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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-22175
EMCORE CORPORATION
(Exact name of registrant as specified in its charter)
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NEW JERSEY 22-2746503
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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394 ELIZABETH AVENUE, SOMERSET, NJ 08873
(Address of principal executive offices) (zip code)
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Registrant's telephone number, including area code: (732) 271-9090
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates of the
registrant as of December 23, 1998 was approximately $100,427,286 (based on the
closing sale price of $18.25 per share).
The number of shares outstanding of the registrant's no par value common stock
as of December 23, 1998 was 9,385,618.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders (to be filed with the Securities and Exchange
Commission on or before January 28, 1999) are incorporated by reference in Part
III of this Form 10-K.
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CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS:
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document are advised that it
contains both statements of historical facts and forward looking statements.
This report includes forward-looking statements that reflect current
expectations or beliefs of EMCORE Corporation concerning future results and
events. The words "expects," "intends," "believes," "anticipates," "likely,"
"will," and similar expressions identify forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties which
could cause actual results and events to differ materially from those
anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, statements about future financial
performance of the Company and the effect of the acquisition of MicroOptical
Devices, Inc. ("MODE") on the Company's business; the uncertainty of additional
funding; continued acceptance of the Company's MOCVD technologies, as well as
the market success of microlaser VCSEL technologies; the Company's ability to
achieve and implement the planned enhancements of products and services on a
timely and cost effective basis and customer acceptance of those product
introductions; product obsolescence due to advances in technology and shifts in
market demand; competition and resulting price pressures; business conditions;
economic and stock market conditions, particularly in the U.S., Europe and
Japan, and their impact on sales of the company's products and services; risks
associated with foreign operations, including currency and political risks; and
such other risk factors as may have been or may be included from time to time in
the Company's reports filed with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
EMCORE Corporation (together with its subsidiary, "EMCORE" or the
"Company"), founded in 1984, designs and develops compound semiconductor
materials 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, development and production of compound
semiconductor wafers and package-ready devices.
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 high-brightness light-emitting diodes ("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
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devices into their products in order to achieve higher performance in a wide
variety of applications, including satellite, fiberoptic and wireless
communications, 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 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 225
systems worldwide to a broad base of leading electronics manufacturers,
including: Spectrolab, Inc. (a subsidiary of Hughes Electronics Company,
"Hughes-Spectrolab"), General Motors Corp. ("General Motors"), Hewlett Packard
Co., Honeywell, Inc., Lucent Technologies, Inc., Rockwell International Corp.
("Rockwell"), Samsung Co., Siemens AG, L.M. Ericsson AB, Texas Instruments Inc.
and 13 of the largest electronics manufacturers in Japan.
SATELLITE COMMUNICATIONS. Compound semiconductor solar cells are used
to power 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. Compound semiconductor devices
are also 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. The Company is developing high efficiency
gallium arsenide solar cells to increase satellite payload capacity and reduce
launch weight.
DATA COMMUNICATIONS. To accommodate the exponential growth in voice,
data and video traffic resulting from the Internet and networking generally,
telecommunications companies, data communications, switch and router companies
and Internet service providers are relying on fiber optic networks utilizing
high-speed switching technologies to increase transmission rates. New and
emerging standards, including Gigabit Ethernet, asynchronous transfer mode
("ATM") and FibreChannel, provide a solid infrastructure for bringing fiber
optics into these networks. As these standards are rapidly deployed in networks
worldwide, the need for high-speed fiber optic technologies to support them
grows proportionally. The Company supports these standards through its recently
announced high speed vertical cavity surface-emitting laser ("VCSEL")
components, arrays, and subassemblies developed to meet the needs of these and
other demanding applications.
TELECOMMUNICATIONS. The most common deployment of fiber optic equipment
is currently in high capacity trunk lines for long distance and inter-exchange
telecommunications. Long distance carriers continue to upgrade their networks to
incorporate more and more fiber optic technology. The market for
telecommunications will continue to expand as carriers convert copper
interconnections to higher capacity fiber optic cable. In addition to extending
and expanding the existing infrastructure, the trend is moving to higher and
higher bit rate connections - from 2.5Gbs to 10Gbs, driving the need for greater
sophistication in laser and compound semiconductor technology. The Company's
in-depth material science expertise and its recently announced achievements in
high speed microlasers allow the Company to offer fully integrated VCSEL
component and array solutions in the industry and enable the development of
1300nm VCSELs, which will help make low cost, high performance broadband access
and fiber-in-the-loop possible.
WIRELESS COMMUNICATIONS. Compound semiconductor devices have multiple
applications in wireless communication products, including cellular telephones,
pagers, personal communication systems ("PCS") handsets, direct broadcast
systems ("DBS") and global positioning systems. Compound semiconductor devices
are used in high frequency transmitters, receivers and power amplifiers to
increase capacity, improve 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.
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COMPUTERS AND PERIPHERALS. As computer manufacturers continue to
integrate faster and faster microprocessors into their systems designs, the gap
between the internal central processing unit ("CPU") speed and the external bus
continues to grow. As this gap increases, computer suppliers are concerned less
with processor speed, and more with overall system performance. Computer
manufacturers are increasingly looking to compound semiconductor products and
specifically to on board photonic interconnects to greatly enhance system
performance. Several major computer and microprocessor manufacturers have
expressed interest in integrating the Company's VCSEL technology into their next
generation products.
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 digital videodiscs ("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. Gallium nitride
based HB LEDs are being developed for lighting applications that in the future
may replace incandescent light bulbs.
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,
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:
o Launch of new wireless services such as PCS and wireless high
speed data systems;
o Rapid build-out of satellite communications systems;
o Widespread deployment of fiber optic networks and the
increasing use of optical systems;
o Increasing use of infrared emitters and optical detectors in
computer systems;
o Emergence of advanced consumer electronics applications, such
as DVDs, flat panel displays and lighting; and,
o Increasing use of high-performance electronic devices in
automobiles.
THE EMCORE SOLUTION
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
makes possible one of 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
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science expertise uniquely position the Company to become a valuable source for
a broad array of solutions for the compound semiconductor industry.
STRATEGY
The Company believes that its close collaborations with its customers
over the past fourteen years have 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 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 is manufacturing and shipping Magneto Resistive
Sensors ("MR Sensors") products for use in General Motors' automotive
applications. During fiscal 1998, the Company formed a joint venture with
Uniroyal Technology Corporation ("UTC"), and in November 1998, it also formed
joint ventures with Optek Technology, Inc. and Union Miniere Inc. Additionally,
the Company has entered into strategic agreements with AMP Incorporated, Space
Systems/Loral ("Loral") and Lockheed Martin Corporation. 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 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.
STRATEGIC INITIATIVES
Throughout fiscal 1998, the Company has taken steps or formed strategic
relationships to take advantage of market opportunities. In December 1997, the
Company acquired MicroOptical Devices, Inc. ("MODE"). At the date of
acquisition, MODE (a development stage company) was substantially dedicated to
the research and development of enabling compound semiconductor technologies. In
February 1998, MODE announced its first commercial high speed laser
(Gigalase(TM)) and thereafter commenced commercial volume shipments. Having
achieved commercial product development, MODE now designs, develops and markets
high-quality VCSEL optical components and subassemblies. The Company's
technology is expected to enable significant performance and cost improvements
in optoelectronic systems. VCSELs offer significant advantages over traditional,
edge-emitting laser diodes, including: ultra high modulation rates, low power
consumption, high coupling efficiencies and reduced complexity and cost of
packaging. VCSELs represent a revolutionary approach to the fabrication of
semiconductor lasers and enhance the performance and cost-effectiveness of
communications equipment, computer systems and many other electronic systems
using lasers. As a result, leading electronics systems manufacturers are
integrating VCSELs into a broad array of end-market applications including
Internet access, digital cross connect telecommunications switches, DVD,
fiberoptic switching and routing, such as Gigabit Ethernet. In addition, VCSEL
technology is being evaluated for incorporation into multi-layered printed
circuit boards in order to greatly increase the speed at which on-board
components interface. The Company believes that utilizing VCSELs for
chip-to-chip and board-to-board data transfer
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will significantly reduce the performance gap between the frequency of the
microprocessor and other components within computer systems.
In addition to the MODE acquisition, the Company launched three joint
ventures during the past twelve months. In July 1998, the Company formed and is
a minority investor in Uniroyal Optoelectronics, LLC, a joint venture with UTC
to manufacture, sell and distribute HB LEDs. The global demand for HB LEDs is
experiencing rapid growth because LEDs have a long useful life (ten years) and
consume far less power than incandescent/fluorescent lighting.
In November 1998, the Company formed a joint venture with Optek
Technology, Inc., a packager and distributor of optoelectronic devices including
sensors, to market an expanded line of MR Sensors to the automotive and related
industries. The "Emtek" joint venture combines the Company's strength in
producing a package-ready die with Optek's strength in packaging and
distribution thus enabling the Company to offer off-the-shelf products which
should enhance market penetration.
Also in November 1998, the Company formed a joint venture ("Umcore") in
a partnership with Union Miniere Inc. to explore and develop alternate uses of
germanium using the Company's material science and production platform
expertise.
In November 1998, the Company signed a four year Long Term Purchase
Agreement (the "Long Term Purchase Agreement") with Loral, a wholly owned
subsidiary of Loral Space & Communications. Under the Long Term Purchase
Agreement, once EMCORE completes Loral's space qualification and test
procedures, the Company will supply Loral with compound semiconductor high
efficiency gallium arsenide solar cells for Loral's satellite requirements.
Subject to the foregoing requirements, the Company received an initial purchase
order for $5.25 million of solar cells.
In September 1998, the Company entered into an agreement with Lockheed
Martin Missiles and Space ("LMMS"), a strategic business unit of Lockheed
Martin Corporation, for the technical management and support of a LMMS and
Sandia National Laboratory ("Sandia") Cooperative Research and Development
Agreement ("CRADA") for the advancement, transfer and commercialization of a
new compound semiconductor high efficiency solar cell. Pursuant to this
strategic agreement, (i) LMMS will grant the Company a sub-license for all
CRADA related intellectual property developed on behalf of and in conjunction
with LMMS and (ii) the Company and LMMS will jointly qualify and validate the
high efficiency solar cells for operational satellite use. The Company has also
received a $2.5 million contract under the U.S. Air Force's Broad Agency
Announcement ("BAA") Program for the development of high efficiency advanced
solar cells.
In September 1998, the Company signed a four year purchase agreement
with AMP Incorporated to provide high speed VCSELs. AMP Incorporated presently
uses the Company's VCSEL's in transceivers for Gigabit Ethernet applications.
In October 1998, the Company opened a new facility, EMCOREwest, in
Sandia Science and Technology Park, Albuquerque, New Mexico. The Company plans a
three-phase construction project which will allow the facility to expand from an
initial 50,000 square feet in October 1998 to 70,000 square feet by 2002.
Production of wafers and devices at EMCOREwest is scheduled to begin in the
second calendar quarter of 1999. In connection with the construction of this
facility, the City of Albuquerque has issued a $55 million Industrial Revenue
Bond (the "IRB") to the Company, which provides the Company with New Mexico
tax-exempt status on the property and the purchase of equipment and supplies.
The Company estimates that total tax savings over the 20-year life of the bond
will exceed $10.0 million. MODE also completed the build-out of its fabrications
space in Albuquerque, New Mexico with an additional 20,000 square feet of
cleanroom and test facilities.
RECENT DEVELOPMENTS
On June 22, 1998, the Company entered into an $8.0 million revolving
loan agreement (the "1998 Agreement") with First Union National Bank (the
"Bank") which expires December 31, 1999. The 1998 Agreement bears interest at a
rate equal to one-month LIBOR plus three quarters of one percent per annum (6.4%
at September 30, 1998). The 1998 Agreement is guaranteed by the Company's
Chairman and Chief Executive Officer. In exchange for guaranteeing the facility,
the Chairman and the Chief Executive Officer were granted an aggregate of
284,684 common stock purchase warrants exercisable at $11.375 per share until
May 1,
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2001. These warrants are callable at the Company's option at $0.85 per warrant
at such time as the Company's Common Stock has traded at or above 150% of the
exercise price for a period of 30 days. The Company borrowed $5.0 million on
June 22, 1998 and the remaining $3.0 million on July 10, 1998.
On September 17, 1998, the Company borrowed $7.0 million from its
Chairman. The loan bears interest at 9.75% per annum. In addition, on October
22, 1998 the Company borrowed an additional $1.5 million from its Chairman on
identical terms. The entire sum of $8.5 million borrowed from the Chairman plus
interest was repaid from the proceeds of the Private Placement (defined below).
On November 30, 1998, the Company completed a private placement (the
"Private Placement") of an aggregate of 1,550,000 shares of Series I Redeemable
Convertible Preferred Stock (the "Series I Preferred Stock") to Hakuto Co.,
Ltd. ("Hakuto"), Union Miniere Inc. ("UMI") and UTC. The net proceeds to the
Company from the Private Placement were approximately $21.2 million which has
been used (i) to repay $8.5 million of debt, plus interest, to the Company's
Chairman of the Board, Dr. Thomas Russell, (ii) to fund the Company's $5.0
million portion of a joint venture between the Company and UTC to develop and
manufacture HB LEDs and (iii) to fund the Company's $600,000 portion of a
research and development joint venture with UMI to develop alternative
applications for germanium substrates. The remaining net proceeds from the
Private Placement will be used to acquire capital equipment for the Company's
new Albuquerque, New Mexico manufacturing facility and for working capital.
Effective as of November 30, 1998, the Company and the Bank have
renewed the Company's $10.0 million credit facility (the "1997 Agreement") with
the Bank, which, as amended, will expire on October 1, 1999. In connection with
the amendment of the 1997 Agreement, Thomas Russell agreed to provide a
guarantee in the event the Company does not meet certain financial covenants by
May 15, 1999.
The Company has recorded a net loss in each of the third and fourth
quarters of fiscal 1998 due primarily to the adverse effect of work-stoppage
strikes at General Motors, a decline in systems sales particularly in Asia
related to the Asian financial crisis as well as a general slowdown in the
semiconductor market overall, a slower than expected ramp-up in production at
MODE and increased research and development spending. The Company expects to
post losses for the next two fiscal quarters.
PRODUCTS
PRODUCTION SYSTEMS AND MATERIALS PROCESSES. The Company is a leading
supplier of MOCVD compound semiconductor production systems, and, in 1996, had
a 23% share of this market according to VLSI Research Inc. which regularly
publishes research on this market. The Company has shipped more than 225
systems to date and believes that its TurboDiscTM systems offer significant
cost advantages over competing systems. The Company believes that its MOCVD
production systems produce materials with superior uniformity of thickness,
electrical properties and material composition. EMCORE has a variety of models
that are optimized for the application and throughput of the customer. The
Company believes that the high throughput capabilities of its TurboDiscTM
systems enhances the low cost 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%.
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. Recently, the Company has 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 was spurred almost entirely by requests from
customers whose epitaxial wafer needs exceed their available in-house
production capabilities. The Company fabricates wafers and package-ready
devices at its facilities in Somerset, New Jersey and Albuquerque, New Mexico
and has a combined clean room area totaling approximately 12,000 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, VCSELs,
solar cells and other electronic and optoelectronic devices.
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MR SENSORS. In January 1997, the Company initiated shipments of
compound semiconductor MR Sensors using indium antimonide-based epi-materials.
The technology is licensed to the Company from General Motors. The primary user
of the product has to date been General Motors Powertrain with over five
million devices delivered as of September 30, 1998 for crank and cam speed and
position sensing applications for three engine builds. In November 1998, the
Company formed a joint venture with Optek Technology, Inc. to market an
expanded line of MR Sensors to the automotive and related industries.
HIGH EFFICIENCY SOLAR CELLS. The Company is working closely with
several large telecommunications concerns to assist these customers in
developing solar cell and other process technology for use on their
communications satellites. After extensive working collaborations, the Company
has developed the materials process and a production system for solar cell
materials with efficient performance characteristics. As a result of this
collaboration, the Company's technology has produced gallium arsenide solar
cells that are not only 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. Over the last
two years, the Company's customers have purchased several MOCVD production
systems for this purpose. In December 1998, the Company signed the Long Term
Purchase Agreement with Loral under which the Company will supply Loral with
compound semiconductor high-efficiency gallium arsenide solar cells for Loral's
satellites.
VCSELS. In February 1998, the Company, through its wholly-owned
subsidiary MODE, annouced its first commercial high speed laser and has
commenced commercial volume customer shipments. The Company now designs,
develops and markets optical VCSEL components, arrays and subassemblies, which
utilize compound semiconductor microlaser diodes that emit light vertically from
the surface of a fabricated wafer. The Company believes the advantage of its
VCSELs include ultra high modulation rates for advanced information processing,
low power consumption, high fiber optic coupling efficiencies, circular output
beams and photolithographically defined geometrics. The Company works closely
with original equipment manufacturers ("OEMs") to incorporate their design
requirements into the Company's VCSEL technology and test methodologies. In
September 1998, MODE formed a strategic alliance with AMP Incorporated to
develop and market a family of optical transceivers for the Gigabit Ethernet,
FibreChannel and ATM markets. These transceivers incorporate specific design
requirements into the processes and test methodologies of the Company's VCSEL
components.
HB LEDS. Early in 1998 the Company formed a joint venture with UTC to
manufacture, sell and distribute HB LEDs. The global demand for HB LEDs is
experiencing rapid growth because LEDs have a long useful life (ten years) and
consume far less power than incandescent/ fluorescent lighting. The Company
believes it is the leading supplier of gallium nitride based MOCVD systems used
to produce blue and green HB LEDs.
CUSTOMERS
The Company's customers include several of the largest semiconductor,
telecommunications and computer manufacturing companies in the world. In fiscal
year 1996, only one customer accounted for more than 10% of the Company's
revenues; sales to this customer accounted for 23.6% of the Company's revenues
in fiscal 1996. For the fiscal year 1997, two customers each accounted for more
than 10% of the Company's revenues; sales to these customers each accounted for
15.0% and 10.2% of the Company's revenues during fiscal year 1997. For fiscal
year 1998, two customers accounted for more than 10% of the Company's revenues;
sales to these customers accounted for 17.3% and 12.8% of the Company's
revenues during fiscal year 1998.
SALES AND MARKETING
The Company markets and sells its products through its direct sales
force in Europe, North America, Taiwan and through representatives and
distributors in the rest of Asia. To market and service its systems in China,
Japan and Singapore, the Company relies on a single marketing, distribution and
service provider, Hakuto. The Company's agreements with Hakuto have a term of
ten years, expiring March 2008. Hakuto has exclusive distribution rights for
the Company's products in Japan. Hakuto has marketed and serviced the Company's
products since 1988, is a minority shareholder in the Company, and the
President of Hakuto is a member of the Company's Board of Directors.
International sales as a percentage of total sales in fiscal 1996, 1997
and 1998 were 42.5%, 42.0% and 39.1%, respectively. Sales to customers in the
U.S. in fiscal 1996, 1997 and 1998 were approximately, $16.0 million, $27.7
million and $26.6 million, respectively, while the Company's sales in Asia for
the same time periods were $8.2
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million, $14.6 million and $15.5 million, respectively, and sales in Europe
were $3.6 million, $5.5 million and $1.6 million, respectively. 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 up to 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.
The Company has dedicated 16 EMCORE TurboDiscTM systems for both research and
production which are capable of processing virtually all compound semiconductor
materials. The research and development staff utilizes x-ray, optical and
electrical characterization equipment which provide instant data allowing for
shortened development cycles and rapid customer response. The Company's
recurring research and development expenses in fiscal 1996, 1997 and 1998 were
approximately $5.4 million, $9.0 million and $16.5 million, respectively. The
Company also incurred a one-time, non-cash research and development expense in
fiscal 1998 in the amount of $29.3 million in connection with the acquisition
of MODE. The Company expects that it will continue to expend substantial
resources on research and development.
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 September 30, 1998, government and other external research contracts have
provided approximately $13.2 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 AND LICENSING
The Company's success and competitive position both for production
systems, wafers and package-ready devices depend significantly on its ability
to maintain trade secrets, patents and other intellectual property protections.
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.
To date, the Company has been issued eleven U.S. patents and seven are
either pending or under review. 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, wafers or devices.
MODE is a licensee of certain VCSEL technology and associated patent
rights owned by Sandia pursuant to a License Agreement dated September 18, 1997,
between MODE and Sandia (the "Sandia License"). The Sandia License grants MODE
(i) exclusive rights (subject to certain rights granted to Department of Energy
("DOE") and AT&T Corporation ("AT&T")) to develop, manufacture and sell products
containing Sandia VCSEL technologies for barcode scanning and plastic fiber
communications applications under five U.S. patents that expire between 2007 and
2015, and (ii) nonexclusive rights with respect to all other applications of
these patents. The Sandia License also grants MODE a nonexclusive right to
employ a proprietary oxidation fabrication method in the
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<PAGE> 10
manufacture of VCSEL products under a sixth U.S. patent that expires in 2014.
The Company's success and competitive position as a producer of VCSEL products
depends on the continuation of its rights under the Sandia License, the scope
and duration of those rights and the ability of Sandia to protect its
proprietary interests in the underlying technology and patents. MODE's rights
under the Sandia License are subject to termination by Sandia prior to
expiration of the underlying patents in the event that MODE breaches certain
terms specified therein, including failure by MODE to make minimum royalty
payments.
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.
BACKLOG
As of September 30, 1998, the Company had an order backlog of
approximately $22.6 million compared to backlog of $24.4 million as of
September 30, 1997. 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. Wafer and device agreements extending longer
than one year in duration are included in backlog only for the ensuing 12
months. Some of these agreements currently extend over three years. The Company
receives partial advance payments or irrevocable letters of credit on most
production system orders. The Company recognizes 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. Subsequent to year end, the
Company's backlog has increased significantly. As of December 15, 1998, the
Company's order backlog exceeded $41.0 million, an increase of 81.4% since
September 30, 1998.
MANUFACTURING
In May 1998, the Company received ISO 9001 and QS 9002 quality
certification. The Company's manufacturing operations are located at the
Company's headquarters in Somerset, New Jersey and in Albuquerque, New Mexico
and include systems engineering and production, wafer fabrication, and design
and production of devices. Many of the Company's manufacturing operations are
computer monitored or controlled, therefore enhancing reliability and yield.
The Company manufactures its own systems and outsources some components and
sub-assemblies, but performs all final system integration, assembly and
testing. The Company fabricates wafers and devices at its facilities in
Somerset, New Jersey and Albuquerque, New Mexico and has a combined clean room
area totaling approximately 12,000 square feet.
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.
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
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<PAGE> 11
competitors for the Company's wafer foundry include Epitaxial Products Inc.,
Kopin Corporation and Quantum Epitaxial Designs, Inc. The Company's principal
competitors for sales of VCSEL-related products include Honeywell, Inc. and
Mitel Corporation. The Company also faces competition from manufacturers that
implement in-house systems for their own use. In addition, 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. 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.
EMPLOYEES
At September 30, 1998, the Company employed 308 full-time employees, up
13.7% from 271 as of September 30, 1997 and up 66.5% from the 185 employees at
September 30, 1996. The increase in the number of employees since the end of
fiscal 1996 is a direct result of the Company's increased manufacturing
operation needs to meet the demand for its compound semiconductor production
systems, wafers and package-ready devices. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its
relationship with its employees to be good.
ITEM 2. PROPERTIES
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 2000. The Company has two
five-year renewal options. MODE's office and manufacturing facility are located
in Albuquerque, New Mexico, where MODE leases an aggregate of approximately
27,500 square feet in two adjacent buildings. One of these leases expires in
July 1999 and the other in April 2001, each with two three-year renewal
options. The Company has another office and manufacturing facility in
Albuquerque, New Mexico where it has recently completed building its own 50,000
square foot facility, of which 25,000 square feet is currently occupied.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiary is aware of any pending or
threatened litigation against it which would have a material adverse effect on
its business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5.
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is quoted on the NASDAQ National Market
under the symbol "EMKR". The following table sets forth the quarterly high and
low sales prices for the Company's Common Stock since its initial public
offering in March 6, 1997.
FISCAL 1997
Second Quarter................................... $12 3/4 $ 9 1/4
Third Quarter.................................... $19 1/2 $11
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<PAGE> 12
Fourth Quarter................................... $25 1/4 $16
FISCAL 1998
First Quarter.................................... $23 3/8 $15 1/2
Second Quarter................................... $19 5/8 $11
Third Quarter ................................... $16 3/4 $ 9
Fourth Quarter .................................. $13 1/2 $ 6
FISCAL 1999
First Quarter (through December 23, 1998)........ $18 1/4 $ 7 1/4
As of December 23, 1998 date there were 1,595 shareholders of record.
The Company has never declared or paid dividends on its Common Stock
since its formation. The Company currently does not intend to pay dividends on
its Common Stock 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.
RECENT SALES OF UNREGISTERED SECURITIES
On November 30, 1998, the Company sold an aggregate of 1,550,000 shares
of Series I Preferred Stock to Hakuto, UMI and UTC for an aggregate
consideration of $21.7 million before deducting costs and expenses of the
offering of approximately $500,000. The shares of Series I Preferred Stock are
convertible, at any time, at the option of the holders thereof, unless
previously redeemed, into shares of Common Stock at an initial conversion price
of $14.00 per share of Common Stock, subject to adjustment in certain cases.
The Series I Preferred Stock is redeemable, in whole or in part, at the option
of the Company at any time the Company's stock has traded at or above $28.00
per share for 30 consecutive trading days, at a price of $14.00 per share, plus
accrued and unpaid dividends, if any, to the redemption date. In addition, the
Series I Preferred Stock is subject to mandatory redemption by the Company on
November 17, 2003. The Company believes the sale of the shares of Series I
Preferred Stock is exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
On June 22, 1998 the Company issued 227,747 warrants to purchase common
stock of the Company to Thomas Russell, Chairman of the Board of Directors of
the Company and 56,937 warrants to purchase common stock of the Company to
Reuben Richards, President, Chief Executive Officer and a director of the
Company. The warrants are exercisable at a price of $11.375 and expire on May
1, 2001. These warrants are callable at the Company's option at $.85 per
warrant at such time as the Company's Common Stock has traded at or above 150%
of the exercise price for a period of 30 days. These warrants were granted in
exchange for the guarantee by these executives of the 1998 Agreement entered
into by the Company on June 22, 1998 with the Bank. The credit facility is
being used to finance general corporate purposes, including, but not limited
to, the construction of a facility in Albuquerque, New Mexico. The term of the
credit facility is 18 months and the interest rate is at LIBOR plus 0.75%. The
Company received a fairness opinion from its investment bank, Hempstead &
Company, that this transaction was fair from a financial point of view to the
Company's non-participating shareholders. The Company believes the issuance of
the warrants is exempt from registration pursuant to Section 4(2) of the
Securities Act.
On December 5, 1997, the Company issued 1,461,866 shares of Common
Stock, 200,966 common stock purchase options and 47,118 common stock purchase
warrants in exchange for all of the outstanding capital stock of MODE. The
purchase price was approximately $32.8 million and was recorded under the
purchase method of accounting. The Company believes the issuance of Common
Stock, options and warrants in connection with the acquisition of MODE is
exempt from registration pursuant to Section 4(2) of the Securities Act.
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<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this report. The following table shows selected
financial data for the most recent five years:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue $ 9,038 $ 18,137 $ 27,779 $ 47,753 $ 43,760
Cost of sales 5,213 9,927 18,607 30,094 24,675
---------------------------------------------------------------
Gross profit 3,825 8,210 9,172 17,659 19,085
Operating expenses:
Selling, general and administrative 2,645 4,452 6,524 9,347 14,082
Goodwill -- -- -- -- 922
Research and development
Recurring 1,064 1,852 5,401 9,001 16,495
One-time acquired in-process, -- -- -- -- 29,294
non-cash
---------------------------------------------------------------
Operating income (loss) 116 1,906 (2,753) (689) (41,708)
Stated interest expenses, net 286 255 297 519 974
Imputed warrant interest, non-cash -- -- 126 3,988 601
Equity in net loss of unconsolidated -- -- -- -- 198
affiliate
Other expense -- 10 -- -- --
---------------------------------------------------------------
(Loss) income before income taxes and
extraordinary item (170) 1,641 (3,176) (5,196) (43,481)
Provision for income taxes -- 125 -- 137 --
Extraordinary loss -- -- -- 286 --
---------------------------------------------------------------
Net (loss) income $ (170) $ 1,516 $ (3,176) $ (5,619) $(43,481)
===============================================================
Net (loss) income per share $ (2.91) $ 0.89 $ (1.06) $ (1.20) $ (4.95)
===============================================================
Shares used in computing net (loss)
income per share 58 1,701 2,994 4,669 8,775
---------------------------------------------------------------
(IN THOUSANDS) AS OF SEPTEMBER 30,
---------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital $ 1,041 $ 2,208 $ 1,151 $ 12,156 $ (2,017)
Total assets 5,415 10,143 20,434 39,463 66,158
Long-term obligations 3,000 3,000 8,947 7,577 26,513
Redeemable preferred stock 16,274 -- -- -- --
Shareholders' equity (deficit) (96) 1,509 522 21,831 12,518
---------------------------------------------------------------
</TABLE>
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<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The compound semiconductor industry is experiencing dramatic growth with
increasing demands for higher performance and functionality in applications for
products as diverse as electronic displays, advanced automotive and aircraft
engines, wireless communications, telecommunications, CDs, DVDs, CATV, fiber
optic transmitters, bar code scanners, satellites, cellular phones, laser
printers, and holographic memories.
EMCORE, founded in 1984, designs and develops compound semiconductor
materials 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 response to the growing need of its customers to cost
effectively get to market faster with higher volumes of new and improved high
performance products, the Company expanded its product offerings to include the
design, development and production of compound semiconductor wafers,
package-ready devices and discreet components and now offers its customers a
broad range of products and services and a vertically integrated product line.
EMCORE believes that its proprietary TurboDisc(TM) deposition technology makes
possible one of the most cost-effective production systems for the commercial
volume manufacture of high-performance compound semiconductor wafers and
devices. The Company is a leading manufacturer of MOCVD systems, the enabling
technology behind compound semiconductor products and the resulting dramatic
improvements in speed, capacity and functionality. MOCVD is the means by which
chemicals are deposited in atomic layers on a substrate, and many compound
semiconductor products are produced on MOCVD equipment. The Company's MOCVD
technology and fifteen years of material science knowledge and know how,
position the Company to capitalize on market opportunities.
To this extent, the Company has concentrated on several products serving
large opto-electronics markets: HB LEDs, high efficiency solar cells, VCSELs,
antimonide MR Sensors and epitaxial services. All of these products are based on
the Company's TurboDisc(TM) production system, the enabling technology.
The Company's two product lines, systems and materials, differ
significantly. Systems-related revenues include sales of Turbo-disc(TM) systems
as well as spare parts and services. The book to ship time period on systems is
approximately four to six months, while the average selling price is in excess
of $1.0 million. Materials revenues include wafers, devices and process
development technology. The materials sales cycle is generally shorter than
systems and average selling prices vary significantly based on the products.
Generally, the Company achieves a higher gross profit on its materials related
products.
In conjunction with the vertical expansion of the Company's product
lines, EMCORE began fiscal 1998 with a capital plan requiring $35.0 million.
These funds were required to build the Company's manufacturing and development
infrastructure and to take advantage of market windows for new products which
the Company had under development. The Company believes it now has the majority
of the infrastructure required to address the needs of the compound
semiconductor industry.
To expand its technology base into the data communications and
telecommunications markets, on December 5, 1997, the Company purchased MODE for
a purchase price of $32.8 million. EMCORE's acquisition of MODE (a development
stage company), constituted a significant and strategic investment for the
Company to acquire and gain access to MODE's in-process research and development
of micro-optical technology. The Company's over-riding investment consideration
was that if MODE's research and development efforts (with continued research and
development funding contemplated and acquired after acquisition) yielded
commercial products for targeted applications EMCORE would possess a broader
array of enabling technologies and would be better positioned for entry into
certain existing large and/or high growth technology dependent markets. MODE is
one of the market leaders in the design and development of high-quality optical
components and subassemblies which offer superior performance at lower cost over
conventional semiconductor laser technologies. MODE's microlasers and optical
subassemblies are expected to provide design, performance and significant cost
advantages over their technical predecessors such as edge-emitting solid state
lasers. Through the integration of VCSELs with leading OEM systems design,
VCSELs are expected to provide enhanced performance benefits to market
applications such as Internet access, onboard photonics, gigabit ethernet, local
area networks, microarea network, DVD and fiberoptic switching. On February 23,
1998, MODE announced the introduction of its first commercial product, a
Gigalase VCSEL. Subsequent to such announcement, MODE's Gigalase product efforts
were primarily directed toward engineering, testing and quality control
activities to facilitate commercial production which commenced in May 1998. On
December 14, 1998, MODE announced its second commercial product a Gigarray
VCSEL.
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<PAGE> 15
As part of the acquisition, the Company incurred a one-time in-process
research and development write-off of $29.3 million which is reflected in the
accompanying financial statements. The Company also recorded goodwill of
approximately $3.4 million. This is being charged against operations over a
three year period, and will therefore, impact financial performance through
December 2000.
In addition to the MODE acquisition, the Company launched three joint
ventures during the past year. In July 1998, the Company formed and is a
minority investor in Uniroyal Optoelectronics, LLC a joint venture with UTC to
manufacture, sell and distribute HB LEDs. In November 1998, the Company formed a
joint venture with Optek Technology, Inc., a packager and distributor of
optoelectronic devices including sensors, to market an expanded line of MR
Sensors to the automotive and related industries. Combining the Company's
strength in producing the package-ready die along with Optek's strength in
packaging and distribution allows the Company to alter the shelf products which
should allow for greater market penetration. Also in November 1998, the Company
and Union Miniere Inc. formed UMCORE to explore and develop alternate uses of
germanium using the Company's material science and production platform
expertise.
In November 1998, the Company signed the Long Term Purchase Agreement
with Loral, a wholly owned subsidiary of Loral Space & Communications. The Long
Term Purchase Agreement, once EMCORE completes Loral's space qualification and
test procedures, enlists EMCORE as a supplier of compound semiconductor high
efficiency gallium arsenide solar cells for Loral's satellite requirements.
Subject to the foregoing requirements, the Company received an initial purchase
order for $5.25 million of solar cells.
In September 1998, the Company entered into an agreement with LMMS for
the technical management and support of a LMMS and Sandia CRADA for the
advancement, transfer and commercialization of a new compound semiconductor high
efficiency solar cell. The Company also signed a four year purchase agreement
with AMP Incorporated to provide high speed VCSELs. AMP Incorporated presently
uses the Company's VCSELs in transceivers for Gigabit Ethernet applications.
The Company believes it possesses the technological "know how" to
capitalize on all of these market opportunities. However, there can be no
assurance that the Company will maintain sufficient growth in sales levels to
support the associated labor, equipment and facility costs.
RESULTS OF OPERATIONS:
The following table sets forth the Statement of Income Data of the
Company expressed as a percentage of total revenues for the fiscal years ended
September 30, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of Sales 67.0 63.0 56.4
-------- -------- --------
Gross profit 33.0 37.0 43.6
Operating expenses:
Selling, general and administrative 23.5 19.6 32.2
Goodwill 2.1
Research and development 19.4 18.8
One-time acquired in-process 37.7
Recurring 66.9
-------- -------- --------
Operating loss (9.9) (1.4) (95.3)
Stated interest expense, net 1.1 1.1 2.2
Imputed warrant interest expense, non-cash 0.4 8.4 1.4
Equity in net loss of associated companies -- -- 0.5
-------- -------- --------
Loss before income taxes and extraordinary item (11.4) (10.9) (99.4)
Provision for income taxes -- 0.3 --
-------- -------- --------
Net loss before extraordinary item (11.4) (11.2) (99.4)
Extraordinary item -- (0.6) --
-------- -------- --------
Net loss before extraordinary item (11.4)% (11.8)% (99.4)%
======== ======== ========
</TABLE>
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998
REVENUES
The Company's revenues decreased 8.4% from $47.8 million for the fiscal
year ended September 30, 1997 to $43.8 million for the fiscal year ended
September 30, 1998. The revenue decrease represented a shift in product mix
during the year. Equipment related revenues decreased approximately 22.3% while
materials related revenues increased approximately 26.5%. The decrease in
equipment revenues was primarily attributable to the financial issues in the
Asian economies as well as a general slowdown in the semiconductor equipment
market overall. While materials related revenues did experience a 26.5%
increase, the General Motors three month strike adversely affected
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<PAGE> 16
revenue, as shipments to General Motors were halted during the strike.
International sales accounted for approximately 42.0% and 39.1% of revenues for
the fiscal years ended September 30, 1997 and 1998, respectively.
The Company believes that in the future its revenues and results of
operations in a given quarterly period could be impacted by the timing of
customer development projects and related purchase orders for the Company's
varied products, new merchandise announcements and releases by the Company, and
conditions in the economy, generally and in the compound semiconductor industry
environment, specifically.
COST OF SALES/GROSS PROFIT
Cost of sales includes direct material and labor costs, allocated
manufacturing and service overhead, and installation and warranty costs. Gross
profit increased from 37.0% of revenue to 43.6% of revenue for the fiscal years
ended September 30, 1997 and 1998, respectively. The gross profit percentage
increase was attributable to a shift in product mix towards higher gross margin
materials related revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 50.7% from
$9.3 million for the year ended September 30, 1997, to $14.1 million for the
year ended September 30, 1998. The increase was largely due to sales personnel
headcount increases to support both domestic and foreign markets and general
headcount additions to sustain the internal administrative support necessary for
the Company's expanded product lines and new locations. During fiscal 1998, the
Company wrote-off a $1.0 million receivable due from an Asian customer which was
deemed to be uncollectible. As a percentage of revenue, selling, general and
administrative expenses increased from 19.6% of revenue during fiscal 1997 to
32.2% of revenue for fiscal 1998. The Company believes that selling, general
and administrative expenses will decrease as a percentage of revenues in fiscal
1999.
GOODWILL AMORTIZATION
In connection with the purchase of MODE, the Company recorded goodwill
of $3.4 million which is being amortized this amount over 36 months. Goodwill
amortization expense amounted to $922,000 for the year ended September 30, 1998.
Net goodwill at September 30, 1998 was $2,457,000.
RESEARCH AND DEVELOPMENT
Recurring research and development expenses increased by 83.3% from
$9.0 million for the year ended September 30, 1997, to $16.5 million for the
year ended September 30, 1998. The increase was primarily attributable to the
Company's acquisition of MODE and increased staffing and equipment costs
necessary to enhance current products and develop new product offerings.
Products introduced or under development include HB LEDs, high efficiency solar
cells, new generation TurboDisc(TM) production systems, VCSELs and other
optoelectronic devices. As a percentage of revenue, research and development
expenses increased from 18.9% of revenue during fiscal 1997 to 37.7% of revenue
for fiscal 1998. To maintain growth and market leadership in epitaxial
technology, the Company expects to continue to invest a significant amount of
its resources in research and development.
In connection with the MODE acquisition, the Company incurred a
one-time charge for the write-off of acquired in-process research and
development amounting to $29.3 million.
OPERATING LOSS
During fiscal 1998, operating loss increased from a loss of $0.7 million
for the fiscal year ended September 30, 1997, to a loss of $41.7 million for the
year ended September 30, 1998. The change in operating loss was primarily due to
the $29.3 million one-time charge for in-process research and development
written off in connection with the purchase of MODE. In addition, the General
Motors three month strike adversely affected operating performance as shipments
to General Motors were halted during the strike. General Motors is among the
Company's largest customers. The Company was unable to furlough or reduce their
workforce during the strike and thereby incurred charges without the benefit of
related revenues.
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<PAGE> 17
OTHER EXPENSE
Other expenses decreased, particularly due to the reduced imputed
warrant interest expense associated with the Company's subordinated debt and
debt issuance guarantee cost. During fiscal 1996, the Company issued detachable
warrants along with subordinated notes to certain of its existing shareholders.
In fiscal year 1997, the Company also issued detachable warrants in return for
a $10.0 million demand note facility (the "Facility") guarantee by the Chairman
of the Board of the Company, who provided collateral for the Facility. The
Company subsequently assigned a value to these detachable warrants issued using
the Black-Scholes Option Pricing Model. The Company recorded the subordinated
notes at a carrying value that is subject to periodic accretions, using the
interest method, and reflected the Facility's detachable warrant value as debt
issuance cost which was written off in its entirety in fiscal 1997. The
consequent expense of these subordinated note accretion amounts and the now
terminated Facility's debt issuance cost is charged to "imputed warrant
interest, non-cash," and amounted to approximately $4.0 million and $600,000
for the fiscal years ended September 30, 1997 and 1998, respectively. In June
1998, the Company issued 284,684 warrants to its Chairman and its Chief
Executive Officer for providing a guarantee in connection with the 1998
Agreement, an $8.0 million 18 month credit facility with the Bank. The Company
assigned a value to these detachable warrants issued using the Black-Scholes
Option Pricing Model. As a result, the Company will record imputed warrant
interest, non-cash of approximately $1.3 million over the life of the credit
facility.
INCOME TAXES
The Company's effective income tax rate was 0.0% in fiscal 1998, 2.6% in
fiscal 1997 and 0.0% in fiscal 1996. The lower effective rate in fiscal 1998 and
1996, relative to fiscal 1997, was attributable to a federal income tax benefit
offset by net operating loss and expenses not utilized or deductible for tax
purposes.
