing."
Dependence on Key Sole Source Suppliers. The Company does not maintain
any long-term supply agreements with any of its suppliers, and the majority
of the critical components and sub-assemblies included in the Company's
production systems, as well as certain raw materials required for the
fabrication of the Company's wafers and package-ready devices, are obtained
from sole source suppliers or a limited number of suppliers. The
manufacture of certain components and sub-assemblies and raw materials is
very complex and requires long lead times. The Company's systems cannot be
produced without certain sole-sourced, critical components. In addition,
the production of the Company's wafers and package-ready devices is
inherently dependent on an adequate source of raw materials. Alternative
suppliers for many of these components and materials may not be readily
available. In addition, the Company intends to rely to an increasing
degree on outside suppliers because of their specialized expertise. The
Company's reliance on a limited group of suppliers, and particularly on
sole source suppliers, involves several risks, including the potential
inability to obtain an adequate supply of components and materials, and
reduced control over pricing and delivery time. To date, the Company has
experienced occasional delays in obtaining components and materials. There
can be no assurance that delays or shortages caused by suppliers will not
occur in the future. The failure to obtain adequate, timely deliveries of
sub-assemblies and components and materials could prevent the Company from
meeting scheduled shipment dates, which could damage relationships with
current and prospective customers and could materially adversely affect the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
Risks Arising from Rapid Technological Change; Reliance Upon Continued
Product Development. The markets in which the Company and its customers
compete are characterized by rapid technological change, evolving industry
standards and continuous improvements in products and services. Due to
continual changes in these markets, the Company's future success will
depend upon whether it can improve its production systems and processes,
wafers and package-ready devices and to develop new technologies that
compete effectively on the basis of price and performance and adequately
address customer requirements. There can be no assurance that the
Company's research and development staff will develop new products in time
or with sufficient performance characteristics to meet the demands of the
market. The Company's production systems must remain competitive on the
basis of cost of ownership, process performance and capital productivity.
Because it is generally not possible to predict the time required and costs
involved in reaching certain research, development and engineering
objectives, actual development costs could exceed budgeted amounts and
estimated product development schedules could require extension. Any delay
<PAGE>
or inability to overcome such difficulties would materially adversely
affect the Company's business, financial condition and results of
operations. Additionally, if new products or enhancements experience
reliability or quality problems, the Company could encounter a number of
difficulties, including reduced orders, higher manufacturing costs, delays
in collection of accounts receivable and additional service and warranty
expenses, all of which could materially adversely affect the Company's
business, financial condition and results of operations. See "Business --
Compound Semiconductor Process Technology," "-- Products," "-- Research and
Development" and "-- Competition."
Risks Regarding the Acceptance of New Compound Semiconductor Technology
By Customers. The Company's systems utilize MOCVD technologies. These
same technologies are used in the Company's production of wafers and
package-ready devices. MOCVD technology differs significantly from the
technological approaches used by others for each of these products. The
semiconductor industry is especially resistant to the introduction of
changes in process or approach in a manufacturing cycle which is quite
long, consists of many separate process events and suffers from limited
control measurement points during the overall fabrication process.
Accordingly, the Company's customers may resist changing systems or
accepting any new technological approach. Additionally, the inclusion of
compound semiconductor wafers and package-ready devices increases the cost
of electronic end products and, therefore, limits the feasibility of
commercial applications of such products. The Company is seeking to per-
suade certain potential customers to incorporate compound semiconductor-
based package-ready devices for many of their high-performance
applications. Because a substantial investment is required by
semiconductor manufacturers to install and integrate capital equipment into
a production line, these manufacturers may tend to choose compound
semiconductor equipment suppliers based on past relationships, product
compatibility and proven operating performance. The Company's wafer and
package-ready device customers may be reluctant to re-tool their equipment
and production systems to accept these new technologies, may be reluctant
to rely upon a smaller supplier such as the Company for package-ready
devices, and may be reluctant to pay higher device costs. There can be no
assurance that the Company's MOCVD-based products will achieve broad market
acceptance. See "Business -- Compound Semiconductor Process Technology,"
"Business -- Products" and "Business -- Customers."
Risks of Increased Competition. The Company faces substantial
competition from both established competitors and potential new entrants.
The Company believes that the primary competitive factors in the markets in
which the Company's products compete are yield, throughput, capital and
direct costs, system performance, size of installed base, breadth of
product line and customer satisfaction, as well as customer commitment to
competing technologies. The Company's principal competitors in the market
for MOCVD systems include Aixtron GmbH ("Aixtron"), Nippon Sanso K.K.
("Nippon Sanso") and Thomas Swann Ltd. ("Thomas Swann"). The Company's
principal competitors for sales of wafers and package-ready devices include
Epitaxial Products International, Kopin Corp. and Q.E.D. The Company also
faces competition from manufacturers that produce wafers and package-ready
devices for their own use. The Company may experience competition from
corporations that have been in business longer than the Company and have
broader product lines, more experience with high volume manufacturing,
broader name recognition, substantially larger installed bases, alternative
technologies which may be better established than the Company's and
significantly greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company will successfully
compete with these competitors in the future or that the Company's
competitors will not develop enhancements to or future generations of
competitive products that will offer price and performance features that
are superior to those of the Company. The Company believes that in order
<PAGE>
to remain competitive, it must invest significant financial resources in
developing new product features and enhancements and in maintaining cus-
tomer satisfaction worldwide. In marketing its products, the Company may
face competition from suppliers employing new technologies in order to
extend the capabilities of competitive products beyond their current limits
or increase their productivity. In addition, increased competitive
pressure could lead to intensified price-based competition, resulting in
lower prices and margins, which would materially adversely affect the
Company's business, financial condition and results of operations. See
"Business -- Competition."
Risks from Continued Existence of Control Group. Prior to consummation
of the Offering, Jesup & Lamont Merchant Partners, L.L.C. ("JLMP"), the
Company's majority shareholder, beneficially owned approximately 72.9% of
the equivalent Common Stock outstanding, not including warrants to purchase
980,392 which become exercisable on May 6, 1997. After the Offering, JLMP,
together with the Company's directors and officers, will beneficially own
approximately 52.9% of the equivalent Common Stock outstanding, not
including warrants to purchase 980,392 which become exercisable on May 6,
1997. Accordingly, the Company's majority shareholder and management will
continue to hold sufficient voting power to control the business and
affairs of the Company for the foreseeable future. Such concentration of
ownership may also have the effect of delaying, deferring or preventing a
change in control of the Company. Reuben F. Richards, Jr., the Company's
President, Chief Executive Officer and a director, Howard R. Curd and
Howard F. Curd, each a director of the Company, are three of the five
members of JLMP. To guarantee the Company's demand note facility, Thomas
J. Russell, the Chairman of the Company's Board of Directors, has granted
the Company's lender a security interest over certain assets he controls.
The Company intends to use up to $10.0 million of the net proceeds from the
Offering to repay the borrowings under the demand note facility.
Additionally, Mr. Russell is one of three trustees of a trust which is a
member of JLMP. See "Use of Proceeds," "Principal Shareholders" and
"Certain Transactions."
Risks Related to Dependence on Key Employees. The future success of
the Company is dependent, in part, on whether the Company can attract and
retain certain key personnel, including materials scientists and operations
and finance personnel. The Company anticipates that it will need to hire
additional skilled personnel to expand all areas of its business to
continue to grow. The competition for such employees is extremely intense.
There can be no assurance that the Company will be able to retain its
existing personnel or attract additional qualified employees in the future,
failure of which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Risks Related to Environmental Regulation. The Company is subject to
federal, state and local laws and regulations concerning the use, storage,
handling, generation, treatment, emission, release, discharge and disposal
of certain materials used in its research and development and production
operations, as well as laws and regulations concerning environmental
remediation and employee health and safety. The Company has retained an
environmental consultant to advise it in complying with applicable
environmental and health and safety laws and regulations. There can be no
assurance, however, that future changes in such laws and regulations will
not result in expenditures or liabilities, or in restrictions on the
Company's operation, that could have such an effect. The production of
wafers and package-ready devices involves the use of certain hazardous raw
materials, including, but not limited to, ammonia, phosphine and arsenic.
The Company's expansion to offer wafers and package-ready devices will
require the increased usage and maintenance of these materials on the
Company's premises. There can be no assurance that the Company's control
systems will be successful in preventing a release of these materials or
<PAGE>
other adverse environmental conditions, which could cause a substantial
interruption in the Company's operations. Such an interruption could have
a material adverse effect on the Company's business, financial condition
and results of operation. See "Business -- Environmental Regulations."
Risks Arising from Absence of Public Market; Possible Volatility of
Stock Price. There has been no prior public market for the Company's
Common Stock. Consequently, the initial public offering price has been
determined by negotiations between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation and Needham & Company, Inc., as
representatives of the underwriters. There can be no assurance that an
active public market for the Common Stock will develop or be sustained
after the Offering or that the market price of the Common Stock will not
decline below the initial public offering price. The Company believes that
a variety of factors could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially, including: announcements of developments
related to the Company's business; quarterly fluctuations in the Company's
actual or anticipated operating results and order levels; general
conditions in the compound semiconductor and related industries or the
worldwide economy; announcements of technological innovations; new products
or product enhancements by the Company or its competitors; developments in
patents or other intellectual property rights and litigation; and develop-
ments in the Company's relationships with its customers, distributors and
suppliers. In addition, in recent years the stock market in general, and
the market for shares of small capitalization and semiconductor industry-
related stocks in particular, have experienced extreme price fluctuations
which have often been unrelated to the operating performance of affected
companies. Any such fluctuations in the future could adversely affect the
market price of the Company's Common Stock. See "Underwriting."
Risks of Uncertainty of Additional Funding. The Company may require
substantial additional capital to fund the Company's operations through
fiscal 1997 and may need to raise additional funds through public or
private financings. No assurance can be given that additional financing
will be available or that, if available, it will be available on terms
favorable to the Company or its shareholders. If additional funds are
raised through the issuance of equity securities, the percentage ownership
of then current shareholders of the Company will be reduced and such equity
securities may have rights, preferences or privileges senior to those of
the holders of the Company's Common Stock. If adequate funds are not
available to satisfy either short or long-term capital requirements, the
Company may be required to limit its operations significantly. The
Company's capital requirements will depend on many factors, including, but
not limited to, the rate at which the Company develops and introduces its
products, the market acceptance and competitive position of such products,
the levels of promotion and advertising required to launch and market such
products and attain a competitive position in the marketplace, and the
response of competitors to the products based on the Company's tech-
nologies. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Effect of Certain Anti-Takeover Provisions. The Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation") and the
New Jersey Business Corporation Act contain certain provisions that could
delay or impede the removal of incumbent directors and would make more
difficult a merger, tender offer or proxy contest involving the Company,
even if such a transaction were beneficial to the interests of the
shareholders, or could discourage a third party from attempting to acquire
control of the Company. The Company has authorized 5,882,353 shares of
Preferred Stock, which the Company could issue without further shareholder
approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The
<PAGE>
Company has no current plans to issue any Preferred Stock. The Company is
also subject to the New Jersey Shareholders Protection Act (the "Protection
Act"), which prohibits certain New Jersey corporations from engaging in
business combinations (including mergers, consolidations, significant asset
dispositions and certain stock issuances) with any Interested Shareholder
(defined to include, among others, any person that becomes a beneficial
owner of 10% or more off the affected corporation's voting power) for five
years after such person becomes an Interested Shareholder, unless the
business combination is approved by the Board of Directors prior to the
date the shareholder became an Interested Shareholder. In addition, the
Protection Act prohibits any business combination at any time with an
Interested Shareholder other than a transaction that (i) is approved by the
Board of Directors prior to the date the Interested Shareholder became an
Interested Shareholder, or (ii) is approved by the affirmative vote of the
holders of two-thirds of the voting stock not beneficially owned by the
Interested Shareholder, or (iii) satisfies certain "fair price" and related
criteria. These provisions could have the effect of delaying, deferring or
preventing a change in control of the Company and adversely affect the
voting and other rights of holders of Common Stock. Further, the Company's
Certificate of Incorporation and Amended and Restated By-Laws include
provisions to reduce the personal liability of the Company's directors for
monetary damages resulting from breaches of their fiduciary duty and to
permit the Company to indemnify its directors and officers to the fullest
extent permitted by New Jersey law. See "Description of Capital Stock."
Risks of Issuance of Blank Check Preferred Stock. The Company's Board
of Directors is authorized by the Company's Certificate of Incorporation
and By-laws to issue, without shareholder approval, up to 5,882,353 shares
of Preferred Stock in one or more classes or series. The Board of
Directors, without further approval of the shareholders, is authorized to
designate in any such class or series resolution, such par value and such
priorities, power, preferences and relative, participating, optional or
other special rights and qualifications, limitations and restrictions as it
shall determine. Such characteristics may be superior to those of the
Common Stock and could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock or of rights
to purchase Preferred Stock could be used to discourage an unsolicited
effort to acquire control of the Company. The potential for issuance of
this "blank check preferred stock" may have an adverse impact on the market
price of the Common Stock outstanding after the Offering. See "Description
of Capital Stock."
Risks Arising from Substantial Dilutive Effect of the Offering.
Purchasers of the Common Stock will experience immediate and substantial
dilution in net tangible book value per share of Common Stock from the
initial public offering price per share of Common Stock. Assuming an
initial public offering price at the midpoint of the range of the estimated
offering prices on the front cover hereof, new investors would suffer an
immediate dilution of $6.44 calculated by taking the difference in pro
forma net tangible book value per share after the Offering ($3.56) and
deducting this amount from the initial public offering price. See
"Dilution."
Risks of Sales of Common Stock Issuable Upon Exercise of Options and
Warrants. The Company currently has outstanding stock options to purchase
464,017 shares of Common Stock and warrants to purchase 3,565,377 shares of
Common Stock. Subsequent to the exercise of such options or warrants, and
to the issuance of shares of Common Stock, such shares may be offered and
sold by the holders thereof subject to the provisions of Rule 144 under the
Securities Act, or pursuant to an effective registration statement filed by
the Company. Upon expiration of certain contractual obligations between
certain holders and the Underwriters, 777,657 shares of Common Stock will
become eligible for sale without restrictions under Rule 144(k), and an
<PAGE>
additional 2,216,804 shares will become eligible for sale subject to the
restrictions of Rule 144. Sales of substantial amounts of such shares
could adversely affect the market price for the Company's Common Stock.
See "Shares Eligible for Future Sale."
Risk of No Dividends. The Company has never declared or paid dividends
on its Common Stock since its formation. The Company currently does not
intend to pay dividends in the foreseeable future. The payment of
dividends, if any, in the future will be at the discretion of the Board of
Directors.
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares
of Common Stock being offered hereby are estimated to be $22,540,000
($26,027,500 if the underwriters' over-allotment option is exercised in
full), after deducting the underwriting discounts and commissions and
estimated offering expenses.
Of the net proceeds, $10,000,000 will be used to repay debt; the entire
principal amount outstanding under the Company's demand note facility with
First Union National Bank, which has been used for capital expenditures in
connection with the build-out of the Company's manufacturing facility will
be paid in full. This demand note facility bears interest at a rate equal
to the six month LIBOR plus 75 basis points, currently 6.2968%. The
remaining net proceeds allocated to debt repayment, if any, will be used to
repay a portion of the Company's outstanding long-term indebtedness
consisting of subordinated notes. These subordinated notes bear interest
at a rate of 6%. Approximately $8,000,000 of the net proceeds are expected
to be used for capital expenditures to expand the Company's manufacturing
facility and the balance of the net proceeds are expected to be used for
general corporate purposes including working capital. The Company may also
use a portion of the net proceeds to fund acquisitions of complementary
businesses, products or technologies in the semiconductor sector. Although
the Company periodically reviews potential acquisition opportunities, there
are no current agreements with respect to any such transactions. Pending
such uses, the net proceeds of the Offering will be invested in short-term,
investment-grade, income producing investments.
The Company believes that the remaining net proceeds from the Offering
and the funds available under its demand note facility, which after being
repaid will be available in its entirety, will be sufficient to fund the
Company's anticipated facility expansion, and to provide the Company with
adequate working capital at least through fiscal 1997. However, there can
be no assurance that events in the future will not require the Company to
seek additional capital sooner or, if so required, that adequate capital
will be available on terms acceptable to the Company.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock
since its formation. The Company currently does not intend to pay
dividends in the foreseeable future so that it may reinvest its earnings in
the development of its business. The payment of dividends, if any, in the
future will be at the discretion of the Board of Directors.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, and the capitalization of the Company as adjusted to
give effect to the sale by the Company of 2,500,000 shares of Common Stock
being offered hereby (at the assumed initial public offering price of
$10.00 per share) and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with the Company's
Financial Statements and Notes thereto and "Selected Financial Data"
included elsewhere in this Prospectus.
<TABLE>
AS OF DECEMBER 31, 1996
ACTUAL AS ADJUSTED
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<S> <C> <C>
Demand Note(1) . . . . . . . . . . . . . $6,000 $ 0
Long term debt, net . . . . . . . . . . . $9,063 $5,063
Shareholders' equity
Preferred Stock: 5,882,352
shares authorized; none issued
or outstanding . . . . . . . . . . . -- --
Common Stock 23,529,411 shares
authorized; 2,994,461 shares
issued and outstanding; 5,494,461
shares issued and outstanding;
as adjusted(2) . . . . . . . . . . . 22,577 45,117
Notes receivable from warrant
issuances and stock sales . . . . . (298) (298)
Accumulated deficit . . . . . . . . (21,956) (21,956)
Total shareholders' equity . . . . 324 22,863
Total capitalization . . . . . . $9,387 $27,927
</TABLE>
____________________________
(1) In October 1996, the Company established a $10.0 million demand note
facility with First Union National Bank. As of December 31, 1996, the
Company had drawn down $6 million from this facility. The Company
intends to use $10 million of the net proceeds of the Offering to pay
down the balance outstanding under this facility. The remaining net
proceeds allocated to debt repayment, if any, will be used to repay a
portion of the Company's outstanding long-term indebtedness consisting
of subordinated notes. See "Use of Proceeds."
(2) Excludes: (i) 647,059 shares of Common Stock reserved for issuance
under the Company's 1995 Incentive and Non-Statutory Stock Option
Plan, as amended, of which 339,412 shares were subject to outstanding
options at exercise prices varying from $3.03 per share to $10.20 per
share, (ii) warrants to purchase 9,103 shares of Common Stock at an
exercise price of $17.00 per share exercisable until July 24, 1997,
(iii) warrants to purchase 2,330,784 shares of Common Stock at an
exercise price of $4.08 per share, exercisable until May 1, 2001 and
(iv) warrants to purchase 1,225,490 shares of Common Stock at an
<PAGE>
exercise price of $10.20 per share, exercisable until September 1,
2001.
<PAGE>
DILUTION
The net tangible book value (deficiency) of the Company as of December
31, 1996 was $(2,973,796) or approximately $0.99 per share. Net tangible
book value (deficiency) per share represents the amount of the Company's
shareholders' equity (net capital deficiency), less intangible assets
($3,297,313 at December 31, 1996 comprised of $3,228,572 of deferred
financing and offering costs and $68,741 of deferred patent costs), divided
by 2,994,461 shares of Common Stock outstanding. Net tangible book value
dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in the Offering made hereby
and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the
sale by the Company of 2,500,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $10.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company) and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as
of December 31, 1996 would have been $19,566,204 or approximately $3.56 per
share. This represents an immediate increase in net tangible book value of
$4.55 per share to existing shareholders and an immediate dilution in net
tangible book value of $6.44 per share to the purchasers of Common Stock in
the Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share . . . . . . . . . . . . . . . . . . $10.00
Net tangible book value per share as of December 31, 1996 . . . . ($0.99)
Increase in net tangible book value per share
attributable to new investors . . . . . . . . . . . . . . . . . . 4.55
Net tangible book value per share after the Offering . . . . . . . . . . . . . . . 3.56
Dilution per share to new investors . . . . . . . . . . . . . . . . . . . . . . . . $ 6.44
</TABLE>
The foregoing table assumes no exercise of any outstanding stock
options or warrants.
The following table sets forth, on a pro forma basis as of December
31, 1996, the difference between the existing shareholders and the
purchasers of shares in the Offering with respect to the number of shares
purchased from the Company, the total consideration paid and the average
price per share paid assuming an initial public offering price of $10 per
share:
<TABLE>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders . . 2,944,461 54.4% $13,070,111 34.3% $ 4.44
New investors . . . . . . 2,500,000 45.6 25,000,000 65.7 10.00
Total . . . . . 5,494,461 100.0% $38,070,111 100.0%
</TABLE>
At December 31, 1996, there were outstanding: stock options to
purchase 437,546 shares of Common Stock at a weighted average exercise
price of $5.47 per share, warrants to purchase 9,103 shares of Common Stock
at $17.00 per share, warrants to purchase 2,330,784 shares of Common Stock
<PAGE>
at $4.08 per share and warrants to purchase 1,225,490 shares of Common
Stock at $10.20 per share. To the extent that these options or warrants
are exercised, there will be further dilution in the aggregate to new
investors.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company is qualified by
reference to and should be read in conjunction with the Financial State-
ments and the Notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus. The financial data included in this table have been selected
by the Company and have been derived from the Company's financial
statements. The Statement of Income Data set forth below with respect to
fiscal 1996, 1995 and 1994 and the Balance Sheet Data as of September 30,
1996 and 1995, are derived from the audited financial statements included
elsewhere in this Prospectus which financial statements have been audited
by Coopers & Lybrand L.L.P., whose report with respect thereto appears
elsewhere in this Prospectus. The Statement of Income Data for fiscal 1993
and 1992 and the Balance Sheet Data as of September 30, 1994, 1993 and 1992
are derived from audited financial statements not included herein. The
financial data as of December 31, 1996, and for the three-month periods
ended December 31, 1995 and 1996 are derived from unaudited consolidated
financial statements that, in the opinion of the management of the Company,
reflect all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for these periods. Operating results for the three months ended
December 31, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending September 30, 1997.
<TABLE>
YEARS ENDED SEPTEMBER 30,
1992 1993 1994 1995 1996
(In thousands, except per share data)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $10,022 $8,180 $9,038 $18,137 $27,779
Cost of sales . . . . . . . . . . . 7,043 4,772 5,213 9,927 18,607
Gross profit . . . . . . . . . . . . 2,979 3,408 3,825 8,210 9,172
Operating expenses:
Selling, general and administrative . 2,977 2,849 2,645 4,452 6,524
Research and development . . . . . . 909 1,024 1,064 1,852 5,401
Total operating expenses . . . . . 3,886 3,873 3,709 6,304 11,925
Operating (loss) income . . . . . (907) (465) 116 1,906 (2,753)
Stated interest expenses, net . . . . . 283 242 286 255 297
Imputed warrant interest, non-cash . . 126
Other expense (income) . . . . . . . . (226) (100) -- 10 --
(Loss) income before income
taxes . . . . . . . . . . . . . . (964) (607) (170) 1,641 (3,176)
Provision for income taxes . . . . . . (6) -- -- 125 --
Net (loss) income . . . . . . . . . . ($958) ($607) ($170) $1,516 ($3,176)
Net (loss) income per share . . . . . . (.37) (.26) (.04) .33 (.72)
Shares used in computing net (loss) . . 1,647 3,731 4,403 4,649 4,438
income per share . . . . . . . . . .
</TABLE>
<PAGE>
<TABLE>
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1995 1996
(UNAUDITED
STATEMENT OF INCOME DATA:
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . $4,255 $8,591
Cost of sales . . . . . . . . . . . 2,782 6,754
Gross profit . . . . . . . . . . . . 1,473 1,867
Operating expenses:
Selling, general and administrative . 1,511 2,202
Research and development . . . . . . 793 2,250
Total operating expenses . . . . . 2,304 4,452
Operating (loss) income . . . . . (831) (2,585)
Stated interest expenses, net . . . . . 39 197
Imputed warrant interest, non-cash . . 1,016
Other expense (income) . . . . . . . . -- --
(Loss) income before income
taxes . . . . . . . . . . . . . . (870) (3,798)
Provision for income taxes . . . . . . 15 --
Net (loss) income . . . . . . . . . . ($885) ($3,798)
Net (loss) income per share . . . . . . (.20) (.86)
Shares used in computing net (loss)
income per share . . . . . . . . . . 4,438 4,438
</TABLE>
<TABLE>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1992 1993 1994 1995 1996 1996
(In thousands) (Unaudited)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital . . . . . . . . . $492 $840 $1,041 $2,208 $1,151 ($1,961)
Total assets . . . . . . . . . . 4,233 3,171 5,415 10,143 20,434 29,283
Long-term debt . . . . . . . . . 1,944 2,000 3,000 3,000 8,795 9,063
Redeemable preferred stock . . . 13,014 14,825 16,274 - - -
Shareholders' (deficit) equity . (56) 12 (96) 1,509 673 324
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
EMCORE designs and develops compound semiconductor materials and
process technology and is a leading manufacturer of production systems used
to fabricate compound semiconductor wafers. Compound semiconductors are
used in a broad range of applications in wireless communications,
telecommunications, computers, and consumer and automotive electronics.
EMCORE believes that its proprietary TurboDiscTM deposition technology is
the critical enabling process step in the cost effective, high volume
manufacture of high-performance electronic and optoelectronic devices. The
Company was founded in 1984 to engage in advanced materials science
research and development and to develop and manufacture a viable production
platform for the processing of compound semiconductor materials. In 1986,
the Company shipped its first TurboDiscTM system and by 1990, had sold
systems in the United States, Asia and Europe.
To date, the Company has sold over 180 systems worldwide. From fiscal
1986 through fiscal 1993, the Company's systems revenues consisted
principally of sales of research and development systems and small pilot
production systems. Beginning in fiscal 1994, due to the increased market
demand for compound semiconductor devices, the Company's systems revenues
have principally consisted of the sale of larger production platforms.
Historically, the Company's revenues have consisted primarily of the sales
of MOCVD systems and components, government-sponsored research contracts
and service contracts. The Company's systems sales contracts typically
require partial advance payments during the design and production phases of
the systems manufacturing process. Such advance payments have historically
represented a significant funding source to the Company.
Prior to fiscal 1996, the Company was profitable for six consecutive
quarters. In fiscal 1996, the Company expanded its product offerings to
include wafers and package-ready devices and incurred a consolidated net
loss of $3.2 million, which primarily resulted from significant initial
operating expenses related to the Company's expansion. The Company has
increased its expense levels to support anticipated growth in demand for
each of its compound semiconductor production systems, wafer and package-
ready device product offerings, including the hiring of additional
manufacturing, research, engineering, sales and administrative personnel
and has also increased its investments in inventory and capital equipment.
As a result, the Company is dependent upon increasing revenues and profit
margins to achieve profitability. If the Company's sales and profit
margins do not increase to support the higher levels of operating expenses,
the Company's business, financial condition and results of operations would
be materially adversely affected. The Company currently anticipates
continuing to expand its manufacturing capacity for the production of
wafers and package-ready devices, which entails substantial additional
capital expenditures. The Company currently anticipates expending a
significant portion of the net proceeds of the Offering for this purpose.
The Company incurred a substantial loss in the quarter ended December 31,
1996. The loss was primarily attributable to continuing start-up operating
expenses associated with the Company's two new product lines. In the
future, the Company expects to derive significant revenues from sales of
wafers and package-ready devices. However, the Company's ability to derive
any such revenues is subject to certain risks and uncertainties, including
yield, process and capacity related risks and risks associated with the
market acceptance of such products. There can be no assurance that the
Company will be successful in developing or marketing such wafers and
package-ready devices. The Company's failure to develop or market such
products would have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE>
The Company sells its production systems worldwide and has generated a
significant portion of its sales to customers outside the United States.
In fiscal 1994, 1995 and 1996 and the first fiscal quarter of 1997,
international sales constituted 58.6%, 36.0%, 42.5% and 64.0%,
respectively, of revenues. The Company has made international sales in
Belgium, France, Germany, Italy, Japan, Korea, the People's Republic of
China, Sweden, Taiwan and the United Kingdom. In fiscal 1996,
approximately two-thirds of the Company's international sales were made to
customers in Asia, particularly in Japan. The Company anticipates that
international sales will continue to account for a significant portion of
revenues. However, the Company's international sales are subject to
certain risks and uncertainties, including international regulatory
requirements and policy changes, export controls, tariffs and other
barriers, and dependence on and difficulties in managing international
distributors. There can be no assurance that the Company will continue to
derive significant revenues from international sales.
As of December 31, 1996, the Company had an order backlog of
approximately $23.8 million, consisting of $20.7 million of production
systems, $1.0 million of research contracts and $2.1 million of package-
ready devices, compared to a backlog of $19.0 million as of December 31,
1995, consisting of $17.2 million of production systems and $1.8 million of
research contracts. This increase in backlog was a result of the increased
market acceptance of the Company's production systems and multiple unit
orders for such systems and the introduction of the Company's package-ready
device products. The Company includes in backlog only customer purchase
orders that have been accepted by the Company and for which shipment dates
have been assigned within the twelve months to follow and research
contracts that are in process or awarded. The Company receives partial
advance payments or irrevocable letters of credit on most production system
orders and has never experienced a purchase order cancellation.
The Company recognizes systems and components, wafers and package-
ready device revenue upon shipment. The Company incurs certain
installation and warranty costs subsequent to system shipment which are
estimated and accrued at the time the sale is recognized. The Company
reserves for estimated returns and allowances at the time of shipment. For
research contracts with the U.S. government and commercial enterprises,
with durations greater than six months, the Company recognizes revenue to
the extent of costs incurred plus a pro rata portion of estimated gross
profit as stipulated in such contracts, based on contract performance. The
Company's research contracts require the development or the evaluation of
new material applications and have a duration of six to thirty-six months.
Contracts with a duration of six months or less are accounted for on the
completed contract method. A contract is considered complete when all
costs have been incurred and the research reporting requirements to the
customer have been met.
RESULTS OF OPERATIONS
The following table sets forth the Statement of Operations data of the
Company expressed as a percentage of total revenues for the periods
indicated.
<PAGE>
<TABLE>
YEARS ENDED SEPTEMBER 30, FOR THE PERIOD ENDED
DECEMBER 31,
(UNAUDITED)
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . 57.7 54.7 67.0 65.4 78.3
Gross profit . . . . . . . . 42.3 45.3 33.0 34.6 21.7
Operating expenses:
Selling, general and 29.2 24.5 23.5 35.5 25.6
administrative . . . . . . .
Research and development . . 11.8 10.2 19.4 18.6 26.2
Operating income (loss) . . . 1.3 10.5 (9.9) (19.5) (30.1)
Stated interest expense, net . . . . 3.2 1.4 1.1 0.9 2.3
Imputed warrant interest, non-cash . 0.4 - 11.8
Other expense (income) . . . . . . . - 0.1 0.4 - -
Income (loss) before income (1.9) 9.0 (11.4) (20.4) (44.2)
taxes . . . . . . . . . . . .
Provision for income taxes . . . . . - 0.6 - 0.4 -
Net income (loss) . . . . . . (1.9)% 8.4% (11.4)% (20.8)% (44.2)%
</TABLE>
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND 1996
Revenues. Revenues increased 53.6% from $18.1 million in fiscal 1995 to
$27.8 million in fiscal 1996. This increase was primarily due to greater
sales of the Company's compound semiconductor production systems resulting
from broader acceptance of these products, coupled with an increased market
demand for compound semiconductor devices, and to a lesser extent,
increased service revenues, which include parts and service contracts,
resulting from the Company's growing installed base. In addition, in fiscal
1996, the Company's research contract revenues increased as a result of an
arrangement with General Motors to develop and enhance certain magneto-
resistive package-ready devices which generated approximately $1.6 million
in revenue. Revenues derived from international sales increased 81.5% from
$6.5 million in fiscal 1995 to $11.8 million in fiscal 1996. This increase
was primarily due to an increased demand for the Company's production
systems.
Cost of Sales/Gross Profit. The Company's cost of sales includes direct
material and labor costs, manufacturing and service overhead, and
installation and warranty costs. Cost of sales increased 87.9% from $9.9
million in fiscal 1995 to $18.6 million in fiscal 1996. Gross profit
decreased from 45.3% of revenues in fiscal 1995 to 33.0% of revenues in
fiscal 1996. This decrease was principally attributable to: (i) the sale
of three systems at a loss for strategic reasons, (ii) competitive pricing
conditions prevailing generally in the market and a resulting decrease in
the average selling price of the Company's production systems, (iii) costs
associated with system enhancements and (iv) an increase in the Company's
cost of obtaining certain components. The sales for strategic reasons were
<PAGE>
made to several leading universities in key geographic areas in order to
increase the Company's visibility and to enhance its reputation in the
technology and research community. The Company believes that the three
sales made for strategic reasons resulted in an approximately 4% decline in
gross profit in fiscal 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased 44.4% from $4.5 million in fiscal 1995 to $6.5 million
in fiscal 1996. This increase was primarily due to increased marketing
expenses associated with the Company's higher level of production systems
sales and the hiring of additional personnel to support the Company's
expanded activities. As a percentage of revenues, selling, general and
administrative expenses decreased from 24.5% in fiscal 1995 to 23.5% in
fiscal 1996.
Research and Development. Research and development expenses include the
costs of internally-funded research and development projects, as well as
materials prototype product support expenses, which primarily include
employee and material costs, depreciation of capital equipment and other
engineering-related costs. Research and development expenses increased
184.2% from $1.9 million in fiscal 1995 to $5.4 million in fiscal 1996.
This increase was primarily due to the Company's increased research and
development activities relating to the initiation of its wafer and package-
ready device product lines. As a percentage of revenues, research and
development expenses increased from 10.2% in fiscal 1995 to 19.4% in fiscal
1996.
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1994 AND 1995
Revenues. Revenues increased 101.1% from $9.0 million in fiscal 1994 to
$18.1 million in fiscal 1995. This increase was primarily due to increased
sales of the Company's production systems, and to a lesser extent an
increase in service revenues. Revenues derived from international sales
increased 22.6% from $5.3 million in fiscal 1994 to $6.5 million in fiscal
1995. This increase was primarily due to broader acceptance of the
Company's production systems.
Cost of Sales/Gross Profit. Cost of sales increased 90.4% from $5.2
million in fiscal 1994 to $9.9 million in fiscal 1995. Gross profit
increased from 42.3% of revenues in fiscal 1994 to 45.3% of revenues in
fiscal 1995. This increase was due to favorable product mix consisting of
a higher proportion of larger production systems with higher gross profit.
Selling, General and Administrative. Selling, general and administrative
expenses increased 73.1% from $2.6 million in fiscal 1994 to $4.5 million
in fiscal 1995. The increase was primarily due to increased marketing
expenses, including customer samples, associated with the Company's higher
level of systems sales and the hiring of additional personnel to support
the Company's expanded activities. As a percentage of revenues, selling,
general and administrative expenses decreased from 29.2% in fiscal 1994 to
24.5% in fiscal 1995 due to the growth in the Company's revenues.
Research and Development. Research and development expenses increased
72.7% from $1.1 million in fiscal 1994 to $1.9 million in fiscal 1995.
This increase was primarily due to increased research and development
activities relating to the development of new production systems for the
processing of gallium nitride used in the manufacture of blue high
brightness light emitting diodes ("HB LEDs"). As a percentage of
revenues, research and development expenses decreased from 11.8% in fiscal
1994 to 10.2% in fiscal 1995.
COMPARISON OF QUARTERS ENDED DECEMBER 31, 1995 AND 1996.
<PAGE>
Revenues. Revenue increased 102% from $4.3 million in the quarter ended
December 31, 1995 to $8.6 million in the quarter ended December 31, 1996.
This increase was primarily due to greater sales of the Company's compound
semiconductor production systems resulting from broader acceptance of those
products, coupled with an increased market demand for compound
semiconductor devices. Revenues from international sales increased 352%
from $1.6 million in the quarter ended December 31, 1995 to $5.5 million in
the quarter ended December 31, 1996. This increase was primarily due to
broader acceptance of the Company's production systems.
Cost of Sales/Gross Profit. Cost of sales increased 142% from $2.8 million
for the quarter ended December 31, 1995 to $6.7 million for the quarter
ending December 31, 1996. Gross profit decreased from 34.6% of revenues in
the quarter ended December 31, 1995 to 21.7% of revenues in the quarter
ended December 31, 1996. The decrease was primarily attributable to higher
than anticipated installation expenses and the continued start-up costs
associated with the Company's new product lines.
Selling, General and Administrative. Selling, general and administrative
expenses increased 45.7% from $1.5 million for the quarter ended December
31, 1995 to $2.2 million for the quarter ended December 31, 1996. The
increase was primarily due to increased marketing and administrative costs
associated with the Company's higher level of revenues, including
additional personnel to support the Company's expanded activities. As a
percentage of revenues, selling, general and administrative expenses
decreased from 35.5% for the quarter ended December 31, 1995 to 25.6% for
the quarter ended December 31, 1996 due to the growth in the Company's
revenues.
Research and Development. Research and development expenses increased 184%
from $0.8 million in the quarter ended December 31, 1995 to $2.3 million in
the quarter ended December 31, 1996. This increase was primarily due to
increased research and development activities relating to the process
development of HB LEDs and the expenses associated with the production
process controls on indium antimonide, a magneto-resistor configuration.
As a percentage of total revenues, research and development expenses
increased from 18.5% in the quarter ended December 31, 1995 to 26.2% for
the quarter ended December 31, 1996.
QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's unaudited results of
operations expressed in dollars and as a percentage of revenues for the
eight most recently ended fiscal quarters. The Company believes that all
necessary adjustments, consisting only of normal recurring adjustments,
have been included in the amounts below to present fairly the selected
quarterly information when read in conjunction with the Financial
Statements and Notes thereto, included herein. The Company's results from
operations may vary substantially from quarter to quarter. Accordingly,
the operating results for a quarter are not necessarily indicative of
results for any subsequent quarter or for the full year.
<PAGE>
<TABLE>
QUARTERS ENDED
FISCAL 1995
DEC. 31 MAR. 31 JUNE 30 SEPT. 30
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . $3,394 $3,836 $4,875 $6,032
Cost of sales . . . . . . 1,901 2,154 2,599 3,273
Gross profit . . . . . 1,493 1,682 2,276 2,759
Operating expenses:
Selling, general and
administrative . . . . 864 967 1,303 1,318
Research and 332 349 375 796
development . . . . . . .
Total operating expenses
1,196 1,316 1,678 2,114
Operating income (loss)
297 366 598 645
Stated interest expense, 63 77 62 63
net . . . . . . . . . . .
Imputed warrant interest,
non-cash . . . . . . . . 0 0 0 0
Income before income 234 289 536 582
taxes . . . . . . . .
Provision for income
32 31 31 31
taxes . . . . . . . .
Net income (loss) . . $202 $258 $505 $551
<PAGE>
AS A PERCENTAGE OF REVENUES
Revenues . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . 56.0 56.2 53.3 54.3
Gross profit . . . . 44.0 43.8 46.7 45.7
Operating expenses:
Selling, general and
administrative . . . . 25.4 25.2 26.7 21.9
Research and development 9.8 9.1 7.7 13.2
Total operating expenses
35.2 34.3 34.4 35.1
Operating income (loss)
8.8 9.5 12.3 10.7
Stated interest expense,
1.9 2.0 1.3 1.0
net . . . . . . . . . . .
Imputed warrant interest,
non cash . . . . . . . . - - - -
Income before income
6.9 7.5 11.0 9.6
taxes . . . . . . . .
Provision for income
0.9 0.8 0.6 0.5
taxes . . . . . . . .
Net income (loss) . . 6.0% 6.7% 10.4% 9.1%
<PAGE>
QUARTERS ENDED
FISCAL 1996 FISCAL
1997
DEC. 31
DEC. 31 MAR. 31 JUNE 30 SEPT. 30
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $4,255 $6,014 $7,727 $9,783 8,591
Cost of sales . . . . . . . . . . . . . 2,782 4,041 5,495 6,289 6,724
Gross profit . . . . . . . . . . . . 1,473 1,973 2,232 3,494 1,867
Operating expenses:
Selling, general and
administrative . . . . . . . . . . . 1,511 1,545 1,900 1,568 2,202
Research and 790 1,196 1,710 1,705 2,250
development . . . . . . . . . . . . . .
Total operating expenses . . . . . . 2,301 2,741 3,610 3,273 4,452
Operating income (loss) . . . . . . (828) (768) (1,378) 221 (2,585)
Stated interest expense, net . . . . . 55 55 60 127 197
Imputed warrant interest, non-cash . .
0 0 44 82 1,016
Income before income taxes . . . . . (883) (823) (1,482) 12 (3,798)
Provision for income taxes . . . . . - - - - -
Net income (loss) . . . . . . . . . ($883) ($823) ($1,482) $12 ($3,798)
<PAGE>
Revenues . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . . 65.4 67.2 71.1 64.3 78.3
Gross profit . . . . . . . . . . . 34.6 32.8 28.9 35.7 21.7
Operating expenses:
Selling, general and
administrative . . . . . . . . . . . 35.5 25.7 24.6 16.0 25.6
Research and development . . . . . . . 18.6 19.9 22.1 17.4 26.2
Total operating expenses . . . . . . 54.1 45.6 46.7 33.4 51.8
Operating income (loss) . . . . . . (19.5) (12.8) (17.8) 2.2 (30.1)
Stated interest expense, net . . . . . 1.3 0.9 0.7 1.3 2.1
Imputed warrant interest, non cash . . - - 0.6 0.8 11.8
Income before income taxes . . . . . (20.8) (13.7) (19.2) 0.1 (44.2)
Provision for income taxes . . . . . - - - - -
Net income (loss) . . . . . . . . . (20.8)% (13.7)% (19.2)% 0.1% (44.2)%
</TABLE>
<PAGE>
The Company has experienced a significant increase in demand for its
products as a result of greater demand for compound semiconductor systems,
materials and devices. Accordingly, during the nine quarters ended
December 31, 1996, the Company's quarterly revenues increased on average by
61.0% when comparing the corresponding quarterly revenues for the
immediately preceding fiscal year.
Historically, the Company has experienced less demand for its products
during the spring and summer, resulting in lower revenues during the
Company's first fiscal quarter. However, the Company's backlog has
continually increased throughout the nine quarters ended December 31, 1996.
The cost of sales remained relatively constant as a percentage of
revenues during fiscal 1995. Gross profit ranged from a high of 46.7% to a
low of 43.8%. The Company experienced a decline in gross profit beginning
in fiscal 1996. Gross profit ranged from a high of 35.7% to a low of 21.7%
and in the first quarter of fiscal 1997 was 21.7%. This decline was
principally attributable to (i) the sale of three systems at a loss for
strategic reasons, (ii) competitive pricing conditions prevailing generally
in the market and a resulting decrease in the average selling price of the
Company's production systems, (iii) costs associated with system
enhancements and (iv) an increase in the Company's cost of obtaining
certain components.
Operating expenses have generally increased in absolute dollars over
the quarters shown as the Company has increased staffing in research and
development, sales and marketing and general and administrative functions.
This increase was due to activities relating to the development of new
systems for the processing of gallium nitride used in the manufacture of
blue HB LEDs, the development of the Company's volume production systems
and the initiation of the Company's wafer and package-ready device
products. Selling, general and administrative expenses have increased as a
result of increased marketing and sales related activities, including the
hiring of additional personnel, commissions and customer samples, with the
exception of the quarter ended September 30, 1996, during which selling,
general and administrative expenses decreased as a result of a reduction in
the production of sales samples. As a percentage of total revenues,
operating expenses in fiscal 1995 have generally increased ranging from a
low of 34.3% to a high of 35.2%. In fiscal 1996, operating expenses as a
percentage of total revenues fluctuated from a low of 33.4% to a high of
54.1%. This general trend has continued, and for the first quarter of
fiscal 1997, operating expenses were 51.8% of total revenues.
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. Factors which have had
an influence on and may continue to influence the Company's operating
results in a particular quarter include the timing of receipt of orders,
cancellation, rescheduling or delay in product shipment or supply
deliveries, product mix, competitive pricing pressures, the Company's
ability to design, manufacture and ship products on a cost effective and
timely basis, including the ability of the Company to achieve and maintain
acceptable production yields for its wafers and package-ready devices, and
the announcement and introduction of new products by the Company and by its
competitors. The timing of sales of the Company's larger, volume
production systems may cause substantial fluctuations in quarterly
operating results due to the substantially higher per unit price of these
products relative to the Company's other products. There can be no
assurance that the compound semiconductor industry will not experience
downturns or slowdowns, which may materially and adversely affect the
Company's business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
<PAGE>
Since inception, the Company has funded its operations through the
private sale of equity securities, issuance of subordinated debt, capital
equipment leases, bank and other third party borrowings, as well as advance
payments by customers, and in fiscal 1994 and fiscal 1995, cash flow
generated from operations. As of December 31, 1996, the Company had $1.9
million in cash, a working capital deficit of $2.0 million and subordinated
debt with a carrying value of $9.1 million.
Net cash provided from operations was $573,000 and $3.1 million during
fiscal 1994 and fiscal 1995, respectively. The cash provided in fiscal
1994 and 1995 was the result of improved operating performance, as
evidenced by profitable operations in fiscal 1995. Net cash used in
operating activities was $1.9 million in fiscal 1996 and $4.3 million in
the first fiscal quarter of 1997 and was primarily attributable to the
loss from operations, an increase in inventories and receivables offset, in
part by increases in current liabilities particularly advance billings and
accounts payable.
Net cash used for investing activities was $1.2 million, $1.3 million,
$7.1 million and $1.1 million in fiscal 1994, 1995, 1996 and the first
fiscal quarter of 1997, respectively. These expenditures included the
manufacture or purchase of capital equipment, including TurboDiscTM
production systems, and the purchases of characterization and test
equipment, computer equipment, research and development tools, and,
particularly during fiscal 1996, tenant improvements in the Company's
facility, including construction and refurbishment of two clean rooms. The
Company anticipates making additional capital expenditures primarily for
manufacturing expansion and improvements including additional cleanroom
space, TurboDiscTM production systems, research and development tools and
office equipment, including computers, furniture and fixtures. The Company
estimates its capital needs will be approximately $13 million in fiscal
1997.
The Company's financing activities provided net cash of approximately
$967,000, $90,000, $8.0 million and $6.0 million in fiscal 1994, 1995, 1996
and the first fiscal quarter of 1997, respectively. In fiscal 1994,
financing cash proceeds were primarily derived from the issuance of $1.0
million of 7.5% Notes to Hakuto. In fiscal 1995, cash proceeds were
generated from the sale of equity securities to senior management. During
fiscal 1996, the Company raised $11.0 million from the issuance of 6%
Subordinated Notes due 2001. Of this amount, $3.0 million was used to
repay the outstanding 7.5% Notes held by Hakuto.
On October 25, 1996, the Company entered into a $10.0 million demand
note facility with First Union National Bank. The facility bears interest
at the rate of the six-month LIBOR plus 75 basis points (6.2968% at
December 31, 1996) and is due and payable on demand. The facility has been
guaranteed by JLMP, the Company's majority shareholder. Collateral for the
facility, in the form of a custodial account containing marketable equity
securities, has been provided by Thomas J. Russell, the Chairman of the
Company's Board of Directors and Chairman of JLMP. The Company anticipates
using the borrowing under the demand note facility to finance a portion of
its capital expenditure requirements in fiscal 1997. As of December 31,
1996, the Company had borrowed $6.0 million under the demand note facility.
The Company believes that its cash on hand, the receipt of customer
deposits and the net proceeds from the Offering will be sufficient to repay
the borrowings under the demand note facility and to provide the Company
with adequate working capital at least through fiscal 1997. However, there
can be no assurance that events in the future will not require the Company
to seek additional capital sooner or, if so required, that adequate capital
will be available on terms acceptable to the Company. The Company is
<PAGE>
presently in discussions with certain lenders to put in place a revolving
credit facility in place of the demand note facility.
The Company's net operating loss tax carryforwards and research
credits are subject to annual limitations under Sections 382 and 383 of the
Internal Revenue Code due to a change in ownership. A change in control as
defined by Section 381 of the Internal Revenue Code occurred in May 1995.
As of that date, the approximate net operating loss tax carryforward of
$7,200,000 will be limited to annual usage of approximately $680,000 per
year. The net operating loss tax carryforward of approximately $2,400,000
generated after the change in ownership will have no limits on annual
usage.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("SFAS 121"). This pronouncement establishes accounting
standards for when impairment losses relating to long-lived assets,
identifiable intangibles and goodwill related to those assets should be
recognized and how the losses should be measured. The Company plans to
implement SFAS 121 in fiscal 1997. The adoption of SFAS 121 is not
expected to have an impact on the Company's financial position or results
of operations, since the Company's current policy is to monitor assets for
impairment and record any necessary write-downs.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123").
The provisions of SFAS 123 set forth the method of accounting for stock
based compensation based on the fair value of stock options and similar
instruments, but do not require the adoption of this preferred method.
SFAS 123 also requires the disclosure of additional information about stock
compensation plans, even if the preferred method of accounting is not
adopted. The Company plans to implement SFAS 123 in fiscal 1997. The
Company does not intend to change its method of accounting for stock based
compensation to the method under SFAS 123, but instead will continue to
apply the provisions of Statement of Financial Accounting Standards No. 25
"Accounting for Stock Issued to Employees." However, the Company will
disclose the pro forma effect of SFAS 123 on its net income and earnings
per share.
<PAGE>
BUSINESS
COMPANY OVERVIEW
EMCORE designs and develops compound semiconductor materials and
process technology and is a leading manufacturer of production systems used
to fabricate compound semiconductor wafers. Compound semiconductors are
used in a broad range of applications in wireless communications,
telecommunications, computers, and consumer and automotive electronics.
EMCORE believes that its proprietary TurboDiscTM deposition technology is
the critical enabling process step in the cost-effective, volume
manufacture of high-performance electronic and optoelectronic devices. The
Company has recently capitalized on its technology base by expanding into
the design and production of compound semiconductor wafers and package-
ready devices. The Company offers its customers a complete, vertically-
integrated solution for the design, development and production of compound
semiconductor wafers and devices. EMCORE's production systems and process
technology have been purchased by, among others: General Motors, Hewlett
Packard Co., Hughes-Spectrolab, L.M. Ericsson AB, Lucent Technologies,
Inc., Motorola, Inc., Rockwell, Samsung Co., Siemens AG, Texas Instruments
Incorporated, Thomson CSF and thirteen of the largest electronics
manufacturers in Japan. In fiscal 1996, only one customer, Hughes-
Spectrolab, accounted for more than 10% of the Company's revenues; sales to
this customer accounted for 23.6% of the Company's revenues.
INDUSTRY OVERVIEW
Recent advances in information technologies have created a growing
need for power efficient, high-performance electronic systems that operate
at very high frequencies, have increased storage capacity and computational
and display capabilities, and can be produced cost-effectively in
commercial volumes. In the past, electronic systems manufacturers have
relied on advances in silicon semiconductor technology to meet many of
these demands. However, the newest generation of high-performance
electronic and optoelectronic applications require certain functions which
are generally not achievable using silicon-based components. To address
these market demands, electronic system manufacturers are increasingly
incorporating new electronic and optoelectronic devices into their products
in order to improve performance or enable new applications.
Compound semiconductors have emerged as an enabling technology to meet
the complex requirements of today's advanced information systems. Compound
semiconductor devices can be used to perform individual functions as
discrete devices, such as HB LEDs, lasers and solar cells, or can be
combined into integrated circuits, such as transmitters, receivers and
alpha-numeric displays. Many compound semiconductor materials have unique
physical properties that allow electrons to move at least four times faster
than through silicon-based devices. This higher electron mobility enables
a compound semiconductor device to operate at much higher speeds than
silicon devices with lower power consumption and less noise and distortion.
