UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one):
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
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.)
145 Belmont Drive
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:[ ]
The number of shares of the registrant's common stock, no par value,
outstanding as of May 1, 2002 was 36,672,219.
ITEM 1. Financial Statements
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS For the three and six months ended March
31, 2002 and 2001
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
Revenues:
Systems-related................................. $ 4,341 $ 29,393 $ 14,636 $ 55,204
Materials-related............................... 18,737 15,432 27,579 28,711
----------------------------------------------------
Total revenues................................ 23,078 44,825 42,215 83,915
Cost of revenues:
Systems-related................................. 6,853 17,291 12,264 32,079
Materials-related............................... 25,355 10,758 36,536 19,322
----------------------------------------------------
Total cost of revenues........................ 32,208 28,049 48,800 51,401
----------------------------------------------------
Gross profit................................ (9,130) 16,776 (6,585) 32,514
Operating expenses:
Selling, general and administrative ............ 9,483 7,552 16,481 14,535
Goodwill amortization........................... - 103 - 837
Research and development........................ 11,625 11,998 23,572 25,177
Impairment and restructuring.................... 35,939 - 35,939 -
----------------------------------------------------
Total operating expenses ..................... 57,047 19,653 75,992 40,549
----------------------------------------------------
Operating loss.............................. (66,177) (2,877) (82,577) (8,035)
Other expenses:
Interest expense (income), net.................. 1,682 (794) 2,610 (2,286)
Other expense (income), net..................... - (5,890) 13,262 (5,890)
Equity in net loss of unconsolidated affiliate.. 851 3,668 1,228 7,800
----------------------------------------------------
Total other expenses (income)................. 2,533 (3,016) 17,100 (376)
Income (loss) before cumulative effect of
a change in accounting principle............ (68,710) 139 (99,677) (7,659)
Cumulative effect of a change in accounting
principle......................................... - - - (3,646)
----------------------------------------------------
Net income (loss)........................... $(68,710) $ 139 $(99,677) $(11,305)
====================================================
Per share data: (see note 4)
Income (loss) per basic and diluted shares
before cumulative effect of a change
in accounting principle........................... $ (1.88) $ 0.00 $ (2.74) $ (0.22)
====================================================
Net income (loss) per basic and diluted shares.... $ (1.88) $ 0.00 $ (2.74) $ (0.33)
====================================================
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
EMCORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2002 and September 30, 2001
(in thousands, except share data)
As of As of
March 31, September 30,
ASSETS 2002 2001
----------- -------------
(unaudited)
Current assets:
Cash and cash equivalents....................................................... $53,038 $71,239
Marketable securities........................................................... 43,023 76,422
Accounts receivable, net of allowance for doubtful accounts of $3,740 and
$1,139 at March 31, 2002 and September 30, 2001, respectively................ 24,329 30,918
Accounts receivable - related party............................................. 485 2,161
Inventories, net................................................................ 33,413 47,382
Prepaid expenses and other current assets....................................... 3,018 4,471
---------------------------------------------
Total current assets....................................................... 157,306 232,593
Property, plant and equipment, net................................................ 107,327 143,223
Goodwill, net..................................................................... 23,071 2,687
Investments in unconsolidated affiliate........................................... 9,960 9,228
Intangible assets, net............................................................ 1,900 -
Other assets, net................................................................. 10,909 15,822
---------------------------------------------
Total assets............................................................... $310,473 $403,553
=============================================
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 8,030 $ 14,075
Accrued expenses................................................................ 11,665 13,533
Advanced billings............................................................... 4,350 3,715
Capitalized lease obligation - current.......................................... 68 57
---------------------------------------------
Total current liabilities.................................................. 24,113 31,380
Convertible subordinated notes.................................................... 175,000 175,000
Capitalized lease obligation, net of current portion.............................. 90 46
---------------------------------------------
Total liabilities.......................................................... 199,203 206,426
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.0001 par, 5,882,352 shares authorized, no shares
outstanding................................................................... - -
Common stock, no par value, 100,000,000 shares authorized, 36,621,190 shares
issued and 36,601,362 outstanding at March 31, 2002; 35,617,303 shares
issued and 35,597,475 outstanding at September 30, 2001....................... 333,326 327,559
Accumulated deficit............................................................ (220,829) (121,152)
Accumulated other comprehensive loss........................................... (261) (8,314)
Shareholders' notes receivable................................................. (34) (34)
Treasury stock, at cost; 19,828 shares at March 31, 2002 and
September 30, 2001.......................................................... (932) (932)
---------------------------------------------
Total shareholders' equity................................................. 111,270 197,127
---------------------------------------------
Total liabilities and shareholders' equity................................. $310,473 $403,553
=============================================
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
EMCORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2002 and 2001
(in thousands)
(unaudited)
Six Months Ended March 31,
---------------------------
2002 2001
---------------------------
Cash flows from operating activities:
Net loss........................................................................ $(99,677) $(11,305)
---------------------------
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization................................................ 9,915 8,996
Provision for doubtful accounts.............................................. 1,469) 228
Deferred gain on sale to unconsolidated affiliate............................ - 120
Equity in net loss of unconsolidated affiliate............................... 1,228 7,800
Compensatory stock issuances................................................. 379 439
Impairment of equity investment.............................................. 13,262 -
Cumulative effect of a change in accounting principle........................ - 3,646
Loss from impairment, restructuring charges and other charges................ 50,443 -
Decrease (increase) in assets:
Accounts receivable - trade......................................... 2,522 (16,886)
Accounts receivable - related parties............................... 1,676 460
Inventories......................................................... 2,114 (13,088)
Other current assets................................................ 1,453 (3,416)
Other assets........................................................ (565) (5,181)
Increase (decrease) in liabilities:
Accounts payable.................................................... (6,044) 4,813
Accrued expenses.................................................... (2,823) 1,631
Advanced billings................................................... 635 4,330
Other............................................................... (41) 1,643
---------------------------
Total adjustments.................................................... 75,623 (4,465)
---------------------------
Net cash used for operating activities...................................... (24,054) (15,770)
Cash flows from investing activities:
Purchase of property, plant, and equipment...................................... (5,681) (55,876)
Investments in unconsolidated affiliate......................................... (1,960) (2,382)
Proceeds from collection of notes receivable.................................... 5,000 -
Cash paid for acquisition, net of cash acquired................................. (25,084) (1,707)
Proceeds from sales of marketable securities, net............................... 28,230 38,913
---------------------------
Net cash provided by (used for) investing activities........................ 505 (21,052)
Cash flows from financing activities:
Payments on capital lease obligations........................................... (40) 9
Proceeds from exercise of stock options and employee stock purchase plan........ 1,194 2,824
Proceeds from exercise of stock purchase warrants............................... 4,194 14
---------------------------
Net cash provided by financing activities................................... 5,348 2,847
Net decrease in cash and cash equivalents....................................... (18,201) (33,975)
---------------------------
Cash and cash equivalents, beginning of period.................................. 71,239 50,849
---------------------------
Cash and cash equivalents, end of period........................................ $ 53,038 $ 16,874
===========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest................................... $ 4,576 $ 21
==========================
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
EMCORE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 2000 and 2001 and the six
months ended March 31, 2002 (unaudited)
(in thousands)
Accumulated
Common Common Other Shareholders' Total
Stock Stock Accumulated Comprehensive Notes Treasury Shareholders'
Shares Amount Deficit Income (Loss) Receivable Stock Equity
------------------------------------------------------------------------------------------
Balance at September 30, 1999.... 26,708 $152,426 ($83,256) - ($7,547) - $61,623
Net loss........................... (25,485) (25,485)
Unrealized gain on marketable 5 5
securities.........................
---------
Comprehensive loss............... (25,480)
Preferred stock dividends.......... (83) (83)
Accretion of redeemable preferred
stock to redemption value.......... (40) (40)
Issuance of common stock
purchase warrants.................. 689 689
Issuance of common stock, net of
issuance cost of $8,500............ 2,000 127,500 127,500
Stock option exercise.............. 506 2,197 2,197
Stock purchase warrant
exercise........................... 1,996 10,874 10,874
Conversion of convertible
preferred stock into common
stock.............................. 2,060 14,193 14,193
Compensatory stock issuances....... 23 1,401 1,401
Conversion of subordinated notes
into common stock.................. 682 5,500 5,500
Treasury stock..................... (3) (239) (239)
Redemptions of shareholders'
notes receivable................... 1,187 1,187
--------------------- ----------------------------------------------------------------------
Balance at September 30, 2000.... 33,972 314,780 (108,864) 5 (6,360) (239) 199,322
Net loss........................... (12,288) (12,288)
Unrealized loss on marketable
securities......................... (8,085) (8,085)
Translation adjustment............. (234) (234)
---------------
Comprehensive loss............... (20,607)
Issuance of common stock in
connection with acquisitions....... 41 1,840 1,840
Stock option exercise.............. 438 3,247 3,247
Stock purchase warrant exercise.... 1,111 5,508 5,508
Compensatory stock issuances....... 34 1,507 1,507
Issuance of common stock -
Employee Stock Purchase
Plan............................... 17 677 677
Treasury stock..................... (16) (693) (693)
Redemptions of shareholders'
notes receivable................... 6,326 6,326
------------------------------------------------------------------------------------------
Balance at September 30, 2001.... 35,597 327,559 (121,152) (8,314) (34) (932) 197,127
Net loss........................... (99,677) (99,677)
Impairment of equity investment.... 7,667 7,667
Unrealized gains on marketable
securities......................... 427 427
Translation adjustment............. (41) (41)
---------------
Comprehensive loss............... (91,624)
Stock option exercise.............. 97 633 633
Stock purchase warrant exercise.... 823 4,194 4,194
Compensatory stock issuances....... 36 379 379
Issuance of common stock -
Employee Stock Purchase
Plan............................... 48 561 561
------------------------------------------------------------------------------------------
Balance at March 31, 2002........ 36,601 $333,326 $(220,829) $(261) $(34) $(932) $111,270
==========================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
5
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Interim Financial Information and Description of Business
The accompanying unaudited condensed consolidated financial statements of
EMCORE Corporation ("EMCORE" or the "Company") reflect all adjustments
considered necessary by management to present fairly EMCORE's consolidated
financial position as of March 31, 2002, the consolidated results of operations
for the six-month periods ended March 31, 2002 and 2001 and the consolidated
cash flows for the six-month periods ended March 31, 2002 and 2001. 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 six-month
period ended March 31, 2002 are not necessarily indicative of the results for
the fiscal year ending September 30, 2002 or any future interim period.
