424B5: Prospectus filed pursuant to Rule 424(b)(5)
Published on March 18, 2010
PROSPECTUS
SUPPLEMENT
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Filed
Pursuant to Rule 424(b)(5)
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To
Prospectus dated October 1, 2009
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Registration
Statement No. 333-160437
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EMCORE
Corporation
1,870,042
Shares
Common
Stock
Pursuant to this prospectus supplement
and the accompanying prospectus, we are offering 1,870,042 shares of our common
stock to Commerce Court Small Cap Value Fund, Ltd., or Commerce Court, pursuant
to a Common Stock Purchase Agreement, dated October 1, 2009, between us and
Commerce Court, at a price of approximately $1.07 per share.
This prospectus supplement and the
accompanying prospectus also cover the sale of the shares offered to Commerce
Court by Commerce Court to the public. Commerce Court is an
“underwriter” within the meaning of Section 2(a)(11) of the Securities Act of
1933, as amended, and any profits on the sales of shares of our common stock by
Commerce Court and any discounts, commissions or concessions received by
Commerce Court may be deemed to be underwriting discounts and commissions under
the Securities Act.
We expect to issue the shares to
Commerce Court on or about March 18, 2010. Our common stock is listed
on The NASDAQ Global Market under the symbol “EMKR.” On March 17, 2010, the last
reported sale price of our common stock on The NASDAQ Global Market was $1.09
per share.
Investing in our common stock involves
risk. See “Risk Factors” on page S-7. You should carefully
review the risks and uncertainties described under the heading “Risk Factors”
contained in the applicable prospectus supplement and under similar headings in
the documents that are incorporated by reference in this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus supplement is March 18, 2010
You
should rely only on the information contained or incorporated by reference in
this prospectus supplement. We have not authorized anyone to provide
you with additional information or information different from that contained in
this prospectus supplement. The information contained or incorporated by
reference in this prospectus supplement is accurate only as of the date of this
prospectus supplement, regardless of the time of delivery of this prospectus
supplement or of any sale of securities offered by this prospectus supplement.
Our business, financial condition, results of operations and prospects may have
changed since that date.
In this
prospectus supplement, the “Company”, “EMCORE”, “we”, “us”, and “our” refer to
EMCORE Corporation and its subsidiaries. Our fiscal year ends on
September 30 of each calendar year. For example, fiscal year 2009
refers to the year ended September 30, 2009. EMCORE is a registered
trademark of EMCORE Corporation.
TABLE
OF CONTENTS
Prospectus
Supplement
Page
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About
this Prospectus Supplement
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S-3
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Special
Note Regarding Forward-Looking Statements
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S-4
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Prospectus
Supplement Summary
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S-5
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EMCORE
Corporation
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S-5
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Recent
Developments
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S-5
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The
Offering
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S-7
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Risk
Factors
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S-8
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Use
of Proceeds
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S-28
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Dilution
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S-28
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Dividend
Policy
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S-28
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Plan
of Distribution
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S-28
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Legal
Matters
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S-29
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Where
You Can Find More Information
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S-29
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Information
Incorporated by Reference
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S-30
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Prospectus
Page
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About
this Prospectus
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1
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Special
Note Regarding Forward-Looking Statements
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2
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EMCORE
Corporation
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3
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Risk
Factors
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4
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Use
of Proceeds
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5
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Ratio
of Earnings to Fixed Charges and Preferred Stock Dividends
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5
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Description
of Common Stock
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6
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Description
of Preferred Stock
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6
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Description
of Debt Securities
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7
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Description
of Warrants
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14
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Description
of Units
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15
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Plan
of Distribution
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15
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Anti-takeover
Effects of Provisions of Our Restated Certificate of Incorporation and
Amended By-laws
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19
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New
Jersey Shareholders Protection Act
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19
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Legal
Matters
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21
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Experts
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21
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Where
You Can Find More Information
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21
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Information
Incorporated by Reference
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22
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ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the
accompanying prospectus dated October 1, 2009 relate to a registration statement
on Form S-3 that we filed with the Securities and Exchange Commission, or SEC,
using a “shelf” registration process. Under this shelf registration statement,
we may sell from time to time in one or more offerings up to $50 million in
shares of our common stock as described in the accompanying prospectus. Each
time we sell any of our common stock under the accompanying prospectus, we will
provide a prospectus supplement that will contain more specific information
about the terms of that offering. We may also add, update or change in a
prospectus supplement any of the information contained in the accompanying
prospectus or in documents we have incorporated by reference into the
accompanying prospectus. The accompanying prospectus, together with any
applicable prospectus supplement and the documents incorporated by reference
into the accompanying prospectus, include all material information relating to
this offering. You should carefully read the accompanying prospectus and any
applicable prospectus supplement together with the additional information
described under “Where You Can Find More Information” before buying common stock
in this offering.
S-3
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and the information incorporated by reference include forward-looking
statements, within the meaning of Section 27A of the Securities Act of
1933, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, or the Exchange Act. These statements are based on management’s current
expectations or predictions of future results or events. We make these
forward-looking statements in reliance on the safe harbor provisions provided
under the Private Securities Litigation Reform Act of 1995.
All
statements, other than statements of historical fact, included in this
prospectus and information incorporated by reference which relate to
performance, development or activities that we expect or anticipate will or may
happen in the future, are forward-looking statements. Other forward-looking
statements may be identified by the use of forward-looking words such as
“believe,” “expect,” “may,” “might,” “will,” “should,” “seek,” “could,”
“approximately,” “intend,” “plan,” “estimate,” or “anticipate” or the negative
of those words or other similar expressions.
Forward-looking
statements involve inherent risks and uncertainties and are based on numerous
assumptions. They are not guarantees of future performance. A number of
important factors could cause actual results to differ materially from those in
the forward-looking statement. Some factors include:
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our
ability to obtain financing or sell assets and achieve levels of revenue
and cost reductions that are adequate to support our capital and operating
requirements;
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·
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our
ability to successfully consummate and implement our joint venture and
recapitalization transaction with Tangshan Caofeidian Investment
Corporation;
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·
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our
abilities to remain competitive and a leader in our industries and the
future growth of the Company, our industries, and the economy in
general;
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·
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our
ability to achieve structural and material cost reductions without
impacting product development or manufacturing
execution;
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·
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expected
improvements in our product and technology development
programs;
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·
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our
ability to successfully develop, introduce, market and qualify new
products, including our terrestrial solar
products;
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·
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other
risks and uncertainties described in our filings with the SEC such as:
cancellations, rescheduling, or delays in product shipments; manufacturing
capacity constraints; lengthy sales and qualification cycles; difficulties
in the production process; changes in semiconductor industry growth;
increased competition; delays in developing and commercializing new
products; and other factors.
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Forward-looking
statements contained herein are made only as of the date made, and we do not
undertake any obligation to update them to reflect events or circumstances after
the date of this prospectus to reflect the occurrence of unanticipated
events.
S-4
PROSPECTUS
SUPPLEMENT SUMMARY
The following summary does not contain
all the information that may be important to purchasers of our common
stock. Prospective purchasers of our common stock should carefully
review the entire prospectus, including the financial statements and other
information incorporated by reference in this prospectus and any prospectus
supplement, before making an investment decision.
EMCORE
CORPORATION
We are a
provider of compound semiconductor-based components and subsystems for the fiber
optics and solar power markets. We were established in 1984 as a New
Jersey corporation and have two reporting segments: Fiber Optics and
Photovoltaics. Our Fiber Optics segment offers optical components,
subsystems and systems that enable the transmission of video, voice and data
over high-capacity fiber optic cables for high-speed data and
telecommunications, cable television (“CATV”) and fiber-to-the-premises (“FTTP”)
networks. Our Photovoltaics segment provides solar products for
satellite and terrestrial applications. For satellite applications, we offer
high-efficiency compound semiconductor-based multi-junction solar cells, covered
interconnected cells (“CICs”) and fully integrated solar panels. For
terrestrial applications, we offer concentrating photovoltaic (“CPV”) power
systems for commercial and utility scale solar applications as well as
high-efficiency multi-junction solar cells and integrated CPV components for use
in other solar power concentrator systems.
