form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO
SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended: December
31, 2007
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.)
10420 Research Road
SE,
Albuquerque, NM 87123
(Address
of principal executive offices)
(505)
332-5000
(Registrant's
telephone number)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
¨ Large
accelerated filer
|
x Accelerated
filer
|
¨ Non-accelerated
filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of shares outstanding of the registrant’s no par value common stock as of
February 4, 2008 was 57,028,010.
FORM
10-Q
For
the Quarterly Period Ended December 31, 2007
TABLE
OF CONTENTS
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PAGE
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PART
I. FINANCIAL INFORMATION
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3
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20
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32
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33
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PART
II. OTHER INFORMATION
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34
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36
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36
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36
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36
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36
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37
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38
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PART I. FINANCIAL
INFORMATION
ITEM
1. FINANCIAL STATEMENTS
EMCORE
CORPORATION
Condensed
Consolidated Statements of Operations
For
the three months ended December 31, 2007 and 2006
(in
thousands, except per share data)
(unaudited)
|
|
Three
Months Ended
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Product
revenue
|
|
$ |
44,501 |
|
|
$ |
35,626 |
|
Service
revenue
|
|
|
2,386 |
|
|
|
2,970 |
|
Total
revenue
|
|
|
46,887 |
|
|
|
38,596 |
|
|
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
|
35,482 |
|
|
|
30,941 |
|
Cost
of service revenue
|
|
|
1,532 |
|
|
|
2,159 |
|
Total
cost of revenue
|
|
|
37,014 |
|
|
|
33,100 |
|
Gross
profit
|
|
|
9,873 |
|
|
|
5,496 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
16,237 |
|
|
|
12,539 |
|
Research
and development
|
|
|
7,190 |
|
|
|
6,611 |
|
Total
operating expenses
|
|
|
23,427 |
|
|
|
19,150 |
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(13,554
|
) |
|
|
(13,654
|
) |
|
|
|
|
|
|
|
|
|
Other
expenses (income):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
(427
|
) |
|
|
(1,651
|
) |
Interest
expense
|
|
|
1,205 |
|
|
|
1,262 |
|
Loss
on disposal of equipment
|
|
|
86 |
|
|
|
- |
|
Foreign
exchange gain
|
|
|
(13
|
) |
|
|
- |
|
Total
other expenses (income)
|
|
|
851 |
|
|
|
(389
|
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(14,405 |
) |
|
$ |
(13,265 |
) |
|
|
|
|
|
|
|
|
|
Per
share data
|
|
|
|
|
|
|
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|
Net
loss per basic and diluted share
|
|
$ |
(0.28 |
) |
|
$ |
(0.26 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average
number of basic and diluted shares outstanding
|
|
|
52,232 |
|
|
|
50,875 |
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Balance Sheets
As
of December 31, 2007 and September 30, 2007
(in
thousands)
(unaudited)
|
|
As
of
December
31,
2007
|
|
As
of
September
30,
2007
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
|
|
|
|
|
|
Marketable
securities
|
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|
|
|
|
|
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Accounts
receivable, net of allowance of $798 and $802,
respectively
|
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|
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Receivables,
related party
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Inventory,
net
|
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|
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Income
tax receivable
|
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|
|
|
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|
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|
Prepaid
expenses and other current assets
|
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|
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Total
current assets
|
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|
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Property,
plant and equipment, net
|
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|
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|
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Goodwill
|
|
|
|
|
|
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Other
intangible assets, net
|
|
|
|
|
|
|
|
|
Investments
in unconsolidated affiliates
|
|
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|
|
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Other
non-current assets, net
|
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|
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|
|
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|
|
|
|
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Total
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES
and SHAREHOLDERS’ EQUITY
|
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Accounts
payable
|
|
|
|
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|
Accrued
expenses and other current liabilities
|
|
|
|
|
|
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|
|
Income
tax payable
|
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|
|
|
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Total
current liabilities
|
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Convertible
subordinated notes
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|
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|
|
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|
|
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|
Total
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
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Commitments
and contingencies (Note 11)
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|
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|
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|
|
|
|
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|
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Preferred
stock, $0.0001 par, 5,882 shares authorized, no shares
outstanding
|
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|
|
|
|
|
|
|
Common
stock, no par value, 100,000 shares authorized, 52,351 shares issued and
52,192 shares outstanding as of December 31, 2007; 51,208 shares issued
and 51,049 shares outstanding as of September 30, 2007
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
|
|
|
|
|
|
|
Treasury
stock, at cost; 159 shares
|
|
|
|
|
|
|
|
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Total
shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Total
liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
CORPORATION
Condensed
Consolidated Statements of Cash Flows
For
the three months ended December 31, 2007 and 2006
(in
thousands)
(unaudited)
|
|
Three
Months Ended
December
31,
|
|
Cash
flows from operating activities:
|
|
2007
|
|
|
2006
|
|
Net
loss
|
|
$ |
(14,405 |
) |
|
$ |
(13,265 |
) |
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
5,448 |
|
|
|
2,326 |
|
Depreciation
and amortization expense
|
|
|
2,465 |
|
|
|
2,515 |
|
Accretion
of loss from convertible subordinated notes exchange offer
|
|
|
31 |
|
|
|
49 |
|
Provision
for doubtful accounts
|
|
|
42 |
|
|
|
244 |
|
Compensatory
stock issuances
|
|
|
209 |
|
|
|
153 |
|
Loss
from disposal of property, plant and equipment
|
|
|
86 |
|
|
|
- |
|
Reduction
of note receivable due for services received
|
|
|
130 |
|
|
|
130 |
|
Total
non-cash adjustments
|
|
|
8,411 |
|
|
|
5,417 |
|
Changes
in operating assets and liabilities, net of effect of
acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(3,173
|
) |
|
|
(10,219
|
) |
Inventory
|
|
|
(419
|
) |
|
|
(477
|
) |
Prepaid
expenses and other current assets
|
|
|
249 |
|
|
|
543 |
|
Other
assets
|
|
|
(1,020
|
) |
|
|
(203
|
) |
Accounts
payable
|
|
|
1,625 |
|
|
|
(1,997
|
) |
Accrued
expenses and other current liabilities
|
|
|
(2,267
|
) |
|
|
(2,939
|
) |
Total
change in operating assets and liabilities
|
|
|
(5,005
|
) |
|
|
(15,292
|
) |
|
|
|
|
|
|
|
|
|
Net
cash used for operating activities
|
|
|
(10,999
|
) |
|
|
(23,140
|
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of plant and equipment
|
|
|
(4,985
|
) |
|
|
(1,164
|
) |
Investment
in unconsolidated affiliate
|
|
|
- |
|
|
|
(13,734
|
) |
Proceeds
from employee notes receivable
|
|
|
- |
|
|
|
121 |
|
Proceeds
from notes receivable
|
|
|
- |
|
|
|
750 |
|
Funding
of restricted cash
|
|
|
(269
|
) |
|
|
(224
|
) |
Purchase
of marketable securities
|
|
|
(7,000
|
) |
|
|
(10,875
|
) |
Sale
of marketable securities
|
|
|
20,931 |
|
|
|
41,600 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities
|
|
|
8,677 |
|
|
|
16,474 |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Payments
on capital lease obligations
|
|
|
(2
|
) |
|
|
(17
|
) |
Proceeds
from exercise of stock options
|
|
|
4,776 |
|
|
|
256 |
|
Proceeds
from employee stock purchase plan
|
|
|
- |
|
|
|
202 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
4,774 |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency
|
|
|
7 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,459 |
|
|
|
(6,225
|
) |
Cash
and cash equivalents, beginning of period
|
|
|
12,151 |
|
|
|
22,592 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
14,610 |
|
|
$ |
16,367 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
2,349 |
|
|
$ |
2,421 |
|
Cash
paid for income taxes
|
|
$ |
- |
|
|
$ |
1,701 |
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
EMCORE
Corporation
Notes
to Condensed Consolidated Financial Statements
(unaudited)
NOTE
1. Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements include the
accounts of EMCORE Corporation and its subsidiaries (the “Company” or “EMCORE”).
All material intercompany accounts and transactions have been eliminated in
consolidation.
These
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim information,
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission (“SEC”). Accordingly, they do not include all
of the information and footnotes required by U.S. GAAP for annual financial
statements. In the opinion of management, all information considered necessary
for a fair presentation of the financial statements has been included. Operating
results for interim periods are not necessarily indicative of results that may
be expected for an entire fiscal year. The condensed consolidated balance sheet
as of September 30, 2007 has been derived from the audited consolidated
financial statements as of such date. For a more complete understanding of
EMCORE’s financial position, operating results, risk factors and other matters,
please refer to EMCORE's Annual Report on Form 10-K for the fiscal year ended
September 30, 2007.
The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management of the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Management develops estimates based on historical experience and on various
assumptions about the future that are believed to be reasonable based on the
best information available. EMCORE’s reported financial position or results of
operations may be materially different under changed conditions or when using
different estimates and assumptions. In the event that estimates or assumptions
prove to differ from actual results, adjustments are made in subsequent periods
to reflect more current information. Certain reclassifications have
occurred to the quarter ended December 31, 2006 to conform to the quarter ended
December 31, 2007. The reclassification consists of a reduction to
revenue of $78,000, a reduction to cost of goods sold of $64,000, and a
reduction to research and development expense of $14,000 from the amounts
previously recognized in first quarter of fiscal 2007. This
reclassification relates to a cost-sharing R&D arrangement, under which the
actual costs of performance are divided between the U.S. Government and EMCORE,
no revenue is recorded and the Company’s R&D expense is reduced for the
amount of the cost-sharing receipts.
For the
quarter ended December 31, 2007, options representing 5,096,185 shares of common
stock were excluded from the diluted earnings per share calculations. For the
quarter ended December 31, 2006, options representing 3,166,199 shares of common
stock were excluded from the diluted earnings per share calculations. These
options, along with the Company’s convertible subordinated notes, were not
included in the computation of diluted earnings per share in the periods as the
Company incurred a net loss for the period and any effect would have been
anti-dilutive.
NOTE
2. Recent Accounting Pronouncements
FIN 48 - In June
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48 (“FIN 48”), Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
109. FIN 48 clarifies the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. FIN 48 applies to all tax
positions related to income taxes subject to SFAS 109, Accounting for Income Taxes.
Differences between the amounts recognized in the statements of financial
position prior to the adoption of FIN 48 and the amounts reported after adoption
should be accounted for as a cumulative-effect adjustment recorded to the
beginning balance of retained earnings. FIN 48 was adopted by the Company on
October 1, 2007. See Note 13, “Income Taxes” of this Form 10-Q for
additional information, including the effects of adoption on the Company’s
Condensed Consolidated Financial Statements.
SFAS 157 - In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) 157, Fair Value
Measurements, which defines fair value, provides a framework for
measuring fair value, and expands the disclosures required for fair value
measurements. SFAS 157 applies to other accounting pronouncements that require
fair value measurements; it does not require any new fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007
and is required to be adopted by the Company on October 1, 2008. Although the
Company will continue to evaluate the application of SFAS 157, management does
not currently believe adoption of this pronouncement will have a material impact
on the Company’s results of operations or financial position.
SFAS 159 - In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115. The fair value option permits entities to choose to measure eligible
financial instruments at fair value at specified election dates. The entity will
report unrealized gains and losses on the items on which it has elected the fair
value option in earnings. SFAS 159 is effective for fiscal years beginning after
November 15, 2007 and is required to be adopted by the Company on October 1,
2008. The Company is currently evaluating the effect of adopting SFAS 159, but
does not expect it to have a material impact on its consolidated results of
operations or financial condition.
SFAS 141(R) - In
December 2007, the FASB issued SFAS 141(R), Business Combinations. This
Statement replaces SFAS 141, Business Combinations, and
requires an acquirer to recognize the assets acquired, the liabilities assumed,
including those arising from contractual contingencies, any contingent
consideration, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions specified in the statement. SFAS 141(R) also requires the acquirer in
a business combination achieved in stages (sometimes referred to as a step
acquisition) to recognize the identifiable assets and liabilities, as well as
the noncontrolling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with SFAS 141(R)). In
addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in
the acquiree at fair value will result in recognizing the goodwill attributable
to the noncontrolling interest in addition to that attributable to the acquirer.
SFAS 141(R) amends SFAS No. 109, Accounting for Income Taxes,
to require the acquirer to recognize changes in the amount of its deferred tax
benefits that are recognizable because of a business combination either in
income from continuing operations in the period of the combination or directly
in contributed capital, depending on the circumstances. It also amends SFAS 142,
Goodwill and Other Intangible
Assets, to, among other things, provide guidance on the impairment
testing of acquired research and development intangible assets and assets that
the acquirer intends not to use. SFAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Management is currently assessing the potential impact that the adoption of SFAS
141(R) could have on our financial statements.
SFAS 160 - In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements. SFAS 160 amends Accounting Research
Bulletin 51, Consolidated
Financial Statements, to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS 160 also changes the way
the consolidated income statement is presented by requiring consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the noncontrolling interest. It also requires disclosure, on the
face of the consolidated statement of income, of the amounts of consolidated net
income attributable to the parent and to the noncontrolling interest. SFAS 160
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated and requires expanded disclosures in the consolidated
financial statements that clearly identify and distinguish between the interests
of the parent owners and the interests of the noncontrolling owners of a
subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Management is
currently assessing the potential impact that the adoption of SFAS 160 could
have on our financial statements.
NOTE
3. Equity
Stock
Options
EMCORE has stock option plans
to provide long-term incentives to eligible employees, officers, and directors
in the form of stock options. Most of the stock options vest and become
exercisable over four to five years and have ten-year terms. EMCORE maintains
two incentive stock option plans: the 2000 Stock Option Plan (“2000 Plan”), and
the 1995 Incentive and Non-Statutory Stock Option Plan (“1995 Plan” and,
together with the 2000 Plan, the “Option Plans”). The 1995 Plan authorizes the
grant of options to purchase up to 2,744,118 shares of EMCORE's common stock.
The 2000 Plan authorizes the grant of options to purchase up to 9,350,000 shares
of EMCORE's common stock. As of December 31, 2007, no options were available for
issuance under the 1995 Plan and 956,572 options were available for issuance
under the 2000 Plan. Certain options under the Option Plans are intended to
qualify as incentive stock options pursuant to Section 422A of the Internal
Revenue Code.
The following table
summarizes the activity under the Option Plans as of December 31, 2007, and
changes during the quarter then ended:
|
|
|
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
Outstanding
as of October 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Tolled
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and expected to vest as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of stock options granted during the three
months ended December 31, 2007 and 2006 was $6.29 and $4.29, respectively. The total intrinsic value
of options exercised during the first quarter of fiscal year 2008 and 2007 was
$8.1 million and $0.2 million, respectively. The total fair value of
options vested during the first quarter of fiscal years 2008 and 2007 was $0.3
million and $1.4 million, respectively. The aggregate intrinsic value of fully
vested and expected to vest share options as of December 31, 2007 was $37.2
million. The aggregate intrinsic value of exercisable share options
as of December 31, 2007 was $24.3 million.
A summary
of the status of the company’s nonvested shares as of December 31, 2007, and
changes during the quarter then ended, is as follows:
|
|
Number
of
Shares
|
|
|
Weighted-
Average
Grant-
Date
Fair
Value
|
|
Nonvested
as of October 1, 2007
|
|
|
2,979,486 |
|
|
|
4.82 |
|
Granted
|
|
|
148,250 |
|
|
|
6.29 |
|
Vested
|
|
|
(72,787
|
) |
|
|
3.66 |
|
Forfeited
|
|
|
(84,488
|
) |
|
|
4.71 |
|
Nonvested
as of December 31, 2007
|
|
|
2,970,461 |
|
|
$ |
4.93 |
|
As of
December 31, 2007 there was $7.0 million of total unrecognized compensation
expense related to non-vested stock-based compensation arrangements granted
under the Option Plans. This expense is expected to be recognized over an
estimated weighted-average life of 2.56 years.
Stock-based
compensation expense is measured at grant date, based on the fair value of the
award, over the requisite service period. As required by SFAS
123(R), Share-Based Payment
(revised 2004), management has made an estimate of expected forfeitures
and is recognizing compensation expense only for those equity awards expected to
vest. The effect of recording stock-based compensation expense during the three
months ended December 31, 2007 and 2006 was as follows (in thousands, except per
share data):
|
|
For
the
three
months ended
December
31, 2007
|
|
For
the
three
months ended
December
31, 2006
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense by award type:
|
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
|
|
|
|
|
|
Former
employee stock option tolling agreement
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
effect on net loss per basic and diluted share
|
|
|
|
|
|
|
|
|
Former Employee Stock Option
Tolling Agreement
Under the
terms of option agreements issued under the 2000 Plan, terminated employees who
have vested and exercisable stock options have 90 days after the date of
termination to exercise the options. In November 2006, the Company announced
suspension of reliance on previously issued financial statements, which in turn
caused the Form S-8 registration statements for shares of common stock issuable
under the Option Plans not to be available. Therefore, terminated employees were
precluded from exercising their options during the remaining contractual
term. To address this issue EMCORE’s Board of Directors agreed in
April 2007 to approve an option grant “modification” for these individuals by
extending the normal 90-day exercise period after termination date to a date
after which EMCORE became compliant with its SEC filings and the registration of
the option shares was once again effective. The Company communicated
the terms of the tolling agreement with its terminated employees in November
2007. The Company’s Board of Directors approved an extension of the
stock option expiration date equal to the number of calendar days during the
Blackout Period before such option would have otherwise expired (the “Tolling
Period”). Former employees were able to exercise their vested
stock options beginning on the first day after the lifting of the Blackout
Period for a period equal to the Tolling Period. We accounted for the
modification of stock options issued to terminated employees as additional
compensation expense in accordance with SFAS 123(R) in the first quarter of
fiscal 2008 as presented in the table above.
Valuation
Assumptions
EMCORE
estimated the fair value of stock options using a Black-Scholes model. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option valuation model and the straight-line attribution approach
using the following weighted-average assumptions.
Black-Scholes
Weighted-Average Assumptions
|
|
For
the
three
months ended
December
31, 2007
|
Expected
dividend yield
|
|
|
|
|
Expected
stock price volatility
|
|
|
|
|
Risk-free
interest rate
|
|
|
|
|
Expected
term (in years)
|
|
|
|
|
Estimated
pre-vesting forfeitures
|
|
|
|
|
Expected Dividend
Yield: The Black-Scholes valuation model calls for a single
expected dividend yield as an input. EMCORE has not issued any
dividends.
Expected Stock Price
Volatility: The fair values of stock-based payments were
valued using the Black-Scholes valuation method with a volatility factor based
on EMCORE’s historical stock prices.
Risk-Free Interest
Rate: EMCORE bases the risk-free interest rate used in the
Black-Scholes valuation method on the implied yield currently available on U.S.
Treasury zero-coupon issues with an equivalent remaining term. Where the
expected term of EMCORE’s stock-based awards do not correspond with the terms
for which interest rates are quoted, EMCORE performed a straight-line
interpolation to determine the rate from the available maturities.
Expected Term: EMCORE’s
expected term represents the period that EMCORE’s stock-based awards are
expected to be outstanding and was determined based on historical experience of
similar awards, giving consideration to the contractual terms of the stock-based
awards, vesting schedules and expectations of future employee behavior as
influenced by changes to the terms of its stock-based awards.
Estimated Pre-vesting Forfeitures:
When estimating forfeitures, EMCORE considers voluntary termination
behavior as well as future workforce reduction programs, if any.
Preferred
Stock
EMCORE’s
restated certificate of incorporation authorizes the Board of Directors to issue
up to 5,882,352 shares of preferred stock of EMCORE upon such terms and
conditions having such rights, privileges and preferences as the Board of
Directors may determine. As of December 31, 2007 and September 30,
2007, no shares of preferred stock are issued or outstanding.
Employee Stock Purchase
Plan
In fiscal
2000, EMCORE adopted an Employee Stock Purchase Plan (the “ESPP”). The ESPP
provides employees of EMCORE an opportunity to purchase common stock through
payroll deductions. The ESPP is a 6-month duration plan, with new participation
periods beginning the first business day of January and July of each year. The
purchase price is set at 85% of the average high and low market price for
EMCORE's common stock on either the first or last day of the participation
period, whichever is lower, and contributions are limited to the lower of 10% of
an employee's compensation or $25,000. In November 2006, the Company suspended
the ESPP due to its review of historical stock option granting
practices. The Company reinstated the ESPP on January 1,
2008. The number of shares of common stock available for issuance
under the ESPP is 2,000,000 shares.
The amount of shares
issued for the ESPP are as follows:
|
|
Number
of
Common
Stock
Shares
Issued
|
|
Purchase
Price
per
Common
Stock
Share
|
Amount
of shares reserved for the ESPP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares issued in calendar years 2000 through 2003
|
|
|
|
|
|
$ |
|
|
Number
of shares issued in June 2004 for first half of calendar year
2004
|
|
|
|
|
|
$ |
|
|
Number
of shares issued in December 2004 for second half of calendar year
2004
|
|
|
|
|
|
$ |
|
|
Number
of shares issued in June 2005 for first half of calendar year
2005
|
|
|
|
|
|
$ |
|
|
Number
of shares issued in December 2005 for second half of calendar year
2005
|
|
|
|
|
|
$ |
|
|
Number
of shares issued in June 2006 for first half of calendar year
2006
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Remaining
shares reserved for the ESPP as of December 31, 2007
|
|
|
|
|
|
|
|
|
Future
Issuances
As
of December 31, 2007, EMCORE had reserved a total of 19,314,786 shares of
its common stock for future issuances as follows:
|
|
Number
of
Common
Stock
Shares
Available
|
For
exercise of outstanding common stock options
|
|
|
|
|
For
conversion of subordinated notes
|
|
|
|
|
For
future issuances to employees under the ESPP plan
|
|
|
|
|
For
future common stock option awards
|
|
|
|
|
|
|
|
|
|
Total
reserved
|
|
|
|
|
NOTE
4. Acquisition
On
December 17, 2007, EMCORE entered into an Asset Purchase Agreement (the
“Agreement”) with Intel Corporation (“Seller”) which is filed as Exhibit 2.1 to
this Form 10-Q. Under the terms of the Agreement, the Company will
purchase certain of the assets of Seller and its subsidiaries relating to the
telecom portion of Seller’s Optical Platform Division for a purchase price of
$85 million, as adjusted based on an inventory true-up, plus specifically
assumed liabilities. The purchase price will be paid $75 million in
cash and $10 million in cash or common stock of the Company, at the Company’s
option.
The
Company and Seller each made certain representations, warranties and covenants
in the Agreement, including, among others, covenants by Seller to use
commercially reasonable efforts to preserve intact the assets to be transferred
to the Company and to refrain from taking certain non-ordinary course
transactions during the period before consummation of the
transaction. The parties have agreed to enter into a transition
services agreement under which Seller will provide selected services to the
Company for a limited period after closing. The parties have also
entered into an intellectual property agreement under which Seller will license,
subject to certain conditions, certain related intellectual property to the
Company in connection with the Company’s use and development of the assets being
transferred to it.
The
Agreement contains termination rights for both the Company and Seller including
a provision allowing either party to terminate the Agreement if the transaction
has not been consummated by June 18, 2008.
NOTE
5. Restructuring Charges
As EMCORE
has acquired businesses and consolidated them into its existing operations,
EMCORE has incurred charges associated with the transition and integration of
those activities. In accordance with SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities, expenses recognized as restructuring charges
include costs associated with the integration of several business acquisitions
and EMCORE’s overall cost-reduction efforts. Restructuring
charges are included in SG&A. These charges primarily relate to
our Fiber Optics operating segment. These restructuring efforts are
expected to be completed in calendar year 2008. Costs incurred and
expected to be incurred consist of the following:
(in
thousands)
|
|
Amount
Incurred
in
Period
|
|
|
Cumulative
Amount
Incurred
to
Date
|
|
|
Amount
Expected
in
Future
Periods
|
|
|
Total
Amount
Expected
to
be
Incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-time
termination benefits
|
|
$ |
275 |
|
|
$ |
3,454 |
|
|
$ |
180 |
|
|
$ |
3,634 |
|
The
following table sets forth changes in the accrual for restructuring charges
during the first quarter of fiscal year 2008:
(in
thousands)
|
|
|
|
|
|
Balance
at October 1, 2007
|
|
|
|
|
Increase
in liability due to relocation of corporate headquarters
|
|
|
|
|
Costs
paid or otherwise settled
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
|
|
NOTE
6. Receivables
The
components of accounts receivable consisted of the following:
(in
thousands)
|
|
As
of
December
31,
2007
|
|
|
As
of
September
30,
2007
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$ |
36,827 |
|
|
$ |
35,558 |
|
Accounts
receivable – unbilled
|
|
|
5,253 |
|
|
|
3,395 |
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, gross
|
|
|
42,080 |
|
|
|
38,953 |
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
(798
|
) |
|
|
(802
|
) |
|
|
|
|
|
|
|
|
|
Total
accounts receivable, net
|
|
$ |
41,282 |
|
|
$ |
38,151 |
|
Receivables
from a related party consisted of the following:
(in
thousands)
|
|
As
of
December
31,
2007
|
|
|
As
of
September
30,
2007
|
|
|
|
|
|
|
|
|
Velox
investment-related
|
|
$ |
332 |
|
|
$ |
332 |
|
|
|
|
|
|
|
|
|
|
Total
receivables from a related party
|
|
$ |
332 |
|
|
$ |
332 |
|
NOTE
7. Inventory, net
Inventory
is stated at the lower of cost or market, with cost being determined using the
standard cost method that includes material, labor and manufacturing overhead
costs. The components of inventory consisted of the
following:
(in
thousands)
|
|
As
of
December
31,
2007
|
|
|
As
of
September
30,
2007
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
18,890 |
|
|
$ |
19,884 |
|
Work-in-process
|
|
|
7,592 |
|
|
|
6,842 |
|
Finished
goods
|
|
|
11,928 |
|
|
|
10,891 |
|
Inventory,
gross
|
|
|
38,410 |
|
|
|
37,617 |
|
|
|
|
|
|
|
|
|
|
Less:
reserves
|
|
|
(8,785
|
) |
|
|
(8,412
|
) |
|
|
|
|
|
|
|
|
|
Total
inventory, net
|
|
$ |
29,625 |
|
|
$ |
29,205 |
|
NOTE
8. Property, Plant, and Equipment, net
The
components of property, plant, and equipment consisted of the
following:
(in
thousands)
|
|
As
of
December
31,
2007
|
|
|
As
of
September
30,
2007
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
1,502 |
|
|
$ |
1,502 |
|
Building
and improvements
|
|
|
43,632 |
|
|
|
43,397 |
|
Equipment
|
|
|
76,498 |
|
|
|
75,631 |
|
Furniture
and fixtures
|
|
|
5,709 |
|
|
|
5,643 |
|
Leasehold
improvements
|
|
|
2,141 |
|
|
|
2,141 |
|
Construction
in progress
|
|
|
7,271 |
|
|
|
3,744 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, gross
|
|
|
136,753 |
|
|
|
132,058 |
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation and amortization
|
|
|
(76,459
|
) |
|
|
(74,801
|
) |
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
$ |
60,294 |
|
|
$ |
57,257 |
|
As of
December 31, 2007 and September 30, 2007, EMCORE did not have any significant
capital lease agreements. Depreciation expense was $1.7 million and
$2.4 million for the quarter ended December 31, 2007 and September 30, 2007,
respectively.
NOTE
9. Goodwill and Intangible Assets, net
The
following table sets forth changes in the carrying value of goodwill by
reportable segment during the first quarter of fiscal year 2008:
(in
thousands)
|
|
Fiber
Optics
|
|
|
Photovoltaics
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of October 1, 2007
|
|
$ |
20,606 |
|
|
$ |
20,384 |
|
|
$ |
40,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
– earn-out payments
|
|
|
691 |
|
|
|
- |
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
$ |
21,297 |
|
|
$ |
20,384 |
|
|
$ |
41,681 |
|
The
following table sets forth changes in the carrying value of intangible assets,
consisting of patents and acquired intellectual property (“IP”), as of December
31, 2007 by reportable segment:
(in
thousands)
|
|
As of December 31,
2007
|
|
|
As of September 30,
2007
|
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
Assets
|
|
|
Gross
Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber
Optics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$ |
909 |
|
|
$ |
(403 |
) |
|
$ |
506 |
|
|
$ |
845 |
|
|
$ |
(358 |
) |
|
$ |
487 |
|
Ortel
acquired IP
|
|
|
3,274 |
|
|
|
(3,002
|
) |
|
|
272 |
|
|
|
3,274 |
|
|
|
(2,893
|
) |
|
|
381 |
|
JDSU
acquired IP
|
|
|
1,040 |
|
|
|
(561
|
) |
|
|
479 |
|
|
|
1,040 |
|
|
|
(512
|
) |
|
|
528 |
|
Alvesta
acquired IP
|
|
|
193 |
|
|
|
(193
|
) |
|
|
- |
|
|
|
193 |
|
|
|
(187
|
) |
|
|
6 |
|
Molex
acquired IP
|
|
|
558 |
|
|
|
(474
|
) |
|
|
84 |
|
|
|
558 |
|
|
|
(446
|
) |
|
|
112 |
|
Phasebridge
acquired IP
|
|
|
603 |
|
|
|
(368
|
) |
|
|
235 |
|
|
|
603 |
|
|
|
(347
|
) |
|
|
256 |
|
Force
acquired IP
|
|
|
1,075 |
|
|
|
(492
|
) |
|
|
583 |
|
|
|
1,075 |
|
|
|
(443
|
) |
|
|
632 |
|
K2
acquired IP
|
|
|
583 |
|
|
|
(274
|
) |
|
|
309 |
|
|
|
583 |
|
|
|
(248
|
) |
|
|
335 |
|
Opticomm
acquired IP
|
|
|
2,504 |
|
|
|
(494
|
) |
|
|
2,010 |
|
|
|
2,504 |
|
|
|
(321
|
) |
|
|
2,183 |
|
Subtotal
|
|
|
10,739 |
|
|
|
(6,261
|
) |
|
|
4,478 |
|
|
|
10,675 |
|
|
|
(5,755
|
) |
|
|
4,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photovoltaics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
715 |
|
|
|
(294
|
) |
|
|
421 |
|
|
|
615 |
|
|
|
(260
|
) |
|
|
355 |
|
Tecstar
acquired IP
|
|
|
1,900 |
|
|
|
(1,900
|
) |
|
|
- |
|
|
|
1,900 |
|
|
|
(1,900
|
) |
|
|
- |
|
Subtotal
|
|
|
2,615 |
|
|
|
(2,194
|
) |
|
|
421 |
|
|
|
2,515 |
|
|
|
(1,888
|
) |
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
13,354 |
|
|
$ |
(8,455 |
) |
|
$ |
4,899 |
|
|
$ |
13,190 |
|
|
$ |
(7,915 |
) |
|
$ |
5,275 |
|
Based on
the carrying amount of the intangible assets, and assuming no future impairment
of the underlying assets, the estimated future amortization expense is as
follows:
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Period
ending:
|
|
|
|
|
Nine-month
period ended September 30, 2008
|
|
$
|
1,194
|
|
Year
ended September 30, 2009
|
|
|
1,301
|
|
Year
ended September 30, 2010
|
|
|
1,188
|
|
Year
ended September 30, 2011
|
|
|
727
|
|
Year
ended September 30, 2012
|
|
|
355
|
|
Thereafter
|
|
|
134
|
|
Total
future amortization expense
|
|
$
|
4,899
|
|
NOTE
10. Accrued Expenses and Other Current Liabilities
The
components of accrued expenses and other current liabilities consisted of the
following:
(in
thousands)
|
|
As
of
December
31,
2007
|
|
As
of
September
30,
2007
|
Compensation-related
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Warranty
|
|
|
|
|
|
|
|
|
Professional
fees
|
|
|
|
|
|
|
|
|
Royalty
|
|
|
|
|
|
|
|
|
Self
insurance
|
|
|
|
|
|
|
|
|
Deferred
revenue and customer deposits
|
|
|
|
|
|
|
|
|
Tax-related
|
|
|
|
|
|
|
|
|
Restructuring
accrual
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses and other current liabilities
|
|
|
|
|
|
|
|
|
NOTE
11. Commitments and Contingencies
EMCORE
leases certain land, facilities, and equipment under non-cancelable operating
leases. The leases provide for rental adjustments for increases in base rent (up
to specific limits), property taxes, insurance and general property maintenance
that would be recorded as rent expense. Net facility and equipment rent expense
under such leases amounted to approximately $0.2 million and $0.4 million for
the three months ended December 31, 2007 and 2006, respectively.