In addition, unlike silicon-based devices, compound semiconductor devices
have optoelectronic capabilities that enable them to emit and detect light.
As a result, electronics manufacturers are increasingly integrating
compound semiconductor devices into their products in order to achieve
higher performance in a wide variety of applications, including wireless
communications, telecommunications, computers, and consumer and automotive
electronics.
Wireless Communications. Compound semiconductor devices have multiple
applications in wireless communication products, including cellular
telephones, pagers, PCS handsets, DBS systems and global positioning
systems ("GPS"). Compound semiconductor devices are used in high frequency
transmitters, receivers and power amplifiers to increase capacity, improve
<PAGE>
signal to noise performance and lower power consumption, which in turn
reduces network congestion, increases roaming range and extends battery
life. In addition, HB LEDs are used in electronic displays on these
products in order to reduce size, weight and power consumption and to
improve display visibility. In satellite communications, compound
semiconductor devices are used in ultra-high frequency satellite up-
converters and down-converters to cost-effectively deliver information to
fixed and mobile users over wide geographic areas. In addition, compound
semiconductor solar cells are used to power these satellites because they
are more tolerant to radiation levels in space and have higher power-to-
weight ratios than silicon-based solar cells, thereby increasing satellite
life and payload capacity.
Telecommunications. To accommodate the exponential growth in voice,
data and video traffic and the increased demand for higher transmission
rates, telecommunications companies and Internet service providers are
relying on fiber optic networks utilizing high speed switching
technologies. Compound semiconductor components such as lasers and LEDs,
coupled with optical detectors, are used within these networks to enable
high speed data transmission, increase overall network capacity and reduce
equipment costs.
Computers. Computer manufacturers are increasingly seeking to achieve
higher clock speeds than the architecture prevalent in today's advanced
multimedia computer systems. Higher processing speeds necessitate the use
of larger cache memory to enable higher transmission rates. Computer
manufacturers are increasingly utilizing compound semiconductor devices to
achieve these results. In addition, today's advanced multimedia
applications require increased data storage capacity, which is commonly
addressed by the use of CD ROMs. To achieve these higher storage
capabilities, computer manufacturers are increasingly utilizing compound
semiconductor lasers and optical detectors. As a result of the migration
of multimedia applications into consumer products, computer manufacturers
are also incorporating compound semiconductor infrared emitters into their
products to replace bulky wires and cables.
Consumer Electronics. Consumer electronics manufacturers are using
compound semiconductor devices to improve the performance of many existing
products and to develop new applications. For example, next generation
compact disc players are utilizing shorter wavelength compound
semiconductor lasers to read and record information on high density DVDs
which store at least four times more information than a conventional
compact disc. In addition, compound semiconductor devices are increasingly
being used in advanced display technologies. Ultra-thin LED flat panel
displays are being used in a variety of applications, including point-of-
purchase displays and outdoor advertising with live-action billboards, and
are being developed for use in laptop computers and flat panel television
screens.
Automotive Electronics. Compound semiconductor devices are
increasingly being used by automotive manufacturers to improve vehicle
performance while reducing weight and costs through lower power
consumption. These devices are utilized in a wide variety of applications,
including dashboard displays, indicator lights, engine sensors, anti-lock
braking systems and other electronic systems. In addition, the Company
believes that the use of electronic components within automobiles is likely
to increase as manufacturers design vehicles to comply with state and
federal environmental and safety regulations. Automotive production cycles
generally last three to five years, providing a relatively predictable
source of demand for compound semiconductor devices once an electronic
component is designed into a specific vehicle model.
The high-performance characteristics of compound semiconductors,
<PAGE>
combined with the requirements of advanced information systems, have led to
the widespread deployment of compound semiconductor devices within a broad
range of electronic systems. The Company believes that the following
factors have resulted in an increased demand for compound semiconductor
production systems, wafers and devices which enable electronic systems
manufacturers to reach the market faster with high volumes of high-
performance products and applications:
- Launch of new wireless services such as PCS and wireless high
speed data systems;
- Rapid build-out of satellite communications systems;
- Widespread deployment of fiber optic networks and the increasing
use of optical systems within these networks;
- Increasing use of infrared emitters and optical detectors in
computer systems to replace bulky interconnect wires and cables;
- Emergence of advanced consumer electronics applications, such as
DVDs and flat panel displays; and
- Increasing use of high-performance electronic devices in
automobiles.
<PAGE>
COMPOUND SEMICONDUCTOR PROCESS TECHNOLOGY
Compound semiconductors are composed of two or more elements and
usually consist of a metal such as gallium, aluminum or indium and a non-
metal such as arsenic, phosphorous or nitrogen. The resulting compounds
include gallium arsenide, indium phosphide, gallium nitride, indium
antimonide and indium aluminum phosphide. The performance characteristics
of compound semiconductors are uniquely dependent on the composition of
these compounds. For example, the electrical and optical properties of
gallium arsenide are substantially changed by adding aluminum as a third
element. Many of the unique properties of compound semiconductor devices
are achieved by the layering of different compound semiconductor materials
in the same device. For example, infrared compound semiconductor lasers
and LEDs are fabricated by depositing ultrathin layers of gallium arsenide
between layers of gallium aluminum arsenide. This layered structure
creates an optimal configuration to permit the conversion of electricity
into light.
Accordingly, the composition and properties of each layer and the
control of the layering process, or epitaxy, are fundamental to the
performance of advanced electronic and optoelectronic compound
semiconductor devices. The variation of thickness and composition of layers
determines the intensity and color of the light emitted or detected and the
efficiency of power conversion. The ability to vary the intensity, color
and efficiency of light generation and detection uniquely enables compound
semiconductor devices to be used in a broad range of advanced information
systems.
Compound semiconductor device manufacturers have predominantly used
three methods to deposit compound materials: molecular beam epitaxy
("MBE"), vapor phase epitaxy and liquid phase epitaxy. The Company
believes that these traditional methods are subject to a number of inherent
chemical process or volume production limitations. While these methods are
successfully used for a variety of applications, they are not easily scaled
up to high volume commercial production of complex materials, such as those
used for optoelectronic devices.
A fourth method, metal organic chemical vapor deposition overcomes
these limitations. Using MOCVD, a number of elements can be easily
combined into a broad range of compounds. Currently, MOCVD technology is
being used to manufacture a number of devices, including high efficiency
solar cells, HB LEDs, heterojunction bipolar transistors ("HBTs"), vertical
cavity surface emitting lasers ("VCSELs") and MR sensors. The Company
believes that compound semiconductor wafers fabricated using MOCVD
generally possess better uniformity, as well as better optical and
electronic properties, than wafers manufactured by more traditional
methods. The Company believes that MOCVD has gained broad acceptance as
the preferred methodology for the production of complex device structures
in commercial volumes.
Historically, developers of compound semiconductor devices have met
research, pilot production and capacity needs with in-house systems and
technologies. However, the requirements for the production of commercial
volumes of high-performance compound semiconductor devices have often
exceeded the capabilities of such in-house solutions. Simultaneously, the
growth of new applications for discrete compound semiconductor devices has
challenged manufacturers to develop processes for new applications while
simultaneously meeting demand for existing products. In response to these
growing demands for higher volumes of higher performance devices,
manufacturers are increasingly turning to outside vendors to meet their
needs for compound semiconductor wafers and devices.
THE EMCORE SOLUTION
<PAGE>
EMCORE provides its customers with materials science expertise,
process technology and MOCVD production systems that enable the manufacture
of commercial volumes of high-performance compound semiconductor wafers and
devices. EMCORE believes that its proprietary TurboDiscTM deposition
technology provides the most cost-effective production systems for the
commercial volume manufacture of high-performance compound semiconductor
wafers and devices. EMCORE is capitalizing on its technology base to
address the critical need of electronics manufacturers to cost-effectively
get to market faster with high volumes of new and improved high-performance
products. EMCORE offers its customers a broad range of products and
services and a vertically integrated product line which includes device
design, materials and process development, MOCVD production systems,
epitaxial wafers and package-ready devices. The Company believes that its
knowledge base and materials science expertise uniquely position the
Company to become a valuable source for a broad array of solutions for the
compound semiconductor industry.
[graphic depicting flowchart of registrant's expertise and registrant's
products, indicating the ultimate end markets for those products]
STRATEGY
The Company believes that its close collaboration with its customers
over the past twelve years has contributed to its position in the MOCVD
process technology and production systems market. The Company's objective
is to capitalize on this position to become a leading supplier of compound
semiconductor wafers and package-ready devices. The key elements of the
Company's strategy include:
Provide Complete Compound Semiconductor Solutions. The Company's
vertically-integrated product offerings allow it to provide complete
compound semiconductor solutions to a broad range of electronics
manufacturers in order to meet their diverse technology requirements. The
Company plans to capitalize on the growing need of electronics
manufacturers to reach the market faster and more cost-efficiently with
high volumes of end products. The Company assists its customers with
device design, process development and optimal configuration of production
systems. Moreover, the Company can also serve its customers as a reliable
source for high volume production of wafers or package-ready devices.
Through its materials science expertise, process technology and commercial
production systems, the Company intends to become an integral part of its
customers' compound semiconductor product life cycle.
Form Strategic Relationships with Customers. By developing enabling
technologies, the Company seeks to form strategic alliances with its
customers in order to obtain long-term development and high volume
production contracts. For example, the Company currently has a strategic
relationship with General Motors under which it has developed and enhanced
the device structure and production process for, and has received a
purchase order to manufacture, MR sensor products for use in General
Motors' automotive applications. In addition, the Company has been
integrally involved with a large telecommunication concern in connection
with the development of solar cell technologies for satellites. Throughout
its association with this customer, the Company has successfully customized
its production systems to meet the customer's special high-performance
device requirements. The Company intends to actively seek similar
strategic relationships with other key customers in order to further expand
its technological and production base.
Expand Technology Leadership. The Company has developed and
optimized its compound semiconductor processes and has developed higher
<PAGE>
performance production systems through substantial investments in research
and development. The Company works closely with its customers to identify
specific performance criteria in its production systems, wafers and
package-ready devices. The Company intends to continue to expend
substantial resources in research and development in order to enhance the
performance of its production systems and to further expand its process and
materials science expertise, including the development of new low cost,
high volume wafers and package-ready devices for its customers. The
Company employs 15 persons holding Ph.D.s in various science applications,
nine of whom work in research and development.
PRODUCTS
Production Systems and Materials Processes. The Company is a leading
supplier of MOCVD compound semiconductor production systems, and, in 1995,
had a 26% share of this market, according to VLSI Research Inc. which
regularly publishes research on this market. The Company has shipped more
than 180 systems to date and believes that its TurboDiscTM systems offer
significant cost of ownership advantages over competing systems. The
Company believes that its MOCVD production systems produce materials with
superior uniformity of thickness, electrical properties and material
composition. Each system is designed for the customer's particular
applications and can be customized for the customer's throughput, wafer
size and process chemistry requirements.
The Company's proprietary TurboDiscTM technology utilizes a unique
high speed rotating disk in a stainless steel growth chamber with
integrated vacuum-compatible loading chambers. To produce an epitaxial
wafer, a bare substrate, such as gallium arsenide, indium phosphide or
germanium, is placed on a wafer carrier in the TurboDiscTM growth chamber
and subjected to high temperatures. Based on a predetermined formula,
metal organic gases are released into the growth chamber. These gases
decompose on the hot, rapidly spinning wafer. Semiconductor materials then
become deposited on the substrate in a highly uniform manner. The
resulting epitaxial wafer thus carries one or more ultra-thin layers of
compound semiconductor material such as gallium arsenide, gallium nitride,
or indium aluminum phosphide. The TurboDiscTM technology not only ensures
uniformity of deposition across the wafer, but also offers flexibility for
diverse applications with improved material results and increased
production rates. The unique precision control of reactant gas flow in the
TurboDiscTM technology platform allows users to scale easily from research
to commercial volumes with substantially reduced time and effort. Wafers
from two inches to 14 inches in diameter can be prepared using the same
platform technology.
Upon removal from the growth chamber, the epitaxial wafer is then
transferred to a device processing facility for various steps such as
photolithography, etching, masking, metallization and dicing. Upon
completion of these steps, the package-ready devices are then sent to the
customer's facility for the attachment of leads and encapsulation in resin
prior to the ultimate inclusion in the customer's product. The production
of such compound semiconductor devices is substantially less complex than
that of silicon integrated circuits.
[schematic diagram of production system fabricated and sold by the
registrant]
Wafers are loaded on a multiple wafer holder into the growth
chamber, where they are subjected to high-temperature vacuum
conditions and spun at high speeds. Gases are then introduced
into the vacuum growth chamber, and semiconductor materials
become deposited onto the substrate in a highly uniform manner.
<PAGE>
Compound semiconductor manufacturers, much like their counterparts in
the silicon semiconductor industry, place great pressure on process
equipment suppliers to decrease the cost of ownership of production
systems. Cost of ownership is determined by yield, throughput, direct
costs and capital. Yield is primarily determined by material uniformity,
which is a function of the precision of the physical and chemical processes
by which atomic layers are deposited. Throughput, the volume of wafers
produced per unit of time, includes both the time required for a process
cycle and the handling time between process steps. Direct costs include
consumables used in manufacturing and processing and the clean room space
required for the equipment. Capital costs include the cost of acquisition
and installation of the process equipment. The Company believes that the
high throughput capabilities of its TurboDiscTM systems make possible the
lowest cost of ownership for the manufacture of compound semiconductor
materials as well as superior reproducibility of thickness, composition,
electrical profiles and layer accuracy required for electronic and
optoelectronic devices. The Company's production systems also achieve a
high degree of reliability with an average time available for production,
based on customer data, of approximately 95%.
<PAGE>
The Company offers the following family of systems:
Model List Price Application
Explorer $350,000-450,000 Research
Discovery $600,000-1,100,000 Development/Pilot
Production
Enterprise $1,300,000-2,500,000 Volume Production
Wafer and Device Fabrication. Since its inception, the Company has
worked closely with its customers in designing and developing materials
processes to be used in production systems for its customers' end use
applications. When a customer orders a production system, the customer
provides the Company with certain performance criteria. The Company then
determines the chemistry and process to meet these requirements and
manufactures and configures the production system to produce the materials
needed by the customer. The Company has recently begun to leverage its
process and materials science knowledge base to manufacture wafers and
package-ready devices in its own facility. The Company's expansion into
wafer and package-ready device production has been spurred almost entirely
by requests from customers whose epitaxial wafer needs exceed their
available in-house production capabilities.
The Company fabricates package-ready devices on four-inch diameter
wafers at its facility in Somerset, New Jersey with a combined clean room
area totalling 3,500 square feet. Production capacity is currently 3,000
wafers per year. The Company currently anticipates utilizing a significant
portion of the net proceeds of the Offering to expand this facility to
approximately 7,500 square feet.
The Company is working with its customers to design, engineer and
manufacture commercial quantities of wafers and/or package-ready compound
semiconductor devices such as MR sensors, HBTs, HEMTs, FETs, HB LEDs, solar
cells and other electronic and optoelectronic devices. An example of the
Company's close collaboration with its customers is the Company's ongoing
relationship with General Motors. In 1985, General Motors was the
Company's first customer for compound semiconductor MOCVD production
systems. Over the last twelve years, General Motors has frequently
consulted the Company for assistance in developing its materials process
solutions. In 1995, General Motors asked the Company to determine if it
could develop the capability to manufacture high-performance position
sensors for use in a variety of automotive applications. Following a close
working collaboration, General Motors asked the Company to assess and
develop a plan to manufacture commercial volumes of an indium antimonide
device that can operate at automotive temperatures. In 1996, General
Motors and the Company entered into an agreement under which General Motors
paid the Company approximately $1.6 million to develop and enhance certain
MR position sensors for commercial production. In the first quarter of
fiscal 1997, the Company received a purchase order from General Motors,
pursuant to which it began production of these package-ready position
sensors.
In addition, the Company has worked closely with several large
telecommunications concerns to assist these customers in developing solar
cell process technology for use as the power source on their communications
satellites. After extensive working collaborations, the Company developed
the materials process and a production system for a compound semiconductor
material with outstanding performance characteristics. The Company's
technology has also produced gallium arsenide solar cells that are not only
<PAGE>
approximately 50% more efficient in light-to-power conversion than silicon-
based solar cells but also are more radiation-resistant. The resulting
advance allows a satellite manufacturer to increase the useful life and
payload capacity of its satellites. Consequently, over the last two years,
the Company's customers have for this purpose purchased several compound
semiconductor MOCVD production systems from the Company. Recently,
customers have requested the Company to begin producing four-inch epitaxial
wafers for use in the manufacture of solar cells for space satellites.
Additionally, the Company has completed initial process development phase
with a large telecommunications concern. This collaboration has resulted
in prototype solar cells that may lead to more efficient solar cells than
those currently being used. The Company plans to offer solar cell
production to its customers.
CUSTOMERS
The Company's customers include several of the largest semiconductor,
telecommunications and computer manufacturing companies in the world and
thirteen of the largest electronics manufacturers in Japan. In fiscal
1996, only one customer, Hughes-Spectrolab, accounted for more than 10% of
the Company's revenues. In fiscal 1996, sales to this customer accounted
for 23.6% of the Company's revenues. A number of the Company's customers
are listed below:
<TABLE>
<S> <C> <C>
General Motors L.M. Ericsson AB Samsung Co.
Hewlett Packard Co. Lucent Technologies, Inc. Sharp U.S.A., Inc.
Honeywell Inc. Motorola, Inc. Siemens AG
Hughes-Spectrolab Philips AG Texas Instruments Incorporated
Hyundai Electronics Polaroid Corporation Thomson CSF
International Business Machines Corporation Rockwell Westinghouse Electric Corp.
LG Semiconductor Corp.
</TABLE>
In fiscal 1996, the Company adopted a comprehensive Total Quality
Management Program with special emphasis on total customer satisfaction.
The Company seeks to encourage active customer involvement with the design
and operation of its production systems. To accomplish this, the Company
conducts user group meetings among its customers on three continents. At
annual meetings, the Company's customers provide valuable feedback on key
operations, process oriented services, problems and recommendations to
improve the Company's products. This direct customer feedback has enabled
the Company to constantly update and improve the design of its systems and
processes. Changes that affect the reliability and capabilities of the
Company's systems are embodied in new designs to enable current and future
customers to utilize systems which the Company believes are high quality
and cost-efficient. As of December 31, 1996, the Company employed 18 field
service engineers who install the Company's systems and provide on-site
support for all of the customers' needs. In its continuing effort to
maintain and enhance its relationships with its customers, the Company is
seeking ISO and QS 9000 quality certification.
SALES AND MARKETING
The Company markets and sells its products through its direct sales
force in Europe and North America, and through representatives and
distributors in Asia. In 1996, the Company signed a seven year exclusive
distributorship agreement with Hakuto, its Asian distributor, whose
territory encompasses seven Asian countries. The Company has reached
preliminary agreement with Hakuto to replace the existing distributorship
agreement with a new distributorship agreement whose term will be five
<PAGE>
years and under which Hakuto will distribute additional products of the
Company. The material terms of the agreement will otherwise remain the
same. Hakuto has marketed and serviced the Company's products since 1988
and is a minority shareholder in the Company. As of December 31, 1996, the
Company employed 13 persons in sales and marketing.
The Company's sales and marketing staff, senior management and technical
staff work closely with existing and potential customers to provide
compound semiconductor solutions for its customers' problems. The sales
process begins by understanding the customer's requirements and then
attempting to match them with the most optimal solution. Typically, the
Company will first try to match the customer's requirements to an existing
design or a modification of a standard design. Such modifications often
involve changing platform or process design. When necessary, the Company
will work with the customer to develop the appropriate design process and
to configure and manufacture the production system to meet the customer's
needs. The Company will also frequently produce customized samples and aid
the customer in matching the customized sample to the customer's
requirement. The amount of time from the initial contact with the customer
to the customer's placement of an order is typically two to nine months or
longer. In addition, the sales cycle for wafers and package-ready devices
also includes a period of two to six months during which the Company
develops the formula of materials necessary to meet the customer's
specifications and qualifies the materials, which may also require the
delivery of samples. The Company believes that the high level of
marketing, management and engineering support involved in this process is
beneficial in developing competitive differentiation and long-term
relationships with its customers.
International sales as a percentage of total sales in fiscal 1994, 1995,
1996 and the first fiscal quarter of 1997 were 58.6%, 36.0%, 42.5% and
64.0%, respectively. Sales to customers in the U.S. in fiscal 1994, 1995
and 1996 were approximately, $3.7 million, $11.6 million and $16.0 million,
respectively, while the Company's sales in Asia for the same time periods
were $4.9 million, $4.0 million and $8.2 million, respectively, and sales
in Europe were $0.3 million, $2.5 million and $3.6 million, respectively.
In fiscal 1996, sales to Hughes-Spectrolab accounted for 23.6% of the
Company's revenues. The Company receives all payments for all products and
services in U.S. dollars.
SERVICE AND SUPPORT
The Company maintains an international service and support network
responsible for on site maintenance and process monitoring on either a
contractual or time-and-materials basis. Customers may purchase annual
service contracts under which the Company is required to maintain an
inventory of replacement parts and to service the equipment upon the
request of the customer. The Company also sells replacement parts from
inventory for customer needs. The Company pursues a program of system
upgrades for customers to increase the performance of older systems. The
Company generally does not offer extended payment terms to its customers
and generally adheres to a warranty policy of one year. Consistent with
industry practice, the Company maintains an inventory of components for
servicing systems in the field and it believes that its inventory is
sufficient to satisfy foreseeable short-term customer requirements.
RESEARCH AND DEVELOPMENT
To maintain and improve its competitive position, the Company's research
and development efforts are focused on designing new proprietary products,
improving the performance of existing systems, wafers and package-ready
devices and reducing costs in the product manufacturing process. In
addition, the Company has developed a research and development production
<PAGE>
system for thin film ferroelectric oxide applications intended for use in
large area memory and embedded logic devices. The Company has developed
this experimental production system for the deposition of thin-film
ferroelectric materials onto silicon. Ferroelectric oxides are anticipated
to be necessary for the production of advanced memory chips for one-gigabit
memory devices. The Company has sold two such systems.
The Company has dedicated six EMCORE TurboDiscTM systems for both
research and production which are capable of processing virtually all
compound semiconductor materials. The research and development staff
utilizes state-of-the-art x-ray, optical and electrical characterization
equipment which provide instant data allowing for shortened development
cycles and rapid customer response. The Company's research and development
expenses in fiscal 1994, 1995, 1996 and the first fiscal quarter of 1997
were approximately $1.1 million, $1.8 million, $5.4 million and $2.5
million, respectively. The Company expects that it will continue to expend
substantial resources on research and development. As of December 31,
1996, the Company employed 26 persons in research and development, ten of
whom hold Ph.D.s in materials science or related fields.
The Company also competes for research and development funds. In view
of the high cost of development, the Company solicits research contracts
that provide opportunities to enhance its core technology base or promote
the commercialization of targeted products. The Company presently has
three such contracts in process. The contracts fall under the Small
Business Innovative Research programs or similar government sponsored
programs. From inception until December 31, 1996, government and other
external research contracts have provided approximately $10.7 million to
support the Company's research and development efforts. The Company is
also positioned to market technology and process development expertise
directly to customers who require it for their own product development
efforts.
INTELLECTUAL PROPERTY
The Company's success and competitive position both for production
systems, wafers and package-ready devices depend materially on its ability
to maintain trade secrets, patents and other intellectual property protec-
tions. Trade secrets are routinely employed in the Company's manufacturing
processes. A "trade secret" is information that has value to the extent it
is not generally known, not readily ascertainable by others through
legitimate means, and protected in a way that maintains its secrecy. In
order to protect its trade secrets, the Company takes certain measures to
ensure their secrecy, such as executing non-disclosure agreements with its
employees, customers and suppliers. Sales of the Company's production
systems are substantially dependent upon the Company's ability to maintain
its trade secrets relating to production system technology and operation.
Sales of the Company's wafers and package-ready devices depend heavily on
the Company's trade secrets related to its MOCVD technology and processes
to give the Company a competitive advantage for winning new customer
orders.
To date, the Company has been issued six U.S. patents. Provided that
all requisite maintenance fees are paid, these U.S. patents will expire
between 2005 and 2013. None of these U.S. patents claim any material
aspect of the current or planned commercial versions of the Company's
systems, or wafers or devices.
To permit sales of its MOCVD production systems, the Company was in 1992
granted the Rockwell License under the Rockwell Patent issued on January
11, 1983 to Rockwell. The Rockwell Patent claimed, among other things,
intellectual property rights in the use of MOCVD generally in unspecified
applications and expires in 2000. In October 1996, the Company initiated
<PAGE>
discussions with Rockwell to receive additional licenses to permit the
Company to utilize MOCVD technology to manufacture and sell certain wafers
and package-ready devices. On November 15, 1996, in litigation not
involving the Company, the Rockwell Patent was declared invalid by the U.S.
Court of Federal Claims. The Company believes that Rockwell will appeal
this judgment. In the event the foregoing judgment is reversed by a court
of appeal, the Company may be liable to Rockwell for royalty payments, as
well as other amounts which the Company may ultimately be deemed to owe
Rockwell in connection with the sales of its systems, wafers and package-
ready devices. Moreover, the Company may require additional licenses from
Rockwell under the Rockwell Patent in order to manufacture and sell certain
wafers and package-ready devices. There can be no assurance that the
foregoing judgment will not be reversed, that the Rockwell License can be
maintained or that licenses for wafers and package-ready devices can be
obtained or maintained on commercially feasible terms, if at all. The
failure to maintain or obtain such licenses could have a material adverse
effect on the Company's business, financial condition and results of
operations.
ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state and local laws and regulations
concerning the use, storage, handling, generation, treatment, emission,
release, discharge and disposal of certain materials used in its research
and development and production operations, as well as laws and regulations
concerning environmental remediation and employee health and safety. The
Company has retained an environmental consultant to advise it in complying
with applicable environmental and health and safety laws and regulations,
and believes that it is currently, and in the past has been, in substantial
compliance with all such laws and regulations. The Company also believes
that the costs of complying with existing environmental and health and
safety laws and regulations are not likely to have a material adverse
effect on its business, financial position or results of operations. There
can be no assurance, however, that future changes in such laws and
regulations will not result in expenditures or liabilities, or in restric-
tions on the Company's operation, that could have such an effect. The
production of wafers and package-ready devices involves the use of certain
hazardous raw materials, including, but not limited to, ammonia, phosphine
and arsenic. The Company's expansion to offer wafers and package-ready
devices will require the increased usage and maintenance of these materials
on the Company's premises. While the Company believes it currently has and
will continue to have in place sufficient control systems for the safe use
and maintenance of these raw materials, there can be no assurance that the
Company's control systems will be successful in preventing a release of
these materials or other adverse environmental conditions, which could
cause a substantial interruption in the Company's operations. Such an
interruption could have a material adverse effect on the Company's
business, financial condition and results of operation.
BACKLOG
As of December 31, 1996, the Company had an order backlog of
approximately $23.8 million consisting of $20.7 million of production
systems, $1.0 million of research contracts and $2.1 million of package-
ready devices, compared to backlog of $19.0 million as of December 31, 1995
consisting of $17.2 million of production systems and $1.8 million of
research contracts. This increase in backlog was a result of increased
market acceptance of the Company's production systems and multiple unit
orders for such systems, and the introduction of the Company's wafer and
package-ready device product lines. The Company includes in backlog only
customer purchase orders which have been accepted by the Company and for
which shipment dates have been assigned within the twelve months to follow
and research contracts that are in process or awarded. The Company
<PAGE>
receives partial advance payments or irrevocable letters of credit on most
production system orders and has never experienced an order cancellation.
The Company recognizes systems and package-ready device revenue upon
shipment. For research contracts with the U.S. government and commercial
enterprises, with durations greater than six months, the Company recognizes
revenue to the extent of costs incurred plus a portion of estimated gross
profit as stipulated in such contracts, based on contract performance. The
Company is seeking to increase capacity to meet anticipated continuing
increased production needs; however, there can be no assurance that the
Company will increase its capacity to meet its scheduled needs.
MANUFACTURING
The Company's manufacturing operations are located at the Company's
headquarters in Somerset, New Jersey and include systems engineering and
production, wafer fabrication and design and production of package-ready
devices. Many of the Company's manufacturing operations are computer
monitored or controlled, enhancing reliability and yield. The Company
manufactures its own systems and outsources some components and sub-assem-
blies, but performs all final system integration, assembly and testing.
Since nearly all steps in the production process are performed by the
Company, any interruption in manufacturing resulting from earthquake, fire,
equipment failures or other causes would have a material adverse effect on
the Company. As of December 31, 1996, the Company employed 119 persons in
its manufacturing operations.
Outside contractors and suppliers are used to supply raw materials and
standard components and to assemble portions of end systems from Company
specifications. The Company depends on sole or a limited number of
suppliers of components and raw materials. The Company generally purchases
these single or limited source products through standard purchase orders.
The Company also seeks to maintain ongoing communications with its
suppliers to guard against interruptions in supply and has, to date,
generally been able to obtain sufficient supplies in a timely manner and
maintains inventories it believes are sufficient to meet its near term
needs. The Company has recently implemented a vendor program through which
it inspects quality and reviews supplies and prices in order to standardize
purchasing efficiencies and design requirements to maintain as low a cost
of sales as possible. However, operating results could be materially
adversely affected by a stoppage or delay of supply, receipt of defective
parts or contaminated materials, and increase in the pricing of such parts
or the Company's inability to obtain reduced pricing from its suppliers in
response to competitive pressures.
In fiscal 1996, the Company received substantial levels of new orders,
which will require the Company to increase its manufacturing capacity to
meet with demand for its compound semiconductor production systems and its
wafers and package-ready devices. The Company currently anticipates
utilizing a significant portion of the net proceeds from the Offering for
this purpose.
COMPETITION
The markets in which the Company competes are highly competitive. The
Company competes with several companies for sales of MOCVD systems
including Aixtron, Nippon-Sanso and Thomas Swann. The primary competitors
for the Company's wafer foundry include Epitaxial Products Inc., Kopin
Corporation and Q.E.D. The Company also faces competition from manu-
facturers that implement in-house systems for their own use. The Company
may experience competition from corporations that have been in business
longer than the Company and have greater capital resources, more experience
with high volume manufacturing, broader name recognition, substantially
larger installed bases, alternative technologies which may be better
<PAGE>
established than the Company's and significantly greater financial,
technical and marketing resources than the Company. The Company competes
with many research institutions and universities for research contract
funding. The Company also sells its products to current competitors and
companies with the capability of becoming competitors. As the markets for
the Company's products grow, new competitors are likely to emerge, and
present competitors may increase their market share.
The Company believes that the primary competitive factors in the markets
in which the Company's products compete are yield, throughput, capital and
direct costs, system performance, size of installed base, breadth of
product line and customer satisfaction, as well as customer commitment to
competing technologies. While the Company believes it is in a position to
deliver low-cost and reliable solutions to its customers, many of the
Company's competitors have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than the Company. The
Company believes that in order to remain competitive, it must invest
significant financial resources in developing new product features and
enhancements and in maintaining customer satisfaction worldwide. In
marketing its products, the Company may face competition from suppliers
employing new technologies in order to extend the capabilities of
competitive products beyond their current limits or increase their
productivity. In addition, increased competitive pressure could lead to
intensified price-based competition, resulting in lower prices and margins,
which would materially adversely affect the Company's business, financial
condition and results of operations.
LEGAL PROCEEDINGS
The Company is aware of no pending or threatened litigation against it
which would cause a material adverse effect on its operating results.
EMPLOYEES
As of December 31, 1996 the Company employed 204 persons. None of the
Company's employees is covered by a collective bargaining agreement. The
Company considers its relationships with employees to be good.
FACILITIES
The Company's executive office and manufacturing facility are located in
Somerset, New Jersey, where the Company leases a 75,000 square foot
facility. This facility lease expires on February 29, 2000. The Company
has two five-year renewal options.
<PAGE>
MANAGEMENT
The executive officers and directors of the Company and their ages as of
the date of this Prospectus are as follows:
<TABLE>
NAME AGE POSITION(S)
<S> <C> <C>
Reuben F. Richards, Jr. . . . 41 President, Chief Executive Officer and Director
Thomas G. Werthan . . . . . . 40 Vice President - Finance and Administration,
Chief Financial Officer, Secretary, and Director
Richard A. Stall . . . . . . 40 Vice President - Technology and Director
William T. Kroll . . . . . . 52 Executive Vice President - Business Development
Paul T. Fabiano . . . . . . . 32 Vice President - Engineering
Louis A. Koszi . . . . . . . 52 Vice President - Device Manufacturing
Laurence P. Wagner . . . . . 36 Vice President - Electronic Materials
David A. Hess . . . . . . . . 35 Controller
Thomas J. Russell(1)(2) . . . 65 Chairman of the Board
Howard R. Curd(1)(2) . . . . 57 Director
Howard F. Curd(1)(2) . . . . 31 Director
Robert Louis-Dreyfus . . . . 50 Director-nominee
</TABLE>
_____________________
(1) Member of Audit Committee
(2) Member of Compensation Committee
All directors of the Company hold office until the next annual meeting
of shareholders or until their successors are duly elected and qualified.
All officers serve at the discretion of the Board of Directors.
Reuben F. Richards, Jr. - Mr. Richards joined the Company in October 1995
as its President and Chief Operating Officer and became Chief Executive
Officer in December 1996. Mr. Richards has been a director of the Company
since May 1995. From September 1994 to the present, Mr. Richards has been
a Senior Managing Director of Jesup & Lamont Capital Markets Inc. ("Jesup &
Lamont") (an affiliate of a registered broker-dealer). From December 1994
to the present, he has been a member of and President of JLMP, the
Company's largest shareholder. From 1992-1994, Mr. Richards was a
principal with Hauser, Richards & Co., a firm engaged in corporate
restructuring and management turnarounds. From 1986-1992, Mr. Richards was
a Director at Prudential-Bache Capital Funding in its Investment Banking
Division. Mr. Richards also serves as a director of S.A.
Telecommunications, Inc., a full service long distance telecommunications
company, located in Richardson, Texas.
Thomas G. Werthan - Mr. Werthan joined the Company in 1992 as its Chief
Financial Officer, Vice President - Finance and Administration and a
director. Mr. Werthan is a Certified Public Accountant and has over
fourteen years experience in assisting high technology, venture capital
financed growth companies. Prior to joining the Company in 1992, he was
associated with The Russell Group, a venture capital partnership, as Chief
Financial Officer for several portfolio companies. The Russell Group is
affiliated with Thomas J. Russell, a member of and Chairman of JLMP and
Chairman of the Board of Directors of the Company. From 1985 to 1989, Mr.
Werthan served as Chief Operating Officer and Chief Financial Officer for
Audio Visual Labs, Inc., a manufacturer of multi-media and computer
graphics equipment.
Richard A. Stall, Ph.D. - Dr. Stall became a director of the Company in
December 1996. Dr. Stall helped found the Company in 1984 and has been
Vice President - Technology at the Company since October, 1984, except for
a sabbatical year in 1993 during which Dr. Stall acted as a consultant to
<PAGE>
the Company and his position was left unfilled. Prior to 1984, Dr. Stall
was a member of the technical staff of AT&T Bell Laboratories and was
responsible for the development of MBE technologies. He has co-authored
more than 75 papers and holds four patents on MBE and MOCVD technology and
the characterization of compound semiconductor materials.
William J. Kroll - Mr. Kroll joined the Company in 1994 as Vice President -
Business Development and in 1996 became Executive Vice President - Business
Development. Prior to 1994, Mr. Kroll served for seven years as Senior
Vice President of Sales and Marketing for Matheson Gas Products, Inc., a
manufacturer and distributor of specialty gases and gas control and
handling equipment. In that position, Mr. Kroll was responsible for $100
million in sales and 700 employees worldwide. Prior to working at Matheson
Gas Products, Mr. Kroll was Vice President of Marketing for Machine
Technology, Inc., a manufacturer of semiconductor equipment for photoresist
or applications, plasma strip, and related equipment.
Paul T. Fabiano - Mr. Fabiano joined the Company in 1985 as a process
engineer and has served as Vice President - Engineering since March 1996.
Mr. Fabiano has experience in all critical phases of the Company's
operations including sales, service, manufacturing and engineering. During
his tenure at the Company, Mr. Fabiano has held various managerial posi-
tions including Vice President, Manufacturing and Director of Field
Engineering.
Louis A. Koszi - Mr. Koszi joined the Company in 1995 as Vice President -
Device Manufacturing. Prior to 1995, Mr. Koszi was a member of AT&T Bell
Laboratories for 25 years. Mr. Koszi has experience in all phases of
semiconductor device design and manufacturing processes and associated
quality programs. Mr. Koszi holds 17 U.S. patents, five foreign patents,
and is a co-author of 35 publications. He was named a Distinguished Member
of Technical Staff in 1989. In 1992, he was presented with the Excellence
in Engineering from the Optical Society of America.
Laurence P. Wagner - Mr. Wagner joined the Company in March 1996 as Vice
President - Wafer Manufacturing, and has more than twelve years experience
in operations, engineering and research in the electronic and semiconductor
materials industries. Before joining EMCORE, he spent seven years at Rohm
& Haas, a subsidiary of Shipley Company, L.L.C., where he served
successively as Corporate Projects Manager, Product Engineer, Engineering
Manager, Manufacturing Manager, and, from 1994 to 1996, Operating Unit
Manager.
David A. Hess - Mr. Hess joined the Company in 1989 as General Accounting
Manager. He was named Controller in 1990. He has more than ten years
experience in monitoring and controlling all phases of product and process
cost and general accounting systems. Prior to his employment at EMCORE, he
held several positions as cost accounting manager, divisional accountant
and inventory control supervisor in manufacturing firms such as Emerson
Quiet Kool (air conditioner manufacturers), Huls, North America
(paint/solvent processors), and Brintec Corporation (screw machine manu-
facturers).
Thomas J. Russell, Ph.D. - Dr. Russell has been a director of the Company
since May 1995 and was elected Chairman of the Board on December 6, 1996.
Dr. Russell founded Bio/Dynamics, Inc. in 1961 and managed the company
until its acquisition by IMS International in 1973, following which he
served as President of that company's Life Sciences Division. From 1984
until 1988, he served as Director, then as Chairman of IMS International
until its acquisition by Dun & Bradstreet in 1988. From 1988 to 1992, he
served as Chairman of Applied Biosciences, Inc. Since 1992, he has been an
investor and director of several companies. Dr. Russell currently serves
as a director of Cordiant plc, Adidas AG, and Uniroyal Technology
<PAGE>
Corporation ("UTC"). Mr. Russell is one of three trustees of the AER 1997
Trust, which is a member of JLMP.
Howard R. Curd - Mr. Curd has been a director of the Company since May
1995. Mr. Curd has been Chairman and Chief Executive Officer of UTC from
September 1992 to the present. From 1986 to 1992, he was Chairman of
Uniroyal Plastics Corp. He is the founder of UTC's predecessor business,
Polycast Technology Corporation. He also sits on the advisory board for
Investment Seminars, Inc., a provider of independent investment advice.
Mr. Curd is a member of and Vice President of JLMP, the Company's majority
shareholder. Mr. Curd is the father of Howard F. Curd, a director of the
Company.
Howard F. Curd - Mr. Curd has been a director of the Company since May
1995. Since 1991, Mr. Curd has been president and chief executive officer
and a director of Jesup & Lamont Group Holdings, Inc., a diversified
financial holding company. Mr. Curd is a director of S.A.
Telecommunications, Inc., a long distance telecommunication company,
located in Richardson, Texas. Mr. Curd is the son of Howard R. Curd, a
director of the Company.
Robert Louis-Dreyfus - Mr. Louis-Dreyfus has been nominated to serve on the
Company's Board of Directors. It is expected that immediately following
the Offering, the Board will elect Mr. Louis-Dreyfus to serve as a
Director. Mr. Louis-Dreyfus has been the Chairman of the Board of
Directors and Chief Executive Officer of Adidas AG since April 1993. Prior
to that time, he had been from 1990 until 1993 the Chief Executive Officer
at Saatchi & Saatchi plc (now Cordiant plc) in London, and he resigned from
the Board of Directors of Saatchi & Saatchi in December 1994. Since 1992,
he has been an investor and a director of several other companies. From
1982 until 1988, he served as Chief Operating Officer (1982 to 1983) and
then as Chief Executive Officer (from 1984 to 1988) of IMS International
until its acquisition by Dun & Bradstreet in 1988.
Within 90 days after completion of the Offering, the Company intends to
expand the Company's Board of Directors to nine persons and to elect at
least two outside directors to the Company's Board. It is the intention of
the Company that such outside directors will be appointed to and replace
the existing members of each of the Company's Audit Committee and
Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee, which consists of Dr. Thomas J.
Russell, Howard F. Curd and Howard R. Curd, reviews and recommends to the
Board of Directors the compensation and benefits of all officers of the
Company, reviews general policy matters relating to compensation and bene-
fits of officers and employees of the Company and administers the issuance
of stock options and stock appreciation rights and awards of restricted
stock to the Company's officers and key salaried employees. No member of
the Compensation Committee is now or ever was an officer or an employee of
the Company. No executive officer of the Company serves as a member of the
compensation committee of the Board of Directors of any entity one or more
of whose executive officers serves as a member of the Company's Board of
Directors or Compensation Committee. See "Certain Transactions."
AUDIT COMMITTEE
The Company's Audit Committee currently consists of Thomas J. Russell,
Howard F. Curd and Howard R. Curd. The Audit Committee recommends the
engagement of the Company's independent accountants, approves the auditing
services performed, and reviews and evaluates the Company's accounting
policies and systems of internal controls.
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the annual and long-term compensation for services in all
capacities to the Company in fiscal 1996 of those persons who during such
fiscal year (i) served as the Company's chief executive officer or (ii)
were the five most highly-compensated officers (other than the chief
executive officer) (collectively, the "Named Executive Officers"):
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
ANNUAL COMPENSATION
OTHER
ADDITIONAL ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY COMPENSATION (1) COMPENSATION(2)
<S> <C> <C> <C> <C>
Reuben F. Richards, Jr. (3) 1996 $193,750(4) $ -- $ --
President and Chief
Operating Officer
Thomas G. Werthan 1996 120,487 29,000 6,000
Vice President-Finance and
Administration and
Chief Financial Officer
Richard A. Stall 1996 126,871 44,000 --
Vice President-Technology
William T. Kroll 1996 104,610 105,000 6,000
Executive Vice President-
Business Development
Paul T. Fabiano 1996 98,303 15,000 --
Vice President-
Engineering
Norman E. Schumaker 1996 180,330 103,050 6,750
Chairman and Chief
Executive Officer(3)
<PAGE>
LONG TERM
COMPENSATION
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION OPTIONS
<S> <C> <C>
Reuben F. Richards, Jr. (3) -- --
President and Chief
Operating Officer
Thomas G. Werthan -- --
Vice President-Finance and
Administration and
Chief Financial Officer
Richard A. Stall -- --
Vice President-Technology
William T. Kroll -- --
Executive Vice President-
Business Development
Paul T. Fabiano -- --
Vice President-
Engineering
Norman E. Schumaker -- --
Chairman and Chief
Executive Officer(5)
</TABLE>
__________________
(1) Consists of bonuses, commissions and vacation pay.
(2) Consists of insurance premiums and automobile allowances paid by the
Company.
(3) Mr. Richards became Chief Executive Officer in December, 1996.
(4) Of this amount, $145,000 was received from Jesup & Lamont. Mr.
Richards' salary is now paid by the Company and his base annual
compensation is $195,000. See "Certain Transactions."
(5) Dr. Schumaker served as Chairman and Chief Executive Officer until his
retirement in December 1996.
<PAGE>
No options were issued to any of the Named Executive Officers in fiscal
1996. There were no option exercises by the Named Executive Officers in
fiscal 1996.
The following table sets forth the number of shares covered by
exercisable and unexercisable options held by the Named Executive Officers
on September 30, 1996 and the aggregate gains that would have been realized
had these options been exercised on September 30, 1996, even though these
options had not been exercised by the Named Executive Officers.
<TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND OPTION VALUES AT FISCAL YEAR END
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Reuben F. Richards, Jr. 29,412 -- $211,000 --
Thomas G. Werthan 17,647 11,765 126,600 $84,400
Richard A. Stall 20,294 13,529 145,590 97,060
William T. Kroll 5,882 8,824 42,200 63,300
Paul T. Fabiano 8,824 5,882 63,300 42,200
Norman E. Schumaker 26,471 17,647(2) 189,900 126,600
</TABLE>
__________________________
(1) Options are in-the-money if the market value of the shares covered
thereby is greater than the option exercise price. This calculation
is based on the fair market value at September 30, 1996 of $10.20 per
share, less the exercise price. If calculated based on the midpoint
of the estimated range of the initial public offering price ($10 per
share), the value of unexercised in-the-money options at fiscal year
end would be slightly lower.
(2) Pursuant to Dr. Schumaker's retirement from the Company, these options
have been cancelled and will not become exercisable.
STOCK OPTION PLAN
In 1995, the Company's Board of Directors and its shareholders approved
the Company's 1995 Incentive and Non-Statutory Stock Option Plan (the
"Plan"). Under the terms of the Plan, as amended by the shareholders of
the Company in March 1996, options to acquire 647,059 shares of Common
Stock may be granted. Options with respect to 339,412 shares were
outstanding as of September 30, 1996, at exercise prices of $3.03 to $10.20
per share. Options granted generally become exercisable over five years.
As of September 30, 1996, options with respect to 162,765 shares were
exercisable.
The purpose of the Plan is to give officers and executive personnel,
and consultants or non-employee directors, of the Company and its
subsidiaries an opportunity to acquire Common Stock, to provide an
incentive for key employees and other participants to continue to promote
the best interests of the Company and enhance its long-term performance,
and to provide an incentive for key employees and other participants to
join or remain with the Company and its subsidiaries.
Incentive stock options ("ISOs") intended to qualify for special tax
<PAGE>
treatment in accordance with Section 422 of the Internal Revenue Code of
1986, as amended, ("Code") and non-statutory stock options ("NSOs"), which
do not qualify for such special tax treatment, may be granted under the
Plan. In addition, stock appreciation rights ("SARs") may be granted under
the Plan in conjunction with ISOs.
The Plan is administered by the Board of directors which, to the extent
it shall determine, may delegate its administrative powers (other than its
power to amend or terminate the Plan) to a committee (the "Committee")
appointed by the Board of Directors and composed of not less than three
members of the Board of Directors. The Board of Directors is authorized to
determine (i) the persons to whom awards under the Plan shall be granted,
(ii) the time or times at which such awards shall be granted, (iii) the
form and amount of the awards, and (iv) the limitations, restrictions and
conditions applicable to any such award. In general, the Board of
Directors also may interpret the Plan, prescribe, amend, and rescind rules
and regulations relating to it, and make all other determinations it deems
necessary or advisable for the administration of the Plan.
The Board of Directors may from time to time alter, amend or suspend
the Plan or any award granted thereunder, or may at any time terminate the
Plan, except that it may not, without the approval of the Company's
shareholders (except with respect to certain changes in corporate
structure), (i) materially increase the total number of shares of Common
Stock available for grant under the Plan, (ii) materially modify the class
of eligible employees or participants under the Plan, (iii) materially
increase benefits to any key employee who is subject to the restrictions of
Section 16 of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") or (iv) effect a change relating to ISOs granted thereunder
which is inconsistent with Section 422 of the Code and the regulations
issued thereunder. No action taken by the Board of Directors in connection
with the Plan, either with or without shareholder approval, may materially
and adversely affect any outstanding award without the consent of the
holder thereof. No award under the Plan may be granted after September 19,
2005.
A stock option granted under the Plan will be exercisable and subject
to such terms and conditions as the Board of Directors or the Committee
determines and which may be set forth in a written option agreement. In
general, the option price for ISOs shall not be less than 100% of the fair
market value of the Common Stock on the date of the grant, and such ISO
shall not be exercisable within one year of the date of grant. The option
price for NSOs shall not be less than 10% of the fair market value of the
Common Stock on the date of the grant. For purposes of the Plan, "fair
market value" means, in general, the average of the mean between the bid
and asked price for the Common Stock at the close of trading for the ten
consecutive trading days immediately preceding a given date.
ISOs granted under the Plan may include a SAR, either at the time of
the granting of the ISO or while the ISO is outstanding, which shall be
exercisable only (i) to the extent that the underlying ISO is exercisable
and (ii) for such period of time as determined by the Board of Directors.
A SAR is exercisable only when the fair market value of a share of Common
Stock exceeds the option price specified for the ISO under which the SAR
was granted. A SAR shall entitle the participant to surrender to the
Company unexercised the ISO, or portion thereof, to which such SAR is
related, and to receive from the Company in exchange therefor that number
of shares of Common Stock having an aggregate fair market value equal to
the excess of the fair market value on the date of exercise of one share of
Common Stock over the option price per share specified in such ISO,
multiplied by the number of shares of Common Stock subject to the ISO, or
portion thereof, which is so surrendered, or, at the election of the Board,
cash in such amount.
<PAGE>
ISOs, NSOs, and SARs shall not be exercisable more than ten years after
the date of grant. Upon the termination of employment of an employee, or
if the contractual relationship between a non-employee participant and the
Company terminates, options and SARs granted to such participant shall
expire no later than 30 days after such termination although the Board of
Directors, in its sole discretion, may permit the exercise of such option
or SAR to occur up to three months following such termination; provided,
that if such termination occurs as a result of the participant's death or
disability, outstanding options and SARs shall expire no later than one
year thereafter; and provided further, that outstanding options and SARs
held by a former employee participant shall earlier expire on the date that
such participant violates the terms of any covenant not to compete, if any,
in effect between the Company and such participant. Upon notice of an
intent to exercise an option, the option price shall be paid in full in
cash or by certified check or, in the Board of Directors' discretion, in
shares of Common Stock already owned by the participant.
In the sole discretion of the Board of Directors, adjustments will be
made in the number of shares of Common Stock available under the Plan, and
the number of shares of Common Stock and the option price of shares subject
to outstanding grants of options and SARs to reflect increases or decreases
in the number of shares of issued Common Stock resulting from a
reorganization, recapitalization, stock split-up, stock distribution or
combination of shares, or the payment of a stock dividend or other increase
or decrease in the number of such shares outstanding effected without
receipt of consideration by the Company.
COMPENSATION OF DIRECTORS
All non-employee directors will receive a fee in the amount of $3,000
per Board meeting attended and $500 for each committee meeting attended
($600 for the Chairman of the committee), including in each case reimburse-
ment of reasonable out-of-pocket expenses incurred in connection with such
Board or committee. Payment of all fees will be made in Common Stock of
the Company at the average of the last reported bid and ask prices as of
the close of trading that day on the Nasdaq National Market. No director
who is an employee of the Company will receive compensation for services
rendered as a director.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY AND INDEMNIFICATION
MATTERS
The Company's Certificate of Incorporation and By-Laws include
provisions (i) to reduce the personal liability of the Company's directors
for monetary damage resulting from breaches of their fiduciary duty and
(ii) to permit the Company to indemnify its directors and officers to the
fullest extent permitted by New Jersey law. Prior to the consummation of
this Offering, the Company intends to enter into indemnification agreements
with each of its directors and executive officers and to obtain a policy of
directors' and officers' liability insurance that insures such persons
against the costs of defense, settlement or payment of a judgment under
certain circumstances. There is no pending litigation or proceeding
involving any director, officer, employee or agent of the Company as to
which indemnification is being sought. The Company is not aware of any
pending or threatened litigation that might result in claims for
indemnification by any director or officer.
