<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark one):
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] 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)
NEW JERSEY
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
22-2746503
(IRS Employer Identification No.)
394 Elizabeth Avenue
Somerset, NJ 08873
(Address of principal executive offices) (zip code)
(732) 271-9090
(Registrant's telephone number, including area code)
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:[ ]
As of February 1, 1999 there were 9,426,030 shares of the registrant's
no par value common stock outstanding.
<PAGE> 2
Part I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------------
1998 1997
--------------------------------
(as restated) (as restated)
See Note 8 See Note 8
<S> <C> <C>
Revenues................................................... $10,125 $ 12,357
Cost of sales.............................................. 6,016 6,376
--------------------------------
Gross profit............................................... $ 4,109 $ 5,981
--------------------------------
Operating expenses:
Selling, general and administrative..................... $ 3,143 $ 3,003
Goodwill amortization................................... 1,099 343
Research and development:
One-time acquired in-process....................... 19,516
Recurring.......................................... 5,924 2,836
--------------------------------
Total operating expenses................................... 10,166 $ 25,698
--------------------------------
Operating loss............................................. $(6,057) $(19,717)
--------------------------------
Other expense:
Stated interest expense, net............................. $ 230 $ 70
Imputed warrant interest expense, non-cash............... 316 96
Equity in net loss of an unconsolidated affiliate........ 276 --
--------------------------------
Total other expense........................................ $ 822 $ 166
--------------------------------
Net loss................................................... $(6,879) $(19,883)
================================
Per share data:
Net loss per basic share (see Note 6)...................... $ (0.74) $ (2.81)
================================
Net loss per diluted share (see Note 6).................... $ (0.74) $ (2.81)
================================
Weighted average shares used in per share data
calculations............................................. 9,390 7,075
--------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
EMCORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, except share data)
<TABLE>
<CAPTION>
At December 31, At September 30,
1998 1998
------------------ -------------------
(unaudited)
(as restated) (as restated)
See Note 8 See Note 8
<S> <C> <C>
ASSETS
Cash and cash equivalents..................................... $ 1,780 $ 4,456
Restricted cash............................................... -- 62
Accounts receivable, net of allowance for doubtful accounts of
$580 and $611 at December 31, 1998 and September 30, 1998,
respectively................................................. 4,553 7,438
Accounts receivable, related party............................ 2,517 500
Inventories, net.............................................. 12,483 12,445
Other current assets.......................................... 290 208
-------------- -------------
Total current assets.................................... 21,623 25,109
Property, plant and equipment, net............................ 40,554 36,210
Goodwill, net................................................. 8,421 9,519
Investments in unconsolidated affiliate....................... 5,615 292
Other assets, net............................................. 1,670 2,090
-------------- -------------
Total assets............................................ $ 77,883 $ 73,220
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable - related party................................. $ -- $ 7,000
Accounts payable.............................................. 9,129 12,023
Accrued expenses.............................................. 3,554 4,197
Advanced billings............................................. 5,303 3,180
Capital lease obligations - current........................... 702 673
Other current liabilities 142 53
-------------- -------------
Total current liabilities............................... 18,830 27,126
Bank loans.................................................... 15,950 17,950
Subordinated notes, net....................................... 7,904 7,809
Capital lease obligation, net of current portion.............. 596 755
Other liabilities............................................. 569 --
-------------- -------------
Total liabilities....................................... 43,849 53,640
-------------- -------------
Mandatorily redeemable, convertible preferred stock, 1,550,000
shares issued and outstanding at December 31, 1998
(redeemable at maturity for $21,700)......................... 21,242 --
SHAREHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 5,882,353 shares authorized;
no shares outstanding........................................ -- --
Common stock, no par value, 23,529,411 shares authorized,
9,403,504 shares issued and outstanding December 31, 1998,
9,375,952 shares issued and outstanding at September 30, 1998 87,576 87,443
Accumulated deficit........................................... (67,117) (60,196)
Notes receivable from warrant issuances and stock sales....... (7,667) (7,667)
-------------- -------------
Total shareholders' equity.................................... 12,792 19,580
-------------- -------------
Total shareholders' equity and mandatorily redeemable,
convertible preferred stock.................................. 34,034 19,580
-------------- -------------
Total liabilities, shareholders' equity and mandatorily
redeemable, convertible preferred stock...................... $ 77,883 $ 73,220
============== =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------- ---------------
1998 1997
--------------- ---------------
(as restated) (as restated)
See Note 8 See Note 8
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................................. $ (6,879) $ (19,883)
--------------- ---------------
Adjustments to reconcile net loss to net cash (used for) provided by
operating activities:
Acquired in-process research and development, non-cash................ -- 19,516
Depreciation and amortization......................................... 2,746 1,873
Provision for doubtful accounts....................................... 60 10
Provision for inventory valuation..................................... 30 30
Detachable warrant accretion and debt issuance cost amortization...... 313 97
Equity in net loss of an unconsolidated affiliate..................... 276 --
Deferred gain on sales to an unconsolidated affiliate................. 711 --
Compensatory stock issuances.......................................... 93 88
Change in assets and liabilities:
Accounts receivable - trade........................................ 2,825 691
Accounts receivable - related party................................ (2,017) 500
Inventories........................................................ (68) (1,876)
Other current assets............................................... (83) (340)
Other assets....................................................... 184 (93)
Accounts payable................................................... (2,894) 2,851
Accrued expenses .................................................. (643) (1,546)
Advanced billings.................................................. 2,123 (806)
Other current liabilities.......................................... (53) (93)
--------------- ---------------
Total adjustments......................................................... 3,603 20,902
--------------- ---------------
Net cash (used for) provided by operating activities.................. (3,276) 1,019
--------------- ---------------
INVESTING ACTIVITIES:
Purchase of property, plant, and equipment................................ (5,972) (1,627)
Acquisition, cash acquired................................................ -- 193
Investment in unconsolidated affiliate.................................... (5,600) --
Funding of restricted cash................................................ 63 63
--------------- ---------------
Net cash used for investing activities................................ (11,509) (1,371)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds from private placement offering, net of $500 issue costs......... 21,200 --
Payments on short-term notes payable, related party, net.................. (7,000) --
Payments on bank loan..................................................... (2,000) --
Payments on capital lease obligations..................................... (129) (50)
Net proceeds from stock options exercise.................................. 38 38
Proceeds from exercise of stock warrants.................................. -- 12
--------------- ---------------
Net cash provided by financing activities............................. 12,109 --
--------------- ---------------
Net decrease in cash and cash equivalents................................. (2,676) (352)
Cash and cash equivalents, beginning...................................... 4,456 3,653
--------------- ---------------
Cash and cash equivalents, ending......................................... $ 1,780 $ 3,301
=============== ================
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................................. $334 $ 275
=============== ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
EMCORE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended September 30, 1997 and 1998 and the three
months ended December 31, 1998 (unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Shareholders' Total
-------------------- Accumulated Notes Shareholder
Shares Amount Deficit Receivable Equity
- --------------------------------------------- ------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 2,994 $18,978 $(18,158) $(298) $522
Issuance of common stock purchase warrants.. 3,601 3,601
Issuance of common stock from initial
public offering, net of issuance costs of
$3,110..................................... 2,875 22,765 22,765
Issuance of common stock on exercise of
warrants................................ 94 384 384
Stock option exercise....................... 35 54 54
Redemption of notes receivable from
shareholders............................ 32 32
Forgiveness of note receivable from
shareholder............................. 57 57
Compensatory stock issuances................ 2 35 35
Net loss.................................... (5,620) (5,620)
- -----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997............... 6,000 $45,817 $(23,778) $(209) $21,830
Issuance of common stock purchase warrants.. 1,310 1,310
Issuance of common stock and common stock
purchase warrants in exchange for
notes receivable........................ 1,828 7,458 $(7,458) --
Issuance of common stock and common stock
purchase options and warrants in
connection with the acquisition of MODE. 1,462 32,329 32,329
Stock option exercise....................... 36 83 83
Stock purchase warrant exercise............. 6 23 23
Issuance of common stock on exercise of
warrants in exchange for subordinated
notes of sub-debt....................... 18 72 72
Compensatory stock issuances................ 26 351 351
Net loss.................................... (36,418) (36,418)
- -----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998............... 9,376 $87,443 $(60,196) $(7,667) $19,580
Warrant exercise by conversion of sub-debt.. -- 1 1
Compensatory stock issuances................ 9 94 94
Stock option exercise....................... 19 38 38
Preferred stock dividends................... (36) (36)
Accretion of redeemable preferred stock
issue cost.............................. (6) (6)
Net loss.................................... (6,879) (6,879)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (unaudited)
(as restated - See Note 8)................. 9,404 $87,576 $(67,117) $(7,667) $12,792
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of
EMCORE Corporation (the "Company") reflect all adjustments considered necessary
by management to present fairly the Company's consolidated financial position as
of December 31, 1998 and December 31, 1997, and the consolidated results of
operations and the consolidated cash flows for the three month periods ended
December 31, 1998. All adjustments reflected in the accompanying unaudited
condensed consolidated financial statements are of a normal recurring nature
unless otherwise noted. Prior period balances have been reclassified to conform
with the current period financial statement presentation. The results of
operations for the three months ended December 31, 1998 are not necessarily
indicative of the results for the fiscal year ending September 30, 1999 or any
future interim period.
NOTE 2. 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 ("the Series I Preferred Stock")
for aggregate consideration of $21.7 million before deducting costs and
expenses, which amounted to approximately $500,000. The Series I Preferred Stock
was recorded net of issuance costs. The excess of the preference amount over the
carrying value is being accreted by periodic charges to accumulated deficit in
the absence of additional paid in capital. 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
market price of the Company's common stock was $12.875 on the date the Series I
Preferred Stock was issued. 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. The Series I Preferred stock carries a dividend of 2% per
annum. Dividends are being charged to accumulated deficit in the absence of
additional paid in capital. In addition, the Series I Preferred Stock is subject
to mandatory redemption by the Company at $14.00 per share plus accumulated and
unpaid dividends, if any, on November 17, 2003.
NOTE 3. Related Party Transactions
In February 1998, the Company and a subsidiary of Uniroyal Technology
Corporation formed Uniroyal Optoelectronics LLC, a joint venture, to
manufacture, sell and distribute HB LED wafers and package-ready devices. The
joint venture commenced operations in July 1998. 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 Company's initial
investment in this venture amounted to $490,000. In November 1998, the Company
invested an additional $5.0 million into this venture. During the quarter ended
December 31, 1998, the Company sold two compound semiconductor production
systems to the venture totaling $3.0 million in revenues. The Company eliminated
gross profit of approximately $711,000 on such sales to the extent of its
minority interest. Such deferred gross profit will be recognized ratably over
the assigned life of the production systems purchased by the joint venture. For
the three months and the year ended December 31, 1998 and September 30, 1998,
respectively, the Company recognized a loss of $276,000 and $198,000 related to
this venture, which has been recorded as a component of other income and
expense. As of December 31, 1998, the Company's investment in this venture
amounted to $5,015,000.
6
<PAGE> 7
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 quarter ended December 31, 1998,
sales made through Hakuto amounted to approximately $3.1 million.
On January 27, 1999, the Company borrowed $3.0 million from its Chairman.
The loan bears interest at 8% per annum. The loan will be repaid from borrowings
under the Company's $5.0 million short-term note.
On January 29, 1999, the Company's Chairman has committed to provide $30
million of long-term financing of the Company through July 1, 2000. The
Chairman's financing commitment terminates if the Company completes a secondary
offering of a specified amount.
7
<PAGE> 8
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. Joint Ventures
In November 1998, the Company entered into a venture with Union Miniere
Inc. to undertake research and development aimed at new material application of
germanium substrates. The Company has a 50% non-controlling interest in the
venture. The Company will account for its interest in the venture under the
equity method of accounting. In November 1998, the Company invested $600,000 in
the venture. The Company is obligated to fund the venture's capital requirements
in proportion to its equity interest. As of December 31, 1998, no expenses have
been incurred by the joint venture and it is expected to commence in the second
quarter of fiscal 1999.
In November 1998, the Company also formed a venture with Optek Technology,
Inc. to produce, market and distribute packaged electronic semiconductor
components. The Company has a 50% non-controlling interest in the venture. The
Company will account for its interest in the venture under the equity method of
accounting. The Company is obligated to fund the venture's capital requirements
in proportion to its equity interest. As of December 31, 1998, neither party has
contributed capital to this venture, which is expected to commence in the second
quarter of fiscal 1999.
NOTE 5. Inventories
The components of inventories consisted of the following (in thousands):
As of As of
December 31, 1998 September 30, 1998
----------------- ------------------
Raw materials................ $10,694 $11,346
Work-in-process.............. 1,768 1,092
Finished goods............... 21 7
----------------- ------------------
Total........................ $12,483 $12,445
================= ==================
8
<PAGE> 9
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. Earnings Per Share
The Company accounts for earnings per share under the provision of
Statement of Financial Accounting Standards No. 128 "Earnings per share" ("SFAS
No. 128"). For the quarter ended December 31, 1998, basic and diluted earnings
per share calculated pursuant to SFAS No. 128 has been restated 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 shares outstanding during the period. Diluted
earnings per share was calculated by dividing net loss 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 earnings per share calculations for the three-month periods ending December
31, 1998 and 1997, respectively.
Three Months
Ended December 31,
------------------
1998 1997
---- ----
As Restated,
see Note 8
Net loss........................................ $(6,879) $(19,883)
Preferred stock dividends.................... (36) --
------- --------
Periodic accretion of preferred stock
to redemption value.......................... (6) --
------- --------
Net loss available to common shareholders....... $(6,921) $(19,883)
======= ========
Earnings per common share - basic............... $ (0.74) $ (2.81)
======= ========
Earnings per common share - diluted............. $ (0.74) $ (2.81)
======= ========
Common shares - basic .......................... 9,390 7,075
Effect of dilutive securities:
Stock options and warrants..................... -- --
Preferred stocks............................... -- --
------- --------
Common shares - diluted......................... 9,390 7,075
======= ========
The effect of outstanding common stock purchase options and warrants and
the number of shares available to be issued upon the conversion of the Company's
Series I Preferred Stock have been excluded from its earnings per share
calculation since the effect of such securities is anti-dilutive.
9
<PAGE> 10
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. Subsequent Events
Joint Venture:
On January 21, 1999, GE Lighting and the Company agreed, subject to certain
conditions, to form a new joint venture to develop and market "white light"
light-emitting diodes. The new company, GELcore, LLC (the "GELcore venture"),
will develop and market LEDs as replacements for miniature automotive, compact
fluorescent, halogen and traditional incandescent lighting. Under terms of the
joint venture agreement, the Company will have a 49% non-controlling interest in
the GELcore venture.
In connection with the GELcore venture, General Electric will loan the
Company $7.8 million at 4.75% per annum. The proceeds will be used to fund part
of the Company's initial capital contribution in GELcore. This subordinated
debenture (the "Debenture") will mature seven years from the date of issuance
and is convertible into common stock of the Company at a conversion price of
$22.875 or 340,984 shares. The Debenture is convertible at any time at the
option of General Electric and may be called by the Company after three years,
if the price of the Company's common stock has traded at or above $34 for at
least thirty days. The Debenture's interest rate will be subject to adjustment
in the event the Company does not complete a public offering by June 30, 1999.