As of
December 31, 2007, EMCORE had four standby letters of credit issued totaling
approximately $1.8 million.
Credit
Market Conditions
The
Company plans to fund the asset purchase of Intel’s Optical Platform Division
through (i) debt financing, (ii) equity financing and/or (iii) asset
sales. Currently, the U.S. capital markets are experiencing turbulent
conditions in the credit markets, as evidenced by tightening of lending
standards, reduced availability of credit vehicles accompanied by a reduction in
certain asset values. This potentially impacts EMCORE’s ability to
obtain this additional funding through financing or asset
sales. Although management believes it will be able to obtain the
funding necessary to fund the acquisition, despite the reduced availability of
these credit vehicles, no assurance can be made that the Company will be able to
finance the acquisition on commercially reasonable terms or at all.
Legal
Proceedings
The
Company is subject to various legal proceedings and claims that are discussed
below. The Company is also subject to certain other legal proceedings and claims
that have arisen in the ordinary course of business and which have not been
fully adjudicated. The Company does not believe it has a potential
liability related to current legal proceedings and claims that could
individually or in the aggregate have a material adverse effect on its financial
condition, liquidity or results of operations. However, the results of legal
proceedings cannot be predicted with certainty. Should the Company fail to
prevail in any legal matters or should several legal matters be resolved against
the Company in the same reporting period, the operating results of a particular
reporting period could be materially adversely affected.
SEC
Investigation
On
November 6, 2006, the Company informed the staff of the SEC of the Special
Committee’s investigation regarding the Company’s historical review of stock
option granting practices. After the Company’s initial contact with
the SEC, the SEC opened a non-public investigation concerning the Company’s
historic option granting practices since the Company’s initial public
offering. The Company has fully cooperated with the SEC’s
investigation. Although we cannot predict the outcome of this matter,
we do not expect that such matter will have a material adverse effect on our
consolidated financial position or results of operations.
Shareholder
Derivative Litigation Relating to Historical Stock Option Practices
On
February 1, 2007, Plaintiff Lewis Edelstein filed a purported stockholder
derivative action (the “Federal Court Action”) on behalf of the Company against
certain of its present and former directors and officers (the “Individual
Defendants”), as well as the Company as nominal defendant, in the U.S. District
Court for the District of New Jersey, Edelstein v. Brodie, et.
al., Case No. 3:07-cv-00596-FLW-JJH (D.N.J.). On May 22,
2007, Plaintiffs Kathryn Gabaldon and Michael Sackrison each filed a purported
stockholder derivative action against the Individual Defendants, and the Company
as nominal defendant, in the Superior Court of New Jersey, Somerset County,
Gabaldon v. Brodie,
et. al., Case No. 3:07-cv-03185-FLW-JJH (D.N.J.) and Sackrison v. Brodie, et.
al., Case No. 3:07-cv-00596-FLW-JJH (D.N.J.) (collectively, the “State
Court Actions”).
Both the
Federal Court Action and the State Court Actions alleged, using essentially
identical contentions that the Individual Defendants engaged in improprieties
and violations of law in connection with the Company’s historical issuances of
stock options. Each of the actions seeks the same relief on behalf of
the Company, including, among other things, damages, equitable relief, corporate
governance reforms, an accounting, rescission, restitution and costs and
disbursements of the lawsuit. On July 10, 2007, the State Court
Actions were removed to the U.S. District Court for the District of New
Jersey.
On
September 26, 2007, the plaintiff in the Federal Court Action signed an
agreement in principle with the Individual Defendants and the Company to settle
that litigation in accordance with the Memorandum of Understanding (the “MOU”)
filed as Exhibit 10.10 to the Annual Report on Form 10-K for the year ended
September 30, 2006. That same day, the plaintiffs in the State Court
Actions advised the Federal Court that the settlement embodied in the MOU would
also constitute the settlement of the State Court Actions.
The MOU
provides that the Company will adhere to certain policies and procedures
relating to the issuance of stock options, stock trading by directors, officers
and employees, the composition of its Board of Directors, and the functioning of
the Board’s Audit and Compensation Committees. The MOU also provides
for the payment of $700,000 relating to plaintiff’s attorneys’ fees, costs and
expenses, which the Company’s insurance carrier has committed to pay on behalf
of the Company.
On
November 28, 2007, a Stipulation of Compromise and Settlement (the
“Stipulation”) substantially embodying the terms previously contained in the MOU
was fully executed by the Company and the other defendants and the plaintiffs in
the Federal Court Action and the State Court Actions. The Stipulation was filed
as Exhibit 10.19 to the Annual Report on Form 10-K for the year ended September
30, 2007.
The
Stipulation provides that the Company will adhere to certain policies and
procedures relating to the issuance of stock options, stock trading by
directors, officers and employees, the composition of its Board of Directors,
and the functioning of the Board’s Audit and Compensation
Committees. The Stipulation also provides for the payment of $700,000
relating to plaintiffs’ attorneys’ fees, costs and expenses, which the Company’s
insurance carrier has committed to pay on behalf of the Company. A
motion to approve the settlement reflected in the Stipulation was filed with the
U.S. District Court for the District of New Jersey on December 3,
2007. The Court granted the motion for preliminary approval of
the settlement on January 3, 2008. In the order of preliminary
approval, the Court required the Company to provide notice to shareholders by
February 14, 2008 and to set a date for a hearing for final approval of the
settlement for March 28, 2008. Upon such approval the settlement will
become final and binding on all parties and represent a final settlement of both
the Federal Court Action and the State Court Actions.
We have
recorded $700,000 as a liability for the stipulated settlement in fiscal year
2006 since events that led to the litigation existed as of that
date. Although we anticipate that our insurance carrier will cover
the stipulated settlement, we have not recorded any receivable, or gain
contingency, since the settlement is still contingent upon certain future
events.
Indemnification
Obligations
Subject
to certain limitations, we are obligated to indemnify our current and former
directors, officers and employees in connection with the Special Committee’s
investigation of our historical stock option practices, the related SEC
non-public investigation and shareholder litigation. These obligations arise
under the terms of our restated certificate of incorporation, our bylaws,
applicable contracts, and New Jersey law. The obligation to indemnify generally
means that we are required to pay or reimburse the individuals’ reasonable legal
expenses and possibly damages and other liabilities incurred in connection with
these matters. We are currently paying or reimbursing legal expenses being
incurred in connection with these matters by a number of our current and former
directors, officers and employees. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer
liability insurance policies that limits its exposure and enables it to recover
a portion of any future amounts paid.
Intellectual
Property Lawsuits
We
protect our proprietary technology by applying for patents where appropriate and
in other cases by preserving the technology, related know-how and information as
trade secrets. The success and competitive position of our product lines is
significantly impacted by our ability to obtain intellectual property protection
for our R&D efforts.
We have,
from time to time, exchanged correspondence with third parties regarding the
assertion of patent or other intellectual property rights in connection with
certain of our products and processes. Additionally, on September 11, 2006, we
filed a lawsuit against Optium Corporation (Optium) in the U.S. District Court
for the Western District of Pennsylvania for patent infringement. In the suit,
EMCORE and JDS Uniphase Corporation (JDSU) allege that Optium is infringing on
U.S. patents 6,282,003 and 6,490,071 with its Prisma II 1550nm transmitters. On
March 14, 2007, following denial of a motion to add additional claims to its
existing lawsuit, EMCORE and JDSU filed a second patent suit in the same court
against Optium alleging infringement of JDSU's patent 6,519,374 ("the '374
patent"). On March 15, 2007, Optium filed a declaratory judgment
action against EMCORE and JDSU. Optium seeks in this litigation a declaration
that certain products of Optium do not infringe the '374 patent and that the
patent is invalid. The '374 patent is assigned to JDSU and licensed to
EMCORE.
On
December 20, 2007, the Company was served with a complaint in another
declaratory relief action which Optium had filed in the Federal District Court
for the Western District of Pennsylvania. This action seeks to have
U.S. patents 6,282,003 and 6,490,071 declared invalid or unenforceable because
of certain conduct alleged to have occurred in connection with the grant of
these patents. These allegations are substantially the same as those
brought by Optium by motion in the Company’s own case against Optium, which
motion had been denied by the Court. The Company intends to assert
that the allegations in the complaint are without merit and intends to contest
them.
NOTE
12. Segment Data and Related Information
EMCORE
has four operating segments: (1) EMCORE Fiber Optics and (2) EMCORE Broadband,
which are aggregated as a separate reporting segment, Fiber Optics, and (3)
EMCORE Photovoltaics and (4) EMCORE Solar Power, which are aggregated as a
separate reporting segment, Photovoltaics. EMCORE's Fiber Optics
revenue is derived primarily from sales of optical components and subsystems for
cable television (“CATV”), fiber to the premise (“FTTP”), enterprise routers and
switches, telecom grooming switches, core routers, high performance servers,
supercomputers, and satellite communications data links. EMCORE's
Photovoltaics revenue is derived primarily from the sales of solar power
conversion products, including solar cells, covered interconnect solar cells,
and solar panels. EMCORE evaluates its reportable segments in
accordance with SFAS 131, Disclosures About Segments of an
Enterprise and Related Information. EMCORE’s Chief Executive Officer is
EMCORE’s Chief Operating Decision Maker pursuant to SFAS 131, and he allocates
resources to segments based on their business prospects, competitive factors,
net revenue, operating results and other non-GAAP financial ratios.
The
following table sets forth the revenue and percentage of total revenue
attributable to each of EMCORE's reporting segments for the three months ended
December 31, 2007 and 2006.
(in
thousands)
Segment
Revenue
|
|
2007
|
|
|
2006
|
|
|
|
Revenue
|
|
|
%
of
Revenue
|
|
|
Revenue
|
|
|
%
of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber
Optics
|
|
$ |
33,960 |
|
|
|
72
|
% |
|
$ |
25,322 |
|
|
|
66
|
% |
Photovoltaics
|
|
|
12,927 |
|
|
|
28 |
|
|
|
13,274 |
|
|
|
34 |
|
Total
revenue
|
|
$ |
46,887 |
|
|
|
100
|
% |
|
$ |
38,596 |
|
|
|
100
|
% |
The
following table sets forth EMCORE's consolidated revenues by geographic region
for the three months ended December 31, 2007 and 2006. Revenue was
assigned to geographic regions based on the customers’ or contract
manufacturers’ billing address.
(in
thousands)
Geographic
Revenue
|
|
2007
|
|
|
2006
|
|
|
|
Revenue
|
|
|
%
of
Revenue
|
|
|
Revenue
|
|
|
%
of
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$ |
26,823 |
|
|
|
57
|
% |
|
$ |
25,746 |
|
|
|
67
|
% |
Asia
and South America
|
|
|
15,340 |
|
|
|
33 |
|
|
|
11,036 |
|
|
|
28 |
|
Europe
|
|
|
4,587 |
|
|
|
10 |
|
|
|
1,814 |
|
|
|
5 |
|
Australia
|
|
|
137 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
revenue
|
|
$ |
46,887 |
|
|
|
100
|
% |
|
$ |
38,596 |
|
|
|
100
|
% |
The
following table sets forth operating losses attributable to each EMCORE
reporting segment and to corporate for the three months ended December 31, 2007
and 2006.
(in
thousands)
Statement
of Operations Data
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Operating
loss by segment and corporate:
|
|
|
|
|
|
|
Fiber
Optics
|
|
$ |
(3,527 |
) |
|
$ |
(6,205 |
) |
Photovoltaics
|
|
|
(3,551
|
) |
|
|
(3,996
|
) |
Corporate
|
|
|
(6,476
|
) |
|
|
(3,453
|
) |
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(13,554
|
) |
|
|
(13,654
|
) |
|
|
|
|
|
|
|
|
|
Other
expenses (income):
|
|
|
|
|
|
|
|
|
Interest
expense (income), net
|
|
|
778 |
|
|
|
(389
|
) |
Loss
on disposal of equipment
|
|
|
86 |
|
|
|
- |
|
Foreign
exchange gain
|
|
|
(13
|
) |
|
|
- |
|
Total
other expenses (income)
|
|
|
851 |
|
|
|
(389
|
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(14,405 |
) |
|
$ |
(13,265 |
) |
Long-lived
assets (consisting of property, plant and equipment, goodwill and intangible
assets) for each reporting segment are as follows:
(in
thousands)
Long-lived
Assets
|
|
As
of
December
31,
2007
|
|
|
As
of
September
30,
2007
|
|
|
|
|
|
|
|
|
Fiber
Optics
|
|
$ |
57,131 |
|
|
$ |
56,816 |
|
Photovoltaics
|
|
|
49,743 |
|
|
|
46,706 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
106,874 |
|
|
$ |
103,522 |
|
NOTE
13. Income Taxes
Effective
October 1, 2007, the Company adopted FIN 48. As a result of the adoption
of FIN 48, the Company recorded an increase in accumulated deficit and an
increase in the liability for unrecognized state tax benefits of approximately
$326,000 (net of the federal benefit for state tax liabilities). All of this
amount, if recognized, would reduce future income tax provisions and favorably
impact effective tax rates. During the quarter ended December 31, 2007, there
were no material increases or decreases in unrecognized tax
benefits. Management expects that over the next twelve months the
liability for unrecognized state tax benefits will substantially decrease and
does not anticipate any material increases over the next twelve
months.
The
Company’s historical accounting policy with respect to interest and penalties
related to tax uncertainties has been to classify these amounts as income taxes,
and the Company continued this classification upon the adoption of FIN 48.
At December 31, 2007, the Company had approximately $117,000 of interest and
penalties accrued as tax liabilities in the Condensed Consolidated Balance
Sheet.
The
Company files income tax returns in the U.S. federal, state and local
jurisdictions. No federal, state and local income tax returns are
currently under examination. Certain income tax returns for fiscal years 2004
through 2006 remain open to examination by U.S. federal, state and local tax
authorities.
NOTE
14. Subsequent Event
Conversion of Convertible
Subordinated Notes
The
Company may redeem some or all of its convertible notes, at par value, if the
closing price of the Company's common stock exceeds $12.09 per share for at
least twenty trading days within a period of any thirty consecutive trading days
ending on the trading day prior to the date of mailing the notice of
redemption. The notice of redemption must be mailed to the holders of
the convertible notes at least 20 days but not more than 60 days before the
redemption date. Once the notice of redemption is mailed by the
Company to the holders of its convertible notes, the convertible notes become
irrevocably due and payable on the redemption date. Each of the
indentures governing the convertible notes requires the Company to deposit funds
sufficient to cover the redemption price of, plus accrued and unpaid interest
on, the convertible notes to be redeemed with the Trustee one business day prior
to the redemption date. The holders of the convertible notes can
convert the convertible notes into shares of the Company’s common stock at any
time before maturity, or with respect to convertible notes called for
redemption, until the close of business on the business day immediately
preceding the redemption date. The number of shares issuable upon
conversion is determined by dividing the principal amount to be converted by the
conversion price in effect on the conversion date. The conversion
price is $7.01, subject to customary anti-dilution adjustments.
On
January 29, 2008, the Company, in privately negotiated transactions, entered
into separate agreements with holders of approximately 97.5%, or approximately
$83.3 million aggregate principal amount, of its outstanding 5.50% convertible
senior subordinated notes due 2011 (the “Notes”) pursuant to which this small
number of holders converted their Notes into the Company’s common
stock. Upon conversion of the Notes, the Company will
issue 11.9 million shares of its common stock, based on a conversion price
of $7.01, in accordance with the terms of the Notes. The issuance of
the Company’s common stock upon conversion of the Notes will be made in
reliance on the exemption from the registration requirements provided under
Section 3(a)(9) of the Securities Act of 1933. To incentivize
the holders to convert their Notes, the Company made cash payments to such
holders equal to 4% of the principal amount of the Notes converted, or $3.3
million, plus accrued interest of approximately $1.0 million on the Notes
converted. This supplemental payment will be charged to expense in
the second quarter of fiscal 2008, along with the acceleration of deferred
financing costs of approximately $0.7 million. After giving effect to
these transactions, the Company expects to have approximately 64 million shares
of common stock outstanding.
In
addition, on January 29, 2008, the Company called for redemption all of its
outstanding Notes. After giving effect to the conversions, the
Company expects that approximately $2.1 million aggregate principal amount of
Notes will remain outstanding and subject to redemption. The redemption date
will be February 20, 2008, and the redemption price, will be 100% of the
principal amount of the Notes redeemed, plus accrued and unpaid interest to, but
not including, the redemption date. The closing price of EMCORE's
common stock on January 29, 2008 was $11.77. Note holders who wish to convert
their Notes must do so by the close of business on February 19,
2008.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
Quarterly Report on Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Exchange Act of 1934. These forward-looking statements are based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. These forward-looking
statements may be identified by the use of terms and phrases such as "expects",
"anticipates", "intends", "plans", believes", "estimates", “targets”, “can”,
“may”, “could”, “will”, and variations of these terms and similar phrases.
Management cautions that these forward-looking statements are subject to
business, economic, and other risks and uncertainties, both known and unknown,
that may cause actual results to be materially different from those discussed in
these forward-looking statements. The cautionary statements made in this Report
should be read as being applicable to all forward-looking statements wherever
they appear in this Report. This discussion should be read in conjunction with
the consolidated financial statements, including the related notes.
These
forward-looking statements include, without limitation, any and all statements
or implications regarding:
|
·
|
The ability of EMCORE
Corporation (the “Company”, “we”, or “EMCORE”) to remain competitive and a
leader in its industry and the future growth of the company, the industry,
and the economy in general;
|
|
·
|
Difficulties in integrating
recent or future acquisitions into our
operations;
|
|
·
|
The expected level and timing
of benefits to EMCORE from on-going cost reduction efforts, including (i)
expected cost reductions and their impact on our financial performance,
(ii) our continued leadership in technology and manufacturing in its
markets, and (iii) our belief that the cost reduction efforts will not
impact product development or manufacturing
execution;
|
|
·
|
Expected improvements in our
product and technology development
programs;
|
|
·
|
Whether our products will (i)
be successfully introduced or marketed, (ii) be qualified and purchased by
our customers, or (iii) perform to any particular specifications or
performance or reliability standards;
and/or
|
|
·
|
Guidance provided by EMCORE
regarding our expected financial performance in current or future periods,
including, without limitation, with respect to anticipated revenues,
income, or cash flows for any period in fiscal 2008 and subsequent
periods.
|
These
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those projected, including without
limitation, the following:
|
·
|
EMCORE’s cost reduction
efforts may not be successful in achieving their expected benefits, or may
negatively impact our
operations;
|
|
·
|
The failure of our products
(i) to perform as expected without material defects, (ii) to be
manufactured at acceptable volumes, yields, and cost, (iii) to be
qualified and accepted by our customers, and (iv) to successfully compete
with products offered by our competitors;
and/or
|
|
·
|
Other risks and uncertainties
described in EMCORE’s filings with the Securities and Exchange Commission
(“SEC”) 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.
|
Neither
management nor any other person assumes responsibility for the accuracy and
completeness of the forward-looking statements. Forward-looking statements are
made only as of the date of this Report and subsequent facts or circumstances
may contradict, obviate, undermine, or otherwise fail to support or substantiate
such statements. We assume no obligation to update the matters discussed in this
Quarterly Report on Form 10-Q to conform such statements to actual results or to
changes in our expectations, except as required by applicable law or
regulation.
Business
Overview
EMCORE is
a leading provider of compound semiconductor-based components and subsystems for
the broadband, fiber optic, satellite and terrestrial solar power
markets. We have two reporting segments: Fiber Optics and
Photovoltaics. EMCORE's Fiber Optics segment offers optical
components, subsystems and systems that enable the transmission of video, voice
and data over high-capacity fiber optic cables for high-speed data and
telecommunications, cable television (“CATV”) and fiber-to-the-premises (“FTTP”)
networks. EMCORE's Photovoltaics segment provides solar products for
satellite and terrestrial applications. For satellite applications, EMCORE
offers high-efficiency compound semiconductor-based gallium arsenide (“GaAs”)
solar cells, covered interconnect cells (“CICs”) and fully integrated solar
panels. For terrestrial applications, EMCORE offers its
high-efficiency GaAs solar cells and integrated PV components for use in solar
power concentrator systems. For specific information about our
company, our products or the markets we serve, please visit our website at
http://www.emcore.com. The information on our website is not
incorporated into this Quarterly Report on Form 10-Q. We were
established in 1984 as a New Jersey corporation.
Management
Summary
Our
principal objective is to maximize shareholder value by leveraging our expertise
in advanced compound semiconductor technologies to be a leading provider of
high-performance, cost-effective product solutions in each of the markets we
serve.
We target
market opportunities that we believe have large potential growth and where the
favorable performance characteristics of our products and high volume production
efficiencies may give us a competitive advantage over our
competitors. We believe that as compound semiconductor production
costs continue to be reduced, existing and new customers will be compelled to
increase their use of these products because of their attractive performance
characteristics and superior value.
With
several strategic acquisitions and divestures in the past year, EMCORE has
developed a strong business focus and comprehensive product portfolios in two
main sectors: Fiber Optics and Photovoltaics.
Fiber
Optics
Our fiber
optics products enable information that is encoded on light signals to be
transmitted, routed (switched) and received in communication systems and
networks. Our fiber optics products provide our customers with
increased capacity to offer more services, at increased data transmission
distance, speed and bandwidth with lower noise video receive and lower power
consumption. Our Fiber Optics segment primarily targets the following
markets:
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Cable Television (CATV)
Networks - We are a market leader in providing radio frequency (RF)
over fiber products for the CATV industry. Our products are
used in hybrid fiber coaxial (HFC) networks that enable cable service
operators to offer multiple advanced services to meet the expanding demand
for high-speed Internet, on-demand and interactive video and other
advanced services, such as high-definition television (HDTV) and voice
over IP (VoIP).
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Fiber-to-the-Premises (FTTP)
Networks - Telecommunications companies are increasingly extending
their optical infrastructure to the customer’s location in order to
deliver higher bandwidth services. We have developed and maintain customer
qualified FTTP components and subsystem products to support plans by
telephone companies to offer voice, video and data services through the
deployment of new fiber-based access
networks.
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Data Communications
Networks - We provide leading-edge optical components and modules
for data applications that enable switch-to-switch, router-to-router and
server-to-server backbone connections at aggregate speeds of 10 gigabits
per second (G) and above.
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Telecommunications
Networks - Our leading-edge optical components and modules enable
high-speed (up to an aggregate 40G) optical interconnections that drive
advanced architectures in next-generation carrier class switching and
routing networks. Our products are used in equipment in the
network core and key metro optical nodes of voice telephony and Internet
infrastructures.
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Satellite Communications
(Satcom) Networks - We are a leading provider of optical components
and systems for use in equipment that provides high-performance optical
data links for the terrestrial portion of satellite communications
networks.
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Storage Area Networks -
Our high performance optical components are also used in high-end data
storage solutions to improve the performance of the storage
infrastructure.
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Video Transport - Our
video transport product line offers solutions for broadcasting,
transportation, IP television (IPTV), mobile video and security &
surveillance applications over private and public networks. EMCORE’s
video, audio, data and RF transmission systems serve both analog and
digital requirements, providing cost-effective, flexible solutions geared
for network reconstruction and
expansion.
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Defense and Homeland
Security - Leveraging our expertise in RF module design and
high-speed parallel optics, we provide a suite of ruggedized products that
meet the reliability and durability requirements of the U.S. Government
and defense markets. Our specialty defense products include
fiber optic gyro components used in precision guided munitions, ruggedized
parallel optic transmitters and receivers, high-frequency RF fiber optic
link components for towed decoy systems, optical delay lines for radar
systems, EDFAs, terahertz spectroscopy systems and other
products.
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Consumer Products - We
intend to extend our optical technology into the consumer market by
integrating our Vertical Cavity Surface-Emitting Lasers (“VCSELs”) into
optical computer mice and ultra short data links. We are in
production with customers on several products and currently qualifying our
products with additional customers. An optical computer mouse
with laser illumination is superior to LED-based illumination in that it
reveals surface structures that a LED light source cannot uncover. VCSELs
enable computer mice to track with greater accuracy, on more surfaces and
with greater responsiveness than existing LED-based
solutions.
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Photovoltaics
We
believe our high-efficiency compound semiconductor-based multi-junction solar
cell products provide our customers with compelling cost and performance
advantages over traditional silicon-based solutions. These include
higher solar cell efficiency allowing for greater conversion of light into
electricity, an increased ability to benefit from use in solar concentrator
systems, ability to withstand high heat environments and reduced overall
footprint. Our Photovoltaics segment primarily targets the following
markets:
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Satellite Solar Power
Generation. We are a leader in providing solar power
generation solutions to the global communications satellite industry and
U.S. Government space programs. A satellite’s operational
success and corresponding revenue depend on its available power and its
capacity to transmit data. We manufacture advanced compound
semiconductor-based solar cell and solar panel products, which are more
resistant to radiation levels in space and generate substantially more
power from sunlight than silicon-based solutions. Space power
systems using our multi-junction solar cells weigh less per unit of power
than traditional silicon-based solar cells. These performance
characteristics increase satellite useful life, increase satellites’
transmission capacity and reduce launch costs. Our products
provide our customers with higher sunlight to electrical power conversion
efficiency for reduced size and launch costs; higher radiation tolerance;
and longer lifetime in harsh space environments. We design and
manufacture multi-junction compound semiconductor-based solar cells for
both commercial and military satellite applications. We currently
manufacture and sell one of the most efficient and reliable, radiation
resistant advanced triple-junction solar cells in the world, with an
average "beginning of life" efficiency of 28.5%. In May 2007,
EMCORE announced that it has attained solar conversion efficiency of 31%
for an entirely new class of advanced multi-junction solar cells optimized
for space applications. EMCORE is also the only manufacturer to
supply true monolithic bypass diodes for shadow protection, utilizing
several EMCORE patented methods. EMCORE also provides covered interconnect
cells (CICs) and solar panel lay-down services, giving us the capability
to manufacture complete solar panels. We can provide satellite
manufacturers with proven integrated satellite power solutions that
considerably improve satellite economics. Satellite manufacturers and
solar array integrators rely on EMCORE to meet their satellite power needs
with our proven flight heritage.
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Terrestrial Solar Power
Generation. Solar power generation systems use
photovoltaic cells to convert sunlight to electricity and have been used
in space programs and, to a lesser extent, in terrestrial applications for
several decades. The market for terrestrial solar power
generation solutions has grown significantly as solar power generation
technologies improve in efficiency, as global prices for non-renewable
energy sources (i.e., fossil fuels) continue to rise, and as concern has
increased regarding the effect of carbon emissions on global warming.
Terrestrial solar power generation has emerged as one of the most rapidly
expanding renewable energy sources due to certain advantages solar power
holds over other energy sources, including reduced environmental impact,
elimination of fuel price risk, installation flexibility, scalability,
distributed power generation (i.e., electric power is generated at the
point of use rather than transmitted from a central station to the user),
and reliability. The rapid increase in demand for solar power has created
a growing need for highly efficient, reliable and cost-effective solar
power concentrator systems.
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EMCORE
has adapted its high-efficiency compound semiconductor-based multi-junction
solar cell products for terrestrial applications, which are intended for use
with solar concentrator systems in utility-scale installations. In
August 2007, EMCORE announced that it has obtained 39% peak conversion
efficiency on its terrestrial concentrating solar cell products currently in
volume production. This compares favorably to typical efficiency of
15-21% on silicon-based solar cells and 35% for competing multi-junction
concentrating solar cells. We believe that solar concentrator systems assembled
using our compound semiconductor-based solar cells will be competitive with
silicon-based solar power generation systems because they are more efficient
and, when combined with the advantages of concentration, we believe will result
in a lower cost of power generated. Our multi-junction solar cell
technology is not subject to silicon shortages, which have led to increasing
prices in the raw materials required for silicon-based solar cells. While the
terrestrial power generation market is still developing, we have received
production orders from multiple CPV systems integrators and provided samples to
several others, including major system manufacturers in the United States,
Europe and Asia. Recent announcements from the Company
include:
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On
December 12, 2007, EMCORE announced that it signed a memorandum of
understanding for the supply of 60 Megawatts (MW) of solar power systems
that are scheduled for deployment in Ontario, Canada over the next three
years. EMCORE will supply and install turn-key solar power systems in the
Sault Ste Marie area utilizing EMCORE's CPV systems developed at its
Albuquerque, NM facility. EMCORE also has the right to substitute other
solar technologies in portions of the projects. The project developer, Pod
Generating Group (PGG), has secured the licenses and permits for the
project through the Ontario Power Authority Standard Offer Program and
system deployment is expected to begin in mid-2008. PGG is a developer of
photovoltaics-based power generation facilities in Northern Ontario,
Canada.
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On
December 17, 2007, EMCORE announced that it has received a purchase order
to supply 5.7 MW of EMCORE's CPV systems for alternative energy projects
in South Korea, along with a letter of intent for follow-on projects of
14.3 MW, expected to be released within the next six months. EMCORE also
signed an agreement with DI Semicon, a semiconductor packaging company in
Seoul, Korea, regarding the formation of a joint venture among DI Semicon,
EMCORE and other parties. This joint venture, when fully established and
commenced operations, will manufacture CPV systems in Korea for EMCORE,
including systems for the 14.3 MW follow-up projects described above and
will also involve a minimum purchase commitment of 15 MW annually of
EMCORE CPV systems to be deployed in South
Korea.
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On
January 23, 2008, EMCORE announced that it will supply its solar
Concentrator Photovoltaic (CPV) components and systems to the Spanish
market through several agreements.
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• EMCORE
was awarded a 300-kilowatt (kW) CPV system contract by Spain’s Institute of
Concentrator Photovoltaics Systems (ISFOC). EMCORE expects to have its CPV
systems installed in Castilla-La Mancha, Spain by December 2008.
• EMCORE
reached an agreement to construct an 850-kW solar power park in Extremadura,
Spain. EMCORE will be utilizing its CPV solar power system and provide a
turn-key solution with a scope of work including engineering, procurement, and
construction (EPC). This project is expected to be completed before July 2008 in
order to take advantage of the current high feed-in tariff.
• EMCORE
received a purchase order for one million CPV components from a prominent CPV
system integrator. This order is expected to be completed by March 2009 with CPV
products being deployed in projects within the Spanish market.
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On
January 31, 2008, EMCORE announced that it has signed a memorandum of
understanding for the supply of between 200 MW and 700 MW of solar power
systems that are scheduled for deployment in utility scale solar power
projects under development in the southwestern region of the United
States. EMCORE will supply and install turn-key solar power systems
utilizing EMCORE's concentrating photovoltaic (CPV) systems developed at
its Albuquerque, NM facility. The project developer, SunPeak Solar, is
securing land and grid access throughout 2008 and project construction is
expected to begin in early 2009. This agreement is not expected to
contribute revenues until 2009 and is dependant on the renewal of the
federal investment tax credit (ITC) extending into 2009 and
beyond.
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We are
committed to the ongoing evaluation of strategic opportunities that can expand
our addressable markets and strengthen our competitive position. Where
appropriate, we will acquire additional products, technologies, or businesses
that are complementary to, or broaden the markets in which we operate. We plan
to pursue strategic acquisitions, investments, and partnerships to increase
revenue and allow for higher overhead absorption that will improve our gross
margins.
Recent
acquisition activity includes:
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On
December 17, 2007, EMCORE entered into an Asset Purchase Agreement with
Intel Corporation (“Seller”). Under the terms of the Agreement,
EMCORE will purchase certain of the assets of Seller and its subsidiaries
relating to the telecom portion of Seller’s Optical Platform Division for
a purchase price of $85 million, as adjusted based on an inventory
true-up, plus specifically assumed liabilities. The purchase
price will be paid $75 million in cash and $10 million in cash or common
stock of EMCORE, at our option. The Agreement contains
termination rights for both EMCORE and Seller, including a provision
allowing either party to terminate the Agreement if the transaction has
not been consummated by June 18,
2008.
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This acquired
business, when consummated, will be part of EMCORE's Fiber Optics reporting
segment.
EMCORE is
committed to achieving profitability by increasing revenue through the
introduction of new products, reducing our cost structure and lowering the
breakeven points of our product lines. We have significantly
streamlined our manufacturing operations by focusing on core competencies to
identify cost efficiencies. Where appropriate, we transferred the manufacturing
of certain product lines to contract manufacturers.