As of September 30, 1998, the Company has net operating loss
carryforwards for regular tax purposes of approximately $22.0 million which
expire in the years 2003 through 2012. 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 federal net operating loss carryovers and
federal research credit carryovers to offset future income and income taxes,
respectively, are subject to annual limitations under IRC Section 382 and 383.
The Company believes that the acquisition of MODE and the consummation
of certain other equity transactions has constituted a change in control in
fiscal 1998 under Section 382 of the IRC. As such, Federal net operating loss
carryovers and research credit carryovers incurred subsequent to the Company's
fiscal 1995 change in control (as described above) will also be subject to
annual limitations under IRC Section 382 and 383.
EXTRAORDINARY ITEM
In the fiscal year ended September 30, 1997, the Company repaid $2.0
million of its outstanding subordinated notes due May 1, 2001. In connection
with this discharge of the Company's subordinated notes, an extraordinary loss
of $286,000 was recognized in fiscal 1997 relating to such early extinguishment
of debt.
NET LOSS
Net loss increased $5.6 million for the fiscal year ended September 30,
1997, to $43.5 million for the fiscal year ended September 30, 1998. This
increase was primarily attributable to the aforementioned acquisition of MODE
and subsequent write-off of in-process research and development of $29.3
million. In addition, the General Motors three month prolonged strike adversely
affected operating performance.
COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1997
REVENUES
The Company's revenues for fiscal 1997 increased 71.9% from $27.8
million to $47.8 million for the fiscal year ended September 30, 1996. The
revenue increase was primarily attributable to increased demand of MOCVD
systems and package-ready devices, as well as the introduction of compound
semiconductor wafer products.
-17-
<PAGE> 18
International sales accounted for approximately 42.5% and 42.0% of revenues for
the fiscal years ended September 30, 1996 and 1997, respectively.
COST OF SALES/GROSS PROFIT
Cost of sales includes direct material and labor costs, allocated
manufacturing and service overhead, and installation and warranty costs. Gross
profit increased from 33.0% of revenue to 37.0% of revenue for the fiscal years
ended September 30, 1996 and 1997, respectively. The gross profit percentage
increase was attributable to higher margins on wafer, device and licensing
revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 43.3% from
$6.5 million for the year ended September 30, 1996, to $9.3 million for the
year ended September 30, 1997. The increase was largely due to sales personnel
headcount increases to support both domestic and foreign markets and general
headcount additions to sustain the internal administrative support necessary
for the Company's increased business as well as higher expenses attributable to
increased revenues. As a percentage of revenue, selling, general and
administrative expenses decreased from 23.5% of revenue during fiscal 1996 to
19.6% of revenue for fiscal 1997.
RESEARCH AND DEVELOPMENT
Research and development expenses increased by 66.6% from $5.4 million
for the year ended September 30, 1996, to $9.0 million for the year ended
September 30, 1997. The increase was primarily attributable to increased
staffing and equipment costs necessary to enhance current products and research
and development activities for the emulation of the Company's two new product
lines (epitaxial wafers and package-ready devices). As a percentage of revenue,
research and development expenses decreased from 19.4% of revenue during fiscal
1996 to 18.8% of revenue for fiscal 1997. To maintain growth and market
leadership in epitaxial technology, the Company expects to continue to invest a
significant amount of its resources in research and development.
OPERATING LOSS
During fiscal 1997, operating loss decreased $2.1 million from a loss
of $2.8 million for the fiscal year ended September 30, 1996, to a loss of $0.7
million for the year ended September 30, 1997. The change in operating loss was
primarily due to higher revenues generating greater overall gross profit.
OTHER EXPENSE
During fiscal 1996, the Company issued detachable warrants along with
subordinated notes to certain of its existing shareholders. In the first
quarter of fiscal year 1997, the Company also issued detachable warrants in
return for the $10.0 million Facility guarantee by the Chairman of the Board of
the Company, who provided collateral for the Facility. The Company subsequently
assigned a value to these detachable warrants issued using the Black-Scholes
Option Pricing Model. The Company recorded the subordinated notes at a carrying
value that is subject to periodic accretions, using the interest method, and
reflected the Facility's detachable warrant value as debt issuance cost. The
consequent expense of these subordinated note accretion amounts and the now
terminated Facility's debt issuance cost is charged to "Imputed warrant
interest, non-cash," related to the warrant issuances in connection with the
$10.0 million Facility, and amounted to approximately $126,000 and $4.0 million
for the fiscal years ended September 30, 1996 and 1997, respectively.
Borrowings totaling $8.0 million under the Facility were utilized to
fund capital expenditures in connection with the build-out of the Company's
manufacturing facility during the six months ended March 31, 1997. The
resultant interest expense was the primary reason for the increase in "Stated
interest expense" for the year ended September 30, 1997. The outstanding $8.0
million under this demand note facility was repaid in March 1997.
EXTRAORDINARY ITEM
The Company repaid $10.0 million of its outstanding debt with proceeds
from its initial public offering ("IPO"). The entire $8.0 million outstanding
of its Facility was repaid and $2.0 million was used to repay a portion of
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<PAGE> 19
the Company's outstanding subordinated notes due May 1, 2001. In connection with
this discharge of the Company's subordinated notes, an extraordinary loss of
$286,000 was recognized in fiscal 1997 relating to such early extinguishment of
debt.
NET LOSS
Net loss increased $2.4 million from $3.2 million for the fiscal year
ended September 30, 1996, to $5.6 million for the fiscal year ended September
30, 1997. This increase was primarily attributable to the aforementioned $4.0
million of non-cash imputed warrant interest associated with certain financing
transactions.
OTHER SELECTED SEPTEMBER 30, 1998 INFORMATION
BACKLOG
The Company's order backlog decreased 7.4% from $24.4 million for the
fiscal year ended September 30, 1997, to $22.6 million for the fiscal year
ended September 30, 1998. 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. Wafer and device contract agreements
extending longer than one year in duration are included in backlog only for the
ensuing 12 months. Some of these agreements currently extend over three years.
The Company receives partial advance payments or irrevocable letters of credit
on most production system orders. Subsequent to year end, the Company's backlog
has increased significantly. As of December 15, 1998, the Company's order
backlog exceeded $41.0 million, an increase of 81.4% since September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by approximately $800,000 from $3.7
million at September 30, 1997, to $4.5 million at September 30, 1998. For the
year ended September 30, 1998, net cash used by operations amounted to $1.6
million, primarily due to the Company's net losses excluding the acquired
in-process research and development non-cash charge and increase in inventories
which was partially offset by the Company's non-cash depreciation and
amortization charges, its increase in accounts payable and advanced billings,
and its decrease in accounts receivable.
For the year ended September 30, 1998, net cash used in investment
activities amounted to $22.2 million primarily due to the purchase and
manufacture of new equipment for the Company's wafer and package ready device
product lines and clean room modifications and enhancements, as well as its
purchase of land and construction of a facility in Albuquerque, New Mexico to
be used for the manufacture of wafers and package ready devices.
On March 31, 1997, the Company entered into the 1997 Agreement, a $10.0
million revolving loan which bears interest at the rate of prime plus 50 basis
points (8.0% at September 30, 1998). As a result of the net loss for the quarter
ended June 30, 1998, the Company was not in compliance with the 1997 Agreement
fixed charge coverage ratio covenant. The Company received a waiver from the
bank regarding this non-compliance. The Company and the Bank amended the 1997
Agreement as of November 30, 1998 to, among other things, extend the expiration
until October 1, 1999 and modify certain financial covenants. In addition,
pursuant to the amendment of the 1997 Agreement, Thomas Russell, the Chairman of
the Board of the Company will guarantee the debt in the event that the Company
does not meet certain financial covenants. On June 22, 1998, the Company entered
into the 1998 Agreement, an $8.0 million loan agreement with the Bank, which
expires December 31, 1999. The 1998 Agreement bears interest at a rate equal to
one-month LIBOR plus three-quarters of one percent per annum (6.4% at September
30, 1998). As of September 30, 1998, the Company had borrowed approximately
$10.0 million under the 1997 Agreement and $8.0 million under the 1998
Agreement.
On September 17, 1998, the Company borrowed $7.0 million from its
Chairman, Thomas J. Russell. The loan bears interest at 9.75% per annum. In
addition, on October 23, 1998 the Company borrowed an additional $1.5 million
from its Chairman on identical terms. The entire $8.5 million, borrowed from
Thomas J. Russell was repaid from the proceeds of the Private Placement. The
Company received a waiver from the Bank regarding the repayment of this debt.
-19-
<PAGE> 20
Net cash provided by financing activities for the year ended September
30, 1998 amounted to approximately $24.6 million, primarily due to the
Company's proceeds of approximately $18.0 million from borrowings under the
1997 and 1998 Agreements and the $7.0 million note to the Company's Chairman.
The Company's operations are subject to a number of risks, including but
not limited to a history of net losses from operations, future capital needs,
dependence on key personnel, competition and risk of technological obsolescence,
governmental regulations and approvals, research and development results,
continued development of its compound semiconductor manufacturing and marketing
capabilities and a concentration of international sales in Asia. The Company's
operations for the year ended September 30, 1998, were primarily funded through
borrowings under existing credit facilities and short-term advances from the
Company's Chairman - aggregating $7.0 million as of September 30, 1998. The
Company's Chairman has from time to time provided credit enhancements in the
form of debt guarantees and has loaned the Company funds to support its
expansion and capital equipment requirements. The Company's Chief Executive
Officer has also provided credit enhancements in the form of debt guarantees for
the Company. Subsequent to September 30, 1998, the Company completed the Private
Placement, resulting in proceeds of $21.2 million. The Company repaid its
Chairman $8.5 million (including $1.5 million advanced to the Company subsequent
to September 30, 1998), invested approximately $5.6 million in two
unconsolidated ventures and the balance of approximately $7.0 million will be
used for general working capital purposes. In addition, the Company's $10.0
million credit facility was extended to October 1, 1999. The Company's operating
plans include, among other things attempting to improve (i) operating cash flow
through increased sales of compound semiconductor systems, wafers and
package-ready devices and (ii) managing its cost structure in relation to its
anticipated level of revenues. The Company believes that its current liquidity,
together with available credit facilities and the proceeds from the Private
Placement, should be sufficient to meet its cash needs for working capital
through fiscal 1999. However, if the proceeds from the Private Placement, cash
generated from operations and cash on hand are not sufficient to satisfy the
Company's liquidity requirements, the Company will seek to obtain additional
equity or debt financing. Additional funding may not be available when needed or
on terms acceptable to the Company. If the Company is required to raise
additional financing and if adequate funds are not available or are not
available on acceptable terms, the ability to continue to fund expansion,
develop and enhance products and services, or otherwise respond to competitive
pressures would be severely limited. Such a limitation could have a material
adverse effect on the Company's business, financial condition or operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
STATE OF READINESS
The Company has made a preliminary assessment of the Year 2000
readiness of its operating financial and administrative systems, including the
hardware and software that support such systems. The Company's assessment plan
consists of (i) quality assurance testing of its internally developed
proprietary software; (ii) contacting third-party vendors and licensors of
material hardware, software and services that are both directly and indirectly
related to the Company's business; (iii) contacting vendors of third-party
systems; (iv) assessing repair or replacement requirements; (v) implementing
repair or replacement; and (vi) creating contingency plans in the event of Year
2000 failures. The Company plans to perform a Year 2000 simulation on its
systems during the second quarter of 1999 to test system readiness. Many
vendors of material hardware and software components of its systems have
indicated that the products used by the Company are currently Year 2000
compliant. The Company will require vendors of its other material hardware and
software components of its systems to provide assurances of their Year 2000
compliance. The Company plans to complete this process during the first half of
1999. Until such testing is completed and such vendors and providers are
contacted, the Company will not be able to completely evaluate whether its
systems will need to be revised or replaced.
-20-
<PAGE> 21
COSTS
To date, the Company has not incurred any material expenditures in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of the Company expenses have related to, and are expected to
continue to relate to, the operating costs associated with time spent by
employees in the evaluation process and Year 2000 compliance matters generally.
At this time, the Company does not possess the information necessary to
estimate the potential costs of revisions to its systems should such revisions
be required or the replacement of third-party software, hardware or services
that are determined not to be Year 2000 compliant. Although the Company does
not anticipate that such expenses will be material, such expenses if higher
than anticipated could have a material adverse effect on the Company's
business, results of operations and financial condition.
RISKS
The Company is not currently aware of any Year 2000 compliance
problems relating to its systems that would have a material adverse effect on
the Company business, results of operations and financial condition, without
taking into account the Company efforts to avoid or fix such problems. There
can be no assurance that the Company will not discover Year 2000 compliance
problems in its systems that will require substantial revision. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into the Company material systems will not need to be revised or
replaced, all of which could be time-consuming and expensive. The failure of
the Company to fix or replace its internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could have a material adverse effect on
the Company business, result of operations and financial condition. Moreover,
the failure to adequately address Year 2000 compliance issues in its internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies,
utility companies, third-party service providers and others outside of the
Company's control will be Year 2000 compliant. The failure by such entities to
be Year 2000 compliant could result in systemic failure beyond the control of
the Company's such as a telecommunications or electrical failure, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
CONTINGENCY PLAN
As discussed above, the Company is engaged in an ongoing Year 2000
assessment and has not yet developed any contingency plans. The results of the
Company's Year 2000 simulation testing and the responses received from
third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131"),
which establishes standards for reporting information about operating segments
in annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997.
The Company will be required to adopt this standard in its fiscal year ending
September 30, 1999. The adoption of SFAS No. 131 is not expected to have an
impact on the Company's results of operations, financial position or cash
flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits" ("SFAS No. 132"), which
requires disclosure about pension and postretirement benefits. SFAS No. 132
does not change the measurement or recognition of these plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 is not expected to have an impact on the Company's results of
operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use"
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<PAGE> 22
("SOP 98-1"). SOP 98-1 is effective for financial statements for years
beginning after December 14, 1998. SOP 98-1 provides guidance over accounting
for computer software development or obtained for internal use including the
requirement to capitalize specified costs and amortization of such costs. The
Company does not expect the adoption of this standard to have a material effect
results of operations, financial position or cash flows.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective
for fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During fiscal 1998, the Company was not a party to any derivative
contracts, hedging or other market risk transactions.
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<PAGE> 23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EMCORE CORPORATION
BALANCE SHEET
AS OF SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
------------ ------------
1997 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,653,145 $ 4,455,836
Restricted cash 312,500 62,500
Accounts receivable, net of allowance for doubtful accounts of approximately
$697,000 and $611,000 at September 30, 1997 and 1998, respectively 8,439,704 7,437,822
Accounts receivable - related party 2,500,000 500,000
Inventories, net 7,185,626 12,445,326
Costs in excess of billings on uncompleted contracts -- 77,531
Prepaid expenses and other current assets 120,393 130,075
------------ ------------
Total current assets 22,211,368 25,109,090
Property, plant and equipment, net 16,797,833 36,209,831
Goodwill -- 2,457,000
Other assets, net 453,608 2,381,723
------------ ------------
Total assets $ 39,462,809 $ 66,157,644
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - related party $ -- $ 7,000,000
Accounts payable 4,050,216 12,022,628
Accrued expenses 3,867,589 4,197,405
Advanced billings 1,998,183 3,180,370
Unearned service revenue 124,279 52,778
Capitalized lease obligation - current 15,030 673,036
------------ ------------
Total current liabilities 10,055,297 27,126,217
Long-term debt:
Bank loans -- 17,950,000
Subordinated notes, net 7,499,070 7,808,772
Capitalized lease obligation, net of current portion 77,870 754,517
------------ ------------
Total liabilities 17,632,237 53,639,506
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.0001 par value, 5,882,353 shares authorized, no shares
outstanding in 1997 and 1998
Common stock, no par value, 23,529,411 shares authorized, 6,000,391 shares
issued and outstanding in 1997 and 9,375,952 shares issued and
outstanding in 1998 45,816,774 87,443,237
Accumulated deficit (23,777,658) (67,258,454)
------------ ------------
22,039,116 20,184,783
Notes receivable from warrant issuances and stock sales (208,544) (7,666,645)
------------ ------------
Total shareholders' equity 21,830,572 12,518,138
------------ ------------
Total liabilities and shareholders' equity $ 39,462,809 $ 66,157,644
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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<PAGE> 25
EMCORE CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
------------ ------------ ------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Systems and materials $ 24,066,506 $ 46,591,662 $ 42,820,791
Services 3,712,379 1,160,910 939,192
------------ ------------ ------------
Total revenues 27,778,885 47,752,572 43,759,983
Cost of sales:
Systems and materials 16,121,938 29,309,898 24,148,783
Services 2,484,482 784,117 526,706
------------ ------------ ------------
Total cost of sales 18,606,420 30,094,015 24,675,489
------------ ------------ ------------
Gross profit 9,172,465 17,658,557 19,084,494
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 6,524,482 9,346,329 14,082,438
Goodwill amortization 921,941
Research and development - recurring 5,401,413 9,001,188 16,494,888
Research and development - one-time acquired
in-process, non-cash -- -- 29,294,000
------------ ------------ ------------
Operating loss (2,753,430) (688,960) (41,708,773)
------------ ------------ ------------
Other expenses:
Stated interest, net of interest income of $71,460,
$236,945, and $448,227 for the years ended
September 30, 1996, 1997 and 1998, respectively 297,093 519,422 972,992
Imputed warrant interest expense, non-cash 125,791 3,988,390 600,536
Equity in net loss of unconsolidated affiliate -- -- 198,495
------------ ------------ ------------
Loss before income taxes and
extraordinary item (3,176,314) (5,196,772) (43,480,796)
Provision for income taxes -- 137,000 --
------------ ------------ ------------
Net loss before extraordinary item (3,176,314) (5,333,772) (43,480,796)
Extraordinary item - loss on early
extinguishment of debt -- 285,595 --
------------ ------------ ------------
Net loss $ (3,176,314) $ (5,619,367) $(43,480,796)
============ ============ ============
Per share data:
Basic shares used in per share data calculations 2,994,466 4,668,822 8,775,270
Diluted shares used in per share data calculations 2,994,466 4,668,822 8,775,270
Net loss per basic share before extraordinary item $ (1.06) $ (1.14) $ (4.95)
============ ============ ============
Net loss per basic share $ (1.06) $ (1.20) $ (4.95)
============ ============ ============
Net loss per diluted share before
extraordinary item $ (1.06) $ (1.14) $ (4.95)
============ ============ ============
Net loss per diluted basic share $ (1.06) $ (1.20) $ (4.95)
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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<PAGE> 26
EMCORE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Common Stock Shareholders' Total
----------------------------- Accumulated Notes Shareholders'
Shares Amount Deficit Receivable Equity
--------------- ------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 2,994,461 $16,637,566 $(14,981,977) $(146,107) $1,509,482
Issuance of common stock purchase 2,340,000 2,340,000
warrants
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 2,994,461 18,977,566 (18,158,291) (297,686) 521,589
Issuance of common stock purchase
warrants 3,601,455 3,601,455
Issuance of common stock in initial
public offering, net of issuance cost
of $3,110,345 2,875,000 22,764,655 22,764,655
Issuance of common stock on exercise of
warrants 94,124 384,027 384,027
Issuance of common stock on exercise of
stock options 34,965 53,640 53,640
Redemptions of notes receivable from
shareholders 31,842 31,842
Forgiveness of notes receivable from
shareholder 57,300 57,300
Compensatory stock issuances 1,841 35,431 35,431
Net loss (5,619,367) (5,619,367)
--------------- ------------- ---------------- ---------------- ---------------
BALANCE AT SEPTEMBER 30, 1997 6,000,391 45,816,774 (23,777,658) (208,544) 21,830,572
Issuance of common stock purchase
warrants 1,309,546 1,309,546
Issuance of common stock on exercise of
warrants in exchange for notes
receivable 1,827,966 7,458,101 (7,458,101) --
Issuance of common stock and common
stock purchase options and warrants
in connection with the acquisition of 1,461,866 32,329,000 32,329,000
MODE
Stock option exercise 35,809 83,486 83,486
Stock purchase warrant exercise 5,660 23,092 23,092
Issuance of common stock on exercise of
warrants in exchange for subordinated
notes 17,605 71,841 71,841
Compensatory stock issuances 26,655 351,397 351,397
Net loss (43,480,796) (43,480,796)
--------------- ------------- ---------------- ---------------- ---------------
BALANCE AT SEPTEMBER 30, 1998 9,375,952 $87,443,237 $(67,258,454) $(7,666,645) $12,518,138
=============== ============= ================ ================ ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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<PAGE> 27
EMCORE CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,176,314) $ (5,619,367) $(43,480,796)
Adjustments to reconcile net loss to
net cash used for operating activities:
Acquired in-process research and -- -- 29,294,000
development, non-cash
Depreciation and amortization 1,871,016 3,187,755 6,051,105
Provision for doubtful accounts 146,418 515,000 1,118,000
Provision for inventory valuation 105,000 120,000 120,000
Detachable warrant accretion and debt
issuance cost amortization 125,792 3,988,390 600,536
Extraordinary loss on early extinguishment
of debt -- 285,595
Equity in net loss of unconsolidated 198,495
affiliate
Compensatory stock issuances -- 35,431 351,397
Write-off note receivable due from
shareholder -- 57,300 --
Change in assets and liabilities:
Accounts receivable - trade (1,041,956) (5,929,533) 1,882
Accounts receivable - related party -- (2,500,000) 2,000,000
Inventories (4,410,566) 339,414 (5,243,187)
Costs in excess of billings on uncompleted (2,882) 19,322 (77,531)
contracts
Prepaid expenses and other current assets (26,784) (60,458) 12,632
Other assets (468,565) 27,568 (623,775)
Accounts payable 3,398,078 (2,029,154) 7,949,760
Accrued expenses 777,899 1,880,943 (970,148)
Advanced billings 1,122,667 (1,308,279) 1,182,187
Billings in excess of costs on uncompleted (306,359) -- --
contracts
Unearned service revenue 12,315 111,964 (71,501)
------------ ------------ ------------
Total adjustments 1,302,073 (1,258,742) 41,893,852
------------ ------------ ------------
Net cash and cash equivalents
used for operating activities (1,874,241) (6,878,109) (1,586,944)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (7,090,869) (11,631,642) (22,132,071)
Acquisition, cash acquired -- -- 192,799
Investment in unconsolidated affiliates -- -- (490,000)
Funding of restricted cash -- (312,500) 250,000
------------ ------------ ------------
Net cash and cash equivalents used for
investing activities (7,090,869) (11,944,142) (22,179,272)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of
issuance cost of $3,110,345 -- 22,764,655 --
Proceeds under bank loans -- 8,000,000 17,950,000
Proceeds from notes payable, related party 7,000,000
Proceeds from subordinated note issuance 11,009,600 -- --
Payments on demand note facility and -- (10,000,000) --
subordinated debt
Proceeds from exercise of stock purchase -- 85,121 23,092
warrants
Proceeds from exercise of stock options -- 53,640 83,486
Payments on capital lease obligations (3,000,000) (5,723) (487,671)
Reduction in notes receivable from -- 210,317 --
shareholders
------------ ------------ ------------
Net cash and cash equivalents provided by
financing activities 8,009,600 21,108,010 24,568,907
------------ ------------ ------------
Net (decrease) increase in cash and cash (955,510) 2,285,759 802,691
equivalents
Cash and cash equivalents at beginning of year 2,322,896 1,367,386 3,653,145
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,367,386 $ 3,653,145 $ 4,455,836
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 276,000 $ 600,000 $ 1,347,000
Cash paid for income taxes 55,000 -- --
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued on the exercise of warrants
in exchange for subordinated notes $ 71,841
Issuance of common stock on the exercise of warrants
in exchange for notes receivable $ 7,458,101
Issuance of common stock, and common stock purchase
options and warrants in connection with the
acquisition of MicroOptical Devices Inc. $ 32,329,003
</TABLE>
Reference is made to Note 8 - Debt Facilities - for disclosure relating to
certain non-cash warrant issuance.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
-26-
<PAGE> 28
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 and under specific
arrangements has licensed certain process technologies. During fiscal 1998, the
Company completed the acquisition of a development stage company focused on the
research and development of optical laser technologies (see Note 3). The
Company offers its customers a complete, vertically-integrated solution for the
design, development and production of compound semiconductor wafers and
devices.
BASIS OF PRESENTATION AND LIQUIDITY. The accompanying financial
statements have been prepared on a going concern basis. The Company for the year
ended September 30, 1998, experienced a 10% decline in revenue of approximately
$4.0 million and a substantial operating loss amounting to approximately $41.7
million (approximately $12.5 million excluding the effect of acquired in-process
research and development) and had a working capital deficiency of $2.0 million.
The Company's operations are subject to a number of risks, including but
not limited to a history of net losses from operations, future capital needs,
dependence on key personnel, competition and risk of technological obsolescence,
governmental regulations and approvals, research and development results,
continued development of its compound semiconductor manufacturing and marketing
capabilities and a concentration of international sales in Asia. The Company's
operations for the year ended September 30, 1998, were primarily funded through
borrowings under existing credit facilities, as well as short-term advances from
the Company's Chairman - aggregating $7.0 million as of September 30, 1998. The
Company's Chairman has from time to time provided credit enhancements in the
form of debt guarantees and has loaned the Company funds to support its
expansion and capital equipment requirements. The Company's Chief Executive
Officer has also provided credit enhancements in the form of debt guarantees for
the Company. Subsequent to September 30, 1998, the Company completed a preferred
stock private placement (the "Private Placement," see Note 17), resulting in
proceeds of $21.2 million. The Company repaid its Chairman $8.5 million
(including $1.5 million advanced to the Company subsequent to September 30,
1998), invested approximately $5.6 million in two unconsolidated ventures and
the balance of approximately $7.0 million will be used for general working
capital purposes. In addition, the Company's $10.0 million credit facility was
extended to October 1, 1999. The Company's operating plans include, among other
things attempting to improve (i) operating cash flow through increased sales of
compound semiconductor systems, wafers and package-ready devices and (ii)
managing its cost structure in relation to its anticipated level of revenues.
The Company believes that its current liquidity, together with available credit
facilities and the proceeds from the Private Placement, should be sufficient to
meet its cash needs for working capital through fiscal 1999. However, if the
proceeds from the Private Placement, cash generated from operations and cash on
hand are not sufficient to satisfy the Company's liquidity requirements, the
Company will seek to obtain additional equity or debt financing. Additional
funding may not be available when needed or on terms acceptable to the Company.
If the Company is required to raise additional financing and if adequate funds
are not available or are not available on acceptable terms, the ability to
continue to fund expansion, develop and enhance products and services, or
otherwise respond to competitive pressures would be severely limited. Such a
limitation could have a material adverse effect on the Company's business,
financial condition or operations and the financial statements do not include
any adjustment that could result therefrom.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary. The equity
method of accounting is used for unconsolidated affiliates in which the
Company's equity is at least 20% and not more than 50%. All significant
intercompany transactions are eliminated upon consolidation.
-27-
<PAGE> 29
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 $2,254,000 and
$3,003,000 in cash equivalents at September 30, 1997 and 1998, respectively. As
of September 30, 1998, the Company had restricted cash in the amount of $62,500
due to a contractual obligation.
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.
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. Depreciation expense includes the amortization of capital
lease assets. 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.
LONG-LIVED ASSETS. The carrying amount of assets is reviewed on a
regular basis for the existence of facts or circumstances, both internally and
externally, that suggest impairment. To date no such impairment has been
indicated. The Company determines if the carrying amount of a long-lived asset
is impaired based on anticipated undiscounted cash flows before interest. In
the event of an impairment, a loss is recognized based on the amount by which
the carrying amount exceeds fair value of the asset. Fair value is determined
primarily using the anticipated cash flows before interest, discounted at a
rate commensurate with the risk involved.
DEFERRED COSTS. Included in other assets are deferred costs related to
obtaining product patents and debt issuance costs and an investment in an
unconsolidated affiliate. Amortization expense related to product patents
amounted to approximately $128,000, $40,000 and $79,000 for the years ended
September 30, 1996, 1997 and 1998, respectively. During the year ended September
30, 1998, the Company issued 284,684 common stock purchase warrants in exchange
for the guaranteeing of a credit facility by the Company's Chairman and Chief
Executive Officer. The warrants were assigned a value of $1,310,000 which is
being amortized over the eighteen month term of the facility. The warrants were
valued by the Company based upon its application of the Black Scholes Option
Pricing Model. Amortization expense related to such warrant issuance amounted to
approximately $219,000 for fiscal 1998.
GOODWILL. Goodwill is amortized using the straight-line method over
three years. The Company evaluates annually whether there has been a permanent
impairment in the value of goodwill. Any impairment would be recognized when
the sum of expected undiscounted cash flows derived from the acquired business
is less than its carrying value. If such an impairment occurred, the amount of
the impairment would be based on the fair value of the acquired business as
determined by the market value of comparable companies on the present value of
expected cash flows.
INCOME TAXES. The Company recognizes deferred taxes by the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for differences between the
financial-statement and tax bases of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. In
addition, valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized. The primary sources
of temporary differences are depreciation and amortization of intangible
assets.
REVENUE AND COST RECOGNITION--SYSTEMS, COMPONENTS AND SERVICE REVENUEs.
Revenue from systems sales is recognized upon 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 recognized. 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 expense as incurred.
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<PAGE> 30
REVENUE AND COST RECOGNITION--CONTRACT REVENUe. The Company's research
contracts require the development or evaluation of new materials applications
and have a duration of six to thirty-six months. For research contracts with
the U.S. Government and commercial enterprises with duration's 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 $3,295,000, $614,000 and $438,000 for the years ended September
30, 1996, 1997 and 1998, 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. In connection with the
acquisition of MicroOptical Devices, Inc. ("MODE"), the Company they recorded a
charge of $29,294,000 for acquired in-process research and development.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company estimates the fair
value of its financial instruments based upon discounted cash flow analyses
using the Company's incremental borrowing rate on similar instruments as the
discount rate. As of September 30, 1998, the fair value of the Company's
subordinated notes exceeded the carrying value of such instruments by
approximately $830,000. As of September 30, 1998, the carrying values of the
Company's cash and cash equivalents, receivables, accounts payable and variable
rate based debt as reflected on the Company's accompanying balance sheet
approximates fair value.
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
acquired in-process research and development, accounts receivable and inventory
valuation reserves, warranty and installation accruals, estimates of cost and
related gross profits on certain research contracts and the valuation of
long-lived assets.
NET LOSS PER SHARE. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings per share" ("SFAS No. 128")
effective with its first quarter. Basic and diluted earnings per share
calculated pursuant to SAFS No. 128 have been restated for all periods
presented to give effect to the Securities and Exchange Commission's Staff
Accounting Bulletin No. 98 which eliminated certain computational requirements
of Staff Accounting Bulletin No. 64.
Basic earnings per common share was calculated by dividing net loss by
the weighted average number of common stock shares outstanding during the
period. Diluted earnings per share was calculated by dividing net income by the
sum of the weighted average number of common shares outstanding plus all
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued. The following table reconciles the
number of shares utilized in the Company's earnings per share calculations.
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net loss $ (3,176,314) $ (5,619,367) $(43,480,796)
Earnings per common share - basic $ (1.06) $ (1.20) $ (4.95)
Earnings per common share - diluted $ (1.06) $ (1.20) $ (4.95)
Common share - basic 2,994,466 4,668,822 8,775,270
EFFECT OF DILUTIVE SECURITIES:
Stock options and warrants -- -- --
Common shares - diluted 2,994,466 4,668,822 8,775,270
</TABLE>
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<PAGE> 31
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131. "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131"),
which establishes standards for reporting information about operating segments
in annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company will be required to adopt this standard in its fiscal year ended
September 30, 1999. The adoption of SFAS No. 131 is not expected to have an
impact on the Company's results of operations, financial position or cash
flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits" ("SFAS No. 132"), which
revises employers' disclosures about pension and other postretirement benefit
plans. SFAS No. 132 does not change the measurement or recognition of those
plans. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. The adoption of SFAS No. 132 is not expected to have an impact on the
Company's results of operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP
98-1 is effective for financial statements for years beginning after December
14, 1998. SOP 98-1 provides guidance over accounting for computer software
development or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. The Company does not
expect the adoption of this standard to have a material effect results of
operations, financial position or cash flows.
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal
years beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of start
up activities and organization costs to be expenses as incurred. As the Company
has expensed these costs historically, the adoption of this standard is not
expected to have a significant impact on its results of operations, financial
position or cash flows.
RECLASSIFICATIONS. Prior period balances have been reclassified to
conform with the current period financial statement presentation.
NOTE 3. ACQUISITION
On December 5, 1997, the Company acquired all of the outstanding
capital stock of MODE in exchange for 1,461,866 shares of EMCORE common stock,
200,966 common stock purchase options (exercise prices ranging from $0.43 to
$0.59), and 47,118 common stock purchase warrants (exercise prices ranging from
$4.32 to $5.92). The purchase price was approximately $32,829,000 including
direct acquisition costs of approximately $500,000. The acquisitions of MODE
was recorded using the purchase method of accounting. Accordingly, the results
of operations of the acquired business and the fair values of the acquired
tangible and intangible assets and assumed liabilities have been included in
the Company's financial statements as of December 5, 1997. The allocation of
the fair value of the net assets acquired is as follows:
Net tangible assets $ 156,000
Goodwill 3,379,000
Acquired in process research and development 29,294,000
-----------
Total purchase price $32,829,000
===========
MODE was a development stage company (incorporated in August 1995) and
had 18 employees at the date of acquisition. MODE's activities were
substantially dedicated towards the research and development of micro optical
laser devices at the date of acquisition.
The amount allocated to acquired in-process research and development
was determined through an independent valuation, which includes a number of
estimates and assumptions. The amount allocated to acquired
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<PAGE> 32
in-process research and development was immediately written-off. Goodwill is
being amortized over a period of three years.
The following unaudited pro forma basis financial information reflects
the combined results of operations of the Company and MODE, as if MODE had been
acquired as of October 1, 1996. The summary includes the impact of certain
adjustments, such as goodwill amortization and the number of shares
outstanding.
(UNAUDITED)
YEAR ENDED SEPTEMBER 30,
-----------------------------
1997 1998
------------ ------------
Revenue $ 48,313,000 $ 43,860,000
Net loss before extraordinary item 8,769,000 15,085,000
Net loss 9,055,000 15,085,000
Net loss, per share $ 1.42 $ 1.72
The unaudited pro forma results of operations are not necessarily
indicative of what actually would have occurred if the acquisition had occurred
on October 1, 1996. In addition, the unaudited pro forma results of operations
are not intended to be a projection of future results that might be achieved
from the combined entity. The foregoing pro forma results of operations does
not reflect the non-recurring write-off of acquired in-process research and
development.
NOTE 4. CONCENTRATION OF CREDIT RISK
The Company sells its compound semiconductor products domestically and
internationally. The Company's international sales are generally made under
letter of credit arrangements.
For the years ended September 30, 1996, 1997 and 1998, the Company
sold 42.5%, 42.0% and 39.1% of its products to foreign customers, respectively.
The Company's world-wide sales to major customers were as follows:
As of September 30,
-----------------------------------------------------
1996 1997 1998
----------- ----------- -----------
Customer A $ 6,558,930 $ 4,872,540 $ 7,563,137
Customer B 1,773,864 7,158,619 5,602,120
Customer C -- 2,500,000 2,501,500
Customer D 1,530,000 3,085,000 178,856
Customer E 2,075,722 -- --
----------- ----------- -----------
Total $11,938,516 $17,616,159 $15,845,613
=========== =========== ===========
The Company 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 specified
customers, historical trends and other information. To reduce credit risk and
to fund manufacturing costs, the Company requires periodic prepayments or
irrevocable letters of credit on most production system orders. During the
quarter ended June 30, 1998, the Company wrote off outstanding receivables of
approximately $1.0 million which was due from an Asian customer. Prior to this
event, the Company's credit losses generally had not exceeded its expectations.
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<PAGE> 33
The Company has maintained cash balances with certain financial
institutions in excess of the $100,000 insured limit of the Federal Deposit
Insurance Corporation.
NOTE 5. INVENTORIES
The components of inventories consisted of the following:
As of September 30,
-------------------------------------
1997 1998
----------------- ------------------
Raw materials $6,513,379 $11,346,487
Work-in-process 672,247 1,091,971
Finished goods -- 6,868
----------------- ------------------
Total $7,185,626 $12,445,326
================= ==================
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
Major classes of property and equipment are summarized below:
As of September 30,
------------------------------------
1997 1998
----------------- -----------------
Land $ -- $ 1,028,902
Building -- 7,493,385
Equipment 19,190,770 28,367,324
Furniture and fixtures 2,300,146 3,255,680
Leasehold improvements 6,085,256 9,948,121
Fixed assets under capital leases 98,623 2,042,728
----------------- -----------------
27,674,795 52,136,140
Less: accumulated depreciation and
amortization (10,876,962) (15,926,309)
----------------- -----------------
Total $ 16,797,833 $ 36,209,831
================= =================
At September 30, 1998, minimum future lease payments due under the
capital leases are as follows:
Period ending September 30,
1999 $ 796,648
2000 741,345
2001 62,478
2002 25,336
2003 and thereafter --
-----------------
Total minimum lease payments 1,625,807
Less: amount representing interest (average rate of (198,254)
9.8%) -----------------
Net minimum lease payments 1,427,553
Less: current portion (673,036)
-----------------
Long-term portion $ 754,517
=================
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<PAGE> 34
The provisions for depreciation and amortization expense on owned
property and equipment amounted to approximately $1,743,000, $3,148,000 and
$4,683,000 for the years ended September 30, 1996, 1997 and 1998, respectively.
Accumulated amortization on assets accounted for as capital lease amounted to
approximately $366,000 as of September 30, 1998.
Included in equipment above are ten systems and 18 systems with a
combined net book value of approximately $5,057,000 and $9,644,000 at September
30, 1997 and 1998, respectively. Such systems are utilized for the production
of compound semiconductor wafers and package-ready devices for sale to third
parties, systems demonstration purposes, system sales support, in-house
materials applications, internal research and contract research funded by third
parties.
NOTE 7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
As of September 30,
---------------------------------
1997 1998
---------------------------------
Accrued payroll, vacation and other
employee expenses $1,659,428 $2,113,765
Installation and warranty costs 1,411,120 704,114
Interest 272,445 346,250
Other 1,033,276
524,596
---------------------------------
Total $3,867,589 $4,197,405
=================================
NOTE 8. DEBT FACILITIES
1998 Agreement:
On June 22, 1998, the Company entered into an $8.0 million loan
agreement with First Union National Bank (the "1998 Agreement"), which expires
December 31, 1999. The 1998 Agreement bears interest at a rate equal to
one-month LIBOR plus three-quarters of one percent per annum (or 6.4% at
September 30, 1998). As of September 30, 1998, $8.0 million was outstanding
under the 1998 Agreement and is due and payable on December 31, 1999. The 1998
Agreement is guaranteed by both the Company's Chairman and Chief Executive
Officer. In exchange for guaranteeing the facility, the Chairman and the Chief
Executive Officer were granted an aggregate of 284,684 common stock purchase
warrants exercisable at $11.375 per share until May 1, 2001. These warrants are
callable at the Company's option at $0.85 per warrant at such time as the
Company's Common Stock has traded at or above 150% of the exercise price for a
period of thirty days.
The Company assigned a value of $1,310,000 to the warrants issued to
the guarantors. This valuation was based upon the Company's application of the
Black Scholes Option Pricing Model. This value is accounted for as debt
issuance cost and will be amortized over the eighteen month life of the 1998
Agreement.
1997 Agreement:
On March 31, 1997, the Company entered into a $10.0 million loan
agreement (the "1997 Agreement"). The Agreement bears interest at the rate of
Prime plus 50 basis points (8.0% and 9.0% at September 30, 1998 and 1997,
respectively). As of September 30, 1998 the Company had $9,950,000 outstanding
under this facility. As of September 30, 1997, there were no amounts
outstanding under this facility.
As a result of the net loss for the quarter ended June 30, 1998, the
Company was not in compliance with the 1997 Agreement fixed charged coverage
ratio covenant. The Company received a waiver from the bank regarding this
non-compliance. The 1997 Agreement was extended to November 30, 1998 and
subsequently further
-33-
<PAGE> 35
extended through October 1, 1999. The 1997 Agreement's financial covenants were
modified under the second extension, and management believes that the Company
will be able to comply with such requirements throughout fiscal 1999. In
addition, the Company's Chairman will guarantee such debt in the event the
Company does not meet certain financial covenants.
Subordinated Notes:
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, and 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 notes 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 as a contra equity note receivable
balance, representing the portion of the employee note receivable associated
with common stock purchase warrants issued to such employees. 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 then majority shareholder with terms
identical to the Subordinated Notes issued on May 1, 1996. In addition, under
the terms of this issuance, 245,098 common stock purchase warrants were issued
to purchase common stock at $10.20 per share and 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 warrants.
These valuations were based upon the Company's application of Black Scholes and
the Company's assessment of the underlying valuation factors, as well as an
assessment of the terms of the Subordinated Notes. 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.
For the years ended September 30, 1998, 1997 and 1996, imputed warrant interest
related to the subordinated notes amounted to $593,000, $3,988,000 and
$126,000, respectively.
Demand Note Facilities:
On September 17, 1998, the Company borrowed $7.0 million from its
Chairman. The loan bears interest at 9.75% per annum. In addition, on October
23, 1998 the Company borrowed an additional $1.5 million from its Chairman on
identical terms. The entire sum of $8.5 million borrowed plus interest was
repaid from the proceeds of the Private Placement.