General Electric will also receive 282,010 warrants to purchase common
stock at $22.875 per share. The warrants will be exercisable at any time and
will expire in seven years from the date of issuance. The number of common stock
purchase warrants to be issued is subject to the market price of the Company's
common stock upon the completion of a secondary offering or March 31, 1999,
whichever occurs first.
Debt Facilities:
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 (8.25% at December 31, 1998). As of September 30, 1998 the
Company had $9,950,000 outstanding under this facility. In December 1998, the
Company repaid $2.0 million of its obligation, resulting in an outstanding
balance at December 31, 1998 of approximately $8.0 million. In January 1999, the
Company borrowed the remaining balance of $2,050,000 available under the 1997
Agreement.
On January 27, 1999, the Company borrowed $3.0 million from its Chairman.
The loan bears interest at 8% per annum. The loan will be repaid from borrowings
under the Company's $5.0 million short-term note.
On January 29, 1999, the Company's Chairman has committed to provide $30
million of long-term financing of the Company through July 1, 2000. The
Chairman's financing commitment terminates if the Company completes a secondary
offering of a specified amount.
On February 1, 1999, the Company entered into a $5.0 million short-term
note (the "Note") with First Union National Bank. The Note is due and payable in
May 1999. The Note bears interest at a rate equal to one-month LIBOR plus
three-quarters of one percent per annum.
NOTE 8. Restatement
Subsequent to the issuance of the Company's Quarterly Report on Form 10-Q
for the three months ended December 31, 1998, the Company revised the amount of
the purchase price which was allocated to in-process research and development
in accounting for the acquisition of MicroOptical Devices, Inc. ("MODE") on
December 5, 1997. The revised allocation is based upon methods prescribed in a
letter from the Securities and Exchange Commission ("SEC") sent to the American
Institute of Certified Public Accountants. The letter sets forth the SEC's views
regarding the valuation methodology to be used in allocating a portion of the
purchase price to acquired in-process research and development at the date of
acquisition.
The revised valuation is based on management's estimates of the net cash
flows associated with expected operations of MODE and gives explicit
consideration to the SEC's views on acquired in-process research and
development as set forth in its September 1998 letter to the American Institute
of Certified Public Accountants.
As a result of the revised allocation, the amount of the purchase price
allocated to acquired in-process research and development at the date of
acquisition decreased from $29.3 million to $19.5 million, and the amount
ascribed to goodwill increased by $9.8 million which includes approximately $0.5
million related to the value of MODE's workforce. The Company's financial
statements for the three months ended December 31, 1998 and 1997, have been
restated from amounts previously reported to increase the amount of goodwill by
$6.2 million and $9.5 million, respectively, and goodwill amortization by
$815,000 and $272,000, respectively. This change had no impact on net cash flows
used for operations.
A summary of the significant effect of the restatement is as follows:
<TABLE>
<CAPTION>
For the three months ended For the three months ended
December 31, 1998 December 31, 1997
--------------------------- ---------------------------
(in thousands) (in thousands)
As Previously As As Previously As
Reported Restated Reported Restated
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Research and development - acquired in-
process................................ $ -- $ -- $ 29,294 $ 19,516
Goodwill amortization.................... $ 284 $ 1,099 $ 71 $ 343
Operating loss........................... $ (5,242) $ (6,057) $(29,223) $(19,717)
-------- -------- -------- --------
Net loss................................. $ (6,064) $ (6,879) $(29,389) $(19,883)
======== ======== ======== ========
Net loss per common share - basic........ $ (0.65) $ (0.74) $ (4.15) $ (2.81)
======== ======== ======== ========
Net loss per common share - diluted...... $ (0.65) $ (0.74) $ (4.15) $ (2.81)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of As of
December 31, 1998 December 31, 1997
--------------------------- ---------------------------
(in thousands) (in thousands)
As Previously As As Previously As
Reported Restated Reported Restated
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Goodwill, net............................ $ 2,174 $ 8,421 $ 3,308 $ 12,814
Accumulated deficit...................... $(73,364) $(67,117) $(53,166) $(43,660)
</TABLE>
10
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Perform Act of 1995, readers of this document are advised that it
contains both statements of historical facts and forward looking statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations 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 that 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
optical 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.
Restatement
The Company has restated its previously filed condensed consolidated
financial statements as of and for the three months ended December 31, 1998 to
adjust the allocation of the purchase price related to the acquisition of
MicroOptical Devices, Inc. ("MODE") in December 1997 and the resulting
amortization of goodwill.
The Securities and Exchange Commission ("SEC") issued new guidance on its
views regarding the valuation methodologies used to determine the allocation of
purchase price to acquire in-process research and development ("IPR&D") and
intangible assets in a purchase business combination. Generally accepted
accounting principles require that amounts allocated to IPR&D be expensed upon
consummation of an acquisition. Following discussions between the Company and
the staff of the SEC regarding the application of this guidance, the Company has
modified the methods used to value IPR&D and other intangible assets acquired in
connection with the acquisition of MODE. The revised valuation is based on
management's best estimates at the date of acquisition of the net cash flows
expected to be generated by MODE on a going-forward basis and gives explicit
consideration to the SEC's views on IPR&D as set forth in its letter to the
American Institute of Certified Public Accountants. As a result of this revised
valuation, the amount of the purchase price allocated to IPR&D at the date of
acquisition decreased from $29.3 to $19.5 million. Therefore, the amount
ascribed to goodwill increased by $9.8 million which includes approximately $0.5
million related to the value of MODE's workforce.
OVERVIEW:
EMCORE designs, develops and manufactures compound semiconductor materials
and is a leading developer and manufacturer of the tools and manufacturing
processes used to fabricate compound semiconductor wafers and devices. Prior to
fiscal 1997, EMCORE's revenues consisted primarily of the sales of compound
semiconductor production systems. In fiscal 1997, EMCORE expanded its product
offerings to include the design and high-volume production of compound
semiconductor wafers and package-ready devices. EMCORE's vertically-integrated
product offering allows it to provide a complete compound semiconductor solution
to its customers. EMCORE assists its customers with device design, process
development and optimal configuration of TurboDisc production systems.
Systems-related revenues include sales of EMCORE's TurboDisc production
systems as well as spare parts and services. The book-to-ship time period on
systems is approximately four to six months, and 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 for
systems and average selling prices vary significantly based on the products and
services provided. Generally, EMCORE achieves a higher gross profit on its
materials related products.
EMCORE recognizes revenue upon shipment. For systems, EMCORE incurs certain
installation and warranty costs subsequent to shipment which are estimated and
accrued at the time the sale is recognized. EMCORE reserves for estimated
returns and allowances at the time of shipment. For research contracts with the
U.S. government and commercial enterprises with durations greater than six
11
<PAGE> 12
months, EMCORE recognizes revenue to the extent of costs incurred plus a pro
rata portion of estimated gross profit as stipulated in these contracts, based
on contract performance. EMCORE's research contracts require the development or
evaluation of new materials applications and have a duration of six to 36
months. Contracts with a duration of six months or less are accounted for on the
completed contract method. A contract is considered complete when all costs have
been incurred and the research reporting requirements to the customer have been
met.
EMCORE has recently established a number of strategic relationships through
joint ventures, long-term supply agreements and an acquisition as summarized
below.
0 In January 1999, EMCORE signed an agreement with General Electric
Lighting to form GELcore, a joint venture to develop and market white
light and colored HB LEDs lighting products. GELcore's long-term goal is
to develop HB LED products to replace traditional lighting. We anticipate
investing approximately $7.8 million in GELcore upon formation of the
joint venture and will second various personnel to the joint venture to
assist in the development and marketing of its products. These personnel
and the related costs will be charged to the joint venture. In addition,
GELcore will hire its own administrative and management personnel. As
such, the impact on EMCORE's operations will be limited to the seconded
employees who will continue to be managed by EMCORE personnel.
0 In November 1998, EMCORE signed a long term purchase agreement with Space
Systems/Loral, a wholly owned subsidiary of Loral Space & Communications.
Under this agreement, which is contingent upon EMCORE's compliance with
Loral's product specification requirements, EMCORE will supply compound
semiconductor high-efficiency gallium arsenide solar cells for Loral's
satellites. EMCORE anticipates completing this qualification in June
1999. Subject to the product qualification, EMCORE received an initial
purchase order for $5.25 million of solar cells. EMCORE expects to
service this agreement through our newly completed facility in
Albuquerque, New Mexico. This facility presently employs approximately 40
people, including sales, marketing, administrative and manufacturing
personnel.
0 In November 1998, EMCORE formed UMCore, a joint venture with Union
Miniere Inc., a mining and materials company, to explore and develop
alternate uses for germanium using EMCORE's materials science and
production platform expertise and Union Miniere's access to and
experience with germanium. EMCORE has invested $600,000 in UMCore which,
together with an equal amount funded by Union Miniere, is expected to
fund the operations of UMCore through fiscal 1999. EMCORE will second
various personnel to the joint venture to assist in the development of
products. Thereafter, any additional funding will be contributed equally.
0 In October 1998, EMCORE formed Emtech, a joint venture with Optek
Technology, Inc., a packager and distributor of optoelectronic devices,
to market an expanded line of magneto resistive sensors to the automotive
and related industries. This joint venture combines EMCORE's expertise in
the manufacture of magneto resistive die and Optek's expertise in
packaging these die. This combination will allow us to offer customers
off-the-shelf products. No additional personnel are anticipated to meet
the obligations to the joint venture.
0 In September 1998, EMCORE entered into an agreement with Lockheed Martin
to provide technical management and support for the commercialization of
a new high-efficiency solar cell. It is anticipated that we will provide
high efficiency solar cells to Lockheed Martin upon completion of the
research and development agreement. EMCORE's new facility in Albuquerque,
New Mexico, will provide the support necessary to meet our obligations
under this agreement.
O EMCORE also signed a four-year purchase agreement with AMP Incorporated
to provide high speed VCSELs, for use in transceivers for high speed
networks that link computers. The contract requires AMP to purchase a
minimum of 80% of their VCSEL needs from EMCORE. EMCORE's MODE facility
in Albuquerque, New Mexico, will produce the devices under this contract.
O In February 1998, EMCORE and Uniroyal Technology Corporation formed
Uniroyal Optoelectronics, a joint venture to manufacture, sell and
distribute HB LED wafers and package-ready devices. This joint venture
commenced operations in July 1998. EMCORE has invested $5.5 million in
Uniroyal Optoelectronics. Uniroyal Optoelectronics is hiring its own
administrative and management personnel. The impact on EMCORE's
operations will be limited to a few seconded employees who will continue
to be managed by EMCORE personnel.
12
<PAGE> 13
Because we do not have a controlling economic and voting interest in the
Uniroyal, Union Miniere, Optek and General Electric Lighting joint ventures,
EMCORE will account for these joint ventures under the equity method of
accounting and, as such, our share of profits and losses will be included below
the operating income line in our statement of operations.
To expand its technology base into the data communications and
telecommunications markets, on December 5, 1997, EMCORE acquired MicroOptical
Devices, Inc. ("MODE") in a stock transaction accounted for under the purchase
method of accounting for a purchase price of $32.8 million. EMCORE's acquisition
of MODE, a development stage company, constituted a significant and strategic
investment for EMCORE to acquire and gain access to MODE's in-process research
and development of micro-optical technology. As part of this acquisition, EMCORE
incurred a one-time in-process research and development write-off of $19.5
million. EMCORE also recorded goodwill of approximately $13.2 million. This is
being charged against operations over a three-year period, and will therefore
impact financial results through December 2000.
EMCORE sells its products and has generated a significant portion of its
sales to customers outside the United States. In fiscal 1996, 1997, 1998 and the
first fiscal quarter of fiscal 1999, international sales constituted 42.5%,
42.0%, 39.1% and 35.1%, respectively, of revenues. In fiscal 1998, approximately
two-thirds of EMCORE's international sales were made to customers in Asia,
particularly in Japan. EMCORE's sales revenues from Europe have f luctuated
because most of our sales of TurboDisc systems are to a limited number of
customers, who do not purchase these systems regularly. EMCORE anticipates that
international sales will continue to account for a significant portion of
revenues. Historically, we have received all payments for products and services
in U.S. dollars. We do not anticipate that Europe's Euro-currency conversion
will have a material effect on our financial condition or results of operations.
The information below summarizes EMCORE's export sales by geographic area.
EMCORE's export sales to the Far East and Europe are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, ASIA EUROPE TOTAL
- ------------------------ ---- ------ -----
<S> <C> <C> <C>
1996..................................................... $ 8,209,309 $3,588,066 $11,797,375
1997..................................................... 14,583,981 5,478,186 20,062,167
1998..................................................... 15,527,169 1,584,851 17,112,020
1999 First Quarter....................................... 3,317,668 231,472 3,549,140
</TABLE>
As of December 31, 1998, EMCORE had an order backlog of $41.8 scheduled to
be shipped through September 30, 1999. This represented an increase of 81.4%
since September 30, 1998 which primarily relates to increased systems bookings
in Asia and an initial order for solar cells from Loral, which is subject to
product qualification. EMCORE includes in backlog only customer purchase orders
that have been accepted by EMCORE and for which shipment dates have been
assigned within the 12 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. EMCORE
receives partial advance payments or irrevocable letters of credit on most
production system orders.
13
<PAGE> 14
RESULTS OF OPERATIONS:
REVENUES. The Company's revenues decreased 18.1% from $12.4 million for the
three months ended December 31, 1997, to $10.1 million for the three months
ended December 31, 1998. The revenue decrease in the three-month period was
attributable to decreased revenues in the materials-related product lines, which
were impacted primarily by a decrease in process development fees and a decrease
due to the discontinuation of a wafer sales contract in October 1998. This
three-year contract is on hold pending evaluation by the customer. Revenues
relating to systems- and materials-related products accounted for 54.4% and
45.6%, respectively, for the three months ended December 31, 1997 and 72.0% and
28.0%, respectively, for the three months ended December 31, 1998. International
sales accounted for 44.2% of revenues for the three months ended December 31,
1997 and 35.1% of revenues for the three months ended December 31, 1998.
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 decreased from 48.4% of revenue for the quarter
ended December 31, 1997, to 40.6% of revenue for the three months ended December
31, 1998. The gross profit percentage was negatively affected by a product mix
in favor of lower gross profit system products as well as under-absorbed
overhead due to lower overall revenues. During the three months ended December
31, 1998, the Company sold for approximately $3.0 million two compound
semiconductor production systems to a joint venture in which it has a 49%
minority interest. The Company eliminated $711,000 of gross profit on such
sales. Such deferred gross profit will be recognized ratably over the assigned
life of the production systems purchased by the joint venture.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by 4.7% from $3.0 million for the three months ended December
31, 1997, to $3.1 million in the three months ended December 31, 1998. A
significant portion of the increase was largely due to increases in sales
personnel headcount to support both domestic and foreign markets and general
headcount additions to sustain the internal administrative support. As a
percentage of revenue, selling, general and administrative expenses increased
from 24.3% for the three months ended December 31, 1997 to 31.0% for the three
months ended December 31, 1998. This increase is a direct result of the decrease
in overall revenues.
GOODWILL AMORTIZATION. The Company recognized approximately $1.1 million
(as restated) of goodwill amortization for the three months ended December 31,
1998 in connection with the acquisition of MODE on December 5, 1997. As of
December 31, 1998, the Company has approximately $8.4 million (as restated) of
goodwill remaining which will be fully amortized by December 2000.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
108.9% from $2.8 million in the three months ended December 31, 1997, to $5.9
million in the three months ended December 31, 1998. As a percentage of revenue,
recurring research and development expenses increased from 23.0% for the first
quarter of the prior year to 58.5% for the first quarter of the current year.