EMCORE has two reportable operating segments: the systems-related business
unit and the materials-related business unit. The systems-related business unit
designs, develops and manufactures tools and manufacturing processes used to
fabricate compound semiconductor wafers and devices. This business unit assists
customers with device design, process development and optimal configuration of
TurboDisc production systems. Revenues for the systems-related business unit
consist of sales of EMCORE's TurboDisc production systems as well as spare parts
and services related to these systems. The materials-related business unit
designs, develops and manufactures compound semiconductor materials. Revenues
for the materials-related business unit include sales of semiconductor wafers,
devices, packaged devices, modules and process development technology. EMCORE's
vertically integrated product offering allows it to provide a complete compound
semiconductor solution to its customers. The segments reported are the segments
of EMCORE for which separate financial information is available and for which
gross profit amounts are evaluated regularly by executive management in deciding
how to allocate resources and in assessing performance. There are no
intercompany sales transactions between the two operating segments. Available
segment information has been presented in the Statements of Operations.
NOTE 2. Impairment and Restructuring Charges
During the quarter ended March 31, 2002, EMCORE recorded pre-tax charges to
income totaling $50.4 million, which included restructuring and impairment
charges of $35.9 million and other charges of $14.5 million.
Restructuring Charges
During the quarter, EMCORE continued a restructuring program, consisting of
the appointment of a Chief Operating Officer, re-alignment of all engineering,
manufacturing and sales/marketing operations, as well as workforce reductions.
Included in the provision for restructuring and impairment charges are severance
charges of $1.1 million related to employee termination costs for approximately
120 employees. The workforce was reduced in both of EMCORE's business segments.
Since September 30, 2001, headcount has been reduced by approximately 167
employees, all of whom were entitled to termination benefits. Headcount as of
March 31, 2002 was 700 employees, which included 72 employees hired in
connection with the Tecstar acquisition; see Note 3. As of March 31, 2002,
EMCORE paid out approximately $200,000 of employee termination costs, with the
remaining $900,000 included in accounts payable. Management expects to complete
its restructuring plan by the end of the third fiscal quarter of 2002 with all
cash outlays for employee termination costs to have been completed by that time
as well. Management does not believe that the restructuring program will have a
material impact on revenues. Management expects that the actions described above
will result in an estimated annual reduction in employee-related expense and
cash flows of approximately $12.0 to 14.0 million.
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. Impairment and Restructuring Charges (continued)
Impairment Charges
EMCORE recorded $34.8 million of non-cash impairment charges related to its
fixed assets during the second quarter of 2002. Of this charge, $11.3 million
relates to certain manufacturing assets to be disposed of. Management has
committed to a plan to dispose of these assets, through either abandonment or
sale. Such decision was made based upon the continued downturn in the economic
environment that affects certain business units, which caused these
manufacturing assets to become idle. EMCORE expects to complete its disposal of
these assets by December 31, 2002. The carrying value of this equipment before
write-down to net realizable value was $11.5 million.
The remainder of the impairment charge relates principally to EMCORE's
electronic materials, electronic devices and fiber-optic business units. During
the past two years, EMCORE has completed new facilities for these businesses in
anticipation of expanding market prospects. Business forecasts updated in the
second quarter indicated significantly diminished prospects for these units,
primarily based on the downturn in the telecommunications industry. As a result
of these circumstances, management determined that the long-lived assets of
these operations should be assessed for impairment. Based on the outcome of this
assessment pursuant to SFAS 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of", EMCORE recorded a $23.5
million non-cash asset impairment charge to fixed assets in the second quarter
of 2002. The fair values of the assets were determined based upon a calculation
of the present value of the expected future cash flows to be generated by these
facilities.
Of the impairment charges recorded in the second quarter, $4.0 million
relates to EMCORE's systems business segment and $30.8 million relates to the
materials business segment.
Other Charges
EMCORE recorded a $11.9 million charge to cost of revenues in the quarter
ended March 31, 2002. Consistent with the downturn in the markets served by
EMCORE, management evaluated its inventory levels in light of actual and
forecasted revenue. The inventory charge relates to reserves for excess
inventory that EMCORE believes it is carrying as a result of the market
conditions. EMCORE will continue to monitor its reserves and to the extent that
inventories that have been reserved as excess are ultimately sold, such amounts
will be disclosed in the future.
Included in selling, general, and administrative expense is a $2.6 million
charge principally related to a loss provision for accounts receivable for
customers whose current financial condition and payment history indicate payment
is doubtful.
Investment Charge
The Uniroyal Technology Corporation, Inc. (UTCI) common stock received in
August 2001 is classified by EMCORE as an available-for-sale security with any
unrealized gains and losses being recorded as a component of accumulated other
comprehensive loss in shareholders' equity. In the quarter ended December 31,
2001, management evaluated the relevant facts and circumstances, including the
current fair market value of UTCI common stock, and determined that an
other-than-temporary impairment of the investment existed. Accordingly, EMCORE
took a charge of $13.3 million to establish a new cost basis for the UTCI common
stock, which was recorded as other expense in the consolidated Statement of
Operations.
7
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. Acquisition
On March 14, 2002, EMCORE acquired certain assets of the Applied Solar
Division of Tecstar, Inc. and Tecstar Power Systems, Inc ("Tecstar"). This
acquisition will vertically integrate all aspects of satellite solar panel
construction within EMCORE and enable the Company to further penetrate the
satellite communications market. The total cash purchase price, including
related acquisitions costs, was approximately $25.1 million. The results of
operations from this acquisition have been included in EMCORE's consolidated
results of operations from the acquisition closing date. The preliminary
purchase price allocation has been estimated as follows:
Property and equipment $2,242
Other assets 558
Goodwill 20,384
Intellectual property 1,900
------
Total $25,084
=======
Management expects to finalize the purchase price allocation during the
third quarter of fiscal 2002.
NOTE 4. Earnings Per Share
EMCORE accounts for earnings per share under the provision of SFAS No. 128
"Earnings per Share." Basic earnings per common share was calculated by dividing
net income (loss) by the weighted average number of common stock shares
outstanding during the period. With the exception of the three-month period
ended March 31, 2001, the effect of outstanding common stock purchase options,
warrants and shares issuable upon conversion of convertible subordinated debt
have been excluded from the diluted weighted average share calculation since the
effect of such securities is anti-dilutive. The following table reconciles the
number of shares utilized in the earnings per share calculations.
(in thousands, except per share data) For the three months For the six months
ended March 31, ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
Income (loss) before cumulative effect of a change in accounting
principle.......................................................... $(68,710) $ 139 $(99,677) $ (7,659)
Cumulative effect of a change in accounting principle.......... - - - (3,646)
--------- -------- --------- ---------
Net income (loss) attributable to common shareholders.............. $(68,710) $ 139 $(99,677) ($11,305)
========= ======== ========= =========
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average of outstanding common shares - basic.............. 36,567 34,319 36,399 34,158
Effect of dilutive securities:
Stock options, warrants and shares issuable upon
conversion of convertible notes............................. - 4,067 - -
--------- -------- --------- ---------
Weighted average of outstanding common shares - diluted............ 36,567 38,386 36,399 34,158
========= ======== ========= =========
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) per basic and diluted share before cumulative
effect of a change in accounting principle......................... $ (1.88) $ 0.00 $ (2.74) $ (0.22)
========= ======== ========= =========
Income (loss) per basic and diluted share - Cumulative effect
of a change in accounting principle................................ - - - $ (0.11)
--------- -------- --------- ---------
Net income (loss) per basic and diluted share...................... $ (1.88) $ 0.00 $ (2.74) $ (0.33)
========= ======== ========= =========
8
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. Inventories
The components of inventories consisted of the following:
(in thousands)
As of As of
March 31, 2002 September 30, 2001
---------------------- ----------------------
Raw materials $21,578 $32,795
Work-in-process 8,923 10,161
Finished goods 2,912 4,426
---------------------- ----------------------
Total $33,413 $47,382
====================== ======================
NOTE 6. Debt Facilities
In March 2001, EMCORE entered into a $20.0 million Amended and Restated
Revolving Loan and Security Agreement with a bank. There have been no borrowings
under this facility since inception and management had no plans to use this
facility. EMCORE canceled this facility in May 2002.
NOTE 7. Joint Venture
In May 1999, General Electric Lighting and EMCORE formed GELcore, a joint
venture to develop and market High Brightness Light-Emitting Diode (HB LED)
lighting products. General Electric Lighting and EMCORE have agreed that this
joint venture will be the exclusive vehicle for each party's participation in
solid state lighting. Under the terms of the joint venture agreement, EMCORE has
a 49% non-controlling interest in the GELcore venture and accounts for its
investment under the equity method of accounting. For the six-month periods
ended March 31, 2002 and 2001, EMCORE recognized a loss of $1.2 million and $2.2
million, respectively, related to this joint venture which has been recorded as
a component of other income and expense. As of March 31, 2002, the Company's net
investment in this joint venture amounted to approximately $10.0 million.
NOTE 8. Related Party
The President of Hakuto Co. Ltd. (Hakuto), the Company's Asian distributor,
is a member of EMCORE's Board of Directors and Hakuto is a minority shareholder
of EMCORE. During the three-month periods ended March 31, 2002 and 2001, sales
made through Hakuto amounted to approximately $0.3 million and $5.1 million,
respectively. During the six-month periods ended March 31, 2002 and 2001, sales
made through Hakuto amounted to approximately $1.0 million and $7.8 million,
respectively.