On October 25, 1996, the Company entered into a $10.0 million demand
note facility (the "Facility"). The Facility bore interest at the rate of LIBOR
plus 75 basis points, had a term of one year and was due and payable on demand.
The Facility was guaranteed by the Chairman of the Company's Board of Directors
who provided collateral for the Facility. In December 1996, in return for
guaranteeing the facility, the Company granted the Chairman 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. The Facility was
terminated in conjunction with the Company's initial public offering.
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 ("Black Scholes"). This value was accounted
for as debt issuance cost and was amortized over the expected period that the
facility was to be in place (four months).
-34-
<PAGE> 36
The Company utilized a portion of the proceeds from its initial public
offering to pay down or discharge certain of its debts. The Company repaid the
entire $8.0 million outstanding under its October 1996 Facility and $2.0
million was used to repay a portion of the Company's outstanding subordinated
notes, due May 1, 2001. In connection with the discharge of the Company's
subordinated notes, an extraordinary loss of $286,000 was recognized.
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. In November 1996, the Company signed an agreement
to occupy the remaining 26,000 square feet that it previously had not occupied.
The Company leases certain equipment under non-cancelable operating
leases.
Facility and equipment rent expense under such leases amounted to
approximately $350,000, $548,000 and $554,000 for the years ended September 30,
1996, 1997 and 1998, 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, 1998 are as follows:
Period Ending September 30, Operating
- --------------------------- --------------
1999 $712,000
2000 359,000
2001 74,000
2002 (and thereafter) 21,000
-------------
Total minimum lease payments $1,166,000
=============
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.
-35-
<PAGE> 37
NOTE 10. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------------------------
1996 1997 1998
------------------- ------------------- -------------------
Current:
<S> <C> <C> <C>
Federal $ -- $ 113,000 $ --
State -- 24,000 --
-------------------------------------------------------------
-- 137,000 --
Deferred: --
Federal -- -- --
State -- -- --
---------------------------------------- -------------------
Total $ -- $ 137,000 $ --
=================== =================== ===================
</TABLE>
The principal differences between the U.S. statutory and effective
income tax rates were as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------------------------
1996 1997 1998
----------------- ------------------ -----------------
<S> <C> <C> <C>
US statutory income tax (benefit)
expense rate (34.0)% (34.0)% (34.0)%
Net operating loss carryforward -- -- --
Net operating loss not utilized 27.7 1.7 44.5
Expenses not yet deductible for
tax purposes 6.3 32.0 (10.5)
AMT and state taxes -- 2.9 --
----------------- ------------------ -----------------
Effective tax rate 0.0% 2.6% 0.0%
================= ================== =================
</TABLE>
The components of the Company's net deferred taxes were as follows:
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------
1997 1998
------------------------ ------------------
<S> <C> <C>
Deferred tax assets:
Federal net operating loss carryforwards $ 3,502,348 $ 7,943,877
Research credit carryforwards (state and federal) 718,644 1,479,221
Inventory reserves 207,732 247,521
Accounts receivable reserves 243,996 239,701
Interest 1,461,389 1,657,337
Accrued installation reserve 362,379 163,778
Accrued warranty reserve 158,202 75,621
State net operating loss carryforwards 461,821 1,494,064
Other 144,586 238,318
Valuation reserve - federal (5,583,217) (9,438,122)
Valuation reserve - state (1,334,975) (3,751,314)
------------------------ ------------------
Total deferred tax assets 342,905 350,002
Deferred tax liabilities:
Fixed assets and intangibles (342,905) (350,002)
------------------------ ------------------
Total deferred tax liabilities (342,905) (350,002)
Net deferred taxes $ -- $ --
======================== ==================
</TABLE>
-36-
<PAGE> 38
The Company has established a valuation reserve as it has not
determined that it is more likely than not that the net deferred tax asset is
realizable, based upon the Company's past earnings history.
As of September 30, 1998, the Company has net operating loss
carryforwards for regular tax purposes of approximately $22.0 million which
expire in the years 2003 through 2013. The Company believes that the
consummation of certain equity transactions and a significant change in the
ownership during fiscal years 1995 and 1998 have 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 federal net operating loss
carryovers and federal research credit carryovers to offset future income and
income taxes, respectively, are subject to annual limitations under IRC Section
382 and 383.
The Company believes that the acquisition of MODE and the consummation
of certain other equity transactions has constituted a change in control in
fiscal 1998 under Section 382 of the IRC. As such, Federal net operating loss
carryovers and research credit carryovers incurred subsequent to the Company's
fiscal 1995 change in control (as described above) will also be subject to
annual limitations under IRC Section 382 and 383.
NOTE 11. STOCKHOLDERS' EQUITY
Reverse Stock Split
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.
Common Stock Offering
In March 1997, the Company completed an initial public offering of
2,500,000 shares of common stock at a price of $9.00 per share (the
"Offering"), and upon the exercise of the Underwriter's overallotment option,
375,000 additional shares of common stock were also sold at $9.00 per share.
The proceeds, net of commissions and certain expenses, to the Company from the
offering were approximately $22.8 million. Prior to the Offering, there was no
public market for the Company's common stock.
Warrant Exercise
On December 3, 1997, the holders of 1.8 million common stock purchase
warrants (with an exercise price of $4.08) exercised such warrants with the
Company taking full recourse notes amounting to approximately $7.5 million in
exchange for the issued common stock. In addition, the holders are required to
provide collateral at a 2:1 coverage ratio. This collateral is presently held
by the Company.
Preferred Stock
The Company's certificate of incorporation authorizes the Board of
Directors to issue up to 5,882,353 shares of preferred stock of the Company
upon such terms and conditions having such rights, privileges and preferences
as the Board of Directors may determine.
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 Company
adopted the 1995 Incentive and Non-Statutory Stock Option Plan (the "Option
Plan"). 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 323,530 shares of common stock were approved.
Certain options under the Option Plan are intended to qualify as
incentive stock options pursuant to Section 422A of the Internal Revenue Code.
-37-
<PAGE> 39
During fiscal 1998, options with respect to 816,284 shares were granted
pursuant to the Company's Option Plan or issued in connection with the MODE
acquisition at exercise prices ranging from $0.44 to $20.00 per share.
Stock options granted generally vest over three to five years and are
exercisable over a ten year period. As of September 30, 1996, 1997 and 1998,
options with respect to 162,764, 199,368 and 481,863 shares were exercisable,
respectively.
The following table summarized the activity under the plan:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
--------------- ------------
<S> <C> <C> <C> <C>
Outstanding as of September 30, 1995 281,470 $3.03
Granted 57,942 6.04
Exercised -- --
Canceled -- --
--------------- ------------
Outstanding as of September 30, 1996 339,412 $3.54
Granted 182,700 11.06
Exercised (42,165) 3.17
Canceled (4,475) 3.08
--------------- ------------
Outstanding as of September 30, 1997 475,472 $6.47
Granted 816,284 10.18
Exercised (35,809) 2.33
Canceled (43,221) 10.22
--------------- ---------------
Outstanding as of September 30, 1998 1,212,726 $8.95
=============== ===============
</TABLE>
As of September 30, 1998, stock options outstanding were as follows:
<TABLE>
<CAPTION>
Exercise Options Weighted Average Remaining Exercisable
Prices Outstanding Contractual Life (Years) Options
- ------------ ----------- -------------------------- -----------
<C> <C> <C> <C>
$ 0 less than x Less than or equal to $ 5 419,531 7.96 295,423
$ 5 less than x Less than or equal to $10 22,500 9.88 --
$10 less than x Less than or equal to $15 661,975 9.17 178,873
$15 less than x Less than or equal to $20 74,720 9.19 767
$20 less than x Less than or equal to $25 34,000 8.94 6,800
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "ACCOUNTING FOR STOCK BASED COMPENSATION" ("SFAS 123"). SFAS 123
establishes financial and reporting standards for stock based compensation
plans. The Company has adopted the disclosure only provisions of this standard
and has elected to continue to apply the provision of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". Had the
Company elected to recognize compensation expense for stock options based on
the fair value at the grant dates of awards, net loss and net loss per share
would have been as follows:
Years ended September 30,
--------------------------
1997 1998
---------- -----------
Net loss before extraordinary item
As reported $5,333,772 $43,480,796
Pro forma $5,441,274 $44,099,847
Net loss per basic and diluted share
before extraordinary item
As reported $(1.14) $(4.95)
Pro forma $(1.17) $(5.03)
Net loss
As reported $5,619,367 $43,480,796
Pro forma $5,726,869 $44,099,847
Net loss per basic and diluted share
As reported $(1.20) $(4.95)
Pro forma $(1.23) $(5.03)
-38-
<PAGE> 40
The weighted average fair value of the Company's stock options was
calculated using Black-Scholes with the following weighted-average assumptions
used for grants: No dividend yield; expected volatility of 0% prior to the
Company's initial public offering and 60% thereafter; a risk-free interest rate
of 6.04% and 5.57% for fiscal years 1997 and 1998, respectively, expected lives
of 5 years. The weighted average fair value of options granted during the years
ended September 30, 1997 and 1998 is $3.82 and $7.50 per share, respectively.
Stock options granted by the Company prior to its initial public offering were
valued using the minimum value method under FASB No. 123.
WARRANTS
Set forth below is a summary of the Company's outstanding warrants at
September 30, 1998:
<TABLE>
<CAPTION>
Exercise Expiration
Security Price Warrants Date
- ---------------------- ----------------- ------------------ ---------------------
<S> <C> <C> <C>
Common Stock(1) $4.08 385,428 May 1, 2001
Common Stock(2) $4.33 36,990 August 21, 2006
Common Stock(2) $5.92 10,128 May 16, 2007
Common Stock(3) $10.20 1,225,490 September 1, 2001
Common Stock(4) $11.38 284,684 May 1, 2001
</TABLE>
- ----------------------
(1) Issued in connection with the Company's May 1996 subordinated note issuance.
(2) Issued in connection with the MODE acquisition.
(3) Issued in connection with the Company's September 1996 subordinated debt
issuance and October 1996 debt guarantee.
(4) Issued in connection with 1998 Agreement guarantee.
NOTE 13. RELATED PARTIES
In May 1995, 52% of the Company's outstanding shares of Common Stock
were purchased by Jesup & Lamont Merchant Partners, L.L.C. ("JLMP"). Prior to
May 12, 1997, a majority of the Company's then six directors were members of
JLMP. On May 12, 1997, JLMP distributed all of its shares of the Company to the
individual members of JLMP. In May 1995, the Company entered into a consulting
agreement (the "Agreement") with Jesup & Lamont Capital Markets, Inc. ("Jesup &
Lamont") 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 for the fiscal year ended September
30, 1996. No fees were paid to Jesup & Lamont during the fiscal years ended
September 30, 1998 and 1997.
In December 1996, the Company's chairman and chief executive officer
retired. The Company 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 had
agreed to extend the period for the exercise of his vested stock options
through March 1997 and accordingly he exercised all 26,471 vested shares.
-39-
<PAGE> 41
In fiscal 1997, the Company entered into a non-exclusive and
non-refundable technology licensing and royalty agreement with Uniroyal
Technology Corporation ("UTC") for the process technology to develop and
manufacture high brightness light emitting diodes ("LEDs"). During fiscal 1998
and 1997, revenue associated with the UTC licensing agreement amounted to $2.5
million and $2.5 million, respectively. At the time the transaction was
originally entered into, UTC's Chairman and CEO was a member of EMCORE's Board
of Directors and EMCORE's Chairman was on the Board of Directors of UTC. All
related party accounts receivable for fiscal 1997 have been paid in full. As of
September 30, 1998, the Company had an outstanding related party receivable of
$500,000.
In July 1998, the Company and a wholly-owned subsidiary of UTC entered
into a venture to produce and market compound semi-conductor products. The
Company has a 49% non-controlling minority interest. The Company's rights under
the venture agreement are protective and as such, the Company accounts for its
interest in the venture under the equity method of accounting. The investment
in this venture amounted to $490,000 as of September 30, 1998, and has been
classified as a component of other long-term assets. For the year ended
September 30, 1998, the Company recognized a loss of $198,000 related to this
venture, which has been recorded as a component of other income and expense.
The President of Hakuto Co. Ltd. ("Hakuto"), the Company's Asian
distributor, is a member of the Company's Board of Directors and Hakuto is a
minority shareholder of the Company. During the year ended September 30, 1998,
sales made through Hakuto approximated $9.2 million.
On June 22, 1998, the Company entered into the 1998 Agreement. The 1998
Agreement was guaranteed by the Chairman and the Chief Executive Officer of the
Company (see Note 8). In return for guaranteeing the facility, the Company
granted the Chairman and the Chief Executive Officer an aggregate of 284,684
common stock purchase warrants at $11.375 per share which expire May 1, 2001.
These warrants are callable at the Company's option at $0.85 per warrant at such
time as the Company's common stock has traded at or above 150% of the exercise
price for a period of 30 days.
On September 17, 1998, the Company borrowed $7.0 million from its
Chairman, Thomas J. Russell. The loan bears interest at 9.75% per annum. In
addition, on October 23, 1998 the Company borrowed an additional $1.5 million
from its Chairman on identical terms. The entire $8.5 million, borrowed from
Mr. Russell was repaid from the proceeds of a private placement (See Note 8).
NOTE 14. EXPORT SALES
The information below summarizes the Company's export sales by
geographic area. The Company's export sales to the Far East and Europe are as
follows:
<TABLE>
<CAPTION>
Far East Europe Total
----------- ----------- -----------
<S> <C> <C> <C>
Year ended September 30, 1996 $ 8,209,309 $ 3,588,066 $11,797,375
Year ended September 30, 1997 $14,583,981 $ 5,478,186 $20,062,167
Year ended September 30, 1998 $15,527,169 $ 1,584,851 $17,112,020
</TABLE>
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Operating Net (Loss)
(Loss) Net (Loss) Income Per
Revenues Income Income Share
-------- -------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
FISCAL YEAR 1997:
December 31, 1996 $ 8,591 $ (2,585) $ (3,798) $ (0.86)
March 31, 1997 12,929 147 (3,150) (0.82)
June 30, 1997 14,106 907 830 0.10
September 30, 1997 12,126 841 498 0.06
FISCAL YEAR 1998:
December 31, 1997 12,357 $(29,223)* $(29,389)* $ (4.15)*
March 31, 1998 13,808 200 37 0.00
June 30, 1998 $ 9,074 (7,141) (7,446) (0.80)
September 30, 1998 $ 8,521 (5,544) (6,683) (0.71)
</TABLE>
- ----------------------
*includes $29.3 million one-time acquired in-process, non-cash research and
development.
-40-
<PAGE> 42
NOTE 16. EMPLOYEE SAVINGS PLAN
The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limit.
Effective August 1, 1997, the Company began contributing to the Savings Plan.
All employer contributions are made in the Company's common stock. For the year
ended September 30, 1998, the Company contributed approximately $252,000 to the
Savings Plan.
NOTE 17. SUBSEQUENT EVENTS (UNAUDITED)
Preferred Stock Private Placement
On November 30, 1998, the Company sold an aggregate of 1,550,000 shares
of Series I Redeemable Convertible Preferred Stock for aggregate consideration
of $21.7 million before deducting costs and expenses of the offering of
approximately $500,000. The shares of Series I Preferred Stock are convertible,
at any time, at the option of the holders thereof, unless previously redeemed,
into shares of Common Stock at an initial conversion price of $14.00 per share
of Common Stock, subject to adjustment in certain cases. The Series I Preferred
Stock is redeemable, in whole or in part, at the option of the Company at any
time the Company's stock has traded at or above $28.00 per share for 30
consecutive trading days, at a price of $14.00 per share, plus accrued and
unpaid dividends, if any, to the redemption date. In addition, the Series I
Preferred Stock is subject to mandatory redemption by the Company at $14.00 per
share plus accrued and unpaid dividends, if any, on November 17, 2003.
Joint Ventures
In November 1998, the Company formed a joint venture with Union Miniere
Inc. to explore and develop alternate uses of germanium substrates. The Company
also formed a joint venture in November 1998, with Optek Technology, Inc. to
market an expanded line of magneto resistive sensors.
-41-
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of EMCORE Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of EMCORE
Corporation and its subsidiaries at September 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 (Net loss per share), the Company has changed
its method of calculating earnings per basic and diluted common share.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 30, 1998,
-42-
<PAGE> 44
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders of
EMCORE Corporation:
Management has prepared and is responsible for the consolidated
financial statements and related information in the Annual Report. The financial
statements, which include amounts based on judgment, have been prepared in
conformity with generally accepted accounting principles consistently applied.
Management has developed, and in 1998 continued to strengthen, a system
of internal accounting and other controls for the Company. Management believes
these controls provide reasonable assurance that assets are safeguarded from
loss or unauthorized use and that the Company's financial records are a reliable
basis for preparing the financial statements. Underlying the concept of
reasonable assurance is the premise that the cost of control should not exceed
the benefit derived.
The Board of Directors, through its audit committee, is responsible for
reviewing and monitoring the Company's financial reporting and accounting
practices. The audit committee meets regularly with management and independent
accountants - both separately and together. The independent accountants have
free access to the audit committee to review the results of their audits, the
adequacy of internal accounting controls and the quality of financial reporting.
-43-
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the Company's 1999 Proxy Statement which will be filed on or before
January 28, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Company's 1999 Proxy Statement which will be filed on or before
January 28, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Company's 1999 Proxy Statement which will be filed on or before
January 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this term is incorporated herein by
reference to the Company's 1999 Proxy Statement which will be filed on or before
January 28, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
14(A)(1) FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C> <C>
Included in Part II, Item 8 of this report:
Balance sheets as of September 30, 1997 and 1998 23
Statements of operations for the years ended September 30, 1996, 1997 and 1998 24
Statements of shareholders' equity for the years ended September 30, 1996, 1997 and 1998 25
Statements of cash flows for the years ended September 30, 1996, 1997 and 1998 26
Notes to financial statements 27-41
Report of independent accountants 42
14(A)(2) Financial Statement Schedule:
Included in Part IV of this report:
Schedule II - Valuation and qualifying accounts and reserves 48
Other schedules have been omitted since they are either not required or not applicable.
</TABLE>
-44-
<PAGE> 46
14(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- ------------
3.1 Restated Certificate of Incorporation, amended February 3, 1997
(incorporated by reference to Exhibit 3.1 to Amendment No. 1 to
the Registration Statement on Form S-1 (File No. 333-18565) filed
with the Commission on February 6, 1997 (the "1997 S-1")).*
3.2 Amended By-Laws, as amended January 11, 1989 (incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to the 1997 S-1).*
3.3 Certificate of Amendment to the Certificate of Incorporation,
dated November 19, 1998.
4.1 Specimen certificate for shares of Common Stock (incorporated by
reference to Exhibit 4.1 to Amendment No. 3 to the 1997 S-1).*
4.2 Form of $11.375 Warrant.
10.1 1995 Incentive and Non-Statutory Stock Option Plan (incorporated
by reference to Exhibit 10.1 to Amendment No. 1 to the 1997
S-1).*
10.2 1996 Amendment to Option Plan (incorporated by reference to
Exhibit 10.2 to Amendment No. 1 to the 1997 S-1).*
10.3 Specimen Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.3 to Amendment No. 1 to the 1997 S-1).*
10.4 Second Amended and Restated Distributorship Agreement dated as of
March 31, 1998 between the Company and Hakuto. Confidential
treatment has been requested by the Company for portions of this
document. Such portions are indicated by "[*]".
10.5 Amendment to Lease for premises at 394 Elizabeth Avenue,
Somerset, New Jersey 08873 (incorporated by reference to Exhibit
10.5 to Amendment No. 1 to the 1997 S-1).*
10.6 Registration Rights Agreement relating to September 1996 warrant
issuance (incorporated by reference to Exhibit 10.6 to Amendment
No. 1 to the 1997 S-1).*
10.7 Registration Rights Agreement relating to December 1996 warrant
issuance (incorporated by reference to Exhibit 10.7 to Amendment
No. 1 to the 1997 S-1).*
10.8 Form of 6% Subordinated Note Due May 1, 2001 (incorporated by
reference to Exhibit 10.8 to Amendment No. 1 to the 1997 S-1).*
10.9 Form of 6% Subordinated Note Due September 1, 2001 (incorporated
by reference to Exhibit 10.9 to Amendment No. 1 to the 1997
S-1).*
10.10 Form of $4.08 Warrant (incorporated by reference to Exhibit 10.10
to Amendment No. 1 to the 1997 S-1).*
-45-
<PAGE> 47
EXHIBIT INDEX - (CONTINUED)
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.11 Form of $10.20 Warrant (incorporated by reference to Exhibit
10.12 to Amendment No. 1 to the 1997 S-1).*
10.12 Consulting Agreement dated December 6, 1996 between the Company
and Norman E. Schumaker (incorporated by reference to Exhibit
10.14 to Amendment No. 1 to the 1997 S-1).*
10.13 Purchase Order issued to the Company by General Motors
Corporation on November 17, 1996. (incorporated by reference to
Exhibit 10.15 to Amendment No. 1 to the 1997 S-1).* Confidential
treatment has been requested by the Company with respect to
portions of this document. Such portions are indicated by "[*]".
10.14 Acquisition Agreement, dated as of December 5, 1997, between the
Company and MicroOptical Devices, Inc. (incorporated by
reference to Exhibit 2 to the Company's filing on Form 8-K,
dated December 22, 1997).*
10.15 Purchase Agreement, dated November 30, 1998, by and between the
Company, Hakuto UMI and UTC.
10.16 Registration Rights Agreement, dated November 30, 1998 by and
between the Company, Hakuto, UMI and UTC.
10.17 Long Term Purchase Agreement dated November 24, 1998 by and
between the Company and Space Systems/Loral, Inc. Confidential
treatment has been requested by the Company with respect to
portions of this document. Such portions are indicated by "[*]."
10.18 Promissory Note, dated June 22, 1998 by the Company in favor of
First Union National Bank.
10.19 Second Amendment to Revolving Loan and Security Agreement, dated
as of November 30, 1998 between the Company and First Union
National Bank.
21 Subsidiaries of the registrant.
23.1 Consent of Pricewaterhouse Coopers LLP
27 Financial Data Schedule.
- ----------
* Incorporated by reference.
14(B) Reports on Form 8-K:
The Company filed a current report on Form 8-K dated August 6,
1998 which set forth information under Item 5.
-46-
<PAGE> 48
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 December 28, 1998.
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 Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of EMCORE Corporation in the capacities indicated, on December 28, 1998.
SIGNATURE TITLE
--------- -----
/s/ THOMAS J. RUSSELL Chairman of the Board and Director
- --------------------------------------
Thomas J. Russell
/s/ REUBEN F. RICHARDS, JR. President, Chief Executive Officer and
- -------------------------------------- Director (Principal Executive Officer)
Reuben F. Richards, Jr.
/s/ THOMAS G. WERTHAN Vice President, Chief Financial Officer,
- -------------------------------------- Secretary and Director (Principal
Thomas G. Werthan Accounting and Financial Officer)
/s/ RICHARD A. STALL Director
- --------------------------------------
Richard A. Stall
/s/ ROBERT LOUIS-DREYFUS Director
- --------------------------------------
Robert Louis-Dreyfus
/s/ HUGH H. FENWICK Director
- --------------------------------------
Hugh H. Fenwick
/s/ SHIGEO TAKAYAMA Director
- --------------------------------------
Shigeo Takayama
/s/ CHARLES T. SCOTT Director
- ---------------------------------------
Charles T. Scott
-47-
<PAGE> 49
SCHEDULE II
EMCORE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and Write-offs End of
Period Expenses (Deductions) Period
-------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ----------------------------------------------------
Year Ended September 30, 1996 $164,000 $ 183,000 $ (37,000) $310,000
Year Ended September 30, 1997 310,000 515,000 (128,000) 697,000
Year Ended September 30, 1998 697,000 1,118,000 (1,203,000) 612,000
RESERVES FOR INVENTORY OBSOLESCENCE
- ----------------------------------------------------
Year Ended September 30, 1996 $115,000 $ 105,000 -- $220,000
Year Ended September 30, 1997 220,000 120,000 -- 340,000
Year Ended September 30, 1998 340,000 120,000 -- 460,000
</TABLE>
-48-
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT
TO DESIGNATE
SERIES I REDEEMABLE CONVERTIBLE PREFERRED STOCK
$.0001 PAR VALUE PER SHARE
OF
EMCORE CORPORATION
- -------------------------------------------------------------------------------
Pursuant to Sections 14A:9-2(2) and 14A:7-2
of the New Jersey Business Corporations Act
- -------------------------------------------------------------------------------
The undersigned duly authorized officers of EMCORE
CORPORATION, a New Jersey corporation (the "Company"), do hereby certify that
the following resolution was duly adopted as of November 11, 1998, by the Board
of Directors of the Company pursuant to authority conferred by the provisions of
the Restated Certificate of Incorporation of the Company and in accordance with
the provisions of the New Jersey Business Corporations Act:
RESOLVED, that pursuant to authority conferred on the Board of
Directors by the provisions of the Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation") and recognizing that no shares of
Series A Preferred Stock, $.0001 par value per share of the Company ("Series A
Preferred") have been issued by the Company, the Board of Directors hereby
decreases the number of authorized shares of Series A Preferred to zero; and it
is further
RESOLVED, that pursuant to authority conferred on the Board of
Directors by the provisions of the Certificate of Incorporation of the Company,
both the authorization of a series of Series I Preferred Stock, $.0001 par value
per share, of the Company (the "Series I Preferred Stock"), which shall consist
of 2,000,000 of the 5,882,353 shares of preferred stock which the Company
presently has authority to issue and the issuance of 1,550,000 shares of such
Series I Preferred Stock, be, and the same hereby is, authorized, and the Board
of Directors hereby fixes the powers, designations, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualification, limitation and restrictions thereof (in addition to the
powers, designations, preferences and relative, participating, optional or other
<PAGE> 2
special rights, and the qualifications, limitations or restrictions thereof, set
forth in the Certificate of Incorporation which may be applicable to the Series
I Preferred Stock) as follows:
1. NUMBER OF SHARES AND DESIGNATION. 2,000,000 shares of the
Preferred Stock, $.0001 par value per share, of the Company are hereby
constituted as a series of the Preferred Stock designated as Series I Preferred
Stock (the "Series I Preferred Stock"). The Series I Preferred Stock will rank
senior to the Common Stock with respect to the payment of dividends and upon
liquidation, dissolution or winding up of the Company.
2. DEFINITIONS. For purposes of the Series I Preferred Stock,
the following terms shall have the meanings indicated.
"Board of Directors" shall mean the board of
directors of the Company or any committee authorized by such
Board of Directors to perform any of its responsibilities with
respect to the Series I Preferred Stock.
"Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the
city of New York are authorized or obligated by law or
executive order to close.
"Change in Control" shall have the meaning set forth
in Section 8 hereof.
"Closing Price" of the Common Stock on any day shall
mean on such day the reported last sales price, regular way,
for the Common Stock or, in case no sale takes place on such
day, the average of the reported closing bid and asked prices,
regular way, for the Common Stock, in either case, as reported
on the National Market system of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ
National Market") or, if the Common Stock is not quoted on the
NASDAQ National Market, on such national securities exchange
on which the Common Stock is listed or admitted to trading or,
if the Common Stock is not listed or admitted to trading on
any national securities exchange, the average of the closing
bid and asked prices for the Common Stock on such day in the
over-the-counter market as reported by NASDAQ or, if bid and
asked prices for the Common Stock on each such date shall not
have been reported by NASDAQ, the average of the bid and asked
prices of the Common Stock for such day as furnished by any
NASD member firm regularly making a market in the Common Stock
selected for such purpose by the Board of Directors or, if no
such quotations are available, the fair market value of the
Common Stock furnished by any NASD member firm selected from
time to time by the Board of Directors for that purpose.
"Common Stock" shall mean the common stock of the
Company, no par value per share.
"Conversion Price" shall mean the conversion price
per share of Common Stock into which the Series I Preferred
Stock is convertible, as such Conversion
-2-
<PAGE> 3
Price may be adjusted pursuant to Section 7 hereof. The
initial Conversion Price will be $14.00 (equivalent to the
conversion rate of one share of Common Stock for each share of
Series I Preferred Stock).
"Current Market Price" per share of Common Stock on
any date shall mean the average of the daily Closing Prices
for the 20 consecutive Trading Dates commencing 30 Trading
Dates before the date of determination.
"dividend payment date" shall have the meaning set
forth in Section 3(a) hereof.
"dividend payment record date" shall have the meaning
set forth in Section 3(a) hereof.
"Dividend Period" shall mean quarterly dividend
periods commencing on March 31, June 30, September 30 and
December 31, and continuing through and including the day
preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence
on the Issue Date).
"Issue Date" shall mean the first date on which
shares of Series I Preferred Stock are issued.
"Person" shall mean any individual, firm,
partnership, corporation or other entity, and shall include
any successor (by merger or otherwise) of such entity.
"Trading Date" or "Trading Day" with respect to
Common Stock means (i) if the Common Stock is quoted on the
NASDAQ National Market, or any similar system of automated
dissemination of quotations of securities prices, a day on
which trades may be made on such system, (ii) if the Common
Stock is listed or admitted for trading on a national
securities exchange, a day or on which such national
securities exchange is open for business, (iii) if not quoted
as described in clauses (i) or (ii), days on which quotations
are reported by the National Quotation Bureau Incorporated, or
(iv) otherwise, any Business Day.
"Transaction" shall have the meaning set forth in
Section 7(a) hereof.
"Transfer Agent" means the Company or such other
agent or agents of the Company as may be designated by the
Board of Directors from time to time as the transfer agent for
the Series I Preferred Stock.
3. DIVIDENDS.
(a) The holders of shares of the Series I Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available therefor, cumulative cash dividends at
an annual rate of 2% of the liquidation preference per share (an amount
initially equivalent to $.28 per annum per share) of Series I
-3-
<PAGE> 4
Preferred Stock, payable at the option of the Company in cash or additional duly
and validly issued, fully paid and non-assessable shares of Series I Preferred
Stock, free from all taxes, liens and charges with respect to the issuance
thereof, which will be valued at the liquidation preference (without giving
effect to accrued and unpaid dividends) as of the relevant dividend payment
record date. Notwithstanding the foregoing, the Company shall not be required to
issue fractional shares of Series I Preferred Stock; the Company may elect, in
its sole discretion, independently for each holder, whether such number of
shares (on an aggregated basis) will be rounded up to the nearest whole share or
whether such holder will be given cash in lieu of any fractional shares. Such
dividends shall be cumulative from the Issue Date, whether or not in any
Dividend Period or Periods there shall be funds of the Company legally available
for the payment of such dividends and whether or not such dividends are declared
and shall be payable quarterly, when, as and if declared by the Board of
Directors on March 31, June 30, September 30 and December 31 in each year (each
a "dividend payment date"), commencing on December 31, 1998. If December 31,
1998 or any other dividend payment date shall be on a day other than a Business
Day, then the dividend shall be payable on the next following Business Day.
Dividends are payable in arrears to the holders of record of shares of the
Series I Preferred Stock, as they appear on the stock records of the Company at
the close of business on those dates (each such date, a "dividend payment record
date"), not less than 10 days nor more than 60 days preceding the dividend
payment dates thereof, as shall be fixed by the Board of Directors. Dividends on
the Series I Preferred Stock shall accrue (whether or not declared) on a daily
basis from the Issue Date and accrued dividends for each Dividend Period shall
accumulate to the extent not paid on the dividend payment date first following
the Dividend Period for which they accrue. As used herein, the term "accrued"
with respect to dividends includes both accrued and accumulated dividends.
Accrued and unpaid dividends for any past Dividend Periods may be declared and
paid at any time, without reference to any regular dividend payment date, to
holders of record on the record date, not less than 10 nor more than 60 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(b) The amount of dividends payable for each full
Dividend Period for the Series I Preferred Stock shall be computed by dividing
the annual dividend rate by four (rounded to the nearest tenth of a cent). The
amount of dividends payable for the initial Dividend Period on the Series I
Preferred Stock, or any other period shorter or longer than a full Dividend
Period on the Series I Preferred Stock, shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Holders of shares of Series I
Preferred Stock called for redemption on a redemption date falling between the
close of business on a dividend payment record date and the close of business on
the corresponding dividend payment date shall, in lieu of receiving such
dividend on the dividend payment date fixed therefor, receive such dividend
payment together with all other accrued and unpaid dividends on the date fixed
for redemption (unless such holder converts such shares in accordance with
Section 7 hereof). Holders of shares of Series I Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or securities, in
excess of cumulative dividends, as herein provided, on the Series I Preferred
Stock. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series I Preferred Stock
which are in arrears.
-4-
<PAGE> 5
(c) So long as any shares of the Series I Preferred
Stock are outstanding, no dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on any class or
series of stock of the Company ranking, as to dividends, on a parity with the
Series I Preferred Stock, for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for such payment on the Series I Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment,
or setting apart for payment, of such dividends on such parity stock. When
dividends are not paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, upon the shares of the Series I Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series I Preferred Stock, all dividends declared upon shares of the Series I
Preferred Stock and all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series I Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series I Preferred Stock and on such other stock bear to each other.
(d) So long as any shares of the Series I Preferred
Stock are outstanding, no other stock of the Company ranking on a parity with
the Series I Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Company (except by conversion into or exchange for stock of the Company ranking
junior to the Series I Preferred Stock as to dividends and upon liquidation,
dissolution or winding up) unless (i) the full cumulative dividends, if any,
accrued on all outstanding shares of the Series I Preferred Stock shall have
been paid or set apart for payment for all past Dividend Periods and (ii)
sufficient funds shall have been set apart for the payment of the dividend for
the current Dividend Period with respect to the Series I Preferred Stock and for
the current dividend period with respect to any other stock of the Company
ranking on a parity with the Series I Preferred Stock as to dividends.
(e) So long as any shares of the Series I Preferred
Stock are outstanding, no dividends (other than dividends or distributions paid
in shares of, or options, warrants or rights to subscribe for or purchase shares
of, Common Stock or other stock ranking junior to the Series I Preferred Stock
as to dividends and upon liquidation, dissolution or winding up) shall be
declared or paid or set apart for payment and no other distribution shall be
declared or made or set apart for payment, in each case, upon the Common Stock
or other stock of the Company ranking junior to the Series I Preferred Stock as
to dividends or upon liquidation, dissolution or winding up, nor shall any
Common Stock nor any other such stock of the Company ranking junior to the
Series I Preferred Stock as to dividends or upon liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund or otherwise for
the purchase or redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for stock of the Company ranking junior
to the Series I Preferred Stock as to dividends and upon liquidation,
dissolution or winding up) unless, in each case (i) the full cumulative
dividends, if any, accrued on all outstanding shares of the Series I Preferred
Stock and any other
-5-
<PAGE> 6
stock of the Company ranking on a parity with the Series I Preferred Stock as to
dividends shall have been paid or set apart for payment for all past Dividend
Periods and all past dividend periods with respect to such other stock and (ii)
sufficient funds shall have been set apart for the payment of the dividend for
the current Dividend Period with respect to the Series I Preferred Stock and for
the current dividend period with respect to any other stock of the Company
ranking on a parity with the Series I Preferred Stock as to dividends.
4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
shares of Series I Preferred Stock shall be entitled to receive out of assets of
the Company available for distribution to shareholders $14.00 per share (as
adjusted for any stock combinations or splits with respect to the Series I
Preferred Stock) plus an amount per share equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final distribution
to such holders (collectively, the "Liquidation Preference") before any payment
or distribution of the assets of the Company (whether capital or surplus) shall
be made to or set apart for the holders of Common Stock or any other series or
class or classes of stock of the Company ranking junior to the Series I
Preferred Stock upon liquidation, dissolution or winding up of the Company and
no payments or distributions of any assets of the Company shall be made to the
holders of any class or series of stock ranking on a parity with the Series I
Preferred Stock in respect of the distribution of assets upon dissolution,
liquidation or winding up unless there shall likewise be paid at the same time
to the holders of the Series I Preferred Stock a like proportionate amount
determined ratably in proportion to the full amounts to which the holders of all
outstanding shares of Series I Preferred Stock and the holders of all
outstanding shares of such parity stock are respectively entitled with respect
to such distribution. If, upon any liquidation, dissolution or winding up of the
Company, the assets of the Company, or proceeds thereof, distributable among the
holders of the shares of Series I Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any other
shares of stock ranking, as to the liquidation, dissolution or winding up, on a
parity with the Series I Preferred Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of shares of Series I Preferred
Stock and any such other stock ratably in accordance with the respective amounts
which would be payable on such shares of Series I Preferred Stock and any such
other stock if all amounts payable thereon were paid in full. For the purposes
of this Section 4, (i) a consolidation or merger of the Company with one or more
corporations or other entities, (ii) a sale, lease, exchange or transfer of all
or any part of the Company's assets or (iii) a statutory share exchange shall
not be deemed to be a liquidation, dissolution or winding up of the Company,
voluntary or involuntary.
(b) Subject to the rights of the holders of shares of
any series or class of stock ranking on a parity with the Series I Preferred
Stock upon liquidation, dissolution or winding up, upon any liquidation,
dissolution or winding up of the Company, after payment shall have been made in
full to the holders of Series I Preferred Stock, as provided in this Section 4,
any other series or class or classes of stock ranking junior to the Series I
Preferred Stock upon liquidation, dissolution or winding up shall, subject to
the respective terms and provisions (if
-6-
<PAGE> 7
any) applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of Series I Preferred Stock shall not be
entitled to share therein.
(c) Written notice of any liquidation, dissolution or
winding up of the Company, stating the payment date or dates when and the place
or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than 30
days prior to any payment date stated therein, to the holders of record of the
Series I Preferred Stock at their respective addresses as the same shall appear
on the books of the Transfer Agent.
5. REDEMPTION.
(a) Except as provided in Section 5(b) hereof, the
shares of Series I Preferred Stock may not be redeemed by the Company prior to
such date as the Closing Price of the Company's Common Stock is $28.00 or more
per share for 30 consecutive Trading Dates, on or after which the Company, at
its option, may redeem the shares of the Series I Preferred Stock, in whole or
in part, at any time or from time to time out of funds legally available
therefor, subject to the notice provisions and provisions for partial redemption
described below, at a price equal to $14.00 per share (as adjusted for any stock
combinations or splits with respect to the Series I Preferred Stock) plus a cash
amount equal to accrued and unpaid dividends, if any, to (and including) the
date of redemption.
(b) The Company shall redeem all outstanding shares
of the Series I Preferred Stock on November 17, 2003 at a price of $14.00 per
Share (as adjusted for any stock combinations or splits with respect to the
Series I Preferred Stock), plus accrued and unpaid dividends.
(c) In the event the Company shall redeem shares of
Series I Preferred Stock pursuant to Section 5(a) or 5(b) hereof, notice of such
redemption shall be given not less than 30 nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed, at such
holder's address as the same appears on the stock records of the Company. Each
such notice shall state: (i) the redemption date; (ii) the number of shares of
Series I Preferred Stock to be redeemed and, if less than all the shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (iii) the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price; (v) the then current conversion price; (vi) that dividends on the shares
to be redeemed shall cease to accrue on such redemption date and (vii) that
shares of Series I Preferred Stock called for redemption may be converted at any
time prior to the close of business on the date of redemption. Notice having
been given as aforesaid, from and after the redemption date, unless the Company
shall be in default in providing money for the payment of the redemption price
(including any accrued and unpaid dividends to (and including) the date fixed
for redemption), (i) dividends on the shares of the Series I Preferred Stock so
called for redemption shall cease to accrue, (ii) said shares shall be deemed no
longer outstanding, and (iii) all rights of the holders thereof as shareholders
of the Company (except the right to receive from the Company the moneys payable
upon redemption without interest thereon) shall cease. The
-7-
<PAGE> 8
Company's obligation to provide moneys in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the redemption date, the Company
shall deposit with a bank or trust company having a capital and surplus of at
least $50,000,000, funds necessary for such redemption, in trust for the account
of the holders of the shares to be redeemed (and so as to be and continue to be
available therefor), with irrevocable instructions and authority to such bank or
trust company that such funds be applied to the redemption of the shares of
Series I Preferred Stock so called for redemption. Any interest accrued on such
funds shall be paid to the Company from time to time. Any funds so deposited and
unclaimed at the end of three years from such redemption date shall be released
or repaid to the Company, after which, subject to any applicable laws relating
to escheat or unclaimed property, the holder or holders of such shares of Series
I Preferred Stock so called for redemption shall look only to the Company for
payment of the redemption price.
(d) Upon surrender in accordance with said notice of the
certificates for any such shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the notice shall so
state), such shares shall be redeemed by the Company at the applicable
redemption price aforesaid. If fewer than all the outstanding shares of Series I
Preferred Stock are to be redeemed, shares to be redeemed shall be selected by
the Company from outstanding shares of Series I Preferred Stock not previously
called for redemption by lot or pro rata (as near as may be). If fewer than all
the shares represented by any certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares without cost to the holder thereof.
(e) Notwithstanding the foregoing, if notice of redemption has
been given pursuant to this Section 5 and any holder of shares of Series I
Preferred Stock shall, prior to the close of business on the redemption date,
give written notice to the Company pursuant to Section 7(b) hereof of the
conversion of any or all of the shares to be redeemed held by such holder
(accompanied by a certificate or certificates for such shares, duly endorsed or
assigned to the Company), then the conversion of such shares to be redeemed
shall become effective as provided in Section 7.
6. SHARES TO BE RETIRED. All shares of Series I Preferred
Stock purchased, redeemed, exchanged or converted by the Company shall be
retired and canceled and shall be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to series, and may
thereafter be reissued.