The increase was primarily attributable to EMCORE's acquisition of MODE, startup
of its new Albuquerque, New Mexico facility 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 production systems, VCSELs and other
optoelectronic devices. During the three months ended December 31, 1997, the
Company recognized a $19.5 million one-time non-cash charge for acquired
in-process research and development relating to the Company's December 5, 1997
purchase of MODE. For the three-months ended December 31, 1997 and 1998, the
Company incurred approximately $321,000 and $844,000, respectively, of research
and development costs associated with MODE's in-process (at the date of
acquisition) research and development projects. To maintain growth and to
continue to pursue market leadership in materials science technology, the
Company expects to continue to invest a significant amount of its resources in
research and development.
14
<PAGE> 15
OPERATING LOSS. The Company reported an operating loss of $6.1 million (as
restated) for the three months ended December 31, 1998, as compared to a $19.7
million loss for the three months ended December 31, 1997. The change in
operating loss is due to the loss of gross profit on decreased revenues and a
product mix geared towards lower gross margin system related sales coupled with
a higher fixed cost infrastructure to support those revenues. In addition, the
Company's operating loss was impacted by increased research and development
spending; the loss generated from the operations of MODE, a company acquired in
December 1997, and the startup expenses associated with the opening of the
Company's new Albuquerque, New Mexico facility. During the three months ended
December 31, 1997, the Company recognized a $19.5 million one-time non-cash
charge for acquiring in-process research and development relating to the
Company's December 5, 1997 purchase of MODE.
OTHER EXPENSE. During fiscal 1996, the Company issued detachable warrants
along with subordinated notes to certain of its existing shareholders. In fiscal
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 a debt issuance cost. The
consequent expense of these warrant accretion amounts is charged to "Imputed
warrant interest, non-cash" and amount to approximately $96,000 and $316,000 for
the three months ended December 31, 1997 and December 31, 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 18 month credit facility with First Union National Bank. The
Company subsequently assigned a value to these detachable warrants 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.
For the three months ended, December 31, 1998, stated interest expense, net
increased by $160,000 to $230,000 due to additional borrowing and lower interest
income. In the prior year, the Company was earning interest income on its
initial public offering proceeds.
NET LOSS. The Company reported net loss of $6.9 million (as restated) for
the quarter ended December 31, 1998, as compared to a $19.9 million loss for the
quarter ended December 31, 1997. For the quarter ended December 31, 1997, the
decrease in the year-to-date loss was attributable to the $19.5 million
write-off of acquired in-process research and development in connection with the
acquisition of MODE on December 5, 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents decreased by $2.7 million from $4.5 million at
September 30, 1998, to $1.8 million at December 31, 1998. For the three months
ended December 31, 1998, net cash used for operations amounted to $3.3 million,
primarily due to the Company's net losses, and decrease in accounts payable;
which was partially offset by the Company's non-cash depreciation and
amortization charges, and an increase in advance billings.
For the three months ended December 31, 1998, net cash used in investment
activities amounted to $11.5 million, primarily due to the purchase and
manufacture of new equipment for the facilitation of the Company's wafer and
device product lines, and clean room modifications and enhancements of
approximately $6.0 million, as well as investments in unconsolidated affiliates
of approximately $5.6 million.
Net cash provided by financing activities for the three months ended
December 31, 1998 amounted to approximately $12.1 million, primarily due to the
$21.2 million of net proceeds from the private placement of preferred stock and
short-term related party borrowings of $1.5 million. This was offset by debt
repayments of $10.5 million ($8.5 million on short-term related party debt and
$2.0 million on the $10.0 million bank loan).
15
<PAGE> 16
On March 31, 1997, the Company entered into a $10.0 million loan agreement
with First Union National Bank (the "1997 Agreement"). The 1997 Agreement bears
interest at the rate of prime plus 50 basis points (7.75% at December 31, 1998).
As of September 30, 1998 the Company had $9,950,000 outstanding under this
facility. In December 1998, the Company repaid $2.0 million of its obligations,
resulting in an outstanding balance at December 31, 1998 of approximately $8.0
million. In January 1999, the Company borrowed the remaining balance of
$2,050,000 available under the Company's 1997 Agreement.
EMCORE's Chairman has committed to provide up to $30.0 million of long term
financing to EMCORE through July 1, 2000. This commitment terminates upon
completion of any public offering of EMCORE's common stock, subject to a minimum
offering size requirement. On January 27, 1999 EMCORE borrowed $3.0 million from
its Chairman, Thomas J. Russell. The loan bears interest at 8% per annum. On
February 1, 1999 EMCORE entered into a $5.0 million short term note (the "Note")
with First Union National Bank. The loan from Thomas J. Russell was repaid from
borrowings under the Note. The Note is due and payable in May 1999. The Note
bears interest at the rate equal to one-month LIBOR plus three-quarters of one
percent per annum.
EMCORE believes that its current liquidity, together with available credit
facilities (including the Chairman's commitment), should be sufficient to meet
its cash needs for working capital through July 2000. However, if the
available credit facilities, cash generated from operations and cash on hand are
not sufficient to satisfy EMCORE's liquidity requirements, EMCORE will seek to
obtain additional equity or debt financing. Additional funding may not be
available when needed or on terms acceptable to EMCORE. If EMCORE is required to
raise additional financing and if adequate funds are not available or 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 EMCORE's business, financial condition or operations.
At December 31, 1998, the Company employed 310 full-time employees. None of
the Company's employees are covered by a collective bargaining agreement. The
Company considers its relationship with its employees to be good.
YEAR 2000:
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. EMCORE 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. EMCORE's assessment plan
consists of (1) quality assurance testing of its internally developed
proprietary software; (2) contacting third-party vendors and licensors of
material hardware, software and services that are both directly and indirectly
related to EMCORE's business; (3) contacting vendors of third-party systems; (4)
assessing repair or replacement requirements; (5) implementing repair or
replacement; and (6) creating contingency plans in the event of Year 2000
failures. EMCORE plans to perform a Year 2000 simulation on its systems during
the second and third quarters of l999 to test system readiness. Many vendors of
material hardware and software components of its systems have indicated that the
products used by EMCORE are currently Year 2000 compliant. EMCORE will require
vendors of its other material hardware and software components of its systems to
provide assurances of their Year 2000 compliance. EMCORE plans to complete this
process by September 30, 1999. Until such testing is completed and such vendors
and providers are contacted, EMCORE will not be able to completely evaluate
whether its systems will need to be revised or replaced.
COSTS. To date, EMCORE has not incurred any material expenditures in
connection with identifying, evaluating or addressing Year 2000 compliance
issues. Most of EMCORE expenses have related to, and are expected to continue to
relate to, the operating costs associated with time spent by employees in the
16
<PAGE> 17
evaluation process and Year 2000 compliance matters generally. At this time,
EMCORE 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 EMCORE does not anticipate that such
expenses will be material, such expenses if higher than anticipated could have a
material adverse effect on EMCORE's business, financial condition and results of
operations.
RISKS. EMCORE is not currently aware of any Year 2000 compliance problems
relating to its systems that would have a material adverse effect on EMCORE
business, results of operations and financial condition, without taking into
account EMCORE efforts to avoid or fix such problems. There can be no assurance
that EMCORE 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 EMCORE material
systems will not need to be revised or replaced, all of which could be
time-consuming and expensive. The failure of EMCORE 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 EMCORE 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, the
failure of governmental agencies, utility companies, third-party service
providers and others outside of EMCORE's control to be Year 2000 compliant could
result in systemic failure beyond EMCORE's control, such as a telecommunications
or electrical failure, which could have a material adverse effect on EMCORE's
business, results of operations and financial condition.
CONTINGENCY PLAN. As discussed above, EMCORE is engaged in an ongoing Year
2000 assessment and has not yet developed any contingency plans. The results of
EMCORE'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.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 - Transaction Agreement, dated January 26, 1999, by and
between the Company and General Electric Company.
Confidential Treatment has been requested by the Company
with respect to portions of this document. Such portions are
indicated by "***."
27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
December 31, 1998.
18
<PAGE> 19
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMCORE CORPORATION
Date: May 17, 1999 By: /s/ Reuben F. Richards, Jr.
---------------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Date: May 17, 1999 By: /s/ Thomas G. Werthan
---------------------------------------------
Thomas G. Werthan
Vice President, Finance and Administration
19
<PAGE> 20
EXHIBIT INDEX
Exhibit Description
------ -----------
10.1 - Transaction Agreement, dated
January 26, 1999, by and between the
Company and General Electric
Company. Confidential Treatmen
has been requested by the Company
with respect to portions of this
document. Such portions are
indicated by "***."
27 - Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
TRANSACTION AGREEMENT
This Transaction Agreement (this "Agreement") is made this 20th day of
January, 1999, between General Electric Company, a New York corporation ("GE"),
acting through GE Lighting ("GEL") having offices at 1975 Noble Rd., Cleveland,
OH 44112 and Emcore Corporation, a New Jersey corporation ("Emcore") having
offices at 294 Elizabeth Ave., Somerset, NJ 08873. GEL and Emcore are herein
singly referred to as a "Member" and collectively as the "Members".
A. GEL has phosphor and packaging technology, applications engineering
and sales and distribution and product management skills, and Emcore has LED
and MOCVD design, process and manufacturing technologies and compound
semiconductor product development capabilities.
B. GEL and Emcore agree that there is a significant opportunity for
LED Products in the general, specialty and automotive lighting markets and have
agreed to work with each other to develop, manufacture, market and sell color
and "white" light emitting LED Products to these markets.
C. Prior to entering into this Agreement, GE has caused to be formed a
limited liability company under the name of GELcore, LLC (the "Company") under
the laws of the State of Delaware on October 16, 1998 by the filing of a
Certificate of Formation (as amended on November 5, 1998) with the Secretary of
State of the State of Delaware.
D. The parties propose to conduct the business operations of the
Company as set forth in, and subject to the terms and conditions contained in,
this Agreement and the LLC Agreement and Ancillary Agreements referred to
below.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth in this Agreement, GEL and Emcore agree as
follows:
ARTICLE 1
DEFINITIONS
Section 1.01 DEFINITIONS. Defined terms used in this Agreement shall
have the meanings specified in this Agreement or in Exhibit A.
<PAGE> 2
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ARTICLE 2
PURPOSE; TERM
Section 2.01 PURPOSE. The Company has been formed pursuant to the Act
and the Certificate of Formation, and the LLC Agreement is to be entered into
by the Members in the form attached to this Agreement as Exhibit B, for the
purpose of combining their complementary skills, resources and efforts to (i)
design and develop White Light LED Products, (ii) source, manufacture or have
manufactured and market and sell White Light LED Products in the general,
specialty and automotive lighting markets worldwide, (iii) design and develop
new color *** LED Products utilizing existing technologies, (iv) source,
manufacture or have manufactured and market and sell such new color and other
color *** LED Products in the general, specialty and automotive lighting
markets worldwide, and (v) design, develop, source, manufacture or have
manufactured for use by the Company, but not for individual resale, package
ready LED devices.
Section 2.02 TERM. The Company, as constituted in the Certificate of
Formation and the LLC Agreement, shall remain in existence in perpetuity unless
earlier dissolved or terminated pursuant to law or the provisions of this
Agreement or the LLC Agreement.
Section 2.03 NO STATE LAW PARTNERSHIP; LIABILITY TO THIRD PARTIES. The
Members intend that the Company not be a partnership (including, without
limitation, a limited partnership), and that no Member be a partner or joint
venturer of any other Member, for any purposes other than federal and state tax
purposes, and that neither the Certificate of Formation, this Agreement, nor
the LLC Agreement nor any of the Ancillary Agreements be construed otherwise.
No Member shall be liable for the debts, obligations or liabilities of the
Company, including under a judgment, decree or order of a court.
Section 2.04 LLC AGREEMENT. This Agreement sets forth the agreement
between the parties hereto regarding the covenants to be performed and the
conditions to be fulfilled prior to or at the Closing (as defined in Section
4.01) and certain other agreements between the parties regarding the operation
and governance of the Company and its business after the Closing. At the
Closing, the parties shall execute and deliver the LLC Agreement, certain of
the provisions of which shall be substantially the same as certain of the
provisions of this Agreement, and which shall contain certain other provisions
relating to the Company, including without limitation provisions relating to
the Capital Accounts of the Members and distributions by the Company to its
Members.
-2-
<PAGE> 3
ARTICLE 3
CAPITAL CONTRIBUTIONS
Section 3.01 INITIAL CONTRIBUTIONS. (a)(i) Upon and subject to the
conditions in section 4.03 of this Agreement being fulfilled or waived, GE and
Emcore shall each be obligated to make an initial cash contribution to the
capital of the Company of $16,320,000 (Sixteen Million Three Hundred Eighty
Thousand Dollars) and $15,680,000 (Fifteen Million Six Hundred Eighty Thousand
Dollars), respectively, such that the respective initial Capital Accounts of GE
and Emcore will equal 51% and 49% of the total capital of the Company. The
initial Membership Interests of GE and Emcore will be 51% and 49%,
respectively. GE shall contribute $8,200,000 and Emcore shall contribute
$7,800,000 of its initial capital contribution at the Closing, and the balance
of their respective initial capital contributions shall be made in one or more
installments promptly after the Company, acting through its President, has
submitted and has gained approval of an Annual Operating Plan that indicates
that such balance is to be made; provided, however, that notice for such
contribution of such balance shall not be given prior to the end of the twelfth
month following the Closing Date (as hereinafter defined).
(ii) GE shall make a convertible loan to Emcore in the original
principal amount of 7,800,000, the proceeds of which shall be used by Emcore to
make its initial capital contribution referred to in subsection 3.01(a)(i)
above (the "GE Loan"). The GE Loan shall be evidenced by a mutually acceptable
definitive loan agreement to be executed and delivered by GE and Emcore on or
before the Closing Date (the "GE Loan Agreement"). The GE Loan Agreement shall
contain (A) customary representations and warranties on the part of Emcore, (B)
customary affirmative and negative covenants relating to Emcore and its
business and (C) the general terms set forth on Schedule 3.01(a)(ii) attached
hereto.
(b)(i) In the event that Emcore fails to contribute all or a portion
of the balance of its initial capital contribution at the times required and as
described in section 3.01(a) above, GE shall have the right (but not the
obligation) to increase its contribution to the extent that Emcore failed to
contribute the balance of its initial capital contribution (any such increase
in contribution shall be referred to as a "MI Increase"). Upon completion of
any such capital contribution, and subject to subsection 3.01(b)(ii) below, the
Membership Interests of the Members shall be adjusted to reflect their
respective actual capital contributions to the Company as of such date;
provided, however, that for purposes of the Required Interest for Supermajority
Transactions under section 7.03 hereof, prior to the expiration of the option
period in subsection 3.01(b)(ii) below, Emcore's Membership Interest shall not
be deemed to have fallen below 34% of the outstanding Membership Interests as a
result of any failure by Emcore to contribute all or a portion of the balance
of its initial capital contribution at the times and as described in section
3.01(a) above.