9
EMCORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. Recent Accounting Pronouncements
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill and
indefinite lived intangible assets from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations and indefinite lived intangible assets, will cease
upon adoption of this statement. Identifiable intangible assets will continue to
be amortized over their useful lives and reviewed for impairment in accordance
with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". EMCORE adopted SFAS No. 142 on October 1,
2001 and completed its transition test for impairment during the quarter ended
March 31, 2002. No impairment adjustment was deemed necessary by management. Had
SFAS No. 142 been in effect for the three and six months ended March 31, 2001,
EMCORE's net loss for those periods would have decreased by $103,000 or $0.00
per share and $837,000 or $0.02 per share, respectively.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations and costs associated with the retirement of tangible
long-lived assets. EMCORE is required to implement SFAS No. 143 in fiscal year
2003. EMCORE is currently evaluating the impact that the adoption of SFAS No.
143 will have on its results of operations and financial position.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121
and establishes accounting and reporting standards for long-lived assets to be
disposed of by sale. This standard applies to all long-lived assets, including
discontinued operations. SFAS No. 144 requires that those assets be measured at
the lower of carrying amount or fair value less cost to sell. SFAS No. 144 also
broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity
that will be eliminated from the ongoing operations of the entity in a disposal
transaction. EMCORE is required to implement SFAS No. 144 in fiscal year 2003.
EMCORE is currently evaluating the impact that the adoption of SFAS No. 144 will
have on its results of operations and financial position.
10
The information provided herein may include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 relating to future events that involve
risks and uncertainties. Words such as "expects," "anticipates," "intends,"
"plans," believes," and "estimates," and variations of these words and similar
expressions, identify these forward-looking statements. These forward-looking
statements include, without limitation, (a) any statements or implications
regarding EMCORE's ability to remain competitive and a leader in its industry,
and the future growth of EMCORE, the industry and the economy in general; (b)
statements regarding the expected level and timing of benefits to EMCORE from
its current restructuring and realignment efforts, including (i) expected cost
reductions and their impact on EMCORE's financial performance, (ii) expected
improvement to EMCORE's product and technology development programs, and (iii)
the belief that the restructuring and realignment efforts will position EMCORE
well in the current business environment and prepare it for future growth with
increasingly competitive new product offerings and long-term cost structure; (c)
statements regarding the anticipated cost of the restructuring and realignment
efforts; (d) statements regarding the anticipated charges to be recorded by
EMCORE to reduce the carrying value of excess and obsolete inventory and
doubtful accounts; and (e) any and all guidance provided by EMCORE regarding its
expected financial performance in current or future periods, including, without
limitation, with respect to anticipated revenues for the second quarter of
Fiscal 2002. These forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those projected,
including without limitation, the following: (1) EMCORE's restructuring and
realignment efforts may not be successful in achieving their expected benefits,
may be insufficient to align EMCORE's operations with customer demand and the
changes affecting our industry, or may be more costly than currently
anticipated; (2) due to the current economic slowdown, in general, and setbacks
in our customers' businesses, in particular, our ability to predict EMCORE's
financial performance for future periods is far more difficult than in the past;
and (3) other risks and uncertainties described in EMCORE's filings with the
Securities and Exchange Commission such as cancellations, rescheduling or delays
in product shipments; manufacturing capacity constraints; lengthy sales and
qualification cycles; difficulties in the production process; changes in
semiconductor industry growth, increased competition, delays in developing and
commercializing new products, and other factors. The forward-looking statements
contained in this Form 10-Q are made as of the date hereof and EMCORE does not
assume any obligation to update the reasons why actual results could differ
materially from those projected in the forward-looking statements.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EMCORE Corporation designs, develops and manufactures compound
semiconductor wafers and devices and is a leading developer and manufacturer of
the tools and manufacturing processes used to fabricate compound semiconductor
wafers and devices. Compound semiconductors are composed of two or more elements
and usually consist of a metal, such as gallium, aluminum or indium, and a
non-metal such as arsenic, phosphorus or nitrogen. Many compound semiconductors
have unique physical properties that enable electrons to move through them at
least four times faster than through silicon-based devices and are therefore
well suited to serve the growing need for efficient, high performance electronic
systems.
EMCORE offers a comprehensive portfolio of products and systems for the
rapidly expanding broadband, wireless communications and solid state lighting
markets. We have developed extensive materials science expertise and process
technology to address our customers' needs. Customers can take advantage of our
vertically integrated solutions approach by purchasing custom-designed wafers
and devices from us, or by manufacturing their own devices in-house using one of
our metal organic chemical vapor deposition (MOCVD) production systems
configured to their specific needs. Our products and systems enable our
customers to cost effectively introduce new and improved high performance
products to the market faster in high volumes.
Growth in our industry is driven by the widespread deployment of fiber
optic networks, introduction of new wireless networks and services, rapid
build-out of satellite communication systems, increasing use of more power
efficient lighting sources, increasing use of electronics in automobiles and
emergence of advanced consumer electronic applications. In addition, the demands
for higher volumes of a broad range of higher performance devices have resulted
in manufacturers increasingly outsourcing their needs for compound semiconductor
wafers and devices. Our expertise in materials science and process technology
provides us with a competitive advantage to manufacture compound semiconductor
wafers and devices in high volumes.
Wafers and Devices
EMCORE offers a broad array of compound semiconductor wafers and devices,
including optical devices, such as VCSELs and photodetectors used in high-speed
data communications and telecommunications networks, radio frequency materials
(RF materials) employed in mobile communications products such as wireless
modems and handsets, solar cells and panels used to power commercial and
military satellites, high brightness light-emitting diodes (HB LEDs) used for
several lighting markets, and magneto resistive sensors (MR sensors) used for
various automotive applications.
o Solar Cells and Panels. Solar panels are typically the largest single
cost component of a satellite. Our compound semiconductor solar cells,
which are used to power commercial and military satellites, have
achieved industry-leading efficiencies. Solar cell efficiency dictates
the electrical power of the satellite and bears upon the weight and
launch costs of the satellite. With the Tecstar acquisition, EMCORE
has fully integrated the production of solar panels using EMCORE's
solar cells.
o Optical Components and Modules. Our family of VCSELs and VCSEL array
transceiver and transponder products, as well as our photodiode array
components, serve the rapidly growing high-speed data communications
network and telecommunications markets, including the Gigabit
Ethernet, FibreChannel, Infiniband, and Very Short Reach OC-192, the
emerging Very Short Reach OC-768 and related markets. Our strategy is
to manufacture high cost optical components and subassemblies
in-house, using our proprietary technologies, to reduce the overall
cost of our transceiver and transponder modules.
11
o RF Materials. We currently produce 4-inch and 6-inch InGaP HBT and
pHEMT materials that are used by our wireless customers for power
amplifiers for GSM, TDMA, CDMA and the emerging 3G multiband wireless
handsets.
o HB LEDs. Through our joint venture with General Electric Lighting, we
provide advanced HB LED technology used in devices and in such
applications as traffic lights, miniature lamps, automotive lighting,
and flat panel displays.
Production Systems
EMCORE is a leading provider of compound semiconductor technology processes
and MOCVD production tools. We believe that our proprietary TurboDisc deposition
technology makes possible one of the most cost-effective production processes
for the commercial volume manufacture of high-performance compound semiconductor
wafers and devices, which are integral to solid state lighting and global
communications applications.
Customers
Our customers include Agilent Technologies Ltd., Anadigics Inc.,
Boeing-Spectrolab, General Motors Corp., Honeywell International Inc., Infineon
Technologies AG, Loral Space & Communications Ltd., Lucent Technologies, Inc.,
LumiLeds Lighting, Motorola, Inc., Nortel Networks Corp., Siemens AG's Osram
GmbH subsidiary, TriQuint Semiconductor, Inc. and more than a dozen of the
largest electronics manufacturers in Japan.
Recent Corporate Developments and Highlights
In April 2002, EMCORE signed an agreement to supply high quality GaN HEMT
(gallium nitride high electron mobility transistor) epitaxial wafers to Rockwell
Scientific Company. EMCORE's epiwafers will be used to design HEMT power
amplifiers (PAs) offering the level of performance required for high-power
applications in the wireless RF design, military, and automotive industries.
In March 2002, EMCORE completed the Tecstar acquisition. This acquisition
will vertically integrate all aspects of satellite solar panel construction
within EMCORE and enable the Company to further penetrate the satellite
communications market. The combination of EMCORE's industry-leading solar cell
technology and Tecstar's proven flight heritage dating back to 1958 will afford
EMCORE many new opportunities in fiscal year 2002 and beyond.
In March 2002, EMCORE announced the sale of two Discovery LDM (laser diode
machine) production tools to Nova Crystals. The EMCORE materials production
platform is the best technology on the market for achieving the device results
required to produce high-quality PICSELsTM.
In January 2002, EMCORE signed a multi-source agreement with Picolight,
Inc. for the manufacture and supply of connectorized 12 channel parallel optical
modules operating at up to 2.7 gigabits per second (Gbps) per channel. These
parallel optical modules, which are electrically, optically and mechanically
compatible, will help alleviate data congestion in networking equipment. The
agreement provides customers the assurance of multiple, reliable sources for the
modules.
Recent Product Developments
In addition, during the quarter ended March 31, 2002:
o EMCORE expanded its optical device product portfolio with the
commercial availability of two new 1310 nm, high speed, high
performance PIN diodes designed for use in OC-48 and OC-192 data and
telecom applications. The 2.5 GHz, 1X12 PIN diode array and 10 GHz PIN
diode singlet offer significant cost savings as a result of their
minimal packaging requirements;
12
o EMCORE launched its first 10 Gbps Serial TOSA (Transmitter Optical
Subassembly) and ROSA (Receiver Optical Subassembly) packaged
sub-assemblies for short reach OC-192 data and telecommunications
applications;
o EMCORE announced the availability of its new 10 Gbps small form factor
transponder, the MTR9500, which provides very short reach (VSR)
interconnections for enterprise networks and Internet backbones at
SONET OC-192 rates (nominally 10 Gbps). The 300-pin transponder, which
is compliant with the Optical Internetworking Forum's VSR4-1
Implementation Agreement, provides all the functionality of EMCORE's
original MTR8500 VSR4-1 transponder at half the size;
o EMCORE announced the release of its new 12 lane by 3.3 Gbps high-speed
parallel fiber optic array transmitter and receiver modules.