In May
2007, EMCORE announced the opening of a new manufacturing facility in Langfang,
China. Our new company, Langfang EMCORE Optoelectronics Co. Ltd., is located
approximately 20 miles southeast of Beijing and currently occupies a space of
22,000 square feet with a Class-10,000 clean room for optoelectronic device
packaging. Another 60,000 square feet is available for future
expansion. We will transfer our most cost sensitive optoelectronic
devices to this facility. This facility, along with a strategic
alignment with our existing contract-manufacturing partners, should enable us to
improve our cost structure and gross margins. We also expect to develop and
provide improved service to our global customers using a local presence in
Asia.
EMCORE’s
restructuring programs are designed to further reduce the number of
manufacturing facilities, in addition to the divesture or exit from selected
businesses and product lines that were not strategic and/or were not capable of
achieving desired revenue or profitability goals. Recent facility
consolidations include:
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In
August 2007, we announced the consolidation of our North American fiber
optics engineering and design centers into our main operating sites.
EMCORE's engineering facilities in Virginia, Illinois, and northern
California were consolidated into larger primary sites in Albuquerque, New
Mexico and Alhambra, California. The consolidation of these engineering
sites should allow EMCORE to leverage resources within engineering, new
product introduction, and customer service. The design centers
in Virginia and northern California have been closed and the design center
in Illinois was vacated in October
2007.
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In
October 2006, we announced the move of our corporate headquarters from
Somerset, New Jersey to Albuquerque, New Mexico. Financial
operations and records have been transferred and the New Jersey facility
was vacated in September 2007.
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Our
results of operations and financial condition have and will continue to be
significantly affected by severance and restructuring charges, impairment of
long-lived assets and idle facility expenses incurred during facility closing
activities. Please refer to Risk Factors under Item 1A and Financial
Statements and Supplemental Data under Item 8 in our Annual Report on Form 10-K
for the fiscal year ended September 30, 2007, for further discussion of these
items.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Management develops estimates based on
historical experience and on various assumptions about the future that are
believed to be reasonable based on the best information available. EMCORE’s
reported financial position or results of operations may be materially different
under changed conditions or when using different estimates and assumptions,
particularly with respect to significant accounting policies, which are
discussed below. In the event that estimates or assumptions prove to differ from
actual results, adjustments are made in subsequent periods to reflect more
current information. EMCORE's most significant estimates relate to accounts
receivable, inventory, goodwill, intangibles, other long-lived assets, warranty
accruals, revenue recognition, and valuation of stock-based
compensation.
Valuation of Accounts
Receivable. EMCORE regularly evaluates the collectibility of its accounts
receivable and accordingly maintains allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to meet their
financial obligations to us. The allowance is based on the age of receivables
and a specific identification of receivables considered at risk. EMCORE
classifies charges associated with the allowance for doubtful accounts as
SG&A expense. If the financial condition of our customers were to
deteriorate, additional allowances may be required.
Valuation of
Inventory. Inventory is stated at the lower of cost or market, with cost
being determined using the standard cost method. EMCORE reserves against
inventory once it has been determined that: (i) conditions exist that may not
allow the inventory to be sold for its intended purpose, (ii) the inventory’s
value is determined to be less than cost, or (iii) the inventory is determined
to be obsolete. The charge related to inventory reserves is recorded as a cost
of revenue. The majority of the inventory write-downs are related to estimated
allowances for inventory whose carrying value is in excess of net realizable
value and on excess raw material components resulting from finished product
obsolescence. In most cases where EMCORE sells previously written down
inventory, it is typically sold as a component part of a finished product. The
finished product is sold at market price at the time resulting in higher average
gross margin on such revenue. EMCORE does not track the selling price of
individual raw material components that have been previously written down or
written off, since such raw material components usually are only a portion of
the resultant finished products and related sales price. EMCORE evaluates
inventory levels at least quarterly against sales forecasts on a significant
part-by-part basis, in addition to determining its overall inventory risk.
Reserves are adjusted to reflect inventory values in excess of forecasted sales,
as well as overall inventory risk assessed by management. We have incurred, and
may in the future incur, charges to write-down our inventory. While we believe,
based on current information, that the amount recorded for inventory is properly
reflected on our balance sheet, if market conditions are less favorable than our
forecasts, our future sales mix differs from our forecasted sales mix, or actual
demand from our customers is lower than our estimates, we may be required to
record additional inventory write-downs.
Valuation of Goodwill and
Intangible Assets. Goodwill represents the excess of the purchase price
of an acquired business or assets over the fair value of the identifiable assets
acquired and liabilities assumed. Intangible assets consist primarily of
intellectual property that has been internally developed or purchased. Purchased
intangible assets include existing and core technology, trademarks and trade
names, and customer contracts. Intangible assets are amortized using the
straight-lined method over estimated useful lives ranging from one to fifteen
years.
EMCORE
evaluates its goodwill and intangible assets for impairment on an annual basis,
or whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Circumstances that could trigger an impairment test
include but are not limited to: a significant adverse change in the business
climate or legal factors; an adverse action or assessment by a regulator;
unanticipated competition; loss of key personnel; the likelihood that a
reporting unit or significant portion of a reporting unit will be sold or
otherwise disposed; results of testing for recoverability of a significant asset
group within a reporting unit; and recognition of a goodwill impairment loss in
the financial statements of a subsidiary that is a component of a reporting
unit. The determination as to whether a write-down of goodwill or intangible
assets is necessary involves significant judgment based on the short-term and
long-term projections of the future performance of the reporting unit to which
the goodwill or intangible assets are attributed. As of December 31, 2006, we
tested for impairment on our goodwill and intangible assets and based on that
analysis, we determined that the carrying amount of the reporting units did not
exceed their fair value. The Company will conduct its annual test for
impairment during the quarter ended March 31, 2008 utilizing balances as of
December 31, 2007.
Valuation of Long-lived
Assets. EMCORE reviews long-lived assets on an annual basis or whenever
events or circumstances indicate that the assets may be impaired. A long-lived
asset is considered impaired when its anticipated undiscounted cash flow is less
than its carrying value. In making this determination, EMCORE uses certain
assumptions, including, but not limited to: (a) estimates of the fair market
value of these assets; and (b) estimates of future cash flows expected to be
generated by these assets, which are based on additional assumptions such as
asset utilization, length of service that assets will be used in our operations,
and estimated salvage values. As of December 31, 2006, we tested for impairment
of our long-lived assets and based on that analysis, we recorded no impairment
charges on any of EMCORE’s long-lived assets. The Company will conduct its
annual test for impairment during the quarter ended March 31, 2008 utilizing
balances as of December 31, 2007.
Product Warranty
Reserves. EMCORE provides its customers with limited rights of return for
non-conforming shipments and warranty claims for certain products. In accordance
with SFAS 5, Accounting for
Contingencies, EMCORE makes estimates of product warranty expense using
historical experience rates as a percentage of revenue and accrues estimated
warranty expense as a cost of revenue. We estimate the costs of our
warranty obligations based on our historical experience of known product failure
rates, use of materials to repair or replace defective products and service
delivery costs incurred in correcting product failures. In addition, from time
to time, specific warranty accruals may be made if unforeseen technical problems
arise. Should our actual experience relative to these factors differ from our
estimates, we may be required to record additional warranty reserves.
Alternatively, if we provide more reserves than we need, we may reverse a
portion of such provisions in future periods.
Revenue Recognition.
Revenue is recognized upon shipment provided persuasive evidence of a contract
exists, (such as when a purchase order or contract is received from a customer),
the price is fixed, the product meets its specifications, title and ownership
have transferred to the customer, and there is reasonable assurance of
collection of the sales proceeds. In those few instances where a given sale
involves post shipment obligations, formal customer acceptance documents, or
subjective rights of return, revenue is not recognized until all post-shipment
conditions have been satisfied and there is reasonable assurance of collection
of the sales proceeds. The majority of our products have shipping terms that are
free on board (FOB) or free carrier alongside (FCA) shipping point, which means
that EMCORE fulfills its delivery obligation when the goods are handed over to
the freight carrier at our shipping dock. This means the buyer bears all costs
and risks of loss or damage to the goods from that point. In certain cases,
EMCORE ships its products cost insurance and freight (CIF). Under this
arrangement, revenue is recognized under FCA shipping point terms, but EMCORE
pays (and bills the customer) for the cost of shipping and insurance to the
customer's designated location. EMCORE accounts for shipping and related
transportation costs by recording the charges that are invoiced to customers as
revenue, with the corresponding cost recorded as cost of revenue. In those
instances where inventory is maintained at a consigned location, revenue is
recognized only when our customer pulls product for its use and title and
ownership have transferred to the customer. Revenue from time and material
contracts is recognized at the contractual rates as labor hours and direct
expenses are incurred. EMCORE also generates service revenue from
hardware repairs and calibrations that is recognized as revenue upon completion
of the service. Any cost of warranties and remaining obligations that
are inconsequential or perfunctory are accrued when the corresponding revenue is
recognized.
Distributors - EMCORE uses a
number of distributors around the world. In accordance with Staff Accounting
Bulletin No. 104, Revenue
Recognition, EMCORE recognizes revenue upon shipment of product to these
distributors. Title and risk of loss pass to the distributors upon shipment, and
our distributors are contractually obligated to pay EMCORE on standard
commercial terms, just like our other direct customers. EMCORE does not sell to
its distributors on consignment and, except in the event of a product
discontinuance, does not give distributors a right of return.
Solar Panel Contracts -
EMCORE records revenues from certain solar panel contracts using the
percentage-of-completion method in accordance with AICPA Statement of Position
81-1 ("SOP 81-1"), Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts. Revenue is recognized in proportion to actual costs incurred
compared to total anticipated costs expected to be incurred for each contract.
If estimates of costs to complete long-term contracts indicate a loss, a
provision is made for the total loss anticipated. EMCORE has numerous contracts
that are in various stages of completion. Such contracts require estimates to
determine the appropriate cost and revenue recognition. EMCORE uses all
available information in determining dependable estimates of the extent of
progress towards completion, contract revenues, and contract costs. Estimates
are revised as additional information becomes available.
Government R&D Contracts
- - R&D contract revenue represents reimbursement by various U.S. Government
entities, or their contractors, to aid in the development of new technology. The
applicable contracts generally provide that EMCORE may elect to retain ownership
of inventions made in performing the work, subject to a non-exclusive license
retained by the U.S. Government to practice the inventions for governmental
purposes. The R&D contract funding may be based on a cost-plus, cost
reimbursement, or a firm fixed price arrangement. The amount of funding under
each R&D contract is determined based on cost estimates that include both
direct and indirect costs. Cost-plus funding is determined based on actual costs
plus a set margin. As we incur costs under cost reimbursement type contracts, we
record revenue. Contract costs include material, labor, special tooling and test
equipment, subcontracting costs, as well as an allocation of indirect costs. An
R&D contract is considered complete when all significant costs have been
incurred, milestones have been reached, and any reporting obligations to the
customer have been met. Government contract revenue is primarily
recognized as service revenue.
EMCORE
also has certain cost-sharing R&D arrangements. Under such
arrangements in which the actual costs of performance are divided between the
U.S. Government and EMCORE, no revenue is recorded and the Company’s R&D
expense is reduced for the amount of the cost-sharing receipts.
The U.S. Government may
terminate any of our government contracts at their convenience as well as for
default based on our failure to meet specified performance measurements. If any
of our government contracts were to be terminated for convenience, we generally
would be entitled to receive payment for work completed and allowable
termination or cancellation costs. If any of our government contracts were to be
terminated for default, generally the U.S. Government would pay only for the
work that has been accepted and can require us to pay the difference between the
original contract price and the cost to re-procure the contract items, net of
the work accepted from the original contract. The U.S. Government can also hold
us liable for damages resulting from the default.
Stock-Based
Compensation. The Company uses the Black-Scholes option-pricing model and
the straight-line attribution approach to determine the fair-value of
stock-based awards under SFAS 123(R), Share-Based
Payment (revised 2004). The Company elected to use the modified
prospective transition method as permitted by SFAS 123(R) and accordingly prior
periods were not restated to reflect the impact of SFAS 123(R). The modified
prospective transition method requires that stock-based compensation expense be
recorded for all new and unvested stock options and employee stock purchase plan
shares that are ultimately expected to vest as the requisite service is rendered
beginning on October 1, 2005, the first day of the Company’s fiscal year
2006. The option-pricing model requires the input of highly
subjective assumptions, including the option’s expected life and the price
volatility of the underlying stock. EMCORE’s expected term represents the period
that stock-based awards are expected to be outstanding and is determined based
on historical experience of similar awards, giving consideration to the
contractual terms of the stock-based awards, vesting schedules and expectations
of future employee behavior as influenced by changes to the terms of its
stock-based awards. The expected stock price volatility is based on EMCORE’s
historical stock prices. See Note 3, “Equity” of the Notes to Condensed
Consolidated Financial Statements for further details.
The above
listing is not intended to be a comprehensive list of all of our accounting
policies. In many cases, the accounting treatment of a particular transaction is
specifically dictated by U.S. GAAP. There also are areas in which
management's judgment in selecting any available alternative would not produce a
materially different result. For complete discussion of our accounting policies
and other required U.S. GAAP disclosures, we refer you to our Annual Report on
Form 10-K for the fiscal year ended September 30, 2007.
Results of
Operations
The
following table sets forth the condensed consolidated statements of operations
data of EMCORE expressed as a percentage of total revenues for the three months
ended December 31, 2007 and 2006.
For
the three months ended December 31,
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2007
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2006
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|
|
|
|
|
|
|
|
Product
revenue
|
|
|
94.9
|
%
|
|
92.3
|
%
|
Service
revenue
|
|
|
5.1
|
|
|
7.7
|
|
Total
revenue
|
|
|
100.0
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
|
75.7
|
|
|
80.2
|
|
Cost
of service revenue
|
|
|
3.3
|
|
|
5.6
|
|
Cost
of revenue
|
|
|
79.0
|
|
|
85.8
|
|
Gross
profit
|
|
|
21.0
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
34.6
|
|
|
32.5
|
|
Research
and development
|
|
|
15.3
|
|
|
17.1
|
|
Total
operating expenses
|
|
|
49.9
|
|
|
49.6
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(28.9
|
)
|
|
(35.4
|
)
|
|
|
|
|
|
|
|
|
Other
expenses (income):
|
|
|
|
|
|
|
|
Interest
(income) expense, net
|
|
|
1.6
|
|
|
(1.0
|
)
|
Loss
on disposal of equipment
|
|
|
0.2
|
|
|
-
|
|
Total
other expenses (income)
|
|
|
1.8
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(30.7
|
)%
|
|
(34.4
|
)%
|
Comparison of three months
ended December 31, 2007 and 2006
Consolidated
Revenue
For the three months ended
December 31, 2007, EMCORE’s consolidated revenue increased $8.3 million or 22%
to $46.9 million from $38.6 million, as reported in the prior year. For the
three months ended December 31, 2007, international sales increased $7.2 million
or 56%, when compared to the prior year. For the three months ended December 31,
2007, revenue from government contracts, which are primarily service contracts,
decreased $1.0 million or 32% to $2.1 million from $3.1 million, as reported in
the prior year. A comparison of revenue achieved at each of EMCORE’s reportable
segments follows:
Fiber
Optics.
Over the
past several years, communications networks have experienced dramatic growth in
data transmission traffic due to worldwide Internet access, e-mail, and
e-commerce. As Internet content expands to include full motion video on-demand,
HDTV, multi-channel high quality audio, online video conferencing, image
transfer, online multi-player gaming, and other broadband applications, the
delivery of such data will place a greater demand on available bandwidth and
require the support of higher capacity networks. The bulk of this traffic, which
continues to grow at a very high rate, is already routed through the optical
networking infrastructure used by local and long distance carriers, as well as
internet service providers. Optical fiber offers substantially greater bandwidth
capacity, is less error prone, and is easier to administer than older copper
wire technologies. As greater bandwidth capability is delivered closer to the
end user, increased demand for higher content, real-time, interactive visual and
audio content is expected. We believe that EMCORE is well positioned to benefit
from the continued deployment of these higher capacity fiber optic
networks. Customers for the Fiber Optics segment include: Avago
Technologies, Inc., Alcatel, Aurora Networks, BUPT-GUOAN Broadband, C-Cor
Electronics, Cisco Systems, Inc., Finisar, Hewlett-Packard Corporation, Intel
Corporation, Jabil, JDSU, Motorola, Network Appliance, Sycamore Networks, Inc.,
and Tellabs.
For the
three months ended December 31, 2007, EMCORE’s fiber optic revenues increased
$8.7 million or 34% to $34.0 million from $25.3 million, as reported in the
prior year. The increase in revenue was primarily related to sales of our CATV
products and FTTP components, as well as a recovery of 10G products that serve
the digital fiber optics sector, which increased 13% year-over-year and 16% from
the prior quarter. The communications industry in which we
participate continues to be dynamic. The driving factor is the competitive
environment that exists between cable operators, telephone companies, and
satellite and wireless service providers. Each are rapidly investing capital to
deploy a converging multi-service network capable of delivering “triple play
services”, i.e. digitalized video, voice and data content, bundled as a service
provided by a single communication provider. As a market leader in RF
transmission over fiber products for the CATV industry, EMCORE enables cable
companies to offer multiple forms of communications to meet the expanding demand
for high-speed Internet, on-demand and interactive video, and other new services
(such as HDTV and VOIP). Television is also undergoing a major transformation,
as the U.S. Government requires television stations to broadcast exclusively in
digital format, abandoning the analog format used for decades. Although the
transition date for digital transmissions is not expected for several years, the
build-out of these television networks has already begun. To support the
telephone companies plan to offer competing video, voice and data services
through the deployment of new fiber-based systems, EMCORE has developed and
maintains customer qualified FTTP components and subsystem products. Our CATV
and FTTP products include broadcast analog and digital fiber optic transmitters,
quadrature amplitude modulation (QAM) transmitters, video receivers, and passive
optical network (PON) transceivers. Government contract revenue for fiber optics
products for the three months ended December 31, 2006 totaled $0.2 million.
There was no government contract revenue during the three months ended December
31, 2007. Fiber optics revenue represented 72% and 66% of EMCORE's
total revenue for the three months ended December 31, 2007 and 2006,
respectively.
Photovoltaics.
EMCORE
provides advanced compound semiconductor solar cell products and solar panels,
which are more resistant to radiation levels in space and convert substantially
more power from sunlight than silicon-based solutions. EMCORE’s
Photovoltaics segment designs and manufactures multi-junction compound
semiconductor solar cells for both commercial and military satellite
applications as well as for use in terrestrial concentrating photovoltaic solar
power systems. Customers for the Photovoltaics segment include Boeing, General
Dynamics, the Indian Space Research Organization (“ISRO”), Lockheed Martin,
Space Systems/Loral and Green and Gold Energy.
For the
three months ended December 31, 2007, EMCORE’s photovoltaic revenues decreased
$0.4 million or 3% to $12.9 million from $13.3 million, as reported in the prior
year. The decline in revenue resulted from delivery and installation delays on
capital equipment purchased for its new expanded concentrator photovolatics
(“CPV”) solar cell and receiver manufacturing line. All required
capital equipment is expected to be on line in the second fiscal quarter and
shipment of CPV receivers should commence shortly. Government
contract revenues for photovoltaics products were $2.1 million and $2.8 million
for the three months ended December 31, 2007 and 2006,
respectively. Photovoltaics revenue represented 28% and 34% of
EMCORE's total revenues for the three months ended December 31, 2007 and 2006,
respectively.
We see
additional areas for growth resulting from the successful deployment of
terrestrial solar power systems that relay on our multi-junction solar cells and
CPV components. Concentrating PV systems have the potential to
provide cost effective solar power in regions of high solar resource and several
countries such as Italy, Spain and Greece have provided favorable feed in
tariffs for utility-scale solar power installations. EMCORE has
developed high efficiency multi-junction solar cells and integrated PV
components that function as the engine in concentrating photovoltaic systems and
we are well positioned to provide the enabling components in these large-scale
deployments. In the satellite industry, we see increased opportunity
in the commercial area as the number of geosynchronous communication satellite
launches have recovered from the decline observed earlier in the decade, with
Space Systems Loral winning a substantial share of the awards over the last
several years. Government and military procurement remains steady, and we have
succeeded in gaining market share in that area. We have recently been awarded
solar panel government contracts for military and science missions, and this
represents an expansion of our customer base.
Gross
Profit
For the
three months ended December 31, 2007, gross profit increased to $9.9 million
compared to $5.5 million, as reported in the prior year. Compared to the prior
year, gross margins increased to 21% from 14%. On a segment basis, margins for
Fiber Optics increased from 18% to 24% due to increased revenue and
restructuring efforts completed by the Company in the prior
year. Margins for the Photovoltaics segment improved from 8% as
reported in the prior year to 15% due to favorable product mix and improved
manufacturing yields.
Actions
designed to improve our gross margins (through product mix improvements, cost
reductions associated with product transfers and product rationalization,
maximizing production yields on high-performance devices and quality
improvements, among other things) continue to be a principal focus for
us. The establishment of a modern solar panel manufacturing facility,
adjacent to our solar cell fabrication operations, should facilitate
consistency, as well as reduce manufacturing costs. The benefit of having these
operations located at one site is expected to provide high quality, high
reliability and cost-effective solar components. We focus our activities on
developing new process control and yield management tools that enable us to
accelerate the adoption of new technologies into full-volume production, while
minimizing their associated risks.
For both
the three months ended December 31, 2007 and 2006, gross profit included the
effect of $0.2 million and $0.3 million, respectively, of stock-based
compensation expense related to employee stock options and employee stock
purchases under SFAS 123(R).
Operating
Expenses
Selling, General and Administrative.
For the three months ended December 31, 2007, SG&A expenses increased
$3.7 million or 30% to $16.2 million from $12.5 million, as reported in the
prior year.
Consistent with prior years, SG&A expense includes corporate overhead
expenses. As a percentage of revenue, SG&A increased from 33% to
35%. A significant portion of the year-over-year increase in
operating expenses was due to non-cash stock-based compensation
expense. During the three months ended December 31, 2007 and 2006,
SG&A included stock-based compensation expense of $4.9 million and $1.6
million, respectively. In 2007, the Company incurred
approximately $4.4 million in additional non-cash stock-based compensation
expense related to the modification of stock options issued to former employees,
which is described further in Note 3, “Equity” in the Notes to the Condensed
Consolidated Financial Statements.
Research and Development.
Our R&D efforts have been sharply focused to maintain our
technological leadership position by working to improve the quality and
attributes of our product lines. We also invest significant resources to develop
new products and production technology to expand into new market opportunities
by leveraging our existing technology base and infrastructure. Our efforts are
focused on designing new proprietary processes and products, on improving the
performance of our existing materials, components, and subsystems, and on
reducing costs in the product manufacturing process. In addition to using our
internal capacity to develop and manufacture products for our target markets,
EMCORE continues to expand its portfolio of products and technologies through
acquisitions.
For the
three months ended December 31, 2007, R&D expenses increased $0.6 million or
9% to $7.2 million from $6.6 million, as reported in the prior year. During the three months
ended December 31, 2007 and 2006, R&D included stock-based compensation
expense of $0.3 million and $0.4 million, respectively. As a
percentage of revenue, R&D decreased from 17% to 15%. We believe
that recently completed R&D projects have the potential to greatly improve
our competitive position and drive revenue growth in the next few
years.
As part
of the ongoing effort to cut costs, many of our projects are to develop lower
cost versions of our existing products and of our existing processes, while
improving quality. Also, we have implemented a program to focus research and
product development efforts on projects that we expect to generate returns
within one year. Our technology and product leadership is an important
competitive advantage. Driven by current and anticipated demand, we will
continue to invest in new technologies and products that offer our customers
increased efficiency, higher performance, improved functionality, and/or higher
levels of integration.
Other
Income & Expenses
Interest
Income. EMCORE realized a significant decrease in interest
income due to the Company’s decreased cash, cash equivalents and marketable
securities position.
Liquidity
and Capital Resources
Conclusion
We
believe that our current liquidity should be sufficient to meet our cash needs
for working capital through the next twelve months. 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. On December 17, 2007, EMCORE entered into an asset
purchase agreement with Intel Corporation to purchase certain assets of Intel's
Optical Platform Division for a purchase price of $85 million. The
purchase price will be paid $75 million in cash and $10 million in cash or
EMCORE common stock, at EMCORE's option. EMCORE has plans to improve
its liquidity position through additional equity financing, as well as potential
asset sales. 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, our
ability to continue to fund expansion, develop and enhance products and
services, or otherwise respond to competitive pressures may be severely limited.
Such a limitation could have a material adverse effect on EMCORE's business,
financial condition, results of operations, and cash flow.
Credit
Market Conditions
The
Company plans to fund the asset purchase of Intel’s Optical Platform Division
through (i) debt financing, (ii) equity financing and/or (iii) asset
sales. Currently, the U.S. capital markets are experiencing turbulent
conditions in the credit markets, as evidenced by tightening of lending
standards, reduced availability of credit vehicles accompanied by a reduction in
certain asset values. This potentially impacts EMCORE’s ability to
obtain this additional funding through financing or asset
sales. Although management believes it will be able to obtain the
funding necessary to fund the acquisition, despite the reduced availability of
these credit vehicles, no assurance can be made that the Company will be able to
finance the acquisition on commercially reasonable terms or at all.
Working
Capital
As of
December 31, 2007, EMCORE had working capital of approximately $54.2 million
compared to $63.2 million as of September 30, 2007. Cash, cash
equivalents, and marketable securities at December 31, 2007 totaled $29.8
million, which reflects a net decrease of $11.5 million from September 30,
2007. The decrease is primarily due to payment of professional fees
incurred with our review of historical stock option granting practices, legal
costs associated with our patent infringement lawsuits against Optium
Corporation, interest payments on our convertible subordinated notes, capital
expenditures, and various other increases in net working capital
requirements.
Cash
Flow
Net Cash Used For
Operations
For the
three months ended December 31, 2007, net cash used for operations decreased
$12.1 million to $11.0 million from $23.1 million, as reported in the prior
year. For the three months ended December 31, 2007, significant
changes in working capital include an increase in receivables of $3.2 million,
an increase in inventory of $0.4 million, an increase in accounts payable of
$1.6 million and a decrease in accrued expenses of $2.2 million. For the three
months ended December 31, 2006, changes in working capital include an increase
in receivables of $10.2 million, an increase in inventory of $0.5 million, a
decrease in accounts payable of $2.0 million and a decrease in accrued expenses
of $2.9 million.
Net Cash Provided by
Investing Activities
For the
three months ended December 31, 2007, net cash provided by investing activities
decreased by $7.8 million to $8.7 million from $16.5 million, as reported in the
prior year. Changes in investing cash flows for the three months ended December
31, 2007 and 2006 consisted primarily of:
|
·
|
An
increase in capital expenditures to $5.0 million from $1.2 million, as
reported in the prior year.
|
|
·
|
An
investment of $13.7 million, inclusive of $0.2 million in transaction
costs, in WorldWater during the quarter ended December 31,
2006.
|
|
·
|
Net
sales of $13.9 million in marketable securities compared to $30.7 million
for the same period in the prior
year.
|
Net Cash Provided by
Financing Activities
Cash
provided by financing activities was $4.8 million for the three months ended
December 31, 2007 compared to $0.4 million for the three months ended December
31, 2006. The increase in cash was due to proceeds from stock option
exercises.
Financing
Transaction
The
Company may redeem some or all of its convertible notes, at par value, if the
closing price of the Company's common stock exceeds $12.09 per share for at
least twenty trading days within a period of any thirty consecutive trading days
ending on the trading day prior to the date of mailing the notice of
redemption. The notice of redemption must be mailed to the holders of
the convertible notes at least 20 days but not more than 60 days before the
redemption date. Once the notice of redemption is mailed by the
Company to the holders of its convertible notes, the convertible notes become
irrevocably due and payable on the redemption date. Each of the
indentures governing the convertible notes requires the Company to deposit funds
sufficient to cover the redemption price of, plus accrued and unpaid interest
on, the convertible notes to be redeemed with the Trustee one business day prior
to the redemption date. The holders of the convertible notes can
convert the convertible notes into shares of the Company’s common stock at any
time before maturity, or with respect to convertible notes called for
redemption, until the close of business on the business day immediately
preceding the redemption date. The number of shares issuable upon
conversion is determined by dividing the principal amount to be converted by the
conversion price in effect on the conversion date. The conversion
price is $7.01, subject to customary anti-dilution adjustments.
On
January 29, 2008, the Company, in privately negotiated transactions, entered
into separate agreements with holders of approximately 97.5%, or approximately
$83.3 million aggregate principal amount, of its outstanding 5.50% convertible
senior subordinated notes due 2011 pursuant to which this small number of
holders converted their Notes into the Company’s common stock. Upon
conversion of the Notes, the Company will issue 11.9 million shares of
its common stock, based on a conversion price of $7.01, in accordance with the
terms of the Notes. The issuance of the Company’s common stock upon
conversion of the Notes will be made in reliance on the exemption from the
registration requirements provided under Section 3(a)(9) of the Securities
Act of 1933. To incentivize the holders to convert their Notes, the
Company made cash payments to such holders equal to 4% of the principal amount
of the Notes converted, or $3.3 million, plus accrued interest of approximately
$1.0 million on the Notes converted. This supplemental payment will
be charged to expense in the second quarter of fiscal 2008, along with the
acceleration of deferred financing costs of approximately $0.7
million. After giving effect to these transactions, the Company
expects to have approximately 64 million shares of common stock
outstanding.
In
addition, on January 29, 2008, the Company called for redemption all of its
outstanding Notes. After giving effect to the conversions, the
Company expects that approximately $2.1 million aggregate principal amount of
Notes will remain outstanding and subject to redemption. The redemption date
will be February 20, 2008, and the redemption price, will be 100% of the
principal amount of the Notes redeemed, plus accrued and unpaid interest to, but
not including, the redemption date. Note holders who wish to convert
their
Notes must do so by the close of business on February 19, 2008.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are
exposed to financial market risks, including changes in currency exchange rates
and interest rates. We do not use derivative financial instruments for
speculative purposes.
Currency Exchange Rates.
Although EMCORE enters into transactions denominated in foreign currencies from
time to time, the total amount of such transactions is not material.
Accordingly, fluctuations in foreign currency values would not have a material
adverse effect on our future financial condition or results of operations.
However, some of our foreign suppliers may adjust their prices (in $US) from
time to time to reflect currency exchange fluctuations, and such price changes
could impact our future financial condition or results of
operations. The Company does not currently hedge its foreign currency
exposure.
Interest Rates. We maintain
an investment portfolio in a variety of high-grade (AAA), short-term debt and
money market instruments such as auction-rate securities, which carry a minimal
degree of interest rate risk. Due in part to these factors, our future
investment income may be slightly less than expected because of changes in
interest rates, or we may suffer insignificant losses in principal if forced to
sell securities that have experienced a decline in market value because of
changes in interest rates. The Company does not currently hedge its
interest rate exposure.
ITEM
4. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
The
Company intends to maintain disclosure controls and procedures designed to
provide reasonable assurance that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934 (the “Act”) is recorded,
processed, summarized and reported within the specified time periods and
accumulated and communicated to management, including its Chief Executive
Officer (Principal Executive Officer) and Interim Chief Financial Officer
(Principal Financial Officer), as appropriate to allow timely decisions
regarding required disclosure.
Management,
under the supervision and with the participation of its Chief Executive Officer
(Principal Executive Officer) and Interim Chief Financial Officer (Principal
Financial Officer), evaluated the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)
promulgated under the Act), as of the end of the period covered by this report.
Based on that evaluation, management concluded that, as of that date, the
Company’s disclosure controls and procedures were effective at the reasonable
assurance level.
Attached
as exhibits to this Quarterly Report on Form 10-Q are certifications of the
Company’s Chief Executive Officer (Principal Executive Officer) and Interim
Chief Financial Officer (Principal Financial Officer), which are required in
accordance with Rule 13a-14 of the Act. This Disclosure Controls and
Procedures section includes information concerning management’s evaluation of
disclosure controls and procedures referred to in those certifications and, as
such, should be read in conjunction with the certifications of the Company’s
Chief Executive Officer (Principal Executive Officer) and Interim Chief
Financial Officer (Principal Financial Officer).
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Limitations
on the Effectiveness of Controls
Our
management, including our Chief Executive Officer and Interim Chief Financial
Officer, does not expect that our disclosure controls or our internal controls
will prevent or detect all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within EMCORE have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with
associated policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
PART
II. OTHER INFORMATION
The
Company is subject to various legal proceedings and claims that are discussed
below. The Company is also subject to certain other legal proceedings and claims
that have arisen in the ordinary course of business and which have not been
fully adjudicated. The Company does not believe it has a potential
liability related to current legal proceedings and claims that could
individually or in the aggregate have a material adverse effect on its financial
condition, liquidity or results of operations. However, the results of legal
proceedings cannot be predicted with certainty. Should the Company fail to
prevail in any legal matters or should several legal matters be resolved against
the Company in the same reporting period, the operating results of a particular
reporting period could be materially adversely affected.