Our headquarters and principal
executive offices are located at 10420 Research Road, SE, Albuquerque, New
Mexico, 87123, and our main telephone number is (505) 332-5000. For
specific information about our Company, our products, or the markets we serve,
please visit our website at http://www.emcore.com. The information
contained in or linked to our website is not part of this
prospectus.
RECENT
DEVELOPMENTS
Avago-related
Litigation
On March 12, 2010, the Company was
advised that an initial determination had been issued by the administrative law
judge of the International Trade Commission (the “ITC”) in “In the Matter of
Certain Optoelectronic Devices, Components Thereof and Products Containing the
Same”, Inv. No. 337-TA-669, that found that one of the two patents asserted
against certain of the Company’s products was both valid and
infringed. This initial determination is subject to review and
confirmation by the ITC itself and to further review by the President of the
United States. Any orders which might issue following such review are
subject to appeal to the U.S. Court of Appeals for the Federal
Circuit. The initial determination will also not be binding in the
patent case currently pending between the Company and Avago in the Northern
District of California, which will remain stayed until all appeals of the
initial determination have been exhausted.
The Company plans to follow all
available avenues of appeal with respect to the adverse aspects of this initial
determination and to petition the Patent and Trademark Office for a
re-examination of both of the patents in question based on evidence presented in
the ITC matter. The Company is also evaluating non-judicial
approaches, including product redesign and manufacturing relocation, to minimize
the impact of any exclusionary or cease and desist order which may be
issued.
S-5
Line of
Credit
As
previously disclosed in our Exchange Act filings, in September 2008, the Company
closed a $25 million asset-backed revolving credit facility with Bank of America
which can be used for working capital, letters of credit, and other general
corporate purposes. Subsequently, the credit facility was amended
resulting in a reduction in the total loan availability to $14
million. The credit facility matures in September 2011 and is secured
by virtually all of the Company’s assets. The credit facility is
subject to a borrowing base formula based on eligible accounts receivable and
provides for prime-based borrowings.
The
facility is also subject to certain financial covenants, including an EBITDA
financial covenant and a fixed charge ratio covenant. Based on
current estimates, the Company expects that it will not meet the requirements
under these two covenants for the quarter ended March 31, 2010. The
Company is currently in negotiations with Bank of America to obtain a waiver or
amendment to the credit facility in order to address any noncompliance that may
result under the financial covenants, but we cannot provide any assurance that
we will be successful in obtaining such financial covenant relief, or as to the
terms upon which such relief may be granted.
As of
December 31, 2009, the Company had a $10.7 million prime rate loan outstanding,
with an interest rate of 8.25%, and approximately $2.9 million in outstanding
standby letters of credit under this credit facility.
S-6
THE
OFFERING
Common
stock offered
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1,870,042
shares
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Common
stock to be outstanding after this offering
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83,763,127
shares
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Manner
of offering
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We
may offer and sell, from time to time, up to $25,000,000 in shares of our
common stock, not to exceed 15,971,169 shares. These sales will
be made pursuant to our Common Stock Purchase Agreement with Commerce
Court. The per share purchase price of these shares are calculated based
on a 5% discount to the prevailing market price for our common stock, as
reported on The NASDAQ Global Market. Commerce Court may also
use this prospectus and prospectus supplement to sell the shares that they
purchase from us in this offering. See "Plan of
Distribution."
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Use
of proceeds
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We
intend to use the net proceeds from this offering for general corporate
purposes, including working capital.
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Risk
factors
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You
should read the “Risk Factors” section of this prospectus supplement and
documents incorporated by reference in this prospectus and prospectus
supplement for a discussion of factors to consider before deciding to
purchase shares of our common stock.
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NASDAQ
Global Market symbol
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EMKR
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The number of shares of common stock to
be outstanding after this offering, as reflected in the table above, is based on
the actual number of shares outstanding as of March 17, 2010, which was
81,893,085 shares, and does not include, as of that date:
·
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1,400,003
shares of our common stock issuable upon the exercise of warrants,
exercisable at $15.06 per share until February 15,
2013;
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·
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666,667
shares of our common stock issuable upon the exercise of a warrant,
exercisable at $1.69 per share between April 1, 2010 and April 1,
2015;
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·
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666,667
shares of our common stock issuable upon the exercise of a warrant,
exercisable at $2.02 per share between April 1, 2010 and April 1,
2015;
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·
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266,666
shares of our common stock issuable upon the exercise of a warrant,
exercisable at $2.36 per share between April 1, 2010 and April 1,
2015;
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·
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9,890,367
shares of our common stock issuable upon exercise of outstanding stock
options at a weighted average exercise price of
$4.77;
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·
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1,710,149
shares of our common stock available for purchase under our employee stock
purchase plan; and
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·
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2,317,913
shares of our common stock available for future issuance under our equity
compensation plans.
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S-7
RISK
FACTORS
Investing in our securities involves a
high degree of risk. You should carefully read and consider the risks
described below and the risk factors and other disclosures relating to any
investment in securities issued by EMCORE Corporation described in our most
recent Annual Report on Form 10-K and our most recent Quarterly Report on Form
10-Q, both of which have been filed with the SEC and are incorporated herein by
reference in their entirety, as well as other information in this prospectus and
prospectus supplement and in any other documents incorporated by reference
before purchasing any of our securities. The risks and uncertainties
we have described are not the only ones facing our
Company. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also affect our business
operations.
Risks
Relating to our Business
We
have a history of incurring significant net losses and our future profitability
is not assured.
We commenced operations in 1984 and as
of December 31, 2009, we had an accumulated deficit of $574.5 million. We
incurred a net loss of $13.6 million for the three months ended December 31,
2009, $136.1 million in fiscal 2009, net loss of $80.9 million in fiscal 2008,
and a net loss of $58.7 million in fiscal 2007. Our operating
results for future periods are subject to numerous uncertainties and we cannot
assure you that we will not continue to experience net losses for the
foreseeable future. If we are not able to increase revenue and
reduce our costs, we may not be able to achieve profitability.
Negative
worldwide economic conditions could continue to result in a decrease in our
sales and revenue and an increase in our operating costs, which could continue
to adversely affect our business and operating results.
If the recent worldwide economic
downturn continues, many of our direct and indirect customers may delay or
reduce their purchases of our products and systems containing our products. In
addition, several of our customers rely on credit financing in order to purchase
our products. If the negative conditions in the global credit markets prevent
our customers’ access to credit, orders for our products may decrease, which
would result in lower revenue. Likewise, if our suppliers face challenges in
obtaining credit, in selling their products or otherwise in operating their
businesses, they may become unable to offer the materials we use to manufacture
our products. These actions could result in reductions in our revenue, increased
price competition and increased operating costs, which could adversely affect
our business, results of operations and financial condition.
Our
agreement for the sale of a majority of our fiber optics business and
the creation of a joint venture in China is subject to the satisfaction of
material conditions. A failure of the transaction to close would
likely have a material adverse effect on the Company.
Our agreement with Tangshan Caofeidian
Investment Corporation, or TCIC, for the sale of a majority interest in our
telecom, enterprise, CATV, FTTP, and video transport product lines is subject to
the approval of our and TCIC’s boards of directors, which means that, until
these approvals are obtained, the agreement would not be enforceable by either
party against the other. In addition, the closing of the transaction
is subject to the satisfaction of material conditions, including regulatory and
government approvals in the U.S. and China. In the event these
conditions are not satisfied, we may be unable to consummate the transaction,
and, if U.S. regulatory approvals are not obtained, the Company may be liable
for the payment of a $2,775,000 termination fee to TCIC.
The Company has also agreed to relocate
its China CPV manufacturing facility to the Caofeidian Industry
Zone. It is uncertain whether this manufacturing facility can be
successfully relocated, and failure to successfully do so may have an adverse
impact on these operations as well as other aspects of the Company’s CPV
business, which may be dependent on these operations.