Delivering an aggregate bandwidth of 40 Gbps, the new transmitters and
receivers from EMCORE excel in short-haul applications including
high-speed logic-logic data links, optical backplanes, ganged serial
connections (12 X OC-48) and board-to-board and shelf-to-shelf
high-speed interconnects.
Results of Operations
The following table sets forth the condensed consolidated Statement of
Operations data of EMCORE expressed as a percentage of total revenues for the
three and six months ended March 31, 2002 and 2001:
Statements of Operations Data:
For the three months For the six months
ended March 31, ended March 31,
2002 2001 2002 2001
---- ---- ---- ----
Revenues...................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............................. 139.6% 62.6% 115.6% 61.3%
---------------------------------------------
Gross Profits...................... (39.6)% 37.4% (15.6)% 38.7%
Operating expenses:
Selling, general and administrative....... 41.1% 16.8% 39.0% 17.3%
Goodwill amortization..................... - 0.2% - 1.0%
Research and development.................. 50.3% 26.8% 55.8% 30.0%
Impairment and restructuring.............. 155.7% - 85.2% -
-----------------------------------------------
Total operating expenses............... 247.1% 43.8% 180.0% 48.3%
-----------------------------------------------
Operating loss..................... (286.7%) (6.4%) (195.6)% (9.6)%
Other expenses:
Interest expense (income), net............ 7.3% (1.8)% 6.2% (2.7)%
Other expense (income).................... - (13.1)% 31.4% (7.0)%
Equity in net loss of unconsolidated
affiliate................................. 3.7% 8.2% 2.9% 9.3%
-----------------------------------------------
Total other expenses (income).......... 11.0% (6.7)% 40.5% (0.4)%
Income (loss) before cumulative
effect of a change in accounting
principle.......................... (297.7)% 0.3% (236.1)% (9.2)%
-----------------------------------------------
Cumulative effect of a change in accounting
principle..................................... - - - (4.3)%
-----------------------------------------------
Net income (loss).................. (297.7)% 0.3% (236.1)% (13.5)%
-----------------------------------------------
13
EMCORE has generated a significant portion of its sales to customers
outside the United States. EMCORE anticipates that international sales will
continue to account for a significant portion of revenues. Historically, EMCORE
has received substantially all payments for products and services in U.S.
dollars and thus does not anticipate that fluctuations in any currency will have
a material effect on its financial condition or results of operations. The
following chart contains a breakdown of EMCORE's consolidated revenues by
geographic region.
For the three months ended March 31, For the six months ended March 31,
2002 2001 2002 2001
- --------------------- ------------- -------- ----------- -------- ----------- -------- ----------- --------
Region: Revenue % Revenue % Revenue % Revenue %
------- - ------- - ------- - ------- -
North America $18,889 82% $18,361 41% $31,877 76% $43,611 52%
Asia 2,063 9% 24,996 56% 4,794 11% 36,980 44%
Europe 2,126 9% 1,468 3% 5,544 13% 3,324 4%
- --------------------- ------------- -------- ----------- -------- ----------- -------- ----------- --------
TOTAL $23,078 100% $44,825 100% $42,215 100% $83,915 100%
======= ==== ======= ==== ======= ==== ======= ====
EMCORE has two reportable operating segments: the systems-related business
unit and the materials-related business unit. The systems-related business unit
designs, develops and manufactures tools and manufacturing processes used to
fabricate compound semiconductor wafers and devices. This business unit assists
customers with device design, process development and optimal configuration of
TurboDisc production systems. Revenues for the systems-related business unit
consist of sales of EMCORE's TurboDisc production systems as well as spare parts
and services related to these systems. The materials-related business unit
designs, develops and manufactures compound semiconductor materials. Revenues
for the materials-related business unit include sales of semiconductor wafers,
devices, packaged devices, modules, solar panels and process development
technology. EMCORE's vertically integrated product offering allows it to provide
a complete compound semiconductor solution to its customers. The segments
reported are the segments of EMCORE for which separate financial information is
available and for which gross profit amounts are evaluated regularly by
executive management in deciding how to allocate resources and in assessing
performance. There are no intercompany sales transactions between the two
operating segments.
Comparison of the three and six-month periods ended March 31, 2002 and 2001
Revenues. EMCORE's quarterly revenues decreased 49% or $21.7 million from
$44.8 million for the three months ended March 31, 2001 to $23.1 million for the
three months ended March 31, 2002. For the six- month periods ended March 31,
2002 and 2001, revenues decreased 50% or $41.7 million from $83.9 million in the
prior year to $42.2 million. The decline in revenues was a result of decreased
demand experienced within EMCORE's systems-related product line. The current
economic climate has reduced capital spending dramatically during the past year,
particularly in the data and telecommunication sectors, where EMCORE has
traditionally sold a significant portion of equipment and material-related
products.
For the three months ended March 31, 2002 and 2001, systems-related
revenues decreased 85% or $25.1 million from $29.4 million reported in the prior
year to $4.3 million. The number of MOCVD production systems shipped during the
three-month periods decreased 92% from 24 systems in 2001 to 2 systems in 2002.
For the six months ended March 31, 2002 and 2001, systems-related revenues
decreased 74% or $40.6 million from $55.2 million reported in the prior year to
$14.6 million. The number of MOCVD production systems shipped during the
six-month periods decreased 88% from 41 systems in 2001 to 5 systems in 2002.
Average selling prices of MOCVD production tools has also dropped from an
average of $1.5 million in fiscal year 2001 to $1.3 million in fiscal year 2002.
Cancellations and pushed-out delivery dates in previous quarters are the main
reasons for the decrease in systems-related revenues.
14
For the three months ended March 31, 2002 and 2001, materials-related
revenues increased 21% or $3.3 million from $15.4 million reported in the prior
year to $18.7 million. On a product line basis, sales of solar cell products
increased $5.5 million or 101%, electronic materials and devices decreased $0.5
million or 9%, and optical devices and components decreased $1.7 million or 41%,
from the prior year. For the six months ended March 31, 2002 and 2001,
materials-related revenues decreased 4% or $1.1 million from $28.7 million
reported in the prior year to $27.6 million. On a product line basis, sales of
solar cell products increased $3.0 million or 31%, electronic materials and
devices decreased $1.3 million or 11%, and optical devices and components
decreased $2.8 million or 43%, from the prior year.
As a percentage of revenues, systems and materials-related revenues
accounted for 19% and 81%, respectively, for the quarter ended March 31, 2002,
and 66% and 34%, respectively, for the quarter ended March 31, 2001. For the
six-month periods, systems and materials-related revenues accounted for 35% and
65% in fiscal year 2002, and 66% and 34% in fiscal year 2001. International
sales accounted for 18% of revenues for the quarter ended March 31, 2002 and 59%
of revenues for the quarter ended March 31, 2001. For the six-month periods,
international sales accounted for 24% of revenues in fiscal year 2002 and 48% of
revenues in fiscal year 2001.
Gross Profit. EMCORE's quarterly gross profit decreased 154% or $25.9
million from $16.8 million for the quarter ended March 31, 2001 to $(9.1)
million for the quarter ended March 31, 2002. For the six- month periods ended
March 31, 2002 and 2001, gross profit decreased 120% or $39.1 million from $32.5
million to $(6.6) million. The decline in gross profit was primarily related to
$11.9 million of inventory write-down charges and unabsorbed overhead expenses
due to decreased revenues. During the past two years, EMCORE completed new
facilities for its businesses in anticipation of expanding market prospects.
EMCORE has a significant amount of fixed expenses relating to capital equipment
and manufacturing overhead in its new facilities where materials-related
products are manufactured. Lower than forecasted materials-related revenues
causes these fixed expenses to be allocated across reduced production volumes,
which adversely affected gross profit and margins.
For the three months ended March 31, 2002 and 2001, gross profit earned on
systems-related revenues decreased 121% or $14.6 million from $12.1 million
earned in the prior year to $(2.5) million. For the six months ended March 31,
2002 and 2001, gross profit earned on systems-related revenues decreased 90% or
$20.7 million from $23.1 million earned in the prior year to $2.4 million. For
the six months ended March 31, 2002 and 2001, gross margins for systems-related
revenues decreased from 42% to 16%. This decrease is due primarily to the
decrease in sales of MOCVD production systems and specific inventory write-down
charges of $4.2 million.
For the three months ended March 31, 2002 and 2001, gross profit earned on
materials-related revenues decreased 242% or $11.3 million from $4.7 million
earned in the prior year to ($6.6) million. For the six months ended March 31,
2002 and 2001, gross profit earned on materials-related revenues decreased 195%
or $18.3 million from $9.4 million earned in the prior year to ($8.9) million.
For the six months ended March 31, 2002 and 2001, gross margins for
materials-related revenues decreased from 33% to (33%). This decrease is due
primarily to unabsorbed overhead expenses and specific inventory write-down
charges of $7.7 million.
Selling, General and Administrative. EMCORE's quarterly selling, general
and administrative expenses increased 26% or $1.9 million from $7.6 million for
the three months ended March 31, 2001 to $9.5 million for the three months ended
March 31, 2002. For the six-month periods ended March 31, 2002 and 2001,
selling, general and administrative expenses increased 13% or $1.9 million from
$14.5 million to $16.4 million. The increase in selling, general and
administrative expenses was primarily related to a $2.6 million additional
receivable reserve for doubtful accounts. Excluding this charge, selling,
general and administrative expenses for the quarter decreased 9%. As a
percentage of revenue, selling, general and administrative expenses increased
from 17% for the six months ended March 31, 2001 to 39% for the six months ended
March 31, 2002 as a result of lower revenues. In fiscal year 2002, management
expects selling, general and administrative expenses to decrease approximately
10% on an annual basis as a result of implemented cost control and restructuring
programs.