SEC
Investigation
On
November 6, 2006, the Company informed the staff of the SEC of the Special
Committee’s investigation regarding the Company‘s historical review of stock
option granting practices. After the Company’s initial contact with
the SEC, the SEC opened a non-public investigation concerning the Company’s
historic option granting practices since the Company’s initial public
offering. The Company has fully cooperated with the SEC’s
investigation. Although we cannot predict the outcome of this matter,
we do not expect that such matter will have a material adverse effect on our
consolidated financial position or results of operations.
Shareholder
Derivative Litigation Relating to Historical Stock Option Practices
On
February 1, 2007, Plaintiff Lewis Edelstein filed a purported stockholder
derivative action (the “Federal Court Action”) on behalf of the Company against
certain of its present and former directors and officers (the “Individual
Defendants”), as well as the Company as nominal defendant, in the U.S. District
Court for the District of New Jersey, Edelstein v. Brodie, et.
al., Case No. 3:07-cv-00596-FLW-JJH (D.N.J.). On May 22,
2007, Plaintiffs Kathryn Gabaldon and Michael Sackrison each filed a purported
stockholder derivative action against the Individual Defendants, and the Company
as nominal defendant, in the Superior Court of New Jersey, Somerset County,
Gabaldon v. Brodie,
et. al., Case No. 3:07-cv-03185-FLW-JJH (D.N.J.) and Sackrison v. Brodie, et.
al., Case No. 3:07-cv-00596-FLW-JJH (D.N.J.) (collectively, the “State
Court Actions”).
Both the
Federal Court Action and the State Court Actions alleged, using essentially
identical contentions that the Individual Defendants engaged in improprieties
and violations of law in connection with the Company’s historical issuances of
stock options. Each of the actions seeks the same relief on behalf of
the Company, including, among other things, damages, equitable relief, corporate
governance reforms, an accounting, rescission, restitution and costs and
disbursements of the lawsuit. On July 10, 2007, the State Court
Actions were removed to the U.S. District Court for the District of New
Jersey.
On
September 26, 2007, the plaintiff in the Federal Court Action signed an
agreement in principle with the Individual Defendants and the Company to settle
that litigation in accordance with the Memorandum of Understanding (the “MOU”)
filed as Exhibit 10.10 to the Annual Report on Form 10-K for the year ended
September 30, 2006. That same day, the plaintiffs in the State Court
Actions advised the Federal Court that the settlement embodied in the MOU would
also constitute the settlement of the State Court Actions.
The MOU
provides that the Company will adhere to certain policies and procedures
relating to the issuance of stock options, stock trading by directors, officers
and employees, the composition of its Board of Directors, and the functioning of
the Board’s Audit and Compensation Committees. The MOU also provides
for the payment of $700,000 relating to plaintiff’s attorneys’ fees, costs and
expenses, which the Company’s insurance carrier has committed to pay on behalf
of the Company.
On
November 28, 2007, a Stipulation of Compromise and Settlement (the
“Stipulation”) substantially embodying the terms previously contained in the MOU
was fully executed by the Company and the other defendants and the plaintiffs in
the Federal Court Action and the State Court Actions. The Stipulation is filed
as Exhibit 10.19 to the Annual Report on Form 10-K for the year ended September
30, 2007.
The
Stipulation provides that the Company will adhere to certain policies and
procedures relating to the issuance of stock options, stock trading by
directors, officers and employees, the composition of its Board of Directors,
and the functioning of the Board’s Audit and Compensation
Committees. The Stipulation also provides for the payment of $700,000
relating to plaintiffs’ attorneys’ fees, costs and expenses, which the Company’s
insurance carrier has committed to pay on behalf of the Company. A
motion to approve the settlement reflected in the Stipulation was filed with the
U.S. District Court for the District of New Jersey on December 3,
2007. The Court granted the motion for preliminary approval of
the settlement on January 3, 2008. In the order of preliminary
approval, the Court required the Company to provide notice to shareholders by
February 14, 2008 and to set a date for a hearing for final approval of the
settlement for March 28, 2008. Upon such approval the settlement will
become final and binding on all parties and represent a final settlement of both
the Federal Court Action and the State Court Actions.
We have
recorded $700,000 as a liability for the stipulated settlement in fiscal year
2006 since events that led to the litigation existed as of that
date. Although we anticipate that our insurance carrier will cover
the stipulated settlement, we have not recorded any receivable, or gain
contingency, since the settlement is still contingent upon certain future
events.
Indemnification
Obligations
Subject
to certain limitations, we are obligated to indemnify our current and former
directors, officers and employees in connection with the Special Committee’s
investigation of our historical stock option practices, the related SEC
non-public investigation and shareholder litigation. These obligations arise
under the terms of our restated certificate of incorporation, our bylaws,
applicable contracts, and New Jersey law. The obligation to indemnify generally
means that we are required to pay or reimburse the individuals’ reasonable legal
expenses and possibly damages and other liabilities incurred in connection with
these matters. We are currently paying or reimbursing legal expenses being
incurred in connection with these matters by a number of our current and former
directors, officers and employees. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer
liability insurance policies that limits its exposure and enables it to recover
a portion of any future amounts paid.
Intellectual
Property Lawsuits
We
protect our proprietary technology by applying for patents where appropriate and
in other cases by preserving the technology, related know-how and information as
trade secrets. The success and competitive position of our product lines is
significantly impacted by our ability to obtain intellectual property protection
for our R&D efforts.
We have,
from time to time, exchanged correspondence with third parties regarding the
assertion of patent or other intellectual property rights in connection with
certain of our products and processes. Additionally, on September 11, 2006, we
filed a lawsuit against Optium Corporation (Optium) in the U.S. District Court
for the Western District of Pennsylvania for patent infringement. In the suit,
EMCORE and JDS Uniphase Corporation (JDSU) allege that Optium is infringing on
U.S. patents 6,282,003 and 6,490,071 with its Prisma II 1550nm transmitters. On
March 14, 2007, following denial of a motion to add additional claims to its
existing lawsuit, EMCORE and JDSU filed a second patent suit in the same court
against Optium alleging infringement of JDSU's patent 6,519,374 ("the '374
patent"). On March 15, 2007, Optium filed a declaratory judgment
action against EMCORE and JDSU. Optium seeks in this litigation a declaration
that certain products of Optium do not infringe the '374 patent and that the
patent is invalid. The '374 patent is assigned to JDSU and licensed to
EMCORE.
On
December 20, 2007, the Company was served with a complaint in another
declaratory relief action which Optium had filed in the Federal District Court
for the Western District of Pennsylvania. This action seeks to have
U.S. patents 6,282,003 and 6,490,071 declared invalid or unenforceable because
of certain conduct alleged to have occurred in connection with the grant of
these patents. These allegations are substantially the same as those
brought by Optium by motion in the Company’s own case against Optium, which
motion had been denied by the Court. The Company intends to assert
that the allegations in the complaint are without merit and intends to contest
them.
Credit
Market Conditions
The
Company plans to fund the asset purchase of Intel’s Optical Platform Division
through (i) debt financing, (ii) equity financing and/or (iii) asset
sales. Currently, the U.S. capital markets are experiencing turbulent
conditions in the credit markets, as evidenced by tightening of lending
standards, reduced availability of credit vehicles accompanied by a reduction in
certain asset values. This potentially impacts EMCORE’s ability to
obtain this additional funding through financing or asset
sales. Although management believes it will be able to obtain the
funding necessary to fund the acquisition, despite the reduced availability of
these credit vehicles, no assurance can be made that the Company will be able to
finance the acquisition on commercially reasonable terms or at all.
Please
see “Item 1A - Risk Factors” in our Annual Report on Form 10-K for the fiscal
year ended September 30, 2007 for additional risk factors.
ITEM
2. UNREGISTERED SALES OF EQUITY 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
|
(a)
|
The
Registrant held its 2007 Annual Meeting of Shareholders on December 3,
2007.
|
|
(b)
|
Charles
Scott and Hong Q. Hou were elected to the EMCORE Board of Directors for
three-year terms expiring in 2010. Thomas J. Russell, Reuben F.
Richards, Jr. and Robert Bogomolny will continue to serve on EMCORE’s
Board of Directors until the election in 2008. Thomas G.
Werthan and John Gillen will continue to serve on EMCORE’s Board of
Directors until the election in
2009.
|
|
(c)
|
(i)
|
The
total shares voted in the election of Directors were
41,315,195. There were no broker non-votes. The
shares voted for each Nominee were:
|
Charles
Scott
|
For 35,527,497
|
Withheld 5,787,698
|
|
|
|
Hong
Q. Hou
|
For 40,816,511
|
Withheld 498,684
|
|
|
(ii)
|
The
Shareholders ratified the appointment of Deloitte & Touche LLP as
the independent registered public accounting firm of the Company for the
fiscal year ended September 30, 2007, as
follows:
|
For
|
41,153,394
|
Against
|
130,480
|
Abstain
|
31,321
|
|
|
(iii)
|
The
Shareholders approved the Company’s 2007 Director’s Stock Award Plan, as
follows:
|
For
|
30,251,209
|
Against
|
354,979
|
Abstain
|
98,864
|
ITEM
5. OTHER INFORMATION
Not
Applicable
Exhibit
No.
|
Description
|
|
|
2.1*
|
Asset
Purchase Agreement, dated December 17, 2007, between EMCORE Corporation
and Intel Corporation
|
|
|
10.1*
|
2007
Director’s Stock Award Plan
|
|
|
31.1*
|
Certification
by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
31.2*
|
Certification
by Interim Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.1*
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2*
|
Certification
by Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
__________
* Filed
herewith
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: February
11, 2008
|
By:
|
/s/ Reuben F.
Richards, Jr.
|
|
|
Reuben
F. Richards, Jr.
|
|
|
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
|
Date: February
11, 2008
|
By: |
/s/ Adam
Gushard
|
|
|
Adam
Gushard
|
|
|
|
|
|
Interim
Chief Financial Officer
(Principal
Financial and Accounting
Officer)
|
Exhibit
No.
|
Description
|
|
|
|
Asset
Purchase Agreement, dated December 17, 2007, between EMCORE Corporation
and Intel Corporation
|
|
|
|
2007
Director’s Stock Award Plan
|
|
|
|
Certification
by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
by Interim Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
Certification
by Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
__________
* Filed herewith
ex2_1.htm
Exhibit
2.1
ASSET
PURCHASE AGREEMENT
BY
AND BETWEEN
INTEL
CORPORATION
AND
EMCORE
CORPORATION
DATED
AS OF DECEMBER 17, 2007
TABLE
OF CONTENTS
|
|
|
Page No.
|
|
|
|
|
ARTICLE
I DEFINITIONS
|
4
|
|
1.01
|
Definitions
|
4
|
|
1.02
|
Defined
Terms Generally
|
4
|
|
|
|
|
ARTICLE
II TRANSFER OF ASSETS
|
5
|
|
2.01
|
Transferred
Assets
|
5
|
|
2.02
|
Excluded
Assets
|
6
|
|
2.03
|
Assumed
Liabilities
|
7
|
|
2.04
|
Excluded
Liabilities
|
7
|
|
2.05
|
Assignment
of Contracts and Rights.
|
8
|
|
2.06
|
Consideration
|
9
|
|
2.07
|
Closing
|
10
|
|
2.08
|
Accounting
|
10
|
|
|
|
|
ARTICLE
III REPRESENTATIONS AND WARRANTIES OF SELLER
|
10
|
|
3.01
|
Existence
and Good Standing
|
11
|
|
3.02
|
Authorization
and Enforceability
|
11
|
|
3.03
|
Governmental
or Other Authorization
|
11
|
|
3.04
|
Non-Contravention
|
11
|
|
3.05
|
Personal
Property
|
12
|
|
3.06
|
Real
Property
|
12
|
|
3.07
|
Litigation
|
12
|
|
3.08
|
Transferred
Contracts
|
12
|
|
3.09
|
Compliance
with Applicable Laws
|
13
|
|
3.10
|
Tax
Matters.
|
13
|
|
3.11
|
Intellectual
Property.
|
13
|
|
3.12
|
Employee
Matters.
|
15
|
|
3.13
|
Financial
Information.
|
15
|
|
3.14
|
Absence
of Certain Changes
|
16
|
|
3.15
|
Environmental
Matters.
|
16
|
|
3.16
|
Product
Warranties
|
17
|
|
3.17
|
Transferred
Assets
|
17
|
|
3.18
|
Customers
|
17
|
|
3.19
|
Advisory
Fees
|
17
|
|
3.20
|
Disclaimer
of Warranties
|
17
|
|
|
|
|
ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF BUYER
|
18
|
|
4.01
|
Existence
and Good Standing
|
18
|
|
4.02
|
Authorization
and Enforceability
|
18
|
|
4.03
|
Governmental
or Other Authorization
|
18
|
|
4.04
|
Non-Contravention
|
18
|
|
4.05
|
Capital
Stock of Buyer
|
19
|
|
4.06
|
Buyer
SEC Reports
|
19
|
|
4.07
|
Absence
of Certain Changes
|
20
|
|
4.08
|
Litigation
|
20
|
|
4.09
|
Compliance
with Applicable Laws
|
20
|
|
4.10
|
Financing
|
20
|
|
4.11
|
Export
Compliance
|
20
|
|
4.12
|
Advisory
Fees
|
20
|
|
4.13
|
Reliance
|
21
|
|
4.14
|
Investigation
|
21
|
|
|
|
|
ARTICLE
V COVENANTS
|
21
|
|
5.01
|
Access
to Information.
|
21
|
|
5.02
|
Additions
to and Modification of Schedules; Notification
|
22
|
|
5.03
|
Compliance
with Terms of Governmental Approvals and Consents.
|
23
|
|
5.04
|
Use
of Marks
|
23
|
|
5.05
|
Cooperation
in Third Party Litigation
|
23
|
|
5.06
|
Assignments
|
24
|
|
5.07
|
Consents
and Filings;
Further Assurances
|
24
|
|
5.08
|
Public
Announcements; Customer Contacts
|
25
|
|
5.09
|
Allocation
of Expenses.
|
25
|
|
5.10
|
Allocation
of Consideration
|
27
|
|
5.11
|
Accounts
Receivable.
|
27
|
|
5.12
|
Accounts
Payable
|
28
|
|
5.13
|
Bulk
Sales Laws
|
28
|
|
5.14
|
Operation
of the Business Prior to Closing
|
28
|
|
5.15
|
Employees
Matters.
|
29
|
|
5.16
|
Non-Compete
Agreement.
|
30
|
|
5.17
|
Non-Solicitation
Agreements.
|
31
|
|
5.18
|
Protection
of Privacy
|
31
|
|
5.19
|
Business
Financial Statements
|
31
|
|
5.20
|
Export
Compliance
|
32
|
|
5.21
|
Lease
|
32
|
|
5.22
|
Confidentiality.
|
33
|
|
5.23
|
Availability
of Information; Registration Statement
|
33
|
|
|
|
|
ARTICLE
VI CONDITIONS TO CLOSING
|
34
|
|
6.01
|
Conditions
to Obligations of Buyer
|
34
|
|
6.02
|
Conditions
to Obligations of Seller
|
35
|
|
|
|
|
ARTICLE
VII INDEMNIFICATION
|
35
|
|
7.01
|
General
Survival
|
35
|
|
7.02
|
Indemnification.
|
36
|
|
7.03
|
Manner
of Indemnification.
|
37
|
|
7.04
|
Third-Party
Claims
|
38
|
|
7.05
|
Exclusive
Remedy
|
39
|
|
|
|
|
|
7.06
|
Subrogation
|
39
|
|
7.07
|
Damages
|
40
|
|
|
|
|
ARTICLE
VIII TERMINATION
|
40
|
|
8.01
|
Grounds
for Termination
|
40
|
|
8.02
|
Effect
of Termination
|
41
|
|
|
|
|
ARTICLE
IX MISCELLANEOUS
|
41
|
|
9.01
|
Notices
|
41
|
|
9.02
|
Notice
of Change of Control
|
42
|
|
9.03
|
Amendments;
Waivers.
|
43
|
|
9.04
|
Expenses
|
43
|
|
9.05
|
Successors
and Assigns
|
43
|
|
9.06
|
Governing
Law
|
43
|
|
9.07
|
Counterparts;
Effectiveness
|
43
|
|
9.08
|
Entire
Agreement
|
43
|
|
9.09
|
Captions
|
44
|
|
9.10
|
Severability
|
44
|
|
9.11
|
Construction
|
44
|
|
9.12
|
Dispute
Resolution.
|
44
|
|
9.13
|
Submission
to Jurisdiction; Waiver of Jury Trial.
|
45
|
|
9.14
|
Knowledge
of Breach; Disclosure Letters
|
45
|
|
9.15
|
Third
Party Beneficiaries
|
46
|
|
9.16
|
Specific
Performance
|
46
|
|
9.17
|
No
Presumption Against Drafting Party
|
46
|
ASSET
PURCHASE AGREEMENT
THIS
ASSET PURCHASE AGREEMENT, dated as of December 17, 2007 (the “Agreement”), is by
and between Intel Corporation, a Delaware corporation (the “Seller”), and EMCORE
Corporation, a New Jersey corporation (the “Buyer”). Seller
and Buyer are sometimes referred to as the “Parties” and each
individually as a “Party.” All
capitalized terms have the meanings ascribed to such terms in Article I or as
otherwise defined herein.
RECITALS
A. Seller
and certain of its Subsidiaries desire to sell to Buyer, and Buyer desires to
acquire from Seller and certain of its Subsidiaries, the Transferred Assets, and
Buyer is willing to assume the Assumed Liabilities, all upon the terms and
conditions set forth in this Agreement.
B. In
connection with the transactions contemplated by this Agreement, Buyer and
Seller also intend to enter into certain other agreements, including, but not
limited to, the Transition Services Agreement and the Intellectual Property
Agreement.
NOW,
THEREFORE, in consideration of the foregoing premises, the mutual
representations, warranties, covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereto agree as follows:
ARTICLE
I
DEFINITIONS
1.01 Definitions. Capitalized
terms used in this Agreement shall have the respective meanings ascribed to such
terms in Appendix A to
this Agreement.
1.02
Defined Terms
Generally. The definitions set forth in Appendix A or
otherwise referred to in this Agreement shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall
be deemed to be followed by the phrase “without limitation”. The
words “hereof”, “herein” and “hereunder” and words of similar import, when used
in this Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references herein to Articles,
Sections, Exhibits and Schedules shall be deemed to be references to Articles
and Sections of, and Exhibits and Schedules to, this Agreement unless the
context shall otherwise require. The table of contents and headings
for this Agreement are for reference purposes only and do not affect in any way
the meaning or interpretation of this Agreement. Unless the context
shall otherwise require, any reference to any contract, instrument, statute,
rule or regulation is a reference to it as amended and supplemented from time to
time (and, in the case of a statute, rule or regulation, to any successor
provision). Any reference in this Agreement to a “day” or a number of
“days” (without the explicit qualification of “Business”) shall be interpreted
as a reference to a calendar day or number of calendar days. If any
action is to be taken by any Party hereto pursuant to this Agreement on a day
that is not a Business Day, such action shall be taken on the next Business Day
following such day. All acts and proceedings to be taken and all
documents to be executed and delivered by the Parties at the Closing shall be
deemed to have been taken and executed simultaneously, and, except as permitted
hereunder, no acts or proceedings shall be deemed taken nor any documents
executed or delivered until all have taken, executed and
delivered.
TRANSFER
OF ASSETS
2.01
Transferred
Assets. Upon the terms and subject to the conditions of this
Agreement (including Section 2.05),
at the Closing, Buyer shall acquire from Seller and its Subsidiaries, and Seller
and its Subsidiaries shall sell, transfer, assign and convey to Buyer, or cause
to be sold, transferred, assigned and conveyed to Buyer, free and clear of all
Liens other than Permitted Liens, all of the right, title and interest of Seller
or its Subsidiaries, as the case may be, in, to and under the following assets,
as the same shall exist as of the Effective Time (collectively, the “Transferred
Assets”):
(a) the
Transferred Product Materials and Information;
(b) the
Transferred Equipment;
(c) the
Transferred Contracts;
(d) the
Transferred Patents;
(e) the
Transferred Trade Secrets
(f) the
Transferred Copyrights;
(g) the
Business Inventory with a value of $26,000,000 (the “Prepaid Inventory”)
and the Additional Inventory; (provided that title to the
Prepaid Inventory shall pass to Buyer at such time and subject to the conditions
set forth in the Transition Services Agreement and that title to the Additional
Inventory shall pass to Buyer at the time of the last Changeover Date as defined
in the Transition Services Agreement);
(h) all
Prepayments associated with Contracts that are Transferred
Contracts;
(i) all
permits, licenses, franchises, approvals, certificates, consents, waivers,
concessions, exemptions, orders, registrations, notices or other authorizations
of any Government Authority held by Seller or any of its Subsidiaries that are
used exclusively in connection with the Transferred Assets and that are by their
terms transferable to Buyer (the “Business Permits”)
provided that Buyer pay any fees required for such transfer; and
(j) the
Books and Records.
The
Transferred Intellectual Property (including the assets identified in clauses
(d) through (f) above) shall be subject to any (i) licenses retained by Seller
or granted to Seller pursuant to any Acquisition Document, (ii) Contracts with
use restrictions or
non-exclusive licenses to or with any Person existing on the date hereof granted
to or by Seller or its Subsidiaries and (iii) Contracts with use restrictions or
non-exclusive licenses to or with any Person entered into by a Seller or its
Subsidiaries in the ordinary course of business not in violation of this
Agreement prior to the Closing Date. The Transferred
Intellectual Property may be further obligated (either prior to the date hereof
or in the ordinary course of business between the date hereof and the Closing
Date) to be non-exclusively licensed, with or without receipt of payment, as a
result of Seller’s or its Subsidiaries’ participation in various Special
Interest Groups (SIGs), Standard Definition Organizations (SDOs) and similar
organizations which may impose obligations to non-exclusively license the
Transferred Intellectual Property to third parties. To the extent
that Seller or any of its Subsidiaries is required to ensure that successors
with respect to the Transferred Intellectual Property assume such obligations to
license, Buyer shall assume such obligations as of the Closing.
2.02 Excluded
Assets. Buyer and Seller expressly understand and agree that
all assets of Seller and its Subsidiaries, other than the Transferred Assets
(the “Excluded
Assets”), shall be excluded from the Transferred Assets, including, but
not limited to:
(a) all
assets, tangible or intangible, real or personal that are not specifically
identified in Section 2.01,
including all Intellectual Property other than the Transferred Intellectual
Property;
(b) all
Contracts that are not Transferred Contracts;
(c) all
Prepayments associated with Contracts that are not Transferred Contracts or
other obligations not assumed by Buyer;
(d) all
Seller Accounts Receivable;
(e) all
Cash and Cash Equivalents;
(f) all
Seller Inventory that is not Prepaid Inventory or Additional
Inventory;
(g) all
Employee Plans;
(h) all
Claims that relate to any of the other Excluded Assets or any of the Excluded
Liabilities;
(i) all
Claims that relate to events or breaches occurring on or prior to the Effective
Time that relate to the Transferred Assets, including causes of action, claims
and rights which Seller or its Subsidiaries may have under any insurance
contracts or policies insuring the Transferred Assets;
(j) all
rights to or claims for refunds of Taxes (including penalties) paid by Seller or
its Subsidiaries, including those imposed on property, income or payrolls, to
the extent such refunds of amounts were paid with respect to a Pre-Closing Tax
Period;
(k) all
rights, properties, and assets which have been used in the Business and which
shall have been transferred (including transfers by way of sale) licensed or
otherwise disposed of (either prior to the date hereof or in the ordinary course
of business between the date hereof and the Closing Date) not in violation of
the terms of this Agreement;
(l)
all enterprise software, databases and
networks of Seller or its Subsidiaries, including all sales management,
engineering, materials, business planning, manufacturing, logistics, finance and
accounting systems utilized by the Business;
(m) all
permits, licenses, franchises, approvals, certificates, consents, waivers,
concessions, exemptions, orders, registrations, notices or other authorizations
of any Government Authority held by Seller or any of its Subsidiaries other than
the Business Permits; and
(n)
all of the assets specifically identified on
Schedule
2.02(n).
2.03 Assumed
Liabilities. Upon
the terms and subject to the conditions of this Agreement, effective at the
Effective Time, Buyer shall assume, and shall pay, perform, fulfill and
discharge, the following Liabilities of Seller or its Subsidiaries
(collectively, the “Assumed
Liabilities”):
(a) all
Liabilities accruing from, arising out of or related to the Transferred
Contracts that are incurred or required to be paid, performed or otherwise
discharged on or after the Effective Time;
(b) all
Liabilities accruing from, arising out of or related to Buyer’s operation of the
Business and the ownership and operation of the Transferred Assets on or after
the Effective Time;
(c) all
Liabilities that are assumed by operation of Applicable Law related to the
Transferred Employees whose primary place of employment is outside the United
States, including those specified in Schedule
2.03(c);
(d) all
Product Obligations;
(e) any
Taxes to be paid by Buyer pursuant to Section 5.09;
and
(f) all
Liabilities to be performed by Buyer or its Subsidiaries under this Agreement
and the Ancillary Agreements.
The
assumption by Buyer of the Assumed Liabilities and the transfer of the Assumed
Liabilities by Seller and its Subsidiaries shall in no way expand the rights or
remedies of any Person against Buyer or Seller and its Subsidiaries or their
respective officers, directors, employees, shareholders and advisors as compared
to the rights and remedies that such Person would have had against such Parties
had Buyer not assumed the Assumed Liabilities. Without limiting the
generality of the foregoing, the assumption by Buyer of the Assumed Liabilities
shall not create any third-party beneficiary rights.
2.04 Excluded
Liabilities. Notwithstanding any provision of this Agreement
to the contrary (and without implication that Buyer is assuming any Liability of
Seller not expressly listed in Section 2.03), except
for those Liabilities expressly assumed by Buyer pursuant to Section 2.03 and
Section 5.09,
Buyer shall not assume and shall not be liable for, and Seller shall retain and
remain, as between Seller and Buyer, solely liable for and obligated to pay,
perform or discharge, all Liabilities of Seller and its Subsidiaries not
included in the Assumed Liabilities (the “Excluded
Liabilities”), including the following:
(a) all
Liabilities accruing from, arising out of or related to the Transferred
Contracts that are incurred or required to be paid, performed or otherwise
discharged prior to the Effective Time and all Liabilities for breaches by
Seller or its Subsidiaries of the Transferred Contracts prior to the Effective
Time;
(b) all
Pre-Closing Product Obligations;
(c) all
Liabilities for income Taxes, franchise Taxes or other Taxes based on income,
revenue, gross receipts, capital or net worth, and all Liabilities for other
Taxes not specifically provided for in Section 5.09 to the extent such other
Taxes arise from or relate to any Pre-Closing Tax Period;
(d) all
Seller Accounts Payable;
(e) except
as set forth in Section 2.03(c),
any Liabilities under Employee Plans and Employee Agreements;
(f) all
Liabilities accruing or arising from any Proceeding to the extent it is based on
the operation or ownership by Seller or its Subsidiaries of the Business or the
Transferred Assets prior to the Effective Time;
(g) all
Liabilities accruing or arising from Seller’s or its Subsidiaries’ failure to
comply with Applicable Laws with respect to the Business or the Transferred
Assets prior to the Effective Time;
(h) any
Liability for or in respect of any loan or other indebtedness for money borrowed
(including capital leases and guarantees) of Seller or any of its Subsidiaries
or Affiliates;
(i) any
Liability accruing from, arising out of or relating to Seller or its
Subsidiaries failure to comply with Environmental Law in connection with Seller
and its Subsidiaries’ use and occupation of the Leased Property prior the
Effective Time;
(j) any
Liability for actual or alleged infringement of any Intellectual Property that
relates to Products sold or shipped by Seller or its Subsidiaries prior to the
Effective Time;
(k) all
Liabilities accruing from, arising out of or relating to the Excluded Assets;
and
(l) all
Liabilities to be performed by Seller or its Subsidiaries under this Agreement
and the Ancillary Agreements.
2.05 Assignment of Contracts and
Rights.
(a) Anything
in this Agreement or any other Acquisition Document to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Transferred Asset or any claim or right or any benefit arising thereunder or
resulting therefrom if an attempted assignment thereof, without the consent of a
party thereto or the receipt of any Government Approvals or the satisfaction of
any other requirement thereof or applicable thereto, would constitute a breach
or other contravention thereof or in any way adversely affect the rights of
Buyer, Seller or any of Seller’s Subsidiaries thereunder. Seller and
Buyer will use commercially reasonable efforts (but without any payment of money
by Seller or Buyer) to obtain the consent of the other parties to any such
Transferred Asset or to obtain any claim or right or any benefit arising
thereunder for the assignment thereof to Buyer as Buyer may reasonably request;
provided, however, that Seller shall
have no obligation to assign or transfer any licenses of any Intellectual
Property or any licenses granted by Seller in connection with the sale,
distribution and license of the Products in the ordinary course of business that
are not Transferred Contracts. If such consent or Government Approval
is not obtained, or if an attempted assignment thereof would be ineffective or
would adversely affect the rights of Seller or any of Seller’s Subsidiaries
thereunder prior to the Closing or Buyer thereunder on or after the Closing so
that Buyer would not in fact receive all such rights, Seller and Buyer will
cooperate in a mutually agreeable arrangement under which Buyer would obtain the
benefits and assume the obligations thereunder from and after the Effective Time
in accordance with this Agreement, including sub-contracting, sub-licensing, or
sub-leasing to Buyer, or under which Seller would enforce for the benefit of
Buyer, with Buyer assuming Seller’s obligations, any and all rights of Seller
against a third party thereto.
(b) No
other rights are granted hereunder, by implication, estoppel, statute or
otherwise, except as expressly provided in this Agreement or in any other
Acquisition Document.
2.06 Consideration.
(a) The
aggregate consideration (collectively, the “Consideration”)
payable by Buyer to Seller for the Transferred Assets shall be $85,000,000,
consisting of:
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(i) |
cash
in the amount of $75,000,000 at the Closing (the “Cash
Consideration”); |
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(ii)
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at
Buyer’s option, pursuant to written notice given to Seller on the third
Business day before the Closing Date: (x) cash in the amount of
$10,000,000 (the “Additional Cash
Consideration”) or (y) a number of shares of the common stock, no
par value per share, of Buyer (the “Buyer Common
Stock”) equal to (A) $10,000,000, divided by (B) the Average Buyer
Trading Price, with cash in lieu of fractional interests in accordance
with Section
2.06(b) (the “Stock
Consideration”). The “Average Buyer Trading Price”
shall be the average volume weighted average price of the Buyer Common
Stock (as reported, absent manifest error, on Nasdaq.com) for the 10
consecutive trading days ending on and including the trading day that is
five Business Days immediately preceding the day on which the Closing
occurs; and
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(iii)
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the
assumption of the Assumed Liabilities by
Buyer.
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(b) If
there is a stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into capital stock),
reorganization, reclassification, combination, recapitalization or other like
change with respect to shares of Buyer Common Stock occurring after the date of
this Agreement and before the Effective Time, all references in this Agreement
to specified numbers of shares of any class or series affected thereby, and all
calculations provided for that are based upon numbers of shares of any class or
series (or trading prices therefore) affected thereby, shall be equitably
adjusted to the extent necessary to provide the parties the same economic effect
as contemplated by this Agreement prior to such stock split, reverse stock
split, stock dividend, reorganization, reclassification, combination,
recapitalization or other like change. No fraction of a share of
Buyer Common Stock will be issued in connection with the transactions
contemplated by this Agreement, and in lieu thereof Seller shall receive from
Buyer an amount of cash equal to such fraction of a share multiplied by the
Buyer Common Stock Price.
2.07 Closing. The
closing of the purchase and sale of the Transferred Assets hereunder (the “Closing”) shall take
place at the offices of Gibson, Dunn & Crutcher LLP, 1881 Page Mill Road,
Palo Alto, California 94304 on the date that is five Business Days after
satisfaction or waiver of the conditions set forth in Article VI or at such
other time and place or in such manner as the Parties may agree. At
the Closing:
(a) Seller
shall deliver to Buyer the Bill of Sale and, simultaneously with the
consummation of the transactions contemplated hereby, Seller, through its
officers, agents and employees, will put Buyer into possession of all tangible
Transferred Assets at the facilities where they are located as of the Closing
Date;
(b) Seller
and Buyer each shall execute and deliver the other Ancillary Agreements to which
it is a party;
(c) Buyer
shall pay to Seller the Cash Consideration by wire transfer of immediately
available funds to the account of Seller set forth on Schedule 2.07(c) and
shall either pay to Seller the Additional Cash Consideration by wire transfer of
immediately available funds to such account or shall deliver to Seller
certificates representing the Stock Consideration; and
(d) Buyer
and Seller shall execute and deliver a delivery protocol relating to the manner
for delivery of any software that is a Transferred Asset.