S-8
A failure to close the joint venture
transaction for any reason may have a material adverse effect on the
Company. Our relationships or credibility with customers could suffer
if transition arrangements for the joint venture transactions are planned but
not implemented due to a failure to close. In addition, we would not
realize the expected benefits under the terms of the joint venture arrangement,
and, because we are restricted by the stock purchase agreement from conducting
the business of the joint venture assets in ways other than the ordinary course
during the pendency of the closing, we would not have had the opportunity to
pursue other strategic transactions involving those assets.
If
the joint venture transaction is consummated, the successful implementation of
the joint venture will be subject to additional risks and uncertainties that may
have an adverse material effect on the joint venture’s
performance. If the joint venture is not successful, the Company may
suffer losses under its obligation to provide debt financing to the joint
venture.
If the transaction is closed, the
implementation of the joint venture transaction will also be subject to
additional risks and uncertainties. The assets included in the
transaction will need to be transitioned to the joint venture, and in some cases
will be relocated geographically to the Caofeidian Industry Zone in China, which
may lead to unexpected cost and could result in business interruptions or other
adverse consequences to the business. A failure by the joint venture
to retain key employees may also have an adverse material effect on the business
and performance of the joint venture. Because we will share ownership
and management of the joint venture, the management of these risks will not be
entirely within our control.
In addition, the Company has agreed to
make $3.0 million in additional debt financing available to the joint venture
following the closing, and to pledge 50% of its interest in the joint venture as
collateral for the $27.0 million in working capital loans to the joint venture
to be arranged by TCIC The Company will likely suffer losses of
these amounts if the joint venture is unable to repay its debts.
Our
future revenue is inherently unpredictable. As a result, our
operating results are likely to fluctuate from period to period, and we may fail
to meet the expectations of our analysts and/or investors, which may cause
volatility in our stock price and may cause our stock price to
decline.
Our quarterly and annual operating
results have fluctuated substantially in the past and are likely to fluctuate
significantly in the future due to a variety of factors, some of which are
outside of our control. Factors that could cause our quarterly or
annual operating results to fluctuate include:
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market
acceptance of our products;
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market
demand for the products and services provided by our
customers;
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disruptions
or delays in our manufacturing processes or in our supply of raw materials
or product components;
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changes
in the timing and size of orders by our
customers;
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cancellations
and postponements of previously placed orders;
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reductions
in prices for our products or increases in the costs of our raw
materials;
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the
introduction of new products and manufacturing
processes;
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fluctuations
in manufacturing yields;
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the
emergence of new industry
standards;
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failure
to anticipate changing customer product requirements;
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the
loss or gain of important
customers;
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product
obsolescence;
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S-9
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the
amount of research and development expenses associated with new product
introductions;
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the
continuation or worsening of the current global economic
slowdown;
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economic
conditions in various geographic areas where we or our customers do
business;
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acts
of terrorism and international conflicts or crises;
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other
conditions affecting the timing of customer
orders;
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a
downturn in the markets for our customers’ products, particularly the
telecommunications components markets;
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significant
warranty claims, including those not covered by our
suppliers;
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intellectual
property disputes;
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loss
of key personnel or the shortage of available skilled workers;
and
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the
effects of competitive pricing pressures, including decreases in average
selling prices of our products.
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In addition, the limited lead times
with which several of our customers order our products restrict our ability to
forecast revenue. We may also experience a delay in generating or
recognizing revenue for a number of reasons. For example, orders at
the beginning of each quarter typically represent a small percentage of expected
revenue for that quarter and are generally cancelable at any time. We depend on
obtaining orders during each quarter for shipment in that quarter to achieve our
revenue objectives. Failure to ship these products by the end of a quarter may
adversely affect our results of operations.
Our credit facility agreement with Bank
of America, N.A., contains customary covenants and defaults, including among
others, limitations on dividends, incurrence of indebtedness and liens and
mergers and acquisitions and may restrict our operating
flexibility. The
facility is also subject to certain financial covenants, including an EBITDA
financial covenant and a fixed charge ratio covenant. Based on
current estimates, the Company expects that it will not meet the requirements
under these two covenants for the quarter ended March 31, 2010. The
Company is currently in negotiations with Bank of America to obtain a waiver or
amendment to the credit facility in order to address any noncompliance that may
result under the financial covenants, but we cannot provide any assurance that
we will be successful in obtaining such financial covenant relief, or as to the
terms upon which such relief may be granted.
As a result of the foregoing, we
believe that period-to-period comparisons of our results of operations should
not be relied upon as indications of future performance. In addition,
our results of operations in one or more future quarters may fail to meet the
expectations of analysts or investors, which would likely result in a decline in
the trading price of our common stock.
Our
ability to achieve operational and material cost reductions and to realize
production efficiencies for our operations is critical to our ability to achieve
long-term profitability.
We have implemented a number of
operational and material cost reductions and productivity improvement
initiatives, which are intended to reduce our expense structure at both the cost
of goods sold and the operating expense levels. Cost reduction initiatives often
involve facility consolidation and re-design of our products, which requires our
customers to accept and qualify the new designs, potentially creating a
competitive disadvantage for our products. These initiatives can be
time-consuming and disruptive to our operations and costly in the
short-term. Successfully implementing these and other cost-reduction
initiatives throughout our operations is critical to our future competitiveness
and ability to achieve long-term profitability. However, there can be no
assurance that these initiatives will be successful in creating profit margins
sufficient to sustain our current operating structure and business.
S-10
Financial
markets worldwide have recently experienced an unprecedented crisis which may
have a continuing materially adverse impact on the Company, our customers and
our suppliers.
Financial markets have recently
experienced an unprecedented financial crisis worldwide, affecting both debt and
equity markets, which has substantially limited the amount of financing
available to all companies, including companies with substantially greater
resources, better credit ratings and more successful operating histories than
us. It is impossible to predict how long the impact of this crisis
will last or how it will be resolved. It may, however, have a
materially adverse affect on the Company for a number of reasons, such
as:
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The
Company’s historic lack of profitability has caused it to consume cash,
through acquisitions, operations and as a result of the research and
development and capital expenditures necessary to expand the market which
the Company serves (particularly the terrestrial solar market), as
discussed in more detail below. The Company may be unable to
acquire the cash necessary to finance these activities from either the
debt or the equity markets and as a result the Company may be unable to
continue operations.
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The
Company’s fiber optics products are sold principally to large publicly
held companies which are also dependent on public debt and equity
markets. Our customers may be unable to obtain the financing
necessary to continue their own
operations.
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The
market for the products of the Company’s fiber optics customers, into
which the Company’s fiber optics products are incorporated, is dependent
on capital spending from telecommunications and data communications
companies, which may also be adversely affected by the lack of
financing.
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The
market for the Company’s satellite solar cells may also be adversely
affected by the worldwide financial crisis, because the market for
commercial satellites depends on capital spending by telecommunications
companies and the market for military satellites depends on resources
allocated for military intelligence spending, which may be
restricted. The market for the Company’s terrestrial solar
products is dependent on the availability of project financing for
photovoltaic projects, which may no longer be available, and is also
largely dependent on government support of various types, such as
investment tax credits, which may no longer be available as governments
allocate scarce resources to deal with the financial
crisis.
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A
reduction in the Company’s sales will adversely affect the Company’s
ability to draw on its existing line of credit with Bank of America
because that line of credit is largely dependent on the level of the
Company’s accounts receivable.
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Negative
worldwide economic conditions and market instability make it difficult for
us, our customers and our suppliers to accurately forecast future product
demand trends, which could cause us to produce excess products that can
depress product prices, increase our inventory carrying costs and result
in obsolete inventory. Alternatively, this forecasting difficulty could
cause a shortage of products, or materials used in our products, that
could result in an inability to satisfy demand for our products and a loss
of market share.
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Negative
global economic conditions increase the risk that we could suffer
unrecoverable losses on our customers’ accounts receivable, which would
adversely affect our financial results. We extend credit and
payment terms to some of our customers. We could suffer significant losses
if customers fail to pay us, which would have a negative impact on
our financial results.
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In addition, the worldwide financial
crisis may adversely affect certain assets held by the Company.