CERTAIN TRANSACTIONS
In May 1995, approximately 51% of the Company's outstanding shares of
Common Stock were purchased by JLMP, a limited liability company whose five
members are The AER 1997 Trust, Howard R. Curd, Howard F. Curd, Reuben F.
<PAGE>
Richards, Jr. and Gallium Enterprises, Inc. Gallium Enterprises Inc. is
controlled by Robert Louis-Dreyfus, a nominee to become a director of the
Company. Howard F. Curd and Reuben F. Richards, Jr. together control a
minority of the membership interests in JLMP and are co-owners of Jesup &
Lamont Group Holdings, Inc., which owns all the shares of Jesup & Lamont
Securities Co., a registered broker-dealer and of Jesup & Lamont Capital
Markets, Inc. ("Jesup & Lamont"), a financial services advisory concern.
Since 1995, four of the Company's six directors have been members of JLMP.
In May 1995, the Company entered into a consulting agreement with Jesup &
Lamont (herein, the "Agreement") pursuant to which Jesup & Lamont agreed to
provide financial advisory services for the Company for one year. The
Agreement provided for monthly retainers to be paid to Jesup & Lamont of
$12,500 per month. In October 1995, Reuben F. Richards, Jr. joined the
Company's management team as President and Chief Operating Officer. On
that date, the retainer to Jesup & Lamont was increased to $25,000 per
month to cover Mr. Richards' salary. At that time, Mr. Richards received
no compensation directly from the Company. Jesup & Lamont covered all
employee benefits and taxes for Mr. Richards until October 1, 1996 when Mr.
Richards became a full-time employee of the Company, and the monthly
retainer paid by the Company to Jesup & Lamont was decreased to $10,000.
The Agreement will terminate upon completion of the Offering.
In May 1996, the Company issued $9,500,000 Subordinated Notes (the
"Subordinated Notes") and warrants to purchase 2,328,432 shares of Common
Stock at $4.08 per share (the "$4.08 Warrants"). The $4.08 Warrants became
exercisable on November 1, 1996. JLMP holds 78.5% of the Subordinated
Notes and $4.08 Warrants. In addition, Thomas G. Werthan, Vice President -
Finance and Administration, Chief Financial Officer, Secretary and a
director, currently holds $96,233 of the Subordinated Notes and 23,587 of
the $4.08 Warrants; Dr. Richard Stall, Vice President - Technology and a
director currently holds $122,450 of the Subordinated Notes and 30,012 of
the $4.08 Warrants; William Kroll, Executive Vice President - Business
Development, currently holds $65,828 of the Subordinated Notes and 16,134
of the $4.08 Warrants; Paul Fabiano, Vice President - Engineering,
currently holds $60,407 of the Subordinated Notes and 14,806 of the $4.08
Warrants; and David Hess, Controller, currently holds $4,753 of the
Subordinated Notes and 1,165 of the $4.08 Warrants.
In connection with the offering of the Subordinated Notes and $4.08
Warrants on May 1, 1996, the Company executed a registration rights
agreement (the "Registration Rights Agreement") with the holders of the
$4.08 Warrants (the "Warrant Holders"). Upon written notice given by a
majority in interest of the Warrant Holders, the Company is obligated to
use its best efforts to register all or part of each Warrant Holders'
registrable securities, and to keep such registration open for period of
not less than nine months. Pursuant to the Registration Rights Agreement,
the Company must give notice to, and include if requested within thirty
days of such notice, the Warrant Holders in any registration statement
filed by the Company under the Securities Act, subject to certain
exceptions. See "Description of Capital Stock - Registration Rights."
On September 1, 1996, the Company issued to JLMP $2,500,000 additional
subordinated notes (the "Additional Notes") with terms identical to those
of the Subordinated Notes, and warrants to purchase 245,098 shares of
Common Stock at $10.20 per share (the "Additional Warrants"). The
Additional Warrants become exercisable six months after issuance. In
December 1996, the Company issued to JLMP warrants to purchase 980,392
shares on the same terms as the Additional Warrants in consideration for
the grant by Thomas Russell, the Chairman of the Company's Board of
Directors, of a security interest over certain assets he controls, in order
to guarantee the Company's $10 million demand note facility from First
Union National Bank. The Company expects to use a portion of the proceeds
of the Offering to pay down this facility. In connection with the issuance
<PAGE>
of the warrants in September and December of 1996, the Company has entered
into a registration rights agreement with JLMP similar to the Registration
Rights Agreement.
Upon completion of the Offering, three of the Company's eight directors
will be members of JLMP. Mr. Russell, the Chairman of the Company's Board
of Directors, will be a trustee with respect to certain membership
interests of JLMP. Mr. Louis-Dreyfus, a director-nominee, controls a
company which is a member of JLMP. JLMP will retain an ownership interest
in the Company of approximately 48.9%. Within 90 days of the commencement
of the Offering, the Company will elect two independent directors, neither
of whom will have any affiliation with JLMP.
From time to time, the Company has lent money to certain of its
executive officers and directors. Between October and December, 1995,
pursuant to the due authorization of the Company's Board of Directors the
Company lent $85,000 to Thomas G. Werthan, Vice President - Finance and
Administration, Chief Financial Officer and a director of the Company. The
promissory note executed by Mr. Werthan provides for forgiveness of the
loan via bonuses payable to Mr. Werthan over a period of 25 years.
On December 4, 1996, Norman E. Schumaker, a founder of the Company
and a beneficial holder of more than 5% of the Company's Common Stock,
retired as Chairman and Chief Executive Officer. The Company and Dr.
Schumaker have entered into a Consulting Agreement dated as of December 6,
1996, pursuant to which the Company agreed to retain Dr. Schumaker as a
consultant for $250,000 per year. The Company has also agreed to pay Dr.
Schumaker $103,055 in full satisfaction of accrued bonuses and vacation
time. Dr. Schumaker has agreed to provide consulting services for eight,
eight-hour work days per month (approximately two days a week less vacation
time) for a term of two years commencing January 1, 1997 and ending
December 31, 1998. The Agreement will automatically renew for one
successive two-year term unless either party gives the other notice of his
or its intention not to renew the Agreement. The Company has also agreed
to forgive $115,300 of indebtedness of Dr. Schumaker to the Company and to
provide him with a monthly automobile allowance of $750 during the term of
the Agreement. The Company has agreed to provide Dr. Schumaker with
participation, during the period ending on December 31, 2001, in the
Company's plan of medical benefits and to assign to Dr. Schumaker a
disability insurance policy and two life insurance policies in the
aggregate face amount of $1,075,000. To the extent that these policies may
not be so assigned, the Company has agreed to establish similar policies
for Dr. Schumaker. The Company has also agreed to extend the exercise of
Dr. Schumaker's vested stock options to March 4, 1997. Dr. Schumaker has
agreed during the term of the Agreement not to become involved, directly or
indirectly, in any business activity which the Company's Board of Directors
determines to be competitive with the Company. Dr. Schumaker has also
agreed, among others, to refrain from engaging in any business competing
with the Company in the U.S. for an additional period of two years after
the termination of the Agreement.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the
Company with respect to beneficial ownership of the Company's Common Stock
as of February 1, 1997 and as adjusted to reflect the sale of shares
offered pursuant to this Prospectus by: (i) each person who is known by the
Company to be the beneficial owner of five percent or more of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each Named
Executive Officer, and (iv) all officers and directors of the Company as a
group.
<TABLE>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES PRIOR TO AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OFFERING OFFERING
<S> <C> <C> <C>
Reuben F. Richards, Jr. (3) . . . . 3,724,034 73.1% 49.0%
Richard A. Stall (4) . . . . . . . 129,870 4.3 2.3
Thomas G. Werthan (5) . . . . . . . 103,763 3.4 1.9
Paul T. Fabiano (6) . . . . . . . . 62,879 2.1 1.1
William T. Kroll (7) . . . . . . . 64,789 2.2 1.2
Howard R. Curd (8) . . . . . . . . 3,694,622 72.9 48.9
Howard F. Curd (8) . . . . . . . . 3,694,622 72.9 48.9
Gallium Enterprises Inc. (8) . . . 3,694,622 72.9 48.9
The AER 1997 Trust (9) . . . . . . 3,694,622 72.9 48.9
Jesup & Lamont Merchant Partners
L.L.C. (10) . . . . . . . . . . . . 3,694,622 72.9 48.9
All directors and executive officers
as a group (12 persons) (11) . . . 4,090,470 78.1 52.9
Norman E. Schumaker (12) . . . . . 533,347 16.9 9.4
</TABLE>
___________________
(1) Unless otherwise indicated in these footnotes, the persons named in
the table above have sole voting and investment power with respect to
all shares beneficially owned.
(2) Based on 2,994,461 shares outstanding prior to the Offering and
5,869,461 shares to be outstanding after the Offering, except that
shares underlying warrants and options exercisable within 60 days of
February 1, 1997, are deemed to be outstanding for purposes of
calculating shares beneficially owned and percentages owned by the
holder of such warrants and options.
(3) Consists of options to purchase 29,412 shares, and 1,621,557 shares
and warrants to purchase 2,073,065 shares held by JLMP. See Note 10.
(4) Includes options to purchase 20,294 shares and warrants to purchase
30,012 shares.
(5) Includes options to purchase 17,647 shares and warrants to purchase
23,587 shares.
(6) Includes options to purchase 8,824 shares and warrants to purchase
14,806 shares.
(7) Includes options to purchase 5,882 shares and warrants to purchase
16,134 shares.
(8) Consists of 1,621,557 shares and warrants to purchase 2,073,065
shares of Common Stock held by JLMP. Gallium Enterprises Inc. is
controlled by Robert Louis-Dreyfus, a nominee to become a member of
the Board of Directors of the Company. See Note 10.
(9) Consists of 1,621,557 shares and warrants to purchase 1,827,967
<PAGE>
shares of Common Stock held by JLMP. The AER 1997 Trust is one of
the five members of JLMP. Its three trustees are John Timoney,
Robert Louis-Dreyfus, and Thomas J. Russell, the Chairman of the
Company. The trustees share authority over the assets of the trust.
After January 13, 2002, Avery E. Russell, the daughter of Thomas J.
Russell, will be the primary beneficiary of the trust. See Note 10.
(10) Includes warrants to purchase 2,073,065 shares of Common Stock. Does
not include warrants to purchase 980,392 shares of Common Stock which
become exercisable after May 6, 1997. JLMP is a limited liability
company whose five members are The AER 1997 Trust, Howard R. Curd,
Howard F. Curd, Reuben F. Richards, Jr. and Gallium Enterprises Inc.
The members share voting and investment power. JLMP's address and
its members' addresses are c/o JLMP, 650 Fifth Avenue, New York, New
York 10019.
(11) Includes options to purchase 82,941 shares and warrants to purchase
1,913,671 shares. See Notes 3 through 8 above.
(12) Includes options to purchase 26,471 shares and warrants to purchase
138,831 shares. Pursuant to Dr. Schumaker's consulting agreement
with the Company dated December 6, 1996, the warrants to purchase
138,831 shares of Common Stock have been placed in escrow until
January 6, 1998. See "Certain Transactions." Dr. Schumaker's
business address is 20 Upper Warren Way, Warren, New Jersey 07059.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 23,529,411
shares of Common Stock, no par value, of which 2,994,461 shares are
outstanding prior to completion of this Offering, which shares are held by
a total of 86 shareholders and 5,882,353 shares of Preferred Stock, none of
which are outstanding. In addition, there are outstanding warrants to
purchase 2,330,784 shares of Common Stock at $4.08 per share, warrants to
purchase 9,103 shares of Common Stock at $17.00 a share, and warrants to
purchase 1,225,490 shares of Common Stock at $10.20 per share. Moreover,
options to purchase 437,546 shares have been granted under the Plan ranging
from $3.03 per share to $10.20 a share.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters
to be voted upon by the shareholders of the Company. Subject to the
preferences that may be applicable to any outstanding shares of Preferred
Stock, the Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to the prior liquidation rights of any
outstanding shares of Preferred Stock. The Common Stock has no preemptive,
redemption, conversion or other subscription rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock currently or outstanding or which
the Company may designate and issue in the future.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "EMKR."
PREFERRED STOCK
The Company is authorized to issue up to 5,882,352 shares of Preferred
Stock that may be issued from time to time in one or more classes or series
upon authorization of the Board of Directors. The Board of Directors,
without further approval of the shareholders, is authorized to designate
in any such class or series resolution, such par value and such priorities,
power, preferences and relative, participating, optional or other special
rights and qualifications, limitations and restrictions as it shall
determine.
The ability of the Company to issue Preferred Stock in this manner,
while providing flexibility in connection with possible acquisitions and
other corporate purposes, could adversely effect the voting power of the
voters of the Common Stock and could have the effect of making it more
difficult for a person to acquire, or of discouraging a person from seeking
to acquire, control of the Company. The potential for issuance of this
"blank check preferred stock" may have an adverse impact on the market
price of the Common Stock outstanding after the Offering. The Company has
no present plans to issue any of the Preferred Stock.
WARRANTS
The Company has outstanding the following warrants: warrants to
purchase a total of 9,103 shares of Common Stock at a purchase price of
$17.00 per share, which warrants expire in July 1997; warrants to purchase
a total of 2,330,784 shares of Common Stock at a purchase price of $4.08
<PAGE>
per share which expire in May 2001 and warrants to purchase 1,225,490
shares of Common Stock at $10.20 per share, which warrants expire in
September 2001. The last two classes of warrants may be repurchased by the
Company at $0.85 per share after May 1997 and September 1997, respectively.
The Company will not call the warrants unless it can issue registered
securities therefor and the average daily market price of the Company's
Common Stock exceeds 150% of the warrant exercise price for each of thirty
consecutive days.
NEW JERSEY LAW AND OTHER LIMITATIONS UPON TRANSACTIONS WITH "INTERESTED
SHAREHOLDERS"
The New Jersey Business Corporation Act provides that in determining
whether a proposal or offer to acquire a corporation is in the best
interest of the corporation, the Board of Directors may, in addition to
considering the effects of any action on shareholders, consider any of the
following: (a) the effects of the proposed action on the corporation's
employees, suppliers, creditors and customers, (b) the effects on the
community in which the corporation operates and (c) the long-term as well
as short-term interests of the corporation and its shareholders, including
the possibility that these interests may best be served by the continued
independence of the corporation. The statute further provides that if,
based on these factors, the Board of Directors determines that any such
offer is not in the best interest of the corporation, it may reject the
offer. These provisions may make it more difficult for a shareholder to
challenge the Board of Directors' rejection of, and may facilitate the
Board of Directors' rejection of, an offer to acquire the Company.
The Company is also subject to the Protection Act, which prohibits
certain New Jersey corporations such as the Company from engaging in
business combinations (including mergers, consolidations, significant asset
dispositions and certain stock issuances) with any Interested Shareholder
(defined to include, among others, any person that after the Offering
becomes a beneficial owner of 10% or more of the affected corporation's
voting power) for five years after such person becomes an Interested
Shareholder, unless the business combination is approved by the Board of
Directors prior to the date the shareholder became an Interested
Shareholder. In addition, the Protection Act prohibits any business
combination at any time with an Interested Shareholder other than a trans-
action that (i) is approved by the Board of Directors prior to the date the
Interested Shareholder became an Interested Shareholder, or (ii) is
approved by the affirmative vote of the holders of two-thirds of the voting
stock not beneficially owned by the Interested Shareholder, or (iii)
satisfies certain "fair price" and related criteria. The New Jersey Act
does not apply to certain business combinations, including those with
persons who acquired 10% or more of the voting power of the corporation
prior to the time the corporation was required to file periodic reports
pursuant to the Exchange Act, or prior to the time the corporation's
securities began to trade on a national securities exchange.
REGISTRATION RIGHTS
Following the closing of the Offering, persons who hold warrants to
purchase 3,556,274 shares of Common Stock (herein, the "Holders") will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act. Pursuant to terms of registration rights
agreements between the Company and the Holders, the Holders have the right
on written notice given by a majority of the Holders, to require the
Company, on only one occasion, to file a registration statement under the
Securities Act in order to register all or any part of their shares of
Common Stock. The Company may in certain circumstances defer such
registrations, and the underwriters have the right, subject to certain
limitations, to limit the number of shares included in such registrations.
<PAGE>
In the event that the Company proposes to register any of its securities
under the Securities Act, either for its own account or the account of
other security holders, the Holders are also entitled to include their
shares of Common Stock in such registration, subject to certain marketing
and other limitations. Generally, the Company is required to bear the
expense of all such registrations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American
Stock Transfer & Trust Company.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
5,494,461 shares of Common Stock assuming no exercise of outstanding
options or warrants. Of these shares, 2,500,000 shares sold in the
Offering (plus any shares issued upon exercise of the Underwriters' over-
allotment options) will be freely tradeable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly
or indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with such issuer. The remaining 2,994,461
shares of Common Stock outstanding will be "restricted securities" within
the meaning of Rule 144 under the Securities Act ("Restricted Shares").
Restricted Shares may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available,
including the exemptions contained in Rule 144. Sales of the Restricted
Shares in the public market, or the availability of such shares for sale,
could adversely affect the market price of the Common Stock.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including an "affiliate," who has
paid for shares is entitled, beginning two years from the later of the date
of acquisition of the shares from the Company or from an affiliate of the
Company, to sell within any three-month period up to that number of shares
that does not exceed the greater of (i) one percent of the shares
outstanding, as shown by the most recent report or statement published by
the Company, or (ii) the average weekly reported volume of trading in the
shares during the four calendar weeks preceding the date on which notice of
sale is filed with the Commission. A person (or persons whose shares are
aggregated) who is not deemed an affiliate of the Company, who has not been
an affiliate within three months prior to the sale and who has paid for his
shares is entitled, beginning three years from the later of the date of the
acquisition from the Company or from an affiliate of the Company, to sell
such shares under Rule 144(k) without regard to the volume limitations
described above. Affiliates continue to be subject to such volume
limitations after the three-year holding period.
On May 1, 1996, the Company issued warrants to purchase 2,330,784
shares of Common Stock. The exercise price of the warrants sold in May
1996 is $4.08 per share. The Company has entered into a Registration
Rights Agreement in connection with the issuance of such warrants. If such
registration rights are exercised, the shares covered thereunder can be
sold in the open market. On September 1, 1996, the Company issued warrants
to purchase 245,098 shares of Common Stock to JLMP. The exercise price of
the warrants sold in September is $10.20 per share. On December 20, 1996,
the Company issued warrants to purchase 980,392 shares of Common Stock to
JLMP. The exercise price of the warrants issued in December is $10.20 per
share. These warrants are first exercisable on July 1, 1997. In
connection with the issuance of the warrants in September and December,
1996, the Company has entered into a registration rights agreement similar
to the Registration Rights Agreement. See "Description of Capital Stock --
Warrants" and "-- Registration Rights."
The Company, executive officers and directors of the Company and
certain shareholders of the Company have agreed that they will not sell any
shares of Common Stock (other than by operation of law or pursuant to bona
fide gifts or other transactions not involving a public distribution to a
person or other entity who agrees in writing not to so sell) for a period
of 180 days after the date of the final Prospectus (the "lock-up period")
without the written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. Upon expiration of the lock-up period, or earlier upon the
consent of Donaldson, Lufkin & Jenrette Securities Corporation, 777,657
shares will become eligible for sale without restriction under Rule 144(k),
<PAGE>
and an additional 2,216,804 shares will become eligible for sale subject to
the restrictions of Rule 144.
Any employee or director of or consultant to the Company who has been
granted options to purchase shares or who has purchased shares pursuant to
a written compensatory plan or written contract prior to the effective date
of this Offering pursuant to Rule 701 will be entitled to rely on the
resale provisions of Rule 701, which permits non-affiliates to sell their
Rule 701 shares without having to comply with the public information,
holding-period, volume-limitation or notice provisions of Rule 144 and
permits affiliates to sell their Rule 701 shares without having to comply
with the Rule 144 holding period restrictions, in each case commencing 90
days after the date of this Prospectus.
Following the Offering, the Company intends to file a registration
statement under the Securities Act to register shares of Common Stock
issuable upon the exercise of stock options granted under the Plan. Shares
issued upon the exercise of stock options after the effective date of such
registration statement generally will be available for sale in the open
market. Immediately following the completion of the Offering, the Company
estimates that there will be 437,546 shares issuable upon the exercise of
options outstanding under the Plan and 209,013 shares of Common Stock
reserved for future grants of options.
The Company is unable to estimate the number of shares that may be
sold under Rule 144 or otherwise because this will depend on the market
price for the Common Stock of the Company, the individual circumstances of
the sellers and other factors. Prior to the Offering, there has been no
public market for the Common Stock. Future sales of shares of Common
Stock, or the availability for sale of substantial amounts of Common Stock,
or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") the Underwriters named below, for
whom Donaldson, Lufkin & Jenrette Securities Corporation and Needham &
Company, Inc. are acting as representatives (the "Representatives") have
severally agreed to purchase from the Company 2,500,000 shares of Common
Stock. The number of shares of Common Stock that each underwriter has
agreed to purchase is set forth opposite its name below:
NAME NUMBER OF SHARES
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . . . . . . _____________
Needham & Company, Inc. . . . . . . . . . . . . _____________
Total . . . . . . . . . . . . . . . . . . _____________
The Underwriting Agreement provides that the obligation of the several
Underwriters to purchase all of the shares of Common Stock is subject to
the approval of certain legal matters by counsel and as to certain other
conditions. If any of the shares of Common Stock are purchased pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than the
over-allotment option described below) must be so purchased.
Prior to the Offering, there has been no established trading market
for the Common Stock. The initial price to the public for the Common Stock
offered hereby has been determined by negotiations between the Company and
the Representatives. The factors considered in determining the initial
price to the public include the history of and the prospects for the
industry in which the Company competes, the ability of the Company's
management, the past and present future earnings of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at
the time of this Offering and the recent market prices of generally
comparable companies.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock to the public
initially at the public offering price set forth on the cover page of this
Prospectus, and to certain securities dealers (who may include the
Underwriters) at such price less a concession not in excess of $____ per
share. The Underwriters may allow, and such dealers may re-allow,
discounts not in excess of $___ per share to any other Underwriter and
certain other dealers.
The Company has granted to the Underwriters an option to purchase up
to an aggregate of 375,000 additional shares of Common Stock at the initial
public offering price less the underwriting discounts and commissions
solely to cover over-allotments. Such option may be exercised at anytime
until 30 days after the date of this Prospectus. To the extent that the
Underwriters exercise such options, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated
in the preceding table.
The Company, all directors and executive officers of the Company and
certain shareholders, have agreed that, without the prior written consent
<PAGE>
of Donaldson, Lufkin & Jenrette Securities Corporation, they will not,
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any share of Common Stock or any
securities convertible into or exercisable for such Common Stock, or in any
other manner transfer all or a portion of the economic consequence
associated with ownership of such Common Stock, except to the Underwriters
pursuant to the Underwriting Agreement, for a period of 180 days after the
date of this Prospectus.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon
for the Company by White & Case, New York, New York, who may rely upon
Dillon, Bitar & Luther, New Jersey counsel for the Company as to matters of
New Jersey law. Certain legal matters in connection with the Offering will
be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New
York, New York.
EXPERTS
The balance sheets as of September 30, 1996 and 1995, and the
statements of operations, shareholders' (deficit) equity and cash flow for
the three years in the period ended September 30, 1996, included in this
Registration Statement, have been included herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The statements in this Prospectus set forth under the captions "Risk
Factors - Risks From Reliance on Trade Secrets; No Assurance of Continued
Intellectual Property Protections," " - Risks Arising From Reversal of
Declaratory Judgment in Rockwell Patent Litigation" and "Business -
Intellectual Property" have been reviewed and approved by Lerner David
Littenberg Krumholz & Mentlik, Westfield, New Jersey, patent counsel for
the Company, as experts on such matters, and are included herein in
reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and
schedules filed as part thereof. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are
materially complete, and, in each instance, if such contract or document is
filed as an exhibit, reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office, the Public
Reference Room of the Securities and Exchange Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
regional offices of the Commission at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of all or any
part thereof may be obtained from the Commission at its principal office in
Washington, D.C. and its public reference facilities in Chicago, Illinois
and New York, New York after payment of fees prescribed by the Commission.
<PAGE>
The Company intends to furnish to its shareholders annual reports
containing consolidated financial statements audited by its independent
public accountants, and quarterly reports containing unaudited consolidated
financial statements for the first three quarters of each fiscal year.
Upon completion of the Offering, the Company shall be subject to the
informational requirements of the Exchange Act, and in accordance therewith
will file reports and other information with the Securities and Exchange
Commission. Such reports, proxy and information statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission in Washington, D.C., and
at its regional offices set forth above, and copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information state-
ments and other information regarding the Company and other registrants
that file electronically with the Commission. The address of such site is:
http://www.sec.gov.
<PAGE>
EMCORE CORPORATION
INDEX OF FINANCIAL STATEMENTS
Report of Coopers & Lybrand L.L.P., Independent Accountants . . F-2
Financial Statements:
Balance Sheets as of September 30, 1996 and 1995 . . . . . . . . F-3
Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . F-5
Statements of Shareholders' (Deficit) Equity as
of September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . F-6
Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . F-8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-11
<PAGE>
REPORT OF COOPERS & LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
EMCORE Corporation:
We have audited the accompanying balance sheets of EMCORE Corporation
(the "Company") as of September 30, 1996 and 1995, the related statements
of operations, shareholders' equity (deficit) and cash flows for each of
the three years in the period ended September 30, 1996. We have also
audited the financial statement schedule listed in Item 16(b). These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of EMCORE
Corporation as of September 30, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended September 30, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedule taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
November 1, 1996, except for
Notes 13 and 15 as to which
the date is December 6, 1996
and Note 16 as to which the
date is February 3, 1997
<PAGE>
EMCORE CORPORATION
BALANCE SHEETS
<TABLE>
AS OF
DECEMBER 31,
AS OF SEPTEMBER 30, (unaudited)
ASSETS 1995 1996 1996
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . $ 2,322,896 $ 1,367,386 $ 1,901,453
Accounts receivable, net of allowance
for doubtful accounts of
approximately $164,000, $310,000 and
$370,000 at September 30, 1995 and
1996 and December 31, 1996,
respectively . . . . . . . . . . . . 2,129,633 3,025,171 6,626,935
Inventories, net . . . . . . . . . . 3,339,474 7,645,040 9,306,869
Costs in excess of billings on
uncompleted contracts . . . . . . . 16,440 19,322 57,247
Prepaid expenses and other current
assets . . . . . . . . . . . . . . . 33,151 59,935 42,908
Total current assets . . . . . . 7,841,594 12,116,854 17,935,412
Property and equipment, net . . . . . . 2,120,784 7,796,832 7,940,354
Other assets, net . . . . . . . . . . . 180,365 520,735 3,407,609
Total assets . . . . . . . . . . . . .
$ 10,142,743 $ 20,434,421 $ 29,283,375
The accompanying notes are an integral part of these financial statements.
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
AS OF
DECEMBER 31,
AS OF SEPTEMBER 30, (UNAUDITED)
Current liabilities: 1995 1996 1996
Accounts payable . . . . . . . . . . $ 1,934,360 $ 5,660,438 $ 6,725,070
Accrued expenses . . . . . . . . . . 1,208,747 1,986,646 2,255,952
Advance billings . . . . . . . . . . 2,183,795 3,306,462 4,915,879
Billings in excess of costs on
uncompleted contracts . . . . . . . 306,359 - -
Unearned service revenue . . . . . . - 12,315 -
Demand note . . . . . . . . . . . . - - 6,000,000
Total current liabilities . . . . . . . 5,633,261 10,965,861 19,896,901
Long-term debt:
Subordinated notes, net . . . . . . - 8,946,971 9,062,957
Convertible notes payable . . . . . 3,000,000 -
Commitments and contingencies . . . . .
Shareholders' equity:
Common stock, no par value;
authorized shares - 23,529,411;
issued and outstanding shares
2,994,461 at September 30, 1995 and
1996 and December 31, 1996 . . . . . 16,637,566 18,977,566 22,577,566
Accumulated deficit . . . . . . . . (14,981,977) (18,158,291) (21,956,363)
1,655,589 819,275 621,203
Notes receivable from warrant issuances
and stock sales . . . . . . . . . . . . (146,107) (297,686) (297,686)
Total shareholders' equity . . . . . . 1,509,482 521,589 323,517
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . . $ 10,142,743 $ 20,434,421 $ 29,283,375
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
EMCORE CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
1994 1995 1996
<S> <C> <C> <C>
Revenues:
Systems and materials . . . . . . $ 7,352,813 $ 16,616,236 $ 24,066,506
Services . . . . . . . . . . . . . 1,685,388 1,520,431 3,712,379
Total revenues . . . . . . . . 9,038,201 18,136,667 27,778,885
Cost of Sales:
Systems and materials . . . . . . 3,793,042 8,782,674 16,132,335
Services . . . . . . . . . . . . . 1,419,880 1,144,297 2,474,085
Total cost of sales . . . . . 5,212,922 9,926,971 18,606,420
Gross profit . . . . . . . 3,825,279 8,209,696 9,172,465
Operating expenses:
Selling, general and
administrative . . . . . . . . . . 2,697,172 4,451,534 6,524,482
Research and development . . . . . 1,064,149 1,851,798 5,401,413
Amortization of deferred
gain on sale/leaseback
transactions . . . . . . . . . . . (51,846) - -
Operating income (loss) . 115,804 1,906,364 (2,753,430)
The accompanying notes are an integral part of these financial statements.
<PAGE>
<S>
<C> <C> <C>
Other expense:
Interest expense
Stated interest, net of interest
income of $12,468, $84,101 and
$71,460 for the years ended
September 30, 1994, 1995 and 1996
and $21,555 and $657 for the periods
ended December 31, 1995 and 1996,
respectively . . . . . . . . . . . 285,613 255,384 297,093
Imputed warrant interest,
non-cash . . . . . . . . . . . . - - 125,791
Other . . . . . . . . . . . . . . - 10,000 -
(Loss) income before income taxes . . . (169,809) 1,640,980 (3,176,314)
Provision for income taxes . . . . . . - 125,000 -
Net (loss) income . . . . . . . . . . . $ (169,809) $ 1,515,980 $ (3,176,314)
Per share data:
Shares used in computation of net
income (loss) . . . . . . . . . . $ 4,402,907 $ 4,649,648 $ 4,438,403
Net income (loss) per share . . . $ (.04) $ .33 $ (.72)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
PERIOD ENDED DECEMBER 31,
(UNAUDITED)
1995 1996
<S> <C> <C>
Revenues:
Systems and materials . . . . . $ 3,690,403 $ 8,539,477
Services . . . . . . . . . . . . 565,039 51,879
Total revenues . . . . . . . 4,255,442 8,591,356
Cost of Sales:
Systems and materials . . . . . 2,379,620 6,716,547
Services . . . . . . . . . . . . 402,669 7,271
Total cost of sales . . . . 2,782,289 6,723,818
Gross profit . . . . . . 1,473,153 1,867,538
Operating expenses:
Selling, general and
administrative . . . . . . . . . 1,511,124 2,202,742
Research and development . . . . 792,727 2,250,221
Amortization of deferred
gain on sale/leaseback
transactions . . . . . . . . . . - -
Operating income (loss) (830,698) (2,585,425)
<PAGE>
Other expense:
Interest expense
Stated interest, net of interest
income of $12,468, $84,101 and
$71,460 for the years ended
September 30, 1994, 1995 and 1996
and $21,555 and $657 for the
periods ended December 31, 1995
and 1996, respectively . . . . . 39,345 196,660
Imputed warrant interest, non-
cash . . . . . . . . . . . . . . - 1,015,987
Other . . . . . . . . . . . . . - -
(Loss) income before income taxes . (870,043) (3,798,072)
Provision for income taxes . . . . . 15,000 -
Net (loss) income . . . . . . . . . . (885,043) (3,798,072)
Per share data:
Shares used in computation of net
income (loss) . . . . . . . . . 4,438,403 4,438,403
Net income (loss) per share . . . . . $ (.20) $ (.86)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
EMCORE CORPORATION
STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
As of September 30, 1994, 1995, 1996
and December 31, 1996 (unaudited)
<TABLE>
Common Stock Class I Preferred Stock
Shares Amount Shares Amount Discount
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER
30, 1993 . . . . . . . . 58,364 $ 301,924 693,900 $ 1,235,142 $ (934,454)
Current year accretion to
redemption value of Class
III redeemable, convertible
preferred stock, redeemable
at $2.50 per share . . . .
Notes receivable due from
shareholders in connection
with issuance of 146,107
shares of Class IV
redeemable, convertible
preferred stock . . . . . .
Net loss . . . . . . . . .
BALANCE AT SEPTEMBER
30, 1994 . . . . . . . . 58,364 301,924 693,900 1,235,142 (934,454)
Warrants exercised and
conversions . . . . . . . 30,586 92,554 528,450
Repurchase of Class I
Preferred Stock . . . . . .
November 1994 preferred
stock conversions into
common stock and retirement
of preferred treasury
shares . . . . . . . . . . 149,572 15,350,689 1,222,350 (1,235,142) 934,454
August 1995 conversion of
Class A preferred stock into
common stock . . . . . . . 2,755,939 892,399
Net income . . . . . . . .
<PAGE>
BALANCE AT SEPTEMBER
30, 1995 . . . . . . . . 2,994,461 16,637,566
Issuance of common stock
purchase warrants . . . . . 2,340,000
Notes receivable due from
shareholders in connection
with issuance of detachable
warrants . . . . . . . . .
Net loss . . . . . . . . .
BALANCE AT SEPTEMBER
30, 1996 . . . . . . . . 2,994,461 $18,977,566 $ $
Issuance of common stock
purchase warrants . . . . . 3,600,000
Net loss . . . . . . . . .
BALANCE AT DECEMBER
31, 1996 . . . . . . . . 10,181,168 $22,577,566 $ $
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Total
Shareholders' Shareholders'
Accumulated Treasury Notes Equity
Deficit Stock Receivable (Deficit)
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER
30, 1993 . . . . . . . . $(15,087,291) $ (28,104) -- $(14,512,783)
Current year accretion to
redemption value of Class
III redeemable, convertible
preferred stock, redeemable
at $2.50 per share . . . . (1,240,857) (1,240,857)
Notes receivable due from
shareholders in connection
with issuance of 146,107
shares of Class IV
redeemable, convertible
preferred stock . . . . . . $(146,107) (146,107)
Net loss . . . . . . . . . (169,809) (169,809)
BALANCE AT SEPTEMBER
30, 1994 . . . . . . . . (16,497,957) (28,104) (146,107) (16,069,556)
Warrants exercised and
conversions . . . . . . . 92,554
Repurchase of Class I
Preferred Stock . . . . . . (12,645) (12,645)
November 1994 preferred
stock conversions into
common stock and retirement
of preferred treasury
shares . . . . . . . . . . 40,749 15,090,750
August 1995 conversion of
Class A preferred stock into
common stock . . . . . . . 892,399
Net income . . . . . . . . 1,515,980 1,515,980
The accompanying notes are an integral part of these financial statements.
<PAGE>
BALANCE AT SEPTEMBER
30, 1995 . . . . . . . . (14,981,977) - (146,107) 1,509,482
Issuance of common stock
purchase warrants . . . . . 2,340,000
Notes receivable due from
shareholders in connection
with issuance of detachable
warrants . . . . . . . . . (151,579) (151,579)
Net loss . . . . . . . . . (3,176,314) (3,176,314)
BALANCE AT SEPTEMBER
30, 1996 . . . . . . . . $(18,158,291) $ $(297,686) $ 521,589
Issuance of common stock
purchase warrants . . . . . 3,600,000
Net loss . . . . . . . . . (3,798,072) $(3,798,072)
BALANCE AT DECEMBER
31, 1996 . . . . . . . . $(21,956,363) $ $(297,686) $(323,517)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
EMCORE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED SEPTEMBER 30,
1994 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (loss) income . . . . . . . . . . . $ (169,809) $ 1,515,980 $ (3,176,314)
Adjustments to reconcile net (loss)
income to net cash provided by (used
for) operating activities:
Depreciation and amortization . . 599,114 887,132 1,871,016
Provision for doubtful accounts . 22,101 95,430 146,418
Provision for inventory valuation 24,849 15,379 105,000
Detachable warrant accretion . . . - - 125,792
Amortization of deferred gain on
sale/leaseback transactions . . . (51,846) - -
CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable . . . . . . . (1,041,443) (353,895) (1,041,956)
Inventories . . . . . . . . . . . (256,427) (2,209,540) (4,410,566)
Costs in excess of billings on
uncompleted contracts . . . . . . 25,876 17,282 (2,882)
Prepaid expenses and other
current assets . . . . . . . . . . (2,319) (18,858) (26,784)
Other assets . . . . . . . . . . . (74,333) (8,988) (468,565)
Accounts payable . . . . . . . . . 408,039 1,100,338 3,398,078
Accrued expenses . . . . . . . . . 82,617 538,719 777,899
Advanced billings . . . . . . . . 1,006,984 1,176,831 1,122,667
Billings in excess of costs
on uncompleted contracts . . . . . - 306,359 (306,359)
Unearned service revenue . . . . . - - 12,315
Total adjustments . . . . . . . . . . . 743,212 1,546,189 1,302,073
Net cash and cash equivalents provided
by (used for) operating activities . . 573,403 3,062,169 (1,874,241)
The accompanying notes are an integral part of these financial statements.
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . (1,153,722) (1,316,968) (7,090,869)
Net cash and cash equivalents used for
investing activities . . . . . . . . . (1,153,722) (1,316,968) (7,090,869)
Proceeds from demand note
facility . . . . . . . . . . . . . . . - - -
Proceeds from subordinated
note issuance . . . . . . . . . . . . . - - 11,009,600
Proceeds from the exercise of stock
purchase warrants . . . . . . . . . . . - 102,554 -
Repurchase of Class I preferred stock . - (12,645) -
Proceeds from the issuance of Class IV
Preferred Stock . . . . . . . . . . . . 61,583 -
Payments on long-term debt and capital
lease obligations . . . . . . . . . . . (94,287) - (3,000,000)
Proceeds from 7.5% convertible notes
payable . . . . . . . . . . . . . . . . 1,000,000 - -
Net cash and cash equivalents provided
by financing activities . . . . . . . . 967,296 89,909 8,009,600
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . 386,977 1,835,110 (955,510)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . 100,809 487,786 2,322,896
Cash and cash equivalents at end
of period . . . . . . . . . . . . . . . $ 487,786 $ 2,322,896 $ 1,367,386
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest . . . . . . . . $ 170,174 $ 285,413 $ 276,012
Cash paid for income taxes . . . . . . $ - - 55,000
Non-cash expenditures for purchases of
property and equipment included in $
accounts payable . . . . . . . . . . . - - $ 328,000
Reference is made to Note 11 - Preferred
Stock - for disclosure relating to
certain non-cash equity transactions .
Reference is made to Note 8 - Long-term
debt for disclosure relating to certain
non-cash warrant issuances . . . . . .
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
(UNAUDITED)
PERIOD ENDED DECEMBER 31,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income . . . . . . . . . . . . . . . . . $ (885,043) $(3,798,072)
Adjustments to reconcile net (loss) income to net
cash provided by (used for) operating activities:
Depreciation and amortization . . . . . . 314,927 1,017,060
Provision for doubtful accounts . . . . . 18,000 60,000
Provision for inventory valuation . . . . 9,000 60,000
Detachable warrant accretion . . . . . . . - 1,015,987
Amortization of deferred gain on
sale/leaseback transactions . . . . . . . - -
CHANGE IN ASSETS AND LIABILITIES:
Accounts receivable . . . . . . . . . . . (1,204,874) (3,661,764)
Inventories . . . . . . . . . . . . . . . (1,533,787) (1,721,829)
Costs in excess of billings on uncompleted
contracts . . . . . . . . . . . . . . . . (29,013) (37,925)
Prepaid expenses and other
current assets . . . . . . . . . . . . . . 7,220 17,027
Other assets . . . . . . . . . . . . . . . (80) (191,584)
Accounts payable . . . . . . . . . . . . . 1,659,614 1,054,632
Accrued expenses . . . . . . . . . . . . . 201,311 269,306
Advanced billings . . . . . . . . . . . . 2,667,185 1,609,417
Billings in excess of costs
on uncompleted contracts . . . . . . . . . - -
Unearned service revenue . . . . . . . . . - (12,315)
Total adjustments . . . . . . . . . . . . . . . . . 2,109,503 (521,988)
Net cash and cash equivalents provided by
(used for) operating activities . . . . . . . . . . 1,224,460 (4,320,060)
The accompanying notes are an integral part of these financial statements
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . (2,044,216) (1,145,873)
Net cash and cash equivalents used for investing
activities . . . . . . . . . . . . . . . . . . . . (2,044,216) (1,145,873)
Proceeds from demand note facility . . . . . . . . - 6,000,000
Proceeds from subordinated note issuance . . . . . - -
Proceeds from the exercise of stock purchase
warrants . . . . . . . . . . . . . . . . . . . . . - -
Repurchase of Class I preferred stock . . . . . . . - -
Proceeds from the issuance of Class IV Preferred
Stock . . . . . . . . . . . . . . . . . . . . . . .
Payments on long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . . - -
Proceeds from 7.5% convertible notes payable . . . - -
Net cash and cash equivalents provided by financing
activities . . . . . . . . . . . . . . . . . . . . - 6,000,000
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . (819,756) 534,067
Cash and cash equivalents at beginning of period . 2,322,896 1,367,386
Cash and cash equivalents at end of period . . . . $ 1,503,140 $ 1,901,453
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . $ 14,499 $ 280,000
Cash paid for income taxes . . . . . . . . . . . . - -
Non-cash expenditures for purchases of property and
equipment included in accounts payable . . . . . . - 338,000
Reference is made to Note 11 - Preferred Stock -
for disclosure relating to certain non-cash
equity transactions . . . . . . . . . . . . . . . .
Reference is made to Note 8 - Long-term debt for
disclosure relating to certain non-cash warrant
issuances . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
EMCORE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
EMCORE is a designer and developer of compound semiconductor materials
and process technology and a manufacturer of production systems used to
fabricate compound semiconductor wafers. Compound semiconductors are used
in a broad range of applications in wireless communications,
telecommunications, computers, and consumer and automotive electronics.
The Company has recently capitalized on its technology base by expanding
into the design and production of compound semiconductor wafers and
package-ready devices. The Company offers its customers a complete,
vertically-integrated solution for the design, development and production
of compound semiconductor wafers and devices.
For the year ended September 30, 1996, the Company generated an
operating loss and a negative cash flow from operations. The Company's
operations are subject to a number of risks, including but not limited to
a history of losses, future capital needs, dependence on key personnel,
competition and risk of technological obsolescence, governmental
regulations and approvals and limited compound semiconductor manufacturing
and marketing capabilities. The Company's operations for the year ended
September 30, 1996, were primarily funded through two subordinated debt
issuances completed in May and September of 1996, amounting to $8.5 million
and $2.5 million, respectively, of cash proceeds (see Note 8). A portion
of the proceeds was used to extinguish $3 million of debt due under a
convertible debt agreement. The Company's operating and financing plans
include, among other things, (i) attempting to improve operating cash flow
through increased sales of compound semiconductor systems, wafers and
package-ready devices, (ii) managing its cost structure to its anticipated
level of revenues and (iii) seeking equity and debt financing sufficient to
meet its obligations on a long-term basis in order to fund its business
expansion plans. On October 25, 1996, the Company entered into a $10.0
million demand note facility to finance its operating and capital
requirements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information. The financial information as of
December 31, 1996 and for the three-month periods ended December 31, 1995
and 1996 is unaudited but includes all adhustments (consisting only of
normal recurring accruals) that the Company considers necessary for a fair
presentation of the the financial position at such date and the operating
results and cash flows for those periods. Operating results for the three
months ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year.
Cash and Cash Equivalents. The Company considers all highly liquid
short-term investments purchased with an original maturity of three months
or less to be cash equivalents. The Company had approximately $1,205,000
and $106,000 in cash equivalents at September 30, 1995 and 1996,
respectively.
Inventories. Inventories are stated at the lower of FIFO (first-in,
first-out) cost or market. Reserves are established for slow moving or
obsolete inventory based upon historical and anticipated usage.
Property and Equipment. Property and equipment are stated at cost.
Significant renewals and betterments are capitalized. Maintenance and
repairs which do not extend the useful lives of the respective assets are
expensed.
<PAGE>
Depreciation is recorded using the straight line method over the
estimated useful lives of the applicable assets, which range from three to
five years. Leasehold improvements are amortized using the straight-line
method over the term of the related leases or the estimated useful lives of
the improvements, whichever is less.
When assets are retired or otherwise disposed of, the assets and
related accumulated depreciation accounts are adjusted accordingly, and any
resulting gain or loss is recorded in current operations.
In the event that facts and circumstance indicate that the value of
assets may be impaired an evaluation of recoverability is performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the assets carrying amount
to determine if an adjustment to the carrying amount is required.
Deferred Costs. Included in other assets are deferred costs related
to obtaining product patents and long-term debt refinancing. Such costs
are being amortized over a three to five year period, respectively.
Amortization expense amounted to approximately $56,000, $58,000 and
$128,000 for the years ended September 30, 1994, 1995 and 1996,
respectively.
As of December 31, 1996 deferred cost also included $2,700,000
associated with the warrants issued in connection with the guarantee of the
October demand note facility (See Note 8). It is the Company's intention
to pay down its outstanding notes and to terminate the demand note facility
upon the closing of the initial public offering. Therefore, the Company is
amortizing such debt issuance costs over the estimated period that the
facility will be in place (approximately four months) from December 6,
1996, the date the Company's Board of Directors approved the issuance of
the warrants and instructed management that the facility could be utilized.
Amortization expense for the quarter ending December 31, 1996 was $900,000,
which was reflected as interest expense.
Income Taxes. During fiscal 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 required a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Under SFAS No. 109, the effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the
enactment date. Under the deferred method, deferred taxes were recognized
at the tax rate applicable to the year in which the difference between
financial statement carrying amounts and the corresponding tax bases arose.
Revenue and Cost Recognition.
Systems, Components and Service Revenues
Revenue from systems sales is recorded by shipment, when title passes
to the customer. Subsequent to product shipment, the Company incurs
certain installation costs at the customer's facility and warranty costs
which are estimated and accrued at the time the sale is recorded.
Component sales and service revenues are recognized when goods are
shipped or services are rendered to the customer. Service revenue under
contracts with specified service terms is recognized as earned over the
service period in accordance with the terms of the applicable contract.
Costs in connection with the procurement of the contracts are charged to
<PAGE>
expense as incurred.
Contract Revenue
The Company's research contracts require the development or evaluation
of new material applications and have a duration of six to thirty-six
months. For research contracts with the U.S. Government and commercial
enterprises, with durations greater than six months, the Company recognizes
revenue to the extent of costs incurred plus the estimated gross profit as
stipulated in such contracts, based upon contract performance.
Contracts with a duration of six months or less are accounted for on
the completed contract method. A contract is considered complete when all
costs, except insignificant items, have been incurred, and the research
reporting requirements to the customer have been met.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation costs, as well as coverage of
certain general and administrative costs. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Revenues from contracts amounted to approximately $1,295,000,
$1,321,000, $3,295,000 for the years ended September 30, 1994, 1995 and
1996, respectively.
Research and Development. Research and development costs related to
the development of both present and future products and Company sponsored
materials application research are charged to expense as incurred.
Fair Value of Financial Instruments. The Company has estimated fair
value based upon discounted cash flow analyses using the Company's
incremental borrowing rate on similar instruments as the discount rate. As
of September 30, 1996, the carrying values of the Company's cash and cash
equivalents, receivables and accounts payable recorded on the accompanying
balance sheets approximate fair value. As of September 30, 1996, the fair
value of the Company's subordinated debt exceeded the carrying value by
approximately $387,000.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates also affect
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
The Company's most significant estimates relate to accounts receivable
and inventory valuation reserves, warranty and installation reserves,
estimates of cost and related gross profits on certain research contracts
and the valuation of long-lived assets.
NET (LOSS) INCOME PER SHARE
Net (loss) income per share data included in accompanying statement of
operations was calculated pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 64 ("SAB No. 64"). Under the
provisions of SAB No. 64, common stock and common equivalent shares issued
by the Company at prices below the initial public offering price within one
year or in contemplation of the Company's offering are treated as if they
were outstanding for all periods presented (using the treasury stock
method). Accordingly, the weighted average number of shares outstanding
has been increased by 1,443,936 equivalent shares, reflecting the common
stock purchase warrants and stock options issued during the twelve months
<PAGE>
preceding the filing date of the registration statement relating to the
Company's initial public offering. The preferred stock restructuring
activities described in Note 11 have been treated as a recapitalization for
purposes of calculating earnings per share.
The historic per share data, in the following table, has been computed
based on the income or loss for the period divided by the weighted average
number of shares of common stock outstanding. The weighted average number
of shares outstanding excludes the number of common shares issuable upon
the exercise of outstanding stock options and warrants since such inclusion
would be anti-dilutive.
<TABLE>
(UNAUDITED)
YEARS ENDED SEPTEMBER 30, PERIOD ENDING DECEMBER 31,
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Weighted average number of 2,958,970 3,205,711 2,994,461 2,944,461 2,944,461
common shares outstanding . .
Net income (loss) per share . . $ (.06) $ .47 $ (1.06) $ (.30) $ (1.27)
</TABLE>
Reclassifications. Prior period balances have been reclassified to
conform with the current period financial statement presentations.
New Accounting Standards. In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). This pronouncement establishes accounting standards
for when impairment losses relating to long-lived assets, identifiable
intangibles and goodwill related to those assets should be recognized and
how the losses should be measured. The Company plans to implement SFAS No.
121 in fiscal 1997. The adoption of SFAS No. 121 is not expected to have
an impact on the Company's financial position or results of operations
since Emcore's current policy is to monitor assets for impairment and
record any necessary write-downs.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock
Based Compensation" ("SFAS No. 123"). The provision of SFAS No. 123 sets
forth the method of accounting for stock based compensation based on the
fair value of stock options and similar instruments, but does not require
the adoption of this preferred method. SFAS No. 123 also requires the
disclosure of additional information about stock compensation plans, even
if the preferred method of accounting is not adopted. The Company plans to
implement SFAS No. 123 in fiscal 1997. The Company does not intend to
change its method of accounting for stock based compensation to the
preferred method under SFAS No. 123, but instead will continue to apply the
provisions of No. 25 "Accounting for Stock Issued to Employees." However,
the Company will disclose the pro forma effect of SFAS No. 123 on net
income and earnings per share.
NOTE 3. CONCENTRATION OF CREDIT RISK
The Company sells its compound semiconductor systems domestically and
internationally. The Company also sells wafers and package-ready devices
in the U.S. The Company's international sales are generally made under
letter of credit arrangements.
For the years ended September 30, 1994, 1995 and 1996, the Company
sold 59%, 36%, and 43% of its products to foreign customers, respectively.
<PAGE>
The Company's sales to major customers were as follows:
<TABLE>
AS OF SEPTEMBER 30,
1994 1995 1996
<S> <C> <C> <C>
Customer A . . . . . . . . . . . . . . . . . . . $ - $ 5,238,620 $6,558,930
Customer B . . . . . . . . . . . . . . . . . . . 1,870,871 887,390 2,075,722
Customer C . . . . . . . . . . . . . . . . . . . - 1,036,000 1,530,000
Customer D . . . . . . . . . . . . . . . . . . . 749,000 2,092,986 -
Total . . . . . . . . . . . . . . . . . . . . . . $ 2,619,871 $ 9,254,996 $ 10,164,652
</TABLE>
The Company's performs material application research under contract
with the U.S. Government or as a subcontractor of U.S. Government funded
projects.