15
Goodwill Amortization. During the three months ended December 31, 2000,
EMCORE amortized $0.7 million, the remaining portion of goodwill related to the
acquisition of MicroOptical Devices, Inc. In January 2001, EMCORE purchased
Analytical Solutions, Inc. and Training Solutions, Inc. and allocated
approximately $3.1 million to goodwill. In March 2002, EMCORE acquired Tecstar,
Inc.'s Applied Solar Division. The preliminary purchase price allocation
estimates $20.4 million for goodwill. Management expects to finalize the
purchase price allocation during the third quarter of fiscal 2002.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. Amortization of goodwill, including goodwill recorded in
past business combinations and indefinite lived intangible assets, would cease
upon adoption of this statement. EMCORE adopted SFAS No. 142 on October 1, 2001
and completed its transition test for impairment during the quarter ended March
31, 2002. No impairment adjustment was deemed necessary by management. Had SFAS
No. 142 been in effect for the three and six months ended March 31, 2001,
EMCORE's net loss for those periods would have decreased by $103,000 or $0.00
per share and $837,000 or $0.02 per share, respectively.
Research and Development. EMCORE's quarterly research and development
expenses decreased 3% or $0.4 million from $12.0 million for the three months
ended March 31, 2001 to $11.6 million for the three months ended March 31, 2002.
For the six- month periods ended March 31, 2002 and 2001, research and
development expenses decreased 6% or $1.6 million from $25.2 million to $23.6
million. As a percentage of revenue, research and development expenses increased
from 30% for the six months ended March 31, 2001 to 56% for the six months ended
March 31, 2002 as a result of lower revenues. To maintain growth and to continue
to pursue market leadership in materials science technology, management expects
to continue to invest a significant amount of its resources in research and
development. In fiscal year 2002, management expects research and development
expenses to decrease approximately 20% on an annual basis, due to the deferral
or elimination of certain non-critical projects.
Impairment and Restructuring Charges. During the quarter ended March 31,
2002, EMCORE recorded pre-tax charges to income totaling $50.4 million, which
included restructuring and impairment charges of $35.9 million and other charges
of $14.5 million.
Restructuring Charges
During the quarter, EMCORE continued a restructuring program, consisting of
the appointment of a Chief Operating Officer, re-alignment of all engineering,
manufacturing and sales/marketing operations, as well as workforce reductions.
Included in the provision for restructuring and impairment charges are severance
charges of $1.1 million related to employee termination costs for approximately
120 employees. The workforce was reduced in both of EMCORE's business segments.
Since September 30, 2001, headcount has been reduced by approximately 167
employees, all of whom were entitled to termination benefits. Headcount as of
March 31, 2002 was 700 employees, which included 72 employees hired in
connection with the Tecstar acquisition. As of March 31, 2002, EMCORE paid out
approximately $200,000 of employee termination costs, with the remaining
$900,000 included in accounts payable. Management expects to complete its
restructuring plan by the end of the third fiscal quarter of 2002 with all cash
outlays for employee termination costs to have been completed by that time as
well. Management does not believe that the restructuring program will have a
material impact on revenues. Management expects that the actions described above
will result in an estimated annual reduction in employee-related expense and
cash flows of approximately $12.0 to 14.0 million.
Impairment Charges
EMCORE recorded $34.8 million of non-cash impairment charges related to its
fixed assets during the second quarter of 2002. Of this charge, $11.3 million
relates to certain manufacturing assets to be disposed of. Management has
committed to a plan to dispose of these assets, through either abandonment or
sale. Such decision was made based upon the continued downturn in the economic
environment that affects certain business units, which caused these
manufacturing assets to become idle. EMCORE expects to complete its disposal of
these assets by December 31, 2002. The carrying value of this equipment before
write-down to net realizable value was $11.5 million.
The remainder of the impairment charge relates principally to EMCORE's
electronic materials, electronic devices and fiber-optic business units. During
the past two years, EMCORE has completed new facilities for these businesses in
anticipation of expanding market prospects. Business forecasts updated in the
second quarter indicated significantly diminished prospects for these units,
primarily based on the downturn in the telecommunications industry. As a result
of these circumstances, management determined that the long-lived assets of
these operations should be assessed for impairment. Based on the outcome of this
assessment pursuant to SFAS 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of", EMCORE recorded a $23.5
million non-cash asset impairment charge to fixed assets in the second quarter
of 2002. The fair values of the assets were determined based upon a calculation
of the present value of the expected future cash flows to be generated by these
facilities.
Of the impairment charges recorded in the second quarter, $4.0 million
relates to EMCORE's systems business segment and $30.8 million relates to the
materials business segment.
Interest Income/Expense. For the quarter ended March 31, 2002, net interest
changed $2.5 million from net interest income of $0.8 million to net interest
expense of $1.7 million. For the six months ended March 31, 2002, net interest
changed $4.9 million from net interest income of $2.3 million to net interest
expense of $2.6 million. The decrease in interest income is a result of interest
expense being incurred from the 5% convertible subordinated notes due in May
2006 offset by lower interest rates on decreased investment amounts in
marketable securities.
Other Expense. In August 2001, EMCORE received common stock in Uniroyal
Technology Corporation (UTCI) which is classified as an available-for-sale
security with any unrealized gains and losses being recorded as a component of
comprehensive income in shareholders' equity. During the quarter ended December
31, 2001, management determined that an other-than-temporary impairment of the
investment existed. Accordingly, EMCORE took a charge of $13.3 million to
establish a new cost basis for the UTCI common stock, which was recorded as
other expense. Other income for the three months ended March 31, 2001 included a
net gain of $5.9 million related to the settlement of litigation.
Equity in Unconsolidated Affiliate. Because EMCORE does not have a
controlling economic and voting interest in its joint venture with General
Electric Lighting, EMCORE accounts for it under the equity method of accounting.
For the three and six months ended March 31, 2002, EMCORE incurred a net loss of
$0.9 million and $1.2 million, respectively, related to the GELcore joint
venture. For the three and six months ended March 31, 2001, EMCORE incurred a
net loss of $0.9 million and $2.2 million, respectively, related to the GELcore
joint venture. For the three and six months ended March 31, 2001, EMCORE also
incurred a net loss of $2.8 million and $5.6 million related to the Uniroyal
joint venture.
Income Taxes. As a result of its losses, EMCORE did not incur any income
tax expense in both the three and six-month periods ended March 31, 2002 and
2001.
16
Liquidity and Capital Resources
EMCORE has funded operations to date through sales of equity, bank
borrowings, subordinated debt and revenues from product sales. In May 2001,
EMCORE issued $175.0 million of 5% convertible subordinated notes due in May
2006. In March 2000, EMCORE completed an additional public offering and raised
approximately $127.5 million, net of issuance costs. In June 1999, EMCORE
completed a secondary public offering and raised approximately $52.0 million,
net of issuance costs. As of March 31, 2002, EMCORE had working capital of
approximately $133.2 million, including $96.1 million in cash, cash equivalents
and marketable securities.
Cash used for operating activities approximated $24.1 million during the
six months ended March 31, 2002 primarily because of EMCORE's net loss of $99.7
million offset by the non-cash charges related to impairment and restructuring
charges on fixed assets and marketable securities of $63.7 million and
depreciation and amortization charges of $9.9 million. For the six months ended
March 31, 2002, net cash provided by investment activities amounted to
approximately $0.5 million. EMCORE's net investment in marketable securities
deceased by $28.2 million which represents proceeds from sales of marketable
securities of $33.5 million offset by $5.3 million relating to the impairment
charge on UTCI stock. In March 2002, EMCORE completed the Tecstar acquisition at
a total cost of $25.1 million. Capital expenditures for the six months ended
totaled $5.7 million and in November 2001 EMCORE made a $2.0 million capital
contribution to GELcore. Net cash provided by financing activities for the six
months ended March 31, 2002 amounted to approximately $5.3 million of which $4.2
million related to the exercise of warrants.
In March 2001, EMCORE entered into a $20.0 million Amended and Restated
Revolving Loan and Security Agreement with a bank. There have been no borrowings
under this facility since inception and management had no plans to use this
facility. EMCORE canceled this facility in May 2002.
EMCORE believes that its current liquidity should be sufficient to meet its
cash needs for working capital through fiscal year 2002. However, if 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 will be severely
limited. Such a limitation could have a material adverse effect on EMCORE's
business, financial condition or operations.
Critical Accounting Policies
The preparation of financial statements requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates. The significant accounting policies which we believe are
the most critical to the understanding of reported financial results include the
following:
o Accounts Receivable - EMCORE maintains allowances for doubtful
accounts for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our
customers were to deteriorate, additional allowances may be required;
o Inventories - Inventories are stated at the lower of cost or market
with cost being determined using the first-in, first-out (FIFO)
method. EMCORE provides estimated inventory allowances for obsolete
and excess inventory based on assumptions about future demand and
market conditions. If future demand or market conditions are different
than those projected by management, adjustments to inventory
allowances may be required;
17
o Impairment of Long-lived Assets - The carrying amount of long-lived
assets are reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that suggest
impairment. EMCORE records impairment losses on long-lived assets when
events and circumstances indicate that the assets might be impaired
and the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amount. Management's estimates of
future cash flows are based upon EMCORE's current operating forecast,
which is believed to be reasonable. However, different assumptions
regarding such cash flows could materially affect these estimates;
The impact and any associated risks relating to these policies on our
business operations is discussed throughout Management's Discussion and Analysis
of Financial Condition and Results of Operations where such policies affect our
reported and expected financial results.