(e) Seller
shall deliver to Buyer a certificate of the secretary or an assistant secretary
of Seller attaching and certifying (i) the certificate of incorporation and
Bylaws of Seller as then in effect, (ii) the resolutions of the Board of
Directors of Seller delegating authority to certain authorized officers to
approve the transactions contemplated hereby.
(f) Buyer
shall deliver to Seller a certificate of the secretary of Buyer attaching and
certifying (i) the certificate of incorporation and Bylaws of Seller
as then in effect, (ii) the resolutions of the Board of Directors of Buyer
approving the transactions contemplated hereby, including the issuance of the
Stock Consideration, if applicable.
2.08 Accounting(a). From
and after the Effective Time, Buyer shall have the right and authority to
collect for its own account all items that are included in the Transferred
Assets.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF SELLER
Subject
to the exceptions to the representations and warranties in this Article III that are
disclosed in the disclosure letter delivered to Buyer by Seller on the date
hereof (the “Seller
Disclosure Letter”), Seller hereby represents and warrants to Buyer, as
of the date of this Agreement and as of the Closing Date, as
follows:
3.01 Existence and Good
Standing. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all corporate power and authority required to own, license, lease and operate
the Transferred Assets as now owned, licensed, leased and operated by
it. Seller is qualified to conduct business and is in good standing
in each jurisdiction in which it conducts the Business other than such
jurisdictions where the failure to be so qualified would not reasonably be
expected to have a Seller Material Adverse Effect. Each Subsidiary
of Seller that is transferring any Transferred Assets (any such Subsidiary, a
“Transferring
Subsidiary”) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization (to the
extent such concepts apply in such jurisdiction) and has all corporate power and
authority required to own, license, lease and operate the Transferred Assets as
now owned, licensed, leased and operated by it. Each Transferring
Subsidiary is qualified to conduct business and is in good standing in each
jurisdiction in which it conducts the Business other than such jurisdictions
where the failure to be so qualified would not reasonably be expected to have a
Seller Material Adverse Effect.
3.02 Authorization and
Enforceability. Seller has the corporate power and authority
to execute, deliver and perform under this Agreement and to effect the
transactions contemplated hereby, and each of Seller and each Transferring
Subsidiary has the corporate power and authority to execute, deliver and perform
the Ancillary Agreements and the other Acquisition Documents to which it is a
party and to effect the transactions contemplated thereby. The
execution, delivery and performance by Seller of this Agreement and by Seller
and each Transferring Subsidiary of the Ancillary Agreements to which Seller or
such Transferring Subsidiary is a party, and the consummation of the
transactions contemplated hereby and thereby have been, and the execution,
delivery and performance by Seller and each Transferring Subsidiary of any other
Acquisition Documents to which Seller or such Transferring Subsidiary is a party
and the consummation of the transactions contemplated thereby will be prior to
the Closing Date, duly authorized by all necessary corporate action of the
Seller or the relevant Transferring Subsidiary. This Agreement
has been and, when executed and delivered at the Closing, the other Acquisition
Documents will have been, duly and validly executed by Seller or the relevant
Transferring Subsidiary and, assuming the due execution and delivery of this
Agreement and the other Acquisition Documents to which it is a party by Buyer,
will constitute the legal, valid and binding agreements of Seller or such
Transferring Subsidiary, enforceable against it in accordance with their
respective terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors’ rights generally or to general principles of equity.
3.03 Governmental or Other
Authorization. The execution, delivery and performance by
Seller of this Agreement and the execution, delivery and performance by Seller
and each Transferring Subsidiary of the other Acquisition Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, require no Seller Governmental Approvals.
3.04 Non-Contravention. The
execution, delivery and performance by Seller of this Agreement and the
execution, delivery and performance by Seller and each Transferring Subsidiary
of the other Acquisition Documents to which it is a party, and the consummation
of the transactions contemplated hereby and thereby, do not and will not
contravene or conflict with the certificate of incorporation or bylaws of Seller
or any Transferring Subsidiary, or, except for matters that would not reasonably
be expected to have a Seller Material Adverse Effect, (a) assuming receipt
of any Seller Approvals that are Governmental Approvals, contravene or conflict
with or constitute a violation of any provision of any Applicable Law binding
upon or applicable to Seller, any Transferring Subsidiary or the Transferred
Assets or (b) assuming receipt of the Seller Contractual Consents, (i)
constitute a default under, give rise to any right of termination, cancellation,
modification, or acceleration of, or a loss of any material benefit under any
material Transferred Contract, (ii) result in the creation or imposition of any
Lien (other than Permitted Liens) on the Transferred Assets, or (iii) constitute
a breach, default or violation of any settlement agreement, judgment, injunction
or decree binding on or applicable to the Transferred Assets.
3.05 Personal
Property. Seller or one of its Subsidiaries has good and
marketable title to, or a valid and subsisting leasehold interest in, all of the
material tangible personal property that is a Transferred Asset. None
of such personal property is subject to any Lien other than (a) Permitted Liens,
(b) Liens that would not reasonably be expected to have a Seller Material
Adverse Effect and (c) any restriction contemplated by this Agreement or any of
the other Acquisition Documents.
3.06 Real
Property. Seller or one of its Subsidiaries has good and
marketable title to the any real property included in the Transferred Assets and
a valid and subsisting leasehold interest in all of the leased real property
that is a Transferred Asset, except as would not reasonably be expected to have
a Seller Material Adverse Effect. None of such real property is
subject to any Lien created by Seller or its Subsidiaries other than (a)
Permitted Liens, (b) Liens that would not reasonably be expected to have a
Seller Material Adverse Effect and (c) any restriction contemplated by this
Agreement or any of the other Acquisition Documents.
3.07 Litigation. There
are no Proceedings pending or, to Seller’s Knowledge, any Proceedings threatened
in writing or investigations pending or threatened in writing: (a) by or against
Seller or any of its Subsidiaries relating to any of the Transferred Assets that
would reasonably be expected to have a Seller Material Adverse Effect; or (b)
that seeks to prevent, enjoin, alter or delay the transactions contemplated by
this Agreement or any of the other Acquisition Documents. To Seller’s
Knowledge, there are no material existing orders, judgments or decrees of any
Governmental Authority against the Seller or its Subsidiaries relating to the
Transferred Assets or Assumed Liabilities that would be binding on Buyer or its
Subsidiaries after the Effective Time.
3.08 Transferred
Contracts. Except as would not reasonably be expected to have
a Seller Material Adverse Effect, each Transferred Contract is a valid and
binding obligation of Seller or one of its Subsidiaries that is a party thereto
and, to the Knowledge of Seller, is a valid and binding obligation of each other
Person who is a party thereto, enforceable against it in accordance with its
material terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors’ rights generally or to general principles of equity, and except
for breaches or defaults that would not reasonably be expected to have a Seller
Material Adverse Effect, none of Seller, any of its Subsidiaries or, to the
Knowledge of Seller, any other party thereto is in material breach under any
Transferred Contract.
3.09 Compliance with Applicable
Laws. Seller and its Subsidiaries have complied in all
material respects with all Applicable Laws relating to the Transferred Assets,
except where the failure to comply would not reasonably be expected to have a
Seller Material Adverse Effect. To the Knowledge of Seller, it has
not received written notice from any third party regarding any unresolved
actual, alleged or potential material violation of any Applicable Law with
respect to the Transferred Assets.
3.10 Tax
Matters.
(a)
Except to the extent that the failure to do so would not reasonably
be expected to have a Seller Material Adverse Effect, Seller and its
Subsidiaries have paid or cause to be paid all material Taxes relating to the
Transferred Assets allocable (as provided in Section 5.09) to the
Pre-Closing Tax Period that could become a liability of Buyer by reason of the
transfer of the Transferred Assets to Buyer as described herein, other than
non-delinquent Taxes incurred in the ordinary course of business since the
Financial Information Date in amounts consistent with prior periods (as adjusted
for changes in Tax rates and ordinary course fluctuations in operating
results). Neither Seller nor any of its Subsidiaries have an actual
or contingent liability for Taxes that will become a liability of Buyer by
reason of the transactions described herein, other than such non-delinquent
Taxes described in the immediately preceding sentence for which Buyer may become
liable by reason of statutory successor liability (or similar liability) under
Applicable Law.
(b) To
the Knowledge of Seller, no Governmental Authority has claimed that the
Transferred Assets or the Business are subject to Tax in a jurisdiction in which
the required Tax Returns have not been filed by the Seller or its
Subsidiaries.
(c) To
the Knowledge of Seller, no material issues have been raised in writing in any
audits, examinations or disputes pertaining to Taxes arising from the
Transferred Assets or the Business that would reasonably be expected to be
raised in similar examinations of Buyer following the Closing.
(d) The
representations and warranties contained in this Section 3.10 are the
only representations and warranties being made with respect to tax
matters.
3.11 Intellectual
Property.
(a)
Each material Transferred Copyright and Transferred Patent is free
and clear of any Liens other than Permitted Liens. To Seller’s
Knowledge, either Seller or one of its Subsidiaries owns or is licensed to, all
works of authorship and all associated Copyrights that are embodied in the
Products. Seller or a Transferring Subsidiary has good and marketable
title to the material Transferred Copyrights and the Transferred
Patents.
(b) To
the Knowledge of Seller, neither (i) the current use of the Transferred
Intellectual Property by Seller or any of its Subsidiaries in its current
operation of the Transferred Assets nor (ii) the current manufacture, marketing,
distribution or sale of any of the Products by Seller or its Subsidiaries in
their current operation of the Transferred Assets infringes any Copyrights or
Trade Secrets of any third party. Seller, to its Knowledge, has not
received any written claims currently pending from any Person claiming that the
Products infringe or misappropriate the Copyrights, Trade Secrets or Patents of
any Person. For the avoidance of doubt, a Product shall not be deemed
to infringe or misappropriate a Copyright, Trade Secret or Patent of any Person
and Seller shall not be deemed to have received a claim from a Person for
purposes of this Section 3.11(b) based
on (w) any manufacturing method or process generally used by Seller and not
limited to the Transferred Assets, (x) alleged or actual infringement by an
underlying component unless such component is material and unique to the
Products currently available from Seller; (y) alleged or actual infringement
required for the advertised compliance with an industry standard or recognized
specification available for licensing through an adopters group or other
organization; or (z) reference in the designs, specifications or documentation
of such Product to a product, specification or design of a third
party.
(c) Seller
has taken commercially reasonable steps to protect its rights in Trade Secrets
of Seller embodied in the Products including taking commercially reasonable
steps to have all of its respective current and former employees, consultants
and contractors employed in the Business execute and deliver to Seller a
proprietary information and assignment agreement. To the Knowledge of
Seller, it has not received written notice of any violation of or non-compliance
with such agreements.
(d) To
Seller’s Knowledge, neither Seller nor any of its Subsidiaries is a party to any
outstanding decree, order or judgment of any Governmental Authority that
restricts in any material manner the use, transfer or licensing of the
Transferred Copyrights, the Transferred Patents or the Products.
(e) All
registered Transferred Patents are currently in material compliance with formal
legal requirements involving the payment of fees to Governmental Authorities
(including payment of filing, examination and maintenance fees). To
the Knowledge of Seller, there are no proceedings or actions pending before any
court or tribunal (including the PTO or equivalent authority anywhere in the
world) to which Seller has been named as party and served with process that
involve the validity, scope or priority of Transferred Patents. None
of the Transferred Copyrights are registered Copyrights.
(f) To
Seller’s Knowledge, no software covered in its entirety by a Transferred
Copyright is subject to any “open source license” as that term is defined by the
Open Source Initiative.
(g) To
Seller’s Knowledge, none of the Transferred Intellectual Property was developed
by or on behalf of, or using grants or any other subsidies from, any
Governmental Authority or any university, and no government funding, facilities,
faculty or students of a university, college, other educational institution or
research center was used in the development of any Transferred Intellectual
Property.
(h) The
representations and warranties contained in this Section 3.11 are the
only representations and warranties being made, including with respect to
compliance with Applicable Laws, relating to intellectual property
matters.
3.12 Employee
Matters.
(a) Certain Employee
Plans. Each Employee Plan that is intended to be qualified
under Section 401(a) of the Code (i) has been maintained, operated and
administered in all material respects in compliance with its terms and
applicable Laws, and (ii) has received a favorable determination letter from the
Internal Revenue Service, and nothing has occurred since the date of any such
determination that could reasonably be expected to give the Internal Revenue
Service grounds to revoke such determination.
(b) Multiemployer
Plans. At no time has Seller or any other Person or entity
under common control with Seller within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder, contributed to or been
obligated to contribute to any Multiemployer Plan or any plan maintained
pursuant to a collective bargaining agreement, in either case with respect to
Business Employees or former Business Employees.
(c) Labor. No
work stoppage or labor strike against Seller or any of its Subsidiaries is
pending or, to Seller’s Knowledge, threatened in writing with respect to the
Business Employees. Seller has no Knowledge of any activities or
proceedings of any labor union to organize any Business Employees who are not
currently represented by a labor or trade union or employee representative
body. To Seller’s Knowledge, there are no actions, suits, claims,
labor disputes or grievances pending, or, to the Knowledge of Seller, threatened
in writing relating to any labor, safety or discrimination matters involving any
Business Employee, including charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would be reasonably expected to have
a Seller Material Adverse Effect. Neither Seller nor any of its
Subsidiaries is presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Business
Employees and no collective bargaining agreement is being negotiated by Seller
with respect to the Business Employees.
(d) Business Employee
List. All of the employees of Seller and its Subsidiaries who
work directly and primarily with the Transferred Assets as of the date hereof
(including (i) those on military leave and family and medical leave,
(ii) those on approved leaves of absence, and (iii) those on short-term
disability under the short-term disability program of Seller or its
Subsidiaries) regardless of the company payroll on which such individuals appear
(the “Business
Employees”), together with the country in which each such Business
Employee is based, are listed on Section 3.12 of
the Seller Disclosure Letter.
(e) Nature of Representations
and Warranties. The representations and warranties contained
in this Section
3.12 are the only representations and warranties being made with respect
to employee and employment matters.
3.13 Financial
Information.
(a) Seller
has delivered to Buyer copies of the estimated unaudited pro forma
consolidated statement of finished goods inventory of the Business at June 30,
2007 and of manufacturing fixed assets and R&D/other fixed assets of the
Business at September 29, 2007, and the related estimated unaudited
consolidated statement of net revenues and direct expenses of the Business for
the years ended each of December 25, 2004, December 31, 2005 and December 30,
2006(collectively, the “Financial
Statements”). The Financial Statements have been
prepared internally by Seller for management reporting purposes
only.
(b) The
Financial Statements have been derived from the books and records of Seller and
have not been separately audited. The Financial
Statements present fairly in all material respects the financial
condition and results of operations of the Business as of the date indicated or
the period indicated; provided, however, that the
Financial Statements (i) do not contain all adjustments necessary to comply with
GAAP (ii) do not reflect the assets, liabilities, revenues and expenses that
would have resulted if the Business had operated as an unaffiliated independent
company; (iii) include estimations for allocation of various revenues, costs and
expenses on a reasonable basis and (iv) have not been audited by any independent
certified public accountants or auditors.
3.14 Absence of Certain
Changes. From the Financial Information Date through the date
of this Agreement, other than with respect to the transactions contemplated by
this Agreement and the other Acquisition Documents, the Business has been
conducted in the ordinary course of business, and there has not
been:
(a) any
creation, assumption or sufferance of (whether by action or omission) the
existence of any Lien on any of the Transferred Assets, except, in each case, in
the ordinary course of business, other than (i) Permitted Liens and (ii) Liens
that would not reasonably be expected to have a Seller Material Adverse
Effect;
(b) any
waiver, amendment, termination or cancellation of any material Transferred
Contract or any relinquishment of any material rights thereunder by Seller, or
to the Knowledge of Seller, any other party, other than, in each such case, in
the ordinary course of business or that are not material with respect to the
Business;
(c) any
material change by Seller in its accounting principles, methods or practices as
they relate to the manner in which the Seller keeps its accounting books and
records relating to the Business, except (i) any such change required by a
change in GAAP or (ii) any change that results from any preparation or audit of
any of the Business Financial Statements;
(d) any
damage, destruction or other casualty loss that is material to the Transferred
Assets, taken as a whole;
(e) any
Seller Material Adverse Effect or any event, occurrence, development or state of
circumstances or facts that has had or would reasonably be expected to have a
Seller Material Adverse Effect; or
(f) any
agreement for Seller to take any of the actions specified in paragraphs (a)
through (d) above.
3.15 Environmental
Matters.
(a) Except
as would not reasonably be expected to have a Seller Material Adverse Effect, to
the Knowledge of Seller: (i) Seller and each of its Subsidiaries is in material
compliance with all material applicable Environmental Laws in connection with
the ownership or use of the Transferred Assets; and (ii) there are no written
claims pursuant to any Environmental Law pending or threatened in writing
against Seller or any of its Subsidiaries in connection with the ownership or
use of the Transferred Assets.
(b) The
representations and warranties contained in this Section 3.15 are the
only representations and warranties being made with respect to compliance with
or liability under Environmental Laws, or with respect to any environmental,
health or safety matter, including natural resources, related to the Business,
the Transferred Assets or Seller’s or its Subsidiaries’ ownership or operation
thereof.
3.16 Product
Warranties. A copy of Seller’s product warranties currently in
effect with respect to the Products as set forth in the order acknowledgement
forms for the Products is set forth on Section 3.16 of
the Seller Disclosure Letter. To the Knowledge of Seller, there are
no material outstanding claims with respect to product warranties relating to
the Products.
3.17 Transferred
Assets. Except for the Excluded Assets and the benefits
received by the Business by virtue of it being operated by Seller or one of its
Subsidiaries, the Transferred Assets and the assets made available to Buyer
under the Acquisition Documents, or to be used by Seller or its Subsidiaries in
the performance of the Transition Services Agreement, will, as of the Closing,
constitute all material assets (other than Intellectual Property) necessary for
the conduct of the Business as it is conducted by Seller and its Subsidiaries as
of the date hereof.
3.18 Customers. Section 3.18 of the
Seller Disclosure Letter lists the names of the 10 largest customers to whom the
Seller or its Subsidiaries has sold Products during the year ended
December 30, 2006 (based on dollar amount of net billings in connection
with the sale of such Products during such year). To Seller’s
Knowledge, neither Seller nor any of its Subsidiaries has received any written
statement from any customer whose name appears on Section 3.18 of the
Seller Disclosure Letter that such customer will not continue as a customer of
the Business after the Closing.
3.19 Advisory
Fees. There is no investment banker, broker, finder or other
intermediary or advisor that has been retained by or is authorized to act on
behalf of Seller, who will be entitled to any fee, commission or reimbursement
of expenses from Seller, or any Affiliate of Seller, upon consummation of the
transactions contemplated by this Agreement, the nonpayment of which could
result in a claim against, or obligation of, Buyer or any of its
Affiliates.
3.20 Disclaimer of
Warranties. EXCEPT WITH RESPECT TO THE REPRESENTATIONS AND
WARRANTIES SPECIFICALLY SET FORTH IN THIS ARTICLE III
(WHICH MAY BE RELIED UPON BY BUYER), ALL OF THE TRANSFERRED ASSETS ARE BEING
SOLD “AS IS, WHERE IS,” AND SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, WHETHER OF MERCHANTABILITY, SUITABILITY, NONINFRINGEMENT OR FITNESS
FOR A PARTICULAR PURPOSE, OR QUALITY AS TO THE TRANSFERRED ASSETS OR ANY PART OR
ITEM THEREOF, OR AS TO THE CONDITION, DESIGN, OBSOLESCENCE, WORKING ORDER OR
WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR
OTHERWISE, AND SELLER HEREBY DISCLAIMS ANY SUCH OTHER REPRESENTATIONS AND
WARRANTIES.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF BUYER
Subject
to the exceptions to the representations and warranties in this Article IV that are
disclosed in the disclosure letter delivered to Seller by Buyer on the date
hereof (the “Buyer
Disclosure Letter”), Buyer hereby represents and warrants to Seller, as
of the date of this Agreement and as of the Closing Date, as
follows:
4.01 Existence and Good
Standing. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey and has
all corporate power and authority required to carry on its
business. Buyer is qualified to conduct business in and is in good
standing in each jurisdiction in which it conducts business other than such
jurisdictions where the failure to be so qualified would not reasonably be
expected to have a Buyer Material Adverse Effect.
4.02 Authorization and
Enforceability. Buyer has the corporate power and authority to
execute, deliver and perform under this Agreement and to effect the transactions
contemplated hereby, and Buyer has the corporate power and authority to execute,
deliver and perform the Ancillary Agreements and the other Acquisition Documents
to which it is a party and to effect the transactions contemplated
thereby. The execution, delivery and performance by Buyer of this
Agreement and the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby have been, and the execution, delivery and
performance by Buyer of any other Acquisition Documents to which Buyer is a
party and the consummation of the transactions contemplated thereby will be
prior to the Closing Date, duly authorized by all necessary corporate action of
Buyer. This Agreement has been and, when executed at the Closing, the
other Acquisition Documents to which it is a party will have been, duly and
validly executed by Buyer, and, assuming the due execution and delivery of this
Agreement and the other Acquisition Documents by Seller and the Transferring
Subsidiaries, as applicable, will constitute the legal, valid and binding
agreements of Buyer, enforceable against it in accordance with their respective
terms, subject to any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to creditors’
rights generally or to general principles of equity.
4.03 Governmental or Other
Authorization. The execution, delivery and performance by
Buyer of this Agreement and the other Acquisition Documents to which it is a
party, and the consummation by it of the transactions contemplated hereby and
thereby, require no Buyer Approvals.
4.04 Non-Contravention. Except
for matters that would not reasonably be expected to have a Buyer Material
Adverse Effect, the execution, delivery and performance by Buyer of this
Agreement and the other Acquisition Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (a) contravene or conflict with the certificate of incorporation
or bylaws of Buyer, (b) assuming receipt of any Buyer Approvals that are
Governmental Approvals, contravene or conflict with or constitute a material
violation of any provision of any Applicable Law binding upon or applicable to
Buyer, or (c) assuming receipt of Buyer Approvals that are not Governmental
Approvals, constitute a material default under, give rise to any right of
termination, cancellation, modification or acceleration of or a loss of any
material benefit under any material agreement to which Buyer is a
party.
4.05 Capital
Stock of Buyer.
(a) The
authorized capital stock of Buyer consists of 100,000,000 shares of Buyer Common
Stock, of which 51,218,629 shares were issued and outstanding as of October 19,
2007, and 5,882,352 shares of preferred stock, no par value per share, of which
no shares are issued and outstanding. All of such outstanding shares
are or have been, and all of the shares of Buyer Common Stock to be issued to
Seller on the Closing Date, when so issued, will be, duly authorized, validly
issued, fully paid and nonassessable, free of preemptive rights and Liabilities
created by statute, Buyer’s certificate of incorporation or by-laws or any
agreement to which Buyer is a party or by which Buyer is bound, and issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. No shareholder approval or any other approvals are
required for the issuance of the shares of the Buyer Common Stock to be issued
to Seller at the Closing, and Buyer has reserved such shares for issuance to
Seller.
(b) Except
as disclosed in the Buyer SEC Documents, (i) no option, warrant, call,
subscription right, conversion right or other contract or commitment of any kind
exists of any character, written or oral, which may obligate Buyer to issue or
sell, or by which any shares of capital stock may otherwise become outstanding
and (ii) Buyer has no obligation (contingent or otherwise) to purchase, redeem
or otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof.
4.06 Buyer SEC
Reports. Buyer has filed all required documents with the
Securities and Exchange Commission (the “SEC”) since
December 31, 2004 (the “Buyer SEC
Documents”). As of their respective dates, the Buyer SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended or the Exchange Act, as the case may be, and,
at the respective times they were filed, none of the Buyer SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, except
to the extent corrected in a subsequent Buyer SEC Document filed prior to the
date of this Agreement. The consolidated financial statements
(including, in each case, any notes thereto) of Buyer included in the Buyer SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP (except as may be
indicated in the notes thereto, in the case of the unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto)
and fairly presented in all material respects the consolidated financial
position of Buyer and its consolidated Subsidiaries as at the respective dates
thereof and the consolidated results of their operations and their consolidated
cash flows for the periods then ended (except as otherwise noted therein and
subject, in the case of unaudited statements, to normal year-end audit
adjustments and to any other adjustments described therein).
4.07 Absence of Certain
Changes. Except as disclosed in the Buyer SEC Documents, the
business of Buyer and its Subsidiaries has been conducted in the ordinary course
consistent with past practice, and since the September 30, 2007 there has not
been:
(a) any
event, occurrence, development or state of circumstances or facts that has had
or would reasonably be expected to have a Buyer Material Adverse
Effect;
(b) any
amendment of any material term of any outstanding security of
Buyer;
(c) any
sale of a material amount of assets (tangible or intangible) of Buyer, other
than sales of products in the ordinary course of business consistent with past
practices;
(d) any
change in any method of accounting or accounting principles or practice by Buyer
or any of its Subsidiaries, except for any such change required by reason of a
concurrent change in GAAP; or
(e) any
agreement by Buyer or any officer thereof in their capacities as such to do any
of the things described in the preceding clauses (a) through (d).
4.08 Litigation. There
are no Proceedings pending or, to Buyer’s Knowledge, any Proceedings threatened
in writing or investigations pending or threatened in writing: (a) by or
against Buyer or any of its Subsidiaries, or their respective activities,
properties or assets that would reasonably be expected to have a Buyer Material
Adverse Effect; or (b) that seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement or any of the other Acquisition
Documents. There are no existing orders, judgments or decrees of any
Governmental Authority against Buyer or its Subsidiaries or relating to any of
their respective business or properties, except for such orders, judgments or
decrees as would not reasonably be expected to have a Buyer Material Adverse
Effect.
4.09 Compliance with Applicable
Laws. Buyer and its Subsidiaries have complied in all material
respects with any Applicable Laws relating to their business and properties,
except where the failure to comply would not reasonably be expected to have a
Buyer Material Adverse Effect.
4.10 Financing. Buyer
has, or will have as of the Closing Date, sufficient funds to permit the Buyer
to consummate the transactions contemplated by this Agreement and the other
Acquisition Documents. Notwithstanding anything to the contrary
contained herein, the Parties acknowledge and agree that it shall not be a
condition to the obligations of the Buyer to consummate the transactions
contemplated hereby that the Buyer have sufficient funds for payment of the
Consideration.
4.11 Export
Compliance. Buyer acknowledges that the Transferred Assets
include technology that is “controlled technology” under the U.S. Export
Administration Regulations, including technology that is classified as ECCN
5A991 of the U.S. Export Administration Regulations.
4.12 Advisory
Fees. There is no investment banker, broker, finder or other
intermediary or advisor that has been retained by or is authorized to act on
behalf of Buyer, who will be entitled to any fee, commission or reimbursement of
expenses from Buyer, or any Affiliate of Buyer, upon consummation of the
transactions contemplated by this Agreement, the nonpayment of which could
result in a claim against, or obligation of, Seller, its Subsidiaries or any of
its Affiliates.
4.13 Reliance. Buyer acknowledges that
(a) the representations and warranties of Seller contained in Article III
constitute the sole and exclusive representations and warranties of Seller to
Buyer in connection with this Agreement and the transactions contemplated
hereby, and (b) all other representations and warranties are specifically
disclaimed and may not be relied upon or serve as a basis for a claim against
Seller. BUYER ACKNOWLEDGES THAT SELLER DISCLAIMS ALL REPRESENTATIONS
AND WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED IN ARTICLE III OF THIS
AGREEMENT AS TO THE TRANSFERRED ASSETS AND THE BUSINESS, WHETHER EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR WARRANTY FOR FITNESS FOR A
PARTICULAR PURPOSE. BUYER IS ACQUIRING THE PURCHASED ASSETS ON AN “AS
IS, WHERE IS” BASIS.
4.14 Investigation. Buyer
is a sophisticated purchaser and has conducted such investigation and
inspection of the Transferred Assets, the Assumed Liabilities, the Business and
the Products that Buyer has deemed necessary or appropriate for the purpose of
entering into this Agreement and consummating the transactions contemplated by
this Agreement. In executing this Agreement, except for the
representations and warranties expressly contained in Article III of this
Agreement, Buyer is relying on its own investigation in electing to acquire the
Transferred Assets on the terms and subject to the conditions set forth in this
Agreement and the other Acquisition Documents, and on the provisions set forth
herein and therein, and not on any other statements, presentations,
representations, warranties or assurances of any kind made by Seller, any of its
Subsidiaries, its or their representatives or any other Person. Neither the
Seller nor any of its affiliates or representatives shall have any liability to
the Buyer or any of its affiliates or representatives resulting from the use of
any information, documents or materials made available to Buyer, whether orally
or in writing, in any confidential information memoranda, "data rooms",
management presentations, due diligence discussions or in any other form in
expectation of the transactions contemplated by this Agreement and the other
Acquisition Documents.
ARTICLE
V
COVENANTS
5.01 Access to
Information.
(a) Between
the date hereof and the Closing, Seller agrees to provide to Buyer and its
employees, financial advisors, attorneys and accountants reasonable access to
the offices and properties where Seller conducts the Business and the Books and
Records, upon reasonable prior notice, during normal business hours, under
Seller’s supervision and at Buyer’s expense, in order to conduct a review of the
Transferred Assets and the Business; provided, however, that
nothing in this Section 5.01(a) shall
be deemed to require any Party to disclose any information that it is prohibited
from disclosing under any non-disclosure agreement entered into prior to the
date of this Agreement or in the ordinary course of business after the date of
this Agreement. Each of the Parties hereto will hold, and will cause
its employees, financial advisors, attorneys and accountants to hold,
in confidence all documents and information furnished to it by or on behalf of
another party to this Agreement in connection with the transactions contemplated
by this Agreement and the other Acquisition Documents pursuant to the terms of
the Confidentiality Agreement.
(b) Buyer
shall maintain for six years after the Closing Date all of the Books and
Records. After the Closing, Buyer shall provide Seller and its
employees, financial advisors, attorneys and accountants, during normal business
hours and upon reasonable notice from Seller, with reasonable access to the
Books and Records and with the ability to make, retain and use copies of such
books and records. If, at any time after the sixth anniversary of the
Closing Date, Buyer proposes to dispose of any of the Books and Records, Buyer
shall first offer to deliver the same to Seller at the expense of
Seller.
(c) Following
the Closing, each Party (the “Possessing Party”)
will afford the other Party (the “Receiving Party”),
its employees, financial advisors, attorneys and accountants, during normal
business hours and upon reasonable notice from the Receiving Party, reasonable
access to information relating to the Transferred Assets, the Assumed
Liabilities and the Business in the Possessing Party’s possession and, to the
extent reasonably requested, will provide copies and extracts therefrom, all to
the extent that such access may be reasonably required by the Receiving Party in
connection with (i) the preparation of Tax Returns, (ii) compliance with the
requirements of any Governmental Authority, (iii) the resolution of
claims made by a third party against or incurred by Seller or Buyer pertaining
to the Transferred Assets, the Assumed Liabilities or the Business, or (iv) the
preparation by Buyer of financial statements relating to the Business, the
Transferred Assets and the Assumed Liabilities to be filed with the SEC; provided, however, that
nothing in this Section 5.01(c) shall
be deemed to require any Party to disclose any information that it is prohibited
from disclosing under any non-disclosure agreement entered into prior to the
date of this Agreement or in the ordinary course of business after the date of
this Agreement. The Receiving Party shall reimburse the Possessing
Party for reasonable out-of-pocket costs and expenses incurred by the Possessing
Party in providing such information and in rendering such
assistance.
