SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 5, 1997
Emcore Corporation
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(Exact Name of Registrant as Specified in its Charter)
New Jersey
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(State or Other Jurisdiction of Incorporation)
000-22175 22-2746503
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(Commission File Number) (I.R.S. Employer Identification No.)
394 Elizabeth Avenue, Somerset, New Jersey 08873
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(Address of Principal Executive Offices) (Zip Code)
(732) 271-9090
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 5, 1997 (the "Effective Date"), Emcore
Corporation ("Emcore") acquired MicroOptical Devices, Inc. ("MODE"), a Delaware
corporation, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), among Emcore, EMKR Acquisition Corporation (the "Merger
Subsidiary"), MODE, and certain stockholders of MODE. Pursuant to the Merger
Agreement, the Merger Subsidiary was merged with and into MODE
(the "Merger"). As a result of the Merger, MODE became a wholly-owned
subsidiary of Emcore. A total of 1,461,866 shares of Common Stock of Emcore
were issued to the stockholders of MODE in exchange for all of the issued and
outstanding shares of capital stock of MODE. In addition, Emcore has agreed
to assume certain unexpired and unexercised options and warrants to acquire
Common Stock of MODE, and to issue upon exercise thereof a certain number of
shares of the Common Stock of Emcore, as appropriately adjusted pursuant to
the terms of the Merger Agreement.
MODE designs and develops high-quality optical components and
subsystems based on vertical cavity surface-emitting laser ("VCSEL")
technology. Emcore currently intends to operate MODE as a wholly-owned
subsidiary and to continue MODE's business substantially in the manner
conducted by MODE immediately prior to the Merger.
The foregoing description of the Merger Agreement does not
purport to be complete and is qualified in its entirety by reference to the
full text of the Merger Agreement.
This Form 8-K contains forward-looking statements relating to
future events that involve risks and uncertainties, including, without
limitation, statements about future financial performance of EMCORE and MODE
and the effects of the proposed acquisition on EMCORE's business, financial
performance, and results of operations. Among the factors which could cause
actual results to differ materially from those in the forward-looking
statements are failure of the proposed acquisition to achieve the desired
synergies and efficiencies; risks associated with the reaction to the proposed
acquisition by the market, as well as employees, customers, distributors and
others who affect the businesses of EMCORE and/or MODE; the variability of
future operating results of EMCORE, MODE or the combined companies following
the proposed acquisition; cancellations, rescheduling or delays in product
shipments; manufacturing capacity constraint; lengthy sales and qualification
cycles; difficulties in the production process; the future financial
performance of the combined entity; delays in developing and commercializing
new products; increased competition; changes in the compound semiconductor
industry, including overall growth of the industry and the continued acceptance
of the Company's MOCVD technologies, as well as the newly acquired VCSEL
technologies; and other factors detailed in Emcore's filings with the
Securities and Exchange Commission, including the registration statement on
Form S-1 filed on March 4, 1997.
- 2 -
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
----------------------------------------
To the Stockholders and Board of Directors of
MicroOptical Devices, Inc.:
We have audited the accompanying balance sheets of MICROOPTICAL
DEVICES, INC. (a Delaware corporation in the development stage)
(the "Company") as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1996 and for the period from inception
(August 3, 1995) through December 31, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MicroOptical Devices, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the year ended December 31, 1996 and for the period from
inception (August 3, 1995) through December 31, 1995 and 1996, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
March 21, 1997
MICROOPTICAL DEVICES, INC.
(A Development Stage Corporation)
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
1996 1995
---------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 991,066 $125,837
Trade accounts receivable 3,850 150
Inventory 83,926 -
Other current assets 26,544 9,029
---------- --------
Total current assets 1,105,386 135,016
PROPERTY AND EQUIPMENT, net 2,388,953 5,220
ORGANIZATION COSTS, net 2,814 3,571
---------- --------
Total assets $3,497,153 $143,807
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 29,580 $ 18,148
Accrued liabilities 74,600 746
Current portion of obligations under capital leases 38,676 -
Deferred revenue 125,000 -
---------- --------
Total current liabilities 267,856 18,894
---------- --------
LONG-TERM LIABILITIES:
Obligations under capital leases, net of current portion 107,648 -
---------- --------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, $.001 par value;
1,200,000 shares authorized; 666,666 shares issued and
outstanding 666 222
Series B Convertible Preferred Stock, $.001 par value;
5,333,334 shares authorized, 4,076,088 shares issued
and outstanding 4,076 -
Common Stock, $.001 par value; 6,000,000 shares authorized:
3,000,000 shares issued and outstanding 3,000 1,000
Additional paid-in capital 3,251,532 181,596
Deficit accumulated during development stage (137,625) (57,905)
---------- --------
Total stockholders' equity 3,121,649 124,913
========== ========
Total liabilities and stockholders' equity $3,497,153 $143,807
========== ========
The accompanying notes to financial statements
are an integral part of these balance sheets.
-3-
MICROOPTICAL DEVICES, INC.
(A Development Stage Corporation)
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (AUGUST 3, 1995)
THROUGH DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1995
PERIOD FROM
INCEPTION INCEPTION
(AUGUST, 1995) YEAR ENDED THROUGH
THROUGH DECEMBER 31 DECEMBER 31,
DECEMBER 31, 1996 1996 1995
----------------------- ------------------- -------------------
REVENUES $ 661,350 $ 661,350 $ -
COST OF GOODS SOLD 222,967 222,967 -
----------------------- ------------------- -------------------
GROSS MARGIN 438,383 438,383 -
----------------------- ------------------- -------------------
EXPENSES:
Research and development 339,696 292,592 47,104
General and administrative 192,105 178,540 13,565
Sales and marketing 85,169 85,169 -
----------------------- ------------------- -------------------
Total expenses 616,970 556,301 60,669
----------------------- ------------------- -------------------
Operating (loss) (178,587) (117,918) (60,669)
INTEREST INCOME 40,962 38,198 2,764
----------------------- ------------------- -------------------
NET LOSS $ (137,625) $ (79,720) $ (57,905)
======================= =================== ===================
NET LOSS PER SHARE $ (.05) $ (.03) $ (.02)
======================= =================== ===================
Weighted Average Number of
Post-Split Common Shares
Outstanding 3,000,000 3,000,000 3,000,000
======================= =================== ===================
The accompanying notes to financial statements
are an integral part of these statements.
-5-
MICROOPTICAL DEVICES, INC.
(A Development Stage Corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 3, 1995) THROUGH DECEMBER 31, 1996
SERIES A SERIES B DEFICIT
CONVERTIBLE CONVERTIBLE ACCUMULATED
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
--------------- --------------- ---------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
------ ------ ------ ------ ------ ------ ------- ----- -----
BALANCE, at inception - $ - - $ - - $ - $ - $ - $ -
ISSUANCE OF COMMON STOCK - - - - 1,000,000 1,000 - - 1,000
ISSUANCE OF SERIES A
CONVERTIBLE PREFERRED STOCK:
Net of $18,182 in issuance
costs 222,222 222 - - - - 181,596 - 181,818
NET LOSS - - - - - - - (57,905) (57,905)
------- ----- --------- ------ ---------- ------- ---------- ---------- ----------
BALANCE, December 31, 1995 222,222 222 - - 1,000,000 1,000 181,596 (57,905) 124,913
ISSUANCE OF SERIES B
CONVERTIBLE PREFERRED STOCK:
Net of $48,545 in issuance
costs - - 1,293,479 1,294 - - 2,925,162 - 2,926,456
CONVERSION OF NOTE PAYABLE - - 65,217 65 - - 149,935 - 150,000
THREE FOR ONE STOCK SPLIT 444,444 444 2,717,392 2,717 2,000,000 2,000 (5,161) - -
NET LOSS - - - - - - - (79,720) (79,720)
------- ----- --------- ------ ---------- ------- ---------- ---------- ----------
BALANCE, December 31, 1996 666,666 $666 4,076,088 $4,076 3,000,000 $ 3,000 $3,251,532 $ (137,625) $3,121,649
======= ===== ========= ====== ========== ======= =========== ========== ==========
The accompanying notes to financial statements
are an integral part of these statements.
-6-
MICROOPTICAL DEVICES, INC.
(A Development Stage Corporation)
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (AUGUST 3, 1995)
THROUGH DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1995
PERIOD FROM
INCEPTION INCEPTION
(AUGUST, 1995) YEAR ENDED THROUGH
THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1996 1996 1995
----------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (137,625) $ (79,720) $(57,905)
Adjustments to reconcile net loss to net cash
provided by operating activities--
Depreciation and amortization 34,430 31,894 536
----------------- ------------- -------------
(105,195) (47,826) (57,369)
----------------- ------------- -------------
Changes in certain operating accounts--
Trade accounts receivable (3,850) (3,700) (150)
Inventory (83,926) (83,926) --
Other current assets (26,544) (17,515) (9,029)
Accounts payable 29,580 11,432 18,148
Accrued liabilities 74,600 73,854 746
Deferred revenue 125,000 125,000 --
----------------- ------------- -------------
114,860 105,145 9,715
----------------- ------------- -------------
Net cash provided by (used in)
operating activities 9,665 57,319 (47,654)
----------------- ------------- -------------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Additions to equipment (2,420,513) (2,414,970) (5,543)
Proceeds from sale and leaseback of equipment 150,234 150,234 --
Additions to organization costs (3,784) -- (3,784)
----------------- ------------- -------------
Net cash used in investing activities (2,274,063) (2,264,736) (9,327)
----------------- ------------- -------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 150,000 150,000 --
Repayments of obligations under capital
leases (3,810) (3,810) --
Net proceeds from issuance of preferred stock 3,108,274 2,926,456 181,818
Net proceeds from issuance of common stock 1,000 -- 1,000
----------------- ------------- -------------
Net cash provided by financing activities 3,255,464 3,072,646 182,818
----------------- ------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 991,066 865,229 125,837
CASH AND CASH EQUIVALENTS, beginning of period -- 125,837 --
----------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 991,066 $ 991,066 $125,837
================= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,776 $ 1,776 $ --
================= ============= =============
NON-CASH STOCK ACTIVITY:
Conversion of note payable to preferred stock $ 150,000 $ 150,000 $ --
================= ============= =============
NON-CASH FINANCING ACTIVITY:
Equipment capital leases $ 146,000 $ 146,000 $ --
================= ============= =============
The accompanying notes to financial statements
are an integral part of these statements.
-7-
MICROOPTICAL DEVICES, INC.
----------------------------------------------
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (AUGUST 3, 1995)
THROUGH DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1995
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT RISK FACTORS:
MicroOptical Devices, Inc. (the "Company" or "MODE"), was incorporated
under the laws of the State of Delaware on August 3, 1995 for the
purpose of developing technology and manufacturing of advanced
optoelectronic components and systems for specific use in commercial
identification and communications markets.
The Company funded its marketing, development and operational activities
to date from the proceeds of two equity offerings. Since inception, the
Company has devoted substantially all of its efforts and resources to
marketing and development of its technology and remains in the
development stage. Ultimately, the Company's ability to achieve
profitable operations is dependent, in large part, upon making the
transition to a manufacturing company.
On July 16, 1996, an amendment to the Certificate of Incorporation of
MODE (the "Amendment") was filed, which (a) increased the total number
of its common shares, which the Company is authorized to issue from two
million to four million, and (b) increased the total number of
authorized shares of its Convertible Preferred Stock, from four thousand
to two million (222,222 shares of Series A Convertible Preferred Stock
and 1,777,778 shares of Series B Convertible Preferred Stock).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Basis - The financial books and records of the Company are
maintained on the accrual basis of accounting. As a development stage
company, cumulative results of operations from inception are presented.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
-8-
Cash Equivalents - For the purposes of presenting cash flows, cash and
cash equivalents represent cash balances and highly liquid investments
with original maturities of less than 90 days.