Recent Accounting Pronouncements
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill and
indefinite lived intangible assets from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations and indefinite lived intangible assets, will cease
upon adoption of this statement. Identifiable intangible assets will continue to
be amortized over their useful lives and reviewed for impairment in accordance
with SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of". EMCORE adopted SFAS No. 142 on October 1,
2001 and completed its transition test for impairment during the quarter ended
March 31, 2002. No impairment adjustment was deemed necessary by management. Had
SFAS No. 142 been in effect for the three and six months ended March 31, 2001,
EMCORE's net loss for those periods would have decreased by $103,000 or $0.00
per share and $837,000 or $0.02 per share, respectively.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations and costs associated with the retirement of tangible
long-lived assets. EMCORE is required to implement SFAS No. 143 in fiscal year
2003. EMCORE is currently evaluating the impact that the adoption of SFAS No.
143 will have on its results of operations and financial position.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 replaces SFAS No. 121
and establishes accounting and reporting standards for long-lived assets to be
disposed of by sale. This standard applies to all long-lived assets, including
discontinued operations. SFAS No. 144 requires that those assets be measured at
the lower of carrying amount or fair value less cost to sell. SFAS No. 144 also
broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity
that will be eliminated from the ongoing operations of the entity in a disposal
transaction. EMCORE is required to implement SFAS No. 144 in fiscal year 2003.
EMCORE is currently evaluating the impact that the adoption of SFAS No. 144 will
have on its results of operations and financial position.
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
The following matters were submitted to a vote of shareholders at the
Company's 2002 Annual Meeting of Shareholders held February 28, 2002:
a) Election of Directors:
Number of shares
For Withheld
Thomas J. Russell 32,022,673 1,051,034
Reuben F. Richards, Jr. 28,754,162 4,319,545
John J. Hogan, Jr. 32,019,919 1,053,788
b) Ratify selection of Deloitte & Touche LLP as independent auditors
of the Company for fiscal year ended September 30, 2002.
Number of shares: For: 32,962,113 Against: 99,131 Abstain: 12,463
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Transition Agreement and Release, dated as of March 29,
2002, between EMCORE Corporation and Paul Rotella.
10.2 Severance Agreement and Release, dated as of April 18,
2002, between EMCORE Corporation and Craig Farley.
(b) Reports on Form 8-K:
Form 8-K dated February 6, 2002; announcing that EMCORE entered
into an asset purchase agreement relating to the acquisition of
the Applied Solar Division of Tecstar, Inc. and Tecstar Power
Systems, Inc.
Form 8-K dated March 14, 2002; announcing that EMCORE acquired
the Applied Solar Division of Tecstar, Inc and Tecstar Power
Systems, Inc.
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 15, 2002 By: /s/Reuben F. Richards, Jr.
------------------------------------------
Reuben F. Richards, Jr.
President and Chief Executive Officer
Date: May 15, 2002 By: /s/Thomas G. Werthan
------------------------------------------
Thomas G. Werthan
Vice President and Chief Financial Officer
20
EXHIBIT 10.1
TRANSITION AGREEMENT AND RELEASE
Transition Agreement and Release ("Agreement") executed this ___ day
of _____, 2002, by and between Paul Rotella ("Employee") who resides at 1790
Morgan Lane, Collegeville, Pennsylvania 19426, and Emcore Corporation
("Emcore").
In consideration of the mutual promises described below and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties agree as follows:
1. Employee shall cease his current duties and responsibilities
effective March 18, 2002. From March 18, 2002 until April 1, 2002 ("Transition
Period"), Employee shall remain employed by Emcore on a full-time basis, shall
be paid at a rate of $6,730.77 for that two week period and shall report to
Larry Kapitan.
2. (a) Contingent upon Employee's continued employment in good
standing throughout the transition period, beginning on April 1, 2002, Emcore
shall pay to Employee his biweekly salary, less applicable withholdings and
deductions, for a seven month and two week period, which shall end on November
15, 2002. Such amount will be paid on regular paydays.
(b) Also contingent upon Employee's continued employment in good
standing on April 1, 2002, Emcore shall continue to pay the employer's portion
of the premiums associated with health insurance benefits for a period of seven
months and two weeks beginning on April 1, 2002 and ending on November 15, 2002.
Employee acknowledges that Emcore may continue to deduct from Employee's
biweekly salary an amount equal to the employee's portion of the premiums
associated with health insurance benefits for seven months and two weeks
following April 1, 2002.
(c) Additionally, Emcore shall reimburse Employee for up to $5,000.00
of actual costs of outplacement services, which shall be rendered at any time on
or prior to March 18, 2003, provided that Employee presents to Emcore receipts
for such services.
(d) Furthermore, incentive stock options previously granted to
Employee with a vesting date on or before March 18, 2003 shall vest upon the
Release Effective Date of this Agreement as defined in paragraph "4" below.
(e) Finally, Emcore shall pay to Employee an amount equal to the value
of up to 50% of his 2001 Bonus Potential (which has a cash value equal to
$43,750.00) in the following manner: upon the Release Effective Date of this
Agreement as defined in paragraph "4" below, Emcore shall vest Employee's
incentive stock options that were granted on December 1, 1998 and October 3,
2001 to the extent that those incentive stock options would have vested on or
before March 18, 2004 ("Accelerated Options"). On June 13, 2002, Emcore will pay
to Employee a cash amount equal to $43,750.00, less the cash proceeds that
Employee would have received if he had effected a cashless exercise and sale of
the Accelerated Options on June 13, 2002. For purposes of the preceding
calculation, the cashless exercise and sale will deemed to have been effected at
the closing price of the stock on June 13, 2002. If however, the Employee would
have received less than $0 upon effecting a cashless exercise and sale, the
Employee will receive a cash payment from Emcore in the amount of $43,750.
3. Employee agrees and acknowledges that the payments and benefits
provided for in paragraph "2" exceed any benefits to which he would otherwise be
entitled under any policy, plan, and/or procedure of Emcore or any agreement
with Emcore.
4. Employee shall have twenty-one (21) days from the date of his
receipt of this Agreement to consider the terms and conditions of the Agreement.
Employee may accept this Agreement by executing it before a notary and returning
it to Ms. Maureen Cymbaluk, Human Resources Director, Emcore Corporation, 145
Belmont Drive, Somerset, New Jersey 08873, no later than 5:00 p.m. on the
twenty-first (21st) day after Employee's receipt of this Agreement ("Agreement
and Release Return Date"). Thereafter, Employee will have seven (7) days to
revoke this Agreement by stating his desire to do so in writing to Ms. Cymbaluk
at the address listed above, and delivering it to Ms. Cymbaluk no later than
5:00 p.m. on the seventh (7th) day following the date Employee signs this
Agreement. The effective date of this Agreement shall be the (8th) day following
Employee's signing of this Agreement (the "Release Effective Date"), provided
the Employee does not revoke the Agreement during the revocation period. In the
event Employee does not accept this Agreement as set forth above, or in the
event Employee revokes this Agreement during the revocation period, this
Agreement, including but not limited to the obligation of Emcore and its
subsidiaries and affiliates to provide the payments and benefits referred to in
paragraph "2" above, shall automatically be deemed null and void.
5. (a) In consideration of the payments and benefits referred to in
paragraph "2," Employee for himself and for his heirs, executors, and assigns
(hereinafter collectively referred to as the "Releasors"), forever releases and
discharges Emcore and any and all of its parent corporations, subsidiaries,
divisions, affiliated entities, predecessors, successors and assigns, and any
and all of its or their employee benefit and/or pension plans or funds, and any
of its or their past or present officers, directors, stockholders, agents,
trustees, administrators, employees or assigns (whether acting as agents for
such entities or in their individual capacities) (hereinafter collectively
referred to as "Releasees"), from any and all claims, demands, causes of action,
fees and liabilities of any kind whatsoever (based upon any legal or equitable
theory, whether contractual, common-law, statutory, decisional, federal, state,
local or otherwise), whether known or unknown, which Releasors ever had, now
have or may have against Releasees by reason of any actual or alleged act,
omission, transaction, practice, conduct, occurrence, or other matter from the
beginning of the world up to and including the Release Effective Date.
(b) Without limiting the generality of the foregoing subparagraph
"(a)", this Agreement is intended to and shall release the Releasees from any
and all claims arising out of Employee's employment with Releasees and/or the
2
termination of Employee's employment, including but not limited to any claim(s)
under or arising out of (i) the Age Discrimination in Employment Act, as
amended, or the Older Workers Benefit Protection Act; (ii) Title VII of the
Civil Rights Act of 1964, as amended; (iii) the Americans with Disabilities Act,
as amended; (iv) the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (excluding claims for accrued, vested benefits under any employee
benefit plan of Emcore in accordance with the terms of such plan and applicable
law); (v) the New Mexico Human Rights Act; (vi) the California Fair Employment
and Housing Act; (vii) the California Equal Pay Law; (viii) the California
Sexual Orientation Bias Law; (ix) the California Labor and Government Codes; (x)
the California Unruh Act; (xi) the New Jersey Law Against Discrimination, the
New Jersey Equal Pay Act, the New Jersey Family Leave Act; (xii) the
Pennsylvania Human Rights Act; (xiii) alleged discrimination or retaliation in
employment (whether based on federal, state or local law, statutory or
decisional); (xiv) the terms and conditions of Employee's employment with
Emcore, the termination of such employment, and/or any of the events relating
directly or indirectly to or surrounding that termination; and (xv) any law
(statutory or decisional) providing for attorneys' fees, costs, disbursements
and/or the like.
(c) As a further consideration and inducement for this Agreement, to
the extent permitted by law, Employee hereby waives and releases any and all
rights under Section 1542 of the California Civil Code or any analogous state,
local, or federal law, statute, rule, order or regulation that Employee has or
may have with respect to the Releasees. California Civil Code Section 1542 reads
as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Employee hereby expressly agrees that this Agreement shall extend and apply to
all unknown, unsuspected and unanticipated injuries and damages, as well as any
that are now disclosed, arising prior to Employee's execution of this Agreement.
6. (a) Employee agrees that he has not and will not engage in any
conduct that is injurious to Emcore's or Releasee's reputation or interest,
including but not limited to (i) divulging, communicating, or in any way making
use of any confidential or proprietary information acquired in the performance
of his duties at Emcore; and (ii) publicly disparaging (or inducing or
encouraging others to publicly disparage) Emcore or Releasees.