5.02 Additions to and
Modification of Schedules; Notification. If on the Closing
Date or any date prior to the Closing Date, any of the information in any
schedule or the Seller Disclosure Letter or the Buyer Disclosure Letter, as the
case may be, is not true, accurate and complete in all material respects on and
as of such date, either Party shall be entitled to amend the schedules or the
Seller Disclosure Letter or Buyer Disclosure Letter, as the case may be, to make
additions to or modifications of such schedules necessary to make the
information set forth therein true, accurate and complete in all material
respects; provided,
however, that (x) any
such amendment, addition or modification shall not be deemed to
modify such Party’s representations and warranties for purposes of Article VI or Article VII of this
Agreement if (i) such amendment, addition or modification relates to matters
occurring or arising prior to the date hereof that should have been disclosed in
the Seller Disclosure Letter or Buyer Disclosure Letter, as the case may be, as
of the date hereof but were not so disclosed or (ii) such amendment, addition or
modification relates to actions by such Party after the date hereof and before
the Closing Date in breach of this Agreement and (y) no such amendment shall add
any new Contracts to the list of Transferred Contracts, amend Schedule 2.03(c) or
add any Assumed Liabilities not contemplated by Section 2.03 without
the prior written consent of Buyer. Between the date hereof and
the Closing Date, each of Buyer and Seller shall notify the other party if Buyer
or Seller, as the case may be, obtains Knowledge of any condition or event that
would reasonably be expected to result in such Party being unable to satisfy the
closing condition set forth in Section 6.01(a), in
the case of Seller, or Section 6.02(a), in
the case of Buyer. Between the date hereof and the Closing Date,
Buyer shall notify Seller if it obtains Knowledge of any condition or event that
would be reasonably likely to result in a material breach by Seller of its
representations and warranties hereunder as of the Closing
Date.
5.03 Compliance with Terms of
Governmental Approvals and Consents. From and after the
Closing Date, Buyer shall comply at its own expense with all conditions and
requirements imposed on Buyer as set forth in (a) Buyer Approvals that are
Governmental Approvals, to the extent necessary such that all such Governmental
Approvals will remain in full force and effect assuming, if applicable,
continued compliance with the terms thereof by Seller and (b) all Buyer
Approvals of Persons other than Governmental Authorities, to the extent
necessary such that all such consents and approvals will remain effective and
enforceable against the Persons giving such consents and approvals, assuming, if
applicable, continued compliance with the terms thereof by
Seller. From and after the Closing Date, Seller shall comply at its
own expense with all conditions and requirements imposed on Seller as set forth
in (a) Seller Governmental Approvals, to the extent necessary such that all
such Seller Governmental Approvals will remain in full force and effect
assuming, if applicable, continued compliance with the terms thereof by Buyer
and (b) all Seller Contractual Consents to the extent necessary such that
all such consents and approvals will remain effective and enforceable against
the Persons giving such consents and approvals, assuming, if applicable,
continued compliance with the terms thereof by Buyer.
5.04 Use of
Marks. Notwithstanding any other provision of this Agreement,
no interest in or right to use the name “Intel” or any derivation thereof or any
other Trademarks, service marks or tradenames of Seller other than the
Transferred Trademarks, if any (the “Retained Marks”), is
being transferred or otherwise licensed to Buyer pursuant to the transactions
contemplated by this Agreement. Buyer agrees not to use any materials
bearing Retained Marks or sell, transfer or ship any products or related
materials bearing Retained Marks (a) unless requested to do so by Seller, (b)
except to the extent displayed on the hardcopy (non-electronic) form of such
materials delivered to Buyer at the Closing or (c) except as required under
Transferred Contracts with customers until, in all cases, the earlier of (i)
such time as Buyer shall have qualified the use of its logo, Trademarks or
tradenames with each such customer and (ii) 90 days after the Closing Date, or
such later date as may be permitted pursuant to the terms of the Transition
Services Agreement solely for the purposes as may be set forth therein, not to
exceed one year from the Closing Date. The foregoing rights are
subject to Seller’s standard Trademark usage guidelines, a copy of which has
been provided to Buyer, and Seller reserves the right to practice quality
control with regard to its marks and any products or services marketed or sold
thereunder. Upon the expiration of the foregoing license, all
materials bearing any Retained Mark in the possession of Buyer, any of its
Subsidiaries or any of their respective agents shall be promptly
destroyed. Prior to any distribution of any materials bearing
Retained Marks, Buyer shall use its reasonable best efforts to redact or modify
such materials in order to minimize or eliminate the use of the Retained
Marks.
5.05 Cooperation in Third Party
Litigation.
(a) After
the Closing, each Party shall provide such assistance and cooperation as the
other Party or its counsel may reasonably request in connection with any Claims
or Proceedings relating to the Business and the Transferred Assets, the Assumed
Liabilities or the Business; provided that such duty to
assist and cooperate shall be at the cost of the Party making such
request.
(b) Without
limiting the generality of the foregoing, with respect to the Transferred
Employees, Buyer shall, upon Seller's reasonable request and at Seller's
expense, make each such Transferred Employee reasonably available to Seller for
meetings and/or teleconferences in preparation for depositions or any judicial
proceedings in connection with any Claims or Proceedings relating to the
Business and the Transferred Assets, the Assumed Liabilities or the Business,
provided that such
availability does not materially interfere with the Transferred Employees
performance of his or her duties. In addition, Seller shall be permitted to
retain copies of and use all documents (whether hard copy, electronic or
otherwise) transferred as part of the Transferred Assets, or in the possession
of the Transferred Employees, that relate to any Claims, Proceedings or
investigations relating to the Business and the Transferred Assets, the Assumed
Liabilities or the Business.
5.06 Assignments. Seller
will reasonably cooperate with Buyer in transferring applications and
registrations for the Transferred Copyrights, the Transferred Patents and the
Transferred Trade Secrets to the extent that Seller has applied for or obtained
registrations therefor; provided, however, that on and after
the Closing Date, Seller shall not have or incur any further obligations or
expenses in connection therewith, and it shall be the sole responsibility of
Buyer to pursue, protect or perfect any such rights as it may see fit in its
sole discretion.
5.07 Consents
and Filings;
Further Assurances. Each Party agrees to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other commercially reasonable actions as may be reasonably necessary or
desirable in order to (a) consummate or implement expeditiously the
transactions contemplated by this Agreement and the other Acquisition Documents
or (b) obtain any Seller Contractual Consents and, in connection therewith,
obtain the release of Seller and/or its Affiliates from the Assumed Liabilities
under the Transferred Contracts. Each Party agrees to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other commercially reasonable actions as may be reasonably necessary
or desirable to obtain from Governmental Authorities and other Persons all
consents, approvals, authorizations, qualifications and orders as are necessary
for the consummation of the transactions contemplated by this Agreement and the
Acquisition Documents and to promptly make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement required
under the HSR Act. Seller and Buyer shall keep each other timely
apprised of the status of any communications with, and any inquiries from, the
United States Federal Trade Commission and the United States Department of
Justice, and shall comply promptly with any such inquiry or
request. Notwithstanding the foregoing, no Party shall have any
obligation to expend any funds or to incur any other obligation in connection
with the consummation of the transactions contemplated hereby (including, by way
of illustration only, any payment in connection with obtaining the Seller
Contractual Consents, Seller Governmental Approvals or Buyer Approvals) other
than normal out-of-pocket expenses (such as fees of counsel, accountants and
auditors) reasonably necessary to consummate such
transactions. Notwithstanding the foregoing, Seller shall not be
required to assist Buyer to obtain any third party
licenses.
5.08 Public Announcements; Customer
Contacts.
(a) Neither
Buyer nor Seller nor any of their respective Affiliates, officers, directors,
employees or other representatives shall issue any press release or otherwise
make any public statements with respect to this Agreement or any of the other
Acquisition Documents, or the transactions contemplated hereby or thereby
without the prior written consent of Buyer (in the case of Seller) or Seller (in
the case of Buyer), except as may be required by Applicable Law, or by the rules
and regulations of, or pursuant to any agreement with, the Nasdaq Global Select
Market. If any Party determines, with the advice of counsel, that it
is required by Applicable Law or the rules and regulations of, or pursuant to
any agreement with the Nasdaq Global Select Market to make any public statement
regarding or otherwise publicly disclose this Agreement, any of the other
Acquisition Documents, or any terms hereof or thereof, it shall, within a
reasonable time before making any public disclosure, consult with the other
Party regarding such disclosure and seek confidential treatment for such terms
or portions of this Agreement or such other Acquisition Document as may be
requested by the other Party.
(b) Notwithstanding
anything in this Agreement to the contrary, prior to the Closing, Buyer and its
officers, directors, employees or other representatives shall not, without the
prior written consent of Seller: (i) contact any of Seller’s
customers or employees (other than those employees expressly designated by
Seller to Buyer as members of its transaction team with respect to the
Acquisition Documents) for the purpose of discussing the Business, the
Transferred Assets or the transactions contemplated by this Agreement or any of
the other Acquisition Documents; or (ii) discuss the Business, the Transferred
Assets or the transactions contemplated by this Agreement or any of the other
Acquisition Documents in any way whatsoever in the event of any contact with
such customer employee (other than those employees expressly designated by
Seller to Buyer as members of its transaction team with respect to the
Acquisition Documents) not in violation of subsection (i) above.
5.09 Allocation of
Expenses.
(a) Allocation of Non-Tax
Operating Expenses. All utility charges, gas charges, electric
charges, water charges, water rents, sewer rents and Prepayments (including
lease expenses but excluding Taxes), if any, shall be apportioned between Buyer
and Seller as of the Closing Date, computed on the basis of the most recent
meter charges or, in the case of annual charges, on the basis of the established
fiscal year or other applicable time period to which the expenses
apply. Seller shall be responsible for the proportionate amount of
such operating expenses attributable to the period prior to the Effective Time
and Buyer shall be liable for the proportionate amount of such operating
expenses attributable to the period on and after the Effective
Time. Within 90 days after the Closing, Seller and Buyer shall
present a statement to the other setting forth the amount of reimbursement to
which each is entitled under this Section 5.09(a),
together with such supporting evidence as is reasonably necessary to calculate
the proration amount. Such prorated amount shall be paid by the Party
owing it to the other within 10 days after delivery of such
statement.
(b) Allocation of Property
Taxes. All real property taxes, personal property taxes and
similar ad valorem
obligations levied with respect to the Transferred Assets (the “Property Tax”) for a
taxable period that includes (but does not end on) the Closing Date shall be
apportioned between Seller and Buyer as of the Closing Date based on the number
of days of such taxable period included in the Pre-Closing Tax Period and the
number of days of such taxable period included in the Post-Closing Tax
Period. Seller shall be liable for the proportionate amount of such
Property Taxes that is attributable to the Pre-Closing Tax Period, and Buyer
shall be liable for the proportionate amount of such Property Taxes that is
attributable to the Post-Closing Tax Period. Seller shall notify
Buyer upon receipt of any bill for such Property Taxes relating to the
Transferred Assets, part or all of which are attributable to the Post-Closing
Tax Period, and shall promptly deliver such bill to Buyer who shall pay the same
to the appropriate taxing authority; provided, that if such bill
covers any part of the Pre-Closing Tax Period, Seller shall also remit prior to
the due date of such Property Taxes to Buyer payment for the proportionate
amount of such bill that is attributable to the Pre-Closing Tax
Period. In the event that either Seller or Buyer shall thereafter
make a payment for which it is entitled to reimbursement under this Section 5.09(b),
the other Party shall make such reimbursement promptly, but in no event later
than thirty days after the presentation of a statement setting forth the amount
of reimbursement to which the presenting Party is entitled along with such
supporting evidence as is reasonably necessary to calculate the amount of
reimbursement. Any payment required under this Section 5.09(b)
and not made when due shall bear interest at the rate of ten percent per
annum.
(c) Payment of
Taxes. Taxes described in Section 5.09(f) shall
be timely paid, and all applicable Tax Returns shall be filed, as provided by
Applicable Law. The paying party, if it is not the party responsible
for paying the Taxes under Section 5.09(f),
shall be entitled to reimbursement from the non-paying party to the extent the
paying party is not responsible for the payment of the Taxes under Section
5.09(f). Upon payment of such Tax, the paying party shall
present a statement to the non-paying party setting forth the amount of
reimbursement to which the paying party is entitled under Section 5.09(f), along with
such supporting evidence as is reasonably necessary to calculate the amount of
reimbursement. Any payment required under this Section 5.09(c) and
not made when due shall bear interest at the rate of ten percent per
annum
(d) Cooperation. As
to the Taxes that are subject to Section 5.09(b) and
Section 5.09(f)
from and after the Closing Date, the Parties hereto agree to furnish or cause to
be furnished to one another, upon request, as promptly as practicable, such
information and assistance relating to the Transferred Assets and the Business
as is reasonably necessary for the filing of all Tax Returns, the preparation
for any audit by any taxing authority, and the prosecution or defense of any
claim or Proceeding relating to any Tax Return. The Parties hereto
shall cooperate with each other in the conduct of any audit or other Proceeding
related to Taxes involving the Business and each shall execute and deliver such
powers of attorney and other documents as are necessary to carry out the intent
of this Section 5.09(d).
(e) Responsibility for Payment
of Taxes. Taxes attributable to the Transferred Assets or the
Business other than those treated specifically in Section 5.09(b) and
Section
5.09(f), shall be borne by the Party incurring such Taxes (other than
solely by reason of successor liability or similar provisions of law) under
Applicable Law, and each Party shall indemnify, defend and hold the other Party
harmless from and against all Taxes for which such Party is liable pursuant to
this Section 5.09(e). The
provisions of Section
5.09(c) regarding payment, verification, and interest shall apply to the
Taxes that are subject to this Section
5.09(e).
(f) Sales and Use
Taxes. All excise, value added, registration, stamp,
recording, documentary, conveyancing, transfer, sales, use and any other Taxes
arising out of the transfer of the Transferred Assets (the “Sales Tax”) shall be
determined as soon as possible after Closing based on the allocation described
in Section 5.10 and
shall be paid 100% by Buyer to the appropriate taxing
authority. Seller shall reimburse Buyer for 50% of any Sales Tax due
as a post-Closing adjustment to the Cash Consideration. To the extent
permitted by Applicable Law, Buyer and Seller shall cooperate fully in
minimizing the Sales Tax. To the extent a taxing authority provides
notice to Seller of an audit of the Sales Tax, Seller shall immediately notify
Buyer and Buyer shall assume responsibility for such audit and shall pay when
due any additional Sales Tax ultimately assessed with respect to the
transactions contemplated by this Agreement. Upon notice from Buyer
of any additional amount due upon completion of such audit, Seller shall remit
to Buyer 50% of any such amount as an additional adjustment to the Cash
Consideration. Buyer shall have authority to control, settle or
defend any proposed adjustment to the Sales Tax subject to Seller’s approval,
and Seller shall cooperate fully with Buyer, in its defense or settlement of any
proposed adjustment to the Sales Tax; provided that Buyer shall
promptly reimburse Seller for any out-of-pocket expenses Seller incurs in
connection with such cooperation.
(g) Taxes Imposed on
Consideration. All payments of Consideration shall be made at
the Closing free and clear without deduction for any and all present and future
Taxes or duties imposed by any Governmental Authority. In the event
that Buyer is prohibited by Applicable Law from making such payments unless such
deductions are made or withheld therefrom, then Buyer shall pay additional
amounts at the Closing as are necessary in order that the net Consideration
received by Seller, after such deduction or withholding, equals the amounts
which would have been received if such deduction or withholding had not
occurred. Buyer shall promptly furnish Seller with a copy of an
official Tax receipt or other appropriate evidence of any Taxes imposed on
payments made under this Agreement, including Taxes on any additional amounts
paid. In the event that such Taxes or duties are legally imposed
initially on Seller or Seller is later assessed by any Governmental Authority,
then Seller shall be promptly reimbursed by Buyer for such Taxes or duties plus
any interest and penalties suffered by Seller.
5.10 Allocation of
Consideration. The Consideration shall be allocated in
accordance with Schedule 5.10
(as such allocation shall be determined prior to Closing and attached hereto
immediately prior to the Closing). Each of the Parties hereto agrees
to report the transactions contemplated hereby for state, federal and foreign
Tax purposes in accordance with such allocation of the
Consideration. Seller shall prepare Schedule 5.10
subject to Buyer’s approval, which approval shall not be unreasonably
withheld. The Parties shall treat all indemnification payments made
under this Agreement as an adjustment to the Cash Consideration for applicable
Tax purposes, to the extent allowable under Applicable Law.
5.11 Accounts
Receivable.
(a) Following
the Closing: (i) if Buyer or any of its Subsidiaries receives any payment,
refund or other amount that is an Excluded Asset or is otherwise properly due
and owing to Seller or any of its Subsidiaries in accordance with the terms of
this Agreement or any other Acquisition Document including, without limitation,
any Seller Accounts Receivable, Buyer shall forward to Seller, or cause one of
its Subsidiaries to forward to Seller, immediately upon receipt thereof, such
amounts to Seller; and (ii) if Seller or any of its Subsidiaries receives any
payment, refund or other amount that is a Transferred Asset or is otherwise
properly due and owing to Buyer or any of its Subsidiaries in accordance with
the terms of this Agreement or any other Acquisition Document, including,
without limitation, any Buyer Accounts Receivable, Seller shall forward to
Buyer, or cause one of its Subsidiaries to forward to Buyer, immediately upon
receipt thereof, such amounts to Buyer.
(b) In
determining whether a payment received by either Party is a payment of an
Account Receivable of Seller or Buyer, the receiving Party may rely on any
invoice or contract number referred to on the payment or in correspondence
accompanying such payment. To the extent any payment, refund or other
amount received by Seller or Buyer from a customer or other account debtor does
not specify which outstanding invoice or receivable it is in payment of, such
payment shall be applied to the earliest invoice outstanding with respect to
indebtedness of such customer or other account debtor, except for those invoices
which are subject to a dispute to the extent of such
dispute. Following the Closing, Buyer will provide such cooperation
as Seller shall reasonably request, at Seller’s expense, in connection with
Seller’s collection of outstanding Seller Accounts Receivable.
(c) Following
the Closing, the Parties shall cooperate in promptly advising customers to
direct to the appropriate Party any future payments by such
customers.
5.12 Accounts
Payable. Unless otherwise set forth in the Transition Services
Agreement, to the extent that Buyer receives any invoices for Seller Accounts
Payable or statements evidencing amounts owed by Seller or any of its
Subsidiaries to another Person, Buyer will promptly deliver such documents to
Seller. To the extent that Seller receives any invoices for Buyer
Accounts Payable or statements evidencing amounts owed by Buyer to another
Person, Seller will promptly deliver such documents to Buyer.
5.13 Bulk Sales
Laws. The Parties agree to waive the applicability of any
provisions of any bulk sales laws in any jurisdiction.
5.14 Operation of the Business
Prior to
Closing. Between the date of this Agreement and the Closing
Date, except as contemplated in this Agreement, any of the other Acquisition
Documents or as set forth in Schedule 5.14, or
unless Buyer shall otherwise agree in writing (which consent shall not be
unreasonably withheld or delayed), Seller shall use commercially reasonable
efforts to:
(a) operate
the Business in the ordinary course of business in all material
respects;
(b) maintain
the tangible assets that are Transferred Assets as a whole in all material
respects in at least as good condition as they are being maintained on the date
hereof, subject to normal wear and tear;
(c) (i)
not sell, assign, license or transfer any of the Transferred Assets, except
transfers of immaterial Transferred Assets, sales of Business Inventory in the
ordinary course of business and licenses of the Transferred Assets pursuant to
non-exclusive licenses with third parties in the ordinary course of business and
(ii) not permit any of the Transferred Assets to be subjected to any Lien, other
than the Permitted Liens;
(d) not
fail to pay or discharge when due any Liability of which the failure to pay or
discharge would cause any material damage or loss to the Transferred Assets,
taken as a whole;
(e) not
amend any material term of or terminate any material Transferred Contract, other
than in the ordinary course of business;
(f) not
initiate any Proceeding that relates exclusively to the Transferred
Assets;
(g) not
make any material change in its accounting principles, methods or practices as
they relate to the manner in which Seller keeps its accounting books and records
relating to the Business, except for (i) any such change required by a change in
GAAP or (ii) any change resulting from the preparation or audit of the Business
Financial Statements;
(h) not
grant to any Business Employee any increase in compensation or in severance or
termination pay, grant any severance or termination pay, or enter into any
employment deferred compensation agreement or any similar agreement with any
such employee, except as may be (i) required under Applicable Law, Seller’s
termination policy (whether existing as of the date hereof or adopted hereafter)
or any employment or termination agreement in effect on the date hereof or (ii)
in the ordinary course of business; and
(i) not
enter into any agreement to take any action that would violate in any material
respect any of the foregoing.
5.15 Employees
Matters.
(a) Employment
Offers. Subject to Applicable Law, Buyer may make offers of
employment to each Business Employee to be effective as of the Closing or on
such other date as may be agreed by the Parties. The offers of
employment for each such Business Employee to whom Buyer makes an offer will (i)
include employment terms that are substantially similar to terms offered to
similarly situated employees of Buyer, and (ii) supersede any prior agreements
with the Seller regarding the terms and conditions of employment with such
Business Employee as in effect prior to the Closing Date; provided, however, that in no event
shall any prior agreement with respect to Intellectual Property be superseded,
except that all Transferred Employees shall be permitted to disclose to Buyer
all information in their possession or otherwise known by them that relate
directly to the Business and not related to Patents or confidential information
of Seller. Buyer shall be responsible for all liabilities, salaries,
benefits and similar employer obligations that arise after Closing under Buyer’s
compensation and benefit plans and policies for all Transferred Employees or
pursuant to Section
2.03(c). In particular, Buyer shall be responsible for
liabilities with respect to the termination of any Transferred Employees by
Buyer after the Closing, including health care continuation coverage with
respect to plans established or maintained by Buyer after the Closing to the
extent that the Transferred Employees participate therein, and damages or
settlements arising out of any claims of wrongful or illegal termination by
Buyer following the Closing, and for complying with the requirements of all
Applicable Laws with respect to any such termination by Buyer after the
Closing. Seller shall be solely responsible for (i) any
Liabilities or obligations with respect to the Business Employees including the
Transferred Employees, that arise prior to the Closing, (ii) any liabilities or
obligations with respect to any Business Employees who do not become Transferred
Employees, and (iii) subject to Section 2.03(c),
any liabilities or obligations with respect to Transferred Employees under the
Employee Plans or the Employee Agreements that arise following the
Closing.
(b) Employee Information and
Access. Seller hereby agrees to use its commercially
reasonable efforts, and to cause each Subsidiary of Seller to use its
commercially reasonable efforts, to assist Buyer in making offers to the
Business Employees, including providing Buyer with access to such Business
Employees during the period from the date of this Agreement until Closing, provided that such access
does not unreasonably interfere with the performance of such Business Employees’
duties. Seller
agrees to provide to Buyer certain general information concerning Seller’s
compensation and benefit programs and specific information relating to
individual Business Employees, subject to Applicable Law and, to the extent
required, any such employee’s proper consent, solely for the purpose of Buyer
formulating offers of employment to such employees; provided, however, that Seller will not
make personnel records available for inspection or copying.
5.16 Non-Compete
Agreement.
(a) Beginning
on the Closing Date and ending on the one-year anniversary of the Closing Date,
Seller shall not directly or through any of its Subsidiaries, without the prior
written consent of Buyer, engage in a Competitive Business Activity anywhere in
the world except as may be contemplated by this Agreement or any of the other
Ancillary Agreements. The foregoing shall not prohibit Seller from
making an investment in any Person engaged in Competitive Business Activities or
from acquiring a Person or engaging in a divestiture transaction with any Person
that derives all or a portion of its revenue from Competitive Business
Activities.
(b) The
covenants contained in Section 5.16(a) shall
be construed as a series of separate covenants, one for each country, province,
state, city or other political subdivision of the world. Except for
geographic coverage, each such separate covenant shall be deemed identical in
terms to the covenant contained in Section
5.16(a). If, in any judicial proceeding, a court refuses to
enforce any of such separate covenants (or any part thereof), then such
unenforceable covenant (or such part) shall be eliminated from this Agreement to
the extent necessary to permit the remaining separate covenants (or portions
thereof) to be enforced. In the event that the provisions of Section 5.16(a) are
deemed to exceed the time, geographic or scope limitations permitted by
applicable law, then such provisions shall be reformed to the maximum time,
geographic or scope limitations, as the case may be, permitted by Applicable
Laws.
(c) Seller
shall not be deemed to be in breach of Section 5.16(a)
unless and until Buyer provides notice to Seller of the operations of Seller
that Buyer believes constitute a violation of Section 5.16(a) and a
period of 90 days following receipt of such notice has expired without
resolution by the Parties. Such notice shall specify in reasonable
detail the basis for such alleged breach. The senior management of
the Parties shall meet and attempt in good faith to negotiate a resolution of
such dispute. If the Parties resolve their dispute or Seller either
ceases or divests itself of the Competitive Business Activity within the 90 day
notice period, or within 180 days following the good faith determination of the
Parties that such dispute cannot be resolved, Seller shall not be deemed to have
been in violation of Section
5.16(a).
(d) Notwithstanding
any other clause of this Agreement to the contrary, Buyer agrees that monetary
damages shall be the sole remedy in the event that any of the provisions of
Section 5.16(a)
are not performed in accordance with their specific terms or are otherwise
breached, regardless of whether such non-performance or breach by Seller is
willful, and no other legal or equitable relief or remedy, including injunctive
relief to prevent breaches of Section 5.16(a)
of this Agreement, or to enforce specifically the terms and provisions of Section 5.16(a)
of this Agreement shall be available from any Governmental
Authority.
(e) The
activities of Seller and its Affiliates pursuant to and permitted by any of the
other Acquisition Documents shall not constitute Competitive Business Activity
nor otherwise violate the covenants and agreements of the Parties in this
Agreement.
5.17 Non-Solicitation
Agreements.
(a) Following
the Closing, Buyer agrees that it shall not directly or indirectly (through
its Subsidiaries or any of Buyer’s or its Subsidiaries respective
officers, directors, employees or other agents) solicit for employment any
person who is employed, contracted or engaged by Seller or any of its
Subsidiaries (except if such person is otherwise subject to a Seller
redeployment employee action or a Seller Voluntary Separation Program) until the
date that is one year after the Closing Date (or, if this Agreement is
terminated prior to Closing, until the date that is one year after the date of
such termination), nor shall it directly or indirectly induce any person to
breach any contractual agreement(s) that they may have with Seller or any of its
Subsidiaries, unless Seller consents in writing thereto.
(b) Seller
agrees that it shall not directly or indirectly (through its officers,
directors, employees or other agents) solicit for employment any of the
Transferred Employees until the date that is one year after the Closing Date,
nor shall it directly or indirectly induce any person to breach any contractual
agreement(s) that they may have with Buyer or any of its Subsidiaries, unless
Buyer consents in writing thereto. Following the Closing, Seller
agrees that its Embedded and Communications Group (the “Selling Group”) will
not directly or indirectly, solicit for employment any employee of Buyer or its
Subsidiaries who became known to the Selling Group in connection with its
consideration of the transactions contemplated by this Agreement until the date
that is one year after the Closing Date, nor shall it directly or indirectly
induce any person to breach any contractual agreement(s) that they may have with
Buyer or any of its Subsidiaries, unless Buyer consents in writing
thereto.
(c) The
parties hereto acknowledge and agree that general postings or advertisements of
job openings and the retention of search firms to assist in filling open job
requisitions shall not be deemed to be a violation of the provisions of this
Section
5.17.
5.18
Protection of
Privacy. The data related to customers of the Business which
is included in the Transferred Assets (the “Customer Data”) has
been collected by Seller over the internet under the conditions set forth in the
Seller Privacy Policy attached as Schedule 5.18 to this
Agreement (the “Privacy Policy”) and
is transferred to Buyer subject to the obligations set forth in the Privacy
Policy. Buyer covenants and agrees that it will not use the Customer
Data in any manner that conflicts with the terms of the Privacy Policy and
agrees to indemnify and hold Seller harmless from any third party claim arising
out of Buyer’s use or misuse of the Customer Data.
5.19
Business Financial
Statements. Seller shall use commercially reasonable efforts
to provide Buyer within 75 days after the Closing Date, at Seller’s expense,
with an audited statement of assets to be acquired and liabilities to be assumed
of the Business as of September 30, 2006 and September 29, 2007 (or, if the
Closing occurs after February 15, 2008, as of December 30, 2006 and December 29,
2007) and a statement of net revenues and direct expenses of the Business for
the fiscal years ended December 31, 2005 and December 30, 2006 and the nine
month period ended September 29, 2007 (or, if the Closing occurs after February
15, 2008, for the fiscal year ended December 29, 2007 (collectively, “Business Financial
Statements”).
5.20 Export
Compliance. From and after the Closing Date, Buyer and each of
its Subsidiaries shall comply at its own expense with all conditions and
requirements imposed on Buyer or such Subsidiary by applicable U.S. Export
Administration Regulations and such other similar regulations that are imposed
on the Transferred Assets. Buyer agrees that it will not export,
either directly or indirectly, through any of its Subsidiaries or otherwise, any
Product or associated technology or systems incorporating such Product without
first obtaining any required license or other approval from the appropriate host
Governmental Authority with appropriate authority.
5.21 Lease. Seller
is a party to a lease agreement dated as of April 14, 2000, as such lease has
been amended from time to time (the “Seller Lease”) with
ProLogis Limited Partnership I (“Landlord”) with
respect to the property at (i) 8678 Thornton Avenue, Building A, Newark, CA
94560 (“Newark
Facility TB2”) and (ii) 8674 Thornton Avenue, Building 2, Newark CA 94560
(“Newark Facility
TB1”). The current term of the Seller’s lease expires on
February 29, 2008.
(a) Buyer
shall use commercially reasonable efforts to enter into a new lease, on terms
and conditions acceptable to Buyer in its sole discretion, as soon as
practicable after the date of this Agreement with respect to Newark Facility
TB1; provided that the effective date shall be no earlier than immediately after
the Closing Date, but as soon as practicable after the Closing
Date. Such lease shall provide for termination of the
Seller Lease with respect to Newark Facility TB1 as of the effective date of the
Buyer’s lease without any further obligation or payment by Seller with respect
to Newark Facility TB1, including a full release by the Landlord of Seller from
Seller’s obligation to remove Tenant Made Alterations, Trade Fixtures and any
leasehold improvements to the Original Premises (the “Removal Costs”) (any
such lease, the “Buyer
Lease”).
(b) If
Buyer is unable to enter into the Buyer Lease, upon notice to Seller no later
than January 15, 2008, (i) Seller will use commercially reasonable efforts to
extend the Seller Lease (on the same terms and conditions as the current Seller
Lease other than the term) for Newark Facility TB1 for a one year term (which
efforts shall not be required to include payment of any fee or incurrence of any
increased expense by Seller) and (ii) Seller and Buyer will cooperate in good
faith to negotiate a six month sublease with respect to Newark Facility TB1 on
mutually agreeable terms to be executed on the Closing Date; provided, however,
that Seller shall not be required to agree to any sublease pursuant to which
Buyer does not assume all financial obligations relating to Newark Facility TB1
under the Seller Lease, except the Removal Costs, for the term in which Buyer
will occupy Newark Facility TB1. Buyer shall be entitled to negotiate
with Landlord to enter into a Buyer Lease at any time during the term of Buyer’s
sublease with Seller.
(c) Only
in the event that Buyer executes and delivers a Buyer Lease with Landlord prior
to February 29, 2008, Seller shall transfer to Buyer all of Seller’s right,
title and interest in the assets listed on Schedule 5.21 (the
“Facility
Assets”). If the Buyer executes and delivers a Buyer Lease
with Landlord prior to the Closing Date, Seller shall deliver to Buyer at
Closing a Bill of Sale transferring all of Seller’s right, title and interest to
the Facility Assets to Buyer as of such date and Buyer shall deliver to Seller a
fully executed Buyer Lease. If Buyer executes and delivers a Buyer
Lease with Landlord after the Closing Date and before February 28, 2008, then
within 5 Business Days after the delivery to Seller of a fully executed Buyer
Lease, Seller shall execute a Bill of Sale transferring all of
Seller’s right, title and interest to the Facility Assets to Buyer as of such
date at no additional consideration.
5.22
Confidentiality.
(a) The
information contained herein, in schedules to this Agreement and the Seller
Disclosure Letter and delivered to Buyer or its authorized representatives
pursuant hereto shall be subject to the Confidentiality Agreement as
Confidential Information (as defined in the Confidentiality Agreement) of Seller
until the Closing and, for that purpose and to that extent, the terms of the
Confidentiality Agreement are incorporated herein by reference. All
obligations of Buyer under the Confidentiality Agreement in respect of the
Transferred Assets shall terminate simultaneously with the Closing.