The Company performs ongoing credit evaluations of its customers'
financial condition and collateral is not requested. The Company maintains
reserves for potential credit losses based upon the credit risk of specific
customers, historical trends and other information. To reduce credit risk,
and to fund manufacturing costs, the Company requires periodic prepayments
on equipment orders. Credit losses have generally not exceeded the
Company's expectations.
The Company has temporary cash investments with financial institutions
in excess of the $100,000 insured limit of the Federal Deposit Insurance
Corporation.
NOTE 4. INVENTORIES
The components of inventories consisted of the following:
<TABLE>
AS OF DECEMBER
AS OF SEPTEMBER 30, 31,
(UNAUDITED)
1995 1996 1996
<S> <C> <C> <C>
Raw materials . . . . . . . . . . . $ 2,330,991 $ 4,964,917 $ 4,978,786
Work-in-progress . . . . . . . . . 646,696 2,680,123 4,328,083
Finished goods . . . . . . . . . . 361,787 -- --
$ 3,339,474 $ 7,645,040 $ 9,306,869
</TABLE>
<PAGE>
NOTE 5. PROPERTY AND EQUIPMENT
Major classes of property and equipment are summarized below:
<TABLE>
AS OF DECEMBER
AS OF SEPTEMBER 30, 31,
(UNAUDITED)
1995 1996 1996
<S> <C> <C> <C>
Equipment . . . . . . . . . . . . . . . $ 6,617,014 $ 11,748,577 $ 12,661,667
Furniture and fixtures . . . . . . . . 904,326 1,650,488 1,859,317
Leasehold improvements . . . . . . . . 605,890 2,147,034 2,180,987
8,127,230 15,546,099 16,701,971
Less: accumulated depreciation and (6,006,446) (7,749,267) (8,761,617)
amortization
$ 2,120,784 $ 7,796,832 $ 7,940,354
</TABLE>
The provisions for depreciation and amortization amounted to
approximately $543,000, $829,000 and $1,743,000 for the years ended
September 30, 1994, 1995 and 1996, respectively and $300,270 and
$1,012,350 for the three-month periods ended December 31, 1995 and 1996,
respectively.
Included in equipment above are twelve systems, ten systems and eight
systems with a combined net book value of approximately $1,220,000,
$2,124,000 and $2,792,000 at September 30, 1995 and 1996 and December 31,
1996, respectively. Such systems are utilized for systems demonstration
purposes, in-house materials applications research, contract research
funded by third parties, system sales support and the production of
compound semiconductor wafers and package-ready devices for sale to third
parties.
<PAGE>
NOTE 6. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Costs incurred and billings on uncompleted contracts are summarized
below:
<TABLE>
AS OF SEPTEMBER 30,
1995 1996
<S> <C> <C>
Costs incurred on uncompleted contracts . . . . . . . . . . . . . $ 178,081 $ 19,322
Billings applicable to uncompleted contracts . . . . . . . . . . (468,000) -
$ (289,919) $ 19,322
The uncompleted contract costs and billings are classified in
the accompanying balance sheets under the following captions:
Costs in excess of billings on
uncompleted contracts . . . . . . . . . . . . . . . . . . . . . . $ 16,440 $ 19,322
Billings in excess of costs on
uncompleted contracts . . . . . . . . . . . . . . . . . . . . . . (306,359) -
$ (289,919) $ 19,322
</TABLE>
<PAGE>
NOTE 7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
(UNAUDITED)
AS OF
AS OF SEPTEMBER 30, DECEMBER 31,
1995 1996 1996
<S> <C> <C> <C>
Accrued payroll,
vacation and other
employee expenses . . . $ 476,505 $ 990,538 $ 1,192,898
Installation and
warranty costs . . . . 389,676 562,231 747,472
Interest . . . . . . . 177,048 269,315 156,835
Other . . . . . . . . . 165,518 164,562 158,747
$ 1,208,747 $ 1,986,646 $ 2,255,952
</TABLE>
NOTE 8. LONG-TERM DEBT
On May 1, 1996, the Company issued subordinated notes (the
"Subordinated Notes") in the amount of $9,500,000 to its existing
shareholders, $1,000,000 of which were exchanged for notes receivable from
officers and certain employees with identical payment and interest
provisions. The Subordinated Notes are scheduled to mature on May 1, 2001,
have a stated interest rate of 6.0% which is payable semi-annually on May 1
and November 1. In addition, the noteholders were issued 2,328,432 common
stock purchase warrants with an exercise price of $4.08 per share which
expire on May 1, 2001. The warrants are exercisable after November 1, 1996
and are callable at the Company's option, after May 1, 1997, at $0.85 per
warrant. The Company has the legal right of offset with respect to the
note receivable from officers and certain key employees, and it is their
full intention to offset the corresponding notes receivable and payable
upon maturity. As such, the Company reflected $848,000 of the officers'
and employees' notes receivable as a contra liability, reducing the
Company's Subordinated Notes balance. The remaining $152,000 note
receivable has been reflected in the contra equity note receivable account,
representing the portion of the employee note receivable associated with
common stock purchase warrants issued to them. The Company received cash
proceeds of $8,500,000 in connection with this Subordinated Notes issuance.
On September 1, 1996, the Company issued a subordinated note in the
amount of $2,500,000 to the Company's majority shareholder with terms
identical to the Subordinated Notes issued on May 1, 1996. In addition,
under the terms of this offering, 245,098 common stock purchase warrants
were issued to purchase common stock at $10.20 per share which expire
September 1, 2001. These warrants are exercisable after March 1, 1997 and
are callable at the Company's option after September 1, 1997 at $0.85 per
warrant.
The Company assigned a value of $1,440,000 to the May 1, 1996
detachable warrants and $900,000 to the September 1, 1996 detachable
<PAGE>
warrants. These valuations were based upon the Company's application of
the Black-Scholes Option Pricing Model, incorporating such factors
including the terms of the warrants, the underlying asset price, volatility
and marketability. In addition, the Company compared the resulting
effective interest rate to those which could be obtained from third-party
creditors. The carrying value of the Subordinated Notes will be subject to
periodic accretions, using the interest method, in order for the carrying
amount to equal the Company's obligation upon maturity. As a result, the
May 1, 1996 and September 1, 1996 Subordinated Notes have an effective
interest rate of approximately 9.3% and 15.0%, respectively.
A portion of the proceeds from the May 1, 1996 Subordinated Notes
issuance was used to extinguish $3,000,000 of debt due to Hakuto & Co. Ltd.
("Hakuto"), the Company's Asian distributor, under a convertible debt
agreement (the "Agreement") scheduled to expire on June 2, 1998. Under the
June 2, 1993 Agreement, the Company was permitted to borrow up to
$3,000,000 at an interest rate of 7.5%. As of September 30, 1995, the
entire $3,000,000 was outstanding.
In connection with the Agreement, the Company issued 10,000 warrants
to Hakuto to purchase shares of the Company's Class IV Preferred Stock at
$1.00 per share (See Note 11). The warrants were exercised on January 1,
1995.
Under the Agreement, the $3,000,000 of debt was convertible into
preferred stock subject to the Company authorizing a new Class V series of
preferred stock prior to March 31, 1998. The debt was convertible in
$1,000,000 increments at a conversion rate of $2.50 per share of Class V
Preferred Stock. In addition, Hakuto had certain rights of first refusal,
with respect to the purchase of the Company through June 2, 1998, and the
distribution of the Company's products in Asia, excluding Taiwan and Korea.
The Agreement was collateralized by all the Company's assets. The
New Jersey Economic Development Authority ("NJEDA") had guaranteed 90% of
the Company's obligation pertaining to $1,000,000 of its outstanding debt.
Under the terms of the Agreement, the Company was required to repay
$1,000,000 of the debt upon expiration of the NJEDA guarantee. The NJEDA
guarantee expired on August 31, 1995, however, the lender permanently
waived the $1,000,000 repayment requirement through the expiration date of
the Agreement.
The Agreement contained certain covenants which included an employment
agreement with the Company's Chief Executive Officer for a period of five
years, and a personal guarantee from the Chief Executive Officer in the
amount of $100,000.
The Company had a $250,000 revolving loan agreement (the "Revolving
Loan") with the NJEDA which expired on February 14, 1996. The Revolving
Loan provided for the advancement of funds upon the Company's receipt of an
export sales contract and required repayment upon receipt of payment from
such customer or one hundred twenty days from the date of the advance. The
loan bore interest at a rate of the Federal Discount Rate (5.25% at
September 30, 1995). The Revolving Loan was collateralized by applicable
outstanding letters of credit. As of September 30, 1995, there were no
amounts outstanding under this facility.
The Revolving Loan Agreement contained restrictive covenants which
included among other restrictions, the Company could not issue any
additional stock, declare dividends, purchase its own stock, transfer
excess funds to an affiliated entity, borrow any funds or grant a
collateral position without the expressed written consent of the NJEDA.
<PAGE>
The Company did not obtain the required written consent of the NJEDA for
the fiscal year 1995 capital restructuring activities as described in Note
11.
On October 25, 1996, the Company entered into a $10.0 million demand
note facility (the "Facility"). The Facility bears interest at the rate of
LIBOR plus 75 basis points, has a term of one year and is due and payable
on demand. The Facility has been guaranteed by the Company's majority
shareholder who has provided collateral for the Facility. In return for
guaranteeing the facility, in December 1996 the Company granted the
majority shareholder 980,392 common stock purchase warrants at $10.20 per
share which expire September 1, 2001. These warrants are exercisable after
July 1, 1997 and are callable at the Company's option after December 1,
1997 at $0.85 per warrant. As of December 31, 1996, the Company has
utilized $6.0 million of the Facility.
The Company assigned a value of $3,600,000 to the warrants issued to
the guarantor. This valuation was based upon the Company's application of
the Black-Scholes Option Pricing Model. This value has been accounted for
as debt issuance cost and is reflected as a deferred cost in the
accompanying December 31, 1996 balance sheet.
NOTE 9. COMMITMENTS AND CONTINGENCIES
On November 16, 1992, the Company entered into a three-year lease
agreement with a bank for 34,000 square feet of space in the building the
Company presently occupies. On March 31, 1995, the agreement was renewed
for 5 years for 49,000 square feet.
The Company leases certain equipment under non-cancelable operating
leases.
Facility and equipment rent expense amounted to approximately
$298,000, $292,000 and $350,000 for the years ended September 30, 1994,
1995 and 1996, respectively.
Future minimum rental payments under the Company's non-cancelable
operating leases with an initial or remaining term of one year or more as
of September 30, 1996 are as follows:
<TABLE>
PERIOD ENDING
SEPTEMBER 30, OPERATING
<S> <C>
1997 $ 322,749
1998 301,120
1999 296,794
2000 126,250
Total minimum lease payments $ 1,046,913
</TABLE>
In November 1996, the Company signed an agreement to occupy the
remaining 26,000 square feet that they previously had not occupied, which
will increase the total future minimum lease payments over the remaining 4
years of the lease by approximately $ 863,000.
The Company is from time to time involved in litigation incidental to
the conduct of its business. Management and its counsel believe that such
pending litigation will not have a material adverse effect on the Company's
results of operations, cash flows or financial condition.
<PAGE>
NOTE 10. INCOME TAXES
As described in Note 2, effective October 1, 1993, the Company adopted
SFAS No. 109. The adoption of SFAS No. 109 did not have an impact on the
financial position of the Company, as a full valuation allowance was
provided against the net deferred tax asset position, as of the date of
adoption, due to the uncertainty of the ultimate realization of such
assets.
Income tax expense consists of the following:
<TABLE>
YEAR ENDED SEPTEMBER 30,
Current: 1994 1995 1996
<S> <C> <C> <C>
Federal . . . . . . . . . . . $ - $ 70,000 $ -
State . . . . . . . . . . . . - 55,000 -
Deferred:
Federal . . . . . . . . . . . - - -
State . . . . . . . . . . . . - - -
Total . . . . . . . . . . . . . . . . . $ - $ 125,000 $ -
</TABLE>
The principal differences between the U.S. statutory and effective income
tax rates were as follows:
<TABLE>
YEAR ENDED SEPTEMBER 30,
1994 1995 1996
<S> <C> <C> <C>
U.S. statutory income tax (benefit)
expense rate . . . . . . . . . . . . . . . . (34.0)% 34.0% (34.0)%
Net operating loss carryforward . . . . . . . (45.4)
Net operating loss not utilized . . . . . . . 34.0 27.7
Expenses not yet deductible for tax purposes 11.4 6.3
AMT and state taxes . . . . . . . . . . . . . 7.6
Effective tax rate . . . . . . . . . . . . . 0.0% 7.6% 0.0%
</TABLE>
<PAGE>
The components of the Company's net deferred taxes were as follows:
<TABLE>
SEPTEMBER 30,
1995 1996
Deferred tax assets:
<S> <C> <C>
Federal net operating
loss carryforwards . . . . . . . . . $ 2,489,641 $ 3,283,003
Research credit carryforwards . . . 237,177 264,966
Inventory reserves . . . . . . . . . 77,313 142,593
Accounts receivable reserves . . . . 55,601 105,383
Interest payable . . . . . . . . . . 84,022
Accrued installation reserve . . . . 68,000 109,684
Accrued warranty reserve . . . . . . 57,721 81,475
State net operating
loss carryforwards . . . . . . . . . 576,095 801,555
Other . . . . . . . . . . . . . . . 85,597 68,858
Valuation reserve - federal . . . . (3,057,926) (4,048,583)
Valuation reserve - state . . . . . (576,095) (801,555)
Total deferred tax assets . . . . . . . . . . 13,124 91,401
Deferred tax liabilities:
Fixed assets and intangibles . . . . . . . . (13,124) (91,401)
Total deferred tax liabilities . . . . . . . (13,124) (91,401)
Net deferred taxes . . . . . . . . . . . . . $ - $ -
</TABLE>
The Company has established a valuation reserve as it has not
determined that it is more likely than not that the deferred tax asset is
realizable, based upon the Company's past earnings history.
As of September 30, 1996, the Company has net operating loss
carryforwards for regular tax purposes of approximately $9,600,000 which
expire in the years 2003 through 2011. The Company believes that the
consummation of certain equity transactions and a significant change in the
ownership, during fiscal year 1995, has constituted a change in control
under Section 382 of the Internal Revenue Code ("IRC"). Due to the change
in control, the Company's ability to use its net operating loss carryovers
and research credit carryovers to offset future income and income taxes,
respectively, are subject to substantial annual limitations under IRC
Section 382 and 383.
NOTE 11. PREFERRED STOCK
Preferred Stock Restructuring Activities. In October 1994, the
Company offered the holders of 1,399,333 Class III preferred stock purchase
warrants the right to convert such warrants into 528,450 shares
(representing a reduced ratio of 1 to .38) of the Company's Class I
preferred stock. All the warrant holders exercised such rights. This
transaction increased the outstanding number of Class I preferred stock to
1,222,350 shares.
In November 1994, in an effort to simplify its capital structure, the
Company's Board of Directors and shareholders approved a capital
restructuring plan (the "Plan"). Pursuant to this Plan, a newly formed and
wholly-owned subsidiary of the Company was formed and merged with and into
the Company. Under the Plan, shares of the Company's Class IV preferred
stock were exchanged for shares of Class A senior convertible preferred
stock at an exchange rate of 1.5 to 1.0. The shares of all other classes
of preferred stock were exchanged into common stock at the following
ratios; Class I preferred stock at 100 to 1.18 and Class III preferred
stock at 100 to 2.94. In addition, the Company effected a reverse stock
<PAGE>
split of .29 for one hundred and retired its preferred treasury stock.
Prior to this exchange, the Class I preferred stockholders were given the
right to have their stock repurchased for $.09 per share. The holders of
approximately 140,000 shares exercised this right, resulting in a stock
repurchase amounting to $12,645.
In August 1995, the outstanding shares of Class A senior convertible
preferred stock were exchanged for shares of common stock on the basis of
seven shares of common stock for each Class A security. This transaction
reduced the classes of stock outstanding to common stock.
As part of the August 1995 restructuring activities, holders of
warrants to purchase common stock were allowed to exercise their warrants
at $3.03 per share, resulting in the exercise of 30,588 warrants for
aggregate cash consideration of $92,554.
In January 1995, the holder of 15,000 warrants to purchase Class A
senior convertible preferred stock exercised their rights by paying $0.67
per share, or $10,000. In August 1995, these 15,000 shares of Class A
preferred stock were converted into 30,882 shares of common stock.
The basis of all exchanges were approved by the Company's Board of
Directors and its shareholders and reflected the priorities of the Class A
securities upon liquidation and other factors.
The following table summarizes the Company's preferred stock
activities from October 1, 1993 through September 30, 1995.
<PAGE>
<TABLE>
Class I Class III
Preferred Stock Preferred Stock
Shares Amount Discount Shares Amount
<S> <C> <C> <C> <C> <C>
Balance at September
30, 1993 696,900 $ 1,235,142 $ (934,454) 6,617,227 $13,849,893
Current year accretion
to redemption value of
Class III redeemable,
convertible preferred
stock, redeemable at
$2.50 per share 1,240,857
Issuance of 207,690
shares of Class IV
redeemable, convertible
preferred stock,
redeemable at $2.50 per
share
Balance at September
30, 1994 696,900 1,235,142 (934,454) 6,617,227 15,090,750
Warrants exercised and
conversions 528,450
November 1994 preferred
stock conversions into
common stock and Class
A preferred stock (1,222,350) (1,235,142) 934,454 (6,617,227) (15,090,750)
August 1995 conversion
of Class A preferred
stock into common stock
Balance at September - $ - $ - - $ -
30, 1995
</TABLE>
<PAGE>
<TABLE>
Class IV Class A
Preferred Stock Preferred Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance at September 30,
1993 674,709 $ 674,709
Current year accretion to
redemption value of Class
III redeemable,
convertible preferred
stock, redeemable at $2.50
per share
Issuance of 207,690 shares
of Class IV redeemable,
convertible preferred
stock, redeemable at $2.50
per share 207,690 207,690
Balance at September 30,
1994 882,399 882,399
Warrants exercised and
conversions 15,000 15,000
November 1994 preferred
stock conversions into
common stock and Class A
preferred stock (882,399) (882,399) 1,323,599 882,399
August 1995 conversion of
Class A preferred stock
into common stock (1,338,599) (882,399)
Balance at September 30, - $ - - $ -
1995
</TABLE>
<PAGE>
Class I Preferred Stock. In connection with the restructuring
described above, as of September 30, 1995 and 1996, there were no issued or
outstanding shares of Class I preferred stock.
Each share of 9% cumulative convertible $1.78 par value preferred
stock was entitled to one vote, a cumulative of 9% annual dividend and
certain preference rights in the event of liquidation. Each preferred
share was convertible into .36 shares of the common stock and could be
redeemed for .36 shares of common stock upon an initial public offering of
the Company's common stock.
Class III Preferred Stock. In connection with the restructuring
described above, as of September 30, 1995 and 1996, there were no issued or
outstanding shares of Class III preferred stock.
Each share of the no par, Class III preferred stock was entitled to
one vote, an annual dividend, when and as declared by the Company's Board
of Directors, of $0.225 per share and had a liquidation preference senior
to the Company's Class I preferred stock. This liquidation preference
entitled each shareholder of the Class III preferred stock to $2.50 per
share, $16,543,068, and an amount equal to such amount received by the
Company's common stock shareholders upon liquidation. The Class III
preferred stock had a mandatory redemption feature which required one-third
of the outstanding stock to be redeemed on December 31, 1994, one-third on
December 31, 1995 and one-third on December 31, 1996, for $2.50 per share
and 0.29 share of the Company's common stock. Further, in the event the
Company was acquired, the Class III preferred stock was required to be
redeemed at $2.50 per share plus one share of the acquiring Company's
common stock. The Class III preferred stock mandatory redemption amount of
$16,543,068 was in excess of the $10,210,678 carrying amount of such stock
as of the Company's March 28, 1990 recapitalization. Accordingly, the
carrying amount was subject to periodic accretions, using the interest rate
method, in order for the carrying amount to equal the mandatory redemption
amount upon redemption. Each Class III preferred share was convertible
into 1 share of common stock.
Class IV Preferred Stock. In connection with the restructuring
described above, as of September 30, 1995 and 1996, there were no issued or
outstanding shares of Class IV preferred stock.
During fiscal year 1993, the Company issued 674,709 shares of Class IV
preferred stock in connection with the conversion of $674,709 of then
outstanding 90-day notes. Each share of the Class IV Stock was entitled to
five (5) votes, an annual dividend, when and as declared by the Company's
Board of Directors, of $0.09 per share, which dividend was cumulative, and
had a liquidation preference senior to all other existing classes of stock.
This liquidation preference entitled each shareholder of Class IV Preferred
Stock to an amount equal to the sum of (i) $1.00 per share, (ii) all
accrued and unpaid dividends, and (iii) 95% of the proceeds up to $14.00
per share.
The Class IV preferred stock had a mandatory redemption feature which
required one-third of the outstanding stock to be redeemed on November 30,
1994, one-third on November 30, 1995 and one-third on November 30, 1996,
for $1.00 per 0.29 share plus 0.29 share of common stock. Each share of
Class IV Preferred Stock was convertible into one share of common stock.
During fiscal year 1994, the Company issued 207,690 shares of Class IV
preferred stock for $1 per share. In connection with such issuance, the
Company entered into notes receivable agreements with certain employees
amounting to $146,107. Such notes have been recorded as a reduction to
equity. The notes bear interest at a rate of 6.0%.
<PAGE>
Class A Preferred Stock. In connection with the restructuring
described above, as of September 30, 1995 and 1996, there were no issued or
outstanding shares of Class A preferred stock.
In August 1995, all 1,338,599 shares of Class A preferred stock were
converted into 2,755,939 shares of common stock. The Class A stock was
issued in connection with the Company's plan to exchange the Class IV
preferred stock at a ratio of 1.5 shares of Class A for each share of Class
IV. The rights and preferences attached to the Class A preferred stock
were similar to the Class IV preferred stock.
NOTE 12. STOCK OPTIONS AND WARRANTS
Stock Option Plan. In November 1994, the Company's Incentive Stock
Option Plan, initiated in 1987, was eliminated. On June 5, 1995, the Board
of Directors approved the 1995 Incentive and Non-Statutory Stock Option
Plan (the "Option Plan") and such plan was subsequently approved at the
annual meeting of shareholders held on June 23, 1995. Under the terms of
the Option Plan, options to acquire 323,529 shares of common stock may be
granted to eligible employees, as defined, at no less than 100 percent of
the fair market value on the date of grant. In March 1996, options to
acquire an additional 323,528 shares of common stock was approved.
Certain options under the Option Plan are intended to qualify as
incentive stock options pursuant to Section 422A of the Internal Revenue
Code. Options with respect to 281,470 and 339,412 shares were outstanding
at September 30, 1995 and 1996 at an exercise prices ranging from $3.03 to
$10.20 per share. At September 30, 1994, options with respect to 32,794
shares were outstanding under previous plan at exercise prices ranging from
$1.70 to $8.50 per share.
Stock options granted generally vest over three to five years and are
exercisable over a six year period. As of September 30, 1994, 1995 and
1996, options with respect to 28,618, 100,382 and 162,764 shares were
exercisable, respectively.
<PAGE>
The following table summarizes the activity under the plan:
Outstanding as of
September 30, 1994
Granted 32,794
Exercised 281,470
Cancelled (32,794)
Outstanding as of
September 30, 1995
Granted 281,470
Exercised 57,942
Cancelled
Outstanding as of
September 30, 1996 339,412
Warrants. In connection with the capital restructuring plan described
in Note 11 above, certain of the Company's outstanding preferred stock
purchase warrants were exchanged for common stock purchase warrants. Set
forth below is a summary of the Company's outstanding warrants at
September 30, 1996:
<PAGE>
<TABLE>
EXERCISE
SECURITY PREVIOUS SECURITY PRICE WARRANTS EXPIRATION DATE
<S> <C> <C> <C> <C>
Common Stock Class III preferred $17.00 9,102 July 24, 1997
stock
Common Stock - $4.08 2,330,784 May 1, 2001
Common Stock - $10.20 245,097 September 1, 2001
</TABLE>
The above table excludes: (i) Class III preferred stock purchase
warrants which were exchanged for Class I preferred stock in October 1994,
(ii) warrants exercised in August 1995, as described in Note 11 and (iii)
warrants to purchase 15,000 shares of Class A senior convertible preferred
stock which were exercised in January 1995, as described in Note 8 and 11.
As described in Note 8 in December 1996, the Company issued an
additional 980,392 common stock purchase warrants with a $10.20 exercise
price and September 1, 2001 expiration date.
<PAGE>
NOTE 13. RELATED PARTIES
In May 1995, 52% of the Company's outstanding shares of Common Stock
were purchased by Jesup & Lamont, L.L.C. ("JLMP"). Since that date four of
the Company's six directors have been members of JLMP. As of September 30,
1996, JLMP has an ownership interest in the Company of approximately 59.8%.
In May 1995, the Company entered into a consulting agreement with Jesup &
Lamont Capital Markets, Inc. ("Jesup & Lamont") (the "Agreement") pursuant
to which Jesup & Lamont agreed to provide financial advisory and employee
services for the Company for one year. Total fees paid to Jesup & Lamont
amounted to approximately $241,697 and $288,385 for the years ended
September 30, 1995 and 1996, respectively.
In December 1996, the Company's chairman and chief executive officer
retired. The Company has entered into a consulting agreement with him for
a term of two years and will provide compensation of $250,000 per annum.
In addition, the Company has also forgiven $115,300 of his indebtedness to
the Company and has agreed to extend the period for the exercise of his
vested stock options to March 4, 1997.
NOTE 13. EXPORT SALES
The information below summarizes the Company's export sales by
geographic area.
The Company's export sales are as follows:
<TABLE>
FAR EAST EUROPE TOTAL
<S> <C> <C> <C>
Year ended September 30, 1994 $ 4,974,957 $ 319,788 $ 5,294,745
Year ended September 30, 1995 $ 3,978,118 $2,546,301 $ 6,524,419
Year ended September 30, 1996 $ 8,209,309 $3,588,066 $ 11,797,375
</TABLE>
NOTE 15. SUBSEQUENT EVENTS
On December 6, 1996, the Board of Directors authorized management of
the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common
stock to the public.
On February 3, 1997, the Board of Directors approved a 3.4:1 reverse
stock split of its Common Stock and approved a decrease in the number of
shares of Common Stock authorized. All references in the accompanying
financial statements to the number of Common Stock and per-share amounts
have been restated to reflect the reverse split.
<PAGE>
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any of
the Underwriters. This Prospectus does not constitute an offer to sell or
the solicitation of an offer to buy any securities other than the
securities to which it relates or any offer to sell or the solicitation of
an offer to buy such securities in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
Table of Contents
Page
Prospectus Summary . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . 16
Dividend Policy . . . . . . . . . . . . 16
Capitalization . . . . . . . . . . . . 17
Dilution . . . . . . . . . . . . . . . 18
Selected Financial Data . . . . . . . . 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operation . . . . . . . 20
Business . . . . . . . . . . . . . . . 28
Management . . . . . . . . . . . . . . 40
Certain Transactions . . . . . . . . . 46
Principal Shareholders . . . . . . . . 49
Description of Capital Stock . . . . . 51
Shares Eligible for Future Sale . . . . 54
Underwriting . . . . . . . . . . . . . 56
Legal Matters . . . . . . . . . . . . . 57
Experts . . . . . . . . . . . . . . . . 57
Additional Information . . . . . . . . 58
Index to Financial Statements . . . . . F-1
Until _______ __, 1997 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
2,500,000 SHARES
[LOGO]
EMCORE CORPORATION
COMMON STOCK
PROSPECTUS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
NEEDHAM & COMPANY, INC.
FEBRUARY __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection
with the sale and distribution of the securities being registered, other
than underwriting discounts and commissions. All amounts shown are
estimates except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market application fee.
To Be Paid
By The
Registrant*
Securities and Exchange Commission
registration fee . . . . . . . . . . . . $ 9,090.91
NASD filing fee . . . . . . . . . . . . 3,500.00
Nasdaq National Market application fee . 19,375.00
Accounting fees and expenses . . . . . . 180,000.00
Printing expenses . . . . . . . . . . . 35,000.00
Transfer agent and registrar fees . . . 2,000.00
Blue Sky fees and expenses . . . . . . . 5,000.00
Legal fees and expenses . . . . . . . . 450,000.00
Other expenses . . . . . . . . . . . . . 6,034.09
Total . . . . . . . . . . . . . . . $710,000.00
______________
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that the
Company shall indemnify its directors and officers to the full extent
permitted by New Jersey law, including in circumstances in which
indemnification is otherwise discretionary under New Jersey law.
Section 14A:2-7 of the New Jersey Business Corporation Act provides that a
New Jersey corporation's:
"certificate of incorporation may provide that a director or officer
shall not be personally liable, or shall be liable only to the extent
therein provided, to the corporation or its shareholders for damages for
breach of any duty owed to the corporation or its shareholders, except that
such provision shall not relieve a director or officer from liability for
any breach of duty based upon an act or omission (a) in breach of such
person's duty of loyalty to the corporation or its shareholders, (b) not in
good faith or involving a knowing violation of law or (c) resulting in
receipt by such person of an improper personal benefit. As used in this
subsection, an act or omission in breach of a person's duty of loyalty
means an act or omission which that person knows or believes to be contrary
to the best interests of the corporation or its shareholders in connection
with a matter in which he has a material conflict of interest."
In addition, Section 14A:3-5 (1995) of the New Jersey Business
Corporation Act (1995) provides as follows:
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
(1) As used in this section,
(a) "Corporate agent" means any person who is or was a director,
officer, employee or agent of the indemnifying corporation or of any
<PAGE>
constituent corporation absorbed by the indemnifying corporation in a
consolidation or merger and any person who is or was a director, officer,
trustee, employee or agent of any other enterprise, serving as such at the
request of the indemnifying corporation, or of any such constituent
corporation, or the legal representative of any such director, officer,
trustee, employee or agent;
(b) "Other enterprise" means any domestic or foreign corporation, other
than the indemnifying corporation, and any partnership, joint venture, sole
proprietorship, trust or other enterprise, whether or not for profit,
served by a corporate agent;
(c) "Expenses" means reasonable costs, disbursements and counsel fees;
(d) "Liabilities" means amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties;
(e) "Proceeding" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein and any inquiry or investigation which could lead to such
action, suit or proceeding; and
(f) References to "other enterprises" include employee benefit plans;
references to "fines" include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the indemnifying corporation" include any service as a corporate
agent which imposes duties on, or involves services by, the corporate agent
with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner the
person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in
a manner "not opposed to the best interests of the corporation" as referred
to in this section.
(2) Any corporation organized for any purpose under any general or
special law of this State shall have the power to indemnify a corporate
agent against his expenses and liabilities in connection with any
proceeding involving the corporate agent by reason of his being or having
been such a corporate agent, other than a proceeding by or in the right of
the corporation, if
(a) such corporate agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; and
(b) with respect to any criminal proceeding, such corporate agent had no
reasonable cause to believe his conduct was unlawful. The termination of
any proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent, shall not of itself create a presumption
that such corporate agent did not meet the applicable standards of conduct
set forth in paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b).
(3) Any corporation organized for any purpose under any general or
special law of this State shall have the power to indemnify a corporate
agent against his expenses in connection with any proceeding by or in the
right of the corporation to procure a judgment in its favor which involves
the corporate agent by reason of his being or having been such corporate
agent, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation. However, in
such proceeding no indemnification shall be provided in respect of any
claim, issue or matter as to which such corporate agent shall have been
adjudged to be liable to the corporation, unless and only to the extent
that the Superior Court or the court in which such proceeding was brought
shall determine upon application that despite the adjudication of
liability, but in view of all circumstances of the case, such corporate
<PAGE>
agent is fairly and reasonably entitled to indemnity for such expenses as
the Superior Court or such other court shall deem proper.
(4) Any corporation organized for any purpose under any general or
special law of this State shall indemnify a corporate agent against
expenses to the extent that such corporate agent has been successful on the
merits or otherwise in any proceeding referred to in subsections 14A:3-5(2)
and 14A:3-5(3) or in defense of any claim, issue or matter therein.
(5) Any indemnification under subsection 14A:3-5(2) and, unless ordered
by a court, under subsection 14A:3-5(3) may be made by the corporation only
as authorized in a specific case upon a determination that indemnification
is proper in the circumstances because the corporate agent met the
applicable standard of conduct set forth in subsection 14A:3-5(2) or
subsection 14A:3-5(3). Unless otherwise provided in the certificate of
incorporation or bylaws, such determination shall be made
(a) by the board of directors or a committee thereof, acting by a
majority vote of a quorum consisting of directors who were not parties to
or otherwise involved in the proceeding; or
(b) if such a quorum is not obtainable, or, even if obtainable and such
quorum of the board of directors or committee by a majority vote of the
disinterested directors so directs, by independent legal counsel, in a
written opinion, such counsel to be designated by the board of directors;
or
(c) by the shareholders if the certificate of incorporation or bylaws or
a resolution of the board of directors or of the shareholders so directs.
(6) Expenses incurred by a corporate agent in connection with a
proceeding may be paid by the corporation in advance of the final dis-
position of the proceeding as authorized by the board of directors upon
receipt of an undertaking by or on behalf of the corporate agent to repay
such amount if it shall ultimately be determined that he is not entitled to
be indemnified as provided in this section.
(7) (a) If a corporation upon application of a corporate agent has
failed or refused to provide indemnification as required under subsection
14A:3-5(4) or permitted under subsections 14A:3-5(2), 14A:3-5(3) and
14A:3-5(6), a corporate agent may apply to a court for an award of
indemnification by the corporation, and such court
(i) may award indemnification to the extent authorized under subsections
14A:3-5(2) and 14A:3-5(3) and shall award indemnification to the extent
required under subsection 14A:3-5(4), notwithstanding any contrary deter-
mination which may have been made under subsection 14A:3-5(5); and
(ii) may allow reasonable expenses to the extent authorized by, and
subject to the provisions of, subsection 14A:3-5(6), if the court shall
find that the corporate agent has by his pleadings or during the course of
the proceeding raised genuine issues of fact or law.
(b) Application for such indemnification may be made:
(i) in the civil action in which the expenses were or are to be incurred
or other amounts were or are to be paid; or
(ii) to the Superior Court in a separate proceeding. If the application
is for indemnification arising out of a civil action, it shall set forth
reasonable cause for the failure to make application for such relief in the
action or proceeding in which the expenses were or are to be incurred or
other amounts were or are to be paid.
The application shall set forth the disposition of any previous
<PAGE>
application for indemnification and shall be made in such manner and form
as may be required by the applicable rules of court or, in the absence
thereof, by direction of the court to which it is made. Such application
shall be upon notice to the corporation. The court may also direct that
notice shall be given at the expense of the corporation to the shareholders
and such other persons as it may designate in such manner as it may
require.
(8) The indemnification and advancement of expenses provided by or
granted pursuant to the other subsections of this section shall not exclude
any other rights, including the right to be indemnified against liabilities
and expenses incurred in proceedings by or in the right of the corporation,
to which a corporate agent may be entitled under a certificate of
incorporation, bylaw, agreement, vote of shareholders, or otherwise;
provided that no indemnification shall be made to or on behalf of a
corporate agent if a judgment or other final adjudication adverse to the
corporate agent establishes that his acts or omissions (a) were in breach
of his duty of loyalty to the corporation or its shareholders, as defined
in subsection (3) of N.J.S.14A:2-7, (b) were not in good faith or involved
a knowing violation of law or (c) resulted in receipt by the corporate
agent of an improper personal benefit.
(9) Any corporation organized for any purpose under any general or
special law of this State shall have the power to purchase and maintain
insurance on behalf of any corporate agent against any expenses incurred in
any proceeding and any liabilities asserted against him by reason of his
being or having been a corporate agent, whether or not the corporation
would have the power to indemnify him against such expenses and liabilities
under the provisions of this section. The corporation may purchase such
insurance from, or such insurance may be reinsured in whole or in part by,
an insurer owned by or otherwise affiliated with the corporation, whether
or not such insurer does business with other insureds.
(10) The powers granted by this section may be exercised by the
corporation, notwithstanding the absence of any provision in its
certificate of incorporation or bylaws authorizing the exercise of such
powers.
(11) Except as required by subsection 14A:3-5(4), no indemnification
shall be made or expenses advanced by a corporation under this section, and
none shall be ordered by a court, if such action would be inconsistent with
a provision of the certificate of incorporation, a bylaw, a resolution of
the board of directors or of the shareholders, an agreement or other proper
corporate action, in effect at the time of the accrual of the alleged cause
of action asserted in the proceeding, which prohibits, limits or otherwise
conditions the exercise of indemnification powers by the corporation or the
rights of indemnification to which a corporate agent may be entitled.
(12) This section does not limit a corporation's power to pay or
reimburse expenses incurred by a corporate agent in connection with the
corporate agent's appearance as a witness in a proceeding at a time when
the corporate agent has not been made a party to the proceeding.
The Underwriting Agreement provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1, 1993, the Company has sold and issued the
following unregistered securities:
1. November 30, 1994. Exchange of 198,439 shares of common stock,
1,081,850 shares of Class I Stock, 6,617,227 shares of Class III
Stock, and 882,399 shares of Class IV Stock pursuant to a merger
<PAGE>
by EMCORE Merger Subsidiary Corporation with and into EMCORE
Corporation. All purchasers of these shares were existing
shareholders of the Company. The exchange ratio was as follows:
100 shares of Class IV Stock for 150 shares of Class A Stock; 100
shares of Class III Stock for 10 shares of Common Stock; 100
shares of Class I Stock for 4 shares of Common Stock; and, 100
shares of old Common Stock for 1 share of new Common Stock. No
cash was involved in this transaction. The transaction was
exempt from registration pursuant to Section 3(a)(9) of the
Securities Act.
2. October 25, 1995. The issuance of 9,370,200 shares of Common
Stock in exchange for 1,338,600 shares of Class A Common Stock
pursuant to a merger of EMCORE Merger Subsidiary Two Corporation
with and into EMCORE Corporation. All purchasers of these shares
were existing shareholders of the Company. No cash was involved
in this transaction. This exchange was exempt from registration
pursuant to Section 3(a)(9) of the Securities Act.
3. October 25, 1995. Sale of 103,993 shares at $0.89 a share to
five holders of the Company's warrants to purchase the Company's
Common Stock at $5.00 a share until 1997. The consideration
received included the surrender of warrants plus a total cash
consideration of $92,554. The purchasers were knowledgeable and
able to bear the risk and had access to the information relevant
to their investment. No general selling efforts were made.
Transfer restrictions were imposed. This transaction was exempt
from registration pursuant to Section 4(2) of the Securities Act.
The following description of share exchanges or issuances
indicate share numbers and warrant exercise prices that reflect
the 3.4:1 reverse stock split effective February 3, 1997.
4. December 1, 1995. Issuance of 30,882 shares of Common Stock to
Hakuto, a Japanese corporation, upon exercise of warrants. The
warrants had been issued in connection with a Distributorship
Agreement with Hakuto. The total amount of cash consideration
was $10,000. The offer was made in Japan; the buyer was in Japan
and is not a U.S. person, and no directed selling efforts were
made. This transaction was exempt from registration pursuant to
Regulation S under the Securities Act.
5. May 1, 1996. Issuance to nineteen persons of $9,500,000 of 6%
Subordinated Notes due 2001 in a unit paired with warrants to
purchase 2,328,432 shares of Common Stock at $4.08 a share.
Purchasers of the Notes were all current shareholders of the
Company. Holders have the right to use the principal amount of
the Note to exercise the warrants until the expiration date. The
warrants expire on the maturity date of the Notes. In this
Offering, $9,500,000 was raised, of which $1,000,000 was in the
form of notes from officers of the Company. The purchasers were
knowledgeable and able to bear the risk and had access to the
information relevant to their investment. No general selling
efforts were made. Transfer restrictions were imposed. This
transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act.
6. July 12, 1996. Sale to Dane C. Scott. $9,600 6% Subordinated
Notes due 2001 in a unit paired with warrants to purchase 2,353
shares of Common Stock at $4.08 a share in the aggregate amount
of $9,600. Mr. Scott is a Senior Design Engineer of the Company.
This transaction was exempt from registration pursuant to Section
4(2) of the Securities Act.
<PAGE>
7. Employee stock options were granted at various times after the
adoption of the Plan in 1995 at prices ranging from $3.03 a share
to $10.20. These transactions were exempt from registration
pursuant to Section 4(2) of and Rule 701 under the Securities
Act.
8. September 1996. Sale to JLMP of $2.5 million 6% Subordinated
Note and warrants to purchase 2,450,098 shares at $10.20 a share.
This transaction was exempt from registration pursuant to Section
4(2) of the Securities Act.
9. December 1996. Issuance to JLMP of warrants to purchase 980,392
shares at $10.20 a share in consideration for guaranteeing and
securing the guarantee of a $10 million demand note facility.
This transaction was exempt from registration pursuant to Section
4(2) of the Securities Act. JLMP was a shareholder of the
Company; no general selling efforts were made.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed with this Registration
Statement:
Exhibit No. Description
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation as amended February 3,
1997
3.2 Amended By-Laws, as amended January 11, 1989
4.1 Specimen certificate for shares of Common Stock*
5.1 Opinion of White & Case
10.1 1995 Incentive and Non-Statutory Stock Option Plan
10.2 1996 Amendment to Option Plan
10.3 Specimen Incentive Stock Option Agreement
10.4 Hakuto Distributorship Agreement
10.5 Amendment to Lease for premises at 394 Elizabeth Avenue,
Somerset, New Jersey 08873
10.6 Registration Rights Agreement relating to September 1996
warrant issuance
10.7 Registration Rights Agreement relating to December 1996
warrant issuance
10.8 Form of 6% Subordinated Note Due May 1, 2001
10.9 Form of 6% Subordinated Note Due September 1, 2001
10.10 Form of $4.08 Warrant
10.11 Form of $17.00 Warrant
10.12 Form of $10.20 Warrant
10.13 Demand note facility with First Union National Bank
10.14 Consulting Agreement dated December 6, 1996 between the
Company and Norman E. Schumaker
10.15 Purchase Order issued to the Company by General Motors
Corporation on November 17, 1996. Confidential treatment has
been requested by the Company with respect to portions of this
document. Such portions are indicated by "[*]".
11.1 Statement of Computation of Per Share Amounts
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of White & Case (included in Exhibit 5.1)
23.3 Consent of Lerner David Littenberg Krumholz & Mentlik
23.4 Consent of Robert Louis-Dreyfus
24.1 Power of Attorney**
27.1 Financial Data Schedule**
99.1 Schedule II: Valuation and Qualified Accounts & Reserves**
* To be filed by amendment
** Previously filed
<PAGE>
(b) Financial Statement Schedule
The following Financial Statement Schedule is filed pursuant to Item
11(e) of Regulation S-X:
Schedule II: Valuation and Qualified Accounts & Reserves**
All other schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denomination and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Somerset, State
of New Jersey, on February 5, 1997.
EMCORE CORPORATION
By /s/ Reuben F. Richards, Jr.
Name: Reuben F. Richards, Jr.
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement on Form S-1 has been signed by the following persons in the
capacities indicated, on February 5, 1997.
Signature Title
* President, Chief Executive
Reuben F. Richards, Jr. Officer and Director
(Principal Executive Officer)
* Vice President, Chief
Thomas G. Werthan Financial Officer, Secretary
and Director (Principal
Accounting and Financial
Officer)
Richard A. Stall Director
* Chairman of the Board
Thomas J. Russell and Director
* Director
Howard R. Curd
* Director
Howard F. Curd
*By /s/ Reuben F. Richards, Jr.
Reuben F. Richards, Jr.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
1.1 Form of Underwriting Agreement*
3.1 Restated Certificate of Incorporation, as amended February 3,
1997
3.2 Amended By-Laws, as amended January 11, 1989
4.1 Specimen certificate for shares of Common Stock*
5.1 Opinion of White & Case
10.1 1995 Incentive and Non-Statutory Stock Option Plan
10.2 1996 Amendment to Option Plan
10.3 Specimen Incentive Stock Option Agreement
10.4 Hakuto Distributorship Agreement
10.5 Amendment to Lease for premises at 394 Elizabeth Avenue,
Somerset, New Jersey 08873
10.6 Registration Rights Agreement relating to September 1996
warrant issuance
10.7 Registration Rights Agreement relating to December 1996
warrant issuance
10.8 Form of 6% Subordinated Note Due May 1, 2001
10.9 Form of 6% Subordinated Note Due September 1, 2001
10.10 Form of $4.08 Warrant
10.11 Form of $17.00 Warrant
10.12 Form of $10.20 Warrant
10.13 Demand note facility with First Union National Bank
10.14 Consulting Agreement dated December 6, 1996 between the
Company and Norman E. Schumaker
10.15 Purchase Order issued to the Company by General Motors
Corporation on November 17, 1996. Confidential treatment has
been requested by the Company for portions of this document.
Such portions are indicated by "[*]".
11 Statement of Computation of Per Share Amounts
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of White & Case (included in Exhibit 5.1)
23.3 Consent of Lerner David Littenberg Krumholz & Mentlik
23.4 Consent of Robert Louis-Dreyfus
24.1 Power of Attorney**
27.1 Financial Data Schedule**
99.1 Schedule II: Valuation and Qualified Accounts & Reserves**
* To be filed by amendment
** Previously filed
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF EMCORE CORPORATION
Reuben F. Richards, Jr., being over the age of eighteen and acting
as a duly authorized officer of Emcore Corporation and by virtue of the
provisions of the New Jersey Business Corporation Act, Title 14A of the
Revised Statutes of the State of New Jersey, hereby certifies that the
Restated Certificate of Incorporation of Emcore Corporation is as follows:
FIRST: The name of the Corporation is:
EMCORE Corporation
SECOND: The purpose for which this Corporation is organized is to
engage in any activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act.
THIRD: The registered office of the Corporation is:
394 Elizabeth Avenue
Somerset, NJ 08873
and the name of the corporation's registered agent at such address is:
Thomas G. Werthan
FOURTH: The total number of shares of Capital Stock of the
Corporation shall be 29,411,763 shares of which:
A. Of the Capital Stock, 23,529,411 shares shall consist of Common
Stock which shall be entitled to one vote per share of all matters which
holders of the Common Stock shall be entitled to vote on.
B. Of the Capital Stock, 5,882,352 shares shall consist of
Preferred Stock which may be divided into such classes and such series as
shall be established from time to time by resolutions of the Board of
Directors and filed as an amendment to this Certificate of Incorporation,
without any requirement of vote or class vote of shareholders. The Board of
Directors shall have the right and power to establish and designate in any
such Class or Series Resolution such priorities, powers, preferences and rela-
tive, participating, optional or other special rights and qualifications,
limitations and restrictions as it shall determine.
FIFTH: The Board of Directors presently consists of six (6) persons
and the names and addresses of the persons who are to serve on the Board of
Directors are as follows:
Name Address
Reuben F. Richards, Jr. 394 Elizabeth Avenue
Somerset, NJ 08873
Thomas G. Werthan 394 Elizabeth Avenue
Somerset, NJ 08873
Richard A. Stall 394 Elizabeth Avenue
Somerset, NJ 08873
<PAGE>
Thomas J. Russell Jesup & Lamont Capital
Markets, Inc.
650 Fifth Avenue
New York, NY 10019
Howard R. Curd Jesup & Lamont Capital
Markets, Inc.
650 Fifth Avenue
New York, NY 10019
Howard F. Curd Jesup & Lamont Capital
Markets, Inc.
650 Fifth Avenue
New York, NY 10019
SIXTH: Neither a Director nor an Officer shall be liable to the
Corporation or its shareholders for damages for breach of any duty owed to the
Corporation or its shareholders, except that this provision shall not relieve
a Director or an Officer from liability for any breach of duty based upon an
act or omission (a) in breach of such person's duty of loyalty to the
corporation or its shareholders; (b) not in good faith or involving a knowing
violation of law; or (c) resulting in the receipt of such person of an
improper personal benefit.
SEVENTH: Any director of the Corporation may be removed with or
without cause by vote of the shareholders except that a director elected by a
class may be removed only by a vote of the class that elected the director.
EIGHTH: The Board of Directors by a vote of a majority of the entire
Board may lend money to, guarantee any obligation of or otherwise assist any
officer or employee of the Corporation who is also a director provided that
such loan shall be adequately secured and no such loan, guarantee or other
assistance shall be made unless there shall be an appropriate business
purpose.
NINTH: The Corporation shall indemnify every officer and director of
the corporation to the full extent permitted by law.
TENTH: The number of directors shall be as determined by any
resolution of the Board of Directors unless a Class or Series Resolution
adopted pursuant to Article FOURTH shall otherwise provide. In the event of an
increase in the number of directors, the Board itself is authorized to fill
any such directorship unless such a Class or Series Resolution shall otherwise
provide.
ELEVENTH: This Corporation shall have perpetual existence.
IN WITNESS, the undersigned has set his hand this 3d day of February
1997.
/s/ Reuben F. Richards, Jr.
Reuben F. Richards, Jr.
President
<PAGE>
Exhibit 3.2
BY-LAWS
OF
EMCORE CORPORATION
Adopted As of September 27, 1986
Amended Through January 11, 1989
ARTICLE I
OFFICES
1. Principal Place of Business. The principal place of business
of the Corporation is 35 Elizabeth Avenue, Somerset, New Jersey 08873.
2. Other Places of Business. Branch or subordinate places of
business or offices may be established at any time by the Board at any place
or places where the Corporation is qualified to do business.
ARTICLE II
SHAREHOLDERS
1. Annual Meeting. The annual meeting of shareholders shall be
held upon not less than ten or more than sixty days written notice of the
time, place, and purpose of the meeting at 10 o'clock a.m. on the fourth
Thursday of the month of October of each year at the corporate offices, or at
such other time and place as shall be specified in the notice of meeting, in
order to elect directors and transact such other business as shall come before
the meeting. If that date is a legal holiday, the meeting shall be held at
the same hour on the next succeeding business day.
2. Special Meetings. A special meeting of shareholders may be
called for any purpose by the president or the Board. A special meeting shall
be held upon not less than ten nor more than sixty days written notice of the
time, place and purpose of the meeting.
3. Action Without Meeting. The shareholders may act without a
meeting if, prior or subsequent to such action, each shareholder who would
have been entitled to vote upon such action shall consent in writing to such
action. Such written consent or consents shall be filed in the minute book.
<PAGE>
4. Quorum. The presence at a meeting in person or by proxy of the
holders of shares entitled to cast a majority of the votes shall constitute a
quorum.
ARTICLE III
BOARD OF DIRECTORS
1. Number and Term of Office. The Board shall consist of such
number of members as may be determined from time to time by resolution of the
Board. Each director shall be elected by the shareholders at each annual
meeting and shall hold office until the next annual meeting of shareholders
and until that director's successor shall have been elected and qualified.
2. Regular Meetings. A regular meeting of the Board shall be held
without notice immediately following and at the same place as the annual
shareholders' meeting for the purposes of electing officers and conducting
such other business as may come before the meeting. The Board, by resolution,
may provide for additional regular meetings which may be held without notice,
except to members not present at the time of the adoption of the resolution.
3. Special Meetings. A special meeting of the Board may be called
at any time by the president or a majority of the members of the Board for any
purpose. Such meeting shall be held upon one days notice if given orally
(either by telephone or in person) or by telegraph, or by three days notice if
given by depositing the notice in the United States mails, postage prepaid.
Such notice shall specify the time and place of the meeting.
4. Action Without Meeting. The Board may act without a meeting
if, prior or subsequent to such action, each member of the Board shall consent
in writing to such action. Such written consent or consents shall be filed in
the minute book.
5. Quorum. One-half of the entire Board shall constitute a quorum
for the transaction of business.