3
(b) Employee agrees to return to Emcore any and all originals and
copies of documents, materials, records or other items in his possession or
control belonging to Emcore or containing proprietary information relating to
Emcore.
(c) Employee acknowledges that the terms of the Confidentiality
Agreement between Employee and Emcore dated October 21, 1996, attached hereto as
Exhibit "A," are incorporated herein by reference, and Employee agrees and
acknowledges that he is bound by its terms.
(d) Employee acknowledges and agrees that he will continue to comply
with Emcore's policy against insider trading for a period of three months
beginning on April 1, 2002, and agrees that he shall not buy or sell Emcore
stock during that period unless it is within a window period as set forth in
Emcore's Securities Trading Policy which is attached hereto as Exhibit "B."
7. (a) Employee will cooperate with Emcore and/or its subsidiaries and
affiliates and its/their counsel in connection with any investigation,
administrative proceeding or litigation relating to any matter in which Employee
was involved or of which Employee has knowledge.
(b) Employee agrees that, in the event he is subpoenaed by any person
or entity (including, but not limited to, any government agency) to give
testimony (in a deposition, court proceeding or otherwise) which in any way
relates to Employee's employment with Releasees, he will give prompt notice of
such request to Maureen Cymbaluk, Emcore's Human Resources Director, or her
successor, and will make no disclosure until Emcore has had a reasonable
opportunity to contest the right of the requesting person or entity to such
disclosure.
8. The terms and conditions of this Agreement are and shall be deemed
to be confidential, and shall not be disclosed by Employee to any person or
entity without the prior written consent of Maureen Cymbaluk, Emcore's Human
Resources Director, except if required by law and to Employee's accountants,
attorneys or spouse, provided that they agree to maintain the confidentiality of
this Agreement. Employee further represents that he has not disclosed the terms
and conditions of this Agreement to anyone other than his attorneys, accountants
and spouse.
9. The making of this Agreement is not intended, and shall not be
construed, as an admission that Releasees have violated any federal, state or
local law (statutory or decisional), ordinance or regulation, breached any
contract, or committed any wrong whatsoever against Employee.
10. The parties agree that this Agreement may not be used as evidence
in a subsequent proceeding except in a proceeding to enforce the terms of this
Agreement.
4
11. Employee acknowledges that: (a) he has carefully read this
Agreement in its entirety; (b) he has had an opportunity to consider fully the
terms of this Agreement; (c) he has been advised by Emcore in writing to consult
with an attorney of his choosing in connection with this Agreement; (d) he fully
understands the significance of all of the terms and conditions of this
Agreement and he has discussed it with his independent legal counsel, or has had
a reasonable opportunity to do so; (e) he has had answered to his satisfaction
any questions he has asked with regard to the meaning and significance of any of
the provisions of this Agreement; and (f) he is signing this Agreement
voluntarily and of his own free will and assents to all the terms and condition
contained herein.
12. This Agreement is binding upon, and shall inure to the benefit of,
the parties and their respective heirs, executors, administrators, successors
and assigns.
13. If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, void, or unenforceable, such provision
shall be of no force and effect. However, the illegality or unenforceability of
such provision shall have no effect upon, and shall not impair the
enforceability of, any other provision of this Agreement; provided, however,
that, upon any finding by a court of competent jurisdiction that the release and
covenants provided for by paragraph "5" of this Agreement is illegal, void, or
unenforceable, Employee agrees to execute a release, waiver and/or covenant that
is legal and enforceable. Finally, any breach of the terms of paragraphs "6,"
"7" and/or "8" shall constitute a material breach of this Agreement as to which
Emcore may seek appropriate relief in a court of competent jurisdiction.
14. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New Jersey, without giving effect to
the conflict of laws provisions thereof.
15. This Agreement (including the Exhibits attached hereto)
constitutes the complete understanding between the parties and supersedes any
and all agreements, understandings, and discussions, whether written or oral,
between the parties. No other promises or agreements shall be binding unless in
writing and signed after the Release Effective Date by the parties to be bound
thereby.
Dated: ____________________ ____________________________
Paul Rotella
EMCORE Corporation
By:_____________________________ Date:_______________________
Maureen Cymbaluk
Human Resources Director
5
EXHIBIT 10.2
AGREEMENT AND RELEASE
Agreement and Release ("Agreement") executed this ___ day of April,
2002, by and between Craig Farley ("Employee") who resides at 1 Kittansett Ct.,
Skillman, New Jersey 08558, and Emcore Corporation ("Emcore").
Whereas, on June 5, 2001, Employee borrowed $100,000.00 ("Loan
Amount") from Emcore pursuant to a Promissory Note dated June 5, 2001 attached
hereto as Exhibit "A," which Loan Amount Employee is required to repay to
Emcore, with 5.5% interest per annum, on the earlier of (i) the conclusion of
the window period following June 2001 in which Borrower is permitted to sell
stock and (ii) March 1, 2002;
NOW THEREFORE, in consideration of the mutual promises described below
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties, the parties agree as follows:
1. Employee's employment with Emcore shall be terminated effective
March 29, 2002.
2. (a) Upon the Release Effective Date of this Agreement, as defined
in paragraph "4" below, Emcore shall forgive the Loan Amount plus accrued
interest, which is an amount that is agreed to be $105,026.
(b) In addition, Emcore shall pay Employee the sum of $61,650.92 which
the parties agree is a reasonable estimate of the additional tax liabilities,
less any deductions or exclusions Employee may be entitled to claim, that are
payable as a result of forgiveness of the Loan Amount plus accrued interest.
(c) In addition, Emcore shall reimburse Employee for up to $5,000.00
of actual costs of outplacement services, which shall be rendered at any time on
or prior to March 18, 2003, provided that Employee presents to Emcore receipts
for such services and evidence that such expenses have been paid.
(d) In addition, for a period of six months from March 29, 2002
through September 30, 2002, Emcore shall pay the insurance premium to continue
Employee's (and the Employee's covered spouse and eligible dependents) health
and dental insurance, if any, in accordance with COBRA. Employee shall pay all
co-payments and deductibles in the same manner as during his employment with
Emcore. If Employee accepts other employment which affords him health and/or
dental insurance, Emcore's obligation for payment of Employee's COBRA health
and/or dental insurance premiums shall cease upon the date he is eligible to
enroll for such new health and/or dental insurance coverage. In the event that
Employee chooses to continue his health and/or dental insurance in accordance
with COBRA after September 30, 2002, or after becoming eligible to enroll for
new health and/or dental insurance coverage with a subsequent employer, he shall
be responsible for all future COBRA health and/or dental insurance premiums or
payments. Employee shall immediately notify the Human Resources Department at
Emcore upon his acceptance of other employment and his eligibility date to
enroll for new health and/or dental insurance coverage. Employee agrees that he
is not entitled to the payment of his COBRA premiums recited in this paragraph
under any policy, contract, custom or usage of Emcore.
(e) In addition, Employee shall be permitted to retain his cell phone
and laptop computer; provided, however, that Employee shall, within ten (10)
days from the date hereof, arrange a mutually convenient to return his laptop to
Emcore so that all proprietary information and licensed software may be removed.
(f) In addition, should Employee relocate to Texas within six months
from March 29, 2002, Emcore shall reimburse Employee for the following moving
expenses upon receipt of invoices and proof that such expenses have been paid by
Employee: (i) the cost of packing and moving Employee's personal effects and
(ii) air, auto or rail travel for Employee and Employee's immediate family to
Texas.
(g) Finally, Emcore shall reimburse Employee for up to $1,000.00 of
actual costs of legal services in connection with the review and negotiation of
this Agreement, which shall be rendered at any time on or prior to April 22,
2003, provided that Employee presents to Emcore receipts for such services and
evidence that such expenses have been paid.
3. Employee agrees and acknowledges that the payments and benefits
provided for in paragraph "2" exceed any benefits to which he would otherwise be
entitled under any policy, plan, and/or procedure of Emcore or any agreement
with Emcore. Employee acknowledges and agrees that any monetary or other
benefits which are, were or may have been claimed to be due to Employee and
which he may have earned or accrued, or to which he may have been entitled, have
been paid or such payments have been released, waived or settled by Employee
pursuant to this Agreement.
4. Employee shall have twenty-one (21) days from the date of his
receipt of this Agreement to consider the terms and conditions of the Agreement.
Employee may accept this Agreement by executing it before a notary and returning
it to Ms. Maureen Cymbaluk, Human Resources Director, Emcore Corporation, 145
Belmont Drive, Somerset, New Jersey 08873, no later than 5:00 p.m. on the
twenty-first (21st) day after Employee's receipt of this Agreement ("Agreement
and Release Return Date"). Thereafter, Employee will have seven (7) days to
revoke this Agreement by stating his desire to do so in writing to Ms. Cymbaluk
at the address listed above, and delivering it to Ms. Cymbaluk no later than
5:00 p.m. on the seventh (7th) day following the date Employee signs this
Agreement. The effective date of this Agreement shall be the (8th) day following
Employee's signing of this Agreement (the "Release Effective Date"), provided
the Employee does not revoke the Agreement during the revocation period. In the
event Employee does not accept this Agreement as set forth above, or in the
event Employee revokes this Agreement during the revocation period, this
2
Agreement, including but not limited to the obligation of Emcore and its
subsidiaries and affiliates to provide the payments and benefits referred to in
paragraph "2" above, shall automatically be deemed null and void.