(ii) GE agrees that in the event that it receives a MI Increase as
provided in subsection 3.01(b)(i) above, Emcore shall have the option to
purchase all or a part of that MI Increase for
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cash at a price equal to the amount contributed by GE for such MI Increase or
portion thereof, plus interest at a then prevailing market rate reflecting the
nature of the investment. Emcore must exercise the option by delivering written
notice to GE at least thirty (30) days prior to the first anniversary date of
the capital contribution giving rise to the MI Increase. Any such option notice
shall set a date for the consummation of the transaction, which date shall be
no later than thirty (30) days after the date of the option notice. In the
event that Emcore fails to timely exercise the option and consummate the
purchase of the MI Increase or portion thereof indicated in the option notice,
the option shall expire and be of no force or effect and the Membership
Interests shall remain as adjusted pursuant to subsection 3.01(b)(i) above.
Neither Emcore's failure to contribute all or any portion of the balance of its
initial capital contribution at the times required and as described in section
3.01(a) above nor Emcore's failure to timely exercise the option and consummate
the purchase of the MI Increase or portion thereof indicated in the option
notice shall constitute a breach of this Agreement by Emcore.
(iii) Upon the purchase by Emcore of a MI Increase or portion thereof
from GE, the Membership Interests of the Members shall be adjusted to reflect
such purchase (excluding any interest paid as provided in subsection
3.01(b)(ii) above).
Section 3.02 ADDITIONAL CAPITAL. (a) Any increase in the capital of
the Company shall constitute a Supermajority Transaction. Both Members shall be
entitled to participate in any capital increase pro rata in proportion to their
respective then existing Membership Interests. In the event that either Member
fails to so participate in a capital increase, the other Member shall have the
right (but not the obligation) to increase its participation to the extent that
the other Member failed to participate. Upon completion of any such capital
increase, the Membership Interests of the Members shall be adjusted to reflect
their respective actual participations therein. The Members agree that it is
their present intent to not increase the capital of the Company beyond the
initial $32,000,000 (Thirty Two Million Dollars) before January 1, 2000.
(b) In the event that further capital is required by the Company in
order to meet any obligation or pay any liability of the Company, the Company,
subject to section 7.03, may borrow such required capital from any Person or
entity, including any Member or any Affiliate of a Member, on such commercially
reasonable terms as the Committee may determine; provided, that the Company
shall offer to the Members the opportunity to lend or otherwise provide such
funds (other than as capital contributions) on such commercially reasonable
terms, pro rata in proportion to their respective Membership Interests, or
otherwise as may be agreed to.
(c) In the event that the Members approve an increase in capital as
provided in section 3.02(a) of this Agreement and to the extent Emcore in good
faith determines that it has insufficient resources to permit it to contribute
the full amount of its proportionate share of such increase, GEL shall assist
Emcore in raising capital to participate in such increase to the extent of
Emcore's insufficiency of resources which assistance will include, but not be
limited to (i) representing Emcore to GE Capital for an equity investment or an
asset backed loan by GE
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Capital or (ii) making a short-term non-recourse loan to Emcore (a "Short-Term
Loan"), the term of which shall not exceed twelve months, beginning on the date
that all or any portion of the additional capital raised by the Company is
initially invested or used by the Company, on commercially reasonable terms,
including a market rate of interest that reflects the nature of the investment
or use of funds by the Company. Each Short-Term Loan shall be secured by a
pledge of Emcore's Membership Interest pursuant to the Pledge and Security
Agreement in the form of Exhibit C hereto (a "Pledge Agreement"). In the event
that Emcore is unable to repay to GEL all unpaid principal and interest on a
Short-Term Loan when due, then the Membership Interests of the Members shall be
adjusted so that such unpaid principal and interest of such loan will be
treated under section 3.02(a) of this Agreement as a capital increase in which
Emcore failed to participate and with respect to which GEL increased its
participation to the extent of such failure by Emcore.
Section 3.03 RETURN OF CONTRIBUTIONS. No Member is entitled to the
return of any part of its Capital Contributions or to interest in respect of
either its Capital Account or its Capital Contributions. An unreturned Capital
Contribution is not a liability of the Company or of any Member.
Section 3.04 WARRANTS. On the Closing Date, Emcore shall issue to GE
warrants to purchase Emcore common stock, no par value, on the terms and
conditions set forth on Schedule 3.04 hereto (the "Emcore Warrants"). The
Emcore Warrants shall be evidenced by a mutually acceptable definitive warrant
agreement to be executed and delivered by GE and Emcore on the Closing Date
(the "Emcore Warrant Agreement"). The Emcore Warrant Agreement shall contain
(A) customary representations and warranties on the part of Emcore, (B)
customary affirmative and negative covenants relating to Emcore and its
business and (C) the general terms set forth on Schedule 3.04 hereto.
ARTICLE 4
CLOSING; TRANSACTIONS
Section 4.01 CLOSING. The closing (the "Closing") shall take place at
the offices of Baker & Hostetler LLP, Cleveland, Ohio, on February 26, 1999, or
on such other day or at such other place as GE and Emcore may agree (the
"Closing Date"). The Closing will occur at 10:00 A.M. on the Closing Date.
Section 4.02 TRANSACTIONS. (a) On or prior to the Closing Date and
subject to the conditions set forth in section 4.03(a) and (b) having been
fulfilled or waived by GEL and Emcore, GE and Emcore will execute and deliver
the LLC Agreement and the other Ancillary Agreements will be executed and
delivered by the parties thereto.
(b) At the Closing, and subject to the LLC Agreement and the other
Ancillary Agreements having been executed and delivered and each of the
conditions set forth in section 4.03 (d) and (e) having been fulfilled or
waived by GE or Emcore (as applicable); the initial capital contributions of
the parties will be made as contemplated by section 3.01 of this Agreement by
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
wire transfers to the operating account of the Company, and the Membership
Interests listed in the LLC Agreement shall be recorded to reflect such capital
contributions.
Section 4.03 CONDITIONS. The conditions are as follows:
(a) a term sheet for the UOE Supply Agreement shall have been agreed
to and delivered by the parties thereto;
(b) the GE Loan Agreement shall have been executed and delivered by
Emcore and GE and Emcore shall have received the proceeds of the GE Loan as
referred to in section 3.01(a)(ii) of this Agreement;
(c) GE shall be reasonably satisfied with its legal due diligence
review of Emcore as it relates to the issuance of the Emcore Warrants, the
Emcore Warrant Agreement shall have been executed and delivered by Emcore and
GE, GE shall have received the Emcore Warrants to be issued thereunder and GE
shall have received a reasonably satisfactory legal opinion from White & Case
with respect to the Warrant Agreement;
(d) no injunction or order of any court or administrative agency of
competent jurisdiction will be in effect, and no statute, rule or regulation of
any Governmental Authority will have been promulgated or enacted which
restricts, prohibits or prevents the consummation of the Contemplated
Transactions;
(e) the representations and warranties of each party contained in the
Transaction Documents shall be accurate at and as of the Closing Date in all
material respects as if made at and as of such date and each party shall have
received a certificate signed by an authorized representative of the other
party to the foregoing effect;
(f) Nothing *** shall prohibit Emcore from performing its obligations
under this Agreement or any other Transaction Document.
If this Agreement is terminated by a party because one or more of the
conditions outlined above have not been satisfied on or before the Closing
Date, no party hereto shall have any liability or further obligation to the
other party to this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Section 5.01 REPRESENTATIONS AND WARRANTIES. Each of GE and Emcore
represents and warrants to the other, as of the date of this Agreement and as
of the Closing Date, as set forth in Exhibit D.
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<PAGE> 7
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ARTICLE 6
COMPANY OPERATIONS
Section 6.01 BUSINESS SCOPE; NIST. (a) The business of the Company
will be to (i) design and develop White Light LED Products, (ii) source,
manufacture or have manufactured and market and sell White Light LED Products
in the general, specialty and automotive lighting markets worldwide, (iii)
design and develop new color *** LED Products utilizing existing technologies,
(iv) source, manufacture or have manufactured and market and sell such new
color and other color *** LED Products in the general, specialty and automotive
lighting markets worldwide, and (v) design, develop, source, manufacture or
have manufactured for use by the Company, but not for individual resale,
package ready LED devices. The foregoing is a description of the "GELcore
Business".
(b) In furtherance of its strategic objectives, the Company is
involved in the NIST ATP Program with GE (acting through its Corporate Research
and Development Department and GEL) and Widegap Technology LLC, and is a party
to the related Technical Development Agreement and the Investment Rights
Agreement and the Right of First Refusal and Warrant Agreement attached
thereto.
Section 6.02 STRATEGIC BUSINESS PLANS; ANNUAL OPERATING PLANS. (a) The
Members have preliminarily agreed on an initial three year Strategic Business
Plan (a copy of which is attached to this Agreement as Exhibit E) for the
initial phase of the Company's operations as contemplated by this Agreement.
Each year, commencing in 1999, in conjunction with the preparation of an Annual
Operating Plan referred to in (b) below, the Members will update the Strategic
Business Plan (which will be mutually agreed to) to reflect the strategic plan
for the Company for the next succeeding three year period.
(b)(i) At least sixty (60) days before the end of each Fiscal Year of
the Company, the President shall prepare and present to the Committee for
consideration and approval an annual operating plan and budget (the "Annual
Operating Plan") which shall implement and otherwise reflect the Strategic
Business Plan and which shall include (A) projected revenues, employee
compensation, costs and expenses related to the Company's operations and sales
activities for the following fiscal year, including, without limitation, the
transfer costs from GEL and Emcore for the goods, management, administrative,
engineering and other services to be used in the design, development,
manufacture, packaging and sale of LED Products and White Light LED Products,
(B) expected pricing, service, product performance and quality levels and (C)
expected sources of funding to support such operations and sales activities.
(ii) Each Annual Operating Plan for a calendar year prior to 2002 or
any amendment or change to any such Annual Operating Plan shall be approved by
both GEL and Emcore. GEL covenants that no Annual Operating Plan submitted by
the President for the calendar year 2002 or thereafter shall be inconsistent in
any material respect with the Strategic Business Plan to which such Annual
Operating Plan relates.
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(c) Each Member shall cause its appointees to the Committee to support
implementation of the Strategic Business Plan, and upon approval of the Annual
Operating Plan by the Committee, the officers under the supervision of the
Committee of the Company shall be responsible for and have full authority to
implement the Annual Operating Plan.
Section 6.03 INTELLECTUAL PROPERTY; PRODUCT DEVELOPMENT. In order to
enable the Company to fulfill its business purpose and scope, GEL and Emcore
will enter into the Intellectual Property License Agreement attached to this
Agreement as Exhibit F-1 and the Product Development and Technology Assistance
Agreement attached to this Agreement as Exhibit F-2, pursuant to which, among
other things:
(a) The Preliminary Understandings of GEL and Emcore set forth in
section 2 of the MOU will be implemented; and
(b) GEL, Emcore and the Company will license to each other their
respective Intellectual Property (as defined in such License Agreement); and
(c) GE (through GEL and GE-CRD) and Emcore will provide certain
product development technologies, processes, products, research, resources,
services and assistance to the Company, and the Company will arrange for and
fund engineering and manufacturing necessary to complete the Statement of Work
attached to such Product Development Agreement.
Section 6.04 SUPPLY AND DISTRIBUTION; GE BRAND. As contemplated by the
Strategic Business Plan and included in the Annual Operating Plans, the Company
will source, manufacture or have manufactured Red, Amber/Orange, Green and Blue
LED Products (and when developed, White Light LED Products) for marketing,
distribution and sale under, inter alia, the GE Brand to its customers through
channels and to markets determined by the Committee, all on terms and
conditions to be agreed to by the Members. GEL agrees to make available to the
Company GEL channels of distribution and to assist the Company in developing
business relationships with other GE businesses. GEL and the Company will
establish sales targets by distribution channel and GEL will use commercially
reasonable efforts to market and sell products of the Company to achieve those
sales targets. All products marketed by the Company shall be branded with the
GE brand or such other brand as the Company may determine. The terms and
conditions of use of the GE brand shall be set forth in the GE Trademark and
Trade Name License Agreement, in the form attached to this Agreement as Exhibit
G.
Section 6.05 EMPLOYEES/MANAGEMENT/ENGINEERING PERSONNEL. The Company
will employ such hourly and supervisory personnel as it may determine, with the
terms of such employment, including pension and other benefit plans, to be
determined by the Committee. In addition, GEL and Emcore will make available to
the Company such other management and engineering personnel consistent with the
Strategic Business Plan or as may be determined by the Committee to be
desirable from time to time, pursuant to one or more Management Services
Agreement(s) substantially in the form attached to this Agreement as Exhibit H
which will set forth the responsibilities and the compensation and benefits
cost of these management personnel to GEL and Emcore, which will be allocated
to the Company.
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Section 6.06 FACILITIES AND SERVICE. Office space and supporting
utilities and services required by the Company may be provided by Emcore or GEL
on terms and conditions to be agreed to by the Committee. Emcore and GEL may
also provide administrative services including purchasing, employee relations,
finance, systems, accounting and such other services as may be needed by the
Company, pursuant to one or more Administrative Services Agreement(s)
substantially in the form attached to this Agreement as Exhibit I, which
agreement shall set forth the responsibilities for each of the personnel and
services being provided and their cost allocation to the Company.
Section 6.07 BUSINESS PRACTICES. The Members shall cause the Committee
of Directors to adopt and cause the Company to follow a set of Company policies
consistent with the GE Integrity Policies which policies shall include, without
limitation, (a) ethical business practices (b) compliance with the antitrust
laws, (c) avoiding conflicts of interest, (d) working with governmental
agencies and (e) environmental protection, health and safety.
Section 6.08 TRANSACTIONS BETWEEN THE COMPANY AND THE MEMBERS.
Transactions between GEL or Emcore (or their respective Affiliates) and the
Company shall be at arm's length and comply with applicable laws, including but
not limited to those tax laws governing transfer pricing, and no material
contract shall be entered into between GEL or Emcore (or their respective
Affiliates) and the Company, without the prior consent of the uninterested
Member, which consent shall not be unreasonably witheld.
Section 6.09 BOOKS; FISCAL YEAR. (a) The Company shall maintain or
cause to be maintained proper and complete books and records in which shall be
entered fully and accurately all transactions and other matters relating to the
Company's business in the detail and completeness customary and usual for
businesses of the type engaged in by the Company. The Company's financial
statements shall be kept on the accrual basis and in accordance with GAAP
consistently applied. The Company's financial statements shall be audited
annually by independent public accountants selected by the Committee. The fact
that such independent public accountants may audit the financial statements of
one or more of the Members or their Affiliates shall not disqualify such
accountants from auditing the Company's financial statements.
(b) The fiscal year of the Company (the "Fiscal Year") shall be the
calendar year (or such other 12-month period as the Committee may select) or,
if applicable, that shorter period within the calendar year (or such other
period) during which the Company had legal existence.
(c) The Company shall prepare and distribute to each Member unaudited
quarterly financial statements, prepared in accordance with section 6.09(a) of
this Agreement. Such quarterly financial statements shall be distributed to the
Members within a time that will permit, and shall provide such information
concerning the operations of the Company as may be required for, the Members to
prepare and timely file with the Securities and Exchange Commission their
quarterly financial statements.
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(d) At a minimum, the Company shall keep at its principal executive
office such books and records as may be required by the Delaware Limited
Liability Company Act and such other books and records as are customary and
usual for businesses of the type engaged in by the Company.
(e) Each Member or its duly authorized representatives shall have the
right, during normal business hours and in accordance with the Delaware Limited
Liability Company Act, to inspect and copy the Company's books and records at
the requesting Member's expense.