S-11
The
market price for our common stock has experienced significant price and volume
volatility and is likely to continue to experience significant volatility in the
future. This volatility may impair our ability to finance strategic
transactions with our stock and otherwise harm our business
The closing price of our common stock
fluctuated from a high of $5.50 per share to a low of $0.50 per share during the
fiscal year ended September 30, 2009. As of March 17, 2010 the
closing price of our common stock was $1.09. Our stock price is
likely to experience significant volatility in the future as a result of
numerous factors outside our control. Significant declines in our
stock price may interfere with our ability to raise additional funds through
equity financing or to finance strategic transactions with our
stock. We have historically used equity incentive compensation as
part of our overall compensation arrangements. The effectiveness of
equity incentive compensation in retaining key employees may be adversely
impacted by volatility in our stock price. In addition, there may
be increased risk of securities litigation following periods of fluctuations in
our stock price. Securities class action lawsuits are often brought
against companies after periods of volatility in the market price of their
securities. These and other consequences of volatility in our stock price could
have the effect of diverting management’s attention and could materially harm
our business, and could be exacerbated by the recent worldwide financial
crisis.
We
have significant liquidity and capital requirements and may require additional
capital in the future. If we are unable to obtain the additional
capital necessary to meet our requirements, our business may be adversely
affected.
Historically, the Company has consumed
cash from operations. We have managed our liquidity situation
through a series of cost reduction initiatives, capital markets transactions and
the sale of assets. We had approximately $32.0 million in working
capital as of December 31, 2009. The global credit market crisis has
had a dramatic effect on the markets we serve and has created a substantially
more difficult business environment for us. We do not believe it is likely that
these adverse economic conditions, and their effect on the technology industry,
will improve significantly in the near term, notwithstanding the unprecedented
intervention by the U.S. and other governments in the global banking and
financial systems.
If our cash on hand is not sufficient
to fund the cash used by our operating activities and meet our other liquidity
requirements, we will seek to obtain additional equity or debt financing or
dispose of assets to provide additional working capital in the
future.
Due to the unpredictable nature of the
capital markets, particularly in the technology sector, we cannot assure you
that we will be able to raise additional capital if and when it is required,
especially if we experience disappointing operating results. If
adequate funds are not available or not available on acceptable terms, our
ability to continue to fund expansion, develop and enhance products and
services, or otherwise respond to competitive pressures may be severely
limited. Such a limitation could have a material adverse effect on
our business, financial condition, results of operations and cash
flow.
The
market for our terrestrial solar power products for utility-scale applications
may take time to develop, is rapidly changing and extremely price-sensitive,
involves issues with which the Company has little experience, and is currently
dependent on the policy decisions of governments both inside and outside the
United States.
We have invested and intend to continue
to invest significant resources in the adaptation of our high-efficiency
compound semiconductor-based multi-junction solar cell products for terrestrial
applications, including the sale of both concentrator photovoltaics (“CPV”)
components and systems. We generated our first revenue from the sale
of CPV systems in 2008, which involved the design, manufacture and installation
of large and complex structures intended for outdoor operation, with which the
Company has had no previous experience.
S-12
Factors such as changes in energy
prices or the development of new and efficient alternative energy technologies
could also limit growth in, or reduce the market for, our terrestrial solar
power products. In addition, we experienced difficulties in applying
our satellite-based solar products to terrestrial applications. We
may experience further difficulties in the future in competing with new and
emerging terrestrial solar power products, which we have determined to be
extremely price sensitive and rapidly changing as well as obtaining financing
for utility-scale projects utilizing our technology, particularly in view of the
recent worldwide financial crisis.
We have determined that the terrestrial
solar power business will require substantial additional funding for the hiring
of employees, research and development and investment in capital equipment in
order to successfully compete. In addition, historically much
of the market for CPV systems has been outside the U.S. This has
involved partnering with non-U.S. entities, which (because terrestrial solar
power generation is a relatively new industry) may have little experience in the
field and which may be new companies. Participation in non-U.S.
markets will involve evaluation and compliance with non-U.S. laws, regulations,
and government electric supply contracts which the Company has limited
experience in. The rates available under non-U.S. government electric supply
contracts are subject
to policy decisions of these governments, which can change in unpredictable
ways. Because of a reduction in rates offered under non-U.S. electric
supply contracts, we believe that most of our future business in the near term
will involve projects located within the United States, which has a
substantially less developed program for encouraging the use of solar power and
where the economic competitiveness of our products will be even more
significant. There can be no assurance that our bids on solar power
installations will be accepted, that we will win any of these bids, that our CPV
systems will be qualified for these projects, or that governments will continue
to offer electric supply contracts and other incentives that will make our
products economically viable. If our terrestrial solar power cell
products are not cost competitive or accepted by the market, our business,
financial condition and results of operations may be materially and adversely
affected.
Successful deployment of our solar
power systems may require us to assume roles with respect to solar power
projects with which we have limited or no experience (such as acting as general
contractor) and which may expose us to certain financial risks (such as cost
overruns and performance guaranties) which we may not have the expertise to
properly evaluate or manage. In addition, we may be subject to
unexpected warranty expense; if we are subject to warranty and product liability
claims, such claims could adversely affect our business, financial condition,
results of operations, and cash flow.
Our
Photovoltaics segment recognizes certain contract revenue on a
“percentage-of-completion” basis and upon the achievement of contractual
milestones and any delay or cancellation of a project could adversely affect our
business.
Our Photovoltaics segment recognizes
certain revenue on a “percentage-of-completion” basis and, as a result, revenue
from this segment is driven by the performance of our contractual obligations.
The percentage-of-completion method of accounting for revenue recognition is
inherently subjective because it relies on management estimates of total project
cost as a basis for recognizing revenue and profit. Accordingly, revenue and
profit we have recognized under the percentage-of-completion method are
potentially subject to adjustments in subsequent periods based on refinements in
estimated costs of project completion that could materially impact our future
revenue and profit.
As with any project-related business,
there is the potential for delays within or cancellation of any particular
customer project. Variation of project timelines and estimates may impact our
ability to recognize revenue in a particular period. Moreover, incurring
penalties involving the return of the contract price to the customer for failure
to timely install one project could negatively impact our ability to continue to
recognize revenue on a “percentage-of-completion” basis generally for other
projects. In addition, certain customer contracts may include payment milestones
due at specified points during a project. Because our Photovoltaics segment
usually must invest substantial time and incur significant expense in advance of
achieving milestones and the receipt of payment, failure to achieve such
milestones could adversely affect our business, financial condition, results of
operations, and cash flows.
S-13
As
supply of polysilicon increases, the corresponding increase in the global supply
of silicon-based solar cells and panels may cause substantial downward pressure
on the prices of our terrestrial solar power products, resulting in lower
revenues.
As additional polysilicon becomes
available, we expect solar panel production globally to increase. Decreases in
polysilicon pricing and increases in silicon-based solar panel production could
each result in substantial downward pressure on the price of solar cells and
panels, including our terrestrial solar power products. Such price reductions
could have a negative impact on our revenue, and our business, financial
condition results of operations and cash flows may be materially and adversely
affected.
We
are substantially dependent on a small number of customers and the loss of any
one of these customers could adversely affect our business, financial condition
and results of operations.
In fiscal 2009, 2008, and 2007, our top
five customers accounted for 43%, 46%, and 48%, respectively of our total annual
consolidated revenue. There can be no assurance that we will continue
to achieve historical levels of sales of our products to our largest
customers. Even though our customer base is expected to increase and
our revenue streams to diversify, a substantial portion of our net revenues
could continue to depend on sales to a limited number of
customers. Our agreements with these customers may be cancelled if we
fail to meet certain product specifications or materially breach the agreement,
and our customers may seek to renegotiate the terms of current agreements or
renewals. The loss of or a reduction in sales to one or more of our larger
customers could have a material adverse affect on our business, financial
condition and results of operations.
Long-term,
firm commitment supply agreements could result in insufficient or excess
inventory or place us at a competitive disadvantage.