7. CONVERSION. Holders of shares of Series I Preferred Stock
shall have the right to convert all or a portion of such shares (including
fractions of such shares) into shares of Common Stock, as follows:
(a) Subject to and upon compliance with the
provisions of this Section 7, a holder of shares of Series I Preferred Stock
shall have the right, at such holder's option, at any time (except that, with
respect to any shares called for redemption or exchange, such right shall
terminate at the close of business on the date fixed for redemption or exchange
of such shares) to convert any of such shares (or fractions thereof) into the
number of fully paid and non-
-8-
<PAGE> 9
assessable shares of Common Stock (as such shares shall then be constituted)
obtained by dividing the aggregate liquidation preference of the shares to be
converted by the Conversion Price and by surrender of such shares, such
surrender to be made in the manner provided in Section 7(b). Subject to the
following provisions of this Section 7(a), any shares of Series I Preferred
Stock may be converted, at the option of its holder, in part into Common Stock
under the procedure set forth above. If a part of a share of Series I Preferred
Stock is converted, then the Company will convert such share into the
appropriate number of shares of Common Stock (subject to Section 7(c)). No
fractional shares or securities representing fractional shares of Common Stock
will be issued upon conversion; in lieu of fractional shares of Common Stock,
the Company will pay a cash adjustment based upon the Closing Price of the
Common Stock at the close of business on the first Trading Date preceding the
date of conversion.
(b) In order to exercise the conversion right, the
holder of each share of Series I Preferred Stock (or fraction thereof) to be
converted shall surrender the certificate representing such share, duly endorsed
or assigned to the Company or in blank, at the office of the Transfer Agent,
which shall initially be the Company, accompanied by funds, if any, required by
the last paragraph of this Section 7(b), and shall give written notice to the
Company in the form set forth on the reverse of the stock certificates for the
Series I Preferred Stock that the holder thereof elects to convert such Series I
Preferred Stock or a specified portion thereof. Such notice shall also state the
name or names (with address) in which the certificate or certificates for shares
of Common Stock which shall be issuable upon such conversion shall be issued,
and shall be accompanied by funds in an amount sufficient to pay any transfer or
similar tax resulting from the issuance of certificates in a name other than the
name of the holder of the Series I Preferred Stock. Each share surrendered for
conversion shall, unless the shares issuable on conversion are to be issued in
the same name as the name in which such share of Series I Preferred Stock is
registered, be duly endorsed by, or be accompanied by instruments of transfer
(in each case, in form satisfactory to the Company), duly executed by the holder
or such holder's duly authorized attorney.
As promptly as practicable after the surrender of
certificates for shares of Series I Preferred Stock for conversion and the
receipt of such notice and funds, if any, as aforesaid, the Company shall issue
and shall deliver at such office to such holder, or on such holder's written
order, a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of such shares of Series I Preferred Stock in
accordance with the provisions of this Section 7, a certificate or certificates
representing any shares of Series I Preferred Stock not so surrendered for
conversion but previously evidenced by the stock certificate representing shares
of Series I Preferred Stock surrendered for conversion and a check or cash in
respect of any fractional interest in respect of a share of Common Stock arising
upon such conversion, as provided in Section 7(c).
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
for shares of Series I Preferred Stock shall have been surrendered (accompanied
by the funds, if any, required by the last paragraph of this section 7(b)) and
such notice shall have been received by the Company as aforesaid, and the person
or persons in whose name or names any certificate or certificates for shares of
Common
-9-
<PAGE> 10
Stock shall be issuable upon such conversion shall be deemed to have become on
said date the holder or holders of record of the shares represented thereby;
provided, however, that any surrender on any date when the stock transfer books
of the Company shall be closed shall cause the person or persons in whose name
or names the certificates are to be issued to become the holder or holders of
record thereof for all purposes on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price in
effect on the date upon which such shares shall have been surrendered. All
shares of Common Stock delivered upon conversion of the Series I Preferred Stock
will, upon delivery, be duly and validly issued, fully paid and nonassessable,
free from all taxes, liens and charges with respect to the issuance thereof.
If a Holder shall surrender a share of Series I
Preferred Stock for conversion during the period from the close of business on
any dividend payment record date to the close of business on the following
dividend payment date, such holder shall nevertheless be entitled to receive the
dividend payable on such shares on such dividend payment date notwithstanding
the conversion thereof following the close of business on such former dividend
payment record date and prior to the close of business on such latter dividend
payment date. However, shares of Series I Preferred Stock surrendered for
conversion during the period between the close of business on any dividend
payment record date and the close of business on the corresponding dividend
payment date (except shares called for redemption or exchange on a redemption
date or exchange date during such period) must be accompanied by payment of an
amount equal to the dividend payment for the then current Dividend Period with
respect to such share of Series I Preferred Stock presented for conversion on
such dividend payment date; provided, however, that no such payment need be made
if, at the time of conversion, dividends payable on the shares of Series I
Preferred Stock outstanding shall be in arrears for more than 30 days beyond the
previous dividend payment date. The dividend payment with respect to shares of
Series I Preferred Stock which are called for redemption on a redemption date
during the period from the close of business on a dividend payment record date
to the close of business on the corresponding dividend payment date shall be
payable on such dividend payment date to the holder of record of such shares on
the books of the Company at the close of business on the dividend payment record
date notwithstanding the conversion of such shares during the period between the
close of business on such dividend payment record date and the close of business
on such dividend payment date, and the holder of such shares need not make a
payment equal to the dividend payment amount upon surrender of such shares for
conversion. A holder of shares of Series I Preferred Stock on a dividend payment
record date will receive the dividend payable by the Company on such shares of
Series I Preferred Stock surrendered for conversion. Except as provided above,
the Company shall make no payment or allowances for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the shares of Common
Stock issued upon such conversion.
(c) In connection with the conversion of any shares
of Series I Preferred Stock, fractions of such shares may be converted; however,
no fractional shares or scrip representing fractions of shares of Common Stock
shall be issued upon conversion of the Series I Preferred Stock. If more than
one share (or fraction thereof) shall be surrendered for conversion at one time
by the same holder, the number of full shares of Common Stock issuable upon
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<PAGE> 11
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series I Preferred Stock so surrendered. If any fractional share of
Common Stock would otherwise be issuable upon the conversion of a share of
Series I Preferred Stock (or fraction thereof), the Company shall make an
adjustment therefor in cash (computed to the nearest cent) equal to the Closing
Price of Common Stock on the Trading Date immediately preceding the date of
conversion multiplied by the fraction of a share of Common Stock otherwise
issuable.
(d) The Conversion Price shall be adjusted from time
to time by the Company as follows:
(i) This section intentionally omitted.
(ii) In case the Company shall issue after
the Issue Date rights or warrants to all holders of Common Stock
entitling them to subscribe for or purchase Common Stock at a price per
share less than the Current Market Price per share of Common Stock at
the record date for the determination of shareholders entitled to
receive such rights or warrants, then the Conversion Price in effect
immediately prior thereto shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the date of issuance of such rights or warrants by
(B) a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants (without giving effect to any such issuance)
and (2) the number of shares of Common Stock which the aggregate
proceeds from the exercise of such rights or warrants for Common Stock
would purchase at such Current Market Price, and the denominator of
which shall be the sum of (1) the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants (without
giving effect to any such issuance) and (2) the number of additional
shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made successively whenever any such rights or
warrants are issued, and shall become effective immediately after such
record date. In determining whether any rights or warrants entitle the
holder of Common Stock to subscribe for or purchase shares of Common
Stock at less than such Current Market Price, there shall be taken into
account any consideration received by the Company upon issuance and
upon exercise of such rights or warrants, the value of such
consideration, if other than cash, to be reasonably determined in good
faith by the Board of Directors.
(iii) In case the Company shall pay a
dividend or make a distribution to all holders of its Common Stock
after the Issue Date of any shares of capital stock of the Company or
its subsidiaries (other than Common Stock, which shall be subject to
adjustment pursuant to Section 7(d)(vi)) or evidences of indebtedness
of the Company or its subsidiaries or assets (including securities, but
excluding those rights, warrants, dividends and distributions referred
to in subparagraph (ii) and (vi) of this Section 7(d)), excluding
dividends or distributions in connection with the liquidation,
dissolution or winding up of the Company and excluding cash dividends
referred to in subparagraph (v) of this Section 7(d) then in each such
case, the Conversion Price shall be adjusted so that it shall equal the
price determined by multiplying (A) the Conversion
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<PAGE> 12
Price in effect on the record date mentioned below by (B) a fraction,
the numerator of which shall be the Current Market Price per share of
the Common Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive) as of such
record date of the portion of the capital stock or evidences of
indebtedness or assets so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator of which
shall be the Current Market Price per share of the Common Stock on such
record date. Such adjustment shall become effective immediately, except
as provided in Section 7(h) below, after the record date for the
determination of shareholders entitled to receive such distribution.
(iv) Notwithstanding anything in
subparagraphs (ii) and (iii) of this Section 7(d), if such rights or
warrants shall by their terms provide for an increase or increases (or
decrease or decreases) with the passage of time or otherwise in the
price payable to the Company upon the exercise thereof, the Conversion
Price upon any such increase or decrease becoming effective shall
forthwith be readjusted (but, in case of an increase or increases in
exercise price, to no greater extent than originally adjusted by reason
of such issuance or sale) to reflect the same. Upon the expiration or
termination of such rights or warrants, if any such rights or warrants
shall not have been exercised, then the Conversion Price shall
forthwith be readjusted and thereafter be the rate which it would have
been had an adjustment been made on the basis that (A) the only rights
or warrants issued or sold were those so exercised and they were issued
or sold for the consideration actually received by the Company for the
granting of all such options, rights or warrants whether or not
exercised and (B) the Company issued and sold a number of shares of
Common Stock equal to those actually issued upon exercise of such
rights, and such shares were issued and sold for a consideration equal
to the aggregate exercise price in effect under the exercise rights
actually exercised at the respective dates of their exercise. For
purposes of subparagraphs (ii) and (iii) of this Section 7(d), the
aggregate consideration received by the Company in connection with the
issuance of shares of Common Stock or of rights or warrants shall be
deemed to be equal to the sum of the aggregate offering price (before
deduction of underwriting discounts or commissions and expenses payable
to third parties) of all such securities plus the minimum aggregate
amount, if any, payable upon the exercise of such rights or warrants
into shares of Common Stock.
(v) In case the Company shall, by dividend
or otherwise, at any time distribute to all holders of the Common Stock
cash (excluding any cash that is distributed as part of a distribution
referred to in subparagraph (iii) of this Section 7(d) or in connection
with a transaction to which Section 7(e) applies) in an aggregate
amount that, together with (A) the aggregate amount of any other
distributions to all holders of the Common Stock made exclusively in
cash within the 12 months preceding the date fixed for the
determination of shareholders entitled to such distribution and in
respect of which no Conversion Price adjustment has been made
previously and (B) the aggregate amount of any cash plus the fair
market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive) as of such
date of
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<PAGE> 13
determination of any other consideration payable in respect of any
tender or exchange offer or other purchase by the Company or a
subsidiary of the Company for all or any portion of the Common Stock
consummated within 12 months preceding such date of determination and
in respect of which no Conversion Price adjustment has been made
previously, exceeds 5.0% of the product of the Current Market Price per
share of Common Stock multiplied by the number of shares of Common
Stock outstanding on such date, then in each such case the Conversion
Price shall be reduced (but not increased) so that it shall equal the
price obtained by multiplying the Conversion Price in effect
immediately prior to the close of business on such date of
determination by a fraction of which the numerator shall be (x) the
product of the Current Market Price per share of Common Stock on such
date, multiplied by the number of shares of Common Stock outstanding on
such date, less (y) the sum of (i) the aggregate amount of cash to be
distributed at such time, (ii) the aggregate amount of any other
distributions to holders of Common Stock made exclusively in cash
within the preceding 12 months, in respect of which no Conversion Price
adjustment has been made previously, and (iii) the aggregate amount of
any cash plus the fair market value (determined as aforesaid) of any
other consideration payable in respect of any tender or exchange offer
or other purchase by the Company or a subsidiary of the Company for all
or any portion of the Common Stock within the preceding 12 months, in
respect of which no Conversion Price adjustment has been made
previously; and the denominator shall be the product of such Current
Market Price, multiplied by the number of shares of Common Stock
outstanding on such date. Such reduction shall become effective
immediately prior to the opening of business on the date after such
determination.
(vi) In case outstanding shares of Common
Stock shall be subdivided into a greater number of shares of Common
Stock or in case the Company effects a dividend of Common Stock to the
holders of its Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective or the record date of such dividend, as
the case may be, shall be proportionately reduced, and, conversely in
case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the conversion price in
effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
(vii) The reclassification of Common Stock
into securities which include securities other than Common Stock (other
than any reclassification upon a consolidation or merger) shall be
deemed to involve (i) a distribution of such securities other than
Common Stock to all holders of Common Stock (and the effective date of
such reclassification shall be deemed to be the "date fixed for a
determination of shareholders entitled to such distribution" within the
meaning of paragraph (iii) of this Section and (ii) a subdivision or
combination, as the case may be, of the number of shares of Common
Stock outstanding immediately prior to such reclassification into the
number of shares of
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<PAGE> 14
Common Stock outstanding immediately thereafter (and the effective date
of such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination
becomes effective," as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of
paragraph (vi) of this Section). Rights or warrants issued by the
Company to all holders of the Common Stock that entitle the holders
thereof to subscribe for or purchase shares of Common Stock (either
initially or under certain circumstances), which rights or warrants (i)
are deemed to be transferred with such shares of Common Stock, (ii) are
not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through (iii)
until the occurrence of a specified event or events ("Trigger Event"),
shall for purposes of this Section 7(d)(vii) not be deemed issued until
the occurrence of the earliest Trigger Event.
(viii) In case a tender or exchange offer or
other purchase made by the Company or any subsidiary of the Company for
all or any portion of the Common Stock shall be consummated and such
tender or exchange offer or purchase shall involve an aggregate
consideration having a fair market value (as determined by the Board of
Directors, whose determination shall, if made in good faith, be
conclusive) as of the last time (the "Expiration Time") that tenders or
exchanges may be made pursuant to such tender or exchange offer (as it
shall have been amended) or the date of such other purchase, as the
case may be, that, together with (A) the aggregate amount of the cash
plus the fair market value (as determined by the Board of Directors,
whose determination shall, if made in good faith, be conclusive) as of
the Expiration Time of any other consideration paid in respect of any
other tender or exchange offer or other purchase by the Company or a
subsidiary of the Company for all or any portion of the Common Stock
consummated within 12 months preceding the Expiration Time and in
respect of which no Conversion Price adjustment has been made
previously and (B) the aggregate amount of any distributions to all
holders of the Common Stock made exclusively in cash within the 12
months preceding the Expiration Time and in respect of which no
Conversion Price adjustment has been made previously, exceeds 5.0% of
the product of the Current Market Price per share of Common Stock
immediately prior to the Expiration Time times the number of shares of
Common Stock outstanding (including any tendered, exchanged or
purchased shares) at the Expiration Time, then in each such case the
Conversion Price shall be reduced (but not increased) so that it shall
equal the price obtained by multiplying the Conversion Price in effect
immediately prior to the Expiration Time by a fraction of which the
numerator shall be (x) the product of the Current Market Price per
share of Common Stock immediately prior to the Expiration Time,
multiplied by the number of shares of Common Stock outstanding
(including any tendered, exchanged or purchased shares) at the
Expiration Time less (y) the sum of (i) the aggregate amount of cash
plus the fair market value (determined as aforesaid) of any other
consideration payable in respect of such tender or exchange offer or
other purchase, (ii) the aggregate amount of any distributions to
holders of Common Stock made exclusively in cash within the preceding
12 months, in respect of which no Conversion Price adjustment has been
made previously, and (iii) the aggregate amount of any cash plus the
fair market value (determined as aforesaid) of any other consideration
payable in respect to any other
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<PAGE> 15
tender or exchange offer or other purchase by the Company or a
subsidiary of the Company for all or any portion of the Common Stock
within the preceding 12 months, in respect of which no Conversion Price
adjustment has been made previously; and the denominator shall be the
product of such Current Market Price, multiplied by the number of
shares of Common Stock outstanding (excluding any tendered, exchanged
or purchased shares) at the Expiration Time. Such reduction shall
become effective immediately prior to the opening of business on the
date following the Expiration Time; provided, however, that if the
number of tendered, exchanged or purchased shares or the aggregate
consideration payable therefor has not been finally determined by such
opening of business, the adjustment required by this subparagraph
(viii) shall be made based upon the number of tendered, exchanged or
purchased shares and the aggregate consideration payable therefor as so
finally determined.
(ix) No adjustment in the Conversion Price
shall be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any
adjustments which by reason of this subparagraph (ix) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment; and provided, further, that any adjustment
required in order to preserve the tax-free nature of a distribution to
the holders of shares of Common Stock shall be made when so required.
All calculations under this Section 7 shall be made to the nearest cent
(with $.005 being rounded upward). Anything in this Section 7(d) to the
contrary notwithstanding, the Company shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price, in
addition to those required by this Section 7(d), as it in its
discretion shall determine to be advisable in order that any stock
dividends, subdivision or combination of shares, distribution of
capital stock or rights or warrants to purchase stock or securities,
distribution of evidences of indebtedness or assets or any other
transaction which could be treated as any of the foregoing transactions
pursuant to Section 305 of the Internal Revenue Code of 1986, as
amended (and any successor provision), hereafter made by the Company to
its shareholders shall not be taxable to such shareholders.
(e) Subject to the provisions of Section 8, in case
the Company shall be a party to any transaction (including, without limitation,
a merger, consolidation, sale of all or substantially all of the Company's
assets, or recapitalization of the Common Stock and excluding any transaction as
to which paragraph (d)(iii), (vi) or (vii) of this Section 7 applies) (each of
the foregoing being referred to as a "Transaction"), in each case as a result of
which shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), then
each share of the Series I Preferred Stock will thereafter no longer be subject
to conversion into Common Stock pursuant to Section 7, but instead shall be
convertible into the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of such Transaction
by a holder of that number of shares or fraction thereof of Common Stock into
which one share of Series I Preferred Stock was convertible immediately prior to
such Transaction. The Company shall not be a party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this Section
7(e) and it shall not consent or agree to the occurrence of any
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<PAGE> 16
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of the holders of the
Series I Preferred Stock which will contain provisions enabling the holders of
the Series I Preferred Stock which remains outstanding after such Transaction to
convert into the kind and amount of stock, securities or other property
(including cash or any combination thereof) which such holder would have been
entitled to receive if such holder had held the Common Stock issuable upon
conversion of such Series I Preferred Stock immediately prior to such
Transaction. In the event that at any time, as a result of an adjustment made
pursuant to this Section 7, the Series I Preferred Stock shall become subject to
conversion into any securities other than shares of Common Stock, thereafter the
number of such other securities so issuable upon conversion of the shares of
Series I Preferred Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares of Series I Preferred Stock contained in this Section 7.
The provisions of this Section 7(e) shall similarly apply to successive
Transactions.
(f) If:
(i) the Company shall take any action which would
require an adjustment in the Conversion Price pursuant to Section 7(d);
or
(ii) the Company shall authorize the granting to the
holders of its Common Stock generally of rights or warrants to
subscribe for or purchase any shares of any class or any other rights
or warrants; or
(iii) there shall be any reclassification or change
of the Common Stock (other than a subdivision or combination of its
outstanding Common Stock or a change in par value) or any
consolidation, merger or statutory share exchange to which the Company
is a party and for which approval of any shareholders of the Company is
required, or the sale or transfer of all or substantially all of the
assets of the Company or any Change in Control (each as defined in
Section 8 below) or any Transaction; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, except as provided otherwise in Section 8, the Company shall
cause to be filed with the Transfer Agent (if different than the
Company) and shall cause to be given to the holders of shares of the
Series I Preferred Stock, as promptly as possible, but at least 30 days
prior to the applicable date hereinafter specified, a notice stating
(A) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution or rights
or warrants are to be determined or (B) the date on which such
reclassification, change, consolidation, merger, statutory share
exchange, sale, Change in Control, transfer, dissolution, Transaction,
liquidation or winding up is expected to become effective or occur, and
the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable
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<PAGE> 17
upon such reclassification, change, consolidation, merger, statutory
share exchange, sale, Change in Control, transfer, dissolution,
liquidation or winding up. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings
described in this Section 7(f).
(g) Whenever the Conversion Price is adjusted as
herein provided, the Company shall promptly file with the Transfer Agent (if
different than the Company) or, if the Transfer Agent is the Company, shall
provide to all holders of Series I Preferred Stock an officer's certificate
signed by the President or a Vice President and the Chief Financial Officer or
the Treasurer setting forth a brief statement of the facts requiring such
adjustment and upon which such adjustments are based. Promptly after delivery of
such certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price, the facts
requiring such adjustment and upon which such adjustments are based, the
calculation of the Conversion Price adjustment and the date on which such
adjustment becomes effective and shall give such notice of such adjustment of
the Conversion Price to the holder of each share of Series I Preferred Stock.
(h) In any case in which Section 7(d) provides that
an adjustment shall become effective immediately after a record date for an
event and the date fixed for such adjustment pursuant to Section 7 occurs after
such record date but before the occurrence of such event, the Company may defer
until the actual occurrence of such event (i) issuing to the holder of any
shares of Series I Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 7(c).
(i) For purposes of this Section 7, the number of
shares of Common Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the Company or any
corporation controlled by the Company.
(j) Notwithstanding any other provision herein to the
contrary, the issuance of any shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends or interest payable on securities of
the Company and the investment of additional optional amounts of shares of
Common Stock under any such plan shall not be deemed to constitute an issuance
of Common Stock. In case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction which would require
adjustment of the Conversion Price pursuant to more than one paragraph of this
Section 7, only one adjustment shall be made and such adjustment shall be the
amount of adjustment which has the highest absolute value to the holders of
Series I Preferred Stock.
(k) The Board of Directors may in its discretion,
decrease the Conversion Price to the extent permitted by law, in such manner, if
any, and at such time, as the Board of Directors determines to be equitable in
the circumstances; provided, however, that in no event shall the Board of
Directors be required to take any such action.
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<PAGE> 18
(l) The Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, sufficient shares of Common Stock to provide for the
conversion of the Series I Preferred Stock from time to time as such Series I
Preferred Stock is presented for conversion. For purposes of this Section 7(l),
the number of shares of Common Stock which shall be deliverable upon the
conversion of all outstanding shares of Series I Preferred Stock shall be
computed as if at the time of computation all such outstanding shares were held
by a single holder.
Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the shares
of Common Stock deliverable upon conversion of the Series I Preferred Stock, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
The Company will, pursuant to the Registration Rights
Agreement relating to the Series I Preferred Stock, list the shares of Common
Stock required to be delivered upon conversion of the Series I Preferred Stock,
prior to delivery, upon each national securities exchange, the NASDAQ National
Market or any similar system of automated dissemination of securities prices, if
any, upon which the Common Stock is listed at the time of delivery.
Prior to the delivery of any securities which the
Company shall be obligated to deliver upon conversion of the Series I Preferred
Stock, the Company will use its best efforts to comply with all federal and
state laws and regulations thereunder requiring the registration of such
securities with, or any approval of or consent to the delivery thereof by, any
governmental authority.
(m) The Company will pay any and all documentary
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of the shares of Series I Preferred Stock (or any other securities
issued on account of the Series I Preferred Stock pursuant hereto) or shares of
Common Stock issued upon conversion of the Series I Preferred Stock pursuant
hereto; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of shares of Series I Preferred Stock pursuant hereto or shares of
Common Stock in a name other than the name in which the shares of Series I
Preferred Stock with respect to which such shares of Common Stock are issued
were registered and the Company shall not be required to make any issue or
delivery unless and until the person requesting such issue or delivery has paid
to the Company the amount of any such tax or has established, to the reasonable
satisfaction of the Company, that such tax has been paid or is not required to
be paid.
8. SPECIAL CONVERSION RIGHTS UPON CHANGE IN CONTROL.
(a) If a Change in Control (as defined below) should
occur with respect to the Company, each holder of shares of the Series I
Preferred Stock shall have the right, at the holder's option, for a period of 45
days after the giving of notice by the Company that a Change in Control has
occurred, to convert all, but not less than all, of such holder's shares of the
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Series I Preferred Stock into the kind and amount of cash, securities, property
or other assets receivable upon such Change in Control by a holder of the number
of shares of Common Stock into which such holder's Series I Preferred Stock
would have been convertible immediately prior to the Change in Control at an
adjusted conversion price equal to the Special Conversion Price (as defined
below). Shares of the Series I Preferred Stock that are not converted as
provided above will remain convertible into the kind and amount of cash,
securities, property or other assets that the holders of the shares of the
Series I Preferred Stock would have owned immediately after the Change in
Control if the holders had converted the shares of the Series I Preferred Stock
immediately before the effective date of the Change in Control. The Company will
notify the holders of the Series I Preferred Stock of any pending Change in
Control as soon as practicable and in any event at least 30 days in advance of
the effective date of such Change in Control. In the event of a pending Change
in Control, the Company (or any successor corporation) shall take all action
necessary to provide for sufficient amounts of cash, securities, property or
other assets for the conversion of the Series I Preferred Stock as provided
herein.
(b) If a Change in Control shall occur, then, as soon
as practicable and in any event within five (5) business days after the
occurrence of such Change in Control, the Company shall provide notice to each
registered holder of a share of Series I Preferred Stock a notice (the "Special
Conversion Notice") setting forth details regarding the Special Right of the
holders to convert their shares of Series I Preferred Stock as a result of such
Change in Control. A holder of a share of Series I Preferred Stock must exercise
such conversion right within the 45-day period after the giving of the Special
Conversion Notice by the Company or such Special Right shall expire. The
conversion date for shares so converted shall be the 45th day after the giving
of the Special Conversion Notice or, if the merger, consolidation,
reorganization, liquidation or dissolution related to such Change in Control has
not become effective within 45 days of the giving of the Special Conversion
Notice but becomes effective within 90 days after the giving of the Special
Conversion Notice, then on the date of such effectiveness. If such merger,
consolidation, reorganization, liquidation or dissolution shall not occur within
90 days after the date on which the Special Conversion Notice is given, the
Company shall be required to give a new Special Conversion Notice. Within five
Business Days following the conversion date, the Company shall deliver a
certificate for the Common Stock together with a check for any fractional shares
issuable or the cash, securities, property or other assets receivable by a
holder. Exercise of such conversion right to the extent permitted by law
(including, if applicable, Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") shall be irrevocable and no dividends on the
shares of Series I Preferred Stock tendered for conversion shall accrue from and
after the conversion date.
(c) The Special Conversion Notice shall state:
(i) The event constituting the Change in
Control;
(ii) the last date upon which holders may
submit shares of Series I Preferred Stock for conversion at the Special
Conversion Price;
(iii) the Special Conversion Price;
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<PAGE> 20
(iv) the Conversion Price then in effect
under Section 7 and the continuing conversion rights, if any, under
Section 7;
(v) the name and address of any paying agent
and conversion agent;
(vi) that holders who wish to convert shares
of Series I Preferred Stock must satisfy the requirements of Section 7
and must exercise such conversion right within the 45-day period after
giving of such notice by the Company;
(vii) that exercise of such conversion right
shall be irrevocable and no dividends on shares of Series I Preferred
Stock tendered for conversion shall accrue from and after the
conversion date; and
(viii) that the consideration to be received
shall be delivered within the five Business Days after the last date
upon which holders may submit Series I Preferred Stock for conversion.
(d) (i) As used herein, a "Change in Control" with
respect to the Company means (A) the acquisition by a person, entity or "group,"
within the meaning of Section 13(d)(3) of the Exchange Act, (excluding, for this
purpose, the Company or any of its subsidiaries and any of Thomas Russell, The
AER Trust 1997, Robert Louis-Dreyfus, Gallium Enterprises, Inc. and Reuben
Richards which acquires beneficial ownership of voting securities of the
Company) of securities of the Company that result in such person, entity or
group having beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of (x) 50% or more of either the then outstanding shares
of Common Stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally in the election of directors or (y)
35% or more of either the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors, unless Thomas Russell,
The AER Trust 1997, Robert Louis-Dreyfus, Gallium Enterpises, Inc. and Reuben
Richards collectively beneficially own a greater percentage than such person,
entity or "group"; (B) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities (a "Control Transaction"); or (C) approval of the
Board of Directors and, if required, of the shareholders of the Company of a
liquidation or dissolution of the Company (other than pursuant to the United
States Bankruptcy Code) or the sale of all or substantially all of the assets of
the Company.
(ii) As used herein, a person shall be
deemed to have "beneficial ownership" with respect to, and shall be
deemed to "beneficially own," any securities of the Company in
accordance with the definitions of such terms in Section 13 of the
Exchange Act and rules and regulations (including Rule 13d-3, Rule
13d-5, and any successor rules) promulgated by the Securities and
Exchange Commission
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thereunder; PROVIDED, HOWEVER, that a person shall be deemed to have
beneficial ownership of all securities that any such person has a right
to acquire whether such right is exercisable immediately or only after
the passage of time and without regard to the 60-day limitation
referred to in Rule 13d-3.
(iii) As used herein, the "Market Value" of
a share of the Common Stock shall be the average of the Closing Prices
of the Common Stock for the five Trading Dates ending on the last
Trading Day preceding the date of the Change in Control provided that,
in the event the Change in Control was not announced at least ten (10)
Trading Dates prior to its occurrence, then five Trading Dates ending
ten (10) Trading Dates after a public announcement of such Change in
Control.
(iv) As used herein, the "Special Conversion
Price" shall mean the lower of the Market Value of the Common Stock or
$14.00 per share (which amount will, each time the Conversion Price is
adjusted, be likewise adjusted).
9. REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as
defined in Section 8(d)) each holder of Series I Preferred Stock shall
have the right (the "Repurchase Right") to require the Company to
repurchase all of such holder's Series I Preferred Stock, or any
portion thereof which is 100 shares or any integral multiple thereof at
a price equal to 101% of the liquidation preference of the Series I
Preferred Stock, plus accrued and unpaid dividends, if any, to the
Repurchase Date. Such repurchase shall occur on the date (the
"Repurchase Date") that is 45 days after the date of the Company Notice
(as defined below). The Company will give a notice containing the
information set forth in Section 9(b) below (the "Company Notice") to
all holders within five (5) business days following any Change in
Control, and the Company will purchase all tendered shares of Series I
Preferred Stock by making payment of 101% of the liquidation preference
plus accrued and unpaid dividends, if any, on the Repurchase Date. The
Company shall promptly deliver a copy of the Company Notice to the
Transfer Agent and shall cause a copy of such notice to be published in
the Wall Street Journal or another newspaper of national circulation.
The Company intends not to treat for tax purposes the Preferred Stock
as having a redemption premium which is required to be treated as
distributed pursuant to Section 305(c) of the Internal Revenue code.
(b) The Company Notice shall state
(i) that a Change in Control has occurred
and that each holder has the right to require the Company to repurchase
such holder's shares of Series I Preferred Stock for cash at a price
equal to 101% of the liquidation preference of the Series I Preferred
Stock, plus accrued and unpaid dividends, if any, to the Repurchase
Date and the amount of such repurchase price;
(ii) the circumstances and relevant facts
regarding the Change in Control;
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<PAGE> 22
(iii) the Repurchase Date and the
instructions a holder must follow in order to have such holder's
securities repurchased in accordance with this Section 9.
(iv) that any shares of Series I Preferred
Stock not tendered will continue to accrue dividends.
(v) that on the Repurchase Date any share of
Series I Preferred Stock tendered for payment pursuant to the terms
hereof and for which money sufficient to repurchase the shares of
Series I Preferred Stock has been deposited by the Company as required
by Section 9(c) hereof, shall cease to accrue dividends after the
Repurchase Date;
(vi) that holders electing to have shares of
Series I Preferred Stock repurchased pursuant to this Section 9 will be
required to surrender such shares, duly endorsed for transfer, together
with irrevocable notice of such holder's intent to exercise such
Repurchase Right, to the Company at the address specified in the
Company Notice on or prior to the close of business on the 35th day
after the date the Company's Notice is given; and
(vii) such other information as may be
required by applicable law or regulations;
PROVIDED that no failure of the Company to give the foregoing notices and no
defect therein shall limit the holder's Repurchase Right or affect the validity
of the proceedings for the repurchase of the shares of Series I Preferred Stock
pursuant to this Section 9.
(c) Following a Change in Control, the Company shall
accept for payment shares of Series I Preferred Stock properly tendered pursuant
to this Section 9. Prior to the Repurchase Date, the Company shall deposit with
a bank or trust company having a capital and surplus of at least $50,000,000,
funds sufficient to pay the redemption price for all shares of Series I
Preferred Stock tendered and shall deliver, or cause to be delivered to such
bank or trust company, the shares of Series I Preferred Stock properly tendered
pursuant to this Section 9 and accepted together with an officer's certificate
describing the shares of Series I Preferred Stock so tendered to and being
purchased by the Company. On the Repurchase Date, the bank or trust company
shall, to the extent that monies deposited with such bank or trust company are
available therefor, give to the holders of shares of Series I Preferred Stock so
tendered and accepted payment in an amount equal to the redemption price and, as
soon as possible after such payment, the bank or trust company shall cancel the
shares of Series I Preferred Stock so tendered and accepted. The Company will
publicly announce the results of the Change in Control tender offer as soon as
practicable after the Repurchase Date. The Company will issue to holders whose
shares of Series I Preferred Stock are purchased only in part new shares of
Series I Preferred Stock equal in principal amount to the unpurchased portion of
the shares of Series I Preferred Stock surrendered.
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<PAGE> 23
(d) Notwithstanding the foregoing, in repurchasing
the shares of Series I Preferred Stock pursuant to this Section 9, the Company
will comply with all applicable tender offer rules, including but not limited to
Sections 13(e) and 14(e) under the Exchange Act and Rules 13c-1 and 14c-1
thereunder.
10. RANKING. Any class or classes of stock of the Company
shall be deemed to rank:
(i) prior to the Series I Preferred Stock,
as to dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution winding up, as the case may be, in preference
or priority to the holders of Series I Preferred Stock.
(ii) on a parity with the Series I Preferred
Stock, as to dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices per
share thereof be different from those of the Series I Preferred Stock,
if the holders of such class of stock and the Series I Preferred Stock
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case
may be, in proportion to their respective amount of accrued and unpaid
dividends per share or liquidation prices, without preference or
priority of one over the other, and
(iii) junior to the Series I Preferred
Stock, as to dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, if such stock shall be Common
Stock or if the holders of Series I Preferred Stock shall be entitled
to receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of such stock.
11. VOTING.
(a)(i) Except as herein provided or as otherwise from
time to time required by law, holders of Series I Preferred Stock shall have one
vote per share of Common Stock issuable upon conversion thereof on all matters
submitted to the holders of the Common Stock, and shall vote with the Common
Stock as a single class. Whenever, at any time or times, dividends payable on
the shares of Series I Preferred Stock shall be cumulatively in arrears in an
amount equal to or greater than the amount payable in respect of six complete
Dividend Periods; the holders of Series I Preferred Stock shall have the
exclusive right, voting separately as a class to elect two directors of the
Company at the Company's next annual meeting of shareholders and at each
subsequent annual meeting of shareholders until such dividends have been paid.
If such voting rights shall become vested more than 90 days or less than 20 days
before the date prescribed for the annual meeting of shareholders, thereupon the
holders of the shares of Series I Preferred Stock shall be entitled to exercise
their voting rights at a special meeting of the holders of Series I Preferred
Stock as set forth in paragraphs (ii) and (iii) of this Section 11(a). At
elections for such directors, each holder of Series I Preferred Stock shall be
entitled to one vote
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<PAGE> 24
for each share held by such holder. Upon the vesting of such right of the
holders of the Series I Preferred Stock, the maximum authorized number of
members of the Board of Directors shall automatically be increased by two, the
size of the Board of Directors shall automatically be increased by two directors
and the two vacancies so created shall be filled by vote of the holders of
outstanding Series I Preferred Stock as hereinabove set forth. The right of
holders of the Series I Preferred Stock, voting separately as a class, to elect
members of the Board of Directors as aforesaid shall continue until such time as
all dividends accumulated on the Series I Preferred Stock shall have been paid,
or declared and funds or additional shares of Series I Preferred Stock set aside
for payment in full, at which time such right shall terminate, except as herein
or by law expressly provided, subject to revesting in the event of each and
every such subsequent default. Notwithstanding the foregoing, in the event the
holders of Preferred Stock are entitled to elect a director as provided in
Section 11(b), the number of directors which the holders of the Series I
Preferred Stock may elect pursuant to this Section 11(a) shall be one, and the
number of directors which the holders of the Series I Preferred Stock may elect
pursuant to Section 11(b) shall be one.
(ii) Whenever such voting right shall have
vested, such right may be exercised initially either, as provided in
Section 11(a)(i) or 11(b), at a special meeting of the holders of
shares of the Series I Preferred Stock called as hereinafter provided,
or at any annual meeting of shareholders held for the purposes of
electing directors, and thereafter at such meetings or by the written
consent of such holders pursuant to the Business Corporation Act of the
State of New Jersey.
(iii) At any time when such voting rights
shall have vested in the holders of shares of the Series I Preferred
Stock and if such right shall not already have been initially
exercised, an officer of the Company shall, upon the written request of
holders of record of 10% or more of shares of the Series I Preferred
Stock then outstanding, addressed to the Chief Financial Officer of the
Company, call a special meeting of holders of shares of the Series I
Preferred Stock. Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of shareholders at
the place for holding annual meetings of shareholders of the Company
or, if none, at a place designated by the Chief Financial Officer of
the Company. If such meeting shall not be called by the proper officers
of the Company within 30 days after the personal service of such
written request upon the Chief Financial Officer of the Company, or
within 30 days after giving notice, then the holders of record of 10%
of the shares of the Series I Preferred Stock then outstanding may
designate in writing any person to call such meeting at the expense of
the Company, and such meeting may be called by such person so
designated upon the notice required for annual meetings of shareholders
and shall be held at the location requested by the person calling the
meeting. Any holder of shares of the Series I Preferred Stock then
outstanding that would be entitled to vote at such meeting shall have
access to the stock record books of the Company for the purpose of
causing a meeting of shareholders to be called pursuant to the
provisions of this paragraph. Notwithstanding the provisions of this
paragraph, however, no such special meeting shall be called or held
during a period within 45 days immediately preceding the date fixed for
the next annual meeting of shareholders.
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<PAGE> 25
(iv) The directors elected pursuant to this
Section 11(a) shall serve until the earlier of (A) the next annual
meeting or until their respective successors shall be elected and shall
qualify or (B) the date that the Company has paid all accrued and
unpaid dividends on the Series I Preferred Stock. Any director elected
by the holders of Series I Preferred Stock may be removed by, and shall
not be removed otherwise than by, the vote of the holders of a majority
of the outstanding shares of the Series I Preferred Stock, as
applicable, voting as a separate class, at a meeting called for such
purpose or by written consent as permitted by law and the Certificate
of Incorporation and By-laws of the Company; provided, that upon
payment of all accrued, but unpaid dividends, such person shall
automatically and without further action cease to be members of the
Company's Board of Directors. If the office of any director elected by
the holders of the Series I Preferred Stock, as applicable, voting as a
class, becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the remaining
director elected by the holders of the Series I Preferred Stock may
choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. Upon any termination of the
right of the holders of the Series I Preferred Stock to vote for
directors as herein provided, the term of office of all directors then
in office elected by the holders of the Series I Preferred Stock shall
terminate immediately. Whenever the terms of office of the directors
elected by the holders of the Series I Preferred Stock shall so
terminate and the special voting powers vested in the holders of the
Series I Preferred Stock shall have expired, the number of directors
shall be such number as may be provided for pursuant to the By-laws of
the Company irrespective of any increase made pursuant to the
provisions of this Section 11.
(b) Until such time as there are outstanding a number
of shares of Series I Preferred Stock less than that number of shares equal to
two-thirds of the number of shares of Series I Preferred Stock issued in
November 1998 to Hakuto Co., Ltd., Union Miniere, Inc. and Uniroyal Technology
Corporation (as adjusted for any stock combinations or splits with respect to
such shares) (the "Threshold Amount"), if the Company materially breaches a
substantive provision of one of the Strategic Agreements (as defined below), the
holders of Series I Preferred Stock who are a party to one or more of the
Strategic Agreements that have been breached by the Company shall collectively
have the right, voting separately as a class, to elect one director of the
Company at the Company's next annual meeting of the shareholders; provided,
however, that if such voting rights shall become vested more than 90 days or
less than 20 days before the date of the prescribed annual meeting of
shareholders, such holders of the shares of Series I Preferred Stock shall be
entitled to exercise their voting rights at a special meeting of the holders of
the shares of Series I Preferred Stock as set forth in Sections 11(a)(ii) and
(iii). At such elections for directors, each such holder of Series I Preferred
Stock shall be entitled to one vote for each share held. Upon the vesting of
such right of the holders of Series I Preferred Stock, the maximum authorized
number of members of the Board shall automatically be increased by one, the size
of the Board of Directors shall automatically be increased by one director and
the one vacancy so created shall be filled by vote of the holders of Series I
Preferred Stock as hereinabove set forth. The right of holders of Series I
Preferred Stock, voting separately as a class, to elect a member of the Board of
Directors pursuant to this Section 11(b) shall continue until the earlier of (i)
the cure of each material breach giving rise such right or (ii) the
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<PAGE> 26
date that less than the Threshold Amount of shares of Series I Preferred Stock
is outstanding. As used herein the term "Strategic Agreements" shall mean the
following agreements as each may be amended and any material agreements related
thereto: distributorship agreements with Hakuto Co., Ltd.; the Joint-Venture
Agreement between the Company and Union Miniere Inc., the Limited Liability
Company Agreement of Umcore LLC, the Management and Services Agreement between
Umcore LLC and the Company, the Party IP License Agreement between the Company
and Umcore LLC, the New Application License Agreement between the Company and
Umcore LLC, the Amended and Restated Joint Venture Agreement, dated November
1998 among the Company, Uniroyal Technology Corporation and Uniroyal
Optoelectronics, Inc. and the Amended and Restated Technology License Agreement,
dated November 1998 among the Company, Uniroyal Technology Corporation and
Uniroyal Optoelectronics, Inc.