ARTICLE 7
MANAGEMENT; CONDUCT OF BUSINESS
Section 7.01 MANAGEMENT BY MEMBERS. (a) The powers of the Company
shall be exercised by or under the authority of, and the business and affairs
of the Company shall be managed under the direction of, the Members acting
through the Committee. In managing the business and affairs of the Company and
exercising its power, the Members shall act through their appointees to the
Committee as described in section 7.02 of this Agreement. Any Member who binds
or obligates the Company for any debt or liability or causes the Company to
act, except in accordance with the immediately preceding sentence, shall be
liable to the Company for any such debt, liability or act. Decisions or actions
taken by Members in accordance with this Agreement and the LLC Agreement
(whether through the Committee or otherwise) shall constitute decisions or
actions by the Company and shall be binding on the Company. The provisions of
the LLC Agreement regarding the decisions or actions to be taken by Members
shall be substantially the same as the corresponding provisions of this
Agreement.
Section 7.02 THE COMMITTEE. (a) The LLC Agreement provides for the
establishment of the Committee and its operation. The Committee shall consist
of five individuals, two appointed by each of GEL and Emcore and a fifth, who
shall be the Company's President and who shall be selected in accordance with
section 7.04(a) of this Agreement and treated for all purposes of this
Agreement and the LLC Agreement as being appointed to the Committee by GEL. If
at any time the Company does not have a President, GEL may designate the fifth
appointee to the Committee, who shall serve until a President is appointed in
accordance with section 7.04(a) of this Agreement. The appointees to the
Committee shall serve at the pleasure and on behalf of the party that appointed
them, until such appointee resigns or is removed by the appointing party.
Appointees to the Committee need not be officers, directors or employees of a
Member or the Company; provided, however, that if a Member's appointee is not
an officer, director or employee of such Member, an Affiliate of such Member or
the Company, the appointment of such individual shall be subject to the
approval of the other Member, which approval shall not be unreasonably
withheld. An appointee to the Committee may be removed, with or without cause,
only by the appointing party.
(b) A majority of the authorized number of Committee appointees shall
constitute a quorum for the transaction of business by the Committee, which
majority shall, subject to the remaining provisions of this section 7.02(b),
include at least one appointee of GEL, other than the President, and one
appointee of Emcore. If a quorum is not present at the time and place appointed
for any meeting of the Committee, a majority of those present may adjourn the
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meeting and reschedule a subsequent meeting of the Committee, which subsequent
meeting shall be duly noticed to all Members and be no less than five (5) nor
more than thirty (30) days from the date of the original meeting and if a
quorum is not present at the time and place appointed for the subsequent
meeting of the Committee solely by reason of the absence of the representatives
of the Member that were not present at the adjourned meeting, then a majority
of the authorized number of Committee appointees (including the President)
shall constitute a quorum for the transaction of business by the Committee at
such subsequent meeting.
(c) The Members shall act through their appointees to the Committee in
the manner set forth below. The Committee shall have the authority to, and
shall, conduct the affairs of the Company on behalf of the Members pursuant to,
and in accordance with, the Strategic Business Plan and the Annual Operating
Plans. Decisions by the Committee will require the affirmative vote of a
majority of the total number of Members' appointees constituting the Committee,
whether or not all appointees are present and without giving effect to any
vacancies on the Committee.
(d) Each Member shall designate its representatives on the Committee
to the other Member in writing, and such designation shall remain in effect
until the revocation of such designation has been made in writing. Such writing
will be signed by the chief executive officer of Emcore in the case of Emcore
and by the chief executive officer of GEL.
Section 7.03 SUPERMAJORITY TRANSACTIONS. Notwithstanding the foregoing
provisions of this Article 7 and subject to the proviso in the second sentence
of Section 3.01(b)(i) hereof, the following actions (collectively,
"Supermajority Transactions") shall require the consent of one or more Members
having an aggregate of at least 67% of the Membership Interests of all Members
(a "Required Interest"):
(i) except pursuant to sections 11.1(b) and (c) of the LLC
Agreement, the liquidation or dissolution of the Company;
(ii) the merger or consolidation of the Company with or into
any other Person if the interests of the Members are significantly
affected thereby;
(iii) except for transfers permitted under Articles 8 and 10
of this Agreement, the authorization for issuance, sale or delivery or
agreement or commitment to issue, sell or deliver (whether through the
issuance or granting of options, warrants, convertible or exchangeable
securities, commitments, subscriptions, rights to purchase or
otherwise) any Membership Interests or any other equity securities of
the Company, or the amendment to any of the terms of Membership
Interests or such other securities;
(iv) the incurrence of any significant indebtedness of the
Company for borrowed money;
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(v) the incurrence of any Lien upon any significant portion
of the property, revenues or assets, whether now owned or hereafter
acquired of the Company, except for (a) Liens in respect of property
securing indebtedness described in paragraph (iv) above, (b) Liens for
taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been
established, or (c) any statutory Lien arising in the ordinary course
of business by operation of law with respect to a liability that is
not yet due or delinquent;
(vi) the acquisition of another Person or of assets (other
than products, systems or services) by the Company if the cost of such
acquisition or the effect thereof on the Company is significant;
(vii) the sale or other conveyance, or grant by the Company
or any Subsidiary of any option, warrant or other similar right with
respect to, all or any significant portion of the Company's assets
(other than products, systems or services) to any Person;
(viii) except as specifically contemplated by this Agreement,
the assignment, transfer or license by the Company of any Intellectual
Property available to the Company to any Person;
(ix) any increase in the capital of the Company referred to
in section 3.02 of this Agreement;
(x) the entry into any material contract between the Company
on the one hand, and GEL, Emcore or any of their respective
Affiliates, on the other hand, except as a result of a competitive
bidding process or on terms substantially similar to, or more
favorable to the Company than, those that could be entered into by the
Company in similar transactions with unaffiliated third parties;
(xi) any amendment to any Ancillary Agreement between the
Company and any Member;
(xii) the approval of any Annual Operating Plan for the
calendar year 2002 or thereafter which is materially inconsistent with
the applicable Strategic Business Plan, or the approval of any
amendment or change to any such approved Annual Operating Plan, which
change is materially inconsistent with the applicable Strategic
Business Plan;
(xiii) the entry by the Company into any line or type of
business that is not contemplated by section 6.01 of this Agreement;
(xiv) the commencement or settlement by the Company of any
litigation or other proceeding with damages requested or to be paid;
and
(xv) the filing of a petition by or on behalf of the Company,
or any similar action, under any bankruptcy, insolvency,
reorganization or similar law.
For purposes of paragraphs (iv) through (vii) above, prior to December 31,
2001, a transaction (whether an individual transaction or one of a series of
directly related transactions) will be
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
deemed "significant" ***. In the absence of the approval of a Required Interest
on a matter arising in paragraphs (i) through (xv) for whatever reason, the
provisions of sections 10.01 and, after five (5) years from the date of this
Agreement, 10.02 shall apply.
Section 7.04 OFFICERS. (a) The Company shall hire as its President,
the manager of Marketing and Sales and the manager of Finance such individuals
as may be designated from time to time by GEL, subject to the approval of
Emcore, which approval shall not be unreasonably withheld. The Company shall
hire as its manager of R&D and manager of Sourcing/Production such individuals
as may be designated from time to time by Emcore, subject to the approval of
GEL, which approval shall not be unreasonably withheld. The President shall be
the chief operating officer of the Company. The President and other managers
will be removed at the request of the designating Member with or without cause
at any time.
(b) The Committee may appoint such other managers as it may determine
from time to time. Except as otherwise agreed, each manager of the Company
shall hold office at the pleasure of the Committee, and the Committee may
remove any manager at any time, with or without cause. If appointed by the
Committee, the managers shall have the duties assigned to them by the
Committee. As used herein, the term "manager" shall not have the meaning
ascribed thereto by the Act.
ARTICLE 8
MEMBERSHIP; DISPOSITIONS OF MEMBERSHIP INTERESTS
Section 8.01 MEMBERS. Emcore shall be admitted to the Company as a
member of the Company effective as of the execution of the LLC Agreement. Each
Member shall have their respective Membership Interest set forth on Exhibit A
to the LLC Agreement, as the same may be increased or decreased as provided in
this Agreement. Except as set forth in this Agreement and the LLC Agreement, a
Member does not have the right or power to withdraw from the Company as a
Member.
Section 8.02 DISPOSITION OF A MEMBERSHIP INTEREST. (a) PROHIBITION. No
Membership Interest, or any right, title or interest in or to such Membership
Interest, now or hereafter owned, held or acquired by any Member shall be
Disposed of voluntarily, involuntarily, directly or indirectly, by operation of
law, with or without consideration, or otherwise except in accordance with the
provisions of this section 8.02. Any Disposition which does not comply with the
provisions of this section 8.02 shall be void AB INITIO and the Company shall
not give effect to such attempted Disposition in its records.
(b) AFFILIATES; SALE OF BUSINESS. Any Member may Dispose of all (but
not less than all) of its right, title and interest in and to a Membership
Interest as follows:
(i) to an Affiliate of such Member;
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(ii) by GE to the purchaser, directly or indirectly, of GEL
(or substantially all of the assets of GEL); or
(iii) by Emcore to the purchaser, directly or indirectly, of
Emcore (or substantially all of the assets of Emcore);
PROVIDED, HOWEVER, that any Disposition pursuant to items (ii) or (iii) of this
clause (b) shall be made in compliance with the requirements of clauses (d) and
(e), below.
GEL and Emcore shall remain responsible for the performance of this Agreement
and the LLC Agreement by each Affiliate of such party to which a Membership
Interest is transferred pursuant to this section 8.02(b). If any Affiliate to
which a Membership Interest is transferred pursuant to this section 8.02 ceases
to be an Affiliate of the Member from which it acquired such Membership
Interest, such Person shall promptly reconvey such Membership Interest to such
transferring Member (unless such Person ceases to be such an Affiliate in
connection with a transfer otherwise permitted by this section 8.02).
(c) DUTY OF FIRST OFFER AFTER FIVE YEARS. Following the expiration of
the five-year period commencing on the date hereof (the "Restricted Period"),
either Member (the "Disposing Member") may determine to Dispose of its entire
Membership Interest (the "Negotiated Interest") to a Person that is not an
Affiliate, as follows. The Disposing Member shall in good faith negotiate
exclusively with the other Member for a period of 60 days (the "Negotiation
Period") with a view to Disposing of the Negotiated Interest to the other
Member. If no agreement can be reached by the end of the 60-day period on a
purchase price satisfactory to both Members, then either Member shall have the
right to require that the Fair Market Value of the Negotiated Interest be
determined, which value shall become the purchase price for that Interest. If
after the Fair Market Value of the Negotiated Interest has been determined the
non-Disposing Member declines to purchase the Negotiated Interest, the
Disposing Member shall be free to Dispose of all, but not less than all, of the
Negotiated Interest so long as the terms on which the Disposing Member
determines to Dispose of the Negotiated Interest are not materially less
favorable to the Disposing Member than the terms rejected by the Disposing
Member during the Negotiation Period; provided, that if the Disposition of such
Negotiated Interest has not been consummated prior to the end of the 180-day
period following the end of the Negotiation Period (subject to any extension
necessary to comply with any applicable regulatory requirement), such
Disposition may not occur and the disposing Member and the Negotiated Interest
shall again be subject to this section 8.02(c).
(d) OPTION TO PURCHASE. (i) If during the Restricted Period or
thereafter, (1) Emcore becomes subject to a Disposition (by merger, sale of
stock or substantially all of the assets thereof or otherwise), including its
interest in the Company, or (2) GE proposes to Dispose, directly or indirectly,
of GEL (by merger, sale of stock or substantially all of the assets thereof or
otherwise), including its interest in the Company, (any such business, a
"Subject Business") then the Member that is the subject of a proposed
Disposition, (the "Transferring Member") shall provide prompt
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<PAGE> 15
written notice (the "Transfer Notice") to the other Member (the "Offeree
Member"). The Transfer Notice shall identify the Person with which such
transaction is proposed to be consummated and all other material terms of the
proposed transaction, including, if and to the extent applicable, the
consideration to be paid for (or specifically allocable to) such Membership
Interest, and, in the case of an offer in which the consideration payable for
the Offered Interest consists in whole or in part of consideration other than
cash, such information relating to such other consideration as is reasonably
necessary for the other Member to be informed of all material facts relating to
such consideration.
(ii) The Offeree Member shall have the right and option, for a period
of 60 days after the date the Transfer Notice and all other information
required to be provided to the Offeree Member has been received by the Offeree
Member (the "Notice Period"), to deliver a notice to the Transferring Member
(the "Purchase Notice") of the Offeree Member's intention to purchase the
Membership Interest of the Transferring Member (the "Offered Interest"). The
purchase price to be paid by the Offeree Member to the Transferring Member for
the Offered Interest shall be cash in an amount equal to the Fair Market Value
of that interest. Notwithstanding the preceding two sentences, if the
consideration to be paid for such Offered Interest is wholly or partially
non-cash consideration, then the Offeree Member shall pay cash in lieu of the
non-cash consideration, in an amount equal to the Fair Market Value thereof,
such amount to be determined by good faith negotiations between the parties
(and, in the absence of agreement, using a procedure similar to that used to
determine the Fair Market Value of an Interest in the Company). Delivery of the
Purchase Notice by the Offeree Member shall constitute an irrevocable election
by the Offeree Member to purchase the Offered Interest for the consideration
and on the other terms and conditions set forth above.
(iii) The transfer of the Offered Interest to the Offeree Member shall
be consummated as soon as practicable following the giving of the Purchase
Notice by the Offeree Member, but in no event more than 30 days thereafter
(subject to any extension necessary to comply with any applicable regulatory
requirement). If at the end of the Notice Period the Offeree Member shall not
have given a Purchase Notice with respect to the Offered Interest, the Offeree
Member will be deemed to have waived its rights under this section 8.02(d) with
respect to the Disposition contemplated by the Transfer Notice. If the Offeree
Member rejects the Transfer Notice, or is deemed to have waived its rights as
set forth in the preceding sentence, the Transferring Member shall have the
right, for a period of 180 days following such rejection or waiver (subject to
any extension necessary to comply with any applicable regulatory requirement),
to dispose of the Subject Business or all, but not less than all, of the
Offered Interest, as the case may be, to the proposed transferee identified in
the Transfer Notice and, if the proposed transaction is a transfer of a
Membership Interest, on terms no more favorable to the proposed transferee than
are set forth in the Transfer Notice. If, at the end of the 180-day period
following the rejection or waiver (subject to any extension necessary to comply
with any applicable regulatory requirement), the Transferring Member has not
completed the sale of the Subject Business or Offered Interest, as the case may
be, such Disposition may not occur and the Transferring Member and the Offered
Interest shall again be subject to the restrictions contained in this section
8.02(d).
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<PAGE> 16
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
(e) STATUS AS A MEMBER. Upon execution of a counterpart of this
Agreement and compliance with the other applicable requirements of this section
8.02, the transferee shall be deemed a "Member" for the purposes of and a party
to this Agreement, and shall have the rights and be subject to the obligations
of a Member hereunder and a party hereto with respect to the Membership
Interest held by such transferee.