(b) From
and after the Closing, any and all non-public information included in the
Transferred Assets or the Assumed Liabilities shall be shall be subject to the
Confidentiality Agreement as Confidential Information (as defined in the
Confidentiality Agreement) of Buyer and Buyer shall be deemed the disclosing
party with respect to such information under the Confidentiality
Agreement. For that purpose and to that extent, the terms of the
Confidentiality Agreement are incorporated herein by reference.
(c) Notwithstanding
the foregoing, nothing herein shall restrict Seller or Buyer, any of their
respective Affiliates or any of their respective representatives, as applicable,
from using or disclosing any Confidential Information (i) to the extent that
such disclosure is required by Applicable Law, provided, however, that
Seller, Buyer, any of its Affiliates or any of their respective representatives,
as applicable, promptly notifies the disclosing party of such requirement in
order that the disclosing party may seek an appropriate protective or similar
order or (ii) in connection with any proceeding before or filed with, or other
disclosure made to, a court, arbitration tribunal or mediation service to
enforce any of a Party’s rights arising in connection with the termination of
this Agreement.
5.23 Availability of Information;
Registration Statement. In the event that Buyer elects to
deliver to Seller the Stock Consideration, (i) until the first anniversary of
the Closing Date, Buyer shall make publicly available the information required
by Rule 144(c)(1) under the Securities Act and (ii) in the event that Buyer
files a registration statement registering shares of Buyer Common Stock (other
than a registration statement relating to a business combination or employee
benefit plan) before the date that is six months following the Closing Date, if
requested by Seller, Buyer shall use commercially reasonable efforts to include
the Stock Consideration in such registration statement and Buyer and Seller
shall negotiate in good faith the terms of such inclusion; provided, however, that Buyer
shall not be required to include the Stock Consideration in such registration
statement for an underwritten offering if the managing underwriter for such
underwritten offering advises Buyer that that marketing factors require a
limitation of the number of securities to be underwritten.
ARTICLE
VI
CONDITIONS
TO CLOSING
(a) Performance by
Seller. (i) Seller shall have performed and satisfied in
all material respects its obligations hereunder required to the extent required
to be performed and satisfied by it on or prior to the Closing Date,
(ii) the representations and warranties of Seller contained herein, as the
same may be amended pursuant to Section 5.02 or Section 9.03, shall
be true and correct in all respects at and as of the Closing as if made as of
the Closing Date, other than representations and warranties which address
matters only as of a certain date which shall have been true and correct in all
respects as of such certain date and except, in any case, (disregarding for
these purposes any exception set forth in such representations and warranties
relating to materiality or a Seller Material Adverse Effect) for failures of
such representations and warranties to be true and correct that have not had and
would not reasonably be expected to have a Seller Material Adverse Effect, and
(iii) Buyer shall have received a certificate signed by a duly authorized
executive officer of Seller to the foregoing effect.
(b) No
Violation. No Governmental Authority shall have enacted,
issued, promulgated or entered any Applicable Law which is in effect on the
Closing Date which has or would have the effect of prohibiting, restraining or
enjoining the consummation of the transactions contemplated by this
Agreement. No temporary restraining order, preliminary or permanent
injunction, cease and desist order or other order issued by any court or other
Governmental Authority that has the effect of making the transactions
contemplated hereby illegal or otherwise prohibiting consummation of the
transfers contemplated hereby or the consummation of the Closing, or imposing
upon Buyer material fines or penalties in respect thereof, shall be in effect as
of the Closing Date, and there shall be no pending or threatened actions or
proceedings by any Governmental Authority (or determinations by any Governmental
Authority) challenging or in any manner seeking to prohibit the transfer
contemplated hereby or the consummation of the Closing.
(c) Closing
Documents. Seller shall have executed and delivered to Buyer
all Ancillary Agreements and each of the other documents required to be
delivered by Seller in accordance with Section
2.07.
(d) Governmental
Approvals. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the
HSR Act shall have expired or been terminated and any waiting period (and any
extension thereof) under any other applicable similar merger notification laws
or regulations of foreign Governmental Authorities shall have expired or been
terminated. Any Seller Governmental Approvals required under any such
laws or regulations in connection with the consummation of the transactions
contemplated hereby shall have been obtained.
6.02 Conditions to Obligations of
Seller. The obligations of Seller to consummate the Closing
are subject to the satisfaction or waiver by Seller of each of the following
conditions (it being understood that each such condition is solely for the
benefit of Seller and may be waived by Seller in its sole discretion without
notice or liability to any Person):
(a) Performance by
Buyer. (i) Buyer shall have performed and satisfied in
all material respects its obligations hereunder required to the extent required
to be performed and satisfied by it on or prior to the Closing Date,
(ii) the representations and warranties of Buyer contained herein shall be
true and correct in all respects at and as of the Closing as if made as of the
Closing Date, other than representations and warranties which address matters
only as of a certain date which shall have been true and correct in all respects
as of such certain date and except, in any case, (disregarding for these
purposes any exception in such representations and warranties relating to
materiality or a Buyer Material Adverse Effect) for failures of such
representations and warranties to be true and correct that have not had and
would not reasonably be expected to have a Buyer Material Adverse Effect, and
(iii) Seller shall have received a certificate signed by a duly authorized
executive officer of Buyer to the foregoing effect.
(b) No
Violation. No Governmental Authority shall have enacted,
issued, promulgated or entered any Applicable Law which is in effect on the
Closing Date which has or would have the effect of prohibiting, restraining or
enjoining the consummation of the transactions contemplated by this
Agreement. No temporary restraining order, preliminary or permanent
injunction, cease and desist order or other order issued by any court or other
Governmental Authority that has the effect of making the transactions
contemplated hereby illegal or otherwise prohibiting consummation of the
transfers contemplated hereby or the consummation of the Closing, or imposing
upon Seller material fines or penalties in respect thereof, shall be in effect
as of the Closing Date, and there shall be no pending or threatened actions or
proceedings by any Governmental Authority (or determinations by any Governmental
Authority) challenging or in any manner seeking to prohibit the transfer
contemplated hereby or the consummation of the Closing.
(c) Closing
Documents. Buyer shall have executed and delivered to Seller
all Ancillary Agreements and each of the other documents required to be
delivered by Buyer in accordance with Section 2.07.
(d) Governmental
Approvals. The waiting period (and any extension thereof)
applicable to the consummation of the transactions contemplated hereby under the
HSR Act shall have expired or been terminated and any waiting period (and any
extension thereof) under any other applicable similar merger notification laws
or regulations of foreign Governmental Authorities shall have expired or been
terminated. Any Buyer Approvals that are Governmental Approvals
required under any such laws or regulations in connection with the consummation
of the transactions contemplated hereby shall have been obtained.
ARTICLE
VII
INDEMNIFICATION
7.01 General
Survival. The Parties agree that, regardless of any
investigation made by the Parties, the representations and warranties and the
indemnification obligations with respect to the representations and warranties
of the Parties contained in this Agreement shall survive for a period beginning
on the date hereof and ending at 5:00 p.m., California time, on the date that is
12 months after the
Closing Date. Upon the expiration of the indemnification period for a
representation or warranty pursuant to this Section 7.01, unless
written notice of a claim based on such representation or warranty specifying in
reasonable detail the facts on which the claim is based shall have been
delivered to the Indemnitor prior to the expiration of such representation or
warranty, such representation or warranty shall be deemed to be of no further
force or effect, as if never made, and no action may be brought based on the
same, whether for indemnification, breach of contract, tort or under any other
legal theory. If written notice of a claim based on a representation
or warranty as described in the prior sentence shall have been delivered to the
Indemnitor prior to the date that is 12 months after the Closing Date, then such
representation or warranty described in such notice shall survive until the
related claim for indemnification has been resolved in accordance with this
Article
VII. All covenants and agreements of the Parties set forth in
this Agreement with respect to the actions of the Parties following the Closing
shall survive indefinitely to the extent necessary to give effect to their
terms.
7.02 Indemnification.
(a) Indemnification Provisions
for Buyer. Subject to the provisions of Section 7.01,
from and after the Closing Date, Buyer and its Affiliates, officers, directors,
stockholders, employees, representatives and agents (collectively the “Buyer Indemnitees”)
shall be indemnified and held harmless by Seller from and against and in respect
of any and all Losses incurred by any Buyer Indemnitee arising out of or
resulting from:
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(i)
|
any
inaccuracy in or breach of any of Seller’s representations or warranties
contained in this Agreement;
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|
(ii)
|
any
misrepresentation contained in any certificate furnished to Buyer by
Seller pursuant to Section 2.07(e)
or Section
6.01(a);
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|
(iii)
|
any
breach of any covenant made or to be performed by Seller pursuant to this
Agreement;
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|
(iv)
|
any
failure of Seller to satisfy any Excluded Liabilities;
and
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(v)
|
any
Taxes or expenses required to be paid by Seller under this
Agreement.
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(b) Indemnification Provisions
for Seller. Subject to the provisions of Section 7.01, from
and after the Closing Date, Seller and their Affiliates, officers, directors,
stockholders, employees, representatives and agents (collectively, the “Seller Indemnitees”)
shall be indemnified and held harmless by Buyer from and against and in respect
of any and all Losses incurred by any Seller Indemnitee arising out of or
resulting from:
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(i)
|
any
inaccuracy in or breach of any of Buyer’s representations or warranties,
contained in this Agreement;
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|
(ii)
|
any
misrepresentation contained in any certificate furnished to Seller by
Buyer pursuant to Section 2.07(f)
or Section
6.02(a);
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|
(iii)
|
any
breach of covenant made or to be performed by Buyer pursuant to this
Agreement;
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(iv)
|
any
failure of Buyer to satisfy any Assumed Liabilities and any Liabilities
arising from or relating to the Transferred Assets and arising subsequent
to the Closing; and
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(v)
|
any
Taxes or expenses required to be paid by Buyer under this
Agreement.
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(c) For
purposes of this Agreement, the term “Indemnitee” shall mean either
Buyer Indemnitee or a Seller Indemnitee, as the case may be, and the term “Indemnitor” shall
mean either Buyer Indemnitor or a Seller Indemnitor, as the case may
be.
(d) For
purposes of this Agreement, the term, “Losses” means any and
all deficiencies, judgments, settlements, demands, claims, suits, actions or
causes of action, proceedings, assessments, liabilities, losses, Taxes, damages
(excluding indirect, incidental or consequential damages), interest, fines,
penalties, costs, fees and expenses (including reasonable court, legal,
accounting and other costs and expenses) incurred in connection with
investigating, defending, settling or satisfying any and all demands, claims,
actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor. Notwithstanding the
above, Losses shall not include expenses incurred in connection with
investigations except in connection with claims made by a third party against
the Indemnitee.
(e) No
Buyer Indemnitee shall be entitled to indemnification for any Losses covered by
Sections 7.02(a)(i) or
(ii) until the aggregate amount of all such Losses of the Buyer
Indemnitees shall exceed $850,000 (the “Basket”), at which
time all such Losses incurred by the Buyer Indemnitees shall be subject to
indemnification by the relevant Indemnitor hereunder (subject to the limitations
set forth in this Agreement). The Basket shall not apply to Losses
covered by Sections
7.02(a)(iii)-(v) or that result from fraud. No Seller
Indemnitee shall be entitled to indemnification for any Losses covered by Section 7.02(b)(i) or
(ii) until the aggregate amount of all such Losses of the Seller
Indemnitees shall exceed the Basket, at which time all such Losses incurred by
the Seller Indemnitees shall be subject to indemnification by the relevant
Indemnitor hereunder (subject to the limitations set forth in this
Agreement). The Basket shall not apply to Losses covered by Sections
7.02(b)(iii)-(v) or that result from fraud.
(f) The
amount of any Losses otherwise recoverable under this Section 7.02
shall be reduced by (i) any amounts to which the Indemnitees actually receive
under insurance policies, the Parties hereby acknowledging and agreeing that
prior to asserting any Indemnification Claim, the Indemnitee must first seek
reimbursement for any and all Losses from any applicable insurance coverage (and
that any compensation provided under this Agreement is not to be deemed
insurance for any purpose); and (ii) any Tax adjustments, benefits, savings or
reductions actually realized by the Indemnitee, provided that no Indemnitee
shall be required to actually realize any such Tax adjustments, benefits,
savings or reductions before making a claim pursuant to this Article
VII.
7.03 Manner of
Indemnification.
(a) Each
indemnification claim shall be made only in accordance with this Article VII.
(b) If
an Indemnitee wishes to make a claim for Losses under Article VII of
this Agreement, Indemnitee shall deliver a written notice (a “Notice of Claim”) to
the applicable Indemnitor promptly after becoming aware of the facts giving rise
to such claim. The Notice of Claim shall (i) specify in
reasonable detail the nature of the claim being made, and (ii) state the
aggregate dollar amount of such claim (or a reasonable and good faith estimate
of such aggregate dollar amount if the actual aggregate dollar amount is not
known).
(c) Following
receipt by Indemnitor of a Notice of Claim, the Parties shall promptly meet to
agree on the rights of the respective Parties with respect to each of such
claims. If the Parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both Parties and amounts agreed
upon shall be promptly paid. Any dispute between the Parties that
remains unresolved after ten Business Days following the delivery of a Notice of
Claim shall be resolved in accordance with Section 9.12 and
Section 9.13
and the other applicable provisions of this Agreement.
7.04 Third-Party
Claims. If an Indemnitee becomes aware of a claim of a third
party (including for all purposes of this Section 7.04, any
Governmental Authority) (a “Third Party Action”)
that such Indemnitee believes, in good faith, may result in a claim by it
against an Indemnitor, such Indemnitee shall notify the applicable Indemnitor of
such claim as promptly as practicable, provided, however, that the failure to
so notify the Indemnitor shall not affect rights to indemnification hereunder
except to the extent that the Indemnitor is materially prejudiced by such
failure. The Indemnitor shall have the right to assume and conduct
the defense of such claim; provided, however, that Indemnitor may
not assume control of the defense of any Third Party Action if (i) the Third
Party Action seeks injunctive relief against the Indemnitee but not against the
Indemnitor or (ii) if the Losses of Indemnitee in respect of claims subject to
the Indemnification Cap in such Third Party Action would reasonably be expected
to be in excess of the Indemnification Cap . The Indemnitor shall
conduct such defense in a commercially reasonable manner at its own expense, and
shall be authorized to settle any such claim without the consent of the
Indemnitee; provided,
however, that: (a) the Indemnitor shall not be authorized to encumber any
assets of the Indemnitee or agree to any restriction that would apply to the
Indemnitee or the conduct of the Indemnitee’s business; (b) the Indemnitor shall
have paid or caused to be paid any amounts arising out of such settlement; and
(c) a condition to any such settlement shall be a complete release of the
Indemnitee with respect to such third party claim. The Indemnitee
shall be entitled to participate in (but not control, except as set forth in the
proviso to the second sentence of this Section 7.04) the defense of any Third
Party Action with its own counsel and at its own expense. The
Indemnitee shall cooperate fully with the Indemnitor in the defense of any Third
Party Action. If the Indemnitor chooses not to assume the defense of
any Third Party Action in accordance with the provisions hereof, the Indemnitee
may defend such Third Party Action in a commercially reasonable manner and may
settle such Third Party Action after giving written notice of the terms thereof
to the Indemnitor. If the Indemnitor may not assume the control of
the defense of a Third Party Action pursuant to the proviso to the second
sentence of this Section 7.04, (x) the Indemnitee shall conduct such defense in
a commercially reasonable manner at its own expense, and shall not settle any
such claim without the consent of the Indemnitor (which shall not be
unreasonably withheld) unless (a) the Indemnitee shall not be authorized to
encumber any assets of the Indemnitor or agree to any restriction that would
apply to the Indemnitor or the conduct of the Indemnitor’s business; (b) the
Indemnitee shall have paid or caused to be paid any amounts arising out of such
settlement and Indemnitor shall not be liable to any Indemnitee or any other
Person for any such amounts; and (c) a condition to any such settlement shall be
a complete release of the Indemnitor with respect to such third party claim and
(y) the Indemnitor shall be entitled to participate in such Third Party Action
with its own counsel and at its own expense.
7.05 Exclusive Remedy.
(a) Notwithstanding
any other provision of this Agreement to the contrary, except for Losses that
result from fraud, the provisions of this Article VII shall be
the sole and exclusive remedy for monetary damages of the Indemnitees from and
after the Closing Date for any Losses arising under this Agreement or relating
to the transactions contemplated by this Agreement, including claims of breach
of any representation, warranty or covenant in this Agreement; provided, however, that the
foregoing clause of this sentence shall not be deemed a waiver by any Party of
any right to specific performance or injunctive relief but shall be deemed a
waiver of any rights of rescission. Except as set forth in Section
9.14, no Indemnitee’s rights under this Article VII shall be adversely affected
by any investigation conducted, or any knowledge acquired by such Indemnitee at
any time after the execution and delivery of this Agreement.
(b) Notwithstanding
any other provision of this Agreement, the maximum aggregate liability of Seller
to the Buyer Indemnitees pursuant to this Article VII or
otherwise under this Agreement, Applicable Law or otherwise shall be limited to
$8,500,000 (the “Indemnification
Cap”), provided,
however, that the Indemnification Cap shall not apply to Losses to
covered by Sections
7.02(a)(iv)-(v); and provided, further, only if the
Indemnification Cap is reached with respect to Losses of Buyer Indemnitees based
on claims for Losses based on breach by Seller of representations, warranties or
covenants other than Section 3.13, then
Buyer Indemnitees shall be entitled to make claims for Losses based on breach by
Seller of the representation and warranty set forth in Section 3.13 up to an
additional amount equal to the Indemnification Cap. Notwithstanding
any other provision of this Agreement, the maximum aggregate liability of Buyer
to the Seller Indemnitees pursuant to this Article VII or
otherwise under this Agreement, Applicable Law or otherwise shall be limited to
the Indemnification
Cap, provided,
however, that the Indemnification Cap shall not apply to Losses to
covered by Sections
7.02(b)(iv)-(v).
(c) Nothing
in this Agreement limits or otherwise affects in any way the rights and remedies
of either Party with respect to causes of action arising under the Intellectual
Property Agreement and the Transition Services Agreement, or any rights and
remedies of Seller or Buyer vis-à-vis any Person other than Seller or Buyer or
their respective Affiliates with respect to any infringement or misappropriation
of any Intellectual Property of Seller or Buyer, as the case may be (including
any right of Seller or Buyer to seek equitable or injunctive relief in
connection therewith), all of which rights and remedies are expressly
reserved.
7.06 Subrogation. If
an Indemnitor makes any payment under this Article VII in
respect of any Losses, such Indemnitor shall be subrogated, to the extent of
such payment, to the rights of the Indemnitee against any insurer or third party
with respect to such Losses; provided, however, that such
Indemnitor shall not have any rights of subrogation with respect to the other
Party hereto or any of its Affiliates or any of its or its Affiliates’ officers,
directors, agents or employees.
7.07 Damages. Notwithstanding
anything to the contrary elsewhere in this Agreement or any other Acquisition
Document, no Party (or its Affiliates) shall, in any event, be liable to the
other Party (or its Affiliates) for any indirect, incidental, punitive or
consequential damages, including, but not limited to, loss of revenue or income,
cost of capital, or loss of business reputation or opportunity relating to the
breach or alleged breach of this Agreement. Each Party agrees that it
will not seek punitive damages as to any matter under, relating to or arising
out of the transactions contemplated by this Agreement or the other Acquisition
Documents. The Parties agree that indirect, incidental, punitive or
consequential damages awarded to a third party by a court of competent
jurisdiction in a Third Party Action which a Party is obligated to pay to such
third party shall be deemed actual Losses of such Party.
ARTICLE
VIII
TERMINATION
8.01 Grounds for
Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by
mutual written agreement of the Parties;
(b) by
written notice from either Buyer or Seller to the other if:
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(i)
|
the
Closing has not been effected on or prior to the close of business on June
18, 2008 (the “Termination
Date”); provided,
however, that the right to terminate this Agreement pursuant to
this Section
8.01(b)(i) shall not be available to any Party whose failure to
fulfill any of its obligations contained in this Agreement has been the
cause of, or resulted in, the failure of the Closing to have occurred on
or prior to the aforesaid date;
|
|
(ii)
|
any
Applicable Law shall be enacted or become applicable that makes the
transactions contemplated hereby or the consummation of the Closing
illegal or otherwise prohibited;
|
|
(iii)
|
any
judgment, injunction, order or decree enjoining either party hereto from
consummating the transactions contemplated hereby is entered, and such
judgment, injunction, order or decree shall become final and
nonappealable;
|
|
(iv)
|
such
Party is not in material breach of its obligations under this Agreement
and the other Party is in material breach or material default of any
representation, warranty, covenant, or agreement contained herein or there
are any inaccuracies or misrepresentations in the other party’s
representations or warranties which have had, or if not cured prior to the
Closing Date would reasonably be expected to have, a Seller Material
Adverse Effect or Buyer Material Adverse Effect, as the case may be, and
such breach, default, misrepresentation or inaccuracy shall not be cured
or waived within 20 Business Days after written notice is delivered to the
non-breaching party specifying, in reasonable detail, such claimed
material breach, default, misrepresentation or inaccuracy and demanding
its cure or satisfaction; or
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|
(v)
|
there
shall have occurred any event that constitutes a Change of Control with
respect to the other party.
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8.02 Effect of
Termination. Other than as set forth in subsection (b) below,
if this Agreement is terminated pursuant to Section 8.01, all
obligations of the Parties hereunder (except for this Section 8.02, Section 5.08 (Public
Announcements), Section 5.17
(Non-Solicitation Agreements), Section 9.04
(Expenses), Section
9.06 (Governing Law), Section 9.12 (Dispute
Resolution) and Section 9.13
(Submission to Jurisdiction; Waiver of Jury Trial) shall terminate without
Liability of any Party to any other Party, the representations and warranties
made herein shall not survive beyond a termination of this Agreement and no
Party shall have any Liability for breach of any representation or warranty upon
a termination of this Agreement prior to the Closing. Nothing
contained in this Section 8.02 shall
relieve any Party of Liability for any breach of any covenant contained in this
Agreement that occurred prior to the date of termination of this
Agreement.
ARTICLE
IX
MISCELLANEOUS
9.01 Notices. All
notices and other communications pursuant to this Agreement shall be in writing
and shall be deemed given if delivered personally, sent by facsimile, sent by
nationally-recognized overnight courier or mailed by registered or certified
mail (return receipt requested), postage prepaid, to the Parties at the
addresses set forth below or to such other address as the Party to whom notice
is to be given may have previously furnished to the other Party in writing in
accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (a) in the case of personal delivery,
on the date of such delivery, (b) in the case of facsimile transmission, on the
date sent if confirmation of receipt is received and such notice is also
promptly mailed by registered or certified mail (return receipt requested), (c)
in the case of a nationally-recognized overnight courier in circumstances under
which such courier guarantees next Business Day delivery, on the next Business
Day after the date when sent and (d) in the case of mailing, on the third
Business Day following that on which the piece of mail containing such
communication is posted:
|
if
to Seller, to:
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Intel
Corporation
|
|
2200
Mission College Blvd.
|
|
Santa
Clara, California 95052-8199
|
|
Attention: Treasurer
|
|
Fax: (408)
765-6038 with copies to:
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|
|
|
Intel
Corporation
|
|
2200
Mission College Blvd.
|
|
Santa
Clara, California 95052-8199
|
|
Attention: General
Counsel
|
|
Fax: (408)
653-8050
|
|
|
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and
|
|
Gibson,
Dunn & Crutcher LLP
|
|
1881
Page Mill Road
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|
Palo
Alto, California 94304
|
|
Attention: Russell
Hansen
|
|
Stewart
L. McDowell
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|
Telephone: (650)
849-5383
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|
Fax: (650)
849-5333
|
|
|
|
if
to Buyer, to:
|
|
|
|
Emcore
Corporation
|
|
10420
Research Road, SE
|
|
Albuquerque,
New Mexico 87123
|
|
Attention: General
Counsel
|
|
Telephone: (505)
332-5000
|
|
Fax: (505)
332-5038
|
|
|
|
with
a copy to:
|
|
|
|
Jones
Day
|
|
1755
Embarcadero Road
|
|
Palo
Alto, California 94303
|
|
Attention: Sean
M. McAvoy
|
|
Telephone: (650)
739-3917
|
|
Fax: (650)
739-3900
|
|
|
|
and
|
|
|
|
Jones
Day
|
|
51
Louisiana Avenue, N.W.
|
|
Washington,
DC 20001
|
|
Attention: John
Welch
|
|
Telephone: (202)
879-3939
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|
Fax: (202)
626-1700
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Any Party
hereto may give any notice, request, demand, claim or other communication
hereunder using any other means (including ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
individual for whom it is intended.
9.02 Notice of Change of
Control. Promptly upon an announcement by Buyer or any other
Person of a Change of Control of Buyer, Buyer shall give Seller written notice
thereof, describing in reasonable detail the applicable Change of Control and
identifying each “person” or, to the Knowledge of Buyer, “group” (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act) that is a party to
such transaction or transactions.
9.03 Amendments;
Waivers.
(a) Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
all Parties, or in the case of a waiver, by the Party against whom the waiver is
to be effective.
(b) No
waiver by a Party of any default, misrepresentation or breach of a warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of a warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent default, misrepresentation or breach of warranty or covenant
hereunder. No failure or delay by a Party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided under Applicable
Law.
9.04 Expenses. All
costs and expenses incurred in connection with this Agreement and the other
Acquisition Documents and in closing and carrying out the transactions
contemplated hereby and thereby shall be paid by the Party incurring such cost
or expense, whether or not such transactions are consummated. In the
event of termination of this Agreement, the obligation of each Party to pay its
own expenses will be subject to any rights of such Party arising from a breach
of this Agreement by the other.
9.05 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors, heirs, personal
representatives and permitted assigns. No Party hereto may transfer
or assign either this Agreement or any of its rights, interests or obligations
hereunder, whether directly or indirectly, by operation of law, merger or
otherwise, without the prior written approval of each other Party. No
such transfer or assignment shall relieve the transferring or assigning Party of
its obligations hereunder if such transferee or assignee does not perform such
obligations. The closing or other consummation of a transaction
constituting a Change of Control, including a Change of Control pursuant to
which the contracting Parties to this Agreement remain unchanged, shall be
deemed to be an assignment of this Agreement.
9.06 Governing
Law. This Agreement shall be construed in accordance
with and any disputes or controversies related hereto shall be
governed by the internal laws of the State of New York without giving effect to
the conflicts of laws principles thereof that would apply the laws of any other
jurisdiction.
9.07 Counterparts;
Effectiveness. This Agreement may be signed in any number of
counterparts and the signatures delivered by facsimile transmission, each of
which shall be an original, with the same effect as if the signatures were upon
the same instrument and delivered in person. This Agreement shall
become effective when each Party hereto shall have received a counterpart hereof
signed by the other Parties.
9.08 Entire
Agreement. This Agreement (including the schedules and
exhibits referred to herein, which are hereby incorporated by reference), the
other Acquisition Documents and the Confidentiality Agreement constitute the
entire agreement between the Parties with respect to the subject matter hereof
and thereof and supersede all prior and contemporaneous agreements,
understandings and negotiations, both written and oral, between and among the
Parties with respect to the subject matter of this Agreement. No
representation, warranty, promise, inducement or statement of intention has been
made by either Party that is not embodied in this Agreement or the other
Acquisition Documents, and neither party shall be bound by, or be liable for,
any alleged representation, warranty, promise, inducement or statement of
intention not embodied herein or therein.
9.09 Captions. The
captions herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof. All references
to an article, section, exhibit or schedule are references to an article,
section, exhibit or schedule of this Agreement, unless otherwise specified, and
include all subparts thereof.
9.10 Severability. If
any provision of this Agreement, or the application thereof to any Person, place
or circumstance, shall be held by a court of competent jurisdiction to be
invalid, unenforceable or void, the remainder of this Agreement and such
provisions as applied to other Persons, places and circumstances shall remain in
full force and effect only if, after excluding the portion deemed to be
unenforceable, the remaining terms shall provide for the consummation of the
transactions contemplated hereby in substantially the same manner as originally
set forth at the later of the date this Agreement was executed or last
amended. The Parties further agree to replace such invalid,
unenforceable or void provision with a valid and enforceable provision that will
achieve, in a commercially reasonable manner, the economic, business and other
purposes of such invalid, unenforceable or void provision.
9.11 Construction. The
Parties intend that each representation, warranty, and covenant contained herein
shall have independent significance. If any Party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) that the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty or
covenant.
9.12 Dispute
Resolution.
(a) All
disputes arising directly under the express terms of this Agreement, including
the grounds for termination thereof shall be resolved as follows: The
senior management of the Parties to the dispute shall meet to attempt to resolve
such disputes. In the event that senior management cannot resolve
these disputes, any Party may make a written demand for formal dispute
resolution and specify therein the scope of the dispute. As promptly
as practicable, and in any event within thirty days after such written
notification, the Parties agree to meet for one day with an impartial mediator
and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not
agreed upon within 30 days after the one day mediation, either Party may begin
litigation proceedings.
(b) Notwithstanding
the provisions of Section 9.12(a)
above, except as otherwise provided in this Agreement, each Party shall have the
right, without the requirement of first seeking a remedy through meeting of
senior management, mediation or any other alternative dispute resolution
methods, to seek preliminary injunctive or other equitable relief in any proper
court in the event that such Party determines that eventual redress through such
other methods will not provide a sufficient remedy for any violation of this
Agreement by any other Party.
(c) In
the event a proceeding is brought to enforce or interpret any provision of this
Agreement, the prevailing Party shall be entitled to recover reasonable
attorney’s fees and costs in an amount to be fixed by the court.
9.13 Submission to Jurisdiction;
Waiver of Jury Trial.
(a) The
Parties hereby irrevocably submit to the jurisdiction of the courts of the State
of New York and the Federal courts of the United States of America, in each case
located in New York City solely in respect of the interpretation and enforcement
of the provisions of this Agreement, all Exhibits and Schedules hereto and the
other Acquisition Documents and in respect of the transactions contemplated
hereby, and hereby waive, and agree not to assert, as a defense in any
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the Parties hereto irrevocably agree that all claims with respect to
such proceeding shall be heard and determined in the courts of the State of New
York and the Federal courts of the United States of America, in each case
located in New York City. The Parties hereby consent to and grant any
such court jurisdiction over the person of such Parties and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in
this Section 9.13 or
in such other manner as may be permitted by Applicable Law, shall be valid and
sufficient service thereof.
(b) EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES
THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER,
(iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH
SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.13.
9.14 Knowledge of Breach;
Disclosure Letters. No fact, event, misrepresentation or
occurrence that, in the absence of this Section 9.14, would
constitute a breach or breaches of any representation or warranty of Seller or
Buyer, as the case may be, under this Agreement shall be deemed to constitute a
breach or breaches by Seller or Buyer, as the case may be, of its
representations or warranties under this Agreement if Seller or Buyer, as the
case may be, has actual knowledge of such breach or breaches on or before the
date hereof. The disclosure of any information on any section of the
Seller Disclosure Letter or the Buyer Disclosure Letter as the case may be,
shall be deemed to constitute the disclosure of such information on all other
sections of the Seller Disclosure Letter or the Buyer Disclosure Letter as the
case may be, applicable to such information.
9.15 Third Party
Beneficiaries. No provision of this Agreement shall create any
third party beneficiary rights in any Person, including any employee or former
employee of Seller or any Affiliate thereof (including any beneficiary or
dependent thereof).
9.16 Specific
Performance. The Parties hereby acknowledge and agree that the
breach of or failure of any Party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the transactions contemplated herein, may cause
irreparable injury to the other Party, for which damages, even if available, may
not be an adequate remedy. Accordingly, except as provided in Section 5.16(d), each
Party hereby consents to the issuance of injunctive relief by any court of
competent jurisdiction to compel performance of such Party’s obligations and to
the granting by any court of the remedy of specific performance of its
obligations hereunder.
9.17 No Presumption Against
Drafting Party. Each of Buyer and Seller acknowledges that it
has been represented by counsel in connection with the negotiation and execution
of this Agreement and the other Acquisition Documents. Accordingly,
any rule of law or any legal decision that would require interpretation of any
claimed ambiguities in this Agreement or any of the other Acquisition Documents
against the drafting party has no application and is expressly
waived.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Parties here caused this Agreement to be duly executed by
their respective authorized officers as of the day and year first above
written.
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INTEL
CORPORATION
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By:
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/s/ Cary I.
Klafter
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Name:
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Cary
I. Klafter
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Title:
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Vice
President, Legal and Government Affairs Corporate
Secretary
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EMCORE
CORPORATION
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By:
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/s/ Reuben F.
Richards, Jr.