(c) So long as any shares of the Series I Preferred
Stock remain outstanding, the consent of the holders of at least two-thirds of
the shares of Series I Preferred Stock outstanding at the time, given in person
or by proxy either in writing (as permitted by law and the Certificate of
Incorporation and By-laws of the Company) or at any special or annual meeting,
shall be necessary to permit, effect or validate any one or more of the
following:
(i) the authorization, creation or issuance,
or any increase in the authorized or issued amount of any class or
series of stock, or any security convertible into stock of such class
or series, ranking prior to or on parity with the Series I Preferred
Stock (including the authorization or issuance of additional shares of
Series I Preferred Stock other than issuances of Series I Preferred
Stock as a dividend on any then outstanding shares of Series I
Preferred Stock) as to dividends or the distribution of assets upon
liquidation, dissolution or winding up;
(ii) the amendment, alteration or repeal,
whether by merger, consolidation or otherwise, of any of the provisions
of the Certificate of Incorporation (including this Certificate) or the
Bylaws of the Company which would adversely affect any right,
preference, privilege or voting power of the Series I Preferred Stock
or of the holders thereof; provided, however, that the creation and
issuance of other series of preferred stock, or any increase in the
amount of authorized shares of such series or of any other series of
preferred stock, in each case ranking junior to the Series I Preferred
Stock with respect to the payment of dividends and the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed
to adversely affect such rights, preferences, privileges or voting
powers; or
(iii) the authorization of any
reclassification of the Series I Preferred Stock.
The unanimous consent of the Series I Preferred Stock
is required to modify or eliminate the mandatory redemption provisions in
Section 5(b) hereof. The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would otherwise
be required shall be effected, all outstanding shares of Series I
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<PAGE> 27
Preferred Stock shall have been redeemed or sufficient funds shall have been
deposited in trust to effect such redemption, scheduled to be consummated within
three months after such time.
12. PREEMPTIVE RIGHTS. Subject to Section 12(d), for so long
as at least the Threshold Amount of shares of Series I Preferred Stock is
outstanding, each time the Company proposes to sell shares of its capital stock
or options, warrants or other rights to buy capital stock for cash, the Company
shall also make an offering of such securities to the holders of Series I
Preferred Stock in accordance with the following provisions:
(a) The Company shall deliver a notice to each holder
of Series I Preferred Stock stating the number of securities to be offered and
the price and the terms on which it proposes to offer such securities. Such
notice shall be sent to the addresses set forth in the records of the Company.
(b) Each holder of Series I Preferred Stock may elect
to purchase, at the price and on the terms specified in the notice, up to its
Pro Rata Portion of such securities by delivering written notice of such
election to the Company within 14 calendar days of the giving of such notice.
Such election to purchase shall state that it is a binding commitment to
purchase the securities. "Pro Rata Portion" shall mean the number of securities
determined by multiplying the number of securities subject to the notice in
Section 12(a) above by a fraction the numerator of which is the number of shares
of Series I Preferred Stock held by such holder and the denominator of which is
the number of shares of Series I Preferred Stock held by all holders provided,
however, that if any of the holders of Series I Preferred Stock shall not elect
to purchase their full Pro Rata Portion, the Pro Rata Portion of each holder
electing to purchase its full Pro Rata Portion (without giving effect to this
oversubscription adjustment) shall be increased by a proportionate amount of
such unsubscribed shares.
(c) Any shares referred to in the notice that are not
elected to be purchased as provided in subsection (b) above may, during the
180-day period thereafter, be offered by the Company to any other person or
persons at a price not less than, and on terms not materially more favorable to
the offeree than, those specified in the notice.
(d) The preemptive rights set forth in this Section
12 shall not be applicable to the issuance of (i) securities to directors,
officers, or employees of the Company as a form of compensation or in connection
with their initial employment, (ii) shares of common stock issuable upon
exercise of any options or warrants, (iii) capital stock in connection with a
merger, acquisition, plan of exchange or consolidation of another company, (iv)
capital stock in connection with a joint venture, (v) securities pursuant to a
registration statement filed pursuant to the Securities Act with the Securities
and Exchange Commission, (vi) Common Stock or other securities issued upon
conversion of the Series I Preferred Stock or (vii) Series I Preferred Stock
issued as a dividend on the Series I Preferred Stock.
13. RECORD HOLDERS. The Company and the Transfer Agent may
deem and treat the record holder of any shares of Series I Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Company nor
the Transfer Agent shall be affected by any notice to the contrary.
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<PAGE> 28
14. NOTICE. Except as may otherwise be provided for herein,
all notices referred to herein shall be in writing, and all notices hereunder
shall be deemed to have been given upon receipt, in the case of a notice of
conversion given to the Company as contemplated in Section 7(b) hereof, or, in
all other cases, upon the earlier of receipt of such notice or three Business
Days after the giving of such notice if sent by registered mail (unless
first-class mail shall be specifically permitted for such notice under the terms
of this Certificate) with postage prepaid, addressed: if to the Company, to its
offices at 394 Elizabeth Avenue, Somerset, New Jersey 08873, Attention: Chief
Financial Officer, or other agent of the Company designated as permitted by this
Certificate, or, if to any holder of the Series I Preferred Stock, to such
holder at the address of such holder of the Series I Preferred Stock as listed
in the stock record books of the Company (which may include the records of any
Transfer Agent for the Series I Preferred Stock); or to such other address as
the Company or holder, as the case may be, shall have designated by notice
similarly given, provided, that, any notice given to Hakuto Co., Ltd. shall be
given by facsimile at the facsimile number provided to the Company followed by a
confirmation copy by mail, postage prepaid.
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<PAGE> 29
IN WITNESS WHEREOF, this Certificate has been signed by the
President and Chief Executive Officer of the Company and attested to by the
Secretary of the Company, as of the 18th day of November, 1998.
EMCORE CORPORATION
By: /s/ REUBEN F. RICHARDS
--------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Attest:
By: /s/ THOMAS G. WERTHAN
----------------------------
Thomas G. Werthan
Secretary
<PAGE> 1
Exhibit 4.2
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) 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, (3) 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, (4) 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
(5) 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.
Warrant No. ____ Number of Shares: _______
Date of Issuance: June 22, 1998 Price: $11.375 per share
(subject to adjustment)
EMCORE CORPORATION
SOMERSET, NEW JERSEY
ISSUE DATE: JUNE 22, 1998
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 June 22,
1998 and on or before May 1, 2001, at no later than 5:00 p.m. (New York City
time), up to ___________ shares of the common stock of the Company ("Common
Stock"), at a purchase price of $11.375 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.
<PAGE> 2
1. EXERCISE.
(a) Subject to the requirements of Section 5, 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 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 Registered 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 4
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.
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 October 1, 1998 at a price per warrant of $0.85. No call of this warrant
shall be made unless (i) the Corporation can deliver registered shares of Common
Stock and (ii) the price per share of Common Stock is at least 150% of the
Purchase Price for at least 30 consecutive trading days.
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
<PAGE> 3
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 Holder 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 Holder 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 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
<PAGE> 4
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 this
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. 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
<PAGE> 5
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
be 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
and 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) 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, (3) 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,
(4) 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 (5) 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.
<PAGE> 6
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 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.
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 of 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 5
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 Holders
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 5 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
<PAGE> 7
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
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 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.
16. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the internal laws of the State of New Jersey.
EMCORE CORPORATION
[CORPORATE SEAL] By:
-------------------------------
Reuben Richards, President
ATTEST:
- -----------------------------------
Thomas G. Werthan, Secretary
<PAGE> 8
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 Floating Rate
Subordinated Note, due May 1, 2001, in an equal amount.
Holder: _____________________________
Address:_____________________________
Phone:_______________________________
Fax:_________________________________
<PAGE> 9
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> 1
SECOND AMENDED AND RESTATED
DISTRIBUTORSHIP AGREEMENT
THIS SECOND AMENDED AND RESTATED DISTRIBUTORSHIP AGREEMENT, effective
as of March 31, 1998 (as amended, modified or supplemented from time to time,
the "Agreement"), by and between EMCORE CORPORATION, a corporation duly
organized and existing under the laws of New Jersey, having its principal place
of business at 394 Elizabeth Avenue, Somerset, New Jersey 08873 ("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, 1-chome,
Shinjuku-ku, Tokyo 160, Japan ("Hakuto"), amends, restates, replaces and
supersedes that certain Amended and Restated Distributorship Agreement, dated as
of January 20, 1998, retroactively effective as of July 12, 1995, by and between
Emcore and Hakuto (the "Amended Distributorship Agreement").
W I T N E S S E T H:
WHEREAS, Emcore is engaged in the business of manufacturing technical
and industrial products; and
WHEREAS, Hakuto is engaged in the business of, among other things,
marketing and selling products throughout the world; and
WHEREAS, the parties heretofore entered into the Amended and Restated
Distributorship Agreement pursuant to which Hakuto distributed certain Emcore
products in defined markets, and the parties desire to revise the terms of the
Amended and Restated Distributorship 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
contained herein, Emcore and Hakuto do hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
"CHANGE OF CONTROL" means: (1) the acquisition by any party,
or any group acting in concert (other than a group consisting exclusively of
current directors and/or officers of
<PAGE> 2
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Emcore), of 50% or more of the issued and outstanding capital stock of Emcore;
or (2) the sale by Emcore of assets that significantly reduces Emcore's ability
to produce Mode Items, Pegasus Items or E2M Items.
"EQUIPMENT" means any or all items listed in Part 1 of Exhibit
A attached hereto and made a part hereof, including all Modifications and
Improvements thereto.
"E2M ITEMS" means any or all items listed in Part 2 of Exhibit
A attached hereto and made a part hereof, including all Modifications and
Improvements thereto.
"MODE ITEMS" means any or all items listed in Part 3 of
Exhibit A attached hereto and made a part hereof, including all Modifications
and Improvements thereto.
"MODIFICATION" AND "IMPROVEMENT" means any and all
alterations, whether patentable or not, or copyrightable or not, to the Products
or the name or designation thereof, or of the method of manufacture, design,
construction, installation, maintenance or sale of products.
"NEW CONTROL PARTY" means any party that acquires 50% or more
of the outstanding capital stock of Emcore in a Change of Control, or any party
that acquires assets of Emcore in a Change of Control.
"NON-JAPAN AGREEMENTS" means, collectively, the Amended and
Restated Distributorship Agreement, dated as of March 31, 1998, by and between
Emcore and S&T Enterprises Ltd., a Hong Kong company, and the Amended and
Restated Distributorship Agreement, dated as of January 20, 1998, by and between
Emcore and S&T Enterprises (Singapore) Pte. Ltd., a Singapore company.
"PEGASUS ITEMS" means any or all items listed in Part 4 of
Exhibit A attached hereto and made a part hereof, including all Modifications
and Improvements thereto.
2
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[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
"PRODUCTS" means, collectively, Equipment, Mode Items, Pegasus
Items and E2M Items.
[*]
"TERRITORY" means the country of Japan, provided, however, if
Hakuto develops a business prospect or prospective customer in the Philippines,
Hakuto shall advise Emcore forthwith of such business prospect and request that
the Philippines be made a part of Hakuto's exclusive territory. Upon receipt of
such request, Emcore shall give first priority to Hakuto to act as Emcore's
exclusive distributor in the Philippines, and the Philippines shall thereupon be
added to this Agreement as part of the Territory.
2. EXCLUSIVE DISTRIBUTORSHIP.
2.1 APPOINTMENT AND ACCEPTANCE. 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. Without limiting the foregoing, Emcore shall refer to
Hakuto: (1) all inquiries concerning the Products from parties in the Territory
or parties outside the Territory who may deliver, or cause to be delivered,
Products in the Territory; and (2) orders for Products from customers or
potential customers in the Territory, or orders originating outside the
Territory that may require intermediate or ultimate delivery or use of Products
in the Territory. During the term of this Agreement, Emcore shall not appoint or
designate, directly or indirectly, any distributor of the Products in the
Territory other than Hakuto and shall not itself, directly or indirectly, sell
any of the Products in the Territory.
2.2 COMPENSATION TO HAKUTO. As indicated in SECTION 2.7 of this
Agreement, the relationship between Emcore and Hakuto is that of seller and
purchaser, respectively, and Hakuto
3
<PAGE> 4
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------------------------------------
[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
shall be compensated for Hakuto's ultimate sale of the Products to Hakuto's
customers through [*]; provided, however, that, given the global market and
expected competitive pressures on the prices of the Products in the Territory,
from time to time Hakuto and Emcore shall consult regarding the pricing of the
Products, and, to the extent that Hakuto cannot be compensated to Hakuto's
satisfaction by the [*], Hakuto shall receive, for all sales of Mode Items, E2M
Items and Pegasus Items in the Territory, at least [*] of the total amount
invoiced to Hakuto's customer in connection with any such sale. Without limiting
the foregoing, Emcore shall pay to Hakuto [*] of the total invoice amount in
connection with all sales outside the Territory of Mode Items, Pegasus Items and
E2M Items that are designed in the Territory but produced or further designed
outside the Territory and the territories specified in the Non-Japan Agreements.
2.3 LICENSE ROYALTY FEES. Emcore shall promptly pay to Hakuto [*] of
all license royalties, fees and other compensation accruing, directly or
indirectly, to or received by Emcore in connection with Emcore's technology
sharing arrangements (including, but not limited to, licensing and leasing) of
Mode Items: (1) in the Territory or (2) to any customer procured by Hakuto but
relating to arrangements outside of the Territory and the territories specified
in the Non-Japan Agreements (the "Licensing Royalty Fee").
2.4 REVIEW OF COMPENSATION AND LICENSING ROYALTY FEE. Hakuto and Emcore
shall: (1) review compensation and Licensing Royalty Fee on the second
anniversary of the effective date of this Agreement and on every other
anniversary date thereafter; and (2) alter such compensation and Licensing
Royalty Fee, if agreed to by both Hakuto and Emcore.
2.5 FEES PAYABLE TO EMCORE. In consideration of the distribution rights
granted by Emcore to Hakuto in this Agreement and in the Non-Japan Agreements,
Hakuto shall pay to Emcore [*] as follows: (1) [*] upon execution of this
Agreement; and (2) an additional [*] will be due in four equal installments,
such installments equaling [*] for each [*] in sales orders (for
4
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------------------------------------
which Hakuto and any of its affiliates under the Non-Japan Agreements is
compensated hereunder) for Mode Items, Pegasus Items and E2M Items generated in
the Territory or in the territories specified in the Non-Japan Agreements.
2.6 BEST EFFORTS. Hakuto shall exert its best efforts to sell the
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 Hakuto will confer with
Emcore regarding the best marketing strategies to promote sales of the Products,
and Hakuto will otherwise fully coordinate its sales efforts with Emcore. Hakuto
shall not market, distribute, sell or advertise for sale within the Territory
any products that are competitive with the Products.
2.7 NO AGENCY. 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. Neither Hakuto nor Emcore shall have the
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 the other party.
2.8 SUBDISTRIBUTORS. Hakuto shall not appoint any subdistributor or
subagent 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, or certain customers in the
Territory, to its subsidiaries and affiliates. If Hakuto makes any such
assignment to a subsidiary or affiliate, Hakuto and Emcore shall nevertheless be
responsible for the obligations created hereunder.
2.9 MARKETING. 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 Products resulting
from
5
<PAGE> 6
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------------------------------------
[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
such activities of Emcore shall be referred to and channeled exclusively through
Hakuto, pursuant to the terms of this Agreement.
2.10 PRODUCT MODIFICATION, IMPROVEMENT AND DISCONTINUANCE. Emcore shall
have the right to make Modifications and Improvements, and to discontinue
production of any or all of the Products in its sole discretion, provided, that:
(1) Emcore shall give Hakuto not less than ninety (90) days' notice prior to the
discontinuance, Modification or Improvement of any Product; and (2) any
Modification or Improvement by Emcore of any Product shall be deemed to be added
to Exhibit A hereto by reference.
3. ORDERS AND PRICE TERMS.
3.1 PRODUCTS. Hakuto may submit to Emcore from time to time requests
for quotations with respect to any Products. Each such request for a quotation
shall identify Hakuto's prospective customer and shall set forth detailed
specifications for the Products 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 Products.
3.2 EQUIPMENT; AND EQUIPMENT SPARE PARTS. At Hakuto's specific request,
Emcore will include in its quotations for Equipment: (1) a firm price for
Emcore's installation or assistance in installing the Equipment; and/or (2) a
firm price for Emcore's assistance in the start-up of the Equipment 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. Hakuto may submit to Emcore from time to time purchase orders with
respect to spare parts or components included as Equipment under this Agreement
("Spare Parts"), setting forth the quantity and desired delivery date of such
Spare Parts. The price for any Spare Part shall be [*]. Emcore reserves the
right to
6
<PAGE> 7
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------------------------------------
[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
change its Spare Parts price list from time to time upon not less than ninety
(90) days' prior written notice to Hakuto.
3.3 OTHER TERMS. The terms and conditions on purchase orders issued by
Hakuto and quotations issued by Emcore shall be deemed to be a part of this
Agreement as a supplement hereto, provided that any provision in such purchase
order or quotation which is inconsistent with or contrary to the provisions of
this Agreement shall be deemed to be deleted from the purchase order or
quotation and of no force or effect unless the parties shall have specifically
agreed in writing that said provision in the purchase order or provision is
intended to supersede the inconsistent provision of this Agreement, in which
case the provisions of the purchase order or quotation shall prevail solely with
respect to such purchase order. All prices quoted by Emcore shall be F.O.B.
Emcore's plant in Somerset, New Jersey or, in the case of Mode Items, F.O.B.
Emcore's plant in Albuquerque, New Mexico. The quotations issued by Emcore for
Products shall be valid for not less than ninety (90) days (unless otherwise
specified in writing by Emcore). To be effective, all purchase orders must be
accepted in writing by Emcore at its plant in Somerset, New Jersey.
4. PAYMENT TERMS.
4.1 EQUIPMENT. Hakuto shall pay for Equipment purchased under this
Agreement as follows: [*] either (a) not later than one hundred eighty (180)
days prior to the scheduled delivery date of the Equipment, or (b) within thirty
(30) days after issuance of Hakuto's purchase order or Hakuto's letter of intent
if delivery of the Equipment is scheduled thereafter sooner than one hundred
eighty (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 the
7
<PAGE> 8
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------------------------------------
[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
customer's other business decision; and (2) [*] after shipment of the Equipment
by Emcore and delivery of a bill of a lading evidencing such shipment.
4.2 SPARE PARTS. Hakuto shall remit payment in full to Emcore for all
Spare Parts purchased under this Agreement within thirty (30) days after
shipment by Hakuto to Hakuto's customer.
4.3 MODE ITEMS; PEGASUS ITEMS; E2M ITEMS. Hakuto shall remit payment in
full to Emcore for all Mode Items, Pegasus Items and E2M Items purchased under
this Agreement within sixty (60) days after delivery to Hakuto.
4.4 NO ADJUSTMENTS OR DEDUCTIONS. All payments for Products shall be in
U.S. dollars without adjustment for any currency exchange or conversion rate
changes and without deduction for any taxes at any time levied by any
governmental authority.
5. SHIPMENT.
5.1 TAXES AND COSTS. All Products shall be shipped via carrier
designated in the purchase order, F.O.B. Emcore's plant in Somerset, New Jersey
or, in the case of Mode Items, F.O.B. Emcore's plant in Albuquerque, New Mexico.
Hakuto shall bear and pay for all taxes of any nature (except for taxes assessed
upon or due in connection with Emcore's income) 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.
8
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------------------------------------
5.2 SHIPPING DATES. Shipping dates, even though accepted by Emcore,
shall be understood only as best estimates. Emcore shall attempt to respect all
shipping dates, but, except as set provided in SECTION 7.5, shall not be liable
to Hakuto for damages arising from any delay in shipment or delivery, however
caused, except as otherwise expressly agreed by Emcore in writing on a
case-by-case basis. If Emcore experiences shipping or production delays, Emcore
shall not allocate Products to parties other than Hakuto, unless Hakuto is
allocated Products on a pro-rata basis with such other parties.
5.3 SHORTAGE OR DEFECT. Except as provided in SECTION 7.5, Emcore shall
not be liable for any obvious shortage of Products or for any patently obvious
defect in Products discoverable by visual inspection with respect to any
shipment received by Hakuto, unless Hakuto notifies Emcore in writing of such
obvious shortage or patently obvious defect, prior to the earlier to occur of:
(1) the expiration of sixty (60) days after receipt of such shipment by Hakuto;
or (2) the expiration of twenty (20) days after Hakuto ships such Products to
Hakuto's customer. Upon receipt of such notice, together with evidence that such
obvious shortage or patently obvious defect exists, and subject to the
provisions of SECTION 7.5, Emcore reserves 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 or its
customer.
6. EQUIPMENT INSTALLATION AND SERVICE.
6.1 GENERAL. Except as set forth below with respect to warranty
service, and except as provided in SECTION 7.5 and otherwise expressly provided
in quotations for Equipment issued by Emcore, Hakuto shall be responsible at its
own expense for the installation and service of all Equipment 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 Equipment in the Territory. Hakuto shall give due consideration to
Emcore's suggested minimum inventories for various Spare Parts.
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[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
6.2 INITIAL AND POST-INSTALLATION SERVICE FEES. Emcore shall make
certain personnel available to assist Hakuto in the initial installation of
Equipment at the customer's facility as well as in servicing Equipment 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 Equipment) unless other fee arrangements are agreed between Emcore
and Hakuto on a specific transaction. Hakuto shall pay Emcore for
post-installation servicing at the rate of [*] per person per day for field
service engineers and [*] 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 this 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 this
Agreement.
7. WARRANTY, INSURANCE AND INDEMNIFICATION.
7.1 WARRANTIES RELATING TO EQUIPMENT.
7.1.1 MATERIAL AND QUALITY. Subject to the disclaimers,
limitations and exclusions set forth below, and subject to the
provisions of SECTIONS 7.5 and 10.5, Emcore warrants to Hakuto and to
the end user customer of the Equipment that the Equipment shall be free
from defects in design, materials and quality. This warranty shall
become effective upon delivery of the Equipment to the end user
customer of Hakuto, and shall extend for a period of one (1) year from
the date of acceptance of the Equipment by the end user customer.
Hakuto shall notify Emcore from time to time of the installation
completion and customer acceptance date of Equipment. With respect to
any non-conforming Products as to which Emcore shall have received
notification of such non-
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conformance within twenty (20) days after discovery of same, Emcore
shall, subject to the provisions of SECTIONS 7.5 and 10.5, at its
election repair the same or provide a replacement Product at no cost to
Hakuto or the end user. Subject to SECTIONS 7.5 and 10.5, Emcore shall
not be liable for the cost of any labor or transportation charges
incurred in the repair or replacement of any non-conforming Products,
other than: (1) labor costs incurred by Emcore for Product repairs
performed in the United States; (2) cost of transportation incurred by
Emcore in the United States; and (3) 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.
7.1.2 WARRANTY AS TO SPECIFICATIONS. Emcore warrants that all
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.
7.1.3 EXCLUSIONS AND DISCLAIMER. Emcore's warranties set forth
in SECTIONS 7.1.1 and 7.1.2 do not apply to expendable items, including
those items listed in Exhibit B attached hereto. Also excluded from
Emcore's foregoing warranties are any components identified by Emcore
to Hakuto as being the subject of manufacturer's or licensor's
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, subject to the provisions of SECTIONS 7.5 and 10.5,
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 limitation with
respect to components shall not apply to Emcore manufactured or
designed components.
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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, SUBJECT TO THE PROVISIONS OF
SECTIONS 7.5 AND 10.5, SHALL CONSTITUTE THE SOLE REMEDY OF HAKUTO AND
LIABILITY OF EMCORE WITH RESPECT TO ANY PRODUCTS DELIVERED PURSUANT TO
THIS AGREEMENT. EXCEPT AS PROVIDED IN SECTIONS 7.5 AND 10.5, 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. EXCEPT AS PROVIDED IN SECTIONS 7.5 AND
10.5, 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.
7.2 WARRANTIES RELATING TO MODE ITEMS, PEGASUS ITEMS AND E2M
ITEMS.
7.2.1 MATERIAL, QUALITY AND SPECIFICATIONS. Subject to the
provisions of SECTIONS 7.5 and 10.5, Emcore warrants to Hakuto and to
the end user customer that for a period beginning upon delivery of the
Applied Products to Hakuto or to the end user customer and continuing
until the date one (1) year from the date of acceptance by the end user
customer that any Applied Products delivered to Hakuto or the end user
customer shall be free from defects in material, workmanship and
quality and shall meet the specifications set forth in its
specifications sheets or specifications as agreed formally with
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the end user customer or as mutually agreed by Emcore and Hakuto from
time to time hereafter.
7.2.2 EXCLUSIONS AND DISCLAIMER. THE EXPRESS WARRANTY GRANTED
ABOVE SHALL EXTEND DIRECTLY TO AUTHORIZED DISTRIBUTORS AND, EXCEPT AS
PROVIDED IN SECTIONS 7.5 AND 10.5, IS IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR PARTICULAR PURPOSE. Except as provided in SECTION 7.5
and 10.5, Emcore will be liable under this warranty only for
replacement of the defective Product or, at the option of Hakuto or the
customer, credit of the Customer Price of the defective Product.
7.3 SPARE PARTS CONSIGNMENT INVENTORY. 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 SECTIONS 7.1.1 and 7.1.2 with respect to specification
non-conformance. Emcore agrees to maintain with Hakuto, at such location in the
Territory as Hakuto may designate, a consignment inventory of Spare Parts
("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: (1) 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 (2) the current levels of all Spare Parts comprising the
Consignment Inventory.
7.4 INSURANCE. Emcore shall maintain in force during the term of this
Agreement, and for a period of five (5) years thereafter, product liability
insurance based on an occurrence basis rather than a claims made basis, with
respect to the Products, in an amount not less than Two Million Dollars
($2,000,000) per person and Two Million Dollars ($2,000,000) per occurrence.
Such insurance policies shall name Hakuto as an additional insured, or shall
contain coverage protecting Hakuto as a vendor of the Products. Emcore shall
furnish Hakuto with properly executed Certificates of Insurance. Such insurance
policies shall include the obligation of the
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insurer to notify Hakuto, not less than thirty (30) days in advance, of any
reduction, non-renewal or cancellation of the foregoing insurance. In the event
that Emcore fails to purchase or maintain in force the above insurance, Hakuto
may purchase such insurance on Emcore's account, and at Emcore's expense, and
nothing herein shall waive Emcore's obligation to purchase and maintain such
insurance.
7.5 INDEMNIFICATION. Emcore shall indemnify and, at its own expense and
with diligence, defend and hold Hakuto, its subsidiaries and affiliates, and
their respective customers, free and harmless from and against any and all
claims, losses, damages, suits, causes of action, obligations and/or liabilities
(and against all associated costs and expenses, including, without limitation,
reasonable attorneys' fees and costs of litigation) whenever and wherever they
may occur, arising directly or indirectly from the sale or use of the Products,
provided, however, Emcore's obligation to indemnify Hakuto under this paragraph
shall not extend to any claims, losses, damages, suits, causes of action,
obligations and/or liabilities arising out of the gross negligence or
intentional wrongful conduct of the claimant.
8. OBLIGATIONS OF HAKUTO.
8.1 GENERAL OBLIGATIONS. 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:
8.1.1 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;
8.1.2 advertise the Products throughout the Territory in
appropriate advertising media and in a manner
insuring proper and adequate publicity for the
Products, provided that Emcore shall be given the
opportunity to review and approve all advertising
prior to release by Hakuto;
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8.1.3 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;
8.1.4 establish and maintain within the Territory adequate
business locations, including suitable facilities for
the display, care and storage of the Products and
provide adequate insurance against loss;
8.1.5 maintain within the Territory an inventory of Spare
Parts (in addition to the Consignment Inventory)
sufficient to meet expected demands for service and
upgrading of the Equipment in the Territory;
8.1.6 maintain a trained technical sales force and
sufficient other personnel qualified to promote,
install and service the Equipment in the Territory
and send appropriate personnel to Emcore for one week
training on an annual basis;
8.1.7 offer the Products for sale (including all
advertising and promotional activities) under the
Emcore trademark as manufacturer and Hakuto's
trademark as distributor;
8.1.8 assume full responsibility for the installation of
the Equipment, and the warranty and post-warranty
service and maintenance of the Equipment, in the
Territory;
8.1.9 translate and prepare promotional and technical
literature for use in the Territory;
8.1.10 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
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complying with U.S. regulations and with regulations
and customs applicable in the Territory;
8.1.11 provide Emcore with periodic reports (but not less
often than quarterly) in form and substance
reasonably 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;
8.1.12 establish and maintain complete and accurate records
of all sales and service of the Products in the
Territory;
8.1.13 refrain, without Emcore's prior written consent, from
seeking customers outside the Territory or from
promoting the sale of the Products outside the
Territory;
8.1.14 refrain from purchasing or soliciting orders for
goods which directly compete in any way with the
Products; and
8.1.15 (1) immediately assign a full time sales manager; (2)
within 60 days of the date of this Agreement, appoint
an additional sales person to specialize in the
distribution of Mode Items, Pegasus Items and E2M
Items; and (3) within one year of the date of this
Agreement, form a group to specialize in the
distribution of Mode Items, Pegasus Items and E2M
Items.
8.2 EQUIPMENT MINIMUM PURCHASE OBLIGATION. With respect to Equipment,
Hakuto shall have a minimum purchase obligation during each year of the term of
this Agreement
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[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
("Contract Year"). Hakuto will submit to Emcore purchase orders during each of
the [*]. For each succeeding Contract Year of the Agreement, Hakuto and Emcore
shall mutually agree on a minimum purchase order 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
Equipment shipped during said Contract Year, the value of orders placed by
Hakuto though not shipped by Emcore during the Contract Year, and the value of
orders procured by Hakuto but canceled by Hakuto's customer by reason of
Emcore's inability to perfect delivery of the Equipment within six (6) 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 order commitment for the subsequent Contract Year.
"Contract Year" means the twelve (12) month period commencing on the date of
this Agreement and each twelve (12) month period thereafter during the term of
this Agreement or any renewal term thereafter.
9. OBLIGATIONS OF EMCORE. In addition to and not in limitation of any other
obligations of Emcore under this Agreement, Emcore shall, at its own expense,
provide Hakuto with periodic reports (but not less often than quarterly) in form
and substance satisfactory to Hakuto, setting forth detailed information for
such period regarding production costs and margins with respect to the Products
and any other information likely to assist Hakuto in evaluating pricing options.
10. TRADEMARK AND PATENT RIGHTS.
10.1 LICENSE GRANT. Exhibit C attached hereto and made a part hereof
identifies all registered, recorded or issued material intellectual property,
including registered copyrights and trademarks, issued patents and applications
for any of the foregoing, which have been, or, with respect to applications, may
be issued to or registered by Emcore in the Territory (which listed items,
together with other intellectual property in which Emcore claims a proprietary
interest in
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the Territory such as, inter alia, know-how and common law trademarks shall
hereafter be referred to as "Intellectual Property"). Hakuto is hereby granted a
license and privilege to use all of the Intellectual Property, including any
improvements, modifications or functional equivalents, during the term of this
Agreement in furtherance of the objectives of this Agreement. Hakuto shall not
have the right to sublicense (except to Hakuto's subsidiaries and affiliates)
the Intellectual Property or otherwise permit its use by third parties without
Emcore's prior written consent. If Hakuto is required by law to register its
licenses in Japan or, in its sole discretion, determines that registration
hereof should be effected in order to protect the rights and interests of Hakuto
hereunder, then Emcore shall cooperate with Hakuto to effect the same.
10.2 HAKUTO COOPERATION. 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 Intellectual Property in the
Territory. Upon Emcore's request, Hakuto shall assist Emcore in connection with
the issuance or registration of any new Emcore patents, copyrights, trademarks
or other Intellectual Property in the Territory.
10.3 INFRINGEMENT. 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 Hakuto has notice and shall assist Emcore in taking such action
against such infringement as Emcore may elect.
10.4 TERMINATION OF LICENSE. 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 the same.
10.5 INFRINGEMENT INDEMNIFICATION. If Hakuto or its customers are
served notice of alleged infringement of any patents, designs, copyrights and/or
trademarks arising from the sale or use of any of the Products, Emcore shall, at
its own expense and with diligence, defend and hold Hakuto and its customers
free and harmless from and against any and all claims, loss, damage, suits,
causes of action and/or liability (and against all associated costs and
expenses, including, without limitation, reasonable attorneys' fees and costs of
litigation) whenever and wherever they
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may occur, on account of said alleged infringement; provided, however, that
Emcore shall have no obligation to indemnify Hakuto or its customers to the
extent the alleged infringement is due solely to: (a) a Product modification by
Hakuto or the customer; (b) use of a Product in combination with any other
device or thing; or (c) failure to use the Product in accordance with its
customary use or in conformity with Emcore's instructions and operating
guidelines. If Emcore shall fail or refuse to do so, Hakuto and its customers
may take such action as Hakuto or its customer, or jointly, may deem necessary,
and all costs, attorneys' fees, losses or damages as may be incurred by Hakuto
or its customers shall be the obligation of Emcore to be recovered by Hakuto or
its customers by suit or otherwise.
10.6 QUALITY CONTROL. In connection with any use hereunder by Hakuto of
any registered or unregistered trademark owned by Emcore, Emcore shall have the
right at all times to: (a) establish and require Hakuto's adherence to quality
control standards governing the repair, sale and quality of the Products; and
(b) establish and require Hakuto's adherence to standards governing the manner
of display of any Emcore trademark in promotional, technical and informational
materials. Emcore shall have the right to request, at reasonable intervals,
inspection by Emcore or its designee of Hakuto's operations and of any materials
used or created by Hakuto displaying any Emcore trademark, so that Emcore can
verify to its satisfaction that the Products, services and display of trademarks
conform to the appropriate standard of quality.
11. CONFIDENTIALITY. Each party hereto when receiving information from the other
party (in such case, a "Receiving Party") agrees to use its best efforts to hold
in strict confidence and not to disclose to others or use, for a period of three
years after termination hereof, any technical or business information,
manufacturing technique, process, experimental work, trade secret or other
confidential matter relating to the business of the party in possession of such
information (such party, a "Disclosing Party") or relating to the Products, in
the case of Hakuto, or the other party's business ("Confidential Information"),
except to the extent necessary to further the objectives of this Agreement. This
SECTION 11 shall not apply to: (1) information known to the Receiving Party
prior to disclosure by the Disclosing Party of Confidential Information; (2)
Confidential Information which is, or becomes through no fault of the Receiving
Party, generally known or available to the public; (3) Confidential Information
which is received by the Receiving Party from
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third parties who are not bound by confidentiality obligations; (4) Confidential
Information which the Disclosing Party discloses to a third party who is not
bound by confidentiality obligations, unless such third party is a subsidiary or
affiliate of the Disclosing Party; and (5) information independently developed
by the Receiving Party. The Receiving Party shall, upon request (and upon
termination of this Agreement without request), deliver to the Receiving Party
any and all drawings, notes, documents and materials received from the Receiving
Party.
12. 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.
13. TERM AND TERMINATION.
13.1 TERM. This Agreement shall take effect on the effective date set
forth on the first page hereof and shall remain in effect for a period of ten
(10) years thereafter unless earlier terminated in accordance with the terms
hereof. This Agreement may be terminated by either Party upon the expiration of
the ten (10) 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 ten (10) year period for further
consecutive periods of one (1) year each, subject, however, to the right of
either party to terminate the Agreement during each such extended one-year
period by giving six (6) months' prior written notice to the other party of its
intent to terminate.
13.2 TERMINATION. In addition to the provisions of SECTION 13.1
above, either party may terminate this Agreement as follows:
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13.2.2 immediately and without prior written notice if
proceedings in bankruptcy or insolvency are
instituted by or against the other party, 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 sixty (60) days after its commencement or
institution; or
13.2.3 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 thirty (30) days after receipt by such party
of written notice of the default; or
13.2.4 immediately if either party is unable to obtain or
renew any material permit, license, or other
governmental approval necessary to such party's
performance under this Agreement.
14. CONSEQUENCES UPON TERMINATION. Upon expiration or termination of this
Agreement for any reason:
14.1 REPURCHASE OF SPARE PARTS. 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.
14.2 RETURN OF MATERIALS. Hakuto shall return to Emcore all proprietary
information and all sales and technical literature relating to the Products, 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.
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[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
14.3 NON-COMPETITION; CESSATION OF MARKETING AND USE OF EMCORE NAME.
For a period of [*] after the date of termination of this Agreement, Hakuto
shall not engage in the marketing, sales or distribution of any products which
may be directly competitive with the Products, provided, however, nothing herein
shall prohibit Hakuto from liquidating by sale or otherwise any Products
remaining in Hakuto's inventory on the date of termination and not repurchased
by Emcore. 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, for such [*] period,
refer to Emcore any and all inquiries, orders, correspondence and the like,
whether in written or oral form, pertaining to Products in the Territory.
14.4 ASSUMPTION OF WARRANTY OBLIGATIONS. Emcore shall assume,
commencing immediately upon termination of this Agreement, full responsibility
for providing warranty service and post-warranty servicing of the Equipment to
all customers theretofore serviced by Hakuto, and Emcore shall hold Hakuto free
and harmless from all such obligations.
14.5 COMMISSIONS. Emcore shall pay to Hakuto a commission as follows:
(1) with respect to Equipment, a commission equal to [*] purchase price of any
Equipment sold by Emcore (i.e., orders received and approved by Emcore) or with
respect to compensation or fees received by Emcore in connection with technology
sharing arrangements in or for use in the Territory within twelve (12) months
after expiration or termination of this Agreement; (2) with respect to Mode
Items, [*]; (3) with respect to Pegasus Items, [*]; and (4) with respect to E2M
Items, [*].
14.6 LIABILITY FOR TERMINATION. Provided that termination of this
Agreement did not result by reason of the breach of or default under this
Agreement by either party, and except as
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[*] CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ASTERICKS DENOTE SUCH OMISSIONS.
provided in SECTION 15, 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.
15. CHANGE OF CONTROL. If, during the term of this Agreement, a Change of
Control occurs, then Emcore shall either: (1) pay [*] to Hakuto; or (2) provide
Hakuto with reasonable assurance that the New Control Party will assume the
obligations of this Agreement and that the New Control Party will, or will cause
Emcore to, manufacture and sell, in the Territory and pursuant to the terms of
this Agreement, Mode Items, Pegasus Items and E2M Items at a level satisfactory
to Hakuto.
16. MISCELLANEOUS.
16.1 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, telecopy
or recognized overnight delivery service, and shall be effective upon receipt:
To Emcore: Emcore Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08873
Attention: William J. Kroll
Telephone: 908-271-9090
Fax: 908-271-9686
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To Hakuto: Hakuto Co. Ltd.
1-13 Shinjuku
1-chome, Shinjuku-ku
Tokyo 160, Japan
Attention: A. Nakazawa
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
16.2 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.
16.3 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.
16.4 MODIFICATION. This Agreement may be modified, amended or revised
only by a written instrument duly executed by the parties hereto.
24
<PAGE> 25
CONFORMED COPY OF EXECUTION ORIGINAL
------------------------------------
16.5 COMPLIANCE WITH LAWS. In the conduct of its business under this
Agreement, Hakuto shall comply with the applicable laws, regulations, orders and
the like prevailing in the Territory.
16.6 ENTIRE AGREEMENT. This Agreement, the exhibits and duly executed
addenda thereto, 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 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.
16.7 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.
16.8 SUCCESSORS AND ASSIGNS. Subject to SECTION 12 hereof, all terms
and provisions of this Agreement shall be binding upon and inure to the benefit
of the parties and their respective permitted transferees, successors and
assigns.
16.9 COUNTERPARTS. This Agreement may be executed by duly authorized
representatives of the respective parties hereto in any number of counterparts,
each of which, when fully executed, shall be deemed an 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 any translation thereof,
the English language version shall control.
<PAGE> 26
CONFORMED COPY OF EXECUTION ORIGINAL
------------------------------------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMCORE CORPORATION
By: /s/ WILLIAM J. KROLL
---------------------------------
Name: William J. Kroll
Title: Executive Vice President
HAKUTO CO. LTD.
By: /s/ SHIGEO TAKAYAMA
---------------------------------
Title: President & CEO
<PAGE> 1
Exhibit 10.15
EMCORE CORPORATION
PURCHASE AGREEMENT
November 30, 1998
Hakuto Co., Ltd.
1-13 Shinjuku
1-chome, Shinjuku-ku
Tokyo, Japan
Uniroyal Technology Corporation
Two North Tamiami Trail, Suite 900
Sarasota, Florida 34236
Union Miniere Inc.