6. Vacancies in Board of Directors. Any vacancy in the Board,
including a vacancy caused by an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors, even
though less than a quorum of the Board, or by a sole remaining director.
ARTICLE IV
WAIVERS OF NOTICE
Any notice required by these By-Laws, by the Certificate of
Incorporation, or by the New Jersey Business Corporation Act may be waived in
writing by any person entitled to notice. The waiver or waivers may be
executed either before or after the event with respect to which notice is
waived. Each director or shareholder attending a meeting without protesting,
prior to its conclusion, the lack of proper notice shall be deemed conclu-
sively to have waived notice of the meeting.
ARTICLE V
<PAGE>
OFFICERS
1. Election. At its regular meeting following the annual meeting
of shareholders, the Board shall elect a president, a treasurer, a secretary,
and it may elect such other officers, including one or more vice presidents,
as it shall deem necessary. One person may hold two or more offices.
2. Duties and Authority of President. The president shall be
chief executive officer of the Corporation. Subject only to the authority of
the Board, he shall have general charge and supervision over, and
responsibility for, the business and affairs of the Corporation. Unless
otherwise directed by the Board, all other officers shall be subject to the
authority and supervision of the president. The president may enter into and
execute in the name of the Corporation contracts or other instruments in the
regular course of business or contracts or other instruments not in the
regular course of business which are authorized, either generally or
specifically, by the Board. He shall have the general powers and duties of
management usually vested in the office of president of a corporation.
3. Duties and Authority of Vice President. The vice president
shall perform such duties and have such authority as from time to time may be
delegated to him by the president or by the Board. In the absence of the
president or in the event of his death, inability, or refusal to act, the vice
president shall perform the duties and be vested with the authority of the
president.
4. Duties and Authority of Treasurer. The treasurer shall have
the custody of the funds and securities of the Corporation and shall keep or
cause to be kept regular books of account for the Corporation. The treasurer
shall perform such other duties and possess such other powers as are incident
to that office or as shall be assigned by the president or the Board.
5. Duties and Authority of Secretary. The secretary shall cause
notices of all meetings to be served as prescribed in these By-Laws and shall
keep or cause to be kept the minutes of all meetings of the shareholders and
the Board. The secretary shall have charge of the seal of the Corporation.
The Secretary shall perform such other duties and possess such other powers as
are incident to that office or as are assigned by the president or the Board.
ARTICLE VI
AMENDMENTS TO AND EFFECT OF
BY-LAWS FISCAL YEAR
1. Force and Effect of By-Laws. These By-Laws are subject to the
provisions of the New Jersey Business Corporation Act and the Corporation's
Certificate of Incorporation, as it may be amended from time to time. If any
provision in these By-Laws is inconsistent with a provision in that Act or the
Certificate of Incorporation, the provision of that Act or the Certificate of
Incorporation shall govern.
2. Amendments to By-Laws. These By-Laws may be altered, amended
or repealed by the shareholders or the Board. Any By-Law adopted, amended or
repealed by the shareholders may be amended or repealed by the Board, unless
the resolution of the shareholders adopting such By-Law expressly reserves to
the shareholders the right to amend or repeal it.
<PAGE>
3. Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of October of each year, commencing October 1, 1986.
<PAGE>
MINUTES AND BY-LAWS
OF
EMCORE CORPORATION
COMMENCING: September 27, 1986
<PAGE>
EMCORE CORPORATION
OATH OF SECRETARY
STATE OF NEW JERSEY )
) SS.:
COUNTY OF MORRIS )
I, Wilfried R. Wagner, Secretary of
EMCORE CORPORATION,
being of full age, depose and say that I will faithfully discharge the duties
of secretary of the Corporation to the best of my skill and ability.
_____________________________
Wilfried R. Wagner, Secretary
Sworn and Subscribed to
before me this 27th day
of September, 1986.
________________________________
An Attorney at Law of New Jersey
<PAGE>
Exhibit 4.1
Certificate No. _________ For ______ Shares Issued to _________________
Transferred from _______________ / /19
Dated_____________________________, 19_______
Receipt acknowledged_______________________________________
No. Original Certificate _____________
No. Original Shares _______________
No. Of Shares Transferred ____________
NUMBER SHARES
_________ _________
INCORPORATED UNDER THE LAWS OF
THE STATE OF NEW JERSEY
EMCORE CORPORATION
COMMON STOCK, NO PAR VALUE
[ S P E C I M E N ]
This Certifies that ____________________________________ is the owner of
___________________________________ fully paid and non-assessable Shares of
the Capital Stock of the above named Corporation transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ______________ day of ____________________ A.D. 19______
__________________________________ ___________________________
SECRETARY/TREASURER PRESIDENT
<PAGE>
EXPLANATION OF ABBREVIATIONS
The following abbreviations, when used in the inscription of
ownership on the face of this certificate, shall be construed as if they were
written out in full according to applicable laws or regulations.
Abbreviations, in addition to those appearing below, may be used.
<TABLE>
<S> <C> <C> <C>
JT TEN As joint tenants with right of survivorship and TEN ENT As tenants by the entireties
not as tenants in common UNIF GIFT MIN ACT Uniform Gifts to Minors Act
TEN COM As tenants in common CUST Custodian for
</TABLE>
For Value Received _____________________ hereby sell, assign and transfer unto
_________________________________________
(please insert social security or other identifying number of assignee)
_________________________ Shares represented by the within Certificate, and do
hereby irrevocably constitute and appoint __________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________ 19__
in presence of
_____________________ ___________________
<PAGE>
Exhibit 5.1
White & Case
1155 Avenue of the Americas
New York, New York 10036
(212) 819-8200
February 4, 1997
EMCORE Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08873
Dear Sirs:
We refer to the Registration Statement on Form S-1 (No. 333-18565,
the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), filed by EMCORE Corporation, a New Jersey Corporation
(the "Company"), with the Securities and Exchange Commission (the
"Commission"), relating to the initial public offering of shares of the
Company's common stock (the "Common Stock"). The Common Stock is to be sold
to underwriters, including the underwriters listed on the cover page of the
Prospectus forming part of the Registration Statement. The terms of the sale
to the underwriters are to be approved in additional proceedings to be taken
by the Company.
We have examined the originals, or photostatic or certified copies,
of such records of the Company, certificates of officers of the Company and of
public officials and such other documents as we have deemed relevant and
necessary as the basis for the opinion set forth below. We have relied upon
such certificates of officers of the Company and of public officials and
statements and information furnished by officers of the Company with respect
to the accuracy of material factual matters contained therein which were not
independently established by us. In such examination we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents
submitted to us as photostatic or certified copies, and the authenticity of
the originals of such copies.
Based upon our examination described above, subject to the
assumptions stated, and subject to such proposed additional proceedings being
taken prior to the issuance of the Common Stock, to the authorization,
execution and delivery of an underwriting agreement with respect thereto, it
is our opinion that the Common Stock, upon issuance and sale by the Company as
contemplated in the Registration Statement and any amendments and prospectus
supplements thereto, will have been duly authorized by the Company and upon
delivery thereof against payment therefor, validly issued, fully paid and non-
assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm appearing under the
caption "Legal Matters" in the Prospectus forming part of the Registration
<PAGE>
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission.
Very truly yours,
White & Case
<PAGE>
Exhibit 10.1
EMCORE CORPORATION
1995 INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN
1. Purpose.
The purpose of this 1995 Incentive and Non-Statutory Stock Option Plan
(the "Plan") is to give officers and executive personnel ("key employees") and
consultants or non-employee directors ("other participants") of Emcore
Corporation, a New Jersey corporation (the "Company"), and corporations with
respect to which the Company directly or indirectly controls 50% or more of
the combined voting power ("subsidiaries") an opportunity to acquire shares of
the common stock of the Company, without par value ("Common Stock"), to
provide an incentive for key employees and other participants to continue to
promote the best interests of the Company and enhance its long-term
performance, and to provide an incentive for key employees and other
participants to join or remain with the Company and its subsidiaries.
2. Administration.
(a) Board of Directors. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), which, to the extent it shall
determine, may delegate its powers with respect to the administration of the
Plan (except its powers under Section 12(c)) to a committee (the "Committee")
appointed by the Board and composed of not less than three members of the
Board. If the Board chooses to appoint a Committee, references hereinafter to
the Board (except in Section 12(c)) shall be deemed to refer to the Committee.
(b) Powers. Within the limits of the express provisions of the Plan,
the Board shall determine;
(i) the persons to whom awards hereunder shall be granted,
(ii) the time or times at which such awards shall be granted,
(iii) the form and amount of the awards, and
(iv) the limitations, restrictions and conditions applicable to any
such award.
In making such determinations, the Board may take into account the nature of
the services rendered by such key employees and other participants, or classes
of employees, their present and potential contributions to the Company's
success and such other factors as the Board in its discretion shall deem
relevant.
<PAGE>
(c) Interpretations. Subject to the express provisions of the Plan, the
Board may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of the
respective awards and make all other determinations it deems necessary or
advisable for the administration of the Plan.
(d) Determinations. The determinations of the Board on all matters
regarding the Plan shall be conclusive. A member of the Board shall only be
liable for any action taken or determination made in bad faith.
(e) Nonuniform Determinations. The Board's determinations under the
Plan, including without limitation, determinations as to the persons to
receive awards, the terms and provisions of such awards and the agreements
evidencing the same, need not be uniform and may be made by it selectively
among persons who receive or are eligible to receive awards under the Plan,
whether or not such persons are similarly situated.
3. Awards Under the Plan.
(a) Form. Awards under the Plan may be granted in any of the following
forms:
(i) Incentive Stock Options, as described in Section 4,
(ii) Non-Statutory Stock Options, as described in Section 5, and
(iii) Stock Appreciation Rights, as described in Section 6.
(b) Maximum Limitations. The aggregate number of shares of Common Stock
available for grant under the Plan is 1,100,000 subject to adjustment pursuant
to Section 8. Shares of Common Stock issued pursuant to the Plan may be
either authorized but unissued shares or shares now or hereafter held in the
treasury of the Company. In the event that, prior to the end of the period
during which Stock Options may be granted under the Plan, any Stock Option
under the Plan expires unexercised or is terminated, surrendered or canceled
(other than in connection with the exercise of a Stock Appreciation Right with
respect to which Common Stock is delivered to the key employee or other
participants under Section 6(b)(ii)), without being exercised, in whole or in
part, for any reason, the number of shares theretofore subject to such Stock
Option, or the unexercised, terminated, forfeited or unearned portion thereof,
shall be added to the remaining number of shares of Common Stock available for
grant as a Stock Option under the Plan, including a grant to a former holder
of such Stock Option, upon such terms and conditions as the Board shall
determine, which terms may be more or less favorable than those applicable to
such former Stock Option.
(c) Ten Percent Shareholder. Notwithstanding any other provision herein
contained, no key employee may receive an Incentive Stock Option under the
Plan if such employee, at the time the award is granted, owns (as defined in
Section 424(d) of the Internal Revenue Code, as amended (the "Code")) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, its parent or any subsidiary, unless the option price
for such Incentive Stock Option is at least 110% of the fair market value of
the Common Stock subject to such Incentive Stock Option on the date of grant
and such Option is not exercisable after the date five years from the date
such Option is granted.
4. Incentive Stock Options.
<PAGE>
It is intended that Incentive Stock Options granted under the Plan shall
constitute Incentive Stock Options within the meaning of Section 422 of the
Code. Incentive Stock Options may be granted under the Plan for the purchase
of shares of Common Stock. Incentive Stock Options shall be in such form and
upon such conditions as the Board shall from time to time determine, subject
to the following:
(a) Option Prices. The option price of each Incentive Stock Option
shall be at least 100% of the fair market value of the Common Stock subject to
such Incentive Stock Option on the date of grant,
(b) Terms of Options. No Incentive Stock Option shall be exercisable
prior to the date one year, or after the date ten years, from the date such
Incentive Stock Option is granted.
(c) Limitation on Amounts. The aggregate fair market value (determined
with respect to each Incentive Stock Option as of the time such Incentive
Stock Option is granted) of the capital stock with respect to which Incentive
Stock Options are exercisable for the first time by a key employee during any
calendar year (under this Plan or any other plan of the Company or the parent
or any subsidiary of the Company) shall not exceed $100,000.
(d) Exercise. Incentive Stock Options shall be subject to such terms
and conditions, shall be exercisable at such time or times, and shall be
evidenced by such form of written option agreement between the optionee and
the Company, as the Board shall determine; provided, that such determinations
are not inconsistent with the other provisions of the Plan, and with Section
422 of the Code or regulations thereunder.
(e) Manner of Exercise of Options and Payment for Common Stock.
Incentive Stock Options may be exercised by an optionee by giving written
notice to the Secretary of the Company stating the number of shares of Common
Stock with respect to which the Incentive Stock Option is being exercised and
tendering payment therefor. At the time that an Incentive Stock Option granted
under the Plan, or any part thereof, is exercised, payment for the Common
Stock issuable thereupon shall be made in full in cash or by certified check
or, if the Board in its discretion agrees to accept, in shares of Common Stock
of the Company (the number of such shares paid for each share subject to the
Incentive Stock Option, or part thereof, being exercised shall be determined
by dividing the option price by the fair market value per share of the Common
Stock on the date of exercise). As soon as reasonably possible following such
exercise, a certificate representing shares of Common Stock purchased,
registered in the name of the optionee shall be delivered to the optionee.
(f) Cancellation of Stock Appreciation Rights. The exercise of any
Incentive Stock Option shall cancel that number, if any, of Stock Appreciation
Rights (as defined in Section 6) included in such Incentive Stock Option,
which is equal to the excess of (i) the number of shares of Common Stock
subject to Stock Appreciation Rights included in such Incentive Stock Option,
over (ii) the number of shares of Common Stock which remain subject to such
Incentive Stock Option after such exercise.
5. Non-Statutory Stock Options.
Non-Statutory Stock Options (i.e., options which do not constitute
Incentive Stock Options within the meaning of Section 422 of the Code) may be
granted under the Plan for the purchase of Common Stock. Non-Statutory Stock
Options shall be in such form and upon such conditions as the Board shall from
time to time determine and further shall be subject to the provisions of
<PAGE>
Section 4 of this Plan except:
(a) Option Price. The option price shall be no less than 10% of the
fair market value of the Common Stock subject to the Non-Statutory Stock
Option on the date of grant.
(b) Limitation on Amount. There shall be no limit on amount (subject
only to the overall limit of the shares available under the Plan for option
grant).
6. Stock Appreciation Rights.
(a) Award. If deemed by the Board to be in the best interest of the
Company, any Incentive Stock Option granted under the Plan may include a stock
appreciation right ("Stock Appreciation Right"), either at the time of grant
or thereafter while the Incentive Stock Option is outstanding.
(b) Terms of Rights. Stock Appreciation Rights shall be subject to such
terms and conditions not inconsistent with the other provisions of the Plan as
the Board shall determine, provided that:
(i) Limitations. Stock Appreciation Rights shall be exercisable to the
extent, and only to the extent, the Incentive Stock Option in which it is
included is exercisable and shall be exercisable only for such period as the
Board may determine (which period may expire prior to, but not later than, the
expiration date of such Incentive Stock Option). Notwithstanding the preceding
sentence, a Stock Appreciation Right is exercisable only when the fair market
value of a share of Common Stock exceeds the option price specified in such
Incentive Stock Option.
(ii) Surrender or Exchange. A Stock Appreciation Right shall entitle the
optionee to surrender to the Company unexercised the Incentive Stock Option,
or portion thereof, to which it is related, or any portion thereof and to
receive from the Company in exchange therefor that number of shares of Common
Stock having an aggregate fair market value equal to the excess of the fair
market value on the date of exercise of one share of Common Stock over the
option price per share specified in such Incentive Stock Option multiplied by
the number of shares of Common Stock subject to the Incentive Stock Option, or
portion thereof, which is so surrendered. The Board shall be entitled to
elect to settle any part or all of the Company's obligation arising out of the
exercise of a Stock Appreciation Right by the payment of cash or by check
equal to the aggregate fair market value on the date on which the Stock
Appreciation Right is exercised of that part or all of the shares of Common
Stock the Company would otherwise be obligated to deliver.
(c) Cash Settlement Restriction. (i) Notwithstanding Section B(b), so
long as the grantee of a Stock Appreciation Right is an officer or director of
the Company, the Company's right to elect to settle any part or all of its
obligation arising out of the exercise of a Stock Appreciation Right by the
payment of cash or by check shall not apply unless such exercise occurs no
less than six months after the date of grant of the Right and either: (1)
pursuant to the provisions of subsection (ii) below, or (2) during the period
beginning on the third business day following the date of release by the
Company for publication of its quarterly or annual summary statements of sales
and earnings and ending on the twelfth business day following such date.
(ii) In the event that, pursuant to Section 9, the Company shall cancel
all unexercised Incentive Stock Options as of the effective date of a merger
or other transaction provided therein, or in the case of dissolution of the
<PAGE>
Company, then each Stock Appreciation Right held by an executive officer or
director of the Company shall be automatically exercised for cash on such date
within 30 days prior to the effective date of such transaction or dissolution
as the Board shall determine and, in the absence of such determination, on the
last business day immediately prior to such effective date.
7. Transferability.
No Incentive Stock Option, Non-Statutory Stock Option, or Stock
Appreciation Right may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent or distribution, and no Incentive Stock Option,
Non-Statutory Stock Option, or Stock Appreciation Right shall be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Incentive Stock Option, Non-
Statutory Stock Option, or Stock Appreciation Right, or levy of attachment or
similar process upon the Incentive Stock Option or Stock Appreciation Right
not specifically permitted herein shall be null and void and without effect.
An Incentive Stock Option or Stock Appreciation Right may be exercised only by
a key employee during his or her lifetime, or pursuant to Section 11(c), by
his or her estate or the person who acquires the right to exercise such
Incentive Stock Option or Stock Appreciation Right upon his or her death by
bequest or inheritance.
8. Adjustment Provisions.
The aggregate number of shares of Common Stock with respect to which
Incentive Stock Options, Non-Statutory Stock Options and Stock Appreciation
Rights may be granted, the aggregate number of shares of Common Stock subject
to each outstanding Incentive Stock Option, Non-Statutory Stock Option and
Stock Appreciation Right, and the option price per share of each may all be
appropriately adjusted as the Board may determine for any increase or decrease
in the number of shares of issued Common Stock resulting from a subdivision or
consolidation of shares, whether through reorganization, recapitalization,
stock split-up, stock distribution or combination of shares, or the payment of
a share dividend or other increase or decrease in the number of such shares
outstanding effected without receipt of consideration by the Company.
Adjustments under this Section 8 shall be made according to the sole
discretion of the Board, and its decisions shall be binding and conclusive.
9. Dissolution, Merger and Consolidation.
Except as otherwise provided in Section 6(c)(ii), upon the dissolution or
liquidation of the Company, or upon a merger or consolidation of the Company
in which the Company is not the surviving corporation, each Incentive Stock
Option and Stock Appreciation Right granted hereunder shall expire as of the
effective date of such transaction; provided, however, that the Board shall
give at least 30 days' prior written notice of such event to each optionee
during which time he or she shall have a right to exercise his or her wholly
or partially unexercised Incentive Stock Option (without regard to installment
exercise limitations, if any) or Stock Appreciation Right and, subject to
prior expiration pursuant to Section 11(b) or (c), each Incentive Stock Option
and Stock Appreciation Right shall be exercisable after receipt of such
written notice and prior to the effective date of such transaction.
10. Effective Date and Period For Grants.
The Plan shall become effective on the date of the approval of the Plan
by the holders of a majority of the shares of Common Stock of the Company
<PAGE>
which shall be June 20, 1995. No grant or award shall be made under the Plan
more than 10 years from the earlier of the date of adoption of the Plan,
provided, however, that the Plan and all Stock Options and Stock Appreciation
Rights granted under the Plan prior to such date shall remain in effect and
subject to adjustment and amendment as herein provided until they have been
satisfied or terminated in accordance with the terms of the respective grants
or awards and the related agreements.
11. Termination of Employment or Participation.
(a) Each Incentive Stock Option, Non-Statutory Stock Option and Stock
Appreciation Right shall, unless sooner expired pursuant to Section 11(b) or
(c) below, expire on the first to occur of the tenth anniversary of the date
of grant thereof and the expiration date set forth in the applicable option
agreement.
(b) An Incentive Stock Option, a Non-Statutory Stock Option or a Stock
Appreciation Right shall expire on the first to occur of the applicable date
set forth in paragraph (a) next above and the date thirty (30) days following
the date that the employment or participation of the person with the Company
terminates for any reason other than death or disability. Notwithstanding the
preceding provisions of this paragraph, the Board, in its sole discretion,
may, by written notice given, permit the ex-employee to exercise Stock Options
or Stock Appreciation Rights during a period following his or her termination
of employment, which period shall not exceed three months. In no event,
however, may the Board permit an ex-employee to exercise a Stock Option or
Stock Appreciation Right after the expiration date contained in the agreement
evidencing such Stock Option or Stock Appreciation Right. Notwithstanding the
preceding provisions of this paragraph, if the Board permits an ex-employee to
exercise Stock Options or Stock Appreciation Rights during a period following
his or her termination of employment pursuant to such preceding provisions,
such Stock Options or Stock Appreciation Rights shall, to the extent
unexercised, expire on the date that such ex-employee violates (as determined
by the Board) any covenant not to compete in effect between the Company and
the ex-employee.
(c) If the employment of an employee or participation of another
participant with the Company terminates by reason of disability (as defined in
Section 422(o)(9) of the Code as determined by the Board) or by reason of
death, his or her Stock Options and Stock Appreciation Rights, if any, shall
expire no later than the first to occur of the date set forth in paragraph (a)
of this Section 11 and the first anniversary of such termination of
employment.
12. Miscellaneous.
(a) Legal and Other Requirements. The obligation of the Company to sell
and deliver Common Stock under the Plan shall be subject to all applicable
laws, regulations, rules and approvals, including, but not by way of
limitation, the effectiveness of a registration statement under the Securities
Act of 1933 if deemed necessary or appropriate by the Company. Certificates
for shares of Common Stock issued hereunder may be legended as the Board shall
deem appropriate.
(b) No Obligation To Exercise Options. The granting of a Stock Option
shall impose no obligation upon an optionee to exercise such Stock Option.
(c) Termination and Amendment of Plan. The Board, without further
action on the part of the shareholders of the Company, may from time to time
<PAGE>
alter, amend or suspend the Plan or any Stock Option or Stock Appreciation
Right granted hereunder or may at any time terminate the Plan, except that it
may not, without the approval of the shareholders of the Company (except to
the extent provided in Section 8 hereof):
(i) Materially increase the total number of shares of Common Stock
available for grant under the Plan except as provided in
Section 8;
(ii) Materially modify the class of eligible employees or
participants under the Plan;
(iii) Materially increase benefits to any key employee who is
subject to the restrictions of Section 16 of the Securities
Exchange Act of 1934; or
(iv) Effect a change relating to Incentive Stock Options granted
hereunder which is inconsistent with Section 422 of the Code
or regulations issued thereunder.
No action taken by the Board under this Section, either with or without
the approval of the shareholders of the Company, may materially and
adversely affect any outstanding Stock Option or Stock Appreciation Right
without the consent of the holder thereof.
(d) Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Stock Options will be used for general
Corporate purposes.
(e) Withholding Taxes. (i) Upon the exercise of any Stock Option or
Stock Appreciation Right, the Company shall have the right to require the
optionee to remit to the Company an amount sufficient to satisfy all federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for shares of Common Stock.
(ii) Upon the disposition of any Common Stock acquired by the
exercise of a Stock Option, the Company shall have the right to require the
optionee to remit to the Company an amount sufficient to satisfy all federal,
state and local withholding tax requirements as a condition to the
registration of the transfer of such Common Stock on its books. Whenever
under the Plan payments are to be made by the Company in cash or by check,
such payments shall be net of any amounts sufficient to satisfy all federal,
state and local withholding tax requirements.
(f) Right To Terminate Employment. Nothing in the Plan or any agreement
entered into pursuant to the Plan shall confer upon any key employee or other
optionee the right to continue in the employment of the Company or any
subsidiary or affect any right which the Company or any subsidiary may have to
terminate the employment of such key employee or other optionee.
(g) Rights as a Shareholder. No optionee shall have any right as a
shareholder unless and until certificates for shares of Common Stock are
issued to him or her.
(h) Leaves of Absence and Disability. The Board shall be entitled to
make such rules, regulations and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by or disability of any key
employee or other participant. Without limiting the generality of the
foregoing, the Board shall be entitled to determine (i) whether or not any
<PAGE>
such leave of absence shall constitute a termination of employment within the
meaning of the Plan, and (ii) the impact, if any, of any such leave of absence
on awards under the Plan theretofore made to any key employee who takes such
leave of absence.
(i) Fair Market Value. Whenever the fair market value of Common Stock
is to be determined under the Plan as of a given date, such fair market value
shall be:
(i) If the Common Stock is traded on the over-the-counter market,
the average of the mean between the bid and the asked price
for the Common Stock at the close of trading for the 10
consecutive trading days immediately preceding such given
date;
(ii) If the Common Stock is listed on a national securities
exchange, the average of the closing prices of the Common
Stock on the Composite Tape for the 10 consecutive trading
days immediately preceding such given date; and
(iii) If the Common Stock is neither traded on the over-the-counter
market nor listed on a national securities exchange, such
value as the Board, in good faith, shall determine.
Notwithstanding any provision of the Plan to the contrary, no determination
made with respect to the fair market value of Common Stock subject to an
Incentive Stock Option shall be inconsistent with Section 422 of the Code or
regulations thereunder.
(j) Notices. Every direction, revocation or notice authorized or
required by the Plan shall be deemed delivered to the Company (1) on the date
it is personally delivered to the Secretary of the Company at its principal
executive offices or (2) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to the Secretary at such offices,
and shall be deemed delivered to an optionee (1) on the date it is personally
delivered to him or her or (2) three business days after it is sent by
registered or certified mail, postage prepaid, addressed to him or her at the
last address shown for him or her on the records of the Company.
(k) Applicable Law. All questions pertaining to the validity,
construction and administration of the Plan and Stock Options and Stock
Appreciation Rights granted hereunder shall be determined in conformity with
the laws of the state of New Jersey, to the extent not inconsistent with
Section 422 of the Code and regulations thereunder.
(l) Elimination of Fractional Shares. If under any provision of the
Plan which requires a computation of the number of shares of Common Stock
subject to an Incentive Stock Option or Stock Appreciation Right, the number
so computed is not a whole number of shares of Common Stock, such number of
shares of Common Stack shall be rounded down to the next whole number.
[End of Plan]
<PAGE>
Exhibit 10.2
[Amendment to Option Plan]
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
OF
EMCORE CORPORATION
TO THE SHAREHOLDERS OF EMCORE CORPORATION:
An Annual Meeting of the Shareholders of EMCORE Corporation (the "Company")
will be held at the offices of EMCORE Corporation, 394 Elizabeth Avenue,
Somerset, NJ 08873-1214 at 10:00 a.m. on Tuesday, April 30, 1996, to consider
and act upon the following matters:
A) To elect six (6) directors. It is anticipated that the following
individuals will be
nominated:
<TABLE>
<S> <C>
1) Thomas Russell, Ph.D. 4) Norman E. Schumaker, Ph.D. <F1>
2) Howard R. Curd 5) Reuben F. Richards, Jr. <F2>
3) Howard Curd, Jr. 6) Thomas G. Werthan <F3>
<F1> Chairman & Chief Executive Officer
<F2> President & Chief Operating Officer
<F3> Vice President - Finance
</TABLE>
B) To increase the pool of Incentive Stock options to 2.2 million shares
from 1. 1 million.
At the time of the meeting the Company shall consider and act upon any
other business as may properly come before the meeting.
Only shareholders of record on the close of business on April 29, 1996,
are entitled to Notice of and to vote at this meeting. Shareholders may
vote in person or by this attached proxy; however, all proxies must be in
writing and signed by a shareholder of record.
By Order of the Board of Directors
Thomas G. Werthan, Secretary
<PAGE>
PROXY
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
APRIL 30, 1996 -- 10:00 AM
AT
EMCORE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints NORMAN E. SCHUMAKER AND THOMAS G. WERTHAN and
each of them, as proxies of the undersigned, with full power of substitution
and revocation to represent and vote in the manner specified herein, at the
annual meeting of shareholders to be held on the above date and any
adjournments thereof, all shares of EMCORE Corporation that the undersigned
would be entitled to above if personally present.
The shares represented by this proxy, when properly signed, will be voted in
the manner specified by the shareholder. If no specification is made, the
shares will be voted FOR each item. The proxy holders are authorized to vote
in their discretion on any other matters which may properly be brought before
the meeting.
The Board of Directors recommends a vote FOR each nominee, and approval of the
1995 Stock Plan Amendment.
<TABLE>
Election of Directors:
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
Thomas J. Russell, Ph.D. _____ _____ _____
Howard R. Curd _____ _____ _____
Howard F. Curd _____ _____ _____
Reuben F. Richards, Jr. _____ _____ _____
Norman E. Schumaker, Ph.D. _____ _____ _____
Thomas G. Werthan _____ _____ _____
1995 EMCORE Incentive
Stock Option Amendment _____ _____ _____
</TABLE>
Date:__________________ Signature:_________________________
Name:______________________________
Exhibit 10.3
SPECIMEN STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of <<DATE_OF_GRANT__I>>,
between EMCORE CORPORATION, a New Jersey Corporation (the "Corporation"), and
<<FNAME>> <<LNAME>>, an employee of the Corporation or its subsidiary (herein
"Employee")
W I T N E S S E T H :
The Corporation desires, by affording the employee an opportunity to
purchase shares of its Common Stock, $1.20 par value, to provide the Employee
with an added incentive to join or to continue in the employment of the
Corporation and to continue and increase his or her efforts in that
connection. This Stock Option Agreement (this "Agreement") is being entered
into pursuant to the Stock Corporation 1995 Incentive and Non-Statutory Stock
Option Plan and is subject to the provisions thereof, including the
determinations to be made by the Stock Option Committee (the "Committee") of
the Board of Directors of the Corporation (the "Board").
In consideration or the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto hereby agree as
follows:
1. Grant. The Corporation with the approval and direction of the
Committee irrevocably grants the employee the right and option (the "Option")
to purchase all or any part of an aggregate of <<M_95_STOCK_PLAN____I>> shares
of Common Stock on the terms and conditions herein set forth. This Option
shall be an Incentive Stock Option.
2. Price. The purchase price of the shares of Common Stock covered
by the Option shall be $1.20 per share, being in excess of the fair market
value of the Common Stock on the date hereof.
3. Time of Exercise. The term of the Option shall be for a period
of ten (10) years from the date hereof, subject to earlier termination as
provided in this Agreement. Except as provided in Paragraphs 5 and 6 hereof,
the Option may not be exercised unless the Employee shall at the time of
exercise be an employee of the Corporation. Neither the Option nor any rights
related to the Option shall be exercisable for a period of one year from the
date hereof when twenty percent (20%) of the Option shall become exercisable,
except that: (i) if the Employee shall die, rehire or become disabled then
the Option shall be fully exercisable commencing upon such event, (ii) if all
of the capital stock of the Corporation or substantially all of its assets
shall be transferred in exchange for cash only, then the Employee shall be
entitled to receive from the Corporation an amount equal to (a) the price or
distributable amount per share calculated as if all options containing this
provision had been exercised less the exercise price, (b) multiplied by the
number of options unexercised and (iii) if all of the capital stock of the
Corporation is transferred in whole or in part in exchange for stock of
<PAGE>
another Corporation then the Option shall be fully exercisable commencing upon
such event. An additional twenty percent (20%) of the Option shall become
exercisable each of the four successive anniversaries of the date hereof until
the Option shall be fully exercisable, except that: (1) if the Employee has
been employed for one year as of September 12, 1995, twenty percent (20%)
shall be immediately vested with the remaining on each of the four (4)
successive anniversaries of the date hereof, or, (2) if the employee has been
employed for two years as of September 12, 1995, forty percent (40%) shall be
immediately invested with the remainder vesting on each of the three (3)
successive anniversaries of the date hereof.
4. No Transfer. The Option shall not be Transferable by the
Employee otherwise than by Will or the laws of descent and distribution, and
the Option may be exercised during his lifetime only by the Employee. The
Option may not be assigned, transferred (except as aforesaid), pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall
not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof and the levy of any attachment or similar
process upon the Option shall be null and void and without effect.
5. Termination. In the event the employment of the Employee shall
be terminated for any reason, (i) the Option may be exercised by the Employee
at any time within thirty (30) days after such date (or one year after such
date if the Employee is disabled within the meaning of Internal Revenue Code
Section 22(e)(3), but in no event after the expiration of ten years from the
date hereof, and only if and to the extent that he was entitled to exercise
the Option at the date of termination, and (ii) so long as the stock of the
Corporation is not listed on a national securities exchange or traded on the
over-the-counter market, the Corporation may elect in its sole discretion to
repurchase the stock at a price equal to the fair market value of the stock at
the date of termination. The Option shall not be affected (i) by any change
of duties or position so long as the Employee continues to be an employee of
the Corporation or a subsidiary or (ii) by any temporary leave of absence that
does not sever the employment relationship, which leave of absence is
approved, if for a period of not more than three months, by an officer of the
Corporation, or if for a period of more than three months, by the Board.
6. Death of Employee. If the Employee shall die while entitled to
exercise the Option, the Option may be exercised by the legatee or legatees of
the Option under the Employee's Will, the personal representative or
distributees of the Employee to the extent that the Option would otherwise
have been exercisable by the Employee at any time within a period of one year
after the date of the Employee's death, but this provision shall not otherwise
extend the ten (10) year duration of the Option.
7. Anti-Dilution Adjustments. In the event of any change in the
outstanding Common Stock of the Corporation by reason of stock dividends,
stock splits, recapitalizations, mergers, consolidations, combinations or
exchanges of shares, split-ups, split-offs, liquidations or other similar
changes in capitalization, or any distributions to common stockholders other
than cash dividends, the numbers, class and prices of shares covered by this
Option shall be appropriately adjusted by the Committee, whose determination
shall be conclusive; provided, however, that no such adjustment shall give the
Employee any additional benefits under the option.
8. Corporate Transaction. Notwithstanding the provisions of
Paragraph 7, if any "corporate transaction" as defined in Section 1.425-1 of
the Treasury Regulations promulgated under the Internal Revenue Code of 1986
<PAGE>
occurs after the date of this Agreement, and in connection with such corporate
transaction, the Corporation and another corporation enter into an agreement
providing for the issuance of substitute stock options in exchange for the
Option or the assumption of the Option, in either case giving the employee the
right to purchase the largest whole number of shares of Common Stock of the
Corporation or of any other corporation at the lowest option price permitted
by said Section 1.425-1, the Option shall be deemed to provide for the
purchase of such number of shares of Common Stock at such option price as
shall be agreed upon by the Corporation and such other corporation, and the
term "Corporation" herein shall mean the issuer of the stock then covered by
the Option and the term "Common Stock" shall mean such stock.
9. No Employment Agreement. This Agreement does not confer upon
the Employee any right to continue in the employ of the Corporation nor does
it interfere in any way with the right of the Corporation or the right of the
Employee to terminate the employment of the Employee at any time.
10. Restrictions. The obligation of the Corporation to sell and
deliver shares of Common Stock with respect to the Option shall be subject to
(i) all applicable laws, rules, regulations and such approvals by any
governmental agencies as may be required, including the effectiveness of a
registration statement under the Securities Act of 1933, as amended and (ii)
the condition that the shares of Common Stock to be received upon exercise of
the Option shall have been duly listed, upon official notice of issuance, on a
stock exchange (to the extent that the Common Stock of the Corporation is then
listed on any such stock exchange). In the event that the shares shall be
delivered otherwise than in accordance with an applicable registration
statement, the Corporation's obligation to deliver the shares is subject to
the further condition that the Employee will execute and deliver to the
Corporation an undertaking in form and substance satisfactory to the
Corporation that (i) it is the Employee's intention to acquire and hold such
shares for investment and not for resale or distribution, (ii) the shares will
not be sold without registration or exemption from the requirement of
registration under the Securities Act and (iii) the employee will indemnify
the Corporation for any costs, liabilities and expenses which it may sustain
by reason of any violation of the Securities Act or any other law regulating
the sale or purchase of securities occasioned by any act on his part with
respect to such shares. The Corporation may require that any certificate or
certificates evidencing shares issued pursuant to the Plan bear a restrictive
legend intended to effect compliance with the Securities Act or any other
applicable regulatory measures, and stop transfer instructions with respect to
the certificates representing the shares may be given to the transfer agent.
11. Exercise. Subject to the terms and conditions of this
Agreement, the Option may be exercised only by written notice delivered to the
Corporation at 394 Elizabeth Avenue, Somerset, New Jersey 08873-1214,
attention of the Chief Financial Officer, of intention to exercise such option
and by making payment of the purchase price of such shares against delivery of
a certificate or certificates therefor as hereinafter provided. Such written
notice shall:
(a) state the election to exercise the Option and the number of
shares in respect of which it is being exercised;
(b) fix a date not less than seven (7) business days from the date
such notice is received by the Corporation for delivery of the
certificate or certificates for said shares and the payment of the
purchase price therefor, and
<PAGE>
(c) be signed by the person or persons so exercising the Option and
in the event the Option is being exercised by any person or persons other
than the Employee, be accompanied by appropriate proof of the right of
such person or persons to exercise the Option.
On the date fixed in said written notice, a certificate or
certificates for the shares as to which the Option shall have been so
exercised, registered in the name of the person or persons so exercising the
Option shall be issued by the Corporation and delivered to or upon the order
of such person or persons against payment in full at the above-mentioned
address or the purchase price of said shares in cash, by check or by surrender
or delivery to the Corporation of shares of the Corporation's Common Stock
with a fair market value equal to or less than the Option price, plus cash
equal to any difference. All shares issued as provided herein will be fully
paid and nonassessable. The Employee shall not have any of the rights of the
stockholder with respect to the shares of Common Stock subject to the option
until the certificate evidencing such shares shall be issued to him upon the
due exercise of the Option.
12. Availability of Shares. The Corporation shall at all times
during the term of the Option reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Agreement, shall pay all original issue taxes with respect to the issue of
shares pursuant hereto and all other fees and expenses necessarily incurred by
the Corporation in connection therewith and will from time to time use its
best efforts to comply with all laws and regulations which in the opinion of
counsel for the Corporation shall be applicable thereto.
13. Fair Market Value. As used herein, the "fair market value" of
a share of Common Stock shall be:
(a) if the Common Stock is listed on a national securities
exchange, the closing price of the Common Stock on the Composite Tape on
the trading day immediately preceding such given date;
(b) if the Common Stock is traded on the over-the-counter market,
the average of the bid and the asked price for the Common Stock as
reported by the Wall Street Journal at the close of trading on the
trading day immediately preceding such given date, and
(c) if the Common Stock is neither listed on a national securities
exchange or traded on the over-the-counter market, such value as the
Board in good faith shall determine.
14. The Plan. The Option is granted pursuant to the terms of the
Plan, which terms are incorporated herein by reference, and the Option shall
in all respects be interpreted in accordance with the Plan. The Committee
shall interpret and construe the Plan and this Agreement, and the Committee's
interpretations and determination shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder with
respect to any issue arising thereunder or thereunder.
15. Governing Law. This Agreement has been entered into and shall
be construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
duly executed and sealed by its duly authorized officers and the Employee has
hereunder set his hand, all as of the day and year first above written.
<PAGE>
ATTEST: EMCORE CORPORATION
________________________ By: Thomas G. Werthan
Chief Financial Officer
________________________ By: <<FNAME>> <<LNAME>>
Employee
<PAGE>
Exhibit 10.4
DISTRIBUTORSHIP AGREEMENT
This Agreement, made and entered into this 12th day of July, 1995,
by and between EMCORE CORPORATION, a corporation duly organized and existing
under the laws of New Jersey having its principal place of business at 35
Elizabeth Avenue, Somerset, New Jersey 08873 (hereinafter referred to as
"EMCORE") and HAKUTO CO., LTD., a corporation duly organized and existing
under the laws of Japan, having its principal place of business at 1-13,
Shinjuku, I-Chome, Shinjuku-Ku, Tokyo 160, Japan (hereinafter referred to as
"Hakuto"),
W I T N E S S E T H
WHEREAS, EMCORE is engaged in the business of manufacturing
technical equipment including the Products hereinafter defined, and
WHEREAS, Hakuto is engaged in the business of selling and marketing
merchandise throughout the world, including technical equipment, and
WHEREAS, the parties heretofore entered into an agreement dated
August 1, 1989 in accordance with which Hakuto distributed the Products in
defined markets, and the parties desire to revise the terms of said agreement
in accordance with which revised terms Hakuto will continue to serve as
Emcore's distributor;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, EMCORE and Hakuto do hereby agree to the terms
and conditions set forth below.
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Product" or "Products" shall mean any or all products listed on
Exhibit A attached hereto and made a part hereof. EMCORE shall have the right
to modify, improve, or discontinue any or all of the Products in its sole
discretion, provided that EMCORE shall give Hakuto not less than ninety (90)
days' notice prior to the discontinuance or major modification of any Product.
In the event EMCORE manufactures any new MOCVD deposition systems or MOCVD
deposition equipment similar or related to the Products, EMCORE shall give
Hakuto notice of such new products and the same shall be deemed added to
Exhibit A hereto by reference.
"Territory" shall mean specifically Japan, Taiwan, Hong Kong, the
Republic of China, Singapore, Malaysia, and Thailand but expressly excluding
Korea.
2. Appointment and Acceptance. (a) EMCORE hereby appoints Hakuto
as the sole and exclusive distributor of the Products in the Territory and
Hakuto accepts such appointment, all in accordance with the terms and
conditions set forth in this Agreement. All inquiries and/or orders received
by EMCORE from customers or potential customers within the Territory or for
delivery of Products in the Territory shall be referred to Hakuto for
<PAGE>
disposition.
(b) Hakuto shall exert its best efforts to attain and sustain
maximum sales of Products in the Territory. Specifically and not in
limitation hereof, if Emcore, based on its independent market research,
believes that certain of the Products should be targeted to specific customers
in the Territory, Emcore shall convey its findings to Hakuto forthwith,
whereupon Hakuto shall promptly exert its full and best efforts to address
these markets and will confer with EMCORE on best marketing strategies to
promote sales of the Product, and otherwise fully coordinate its sales efforts
with Emcore. Hakuto shall not market, distribute, sell or advertise for sale
within the Territory any product that is competitive with the Products.
(c) The relationship between EMCORE and Hakuto shall not be that of
a principal and agent, but shall be that of a seller and purchaser, each
acting as an independent contractor. Hakuto shall have no right or authority
to incur, assume or create, in writing or otherwise, any warranty, liability
or obligation of any kind, express or implied, in the name of or on behalf of
EMCORE.
(d) Hakuto shall not appoint any sub-distributor or sub-agent to
perform any of its obligations under this Agreement without the prior written
consent of EMCORE. Nothing herein, however, shall prohibit Hakuto from
assigning certain parts of the Territory to its subsidiaries and affiliates,
including specifically S&T Enterprises Ltd.
(e) Notwithstanding the exclusive sales rights granted to Hakuto,
Emcore may at its own expense and from time to time dispatch to the Territory
its personnel to engage in market research, Product promotion, and other
marketing activities, provided that all such activities shall at all times be
coordinated with Hakuto, conducted with full disclosure to and knowledge of
Hakuto, and provided further that any potential sale of any Product resulting
from such activities of Emcore shall be referred to and channeled through
Hakuto.
3. Orders. (a) Systems. Hakuto may submit to EMCORE from time
to time requests for quotations with respect to any system included as
Products under this Agreement ("Systems"). Each such request for quotation
shall identify Hakuto's prospective customer and shall set forth detailed
specifications for the System required, including all optional features.
EMCORE may respond to any such request by submitting a quotation on EMCORE's
standard form setting forth the sales price to Hakuto for such System. All
prices quoted by EMCORE shall be F.O.B. EMCORE's plant in Somerset, New
Jersey. At Hakuto's specific request, EMCORE will include in its quotation:
(i) a firm price for EMCORE's installation or assistance in installing the
System, and/or (ii) a firm price for EMCORE's assistance in the start-up of
the System and a demonstration of basic material specifications, provided
that, in each case, such request contains sufficiently detailed information
regarding the nature of the installation or assistance required or the
material specifications to be demonstrated. The terms and conditions on
quotations issued by EMCORE shall be binding upon the parties hereto, provided
that, in the event any terms contained in a quotation are inconsistent with
the terms of this Agreement, the terms of this Agreement shall govern unless
the parties shall have agreed in writing that such inconsistent terms shall
supersede the provisions of this Agreement.
(b) Spare Parts. Hakuto may submit to EMCORE from time to time
purchase orders with respect to spare parts or components included as Products
under this Agreement ("Spare Parts"), setting forth the quantity and desired
delivery date of such Spare Parts. To be effective, any such purchase order
must be accepted in writing by EMCORE at its plant in Somerset, New Jersey.
(c) Other Terms. The terms and conditions on purchase orders
issued by Hakuto shall be deemed to be a part of this Agreement as a
supplement hereto, provided that any provision in such purchase order which is
inconsistent with or contrary to the provisions of this Agreement shall be
<PAGE>
deemed to be deleted from the purchase order and of no force or effect unless
the parties shall have specifically agreed in writing that said provision in
the purchase order is intended to supersede the inconsistent provision of this
Agreement, in which case the provisions of the purchase order shall prevail.
4. Prices and Terms of Payment. (a) The price for any Product
sold by EMCORE to Hakuto shall be the price set forth in EMCORE's quotation,
which price shall be valid for not less than ninety (90) days (unless
otherwise specified in writing by EMCORE). The price for any Spare Part sold
by EMCORE to Hakuto shall be the price for such Spare Part set forth on
EMCORE's standard price list in effect on the date of shipment, less twenty
percent (20%). EMCORE reserves the right to change its Spare Parts price list
from time to time upon not less than ninety (90) days prior written notice to
Hakuto. All prices will be F.O.B. EMCORE's plant in Somerset, New Jersey.
(b) Hakuto shall pay for each Product or System purchased under
this Agreement as follows:
(i) thirty percent (30%) of the approved purchase order price (or
the price set forth in a letter of intent to purchase a Product issued by
Hakuto preliminary to the issuance of its purchase order in customary
form)
(A) not later than 180 days prior to the scheduled delivery
date of the Product or
(B) within 30 days after issuance of Hakuto's purchase order
or Hakuto's letter of intent if delivery of the Product is scheduled
therein sooner than 180 days after the date of the purchase order or
letter of intent.
Any payment accompanying a letter of intent shall be refundable to Hakuto
in the event that the anticipated purchase order is not issued by reason
of the customer's change of plans or other business decision; and
(ii) seventy percent (70%) of the approved purchase order price
within 30 days after shipment of the Product by Emcore and delivery of a
bill of a lading evidencing such shipment.
(c) Hakuto shall pay for all Spare Parts purchased under this
Agreement, by making payment in full to EMCORE within thirty (30) days after
shipment.
(d) All payments for Products shall be in U.S. dollars, and shall
be made without adjustment for any currency exchange or conversion rate
changes, and without deduction for any taxes at any time levied by any govern-
mental authority.
5. Shipment. (a) All Products shall be shipped via carrier
designated in the purchase order, F.O.B. EMCORE's plant in Somerset, New
Jersey. Hakuto shall bear and pay for all taxes of any nature imposed by any
taxing authority after delivery to the carrier at the F.O.B. point. Hakuto
shall also bear and pay for all charges for freight, shipping, consular fees,
customs duties, and all costs and expenses incurred after delivery of the
Products to the carrier at the F.O.B. point. Hakuto shall bear all risk of
loss or damage to the Products after delivery to the carrier at the F.O.B.
point.
(b) Shipping dates, even when accepted by EMCORE, shall be
understood only as best estimates. EMCORE shall attempt to respect all
shipping dates, but shall not be liable to Hakuto for damages ensuing from any
delay in shipment or delivery, however caused, except as otherwise expressly
agreed by EMCORE in writing on a case-by-case basis.
(c) EMCORE shall not be liable for any shortage or for any defect
in the Products discoverable by visual inspection with respect to any shipment
unless Hakuto notifies EMCORE in writing of the shortage or defect, prior to
the earlier to occur of: (i) the expiration of sixty (60) days after receipt
of such shipment by Hakuto, or (ii) the expiration of twenty (20) days after
receipt of such shipment by Hakuto's customer. Upon receipt of such notice,
together with evidence that such shortage or defect exists, EMCORE reserves
<PAGE>
the right, at its election, to replace Products found to be defective or short
in quantity, to issue a credit to Hakuto for the prorated invoice amount
relating to such shortage or defect, or to repair Products found to be
defective, all such remedial action to be taken by Emcore promptly without
material adverse effect upon Hakuto's customer.
6. Installation and Service. (a) Except as set forth below with
respect to warranty service, and except as otherwise expressly provided in
quotations issued by EMCORE, Hakuto shall be responsible at its own expense
for the installation and service of all Products purchased under this
Agreement. Hakuto shall maintain trained personnel and shall purchase and
maintain an inventory of Spare Parts sufficient in volume and assortment to
promptly and efficiently perform necessary installation and service functions
for all Products in the Territory. Hakuto shall give due consideration to
EMCORE's suggested minimum inventories for various Spare Parts.
(b) EMCORE shall make certain personnel available to assist Hakuto
in initial installation of the Products at the customer's facility as well as
in servicing the Products after installation until such time as Hakuto
personnel are fully trained and are capable, in EMCORE's reasonable judgment,
to perform such functions. The costs of initial installation shall be borne
by Emcore (i.e., included in the sale price of the Product) unless other fee
arrangements are agreed between Emcore and Hakuto on a specific matter.
Hakuto shall pay Emcore for post-installation servicing at the rate of $1,000
per person per day for field service engineers and $1,500 per person per day
for material process engineers, plus travel and living expenses. Said
reimbursement rates are based on the U.S. Consumer Price Index in effect on
the effective date of the Agreement and shall be subject to adjustment on an
annual basis to conform to any increase or decrease in said U.S. Consumer
Price Index as of each anniversary date of the Agreement.
7. Warranty and Insurance. (a) Material and Workmanship.
Subject to the disclaimers, limitations and exclusions set forth below, EMCORE
warrants to Hakuto and to the end user customer of Products that the Products
shall be free from defects in material and workmanship. This warranty shall
become effective upon completion of installation of the Product at the end
user's facility and acceptance of the Product by the customer but in no event
later than ninety (90) days after title passes from EMCORE to Hakuto, and
shall extend for a period of one year thereafter Hakuto shall notify EMCORE
from time to time of the installation completion and customer acceptance date
of the Products. With respect to any non-conforming Products as to which
EMCORE shall have received notification of such non-conformance within twenty
(20) days after discovery of same, EMCORE shall at its election repair the
same or provide a replacement Product at no cost to Hakuto or the end user.
In no event shall EMCORE be liable for the cost of any labor or transportation
charges incurred in the repair or replacement of any non-conforming Product,
other than (i) labor costs incurred by EMCORE for Product repairs performed in
the United States, (ii) cost of transportation incurred by EMCORE in the
United States, and (iii) upon EMCORE's express written instructions only,
costs of transportation by Hakuto to EMCORE of Products to be repaired by
EMCORE, in the United States.
(b) Warranty as to Specifications. EMCORE warrants that the
Products shall conform to the published specifications of EMCORE or the
specifications of an end user customer approved and accepted by EMCORE. With
respect to any non-conforming Product under this warranty, EMCORE shall
perform all necessary re-engineering, rework or other procedures necessary to
conform the Product to the agreed specifications. Specifically, EMCORE shall
be responsible for labor, travel and living costs of EMCORE personnel whether
incurred in the United States or in Japan.