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Name:
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Reuben
F. Richards, Jr.
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Title:
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Chief
Executive Officer
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Exhibits:
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Exhibit
A
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Assignment
and Assumption Agreement
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Exhibit
B
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Bill
of Sale
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Exhibit
C
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Intellectual
Property Agreement
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Exhibit
D
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Patent
Assignment
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Exhibit
E
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Transition
Services Agreement
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Exhibit
F
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Warranty
Services Agreement
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Schedules:
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Schedule
1.01(b)
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List
of Individuals for Purposes of Knowledge
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Schedule
1.01(d)
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List
of Products
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Schedule
1.01(e)
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Transferred
Contracts
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Schedule
1.01(f)
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Transferred
Equipment
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Schedule
1.01(g)
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Transferred
Patents
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Schedule
2.02(n)
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Excluded
Assets
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Schedule
2.06(c)
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Seller’s
Wire Instructions
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Schedule
5.10
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Allocation
of Consideration
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Schedule
5.18
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Privacy
Policy
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Pursuant
to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this
agreement have not been filed herewith. EMCORE Corporation will
furnish supplementally a copy of any omitted schedule to the Securities and
Exchange Commission upon request.
Appendix
A
to
Asset Purchase Agreement
The
following terms, as used in the Agreement, have the following
meanings:
“Acquisition
Documents” means this Agreement, the Ancillary Agreements and any other
document or agreement executed in connection with any of the foregoing, together
with any exhibits and schedules thereto, and in each case as modified, amended,
supplemented, restated or renewed from time to time.
“Additional Inventory”
means Business Inventory that is characterized as obsolete by Seller as of the
Effective Time.
“Affiliate” with
respect to any Person, means any other Person directly or indirectly
controlling, controlled by or under common control with, such
Person. For purposes of this definition, “control” (including, with
correlative meanings, the terms “controlling”, “controlled by” or “under common
control with”), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
“Ancillary Agreements”
means the Assignment and Assumption Agreement, Bill of Sale, the Patent
Assignment, the Intellectual Property Agreement, the Transition Services
Agreement and the Warranty Services Agreement.
“Applicable Law”
means, with respect to any Person, any federal, state, local or foreign statute,
law, ordinance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree or other requirement of any Governmental
Authority applicable to such Person or any of its Affiliates or any of their
respective properties, assets, officers, directors, employees, consultants or
agents.
“Assignment and Assumption
Agreement” means the Assignment and Assumption Agreement to be entered
into by Buyer and Seller as of the Closing Date in substantially the form
attached hereto as Exhibit A.
“Bill of Sale” means
any Bill of Sale to be executed by Seller in favor of Buyer as of the Closing
Date in substantially the form attached hereto as Exhibit B and
any other bill of sale required to transfer Transferred Assets in non-U.S.
jurisdictions, which shall be in a form agreed by the Parties, conforming as
closely to Exhibit B as possible in light of the law of the applicable
jurisdiction.
“Books and Records”
means the books and records of Seller and its Subsidiaries that were prepared
for and relate exclusively to the Business and that are necessary for the
operation of the Transferred Assets after the Closing (excluding all personnel
records or any employee information for any Business Employees).
“Business” means the
business conducted by Seller and its Subsidiaries that consists of the
development, sale and support of the Products as of the date of this
Agreement.
“Business Day” means
each day other than a Saturday, Sunday or other day on which commercial banks in
San Francisco, California or Albuquerque, New Mexico, are authorized or required
by law to close.
“Business Inventory”
means the Seller Inventory owned by Seller or its Subsidiaries and used or held
for use exclusively in the Business as of the Closing Date.
“Buyer Accounts
Payable” means all accounts payable owing by Buyer or any of its
Subsidiaries in connection with the Business for raw materials or supplies
received by or services rendered to Buyer or any of its Subsidiaries on or after
the Effective Time.
“Buyer Accounts
Receivable” means all accounts receivable, notes receivable and other
current rights to payment of Buyer or any of its Subsidiaries, together with any
unpaid interest or fees accrued thereon or other amounts receivable with respect
thereto, and any claim, remedy or other right related to any of the foregoing,
in each case generated by the operation of the Business by Buyer and its
Subsidiaries on or after the Effective Time.
“Buyer Approval” means
any Governmental Approval or any consent, waiver or approval of any other Person
necessary for Buyer to consummate the transactions contemplated by this
Agreement and the other Acquisition Documents.
“Buyer Material Adverse
Effect” means any event, change or circumstance that, individually or in
the aggregate with all other such events, changes or circumstances, results in
or would reasonably be expected in the future to result in a material adverse
effect on, or material adverse change in, the operations, financial condition,
earnings, results of operations, assets or Liabilities of Buyer or any event,
change or circumstance that is materially adverse to the ability of Buyer to
perform its obligations under this Agreement or any of the other the Acquisition
Documents to which it will be a party, to consummate the transactions
contemplated hereby or thereby or to own or operate the Transferred Assets and
pay the Assumed Liabilities other than such events, changes, or
circumstances reasonably attributable to: (a) economic, capital market or
political conditions generally in the United States or foreign economies in any
locations where the Buyer has material operations or sales, provided the events, changes,
or circumstances do not have a materially disproportionate effect (relative to
other industry participants) on the Buyer; (b) conditions generally affecting
the industry in Buyer operates, provided the events, changes,
or circumstances do not have a materially disproportionate effect (relative to
other industry participants) on Buyer; (c) outbreak of hostilities or war, acts
of terrorism or acts of God; (d) Buyer’s compliance with its obligations,
performance under or the satisfaction of the conditions to the closing of the
transactions contemplated by the Acquisition Documents; or (e) any action taken
by Buyer with the prior written consent of Seller.
“Cash and Cash
Equivalents” means all cash on hand and cash equivalents of Seller and
its Subsidiaries (whether or not related to the Business), including currency
and coins, negotiable checks, bank accounts, marketable securities, commercial
paper, certificates of deposit, treasury bills, surety bonds and money market
funds.
“Change of Control” of
a Person shall mean the occurrence of (or any public announcement of, or entry
into any agreement by such Person or any of its Subsidiaries to engage in or
effect, a transaction that would result in) any of the following events or
circumstances, whether accomplished directly or indirectly, or in one or a
series of related transactions:
(A) any
“person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as defined in Rule l3d-3 under the
Exchange Act) of more than 50% of the total voting power of the outstanding
capital stock of such Person;
(B) such
Person merges with or into, or consolidates with, or consummates any
reorganization or similar transaction with, another Person and, immediately
after giving effect to such transaction, less than 50% of the total voting power
of the outstanding capital stock of the surviving or resulting Person is
“beneficially owned” (within the meaning of Rule 13d-3 under the Exchange
Act) in the aggregate by the shareholders of such Person immediately prior to
such transaction;
(C) such
Person (including through one or more of its Subsidiaries and including through
any liquidation or dissolution, other than a liquidation or dissolution in
connection with a reorganization or similar transaction in which the holders of
the voting stock of such Person immediately prior to such transaction continue
to “beneficially own” (within the meaning of Rule 13d-3 under the Exchange Act)
more than 50% of the total voting power of the outstanding capital stock of the
surviving entity immediately after giving effect to such transaction) sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets and properties (including capital stock of
Subsidiaries) of such Person, but excluding sales, assignments, conveyances,
transfers, leases or other dispositions of assets and properties (including
capital stock of Subsidiaries) by such Person or any of its Subsidiaries to any
direct or indirect Subsidiary of such Person; or
(D) individuals
who as of the date hereof constituted the members of the Board of Directors of
such Person (together with any new or replacement directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
such Person was approved by a vote of a majority of the members of the Board of
Directors then in office who either were members of the Board of Directors as of
the date hereof or whose election or nomination was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of such
Person then in office.
“Claims” means all
causes of action, claims, demands, rights and privileges against third parties,
whether liquidated or unliquidated, fixed or contingent, choate or
inchoate.
“Closing Date” means
the date of the Closing.
“Code” means the
Internal Revenue Code of 1986, as amended.
“Competing Product”
means any stand-alone product that: (a) is substantially in conformity with
Seller’s or its Subsidiaries’ product specifications or data sheets
corresponding to a Product; and (b) does not contain or embody substantial
additional functionality; and (c) is not an Excluded Seller Product or a Core
Seller Product.
“Confidentiality
Agreement” means that certain Corporate Non-Disclosure Agreement #8000533
between Buyer and Seller dated January 25, 2001, as amended by an addendum
thereto effective September 14, 2007.
“Competitive Business
Activity” means the marketing or selling of any Competing
Product.
“Contract” means each
contract, agreement, option, lease, license, sale and purchase order, commitment
and other instrument of any kind, whether written or oral.
“Copyrights” means
copyrights and mask work rights (whether or not registered) registrations and
applications therefor.
“Core Seller Products”
shall mean Seller Compatible Processors, Seller Compatible Chipsets, Seller
Architecture Emulators, Seller Compatible Compilers, any product that implements
any Seller Bus and Flash Memory Products.
“Effective Time”
means, unless otherwise agreed by the Parties, 12:01 a.m. California time on the
Closing Date.
“Employee Agreement”
means each management, employment, severance, consulting, relocation,
repatriation or expatriation Contract between Seller or any of its Subsidiaries
and any Business Employee directly relating to such Business Employee’s terms or
conditions of employment.
“Employee Plan” means
any plan, program, policy, practice, agreement or other arrangements providing
for compensation, severance, termination pay, pension benefits, retirement
benefits, deferred compensation, performance awards, stock or stock-related
awards, fringe benefits (including health, dental, vision, life, disability,
sabbatical, accidental death and dismemberment benefits), or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including each “employee benefit plan,” within the meaning
of Section 3(3) of ERISA, excluding any Employee Agreement, which is or has been
maintained by Seller or its Affiliates for the benefit of any Business
Employee.
“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.
“Environmental Laws”
means any Applicable Laws of any Governmental Authority in effect as of the date
hereof relating to pollution or protection of the environment.
“Excluded Seller
Product” shall mean any product of Seller or any of its Subsidiaries
(including revisions of such product) that: (a) is marketed or sold by Seller or
any of its Subsidiaries as of the Closing Date, or has been announced to the
public with a future intention of being marketed or sold by Seller, other than
the Products; or (b) contains substantially greater or different functionality
from any Product.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Flash Memory
Products” shall mean non-volatile Integrated Circuits capable of storing
data that are electrically programmable and electrically erasable, or
magnetically alterable to define a logical state, including without limitation
both floating gate and non-floating gate designs.
“GAAP” means generally
accepted accounting principles in the United States of America, applied on
a consistent basis, as in effect as of the date hereof.
“Governmental
Approval” means an authorization, consent, approval, permit or license
issued by, or a registration or filing with, or notice to, or waiver from, any
Governmental Authority.
“Governmental
Authority” means any international, supranational, foreign or domestic
federal, territorial, state, provincial, regional, municipal or local
governmental authority, quasi-governmental authority, instrumentality, court,
government or self-regulatory organization, commission, tribunal or organization
or any regulatory, administrative or other agency, or any political or other
subdivision, department or branch of any of the foregoing or any private body
exercising any regulatory, taxing, importing or other governmental or
quasi-governmental authority.
“HSR Act” means the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended.
“Integrated Circuit”
shall mean an integrated unit comprising one or more active and/or passive
circuit elements associated on one or more substrates, such unit forming, or
contributing to the formation of, a circuit for performing electrical functions
(including, if provided therewith, housing and or supporting
means). The definition of Integrated Circuit shall also include any
and all firmware, microde or drivers, if needed to cause such circuit to perform
substantially all of its intended hardware functionality, whether or not such
firmware, microde or drivers are shipped with such integrated unit or installed
at a later time.
“Intellectual
Property” means intellectual property rights arising from or in respect
of Copyrights, Trade Secrets, Patents and Trademarks.
“Intellectual Property
Agreement” means the Intellectual Property Agreement to be entered into
by Buyer and Seller as of the Closing Date in substantially the form attached
hereto as Exhibit C.
“IRS” means the
Internal Revenue Service of the United States.
“Knowledge” means,
with respect to any Person, the actual knowledge of such
Person. Without limiting the generality of the foregoing, with
respect to any Person that is a corporation, limited liability company,
partnership or other business entity, actual knowledge shall be deemed to
include the actual knowledge of all directors, officers, partners and members of
any such Person; provided,
however, that with respect each Party, actual knowledge shall be deemed
to be solely the actual knowledge of the individuals identified on Schedule
1.01(b).
“Liability” means,
with respect to any Person, any debt, liability or obligation of such Person of
any kind, character or description, whether known or unknown, absolute or
contingent, matured or unmatured, asserted or unasserted, accrued or unaccrued,
liquidated or unliquidated, secured or unsecured, joint or several, due or to
become due, vested or unvested, absolute, contingent, executory, determined,
determinable or otherwise and whether or not the same is required to be accrued
on the financial statements of such Person.
“Lien” means, with
respect to any asset, any mortgage, title defect or objection, lien, pledge,
charge, security interest, encumbrance or hypothecation in respect of such
asset; provided,
however, that any license of Intellectual Property shall not be
considered a Lien on such Intellectual Property, including, but not limited to
any licenses pursuant to this Agreement or any of the other Acquisition
Documents.
“Multiemployer Plan”
means any employee pension benefit plan within the meaning of Section 3(2) of
ERISA that is a “multiemployer plan,” as defined in Section 3(37) of
ERISA.
“Patent Assignment”
means any Patent Assignment to be executed by Seller in favor of Buyer as of the
Closing Date in substantially the form attached hereto as Exhibit D and
any other patent assignment required to transfer Transferred Patents in non-U.S.
jurisdictions, which shall be in a form agreed by the Parties, conforming as
closely to Exhibit D as possible in light of the law of the applicable
jurisdiction.
“Patents” means
patents and applications therefor, including continuation, divisional,
continuation in part, reexamination or reissue patent applications and patents
issuing thereon.
“Permitted Liens”
means (a) Liens for Taxes or governmental assessments, charges or claims
the payment of which is not yet due or which is being contested in good faith,
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Persons and other Liens imposed by
Applicable Law incurred in the ordinary course of business which are either for
sums not yet delinquent or are immaterial in amount, and (c) easements and other
imperfections of title or other encumbrances, if any, which imperfections or
encumbrances would not reasonably be expected to materially devalue the property
involved or materially impair Buyer’s ability to use the Transferred
Assets in the manner in which they are currently used by the Seller and its
Subsidiaries .
“Person” means an
individual, corporation, partnership, association, limited liability company,
proprietorship, joint venture, union, trust, estate or other similar business
entity or organization, including a Governmental Authority.
“Pre-Closing Product
Obligations” means Liabilities relating to any product liability,
warranty, refund or similar claims or returns, adjustments, allowances, repairs
or returns, accrued or arising based on Products shipped by Seller or its
Subsidiaries before the Effective Time.
“Post-Closing Tax
Period” means any Tax period (or portion thereof) beginning after the
Effective Time and the portion of any other Tax period ending on or after the
Effective Time.
“Pre-Closing Tax
Period” means any Tax period (or portion thereof) ending prior to the
Effective Time.
“Prepayments” means
all prepaid items and deposits paid by Seller or any of its Subsidiaries in
connection with the Business, and any claim, remedy or other right related to
any of the foregoing.
“Proceedings” means
any claim, action, suit, audit, investigation, arbitration or proceeding by or
before any Governmental Authority.
“Processor” means any
Integrated Circuit or combination of Integrated Circuits capable of processing
digital data, such as a microprocessor or coprocessor (including, without
limitation, a math coprocessor, graphics coprocessor, or digital signal
processor.
“Product Obligations”
means Liabilities relating to any product liability, warranty, refund or similar
claims or returns, adjustments, allowances, repairs or returns, accrued or
arising based on Products shipped on or after the Effective Time.
“Products” means the
products listed on Schedule
1.01(d).
“PTO” means the United
States Patent and Trademark Office.
“Seller Accounts
Payable” means all accounts payable owing by Seller or any of its
Subsidiaries for raw materials or supplies received by or services rendered to
Seller or any of its Subsidiaries.
“Seller Accounts
Receivable” means all accounts receivable, notes receivable and other
current rights to payment of Seller or any of its Subsidiaries, together with
any unpaid interest or fees accrued thereon or other amounts receivable with
respect thereto, and any claim, remedy or other right related to any of the
foregoing.
“Seller Architecture
Emulator” shall mean software, firmware or hardware that, through
emulation, simulation or any other process, allows a computer that does not
contain a Seller Compatible Processor (or a Processor that is not a Seller
Compatible Processor) to execute binary code that is capable of being executed
on a Seller Compatible Processor.
“Seller Bus” shall
mean a proprietary bus or other data path first introduced by Seller or any of
its Subsidiaries: (a) that is capable of transmitting and/or receiving
information within an Integrated Circuit or between two or more Integrate
Circuits, together with the set of protocols defining the electrical, physical,
timing and functional characteristics, sequences and control procedures of such
bus or data path; (b) which neither Seller nor any of its Subsidiaries (during
the time that any such Subsidiary of Seller has met the requirements of being a
Subsidiary of Seller) has granted a license or committed to grant a license
through its participation in a government sponsored, industry sponsored or
contractually formed group or any similar organization that is dedicated to
creating publicly available standards or specifications; and (c) which neither
Seller nor any of its Subsidiaries (during the time that any such Subsidiary of
Seller has met the requirements of being a Subsidiary of Seller) has publicly
disclosed without an obligation of confidentiality.
“Seller Compatible
Chipsets” shall mean one or more Integrated Circuits that alone or
together are capable of electrically interfacing directly (with or without
buffering or pin re-assignment) with a Seller Compatible Processor to form the
connection between the Seller Compatible Processor and any other device (or
group of devices) including Processors, input/output devices, networks and
memory.
“Seller Compatible
Compiler” shall mean a compiler that generates object code that can, with
or without additional linkage processing, be executed on any Seller
Processor.
“Seller Compatible
Processor” shall mean any Processor that (a) can perform substantially
the same functions as a Seller Processor by compatibly executing or otherwise
processing: (i) a substantial portion of the instruction set of a Seller
Processor, (ii) object code versions of applications or other software targeted
to run on or with a Seller Processor or (iii) binary code that is capable of
being executed on a Seller Processor, in order to achieve substantially the same
result as a Seller Processor, or (b) is substantially compatible with a Seller
Bus.
“Seller Contractual
Consent” means any consent, waiver or approval of the other party or
parties to a Transferred Contract that is necessary for Seller or one of its
Subsidiaries to assign such Transferred Contract to Buyer as contemplated by
this Agreement.
“Seller Governmental
Approval” means a Governmental Approval necessary for Seller to
consummate the transactions contemplated by this Agreement and the other
Acquisition Documents.
“Seller Inventory”
means finished goods, unfinished goods, supplies, packaging materials and other
inventories owned by Seller or its Subsidiaries.
“Seller Material Adverse
Effect” means any event, change or circumstance that, individually or in
the aggregate with all other such events, changes or circumstances, results in a
material adverse effect on, or material adverse change in, the Transferred
Assets, taken as a whole, or any event, change or circumstance that is
materially adverse to the ability of Seller to perform its obligations under
this Agreement or any of the other Acquisition Documents to which it will be a
party or to consummate the transactions contemplated hereby or thereby other
than such events, changes, or circumstances reasonably attributable
to: (a) economic, capital market or political conditions generally in the United
States or foreign economies in any locations where the Business has material
operations or sales, provided the events, changes,
or circumstances do not have a materially disproportionate effect (relative to
other industry participants) on the Business; (b) conditions generally affecting
the industry in which Seller or the Business operates, provided the events, changes,
or circumstances do not have a materially disproportionate effect (relative to
other industry participants) on Seller or the Business; (c) the announcement or
pendency of the transactions contemplated by the Acquisition Documents; (d)
outbreak of hostilities or war, acts of terrorism or acts of God; (e) Seller’s
compliance with its obligations, performance under or the satisfaction of the
conditions to the closing of the transactions contemplated by the Acquisition
Documents; (f) any action taken by Seller with the prior written consent of
Buyer; or (g) operation of the Business in accordance in the ordinary course of
business.
Seller Processor”
shall mean any Processor, or proprietary extension of a third party Processor,
first developed by, for or with substantial participation by Seller or any of
its Subsidiaries, or the design of which has been purchased or otherwise
acquired by Seller or any of its Subsidiaries, including the Seller x86
architecture, Core™, Celeron®, Pentium®, Xeon™, Itanium®, MXP, IXP, 80860 and
80960 microprocessor families and the 8097, 80287 and 80387 math coprocessor
families.
“Seller Voluntary Separation
Program” means Seller’s program that allows an eligible employee the
opportunity to choose to voluntarily separate from Seller or one of its
Subsidiaries in return for a separation package.
“Subsidiary” means,
with respect to any Person, (a) any corporation, limited liability company or
other similar organization as to which more than 50% of the outstanding capital
stock or other securities having voting rights or power is owned or controlled,
directly or indirectly, by such Person and/or by one or more of such Person’s
direct or indirect subsidiaries and (b) any partnership, joint venture or other
similar relationship between such Persons and any other Person.
“Taxes” means
(a) all foreign, federal, state, local and other net income, gross income,
gross receipts, sales, use, ad
valorem, value added, intangible, unitary, capital gain, transfer,
franchise, profits, license, lease, service, service use, withholding, backup
withholding, payroll, employment, estimated, excise, severance, stamp,
occupation, premium, property, prohibited transactions, windfall or excess
profits, customs, duties or other taxes, fees, assessments or charges of any
kind whatsoever, whether disputed or not, together with any interest and any
penalties, additions to tax or additional amounts with respect thereto,
(b) any Liability for payment of amounts described in clause (a) whether as
a result of transferee Liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise through
operation of law and (c) any Liability for the payment of amounts described
in clause (a) or (b) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied agreement to indemnify any
other Person for Taxes; and the term “Tax” means any one of
the foregoing Taxes.
“Tax Returns” means
any and all written or electronic returns, certificates, declarations, reports,
statements, information statements, forms or other documents filed or required
to be filed with respect to any Tax, amendments thereof, and schedules and
attachments thereto.
“Trademarks” means
trademarks and registrations and applications therefor.
“Trade Secrets” means
confidential know how, inventions, discoveries, concepts, ideas, methods,
processes, designs, formulae, technical data, source code, drawings,
specifications (including logic specifications), data bases, data sheets,
customer lists, Customer Data and other confidential information that constitute
trade secrets under applicable law, in each case excluding any rights in respect
of any of the foregoing that comprise Copyrights, mask work rights or
Patents.
“Transferred
Contracts” means the Contracts identified on Schedule
1.01(e).
“Transferred
Copyrights” means the Copyrights owned by Seller and its Subsidiaries as
of the Closing Date that are embodied in the Products and used exclusively in
the Business and not embodied or used in or with any other current product or
services or planned product or service of Seller or any of its
Subsidiaries.
“Transferred
Employees” means the Business
Employees who accept an offer of employment from Buyer and who begin their
employment with Buyer immediately upon Closing or on such other date as may be
otherwise agreed to by the Parties.
“Transferred
Equipment” means the equipment listed on Schedule
1.01(f).
“Transferred Intellectual
Property” means, collectively, the Transferred Copyrights, Transferred
Patents and Transferred Trade Secrets.
“Transferred Patents”
means those Patents identified on Schedule 1.01(g).
“Transferred Product
Materials and Information” means certain collateral materials, brochures,
manuals, promotional materials, sales materials, display materials and product
information materials exclusively related to the Products;
“Transferred Trade
Secrets” means any Trade Secrets owned by Seller and its Subsidiaries as
of the Closing Date that are embodied in the Products and used exclusively in
the Business and not embodied or used in or with any other current product or
service or planned product or service of Seller or any of its Subsidiaries;
provided, however, that such term shall
not include any rights in Trade Secrets that are described within a Patent
issuing after the Closing Date related to a patent application that was filed
prior to the Closing Date.
“Transition Services
Agreement” means the Transition Services Agreement to be entered into by
Buyer and Seller as of the Closing Date in substantially the form attached
hereto as Exhibit E.
“Warranty Services
Agreement” means the Warranty Services Agreement to be entered into by
Buyer and Seller as of the Closing Date in substantially the form attached
hereto as Exhibit
F.
In
addition to those terms defined above in this Appendix A, the following is an
index of other defined terms, which have the respective meanings given thereto
in the Sections indicated in the table below.
Definition
|
Location
|
|
|
|
|
Additional
Cash Consideration
|
Section 2.06
|
6
|
Agreement
|
Preamble
|
1
|
Assumed
Liabilities
|
Section 2.03
|
4
|
Average
Buyer Trading Price
|
Section 2.06
|
7
|
Basket
|
Section 7.02(e)
|
35
|
Business
Employees
|
Section 3.12(d)
|
13
|
Business
Financial Statements
|
Section 5.19
|
29
|
Business
Permits
|
Section 2.01(i)
|
2
|
Buyer
Common
|
Stock
Section 2.06
|
6
|
Buyer
Disclosure Letter
|
Article
IV
|
15
|
Buyer
Indemnitees
|
Section 7.02(a)
|
33
|
Buyer
Lease
|
Section 5.21
|
30
|
Buyer
|
Preamble
|
1
|
Buyer
SEC Documents
|
Section 4.06
|
17
|
Cash
Consideration
|
Section 2.06
|
6
|
Closing
|
Section 2.07
|
7
|
Consideration
|
Section 2.06
|
6
|
Customer
Data
|
Section 5.18
|
29
|
Excluded
Assets
|
Section 2.02
|
3
|
Excluded
Liabilities
|
Section 2.04
|
5
|
Facility
Assets
|
Section 5.21
|
30
|
Financial
Statements
|
Section 3.13(a)
|
13
|
Indemnification
Cap
|
Section 7.05
|
37
|
Indemnitee
|
Section 7.02(c)
|
34
|
Indemnitor
|
Section 7.02(c)
|
34
|
Landlord
|
Section 5.21
|
29
|
Losses
|
Section 7.02(d)
|
34
|
Newark
Facility TB1
|
Section 5.21
|
29
|
Newark
Facility TB2
|
Section 5.21
|
29
|
Notice
of Claim
|
Section 7.03(b)
|
35
|
Parties
|
Preamble
|
1
|
Party
|
Preamble
|
1
|
Possessing
Party
|
Section 5.01(c)
|
19
|
Prepaid
Inventory
|
Section 2.01(g)
|
2
|
Privacy
Policy
|
Section 5.18
|
29
|
Property
Tax
|
Section 5.09(b)
|
23
|
Receiving
Party
|
Section 5.01(c)
|
19
|
Removal
Costs
|
Section 5.21
|
30
|
Retained
Marks
|
Section 5.04
|
21
|
Sales
Tax
|
Section 5.09(f)
|
24
|
SEC
|
Section 4.06
|
17
|
Seller
Disclosure Letter
|
Article
III
|
8
|
Seller
Indemnitees
|
Section 7.02(b)
|
34
|
Seller
Lease
|
Section 5.21
|
29
|
Seller
|
Preamble
|
1
|
Selling
Group
|
Section 5.17
|
29
|
Stock
Consideration
|
Section 2.06
|
7
|
Termination
Date
|
Section 8.01
|
38
|
Third
Party Action
|
Section 7.04
|
35
|
Transferred
Assets
|
Section 2.01
|
2
|
Transferring
Subsidiary
|
Section 3.01
|
8
|
lxi
ex10_1.htm
Exhibit
10.1
EMCORE
CORPORATION
2007
DIRECTORS’ STOCK AWARD PLAN
1. The
purposes of the 2007 Directors' Stock Award Plan (the “Plan”) are (a) to
attract and retain highly qualified individuals to serve as Directors of EMCORE
Corporation (the “Corporation”), (b) to
increase non-employee Directors' stock ownership in the Corporation and (c) to
relate non-employee Directors' compensation more closely to the Corporation's
performance and its shareholders' interest.
2. The
Plan shall become effective upon its approval by the shareholders of the
Corporation. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 7 of the Plan.
3. “Plan Year” shall mean
each 12-month period beginning on January 1 and ending on
December 31.
4. “Annual Stock Award
Amount” shall mean the amount of fees a non-employee Director will be
entitled to receive pursuant to the Plan for serving as a Director in a relevant
Plan Year. The amount of each non-employee Director’s Annual Stock
Award Amount shall be determined by adding (A) $3,500 for each meeting of the
Board of Directors attended by such non-employee Director during the relevant
Plan Year, (B) $500 for each meeting of a committee of the Board of Directors
attended by such non-employee Director during the relevant Plan Year and (C) an
additional $500 for each meeting of a committee of the Board of Directors at
which such non-employee Director served as Chairman.
5. A
non-employee Director may forego the portion of his or her Annual Stock Award
Amount that relates to any one or more meeting(s) of the Board of Directors or
committee thereof by giving irrevocable written notice to such effect to the
Secretary of the Corporation 30 days prior to the date of such
meeting.
6. Each
non-employee Director shall receive, one month after the beginning of each Plan
Year (or, if such date is not a business day, on the next succeeding business
day) (the “Grant
Date”), the number of shares of the Company’s common stock, no par value
per share (“Common
Stock”) determined by dividing his or her Annual Stock Award Amount by
the closing price of the Common Stock as published in the Wall Street Journal
(the “Fair Market
Value”) on the Grant Date. The number of shares distributed to
each non-employee Director shall be rounded down to the nearest whole number,
and any fractional shares that would otherwise have been paid in Common Stock
shall be paid in cash based upon the Fair Market Value of the Common Stock on
the Grant Date.
7. This
Plan shall be construed in accordance with the laws of the State of New Jersey
and may be amended or terminated at any time by action of the Board of Directors
of the Corporation; provided, however, that the
Corporation will seek shareholder approval for any change to the extent required
by applicable law.
ex31_1.htm
Exhibit
31.1
EMCORE
CORPORATION
CERTIFICATION
PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, Reuben
F. Richards, Jr., certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of EMCORE
Corporation ("Report");
|
|
2.
|
Based
on my knowledge, this Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
Report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
Report;
|
|
4.
|
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a.
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Report is being
prepared;
|
|
b.
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c.
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this Report based on such evaluation;
and
|
|
d.
|
Disclosed
in this Report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
a.
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b.
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: February 11,
2008
|
By:
|
/s/ Reuben F.
Richards, Jr.
|
|
|
Reuben
F. Richards, Jr.
|
|
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
ex31_2.htm
Exhibit
31.2
EMCORE
CORPORATION
CERTIFICATION
PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, Adam
Gushard, certify that:
|
1.
|
I
have reviewed this Quarterly Report on Form 10-Q of EMCORE
Corporation ("Report");
|
|
2.
|
Based
on my knowledge, this Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
Report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
Report;
|
|
4.
|
The
registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
|
a.
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Report is being
prepared;
|
|
b.
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
c.
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this Report based on such evaluation;
and
|
|
d.
|
Disclosed
in this Report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
a.
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
b.
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: February 11,
2008
|
By:
|
/s/ Adam
Gushard
|
|
|
Adam
Gushard
|
|
|
Interim
Chief Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
ex32_1.htm
Exhibit
32.1
STATEMENT
REQUIRED BY 18 U.S.C. §1350, AS ADOPTED
PURSUANT
TO §906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of EMCORE Corporation (the
"Company") for the quarter ended December 31, 2007, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Reuben F.
Richards, Jr., Chief Executive Officer (Principal Executive Officer) of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of
the Sarbanes-Oxley Act of 2002, that:
1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: February 11,
2008
|
By:
|
/s/ Reuben F.
Richards, Jr.
|
|
|
Reuben
F. Richards, Jr.
|
|
|
Chief
Executive Officer
|
|
|
(Principal
Executive Officer)
|
A
signed original of this written statement required by Section 906 has been
provided to EMCORE Corporation and will be retained by EMCORE Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
This certification has not been, and shall not be deemed to be, filed with the
Securities and Exchange Commission.
ex32_2.htm
Exhibit
32.2
STATEMENT
REQUIRED BY 18 U.S.C. §1350, AS ADOPTED
PURSUANT
TO §906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report on Form 10-Q of EMCORE Corporation (the
"Company") for the quarter ended December 31, 2007, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Adam Gushard,
Interim Chief Financial Officer (Principal Financial and Accounting Officer) of
the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act of 2002, that:
1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: February 11,
2008
|
By:
|
/s/ Adam
Gushard
|
|
|
Adam
Gushard
|
|
|
Interim
Chief Financial Officer
|
|
|
(Principal
Financial and Accounting Officer)
|
A
signed original of this written statement required by Section 906 has been
provided to EMCORE Corporation and will be retained by EMCORE Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
This certification has not been, and shall not be deemed to be, filed with the
Securities and Exchange Commission.