13847 West Virginia Drive
Lakewood, Colorado 80228
Attn: Richard Laird
Dear Sirs:
EMCORE Corporation, a New Jersey corporation (the "Company"),
proposes to issue and sell to each of Hakuto Co., Ltd., Uniroyal Technology
Corporation and Union Miniere Inc. (each a "Purchaser" and collectively the
"Purchasers") the number of shares of its Series I Redeemable Convertible
Preferred Stock (the "Preferred Stock") listed on Exhibit A hereto. The
Preferred Stock will be convertible at the option of the holders thereof, unless
previously redeemed, into shares of common stock, no par value per share, of the
Company (the "Underlying Common Stock" and, together with the Preferred Stock,
the "Securities") at an initial conversion price of $14.00 per share of Common
Stock, subject to adjustment in certain events. The Preferred Stock is
redeemable, in whole or in part, at the option of the Company at any time if the
last reported sales price of the Company's common stock, no par value per share
(the "Common Stock") is $28.00 per share or greater for 30 consecutive trading
days, at a price of $14.00 per share, plus accrued and unpaid dividends, if any,
to the redemption date. Upon the occurrence of a Change in Control (as defined
below), the Company will be obligated either to offer to purchase all or any
part of each holder's Shares at a price equal to $14.14 per Share, plus accrued
and unpaid dividends, or to adjust the conversion price, as described herein.
The Shares of Preferred Stock are subject to mandatory redemption by the Company
on November 17, 2003.
The Securities will be offered without being registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom. Resale of the Underlying Common Stock shall be registered
in the future pursuant to the terms of a
<PAGE> 2
Registration Rights Agreement to be dated as of the date hereof (the
"Registration Rights Agreement") between the Company and the Purchasers.
In connection with the offer and sale of the Securities, the
Company has prepared a private placement memorandum (the "Memorandum") setting
forth or including a description of the Securities, the terms of the offering, a
description of the Company and any material developments relating to the Company
occurring after the date of the most recent financial statements included
therein. As used herein, the term "Memorandum" shall include in each case the
documents incorporated therein by reference.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you, and agrees with you, that as of the date hereof
and as of the closing date:
(a) (i) Each document, if any, filed or to be filed pursuant
to the Exchange Act and incorporated by reference in the Memorandum has complied
or will comply when so filed in all material respects with the Exchange Act and
the applicable rules and regulations thereunder and (ii) the Memorandum does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its property and
to conduct its business as it is currently being conducted and as described in
the Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiary, taken as a whole.
(c) The Company's only subsidiary is MicroOptical Devices,
Inc. Such subsidiary has been duly incorporated, is validly existing as a
corporation and is in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiary, taken as a whole.
(d) The Preferred Stock has been duly authorized and, when
issued to and paid for by the Purchasers, will be validly issued, fully paid and
non-assessable and will not be subject to any preemptive rights or similar
rights. The Preferred Stock shall have the rights, preferences and privileges
and restrictions set forth in the form of Certificate of Amendment attached
hereto as Exhibit C (the "Certificate of Designation").
-2-
<PAGE> 3
(e) The Underlying Common Stock reserved for issuance upon
conversion of the Preferred Stock has been duly authorized and reserved and its
issuance in accordance with the Certificate of Designation has been approved,
and, when issued upon conversion of such Preferred Stock, will be validly
issued, fully paid and non-assessable and will not be subject to any preemptive
rights or similar rights.
(f) Each of this Agreement, the Registration Rights Agreement,
the Certificate of Designation and any other agreement to which the Company is a
party contemplated hereby (the "Transaction Documents") has been duly authorized
by the Company and, when executed and delivered by the Company, will be a valid
and binding agreement of the Company, enforceable in accordance with its terms
except as (x) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (y) rights
of acceleration, if applicable, and the availability of equitable remedies may
be limited by equitable principles of general applicability.
(g) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, each of the Transaction
Documents will not (1)(A) contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or its subsidiary that is material to the
Company and its subsidiary, taken as a whole, or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the Company
or any subsidiary, (B) or result in a breach of or constitute (upon notice or
lapse of time or both) a default under any indenture, mortgage, agreement,
contract or other material instrument binding upon the Company or its subsidiary
that is material to the Company and its subsidiary, taken as a whole, or result
in the creation or imposition of any lien, security interest, mortgage, pledge,
charge or other encumbrance, of any material nature whatsoever, upon any
properties or assets of the Company, and (2) no consent, approval, authorization
or order of, or qualification with, any governmental body or agency or other
party (other than consent by First Union National Bank which has been obtained)
is required for the performance by the Company or its subsidiary of its
obligations under this Agreement or the Registration Rights Agreement except
such as may be required by and has been obtained (except in connection with the
resale of the Underlying Common Stock) pursuant to the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Securities.
(h) Since the respective dates as of which information is
given in the Memorandum, and except as described in the Memorandum, there has
not occurred any material adverse change, or any development involving a
prospective material adverse change, in the condition, financial or otherwise,
or in the earnings, business or operations of the Company and its subsidiary,
taken as a whole, from those set forth in the Memorandum.
(i) There are no legal or governmental proceedings pending or,
to the best of the Company's knowledge, threatened and to the best of the
Company's knowledge investigations by any governmental body pending to which the
Company or its subsidiary is a party or to which any of the properties of the
Company or its subsidiary is subject, or related to environmental or
discrimination matters, or which could have an adverse effect on the power or
-3-
<PAGE> 4
ability of the Company to perform its obligations under this Agreement or the
Registration Rights Agreement or to consummate the transactions contemplated by
the Memorandum, other than proceedings accurately described in all material
respects in the Memorandum and proceedings that would not have a material
adverse effect on the Company and its subsidiary, taken as a whole.
(j) The Company has not directly, or through any agent, (i)
sold, offered for sale, solicited offers to buy or otherwise negotiated in
respect of either the Securities or any security (as defined in the Securities
Act) which is or will be integrated with the sale of the Securities in a manner
that would require the registration under the Securities Act of the Securities
or (ii) engaged in any form of general solicitation or general advertising or
similar conduct in connection with the offering and sale of the Securities (as
those terms are used in Regulation D under the Securities Act) or in any manner
involving a public offer or sale within the meaning of Section 4 (2) of the
Securities Act. The Company is selling the Securities in compliance with an
exemption from the Securities Act. Notwithstanding the above, the Company shall
register the resale of the Underlying Common Stock pursuant to the terms of the
Registration Rights Agreement.
(k) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting its
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable local, state and federal environmental laws and regulations;
except where failure to be so in compliance would not materially adversely
affect the condition (financial or otherwise), business, results of operations
or prospects of the Company and its subsidiary.
(l) The authorized capital stock of the Company consists of
23,529,411 shares of Common Stock, of which 9,379,411 shares are issued and
outstanding as of November 23, 1998 and 5,882,353 shares of preferred stock of
which 2,000,000 shares are designated as Series I Preferred Stock, and no shares
of preferred stock are issued and outstanding prior to the consummation of the
transactions contemplated by this Agreement. Each outstanding share of capital
stock of the Company is validly authorized and issued, fully paid and
nonassessable, without any personal liability attaching to the ownership
thereof, and has not been issued and is not owned or held in violation of any
preemptive or similar rights of shareholders. There is no commitment, plan or
arrangement to issue, and no outstanding option, warrant or other instrument
which by its terms is convertible into, or exercisable for, preferred stock or
Common Stock, except as may be properly described in the Memorandum.
(m) All of the outstanding shares of the subsidiary of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, without any personal liability attaching to the ownership
thereof. The Company's ownership of the subsidiary is as set forth in the
Memorandum, and the shares of such subsidiary owned by the Company are owned of
record and beneficially by the Company, directly, free and clear of any security
interests, liens, encumbrances, equities or other claims.
-4-
<PAGE> 5
(n) Except as disclosed in the Memorandum, to the knowledge of
the Company, the Company and/or its subsidiary own or possess adequate licenses
or other rights to use, free and clear of all liens, charges and encumbrances
and restrictions of any kind whatsoever other than existing licenses granted by
the Company and/or its subsidiary, all patents, patent rights, inventions, trade
secrets, licenses, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names, and copyrights that are
described in the Memorandum. The Company is not aware of any claim by a third
party regarding infringement on such party's intellectual property. The Company
requires all employees, agents, consultants and independent contractors to
execute confidentiality and non-disclosure agreements prior to being granted
access to the Company's facilities or being exposed to any confidential
information in the Company's custody or control.
(o) Except as set forth in the financial statements included
in the Memorandum, neither the Company nor its subsidiary is aware of any
material liability (whether asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, and whether due or to become
due).
(p) The Company and its subsidiary have filed or caused to be
filed, in a timely manner, all income tax returns, all material tax returns,
reports and declarations which are required to be filed by it in the ordinary
course of business and in accordance with all applicable laws and regulations.
All information in such tax returns, reports and declarations is complete and
accurate in all material respects. The Company and its subsidiary has paid or
caused to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, and has collected, deposited and remitted in
accordance with all applicable laws, all sales and/or use taxes applicable to
the conduct of its business, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to the Company or its subsidiary, as the case may be, and with respect
to which adequate reserves have been set aside on the Company's or its
subsidiary's books. Adequate provision has been made for the payment of all
accrued and unpaid federal, state, local, foreign and other taxes whether or not
yet due and payable and whether or not disputed.
(q) The Company represents and warrants that the information
contained in the following documents is true and correct in all material
respects as of their respective filing dates:
(i) the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997;
(ii) the Company's Quarterly Reports on Form 10-Q
required to be filed with the SEC for the three-month periods ended December 31,
1997, March 31, 1998 and June 30, 1998;
(iii) the Company's Current Reports on Form 8-K filed
with the SEC since September 30, 1997, if any; and
-5-
<PAGE> 6
(iv) Notice of Annual Meeting and Proxy Statement for
the Company's 1998 Annual Meeting of Stockholders.
(r) The Company has filed with the Commission all reports
("SEC Reports") required to be filed by its under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All of the SEC Reports filed by the
Company comply in all material respects with the requirements of the Exchange
Act. None of the SEC Reports contains, as of the respective dates thereof, any
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 light of the circumstances under which they were made. All financial
statements contained in the Memorandum and the SEC Reports have been prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP"). Each balance sheet presents fairly in accordance with GAAP the
financial position of the Company or its subsidiary, as applicable, as of the
date of such balance sheet, and each statement of operations, of stockholders'
equity and of cash flows presents fairly in accordance with GAAP the results of
operations, the stockholders' equity and the cash flows of the Company or its
subsidiary, as applicable, for the periods then ended.
(s) The Company is not aware of any Year 2000 non-compliance
issues internal to the Company and its subsidiary, including but not limited to
liability on the part of the Company or its subsidiary, remediation costs, or
risks associated with non-compliance by information technology and
non-information technology systems of the Company, that are likely to result in
any material, adverse effect on the business, financial condition or results of
operations of the Company or its subsidiary. To the Company's knowledge, without
independent investigation, no third party Year 2000 non-compliance is reasonably
likely to have a material adverse effect on the Company.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby represents and warrants to the Company, and agrees with the
Company, that as of the date hereof:
(a) Such Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has full right and power to execute and deliver this Agreement
and all other agreements and instruments contemplated hereby to which such
Purchaser is a party, and to perform its obligations hereunder and thereunder.
The execution, delivery and performance of this Agreement and all other
agreements and instruments contemplated hereby to which such Purchaser is a
party have been duly authorized by all necessary corporate action by such
Purchaser.
(b) No consent, approval or authorization of any persons or
entities is required in connection with such Purchaser's execution or delivery
of this Agreement or consummation of the transactions contemplated hereby.
(c) The Securities are being purchased for such Purchaser's
own account, for investment purposes only, not for the account of any other
person, and not with a view to distribution, assignment or resale to others or
fractionalization, contrary to applicable securities
-6-
<PAGE> 7
laws. Such Purchaser further acknowledges that the offering and sale of the
Preferred Stock has not been filed with or reviewed by the Securities and
Exchange Commission because of the Company's representations that this is
intended to be a nonpublic offering pursuant to Section 4(2) and Rule 506 of
Regulation D of the Securities Act.
(d) Such Purchaser agrees that it will not sell, transfer or
otherwise dispose of any of the Securities unless they are registered under the
Securities Act or unless an exemption from such registration is available. To
transfer the Preferred Stock or the Underlying Common Stock if no registration
statement is then available, a Purchaser may, at the request of the Company,
submit to the Company an opinion of counsel reasonably satisfactory to the
Company that the proposed sale, transfer or disposition does not result in a
violation of the Securities Act or any applicable "blue sky" laws (collectively,
the "Securities Laws"); provided, HOWEVER, that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 as long as the
Purchaser provides the Company with an appropriate broker's letter.
(e) Such Purchaser represents that it is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
(f) Such Purchaser has evaluated the Memorandum including the
"Risk Factors" contained therein.
3. PURCHASE AND DELIVERY. The Company hereby agrees to sell to
each Purchaser, and each Purchaser, upon the basis of the representations and
warranties herein contained, but subject to the conditions hereinafter stated,
agrees to purchase from the Company the number of shares of Preferred Stock
listed on Exhibit A for an aggregate purchase price as listed on Exhibit A.
Payment for the Preferred Stock shall be made against delivery
of the Preferred Stock at a closing to be held at such time and on such date,
not later than November __, 1998, as shall be agreed to by the Purchasers and
the Company. The time and date of such payment are herein referred to as the
"Closing Date." Payment for the Preferred Stock shall be made by wire transfer
of immediately available funds to the bank account to be specified in writing to
you.
Certificates for the Preferred Stock shall be in definitive
form and registered in such names and in such denominations as you shall
request. The certificates evidencing the Preferred Stock shall be delivered to
you on the Closing Date with any transfer taxes payable in connection with the
transfer of the Preferred Stock to the Purchasers duly paid by the Company,
against payment of the purchase price therefor.
4. CONDITIONS TO CLOSING. The obligations of each Purchaser
under this Agreement to purchase the Preferred Stock will be subject to
satisfaction, on or before the Closing Date, of each of the following conditions
unless waived in writing by such Purchaser:
(a) The Company shall deliver to each Purchaser a certificate,
dated the Closing Date and signed by an executive officer of the Company, to the
effect that the representations and warranties of the Company contained in this
Agreement are true and correct
-7-
<PAGE> 8
as of the Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied on or before the Closing Date. The officer signing and delivering such
certificate may rely upon the best of his knowledge as to proceedings that are
threatened.
(b) The Company shall have executed the Registration Rights
Agreement.
(c) Thomas Russell, The AER Trust 1997, Reuben Richards,
Robert Louis-Dreyfus and Gallium Enterprises, Inc. shall have executed the
Tag-Along Rights Agreement, dated as of the date hereof between them and the
Purchasers.
(d) Purchasers shall have received from counsels to the
Company, opinion letters addressed to the Purchasers, dated as of the Closing
Date, in form and substance reasonably satisfactory to counsel for the
Purchasers.
(e) The Company shall deliver to such Purchaser a copy of the
agreement of First Union National Bank (the "Bank") to extend the termination of
the Company's revolving credit facility with the Bank beyond November 30, 1998,
which agreement shall be satisfactory in form and substance to Purchasers.
(f) The Company shall have received the Consent of the Bank,
and each other party whose consent is required, to the use of the proceeds of
the sale of shares contemplated hereunder.
(g) The Purchasers shall have received evidence of filing of
the Certificate of Designation.
(h) The Purchasers shall have agreed to purchase an aggregate
of at least 1,550,000 shares of Preferred Stock on the Closing Date.
5. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Purchasers contained in this Agreement, the Company covenants
as follows:
(a) The Company shall distribute to the registered holders of
Preferred Stock such reports, proxy statements and other financial information
as the Company provides to any stockholder, generally or are currently provided
by the Company to any stockholder and such non-confidential information which a
Purchaser shall reasonably request and reasonable access to the executive
officers of the Company.
(b) Except as set forth in the Registration Rights Agreement,
neither the Company nor any Affiliate will sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
the Securities Act) which could be integrated with the sale of the Securities in
a manner which would require the registration of the Securities under the
Securities Act.
-8-
<PAGE> 9
(c) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) or in any
manner involving a public offering within the meaning of Section 4 (2) of the
Securities Act.
(d) Each certificate representing shares of Preferred Stock
will bear the legend contained in Exhibit B hereto.
(e) To list timely the Underlying Common Stock for trading on
the Nasdaq National Market in accordance with the rules of the National
Association of Securities Dealers, Inc.
(f) The Company shall use the proceeds from the sale of the
Preferred Stock hereunder in the manner set forth under the "Use of Proceeds"
section of the Memorandum.
(g) The Company shall place a stop order with the transfer
agent for the Company's Common Stock with respect to the shares subject to the
Tag-Along Rights Agreement dated as of the date hereof, between the Purchasers,
Thomas Russell, The AER Trust 1997, Robert Louis-Dreyfus, Gallium Enterprises,
Inc. and Reuben Richards (the "Tag-Along Rights Agreement"), prohibiting
transfers of such shares except in compliance with the Tag-Along Rights
Agreement and the Company agrees not to effect a transfer of any of the shares
subject to the Tag-Along Rights Agreement on its books, except in compliance
with the terms of the Tag-Along Rights Agreement.
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to this Agreement, all
representations and warranties made by the Company and each Purchaser herein and
in the certificates for the securities delivered pursuant hereto shall survive
for a period of 45 days following the distribution of the Company's audited
financials for fiscal 1999, except for those representations and warranties
contained in Section 1(d), (e), (f) and (g) hereof which shall survive
indefinitely. The covenants contained herein shall survive indefinitely.
7. INDEMNIFICATION.
(a) The Company shall not be required to indemnify a Purchaser
under Section 7(b) until such Purchaser's indemnifiable damages, individually or
in the aggregate, exceed $300,000 (the "HURDLE RATE"), at which point the
Company shall be responsible for all indemnifiable damages that may arise,
irrespective of the Hurdle Rate; and provided that indemnifiable damages shall
accumulate until such time as they exceed the Hurdle Rate, whereupon the
Purchaser shall be entitled to seek indemnification for the full amount of such
damages.
(b) INDEMNIFICATION BY COMPANY. Subject to paragraph (a)
above, the Company agrees to, and shall, indemnify the Purchasers and their
respective officers, directors, employees, shareholders, representatives,
controlling persons and agents and hold each of them harmless at all times after
the date of this Agreement, against and in respect of any and all
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<PAGE> 10
damage, loss, deficiency, liability, obligation, commitment, cost or expense
(including the fees and expenses of counsel) resulting from, or in respect of,
any misrepresentation, omission, breach of warranty, or non-fulfillment of any
obligation on the part of the Company under this Agreement.
8. MISCELLANEOUS.
(a) This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(b) All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next day courier
postage prepaid, to the parties as follows:
(x) if to a Purchaser, at the address listed in the
heading of this agreement; and
(y) if to the Company, to:
EMCORE Corporation
394 Elizabeth Avenue
Soberest, New Jersey 08873
Attention: Thomas G. Werthan
Telephone: (732) 271-9090
Telecopy: (732) 271-0477
with a copy to:
White & Case LLP
200 South Biscayne Boulevard
Miami, Florida 33131
Attention: Jorge L. Freeland, Esq.
Telephone: (305) 995-5247
Telecopy: (305) 358-5744
or such other address as such person may have furnished to the party giving
notice or other communication to this agreement in writing.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflict of
laws principles thereof.
(d) The Company and each of the Purchasers hereby irrevocably
submit to the jurisdiction of the state or federal courts located in New York
County, New York in connection with any suit, action or proceeding arising out
of or relating to this Agreement and the transactions contemplated hereby; the
foregoing shall in no way be deemed to constitute, or shall it be a general
consent by any party hereto, to the jurisdiction of any court in New York,
either
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<PAGE> 11
generally or specifically, with respect to matters not arising out of, or
related to, this Agreement and the transactions contemplated hereby.
(e) The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
(f) This Agreement may not be amended except in writing signed
by the party against which enforcement is sought.
(g) This Agreement may not be assigned by the Company.
[signature page follows]
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<PAGE> 12
Please confirm your agreement to the foregoing by signing in the space
provided below for that purpose and returning to us a copy hereof, whereupon
this Agreement shall constitute a binding agreement between us.
Very truly yours,
EMCORE CORPORATION
By: /s/ THOMAS G. WERTHAN
------------------------------
Thomas G. Werthan,
Vice-President
Agreed, November 30, 1998
HAKUTO CO., LTD.
By: /s/ SHIGEO TAKAYAMA
-------------------------------------------
Name: Shigeo Takayama
Title: President
UNIROYAL TECHNOLOGY CORPORATION
By: /s/ HOWARD R. CURD
-------------------------------------------
Name: Howard R. Curd
Title: Chairman and Chief Executive Officer
UNION MINIERE INC.
By: /s/ A. GODEFROID
-------------------------------------------
Name: A. Godefroid
Title: Director
By: /s/ M. VAN SANDE
-------------------------------------------
Name: M. Van Sande
Title: Director
<PAGE> 13
EXHIBIT A
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES AGGREGATE PURCHASE PRICE
- --------- ---------------- ------------------------
<S> <C> <C>
HAKUTO CO., LTD. $3,700,004.00
UNIROYAL TECHNOLOGY CORPORATION $8,999,998.0
UNION MINIERE, INC. $8,999,998.00
</TABLE>
<PAGE> 1
Exhibit 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of November 30, 1998 by and between EMCORE Corporation, a
New Jersey corporation (the "Company"), and Hakuto Co. Ltd., Uniroyal Technology
Corporation and Union Miniere Inc. (each a "Purchaser" and collectively, the
"Purchasers") pursuant to the Purchase Agreement, dated as of November 30, 1998
("the Purchase Agreement"), between the Company and the Purchasers. In order to
induce the Purchasers to enter into the Purchase Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Purchase
Agreement.
The Company agrees as follows:
1. DEFINITIONS. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
AFFILIATE: "Affiliate" means, with respect to any specified
person, (i) any other person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, such specified person or
(ii) any officer or director of such other person. For purposes of this
definition, the term "control" (including the terms "controlled by" and "under
common control with") of a person means the possession, direct or indirect, of
the power (whether or not exercised) to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City of New York
are authorized or obligated by law or executive order to close.
CERTIFICATE OF DESIGNATION: The Certificate of Amendment to
Designate the Series I Preferred Stock, filed with the Secretary of State of New
Jersey on November 19, 1998.
COMMON STOCK: The shares of common stock, no par value per
share, of the Company and any other shares of common stock as may constitute
"Common Stock," in each case, as issuable or issued upon conversion of the
Series I Preferred Stock.
DAMAGES ACCRUAL PERIOD: See Section 2(a)(v) hereof.
DAMAGES PAYMENT DATE: The first day of each month.
DEFERRAL PERIOD: See Section 2(a)(iv) hereof.
DEMAND REGISTRATION: See Section 2(b)(i) hereof.
DEMAND REQUEST: See Section 2(b)(i) hereof.
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EFFECTIVENESS PERIOD: The period commencing with the date
hereof and ending on the earlier of (a) November 17, 2003 plus such number of
days as is contained in all Damages Accrual Periods hereunder, or (b) the date
that all Registrable Securities have ceased to be Registrable Securities.
EVENT: See Section 2(a)(v) hereof.
EVENT DATE: See Section 2(a)(v) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
FILING DATE: See Section 2(a)(i) hereof.
HOLDERS: The holders from time to time of the Series I
Preferred Stock and of the Common Stock issued upon conversion of the Series I
Preferred Stock.
INDEMNIFIED PARTY: See Section 5(c) hereof.
INDEMNIFYING PARTY: See Section 5(c) hereof.
PROSPECTUS: The prospectus included in the Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any amendment or prospectus
supplement, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the first paragraph of this Agreement.
RECORD HOLDER: the registered holder of shares of Series I
Preferred Stock or Common Stock on the record date.
REGISTRABLE SECURITIES: The Common Stock of the Company into
which the Series I Preferred Stock is convertible or converted, whether or not
such Series I Preferred Stock has been converted (and associated rights), and at
all times subsequent thereto, and any equity security issued or issuable with
respect thereto upon any stock dividend, split, merger, consolidation or similar
event until, in the case of any such equity security, (i) it is effectively
registered under the Securities Act and disposed of in accordance with the
Registration Statement covering it, (ii) it is saleable by the holder thereof
pursuant to Rule 144(k) or (iii) it is sold to the public pursuant to Rule 144,
and, as a result of the event or circumstance described in any of the foregoing
clauses (i) through (iii), the legends with respect to transfer restrictions
required under the Purchase Agreement are removed or removable.
REGISTRATION STATEMENT: A registration statement of the
Company which covers the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective
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amendments, all exhibits, and all material incorporated by reference or deemed
to be incorporated by reference in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
RULE 144A: Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
RULE 144(K): Rule 144(k) under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.
SERIES I PREFERRED STOCK: The Series I Redeemable Convertible
Preferred Stock of the Company being issued and sold pursuant to the Purchase
Agreement and the Certificate of Designation, and any Series I Preferred Stock
issued with respect thereto upon any stock dividend or stock split of the Series
I Preferred Stock.
SHELF REGISTRATION: See Section 2(a)(i) hereof.
UNDERWRITER: A securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
2. REGISTRATION RIGHTS.
(a) SHELF REGISTRATION.
(i) The Company shall prepare and file with the SEC,
as soon as practicable but in any event on or prior to the date ninety (90) days
following the date hereof (the "Filing Date"), a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act (the "Shelf Registration Statement") registering the resale of
the Registrable Securities from time to time by the Holders of all of the
Registrable Securities (the "Shelf Registration"). The Shelf Registration shall
be on Form S-1 or S-3 (as appropriate) or another appropriate form permitting
registration of the resale of the Common Stock. The Company shall use its
reasonable best efforts to cause the Shelf Registration to be declared effective
under the Securities Act as soon as practicable and to keep the Shelf
Registration continuously effective under the Securities Act until the
expiration of the Effectiveness Period.
(ii) If the Shelf Registration ceases to be effective
for any reason as a result of the issuance of a stop order by the SEC at any
time during the Effective Period, the Company shall use its reasonable best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within thirty (30) days of such
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<PAGE> 4
cessation of effectiveness amend the Shelf Registration in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof.
(iii) The Company shall supplement and amend the
Shelf Registration if required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Shelf Registration, if required by the Securities Act or
if reasonably requested by a majority of the Holders of the Registrable
Securities covered by such Registration Statement.
(iv) In the event (A) of the happening of any event
of the kind described in Section 3(b)(ii), 3(b)(iii), 3(b)(iv), 3(b)(v) or
3(b)(vi) hereof or (B) that, in the judgment of the Company, it is advisable to
suspend use of the Prospectus for a discrete period of time due to pending
material corporate developments or similar materials that have not yet been
publicly disclosed and as to which the Company in good faith believes public
disclosure is reasonably likely to be detrimental to the Company, the Company
shall deliver a certificate in writing, signed by an authorized executive
officer of the Company, to the Holders to the effect of the foregoing and, upon
such notice, the Company may suspend use of the Registration Statement until a
supplemented or amended Prospectus is filed with the SEC, or until the Holders
are advised in writing by the Company that the Prospectus may be used, and the
Holders have received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in such Prospectus. The Company
will use its reasonable best efforts to ensure that the use of the Prospectus
may be resumed, and the use of the Registration Statement will commence, as soon
as practicable and, in the case of a pending development or event referred to in
this Section, as soon as the earlier of (x) public disclosure of such pending
material corporate development or similar material event or (y) the date upon
which, in the good faith judgment of the Company, public disclosure of such
material corporate development or similar material event would not be reasonably
likely to be detrimental to the Company. Notwithstanding the foregoing, the
Company shall not under any circumstances be entitled to exercise its right
under this Section 2(a)(iv) to suspend the use of the Registration Statement
except as follows: The Company may suspend the use of the Registration Statement
in accordance with this Section 2(a)(iv) for a period (such period being
"Deferral Period") not to exceed (i) an aggregate of 45 days (in no more than
two separate periods) in any three-month period and (ii) an aggregate of 90 days
(in no more than four separate periods) in any 12-month period, and the period
in which the use of the Registration Statement is suspended shall not exceed
fifteen (15) days unless the Company shall deliver to the Holders a second
notice to the effect set forth above, which shall have the effect of extending
the period during which the use of the Registration Statement is deferred by up
to an additional fifteen (15) days, or such shorter period of time as is
specified in such second notice.
(v) The parties hereto agree that the Holders of
Registrable Securities will suffer damages, and that it would not be feasible to
ascertain the extent of such damages with precision, if (A) the Shelf
Registration has not been filed on or prior to the Filing Date, (B) the Shelf
Registration is not declared effective within 90 days after the Filing Date, (C)
prior to the end of the Effectiveness Period, the SEC shall have issued a stop
order suspending the effectiveness of the Shelf Registration or proceedings have
been initiated with respect of the Shelf Registration under Section 8(d) or 8(e)
of the Securities Act or (D) the aggregate number of
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<PAGE> 5
days in any Deferral Period exceeds the number permitted pursuant to Section
2(a)(iv) hereof (each of the events of a type described in any of the foregoing
clauses (A) through (D) are individually referred to herein as an "Event," and
the Filing Date in the case of clause (A), the 90th day after the Filing Date,
in the case of clause (B), the date on which the effectiveness of the Shelf
Registration has been suspended or proceedings with respect to the Shelf
Registration under Section 8(d) or 8(e) of the Securities Act have been
commenced in the case of clause (C), and the date on which the number of days in
any Deferral Period exceeds the number permitted by Section 2(a)(iv) hereof in
the case of clause (D), being referred to herein as an "Event Date"). Events
shall be deemed to continue until the date of the termination of such Event,
which shall be the following dates with respect to the respective types of
Events: the date the Registration Statement is filed in the case of an Event of
the type described in clause (A), the date the Shelf Registration becomes
effective, in the case of an Event described in clause (B), the date that all
stop orders suspending effectiveness of the Shelf Registration have been removed
and the proceedings initiated with respect to the Shelf Registration under
Section 8(d) or 8(e) of the Securities Act have terminated, as the case may be,
in the case of Events of the types described in clause (C), and termination of
the Deferral Period which caused the aggregate number of days in any Deferral
Period to exceed the number permitted by Section 2(a)(iv) to be exceeded in the
case of Events of the type described in clause (D).
Accordingly, upon the occurrence of any Event and until such
time as there are no Events which have occurred and are continuing (a "Damages
Accrual Period"), commencing on the Event Date on which such Damages Accrual
Period began, the Company agrees to pay, as liquidated damages, and not as a
penalty, an additional amount (the "Specified Damages"): (A) to each holder of
Series I Preferred Stock, accruing at a rate equal to one-half of one percent
per annum (50 basis points) calculated on an amount equal to the product of (x)
the Liquidation Preference (as defined in the Certificate of Designation) times
(y) the number of shares of Series I Preferred Stock held by such holder; and
(B) if the Damages Accrual Period continues for a period in excess of thirty
(30) days from the Event Date, from and after the end of such (30) day period
until such time as there are no Events which have occurred and are continuing,
to each holder of Series I Preferred Stock, accruing at a rate equal to three
quarters of one percent per annum (75 basis points) calculated on an amount
equal to the product of (x) the Liquidation Preference (as defined in the
Certificate of Designation) times (y) the number of shares of Series I Preferred
Stock held by such holder. Notwithstanding the foregoing, no Specified Damages
shall accrue under clause (A) of the preceding sentence during any period for
which Specified Damages accrue under clause (B) of the preceding sentence or as
to any Registrable Securities from and after the earlier of (x) the date such
securities are no longer Registrable Securities and (y) expiration of the
Effectiveness Period. The rate of accrual of the Specified Damages with respect
to any period shall not exceed the rate provided for in this paragraph
notwithstanding the occurrence of multiple concurrent Events.
The Specified Damages due shall be paid by the Company to the
Record Holders on each Damages Payment Date by wire transfer of immediately
available funds to the accounts specified by them or by mailing checks to their
registered addresses as they appear in the register of the Company for the
Registrable Securities or Common Stock, if no such accounts have been specified
on or before the Damages Payment Date.
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(b) DEMAND REGISTRATION.
(i) A Holder or Holders holding not less than 50% of
the Registrable Securities may make a written request (a "Demand Request") for
registration under the Securities Act of all or part of its Registrable
Securities in a "firm commitment" underwritten offering (a "Demand
Registration"); PROVIDED that the Company shall not be obligated (A) to effect a
Demand Registration for the registration of Registrable Shares, the market value
of which is less than $15 million (as determined by the average of the closing
price for the Registrable Securities for the 20 trading dates immediately prior
to the delivery of notice to the Company), (B) to effect a registration of any
Registrable Securities within 180 days after any underwritten offering of equity
securities by the Company or (C) to effect a Demand Registration on more than
one occasion. Such request will specify the number of shares of Registrable
Securities proposed to be sold. Subject to Section 2(b)(iii), the Company shall
file a registration statement with respect to the Demand Registration as soon as
practicable thereafter and in any event within 90 days after receiving a Demand
Request (such 90th day being referred to herein as the "REQUIRED FILING DATE")
and shall use its best efforts to cause the same to be declared effective by the
Commission as promptly as practicable after such filing.
(ii) The Company shall deliver notice to all other
Holders within fifteen business days of receiving a Demand Request. Holders
receiving such notice may elect to participate in the request by notifying the
party or parties who delivered such notice within fifteen business days of the
receipt thereof of the intention to participate and the number of shares of
Registrable Securities such Holder wants to sell.
(iii) The Holders of a majority of the Registrable
Securities to be registered pursuant to the Demand Registration shall select the
managing Underwriters and any additional investment bankers and managers to be
used in connection with the offering; PROVIDED that such managing Underwriters
and additional investment bankers must be reasonably satisfactory to the
Company.
(iv) The Company may, in its sole discretion, decline
to grant a Demand Request on one occasion. In such event, the Demand Request
shall be deemed not to have been made for the purpose of Section 2(b)(i) hereof,
provided, however, that the holders may not make another request within 120 days
following the denial by the Company to grant such Demand Request.
(v) Notwithstanding anything contained herein, if the
managing underwriter of an offering described in Section 2(b)(i) above delivers
a written opinion to the Company that marketing considerations require a
limitation on the number of shares offered pursuant to any registration
statement, then the Company shall include in such registration (A) first, the
securities being offered for the account of the Holders of Registrable
Securities, (B) second, the number of equity securities that the Company wishes
to include, and (C) third, the number of equity securities requested by holders
of equity securities with registration rights that in the opinion of such
underwriter, can be sold, pro rata among such holders on the basis of the amount
of equity securities requested to be included by each such holders.
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(vi) A registration pursuant to this Section will not
be deemed to have been "effected" if it is withdrawn at the request of the
holders of the majority of the Registrable Securities to be included therein.
(c) PIGGYBACK REGISTRATION.
(i) If the Company proposes to file a registration
statement under the Securities Act with respect to an underwritten offering of
equity securities (A) for the Company's own account or (B) for the account of
any of the holders of its equity securities, then the Company shall give written
notice of such proposed filing to each Holder as soon as practicable (but in no
event less than 20 business days before the anticipated filing date), and such
notice shall offer such Holder the opportunity to register such number of shares
of Registrable Securities as such Holder may request on the same terms and
conditions as the Company's or such holder's equity securities (a "Piggyback
Registration"). Each Holder who desires to have its Registrable Securities
included in such registration statement shall so advise the Company in writing
(stating the number of shares of Common Stock desired to be registered) within
15 business days after the date of such notice from the Company. Any Holder
shall have the right to withdraw such request for inclusion of such Holder's
Registrable Securities in any registration statement pursuant to this section by
giving written notice to the Company of such withdrawal prior to the effective
date of the Registration Statement. Subject to Section 2(c)(ii) below, the
Company shall include in such registration statement all such Registrable
Securities requested to be included therein; PROVIDED, HOWEVER, that the Company
may at any time withdraw or cease proceeding with any such registration if it
shall at the same time withdraw or cease proceeding with the registration of all
other securities originally proposed to be registered.
(ii) Notwithstanding anything contained herein, if
the managing Underwriter of an offering described in Section 2(c)(i) above
delivers a written opinion to the Company that marketing considerations require
a limitation on the number of shares offered pursuant to any registration
statement, then the Company shall include in such registration (A) first, the
securities being offered for the account of the Company, and (B) second, the
number of Registrable Securities requested to be included that, in the opinion
of such Underwriter, can be sold, pro rata among the Holders on the basis of the
amount of Registrable Securities requested to be included by each Holder.
3. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations under Section 2 hereof, the Company shall as
expeditiously as possible:
(a) Prepare and file with the Commission a registration
statement on any form for which the Company then qualifies and which counsel for
the Company shall deem appropriate and available for the sale of the Registrable
Securities to be registered thereunder in accordance with the intended method of
distribution thereof (including in a Rule 415 offering), and use its reasonable
efforts to cause such filed registration statement to become effective as
promptly as practicable, and thereafter prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective (i) for a period of not less than 120 days in
the case of any registration other than the Shelf Registration plus the period
of any
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delay or suspension of use of a prospectus pursuant to Section 2(a)(iv) hereof,
and (ii) in the case of the Shelf Registration through the Effectiveness Period
plus the period of any delay or suspension of use of a prospectus pursuant to
Section 2(a)(iv) hereof.
(b) Notify the Holders, promptly, and confirm such notice in
writing, (i) when a Prospectus, any Prospectus supplement, a Registration
Statement or a post-effective amendment to a Registration Statement has been
filed with the SEC, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other federal or state governmental authority for
amendments or supplements to the Registration Statement or related Prospectus or
for additional information, (iii) of the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threatening of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or happening of any event which makes
any statement of a material fact in the Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which would require the making of any changes in the
Registration Statement or Prospectus in order that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the Company's good faith determination that a
post-effective amendment to the Registration Statement would be appropriate.
(c) Use its reasonable best efforts to obtain the withdrawal
of any order suspending the effectiveness of the Registration Statement, or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction, at the
earliest possible moment.
(d) Prior to filing a Registration Statement or any amendment
or supplement thereto, furnish to each selling Holder, copies thereof, and
thereafter furnish to each such Holder such number of copies of such
registration statement, amendment and supplement thereto (in each case including
all exhibits thereto and documents incorporated by reference therein) and the
prospectus included in such registration statement (including each preliminary
prospectus) as each such Holder may reasonably request from time to time in
order to facilitate the sale of the Registrable Securities.
(e) Prior to any public offering of Registrable Securities, to
register or qualify (or obtain an exemption from such registration or
qualification of) such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder reasonably requests in writing, keep each such registration or
qualification (or exemption therefrom) effective during the period the
Registration Statement is required to be kept effective and do any and all other
acts or things necessary or advisable to enable the
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<PAGE> 9
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement; PROVIDED, that the Company shall not be required to (A)
qualify generally to do business in any jurisdiction where it is not then so
qualified or (B) take any action that would subject it to general service of
process in suits or to taxation in any such jurisdiction where it is not then so
subject.
(f) Throughout the Effectiveness Period (other than during a
Deferral Period), immediately upon the existence of any fact or the occurrence
of any event as a result of which the Registration Statement shall contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
or a Prospectus shall contain any untrue statements of a material fact or omit
to state any material fact or omit to state any material fact required to be
stated therein or necessary to make each statement therein not misleading,
promptly prepare and file a post-effective amendment to the Registration
Statement or a supplement to the related Prospectus or any document incorporated
therein by reference or file any other required document (such as a current
Report on Form 8-K) that would be incorporated by reference into the
Registration Statement so that the Registration Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and so that the Prospectus will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, as thereafter delivered to the
Holders, and, in the case of a post-effective amendment to the Registration
Statement, use its reasonable best efforts to cause it to become effective as
soon as practicable.
(g) Comply with all applicable rules and regulations of the
SEC and make generally available to the holders of its securities earnings
statements (which need not be audited) satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to Underwriters in a firm commitment or best
efforts underwritten offering, and (ii) if not sold to Underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the Company
commencing after the effective date of the Registration Statement, which
statements shall cover said 12-month period.
(h) Cooperate with the Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Common Stock to be issued and not bearing any restrictive legends; and enable
such Registrable Securities to be in such denominations and registered in such
names as such Holders may request.
(i) Cause the Common Stock covered by the Registration
Statement to be listed and registered on each national securities exchange or
quoted on the automated quotation system of a national securities association on
which the Company's "Common Stock" is then listed, no later than the effective
date of the Registration Statement and, in connection therewith,
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to the extent applicable, to make such filings under the Exchange Act (e.g., the
filing of a Registration Statement on Form 8-A) and to have such filings
declared effective thereunder.
(j) Cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc.
(k) If reasonably requested by the managing underwriter or
underwriters or a Holder of Registrable Securities being sold in connection with
an underwritten offering, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Holders of a majority of the Registrable Securities (on a Common Stock
equivalent basis) being sold in such underwritten offering agree should be
included therein relating to the sale of the Registrable Securities, including,
without limitation, information with respect to the aggregate number of shares
of Registrable Securities being sold to such underwriters, the purchase price
being paid therefor by such underwriters and with respect to any other terms of
the underwritten offering of the Registrable Securities to be sold in such
offering; and promptly make all required filings of such prospectus supplement
or post-effective amendment.
(l) Cooperate with the selling Holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters may request at least two Business Days prior to any sale
of Registrable Securities to the underwriters.
(m) In the case of a Demand registration under Section 2(b):
(i) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(ii) at the request of any seller of Registrable
Securities, use its best efforts to furnish on the date that Restricted
Securities are delivered to the underwriters for sale pursuant to such
registration an opinion dated such date of counsel representing the Company for
the purposes of such registration, addressed to the underwriters and to such
seller, stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (iii) to such
other effects as reasonably may be requested by counsel for the underwriters or
by such Holder or its counsel;
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(iii) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
and
(iv) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request (provided
that such Registrable Securities constitute at least 10% of the securities
covered by such registration statement).