Inventory - Inventories are stated at the lower of standard cost (which
approximates actual cost using the first-, first-out method) or market
and consist of raw materials.
Property and Equipment - Equipment is stated at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line method based
on estimated useful lives ranging from three to five years. Leasehold
improvements are amortized using the straight-line method over the
shorter of the estimated useful life of the asset or the remaining term
of the lease.
Organization Costs - Costs to organize the Company are capitalized and
amortized on a straight-line basis over five years.
Research and Development - The costs of research and development
activities are charged to expense as incurred.
Fair Value of Financial Instruments - The carrying value of all
financial instruments approximates fair market value at December 31,
1996 and 1995.
Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 ("APB Opinion No. 25"), "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), was issued in 1995 and the
Company has adopted the disclosure requirements of SFAS 123 (see Note
6).
Income Taxes - MODE accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
operations in the period that includes the enactment date.
Net Loss Per Share - Net loss per share for each period was calculated
based upon the weighted average number of Common Stock outstanding
during each period, using post split shares resulting from the three-
for-one stock split effective August 1996. Common Stock equivalents
were excluded in the calculation of weighted average shares
outstanding since their inclusion would have had an anti-dilutive
effect.
-9-
Accounting Pronouncement Not Yet Adopted - The Financial Accounting
Standards Board issued SFAS No. 128, "Earnings Per Share," which is
effective for calendar years beginning after December 15, 1997 at
which time it will require restatement of prior years earnings per
share calculations. Management has not yet determined the effect, if
any, of SFAS No. 128 on the financial statements.
(3) PROPERTY AND EQUIPMENT:
Property and equipment at December 31 by major classification are as
follows:
1996 1995
-------------- ----------
Manufacturing equipment $ 1,781,487 $ -
Leasehold improvements 570,397 -
Furniture and fixtures 68,529 5,443
-------------- ----------
2,420,413 5,443
Less accumulated depreciation and
amortization 31,460 323
-------------- ----------
$ 2,388,953 $ 5,220
============== ==========
(4) CAPITAL LEASES:
In 1996, the Company financed certain manufacturing equipment, leasehold
improvements, and furniture and fixtures under a Master Equipment Lease
Agreement ("the Lease") expiring June 30, 1997, which provides for
financing of up to $2,000,000. The Company had only nominal borrowings
under the Lease at December 31, 1996. The capital leases have terms of
42 months and are collateralized by manufacturing equipment. The
transactions under the Lease are accounted for as a financing, whereby
the property remains on the books and continues to be depreciated and
amortized. Obligations under capital leases representing the proceeds
was recorded, and is reduced based on payments under capital lease
obligations. All items are sold and leasedback at original purchase
price, therefore no gain or loss was recorded on such transactions
during 1996.
At December 31, 1996, approximately $146,000 of manufacturing equipment
was under capital lease. The future minimum lease payments for assets
under capital lease and the present value of the net minimum lease
payments at December 31, 1996, are as follows:
Fiscal year Minimum payment
-------------------------------------- ---------------
1997 $ 49,964
1998 49,964
1999 49,964
2000 20,575
----------------
Total minimum lease payments 170,467
Less amount representing interest 24,143
----------------
Present value of net
minimum 146,324
lease payments
Less current portion 38,676
----------------
$107,648
================
-10-
In connection with the Lease, the Company issued a warrant to purchase
208,695 shares of MODE's Series B convertible preferred stock, on a post
stock split basis (see Note 5), exerciseable at any time for a period of
up to ten years ending on August 21, 2006 at a price of $.77 per share.
The warrant may terminate sooner in connection with certain significant
corporate events.
(5) STOCKHOLDERS' EQUITY:
Effective August, 1996, the Company declared a stock split on all
existing preferred and common shares at a ratio of three to one. The
accompanying financial statements for the year ended December 31, 1996,
have been adjusted to reflect the stock split.
On July 17, 1996, the Company issued 4,076,088 shares, on a post stock
split basis, of its Series B Convertible Preferred Stock ("Series B").
Each share of Series B, which has a liquidation preference of $.77, is
convertible to one share of the Company's Common Stock and earns
dividends at the rate declared for each share of Common Stock. No such
dividends have been declared as of December 31, 1996. Terms of the
agreements with Preferred Shareholders require the Company to comply
with terms similar to those specified in the Series A issuance.
As specified in the Series A Convertible Preferred Stock ("Series A")
issuance, the Series A Preferred Stockholder purchased $150,000 of
Convertible Promissory Notes (the "Notes"), during 1996. The Notes,
which bore interest at the prime rate compounded monthly, were
convertible at a price equal to the per share purchase price of the
Series B stock issuance. On July 17, 1996, the Notes and the related
interest of $1,169 were converted to Series B convertible preferred
stock in conjunction with the Series B stock issuance.
On August 29, 1995, the Company issued 666,666 shares, on a post stock
split basis, of its Series A. Each share of Series A, which has a
liquidation preference of $.3, is convertible to one share of the
Company's Common Stock and earns dividends at the rate declared for each
share of Common Stock. No such dividends have been declared as of
December 31, 1996. An agreement with the Series A Preferred Stockholder
requires the Company to, among other items, maintain keyman life
insurance on certain key employees, and obtain the Preferred
Stockholders' approval to make key changes in the operations of the
Company.
On August 3, 1995, the Company issued 3,000,000 shares, on a post stock
split basis, of its Common Stock at a par value of $.001 per share.
(6) DEFERRED COMPENSATION PLAN:
In July 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"), where options granted to an employee are qualified "incentive
stock options" under the Internal Revenue Code and options granted to a
non-employee are "non-statutory stock options", for which 1,800,000
shares were reserved, on a post stock split basis. The Company
-11-
accounts for options granted to employee's under this Plan in accordance
with APB Opinion No. 25, under which no compensation cost has been
recognized. The compensation costs for the Plan determined consistent
with SFAS 123 is immaterial. Options granted to non-employee's under
this Plan are accounted for in accordance with the provisions of SFAS
123.
The Company has granted options on 645,500 shares through December 31,
1996. Under the Plan, the option exercise price equals the common stocks
market price on date of grant. All options are immediately exerciseable
and expire ten years from date of grant. The options granted to MODE's
founders are subject to repurchase by the Company, at the original
exercise price, upon the cessation of service prior to vesting in such
shares. Such shares vest in a series of 72 successive equal monthly
installments over a six year period, however, such vesting shall
accelerate to 48 successive equal monthly installments upon the Company
meeting performance milestones as provided for by the Board. At December
31, 1996, the Company has achieved two out of five of its performance
measures. All other shares vest at the rate of 25 percent of the shares
upon the optionee's continued service to the Company through the initial
vesting date, with the remaining shares vesting in a series of 36
successive equal monthly installments. The vesting period accelerates in
connection with certain significant corporate events.
A summary of the status of the Company's option Plan at December 31,
1996, and changes during the year then ended is presented in the table
and narrative below:
Weighted Average
Exercise Price
Shares
----------------- ----------------
Outstanding at beginning of year - $ -
Granted 645,500 .077
Exercised - -
Forfeited - -
Expired - -
=================
Outstanding at end of year 645,500 $ .077
=================
Exerciseable at end of year 645,500 $ .077
Weighted average fair value of options granted
during the year $.02
The options outstanding at December 31, 1996, have a weighted average
remaining contractual life of 9.5 years.
The fair value of each option grant is estimated on the date of grant
using Black-Scholes option pricing model with the following average
assumptions used: risk-free interest rate of 6.65%; expected lives of
ten years; a divided yield of 0%; and expected volatility of .01%.
-12-
(7) INCOME TAXES:
MODE had no income tax expense and there were no income taxes currently
payable for the year ended December 31, 1996 and period ended December
31, 1995. Deferred income taxes at December 31, 1996 and 1995, are
offset by a valuation allowance as follows:
1996 1995
------------- -------------
Deferred tax asset:
Net operating loss $ 16,197 $ 14,000
Deferred revenue 48,750 -
------------- -------------
64,947 14,000
Valuation allowance (40,926) (14,000)
------------- -------------
24,021 -
------------- -------------
Deferred tax liability:
Depreciation and amortization (22,535) -
Other (1,486) -
------------- -------------
(24,021) -
------------- -------------
Net deferred taxes $ - $ -
============= =============
The Company has established a valuation allowance for the entire
deferred tax asset due to the uncertainty of future earnings (see Note
1). A net operating loss carry forward of $46,214 is available to offset
future taxable income for the next fifteen years.
(8) COMMITMENTS AND CONTINGENCIES:
Technology Assistance and Royalty Agreement
On February 22, 1996, the Company entered into a technical assistance
and royalty agreement (as subsequently amended) in which the Company
agreed to further develop laser technology in return for eight years of
co-exclusive rights to five existing patents covering this technology.
The Company is required to pay $7,500 in 1997, plus royalty payments
beginning in 1998 of 1.5% to 2.5%, subject to minimum annual payments
ranging from up to $50,000 over the life of the patents provided that
the technology is developed and the related products are manufactured in
Albuquerque, New Mexico. In the event that the Company fails to develop
or abandons development of this technology, all rights to the technology
become nonexclusive. The Company paid $7,500 under this Agreement in
1996.
In October, 1996, the Company signed an agreement for research and
development, which expires March 31, 1998. Under the Agreement, the
Buyer paid the Company $95,000 for non-recurring engineering expense,
plus all applicable fees and taxes, which
-13-
payment is non-refundable. Buyer will pay MODE the balance of the
payment upon demonstration of feasibility.
Keyman Life Insurance
The Company is beneficiary to $500,000 of term life insurance for each
of its two founders.
Licensing Agreement
On March 21, 1996, the Company signed a license agreement (the
"Agreement") with a major manufacturer in the identification market (the
"Manufacturer"). Under the Agreement, the Manufacturer paid the Company
a $500,000 license fee (the "Payment") plus all applicable gross
receipts tax that the Company is required to pay thereon.
The Manufacturer retains exclusive rights to use and sell any products
or components which the Company develops for the Manufacturer's portion
of the identification market (the "Product") for a limited period of
time. After the exclusive rights period expires, the Company is required
to first offer these Products, if achieved to the Manufacturer under
similar sales terms as the Products are offered to any other party for
a limited period of time.
Within approximately one year of the receipt of the Payment, the Company
and the Manufacturer will negotiate in good faith to enter into a supply
agreement for the Product, if achieved. If no agreement is reached, then
the Company can elect to sell the Product, if achieved to the
Manufacturer for an additional license fee and, for each Product sold,
the cost of the Product plus a specified factor for overhead and profit.
Should the Company fail to pursue development or sell the Product to the
Manufacturer, the Manufacturer will be granted certain nonexclusive
sub-licensing rights.
At December 31, 1996, $325,000 has been earned under the terms of this
agreement.
Leased Property
The Company leases its facility under an operating lease with a term of
three years. Rental expense under operating leases was $18,214 for the
year end December 31, 1996. There was no rental expense incurred for the
period from inception through December 31, 1995. The minimum future
lease commitments for all operating leases are $34,332 for each of the
years ending December 31, 1997 and 1998 and $17,166 for year end
December 31, 1999.