(c) Exclusions and Disclaimer. EMCORE's warranties set forth in
paragraphs 7(a) and (b) above do not apply to expendable items, including
those items listed in Exhibit B attached hereto. Also excluded from EMCORE's
<PAGE>
foregoing warranties are any components identified by EMCORE to Hakuto as
being the subject of manufacturers' or licensors' warranties, which warranties
shall be deemed assigned to Hakuto at the time title to the goods passes to
Hakuto. With respect to all such components, Hakuto's remedy shall be limited
to the warranty and remedy provided by the manufacturer or the licensor of
said components, and EMCORE's liability obligation shall be limited to the
exercise of its best efforts to assist Hakuto in obtaining the benefit of such
manufacturer's or licensor's warranties.
THE FOREGOING IS IN LIEU OF AND EXCLUDES ALL OTHER WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND SHALL CONSTITUTE THE SOLE REMEDY OF
HAKUTO AND LIABILITY OF EMCORE WITH RESPECT TO ANY PRODUCTS DELIVERED PURSUANT
TO THIS AGREEMENT. IN NO EVENT SHALL EMCORE BE LIABLE FOR DAMAGES OF ANY KIND
OR NATURE RESULTING FROM IMPROPER OR NEGLIGENT USE OR OPERATION OF PRODUCTS,
IMPROPER PREVENTATIVE MAINTENANCE, MODIFICATIONS FROM THE ORIGINAL SYSTEM
CONFIGURATION OR REPAIR BY PERSONNEL OTHER THAN THOSE IN THE EMPLOY OF EMCORE,
OR THOSE IN THE EMPLOY OF HAKUTO WHO HAVE BEEN TRAINED AND APPROVED BY EMCORE.
IN NO EVENT SHALL EMCORE BE LIABLE FOR CONSEQUENTIAL DAMAGES, ANTICIPATED OR
LOST PROFITS, INCIDENTAL DAMAGES OR LOSS OF TIME OR OTHER LOSSES OR EXPENSES
INCURRED BY HAKUTO OR ANY END USER CUSTOMER, DIRECTLY OR INDIRECTLY, IN
CONNECTION WITH THE SALE, HANDLING OR USE OF THE PRODUCTS COVERED BY EMCORE'S
WARRANTY.
(d) EMCORE shall be responsible for supplying all Spare Parts
necessary to satisfy EMCORE's obligations under the foregoing warranties, and
Hakuto shall be responsible for supplying all installation or service relating
to the warranty program except as otherwise provided in paragraph 7(b) with
respect to specification non-conformance. In order to facilitate this
program, EMCORE agrees to maintain with Hakuto, at such location in the
Territory as Hakuto may designate, a consignment inventory of Spare Parts (the
"Consignment Inventory") determined by EMCORE to be reasonably necessary for
the prompt and efficient delivery of warranty service. Hakuto agrees to
provide to EMCORE periodic reports setting forth (i) with respect to all
warranty claims made during such month, the identity of the end user, the
nature of the claim, the service provided and the Spare Parts used, if any, in
providing such service and (ii) the current levels of all Spare Parts
comprising the Consignment Inventory.
(e) Each party shall maintain in force policies of products
liability insurance with respect to the Products in an amount not less than $2
million, each of which shall name the other party as an additional insured.
Each party shall furnish the other satisfactory evidence of such insurance
coverage.
8. Obligations of Hakuto. (a) In addition to and not in
limitation of any other obligations of Hakuto under this Agreement, Hakuto
shall, at its own expense unless otherwise expressly provided herein:
(i) Exert its best efforts to vigorously promote the sale of the
Products in the Territory and to develop a market demand for the Products
in the Territory.
(ii) Advertise the Products throughout the Territory in appropriate
advertising media and in a manner insuring proper and adequate publicity
for the Products. EMCORE shall review and approve all advertising prior
to release by Hakuto.
(iii) Prepare for EMCORE's review and approval, and update not less
than quarterly, a detailed marketing plan for the sale of the Products in
the Territory.
(iv) Establish and maintain within the Territory adequate business
locations, including suitable facilities for the display, care and
storage of the Products and shall provide adequate insurance against
loss.
(v) Maintain within the Territory an inventory of Spare Parts (in
<PAGE>
addition to the Consignment Inventory) sufficient to meet expected
demands for service and upgrading of the Products in the Territory.
(vi) Maintain a trained technical sales force and sufficient other
personnel qualified to promote, install and service the Products in the
Territory and send appropriate personnel to Emcore for one week training
on an annual basis.
(vii) Offer the Products for sale (including all advertising and
promotional activities) under the EMCORE trademark as manufacturer and
Hakuto's trademark as distributor.
(viii) Assume full responsibility for the installation of the
Products, and the warranty and post-warranty service and maintenance of
the Products, in the Territory.
(ix) Translate and prepare promotional and technical literature for
use in the Territory.
(x) Obtain all import and regulatory approvals necessary for the
promotion and sale of the Products in the Territory, supply EMCORE with
necessary customer import certificates, and otherwise advise and assist
EMCORE in complying with U.S. regulations and with regulations and
customs applicable in the Territory.
(xi) Provide EMCORE with periodic reports (but not less often than
quarterly) in form and substance satisfactory to EMCORE, setting forth
detailed information for such period regarding sales, quotations,
promotional efforts made, advertising, resale prices, competitors,
activities in the Territory, installation and service activities
performed, customer complaints, business trends and any other information
likely to assist EMCORE in evaluating the performance of Hakuto in the
Territory.
(xii) Establish and maintain complete and accurate records of all
sales and service of the Products in the Territory.
(xiii) Refrain, without EMCORE's prior written consent, from seeking
customers outside the Territory or from promoting the sale of the
Products outside the Territory.
(xiv) Refrain from purchasing or soliciting orders for goods which
compete in any way with the Product.
(b) Hakuto will purchase during each of the first two Contract
Years not less than $3,100,000 of Products (said sum being based upon average
annual purchases made by Hakuto during the five year period from October 1990
through September 1995). For each succeeding Contract Year of the Agreement,
Hakuto and Emcore shall mutually agree on a minimum purchase amount for each
such year prior to commencement of such Contract Year.
In computing the value of the minimum purchase amount for each
Contract Year, there shall be included the value of all Products shipped
during said Contract Year, the value of orders issued by Hakuto though not
shipped by Emcore during the Contract Year, and the value of orders procured
by Hakuto but cancelled by Hakuto's customer by reason of Emcore's inability
to perfect delivery of the Product within six months from date of the order.
The value of all of the foregoing orders which exceeds the minimum purchase
commitment for any Contract Year shall be credited to Hakuto's minimum
purchase commitment for the subsequent Contract Year. "Contract year" shall
mean the twelve month period commencing on the date of this Agreement and each
twelve month period thereafter during the term of this Agreement or any
renewal term thereafter.
9. Trademark and Patent Rights. (a) Exhibit C attached hereto
and made a part hereof identifies all trademarks and patents which have
already been registered by EMCORE in the Territory or in which EMCORE
otherwise claims a proprietary interest (the "Intellectual Property"). Hakuto
is hereby granted the license and privilege to use the Intellectual Property
during the term of this Agreement in furtherance of the objectives of this
Agreement. Hakuto shall not have the right to sublicense the Intellectual
<PAGE>
Property or otherwise permit its use by third parties.
(b) Hakuto shall advise EMCORE from time to time of any additional
filings, registrations or other actions that may be necessary or desirable for
the protection of EMCORE's patent or trademark rights in the Territory. Upon
EMCORE's request, Hakuto will assist EMCORE in connection with the issuance or
registration of any new EMCORE patents or trademarks in the Territory.
(c) Hakuto shall at all times respect and protect EMCORE's rights
of total ownership of the Intellectual Property in the Territory. Hakuto
shall promptly notify EMCORE of any infringements of such rights of which it
has notice and shall assist EMCORE in taking such action against such
infringement as EMCORE may elect.
(d) Upon termination of this Agreement for any reason, Hakuto shall
promptly relinquish to EMCORE any rights to the use of the Intellectual
Property and shall thereafter refrain from using same.
10. Confidentiality. Hakuto agrees to use its best efforts to hold
in strict confidence and not to disclose to others or use, either before or
after termination of this Agreement, any technical or business information,
manufacturing technique, process, experimental work, trade secret or other
confidential matter relating to the Products or EMCORE's business, except to
the extent necessary to further the objectives of this Agreement. Hakuto
shall, upon request (and upon termination of this Agreement without request),
deliver to EMCORE any and all drawings, notes, documents and materials
received from EMCORE.
11. Assignment. Neither party shall assign, transfer or otherwise
dispose of this Agreement or any of its rights or obligations hereunder in
whole or in part to any individual, firm or corporation without the prior
written consent of the other party, and any attempted assignment in violation
of this provision shall be null and void.
12. Term and Termination. (a) This Agreement shall take effect on
the date set forth on the first page hereof and shall remain in effect for a
period of seven (7) years thereafter unless earlier terminated in accordance
with the terms hereof. This Agreement may be terminated by either Party upon
the expiration of the seven-year period by giving six (6) months prior written
notice to the other party of its intent not to extend the Agreement for
further periods. Unless such notice of intent to terminate is given, this
Agreement shall continue to remain in effect after the initial seven-year
period for further consecutive periods of one year each, subject, however, to
the right of either party to terminate the Agreement at any time by giving six
(6) months prior written notice to the other party of its intent to terminate.
(b) In addition to the provisions of Section 12(a) above, either
party may terminate this Agreement as follows:
(i) Immediately and without prior written notice to the other
party in the event that proceedings in bankruptcy or insolvency are
instituted by or against the other party, or a receiver is appointed or
any substantial part of the assets of the other party is the subject of
attachment, sequestration or other similar proceeding, and such
proceeding is not vacated, terminated or stayed within 60 days after its
commencement or institution; or
(ii) Immediately upon the occurrence of a default by the other
party in the performance of its obligations under this Agreement, which
default is not cured within 30 days after receipt by such party of
written notice of the default; or
(iii) Immediately if either party is unable to obtain or renew any
permit, license, or other governmental approval necessary to such party's
performance under this Agreement; or
(iv) Upon thirty (30) days prior written notice to the other party
of intent to terminate if the parties are unable to agree upon the terms
and conditions of conversion or modification of that certain Senior
Secured Note Purchase and Security Agreement dated as of June 2, 1993,
<PAGE>
now in effect between the parties.
(c) EMCORE reserves the right to terminate this Agreement by giving
Hakuto six (6) months prior written notice of intent to terminate in the event
Hakuto fails to purchase for delivery not less than $3,100,000 of Products
during each of the first two (2) years of this Agreement.
13. Consequences Upon Termination. Upon expiration or termination
of this Agreement for any reason:
(a) EMCORE shall repurchase Hakuto's inventory of new and unused
Spare Parts at EMCORE's then effective list price for such Spare Parts or
Hakuto's cost therefor, whichever is lower. Hakuto shall deliver such Spare
Parts, together with the Consignment Inventory, at EMCORE's expense, to EMCORE
at such location, in such manner and at such time as EMCORE may direct.
(b) Hakuto shall return to EMCORE all proprietary information and
all sales and technical literature relating to the Product, and Hakuto shall
deliver to EMCORE Hakuto's list of all customers and prospective customers for
the Products in the Territory, including names, addresses, telephone numbers
and contact persons.
(c) Hakuto shall cease marketing the Products and using EMCORE's
name and trademarks in the Territory, provided that all orders for Products
accepted by EMCORE prior to expiration or termination of this Agreement shall
be completed in accordance with their terms. Hakuto shall thereafter refer to
EMCORE any and all inquiries, orders, correspondence and the like, whether in
written or oral form pertaining to Products in the Territory.
(d) EMCORE shall assume, commencing immediately upon termination of
this Agreement, full responsibility for providing warranty service and post-
warranty servicing of the Products to all customers theretofore serviced by
Hakuto, and EMCORE shall hold Hakuto free and harmless from all such
obligations.
(e) EMCORE shall pay to Hakuto a commission equal to five percent
(5%) of the purchase price of any System for which EMCORE issued a formal
quotation prior to the expiration or termination of this Agreement, if and to
the extent such System is sold in the Territory on substantially the same
terms contained in such quotation and payment in full for such System is
received by EMCORE within twelve (12) months after such expiration or
termination.
(f) Provided that termination of this Agreement did not result by
reason of the breach of or default under this Agreement by either party,
neither party to this Agreement shall claim from the other party any
indemnity, reimbursement, compensation or damages for alleged loss of
clientele, good will, profits or anticipated sales or on account of
expenditures, investments, leases or other commitments arising from the
expiration or termination of this Agreement, each party acknowledging that it
has made all decisions and investments in full awareness of the possibility of
losses or damages arising from the expiration or termination of this
Agreement.
14. Miscellaneous. (a) Notices. All notices and other
communications in connection with this Agreement shall be in writing, shall be
sent to the respective parties at the following addresses, or to such other
addresses as may be designated by the parties in writing from time to time, by
registered or certified mail, telegram, telecopy or recognized overnight
delivery service, and shall be effective upon receipt:
TO EMCORE: EMCORE Corporation
35 Elizabeth Avenue
Somerset, New Jersey 08873
Attention: Tom Werthan
Telephone: 908-271-9090
Fax: 908-271-9686
TO HAKUTO: Hakuto Co., Ltd.
<PAGE>
1-13 Shinjuku
I-Chome, Shinjuki-Ku
Tokyo 160, Japan
Attention: T. Yamawaki
Telephone: 3-3225-8910
Fax: 3-3225-9007
WITH COPY TO: Masuda, Funai, Eifert & Mitchell, Ltd. One East Wacker
Drive, Suite 3200
Chicago, Illinois 60601-1802
Attention: Thomas P. McMenamin
Telephone: 312-245-7500
Fax: 312-245-7467
(b) No Waiver. Any failure by any party hereto to enforce at any
time any term or condition under this Agreement shall not be considered a
waiver of that party's right thereafter to enforce each and every term and
condition of this Agreement.
(c) Governing Law; Arbitration. This Agreement is made and shall
be construed according to the laws of the State of New Jersey, USA. All
disputes, controversies, or differences which may arise between the parties,
out of or in relation to or in connection with this contract, or the breach
thereof, shall be finally settled by arbitration pursuant to the Japan-
American Trade Arbitration Agreement, of September 16, 1952, by which each
party hereto is bound. The arbitration proceeding shall be held in Somerset
County, New Jersey, if Hakuto seeks arbitration and in Tokyo, Japan, if Emcore
institutes such proceeding. Each party shall bear its own costs incurred in
such arbitration proceeding.
(d) Modification. This Agreement may be modified, amended or
revised only by a written instrument duly executed by the parties hereto.
(e) Compliance with Laws. Hakuto in the conduct of its business
under this Agreement shall comply with the applicable laws, regulations,
orders and the like prevailing in the Territory and shall hold EMCORE harmless
from any claim, liability, cost or expense arising out of a violation thereof.
(f) Entire Agreement. This Agreement, the exhibits and duly
executed addenda thereto, and all approved purchase orders issued pursuant
hereto shall contain the entire and only agreement between the parties
relating to the subject matter hereof, and any representations, terms or
conditions relating thereto but not incorporated herein shall not be binding
upon either party. This Agreement wholly cancels, voids, and supersedes any
agreement heretofore entered into between the parties with respect to the
subject matter hereof, except as otherwise expressly provided herein.
(g) Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions or affecting
the validity or enforceability of any provision in any other jurisdiction.
(h) Successors and Assigns. Subject to Section 11 hereof, all
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of the parties and their respective transferees, successors and
assigns.
(i) Execution. This Agreement may be executed by duly authorized
officers of the respective parties hereto in any number of counterparts, each
of which shall be deemed the original. This Agreement may be translated into
any other language and such translation may be initialed, but only this
Agreement in the English language shall be deemed the original. If any
conflict exists between the English language and the translation, the English
language version shall control.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
EMCORE CORPORATION
By /s/ Norman E. Schumaker
Title: Chief Executive Officer
HAKUTO CO., LTD.
By
Title: President
<PAGE>
Exhibit A
PRODUCTS
[Paragraph 1(a)]
Explorer GS/3100 with glove box (no load lock) and limited options
Discovery 75 GS/3100
Discovery 125 GS/3200
Discovery 180 GS/3300
Enterprise 200 GS/3300 with new Enterprise engineering (not yet
available)
Enterprise 300 Enterprise (GS/4400)
Enterprise 400 GS/9400
<PAGE>
Exhibit B
Consumable Items
Not Covered Under Warranty
[Paragraph 7(c)]
(Subject to revision by Emcore)
1. Pump Fluids - (krytox, mechanical pump fluid)
2. Oil Coalescing Filter Element
3. Oil Backstreaming Filter Element
4. Oil Recirculation Filter Element
5. Graphite Heater Filament
6. Loadlock Heater Bulbs
7. Copper Gaskets
8. Nickel Gaskets
9. Viton-rings VCR Filter Gaskets
10. PD Cell Membrane
11. Reactor Parts:
a. Moly Electrodes
b. Moly Standoff Nuts
c. Moly Screws
d. Vented Screws
e. Laser Drilled Quartz Plate
12. TGA (Activated Carbon)
13. MDA Tape
14. MDA Thermal Print Paper
15. Motor Drive Belt
16. Needle Valve Belt
17. Computer Disks
18. Fuses
19. Loadlock Operation Fluid
20. Stainless Steel Filter Medium
21. Fluorescent Light Bulbs
22. Clean Air Filters
23. Miscellaneous Hardware
<PAGE>
Exhibit C
Patents:
Modular Gas Handling Apparatus
Gas Treatment Apparatus and Method
Gas Dispersion Device
Trade Mark:
EMCORE
<PAGE>
Exhibit 10.5
[Lease for premises at 394 Elizabeth Avenue, Somerset, New Jersey 08873]
SKW REAL ESTATE LIMITED PARTNERSHIP
1650 Tysons Boulevard, 4th Floor
McLean, Virginia 22102
December 1, 1996
Emcore Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08873
Re: The Drew Building
394 Elizabeth Avenue
a/k/a 720 Elizabeth Avenue
a/k/a 394 Elizabeth Avenue
Somerset, New Jersey
Franklin Township, Somerset County
Block 528.05, Lot 19.25
Ladies and Gentlemen:
Reference is hereby made to that lease of the Premises commencing
November 1, 1992 between our predecessor-in-interest, New Jersey National
Bank, and you, as the Tenant, amended by those certain letter agreements dated
March 31, 1995 and January 29, 1996 (collectively the "Lease"). The Landlord
and Tenant have agreed to modify the terms of the Lease as set forth herein.
All capitalized terms used herein not defined herein shall have the meanings
ascribed to them in the Lease.
a) Paragraph 1(c) is hereby modified to provide that the Premises
is 74,850 square feet (37,010 square feet as per letter agreement dated March
31, 1995, plus 11,842 square feet of initial expansion space as per a letter
agreement dated January 29, 1996 plus 25,998 square feet as per this letter
agreement). The Premises now constitute the entire building -- 100% thereof.
This percentage shall be used in all applicable prorations referenced in the
Lease. Accordingly, as of the possession date (defined below) of the
Expansion Space (as defined below), Tenant shall be liable for all of the real
estate taxes and all Expense Rent (without reference to any Expense Base Year)
relating to the Property. Landlord shall have no liability whatsoever for any
repairs or maintenance of any portion of the Property or the Premises except
for roof repair or replacement and the structural aspects of the Property,
provided that the damage thereto shall not have been or caused by the
negligence or deliberate acts of Tenant, or its agents, servants, employees,
guest or invitees, in which event, the same shall be repaired by Tenant at
<PAGE>
Tenant's sole cost and expense. The new space being added to the Premises
(the "Expansion Space") is the cross-hatched area shown on EXHIBIT I annexed
hereto.
b) Paragraphs 1 (e) and 49 of the Lease are modified to provide
that the Fixed Rental is $533,762.70 per year, $44,480.23 per month).
c) With respect to the Expansion Space:
1) The possession date thereof shall be the date Tenant or
its counsel receives a copy of this letter agreement
signed by all parties hereto.
2) The Expansion Space shall be delivered totally "as-is" to
the Tenant. The Landlord shall not be required to make
any improvements thereto except as expressly set forth
herein, nor shall Landlord be required to demolish any
existing walls or other structures therein.
3) Tenant shall be entitled to an abatement of Fixed Rental
relating to the Expansion Space ($13,540.63) for a period
of one (1) month from its possession date (i.e., for this
one (1) month abatement period, the Fixed Rental shall
remain in the same amount as it was immediately prior to
Tenant's possession of the Expansion Space -- $30,939.60),
provided, however, that the abatement of Fixed Rental
provided for in this Lease is conditioned upon Tenant's
full and timely performance of all of its obligations
under the Lease during the abatement period.
4) As soon as practicable, Tenant shall deliver to Landlord
detailed plans and specifications for the construction of
the improvements the Tenant proposes to construct in the
Expansion Space. Landlord's approval of such plans and
specifications shall not be unreasonably withheld or
delayed provided that such plans and specifications comply
with all laws, rules and regulations and are sufficiently
detailed to allow construction of the improvements in a
good and workmanlike manner. As used herein, "Working
Drawings" shall mean the final drawings approved by the
Landlord and the "Work" shall mean all improvements to be
constructed in accordance with the Working Drawings.
Landlord's approval of the Working Drawings shall not be a
representation or warranty of Landlord that such drawings
are adequate for any use or comply with any law and shall
merely be the consent of the Landlord thereto. Any and
all changes in the Work must receive the prior written
consent of the Landlord which will not be unreasonably
withheld. All contractors and subcontractors performing
the Work shall be required to procure and maintain
insurance against such risks, and in such amounts, and
with such companies as Landlord may reasonably require.
Certificates of such insurance, with paid receipts
therefor, must be received by Landlord before any Work is
to be commenced. The Work shall be performed in a good
and workmanlike manner, free of defects and shall strictly
conform with the Working Drawings. The entire cost of
performing the Work (the "Total Construction Cost") shall
be paid by Tenant.
<PAGE>
d) With respect to a New HVAC units to be installed for the
Expansion Space, Landlord shall be responsible for the first $108,000 of the
cost of such units and installation thereof and Tenant shall be liable for any
such costs in the excess of said sum. The HVAC units and the installation
thereof shall be subject to the Landlord's prior approval which approval will
not be unreasonably withheld or delayed.
e) Upon execution hereof by both parties, the Tenant shall have
the right to expand the existing elevated concrete storage pad and to
construct a concrete pad for the storage of liquid nitrogen tanks (in
accordance with EXHIBIT 2 annexed hereto) in strict accordance with all
applicable governmental laws, rules, regulation and ordinances.
f) Tenant shall deliver to Landlord, simultaneously herewith, and
within ninety (90) days after the end of each of its fiscal years during the
term hereof, copies of its then current annual financial statements prepared
by its regularly engaged independent certified public accountants.
g) Tenant hereby confirms that it has no option to purchase, right
of first refusal or any other agreement whatsoever with respect to the
Property.
h) The term "Lease" shall mean the Lease as amended and
supplemented by this letter agreement. In all other respects, the Lease
remains in full force and effect.
If this letter agreement accurately and completely sets forth our
understanding, please execute the extra copy hereof where indicated below and
return same to the undersigned.
Very truly yours,
SKW REAL ESTATE
LIMITED PARTNERSHIP
By: WSK GEN-PAR, INC.,
its General Partner
By: /s/ Richard Schreiber
RICHARD SCHREIBER
Assistant Vice President
Agreed and accepted this
15th day of November, 1996.
EMCORE CORPORATION
By: /s/ Thomas G. Werthan
THOMAS WERTHAN
Vice President
cc: Mr. Richard Madison, Newmark Partners, Inc.
<PAGE>
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
[relating to September 1996 warrant issuance]
REGISTRATION RIGHTS AGREEMENT, dated as of this 20th day of December
1996, between EMCORE CORPORATION, a New Jersey corporation (the
"Corporation"), and the persons set forth on Schedule A hereto (the
"Investors').
WITNESSETH
WHEREAS, the Corporation agreed to provide the Investors with
registration rights as set forth herein as further consideration for the
purchase by the Investors of 4,133,333 warrants to purchase shares of common
stock of the Corporation (the "Common Stock"), 833,333 having been issued as
of September 1, 1996 and 3,333,333 being issued as of the date of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
Affiliate and Associate: Such terms shall have the respective meanings
assigned to them pursuant to Rule 12b-2 under the Exchange Act.
Commission: The United States Securities and Exchange Commission and any
successor federal agency having similar powers.
Common Stock: The Company's common stock, no par value.
Exchange Act: The Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations thereunder, all as at
the time in effect.
Person: An individual, partnership, joint venture, corporation, trust,
unincorporated organization or the government or any department or agency
thereof.
Registrable Securities: All of the Corporation's Common Stock acquired or
acquirable by the investors upon exercise of warrants acquired as of the date
of this Agreement.
Registration Expenses: Except as otherwise specifically provided herein,
all of the Corporation's out-of-pocket expenses, without limitation as to
amount, incident to the Corporation's performance of or compliance with
Section 2 herein, including, without limitation, all fees and expenses,
outside messenger and delivery expenses, the fees and disbursements of counsel
for the Corporation and of its independent public accountant, and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities and the expenses of one firm of attorneys who shall represent the
<PAGE>
Investors. Registration Expenses shall not include any underwriter's
discounts, commissions or transfer taxes paid by the Investors.
Securities Act: The Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations thereunder, all as at the time
in effect.
Warrants: The Company's warrants, dated as of the date of this
Agreement, to purchase one share of the Common Stock exercisable at $3.00 per
share and expiring September 1, 2001, and as otherwise set forth therein.
2. Registration
2.1 Registration on Request (Demand Registration). (a) Request. At any
one time more than six (6) months after the date hereof, upon the written
request of a majority in interest of Investors that the Corporation effect the
registration under the Act of all or part of each Investor's Registrable
Securities specifying the intended method or methods of disposition thereof,
the Corporation will use its best efforts to effect the registration under the
Securities Act of such securities to permit their disposition (in accordance
with the intended methods thereof as aforesaid) and keep such registration
open for a period of not less than nine (9) months, provided that if such
registration may then be effected by the Corporation on Form S-3 or Form S-3B
or any successor form of registration, then the Corporation shall keep such
registration effective until the Registerable Securities may be sold publicly
pursuant to Rule 144 by the Investors.
(b) Registration Statement Form. Registrations under this Section 2.1
shall be on an appropriate registration form of the Commission as determined
by the Corporation and shall permit the disposition of the Registrable
Securities in accordance with the intended method or methods of disposition
specified in the Investors' request for such registration.
(c) Expenses. The Corporation will pay all Registration Expenses in
connection with any registration of the Registrable Securities.
2.2 Incidental Registration (Piggyback Registration). (a) Notice and
Request. If the Corporation at any time proposes to register any of its
securities under the Securities Act (except registrations solely for
registration of shares in connection with an employee benefit plan or a merger
or consolidation), whether or not for sale for its own account, it will each
such time give prompt written notice to the investors of its intention to do
so. Upon the written request of any Investor within 30 days after the receipt
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by the Investor, the Corporation will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Corporation has been so requested to register by the
Investor as part of the incidental registration, provided that if the
Corporation shall determine for any reason not to register or to delay
registration of such securities the Corporation may, at its election, give
written notice of such determination to the Investors, and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration, without prejudice, however, to the rights of the Investors to
request that such registration be effected as a registration under Section
2.1, and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities, for the same period
as the delay in registering such other securities. No registration effected
under this Section 2.2 shall relieve the Company of its obligation to effect
<PAGE>
any registration upon request under Section .2.1. The Registration Expenses
of the Investors shall be paid by the Corporation.
(b) Underwriters Cutback. If, in any incidental registration referred to
in Section 2.2(a) above, the managing underwriter or underwriters thereof
shall advise the Corporation in writing that in its or their reasonable
opinion the number of securities proposed to be sold in such registration
exceeds the number that can be sold in such offering without having a material
effect on the success of the offering (including, without limitation, an
impact on the selling price or the number of shares that any participant may
sell), the Corporation will include in such registration only the number of
securities that, in the reasonable opinion of such underwriter or
underwriters, can be sold without having a material adverse effect on the
success of the offering as follows: (i) first, all of the shares to be issued
and sold by the Corporation and (ii) second, the Registrable Securities
requested to be included in such registration by the Investors and any other
Person pro rata on the basis of the aggregate number of shares requested to be
included.
(c) Sales during Registration. The Investors participating in the
incidental registration agree, if requested by the managing underwriter in an
underwritten public offering, not to effect any public sale or distribution of
securities of the Corporation of the same class as the Registrable Securities
so registered, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such underwritten offering), during the ten-day period
prior to, and during the 80-day period beginning on, the closing date of the
underwritten offering. Each Investor agrees that it shall undertake, in its
request to participate in any such underwritten offering, not to effect any
public sale or distribution of any applicable class of Registrable Securities
during the 90-day period commencing on the date of sale of such applicable
class of Registrable Securities unless it has provided 90 days prior written
notice of such sale or distribution to the underwriter(s).
2.3 Registration Procedures. Whenever the Corporation is required to
effect. the registration of any Registrable Securities under the Securities
Act as provided in Sections 2.1 and 2.2, it shall, as expeditiously as
possible:
(i) prepare and (within 120 days after a request for registration is
given to the Corporation or as soon thereafter as possible) file with the
Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective;
(ii) prepare and file with the Commission such amendments and supplements
to the registration statement and prospectus used in connection therewith as
may he necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act for nine (9) months if under 2.1 and
90 days if under 2.2;
(iii) furnish to each Investor participating such number of conformed
copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
flied under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such Investor
may reasonably request;
<PAGE>
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statements under
such other' securities or blue sky laws of such jurisdictions where an
exemption is not available and as the Investors participating shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable the Investors participating
to consummate the disposition in such jurisdictions of the securities owned by
them, except that the Corporation shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified or to consent to general service of
process in any such jurisdiction; and
(v) notify each Investor participating, at any time when a prospectus
forming a part of such registration statement is required to be delivered
under the Securities Act, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of the
participating investors promptly prepare and furnish to the participating
investors a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include 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 in
the light of the circumstances under which they are made.
2.4 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Corporation to use its
reasonable efforts to cause the Registrable Securities to be registered under
the Securities Act are subject to each of the following limitations,
conditions and qualifications.
(a) The Corporation shall not be obligated to file any registration
statement pursuant to Section 2.1 hereof at any time if the Corporation would
be required to include financial statements audited as of any date other than
the end of its fiscal year.
(b) The Corporation shall be entitled to postpone for a period of time
(which in the judgment of the Corporation is reasonable under the
circumstances) the filing of any registration statement otherwise required to
be prepared and filed by it pursuant to Section 2.1 if the Corporation
determines, in its reasonable judgment, that such registration and offering
would interfere with any financing, acquisition, corporate reorganization or
other proposed material transaction involving the Corporation or any of its
Affiliates or that it would require the Corporation to disclose material
non-public Information that it deems advisable not to disclose and promptly
gives the Investor written notice of such determination. Further, the
Corporation shall have the right to require each Investor participating not to
sell securities in a public offering for a period of up to 90 days during the
effectiveness of any registration statement if the Corporation shall determine
that such sale would interfere with any transaction involving the Corporation
as described above or that such registration would require disclosure of such
material non-public information. If pursuant to the preceding sentence the
Corporation has required the Investor to discontinue the sale of securities
during the effectiveness of a registration statement, then the period of time
<PAGE>
any such registration statement must be kept effective pursuant to Section
2.3(ii) hereof shall be extended for a period equal to the length of such
discontinuance.
(c) If the Investor proposes that the sale of Registrable Securities
pursuant to Section 2.1 hereof be an underwritten offering, the Corporation
shall have the right to approve the choice of underwriters who undertake such
offering.
2.5 Indemnification. (a) Indemnification by the Corporation. In the event
of any registration of any Registrable Securities of the Corporation under the
Securities Act pursuant to Section 2.1 or 2.2, the Corporation will, and
hereby does, indemnify and hold harmless each Investor, its directors and
officers, any underwriter and each other Person, if any, who controls any
Investor or any such underwriter, against any losses, claims, damages or
liabilities, to which any Investor or any such director or officer or
underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement of any material fact contained in
any registration statement under which such securities were registered under
the Securities Act or any prospectus contained therein, or any omission or
alleged omissions to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Corporation will
reimburse each Investor, and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim or
liability or action or proceeding in respect thereof; provided that the
Corporation shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises at of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or any such prospectus, in reliance upon
and in conformity with written information furnished to the Corporation by or
on behalf of any investor or underwriter, as the case may be, specifically
stating that it is for use in the preparation thereof; and provided, further,
that the Corporation shall not be liable in any case to the extent that such
loss, claim, damage, liability or expense arises out of an untrue or alleged
untrue statement or omission or alleged omission in a prospectus, if such
statement or omission is corrected in an amendment or supplement to the
prospectus and the Investor thereafter fails to deliver such prospectus as
amended or supplemented prior to or concurrently with the sale of the
Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Investor, or any
such director, officer or controlling person and shall survive the transfer of
such securities by the Investor.
(b) Indemnification by the Investors. The Corporation may require, as a
condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.1 or 2.2, that the Corporation shall
have received an undertaking satisfactory in all respects to it from each
Investor participating, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this Section 2.5) the
Corporation, each director of the Corporation, each officer of the Corporation
and each other person, if any, who control the Corporation within the meaning
of the Securities Act, with respect to any statement or alleged statement in
or omission or alleged omission from such registration statement or any
prospectus contained therein, if such statement or alleged statement or
omission or alleged omission was made in reliance upon or in conformity with
written information furnished to the Corporation by the Investor for use in
<PAGE>
the preparation of such registration statement or prospectus. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Corporation or any such director, officer or controlling
person and shall survive the transfer of such securities by the investor.
(c) Notices of Claims etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.5, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 3.6, except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding subdivisions of this Section 2.b (with appropriate
modifications) shall be given by the Corporation and each Investor
participating with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
3. Notices. All communication provided for hereunder shall be sent by
first- class mail and, if to an Investor, addressed to the investor as the
Investor may have designated to the Corporation in writing, and, if to the
Corporation, addressed to it at c/o EMCORE Corporation, 394 Elizabeth Avenue,
Somerset, NJ 08873-1214, Attention: Board Secretary, or to such other address
as the Corporation may have designated to the Investor in writing.
4. Assignment. This Agreement shall be binding upon end inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.
5. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
6. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of New Jersey.
<PAGE>
7. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
EMCORE CORPORATION
By: /s/ Reuben F. Richards, Jr.
Name: Reuben F. Richards, Jr.
Title: President
The Investors by their Agent-in-Fact
pursuant to Subscription Agreements signed
by them
JESUP & LAMONT MERCHANT PARTNERS, L.L.C.
By: /s/ Howard Curd
Name: Howard Curd
Title: Manager
<PAGE>
Schedule A
EMCORE Corporation
Investors
Name & Address Amount Telephone Fax
<PAGE>
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
[relating to December 1996 warrant issuance]
REGISTRATION RIGHTS AGREEMENT, dated as of this 20th day of December
1996, between EMCORE CORPORATION, a New Jersey corporation (the
"Corporation"), and the persons set forth on Schedule A hereto (the
"Investors").
WITNESSETH
WHEREAS, the Corporation agreed to provide the Investors with
registration rights as set forth herein as further consideration for the
purchase by the Investors of 4,133,333 warrants to purchase shares of common
stock of the Corporation (the "Common Stock"), 833,333 having been issued as
of September 1, 1996 and 3,333,333 being issued as of the date of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
Affiliate and Associate: Such terms shall have the respective meanings
assigned to them pursuant to Rule 12b-2 under the Exchange Act.
Commission: The United States Securities and Exchange Commission and any
successor federal agency having similar powers.
Common Stock: The Company's common stock, no par value.
Exchange Act: The Securities Exchange Act of 1934, as amended, or any
similar federal statute, and the rules and regulations thereunder, all as at
the time in effect.
Person: An individual, partnership, joint venture, corporation, trust,
unincorporated organization or the government or any department or agency
thereof.
Registrable Securities: All of the Corporation's Common Stock acquired
or acquirable by the investors upon exercise of warrants acquired as of the
date of this Agreement.
Registration Expenses: Except as otherwise specifically provided herein,
all of the Corporation's out-of-pocket expenses, without limitation as to
amount, incident to the Corporation's performance of or compliance with
Section 2 herein, including, without limitation, all fees and expenses,
outside messenger and delivery expenses, the fees and disbursements of counsel
for the Corporation and of its independent public accountant, and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities and the expenses of one firm of attorneys who shall represent the
<PAGE>
Investors. Registration Expenses shall not include any underwriter's
discounts, commissions or transfer taxes paid by the Investors.
Securities Act: The Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations thereunder, all as at the time
in effect.
Warrants: The Company's warrants, dated as of the date of this
Agreement, to purchase one share of the Common Stock exercisable at $3.00 per
share and expiring September 1, 2001, and as otherwise set forth therein.
2. Registration
2.1 Registration on Request (Demand Registration). (a) Request. At any
one time more than six (6) months after the date hereof, upon the written
request of a majority in interest of Investors that the Corporation effect the
registration under the Act of all or part of each Investor's Registrable
Securities specifying the intended method or methods of disposition thereof,
the Corporation will use its best efforts to effect the registration under the
Securities Act of such securities to permit their disposition (in accordance
with the intended methods thereof as aforesaid) and keep such registration
open for a period of not less than nine (9) months, provided that if such
registration may then be effected by the Corporation on Form S-3 or Form S-3B
or any successor form of registration, then the Corporation shall keep such
registration effective until the Registerable Securities may be sold publicly
pursuant to Rule 144 by the Investors.
(b) Registration Statement Form. Registrations under this Section 2.1
shall be on an appropriate registration form of the Commission as determined
by the Corporation and shall permit the disposition of the Registrable
Securities in accordance with the intended method or methods of disposition
specified in the Investors' request for such registration.
(c) Expenses. The Corporation will pay all Registration Expenses in
connection with any registration of the Registrable Securities.
2.2 Incidental Registration (Piggyback Registration). (a) Notice and
Request. If the Corporation at any time proposes to register any of its
securities under the Securities Act (except registrations solely for
registration of shares in connection with an employee benefit plan or a merger
or consolidation), whether or not for sale for its own account, it will each
such time give prompt written notice to the investors of its intention to do
so. Upon the written request of any Investor within 30 days after the receipt
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by the Investor, the Corporation will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Corporation has been so requested to register by the
Investor as part of the incidental registration, provided that if the
Corporation shall determine for any reason not to register or to delay
registration of such securities the Corporation may, at its election, give
written notice of such determination to the Investors, and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration, without prejudice, however, to the rights of the Investors to
request that such registration be effected as a registration under Section
2.1, and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities, for the same period
as the delay in registering such other securities. No registration effected
under this Section 2.2 shall relieve the Company of its obligation to effect
<PAGE>
any registration upon request under Section 2.1. The Registration Expenses of
the Investors shall be paid by the Corporation.
(b) Underwriters Cutback. If, in any incidental registration referred to
in Section 2.2(a) above, the managing underwriter or underwriters thereof
shall advise the Corporation in writing that in its or their reasonable
opinion the number of securities proposed to be sold in such registration
exceeds the number that can be sold in such offering without having a material
effect on the success of the offering (including, without limitation, an
impact on the selling price or the number of shares that any participant may
sell), the Corporation will include in such registration only the number of
securities that, in the reasonable opinion of such underwriter or
underwriters, can be sold without having a material adverse effect on the
success of the offering as follows: (i) first, all of the shares to be issued
and sold by the Corporation and (ii) second, the Registrable Securities
requested to be included in such registration by the Investors and any other
Person pro rata on the basis of the aggregate number of shares requested to be
included.
(c) Sales during Registration. The Investors participating in the
incidental registration agree, if requested by the managing underwriter in an
underwritten public offering, not to effect any public sale or distribution of
securities of the Corporation of the same class as the Registrable Securities
so registered, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such underwritten offering), during the ten-day period
prior to, and during the 80-day period beginning on, the closing date of the
underwritten offering. Each Investor agrees that it shall undertake, in its
request to participate in any such underwritten offering, not to effect any
public sale or distribution of any applicable class of Registrable Securities
during the 90-day period commencing on the date of sale of such applicable
class of Registrable Securities unless it has provided 90 days prior written
notice of such sale or distribution to the underwriter(s).
2.3 Registration Procedures. Whenever the Corporation is required to
effect. the registration of any Registrable Securities under the Securities
Act as provided in Sections 2.1 and 2.2, it shall, as expeditiously as
possible:
(i) prepare and (within 120 days after a request for registration is
given to the Corporation or as soon thereafter as possible) file with the
Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective;
(ii) prepare and file with the Commission such amendments and supplements
to the registration statement and prospectus used in connection therewith as
may he necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act for nine (9) months if under 2.1 and
90 days if under 2.2;
(iii) furnish to each Investor participating such number of conformed
copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
flied under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such Investor
may reasonably request;
<PAGE>
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statements under
such other' securities or blue sky laws of such jurisdictions where an
exemption is not available and as the Investors participating shall reasonably
request, to keep such registration or qualification in effect for so long as
such registration statement remains in effect, and take any other action which
may be reasonably necessary or advisable to enable the Investors participating
to consummate the disposition in such jurisdictions of the securities owned by
them, except that the Corporation shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified or to consent to general service of
process in any such jurisdiction; and
(v) notify each Investor participating, at any time when a prospectus
forming a part of such registration statement is required to be delivered
under the Securities Act, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of the
participating investors promptly prepare and furnish to the participating
investors a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include 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 in
the light of the circumstances under which they are made.
2.4 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Corporation to use its
reasonable efforts to cause the Registrable Securities to be registered under
the Securities Act are subject to each of the following limitations,
conditions and qualifications.
(a) The Corporation shall not be obligated to file any registration
statement pursuant to Section 2.1 hereof at any time if the Corporation would
be required to include financial statements audited as of any date other than
the end of its fiscal year.
(b) The Corporation shall be entitled to postpone for a period of time
(which in the judgment of the Corporation is reasonable under the
circumstances) the filing of any registration statement otherwise required to
be prepared and filed by it pursuant to Section 2.1 if the Corporation
determines, in its reasonable judgment, that such registration and offering
would interfere with any financing, acquisition, corporate reorganization or
other proposed material transaction involving the Corporation or any of its
Affiliates or that it would require the Corporation to disclose material
non-public Information that it deems advisable not to disclose and promptly
gives the Investor written notice of such determination. Further, the
Corporation shall have the right to require each Investor participating not to
sell securities in a public offering for a period of up to 90 days during the
effectiveness of any registration statement if the Corporation shall determine
that such sale would interfere with any transaction involving the Corporation
as described above or that such registration would require disclosure of such
material non-public information. If pursuant to the preceding sentence the
Corporation has required the Investor to discontinue the sale of securities
during the effectiveness of a registration statement, then the period of time
<PAGE>
any such registration statement must be kept effective pursuant to Section
2.3(ii) hereof shall be extended for a period equal to the length of such
discontinuance.
(c) If the Investor proposes that the sale of Registrable Securities
pursuant to Section 2.1 hereof be an underwritten offering, the Corporation
shall have the right to approve the choice of underwriters who undertake such
offering.
2.5 Indemnification. (a) Indemnification by the Corporation. In the event
of any registration of any Registrable Securities of the Corporation under the
Securities Act pursuant to Section 2.1 or 2.2, the Corporation will, and
hereby does, indemnify and hold harmless each Investor, its directors and
officers, any underwriter and each other Person, if any, who controls any
Investor or any such underwriter, against any losses, claims, damages or
liabilities, to which any Investor or any such director or officer or
underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement of any material fact contained in
any registration statement under which such securities were registered under
the Securities Act or any prospectus contained therein, or any omission or
alleged omissions to state therein a material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Corporation will
reimburse each Investor, and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim or
liability or action or proceeding in respect thereof; provided that the
Corporation shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises at of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or any such prospectus, in reliance upon
and in conformity with written information furnished to the Corporation by or
on behalf of any investor or underwriter, as the case may be, specifically
stating that it is for use in the preparation thereof; and provided, further,
that the Corporation shall not be liable in any case to the extent that such
loss, claim, damage, liability or expense arises out of an untrue or alleged
untrue statement or omission or alleged omission in a prospectus, if such
statement or omission is corrected in an amendment or supplement to the
prospectus and the Investor thereafter fails to deliver such prospectus as
amended or supplemented prior to or concurrently with the sale of the
Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Investor, or any
such director, officer or controlling person and shall survive the transfer of
such securities by the Investor.
(b) Indemnification by the Investors. The Corporation may require, as a
condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.1 or 2.2, that the Corporation shall
have received an undertaking satisfactory in all respects to it from each
Investor participating, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this Section 2.5) the
Corporation, each director of the Corporation, each officer of the Corporation
and each other person, if any, who control the Corporation within the meaning
of the Securities Act, with respect to any statement or alleged statement in
or omission or alleged omission from such registration statement or any
prospectus contained therein, if such statement or alleged statement or
omission or alleged omission was made in reliance upon or in conformity with
written information furnished to the Corporation by the Investor for use in
<PAGE>
the preparation of such registration statement or prospectus. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Corporation or any such director, officer or controlling
person and shall survive the transfer of such securities by the investor.
(c) Notices of Claims etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.5, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 3.6, except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding subdivisions of this Section 2.b (with appropriate
modifications) shall be given by the Corporation and each Investor
participating with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any governmental
authority other than the Securities Act.
3. Notices. All communication provided for hereunder shall be sent by
first- class mail and, if to an Investor, addressed to the investor as the
Investor may have designated to the Corporation in writing, and, if to the
Corporation, addressed to it at c/o EMCORE Corporation, 394 Elizabeth Avenue,
Somerset, NJ 08873-1214, Attention: Board Secretary, or to such other address
as the Corporation may have designated to the Investor in writing. 4.
Assignment. This Agreement shall be binding upon end inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
5. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
6. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of New Jersey.
7. Counterparts. This Agreement may be executed simultaneously in any
<PAGE>
number of counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
EMCORE CORPORATION
By: /s/ Reuben F. Richards, Jr.
Name: Reuben F. Richards, Jr.
Title: President
The Investors by their Agent-in-Fact pursuant
to Subscription Agreements signed by them
JESUP & LAMONT MERCHANT PARTNERS, L.L.C.
By: /s/ Howard Curd
Name: Howard Curd
Title: Manager
<PAGE>
Schedule A
EMCORE Corporation
Investors
Name & Address Amount Telephone Fax
<PAGE>
Exhibit 10.8
[Form of 6% Subordinated Note due May 1, 2001]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THE
SECURITY, AGREES FOR THE BENEFIT OF EMCORE CORPORATION (THE "COMPANY) THAT
THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY: (1) TO THE
COMPANY (UPON REPURCHASE THEREOF OR OTHERWISE), (2) SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3)
IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, PROVIDED THAT THERE ARE NO DIRECTED SELLING EFFORTS
IN THE UNITED STATES AND OTHER ADDITIONAL CONDITIONS OF REGULATION S FOR
RESALE HAVE BEEN SATISFIED, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN
ACCORDANCE WITH RULE 144 (IF AVAILABLE) UNDER THE SECURITIES ACT, (5) IN
RELIANCE ON ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND SUBJECT TO THE RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER
THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
THIS SECURITY MAY NOT BE TRANSFERRED FOR 120 DAYS FOLLOWING AN INITIAL PUBLIC
OFFERING OF SECURITIES OF THE COMPANY.
No. N-002 $__________
EMCORE CORPORATION
Somerset, New Jersey
6% Subordinated Note
Due May 1, 2001
Issue Date: May 1, 1996
EMCORE Corporation, a New Jersey Corporation (the "Corporation"), for value
received, promises to pay to __________ or registered assigns, the sum of
___________________ Dollars ($__________) on May 1, 2001 upon presentation and
surrender of this Note at the office of the Corporation in Somerset, New
Jersey, and to pay interest at the rate of six percent (6%) per annum semi-
annually on the first day of November and May of each year, computed from the
Issue Date, until payment of the principal amount of this Note has been made.
Payment of principal and interest shall be made at the offices of the
Corporation, in lawful money of the United States of America, and shall be
mailed to the registered owner or owners hereof at the address appearing on
the books of the Corporation.
1. The Note. This Note is one of a duly authorized issue of $9,500,000
<PAGE>
of notes of the Corporation designated as its 6% Subordinated Notes due May 1,
2001 (the "Notes"), all of like date, tenor and maturity, except variations
necessary to express the amount and payee of each note and except for the
Issue Date.
2. Equal Rank. All notes of this issue and series rank equally and
ratably without priority over one another.
3. Redemption. The Notes may be redeemed in whole or in part at the
option of the Corporation at any time at a redemption payment equal to 100% of
the outstanding principal amount of the Note plus interest accrued to the date
of redemption. In the event of a partial redemption, Notes shall be redeemed
ratably from each holder thereof. The Corporation shall give notice by mail
of any redemption at least 20 business days before the date of redemption.
4. Redemption of Notes at Option of Holders Upon a Change in Control.
In the event of a Change in Control (as defined below), the holder hereof
will have the option to require the Corporation to purchase all or any part of
this Note on a date that is 40 business days after the occurrence of such
Change in Control (the "Change in Control Purchase Date") for a purchase price
equal to 101% of the principal amount thereof plus accrued interest to the
Change in Control Purchase Date, unless such control was acquired pursuant to
a waiver by the Board of Directors of this provision. The Corporation
covenants that, prior to the mailing of the notice to holders of Notes (the
"Holders") provided for below, but in any event within 30 days following any
Change in Control, the Corporation shall (i) repay in full all Senior
Indebtedness (as defined below) or (ii) obtain the requisite consent under the
Corporation's Senior Indebtedness to permit the repurchase of the Notes
pursuant to this covenant and a failure to comply with the covenant of the
preceding sentence despite good faith efforts shall not constitute a default
hereunder. The Corporation shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase the Notes
pursuant to this covenant. Within 10 days after any Change in Control
requiring the Corporation to deliver the notice to Holders provided for below,
the Corporation shall so notify the Holders of Senior Indebtedness.
Within 20 business days after the occurrence of the Change in Control,
the Corporation shall mail to each Holder or cause to be mailed a written
notice of the Change in Control, setting forth, among other things, the terms
and conditions of, and the procedures required for exercise of, the Holder's
right to require the purchase of such Holder's Notes.
To exercise the purchase right, a Holder must deliver written notice of
such exercise to the Corporation at any time prior to the close of business on
the Change in Control Purchase Date, specifying the Notes with respect to
which the right of purchase is being exercised. Such notice of exercise may
be withdrawn by the Holder by a written notice of withdrawal delivered to the
Corporation at any time prior to the close of business on the Change in
Control Purchase Date.
A "Change in Control" shall be deemed to have occurred at such time after
the original issuance of the Notes as there shall occur the acquisition by any
Person (including any syndicate or group deemed to be a "person" under Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, or
any successor provision to either of the foregoing) of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, through proxies or otherwise, of shares
of capital stock of the Corporation entitling such Person to (a) exercise 50%
or more of the total voting power of all shares of capital stock of the
<PAGE>
Corporation entitled to vote generally in elections of directors; or (b) elect
a majority of the members of the Corporation's Board of Directors pursuant to
a proxy contest or otherwise (other than Jesup & Lamont Merchant Partners,
L.L.C.). A change in control effected by a waiver of the Board of Directors
shall not trigger this redemption feature.