5. (a) In consideration of the payments and benefits referred to in
paragraph "2," Employee for himself and for his heirs, executors, and assigns
(hereinafter collectively referred to as the "Releasors"), forever releases and
discharges Emcore and any and all of its parent corporations, subsidiaries,
divisions, affiliated entities, predecessors, successors and assigns, and any
and all of its or their employee benefit and/or pension plans or funds, and any
of its or their past or present officers, directors, stockholders, agents,
trustees, administrators, employees or assigns (whether acting as agents for
such entities or in their individual capacities) (hereinafter collectively
referred to as "Releasees"), from any and all claims, demands, causes of action,
fees and liabilities of any kind whatsoever (based upon any legal or equitable
theory, whether contractual, common-law, statutory, decisional, federal, state,
local or otherwise) ("Claims"), whether known or unknown, which Releasors ever
had, now have or may have against Releasees by reason of any actual or alleged
act, omission, transaction, practice, conduct, occurrence, or other matter from
the beginning of the world up to and including the Release Effective Date.
(b) Without limiting the generality of the foregoing subparagraph
"(a)", this Agreement is intended to and shall release the Releasees from any
and all claims arising out of Employee's employment with Releasees and/or the
termination of Employee's employment, including but not limited to any claim(s)
under or arising out of (i) the Age Discrimination in Employment Act, as
amended, or the Older Workers Benefit Protection Act; (ii) Title VII of the
Civil Rights Act of 1964, as amended; (iii) the Americans with Disabilities Act,
as amended; (iv) the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (excluding claims for accrued, vested benefits under any employee
benefit plan of Emcore in accordance with the terms of such plan and applicable
law); (v) the New Mexico Human Rights Act; (vi) the California Fair Employment
and Housing Act; (vii) the California Equal Pay Law; (viii) the California
Sexual Orientation Bias Law; (ix) the California Labor and Government Codes; (x)
the California Unruh Act; (xi) the New Jersey Law Against Discrimination, the
New Jersey Equal Pay Act, the New Jersey Family Leave Act; (xii) alleged
discrimination or retaliation in employment (whether based on federal, state or
local law, statutory or decisional); (xiii) the terms and conditions of
Employee's employment with Emcore, the termination of such employment, and/or
any of the events relating directly or indirectly to or surrounding that
termination; and (xiv) any law (statutory or decisional) providing for
attorneys' fees, costs, disbursements and/or the like.
(c) Emcore, fully releases and discharges Employee from any and all
Claims which Emcore ever had, now have or may have against Employee for any acts
or omissions by Employee occurring prior to March 29, 2002 in connection with
his employment by Emcore. Notwithstanding the foregoing, Employee and Emcore
agree that the release provisions of this paragraph 5(c) shall not apply to any
Claims that Emcore may have against Employee for embezzlement, or any other
3
fraudulent acts that Employee may have committed against, or while employed by,
Emcore.
(d) As a further consideration and inducement for this Agreement, to
the extent permitted by law, Employee and Emcore hereby mutually waive and
release any and all rights under Section 1542 of the California Civil Code or
any analogous state, local, or federal law, statute, rule, order or regulation
that Employee or Emcore has or may have with respect to each other. California
Civil Code Section 1542 reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.
Employee hereby expressly agrees that this Agreement shall extend and apply to
all unknown, unsuspected and unanticipated injuries and damages, as well as any
that are now disclosed, arising prior to Employee's execution of this Agreement.
With the exception of those causes of action specifically reserved by Emcore
under paragraph 5(c) above, Emcore hereby expressly agrees that this Agreement
shall extend and apply to all unknown, unsuspected and unanticipated injuries
and damages, as well as any that are now disclosed, arising prior to Employee's
execution of this Agreement.
6. (a) Employee agrees that he has not and will not engage in any
conduct that is injurious to Emcore's or Releasee's reputation or interest,
including but not limited to (i) divulging, communicating, or in any way making
use of any confidential or proprietary information acquired in the performance
of his duties at Emcore; and (ii) publicly disparaging (or inducing or
encouraging others to publicly disparage) Emcore or Releasees. Emcore agrees
that neither it, nor anyone acting on its behalf shall make any disparaging
statement about Employee.
(b) Employee agrees to return to Emcore any and all originals and
copies of documents, materials, records or other items in his possession or
control belonging to Emcore or containing proprietary information relating to
Emcore.
(c) Employee acknowledges that the terms of the Confidentiality
Agreement between Employee and Emcore dated June 15, 1998, attached hereto as
Exhibit "B," are incorporated herein by reference, and Employee agrees and
acknowledges that he is bound by its terms. With respect to Employee's
non-competition covenant, "Competing Business" shall hereafter be limited to
businesses engaged in the design, development, manufacture or sale of (i)
electronic materials (such as PHEMTs, EMODEs, HBTs, GaN FETs, etc.) manufactured
4
by MOCVD, (ii) VCSELs, (iii) photodiodes to be used in ROSAs, TOSAs, arrays and
transponders, or (iv) parallel optic transceivers or transponders based on VCSEL
technology. Notwithstanding the foregoing, Employee shall be permitted to engage
in the design, development, manufacture and sale of high-speed, unpackaged
photodiode singlet chips for use in ROSAs and transponders for intermediate and
long-reach applications (i.e., in excess of 40 km); provided that Employee
grants to Emcore or causes the entity for which he works to grant to Emcore the
first opportunity to bring such product to market on terms to be agreed upon,
but which shall include most favored nation pricing for Emcore.
(d) Employee acknowledges and agrees that he will continue to comply
with Emcore's policy against insider trading for a period of three months
beginning on March 18, 2002, and agrees that he shall not buy or sell Emcore
stock during that period unless it is within a window period as set forth in
Emcore's Securities Trading Policy which is attached hereto as Exhibit "C."
(e) Employee agrees that for a period of twelve (12) months following
the Release Effective Date, Employee will not solicit, attempt to solicit,
recommend to a third-party that such third-party solicit, or assist a
third-party in soliciting any business in competition with the business of
Emcore from any of Emcore's customers or suppliers.
(f) Employee agrees that for a period of twelve (12) months following
the Release Effective Date, employee will not solicit, attempt to solicit,
recommend to a third-party that such third-party solicit, or assist a
third-party in soliciting any employee of Emcore for the purpose of encouraging,
enticing, or causing said employee to terminate employment with Emcore.
(g) Should Employee breach any of the covenants contained in this
section, Emcore may discontinue any payments which may be due under this
Agreement, in addition to any other remedies available to it, including
injunctive relief.
7. (a) Employee will cooperate with Emcore and/or its subsidiaries and
affiliates and its/their counsel in connection with any investigation,
administrative proceeding or litigation relating to any matter in which Employee
was involved or of which Employee has knowledge. Emcore shall promptly reimburse
Employee for all reasonable travel related expenses (including a reasonable per
diem rate if Employee is self-employed) incurred by him in connection with such
cooperation and assistance.
(b) Employee agrees that, in the event he is subpoenaed by any person
or entity (including, but not limited to, any government agency) to give
testimony (in a deposition, court proceeding or otherwise) which in any way
relates to Employee's employment with Releasees, he will give prompt notice of
such request to Maureen Cymbaluk, Emcore's Human Resources Director, or her
successor, and will make no disclosure until Emcore has had a reasonable
opportunity to contest the right of the requesting person or entity to such
disclosure.
5
8. The terms and conditions of this Agreement are and shall be deemed
to be confidential, and shall not be disclosed by Employee to any person or
entity without the prior written consent of Maureen Cymbaluk, Emcore's Human
Resources Director, except if required by law and to Employee's accountants,
attorneys or spouse, provided that they agree to maintain the confidentiality of
this Agreement. Employee further represents that he has not disclosed the terms
and conditions of this Agreement to anyone other than his attorneys, accountants
and spouse.
9. Upon a reference request for Employee, Emcore will respond with
dates of employment, positions held, and compensation. Employee agrees to direct
all reference requests to Maureen Cymbaluk, Emcore's Human Resources Director.
Except as may otherwise be required by law, regulations applicable to public
companies or legal process, Emcore will not provide any third party any
information concerning the Employee other than as provided in the first sentence
of this paragraph without the express written permission of Employee.
10. The making of this Agreement is not intended, and shall not be
construed, as an admission that Releasees have violated any federal, state or
local law (statutory or decisional), ordinance or regulation, breached any
contract, or committed any wrong whatsoever against Employee.
11. The parties agree that this Agreement may not be used as evidence
in a subsequent proceeding except in a proceeding to enforce the terms of this
Agreement.
12. Employee acknowledges that: (a) he has carefully read this
Agreement in its entirety; (b) he has had an opportunity to consider fully the
terms of this Agreement; (c) he has been advised by Emcore in writing to consult
with an attorney of his choosing in connection with this Agreement; (d) he fully
understands the significance of all of the terms and conditions of this
Agreement and he has discussed it with his independent legal counsel, or has had
a reasonable opportunity to do so; (e) he has had answered to his satisfaction
any questions he has asked with regard to the meaning and significance of any of
the provisions of this Agreement; and (f) he is signing this Agreement
voluntarily and of his own free will and assents to all the terms and condition
contained herein.
13. This Agreement is binding upon, and shall inure to the benefit of,
the parties and their respective heirs, executors, administrators, successors
and assigns.
14. If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, void, or unenforceable, such provision
shall be of no force and effect. However, the illegality or unenforceability of
such provision shall have no effect upon, and shall not impair the
enforceability of, any other provision of this Agreement; provided, however,
6
that, upon any finding by a court of competent jurisdiction that the release and
covenants provided for by paragraph "5" of this Agreement is illegal, void, or
unenforceable, Employee agrees to execute a release, waiver and/or covenant that
is legal and enforceable. Finally, any breach of the terms of paragraphs "6,"
"7" and/or "8" shall constitute a material breach of this Agreement as to which
Emcore may seek appropriate relief in a court of competent jurisdiction.
15. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New Jersey, without giving effect to
the conflict of laws provisions thereof.
16. This Agreement (including the Exhibits attached hereto)
constitutes the complete understanding between the parties and supersedes any
and all agreements, understandings, and discussions, whether written or oral,
between the parties. No other promises or agreements shall be binding unless in
writing and signed after the Release Effective Date by the parties to be bound
thereby.
Dated: ____________________ ____________________________
Craig Farley
EMCORE Corporation
By:_____________________________ Date:_______________________
Maureen Cymbaluk
Human Resources Director