-14-
(9) SUBSEQUENT EVENT:
Purchase and Supply Agreement
On February 14, 1997, the Company signed a purchase and supply contract
(the "Contract"). Under the Contract, MODE established the terms and
conditions controlling potential sales of vertical-cavity
surface-emitting laser ("VCSEL") chips, devices and arrays in the event
they occur. The initial term of the Contract is five years, and can be
canceled by either party upon written notice 360 days prior to the end
of the initial term or any subsequent term. The Contract also may
terminate prior to the five year period under certain circumstances.
Products sold under the agreement are subject to a warranty period not
to exceed the earlier of 18 months from the date the product is
delivered to customer, or one year from the date of delivery by customer
to its end-users, or one year from the date the products are placed in
service.
Sale/Leaseback of Assets
Subsequent to year end, the Company financed an additional $1,850,000 of
its property via a sale-leaseback transaction with a leasing company
under the terms of the Master Equipment Lease Agreement (see Note 4).
-15-
(b) Pro Forma Financial Information:
EMCORE CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma consolidated balance sheet and the unaudited
pro forma consolidated statement of operations (together the "pro forma
financial statements") are based on the historical financial statements of
Emcore Corporation ("Emcore") and MicroOptical Devices, Inc. ("MODE"),
adjusted to give the effect to the acquisition of MODE by Emcore. The unaudited
pro forma balance sheet assumes that the acquisition of MODE by Emcore occurred
on September 30, 1997, and the unaudited pro forma consolidated statement of
operations assumes that the acquisition of MODE by Emcore occurred as of
October 1, 1996.
The pro forma financial information reflects the purchase method of accounting
for the acquisition of MODE using estimated purchase accounting adjustments,
based upon preliminary valuations and is subject to post-closing adjustments.
The accompanying unaudited pro forma information does not give effect to any
cost savings that may be realized as a result of the integration of Emcore and
MODE, or to any changes in the revenues of the combined entity, resulting from
such integration.
The accompanying unaudited pro forma financial information should be read in
conjunction with the Company's historical financial statements and the notes
thereto included in its Form S-1 dated March 6, 1997 and the MODE historical
financial statements and the notes thereto included herein. Such unaudited pro
forma financial information does not purport to be indicative of the results of
operations of Emcore in the future or what its financial position and results
of operation would have been had the acquisition occurred at the dates
indicated above.
- 16 -
EMCORE CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
FOR THE YEAR ENDED SEPTEMBER 30, 1997
HISTORICAL
EMCORE MODE
ASSETS
Current Assets
Cash and equivalents $3,653,145 $643,542
Restricted cash 312,500
Accounts receivable, net 8,439,704 173,710
Accounts receivable - related party 2,500,000
Inventories, net 7,185,626 131,931
Prepaid expenses and other current assets 120,393 22,314
-------------------------------------
Total current assets 22,211,368 971,497
-------------------------------------
Property and equipment, net 16,797,833 2,405,541
Other assets, net 453,608 2,247
-------------------------------------
Total assets 39,462,809 3,379,285
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 4,050,216 70,589
Accrued expenses 3,867,589 755,568
Advance billings 1,998,183
Unearned service revenue 124,279
Capitalized lease obligations - current 15,030 91,664
-------------------------------------
Total current liabilities 10,055,297 917,821
-------------------------------------
Subordinated notes, net 7,499,070
Capitalized lease obligations, net of current portion 77,870 1,753,994
Stockholders' equity
Common stock 45,816,774 2,575
Preferred Stock - Series A 181,818
Preferred Stock - Series B 3,076,456
In process research and development
Accumulated deficit (23,777,658) (2,553,379)
-------------------------------------
22,039,116 707,470
Notes receivable from warrant issuances and stock sales (208,544)
-------------------------------------
Total stockholders' equity 21,830,572 707,470
-------------------------------------
-------------------------------------
Total liabilities and shareholders' equity $39,462,809 $3,379,285
=====================================
17
(RESTUBBED TABLE CONTINUED FROM ABOVE)
PRO FORMA
ADJUSTMENTS COMBINED
ASSETS
Current Assets
Cash and equivalents (2) ($500,000) $3,796,687
Restricted cash 312,500
Accounts receivable, net 8,613,414
Accounts receivable - related party 2,500,000
Inventories, net 7,317,557
Prepaid expenses and other current assets 142,707
----------------------------------------------
Total current assets (500,000) 22,682,865
----------------------------------------------
Property and equipment, net 19,203,374
Goodwill (1) 2,827,784 2,827,784
Other assets, net 455,856
----------------------------------------------
Total assets 2,327,784 45,169,878
==============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 4,120,805
Accrued expenses 4,623,157
Advance billings 1,998,183
Unearned service revenue 124,279
Capitalized lease obligations - current 106,694
----------------------------------------------
Total current liabilities 10,973,118
----------------------------------------------
Subordinated notes, net 7,499,070
Capitalized lease obligations, net of current portion 1,831,864
Stockholders' equity
Common stock (3) 32,326,379 78,145,728
Preferred Stock - Series A (3) (181,818)
Preferred Stock - Series B (3) (3,076,456)
Accumulated deficit (3) 2,553,379
(4) (29,293,700) (53,071,358)
----------------------------------------------
2,327,784 25,074,370
Notes receivable from warrant issuances and stock sales (208,544)
----------------------------------------------
Total stockholders' equity 2,327,784 24,865,826
----------------------------------------------
----------------------------------------------
Total liabilities and shareholders' equity $2,327,784 $45,169,878
==============================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL
STATEMENTS
18
EMCORE CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED SEPTEMBER 30, 1997
HISTORICAL PRO FORMA
EMCORE MODE ADJUSTMENTS COMBINED
Revenue $ 47,752,572 $ 560,648 $ 48,313,220
Cost of Sales 30,094,015 447,318 30,541,333
--------------------------- ---------------------------
Gross Profit 17,658,557 113,330 17,771,887
--------------------------- ---------------------------
Operating Expenses
Selling, general and administrative 9,346,329 869,113 (5) $ 942,595 11,158,037
Research and development 9,001,188 1,791,087 10,792,275
--------------------------- ---------------------------
Operating loss (688,960) (2,546,870) 942,595 (4,178,425)
--------------------------- ---------------------------
Other expenses
Stated interest expense (income), net 519,422 (54,306) 465,116
Imputed warrant interest, non-cash 3,988,390 3,988,390
--------------------------- ---------------------------
Loss before income taxes and extraordinary item (5,196,772) (2,492,564) 942,595 (8,631,931)
Provision for income taxes 137,000 137,000
--------------------------- ---------------------------
Net loss before extraordinary item (5,333,772) (2,492,564) 942,595 (8,768,931)
Extraordinary item - loss on early retirement of debt 285,595 285,595
--------------------------- ---------------------------
Net loss $ (5,619,367) $ (2,492,564) $ 942,595 $ (9,054,526)
=========================== ===========================
Shares used in computation of net loss 5,029,806 (6) 1,692,963 6,722,769
=========================== ===========================
Net loss per share before extraordinary item $ (1.06) $ (1.30)
=========================== ==========================
Net loss per share $ (1.12) $ (1.35)
=========================== ==========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA FINANCIAL
STATEMENTS
19
Pro Forma Notes:
Unaudited Pro Forma Balance Sheet
(1) Emcore acquired MODE on December 5, 1997, in exchange for (i) the
issuance of 1,461,866 shares of common stock, and (ii) the assumption of
(x) up to 200,966 common stock purchase options (exercise prices
ranging from $0.43 to $0.59) and (y) 47,118 common stock purchase warrants
(exercise prices ranging from $4.32 to $5.92). The transaction purchase
price amounted to approximately $32,900,000, including approximately
$500,000 of direct acquisition costs. The Company's common stock was valued
based upon the average closing price of the Company's common stock for the
five days before and after the announcement of the acquisition.
The purchase price was allocated to the assets acquired (approximately
$3,379,000) and liabilities assumed (approximately $2,672,000), based upon
the fair value at the date of acquisition. In addition, the Company
recorded a one-time write-off of approximately $29,294,000 relating to
purchased in-process research and development. Goodwill of approximately
$2,828,000 was recorded as a result of the acquisition.
(2) To reflect direct acquisition costs of approximately $500,000.
(3) Adjustment to eliminate MODE's historical capital structure.
(4) To reflect the one-time-write-off of $29,293,700 relating to purchased
in-process research and development.
Unaudited Pro Forma Statement of Operations
(5) To reflect the amortization of goodwill over a period of three years.
(6) To reflect the pro forma effect of the shares and common stock purchase
options and warrants issued in connection with the acquisition of MODE
by Emcore on the weighted average common shares outstanding.
The pro forma statement of operations for the year ended September 30, 1997,
does not reflect the non-recurring write-off of the purchased in-process
research and development.
- 20 -
SIGNATURES
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 hereunto duly authorized.
Emcore Corporation
-----------------------------------------------
(Registrant)
By: /s/ Thomas G. Werthan
-----------------------------------------------
Name: Thomas G. Werthan
-----------------------------------------------
Title: Chief Financial Officer and Secretary
-----------------------------------------------
Dated: December 23, 1997
INDEX TO EXHIBITS
Exhibit Number Description
2* Agreement and Plan of Merger, dated as of December 5,
1997, among Emcore, the Merger Subsidiary, MODE and the
Principal Stockholders.
4* Registration Rights Agreement, dated as of December 5,
1997, relating to the shares issued pursuant to the
Merger Agreement.
10.1* Escrow Agreement, dated as of December 5, 1997, among
Emcore, the Principal Stockholders and the Escrow
Agent.
10.2* Employment Agreement, dated as of December 5, 1997,
between Emcore and Robert Bryan.
10.3* Employment Agreement, dated as of December 5, 1997,
between Emcore and Thomas Brennan.
10.4 Consent and Amendment Agreement, dated as of December
2, 1997, between First Union National Bank and Emcore.
10.5 Unconditional Guaranty, dated as of December 5, 1987,
among Emcore, MODE and First Union National Bank.
10.6 Security Agreement, dated as of December 5, 1997,
between MODE and First Union National Bank.
23 Consent of Arthur Andersen, LLP, independent auditors.
99* Press Release issued December 5, 1997.
* Previously filed
EXECUTION
CONSENT AND AMENDMENT AGREEMENT
This CONSENT AND AMENDMENT AGREEMENT, dated as of December
2, 1997 (the "Amendment") is made by and between First Union National Bank
(the "Bank") and EMCORE Corporation (the "Borrower"). All capitalized terms
used herein and not otherwise defined herein shall have the meanings set forth
in the Loan Agreement (as such term is defined below).
W I T N E S S E T H :
WHEREAS, on March 31, 1997, the Borrower and the Bank entered
into a Revolving Loan and Security Agreement (the "Loan Agreement") pursuant to
which the Bank agreed to make revolving loans to the Borrower, in accordance
with the terms therewith; and
WHEREAS, the terms and conditions of the Loan Agreement
prohibit the Borrower from creating any subsidiaries or acquiring the assets or
the stock of another entity without the prior written consent of the Bank; and
WHEREAS, the Borrower is about to form a wholly-owned
subsidiary, EMKR Acquisition Corporation ("EMKR") which will merge with and
into MicroOptical Devices, Inc., a Delaware corporation ("MODE") (the "Merger
Transaction"); and
WHEREAS, the Bank has agreed to consent to the Merger
Transaction and waive any defaults under Sections 10.11, 10.17, 10.20 and
11.1(c) of the Loan Agreement which resulted from the consummation of the
Merger Transaction, provided that the Loan Agreement is amended as set forth
herein and that MODE executes and delivers a Guaranty and Security Agreement in
favor of the Bank; as more particularly set forth herein.