We manufacture our products utilizing
materials, components, and services provided by third parties. We seek to obtain
a lower cost of inventory by negotiating multi-year, binding contractual
commitments directly with our suppliers. Under such agreements, we may be
required to purchase a specified quantity of products or use a certain amount of
services, which is often over a period of twelve months or more. We also may be
required to make substantial prepayments or issue secured letters of credit to
these suppliers against future deliveries. These contractual commitments, or any
other “take or pay” agreement we enter into, allows the supplier to invoice us
for the full purchase price of product or services that we are under contract
for, whether or not we actually order the required volume or services. If for
any reason we fail to order the required volume or services, the resulting
monetary damages could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
We do not obtain contracts or
commitments from customers for all of our products manufactured with materials
purchased under such firm commitment contracts. Instead, we rely on our
long-term internal forecasts to determine the timing of our production schedules
and the volume and mix of products to be manufactured. The level and timing of
orders placed by customers may vary for many reasons. As a result, at any
particular time, we may have insufficient or excess inventory, which could
render us unable to fulfill customer orders or increase our cost of
production. This would place us at a competitive disadvantage to our
competitors, and could have a material adverse effect on our business, financial
condition, results of operations, and cash flows.
Long-term contractual commitments also
expose us to specific counter-party risk, which can be magnified when dealing
with suppliers without a long, stable production and financial history. For
example, if one or more of our contractual counterparties is unable or unwilling
to provide us with the contracted amount of product, we could be required to
attempt to obtain product in the open market, which could be unavailable at that
time, or only available at prices in excess of our contracted prices. In
addition, in the event any such supplier experiences financial difficulties, it
may be difficult or impossible, or may require substantial time and expense, for
us to recover any or all of our prepayments. Any of the foregoing could have a
material adverse effect on our business, financial condition, results of
operations, and cash flows.
S-14
Our
operating results could be harmed if we lose access to sole or limited sources
of materials, components or services.
We currently obtain some materials,
components and services used in our products from limited or single
sources. We generally do not carry significant inventories of any raw
materials. Because we often do not account for a significant part of our
suppliers’ businesses, we may not have access to sufficient capacity from these
suppliers in periods of high demand. In addition, since we generally do not have
guaranteed supply arrangements with our suppliers, we risk serious disruption to
our operations if an important supplier terminates product lines, changes
business focus, or goes out of business. Because some of these suppliers are
located overseas, we may be faced with higher costs of purchasing these
materials if the U.S. dollar weakens against other currencies. If we were to
change any of
our limited or sole source suppliers, we would be required to re-qualify each
new supplier. Re-qualification could prevent or delay product shipments that
could materially adversely affect our results of operations. In addition, our
reliance on these suppliers may materially adversely affect our production if
the components vary in quality or quantity. If we are unable to obtain timely
deliveries of sufficient components of acceptable quality or if the prices of
components for which we do not have alternative sources increase, our business,
financial condition and results of operations could be materially adversely
affected.
If
our contract manufacturers fail to deliver quality products at reasonable prices
and on a timely basis, our business, financial condition and results of
operations could be materially adversely affected.
We are increasing our use of contract
manufacturers located outside of the U.S. as a less-expensive alternative to
performing our own manufacturing of certain products. Contract
manufacturers in Asia currently manufacture a significant portion of our
high-volume fiber optics products. We supply inventory to our
contract manufacturers and we bear the risk of loss, theft or damage to our
inventory while it is held in their facilities.
If these contract manufacturers do not
fulfill their obligations to us, or if we do not properly manage these
relationships and the transition of production to these contract manufacturers,
our existing customer relationships may suffer. In addition, by
undertaking these activities, we run the risk that the reputation and
competitiveness of our products and services may deteriorate as a result of the
reduction of our ability to oversee and control quality and delivery
schedules.
The use of contract manufacturers
located outside of the U.S. also subjects us to the following additional risks
that could significantly impair our ability to source our contract manufacturing
requirements internationally, including:
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unexpected
changes in regulatory requirements;
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legal
uncertainties regarding liability, tariffs and other trade
barriers;
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inadequate
protection of intellectual property in some countries;
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greater
incidence of shipping delays;
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greater
difficulty in overseeing manufacturing operations;
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greater
difficulty in hiring talent needed to oversee manufacturing
operations;
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potential
political and economic instability;
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potential
adverse actions by the U.S. government pursuant to its stated intention to
reduce the loss of U.S. jobs; and
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the
outbreak of infectious diseases such as the H1N1 influenza virus, severe
acute respiratory syndrome (“SARS”), or the avian flu, which could result
in travel restrictions or the closure of our facilities or the facilities
of our customers and suppliers.
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Any of these factors could
significantly impair our ability to source our contract manufacturing
requirements internationally.
S-15
Prior to our customers accepting
products manufactured at our contract manufacturers, they must requalify the
product and manufacturing processes. The qualification process can be lengthy
and expensive, with no guarantee that any particular product qualification
process will lead to profitable product sales. The qualification process
determines whether the product manufactured at our contract manufacturer
achieves our customers’ quality, performance and reliability standards. Our
expectations as to the time periods required to qualify a product line and ship
products in volumes to customers may be erroneous. Delays in qualification can
impair the expected timing of the transfer of a product line to our contract
manufacturer and may impair the expected amount of sales of the affected
products. We may, in fact, experience delays in obtaining qualification of
products produced by our contract manufacturers and, therefore, our operating
results and customer relationships could be materially adversely
affected.
If
we do not keep pace with rapid technological change, our products may not be
competitive.
We compete in markets that are
characterized by rapid technological change, frequent new product introductions,
changes in customer requirements, evolving industry standards, continuous
improvement in products and the use of our existing products in new
applications. We may not be able to develop the underlying core
technologies necessary to create new products and enhancements at the same rate
as or faster than our competitors, or to license the technology from third
parties that is necessary for our products.
Product development delays may result
from numerous factors, including:
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changing
product specifications and customer requirements;
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unanticipated
engineering complexities;
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expense
reduction measures we have implemented and others we may
implement;
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difficulties
in hiring and retaining necessary technical personnel;
and
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difficulties
in allocating engineering resources and overcoming resource
limitations.
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We cannot assure you that we will be
able to identify, develop, manufacture, market or support new or enhanced
products successfully, if at all, or on a timely, cost effective or repeatable
basis. Our future performance will depend on our successful development and
introduction of, as well as market acceptance of, new and enhanced products that
address market changes as well as current and potential customer requirements
and our ability to respond effectively to product announcements by competitors,
technological changes or emerging industry standards. Because it is generally
not possible to predict the amount of time required and the costs involved in
achieving certain research, development and engineering objectives, actual
development costs may exceed budgeted amounts and estimated product development
schedules may be extended. If we incur budget overruns or delays in our research
and development efforts, our business, financial condition and results of
operations may be materially adversely affected.
Spending
to develop and improve our technology may negatively impact our financial
results.
We may need to increase our capital
expenditures and expenses above our historical run-rate model in order to
attempt to improve our existing technology and develop new technology.
Increasing our investments in research and development of technology could cause
our cost structure to fall out of alignment with demand for our products, which
would have a negative impact on our financial results.
S-16
The
competitive and rapidly evolving nature of our industries has in the past
resulted and is likely in the future to result in reductions in our product
prices and periods of reduced demand for our products.
We face substantial competition in each
of our reporting segments from a number of companies, many of which have greater
financial, marketing, manufacturing and technical resources than us.
Larger-sized competitors often spend more on research and development, which
could give those competitors an advantage in meeting customer demands and
introducing technologically innovative products before we do. We expect that
existing and new competitors will improve the design of their existing products
and will introduce new products with enhanced performance
characteristics.
The introduction of new products and
more efficient production of existing products by our competitors has resulted
and is likely in the future to result in price reductions and increases in
expenses and reduced demand for our products. In addition, some of
our competitors may be willing to provide their products at lower prices, accept
a lower profit margin or spend more capital in order to obtain or retain
business. Competitive pressures have required us to reduce the prices
of some of our products. These competitive forces could diminish our market
share and gross margins, resulting in a material adverse affect on our business,
financial condition and results of operations.
New competitors may also enter our
markets, including some of our current and potential customers who may attempt
to integrate their operations by producing their own components and subsystems
or acquiring one of our competitors, thereby reducing demand for our
products. In addition, rapid product development cycles, increasing
price competition due to maturation of technologies, the emergence of new
competitors in Asia with lower cost structures and industry consolidation
resulting in competitors with greater financial, marketing and technical
resources could result in lower prices or reduced demand for our
products.