5. Subordination. This Note is subordinate and junior in right of
payment to all existing and future Senior Indebtedness of the Corporation,
whether outstanding on the date hereof or thereafter created, incurred,
assumed or guaranteed. Upon any payments or distribution of assets of the
Corporation in any dissolution winding-up, liquidation or reorganization of
the Corporation (whether in an insolvency or bankruptcy proceeding or
otherwise), payment in full (including principal thereof, interest thereon and
fees and expenses relating thereto) on such Senior Indebtedness shall occur
prior to any payment or distribution being made with respect to the Notes.
Upon the happening and during the continuance of a payment Event of Default
under any Senior Indebtedness, no payment may be made by the Corporation on or
in respect of the Notes. Upon the happening and during the continuance of a
non-payment Event of Default under any Senior Indebtedness and following
receipt by the Corporation of notice from such holder(s) of Senior
Indebtedness, no payment may be made on the Notes for a period of up to 179
days during any consecutive 365 day period, unless such default shall be cured
or waived. No such subordination will prevent the occurrence of any Event of
Default.
"Senior Indebtedness" means (a) the principal of and premium, if any, and
interest (including, without limitation, any interest accruing subsequent to
the filing of a petition or other action concerning bankruptcy or other
similar proceedings, whether or not constituting an allowed claim in any such
proceedings) of the following, whether presently outstanding or hereafter
incurred or created: all indebtedness or obligations of the Company for money
borrowed (other than that evidenced by the Notes) or assets acquired which is
evidenced by a note, bond, or similar instrument (including a purchase money
mortgage) given in connection with the acquisition of any property or assets
(other than inventory or other similar property acquired in the ordinary
course of business) including securities; (b) all obligations constituting
bank debt; (c) all obligations of the Corporation:
(i) for the reimbursement of any obligor on any letter of credit banker's
acceptance or similar credit transaction, (ii) Under interest rate swaps,
caps, collars, options and similar arrangements, and (iii) under any foreign
exchange contract, currency swap agreement, futures contract, currency option
contract or other foreign currency hedge; (d) all obligations for the payment
of money relating to a capitalized lease obligation, (e) any liabilities of
others described in the preceding clauses (a), (b), (c), and (d) which the
Corporation has guaranteed or which are otherwise its legal liability; and (f)
renewals, extensions, refundings, restructurings, amendments and modifications
of any such indebtedness or guarantee. Notwithstanding anything to the
contrary, Senior indebtedness shall not include (y) any indebtedness of the
Corporation to a subsidiary except to the extent any such indebtedness is
pledged by such subsidiary as security for any bank debt, or (z) any
indebtedness or guarantee of the Corporation which by its terms or the terms
of the instrument creating or evidencing it is not superior in right of
payment of the Notes.
6. Amendments to the Note. All terms and provisions of this Note may
be amended by the Holders of 51% of the aggregate principal amount of all
Notes of this class outstanding on the date of the amendment.
<PAGE>
7. Default. If any of the following, events occur ("Event of
Default"), the entire unpaid principal amount of, and accrued and unpaid
interest on, this Note shall immediately be due and payable.
a) The Corporation falls to pay any interest on this Note when it is
due and payable, and the failure continues for a period of 30 days;
b) The Corporation fails to pay the principal of this Note at its
maturity;
c) The Corporation commences any voluntary proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, receivership, dissolution, or liquidation law or statute, of
any jurisdiction, whether now or subsequently in effect; or the
Corporation is adjudicated insolvent or bankrupt by a court of
competent jurisdiction; or the Corporation petitions or applies for,
acquiesces in, or consents to, the appointment of any receiver or
trustee of the Corporation or for all or substantially all of its
property or assets; or the Corporation makes an assignment for the
benefit of its creditors; or the Corporation admits in writing its
inability to pay its debts as they mature; or
d) There is commenced against the Corporation any proceeding relating
to the Corporation under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute, of any jurisdiction,
whether now or subsequently in effect, and the proceeding remains
undismissed for a period of 60 days or the Corporation by any act
indicates its consent to, approval of, or acquiescence in, the
proceeding; or a receiver or trustee is appointed for the
Corporation or for all or substantially all of its property or
assets, and the receivership or trusteeship remains undischarged for
a period of 60 days; or a warrant of attachment, execution or
similar process is issued against any substantial part of the
property or assets of the Corporation, and the warrant or similar
process is not dismissed or bonded within 60 days after the levy.
8. Exchange. The holder of this Note may, at any time on or before the
date of its maturity, by surrendering this Note to the Corporation at its
office, exchange this Note and/or any other of the Notes for another note or
notes of a like principal amount and of like tenor, date and maturity.
9. Transfer. This Note may be transferred only at the office of the
Corporation by the surrender hereof for cancellation, along with a proper
instrument of transfer (with the signature guaranteed to the Corporation's
satisfaction), and upon the payment of any stamp tax or other governmental
charge connected with the transfer. If this Note is transferred, a new note
or notes of like tenor, date and maturity shall be issued to the transferee.
10. Registered owner. The Corporation may treat the person or persons
whose name or names appear hereon as the absolute owner or owners of this Note
for the purpose of receiving payment of, or on account of, the principal and
interest due on this Note and for all other purposes, and it shall not be
affected by any notice to the contrary.
11. Corporate obligation. The holder or holders of this Note shall not
have any recourse for the payment in whole or of any part of the principal or
interest on this Note against any incorporator, or present or future
stockholder of the Corporation by virtue of any law, or by the enforcement of
<PAGE>
any assessment, or otherwise, or against any officer or director of the
Corporation by reason of any matter prior to the delivery of this Note, or
against any present or future officer or director of the Corporation. The
holder of this Note, by the acceptance hereof and as a part of the
consideration for this Note, expressly agrees that the Note is an obligation
solely of the Corporation and expressly releases all claims and waives all
liability against the foregoing persons in connection with this Note.
IN WITNESS WHEREOF, the Corporation has signed and sealed this 6% Note
due May 1, 2001, this ___ day of May, 1996.
EMCORE CORPORATION
By:______________________________
Norman E. Schumaker, President
Corporate Seal
By:______________________________
Thomas G. Werthan, Secretary
<PAGE>
Exhibit 10.9
[Form of 6% Subordinated Note due September 1, 2001]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THE
SECURITY, AGREES FOR THE BENEFIT OF EMCORE CORPORATION (THE "COMPANY) THAT
THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY: (1) TO THE
COMPANY (UPON REPURCHASE THEREOF OR OTHERWISE), (2) SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3)
IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, PROVIDED THAT THERE ARE NO DIRECTED SELLING EFFORTS
IN THE UNITED STATES AND OTHER ADDITIONAL CONDITIONS OF REGULATION S FOR
RESALE HAVE BEEN SATISFIED, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN
ACCORDANCE WITH RULE 144 (IF AVAILABLE) UNDER THE SECURITIES ACT, (5) IN
RELIANCE ON ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND SUBJECT TO THE RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER
THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
THIS SECURITY MAY NOT BE TRANSFERRED FOR 120 DAYS FOLLOWING AN INITIAL PUBLIC
OFFERING OF SECURITIES OF THE COMPANY.
No. N-002 $__________
EMCORE CORPORATION
Somerset, New Jersey
6% Subordinated Note
Due September 1, 2001
Issue Date: September 1, 1996
EMCORE Corporation, a New Jersey Corporation (the "Corporation"), for value
received, promises to pay to __________ or registered assigns, the sum of
___________________ Dollars ($__________) on September 1, 2001 upon
presentation and surrender of this Note at the office of the Corporation in
Somerset, New Jersey, and to pay interest at the rate of six percent (6%) per
annum semi-annually on the first day of November and May of each year,
computed from the Issue Date, until payment of the principal amount of this
Note has been made. Payment of principal and interest shall be made at the
offices of the Corporation, in lawful money of the United States of America,
and shall be mailed to the registered owner or owners hereof at the address
appearing on the books of the Corporation.
1. The Note. This Note is one of a duly authorized issue of $2,500,000
<PAGE>
of notes of the Corporation designated as its 6% Subordinated Notes due
September 1, 2001 (the "Notes"), all of like date, tenor and maturity, except
variations necessary to express the amount and payee of each note and except
for the Issue Date.
2. Equal Rank. All notes of this issue and series rank equally and
ratably without priority over one another.
3. Redemption. The Notes may be redeemed in whole or in part at the
option of the Corporation at any time at a redemption payment equal to 100% of
the outstanding principal amount of the Note plus interest accrued to the date
of redemption. In the event of a partial redemption, Notes shall be redeemed
ratably from each holder thereof. The Corporation shall give notice by mail
of any redemption at least 20 business days before the date of redemption.
4. Redemption of Notes at Option of Holders Upon a Change in Control.
In the event of a Change in Control (as defined below), the holder hereof
will have the option to require the Corporation to purchase all or any part of
this Note on a date that is 40 business days after the occurrence of such
Change in Control (the "Change in Control Purchase Date") for a purchase price
equal to 101% of the principal amount thereof plus accrued interest to the
Change in Control Purchase Date, unless such control was acquired pursuant to
a waiver by the Board of Directors of this provision. The Corporation
covenants that, prior to the mailing of the notice to holders of Notes (the
"Holders") provided for below, but in any event within 30 days following any
Change in Control, the Corporation shall (i) repay in full all Senior
Indebtedness (as defined below) or (ii) obtain the requisite consent under the
Corporation's Senior Indebtedness to permit the repurchase of the Notes
pursuant to this covenant and a failure to comply with the covenant of the
preceding sentence despite good faith efforts shall not constitute a default
hereunder. The Corporation shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase the Notes
pursuant to this covenant. Within 10 days after any Change in Control
requiring the Corporation to deliver the notice to Holders provided for below,
the Corporation shall so notify the Holders of Senior Indebtedness.
Within 20 business days after the occurrence of the Change in Control,
the Corporation shall mail to each Holder or cause to be mailed a written
notice of the Change in Control, setting forth, among other things, the terms
and conditions of, and the procedures required for exercise of, the Holder's
right to require the purchase of such Holder's Notes.
To exercise the purchase right, a Holder must deliver written notice of
such exercise to the Corporation at any time prior to the close of business on
the Change in Control Purchase Date, specifying the Notes with respect to
which the right of purchase is being exercised. Such notice of exercise may
be withdrawn by the Holder by a written notice of withdrawal delivered to the
Corporation at any time prior to the close of business on the Change in
Control Purchase Date.
A "Change in Control" shall be deemed to have occurred at such time after
the original issuance of the Notes as there shall occur the acquisition by any
Person (including any syndicate or group deemed to be a "person" under Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, or
any successor provision to either of the foregoing) of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, through proxies or otherwise, of shares
of capital stock of the Corporation entitling such Person to (a) exercise 50%
or more of the total voting power of all shares of capital stock of the
<PAGE>
Corporation entitled to vote generally in elections of directors; or (b) elect
a majority of the members of the Corporation's Board of Directors pursuant to
a proxy contest or otherwise (other than Jesup & Lamont Merchant Partners,
L.L.C.). A change in control effected by a waiver of the Board of Directors
shall not trigger this redemption feature.
5. Subordination. This Note is subordinate and junior in right of
payment to all existing and future Senior Indebtedness of the Corporation,
whether outstanding on the date hereof or thereafter created, incurred,
assumed or guaranteed. Upon any payments or distribution of assets of the
Corporation in any dissolution winding-up, liquidation or reorganization of
the Corporation (whether in an insolvency or bankruptcy proceeding or
otherwise), payment in full (including principal thereof, interest thereon and
fees and expenses relating thereto) on such Senior Indebtedness shall occur
prior to any payment or distribution being made with respect to the Notes.
Upon the happening and during the continuance of a payment Event of Default
under any Senior Indebtedness, no payment may be made by the Corporation on or
in respect of the Notes. Upon the happening and during the continuance of a
non-payment Event of Default under any Senior Indebtedness and following
receipt by the Corporation of notice from such holder(s) of Senior
Indebtedness, no payment may be made on the Notes for a period of up to 179
days during any consecutive 365 day period, unless such default shall be cured
or waived. No such subordination will prevent the occurrence of any Event of
Default.
"Senior Indebtedness" means (a) the principal of and premium, if any, and
interest (including, without limitation, any interest accruing subsequent to
the filing of a petition or other action concerning bankruptcy or other
similar proceedings, whether or not constituting an allowed claim in any such
proceedings) of the following, whether presently outstanding or hereafter
incurred or created: all indebtedness or obligations of the Company for money
borrowed (other than that evidenced by the Notes) or assets acquired which is
evidenced by a note, bond, or similar instrument (including a purchase money
mortgage) given in connection with the acquisition of any property or assets
(other than inventory or other similar property acquired in the ordinary
course of business) including securities; (b) all obligations constituting
bank debt; (c) all obligations of the Corporation:
(i) for the reimbursement of any obligor on any letter of credit banker's
acceptance or similar credit transaction, (ii) Under interest rate swaps,
caps, collars, options and similar arrangements, and (iii) under any foreign
exchange contract, currency swap agreement, futures contract, currency option
contract or other foreign currency hedge; (d) all obligations for the payment
of money relating to a capitalized lease obligation, (e) any liabilities of
others described in the preceding clauses (a), (b), (c), and (d) which the
Corporation has guaranteed or which are otherwise its legal liability; and (f)
renewals, extensions, refundings, restructurings, amendments and modifications
of any such indebtedness or guarantee. Notwithstanding anything to the
contrary, Senior indebtedness shall not include (y) any indebtedness of the
Corporation to a subsidiary except to the extent any such indebtedness is
pledged by such subsidiary as security for any bank debt, or (z) any
indebtedness or guarantee of the Corporation which by its terms or the terms
of the instrument creating or evidencing it is not superior in right of
payment of the Notes.
6. Amendments to the Note. All terms and provisions of this Note may
be amended by the Holders of 51% of the aggregate principal amount of all
Notes of this class outstanding on the date of the amendment.
<PAGE>
7. Default. If any of the following, events occur ("Event of
Default"), the entire unpaid principal amount of, and accrued and unpaid
interest on, this Note shall immediately be due and payable.
a) The Corporation falls to pay any interest on this Note when it is
due and payable, and the failure continues for a period of 30 days;
b) The Corporation fails to pay the principal of this Note at its
maturity;
c) The Corporation commences any voluntary proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, receivership, dissolution, or liquidation law or statute, of
any jurisdiction, whether now or subsequently in effect; or the
Corporation is adjudicated insolvent or bankrupt by a court of
competent jurisdiction; or the Corporation petitions or applies for,
acquiesces in, or consents to, the appointment of any receiver or
trustee of the Corporation or for all or substantially all of its
property or assets; or the Corporation makes an assignment for the
benefit of its creditors; or the Corporation admits in writing its
inability to pay its debts as they mature; or
d) There is commenced against the Corporation any proceeding relating
to the Corporation under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, receivership,
dissolution, or liquidation law or statute, of any jurisdiction,
whether now or subsequently in effect, and the proceeding remains
undismissed for a period of 60 days or the Corporation by any act
indicates its consent to, approval of, or acquiescence in, the
proceeding; or a receiver or trustee is appointed for the
Corporation or for all or substantially all of its property or
assets, and the receivership or trusteeship remains undischarged for
a period of 60 days; or a warrant of attachment, execution or
similar process is issued against any substantial part of the
property or assets of the Corporation, and the warrant or similar
process is not dismissed or bonded within 60 days after the levy.
8. Exchange. The holder of this Note may, at any time on or before the
date of its maturity, by surrendering this Note to the Corporation at its
office, exchange this Note and/or any other of the Notes for another note or
notes of a like principal amount and of like tenor, date and maturity.
9. Transfer. This Note may be transferred only at the office of the
Corporation by the surrender hereof for cancellation, along with a proper
instrument of transfer (with the signature guaranteed to the Corporation's
satisfaction), and upon the payment of any stamp tax or other governmental
charge connected with the transfer. If this Note is transferred, a new note
or notes of like tenor, date and maturity shall be issued to the transferee.
10. Registered owner. The Corporation may treat the person or persons
whose name or names appear hereon as the absolute owner or owners of this Note
for the purpose of receiving payment of, or on account of, the principal and
interest due on this Note and for all other purposes, and it shall not be
affected by any notice to the contrary.
11. Corporate obligation. The holder or holders of this Note shall not
have any recourse for the payment in whole or of any part of the principal or
interest on this Note against any incorporator, or present or future
stockholder of the Corporation by virtue of any law, or by the enforcement of
<PAGE>
any assessment, or otherwise, or against any officer or director of the
Corporation by reason of any matter prior to the delivery of this Note, or
against any present or future officer or director of the Corporation. The
holder of this Note, by the acceptance hereof and as a part of the
consideration for this Note, expressly agrees that the Note is an obligation
solely of the Corporation and expressly releases all claims and waives all
liability against the foregoing persons in connection with this Note.
IN WITNESS WHEREOF, the Corporation has signed and sealed this 6% Note
due September 1, 2001, this ___ day of September, 1996.
EMCORE CORPORATION
By:______________________________
Norman E. Schumaker, President
Corporate Seal
By:______________________________
Thomas G. Werthan, Secretary
<PAGE>
Exhibit 10.10
[Form of $4.08 warrant]
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF EMCORE CORPORATION (THE "COMPANY")
THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY:
(1) TO THE COMPANY (UPON REPURCHASE THEREOF OR OTHERWISE), (2) SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO
WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, AS
THE SAME MAY BE AMENDED FROM TIME TO TIME, PROVIDED THAT THE CONDITIONS
OF REGULATION S FOR RESALES HAVE BEEN SATISFIED, (4) PURSUANT TO AN
EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144 (IF AVAILABLE)
UNDER THE SECURITIES ACT, AS THE SAME MAY BE AMENDED FROM TIME TO TIME,
(5) IN RELIANCE ON ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, AND SUBJECT TO THE RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED FOR
120 DAYS FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE
COMPANY.
Warrant No. W- Number of Shares:
Price:$4.08 per share
<PAGE>
Date of Issuance: May 1, 1996 (subject to adjustment)
EMCORE CORPORATION
SOMERSET, NEW JERSEY
ISSUE DATE: MAY 1, 1996
WARRANT
EMCORE CORPORATION, a New Jersey corporation (The "Company"), for value
received, hereby certifies that ___________________ or its registered assigns
(the "Registered Holder"), is entitled, subject to the terms set forth below,
to purchase from the Company, at any time or from time to time on or after
November 1, 1996 and on or before May 1, 2001 at no later than 5:00 pm. (New
York City time), up to ______________________ shares of the
common stock of the Company ("Common Stock"), at a purchase price of $1.20 per
share. The shares purchasable upon exercise of this Warrant, and the purchase
price per share, each as adjusted from time to time pursuant to the provisions
of this Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively.
1. Exercise.
(a) Subject to the requirements of Section 4, this Warrant may be
exercised by the Registered Holder, in whole or in part, by surrendering this
Warrant, with the purchase form appended hereto as Exhibit I duly executed by
such Registered Holder or by such Registered Holder's duly authorized
attorney, at the principal office of the Company, or at such other office or
agency as the Company may designate, accompanied by payment in full, in lawful
money of the United States, or with an equal principal amount the Company's 6%
Subordinated Notes due May 1, 2001, of the Purchase Price payable in respect
of the number of shares of Warrant Shares purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for warrant shares shall be issuable upon such exercise as
provided in subsection 1(c) below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or such Holder (upon payment by such Holder of any
applicable transfer taxes) as the Holder may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section
2 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on
the face or faces thereof for the number of Warrant Shares equal (without
giving effect to any adjustment therein) to the number of such shares called
for on the face or this Warrant minus the number of such shares purchased by
the Registered Holder upon such exercise as provided in subsection 1(a) above.
<PAGE>
2. Call provision.
This Warrant may be called in whole or in part by the Board of
Directors of the Company upon 30 days written notice to the holder at any time
after May 1, 1997. No call of this warrant shall be made unless the call is
made pro-rata as to principal amount with respect to all then outstanding
warrants of this class.
3. Adjustments.
(a) Effect of stock changes. If, at any time or from time to time
the Company, by stock dividend, stock split, subdivision, reverse split,
consolidation, reclassification or shares, or other similar structural change,
changes as a whole its outstanding Common Stock into a different number or
class of shares, then, immediately upon the occurrence of the change:
(i) the class of shares into which the Common Stock has been
changed shall replace the Common Stock, for the purposes of this Warrant and
the terms and conditions hereof, so that the registered owner or owners of
this Warrant shall be entitled to receive, and shall receive upon exercise of
this Warrant, shares of the class of stock into which the Common Stock had
been changed;
(ii) the number of shares purchasable upon exercise of this
Warrant shall proportionately be adjusted. (For example, if the outstanding
common Stock of the Corporation is converted into X stock at the rate of one
(1) share of Common Stock into three (3) shares of X stock, and prior to the
change the registered owner or owners of this Warrant were entitled, upon
exercise of this Warrant, to purchase one hundred shares of Common Stock, then
the registered owner or owners shall, after the change, be entitled to
purchase three hundred shares of X stock for the total same exercise price
that the owner or owners had to pay prior to the change to purchase the one
hundred shares of Common Stock); and
(iii) the purchase price per share shall be proportionately
adjusted. (In the above example, the purchase price per share would be reduced
by two-thirds.)
Irrespective of any adjustment or change in the number or class of
shares purchasable under this or any other Warrant of like tenor, or in the
purchase price per share, this Warrant, as well as any other warrant of like
tenor, may continue to express the purchase price per share and the number and
class of shares purchasable upon exercise of this Warrant as the purchase
price per share and the number and class of shares purchasable were expressed
in this Warrant when it was initially issued.
(b) Effect of merger. If at any time while this Warrant is
outstanding another corporation merges into the Company, the registered owner
or owners of this Warrant shall be entitled, immediately after the merger
becomes effective and upon exercise of this Warrant, to obtain the same number
of shares of Common Stock of the Company (or shares into which the Common
Stock has been changed as provided in the paragraph of this Warrant covering
changes) to which the owner or owners were entitled upon the exercise hereof
to obtain immediately before the merger became effective at the same exercise
price. The Company shall take any and all steps necessary in connection with
the merger to assure that sufficient shares of Common Stock to satisfy all
conversion and purchase rights represented by outstanding convertible
securities, options and warrants, including this Warrant, are available so
that these convertible securities, options and warrants, including this
<PAGE>
Warrant, may be exercised.
(c) Effect of consolidation or sale. Notwithstanding any provision
of this Warrant concerning the callability of this Warrant, if the Company
consolidates with or merges into another corporation or other entity in a
transaction in which the Company is not the surviving corporation, or receives
an offer to purchase or lease all or substantially all of the assets of the
Company or an offer to purchase forty-five percent (45%) or more of the issued
and outstanding Common Stock of the Company, or if all or substantially all of
the assets of the Company are sold or leased or forty-five percent (45%) or
more of the issued and outstanding Common Stock of the Company is purchased by
any person or group of persons acting in concert, then This Warrant shall be
called by the Company on the Effective Date of such consolidation or merger or
asset sale, or in the case of an offer to purchase forty-five percent (45%) of
the Company's Common Stock, on the date such offer is accepted by the Company.
The right to exercise this Warrant shall terminate when it is called. The
call price shall be determined by the board of directors of the Company in
accordance with the provisions of the second and third sentences of paragraph
3 hereof as of the time the event triggering the call occurs, or the value of
the securities or the other consideration that shall be received in the
transaction by the owner of a number of outstanding shares of Common Stock
equal to the number of shares purchasable upon exercise of this Warrant. This
call price shall be payable not later than sixty (60) days after the effective
date of the call to the registered owner or owners of this Warrant upon its
surrender for cancellation at the offices of the Company, together with the
transfer or assignment form which forms a part hereof, duly completed and
executed in blank.
(d) Dissolution. In the event that a voluntary or involuntary
dissolution, liquidation or winding up of the Company (other than in
connection with a merger where the Company is the surviving corporation as
covered in this Warrant, or a merger or consolidation with or into another
corporation, a sale or lease of all or substantially all of the assets of the
Company, or a sale of a specified portion or percentage of its stock as
covered in this Warrant) is at any time proposed during the term of this
Warrant, the Company shall give written notice to the registered owner or
owners of this Warrant at least thirty (30) days prior to the record date of
the proposed transaction. The notice must contain:
(i) the date on which the transaction is to take place;
(ii) the record date (which must be at least thirty (30) days
after the giving of the notice) as of which holders of the Common Stock
entitled to receive distributions as a result of the transaction shall be
determined;
(iii) a brief description of the transaction;
(iv) a brief description of the distributions, if any, to be
made to holders of the Common Stock as a result of the transaction; and
(v) an estimate of the fair market value of the distributions.
On the date of the transaction, if it actually occurs, this Warrant and all
rights existing under this Warrant shall terminate.
4. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall pay in cash
an amount determined by multiplying the fraction to which the Holder is
entitled by the fair market value of the Common Stock on the date of exercise.
<PAGE>
Should the Common Stock then be traded on an Exchange or quoted on a quotation
system for which a last sale reporting system is in effect, the reported last
sale on the exercise date shall be deemed to be such fair market value. If
the Common Stock is quoted on a quotation system without last sale reporting,
the fair market value shall be deemed to be the highest bid price of any
broker/dealer regularly making a market in the Common Stock on the exercise
date. In all other cases fair market value shall be as determined in good
faith by the Company.
5. Certain Requirements for Transfer and Exercise.
(a) In the absence of an effective Registration Statement under the
Securities Act of 1933, as amended (the "Act"), it shall be a condition to any
transfer or any exercise of this Warrant that the Issuer shall have received,
at the time of such transfer or exercise:
(i) A representation in writing from the proposed transferee
that the Warrant is being transferred or the Common Stock being purchased is
being acquired for investment and not with a view to any sale or distribution
thereof which would constitute or result in a violation of the Act;
(ii) an opinion of counsel, which opinion is reasonably
satisfactory to the Issuer, that the transaction shall not result in a
violation of state or federal securities laws.
(b) In such case, each certificate representing the Warrant or the
Warrant Shares shall bear a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF
EMCORE CORPORATION (THE "COMPANY") THAT THIS SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY: (1) TO THE COMPANY (UPON
REPURCHASE THEREOF OR OTHERWISE), (2) SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE
ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, PROVIDED THAT THE CONDITIONS OF REGULATION S
FOR RESALES HAVE BEEN SATISFIED, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 AVAILABLE) UNDER THE SECURITIES
ACT, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, (5) IN RELIANCE ON
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, AND SUBJECT TO THE RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED FOR
120 DAYS FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE
COMPANY.
6. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or
<PAGE>
performance of any of the terms of this Warrant, but will at all tines in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.
7. Reservation of Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and
property as from time to time shall be issuable upon the exercise of this
Warrant.
8. Exchange of Warrants. Upon the surrender by the Registered Holder
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section
4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of
such Registered Holder or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct.
9. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of
an indemnity agreement (with surety if reasonably required in an amount
reasonably satisfactory to the Company), or in the case of mutilation upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
10. Transfers, etc.
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written
notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit II
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
11. Required Notices. The Company shall give the Registered Holder such
notices as it may, from time to time, be required to give the holders of the
Common Stock, as if the Registered Holder was a holder of Common Stock at the
time such notices are required to be given. The Company shall also give
Registered Holder written notice of: (i) each adjustment of the Purchase Price
or other warrant item made pursuant to Section 2 hereof; and (ii) of each
dividend and distribution payable with respect to any security which may be
acquired by exercise of the Warrant, at least ten (10) business days prior to
the record date for such dividend or distribution so that the Registered
Holder may exercise the warrant and participate in the dividend or
distribution.
12. Mailing of Notices, etc. All notices and other communications from
<PAGE>
the Company to the Registered Holder of this Warrant shall be mailed by first-
class certified or registered mail, postage prepaid, to the address furnished
to the Company in writing by the last Registered Holder of this Warrant who
shall have furnished an address to the Company in writing. All notices and
other communications from the Registered Holder of this Warrant or in
connection herewith to the Company shall be mailed by first-class certified or
registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give
prompt written notice to the Registered Holder of this Warrant and thereafter
all references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
EMCORE Corporation
Attention: Secretary
394 Elizabeth Avenue
Somerset, New Jersey 08873-1214
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
15. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the State of New Jersey.
EMCORE CORPORATION
By: _______________________________
Norman E. Schumaker, President
[CORPORATE SEAL]
ATTEST:
_______________________________
Thomas G. Werthan, Secretary
<PAGE>
EXHIBIT I
PURCHASE FORM
To: EMCORE CORPORATION Dated:__________
The undersigned, pursuant to the provisions set forth in the
attached Warrant (No. ______), hereby irrevocably elects to purchase
________________ shares of the Common Stock of Emcore Corporation covered by
such Warrant and herewith makes payment of $_____________ representing the
full purchase price for such shares at the price per share provided for in
such Warrant either in cash or by delivery of an equal principal amount of the
Company's 6% Subordinated Notes, due May 1, 2001, IN an equal amount.
Holder: ________________________
Address: ________________________
________________________
Phone: ________________________
Fax: ________________________
<PAGE>
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant
(No._______) including the right to purchase the number of shares of EMCORE
Corporation Common Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
Dated: ____________________________
Signature:____________________________
Dated: ____________________________
Witness: ____________________________
<PAGE>
Exhibit 10.11
[Form of $17.00 Warrant]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
Warrant No. ____ Number of Shares: ______
(subject to adjustment)
Date of Issuance: August 10, 1992
EMCORE CORPORATION
Class III Preferred Stock Purchase Warrant
EMCORE CORPORATION, a New Jersey corporation (the "Company"), for
value received, hereby certifies that ______ _______, or his registered
assigns (the "Registered Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company, at any time or from time to time on or
after the date of issuance and on or before August 10, 1997 at not later than
5:00 p.m. (New York City time), 30,050 shares of Class III Senior Convertible
Preferred Stock of the Company ("Class III Preferred Stock"), at a purchase
price of $0.50 per share. This Warrant is one of the warrants issued pursuant
to the Unit Purchase Agreement, dated as of July 27, 1992, between the Company
and certain investors named therein (the "Purchase Agreement"), and the Escrow
Agreement, dated July 27, 1992, between Dillon, Bitar & Luther, the Company
and certain investors named therein (the "Escrow Agreement"). The shares
purchasable upon exercise of this Warrant, and the purchase price per share,
each as adjusted from time to time pursuant to the provisions of this Warrant,
are hereinafter referred to as the "Warrant Shares" and the "Purchase Price,"
respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or by
such Registered Holder's duly authorized attorney, at the principal office of
the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full,in lawful money of the United States, of the
Purchase Price payable in respect of the number of shares of Warrant Shares
<PAGE>
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as
provided in subsection 1(c) below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant
to Section 3 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate
on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the number of such
shares purchased by the Registered Holder upon such exercise as provided
in subsection 1(a) above.
2. Adjustments.
(a) If the Conversion Price (as defined in the Company's
Certificate of Incorporation (the "Certificate")) of the Class III Preferred
Stock is adjusted in accordance with the terms of the Certificate, then the
Purchase Price in effect immediately prior to such adjustment shall
simultaneously be adjusted proportionately with the adjustment of the
Conversion Price.
(b) The Company shall give the Registered Holder such notices as it
may, from time to time, be required to give the holders of the Class III
Preferred Stock, as if the Registered Holder was a holder of Class III
Preferred Stock at the time such notices are required to be given.
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such certificate
shall also set forth the kind and amount of stock or other securities or
property into which this Warrant shall be exercisable following the occurrence
of any of the events specified in this Section 2.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall round such
fractional share to the nearest whole share.
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
<PAGE>
transferred or otherwise disposed of except in accordance with Sections 3 and
7 of the Purchase Agreement, and the Registration Rights Agreement.
(b) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND WERE ACQUIRED BY THE REGISTERED HOLDER FOR SUCH HOLDER'S OWN
ACCOUNT FOR INVESTMENT. THESE SECURITIES MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE ACT, OR AN
OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND
SUBSTANCE TO THE CORPORATION TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER SAID ACT.
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY ARE ALSO
SUBJECT TO CERTAIN PROVISIONS OF THAT CERTAIN STOCKHOLDERS'
AGREEMENT DATED JANUARY 12, 1987, AMONG THE CORPORATION AND CERTAIN
HOLDERS OF OUTSTANDING CAPITAL STOCK, THAT CERTAIN CONVERTIBLE
PREFERRED STOCK AND COMMON STOCK PURCHASE AGREEMENT DATED JANUARY
12, 1987, AMONG THE CORPORATION AND CERTAIN HOLDERS OF OUTSTANDING
CAPITAL STOCK OF THE CORPORATION, AND THAT CERTAIN UNIT PURCHASE
AGREEMENT DATED JULY 27, 1992, AMONG THE CORPORATION AND CERTAIN
HOLDERS OF OUTSTANDING NOTES OF THE CORPORATION, AND MAY NOT BE
OFFERED FOR SALE, SOLD, BEQUEATHED, TRANSFERRED (INCLUDING BY WILL
OR PURSUANT TO THE LAWS OF DESCENT AND DISTRIBUTION OR
OTHERWISE),PLEDGED, HYPOTHECATED, ENCUMBERED OR OTHERWISE DISPOSED
OF EXCEPT AS PROVIDED IN ACCORDANCE WITH THE ABOVE AGREEMENTS,
COPIES OF WHICH AGREEMENTS ARE ON FILE AT THE CORPORATION AND MAY BE
OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION."
Such certificates shall also bear such legend as may be required by the
Stockholders' Agreement dated January 12, 1987, among the Company and certain
holders of outstanding stock, if the holder of the certificates is a party to
such agreement, and the laws of the State of New Jersey or any other state.
5. No Impairment. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the holder of this Warrant against impairment.
6. Reservation of Stock. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and
property, as from time to time shall be issuable upon the exercise of this
Warrant.
7. Exchange of Warrants. Upon the surrender by the Registered
Holder of any Warrant or Warrants, properly endorsed, to the Company at the
principal office of the Company, the Company will, subject to the provisions
of Section 4 hereof, issue and deliver to or upon the order of such Holder, at
the Company's expense, a new Warrant or Warrants of like tenor, in the name of
such Registered Holder or as such Registered Holder (upon payment by such
<PAGE>
Registered Holder of any applicable transfer taxes) may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Class III
Preferred Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
8. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of
an indemnity agreement (with surety if reasonably required) in an amount
reasonably satisfactory to the Company, or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
9. Transfers, etc.
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written
notice to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit II
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
10. Mailing of Notices, etc. All notices and other communications
from the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office
set forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give
prompt written notice to the Registered Holder of this Warrant and thereafter
all references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
11. No Rights as Stockholder. Until the exercise of this Warrant,
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. Change or Waiver. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
13. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
<PAGE>
14. Governing Law. This Warrant will be governed by and construed
in accordance with the laws of the State of New Jersey.
EMCORE CORPORATION, a New
Jersey Corporation
By:
Norman E. Schumaker
Chief Executive Officer
[Corporate Seal]
ATTEST:
<PAGE>
EXHIBIT I
PURCHASE FORM
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (No. ), hereby irrevocably elects to purchase shares
of the Class III Preferred Stock covered by such Warrant and herewith makes
payment of $________________________, representing the full purchase price for
such shares at the price per share provided for in such Warrant.
Signature:
Address:
<PAGE>
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(No. ) with respect to the number of shares of Class III Preferred Stock
covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
Dated:
Signature:
Dated:
Witness:
<PAGE>
Exhibit 10.12
[Form of $10.20 warrant]
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF EMCORE CORPORATION (THE "COMPANY") THAT
THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY: (1) TO THE
COMPANY (UPON REPURCHASE THEREOF OR OTHERWISE), (2) SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3)
IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, AS THE SAME MAY BE AMENDED FROM TIME TO TIME,
PROVIDED THAT THE CONDITIONS OF REGULATION S FOR RESALES HAVE BEEN SATISFIED,
(4) PURSUANT TO AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144 (IF
AVAILABLE) UNDER THE SECURITIES ACT, AS THE SAME MAY BE AMENDED FROM TIME TO
TIME, (5) IN RELIANCE ON ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, AND SUBJECT TO THE RECEIPT BY THE COMPANY OF AN OPINION
OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION
UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED FOR 120
DAYS FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE COMPANY.
Warrant No. Number of
Shares:
Price: $10.20
per share (subject
to adjustment)
Date of Issuance: September 1, 1996
<PAGE>
EMCORE CORPORATION
SOMERSET, NEW JERSEY
ISSUE DATE: SEPTEMBER 1, 1996
WARRANT
EMCORE CORPORATION, a New Jersey corporation (the "Company"), for value
received, hereby certifies that Jesup & Lamont Merchant Partners, L.L.C., or
its registered assigns (the "Registered Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company, at any time or from time
to time on or after March 1, 199_, and on or before September 1, 2001, at no
later than 5:00 p.m. (New York City time), up to 833,333 shares of the common
stock of the Company ("Common Stock"), at a purchase price of $3.00 per share.
The shares purchasable upon exercise of this Warrant, and the purchase price
per share, each as adjusted from time to time pursuant to the provisions of
this Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively.
1. Exercise.
(a) Subject to the requirements of Section 4, this Warrant may be
exercised by the Registered Holder, in whole or in part, by surrendering this
Warrant, with the purchase form appended hereto as Exhibit I duly executed by
such Registered Holder or by such Registered Holder's duly authorized
attorney, at the principal office of the Company, or at such other office or
agency as the Company may designate, accompanied by payment in full, in lawful
money of the United States, or with an equal principal amount the Company's 6%
Subordinated Notes due September 1, 2001, of the Purchase Price payable in
respect of the number of shares of Warrant Shares purchased upon such
exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
l(a) above. At such time, the person or persons in whose name or names any
certificates for warrant shares shall be issuable upon such exercise as
provided in subsection 1(c) below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or such Holder (upon payment by such Holder of any
applicable transfer taxes) as the Holder may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section
2 hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on
the face or faces thereof for the number of Warrant Shares equal (without
giving effect to any adjustment therein) to the number of such shares called
for on the face or this Warrant minus the number of such shares purchased by
the Registered Holder upon such exercise as provided in subsection l(a) above.
<PAGE>
2. Call provision.
This Warrant may be called in whole or in part by the Board of Directors of
the Company upon 30 days written notice to the holder at any time after
September 1, 1997. No call of this warrant shall be made unless the call is
made pro-rata as to principal amount with respect to all then outstanding
warrants of this class.
3. Adjustments.
(a) Effect of stock changes. If, at any time or from time to time
the Company, by stock dividend, stock split, subdivision, reverse split,
consolidation, reclassification of shares, or other similar structural change,
changes as a whole its outstanding Common Stock into a different number or
class of shares, then, immediately upon the occurrence of the change:
(i) the class of shares into which the Common Stock has been
changed shall replace the Common Stock, for the purposes of this Warrant and
the terms and conditions hereof, so that the registered owner or owners of
this Warrant shall be entitled to receive, and shall receive upon exercise of
this Warrant, shares of the class of stock into which the Common Stock had
been changed;
(ii) the number of shares purchasable upon exercise of this
Warrant shall proportionately be adjusted. (For example, if the outstanding
common Stock of the Corporation is converted into X stock at the rate of one
(1) share of Common Stock into three (3) shares of X stock, and prior to the
change the registered owner or owners of this Warrant were entitled, upon
exercise of this Warrant, to purchase one hundred shares of Common Stock, then
the registered owner or owners shall, after the change, be entitled to
purchase three hundred shares of X stock for the total same exercise price
that the owner or owners had to pay prior to the change to purchase the one
hundred shares of Common Stock); and
(iii) the purchase price per share shall be proportionately
adjusted. (In the above example, the purchase price per share would be reduced
by two-thirds).
Irrespective of any adjustment or change in the number or class of shares
purchasable under this or any other Warrant of like tenor, or in the purchase
price per share, this Warrant, as well as any other warrant of like tenor, may
continue to express the purchase price per share and the number and class of
shares purchasable upon exercise of this Warrant as the purchase price per
share and the number and class of shares purchasable were expressed in this
Warrant when it was initially issued.
(b) Effect of merger. If at any time while this Warrant is
outstanding another corporation merges into the Company, the registered owner
or owners of this Warrant shall be entitled, immediately after the merger
becomes effective and upon exercise of this Warrant, to obtain the same number
of shares of Common Stock of the Company (or shares into which the Common
Stock has been changed as provided in the paragraph of this Warrant covering
changes) to which the owner or owners were entitled upon the exercise hereof
to obtain immediately before the merger became effective at the same exercise
price. The Company shall take any and all steps necessary in connection with
the merger to assure that sufficient shares of Common Stock to satisfy all
conversion and purchase rights represented by outstanding convertible
securities, options and warrants, including this Warrant, are available so
that these convertible securities, options and warrants, including this
<PAGE>
Warrant, may be exercised.
(c) Effect of consolidation or sale. Notwithstanding any provision
of this Warrant concerning the callability of this Warrant, if the Company
consolidates with or merges into another corporation or other entity in a
transaction in which the Company is not the surviving corporation, or receives
an offer to purchase or lease all or substantially all of the assets of the
Company or an offer to purchase forty-five percent (45%) or more of the issued
and outstanding Common Stock of the Company, or if all or substantially all of
the assets of the Company are sold or leased or forty-five percent (45%) or
more of the issued and outstanding Common Stock of the Company is purchased by
any person or group of persons acting in concert, then this Warrant shall be
called by the Company on the Effective Date of such consolidation or merger or
asset sale, or in the case of an offer to purchase forty-five percent (45%) of
the Company's Common Stock, on the date such offer is accepted by the Company.
The right to exercise this Warrant shall terminate when it is called. The call
price shall be determined by the board of directors of the Company in
accordance with the provisions of the second and third sentences of paragraph
3 hereof as of the time the event triggering the call occurs, or the value of
the securities or the other consideration that shall be received in the
transaction by the owner of a number of outstanding shares of Common Stock
equal to the number of shares purchasable upon exercise of this Warrant. This
call price shall be payable not later than sixty (60) days after the effective
date of the call to the registered owner or owners of this Warrant upon its
surrender for cancellation at the offices of the Company, together with the
transfer or assignment form which forms a part hereof, duly completed and
executed in blank.
(d) Dissolution. In the event that a voluntary or involuntary
dissolution, liquidation or winding up of the Company (other than in
connection with a merger where the Company is the surviving corporation as
covered in this Warrant, or a merger or consolidation with or into another
corporation, a sale or lease of all or substantially all of the assets of the
Company, or a sale of a specified portion or percentage of its stock as
covered in this Warrant) is at any time proposed during the term of this
Warrant, the Company shall give written notice to the registered owner or
owners of this Warrant at least thirty (30) days prior to the record date of
the proposed transaction. The notice must contain:
(i) the date on which the transaction is to take place;
(ii) the record date (which must be at least thirty (30) days
after the giving of the notice) as of which holders of the Common Stock
entitled to receive distributions as a result of the transaction shall be
determined;
(iii) a brief description of the transaction;
(iv) a brief description of the distributions, if any, to be
made to holders of the Common Stock as a result of the transaction; and
(v) an estimate of the fair market value of the distributions.
On the date of the transaction, if it actually occurs, this Warrant and all
rights existing under this Warrant shall terminate.
4. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall pay in cash
<PAGE>
an amount determined by multiplying the fraction to which the Holder is
entitled by the fair market value of the Common Stock on the date of exercise.
Should the Common Stock then be traded on an Exchange or quoted on a quotation
system for which a last sale reporting system is in effect, the reported last
sale on the exercise date shall be deemed to be such fair market value. If the
Common Stock is quoted on a quotation system without last sale reporting, the
fair market value shall be deemed to be the highest bid price of any
broker/dealer regularly making a market in the Common Stock on the exercise
date. In all other cases fair market value shall be as determined in good
faith by the Company.
5. Certain Requirements for Transfer and Exercise.
(a) In the absence of an effective Registration Statement under the
Securities Act of 1933, as amended (the "Act"), it shall be a condition to any
transfer or any exercise of this Warrant that the Issuer shall have received,
at the time of such transfer or exercise:
(i) A representation in writing from the proposed transferee
that the Warrant is being transferred or the Common Stock being purchased is
being acquired for investment and not with a view to any sale or distribution
thereof which would constitute or result in a violation of the Act;
(ii) an opinion of counsel, which opinion is reasonably
satisfactory to the Issuer, that the transaction shall not result in a
violation of state or federal securities laws.
(b) In such case, each certificate representing the Warrant or the
Warrant Shares shall bear a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF
EMCORE CORPORATION (THE "COMPANY") THAT THIS SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY: (1) TO THE COMPANY (UPON
REPURCHASE THEREOF OR OTHERWISE), (2) SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE
ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, PROVIDED THAT THE CONDITIONS OF REGULATION S
FOR RESALES HAVE BEEN SATISFIED, (4) PURSUANT TO AN EXEMPTION FROM
REGISTRATION IN ACCORDANCE WITH RULE 144 AVAILABLE) UNDER THE SECURITIES
ACT, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, (5) IN RELIANCE ON
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, AND SUBJECT TO THE RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE
SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED FOR 120 DAYS
FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE COMPANY.
5. No Impairment. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or perform-
<PAGE>
ance of any of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against impairment.
6. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock securities and property as from
time to time shall be issuable upon the exercise of this Warrant.
7. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section
4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of
such Registered Holder or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct.
8. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of
an indemnity agreement (with surety if reasonably required in an amount
reasonably satisfactory to the Company), or in the case of mutilation upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
9. Transfers. etc.
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit II
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when
this Warrant is properly assigned in blank the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
10. Required Notices. The Company shall give the Registered Holder such
notices as it may, from time to time, be required to give the holders of the
Common Stock, as if the Registered Holder was a holder of Common Stock at the
time such notices are required to be given. The Company shall also give
Registered Holder written notice of: (i) each adjustment of the Purchase Price
or other warrant item made pursuant to Section 2 hereof; and (ii) of each
dividend and distribution payable with respect to any security which may be
acquired by exercise of the Warrant, at least ten (10) business days prior to
the record date for such dividend or distribution so that the Registered
Holder may exercise the warrant and participate in the dividend or
distribution.
11. Mailing of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by first-
<PAGE>
class certified or registered mail, postage prepaid, to the address furnished
to the Company in writing by the last Registered Holder of this Warrant who
shall have furnished an address to the Company in writing. All notices and
other communications from the Registered Holder of this Warrant or in
connection herewith to the Company shall be mailed by first-class certified or
registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give
prompt written notice to the Registered Holder of this Warrant and thereafter
all references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
EMCORE Corporation
Attention: Secretary
394 Elizabeth Avenue
Somerset, New Jersey 08873-1214
12. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
13. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
14. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
15. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the State of New Jersey.
EMCORE CORPORATION
[CORPORATE SEAL] By: Norman E. Schumaker,
President
ATTEST:
________________________________
Thomas G. Werthan, Secretary
<PAGE>
EXHIBIT I
PURCHASE FORM
To: EMCORE CORPORATION Dated:
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No. ___), hereby irrevocably elects to purchase ____________ shares of the
Common Stock of Emcore Corporation covered by such Warrant and herewith makes
payment of $_____________ representing the full purchase price for such shares
at the price per share provided for in such Warrant either in cash or by
delivery of an equal principal amount of the Company's 6% Subordinated Notes,
due September 1, 2001, in an equal amount.
Holder:
Address:
Phone:
Fax:
<PAGE>
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant (No.
) including the right to purchase the number of shares of EMCORE
Corporation Common Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
Dated:
Signature:
Dated:
Witness:
<PAGE>
Exhibit 10.13
[Demand Note Facility with First Union National Bank]
PROMISSORY NOTE
$10,000,000.00 October 25, 1996
EMCORE Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08773
(Individually and collectively "Borrower")
First Union National Bank of Florida
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum of Ten Million and No/l00 Dollars ($10,000,000.00) or such
sum as may be advanced from time to time with interest on the unpaid principal
balance at the rate and on the terms provided in this Promissory Note
(including all renewals, extensions or modifications hereof, this "Note").
SECURITY. Thomas J. Russell, Jr., has granted Bank a security interest in the
collateral described in the Loan Documents, including, but not limited to,
collateral described in that certain Assignment of Interest in a Custodian
Account,
INTEREST RATE DEFINITIONS.
LIBOR RATE. 6-month LIBOR Rate plus .75% (75 basis points) ("LIBOR-Based
Rate"). "LIBOR" is the rate (rounded to the next higher 1/100 of 1%) for U.S.
dollar deposits of that many months maturity as reported on Telerate page 3750
as of 11:00 a.m., London time, on the second London business day before the
relevant Interest Period begins (or if not so reported, then as determined by
Bank from another recognized source of interbank quotation), adjusted for
reserves by dividing that rate by 1.00 minus the LIBOR Reserve. "LIBOR
Reserve" is the maximum percentage reserve requirement (rounded to the next
higher 1/100 of 1% and expressed as a decimal) in effect for any day during
the Interest Period under the Federal Reserve Board's Regulation D for
Eurocurrency Liabilities as defined therein.
PRIME RATE. The rate of Bank's Prime Rate as that rate may change from time
to time with changes to occur on the date Bank's Prime Rate changes ("Prime-
Based Rate"). Bank's Prime Rate shall be that rate announced by Bank from
time to time as its prime rate and is one of several interest rate bases used
by Bank. Bank lends at rates both above and below Bank's Prime Rate, and
Borrower acknowledges that Bank's Prime Rate is not represented or intended to
be the lowest or most favorable rate of interest offered by Bank.
<PAGE>
INTEREST RATE TO BE APPLIED. INTEREST RATE. Subject to the provisions
hereof, the unpaid principal balance of this Note shall bear interest from the
date hereof at the LIBOR-Based Rate, as determined by Bank prior to the
commencement of each consecutive interest period of 6 month; (each an
"Interest Period") during the term of the Note ("Interest Rate"). Upon
determination by Bank of the Interest Rate for any Interest Period, such
Interest Rate shall remain in effect, subject to the provisions hereof, for
the entire Interest Period until redetermined as provided above for the next
successive Interest Period.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
default in the payment of the Obligations occurs, all outstanding Obligations
shall bear interest at the Prime-Based Rate plus 3% ("Default Rate"). The
Default Rate shall also apply from acceleration until the Obligations or any
judgment thereon is paid in full.
INDEMNIFICATION AND ADDITIONAL COSTS. INDEMNIFICATION. Borrower indemnifies
Bank against Bank's loss or expense in employing deposits as a consequence (a)
of Borrower's failure to make any payment when due under this Note or (b) any
payment, prepayment or conversion of any loan on a date other than the last
day of the Interest Period ("Indemnified Loss or Expense").
ADDITIONAL COSTS. If, at any time, a new, or a revision in any existing law
or interpretation or administration (including reversals) thereof by any
government authority, central bank or comparable agency imposes, increases or
modifies any reserve or similar requirement against assets, deposits or credit
extended by Bank, or subjects Bank to any tax, duty or other charge (except
tax on Bank's net income), and any of the foregoing increase the cost to Bank
of maintaining its commitment or reduce the amount of any sum received or
receivables by Bank under this Note, within 15 days after demand by Bank,
Borrower agrees to pay Bank such additional amounts as will compensate Bank
for such increased costs or reductions ("Additional Costs").
MATCH FUNDING. The amount of such (a) Indemnified Loss or Expense or (b)
Additional Costs outlined above shall be determined, in Bank's sole
discretion, based upon the assumption that Bank funded 100% that portion of
the loan to which the LIBOR-Based Rate or CD-Based Rate applies respectively
in the applicable London interbank or domestic certificate of deposit market.
UNAVAILABILITY OF INTEREST RATE. If, at any time, (a) Bank shall determine
that, by reasons of circumstances affecting foreign exchange and interbank
markets generally, LIBOR or CD deposits in the applicable amounts are not
being offered to Bank; or (b) a new, or a revision in any existing law or
interpretation or administration (including reversals) thereof by any
government authority, central bank or comparable agency shall make it unlawful
or impossible for Bank to honor its obligations under this Note, (i) Bank's
obligation to make, maintain or convert into a LIBOR-Based Rate shall be
suspended; and (ii) the applicable LIBOR-Based Rate shall immediately be
converted to the Prime-Based Rate for the remainder of the Interest Period.