NOW THEREFORE, in consideration of the mutual promises and
covenants herein and in any other document or instrument executed and delivered
in connection herewith, the parties hereto agree as follows:
1. Amendments to the Loan Agreement. On the Effective
Date (as defined below) the Loan Agreement is hereby deemed amended as follows:
(a) The following definitions are hereby added
to SECTION 1:
"Guarantor" means MicroOptical Devices, Inc.
"Guaranty" means the Guaranty dated
December 3, 1997 made by Guarantor in favor
of the Bank with respect to the obligations
of the Borrower to the Bank, as the same
may be modified, amended, or supplemented
from time to time.
"Security Agreement" means the Security
Agreement dated December 3, 1997 made by
the Guarantor in favor of the Bank as
-1-
the same may be modified, amended or
supplemented from time to time.
(b) The term "Loan Documents" as defined in
SECTION 1 is amended to include the Guaranty and the Security
Agreement.
(c) Clause (A) of the definition of "Fixed
Charge Coverage Ratio" set forth in Section 1 is hereby amended in
its entirety to read as follows: "(A) EBIT for the period of
determination to ..."
(d) Section 2.2 is hereby amended to include
the following additional paragraph:
Notwithstanding anything to the contrary set forth
herein, the Borrower agrees that it shall not be
permitted to borrow hereunder (and the Bank shall
not honor any Borrowing Notice received) to the
extent any proposed Revolving Loan would, when added
to the aggregate amount of the already outstanding
Revolving Loans, increase the amount of Obligations
outstanding hereunder to an amount equal to or in
excess of $5,000,000 unless and until, the Borrower
has granted in favor of the Bank a first priority
perfected security interest and Lien in all of the
Borrower's right, title and interest in and to the
Warrant Notes, the Note Stock Pledge Agreements and
the Warrant Note Collateral, in form and substance
satisfactory to the Bank.
(e) Section 8.12 is hereby amended to include
the following phrase at the end of the sentence "except for Guarantor."
(f) The word "not" is hereby inserted after the word
"is" and before the word "an" in Section 8.17.
(g) The lead-in of SECTION 10 is hereby
amended in its entirety to read as follows:
The Borrower covenants and agrees that so long as
the Revolving Loan Commitment remains in effect,
there are any Revolving Loans outstanding or any
other obligation remains unpaid, the Borrower shall
and shall cause each of its Subsidiaries to:
(h) In all of SECTION 10 except for Sections 10.1,
10.2, 10.9, 10.13, 10.14, 10.15, 10.16, 10.24, 10.25 and 10.27. All
references to "Borrower" shall be deemed references to "it" such that
the covenants will apply to the Borrower and each of its Subsidiaries.
In addition to the foregoing, with respect to any covenant in SECTION
10 which contains a monetary limitation, compliance shall be
determined on a consolidated basis, i.e., the Borrower and all its
Subsidiaries.
-2-
(i) Section 10.1 of the Loan Agreement is
amended by adding the following sentence to the end of the Section:
All financial statements delivered by the Borrower
shall include financial statements of its
Subsidiaries on a consolidating basis.
(j) Section 10.2 is amended to include the
following phrase at the end of the sentence: "and to loan to Guarantor
up to an amount not exceeding $2,000,000 at any time outstanding."
(k) An additional proviso is hereby added to
Section 10.4 at the end of the sentence as follows:
and provided, further, that the financial
accommodations to the Guarantor permitted under
Section 10.26 shall not be deemed to be in violation
of this covenant.
(l) Section 10.5 should begin as follows: "The
Borrower and all of its Subsidiaries shall ...."
(m) Sections 10.14 (a) and (b) of the Loan
Agreement are modified as follows: each reference to "Borrower shall"
is hereby amended to read "Borrower and its Subsidiaries, on a
consolidated basis, shall".
(n) Section 10.20 should begin: "The Borrower
and each of its Subsidiaries shall".
(o) Section 10.21 is amended to include the
following language at the end of the Section:
; provided, however, that all Subsidiaries may
declare and pay dividends to the Borrower.
(p) The first sentence of Section 10.26 is
amended to include the following phrase at the end of such sentence:
except that the Borrower may (i) make financial
accommodations to the Guarantor, however
characterized, whether as loans, notes payable,
accounts receivable, advances or otherwise, in an
amount not to exceed $2,000,000 at any time
outstanding, and (ii) accept the Notes Secured by
Stock Pledge Agreements dated on or about December
4, 1997 made in its favor by (1) AER 1997 Trust (in
the principal amount of $3,127,560.72), (2) Gallium
Enterprises Inc. (in the principal amount of
$2,632,338.48, (3) Howard R. Curd (in the principal
amount of $566,067.36), (4) Howard F. Curd (in the
principal amount of $566,067.36) and (5) Reuben F.
Richards, Jr. (in the principal amount of
$566,067.36) (collectively, the "Warrant Notes").
-3-
(q) Section 10.27 is hereby added to
SECTION 10:
10.27 Warrant Notes, etc. The Borrower hereby agrees
that it will not create, assume or permit to exist
any Lien upon or otherwise transfer any of its
right, title and interest in and to (i) the Warrant
Notes, (ii) the Stock Pledge Agreements dated on or
about December 4, 1997 executed and delivered by
each of the makers of the Warrant Notes in favor of
the Borrower (collectively, the "Note Stock Pledge
Agreements") and (iii) the "Collateral" (as such
quoted term is defined in the Note Stock Pledge
Agreements, referred to hereinafter as the "Warrant
Note Collateral") except in favor of the Bank as set
forth herein and the Liens described in clause (iii)
of Section 10.5.
The Borrower further agrees not to agree to any
amendments or other modifications to the Warrant
Notes or the Note Stock Pledge Agreements.
(r) Each Event of Default enumerated in
Sections 11.1(b), (d), (e), (f), (g) and (h) shall apply to the Guarantor as
if the term "Guarantor" appeared each time the term "Borrower" appears in
those Sections.
(s) The phrase "or 10.27" is hereby added
after "10.26" in Section 11.1(c).
(t) The following subsection 11.1(e) is hereby
added to Section 11.1:
Guarantor - If (i) Guarantor fails to comply with
any payment obligation set forth in the Guaranty or
if Guarantor fails to comply with any of the
covenants or other agreements set forth in the
Guaranty or any other Loan Document to which it is a
party beyond any applicable grace period provided
for therein, or (ii) any representation or warranty
made or deemed made by Guarantor in the Guaranty or
any other Loan Document to which it is a party or
which is contained in any exhibit, schedule or any
other document or other statement furnished at any
time under or in connection with the Guaranty or any
of the other Loan Documents shall prove to have been
incorrect in any material respect on or as of the
date made or deemed made, or (iii) if Guarantor
shall terminate, purport to terminate or take any
steps which have the effect of decreasing its
liability under the Guaranty.
2. The Bank shall be deemed to have (i) given its consent to
the Merger Transaction, (ii) waived any Defaults or Events of Default the
Merger Transaction created under Sections 10.11, 10.17, 10.20 and 11.1(c) of
the Loan Agreement and (iii) agreed to the amendments to the Loan Agreement set
forth herein as of the date all of the following conditions have been satisfied
(the "Effective Date"):
(a) The Bank shall have received the original
Guaranty and the Security Agreement (each in form and substance
satisfactory to the Bank) executed by MODE together with UCC-1
Financing Statements in form for recording with the appropriate
jurisdictions, naming MODE, as Debtor and the Bank, as Secured Party
(the "MODE Documents");
-4-
(b) The Bank shall have received (i) certified
copies of all corporate action taken by MODE to authorize the
execution, delivery and performance, in accordance with their
respective terms, of the MODE Documents and any other documents
required or contemplated hereunder or thereunder; (ii) a certificate
of incumbency with respect to the officers of MODE authorized and
directed to execute and deliver the MODE Documents and other documents
required or contemplated thereunder; (iii) certified copies of the
articles of incorporation and by-laws of MODE, amended to the date
hereof; and (iv) certificate(s) of good standing for MODE from the
appropriate authority in its jurisdiction of incorporation and in each
other jurisdiction in which it is required to qualify to do business;
(c) The Bank shall have received a Certificate of
the Borrower, executed by the Chief Financial Officer of the Borrower
and dated the Effective Date that (i) no Default or Event of Default
has occurred and is continuing and (ii) the representations and
warranties of the Borrower contained in the Loan Documents are true
and correct as of such date; and
(d) The Bank shall have received the opinion of
MODE's counsel covering the MODE Documents, in form and substance
satisfactory to the Bank and its counsel.
3. The Loan Agreement is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects except
that after giving effect to this Amendment all references in the Loan Agreement
to "this Agreement," "hereto," "hereof," "hereunder" or words of like import
referring to the Loan Agreement shall mean the Loan Agreement, as amended; and
all references in the other Loan Documents to the Loan Agreement shall mean the
Loan Agreement, as amended hereby.
4. This Amendment may be executed in counterparts,
each of which shall be deemed to be an original but all of which together
shall constitute one and the same instrument.
5. This Amendment, including the validity thereof and the
rights and obligations of the parties hereunder, shall be construed in
accordance with and governed by the laws of the State of New Jersey.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
-5-
IN WITNESS WHEREOF, each of the parties hereto has caused
this Consent and Amendment Agreement to be duly executed and delivered on this
2nd day of December, 1997.
BORROWER:
EMCORE CORPORATION
By: /s/ Reuben F. Richards, Jr.
___________________________________
Name: Reuben F. Richards, Jr.
Title: President & CEO
BANK:
FIRST UNION NATIONAL BANK
By: /s/ William E. Johnston
____________________________________
Name: William E. Johnston
Title: Vice President
-6-
EXECUTION
UNCONDITIONAL GUARANTY
December 5, 1997
EMCORE Corporation
394 Elizabeth Avenue
Somerset, New Jersey 08873
(Individually and collectively "Borrower")
MicroOptical Devices, Inc.
5601-C Midway Park Place, N.E.
Alburquerque, NM 87019
(Individually and collectively "Guarantor")
First Union National Bank
1889 Highway 27
Edison, New Jersey 08817
(Hereinafter referred to as "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or other
financial accommodations to or for the benefit of Borrower, and in
consideration of loans, advances, credit, or other financial accommodations
made, extended or renewed to or for the benefit of Borrower, Guarantor hereby
absolutely, irrevocably and unconditionally guarantees to Bank and its
successors, assigns and affiliates the timely payment and performance of all
liabilities and obligations of Borrower to Bank and its affiliates, including,
but not limited to, all obligations under any notes, loan agreements, security
agreements, letters of credit, swap agreements (as defined in 11 U.S. Code ss.
101), instruments, accounts receivable, contracts, drafts, leases, chattel
paper, indemnities, acceptances, repurchase agreements, overdrafts, and the
Loan Documents defined below, however and whenever incurred or evidenced,
whether primary, secondary, direct, indirect, absolute, contingent, due or to
become due, now existing or hereafter contracted or acquired, and all
modifications, extensions or renewals thereof, including without limitation all
principal, interest, charges, and costs and expenses incurred thereunder
(including attorneys' fees and other costs of collection incurred, regardless
of whether suit is commenced) (collectively, the "Guaranteed Obligations").
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional guaranty
of payment and performance and not of collection. The parties to this Guaranty
are jointly and severally obligated hereunder. This Guaranty does not impose
any obligation on Bank to extend or continue to extend credit or otherwise deal
with Borrower at any subsequent time. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Guaranteed Obligations is rescinded, avoided or for any other reason must
be returned by Bank, and the returned payment shall remain payable as part of
the Guaranteed Obligations, all as though such payment had not been made.