Expected and actual introductions of
new and enhanced products may cause our customers to defer or cancel orders for
existing products and may cause our products to become obsolete. A slowdown in
demand for existing products ahead of a new product introduction could result in
a write-down in the value of inventory on hand related to existing products. We
have in the past experienced a slowdown in demand for existing products and
delays in new product development and such delays may occur in the future. To
the extent customers defer or cancel orders for existing products due to a
slowdown in demand or in anticipation of a new product release or if there is
any delay in development or introduction of our new products or enhancements of
our products, our business, financial condition and results of operations could
be materially adversely affected.
Our
products are difficult to manufacture. Our production could be
disrupted and our results will suffer if our production yields are low as a
result of manufacturing difficulties.
We manufacture many of our wafers and
devices in our own production facilities. Difficulties in the production
process, such as contamination, raw material quality issues, human error or
equipment failure, can cause a substantial percentage of wafers and devices to
be nonfunctional. Lower-than-expected production yields may delay shipments or
result in unexpected levels of warranty claims, either of which can materially
adversely affect our results of operations. We have experienced difficulties in
achieving planned yields in the past, particularly in pre-production and upon
initial commencement of full production volumes, which have adversely affected
our gross margins. Because the majority of our manufacturing costs are fixed,
achieving planned production yields is critical to our results of operations.
Because we manufacture many of our products in a single facility, we have
greater risk of interruption in manufacturing resulting from fire, natural
disaster, equipment failures, or similar events than we would if we had back-up
facilities available for manufacturing these products. We could also
incur significant costs to repair and/or replace products that are defective and
in some cases costly product redesigns and/or rework may be required to correct
a defect. Additionally, any defect could adversely affect our
reputation and result in the loss of future orders.
S-17
Some of the capital equipment used in
the manufacture of our products have been developed and made specifically for
us, is not readily available from multiple vendors and would be difficult to
repair or replace if it were to become damaged or stop working. If any of these
suppliers were to experience financial difficulties or go out of business, or if
there were any damage to or a breakdown of our manufacturing equipment at a time
when we are manufacturing commercial quantities of our products, our business,
financial condition and results of operations could be materially adversely
affected.
We
are subject to warranty claims, product recalls and product
liability.
We may be subject to warranty or
product liability claims that may lead to increased expenses in order to defend
or settle such claims. Such warranty claims may arise in areas such as
terrestrial solar components or systems where our operating experience is
limited. We maintain product liability insurance, but such insurance is subject
to significant deductibles and there is no guarantee that such insurance will be
available or adequate to protect against all such claims. We may incur costs and
expenses relating to a recall of one of our customers’ products containing one
of our products. The process of identifying a recalled product in devices that
have been widely distributed may be lengthy and require significant resources,
and we may incur significant replacement costs, contract damage claims from our
customers and reputational harm. Payments and expenses in connection with
warranty and product liability claims could materially affect our financial
condition and results of operations.
We
face lengthy sales and qualifications cycles for our new products and, in many
cases, must invest a substantial amount of time and funds before we receive
orders.
Most of our products are tested by
current and potential customers to determine whether they meet customer or
industry specifications. The length of the qualification process, which can span
a year or more, varies substantially by product and customer, and thus can cause
our results of operations to be unpredictable. During a given qualification
period, we invest significant resources and allocate substantial production
capacity to manufacture these new products prior to any commitment to purchase
by customers. In addition, it is difficult to obtain new customers during the
qualification period as customers are reluctant to expend the resources
necessary to qualify a new supplier if they have one or more existing qualified
sources. If we are unable to meet applicable specifications or do not
receive sufficient orders to profitably use the allocated production capacity,
our business, financial condition and results of operations could be materially
adversely affected.
Our historical and future budgets for
operating expenses, capital expenditures, operating leases and service contracts
are based upon our assumptions as to the future market acceptance of our
products. Because of the lengthy lead times required for product development and
the changes in technology that typically occur while a product is being
developed, it is difficult to accurately estimate customer demand for any given
product. If our products do not achieve an adequate level of customer demand,
our business, financial condition and results of operations could be materially
adversely affected.
Shifts
in industry-wide demands and inventories could result in significant inventory
write-downs.
The life cycles of some of our products
depend heavily upon the life cycles of the end products into which our products
are designed. Products with short life cycles require us to manage production
and inventory levels closely. We evaluate our ending inventories on a quarterly
basis for excess quantities, impairment of value and obsolescence. This
evaluation includes analysis of sales levels by product and projections of
future demand based upon input received from our customers, sales team and
management estimates. If inventories on hand are in excess of demand, or if they
are greater than 12-months old, appropriate reserves may be recorded. In
addition, we write off inventories that are considered obsolete based upon
changes in customer demand, manufacturing process changes that result in
existing inventory obsolescence or new product introductions, which eliminate
demand for existing products. Remaining inventory balances are adjusted to
approximate the lower of our manufacturing cost or market value.
S-18
If future demand or market conditions
are less favorable than our estimates, inventory write-downs may be required. We
cannot assure investors that obsolete or excess inventories, which may result
from unanticipated changes in the estimated total demand for our products and/or
the estimated life cycles of the end products into which our products are
designed, will not affect us beyond the inventory charges that we have already
taken.
The
types of sales contracts which we use in the markets which we serve subject us
to unique risks in each of those markets.
In our Fiber Optics reporting segment,
we generally do not have long-term supply contracts with our customers and we
typically sell our products pursuant to purchase orders with short lead times,
and even where we do have supply contracts, our customers are not obligated to
purchase any minimum amount of our products. As a result, our
customers could stop purchasing our products at any time and we must fulfill
orders in a timely manner to keep our customers. Risks associated
with the absence of long-term purchase commitments with our customers include
the following:
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our
customers can stop purchasing our products at any time without
penalty;
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our
customers may purchase products from our competitors;
and
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our
customers are not required to make minimum
purchases.
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These risks are increased by the fact
that our customers in this market are large, sophisticated companies which have
considerable purchasing power and control over their suppliers. In the Fiber
Optics market, we generally sell our products pursuant to individual purchase
orders, which often have extremely short lead times. If we are unable
to fulfill these orders in a timely manner, it is likely that we will lose sales
and customers. In addition, we sell some of our products to the U.S.
government and related entities. These contracts are generally
subject to termination for convenience provisions and may be cancelled at any
time. Cancellations or rescheduling of customer orders could result
in the delay or loss of anticipated sales without allowing us sufficient time to
reduce, or delay the incurrence of, our corresponding inventory and operating
expenses. In addition, changes in forecasts or the timing of orders from these
or other customers expose us to the risks of inventory shortages or excess
inventory.
In contrast, in our Photovoltaics
reporting segment, we generally enter into long-term firm fixed-price contracts,
which could subject us to losses if we have cost overruns. While firm
fixed-price contracts allow us to benefit from cost savings, they also expose us
to the risk of cost overruns. If the initial estimates we used to determine the
contract price and the cost to perform the work prove to be incorrect, we could
incur losses. In addition, some of our contracts have specific provisions
relating to cost, schedule, and performance. If we fail to meet the terms
specified in those contracts, then our cost to perform the work could increase
or our price could be reduced, which would adversely affect our financial
condition. These programs have risk for reach-forward losses if our estimated
costs exceed our estimated price.
Fixed-price development work inherently
has more uncertainty than production contracts and, therefore, more variability
in estimates of the cost to complete the work. Many of these development
programs have very complex designs. As technical or quality issues arise, we may
experience schedule delays and cost impacts, which could increase our estimated
cost to perform the work or reduce our estimated price, either of which could
adversely affect our financial condition. Some fixed-price development contracts
include initial production units in their scope of work. Successful performance
of these contracts depends on our ability to meet production specifications and
delivery rates. If we are unable to perform and deliver to contract
requirements, our contract price could be reduced through the incorporation of
liquidated damages, termination of the contract for default, or other
financially significant exposure. Management uses its best judgment to estimate
the cost to perform the work and the price we will eventually be paid on
fixed-price development programs. While we believe the cost and price estimates
incorporated in the financial statements are appropriate, future events could
result in either favorable or unfavorable adjustments to those
estimates.