(f) COSTS. The Member effecting a Disposition and any Person admitted
as a Substitute Member in connection therewith shall pay, or reimburse the
Company for, all reasonable costs incurred by the Company in connection with
the Disposition (including, without limitation, any legal fees incurred in
connection with the consideration of the implications thereof under applicable
securities laws, the Code and other laws) on or before the tenth day after the
receipt by that Person of the Company's invoice for the amount due.
ARTICLE 9
ADDITIONAL COVENANTS
Section 9.01 PUBLIC ANNOUNCEMENTS, ETC. The parties shall consult with
each other before issuing any press release or making any public statement with
respect to this Agreement, the Company and its Business, any other agreement or
relationship between the parties and the Company or the organization of the
Company and, except as may be required by Applicable Law or any national or
international securities exchange (in which case the other party hereto shall
have the prior right, to the extent permitted by Applicable Law, to review and
comment on such statements), will not issue any such press release or make any
such public statement without the consent of both parties. Notwithstanding the
foregoing, no provision of this Agreement shall relieve Emcore or GE from any
of its obligations under section 9.02.
Section 9.02 CONFIDENTIALITY. Each party agrees that the terms and
conditions of this Agreement shall be deemed Confidential Information and, as
such, shall be subject to the provisions of the Confidentiality Agreement, of
even date herewith, between GE, Emcore and the Company.
Section 9.03 ESTABLISHMENT OF COMPETITIVE BUSINESS. (a) Subject to
subsection (b) below, neither GE nor Emcore shall, for so long as it is a
Member of the Company, engage on its own behalf in the business of, or own,
have an ownership interest in, manage, operate, join or control, or participate
in, alone or with any Person, the ownership, management, operation or control
of or be connected in any manner relating to the GELcore Business Field with
any business, firm, corporation or other entity which engages in the business
of (i) designing, developing, sourcing, manufacturing or having manufactured
White Light LED Products for marketing or sale in the general, specialty or
automotive lighting markets, (ii) designing and developing color *** LED
Products for marketing or sale in the general, specialty or automotive
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<PAGE> 17
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
lighting markets, or (iii) sourcing, manufacturing or having manufactured color
*** LED Products for marketing or sale in the general, specialty or automotive
lighting markets.
(b) The provisions of Section 9.03(a) shall not apply to:
(i) in the case of Emcore, the beneficial ownership (as such term is
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
securities of a corporation which shall constitute in the aggregate five
percent (5%) or less of the total number of such securities outstanding on a
fully diluted basis;
(ii) in the case of those GE divisions or GE Affiliates that engage
primarily in the Financial Services Business, any (x) Financial Services
Business, (y) any investment activity by any pension or retirement fund or
program operated by or for the benefit of GE or its Affiliates so long as such
investment does not include the making available to the entity in which such
investment is made the GEL channels of distribution or the GE Intellectual
Property licensed to the Company, or (z) any business activity which would
otherwise violate the foregoing restrictions which is acquired from or carried
on by any entity (an "Acquired Company") which is acquired by, combined with,
or otherwise becomes an Affiliate of GE after the date hereof, provided that,
within one hundred and eighty (180) days after the purchase or other
acquisition of the Acquired Company, such party disposes of the relevant
portion of the Acquired Company's business or causes such Acquired Company to
comply with the foregoing restrictions;
(iii) in the case of GE (excluding GEL) or any of its Affiliates, (x)
any activity that results or is intended to result in LED Products being
incorporated in products ("End Products") as components together with other
elements that add significant value to the value of the End Products and which
End Products are not being sold in the general, specialty or automotive
lighting markets, and (y) selling third party LED Products as replacement units
if required by customers;
(iv) in the case of GE but subject to GE's obligations under Section
6.04, the sourcing, marketing or selling of White Light LED Products or color
LED Products by GE Supply; and
(v) in the case of GE and Emcore and their respective Affiliates, the
supply of non-LED Products (including the design and development of such
non-LED Products) to any Person whether or not such Person engages in the
business of designing, developing, sourcing, manufacturing, having
manufactured, marketing or selling White Light LED Products or color LED
Products; provided, however, that no such supplier shall be paid or compensated
other than for the sale of said non-LED Products and for the design and
development of said non-LED Products.
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<PAGE> 18
Section 9.04 AMENDMENTS TO UNIROYAL AGREEMENT. Without the prior
written consent of GE (which consent may be granted or withheld in the sole and
absolute discretion of GE), Emcore shall not enter into any new, further, or
other amendments to the Uniroyal Agreement or take any action with respect to
the Uniroyal Agreement that (i) would conflict with or adversely impact
Emcore's ability to fully and completely perform any or all of its obligations
hereunder (including, without limitation, its obligations under Section 9.03
hereof) or under any Ancillary Agreement, or (ii) is likely to result, or does
result, in the breach by Emcore of any (A) term or condition of this Agreement
or any Ancillary Agreement, (B) undertaking or covenant of Emcore contained in
this Agreement or any Ancillary Agreement or (C) warranty or representation of
Emcore hereunder.
ARTICLE 10
DISPUTE RESOLUTION; TERMINATION
Section 10.01 DISPUTE RESOLUTION; RESOLUTION OF DEADLOCK. (a) If at
any time there shall exist any dispute between the parties relating to the
approval of any Supermajority Transaction, the Members shall negotiate in good
faith for a period of thirty (30) days in an effort to resolve the dispute. If
such negotiations are not successful, either party shall have the right and
option to notify the other party that the provisions of this section 10.01 and,
after five (5) years from the date hereof, section 10.02 of this Agreement
shall be invoked (the "Dispute Notice"). If a Dispute Notice is given and if
requested by either party within 10 days thereafter, the parties shall submit
the matter in dispute to the chief executive officer of GEL and the chief
executive officer of Emcore for their review and resolution in such manner as
they deem necessary or appropriate. The Committee will be bound by any
resolution reached by the officers to whom such matter is submitted. The
provisions of this section 10.01 and section 10.02 below and hereafter referred
to as the "Dispute Resolution Mechanism").
(b) If at any time there shall exist a material dispute between the
Members (other than a dispute relating to a Supermajority Transaction) relating
to the Company, its business or the other Member's commitment to such business
and the Member raising such dispute claims in good faith that the same has or
will have a material adverse impact on the performance of the Company, then the
Member raising such dispute shall give written notice to the other Member
specifying in reasonable detail the reason or reasons underlying such claim. If
such a notice is given, the Member receiving the same shall have a period of
sixty (60) days to resolve the matter referred to in such notice. If at the end
of such 60-day period, the Member that sent the notice remains dissatisfied,
based on its reasonable and good faith determination, with the resolution, then
such Member may commence the Dispute Resolution Mechanism.
Section 10.02 PURCHASE AND SALE OF OPTION INTEREST. If at any time more
than five years after the date of this Agreement, the subject matter of a
dispute described in section 10.01(a) or 10.01(b) of this Agreement cannot be
resolved pursuant to the procedures set forth in section 10.01 within thirty
(30) days of the submission of such dispute to the applicable officers of the
parties (or a decision not to submit), and if such 30-day period began to run
after the date which is five (5) years after the date hereof, then GE shall be
obligated to purchase from Emcore, and Emcore shall be obligated to sell to GE,
the entire Membership Interest of Emcore as of the date
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<PAGE> 19
the Dispute Notice is given (the "Option Interest") for a price equal to the
Fair Market Value of Emcore's Membership Interest. The process for determining
the Fair Market Value of the Option Interest shall be commenced promptly
following such 30-day period. The closing of the purchase and sale of the
Option Interest shall be consummated as soon as practicable following the
determination of the Fair Market Value of the Option Interest, but in no event
more than 30 days thereafter (subject to any extension necessary to comply with
any applicable regulatory requirement). The purchase price shall be paid in
cash at the closing. The Fair Market Value of Emcore's Membership Interest
shall again be determined as of the dates which are twelve (12) months (the "12
Month Fair Market Value") and twenty four (24) months (the "24 Month Fair
Market Value") after the date as of which such Fair Market Value is initially
determined under section 10.02 of this Agreement. Promptly after the
determination of (A) the 12 Month Fair Market Value, GE shall pay to Emcore in
cash an amount equal to the excess, if any, of such 12 Month Fair Market Value
over the initial Fair Market Value and (B) the 24 Month Fair Market Value, GE
shall pay to Emcore in cash an amount equal to the excess, if any, of such 24
Month Fair Market Value over the greater of the initial Fair Market Value and
the 12 Month Fair Market Value.
Section 10.03 TERMINATION. This Agreement shall automatically be
terminated upon:
(a) the written consent of all Members; or
(b) the termination of the LLC Agreement; or
(c) the sale, exchange or other disposition (including on dissolution
or liquidation of the Company) of all or substantially all of the
assets of the Company; or
(d) at the election of the non-Disposing Member, the non-Transferring
Member or GEL (as applicable), upon (i) the consummation of a transfer to a
Member of the Negotiated Interest or the Offered Interest pursuant to section
8.02(c) or (d), (ii) the purchase and sale of the Option Interest pursuant to
section 10.02 or (iii) the purchase and sale of Emcore's Membership Interest
pursuant to section 10.04.
Section 10.04 BUYOUT RIGHTS AFTER MATERIAL BREACH. (a) Following a
final determination by a court that a party is in Material Breach, (i) if GEL
is the non breaching Party, then GEL shall have the right (the "Call Right") to
purchase Emcore's Membership Interest at the price and on the terms set forth
below, and Emcore shall sell to GEL such interest, and (ii) if Emcore is the
non breaching Party, then Emcore shall have the right (the "Put Right") to
require GEL to purchase Emcore's Membership Interest at the price and on the
terms set forth below, and GEL shall purchase such interest.
(b) The Call Right and the Put Right may only be exercised by the
giving of written notice (the "Buy-out Notice") by the non breaching Party to
the other Party within thirty (30) days after a final determination by a court
that the other Party is in Material Breach. Delivery of the Buy-out Notice
shall constitute an irrevocable election by the non breaching Party to exercise
the Call Right or the Put Right, as the case may be at the purchase price
determined below. The
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<PAGE> 20
purchase and sale of Emcore's Membership Interest shall be consummated as soon
as practicable following the determination of the Fair Market Value of that
Interest, but in no event more than 30 days thereafter (subject to any
extension necessary to comply with any applicable regulatory requirement). The
Fair Market Value of Emcore's Membership Interest shall be determined as
provided in the Definition of Fair Market Value in this Agreement, with the
Company being treated as a going concern immediately prior to the occurrence of
the event that gave rise to the Material Breach referred to in subsection
10.04(a), above. The purchase price for Emcore's Membership Interest shall be
paid in cash at the closing of the transaction and shall be equal to the Fair
Market Value thereof.
(c) The Put Right and the Call Right in this section 10.04 are in
addition to any other remedy that may be available to Emcore and GE,
respectively, for a Material Breach, and if the provision the violation of
which gave rise to the Material Breach is directly related to the licensing or
use of Intellectual Property, the Parties agree that the non breaching Party
shall be entitled to injunctive relief or specific performance of the terms
thereof, in addition to any other remedy that may be available in equity.
Section 10.05 EFFECT OF TERMINATION. (a) At such time as any Member
ceases to be a Member (either through transfer of its Membership Interest or
otherwise) of the Company, such Member shall have such rights and be subject to
such obligations as are expressly provided in the other terms of this Agreement
and shall have those additional rights and be subject to those additional
obligations as are expressly provided in the terms of the Ancillary Agreements.
At such time as any Member ceases to be a Member (either through transfer of
its Membership Interest or otherwise) of the Company, such Member shall no
longer be bound by the terms of Section 9.03 hereof and, subject to its other
obligations hereunder and under the Ancillary Agreements, shall be free to
engage in any business (new or existing) or acquire an interest in or invest in
any Person engaged in any business, including, without limitation, a business
in competition with the Company.
(b) The provisions of sections 9.01, 9.02, 10.05 and 11.02 of this
Agreement shall survive the termination of this Agreement.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND
INDEMNIFICATION
Section 11.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding any investigation made by either GE or Emcore or the Company or
such party's or the Company's representatives with respect to the
representations or warranties of the other party, all representations and
warranties of the parties contained in this Agreement and the LLC Agreement
shall survive the Closing for a period of three years from and after such
Closing after which time
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<PAGE> 21
no claim for breach of a representation or warranty or indemnification in
respect thereof may be brought by any Member; provided, that the
representations and warranties contained in item (g)(ii) of the Emcore
representations and warranties on Exhibit D to this Agreement and in item
(g)(ii) of the GE representations and warranties on Exhibit D to this Agreement
shall survive such Closing indefinitely.
Section 11.02 INDEMNIFIABLE CLAIMS. Subject to any limitations set
forth in any Transaction Document (including section 11.01 above), GE and
Emcore, as the case may be, hereby agree to indemnify each other and the
Company (without duplication) and their respective Affiliates, and, to the
extent actually indemnified by GE, Emcore, the Company or such Affiliate from
time to time, their respective directors, officers, employees and agents
against, and agree to hold them harmless from, any and all Damages incurred or
suffered by any of them arising out of or related in any way to (i) any
misrepresentation or breach of any representation or warranty made by GE or
Emcore in this Agreement or the LLC Agreement or (ii) the breach or
non-performance of any covenant or obligation required by this Agreement or the
LLC Agreement to be performed or observed by GE or Emcore; PROVIDED, HOWEVER,
that neither GE nor Emcore shall be required to pay the first $250,000 in
aggregate amount of any Damages arising under clause (i) of this section 11.02.
Section 11.03 PROCEDURES. (a) NOTICE. Each party to this Agreement
agrees to give prompt notice to the other parties to this Agreement of the
assertion of any claim, or the commencement of any suit, action or proceeding
brought by a Person that is not a party to this Agreement ("Indemnified
Claims") in respect of which GE, Emcore, the Company or their respective
Affiliates, or their respective directors, officers, employees or agents seek
indemnity under section 11.02, after such party becomes aware of the facts
giving rise to such Indemnified Claim. The failure of any party to provide
notice pursuant to this section 11.03(a) shall not constitute a waiver of that
party's claims to indemnification pursuant to section 11.02 in the absence of
material prejudice to the party that did not receive such notice. Any such
notice to a party shall be accompanied by a copy of any papers theretofore
served on the notifying party in connection with the Indemnified Claims.
(b) DEFENSE AND SETTLEMENT OF CLAIMS. (i) ASSUMPTION OF DEFENSE. Upon
receipt of notice from a party seeking and entitled to indemnification (an
"Indemnified Party") pursuant to this Agreement, the party or parties against
whom indemnification is sought (an "Indemnifying Party") will, subject to the
provisions of section 11.03(b)(ii), assume the defense and control of such
Indemnified Claims but shall allow the Indemnified Party or Parties, a
reasonable opportunity to participate in the defense thereof with its or their
own counsel and at its or their own expense. The Indemnifying Party shall (A)
select counsel, contractors and consultants of recognized standing and
competence after consultation with the Indemnified Party or Parties, (B) take
all steps necessary in the defense or settlement thereof and (C) at all times
diligently and promptly pursue the resolution thereof. The Indemnified Party or
Parties shall, and shall cause each of their respective Affiliates and their
respective directors, members, officers, employees, and agents to, cooperate
fully with the Indemnifying Party in the defense of any Indemnified Claim.