Except to the extent the provisions of this Guaranty give the Bank additional
rights, this Guaranty shall not be deemed to supersede or replace any other
guaranties given to Bank by Guarantor; and the obligations guaranteed hereby
shall be in addition to any other obligations guaranteed by Guarantor pursuant
to any other agreement of guaranty given to Bank and other guaranties of the
Guaranteed Obligations.
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by written
notice, delivered personally to or received by certified or registered United
States Mail by an authorized officer of the Bank at the address for notices
provided herein. Such termination shall be effective with respect to
Guaranteed Obligations arising more than 15 days after the date such written
notice is received by said Bank officer. Guarantor may not terminate this
Guaranty as to Guaranteed Obligations (including any subsequent extensions,
modifications or
compromises of the Guaranteed Obligations) then existing, or to Guaranteed
Obligations arising subsequent to receipt by Bank of said notice if such
Guaranteed Obligations are a result of Bank's obligation to make advances
pursuant to a commitment entered into prior to expiration of the 15 day notice
period, or are a result of advances which are necessary for Bank to protect its
collateral or otherwise preserve its interests. Termination of this Guaranty by
any single Guarantor will not affect the existing and continuing obligations of
any other guarantor hereunder.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any source
by Bank for application toward payment of the Guaranteed Obligations may be
applied to such Guaranteed Obligations in any manner or order deemed
appropriate by Bank. Except as prohibited by law, Guarantor grants Bank a
security interest in all of Guarantor's accounts maintained with Bank and any
of its affiliates (collectively, the "Accounts"). If a Default occurs, Bank is
authorized to exercise its right of set-off or to foreclose its lien against
any obligation of Bank to Guarantor including, without limitation, all Accounts
or any other debt of any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor CONSENTS AND AGREES THAT BANK MAY FROM TIME
TO TIME, IN ITS SOLE DISCRETION, WITHOUT AFFECTING, IMPAIRING, LESSENING OR
RELEASING THE OBLIGATIONS OF THE GUARANTOR HEREUNDER: (a) extend or modify the
time, manner, place or terms of payment or performance and/or otherwise change
or modify the credit terms of the Guaranteed Obligations; (b) increase, renew,
or enter into a novation of the Guaranteed Obligations; (c) waive or consent to
the departure from terms of the Guaranteed Obligations; (d) permit any change
in the business or other dealings and relations of Borrower or any other
guarantor with Bank; (e) proceed against, exchange, release, realize upon, or
otherwise deal with in any manner any collateral that is or may be held by Bank
in connection with the Guaranteed Obligations or any liabilities or obligations
of Guarantor; and (f) proceed against, settle, release, or compromise with
Borrower, any insurance carrier, or any other person or entity liable as to any
part of the Guaranteed Obligations, and/or subordinate the payment of any part
of the Guaranteed Obligations to the payment of any other obligations, which
may at any time be due or owing to Bank; all in such manner and upon such terms
as Bank may deem appropriate, and without notice to or further consent from
Guarantor. No invalidity, irregularity, discharge or unenforceability of, or
action or omission by Bank relating to any part of, the Guaranteed Obligations
or any security therefor shall affect or impair this Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Guarantor WAIVES AND RELEASES THE FOLLOWING
RIGHTS, DEMANDS, AND DEFENSES Guarantor may have with respect to Bank and
collection of the Guaranteed Obligations: (a) promptness and diligence in
collection of any of the Guaranteed Obligations from Borrower or any other
person liable thereon, and in foreclosure of any security interest and sale of
any property serving as collateral for the Guaranteed Obligations; (b) any law
or statute that requires that Bank make demand upon, assert claims against, or
collect from Borrower or other persons or entities, foreclose any security
interest, sell collateral, exhaust any remedies, or take any other action
against Borrower or other persons or entities prior to making demand upon,
collecting from or taking action against Guarantor with respect to the
Guaranteed Obligations, including any such rights Guarantor might otherwise
have had under Va. Code ss.ss. 49-25 and 49-26, et seq., N.C.G.S. ss.ss. 26-7,
et seq., Tenn. Code Ann. ss. 47-12-101, O.C.G.A. ss. 10-7-24 (and any successor
statute) and any other applicable law; (c) any law or statute that requires
that Borrower or any other person be joined in, notified of or made part of any
action against Guarantor; (d) that Bank preserve, insure or perfect any
security interest in collateral or sell or dispose of collateral in a
particular manner or at a particular time; (e) notice of extensions,
modifications, renewals, or novations of the Guaranteed Obligations, of any new
transactions or other relationships between Bank, Borrower and/or any
guarantor, and of changes in the financial condition of, ownership of, or
business structure of Borrower or any other guarantor; (f) presentment,
protest, notice of dishonor, notice of default, demand for payment, notice of
intention to accelerate maturity, notice of acceleration of maturity, notice of
sale, and all other notices of any kind whatsoever; (g) the right to assert
against Bank any defense (legal or equitable), set-off, counterclaim, or claim
that Guarantor may have at any time against Borrower or any other party liable
to Bank; (h) all defenses relating to invalidity, insufficiency,
unenforceability, enforcement, release or impairment of Bank's lien on any
collateral, of the Loan Documents,
PAGE 2
or of any other guaranties held by Bank; (i) any claim or defense that
acceleration of maturity of the Guaranteed Obligations is stayed against
Guarantor because of the stay of assertion or of acceleration of claims against
any other person or entity for any reason including the bankruptcy or
insolvency of that person or entity; and (j) the benefit of any exemption
claimed by Guarantor. Guarantor acknowledges and represents that it has relied
upon its own due diligence in making its own independent appraisal of Borrower,
Borrower's business affairs and financial condition, and any collateral;
Guarantor will continue to be responsible for making its own independent
appraisal of such matters; and Guarantor has not relied upon and will not
hereafter rely upon Bank for information regarding Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank that
on and after the date hereof: (a) the fair saleable value of Guarantor's assets
exceeds its liabilities, Guarantor is meeting its current liabilities as they
mature, and Guarantor is and shall remain solvent; (b) all financial statements
of Guarantor furnished to Bank are correct and accurately reflect the financial
condition of Guarantor as of the respective dates thereof; (c) since the date
of such financial statements, there has not occurred a material adverse change
in the financial condition of Guarantor; and (d) there are not now pending any
court or administrative proceedings or undischarged judgments against
Guarantor, no federal or state tax liens have been filed or threatened against
Guarantor, and Guarantor is not in default or claimed default under any
agreement.
INTEREST. Regardless of any other provision of this Guaranty or other Loan
Documents, if for any reason the effective interest on any of the Guaranteed
Obligations should exceed the maximum lawful interest, the effective interest
shall be deemed reduced to and shall be such maximum lawful interest, and any
sums of interest which have been collected in excess of such maximum lawful
interest shall be applied as a credit against the unpaid principal balance of
the Guaranteed Obligations.
DEFAULT. If any of the following events occur, a default ("Default") under this
Guaranty shall exist: (a) Failure of timely payment or performance of the
Guaranteed Obligations or a default or any Event of Default (as such term is
defined in the applicable Loan Document) under any Loan Document; (b) A breach
of any agreement or representation contained or referred to in the Guaranty, or
any of the Loan Documents, or contained in any other contract or agreement of
Guarantor with Bank or its affiliates, whether now existing or hereafter
arising; (c) The dissolution of, termination of existence of, loss of good
standing status by, appointment of a receiver for, assignment for the benefit
of creditors of, or the commencement of any insolvency or bankruptcy proceeding
by or against, Guarantor or any general partner of or the holder(s) of the
majority ownership interests of Guarantor; and/or (d) The entry of any monetary
judgment or the assessment against, the filing of any tax lien against, or the
issuance of any writ of garnishment or attachment against any property of or
debts due Guarantor.
If a Default occurs, the Guaranteed Obligations shall be due immediately and
payable without notice. Guarantor shall pay interest on the Guaranteed
Obligations from such Default at the highest rate of interest charged on any of
the Guaranteed Obligations.
ATTORNEY'S FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of
Bank's reasonable expenses incurred to enforce or collect any of the Guaranteed
Obligations, including, without limitation, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether incurred
without the commencement of a suit, in any suit, arbitration, or administrative
proceeding, or in any appellate or bankruptcy proceeding.
SUBORDINATION OF OTHER DEBTS. Guarantor agrees: (a) to subordinate the
obligations now or hereafter owed by Borrower to Guarantor ("Subordinated
Debt") to any and all obligations of Borrower to Bank now or hereafter existing
while this Guaranty is in effect, provided however that Guarantor may receive
regularly scheduled principal and interest payments on the Subordinated Debt so
long as (i) all sums due and payable by Borrower to Bank have been paid in full
on or prior to such date, and (ii) no event or condition which constitutes or
which with notice or the lapse or time would constitute an event of default
with respect to the
PAGE 3
Guaranteed Obligations, shall be continuing on or as of the payment date; (b)
Guarantor will place a legend indicating such subordination on every note,
ledger page or other document evidencing any part of the Subordinated Debt; and
(c) except as permitted by this paragraph, Guarantor will not request or accept
payment of or any security for any part of the Subordinated Debt, and any
proceeds of the Subordinated Debt paid to Guarantor, through error or
otherwise, shall immediately be forwarded to Bank by Guarantor, properly
endorsed to the order of Bank, to apply to the Guaranteed Obligations.
MISCELLANEOUS. (a) ASSIGNMENT. This Guaranty and other Loan Documents shall
inure to the benefit of and be binding upon the parties and their respective
heirs, legal representatives, successors and assigns. Bank's interests in and
rights under this Guaranty and other Loan Documents are freely assignable, in
whole or in part, by Bank. Any assignment shall not release Guarantor from the
Guaranteed Obligations. (b) APPLICABLE LAW; CONFLICT BETWEEN DOCUMENTS. This
Guaranty and other Loan Documents shall be governed by and construed under the
laws of the state in which office of Bank first shown above is located without
regard to that state's conflict of laws principles. If the terms of this
Guaranty should conflict with the terms of any commitment letter that survives
closing, the terms of this Guaranty shall control. (c) JURISDICTION. Guarantor
irrevocably agrees to non-exclusive personal jurisdiction in the state in which
the office of Bank first shown above is located. (d) SEVERABILITY. If any
provision of this Guaranty or of the other Loan Documents shall be prohibited
or invalid under applicable law, such provision shall be ineffective but only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Guaranty or
other document. (e) NOTICES. Any notices to Guarantor shall be sufficiently
given, if in writing and mailed or delivered to the Guarantor's address shown
above or such other address as provided hereunder, and to Bank, if in writing
and mailed or delivered to Bank's office address shown above or such other
address as Bank may specify in writing from time to time. In the event that
Guarantor changes Guarantor's address at any time prior to the date the
Guaranteed Obligations are paid in full, Guarantor agrees to promptly give
written notice of said change of address by registered or certified mail,
return receipt requested, all charges prepaid. (f) PLURAL; CAPTIONS. All
references in the Loan Documents to borrower, guarantor, person, document or
other nouns of reference mean both the singular and plural form, as the case
may be, and the term "person" shall mean any individual, person or entity. The
captions contained in the Loan Documents are inserted for convenience only and
shall not affect the meaning or interpretation of the Loan Documents. (g)
BINDING CONTRACT. Guarantor by execution of and Bank by acceptance of this
Guaranty agree that each party is bound to all terms and provisions of this
Guaranty. (h) AMENDMENTS, WAIVERS AND REMEDIES. No waivers, amendments or
modifications of this Guaranty and other Loan Documents shall be valid unless
in writing and signed by an officer of Bank. No waiver by Bank of any Default
shall operate as a waiver of any other Default or the same Default on a future
occasion. Neither the failure nor any delay on the part of Bank in exercising
any right, power, or privilege granted pursuant to this Guaranty and other Loan
Documents shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise or the exercise of any
other right, power or privilege. All remedies available to Bank with respect to
this Guaranty and other Loan Documents and remedies available at law or in
equity shall be cumulative and may be pursued concurrently or successively. (i)
PARTNERSHIPS. If Guarantor is a partnership, the obligations, liabilities and
agreements on the part of Guarantor shall remain in full force and effect and
fully applicable notwithstanding any changes in the individuals comprising the
partnership. The term "Guarantor" includes any altered or successive
partnerships, and predecessor partnership(s) and the partners shall not be
released from any obligations or liabilities hereunder. (j) LOAN DOCUMENTS. The
term "Loan Documents" refers to all documents executed in connection with the
Guaranteed Obligations, including, without limitation, the Revolving Loan and
Security Agreement dated as of March 31,1997 ("Loan Agreement") between the
Borrower and the Bank together with all of the "Loan Documents" (as such term
is defined in the Loan Agreement) and may include, without limitation,
commitment letters that survive closing, loan agreements, other guaranty
agreements, security agreements, instruments, financing statements, mortgages,
deeds of trust, deeds to secure debt, letters of credit and any amendments or
supplements (excluding swap agreements as defined in 11 U.S. Code ss. 101).