The risk of fixed price contracts in
the photovoltaics market is increased by the new and rapidly changing nature of
the terrestrial photovoltaics market and the Company’s limited experience in
that market.
S-19
We
are a party to several U.S. government contracts, which are subject to unique
risks.
We intend to continue our policy of
selectively pursuing contract research, product development and market
development programs funded by various agencies of the U.S. federal and state
governments to complement and enhance our own resources. Depending on the type
of contract, funding from government grants is either recorded as revenue or as
an offset to our research and development expense.
In addition to normal business risks,
our contracts with the U.S. government are subject to unique risks, some of
which are beyond our control. We have had government contracts
modified, curtailed or terminated in the past and we expect this will continue
to happen from time to time.
The funding of U.S. government programs
is subject to Congressional appropriations. Many of the U.S. government programs
in which we participate may extend for several years; however, these programs
are normally funded annually. Long-term government contracts and related orders
are subject to cancellation if appropriations for subsequent performance periods
are not made. The termination of funding for a U.S. government program would
result in a loss of anticipated future revenue attributable to that program,
which could have a material adverse effect on our operations.
The U.S. government may modify,
curtail, or terminate our contracts. The U.S. government may modify, curtail, or
terminate its contracts and subcontracts without prior notice at its convenience
upon payment for work done and commitments made at the time of
termination. A reduction or discontinuance of these programs or of
our participation in these programs would materially increase our research and
development expenses, which would adversely affect our profitability and could
impair our ability to develop our solar power products and services.
Modification, curtailment or termination of our major programs or contracts
could have a material adverse effect on our results of operations and financial
condition.
Our contract costs are subject to
audits by U.S. government agencies. U.S. government representatives may audit
the costs we incur on our U.S. government contracts, including allocated
indirect costs. Such audits could result in adjustments to our contract costs.
Any costs found to be improperly allocated to a specific contract will not be
reimbursed, and such costs already reimbursed must be refunded. We have recorded
contract revenue based upon costs we expect to realize upon final audit.
However, we do not know the outcome of any future audits and adjustments and we
may be required to reduce our revenue or profits upon completion and final
negotiation of audits. If any audit uncovers improper or illegal activities, we
may be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeiture of profits, suspension of
payments, fines and suspension or prohibition from doing business with the U.S.
government. We have been audited in the past by the U.S. government
and expect that we will be in the future.
Our business is subject to potential
U.S. government review. We are sometimes subject to certain U.S. government
reviews of our business practices due to our participation in government
contracts. Any such inquiry or investigation could potentially result in a
material adverse effect on our results of operations and financial
condition.
Our U.S. government business is also
subject to specific procurement regulations and other requirements. These
requirements, although customary in U.S. government contracts, increase our
performance and compliance costs. These costs might increase in the future,
reducing our margins, which could have a negative effect on our financial
condition. Failure to comply with these regulations and requirements could lead
to suspension or debarment, for cause, from U.S. government contracting or
subcontracting for a period of time and could have an adverse effect on our
reputation and ability to secure future U.S. government contracts.
S-20
We
have significant international sales, which expose us to additional risks and
uncertainties
Sales to customers located outside the
U.S. accounted for approximately 38% of our consolidated revenue in fiscal 2009,
44% of our revenue in fiscal 2008 and 27% of our revenue in fiscal 2007, with
revenue assigned to geographic regions based on our customers’ billing address.
Sales to customers in Asia represent the majority of our international sales. We
believe that international sales will continue to account for a significant
percentage of our revenue as we seek international expansion opportunities.
Because of this, the following international commercial risks may materially
adversely affect our revenue:
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political
and economic instability or changes in U.S. government policy with respect
to these foreign countries may inhibit export of our devices and limit
potential customers’ access to U.S. dollars in a country or region in
which those potential customers are
located;
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we
may experience difficulties in the timeliness of collection of foreign
accounts receivable and be forced to write off these
receivables;
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tariffs
and other barriers may make our devices less cost
competitive;
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the
laws of certain foreign countries may not adequately protect our trade
secrets and intellectual property or may be burdensome to comply
with;
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potentially
adverse tax consequences to our customers may damage our cost
competitiveness;
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currency
fluctuations, which may make our products less cost competitive, affecting
overseas demand for our products or otherwise adversely affect our
business; and
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language
and other cultural barriers may require us to expend additional resources
competing in foreign markets or hinder our ability to effectively
compete.
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In addition, we may be exposed to
additional legal risks under the laws of both the countries in which we operate
and in the United States, including the Foreign Corrupt Practices
Act.
We
are increasing operations in China, which exposes us to risks inherent in doing
business in China.
In May 2007, EMCORE Hong Kong, Ltd., a
wholly owned subsidiary of EMCORE Corporation, announced the opening of a new
manufacturing facility in Langfang, China. Our Chinese subsidiary, Langfang
EMCORE Optoelectronics Co. Ltd., is located approximately 20 miles southeast of
Beijing and currently occupies a space of 48,000 square feet with a Class-10,000
clean room for optoelectronic device packaging. Another 40,000 square
feet is available for future expansion. We have begun the transfer of
our most cost sensitive optoelectronic devices to this facility. This
facility, along with a strategic alignment with our existing
contract-manufacturing partners, should enable us to improve our cost structure
and gross margins across product lines. We expect to develop and provide
improved service to our global customers by having a local presence in
Asia. As we continue to consolidate our manufacturing
operations, we will incur additional costs to transfer product lines to our
China facility, including costs of qualification testing with our customers,
which could have a material adverse impact on our operating results and
financial condition.
S-21
Our China-based activities are subject
to greater political, legal and economic risks than those faced by our other
operations. In particular, the political, legal and economic climate
in China (both at national and regional levels) is extremely fluid and
unpredictable. Our ability to operate in China may be adversely affected by
changes in Chinese laws and regulations, such as those relating to taxation,
import and export tariffs, environmental regulations, land use rights,
intellectual property and other matters, which laws and regulations remain
highly underdeveloped and subject to change, with little or no prior notice, for
political or other reasons. Moreover, the enforceability of applicable existing
Chinese laws and regulations is uncertain. In addition, we may not
obtain the requisite legal permits to continue to operate in China and costs or
operational limitations may be imposed in connection with obtaining and
complying with such permits. Our business could be materially harmed by any
changes in the political, legal or economic climate in China or the inability to
enforce applicable Chinese laws and regulations.
As a result of a government order to
ration power for industrial use, operations in our China facility may be subject
to possible interruptions or shutdowns, adversely affecting our ability to
complete manufacturing commitments on a timely basis. If we are required to make
significant investments in generating capacity to sustain uninterrupted
operations at our facility, we may not realize the reductions in costs
anticipated from our expansion in China.
We intend to export the majority of the
products manufactured at our facilities in China. Accordingly, upon application
to and approval by the relevant governmental authorities, we will not be subject
to certain Chinese taxes and are exempt from customs duty assessment on imported
components or materials when the finished products are exported from China. We
are, however, required to pay income taxes in China, subject to certain tax
relief. As the Chinese trade regulations are in a state of flux, we may become
subject to other forms of taxation and duty assessments in China or may be
required to pay for export license fees in the future. In the event that we
become subject to any increased taxes or new forms of taxation imposed by
authorities in China, our results of operations could be materially and
adversely affected.
We
will lose sales if we are unable to obtain government authorization to export
our products.
Exports of our products are subject to
export controls imposed by the U.S. government and administered by the U.S.
Departments of State and Commerce. In certain instances, these regulations may
require pre-shipment authorization from the administering
department. For products subject to the Export Administration
Regulations (“EAR”) administered by the Department of Commerce’s Bureau of
Industry and Security, the requirement for a license is dependent on the type
and end use of the product, the final destination and the identity of the end
user. Virtually all exports of products subject to the International
Traffic in Arms Regulations (“ITAR”) regulations administered by the Department
of State’s Directorate of Defense Trade Controls require a
license. Most of our fiber optics products, terrestrial solar power
products, and commercially available solar cell satellite power products are
subject to EAR; however, certain fiber optics products and certain solar cell
satellite power products with an efficiency rating above 31% are currently
subject to ITAR.