(n) In the case of any nonunderwritten offering: (1) obtain
opinions of counsel to the Company at the time of effectiveness of such
Registration Statement covering such offering and updates thereof of customary
frequency, addressed to each Holder of any Registrable Securities participating
in such offering and covering matters that are no more extensive in scope than
would be customarily covered in opinions obtained in secondary underwritten
offerings by issuers with similar market capitalization and reporting and
financial histories; (2) obtain "cold comfort" letters from the independent
certified public accountants of the Company at the time of effectiveness of such
Registration Statement and, upon the request of the Holders of a majority of the
Registrable Securities (on a Common Stock equivalent basis) covered by such
registration statement, updates thereof of customary frequency, in each case
addressed to each Holder of Registrable Securities participating in such
offering and covering matters that are no more extensive in scope than would be
customarily covered in "cold comfort" letters and updates obtained in secondary
underwritten offerings by issuers with similar market capitalization and
reporting and financial histories, PROVIDED that any letter or update described
in this clause (2) shall only be required to the extent such letters are being
issued in respect of nonunderwritten secondary offerings under then prevailing
accounting practices; and (3) deliver a certificate of a senior executive
officer of the Company at the time of effectiveness of such Registration
Statement and, upon the request of the Holders of a majority of the Registrable
Securities (on a Common Stock equivalent basis) covered by such Registration
Statement, updates thereof of customary frequency, such certificates to cover
matters no more extensive in scope than those matters customarily covered in
officer's certificates delivered in connection with underwritten offerings by
issuers with similar market capitalization and reporting and financial
histories. Notwithstanding anything to the contrary in this Agreement, the
Purchaser or Purchasers requesting any of the items in clause (1) or (2) hereof
shall pay all costs, fees and expenses related thereto.
4. REGISTRATION EXPENSES. All fees and expenses incident to
the Company's performance of or compliance with this Agreement shall be borne by
the Company whether or not the Registration Statement becomes effective,
provided, however, that with respect to any Registration Statement filed
pursuant to Section 2(b) hereof all reasonable fees and out-of-pocket expenses
other than fees and expenses described in clause (vii) below shall be borne by
the selling Holders in proportion to the number of shares of Registrable
Securities to be registered by
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<PAGE> 12
each. Such fees and expenses shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(x) with respect to filings required to be made with the SEC or the National
Association of Securities Dealers, Inc. and (y) relating to compliance with
federal securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Securities under laws of such jurisdictions as may be required under
Section 3(e) hereof or as the Holders of a majority of the Registrable
Securities being sold may designate), (ii) all expenses incurred in connection
with the preparation, word processing, printing and distribution of the
Registration Statement, any Prospectus, any amendments or supplements thereto,
and other documents relating to the performance of and compliance with this
Agreement, (iii) the reasonable fees and disbursements of the registrar and
transfer agent for the Common Stock (iv) messenger, telephone and delivery
expenses relating to the performance of the Company's obligations hereunder, (v)
reasonable fees and disbursements of counsel for the Company in connection with
the Registration Statement, (vi) fees and disbursements of all independent
certified public accountants related to the preparation of the Registration
Statement, any Prospectus, or any amounts or supplements thereto and (vii)
Securities Act liability insurance obtained by the Company in its sole
discretion. In addition, in all circumstances the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY - REGISTRABLE SECURITIES.
The Company agrees to indemnify and hold harmless each selling Holder and each
Person, if any, who controls each selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
officers, directors, Affiliates, employees and agents of each of the foregoing,
from and against any and all losses, claims, judgments, damages and liabilities
(including reasonable fees, disbursements and other charges of counsel) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary or final Prospectus contained therein or arising out
of or based upon any omission or alleged omission to state in any such
Registration Statement or Prospectus a material fact required to be stated
therein or necessary to make the statements therein (as to a preliminary or
final prospectus), in light of the circumstances under which they were made, not
misleading, and any failure by the Company to fulfill any undertaking in any
Registration Statement, except insofar as such losses, claims, judgments,
damages or liabilities arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in conformity with
information relating to such Holder or the plan of distribution of Registrable
Securities to be sold by such Holder, in each case furnished in writing to the
Company by such Holder expressly for use therein; PROVIDED that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of a selling Holder with respect to any loss, claim, damage or
liability relating to a purchaser if a copy of the final prospectus was
furnished to such selling Holder and was not
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<PAGE> 13
provided to such purchaser and such final prospectus would have cured the defect
giving rise to such loss, claim, damage or liability. The Company agrees to
reimburse the Purchasers for reasonable fees and expenses incurred investigating
claims subject to indemnification under this Section 5(a). The Company also
agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the selling
Holders provided in this Section 5(a).
(b) INDEMNIFICATION BY SELLING HOLDERS - REGISTRABLE
SECURITIES. Each selling Holder agrees severally and not jointly to indemnify
and hold harmless the Company, and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, and the officers, directors, Affiliates, employees and agents
of each of the foregoing, from and against any and all losses, claims,
judgments, damages and liabilities (including reasonable fees, disbursements and
other charges of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary or final Prospectus
contained therein, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, but only insofar as such losses, claims,
judgments, damages or liabilities arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in conformity
with information relating to such Holder or the plan of distribution of
Registrable Securities to be sold by such Holder, in each case furnished in
writing to the Company by such Holder expressly for use therein. Each Holder, by
exercising its registration rights hereunder, also agrees to indemnify and hold
harmless any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such Underwriters on substantially the
same basis as that to the indemnification of the Company provided in this
Section 5(b) subject to the limitations set forth in 5(e).
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Sections 5(a) or (b), such person (the "Indemnified Party") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Party") in writing of such proceeding; provided, that the failure to notify the
Indemnifying Party shall not relieve it from any liability that it may have to
an Indemnified Party on account of the indemnity agreement contained in Sections
5(a) or (b) above except to the extent that the Indemnifying Party was actually
prejudiced by such failure, and in no event shall such failure relieve the
Indemnifying Party from any other liability that it may have to such Indemnified
Party. If the Indemnified Party, at its option, elects to defend any such
proceeding with counsel retained by it, the Indemnifying Party shall pay the
fees and disbursements of such counsel related to such proceeding. Upon the
request of the Indemnified Party, the Indemnifying Party shall retain counsel
reasonably satisfactory to such Indemnified Party to represent such Indemnified
Party and any others the Indemnifying Party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
If, pursuant to
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<PAGE> 14
the immediately preceding sentence, the Indemnified Party shall have requested
the Indemnifying party to retain counsel to represent such Indemnified Party
with respect to any such proceeding, any Indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all such Indemnified Parties, and that all such fees and expenses
shall be reimbursed as they are incurred. Any Indemnifying Party against whom
indemnity may be sought under this Section 5(c) shall not be liable to indemnify
any Indemnified Party if such Indemnified Party settles such claim or action
without the consent of the Indemnifying Party which shall not be unreasonably
withheld. The Indemnifying Party may not agree to any settlement of any such
claim or action, other than solely for monetary damages for which the
Indemnifying Party shall be responsible hereunder and with a full release of the
Indemnified Party, resulting in any remedy or relief applied to or against the
Indemnified Party, without the prior written consent of the Indemnified Party.
(d) CONTRIBUTION - - OFFERINGS. If the indemnification
provided for in Sections 5(a) or (b) is unavailable to an Indemnified Party in
respect of any losses, claims, judgments, damages or liabilities referred to
herein, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, judgments, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Company, the selling Holders and the Underwriters in connection with the
statements or omissions that resulted in such losses, claims, judgments, damages
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company, the selling Holders and the underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. If the allocation provided for above is not
permitted by applicable law, such contribution shall be based on such equitable
considerations as a court may determine to be relevant.
The Company and the selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 5(d) were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
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<PAGE> 15
(e) Notwithstanding the provisions of this Section 5, no
Underwriter shall be required to contribute or indemnify any amount in excess of
the amount by which the total price at which the Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission, and
no selling Holder shall be required to contribute or indemnify any aggregate
amounts in excess of the amount by which the net proceeds of the offering
(before deducting expenses) received by such selling Holder exceeds the amount
of any damages which such selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to indemnification or
contribution under this Section 5 from any Person who was not guilty of such
fraudulent misrepresentation.
6. ADDITIONAL REGISTRATION RIGHTS PROVISIONS.
(a) PARTICIPATION IN REGISTRATIONS. No Person may participate
in any underwritten registered offering contemplated hereunder unless such
Person (a) agrees to sell its securities on the basis provided in any customary
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, customary underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights. No Person may participate in a registered offering pursuant
to the Shelf Registration unless such Person provides information reasonably
requested by the Company customarily required to effect registration of the
resale of the Common Stock. Notwithstanding the above, with respect to a
Piggyback Registration, the Holders shall not be required to provide
indemnification except to the extent provided pursuant to this Agreement. The
Holders shall only be required to give representations and warranties that are
customary for selling shareholders.
(b) LOCKUP AGREEMENTS. Each Holder, by exercising its
registration rights hereunder, agrees not to offer, sell, contract to sell or
otherwise dispose of any Registrable Securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the 14 days
prior to, and during the 90-day period (or such lesser period as the lead or
managing underwriters may permit) beginning on, the effective date of such
Registration Statement (or the commencement of the offering to the public of
such Registrable Securities in the case of Rule 415 offerings) other than (i)
the Registrable Securities to be sold pursuant to such Registration Statement or
(ii) in a transaction not involving a public offering, provided that the
purchaser (or purchasers) of such shares agrees to be bound by such lock-up
restrictions for the remainder of the lock-up period.
(c) With a view to making available to the holders of
Registrable Securities the benefits of certain rules and regulations of the SEC
which may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its reasonable best efforts to:
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<PAGE> 16
(i) make and keep current public information
available, within the meaning of Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times;
(ii) file with the SEC, in a timely manner, all
reports and other documents required under the Securities Act and Exchange Act;
and
(iii) so long as any party hereto owns any
Registrable Securities, furnish to such Person forthwith upon request a written
statement as to its compliance with the reporting requirements of said Rule 144,
the Securities Act and the Exchange Act; a copy of its most recent annual or
quarterly report; and such other reports and documents as such Person may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell such securities without registration.
(d) The Company will provide to any holder of a Registrable
Security, upon such persons' request, the information required by paragraph
(d)(4) of Rule 144A.
7. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that remedy of law would be adequate.
(b) NO CONFLICTING AGREEMENTS. The Company has not, as of the
date hereof, and shall not, on or after the date of this Agreement, enter into
any agreement with respect to its securities which conflicts with the rights
granted to the Holders of Registrable Securities in this Agreement. The Company
represents and warrants that the rights granted to the Holders of Registrable
Securities hereunder do not in any way conflict with the rights granted to the
holders of the Company's securities under any other agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers to or departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of holders of a
majority of the then outstanding Common Stock constituting Registrable
Securities (with holders of Series I Preferred Stock deemed to be the holders,
for purposes of this Section, of the number of outstanding shares of Common
Stock into which such Series I Preferred Stock is convertible); provided,
however, that, if a Purchaser or its affiliates own at least 50% of the number
of shares of Preferred Stock such Purchaser purchased on the date hereof (shares
of Common Stock issued upon conversion of the Preferred Stock shall be included
in this calculation as shares of Preferred Stock), the provisions of this
Agreement may not be amended, modified or supplemented and waivers to or
departures from the provisions
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<PAGE> 17
hereof may not be given without the written consent of such Purchaser.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Securities whose securities are being sold pursuant to
the Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders;
PROVIDED, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(d) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing and shall be deemed given (i)
when made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier or (iii) one business day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
(x) if to a Holder of Registrable Securities, at
the most current address given by such Holder to the Company in accordance
with the provisions of Section 7(e); and
(y) if to the Company, to:
EMCORE Corporation
394 Elizabeth Avenue
Soberest, New Jersey 08873
Attention: Thomas G. Werthan
Telephone: (732) 271-9090
Telecopy: (732) 271-0477
with a copy to:
White & Case LLP
200 South Biscayne Boulevard
Miami, Florida 33131
Attention: Jorge L. Freeland, Esq.
Telephone: (305) 995-5247
Telecopy: (305) 358-5744
or such other address as such person may have furnished to the other persons
identified in this Section 7(d) in writing in accordance herewith.
(e) OWNER OF REGISTRABLE SECURITIES. The Company will
maintain, or will cause its registrar and transfer agent to maintain, a register
with respect to the Registrable Securities in which all transfers of Registrable
Securities of which the Company has received notice will be recorded. The
Company may deem and treat the person in whose name Registrable Securities are
registered in such register of the Company as the owner thereof for all
purposes, including, without limitation, the giving of notices under this
Agreement.
(f) APPROVAL OF HOLDERS. Whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held
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<PAGE> 18
by the Company or its affiliates (other than Holders of Registrable Securities
or Preferred Stock if such Holders are deemed to be such affiliates solely by
reason of their holdings of such Registrable Securities or Preferred Stock and
other than the Purchasers) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(g) SUCCESSORS AND ASSIGNS. Any person who purchases any
Registrable Securities from the Purchaser shall be deemed, for purposes of this
Agreement, to be an assignee of the Purchaser. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
and shall inure to the benefit of and be binding upon each Holder of any
Registrable Securities. This Agreement may not be assigned by the Company
without the prior written consent of the Purchasers.
(h) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be the original and all of which taken
together shall constitute one and the same agreement.
(i) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the state of New York, as applied to
contracts made and performed within the state of New York without regard to
principles of conflicts of laws.
(k) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated thereby, and the parties hereto
shall use their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, illegal, void or unenforceable.
(l) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and the
registration rights granted by the Company with respect to the Registrable
Securities. Except as provided in the Purchase Agreement there are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein, with respect to the registration rights granted by the
Company with respect to the Registrable Securities. This Agreement supersedes
all prior agreements and understandings among the parties with respect to such
registration rights.
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<PAGE> 19
(m) ATTORNEYS' FEES. In any action or proceeding brought to
enforce a provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(n) FURTHER ASSURANCES. The Company shall use all reasonable
efforts to take, or cause to be taken, all appropriate action, do or cause to be
done all things reasonably necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers as may be required to
carry out of the provisions of this Agreement and the other documents
contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(o) TERMINATION. This Agreement and the obligations of the
parties hereunder shall terminate upon the end of the Effectiveness Period,
except for any liabilities or obligations under Sections 4, 5 or 6 hereof and
the obligations to make payments of and provide for Specified Damages under
Section 2(a)(v) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each of which shall survive termination of this Agreement.
(p) INFORMATION AVAILABLE. So long as the Shelf Registration
Statement is effective, the Company shall furnish to each holder of Registrable
Securities:
(i) as soon as practicable after available (but in
the case of the Company's Annual Report to Stockholders, within 120 days after
the end of each fiscal year of the Company), one copy of (i) its Annual Report
to Stockholders (which Annual Report shall contain financial statements audited
in accordance with generally accepted auditing standards certified by a national
firm of certified public accountants); (ii) its Annual Report on Form 10-K;
(iii) its quarterly reports on Form 10-Q (the foregoing, in each case, excluding
exhibits); and (iv) its current reports on Form 8-K, if any; and
(ii) upon the request of the Holder, all exhibits
excluded by the parenthetical to subparagraph (p)(iii) of this Section 7, in the
form generally available to the public.
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
EMCORE CORPORATION
By: /s/ THOMAS WERTHAN
----------------------------------
Name: Thomas Werthan
Title: CFO
Accepted as of the date first above written:
HAKUTO CO., LTD.
By: /s/ SHIGEO TAKAYAMA
-------------------------------------------
Name: Shigeo Takayama
Title: President
UNIROYAL TECHNOLOGY CORPORATION
By: /s/ HOWARD R. CURD
-------------------------------------------
Name: Howard R. Curd
Title: Chairman and Chief Executive Officer
UNION MINIERE INC.
By: /s/ A. GODEFROID
------------------------------------------
Name: A. Godefroid
Title: Director
By: /s/ M. VAN SANDE
------------------------------------------
Name: M. Van Sande
Title: President
<PAGE> 1
Exhibit 10.17
S-622773-JSS
Long-Term Purchase Agreement
IN CONSIDERATION OF THE PROMISES HEREINAFTER SET FORTH, THE PARTIES AGREE AS
FOLLOWS:
SCHEDULE
This Long-Term Purchase Agreement Number S-622773-JSS, hereinafter referred to
as the "Agreement", is entered into between SPACE SYSTEMS/LORAL, INC.,
(hereinafter referred to as "Buyer" or "SS/L"), a corporation organized and
existing under the laws of the State of Delaware, and having its principal
offices and place of business at 3825 Fabian Way, Palo Alto, California, 94303,
and EMCORE CORPORATION, (hereinafter referred to as "Subcontractor" or
"EMCORE"), with offices located at 10420 Research Road SE, Albuquerque, NM
87123.
This Agreement is contemplated by the following:
1. Buyer's AUTHORIZATION TO PROCEED (ATP) NO. S-622735-JSS, dated September 3,
1998.
2. The MEMORANDUM OF UNDERSTANDING (MOU) between the parties, dated October 6,
1998.
This Agreement supersedes the ATP and the MOU in their entirety and therefore
constitutes the entire agreement between the parties. Any action taken pursuant
to the ATP and the MOU shall be considered as action taken and costs incurred in
the performance of this Agreement.
This Agreement is entered into on November 16, 1998, and shall expire on
December 31, 2002, unless extended by mutual agreement of the parties.
This Agreement consists of the SCHEDULE, the TERMS AND CONDITIONS, and the
SIGNATURE PAGE.
<PAGE> 2
ARTICLE I - SCOPE OF WORK
This Agreement provides for the procurement of COMPOUND SEMICONDUCTOR
MULTI-JUNCTION HIGH-EFFICIENCY SOLAR CELLS (with by-pass diode), hereinafter
also referred to as Hardware, and Subcontractor agrees to provide the personnel,
services, materials, equipment, and facilities necessary for the accomplishment
of the tasks specified in the Exhibits cited below and any other requirements
identified elsewhere in this Agreement.
The following Exhibits are listed in their order of precedence. In the event of
a conflict or inconsistency between an Exhibit and an Article of this Agreement,
the Article shall take precedence.
Exhibit A SS/L Document No. E177493, entitled HIGH EFFICIENCY,
DUAL-JUNCTION SOLAR CELL STATEMENT OF WORK (PRELIMINARY), redlined
dated September 2, 1998.
Exhibit B SS/L Document No. E177495, entitled MULTI-JUNCTION SOLAR CELL
SOURCE CONTROL DRAWING (PRELIMINARY).
Exhibit C SS/L Document No. E177492, entitled HIGH EFFICIENCY,
DUAL-JUNCTION, SOLAR CELL PERFORMANCE SPECIFICATION.
(PRELIMINARY), redlined September 2, 1998.
Exhibit D SS/L Document No. E032894, entitled SUBCONTRACTOR PRODUCT
ASSURANCE REQUIREMENTS, Revision A, Amendment No. 1, release date
March 28, 1996.
Exhibit E SS/L Document No. SH-E023988, entitled DATA REQUIREMENTS
INSTRUCTIONS (DRI) FOR SPACECRAFT SUBCONTRACTORS, release date
October 4, 1993.
Exhibit F SS/L Document No. E060042, entitled ENVIRONMENTAL REQUIREMENTS
SPECIFICATION, release date March 27, 1995.
Exhibit G SS/L Document No. LG-E080742, DIRECT BROADCAST SATELLITES (DBS)
(FOR APSTAR, MABUHAY AND TELSTAR) PROGRAM AUTHORIZED PARTS LIST
(PAPL), Revision N/C, release date May 26, 1995.
Exhibit H SS/L Document No. LG-E076310, TELSTAR PROGRAM AUTHORIZED
MATERIALS LIST (PAML), Revision N/C, release date June 1, 1995.
Exhibit I SS/L Document No. LG-E076311, TELSTAR Program Authorized Process
List (PAPRL), Revision N/C, release date June 1, 1995.
ARTICLE II - PROVISIONS AND INFORMATION APPLICABLE TO PURCHASE RELEASES
Qualification and procurement of Hardware by Buyer pursuant to this Agreement
shall be accomplished by the issuance of Purchase Releases to the extent
sanctioned by the initial publication of this Agreement and amendments to same.
Subcontractor shall qualify, fabricate, test, and deliver Hardware in accordance
with Exhibit A through Exhibit I of Article I (SCOPE OF WORK).
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<PAGE> 3
Buyer may issue Purchase Releases for work, services and/or Hardware at any time
during the effective term of this Agreement and Subcontractor shall fulfill all
requirements of such orders accordingly.
As a minimum, each Purchase Release for Hardware shall set forth the following:
1. Long-Term Purchase Agreement (LTPA) Number.
2. Purchase Release Number.
3. Description of work, services and/or quantity of Hardware ordered.
4. Program/Project Name, if applicable, associated with the Hardware.
5. Configuration, applicable documentation, part numbers and description.
6. Firm Fixed Prices in accordance with Article IV (OPTIONS).
7. Delivery of Hardware in accordance with Article IV (OPTIONS).
8. Payment stipulations pursuant to Article IV (OPTIONS).
9. Related specific and miscellaneous instructions.
ARTICLE III - PURCHASE RELEASES
PURCHASE RELEASE NO. 1
This initial Purchase Release is issued to record and definitize Buyer's
Authorization to Proceed (ATP) to Subcontractor No. S-622735-JSS, dated
September 3, 1998, for the Development and Qualification effort associated with
the High-Efficiency Solar Cell- reference JSS-EMC/98-001, September 3, 1998.
Unless otherwise indicated herein this Agreement, Subcontractor's successful
completion of the Qualification program imposes no obligation upon Buyer to
procure Hardware from Subcontractor.
This initial Purchase Release is issued by Buyer under authority of the
Agreement and sanctions Subcontractor for the QUALIFICATION OF THE
HIGH-EFFICIENCY SOLAR CELL (HESC). Pursuant to the provisions of this Purchase
Release, Subcontractor shall undertake and complete all requirements of the
qualification program in accordance with Exhibit A through Exhibit I, and any
other work herein described, as follows:
-3-
<PAGE> 4
[*] Confidential information omitted and filed
separately with the Securities and Exchange
Commission. Asterisks denote such
omissions.
A. PRICE
Subcontractor shall provide all personnel, material and resources
necessary for the proper accomplishment of the Qualification Program
tasks for the FIRM FIXED PRICE OF [*].
B. PERFORMANCE AND DELIVERY
Subcontractor shall commence the qualification effort on or about
September 2, 1998 and complete all work and tasks in accordance with
the following schedule:
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION COMPLETION DATE
-------- ----------- ---------------
<S> <C> <C>
1 Develop process and tooling of High-Efficiency Solar Cell [*]
process
2 Demonstrate High-Efficiency Solar Cell Meet specifications [*]
3 Deliver [*] Solar Cells processed at RTI to Buyer for [*]
Radiation Space Qualification
4 Deliver [*] Subcontractor processed Solar Cells for Space [*]
Qualification Coupon
5 Critical Design Review (CDR) [*]
6 Deliver [*] Subcontractor processed Solar Cells for further [*]
space qualification
7 Material Readiness Review (MRR) / Final Design Review (FRR) [*]
8 Publication of Final Qualification Program Report [*]
</TABLE>
C. PAYMENT
This Purchase Release provides for Milestone Payments as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Develop process and tooling of High-Efficiency Solar September 15, 1998 [*]
Cell. Deliver Mask Data.
2 a) Deliver [*] Solar Cells processed at RTI for
radiation space qualification
</TABLE>
-4-
<PAGE> 5
[*] Confidential information omitted and filed
separately with the Securities and Exchange
Commission. Asterisks denote such
omissions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
b) Deliver [*] Solar Cells processed at December 21, 1998 [*]
Subcontractor's facility for space
qualification coupon
c) Closure of Subcontractor CDR Action Items December 31, 1998 [*]
3 a) Deliver [*] Solar Cells processed at
Subcontractor's facility for further space
qualification.
b) Closure of Subcontractor MRR/FDR Action Items. March 30, 1999 [*]
4 Buyer Approval of Subcontractor Final Qualification April 7, 1999
Program Report [*]
-------------
Total Milestone Payments [*]
=============
</TABLE>
1. All material and work covered by Milestone Payments shall become the
sole property of Buyer.
2. Upon completion of a Milestone, Subcontractor may submit an
invoice for the amounts specified provided, however, Buyer
reserves the right to inspect or otherwise verify
Subcontractor's progress to determine that performance
relative to each payment has been satisfactorily completed.
3. Subcontractor shall submit an original and one copy of
invoices to:
Space Systems/Loral, Inc. Attention: Accounts Payable
P.O. Box 10825 M/S AC-1
Palo Alto, California 94303-4697
Each invoice shall cite the LTPA Number, the Purchase Release
number, and the number and description of the milestone.
4. Payment terms shall be net 30 days after receipt of invoice,
actual milestone completion date or scheduled milestone
completion date, whichever is later.
D. ADDITIONAL UNDERSTANDINGS AND REQUIREMENTS
1. Subcontractor shall demonstrate successful qualification of
the High-Efficiency Solar Cell at the Manufacturing Readiness
Review (MRR), currently scheduled for March 15, 1999.
-5-
<PAGE> 6
[*] Confidential information omitted and filed
separately with the Securities and Exchange
Commission. Asterisks denote such
omissions.
2. Successful qualification of the laydown of the High-Efficiency
Solar Cell on a substrate furnished by Buyer is a requirement
of this process.
The qualification of the laydown will be done by a supplier to
be named by Buyer.
Qualification of the laydown of the HESC will be demonstrated
at a joint MRR between the substrate supplier and
Subcontractor.
3. Upon Subcontractor's demonstration that it has met the
requirements of this Qualification Program to the satisfaction
of Buyer, Buyer will issue and activate Purchase Release No. 2
by written notice to Subcontractor in accordance with the
stipulations of Article IV (OPTIONS). Pending Buyer's
documented ratification, Buyer assumes no liability or
obligation to Subcontractor with respect to Purchase Release
No. 2.
In the event Subcontractor is unsuccessful in achieving the
requirements of the Qualification Program, Buyer has no
obligation to procure hardware from Subcontractor.
E. EXCLUSIVITY
All information and data developed under this Qualification program
shall be deemed proprietary to Buyer and therefore shall be provided to
Buyer on an exclusive basis. Subcontractor shall have the right to use
this proprietary information and data for its own purposes.
Subcontractor shall not disclose information proprietary to Buyer to a
third party absent the written consent of Buyer.
PURCHASE RELEASE NO. 2
PURCHASE RELEASE NO. 2 IS HEREIN DOCUMENTED BY THE INITIAL PUBLICATION OF THE
AGREEMENT SOLELY FOR THE PURPOSE OF RECORDING BUYER'S INTENT TO PROCURE HARDWARE
AS DEPICTED BELOW. AT THIS WRITING, PURCHASE RELEASE NO. 2 IS NOT A CONFIRMATION
OF PURCHASE AS BUYER'S VALIDATION OF THE RELEASE IS SUBJECT TO THE CONTINGENCY
AND ANY ASSOCIATED CONDITIONS STIPULATED IN PURCHASE RELEASE NO. 1, PARAGRAPH
D.3.
Pursuant to the provisions of this Purchase Release, Subcontractor shall
fabricate, test and deliver Hardware and perform related work and services in
accordance with the requirements of Exhibit A through Exhibit I and the
stipulations of this Release.
A. PRICE
Subcontractor shall provide all Hardware, services and documentation
specified in this Purchase Release for the Firm Fixed Price of [*], as
follows:
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<PAGE> 7
[*] Confidential information omitted and filed
separately with the Securities and Exchange
Commission. Asterisks denote such
omissions.
<TABLE>
<CAPTION>
Solar Cell Solar Cell Total Quantity Unit Total
P/n Description Efficiency Rating Solar Cells Price Price
---------- ----------- ----------------- -------------- ----- ------
<S> <C> <C> <C> <C> <C>
TBD Compound Semiconductor [*] % [*] [*] [*]
Multi-Junction HESC
</TABLE>
B. DELIVERY
Subcontractor shall deliver Hardware and complete any work or services
procured by this Release in accordance with the following:
<TABLE>
<CAPTION>
P/n Quantity Date Destination
--- -------- ---- -----------
<S> <C> <C> <C>
TBD [*] 1 Month ABNQ(1) TBD
TBD [*] 2 Months ABNQ TBD
TBD [*] 3 Months ABNQ TBD
TBD [*] 4 Months ABNQ TBD
</TABLE>
(1) ABNQ = After Buyer Notification of Qualification
ARTICLE IV - OPTIONS
All Hardware procured under Article III (PURCHASE RELEASES) shall be deemed to
be ordered as Options. Accordingly, in consideration of the award of this
Agreement, Subcontractor grants to Buyer unilateral and irrevocable Options to
purchase Hardware throughout the effective term of this Agreement. Any order for
optional Hardware shall be accomplished by an authorized Purchase Release
conveyed and confirmed by an amendment to this Agreement.
Except as expressly provided for, nothing in this Agreement shall be construed
as a commitment that Buyer shall purchase Hardware.
A. PRICE
The Firm Fixed Option Prices, by Calendar Year and Solar Cell
Efficiency Rating, and associated conditions applicable to Hardware
ordered under this Agreement is as follows:
<TABLE>
<CAPTION>
Solar Cell Solar Cell Unit
Calendar Year Efficiency Rating Quantity Range Price
------------- ----------------- -------------- -----
<S> <C> <C> <C>
1999 [*] % [*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
-7-
<PAGE> 8
[*] Confidential information omitted and filed
separately with the Securities and Exchange
Commission. Asterisks denote such
omissions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 [*] % [*] [*]
[*] [*]
[*] [*]
[*] [*]
2001 [*] % [*] [*]
[*] [*]
[*] [*]
[*] [*]
2002 [*] % [*] [*]
[*] [*]
[*] [*]
[*] [*]
</TABLE>
1. The foregoing Hardware unit prices are:
a. [*]
b. [*]
2. ADJUSTMENTS TO PURCHASE RELEASE UNIT PRICES
Modifications to Unit Prices shall be made on the basis of the
following:
a. If in a Calendar Year, and within a three-month period, Buyer
places a Purchase Release(s) which, when added to a previous
Purchase Release(s), in the aggregate increases the quantity
of Hardware purchased such that a higher Solar Cell Quantity
Range is achieved, the Unit Price(s) for all effected Releases
will be modified to reflect the cumulative quantity of
Hardware so purchased under these conditions.
b. If in a Calendar Year, for a incremental Purchase Release(s)
which does not fall within the three-month stipulation of
Subparagraph a., above, no adjustment will be made to the Unit
Price of the prior Purchase Release; the Unit Price applicable
to the incremental Purchase Release will, however, be adjusted
provided that (1) in the aggregate a higher Solar Cell
Quantity Range is achieved, and (2) continuity of monthly
Subcontractor delivery is maintained.
c. In the event Hardware with a higher Solar Cell Efficiency
Rating is not available during a Calendar Year as identified
in this provision, Buyer may purchase available rated Hardware
in accordance with the stipulations of Subparagraph a. and b.,
above. Under such conditions, any Hardware aggregate
limitation imposed by the definition of a Calendar Year is
waived.
Examples applicable to these subparagraphs can be found in APPENDIX I
to this Agreement.
-8-
<PAGE> 9
[*] Confidential information omitted and filed
separately with the Securities and Exchange
Commission. Asterisks denote such
omissions.
Any Purchase Release and associated conditions effected by Unit Price
adjustments will be modified accordingly.
B. [*]
C. DELIVERY / SUBCONTRACTOR CAPACITY
1. Subcontractor shall provide for the allocation of resources to
ensure Buyer the capacity to fabricate and deliver Hardware
not-to-exceed the following:
Calendar Solar Cells
Year Per Month
-------- ----------
1999 [*]
2000 [*]
2001 [*]
2002(1) [*]
(1) Through completion of orders
2. Subcontractor is not required to commence delivery of Hardware
earlier than April 1999.
D. MINIMUM ORDER QUANTITY
Except as otherwise indicated in this Agreement, each purchase release
will consist of no less than [*] Solar Cells.
E. HARDWARE REQUIREMENTS COVENANT
In consideration of the accords recorded in this Agreement, Buyer
shall, during the effective term of this Agreement, procure from
Subcontractor its requirements for Compound Semiconductor GaAs
Multi-Junction High-Efficiency Solar Cells as expressly defined by the
technical documentation cataloged in Article I (SCOPE OF WORK) of this
Agreement, provided that Subcontractor (1) perform satisfactorily in
the manufacture, test and delivery of the Hardware purchased by Buyer,
(2) sustain a level of technical and product quality competence equal
to or greater than acceptable industry standards, and (3) preserve the
guarantee declared in Paragraph B, above. In the event Subcontractor
fails to satisfy the foregoing or any other stipulation of this
Agreement, Buyer has the right to terminate this Agreement in
accordance with the terms and conditions of same.
-9-
<PAGE> 10
F. DOCUMENTATION
Documentation shall be delivered in accordance with the schedule
appearing in the Subcontract Data Requirements List (SDRL) of Exhibit A
to the delivery point identified in Article VIII (DELIVERABLE REPORTS
AND DOCUMENTATION).
If a SDRL requirement has been submitted and approved by Buyer in
conjunction with a prior Purchase Release issued under this Agreement,
Subcontractor shall submit complete reference information from the from
each submission for review and confirmation by Buyer. If a prior SDRL
submittal has been approved by Buyer, yet subsequently updated or
modified by Subcontractor in any manner whatsoever, such SDRL submittal
shall be conveyed in its entirety for review and approval by Buyer.
SUBCONTRACTOR IS RESPONSIBLE FOR CONFIRMING THAT ANY DOCUMENTATION
REQUIRING THE APPROVAL OF BUYER IS RECEIVED BY BUYER.
ARTICLE V - PAYMENT
All payment due for Hardware ordered by this Agreement shall be made in
accordance with the following:
A. Subcontractor may submit invoices on a monthly basis in accordance with
the completion of the monthly delivery stipulations of a Purchase
Release.
B. PROPERTY RIGHTS
All Hardware, work and services covered by invoice payments shall
become the sole property of Buyer or Buyer's Customer. This provision
shall not be construed as relieving Subcontractor from the sole
responsibility of all Hardware upon which payments have been made or
the restoration of any defective work in accordance with the Warranty
provisions of this Agreement, or as waiving the right of Buyer to
require fulfillment of all terms of this Agreement.
C. INVOICES
Subcontractor may, upon completion of monthly delivery requirements,
submit invoices for the amounts specified, provided however that Buyer
reserves the right to inspect or otherwise verify that Hardware for
which payment is requested complies with the requirements of this
Agreement. Payment for Hardware delivered does not relieve
Subcontractor of any obligation hereunder.
Subcontractor shall submit an original and one copy of invoices to:
SPACE SYSTEMS/LORAL, INC.
3825 Fabian Way
Palo Alto, California 94303-4604
Attention: Accounts Payable M/S AC-1
-10-
<PAGE> 11
D. PAYMENT TERMS
Payment terms are Net 30 days after receipt of invoice, scheduled
delivery date, or completion of actual delivery requirements.
E. The California Resale Registration Number for Space Systems/Loral
applicable to this transaction is SY GH 24-91636.
ARTICLE VI - INSPECTION AND ACCEPTANCE
A. The inspection of the work to be performed under this Agreement shall
be in accordance with the requirements of Exhibit A through Exhibit I
and Clause No. 19 (INSPECTION AND ACCEPTANCE) of the Terms and
Conditions. The inspection period shall culminate at such time that
Buyer provides written notice of Final Acceptance of the work
performed.
B. Authorization to make delivery of the hardware hereunder shall occur at
Subcontractor's plant upon successful completion of inspections and
testing in accordance with the requirements of Exhibit A through
Exhibit I. Subcontractor shall have demonstrated, by properly
documented inspection and test results, full compliance with the
performance requirements herein including correction by the
Subcontractor of all deficiencies and all discrepancies pertaining to
such inspections and testing and including completion of further
retesting as may be necessary to demonstrate same. The hardware
hereunder shall have been inspected by Buyer and determined to be in
full compliance with the requirements of the Agreement including
correction by Subcontractor of all deficiencies and discrepancies
pertaining to such inspection. Satisfying the requirements of Exhibit A
through Exhibit I shall not constitute waiver or release the
Subcontractor from the responsibility of meeting all of the provisions
herein.
Any waiver of a requirement granted by Buyer or acceptance of an
out-of-spec condition applies only to the specific unit(s) identified.
Said waiver or acceptance of an out-of-spec condition does not
constitute a change to or waiver of any requirement of this Agreement.
C. Final acceptance of documentation hereunder shall occur at Space
Systems/Loral, Palo Alto, California, after review and determination of
its compliance with requirements of this Agreement, including
correction by the Subcontractor of all deficiencies and discrepancies
pertaining to such items.
D. Buyer and Buyer's Customer accompanied by Buyer shall have access to
Subcontractor's facilities, drawings, specifications and descriptions
of standards or production processes for hardware or software to be
delivered hereunder to the extent necessary to ensure compliant
performance. Notice of visit by Buyer and/or Buyer's customer(s) will
be provided within 48 hours of the anticipated visit to Subcontractor's
facility and such visit will be on a non-interference basis to
Subcontractor's operations.
E. The work to be performed under this Agreement is subject to the
on-going technical monitoring and pre-shipment inspection of Buyer and
Buyer's Customer accompanied by
-11-
<PAGE> 12
Buyer on a non-interference basis. Any review, concurrence or approval
by Buyer of activities performed by Subcontractor including, but not
limited to, any SDRL item submittals in connection with the work shall
not relieve Subcontractor from fulfilling its obligations in meeting
the requirements of this Agreement.
ARTICLE VII - TERMS OF HARDWARE DELIVERY AND SHIPMENT
All shipment of Hardware shall be in accordance with the following:
A. Buyer's Purchase Release(s) shall identify the quantity and destination
of Hardware items procured under this Agreement.
B. The Initial and Final destination of all Hardware items to be delivered
hereunder is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
- Initial Destination Point - International Freight Services (for Space
Systems/Loral)
1610 Rollins Road
Burlingame, CA 94010
Attention: Mr. Achim Biller
Phone: 650 259-5106
- Final Destination Point - TOSHIBA
Toshiba Corporation Attention: Mr. Isao Takahashi,
Komukai Works Space Products Manufacturing
1, Komukai, Toshiba-Cho, 210 Department: Parts Acceptance Center
Saiwai-Ku, Kawasaki, 210 Japan Building No. 7-1, 1ST Floor
- Final Destination Point - MELCO
Mitsubishi Electric Corporation Attention: Mr. Hideo Uemura,
Kamakura Works Space Systems Section
325 Kamimachiya, Kamakura Planning & Marketing Department
Kanagawa 247, Japan
- Final Destination Point - SS/L
Space Systems/Loral, Inc. Attention: Mr. Naresh Makhijami,
Receiving/Distribution Center Mail Stop G-44
1145 Hamilton Court
Menlo Park, California 94025
Mark With: LTPA S-612773-JSS
</TABLE>
C. The FOB and Delivery Point is Carrier, as designated by Buyer, at
Subcontractor's dock,
-12-
<PAGE> 13
Albuquerque, New Mexico. Subcontractor shall be responsible for all
costs associated with transportation and insurance of Hardware to the
Delivery Point.
D. Buyer shall be responsible for all arrangements and costs associated
with the transportation and insurance of Hardware- including the
preparation and execution of any and all documentation, obtaining all
necessary permits, licenses and clearances required by either the
United States Government or the Government of Japan, the payment of
Duties, Taxes and Fees, or other such charges which may be levied by
these governments- from the Delivery Point set forth in Paragraph C,
above, to the Destination Points noted in Paragraph B, above, or to any
other delivery point within Japan required by Buyer.
E. If, by law or regulation, Buyer is required to obtain any permit,
license or clearance in its capacity as Buyer under this Agreement,
Buyer shall undertake all reasonable efforts to do so. If Buyer is
either (1) unsuccessful in obtaining any regulatory mandated sanctions,
or (2) the pursuit of same is delayed to the extent such as to endanger
the intent and purpose of this Agreement, Buyer may terminate this
Agreement.
Under such circumstances, Buyer's liability and obligation with respect
to this Agreement shall not exceed the aggregate amount of Purchase
Releases authorized by Buyer at that time.
In the event of a conflict between this paragraph and any other
stipulation appearing in this Agreement, the former shall prevail.
F. Confirmation of all shipment of Hardware, including a copy of the
packing list, shall be faxed to Buyer immediately after delivery to the
Carrier. The Carrier's delivery receipt, executed and dated by Carrier,
shall be considered as evidence of the satisfaction of delivery
requirements. This notice shall be directed to Buyer's cognizant
Subcontract Administrator as designated in Article XIV, WITH AN
INFORMATION COPY TO BUYER'S TRAFFIC DEPARTMENT FAX NO. (415) 852-6440.
G. Title to Hardware deliverable hereunder and risk of loss associated
therewith shall be assumed by Buyer when said Hardware is placed into
the hands of the Carrier at the Delivery Point noted herein and
confirmed in accordance with the requirements of Paragraph F, above.