PAGE 4
FINANCIAL AND OTHER INFORMATION. In addition to the other covenants set forth
herein and the other Loan Documents, Guarantor shall deliver to Bank such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Guarantor's
financial condition. Such information shall be true, complete, and accurate.
SECURITY. Guarantor has granted Bank a security interest in the collateral
described in the Loan Documents, including, but not limited to, personal
property collateral described in that certain Security Agreement dated the date
hereof.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Guaranty and other Loan
Documents ("Disputes") between or among parties to this Guaranty shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration,
claims brought as class actions, claims arising from Loan Documents executed in
the future, or claims arising out of or connected with the transaction
reflected by this Guaranty.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000.00. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney. Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Guarantor agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with an arbitration proceeding or after
an arbitration action is brought. Bank and Guarantor shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power
of sale granted under Loan Documents or under applicable law or by judicial
foreclosure and sale, including a proceeding to confirm the sale; (ii) all
rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property;
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by
confession of judgment. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in
a Dispute.
Guarantor and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants that:
(i) the assumption by the Guarantor of its liabilities and
obligations hereunder will result in material benefits to the Guarantor;
PAGE 5
(ii) this Guaranty when executed and delivered by the Guarantor will
constitute a legal, valid and binding obligation on his or her part,
enforceable against the Guarantor in accordance with its terms, subject, as to
enforcement of remedies only, to any applicable bankruptcy, insolvency,
moratorium or similar laws of general application at the time in effect and
general principles of equity;
(iii) the Guarantor has good and marketable title to all of the
Guarantor's properties and assets listed in the most recent financial
statements delivered to the Lender on or prior to the date hereof (except as
otherwise expressly described in said financial statements, and except those
properties and assets disposed of since the date of said financial statements
in the ordinary course of business);
(iv) neither the execution and delivery of this Guaranty or any other
document, agreement, certificate and instrument to which the Guarantor is a
party or by which the Guarantor is bound, nor the consummation of the
transactions contemplated under the Loan Documents, nor the compliance with or
performance of the terms and conditions herein or therein will result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of the Guarantor, except as
permitted in or anticipated by this Guaranty and the other Loan Documents, nor
is prevented by, limited by, conflicts with or will result in the breach or
violation of or a default under the terms, conditions or provisions of (a) any
indenture, evidence of indebtedness, loan or financing agreement, or other
agreement or instrument of whatever nature to which the Guarantor is a party or
by which the Guarantor or its properties are bound, or (b) any provision of any
existing law, rule, regulation, order, writ, injunction or decree of any court
or governmental authority to which the Guarantor is subject;
(v) the Guarantor is not a party to any action, suit, proceeding,
inquiry, hearing or investigation pending, or within the best of the
Guarantor's knowledge, after due inquiry and investigation, threatened, in any
court of law or in equity, or before or by any governmental authority wherein
there is a reasonable probability that an unfavorable determination, decision,
decree, ruling or finding would (a) result in any material adverse change in
the business, assets, liabilities, financial condition, properties or
operations of the Guarantor, (b) materially adversely affect the transactions
contemplated by this Guaranty and the other Loan Documents or the Guarantor's
ability to perform its obligations hereunder, or (c) adversely affect the
validity or enforceability of this Agreement of Guaranty;
(vi) the Guarantor is not in violation of or default with respect to
any law, rule, regulation, order, writ, injunction, decree or demand of any
court, governmental authority, commission, board, agency or instrumentality;
(vii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with any governmental authority which
are required in connection with the valid execution and delivery of this
Guaranty by the Guarantor and the other Loan Documents to which it is a party,
and the carrying out or performance of any of the transactions required or
contemplated hereunder to be performed by the Guarantor have been obtained or
accomplished and are in full force and effect; and
(viii) the Guarantor has duly filed or caused to be filed all federal,
state and municipal tax reports and returns which are required to be filed by
it, and has paid or made adequate provision for the payment of, all taxes,
assessments, fees and other governmental charges which have become due pursuant
to said returns, or otherwise pursuant to any assessment received by the
Guarantor, except such taxes, if any, as are being contested in good faith by
the Guarantor by appropriate proceedings (provided that such contest shall not
result in a lien being placed on any of the Guarantor's properties or assets or
result in any of the Guarantor's properties or assets being subject to loss or
forfeiture as a result of nonpayment during the continuance of such contest)
and for which the Guarantor has maintained adequate reserves.
GUARANTOR'S COVENANTS. Guarantor covenants and agrees that so long as this
Guaranty is in full force and effect it shall comply with all of the covenants
set forth in SECTION 10 of the Loan Agreement as they
PAGE 6
apply to the Guarantor and the Subsidiaries of Borrower (collectively, the
"Loan Covenants"). All of such Loan Covenants are deemed incorporated herein in
their entirety as if fully and completely set forth herein except that all
references to "Borrower" therein are hereby deemed references to the Guarantor.
This Guaranty shall automatically be deemed effective and in full force and
effect upon the occurrence of the "Effective Time" (as such term is defined in
the Agreement and Plan of Merger dated December 5, 1997 among the Borrower,
EMKR Acquisition Corporation, the Guarantor and the principal stockholders of
the Guarantor).
IN WITNESS WHEREOF, Guarantor, on the day and year first written above, has
caused this Unconditional Guaranty to be executed under seal.
MICROOPTICAL DEVICES, INC.
By: /s/ Reuben F. Richards, Jr.
_______________________________________
Name: Reuben F. Richards, Jr.
Title: President & CEO
PAGE 7
EXECUTION
SECURITY AGREEMENT
December 5, 1997
MicroOptical Devices, Inc.
5601-C Midway Park Place, N.E.
Albuquerque, New Mexico 87109
(Individually and collectively "Debtor")
First Union National Bank
1889 Highway 27
Edison, New Jersey 08817
(Hereinafter referred to as the "Bank")
For value received and to secure the payment and performance of the guaranteed
obligations under that Unconditional Guaranty dated of even date herewith,
given by Debtor to Bank guaranteeing obligations of EMCORE Corporation
("Borrower") to Bank, its successors and assigns, and any extensions, renewals,
modifications or novations thereof (the "Guaranty"), and all costs and expenses
incurred by Bank to obtain, preserve, perfect and enforce the security interest
granted herein and to maintain, preserve, and collect the property subject to
the security interest (collectively, "Guaranty Obligations"), Debtor hereby
grants to Bank a continuing first priority and only security interest in and
lien upon the following described property, now owned or hereafter acquired,
any additions, accessions, or substitutions thereof and thereto (including but
not limited to investment property and security entitlements), and all cash and
non-cash proceeds and products thereof (collectively, "Collateral"):
All accounts, contract rights, leases, and any other rights of Debtor to
payment for goods sold or leased or for services rendered; furniture;
furnishings; fixtures; equipment; machinery; accessories; moveable trade
fixtures; goods held for sale or being processed for sale in Debtor's business,
including all raw materials, supplies, and other materials used or consumed in
Debtor's business, goods in process, finished goods, and all other items
customarily classified as inventory; building improvement and construction
materials, supplies and equipment; chattel paper; instruments; documents; all
funds on deposit with Bank and its affiliates; and all general intangibles; as
well as all parts, replacements, substitutions, profits, products and cash and
non-cash proceeds of the foregoing (including insurance and condemnation
proceeds payable by reason of condemnation of or loss or damage thereto) in any
form and wherever located.
All stocks and bonds together with all cash and non-cash proceeds thereof
(including investment property, security entitlements, and dividends).
All instruments, documents, chattel paper, goods, moneys, securities, drafts,
and other property of Debtor now in possession of and at any time and from time
to time hereafter delivered to Bank, its agents or affiliates, whether for
safekeeping, pledge, custody, transmission, collection, or otherwise, and all
of Debtor's deposits, balances, sums, proceeds, and credits with, and any of
its claims against Bank and affiliates of Bank, at any time existing, together
with the increases and profits received therefrom and the proceeds thereof,
including insurance payable because of loss or damage thereto.
All of Debtor's demand deposit accounts, checking accounts, time savings
accounts, certificates of deposit or other accounts of any nature maintained in
or with Bank and affiliates of Bank.
All equipment, all accessories and parts that become a part of the equipment by
accession, and all supplies used or to be used in connection therewith.
All general intangibles (including, without limitation, all contract rights,
tax refunds and tax refund claims, choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, trademarks, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, claims under guaranties, security
interests or other security held or granted to secure payment of contracts by
account debtors, all rights to indemnification and all other intangible
property of every kind and nature).
All inventory, including all raw materials and work in process to be processed
into such inventory, and all accessions, attachments and other additions to,
substitutes for, replacements for, improvements to and returns of such
inventory, all accounts arising from the disposition of inventory.
All security deposits, escrow, other deposits and other security provided by
lessees, subleases, or other obligor under any leases, subleases, occupancy
agreements, or other contracts assigned to Bank.
Debtor hereby represents and agrees that:
OWNERSHIP. Debtor owns the Collateral or Debtor will purchase and acquire
rights in the Collateral within ten days of the date advances are made under
the Loan Documents. If Collateral is being acquired with the proceeds of an
advance under the Loan Documents, Debtor authorizes Bank to disburse proceeds
directly to the seller of the Collateral. The Collateral is free and clear of
all liens, security interests, and claims, and Debtor will keep the Collateral
free and clear from all liens, security interests and claims, other than those
granted to Bank.
NAME AND OFFICES. There has been no change in the name of Debtor, or the name
under which Debtor conducts business, within the 5 years preceding the date of
execution of this Security Agreement and Debtor has not moved its executive
offices or residence within the 5 years preceding the date of execution of this
Security Agreement except as previously reported in writing to Bank. The
taxpayer identification number of Debtor as provided herein is correct.
TITLE/TAXES. Debtor has good and marketable title to Collateral and will
warrant and defend same against all claims. Debtor will not transfer, sell, or
lease Collateral (except in the ordinary course of business). Debtor agrees to
pay promptly all taxes and assessments upon or for the use of Collateral and on
this Security Agreement. At its option, Bank may discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on
Collateral. Debtor agrees to reimburse Bank, on demand, for any such payment
made by Bank. Any amounts so paid shall be added to the Guaranty Obligations.