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(ii) SETTLEMENT OF CLAIMS. The Indemnifying Party shall be authorized
to consent to a settlement of, or the entry of any judgment arising from, any
Indemnified Claims, without the consent of any Indemnified Party; PROVIDED,
that the Indemnifying Party shall (A) pay or cause to be paid all amounts
arising out of such settlement or judgment concurrently with the effectiveness
thereof, (B) not encumber any of the assets of any Indemnified Party or agree
to any restriction or condition that would apply to such Indemnified Party or
to the conduct of that party's business, (C) obtain, as a condition of any
settlement or other solution, a complete release of each Indemnified Party and
(D) provide to the Indemnified Party notice of the proposed settlement prior to
such settlement.
ARTICLE 12
MISCELLANEOUS
Section 12.01 NOTICES. All notices, requests and other communications
to any party or to the Company hereunder shall be in writing (including
facsimile, telex or similar writing) and shall be given as follows:
if to GE: GE Lighting
1975 Noble Rd.
Cleveland, OH 44112
Attention: President and Chief Executive Officer
Facsimile: (216) 266-8699
with a copy to: GE Lighting
1975 Noble Rd.
Cleveland, OH 44112
Attention: General Counsel
Facsimile: (216) 266-3856
if to Emcore: Emcore Corporation
394 Elizabeth Avenue
Somerset, NJ 08873
Attention: President
Facsimile: (732) 271-9686
with a copy to: White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: Steven M. Betensky, Esq.
Facsimile: (212) 354-8113
if to the Company: GELcore, LLC
c/o GE Lighting
1975 Noble Rd.
Cleveland, OH 44112
Attention: President
Facsimile: (216) 266-2987
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<PAGE> 23
with copies to: GE Lighting
1975 Noble Rd.
Cleveland, OH 44112
Attention: General Counsel
Facsimile: (216) 266-3856
Emcore Corporation
294 Elizabeth Avenue
Somerset, NJ 08873
Attention: President
Facsimile: (732) 271-9686
or to such other address or facsimile number and with such other copies, as
such party may hereafter specify by notice to the other parties. Each such
notice, request or other communication shall be effective upon receipt,
provided if this day of receipt is not a Business Day then it shall be deemed
to have been received on the next succeeding Business Day.
Section 12.02 AMENDMENTS; NO WAIVERS. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by GE and Emcore, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by either party in exercising any right, power
or privilege under this Agreement shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided in this Agreement shall be cumulative and not exclusive of
any rights or remedies provided by law.
Section 12.03 EXPENSES. All costs and expenses incurred in connection
with the Contemplated Transactions shall be paid by the party incurring such
cost or expense, except as otherwise provided in any Transaction Document.
Section 12.04 SUCCESSORS AND ASSIGNS. Prior to the Closing, neither
party shall assign this Agreement or any of its rights in and to this
Agreement. Subject to the preceding sentence, the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective permitted successors and assigns.
Section 12.05 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of New York (without
regard to the choice of law provisions thereof).
Section 12.06 ILLEGALITY AND SEVERABILITY. If application of any one
or more of the provisions of this Agreement shall be unlawful under applicable
law and regulations, then the parties will attempt in good faith to make such
alternative arrangements as may be legally permissible and which carry out as
nearly as practicable the terms of this Agreement. Should any portion of this
Agreement be deemed unenforceable by a court of competent jurisdiction, the
remaining portion hereof shall remain unaffected and be interpreted as if such
unenforceable portions were initially deleted.
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<PAGE> 24
Section 12.07 COUNTERPARTS; EFFECTIVENESS. 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 to such counterparts and to this Agreement
were upon the same instrument. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be as effective as
delivery of a manually executed counterpart of this Agreement. This Agreement
shall become effective when executed by GE and Emcore.
Section 12.08 ENTIRE AGREEMENT. This Agreement and the other
Transaction Documents (and any other agreements contemplated hereby or thereby)
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter hereof or thereof (including, without limitation, the MOU). The
Exhibits to this Agreement are and shall be deemed to be a part of this
Agreement.
Section 12.09 CAPTIONS. The captions in this Agreement are included
for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed by their respective authorized representatives on
the day and year first above written.
GENERAL ELECTRIC COMPANY
By: /s/ David L. Calhoun
----------------------------------------
Name: David L. Calhoun
Title: President & CEO - GE Lighting
EMCORE CORPORATION
By: /s/ Reuben F. Richards, Jr.
----------------------------------------
Name: Reuben F. Richards, Jr.
Title: President & CEO
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<PAGE> 26
LIST OF EXHIBITS
AND SCHEDULES
EXHIBITS
- ---------
Exhibit A Definitions
Exhibit B LLC Agreement
Exhibit C Pledge and Security Agreement
Exhibit D Representations and Warranties
Exhibit E Strategic Business Plan
Exhibit F-1 Intellectual Property License Agreement
Exhibit F-2 Product Development and Technical Assistance Agreement
Exhibit G GE Trademark and Trade Name Agreement
Exhibit H Management Services Agreement
Exhibit I Administrative Services Agreement
Exhibit J UOE Supply Agreement
(Agreed Term Sheet attached)
SCHEDULES
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Schedule 3.01(a)(ii) Term Sheet for GE Loan
Schedule 3.04 Term Sheet for Emcore Warrants
<PAGE> 27
EXHIBIT A
DEFINITIONS
The following terms, as used in any Transaction Document, unless
otherwise specifically defined therein, have the following meanings:
ACT: shall mean the Delaware Limited Liability Company Act, Del. Stat.
Sections 18-101 to 18-1107, inclusive, as in effect from time to time in the
State of Delaware.
ADMINISTRATIVE SERVICES AGREEMENT: shall mean the Administrative
Services Agreement referred to in section 6.06 of the Transaction Agreement.
AFFILIATE: of another person shall mean any person directly or
indirectly controlling, controlled by, or under common control with, such other
person.
ANCILLARY AGREEMENTS: shall mean, collectively, the Intellectual
Property License Agreement, the Product Development and Technology Assistance
Agreement, the GE Trademark and Tradename License Agreement, the Management
Services Agreement, the Administrative Services Agreement, the Pledge and
Security Agreement, the Distribution Agreement and the Limited Liability
Company Agreement.
APPLICABLE LAW: shall mean, with respect to any Person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
administrative action, regulation, order, writ, injunction, judgment, decree or
other requirement of any Governmental Authority (including any Environmental
Law) applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees, consultants or
agents (in connection with such officer's, director's, employee's, consultant's
or agent's activities on behalf of such Person or any of its Affiliates).
BUSINESS DAY: shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York are authorized or required
by law to close.
CAPITAL ACCOUNT: "Capital Account" shall mean, as to a Member, the
account established and maintained for such Member pursuant to Article VI of
the LLC Agreement.
CAPITAL CONTRIBUTION: shall mean the amount in cash or the value of
property contributed by each Member to the capital of the Company in exchange
for such Member's interest in the Company.
CLOSING DATE: shall mean the date of the Closing.
COMMITTEE: shall mean the Committee of the Company referred to in
section 7.02 of the Transaction Agreement.
COMPANY: shall mean GELcore, LLC a Delaware limited liability company.
<PAGE> 28
CONFIDENTIAL INFORMATION: shall mean information provided by one party
to one or more other parties and specifically designated by that party as
"confidential" (either in writing at the time of disclosure to the receiving
party or by written confirmation within ten (10) days after that party
discloses such information to the receiving party), relating to the research,
development, products, processes, trade secrets, business plans, customer,
finances, and personnel data related to the business of such party (or its
Affiliates, to the extent necessary and relevant). Confidential Information
does not include any information (i) the receiving party knew before the
disclosing party provided it; (ii) which has become publicly known through no
wrongful act of the receiving party; (iii) which the receiving party developed
independently, as evidenced by appropriate documentation; or (iv) which the
receiving party becomes aware of from any third party not bound by
nondisclosure obligations to the disclosing party and with the lawful right to
disclose such information to the receiving party. Notwithstanding the
foregoing, specific information will not be deemed to be within the foregoing
exceptions merely because it is contained within more general information
otherwise subject to such exceptions.
CONTEMPLATED TRANSACTIONS: shall mean the transactions described in
section 4.02 of the Transaction Agreement.
DAMAGES: shall mean all assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, sanctions, penalties, charges and
amounts paid in settlement, including, without limitation, reasonable costs,
fees and expenses of attorneys, experts, accountants, appraisers, consultants,
witnesses, investigators and any other agents or representatives (with such
amounts to be determined net of any resulting tax benefit and net of any refund
or reimbursement of any portion of such amounts including, without limitation,
reimbursement by way of third party insurance or third party indemnification)
arising from or incurred in connection with any demand, claim, action, cause of
action or proceeding.
DEFAULT RECOVERY ACTIVITIES: shall mean the exercise of any rights or
remedies in connection with any Financing, Leasing or Other Financial Services
Activity (whether such rights or remedies arise under any agreement relating to
such Financing, Leasing or Other Financial Services Activity, under applicable
law or otherwise) or in connection with the purchase or sale of goods and
services including, without limitation, any foreclosure, realization or
repossession of any collateral or other security for any Financing (including
the equity in any entity or business) or Other Financial Services Activities or
any property subject to any Leasing.
DISPOSE, DISPOSING OR DISPOSITION: shall mean a sale, assignment,
transfer, exchange, mortgage, pledge, grant of a security interest, or other
disposition or encumbrance (including, without limitation, by operation of
law).
DISTRIBUTION AGREEMENT: shall mean the Distribution Agreement referred
to in section 6.04 of the Transaction Agreement.
-2-
<PAGE> 29
FAIR MARKET VALUE: shall mean, with respect to a Membership Interest
in the Company, the product of such Membership Interest (expressed as a
percentage) and the Fair Market Value of the Company. The Fair Market Value of
the Company shall be the cash price that an unrelated party would pay for all
of the outstanding Membership Interests in the Company, in light of all
relevant factors in an arm's length transaction in which neither party is
compelled to buy or sell. The Fair Market Value of the Company shall be
determined pursuant to the procedure set forth in the balance of this
paragraph. Each party shall submit simultaneously to the other party a sealed
proposal for the Fair Market Value within 30 days after the event which
triggers the valuation. Following the delivery of the two proposals, the
amounts of the two proposals shall be compared. If the lower of the proposals
is not more than 10% less than the higher of the proposals, the Fair Market
Value shall be deemed to be the average of the two proposals. If the lower of
the proposals is more than 10% less than the higher of the two proposals, the
parties shall negotiate in good faith to determine the Fair Market Value. If
the parties cannot agree on the Fair Market Value within 30 days of the opening
of the sealed proposals, the parties shall each appoint, within ten days after
the end of such period, an investment banking firm or other firm with
significant experience in the valuation of businesses, in either case, of
recognized standing. Such firms shall negotiate in good faith to determine the
Fair Market Value. If the firms cannot agree on the Fair Market Value within 30
days after the latter of them to be appointed, the two firms shall, within 10
days after the end of such 30-day period, (i) appoint a third such firm with
significant experience in the valuation of businesses, of recognized standing,
and independent of the Company, Emcore and GE, and (ii) share the results of
their valuation analysis with such third firm. The third firm shall determine
the Fair Market Value within 45 days after being appointed. The determination
of Fair Market Value by this third firm shall be final and conclusive. The
parties shall share equally the costs of compensating all of the foregoing
firms.
FINANCIAL SERVICES BUSINESS: shall mean the following activities (i)
Financing, (ii) Leasing, (iii) Default Recovery Activities or (iv) Other
Financial Services Activities.
FINANCING: shall mean the making, entering into, purchase of, or
participation in (i) secured or unsecured loans, conditional sales agreements,
debt instruments or transactions of a similar nature, (ii) non-voting equity
investments, and (iii) voting equity investments which (a) do not result in the
ownership of 20% or greater equity interest in the entity in which such
investment is made by the person making such investment and its Affiliates in
the aggregate together with the power to direct or cause the direction of the
management and policies of the entity in which such investment is made or (b)
do not result in the power to direct or cause the direction of the management
and policies of the entity in which such investment is made and (c) do not
include as a part of such investment the making available to the entity in
which such investment is made any GE Intellectual Property that has been
licensed to GELcore or GEL channels of distribution.
FISCAL YEAR: shall have the meaning set forth in section 6.09(b) of
the Transaction Agreement.
FORCE MAJEURE EVENT: shall mean armed conflict or economic dislocation
resulting therefrom; embargoes; inability to obtain labor, raw materials, or
transportation through no fault whatsoever of the breaching party; labor
difficulties through no fault whatsoever of the breaching party; civil
disorders of any kind; action of any civil or military authorities (including
priorities and allocations); fires, floods; and accidents through no fault
whatsoever of the breaching party or other event beyond the reasonable control
of the breaching party and without fault of the breaching party.
-3-
<PAGE> 30
GAAP: shall mean generally accepted accounting principles from time to
time in effect.
GE-CRD: shall mean the Corporate Research and Development Department
of GE.
GE INTEGRITY POLICIES: shall mean the corporate policy statements
relating to compliance with law and other matters adopted and published (as the
"Spirit" and the "Letter") in 1993 by GE, as amended and supplemented from time
to time, or any successor policies adopted by GE.
GE TRADEMARK AND TRADE NAME AGREEMENT: shall mean the GE Trademark and
Trade Name Agreement referred to in section 6.04 of the Transaction Agreement.
GELCORE BUSINESS: shall have the meaning assigned to such term in
section 6.01 of the Transaction Agreement.
GOVERNMENTAL AUTHORITY: shall mean any foreign, federal, territorial,
state or local governmental authority, quasi-governmental authority,
instrumentality, court, commission or tribunal or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.
INITIAL MEMBERS: shall mean GE, operating through GEL, and Emcore.
INTELLECTUAL PROPERTY: shall mean (a) patents and applications
therefor and all reissues, continuations, continuations-in-part, revisions or
reexaminations relative thereto; (b) copyrights and all renewals thereof; (c)
trademarks, trade names, service marks, service names, trade dress, logos and
corporate names, together with all goodwill associated therewith and including,
without limitation, all translations, adaptations, combinations and derivations
of each of the foregoing; (d) technology, know-how, processes, trade secrets,
inventions (whether or not patentable and whether or not reduced to practice),
proprietary data, formula, research and development data, and confidential
information (including, without limitation, ideas, manufacturing, development
and production techniques, drawings, specifications, designs, proposals,
financial and accounting data, business and marketing plans, customer and
supplier lists and related information); (e) computer software (including both
source and object code) and all related programming, systems, user and other
documentation; (f) mask works; (g) all other intellectual property; and (h) all
registrations and applications for registration for each of the foregoing.
INTELLECTUAL PROPERTY LICENSE AGREEMENT: shall mean the Intellectual
Property License Agreement referred to in section 6.03 of the Transaction
Agreement.
INVESTMENT RIGHTS AGREEMENT AND RIGHT OF FIRST REFUSAL AND WARRANT
AGREEMENT: shall mean the Investment Rights Agreement and the Right of First
Refusal and Warrant Agreement referred to in the Technical Development
Agreement.
LEASING: shall mean the leasing, under operating leases, finance
leases or rental agreements, of property, whether real, personal, tangible or
intangible.
-4-
<PAGE> 31
LED: shall mean a light emitting diode.
LED PRODUCTS: shall mean products in the LED product development cycle
beyond packaged ready dies, including, without limitation, packaged LED
devices, lamps and lamp fixtures.
LIEN: shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest, restriction or encumbrance of any kind in
respect of such asset.
LLC AGREEMENT: shall mean the limited liability company agreement
between GE and Emcore, in the form attached to the Transaction Agreement as
Exhibit B.