INTEREST COMPUTATION. (ACTUAL/360). Interest shall be computed on the basis
of a 360-day year for the actual number of days in the interest period
("Actual/360 Computation"). The Actual/360 Computation determines the annual
effective interest yield by taking the stated (nominal) interest rate for a
year's period and then dividing said rate by 360 to determine the daily
periodic rate to be applied for each day in the interest period. Application
of the Actual/360 Computation produces an annualized effective interest rate
exceeding that of the nominal rate.
<PAGE>
REPAYMENT TERMS. This Note shall be due and payable in consecutive monthly
payments of accrued interest only commencing on November 25, 1996, and on the
same day of each month thereafter until fully paid. In any event, this Note
shall be due and payable in full, including all principal and accrued
interest, on demand.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal. Upon the occurrence of a default in the
payment of the Obligations or a Default (as defined in the other Loan
Documents) under any other Loan Document, monies may be applied to the
Obligations in any manner or order deemed appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note
and other Loan Documents refers to all documents executed in connection with
the loan evidenced by this Note and may include, without limitation, a
commitment letter that survives closing, a loan agreement, this Note, guaranty
agreements, security agreements, security instruments, financing statements,
mortgage instruments, letters of credit and any renewals or modifications, but
however, does not include swap agreements as defined in 11 U.S.C. Section 101
whenever executed.
The term "Obligations" used in this Note refers to any and all indebtedness
and other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. Section 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 10 or more days.
Acceptance by Bank of any late payment without an accompanying late charge
shall not be deemed a waiver of Bank's right to collect such late charge or to
collect a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located,
the late charge laws of the state where the real property is located shall
apply to this Note, or if permitted under the law of that state, 5% of each
payment past due for 10 or more days.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred without the commencement of a
suit, in any trial, arbitration, or administrative proceeding, or in any
appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan
Documents, if for any reason the effective interest should exceed the maximum
lawful interest, the effective interest shall be deemed reduced to, and shall
be, such maximum lawful interest, and (i) the amount which would be excessive
interest shall be deemed applied to the reduction of the principal balance of
this Note and not to the payment of interest, and (ii) if the loan evidenced
<PAGE>
by this Note has been or is thereby paid in full, the excess shall be returned
to the party paying same, such application to the principal balance of this
Note or the refunding of excess to be a complete settlement and acquittance
thereof.
BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's accounts with Bank and any of its
affiliates.
DEMAND NOTE. This is a demand Note and all Obligations hereunder shall become
immediately due and payable upon demand. In addition, the Obligations shall
automatically become immediately due and payable if Borrower or any guarantor
or endorser of this Note commences or has commenced against it a bankruptcy or
insolvency proceeding.
REMEDIES. Upon the occurrence of a default in the payment of the Obligations
or a Default (as defined in the other Loan Documents) under any other Loan
Document, Bank may at any time thereafter, take the following actions: BANK
LIEN AND SET-OFF. Exercise its right of set-off or to foreclose its security
interest or lien against any account of any nature or maturity of Borrower
with Bank without notice. CUMULATIVE. Exercise any rights and remedies as
provided under the Note and other Loan Documents, or as provided by law or
equity.
LINE OF CREDIT ADVANCES. Borrower may borrow, repay and reborrow, and Bank
may advance and readvance under this Note respectively from time to time, so
long as the total indebtedness outstanding at any one time does not exceed the
principal amount stated on the face of this Note. Bank's obligation to
advance or readvance under this Note shall terminate if a demand for payment
is made under this Note or if a Default (as defined in the other Loan
Documents) under any Loan Document occurs or in any event, on the first
anniversary hereof unless renewed or extended by Bank in writing upon such
terms then satisfactory to Bank.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note
and other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default (as defined in the other
Loan Documents) shall operate as a waiver of any other Default or the same
Default on a future occasion. Neither the failure nor any delay on the part
of Bank in exercising any right, power, or remedy under this Note and other
Loan Documents shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
Each Borrower or any person liable under this Note waives presentment,
protest, notice of dishonor, notice of intention to accelerate maturity,
notice of acceleration of maturity, notice of sale and all other notices of
any kind. Further, each agrees that Bank may extend, modify or renew this
Note or make a novation of the loan evidenced by this Note for any period and
grant any release, compromises or indulgences with respect to any collateral
securing this Note, or with respect to any Borrower or any person liable under
this Note or other Loan Documents, all without notice to or consent of any
Borrower or any person who may be liable under this Note or other Loan
Documents and without affecting the liability of Borrower or any person who
may be liable under this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
<PAGE>
interests in and rights under this Note and other Loan Documents are freely
assignable, in whole or in part, by Bank. Borrower shall not assign its
rights and interest hereunder without the prior written consent of Bank, and
any attempt by Borrower to assign without Bank's prior written consent is null
and void. Any assignment shall not release Borrower from the Obligations.
APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This Note and other Loan
Documents shall be governed by and construed under the laws of the state where
Bank first shown above is located without regard to that state's conflict of
laws principles. If the terms of this Note should conflict with the terms of
the loan agreement or any commitment letter that survives closing, the terms
of this Note shall control. JURISDICTION. Borrower irrevocably agrees to
non-exclusive personal jurisdiction in the state in which the office of Bank
first shown above is located. SEVERABILITY. If any provision of this Note or
of the other Loan Documents shall be prohibited or invalid under applicable
law, such provision shall be ineffective but only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note or other such document.
NOTICES. Any notices to Borrower shall be sufficiently given, if in writing
and mailed or delivered to the Borrower's address shown above or such other
address as provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address shown above or such other address as Bank
may specify in writing from time to time. In the event that Borrower changes
Borrower's address at any time prior to the date the Obligations are paid in
full, Borrower agrees to promptly give written notice of said change of
address by registered or certified mail, return receipt requested, all charges
prepaid. PLURAL; CAPTIONS. All references in the Loan Documents to Borrower,
guarantor, person, document or other nouns of reference mean both the singular
and plural form, as the case may be, and the term "person" shall mean any
individual, person or entity. The captions contained in the Loan Documents are
inserted for convenience only and shall not affect the meaning or
interpretation of the Loan Documents. BINDING CONTRACT. Borrower by
execution of and Bank by acceptance of this Note agree that each party is
bound to all terms and provisions of this Note. ADVANCES. Bank in its sole
discretion may make other advances and readvances under this Note pursuant
hereto. POSTING OF PAYMENTS. All payments received during normal banking
hours after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day. JOINT AND SEVERAL
OBLIGATIONS. Each Borrower is jointly and severally obligated under this
Note. FEES AND TAXES. Borrower shall promptly pay all documentary,
intangible recordation and/or similar taxes on this transaction whether
assessed at closing or arising from time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan
Documents ("Disputes") between or among parties to this Note shall be resolved
by binding arbitration as provided heroin. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration,
claims brought as class actions, claims arising from Loan Documents executed
in the future, or claims arising out of or connected with the transaction
reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of
Bank first stated above is located. The expedited procedures set forth in
<PAGE>
Rule 51 of et seq. of the Arbitration Rules shall be applicable to claims of
less than $1,000,000.00. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney. Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding
binding arbitration provisions, Bank and Borrower agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with an arbitration proceeding or after
an arbitration action is brought. Bank and Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power
of sale granted under Loan Documents or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the
power of an arbitrator to grant similar remedies that may be requested by a
party in a Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, Borrower, on the day and year first above written, has
caused this Note to be executed under seal.
EMCORE Corporation
Taxpayer Identification Number: 22-2746503
CORPORATE By: Reuben F. Richards, Jr.
SEAL Reuben F. Richards, Jr., President
<PAGE>
LOAN AGREEMENT
First Union National Bank of Florida
214 North Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
EMCORE Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08773
(Individually and collectively "Borrower")
This Loan Agreement ("Agreement") is entered into October 25, 1996, by and
between Bank and Borrower, a Corporation organized under the laws of New
Jersey.
Borrower has applied to Bank for a loan or loans (individually and
collectively, the "Loan") evidenced by one or more promissory notes (whether
one or more, the "Note") as follows:
Line of Credit - in the principal amount of $10,000,000.00 which is evidenced
by the Promissory Note dated October 25, 1996 ("Line of Credit Note"), under
which Borrower may borrow, repay, and reborrow, from time to time, so long as
the total indebtedness outstanding at any one time does not exceed the
principal amount. The Loan proceeds are to be used by Borrower solely to
support working capital needs of the company. Bank's obligation to advance or
readvance under the Line of Credit Note shall terminate if a default in the
payment of the Obligations occurs or the Borrower is in Default (as defined in
the Loan Documents) under any Loan Document, or in any event, on the first
anniversary unless renewed or extended by Bank in writing upon such terms then
satisfactory to Bank.
This Agreement applies to the Loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As
used in this Agreement as to Borrower, "Subsidiary" shall mean any corporation
of which more than 50% of the issued and outstanding voting stock is owned
directly or indirectly by Borrower. As to Borrower, "Affiliate" shall have
the meaning as defined in 11 U.S.C. Section 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties
contained in this Agreement, Bank is willing to extend credit to Borrower upon
the terms and subject to the conditions set forth herein, and Bank and
Borrower agree as follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: ACCURATE INFORMATION. All
information now and hereafter furnished to Bank is and will be true, correct
and complete. Any such information relating to Borrower's financial condition
will accurately reflect Borrower's financial condition as of the date(s)
thereof (including all contingent liabilities of every type), and Borrower
further represents that its financial condition has not changed materially or
adversely since the date(s) of such documents. AUTHORIZATION; NON-
CONTRAVENTION. The execution, delivery and performance by Borrower and any
<PAGE>
guarantor, as applicable, of this Agreement and other Loan Documents to which
it is a party are within its power, have been duly authorized by all necessary
action taken by the duly authorized officers of Borrower and any guarantors
and, if necessary, by making appropriate filings with any governmental agency
or unit and are the legal, binding, valid and enforceable obligations of
Borrower and any guarantors; and do not (i) contravene, or constitute (with or
without the giving of notice or lapse of time or both) a violation of any
provision of applicable law, a violation of the organizational documents of
Borrower or any guarantor, or a default under any agreement, judgment,
injunction, order, decree or other instrument binding upon or affecting
Borrower or any guarantor, (ii) result in the creation or imposition of any
lien (other than the lien(s) created by the Loan Documents) on any of
Borrower's or guarantor's assets, or (iii) give cause for the acceleration of
any obligations of Borrower or any guarantor to any other creditor. ASSET
OWNERSHIP. Borrower has good and marketable title to all of the properties
and assets reflected on the balance sheets and financial statements supplied
Bank by Borrower, and all such properties and assets are free and clear of
mortgages, security deeds, pledges, liens, charges, and all other
encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To Borrower's knowledge, no default has occurred under
any Permitted Liens and no claims or interests adverse to Borrower's present
rights in its properties and assets have arisen. DISCHARGE OF LIENS AND
TAXES. Borrower has duly filed, paid and/or discharged all taxes or other
claims which may become a lien on any of its property or assets, except to the
extent that such items are being appropriately contested in good faith and an
adequate reserve for the payment thereof is being maintained. SUFFICIENCY OF
CAPITAL. Borrower is not, and after consummation of this Agreement and after
giving effect to all indebtedness incurred and liens created by Borrower in
connection with the Loan, will not be, insolvent within the meaning of 11
U.S.C. Section 101(32). COMPLIANCE WITH LAWS. Borrower is in compliance in
all respects with all federal, state and local laws, rules and regulations
applicable to its properties, operations, business, and finances, including,
without limitation, any federal or state laws relating to liquor (including 18
U.S.C. Section 3617, et seq.) or narcotics (including 21 U.S.C. Section 801,
et seq.) and/or any commercial crimes; all applicable federal, state and local
laws and regulations intended to protect the environment; and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), if applicable.
ORGANIZATION AND AUTHORITY. Each corporate or limited liability company
Borrower and any guarantor, as applicable, is duly created, validly existing
and in good standing under the laws of the state of its organization, and has
all powers, governmental licenses, authorizations, consents and approvals
required to operate its business as now conducted. Each corporate or limited
liability company Borrower and any guarantor, if any, is duly qualified,
licensed and in good standing in each jurisdiction where qualification or
licensing is required by the nature of its business or the character and
location of its property, business or customers, and in which the failure to
so qualify or be licensed, as the case may be, in the aggregate, could have a
material adverse effect on the business, financial position, results of
operations, properties or prospects of Borrower or any such guarantor. NO
LITIGATION. There are no pending or threatened suits, claims or demands
against Borrower or any guarantor that have not been disclosed to Bank by
Borrower in writing.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement
and until final payment in full of the Obligations, unless Bank shall
otherwise consent in writing, Borrower will: BUSINESS CONTINUITY. Conduct
its business in substantially the same manner and locations as such business
is now and has previously been conducted. MAINTAIN PROPERTIES. Maintain,
preserve and keep its property in good repair, working order and condition,
<PAGE>
making all needed replacements, additions and improvements thereto, to the
extent allowed by this Agreement. ACCESS TO BOOKS & RECORDS. Allow Bank, or
its agents, during normal business hours, access to the books, records and
such other documents of Borrower as Bank shall reasonably require, and allow
Bank to make copies thereof at Bank's expense. INSURANCE. Maintain adequate
insurance coverage with respect to its properties and business against loss or
damage of the kinds and in the amounts customarily insured against by
companies of established reputation engaged in the same or similar businesses
including, without limitation, commercial general liability insurance, workers
compensation insurance, and business interruption insurance; all acquired in
such amounts and from such companies as Bank may reasonably require. NOTICES.
Promptly notify Bank in writing of (i) any material adverse change in its
financial condition or its business; (ii) any default under any material
agreement, contract or other instrument to which it is a party or by which any
of its properties are bound, or any acceleration of the maturity of any
indebtedness owing by Borrower; (iii) any material adverse claim against or
affecting Borrower or any part of its properties; (iv) the commencement of,
and any material determination in, any litigation with any third party or any
proceeding before any governmental agency or unit affecting Borrower; and (v)
at least 30 days prior thereto, any change in Borrower's name or address as
shown above, and/or any change in Borrower's structure. COMPLIANCE WITH OTHER
AGREEMENTS. Comply with all terms and conditions contained in this Agreement,
and any other Loan Documents, and swap agreements, if applicable, as defined
in the Note. PAYMENT OF DEBTS. Pay and discharge when due, and before
subject to penalty or further charge, and otherwise satisfy before maturity or
delinquency, all obligations, debts, taxes, and liabilities of whatever nature
or amount, except those which Borrower in good faith disputes. REPORTS AND
PROXIES. Deliver to Bank, promptly, a copy of all financial statements,
reports, notices, and proxy statements, sent by Borrower to stockholders, and
all regular or periodic reports required to be filed by Borrower with any
governmental agency or authority. OTHER FINANCIAL INFORMATION. Deliver
promptly such other information regarding the operation, business affairs, and
financial condition of Borrower which Bank may reasonably request. ESTOPPEL
CERTIFICATE. Furnish, within 15 days after request by Bank, a written
statement duly acknowledged of the amount due under the Loan and whether
offsets or defenses exist against the Obligations,
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing, Borrower will not: NONPAYMENT; NONPERFORMANCE. Fail to
pay or perform the Obligations or Default (as defined in the Loan Documents)
under any of the Loan Documents. CROSS DEFAULT. Default in payment or
performance of any obligation under any other loans, contracts or agreements
of Borrower, any Subsidiary or Affiliate of Borrower ("Affiliate" shall have
the meaning as defined in 11 U.S.C. Section 101, except that the term "debtor"
therein shall be substituted by the term "Borrower" herein; "Subsidiary" shall
mean any corporation of which more than 50% of the issued and outstanding
voting stock is owned directly or indirectly by Borrower), any general partner
of or the holder(s) of the majority ownership interests of Borrower with Bank
or its affiliates; MATERIAL CAPITAL STRUCTURE OR BUSINESS ALTERATION.
Materially alter the type or kind of Borrower's business or that of its
Subsidiaries or Affiliates, if any; or suffer or permit the acquisition of
substantially all of Borrower's business or assets, or a material portion (10%
or more) of such business or assets if such a sale is outside Borrower's
ordinary course of business, or more than 50% of its outstanding stock or
voting power in a single transaction or a series of transactions; or acquire
substantially all of the business or assets or more than 50% of the
outstanding stock or voting power of any other entity; or enter into any
merger or consolidation without prior written consent of Bank. DEFAULT ON
<PAGE>
OTHER CONTRACTS OR OBLIGATIONS. Default on any material contract with or
obligation when due to a third party or default in the performance of any
obligation to a third party incurred for money borrowed. JUDGMENT ENTERED.
Permit the entry of any monetary judgment or the assessment against, the
filing of any tax lien against, or the issuance of any writ of garnishment or
attachment against any property of or debts due Borrower. GOVERNMENT
INTERVENTION. Permit the assertion or making of any seizure, vesting or
intervention by or under authority of any government by which the management
of Borrower or any guarantor is displaced of its authority in the conduct of
its respective business or such business is curtailed or materially impaired.
PREPAYMENT OF OTHER DEBT. Retire any long-term debt entered into prior to the
date of this Agreement at a date in advance of its legal obligation to do so.
RETIRE OR REPURCHASE CAPITAL STOCK. Retire or otherwise acquire any of its
capital stock.
BORROWING BASE. As to the Line of Credit Note, the following provisions shall
apply:
BORROWING LIMITATION. The aggregate outstanding balance at any time under the
Line of Credit Note shall not exceed the lesser of (i) the maximum principal
amount of the Note or (ii) the Aggregate Value of Custodian Account No.
4028302397, excluding assets held in tax exempt investments, which account,
after exclusion of such tax exempt investments, serves as collateral for this
loan (the "Account"). The "Aggregate Value" of the Account shall be
calculated by first reducing the market value of the Account by the aggregate
amount of any other indebtedness secured by the Account and by then adding the
sum of the following:
(a) eighty percent (80%) of the current market value of Corporate Bonds
(Rating Aaa or Aa, Non-convertible, NYSE)
(b) seventy percent (70%) of the current market value of actively traded
stocks listed on NYSE or AMEX and selling for $10/share or more
(c) ninety percent (90%) of the current market value of U.S. Government
Agency Obligations
REQUIRED REPORTS. Borrower shall certify to Bank by the tenth day of each
month, the amount of Eligible Accounts as of the first day of each month, on
forms required by Bank together with all detail and supporting documents
requested by Bank. Bank may at any time and from time to time, during Bank's
normal business hours, enter upon any business premises of Borrower and audit
Borrower's accounts. Bank's determination of the amount of Eligible Accounts
shall at all times be indisputable and deemed correct. The Borrower, at all
times, shall cooperate with Bank without limitation by providing Bank
information and access to Borrower's premises and business records and shall
be courteous to Bank's agents.
CONTINUING REPRESENTATIONS. Borrower warrants and represents as a continuing
warranty, that so long as principal is outstanding under the Line of Credit
Note, the outstanding principal balance shall not exceed the lesser of the
Maximum Principal Amount or the principal amount stated in the Line of Credit
Note (the "Borrowing Limit"). Borrower agrees to pay any advances in excess
of the Borrowing Limit immediately upon receipt by Borrower of written notice
that the Borrowing Limit has been exceeded.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any
advances pursuant to this Agreement are subject to the following conditions
precedent: ADDITIONAL DOCUMENTS. Receipt by Bank of such additional
<PAGE>
supporting documents as Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written
above, have caused this Agreement to be executed under seal.
EMCORE Corporation
Taxpayer Identification Number: 22-2746503
CORPORATE By: /s/ Reuben F. Richards, Jr.
SEAL Reuben F. Richards, Jr., President
First Union National Bank of Florida
/s/ Douglas Zachariasen
Douglas Zachariasen, Vice President
<PAGE>
Exhibit 10.14
Consulting Agreement
This Consulting Agreement is entered into as of this 6th day of
December, 1996 by and between EMCORE Corporation, a New Jersey corporation
having its chief executive offices at 394 Elizabeth Avenue, Somerset, New
Jersey 08873 ("Emcore"), and Norman E. Schumaker, residing at 20 Upper Warren
Way, Warren, New Jersey 07059 ("Dr. Schumaker").
WHEREAS, Dr. Schumaker has served honorably as the Chief Executive
Officer of Emcore from its formation until December 4, 1996, on which date he
retired as its Chief Executive Officer, its Chairman of the Board of Directors
and as a member of its Board of Directors;
WHEREAS, Emcore desires to maintain a continuing relationship with
Dr. Schumaker and obtain the benefit of his consulting services on a regular
basis, and Dr. Schumaker is willing to provide such services; and
WHEREAS, Emcore and Dr. Schumaker both desire to provide for
appropriate retirement arrangements.
NOW, THEREFORE, in consideration of the foregoing, and of the
agreements hereinafter set forth, the parties hereto agree as follows:
CONSULTING PROVISIONS: 1. Consulting. Dr. Schumaker agrees to provide
consulting services to Emcore in the area of compound semiconductor materials
and devices for eight, eight hour workdays per month (approximately 2 days a
week less vacation time) for a term of two years commencing January 1, 1997
and ending December 31, 1998 (the "Term"). Dr. Schumaker agrees that he will
consult with no other person or entity during the Term in the subject area of
compound semiconductor materials and devices without the prior written consent
of Emcore, which consent shall not be unreasonably withheld. Dr. Schumaker
shall be responsible to, and shall from time to time report to, the Chairman
of the Board of Directors of Emcore and will consult with such personnel and
take direction for such consulting assignments from either the Chairman of the
Board of Directors or such other senior executive personnel as the Chairman
shall from time to time designate. Dr. Schumaker agrees to review regularly
the status of research and product development projects to which he has been
assigned, discuss such projects with the Emcore's scientific and technical
personnel and provide regular comments on and suggestions for improvement of
these projects. Dr. Schumaker and the senior executive personnel of Emcore
shall consult from time-to-time about other assignments which Dr. Schumaker
may undertake, including the attendance at conferences, appearances at trade
shows and discussion of scientific problems with customers (but no sales
visits), provided that no such additional services shall be undertaken without
the specific and voluntary agreement of both parties. Emcore agrees to
reimburse Dr. Schumaker for all reasonable expenses incurred in connection
with the performance of such additional assignments.
2. Renewal. This Agreement will automatically renew for one
successive two-year term if neither party gives notice to the other more than
<PAGE>
sixty (60) days prior to the end of the Term (i.e., November 2, 1998) of his
or its intention not to renew at the end of the Term. In the event of such
renewal the Term shall be extended until December 31, 2000.
3. Consulting Fee. Dr. Schumaker shall receive a monthly fee of
$20,833.33 (an annual rate of $250,000.00) payable for each month of the Term
on the first day of that month. To secure the payment of the consulting fee,
Emcore agrees to deposit, no later than December 24, 1996, $500,000 in an
interest-bearing account, said interest being for the benefit of Emcore, with
the law firm of Dillon, Bitar and Luther as escrow agent. Emcore shall have
the option of having the monthly consulting fee paid from the escrow or paying
such sums directly. If sums are paid directly, then upon the written request
of Emcore and upon written notice given to Dr. Schumaker and without objection
by Dr. Schumaker within ten days, the escrow agent shall release to Emcore
that portion of the consulting fee so paid by Emcore. Interest on the account
shall be paid quarterly to Emcore without the requirement of notice. Emcore
agrees that this is a Security agreement and all amounts in the escrow are
pledged as security for payment of the consulting fee. In the event of
default hereunder Dr. Schumaker shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code with respect to the balance of
such escrow. Emcore and Dr. Schumaker shall enter into such further security
documents as Dr. Schumaker shall reasonably request to perfect Dr. Schumaker's
security interest in the escrow fund.
4. Automotive Allowance. Emcore shall provide Dr. Schumaker an
automobile allowance of $750 per month through the Term of this Agreement
which shall be paid on the first of the month.
5. Forgiveness of Advances. Emcore has advanced to Dr. Schumaker
$58,000 and $57,300. Emcore acknowledges that, as previously agreed, the
$58,000 advance has been forgiven as of the date of Dr. Schumaker's
retirement. Emcore agrees to forgive the $57,300 advance on January 1, 1997,
as additional compensation for Dr. Schumaker's consulting activities.
6. Notes and Warrants Issued May 1, 1996. On May 1, 1996, Emcore
completed an offering to shareholders of Subordinated Notes and Warrants.
Employees who were also shareholders were permitted to participate in the
offering on the basis of delivery of their personal notes in lieu of cash as
an employee benefit. Pursuant to this offering, Dr. Schumaker purchased in
the aggregate $566,432 principal amount of Emcore's Subordinated Notes and
received Warrants to purchase 472,027 shares of Emcore Common Stock,
exercisable at $1.20 per share, and paid for these securities with Dr.
Schumaker's personal Note in the amount of $566,432. Dr. Schumaker agrees to
place said Subordinated Notes and said Warrants in escrow with the escrow
agent until January 6, 1998. On such date such securities shall be released
to Dr. Schumaker unless this Agreement has been terminated for reasons other
than the death or disability of Dr. Schumaker or a material breach of this
Agreement by Emcore. In such event the parties agree that the May 1, 1996
transaction shall be reversed and Dr. Schumaker, through the escrow agent,
shall re-deliver to Emcore said Subordinated Notes and said Warrants and said
personal Note of Dr. Schumaker shall be automatically canceled. Should any
party dispute that such securities should be released or should be cancelled,
such party shall give written or facsimile notice to the escrow agent no
later than January 5, 1998 and the escrow agent shall advise the other party
then shall hold such securities pending the written agreement of the parties
or an order of court. Should such Warrants be called while in escrow, the
escrow agent shall take instructions from Dr. Schumaker in responding to the
call and Dr. Schumaker may direct that the Notes be delivered in payment,
provided that if such warrants are exercised the shares of common stock
<PAGE>
deliverable upon exercise shall be delivered into escrow. Should Dr. Schumaker
desire to exercise the warrants during the escrow period, then the escrow
agent shall exercise the warrants at Dr. Schumaker's written direction and
using as payment such funds as Dr. Schumaker shall provide or the Subordinated
Notes at Dr. Schumaker's direction.
7. Public Statements Concerning Emcore or its Tech nology. Dr.
Schumaker agrees that during the Term of this Agreement that he will submit
all public statements and literary works relating to Emcore or the subject
area of this Consulting Agreement to Emcore for its review prior to
publication or release to third parties to better assure the good name of
Emcore and better protect its confidential information. Emcore will submit to
Dr. Schumaker all public statements or literary works referring to Dr.
Schumaker prior to publication to better assure his good name.
8. Termination. This Consulting Agreement shall terminate if Dr.
Schumaker shall die or, within the meaning of the disability policy identified
below, if Dr. Schumaker shall become disabled. This Consulting Agreement may
be terminated by Emcore only for material breach of its provisions and after
30 days written notice to Dr. Schumaker identifying the breach and providing a
reasonable opportunity (if at all possible) to cure. Upon termination all of
Emcore's obligations under this Agreement to make payments shall cease and the
Term shall come to an end.
9. Confidentiality Agreement.
A. Records and Disclosure. During the Term, Dr. Schumaker
shall maintain on a current basis complete and accurate records of all
research or technical development work on which Dr. Schumaker consults
hereunder, whether or not his involvement was during normal Emcore working
hours or on Emcore premises. Such records shall be the property of Emcore.
Dr. Schumaker shall disclose forthwith to Emcore any discovery, invention or
literary work of any type that is used or usable by Emcore, and that is or was
conceived or created by him during the Term and relating to the subject area
of this Consulting Agreement or during the period of his prior employment by
Emcore, whether or not patentable or copyrightable, whether affirmative or
negative in nature, and whether made solely or jointly with others, unless
such discovery, invention, or literary is conceived or created after December
4, 1996 in connection with a consulting agreement with another entity and such
consulting is not in violation of this Agreement (collectively,
"Developments").
B. Assignment. Dr. Schumaker hereby assigns, and agrees to
assign, to Emcore all of Dr. Schumaker's right, title and interest in all
Developments, whether or not presently in exist- ence, and in all domestic and
foreign intellectual property rights therein. Upon the filing by Emcore of
any U.S. patent application naming Dr. Schumaker as an inventor or
co-inventor, Emcore shall pay to Dr. Schumaker the sum of five hundred dollars
($500).
C. Cooperation. At Emcore's request and expense, during and
after the Term Dr. Schumaker shall (i) execute and deliver to Emcore or its
designee all documents that Emcore, in its sole discretion, deems proper and
necessary in connection with the preparation, assignment, filing or
prosecution of any domestic or foreign patent or copyright application for any
Development; (ii) give and make any truthful oath to obtain, perfect, and
enforce any patent or copyright relating to any Development; and (iii) assist
in any other lawful way to obtain, perfect and enforce any patent or copyright
or application for any Development.
<PAGE>
D. Confidentiality. During the Term and thereafter, Dr.
Schumaker shall not use or disclose to any person, except as may be necessary
in performing Dr. Schumaker's duties to Emcore, any confidential information
of or concerning Emcore, its actual or anticipated business, research or
development, its technology or the implementation or exploitation thereof,
including without limitation information pertaining to customers, accounts,
vendors, prices, costs, materials, processes, material results, materials
technology, device results, system designs, system specifications, materials
of construction, trade secrets, and equipment designs.
E. Covenant. During the Term, Dr. Schumaker shall not become
involved directly or indirectly, as a shareholder, director, officer,
employee, agent or otherwise (except as the owner of less than one percent
(1%) of the shares of a company whose annual gross revenues exceed one hundred
million dollars), in any business activity which the Board of Directors of
Emcore determines to be competitive with Emcore. For a period of two (2)
years after the Term, Dr. Schumaker shall not: (1) Be employed by or become a
principal of any domestic or foreign business competing with Emcore in the
United States; (2) Accept employment with any customer of Emcore or any
supplier of goods or services to Emcore without prior consultation with
Emcore; (3) Solicit any employee of Emcore to leave such employee's position
with Emcore; or (4) Solicit business from any customer of Emcore without the
prior written consent of Emcore which written consent will not be unreasonably
refused.
F. Remedy. Breach by Dr. Schumaker of Subsection D
("Confidentiality") or E ("Covenant") would injure Emcore in a manner not
adequately compensable by money damages. In the event of such an active or
threatened breach, Emcore shall be entitled to an injunction, including a
preliminary injunction and temporary restraining order, without posting a
bond.
RETIREMENT PROVISIONS
10. Retirement. Dr. Schumaker retired from his positions as an
employee, as an officer and as a member of the Board of Directors of Emcore on
December 4, 1996.
11. Stock Options. Dr. Schumaker holds incentive stock options
granted by Emcore under its 1995 Incentive Stock Option Plan to purchase
150,000 shares of Emcore's common stock, of which 90,000 shares are presently
vested. The Board of Directors of Emcore has, by Resolution, extended the
period for the exercise of these vested options for ninety (90) days from
December 4, 1996 until March 4, 1997. Emcore acknowledges that Dr. Schumaker
may exercise the 90,000 options up to, and including, that date. Dr.
Schumaker acknowledges that the remaining 60,000 unvested options have lapsed
pursuant to the terms of the options.
12. Medical, Disability and Life Insurance. Emcore agrees to
provide Dr. Schumaker with participation, during the period ending on December
31, 2001, in Emcore's plan of medical benefits. Emcore agrees to assign to
Dr. Schumaker the Disability Insurance policy under which he is presently
covered and the two life insurance policies on his life payable to his
selected beneficiary in the aggregate face amount of $1,075,000, if these
policies are by their terms assignable, and if not assignable to establish
similar policies which are assignable and so assign them. Emcore agrees to
reimburse Dr. Schumaker, until December 31, 2001, for all premiums due on
these three policies. Emcore shall be free to continue or to cancel at its
option any key-man insurance payable to Emcore it may have on the life of Dr.
<PAGE>
Schumaker. In the event Emcore shall determine to cancel such insurance, it
shall give thirty (30) days notice to Dr. Schumaker and afford Dr. Schumaker
the opportunity to purchase such policy from Emcore upon payment to Emcore of
its cash surrender value if such insurance shall then be assignable according
to its terms.
13. Bonus, Vacation Time and Expense Reimbursement. Dr. Schumaker
has or shall be paid within two days of the execution of this Agreement by
Emcore $103,055 in full satisfaction of all bonus and all vacation time
obligations of Emcore to Dr. Schumaker. Dr. Schumaker agrees to submit to
Emcore no later than January 15, 1997 all expense vouchers for expenses
incurred during the period of his employment and Emcore shall reimburse Dr.
Schumaker for all expenses reasonably incurred.
14. Employment Agreement and Confidentiality Agreement. The
parties agree that the Employment Agreement dated January 1, 1996, which fully
replaced all prior employment agreements, has been terminated and all benefits
to which Dr. Schumaker is entitled thereunder have been replaced by the
benefits provided hereunder. Notwithstanding such termination, Paragraph 8
thereof regarding the protection of Confidential Information of Emcore, as was
originally intended, shall remain in effect. The Employment Agreement was
supplemented by a Confidentiality Agreement dated October 14, 1996 which shall
also remain in effect.
15. 401(k) Plan. Dr. Schumaker has made voluntary contributions
to the 401(k) plan sponsored by Emcore. Emcore acknowledges that Dr.
Schumaker, subject to terms of the plan, may withdraw such funds and will from
time to time at Dr. Schumaker's request will so instruct the plan trustee.
GENERAL PROVISIONS
16. General Release. Emcore hereby generally releases Dr.
Schumaker from all claims or causes of action it may hold against Dr.
Schumaker as of the date of this Agreement, whether or not presently known to
Emcore (except for fraud), except as provided for herein. Dr. Schumaker
hereby generally releases Emcore, its officers, its directors, its controlling
shareholders and its employees from all claims or causes of action which he
may hold against them as of the date of this Agreement, whether or not
presently known to Dr. Schumaker (except for fraud), except as provided for
herein. In addition, Dr. Schumaker and Emcore each hereby generally release
the other from any and all claims arising under the Securities Act of 1933, as
amended, or the Securities Act of 1934, as amended, or any applicable state
securities law whether such claims arise from facts and circumstances as of
the date hereof or as of any date until December 31, 1997.
17. Indemnification. Should any action be brought against Dr.
Schumaker arising out of his acts on behalf of Emcore as a consultant,
employee, officer, director or shareholder of Emcore, Emcore agrees to
indemnify and hold harmless Dr. Schumaker from any liability or costs
(including attorneys fees) incurred in defending such actions, provided Dr.
Schumaker shall give reasonably prompt notice to Emcore of all such actions,
shall allow Emcore, at its option, to defend such actions and shall cooperate
fully with Emcore in defense of such actions.
18. Public Offering. Emcore may undertake an initial public
offering of its shares of common stock at some time in the future. In
connection with any such initial public offering, Dr. Schumaker agrees that he
will execute a restrictive letter as proposed by the underwriters acting in
connection with such offering and which is signed by other executive officers
<PAGE>
and major shareholders of Emcore. However, this restrictive letter shall not
restrict the resale of the shares for a period greater than a period of six
months from the date of any initial public offering of Emcore's common stock.
Dr. Schumaker agrees not to exercise any piggy-back rights pursuant to any
Registration Rights Agreement in connection with any such offering unless
Emcore's principal shareholder, Jesup & Lamont Merchant Partners, L.L.C., its
successors and assigns or its affiliates shall be selling shareholders in such
offering. In the event such initial public offering is completed, Emcore
agrees to assist Dr. Schumaker in preparing and filing any report he is
required to file under the federal and state securities laws including
Schedule 13D, Schedule 13G, Form 3, Form 4 or Form 5 as may from time to time
be required to be filed by Dr. Schumaker which may arise from his beneficial
ownership of shares of common stock of Emcore or otherwise.
19. Affiliation. Emcore acknowledges that as of December 4, 1996
Dr. Schumaker ceased to be an affiliate of Emcore. Emcore agrees to remove
restrictive legends from Dr. Schumaker securities at such time or from time to
time as Dr. Schumaker shall request in writing, but not before the expiration
of six months from December 4, 1996, and not prior to the expiration of any
restrictive period under any underwriters restrictive letter provided that at
such time, as a matter of law, such restrictions may be remove in the opinion
of counsel reasonably acceptable to the Emcore. Emcore acknowledges that Dr.
Schumaker owns 1,251,351 shares of common stock, warrants to purchase 472,027
shares of common stock and holds options to purchase 90,000 shares of common
stock.
20. Independent Contractor. Dr. Schumaker shall be an independent
contractor, and not an employee, with respect to the consulting services.
21. Legal Fee. Emcore shall pay the reasonable legal expenses
of Dr. Schumaker incurred in the negotiation and preparation of this
Agreement.
22. Miscellaneous. This Consulting Agreement constitutes the
entire agreement of the parties in connection with the subject matter hereof.
This Agreement shall be interpreted in accordance with the substantive laws of
the State of New Jersey. SHOULD ANY DISPUTE ARISE UNDER THIS AGREEMENT, THE
PARTIES HERETO AGREE THAT IN ANY CIVIL ACTION EACH SHALL WAIVE THE RIGHT TO
TRIAL BY JURY AND CONSENT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL OR
STATE COURTS LOCATED IN THE STATE OF NEW JERSEY AND SHALL WAIVE ANY CLAIM OF
IMPROPER VENUE OR FORUM NON CONVENIENS WITH RESPECT THERETO. This Agreement
is a personal contract and Dr. Schumaker's rights and obligations herein may
not be sold, transferred or assigned, pledged, hypothecated or otherwise
alienated by Dr. Schumaker. Notwithstanding the foregoing, Dr. Schumaker may
transfer his rights hereunder to an entity formed by him and principally owned
by him and his family, so long as he shall remain personally responsible for
the performance of all duties hereunder. The rights and obligations of the
parties hereunder shall be binding upon and inure to the benefit of the
successors and assigns of each. This Agreement may be amended only in writing
signed by both parties to this Agreement. Notices to be given pursuant to
this Agreement shall be given to the parties' address set forth at the head of
this Agreement or at such other address as one party shall advise the other in
writing in accordance with this notice procedure.
IN WITNESS WHEREOF, Dr. Schumaker and Emcore's duly authorized
corporate officer, have executed this Agreement as of the date set forth
above.
EMCORE CORPORATION
<PAGE>
By: /s/ Thomas G. Werthan
Thomas G. Werthan
Vice President
/s/ Norman E. Schumaker
Norman E. Schumaker
<PAGE>
EXHIBIT 10.15
Confidential treatment has been requested with respect to portions of this
document. Such portions are indicated by "[*]".
* * *
PURCHASE ORDER 111496
DRD 100610
Delphi Energy & Engine Management Systems
SEE BELOW
Delphi Automotive Systems
Disbursement Analysis Dept.
P.O. Box 438040
Pontiac, MI 48343-6040
DELPHI Energy & Engine
Management Systems
Anderson, Indiana 46018-9986 USA
Page 1
Pegasus Div. Of Emcore Corp.
Attn.: Lou Koszi
394 Elizabeth Avenue
Somerset, NJ 08873
The Seller agrees to sell and the Buyer agrees to purchase subject to the
terms and conditions hereof, approximately the percentage indicated on Exhibit
"A" attached hereto of the Buyer's requirements of the items shown on such
Exhibit "A" effective 11/13/96.
This purchase order will expire on 12/31/97, except that, if buyer submits to
seller a new and revised Exhibit "A" during May 1997, such submission shall
constitute an offer of renewal by Buyer to continue to purchase from Seller
those goods or services identified on Exhibit "A" pursuant to the terms and
conditions of this purchase order, with a new expiration date of 12/31/98.
Unless Seller notifies Buyer in writing of it's rejection of this offer within
15 days of Seller's receipt of the new or revised Exhibit "A", Seller will be
deemed to have accepted the offer.
This same renewal mechanism will apply to the renewed purchase order, and any
renewal periods thereafter.
Shipments are authorized only when released by our shipping schedule.
Please manually sign the purchase order acknowledgement and each page of the
Exhibit "A" and return to the Buyer.
EFT/Manual check payments Seller agrees to payment in accord with its current
EFT Payment Agreement or, where EFT is not in place. That GM may defer making
payment by paper check during any recognized GM holiday until the next GM
<PAGE>
business day without being in default or losing any cash discount privileges.
The following pertains to shipments to Indiana only. Direct payment permit
#003280489 for Indiana sales and tax use.
In order to complete our records, it is necessary to have the acknowledgment
copy of the purchase order and/or amendment signed and returned at once. Your
prompt attention and reply will be appreciated.
Return the acknowledgement copy to:
Delphi E Purchasing Department
P.O. Box 2439
Anderson, IN 46018
Ship to plant specified on purchase order via Delphi Energy & Engine
Management Systems Traffic Department Instruction Letter. If no letter on
file call 1-800-436-6668. Note that Delphi Energy & Engine Management Systems
has a consignee billing agreement with UPS. The toll free number for UPS is
800 354-7527. Pre-paid and add may not be used with UPS.
Deliver to Dept. must appear on all packing slips.
Seller represents that goods purchased under this order were not produced with
forced labor (as defined in 19 U.S.C. 1307) either by Seller or Seller's
suppliers. Seller shall indemnify Buyer against any liability Buyer may incur
if this representation is incorrect.
* * *
These Numbers Must Appear on All
Packing Slips and ______________
A UNIQUE NUMBER IDENTIFIED AS A SHIPMENT NUMBER
MUST APPEAR ON ALL PACKING SLIPS & CORRESPONDING INVOICES
SUBMIT INVOICE USING THIS
______ UNIT OF MEASURE
IEA: 551
Terms: Net 25th PROX
FOB: Collect S.P.
SHIP VIA:
DATE TO SHIP:
GENERAL LEDGER ACCT.
SUB ACCOUNT:
CHG. DEPT.:
WORK ORDER:
PROJECT/JOB NO.
OR PLANT ORDER NO.:
F/U: 76
<PAGE>
DELIVER TO DEPT.:
NOTIFY:
TERMS AND CONDITIONS: This order including the terms and conditions on the
face and reverse side hereof (and including additional Terms and Conditions
attached herewith if the work and material is for use on a United States
Government Contract), contains the complete and final agreement between Buyer
and Seller and no other agreement in any way modifying any of said terms and
conditions will be binding upon Buyer unless made in writing and signed by
Buyer's authorized representative. To the extent that the goods ordered
and/or shipped hereunder are by nature subject to Federal excise tax, the
following exemption certificate of Registration No. 380572515-001-9, issued by
the District Director, Internal Revenue Service, Detroit, Michigan, and that
the article or articles specified in this order will be used by it as material
in the manufacture of, or as a component part of another article to be
manufactured by it. SEE REVERSE SIDE HEREOF FOR THE TERMS & CONDITIONS TO
WHICH SELLER AGREES BY ACCEPTANCE OF THE ORDER. This order is not binding
until accepted. Acceptance should be executed on acknowledgment copy which
should be returned to buyer.
SEE REVERSE SIDE FOR SHIPPING AND BILLING INSTRUCTIONS.
AUTHORITY FOR DIRECT PAYMENT SALES AND USE TAX. The Indiana Department of
Revenue under authority of Section 52 of the State Gross Retail Tax and Use
Tax Act, authorizes the above operating Division of General Motors Corporation
to make direct payment of such tax imposed on any purchase, use, storage or
other consumption of tangible personal property or service.
DO NOT BILL INDIANA SALES TAX-REGISTERED RETAIL MERCHANTS CERTIFICATE No.
380572515-002-7.
Direct Payment Permits may not be used for the purchase of licensed vehicles
or utilities, or for lump sum contracts for improvement of realty.
<PAGE>
Purchase Order
Amendment No.: 156813
PURCHASE ORDER AMENDMENT
Pegasus Div. Of Emcore Corp.
Attn.: Lou Koszi
394 Elizabeth Avenue
Somerset, N.J. 08873
IN ORDER TO COMPLETE OUR RECORDS, IT IS NECESSARY TO
HAVE THE ACKNOWLEDGEMENT COPY OF THE PURCHASE ORDER
AND/OR AMENDMENT SIGNED AND RETURNED AT ONCE.
YOUR PROMPT ATTENTION AND REPLY WILL BE APPRECIATED.
WE ARE AMENDING PURCHASE ORDER AS NOTED BELOW AND AUTHORIZE YOU TO CHANGE YOUR
RECORDS IN ACCORDANCE WITH THIS AMENDMENT. PLEASE SIGN AND RETURN THE
ATTACHED ACKNOWLEDGMENT COPY WITHIN FIVE DAYS.
<PAGE>
PURCHASE ORDER AMENDMENT
Supplier Code: 27551
Supplier Name: PEGASUS DIV. OF EMCORE CORP.
REQUIREMENT CONTRACT Page 1
EXHIBIT A 11/17/96
DELPHI-E Date
Division of General Motors Corporation
Anderson, Indiana 46018
Contract Number: 100610
All information below effective at once unless otherwise stated
ADD PART TO CONTRACT 10493927N
DESCRIPTION: MAGNETO RESISTOR
METHOD OF MANUFACTURE:
DELIVERY PLANT: 57 ALPHATEC USA
DELIVERY DEPARTMENT: 5796 400 Industrial Park Dr.
SPEC REVISION DATE: 05/13/96 Manteca, CA 95336
PERCENT OF BUSINESS:
MINIMUM ORDER QUANTITY:
MAXIMUM ORDER QUANTITY:
ACCOUNT DISTRIBUTION: 24008010
UNIT OF MEASURE: PIECE
UNIT PRICE: [*]
PAYMENT TERMS: NET 25TH PROX
FREIGHT ON BOARD CODE: COLLECT S.P.
END OF AMENDMENT
/s/ Reuben Richards
President & CEO
11-22-96
H. Kidd 317-646-3960
___________________
Buyer
DELPHI-E
Division of General Motors Corporation
<PAGE>
Purchase Order Release
and Shipping Schedule
Follow Up Code: 27551 A
Pegasus Div. Of Emcore Corp.
Attn.: Lou Koszi
394 Elizabeth Avenue
Somerset, N.J. 08873
In the event of questions,
contact this person
M. Minks
915-783-4715
Date: 11/20/96
Unit of Measure: PC
Part No. 10493927N
Description: Magneto Resistor
Date of Order: 11/20/96
11/20/96
Purh. Ord. No.: 100610
New Rel
This Release No.: New-Acum
113090
Amount of Order: 641000
641000
Balance Due Order: With Rel
641000
Last Receipt Considered
Date:
P.O. Num:
Amount:
Total Receipts
ACUM MDL YTD:
Totals:
Fabrication: 291000
With Forecast: 466000
MONTHLY SCHEDULE SHIPPER SHIP CODE
Ship Code:
Back Sched:
Nov: Fabrication
Dec: Fabrication 90000
Jan: Fabrication 201000
Feb: Forecast 175000
Mar: Forecast 175000
<PAGE>
Apr: Forecast
PLEASE READ CAREFULLY
1. The release supersedes all previous releases for this purchase order and
this part number.
2. Delphi Energy & Engine Management Systems assumes no obligations for
materials fabricated in excess of the Total Fabrication shown on this
schedule.
3. If a credit symbol (CR) appears after quantity in 1st monthly schedule
space titled "Back Schedules" this indicates overshipment of past
schedule and this quantity must be deducted from the first following
monthly schedule. A plain quantity in this space indicates past due and
must be shipped at once.
4. Material returned for credit has been reordered. Do not subtract returns
from your total shipped records.
5. All overshipments are subject to return, unless special arrangements are
authorized by Delphi Energy & Engine Management Systems prior to
shipment.
6. Shipments must be routed and marked in accordance with Delphi Energy &
Engine Management Systems' Traffic Department instructions.
7. In the event premium transportation is necessary because regular
shipments have not been made in a timely manner in accordance with the
release schedule, all excess charges must be assumed by the seller.
8. Review cancellations promptly. Unless advised in writing within 15 days,
we will assume cancellation is made without charge.
9. If you are unable to maintain prices on our purchase orders due to this
schedule, please advise at once.
10. Sign and return the acknowledgment copy at once, listing definite
shipping promises. Unless advised within 10 days, records are assumed
correct.
11. Shipments against this schedule are NOT authorized without production
sample approval or the use of a Delphi Energy & Engine Management Systems
Engineering Permit which allows the shipment of unapproved material.
(Ref: Supplier Quantity Manual).
OUR SHIP CODE SPECIFIES THE TIME PARTS OR MATERIAL ARE
TO LEAVE YOUR PLANT - NOT THE ARRIVAL TIME AT OUR PLANT.
DATE
/s/ K.E. Szymczak
WE HEREBY ACKNOWLEDGE RECEIPT OF THIS SCHEDULE.
<PAGE>
Exhibit 11.1
<TABLE>
Statement of Computation of Per Share Amounts
For the three
For the year ended months ended
<S> <C> <C> <C> <C> <C>
09/30/94 09/30/95 09/30/96 12/31/95 12/31/96
Primary:
Net loss for the period $ (169,809) $1,515,980 $(3,176,314) $ (885,043) $(3,798,072)
Weighted average number of
shares of common stock
outstanding 2,958,970 2,994,466 2,944,466 2,994,466 2,944,466
Shares issuable upon
exercise of outstanding
options and warrants (1) 3,756,144 4,070,409 3,756,144 3,756,144 3,756,144
Shares assumed to be
acquired in accordance with
the treasury stock method 2,312,208 2,415,227 2,312,208 2,312,208 2,312,208
(1)
Shares used in computing
Earnings per share 4,402,907 4,649,648 4,438,403 4,438,403 4,438,403
Net (loss) income per share $ (0.04) 0.33 (0.72) (0.20) (0.86)
Fully Diluted:
Net Loss for the period $(169,809) 1,515,980 (3,176,314) (885,043) (3,798,072)
Weighted average number of
shares of common stock
outstanding 2,958,970 2,994,466 2,994,466 2,994,466 2,994,466
Shares issuable upon
exercise of outstanding
options and warrants (1) 3,756,144 4,070,409 3,756,144 3,756,144 3,756,144
Shares assumed to be
acquired in accordance with
the treasury stock method 2,312,208 2,415,227 2,312,208 2,312,208 2,312,208
(1)
Shares used in computing 4,402,907 4,649,648 4,438,403 4,438,403 4,438,403
Earnings per share
Net (loss) income per share $ (0.04) $ 0.33 $ (0.72) $ (0.20) $ (0.86)
______________
(1) Under the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 64 ("SAB No. 64"), common stock
and common stock equivalents issued by the company within one year or in contemplation of the Company's offering are
treated as if they were outstanding for all periods presented. Accordingly, the shares issuable upon exercise of
<PAGE>
outstanding options and warrants have been increased by 3,756,144 and the shares assumed to be acquired in accordance with
the treasury stock method has been increased by 2,312,208 for each year presented.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated November 1, 1996, except for Notes 13 and 15 as to which the date
is December 6, 1996, and Note 16, as to which the date is February 3, 1997, on
our audits of the financial statements and financial statement schedule of
EMCORE Corporation. We also consent to the reference to our Firm under the
caption "Experts."
Parsippany, New Jersey
February 5, 1997
<PAGE>
Exhibit 23.3
CONSENT OF LERNER DAVID LITTENBERG KRUMHOLZ & MENTLIK
We hereby consent to the reference to our firm under the caption
"Experts" in the Registration Statement on Form S-1 of EMCORE Corporation for
the registration of its Common Stock.
Lerner David Littenberg Krumholz & Mentlik
Westfield, New Jersey
February 3, 1997
<PAGE>
Exhibit 23.4
Consent of Robert Louis-Dreyfus
I hereby consent to the reference to me as a nominee to be elected to the
Board of Directors of EMCORE Corporation, and I hereby approve the description
of my professional biography included under the caption "Management" in the
Registration Statement on Form S-1 of EMCORE Corporation.
Robert Louis-Dreyfus
February 5, 1997