WAIVERS. Debtor waives presentment, demand, protest, notice of dishonor, notice
of default, demand for payment, notice of intention to accelerate, and notice
of acceleration of maturity. Debtor further agrees not to assert against Bank
as a defense (legal or equitable), as a set-off, as a counterclaim, or
otherwise, any claims Debtor may have against any seller or lessor that
provided personal property or services relating to any part of the Collateral.
Debtor waives all exemptions and homestead rights with regard to the
Collateral. DEBTOR WAIVES ANY AND ALL RIGHTS TO NOTICE OR TO HEARING PRIOR TO
BANK'S TAKING IMMEDIATE POSSESSION OR CONTROL OF ANY COLLATERAL, and to any
bond or security which might be required by applicable law prior to the
exercise of any of Bank's remedies against any Collateral.
EXTENSIONS, RELEASES. Debtor agrees that Bank may extend, renew or modify any
of the Guaranty Obligations and grant any releases, compromises or indulgences
with respect to any security for the Guaranty Obligations, or with respect to
any party liable for the Guaranty Obligations, all without notice to or
PAGE 2
consent of Debtor and without affecting the liability of Debtor or the
enforceability of this Security Agreement.
NOTIFICATIONS OF CHANGE. Debtor will notify Bank in writing at least 30 days
prior to any change in: (i) Debtor's chief place of business and/or residence;
(ii) Debtor's name or identity; or (iii) Debtor's corporate/organizational
structure. Debtor will keep Collateral at the location(s) previously provided
to Bank until such time as Bank provides written advance consent to a change of
location. Debtor will bear the cost of preparing and filing any documents
necessary to protect Bank's liens.
COLLATERAL CONDITION AND LAWFUL USE. Debtor represents that Collateral is in
good repair and condition and that Debtor shall use reasonable care to prevent
Collateral from being damaged or depreciating. Debtor shall immediately notify
Bank of any material loss or damage to Collateral. Debtor shall not permit any
item of equipment to become a fixture to real estate or an accession to other
personal property. Debtor represents it is in compliance in all respects with
all federal, state and local laws, rules and regulations applicable to its
properties, Collateral, operations, business, and finances, including, without
limitation, any federal or state laws relating to liquor (including 18 U.S.C.
ss. 3617, et seq.) or narcotics (including 21 U.S.C. ss. 801, et seq.) and all
applicable federal, state and local laws, and regulations intended to protect
the environment.
RISK OF LOSS AND INSURANCE. Debtor shall bear all risk of loss with respect to
the Collateral. The injury to or loss of Collateral, either partial or total,
shall not release Debtor from payment or other performance hereof. Debtor
agrees to obtain and keep in force casualty and hazard insurance on Collateral
naming Bank as loss payee. Such insurance is to be in form and amounts
satisfactory to Bank. All such policies shall provide to Bank a minimum of 30
days written notice of cancellation. Debtor shall furnish to Bank such
policies, or other evidence of such policies satisfactory to Bank. Bank is
authorized, but not obligated, to purchase any or all insurance or "Single
Interest Insurance" protecting such interest as Bank deems appropriate against
such risks and for such coverage and for such amounts, including either the
loan amount or value of the Collateral, all at its discretion, and at Debtor's
expense. In such event, Debtor agrees to reimburse Bank for the cost of such
insurance and Bank may add such cost to the Guaranty Obligations. Debtor shall
bear the risk of loss to the extent of any deficiency in the effective
insurance coverage with respect to loss or damage to any of the Collateral.
Debtor hereby assigns to Bank the proceeds of all such insurance and directs
any insurer to make payments directly to Bank. Debtor hereby appoints Bank its
attorney-in-fact, which appointment shall be irrevocable and coupled with an
interest for so long as the Guaranty Obligations are unpaid, to file proof of
loss and/or any other forms required to collect from any insurer any amount due
from any damage or destruction of Collateral, to agree to and bind Debtor as to
the amount of said recovery, to designate payee(s) of such recovery, to grant
releases to insurer, to grant subrogation rights to any insurer, and to endorse
any settlement check or draft. Debtor agrees not to exercise any of the
foregoing powers granted to Bank without the Bank's prior written consent.
ADDITIONAL COLLATERAL. If at any time Collateral is unsatisfactory to Bank,
then on demand of Bank, Debtor shall immediately furnish such additional
Collateral satisfactory to Bank to be held by Bank as if originally pledged
hereunder and shall execute such additional security agreements and financing
statements as requested by Bank.
FINANCING STATEMENTS. No financing statement (other than any filed by Bank or
disclosed above) covering any of Collateral or proceeds thereof is on file in
any public filing office. This Security Agreement, or a copy thereof, or any
financing statement executed hereunder may be recorded. On request of Bank,
Debtor will execute one or more financing statements in form satisfactory to
Bank and will pay all costs and expenses of filing the same or of filing this
Security Agreement in all public filing offices, where filing is deemed by Bank
to be desirable. Bank is authorized to file financing statements relating to
Collateral without Debtor's signature where authorized by law. Debtor appoints
Bank as its attorney-in-fact to execute
PAGE 3
such documents necessary to accomplish perfection of Bank's security interest.
The appointment is coupled with an interest and shall be irrevocable as long as
any Guaranty Obligations remain outstanding. Debtor further agrees to take such
other actions as might be requested for the perfection, continuation and
assignment, in whole or in part, of the security interests granted herein. If
certificates are issued or outstanding as to any of the Collateral, Debtor will
cause the security interests of Bank to be properly protected, including
perfection of notation thereon.
LANDLORD/MORTGAGEE WAIVERS. Debtor shall cause each mortgagee of real property
owned by Debtor and each landlord of real property leased by Debtor to execute
and deliver instruments satisfactory in form and substance to Bank by which
such mortgagee or landlord waives its rights, if any, in the Collateral.
STOCK, DIVIDENDS. If, with respect to any security pledged hereunder, a stock
dividend is declared, any stock split made or right to subscribe is issued, all
the certificates for the shares representing such stock dividend, stock split
or right to subscribe will be immediately delivered, duly endorsed, to the Bank
as additional collateral, and any cash or non-cash proceeds and products
thereof, including investment property and security entitlements will be
immediately delivered to Bank. If Debtor has granted to Bank a security
interest in securities, Debtor acknowledges that such grant includes all
investment property and security entitlements, now existing or hereafter
arising, relating to such securities. In addition, Debtor agrees to execute
such notices and instructions to securities intermediaries as Bank may
reasonably request.
CONTRACTS, CHATTEL PAPER, ACCOUNTS, GENERAL INTANGIBLES. Debtor warrants that
Collateral consisting of contract rights, chattel paper, accounts, or general
intangibles is (i) genuine and enforceable in accordance with its terms except
as limited by law; (ii) not subject to any defense, set-off, claim or
counterclaim of a material nature against Debtor except as to which Debtor has
notified Bank in writing; and (iii) not subject to any other circumstances that
would impair the validity, enforceability, value, or amount of such Collateral
except as to which Debtor has notified Bank in writing. Debtor shall not amend,
modify or supplement any lease, contract or agreement contained in Collateral
or waive any provision therein, without prior written consent of Bank.
ACCOUNT INFORMATION. From time to time, at the Bank's request, Debtor shall
provide Bank with schedules describing all accounts and contracts, including
customers' addresses, credited or acquired by Debtor and at the Bank's request
shall execute and deliver written assignments of contracts and other documents
evidencing such accounts and contracts to Bank. Together with each schedule,
Debtor shall, if requested by Bank, furnish Bank with copies of Debtor's sales
journals, invoices, customer purchase orders or the equivalent, and original
shipping or delivery receipts for all goods sold, and Debtor warrants the
genuineness thereof.
ACCOUNT AND CONTRACT DEBTORS. After a Default occurs, Bank shall have the right
to notify the account and contract debtors obligated on any or all of the
Collateral to make payment thereof directly to Bank and Bank may take control
of all proceeds of any such Collateral, which rights Bank may exercise at any
time. The cost of such collection and enforcement, including attorneys' fees
and expenses, shall be borne solely by Debtor whether the same is incurred by
Bank or Debtor. After a Default occurs, upon demand of Bank, Debtor will, upon
receipt of all checks, drafts, cash and other remittances in payment on
Collateral, deposit the same in a special bank account maintained with Bank,
over which Bank also has the power of withdrawal.
If a Default occurs, no discount, credit, or allowance shall be granted by
Debtor to any account or contract debtor and no return of merchandise shall be
accepted by Debtor without Bank's consent. Bank may, after Default, settle or
adjust disputes and claims directly with account contract debtors for amounts
and upon terms that Bank considers advisable, and in such cases, Bank will
credit the Guaranty Obligations with the
PAGE 4
net amounts received by Bank, after deducting all of the expenses incurred by
Bank. Debtor agrees to indemnify and defend Bank and hold it harmless with
respect to any claim or proceeding arising out of any matter related to
collection of Collateral.
GOVERNMENT CONTRACTS. If any Collateral covered hereby arises from obligations
due to Debtor from any governmental unit or organization, Debtor shall
immediately notify Bank in writing and execute all documents and take all
actions demanded by Bank to ensure recognition by such governmental unit or
organization of the rights of Bank in the Collateral.
INVENTORY. So long as no Default has occurred, Debtor shall have the right in
the regular course of business, to process and sell Debtor's inventory, unless
Bank shall hereafter otherwise direct in writing. Upon demand of Bank, Debtor
will, upon receipt of all checks, drafts, cash and other remittances, in
payment of Collateral sold, deposit the same in a special bank account
maintained with Bank, over which Bank also has the power of withdrawal. Debtor
shall comply with all federal, state, and local laws, regulations, rulings, and
orders applicable to Debtor or its assets or business, in all respects. Without
limiting the generality of the previous sentence, Debtor shall comply with all
requirements of the federal Fair Labor Standards Act in the conduct of its
business and the production of inventory. Debtor shall notify Bank immediately
of any violation by Debtor of the Fair Labor Standards Act, and a failure of
Debtor to so notify Bank shall constitute a continuing representation that all
inventory then existing has been produced in compliance with the Fair Labor
Standards Act.
INSTRUMENTS, CHATTEL PAPER. Any Collateral that is instruments, chattel paper
and negotiable documents will be properly assigned to, deposited with and held
by Bank, unless Bank shall hereafter otherwise direct or consent in writing.
Bank may, without notice, before or after maturity of the Guaranty Obligations,
exercise any or all rights of collection, conversion, or exchange and other
similar rights, privileges and options pertaining to Collateral, but shall have
no duty to do so.
COLLATERAL DUTIES. Bank shall have no custodial or ministerial duties to
perform with respect to Collateral pledged except as set forth herein; and by
way of explanation and not by way of limitation, Bank shall incur no liability
for any of the following: (i) loss or depreciation of Collateral (unless caused
by its willful misconduct), (ii) its failure to present any paper for payment
or protest, to protest or give notice of nonpayment, or any other notice with
respect to any paper or Collateral, or (iii) its failure to present or
surrender for redemption, conversion or exchange any bond, stock, paper or
other security whether in connection with any merger, consolidation,
recapitalization, or reorganization, arising out of the refunding of the
original security, or for any other reason, or its failure to notify any party
hereto that Collateral should be so presented or surrendered.