ARTICLE VIII - DELIVERABLE REPORTS AND DOCUMENTATION
Subcontractor agrees to prepare and submit all technical and other
documentation, including documentation as required in the Subcontract Data
Requirement List (SDRL) of Article I, Exhibit A, as follows:
A. Unless otherwise directed by a Purchase Release, all documentation
required by this Agreement shall be delivered FOB Buyer's Facility,
Palo Alto, California, addressed as follows:
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<PAGE> 14
SPACE SYSTEMS/LORAL, INC. Attention: Data Bank
3825 Fabian Way Mail Stop: V-86
Palo Alto, CA 94303
The transmittal letter with each item of deliverable documentation
shall reference the Agreement Number, Statement of Work Number,
Document Title, and SDRL Item Number.
B. This Agreement requires submittal of documentation, including but not
limited to design, analysis, drawings, materials and parts lists and
processes which require Buyer approval. Buyer approval, however, does
not in any manner constitute relief of the Subcontractor's
responsibility for either determining the adequacy of said items for
their intended use or Subcontractor's responsibility for satisfying all
requirements of this Agreement.
C. Subcontractor shall deliver with "unlimited" rights all technical data
and software which Subcontractor provides to Buyer in accordance with
the Subcontractor Data Requirements List set for in Article I, Exhibit
A.
D. SDRL items which require Fax submittal shall be sent to the attention
of Buyer's Data Bank at Fax (650) 852-4788, and Buyer's cognizant
Subcontract Administrator in accordance with Article XIV.
E. Subcontractor shall submit SS/L Form 1266 (FINAL RELEASE, COMPLETION
AND ROYALTY CERTIFICATION) with the final invoice submitted under this
Agreement.
ARTICLE IX - NON-DISCLOSURE OF INFORMATION
A. Neither Party, nor their employees, will disclose to any third person
any information it has acquired under, or as a result of this Agreement
or negotiations leading to it concerning a Party's plans, business
objectives, customers, personnel, products, processes, work or services
without the prior written consent of the other Party, unless such
information becomes generally known without fault of the disclosing
Party, or is obtainable from other sources; nor shall either Party
disclose or release for public dissemination any information concerning
this Agreement in advertising without prior written approval of the
other Party.
B. Subcontractor agrees to make no use of drawings, specifications and
technical information or data
(1) furnished by Buyer, or (2) prepared by Subcontractor or its
employees and agents during the course of performance of work under
this Agreement, except as required to perform hereunder.
C. Neither Party shall disclose any funding, authorization, price and
schedule details of this Agreement to anyone other than Loral Space and
Communications, Inc., or its customers, without the written consent of
the other Party, or as might be directed by a court of law.
-14-
<PAGE> 15
ARTICLE X - TECHNICAL ASSISTANCE
With the exception of the requirements of Purchase Release No. 1, Buyer makes no
implication of intent nor any representation by this Agreement that it will
provide any technical assistance to Subcontractor in order for Subcontractor to
satisfy the requirements of this Agreement.
ARTICLE XI - ADVANCE TECHNOLOGY SUPPORT
Subcontractor will provide Buyer, free of charge, a mutually agreeable and
reasonable level of engineering support in the event Buyer elects to pursue any
advance technology associated with the hardware identified in this Agreement.
ARTICLE XII - PERIODIC REVIEW OF AGREEMENT
In the interest of maintaining a good-faith, long-term relationship between
Buyer and Subcontractor as contemplated by this Agreement, Buyer and
Subcontractor shall convene no less than an annual review each calendar year to
discuss the agenda items suggested below:
1. Subcontractor's and Buyer's past performance.
2. Buyer's business projections.
3. Possible opportunities for cost savings to both parties.
4. Potential for the extension of the Agreement.
5. Other matters as deemed applicable and appropriate by the parties.
ARTICLE XIII - KEY SUBCONTRACTOR PERSONNEL CLAUSE
With respect to this Agreement and any effort leading to same, Buyer has relied
upon Subcontractor's representation that Dr. Hong Hou is designated
Subcontractor's primary technical representative for the work and tasks required
by this Agreement.
Accordingly, in the event that the above named individual becomes unavailable to
further participate in the work and tasks required by this Agreement,
Subcontractor shall replace this individual with another of a comparable level
of experience, qualifications and ability, and Subcontractor shall obtain
Buyer's written approval prior to the replacement of the individual herein
named.
ARTICLE XIV - AMENDMENTS AND NOTICES
Sole authority to make changes in or amendments to this Agreement, and to effect
waivers or deviations from the work herein specified is hereby vested in Buyer's
authorized Subcontract Department representative. Except as otherwise
specifically provided for herein, any notices to be furnished by Subcontractor
to Buyer, or by Buyer to Subcontractor, shall be sent by mail or fax addressed
respectively, as follows:
-15-
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
SPACE SYSTEMS/LORAL, INC. Attention: Joseph S. Szander Phone No. (650) 852-6506
3825 Fabian Way Fax No. (650) 852-7969
Palo Alto, California 94303 Mail Station: Z53
EMCORE CORPORATION Attention: Karen L. Schneider Phone No. (505) 332-5008
10420 Research Road, SE Fax No. (505) 332-5038
Albuquerque, NM 87123
</TABLE>
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<PAGE> 17
TERMS AND CONDITIONS
In addition to the provisions set forth in the SCHEDULE of this Agreement, Fixed
Price Procurement Order Terms and Conditions SS/L P-10S Rev. 7/98 are applicable
and are incorporated herein. In the event of a conflict between these
stipulations and the provisions of the SCHEDULE, the latter shall prevail.
-17-
<PAGE> 18
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of
the day and year first written below:
SPACE SYSTEMS/LORAL, INC.
By: /s/ JOSEPH S. SZANDER
-----------------------------------------
Joseph S. Szander
Title: Subcontract Administrator
Date: November 24, 1998
---------------------------------------
EMCORE CORPORATION
By: /s/ KAREN L. SCHNEIDER
-----------------------------------------
Karen L. Schneider
Title: Director of Business & Administration
Date: NOVEMBER 25, 1998
---------------------------------------
-18-
<PAGE> 1
Exhibit 10.18
EXECUTION
PROMISSORY NOTE
(REVOLVING LINE OF CREDIT)
$8,000,000.00
June 22, 1998
EMCORE CORPORATION
394 Elizabeth Avenue
Somerset, New Jersey 08873
(Hereinafter referred to as the "Borrower")
FIRST UNION NATIONAL BANK
550 Broad Street
Newark, New Jersey 07102
(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 EIGHT MILLION AND NO/100 DOLLARS ($8,000,000.00) or
such sum as may be advanced and outstanding 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. This Note is secured by the Unconditional Guaranty
dated the date hereof, made by Thomas J. Russell, Jr., individually and the TJR
Holding Trust (collectively, the "Note Guarantors") and by the Collateral
described in the Pledge and Assignment Agreement of even date herewith made by
the Note Guarantors in favor of the Bank (collectively, the "TJR Documents").
INTEREST RATE. Interest shall accrue on the unpaid principal
balance of each Revolving Loan (defined herein) under this Note from the date
such Revolving Loan is made available to the Borrower at the at a rate equal to
one month LIBOR plus three-quarters of one percent (3/4%) per annum
("LIBOR-BASED RATE"), as determined by the Bank prior to the commencement of
each Interest Period. The LIBOR-Based Rate shall remain in effect, subject to
the provisions hereof, for the entire Interest Period for which it is
determined. Borrower acknowledges that the LIBOR- Based Rate is not represented
or intended to be the lowest or most favorable rate of interest offered by Bank.
"LIBOR" is the rate 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). The term
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"Interest Period" means, initially, the period commencing on the date hereof and
ending June 30, 1998, and thereafter, each period commencing on the last day of
the immediately preceding Interest Period and ending one month thereafter, but
in no event after the Maturity Date; subject, however, to the following
provisions: (i) if any Interest Period would otherwise end on a day which is not
a New York business day, that Interest Period shall be extended to the next
succeeding New York business day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding New York business day;
and (ii) any Interest Period that begins on the last New York business day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
New York business day of a calendar month.
DEFAULT RATE. In addition to all other rights contained in
this Note, if a Default (defined herein) occurs and as long as a Default
continues, (a) Borrower shall no longer have the option to request a LIBOR-Based
Rate and (b) all outstanding Obligations shall bear interest at the Lending Rate
(s such term is defined in the Credit Agreement) plus 3% ("Default Rate"). The
Default Rate shall also apply from acceleration until the Obligations or any
judgment thereon is paid in full.
INDEMNIFICATION. The Borrower shall indemnify the Bank against
the Bank's loss or expense in employing deposits as a consequence of (i) the
Borrower's failure to make any payment when due under this Note, or (ii) any
prepayment of the Loan on a date other than the last day of an 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 the Bank, or subjects the Bank to any tax, duty
or other charge (except tax on the Bank's net income), and any of the foregoing
increase the cost to the Bank of maintaining its commitment or reduce the amount
of any sum received or receivable by the Bank under this Note, within 15 days
after demand by the Bank, the Borrower agrees to pay the Bank such additional
amounts as will compensate the Bank for such increased costs or reductions
("ADDITIONAL COSTS").
MATCH FUNDING. The amount of such (i) Indemnified Loss or
Expense, or (ii) Additional Costs outlined above shall be determined, in the
Bank's sole discretion, based upon the assumption that the Bank funded 100% of
that portion of the Loan to which the LIBOR-Based Rate applies in the applicable
London interbank market.
UNAVAILABILITY OF INTEREST RATE. If, at any time, (i) the Bank
shall determine that, by reason of circumstances affecting foreign exchange and
interbank markets generally, LIBOR deposits in the applicable amounts are not
being offered to the Bank; or (ii) 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 the Bank to honor its obligations under this Note, then (A) the
Bank's
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<PAGE> 3
obligation, if any, to make or maintain a Revolving Loan at the LIBOR-Based Rate
shall be suspended, and (B) the applicable LIBOR-Based Rate shall, for the
remainder of the term of the Loan, immediately be converted to (x) the Lending
Rate (as such term is defined in the Credit Agreement) or (y) if the undersigned
has hedged the LIBOR-Based Rate by entering into an interest rate swap agreement
with the Bank, the rate of interest payable to the undersigned by the Bank as a
Floating Rate Payer under the terms of said swap agreement (plus the percentage
added to LIBOR above if not included in said rate of interest payable by the
Bank).
INTEREST AND FEE(S) COMPUTATION. (ACTUAL/360). Interest and
fees, if any, shall be computed on the basis of a 360-day year for the actual
number of days in the applicable period ("Actual/360 Computation"). The
Actual/360 Computation determines the annual effective yield by taking the
stated (nominal) 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 applicable
period. Application of the Actual/360 Computation produces an annualized
effective rate exceeding that of the nominal rate.
REPAYMENT TERMS. This Note shall be due and payable in
consecutive monthly payments of accrued interest only commencing on July 1,
1998, and on the first day of each month thereafter until fully paid. In any
event, all principal and accrued interest hereunder shall be due and payable on
the earlier to occur of (i) the day the Revolving Loans are accelerated due to
the occurrence of a Default, or (ii) December 31, 1999 (the "Maturity Date").
MANDATORY PREPAYMENTS. Upon the receipt of Net Cash Proceeds
(as defined below) from any sale or issuance of any shares of Borrower's common
stock or any class of its preferred stock, any securities convertible into or
exchangeable for shares of any such stock, or any warrants, rights or options to
acquire shares of such stock, Borrower will prepay the Obligations in an amount
equal to 100% of such Net Cash Proceeds, and (notwithstanding any provision of
this Note or any other Loan Document) such prepayment shall be applied in the
following manner:
FIRST: to pay the principal balance of any outstanding
Revolving Loans (defined herein), together with any accrued and unpaid interest
thereon, and SECOND to pay the principal balance of any outstanding Revolving
Loans incurred under the Credit Agreement (defined herein), together with any
accrued and unpaid interest thereon.
The maximum amount available to be advanced under this Note
shall be permanently reduced by an amount equal to the amount applied to reduce
the principal balance of the Revolving Loans pursuant to clause First above. As
used herein "Net Cash Proceeds" means the aggregate amount of cash received from
time to time (whether as initial consideration a through payment or disposition
of deferred compensation) by or on behalf of Borrower in connection with any
sale or issuance of equity securities contemplated above, after deduction
therefrom only (i) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees and other similar fees and expenses, and (ii) the
amount of taxes payable in connection with, or as a result of, such transaction;
but in each case only to the extent that such amounts are deducted upon receipt
of such cash proceeds and actually paid to persons or entities,
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<PAGE> 4
other than Borrower, Note Guarantors or any Affiliate of Borrower or Note
Guarantors. For the avoidance of doubt, Borrower acknowledges that (i) the
foregoing shall not be deemed or construed as a consent by Bank to any such
equity sale or issuance which would otherwise be prohibited by the terms of the
Loan Documents and (i) this Section, as it relates to the reduction of
Borrower's Obligations under the Credit Agreement, shall survive the payment in
full and/or termination of Borrower's Obligations hereunder. In connection with
any prepayment required hereunder, Bank shall cooperate with Borrower to
mitigate any Indemnified Loss of Expense otherwise payable hereunder and similar
charges payable under the Credit Agreement.
APPLICATION OF PAYMENTS. Monies received by Bank from any
source for application toward payment of the Obligations shall be applied first
to fees, penalties, accrued interest and then to principal. If a Default occurs,
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 any prior notes which
evidence all or any portion of the loan evidenced by this Note, and may include,
without limitation, this Note, the TJR Documents, the Credit Agreement (as such
term is defined below), guaranty agreements, security agreements, security
instruments, financing statements, mortgage instruments, letters of credit and
any renewals or modifications, whenever any of the foregoing are executed, but
does not include swap agreements (as defined in 11 U.S.C. ss. 101).
The term "Obligations" used in this Note refers to any and all
indebtedness and other obligations under this Note, all other obligations under
any other Loan Document(s), and all obligations under any swap agreements as
defined in 11 U.S.C. ss. 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 3% 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.
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,
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<PAGE> 5
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 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.
DEFAULT. If any of the following occurs, a default ("Default")
under this Note shall exist: NONPAYMENT; NONPERFORMANCE. The failure of timely
payment or performance of the Obligations or Default under this Note or any
other Loan Documents or failure of any party to comply with any other term,
condition or agreement set forth in this Note or any other Loan Document, beyond
any applicable grace period, if any. FALSE WARRANTY. A warranty or
representation made or deemed made in the Loan Documents or furnished Bank in
connection with the loan evidenced by this Note proves materially false, or if
of a continuing nature, becomes materially false. CROSS DEFAULT. At Bank's
option, any default in payment or performance of any obligation under any other
loans, contracts or agreements of Borrower, any Subsidiary or Affiliate of
Borrower, any general partner of or the holder(s) of the majority ownership
interests of Borrower with Bank or its affiliates ("Affiliate" shall have the
meaning as defined in 11 U.S.C. ss. 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). CESSATION; BANKRUPTCY. The
dissolution of, termination of existence of, loss of good standing status by,
appointment of a receiver for, assignment for the benefit of creditors of, or
commencement of any bankruptcy or insolvency proceeding by or against the
Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or
the holder(s) of the majority ownership interests of Borrower, or any party to
the Loan Documents. NOTE GUARANTORS. If (i) any Note Guarantor fails to comply
with any payment obligation set forth in the Guaranty or if any Note Guarantor
fails to comply with any of the covenants or other agreements set forth in the
Guaranty or any other Loan Document to which it is a party beyond any applicable
grace period provided for therein, or (ii) any representation or warranty made
or deemed made by Note Guarantor in the Guaranty or any other Loan Document to
which it is a party or which is contained in any exhibit, schedule or any other
document or other statement furnished at any time under or in connection with
the Guaranty or any of the other Loan Documents shall prove to have been
incorrect in any material respect on or as of the date made or deemed made, or
(iii) if Note Guarantor shall terminate, purport to terminate or take any steps
which have the effect of decreasing its liability under the Guaranty.
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REMEDIES UPON DEFAULT. If a Default occurs under this Note or
any Loan Documents, Bank may at any time thereafter, take the following actions:
BANK LIEN. Foreclose its security interest or lien against Borrower's accounts
without notice. ACCELERATION UPON DEFAULT. Accelerate the maturity of this Note
and all other Obligations, and all of the Obligations shall be immediately due
and payable. CUMULATIVE. Exercise any rights and remedies as provided under the
Note and other Loan Documents, or as provided by law or equity.
FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to
Bank such information as required under the Credit Agreement and other Loan
Documents.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower
authorizes Bank to debit its demand deposit account number 002030000135558 or
any other account with Bank for any payments due under this Note. Borrower
further certifies that Borrower holds legitimate ownership of this account and
preauthorizes this periodic debit as part of its right under said ownership.
REVOLVING LOANS. Borrower may borrow, repay and reborrow, and
Bank may advance and readvance under this Note respectively from time to time
(each a "Revolving Loan" and together the "Revolving Loans"), so long as the
total indebtedness outstanding at any one time does not exceed the principal
amount stated on the face of this Note (as such availability may be reduced
pursuant to the Section captioned Mandatory Prepayments hereunder). Bank's
obligation to make Revolving Loans under this Note shall terminate if there is a
Default.
ADDITIONAL COVENANTS, REPRESENTATIONS AND WARRANTIES. All of
the agreements, covenants, representations and warranties made by the Borrower
in the Revolving Loan and Security Agreement dated March 31, 1997 between the
Borrower and the Bank as the same may be amended from time to time (the "Credit
Agreement") and the other Loan Documents (as such term is defined in the Credit
Agreement) are deemed incorporated herein in their entirety as if fully and
completely set forth herein. All capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement. For the avoidance of doubt, Borrower acknowledges all terms and
provisions of the Credit Agreement incorporated by reference into this Note
shall be so incorporated as such terms exist as of the date hereof and shall
remain so incorporated herein irrespective of the termination or expiration of
the Credit Agreement.
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 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, demand for payment, notice of
intention to accelerate maturity, notice of
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<PAGE> 7
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
releases, compromises or indulgences with respect to any collateral securing
this Note, or with respect to any other Borrower or any other person liable
under this Note or other Loan Documents, all without notice to or consent of
each Borrower or each 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 interests in and
rights under this Note and other Loan Documents are freely assignable, in whole
or in part, by Bank. In addition, nothing in this Note or any of the Loan
Documents shall prohibit Bank from pledging or assigning this Note or any of the
Loan Documents or any interest therein to any Federal Reserve 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. 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. 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. REVOLVING LOANS. Bank
in its sole discretion may make other Revolving Loans under this Note pursuant
hereto. POSTING OF PAYMENTS. All payments received
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<PAGE> 8
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. 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 herein. 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 Rule 51 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.
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<PAGE> 9
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.
CONDITIONS PRECEDENT. This Note shall not be deemed in full
force and effect and no Revolving Loans shall be made hereunder until the Bank
has received the following:
(1) This Note, duly executed and delivered by the Borrower;
(2) All of the TJR Documents fully executed by the parties
thereto; and
(3) A Year 2000 Computer Compliance Questionnaire fully
completed by the Borrower, in form and substance satisfactory to the
Bank.
IN WITNESS WHEREOF, Borrower, on the day and year first above written,
has caused this Note to be executed under seal.
EMCORE CORPORATION
CORPORATE By: /s/ REUBEN F. RICHARDS
SEAL -----------------------------------
Name: Reuben F. Richards
Title: President and CFO
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<PAGE> 1
Exhibit 10.19
EXECUTION COPY
SECOND AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO REVOLVING LOAN AND SECURITY AGREEMENT (this
"Second Amendment"), dated as of November 30, 1998, is entered into by and
between EMCORE CORPORATION, a New Jersey corporation (the "Borrower") and FIRST
UNION NATIONAL BANK (the "Bank").
RECITALS:
A. The Borrower and the Bank are parties to a certain Revolving Loan
and Security Agreement, dated as of March 31, 1997, as amended by a certain
Consent and Amendment Agreement, dated as of December 5, 1997 (the "First
Amendment") and as further modified pursuant to a certain Extension Letter dated
September 29, 1998 issued by the Bank and accepted by the Borrower (the
"Extension Letter", said loan agreement, as amended by the First Amendment and
the Extension Letter is hereinafter referred to as the "Loan Agreement").
B. The Revolving Loan Commitment is due to expire on November 30, 1998
and, therefore, the Borrower has requested a renewal and extension thereof to
October 1, 1999.
C. The Bank is willing to amend the Loan Agreement to reflect the
parties understanding with respect to the renewal and extension of the Revolving
Loan Commitment to October 1, 1999 subject to, and in accordance with, the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements set forth herein, and for value received by each party, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 EXISTING DEFINITIONS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings set forth in the Loan Agreement. Upon
the effectiveness of this Second Amendment, the following defined terms shall be
amended as set forth herein and such amended definitions shall apply wherever
such defined terms are used in the Loan Documents.
(a) The defined term "Commitment Expiration Date" is hereby
amended and restated to read as follows:
"Commitment Expiration Date" means October 1, 1999, unless
extended in accordance with Section 2.5 hereof."
(b) The first sentence of the defined term "Lending Rate" is
hereby amended and restated to read as follows:
"Lending Rate" means, with respect to each Revolving Loan, the
Prime Rate PLUS 50 basis points.
<PAGE> 2
(c) The defined term "Loan Documents" is hereby amended and
restated to read as follows:
"Loan Documents" means, collectively, this Agreement, the
Revolving Note, the Guaranty, the Security Agreement, the Note Stock
Pledge Agreements, the NM Facility Mortgage, the NM Facility Bond
Pledge, the New Guaranty, the New Pledge Agreement, and all other
documents, instruments and agreements delivered in connection herewith
and therewith, as the same from time to time may be amended, renewed,
restated, supplemented or otherwise modified."
1.2 ADDITIONAL DEFINITIONS. For purposes of the Loan Agreement and the
other Loan Documents, the following terms are hereby incorporated into Section 1
of the Loan Agreement in their respective appropriate alphabetical order:
"Consent Letter" means that certain Consent Letter issued by
the Bank to the Borrower on November 24, 1998, pursuant to which the
Bank provided its consent to the Specified Circumstances (as defined
therein) as such circumstances relate to the issuance by the Borrower
of its New Preferred Stock."
"New Guaranty" means that certain Unconditional Guaranty, in
substantially the form of EXHIBIT "A" attached hereto, given by Thomas
J. Russell, Jr., and TJR Holding Trust in favor of the Bank."
"New Preferred Stock" means the 1,550,000 shares of Series I
Redeemable Convertible Preferred Stock, $.0001 par value per share
issued by the Borrower on November 30, 1998."
"New Pledge Agreement" means that certain Pledge and
Assignment Agreement, in substantially the form of EXHIBIT "B" attached
hereto, given by Thomas J. Russell, Jr. and TJR Holding Trust in favor
of the Bank."
"NM Facility" means that certain real property and
improvements located in the City of Albuquerque, County of Bernalillo,
State of New Mexico, as more fully described in the NM Facility
Mortgage, which is occupied by the Borrower pursuant to a certain long
term lease dated June 1, 1998, by and between the Borrower and the City
of Albuquerque, New Mexico."
"NM Facility Bond Pledge" means that certain Bond Pledge
Agreement, in substantially the form of EXHIBIT "C" attached hereto,
given by EMCORE IRB Company, Inc. in favor of the Bank with respect to
the pledge of certain New Mexico taxable industrial revenue bonds
issued by the City of Albuquerque, New Mexico in connection with the
development of the NM Facility.
"NM Facility Mortgage" means that certain Mortgage and
Security Agreement, in substantially the form of EXHIBIT "D" attached
hereto, given by the Borrower in favor of the Bank with respect to the
Bank's first priority mortgage lien upon the NM Facility."
2
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"Supplemental Revolver" means that certain $8,000,000.00
revolving credit facility made available by the Bank to the Borrower
pursuant to a certain $8,000,000.00 Promissory Note dated June 22, 1998
made by the Borrower and payable to the Bank."
1.3 DELETION OF CERTAIN DEFINITIONS. As of the effectiveness of this
Second Amendment, the term "Tangible Capital Funds" shall be deleted from the
Loan Agreement and the Loan Documents wherever it may appear and, for the
avoidance of doubt, it is hereby acknowledged that the term "Effective Tangible
Net Worth" as defined in Section 10.14(b) of the Loan Agreement (as such section
shall be amended hereby) shall be inserted in its place.
SECTION 2. EXISTING OBLIGATIONS
2.1 ACKNOWLEDGMENT OF EVENTS OF DEFAULT, AMOUNTS OUTSTANDING.
(a) The Borrower acknowledges that it has failed to comply
with certain of the terms and conditions of the Loan Agreement, specifically the
Fixed Charge Ratio set forth in Section 10.14(a) of the Loan Agreement (all as
more particularly described on SCHEDULE I annexed hereto (the "Specified
Default") and that, as a result of the Borrower's failure to perform and satisfy
its obligations under the Loan Agreement, an Event of Default existed
thereunder. The Bank acknowledges that the Specified Default has been waived
pursuant to, and in accordance with, a certain Waiver Letter dated August 14,
1998 extended by the Bank to the Borrower. The Bank further acknowledges its
consent to certain Specified Circumstances (as defined in the Consent Letter)
pursuant to the terms and conditions of the Consent Letter. The Borrower
represents and warrants to the Bank that no Events of Default or Unmatured
Events of Default (other than the Specified Default) have occurred and are
continuing.
(b) The Borrower further acknowledges and agrees that, as of
the date hereof, the aggregate principal amount outstanding under the Revolving
Loans is $9,950,000 (without giving effect to the reduction required pursuant to
Section 4.1(a) of this Second Amendment) plus accrued and unpaid interest and
late charges, if any. The Borrower acknowledges and agrees that such amounts
outstanding under the Revolving Loans are the valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with the terms of
the Loan Documents, and that, as of the date hereof, there are no claims,
set-offs or defenses to the payment thereof.
2.2 WAIVER OF CLAIMS AND DEFENSES; RELEASE.
(a) The Borrower agrees that, as of the date hereof, it has no
claim, counterclaim, cause of action or defense of any kind by way of offset or
otherwise to the payment and satisfaction in full of the Revolving Loans. The
foregoing notwithstanding, to the extent that any such a claim or defense may or
does exist, as of the date hereof, the Borrower waives and releases any and all
such claims, counterclaims, causes of action and defenses.
(b) The Borrower further waives and releases and affirmatively
agrees not to allege or otherwise pursue, in any manner, any and all defenses,
affirmative defenses, counterclaims, claims, causes of action, set-offs or other
rights that it may have as of the date
3
<PAGE> 4
hereof to contest: (i) the Specified Default; (ii) any provisions of the Loan
Agreement and other Loan Documents; (iii) the rights of the Bank to all rents,
issues, profits, products and proceeds of the Collateral for the Revolving
Loans; (iv) the liens for the benefit of the Bank in any property (whether real
or personal, tangible or intangible), right or other interest, now or hereafter
arising in connection with the Collateral for the Revolving Loans; and (v) any
and all acts or omissions of the Bank in administering the amounts outstanding
under the Loan Agreement or otherwise; and the Borrower fully and forever
releases and discharges the Bank from any and all claims or liability of any
kind or nature with respect to the foregoing.
2.3 REAFFIRMATION OF SECURITY INTEREST AND LIENS. The Borrower
acknowledges and agrees that the security interests and other liens granted to
the Bank in the Collateral described in Section 7 of the Loan Agreement are and
remain valid and first priority liens on the assets subject thereto. The
Borrower further represents and warrants that (i) such collateral includes, but
is not limited to, all such Collateral located , or arising as a result of
operations, at the NM Facility and (ii) there are no claims, set-offs or
defenses to the Bank's exercise of any rights or remedies available to it as a
creditor in realizing upon such collateral under the terms and conditions of the
Loan Documents. The Borrower further acknowledges that the obligations secured
by and under the Loan Agreement include, but are not limited to, all such
obligations of the Borrower related to the Revolving Loans as modified hereby.
SECTION 3. LOANS
3.1 RENEWAL OF REVOLVING LOAN COMMITMENT. Upon satisfaction of the
conditions to effectiveness set forth in Section 4 of this Second Amendment, the
Revolving Loan Commitment made available by the Bank to the Borrower pursuant to
the Loan Agreement shall be extended and renewed through and including October
1, 1999. In consideration of the renewal and extension of the Revolving Loan
Commitment, the Borrower shall pay to the Bank a non-refundable renewal fee in
an amount to one-half of one percent (.50%) of the Revolving Loan Commitment,
which shall be due and payable upon execution and delivery of this Second
Amendment.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO THIS SECOND AMENDMENT. This Second Amendment shall
become effective as of the date first written above upon fulfilment of the
following conditions precedent, all as determined by the Bank, in its sole and
absolute discretion:
(a) The Borrower shall have consummated its private placement
of certain of its New Preferred Stock yielding gross proceeds of not less than
$21,700,000 on terms on conditions contemplated in the Consent Letter, and shall
have caused that portion of said proceeds not designated for a specific use to
be applied to the payment of the outstanding principal balance of the Revolving
Loans;
(b) The Borrower shall have caused to be executed and
delivered to the Bank the New Guaranty and the New Pledge Agreement;
4
<PAGE> 5
(c) The Borrower shall have provided the Bank with a first
mortgage lien all of the Borrower's right, title and interest in and to the NM
Facility pursuant to the NM Facility Mortgage and such other mortgage
documentation acceptable to the Bank, its general outside counsel and its local
counsel; and in connection with the NM Facility Mortgage, the Borrower shall
have caused the following materials to be delivered to the Bank, in each case,
in form and substance satisfactory to the Bank, its general outside counsel and
its local counsel:
(i) a mortgagee's title insurance policy or marked-up
unconditional binder for such insurance in the form
of an ALTA Loan Policy from a title company
acceptable to the Bank in its sole and absolute
discretion, said policy shall be (x) in an amount not
less than $5,000,000, (y) insure the NM Facility
Mortgage as a valid first lien on the NM Facility,
and (z) contain such endorsements and other forms of
affirmative insurance as the Bank may request in its
reasonable discretion;
(ii) a land survey of the perimeter or boundaries of the
site of the NM Facility certified to the Bank and
acceptable to the title company issuing the title
policy described in clause (i) above, said survey to
show in addition to metes and bounds of the
perimeter, all set-back and dimension restrictions
imposed by local zoning authorities, dimensions and
locations of all improvements, easements, rights of
way, encroachments and the lines, distances to, and
the names of the nearest intersecting streets
providing ingress and egress to the NM Facility, and
other details as the Bank may request;
(iii) certified copies of the bond transcript pertaining to
the issuance and sale of the taxable industrial
revenue bonds issued by the City of Albuquerque
related to the acquisition and development of the NM
Facility and the pledge of said bonds to pursuant to
the NM Facility Bond Pledge;
(d) The Borrower shall have paid and/or reimbursed the Bank
for all costs and expenses incurred in connection with the Consent Letter and
the extension herein contemplated, including, without limitation, all appraisal
fees related to Bank ordered appraisals of the NM Facility and certain other
assets of the Borrower, recording and filing charges, legal fees and
disbursements (including fees and disbursements of general outside counsel and
local counsel in New Mexico), search charges and other incidental out-of-pocket
expenses;
(e) The Borrower shall have caused to be delivered by the
Guarantor of a Guarantor Agreement, in substantially the form of EXHIBIT "E"
attached hereto, duly executed and delivered by the Guarantor to the Bank;
(f) The Borrower shall have provided to the Bank resolutions
of the boards of directors of the Borrower and the Guarantor, certified by the
secretary of each of them as of the date hereof to be duly adopted and in full
force and effect on such date, authorizing the consummation of each of the
transactions contemplated by this Second Amendment (including, but not limited
to, the execution and delivery of the NM Facility Mortgage);
5
<PAGE> 6
(g) The Borrower shall have provided to the Bank certificates
of the appropriate governmental authorities, dated the most recent practicable
date prior to the date hereof, showing that Borrower and the Guarantor are in
good standing in the States of New Jersey and New Mexico, and in such other
jurisdictions as the Bank shall reasonably request;
(h) The Borrower shall have caused to be delivered to the Bank
opinions of counsel to the Borrower and the Guarantor, in form and substance
satisfactory to the Bank and its counsel, regarding such matters as the Bank may
reasonable request in connection with the transactions contemplated in this
Second Amendment (including, but not limited to, the recordability, validity,
and enforceability of the NM Facility Mortgage);
(i) The Borrower shall have caused to be delivered to the Bank
UCC financing statements and other filings or recordings deemed necessary by the
Bank in order to perfect its security interests in the Collateral, including,
without limitation, such financing statements and other filings and written
assurances, as the Bank deems necessary or appropriate with respect to the any
such Collateral located, or arising from operations, at the NM Facility;
(j) The Borrower shall have caused to be delivered to the Bank
evidence that the insurance policies provided for in Section 10.7 of the Loan
Agreement are in full force and effect, with appropriate loss payee and
additional insured clauses in favor of the Bank, certified by the insurer;
(k) The Borrower shall have caused to be delivered to the Bank
payment of the renewal fee referenced in Section 3.1 hereof;
(l) The Borrower shall have satisfied all other conditions to
the extension contemplated herein set forth in that certain extension commitment
letter dated November 23, 1998 provided by the Bank to the Borrower; and
(m) Such additional information and documents as the Bank may
request.
SECTION 5. RATIFICATION AND AMENDMENT OF REPRESENTATIONS, WARRANTIES
AND COVENANTS
5.1 RATIFICATION. Borrower hereby ratifies, confirms and restates, as
if set forth herein in their entirety, all representations, warranties,
covenants, acknowledgments and agreements set forth in Section 8 of the Loan
Agreement, as amended prior the date hereof, at and as of the date hereof (other
than representations, warranties and covenants which expressly speak only as of
a different date), and affirmatively states that all of the same are true and
accurate and shall be and remain in full force and effect, subject only to
changes effected by this Second Amendment and/or changes previously disclosed to
the Bank in writing. In addition, Borrower represents and warrants to the Bank
that:
(a) the Borrower has the power and authority to enter into
this Second Amendment;
6
<PAGE> 7
(b) the Borrower's unaudited consolidated financial statements
as of June 30, 1998, which were furnished previously to the Bank, were prepared
in accordance with GAAP consistently applied throughout the period involved, and
present fairly the financial position of the Borrower as at the date thereof and
the results of operations and cash flows of the Borrower for the period then
ended;
(c) no changes having a material adverse effect have occurred
since the date of such financial statements referred to in Section 5.1(b) above;
(d) the execution, delivery and performance of this Second
Amendment and the instruments and agreements executed and delivered in
connection herewith by the Borrower have been duly authorized by all requisite
corporate action and this Second Amendment and the instruments and agreements
executed and delivered in connection herewith constitute the legal, valid and
binding obligations of the Borrower, enforceable against it in accordance with
their terms;
(e) the Borrower is not in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court or other
governmental authority which would have a material adverse effect;
(f) there have been no changes to the certificate of
incorporation or by-laws of any of the Borrower or the Guarantor since the date
of the First Amendment, other than the amendments thereto effected in connection
with the issuance of the New Preferred Stock; and
(g) no Event of Default or Unmatured Event of Default has
occurred and is continuing or will result from the execution, delivery and
performance of this Second Amendment and the instruments and agreements executed
and delivered in connection herewith.
5.2 AMENDMENT OF CERTAIN PROVISIONS OF LOAN AGREEMENT.
(a) Section 4.1 of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
"4.1 INTEREST RATE. With respect to each Revolving Loan, the
Borrower promises to pay interest on the unpaid principal amount
thereof for the period commencing on the date of such Revolving Loan
until such Revolving Loan is paid in full at a rate per annum equal to
the Lending Rate. Notwithstanding anything contained in this Agreement
or the Revolving Note to the contrary, with respect to each Revolving
Loan, after the maturity thereof on upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest to
the Bank at a rate per annum equal to the Default Rate.
(b) Section 10.14 of the Loan Agreement is amended and
restated in its entirety to read as follows:
7
<PAGE> 8
"10.14 Financial Covenants.
(a) FIXED CHARGE RATIO. Borrower shall not permit the Fixed
Charge Coverage Ratio to be less than 1.2 to 1 at the end of any fiscal
quarter commencing with the fiscal quarter ending March 31, 1999.
(b) EFFECTIVE TANGIBLE NET WORTH. The Borrower shall maintain
an Effective Tangible Net Worth (i) as at September 30, 1998 of not
less than $10,000,000.00 , (ii) as at December 31, 1998 of not less
than $29,000,000.00, (iii) as at March 31, 1999 of not less than
$29,000,000.00 and (iv) as at May 15, 1999 and all times thereafter of
not less than $54,000,000.00. "Effective Tangible Net Worth" means
total assets MINUS total liabilities as determined in accordance with
GAAP, applied on a consistent basis. For purposes of this computation,
the aggregate amount of any assets classified as Intangibles shall be
subtracted from total assets and total liabilities shall not include
the Borrower's obligations with respect to the New Preferred Stock to
the extent that such obligations are otherwise classified as
liabilities of the Borrower in accordance with GAAP."
(c) Section 10.21 of the Loan Agreement is amended and
restated to read as follows:
"10.21 DIVIDENDS. The Borrower shall not declare any dividends
(other than dividends payable solely in stock of Borrower) on, or make
any payment on account of , any shares of any class of stock of the
Borrower, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether
in cash or property or in obligations of the Borrower, or make any
payment on account of, or purchase or otherwise acquire, any securities
of the Borrowers from any Person; provided, however that the foregoing
shall not prohibit the Borrower from paying or declaring dividends in
respect of the New Preferred Stock of (i) not greater than 2% per share
(and $434,000.00 in the aggregate per annum) whether paid in cash or
in-kind, in the form of scheduled dividends on such preferred stock,
and (i) not greater than 0.5% per share (and $108,750 in the aggregate
per annum) in cash in the form of a special dividend payment incidental
to the Borrower's failure to timely file and maintain in effect the
"Shelf Registration" in accordance with the terms of such preferred
stock, in each case, if, AND ONLY IF, afer giving effect to the payment
of any such dividends, no Event of Default or Unmatured Event of
Default would then exist."
(d) Immediately following Section 10.27 of the Loan Agreement
there shall be inserted a new Section 10.28, which shall read as follows:
"10.28 YEAR 2000 COMPATIBILITY. The Borrower shall take all
action necessary to assure that its computer based systems have the
ability to operate and effectively process data including dates on or
after January 1, 2000. The Borrower shall make further inquiry as to
its significant suppliers and customers regarding their respective
efforts to assure such Year 2000 compatibility. At the request of the
Bank, the Borrower
8
<PAGE> 9
shall provide the Bank with such assurances as it may reasonably
request to demonstrate the Borrower's compliance with the foregoing
covenant."
SECTION 6. MISCELLANEOUS.
6.1 CONTINUED EFFECTIVENESS. Except as specifically amended by and/or
inconsistent with this Second Amendment, all of the terms and conditions of the
Loan Agreement shall remain unchanged and in full force and effect and are
hereby ratified, adopted and confirmed in all respects. All references to the
Loan Agreement in any Loan Document shall hereafter be deemed to refer to the
Loan Agreement as amended prior to the date hereof and by this Second Amendment.
This Second Amendment is a Loan Document.
6.2 PAYMENT OF EXPENSES. Borrower shall pay the reasonable fees and
expenses (including, but not limited to, reasonable attorneys' fees and
expenses) incurred by the Bank in connection with the preparation, negotiation,
execution and delivery and enforcement of this Second Amendment and the
documents executed and delivered in connection herewith and any and all
renewals, modifications, amendments and waivers hereof and hereunder.
6.3 ENTIRE AGREEMENT. This Second Amendment, together with the other
Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect to such subject matter.
6.4 COUNTERPARTS. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement, and any party may execute
this Second Amendment by signing any such counterpart.
6.5 GOVERNING LAW. This Second Amendment shall be interpreted, and the
rights and liabilities of the parties hereto, whether arising in contract or
tort and howsoever pertaining to the parties' relationship, shall be determined
in accordance with the laws of the State of New Jersey.
6.6 HEADINGS. The section titles contained in this Second Amendment
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Second Amendment the
day and year first above-written.
EMCORE CORPORATION,
a New Jersey corporation
By: /s/ THOMAS G. WERTHAN
----------------------------------
Name: Thomas G. Werthan
Title: CFO and Vice President
FIRST UNION NATIONAL BANK
By: /s/ Robert Murphy
----------------------------------
Name: Robert Murphy
Title: Vice President
10
<PAGE> 11
SCHEDULE I
SPECIFIED DEFAULT
1. Failure to comply with the Fixed Charge Ratio covenant set
forth in Section 10.14(a) of the Loan Agreement for the fiscal period ending
June 30, 1998
<PAGE> 1
Exhibit 21
SUBSIDIARY OF THE REGISTRANT
MicroOptical Devices, Inc., a Delaware corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of EMCORE Corporation on Form S-8 (File Nos. 333-27507, 333-36445,
333-39547 and 333-45827) of our report dated November 30, 1998 on our audits of
the financial statements and financial statement schedule of EMCORE Corporation
as of September 30, 1998, and for the three years ended September 30, 1998,
which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Parsippany, New Jersey
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EMCORE CORPORATION FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,518
<SECURITIES> 0
<RECEIVABLES> 8,549
<ALLOWANCES> (611)
<INVENTORY> 12,445
<CURRENT-ASSETS> 25,109
<PP&E> 52,136
<DEPRECIATION> (15,926)
<TOTAL-ASSETS> 66,158
<CURRENT-LIABILITIES> 27,126
<BONDS> 0
0
0
<COMMON> 87,443
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66,158
<SALES> 43,760
<TOTAL-REVENUES> 43,760
<CGS> 24,675
<TOTAL-COSTS> 24,675
<OTHER-EXPENSES> 60,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 973
<INCOME-PRETAX> (43,481)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,481)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,481)
<EPS-PRIMARY> (4.95)
<EPS-DILUTED> (4.95)
</TABLE>