MANAGEMENT SERVICES AGREEMENT: shall mean the Management Services
Agreement referred to in section 6.05 of the Transaction Agreement.
MATERIAL ADVERSE EFFECT: shall mean, with respect to any event,
occurrence or condition, or series of events, occurrences or conditions, a
material adverse effect on the operations, property or financial condition of
the affected business or entity taken as a whole.
MATERIAL BREACH: shall mean the breach other than a breach arising out
of a Force Majeure Event by GEL or Emcore, as the case may be, of the
Transaction Agreement, the LLC Agreement or any Ancillary Agreement which
breach, if not cured, would have a Material Adverse Effect on the Company or
the non-breaching party. A Material Breach shall not exist for purposes of this
definition unless the non-breaching party has given written notice of such
breach to the breaching party and (a) the party in Material Breach fails to
cure the subject default within 60 days of the receipt of such notice or (b) if
such default cannot reasonably be cured within such 60-day period, (i) the
party in Material Breach fails promptly to take and continue to take all
reasonable steps to cure the default as promptly as practicable after receipt
of such notice or (ii) at the end of such 60-day period it appears that the
breaching party will not be able to cure the Material Breach within a
commercially reasonable time (not to exceed an additional 60 days); provided,
however, that if an Ancillary Agreement expressly provides for a cure period of
a longer duration than 60 days, then such longer period shall apply for the
purposes hereof.
MEMBERS: shall mean the Initial Members and any Person hereafter
admitted to the Company as a member as provided in the LLC Agreement.
MEMBERSHIP INTEREST: shall mean the interest of a Member (expressed as
a percentage) in the Company. Membership Interests will at all times reflect
the respective contributions to capital made by GE and Emcore, but will not be
affected by allocations of Profits and Losses or other changes in Members'
Capital Accounts.
MOCVD: shall mean metal organic chemical vapor deposition.
MOU: shall mean the Memorandum of Understanding dated June 24, 1998
between GEL and Emcore.
-5-
<PAGE> 32
NIST ATP PROGRAM: shall mean the jointly proposed development program
entitled "Manufacturable Solid State Lighting Sources" submitted by Widegap
Technology LLC and GE to National Institute of Standards and Technology.
OEM: shall mean original equipment manufacturers.
OTHER FINANCIAL SERVICES ACTIVITIES: shall mean the offering, sale,
distribution or provision, directly or through any distribution system or
channel, of any financial products, financial services, asset management
services or products or services or products related or ancillary to any of the
foregoing.
PERSON: shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
PRODUCT DEVELOPMENT AND TECHNICAL ASSISTANCE AGREEMENT: shall mean the
Product Development and Technical Assistance Agreement referred to in section
6.03 of the Transaction Agreement.
REQUIRED INTEREST: shall mean a Required Interest as defined in
section 7.03 of the Transaction Agreement.
STRATEGIC BUSINESS PLAN: shall mean the three (3) year strategic
operating and capital budget and business plan for the Company attached to the
Transaction Agreement as Exhibit D, as it may be modified from time to time.
SUBSIDIARY: shall mean any and all corporations, partnerships, joint
ventures, limited liability companies, associations and other entities
controlled by the Company directly or indirectly through one or more
intermediaries.
SUBSTITUTE MEMBER: shall mean any Person not a Member of the Company
(prior to the transfer of a Membership Interest to such Person) to whom a
Membership Interest in the Company has been transferred and who has been
admitted to the Company as a Member pursuant to and in accordance with the
provisions of section 8.02(e) of the Transaction Agreement and the LLC
Agreement.
SUPERMAJORITY TRANSACTION: shall mean a Supermajority Transaction as
defined in section 7.03 of the Transaction Agreement.
TECHNICAL DEVELOPMENT AGREEMENT: shall mean the Technical Development
Agreement between Widegap Technology, LLC, the Company, GEL and GE's Corporate
Research & Development Department entered into in connection with the NIST ATP
Program.
TRANSACTION DOCUMENTS: shall mean the Transaction Agreement, the LLC
Agreement and the other Ancillary Agreements and any annexes, attachments or
exhibits to the foregoing.
-6-
<PAGE> 33
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
***
UNIROYAL: shall be the collective reference to Uniroyal Technology
Corporation and its wholly owned subsidiary, Uniroyal Optoelectronics, Inc.
("UOE"), Delaware corporations having their principal offices at 2 North
Tamiami Trail, Sarasota, FL 34236.
UNIROYAL AGREEMENT: shall be the collective reference to the Amended
and Restated Joint Venture Agreement dated November 30, 1998 among Emcore and
Uniroyal, and the related license and development agreements referred to
therein.
UOE SUPPLY AGREEMENT: shall mean the UOE Supply Agreement entered into
between the Company and UOE, the Term Sheet for which is attached to the
Transaction Agreement as Exhibit I.
WHITE LIGHT LED PRODUCTS: shall mean LED Products for use in solid
state lighting that ***.
-7-
<PAGE> 34
EXHIBIT C
REPRESENTATIONS AND WARRANTIES
Capitalized terms used but not defined herein shall have the same meanings
given to such terms in the Transaction Agreement to which this Exhibit C is
attached.
Emcore hereby makes the following representations and warranties upon each of
which Emcore acknowledges and agrees that GE is entitled to rely:
ORGANIZATION.
Emcore is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey.
AUTHORIZATION; NO CONFLICTS.
Emcore has all requisite corporate power and authority to (i) enter
into the Transaction Agreement, the LLC Agreement and the other Ancillary
Agreements to which it is a party (collectively the `Emcore Transaction
Documents"), (ii) perform its obligations under the Emcore Transaction
Documents, and (iii) consummate the transactions contemplated by the Emcore
Transaction Documents. All necessary and appropriate corporate action has been
taken by Emcore with respect to the execution, delivery and performance of the
Emcore Transaction Documents and the Emcore Transaction Documents constitute
the legal, valid and binding obligations of Emcore enforceable against Emcore
in accordance with their respective terms. Neither the execution, delivery or
performance nor the consummation by Emcore of the transactions contemplated by
the Emcore Transaction Documents will conflict with any applicable federal,
state or local law, rule, regulation, writ, decree or order to which Emcore is
subject, nor will it conflict with or result in a default under any term,
provision or covenant of any mortgage, indenture, contract, agreement
(including, without limitation, the Amended and Restated Joint Venture
Agreement between Uniroyal Technology Corporation and Emcore dated November 30,
1998 (the "Uniroyal Joint Venture"), and the Amended and Restated Technology
License Agreement between Emcore and Uniroyal Technology Corporation, dated
November 30, 1998), instrument or judgment applicable to Emcore.
CONSENTS; RESTRICTIVE DOCUMENTS OR LAWS.
Other than as listed on Schedule 1 hereto, no consent is required to
be obtained by Emcore under any material agreement to which Emcore is a party
in connection with the execution, delivery or performance of the Emcore
Transaction Documents. Emcore is not a party to or bound under any (and to the
best knowledge of Emcore there is no pending, proposed or threatened),
regulation, certificate, mortgage, lien, lease, agreement, contract,
instrument, law, order, judgment or decree, or any similar restriction not of
general application which reasonably could be expected to adversely effect the
consummation of the transactions contemplated by the Emcore Transaction
Documents.
<PAGE> 35
GOVERNMENTAL AUTHORIZATION.
The execution, delivery and performance by Emcore of the Emcore
Transaction Documents require no action by or in respect of, or consent or
approval of, or filing with, any Governmental Authority.
ABSENCE OF COMPETING BUSINESS.
Emcore does not, either directly or indirectly, own of record or
beneficially any shares or other equity interests in any corporation,
partnership, limited partnership, limited liability company, limited liability
partnership, joint venture, trust or other business entity that is involved,
either directly or indirectly, in the GELcore Business.
LITIGATION.
There is no claim, litigation, action, suit, proceeding, investigation
or inquiry, administrative or judicial, pending or, to the knowledge of Emcore,
threatened against Emcore, at law or in equity, before any federal, state or
local court or regulatory agency, or other governmental authority, which if
adversely determined would have an adverse effect on Emcore's ability to
perform any of its obligations under the Emcore Transaction Documents or upon
the consummation of the transactions contemplated by the Emcore Transaction
Documents.
INTELLECTUAL PROPERTY.
(i) Emcore is licensing to GELcore all of the Existing Emcore
Intellectual Property (as defined in Intellectual Property License Agreement)
relevant to the GELcore Business Field which Emcore owns and has the right to
license or is licensed and has the right to sublicense.
(ii) Emcore is the owner, or has the right to license on behalf of the
owner, of all right, title and interest in and to any or all such Existing
Emcore Intellectual Property referred to in subsection (i) above. Subject to
*** and the Uniroyal Agreement, Emcore is not bound by or a party to any other
contracts, options, licenses, assignments, or agreements of any kind with
respect to the Intellectual Property of any other person or entity, which would
prevent, prohibit, or otherwise interfere with the ability of Emcore to meet
its obligations to GELcore. Emcore is not bound by or a party to any other
contracts, options, licenses, assignments, or agreements of any kind with
respect to the Intellectual Property of any other person or entity, which would
prevent, prohibit, or otherwise interfere with the ability of GELcore to
utilize such Existing Emcore Intellectual Property in the manner contemplated
by the Transaction Documents.
(iii) To Emcore's knowledge, there are no pending or threatened claims
alleging, or potential claims that could reasonably be expected to be alleged,
that any or all such Existing Emcore Intellectual Property infringes or
conflicts with the Intellectual Property of others.
-2-
<PAGE> 36
YEAR 2000 COMPLIANCE.
To the best of its knowledge and solely with respect to data entry
controlled by those modules of any Emcore Intellectual Property that are or
will be proprietary to Emcore (the "Emcore Proprietary Modules"), the Emcore
Proprietary Modules are Year 2000 Compliant (as defined in the Intellectual
Property License Agreement).
COMPLETE DISCLOSURE.
No representation or warranty made by Emcore in the Transaction
Documents, and no exhibit, schedule, statement, certificate or other writing
furnished to GE by or on behalf of Emcore pursuant to the Transaction Documents
or in connection with the transactions contemplated by the Transaction
Documents, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
GE hereby makes the following representations and warranties upon each of which
GE acknowledges and agrees that Emcore is entitled to rely:
ORGANIZATION.
GE is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York.
AUTHORIZATION; NO CONFLICTS.
GE has all requisite corporate power and authority to (i) enter into
the Transaction Agreement, the LLC Agreement and the other Ancillary Agreements
to which it is a party (collectively, the "GE Transaction Documents"), (ii)
perform its obligations under the GE Transaction Documents, and (iii)
consummate the transactions contemplated by the GE Transaction Documents. All
necessary and appropriate corporate action has been taken by GE with respect to
the execution and delivery of the GE Transaction Documents and the GE
Transaction Documents constitute the legal, valid and binding obligations of GE
enforceable against GE in accordance with their respective terms. Neither the
execution, delivery or performance nor the consummation by GE of the
transactions contemplated by the GE Transaction Documents will conflict with
any applicable federal, state or local law, rule, regulation, writ, decree or
order to which GE is subject, nor will it conflict with or result in a default
under any term, provision or covenant of any mortgage, indenture, contract,
agreement, instrument or judgment applicable to GE.
CONSENTS; RESTRICTIVE DOCUMENTS OR LAWS.
No consent is required to be obtained by GE under any material
agreement to which GE is a party in connection with the execution, delivery or
performance of the GE Transaction Documents. GE is not a party to or bound
under any (and to the best knowledge of GE there is no pending, proposed or
threatened), regulation, certificate, mortgage, lien, lease, agreement,
contract, instrument, law, vote, order, judgment or decree, or any similar
restriction not of general application which reasonably could be expected to
adversely effect the consummation of the transactions contemplated by the GE
Transaction Documents.
-3-
<PAGE> 37
GOVERNMENTAL AUTHORIZATION.
The execution, delivery and performance by GE of the GE Transaction
Documents require no action by or in respect of, or consent or approval of, or
filing with, any Governmental Authority.
ABSENCE OF COMPETING BUSINESS.
Except for GELcore's interest in the Widegap Technology LLC, GE does
not own of record or beneficially any shares or other equity interests in any
corporation, partnership, limited partnership, limited liability company,
limited liability partnership, joint venture, trust or other business entity
that is involved, either directly or indirectly, in the GELcore Business;
provided, however, that GE shall not be in breach of the foregoing
representations (i) by reason of any record or beneficial ownership of
securities or other equity interests arising out of any Financial Services
Business of GE or any of its Affiliates, or (ii) by reason of any record or
beneficial ownership of securities or other equity interests by any pension or
retirement fund or program operated by or for the benefit of GE or any of its
Affiliates.
LITIGATION.
There is no claim, litigation, action, suit, proceeding, investigation
or inquiry, administrative or judicial, pending or, to the knowledge of GE,
threatened against GE, at law or in equity, before any federal, state or local
court or regulatory agency, or other governmental authority, which if adversely
determined would have an adverse effect on GE's ability to perform any of its
obligations under the GE Transaction Documents or upon the consummation of the
transactions contemplated by the GE Transaction Documents.
INTELLECTUAL PROPERTY.
(i) GE is licensing to GELcore all of the Existing GEL Intellectual
Property (as defined in Intellectual Property License Agreement) relevant to
the GELcore Business Field which GEL owns and has the right to license or is
licensed and has the right to sublicense.
(ii) GE is the owner, or has the right to license on behalf of the
owner, of all right, title and interest in and to any or all such Existing GEL
Intellectual Property referred to in subsection (i) above. GE is not bound by
or a party to any other contracts, options, licenses, assignments, or
agreements of any kind with respect to the Intellectual Property of any other
person or entity, which would prevent, prohibit, or otherwise interfere with
the ability of (A) GEL to meet its obligations to GELcore or (B) GELcore to
utilize such Existing GEL Intellectual Property in the manner contemplated by
the Transaction Documents.
(iii) To GE's knowledge, there are no pending or threatened claims
alleging, or potential claims that could reasonably be expected to be alleged,
that any or all such Existing GEL Intellectual Property infringes or conflicts
with the Intellectual Property of others.
-4-
<PAGE> 38
YEAR 2000 COMPLIANCE.
To the best of its knowledge and solely with respect to data entry
controlled by those modules of any GE Intellectual Property that are or will be
proprietary to GE (the "GE Proprietary Modules"), the GE Proprietary Modules
are Year 2000 Compliant (as defined in the Intellectual Property License
Agreement).
COMPLETE DISCLOSURE.
No representation or warranty made by GE in the Transaction Documents,
and no exhibit, schedule, statement, certificate or other writing furnished to
Emcore by or on behalf of GE pursuant to the Transaction Documents or in
connection with the transactions contemplated by the Transaction Documents,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EMCORE CORPORATION FOR THE QUARTERLY PERIOD
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-30-1998
<CASH> 1,780
<SECURITIES> 0
<RECEIVABLES> 7,650
<ALLOWANCES> (580)
<INVENTORY> 12,483
<CURRENT-ASSETS> 290
<PP&E> 58,085
<DEPRECIATION> (17,531)
<TOTAL-ASSETS> 77,883
<CURRENT-LIABILITIES> 18,830
<BONDS> 0
0
0
<COMMON> 87,576
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 77,883
<SALES> 10,125
<TOTAL-REVENUES> 10,125
<CGS> 6,016
<TOTAL-COSTS> 6,016
<OTHER-EXPENSES> 10,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230
<INCOME-PRETAX> (6,879)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,879)
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