TRANSFER OF COLLATERAL. The Bank may assign its rights in the Collateral or any
part thereof to any assignee who shall thereupon become vested with all the
powers and rights herein given to the Bank with respect to the property so
transferred and delivered, and the Bank shall thereafter be forever relieved
and fully discharged from any liability with respect to such property so
transferred, but with respect to any property not so transferred the Bank shall
retain all rights and powers hereby given.
SUBSTITUTE COLLATERAL. With prior written consent of Bank, other Collateral may
be substituted for the original Collateral herein in which event all rights,
duties, obligations, remedies and security interests provided for, created or
granted shall apply fully to such substitute Collateral.
INSPECTION, BOOKS AND RECORDS. Debtor will at all times keep accurate and
complete records covering each item of Collateral, including the proceeds
therefrom. Bank, or any of its agents, shall have the right, at intervals to be
determined by Bank and without hindrance or delay, to inspect, audit, and
examine the Collateral and to make extracts from the books, records, journals,
orders, receipts,
PAGE 5
correspondence and other data relating to Collateral, Debtor's business or any
other transaction between the parties hereto. Debtor will at its expense
furnish Bank copies thereof upon request.
CROSS COLLATERALIZATION LIMITATION. As to any other existing or future consumer
purpose loan made by Bank to Debtor, within the meaning of the Federal Consumer
Credit Protection Act, Bank expressly waives any security interest granted
herein in Collateral that Debtor uses as a principal dwelling and household
goods.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Debtor shall pay all of Bank's
reasonable expenses incurred in enforcing this Agreement and in preserving and
liquidating Collateral, including but not limited to, reasonable arbitration,
paralegals', attorneys' and experts' fees and expenses, whether incurred
without the commencement of a suit, in any trial, arbitration, or
administrative proceeding, or in any appellate or bankruptcy proceeding.
DEFAULT. If any of the following occurs, a default ("Default") under this
Security Agreement shall exist: (i) The failure of timely payment or
performance of any of the Guaranty Obligations or a default or any Event of
Default (as such term is defined in the applicable Loan Document) under any
Loan Document; (ii) Any breach of any representation or agreement contained or
referred to in this Security Agreement or other Loan Document; (iii) Any loss,
theft, substantial damage, or destruction of Collateral not fully covered by
insurance, or as to which insurance proceeds are not remitted to Bank within 30
days of the loss; any sale (except the sale of inventory in the ordinary course
of business), lease, or encumbrance of any of Collateral without prior written
consent of Bank; or the making of any levy, seizure, or attachment on or of
Collateral which is not removed within 10 days; or (iv) the dissolution of,
termination of existence of, loss of good standing status by, appointment of a
receiver for, assignment for the benefit of creditors of, or commencement of
any bankruptcy or insolvency proceeding by or against Debtor, its Subsidiaries
or Affiliates ("Affiliate" shall have the meaning as defined in 11 U.S.C. ss.
101; and "Subsidiary" shall mean any corporation of which more than 50% of the
issued and outstanding voting stock is owned directly or indirectly by Debtor),
if any, or any general partner of or the holder(s) of the majority ownership
interests in Debtor or any party to the Loan Documents.
REMEDIES ON DEFAULT (INCLUDING POWER OF SALE). If a Default occurs, all of the
Guaranty Obligations shall be immediately due and payable, without notice and
Bank shall have all the rights and remedies of a secured party under the
Uniform Commercial Code. Without limitation thereto, Bank shall have the
following rights and remedies: (i) to take immediate possession of Collateral,
without notice or resort to legal process, and for such purpose, to enter upon
any premises on which Collateral or any part thereof may be situated and to
remove the same therefrom, or, at its option, to render the Collateral unusable
or dispose of said Collateral on Debtor's premises; (ii) to require Debtor to
assemble the Collateral and make it available to Bank at a place to be
designated by Bank; (iii) to exercise its right of set-off or bank lien as to
any monies of Debtor deposited in demand, checking, time, savings, certificate
of deposit or other accounts of any nature maintained by Debtor with Bank or
Affiliates of Bank, without advance notice, regardless of whether such accounts
are general or special; (iv) to dispose of Collateral, as a unit or in parcels,
separately or with any real property interests also securing the Guaranty
Obligations, in any county or place to be selected by Bank, at either private
or public sale (at which public sale bank may be the purchaser) with or without
having the Collateral physically present at said sale. Any notice of sale,
disposition or other action by Bank required by law and sent to Debtor at
Debtor's address shown above, or at such other address of Debtor as may from
time to time be shown on the records of Bank, at least 5 days prior to such
action, shall constitute reasonable notice to Debtor. Notice shall be deemed
given or sent when mailed postage prepaid to Debtor's address as provided
herein. Bank shall be entitled to apply the proceeds of any sale or other
disposition of the Collateral, and the payments received by Bank with respect
to any of the Collateral, to the Guaranty Obligations in such order and manner
as Bank may determine. Collateral that is subject to rapid declines in value
and is customarily sold in recognized markets may be disposed of by Bank in a
recognized market for such collateral without providing notice of sale.
PAGE 6
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
MISCELLANEOUS. (i) AMENDMENTS AND WAIVERS. No waiver, amendment or modification
of any provision of this Security Agreement shall be valid unless in writing
and signed by an officer of Bank. No waiver by Bank of any Default shall
operate as a waiver of any other Default or of the same Default on a future
occasion. Neither the failure of, nor any delay by, Bank in exercising any
right, power or privilege granted pursuant to this Security Agreement shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or further exercise of any other right, power or privilege.
(ii) ASSIGNMENT. All rights of Bank hereunder are freely assignable, in whole
or in part, and shall inure to the benefit of and be enforceable by Bank, its
successors, assigns and affiliates. Debtor shall not assign its rights and
interest hereunder without the prior written consent of Bank, and any attempt
by Debtor to assign without Bank's prior written consent is null and void. Any
assignment shall not release Debtor from the Guaranty Obligations. This
Security Agreement shall be binding upon Debtor, and the heirs, personal
representatives, successors, and assigns of Debtor. (iii) APPLICABLE LAW;
CONFLICT BETWEEN DOCUMENTS. This Security Agreement shall be governed by and
construed under the law of the state in which the office of Bank as stated
above is located without regard to that state's conflict of laws principles. If
any terms of this Security Agreement conflict with the terms of any commitment
letter or loan proposal, the terms of this Security Agreement shall control.
(iv) JURISDICTION. Debtor irrevocably agrees to non-exclusive personal
jurisdiction in the state in which the office of Bank as stated above is
located. (v) SEVERABILITY. If any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective but only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Security Agreement. (vi) NOTICES. Any notices to Debtor shall be
sufficiently given, if in writing and mailed or delivered to the address of
Debtor shown above or such other address as provided hereunder; and to Bank, if
in writing and mailed or delivered to Bank's office address shown above or such
other address as Bank may specify in writing from time to time. In the event
that the Debtor changes Debtor's mailing address at any time prior to the date
the Guaranty Obligations are paid in full, Debtor agrees to promptly give
written notice of said change of address by registered or certified mail,
return receipt requested, all charges prepaid. (vii) CAPTIONS. The captions
contained herein are inserted for convenience only and shall not affect the
meaning or interpretation of this Security Agreement or any provision hereof.
The use of the plural shall also mean the singular, and vice versa. (viii) LOAN
DOCUMENTS. The term "Loan Documents" refers to all documents, whether now or
hereafter existing, executed in connection with the Guaranty Obligations,
including, without limitation, the Revolving Loan and Security Agreement dated
as of March 31,1997 ("Loan Agreement") between the Borrower and the Bank
together with all of the "Loan Documents" (as such term is defined in the Loan
Agreement) and may include, without limitation and whether executed by
Borrower, Debtor or others, commitment letters, loan agreements, guaranty
agreements, other security agreements, letters of credit, instruments,
financing statements, mortgages, deeds of trust, deeds to secure debt, and any
amendments or supplements (excluding swap agreements as defined in 11 U.S.C.
ss. 101). (ix) JOINT AND SEVERAL LIABILITY. If more than one person has signed
this Security Agreement, such parties are jointly and severally obligated
hereunder. (x) BINDING CONTRACT. Debtor by execution and Bank by acceptance of
this Security Agreement, agree that each party is bound by all terms and
provisions of this Security Agreement.
This Security Agreement shall automatically be deemed effective and in full
force and effect upon the occurrence of the "Effective Time" (as such term is
defined in the Agreement and Plan of Merger dated , 1997, among the Borrower,
EMKR Acquisition Corporation, the Debtor and the principal stockholders of
Debtor).
PAGE 7
IN WITNESS WHEREOF, Debtor, on the day and year first written above, has caused
this Security Agreement to be executed under seal.
MICROOPTICAL DEVICES, INC.
By: /s/ Reuben F. Richards, Jr.
____________________________________
Name: Reuben F. Richards, Jr.
Title: President & CEO
PAGE 8
SCHEDULE A TO UCC
Schedule A to UCC from MicroOptical Devices, Inc. ("Debtor") and for the
benefit of First Union National Bank ("Secured Party").
Description of Collateral:
All accounts, contract rights, leases, and any other rights of Debtor to
payment for goods sold or leased or for services rendered; furniture;
furnishings; fixtures; equipment; machinery; accessories; moveable trade
fixtures; goods held for sale or being processed for sale in Debtor's business,
including all raw materials, supplies, and other materials used or consumed in
Debtor's business, goods in process, finished goods, and all other items
customarily classified as inventory; building improvement and construction
materials, supplies and equipment; chattel paper; instruments; documents; all
funds on deposit with Bank and its affiliates; and all general intangibles; as
well as all parts, replacements, substitutions, profits, products and cash and
non-cash proceeds of the foregoing (including insurance and condemnation
proceeds payable by reason of condemnation of or loss or damage thereto) in any
form and wherever located.
All stocks and bonds together with all cash and non-cash proceeds thereof
(including investment property, security entitlements, and dividends).
All instruments, documents, chattel paper, goods, moneys, securities, drafts,
and other property of Debtor now in possession of and at any time and from time
to time hereafter delivered to Bank, its agents or affiliates, whether for
safekeeping, pledge, custody, transmission, collection, or otherwise, and all
of Debtor's deposits, balances, sums, proceeds, and credits with, and any of
its claims against Bank and affiliates of Bank, at any time existing, together
with the increases and profits received therefrom and the proceeds thereof,
including insurance payable because of loss or damage thereto.
All of Debtor's demand deposit accounts, checking accounts, time savings
accounts, certificates of deposit or other accounts of any nature maintained in
or with Bank and affiliates of Bank.
All equipment, all accessories and parts that become a part of the equipment by
accession, and all supplies used or to be used in connection therewith.
All general intangibles (including, without limitation, all contract rights,
tax refunds and tax refund claims, choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, trademarks, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, claims under guaranties, security
interests or other security held or granted to secure payment of contracts by
account debtors, all rights to indemnification and all other intangible
property of every kind and nature).
All inventory, including all raw materials and work in process to be processed
into such inventory, and all accessions, attachments and other additions to,
substitutes for, replacements for, improvements to and returns of such
inventory, all accounts arising from the disposition of inventory.
All security deposits, escrow, other deposits and other security provided by
lessees, subleases, or other obligor under any leases, subleases, occupancy
agreements, or other contracts assigned to Bank.
All products and proceeds (including investment property and security
entitlements) of any of the property described above in any form, and all
proceeds of such products.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 8-K of our report dated March 21, 1997 included in
MicroOptical Devices, Inc.'s financial statements as of December 31, 1996
and 1995. It should be noted that we have not audited any financial statements
of MicroOptical Devices, Inc. subsequent to December 31, 1996 or performed
any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
December 23, 1997