Given the current global political
climate, obtaining export licenses can be difficult and
time-consuming. Failure to obtain export licenses for product
shipments could significantly reduce our revenue and could materially adversely
affect our business, financial condition and results of operations. Compliance
with U.S. government regulations may also subject us to additional fees and
costs. The absence of comparable restrictions on foreign competitors may
adversely affect our competitive position.
S-22
Protecting
our trade secrets and obtaining patent protection is critical to our ability to
effectively compete.
Our success and competitive position
depend on protecting our trade secrets and other intellectual property. Our
strategy is to rely on trade secrets and patents to protect our manufacturing
and sales processes and products. Reliance on trade secrets is only an effective
business practice if trade secrets remain undisclosed and a proprietary product
or process is not reverse engineered or independently developed. We take
measures to protect our trade secrets, including executing non-disclosure
agreements with our employees, customers and suppliers. If parties breach these
agreements, the measures we take are not properly implemented, or if a
competitor is able to reproduce or otherwise capitalize on our technology
despite the safeguards we have in place, it may be difficult, expensive or
impossible for us to obtain necessary legal protection. Disclosure of our trade
secrets or reverse engineering of our proprietary products, processes, or
devices could materially adversely affect our business, financial condition and
results of operations.
Our
failure to obtain or maintain the right to use certain intellectual property may
materially adversely affect our business, financial condition and results of
operations.
The compound semiconductor,
optoelectronics and fiber optic communications industries are characterized by
frequent litigation regarding patent and other intellectual property rights.
From time to time we have received, and may receive in the future; notice of
claims of infringement of other parties’ proprietary rights and licensing offers
to commercialize third party patent rights. There can be no assurance
that:
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infringement
claims (or claims for indemnification resulting from infringement claims)
will not be asserted against us or that such claims will not be
successful;
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future
assertions will not result in an injunction against the sale of infringing
products, which could significantly impair our business and results of
operations;
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any
patent owned or licensed by us will not be invalidated, circumvented or
challenged; or
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we
will not be required to obtain licenses, the expense of which may
adversely affect our results of operations and
profitability.
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In addition, effective copyright and
trade secret protection may be unavailable or limited in certain foreign
countries. Litigation, which could result in substantial cost and diversion of
our resources, may be necessary to defend our rights or defend us against
claimed infringement of the rights of others. In certain
circumstances, our intellectual property rights associated with government
contracts may be limited.
Protection of the intellectual property
owned or licensed to us may require us to initiate litigation, which can be an
extremely expensive, protracted procedure with an uncertain
outcome. The availability of financial resources may limit the
Company’s ability to commence or defend such litigation.
Failure
to comply with environmental and safety regulations, resulting in improper
handling of hazardous raw materials used in our manufacturing processes or waste
product generated there from, could result in costly remediation fees, penalties
or damages.
We are subject to laws and regulations
and must obtain certain permits and licenses relating to the use of hazardous
materials. Our production activities involve the use of certain hazardous raw
materials, including, but not limited to, ammonia, gallium, phosphine and
arsine. If our control systems are unsuccessful in preventing a release of these
materials into the environment or other adverse environmental conditions or
human exposures occur, we could experience interruptions in our operations and
incur substantial remediation and other costs or liabilities. In
addition, certain foreign laws and regulations place restrictions on the
concentration of certain hazardous materials, including, but not limited to,
lead, mercury and cadmium, in our products. Failure to comply with such laws and
regulations could subject us to future liabilities or result in the limitation
or suspension of the sale or production of our products. These regulations
include the European Union’s (“EU”) Restrictions on Hazardous Substances and
Directive on Waste Electrical and Electronic Equipment.
S-23
Failure
to comply with environmental and health and safety laws and regulations may
limit our ability to export products to the EU and could materially adversely
affect our business, financial condition and results of operations. In addition, the
Department of Homeland Security has commenced a program to evaluate the security
of certain chemicals which may be of interest to terrorists, including chemicals
utilized by the Company. This evaluation may lead to regulations or
restrictions affecting the Company’s ability to utilize these chemicals or the
costs of doing so. In connection with our compliance with such environmental
laws and regulations, as well as our compliance with industry environmental
initiatives, the standards of business conduct required by some of our
customers, and our commitment to sound corporate citizenship in all aspects of
our business, we could incur substantial compliance and operating costs and be
subject to disruptions to our operations. In addition, in the last few years,
there has been increased media scrutiny and associated reports focusing on a
potential link between working in semiconductor manufacturing clean room
environments and certain illnesses, primarily different types of cancers.
Regulatory agencies and industry associations have begun to study the issue to
see if any actual correlation exists. Because we utilize clean rooms, we may
become subject to liability claims. In addition, these reports may also affect
our ability to recruit and retain employees. If we were found to be in violation
of environmental and safety regulations laws or noncompliance with industry
initiatives or standards of conduct, we could be subject to governmental fines
or liability to our customers, which could adversely affect our business,
results of operations, cash flows, and financial condition.
A
failure to attract and retain managerial, technical and other key personnel
could reduce our revenue and our operational effectiveness
Our future success depends, in part, on
our ability to attract and retain certain key personnel, including scientific,
operational, financial, and managerial personnel. In addition, our
technical personnel represent a significant asset and serve as the source of our
technological and product innovations. The competition for attracting and
retaining key employees (especially scientists, technical personnel, financial
personnel and senior managers and executives) is intense. Because of this
competition for skilled employees, we may be unable to retain our existing
personnel or attract additional qualified employees in the future. If we are
unable to retain our skilled employees and attract additional qualified
employees to the extent necessary to keep up with our business demands and
changes, our business, financial condition and results of operations may be
materially adversely affected. The risks involved in recruiting and
retaining these key personnel may be increased by our lack of profitability, the
volatility of our stock price and the perceived affect of reductions in force
and other cost reduction efforts which we have recently
implemented.
We
are subject to risks associated with the availability and coverage of
insurance.
For certain risks, the Company does not
maintain insurance coverage because of cost and/or availability. Because the
Company retains some portion of its insurable risks, and in some cases
self-insures completely, unforeseen or catastrophic losses in excess of insured
limits may have a material adverse effect on the Company’s results of operations
and financial position.
Our
business and operations would be adversely impacted in the event of a failure of
our information technology infrastructure.
We rely upon the capacity, reliability
and security of our information technology hardware and software infrastructure
and our ability to expand and update this infrastructure in response to our
changing needs. We are constantly updating our information technology
infrastructure. Any failure to manage, expand and update our information
technology infrastructure or any failure in the operation of this infrastructure
could harm our business.
S-24
Despite our implementation of security
measures, our systems are vulnerable to damages from computer viruses, natural
disasters, unauthorized access and other similar disruptions. Our business is
also subject to break-ins, sabotage and intentional acts of vandalism by third
parties as well as employees. Any system failure, accident or security breach
could result in disruptions to our operations. To the extent that any
disruptions or security breach results in a loss or damage to our data, or
inappropriate disclosure of confidential information, it could harm our
business. In addition, we may be required to incur significant costs to protect
against damage caused by these disruptions or security breaches in the
future.
In addition, implementation of new
software programs, including the implementation of an enterprise resource
planning (“ERP”) program which the Company intends to install at one of the
Company’s divisions during fiscal year 2010, may have adverse impact on the
Company, including interruption of operations, loss of data, budget overruns and
the consumption of management time and resources.
If
we fail to remediate deficiencies in our current system of internal controls, we
may not be able to accurately report our financial results or prevent fraud. As
a result, our business could be harmed and current and potential investors could
lose confidence in our financial reporting, which could have a negative effect
on the trading price of our equity securities.
The Company is subject to the ongoing
internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002.
These provisions provide for the identification of material weaknesses in
internal control over financial reporting, which is a process to provide
reasonable assurance regarding the reliability of financial reporting for
external purposes in accordance with U.S. GAAP. If we cannot provide
reliable financial reports or prevent fraud, our brand, operating results and
the market value of our equity securities could be harmed. We have in the past
discovered, and may in the future discover, areas of our internal controls that
need improvement.
We have devoted significant resources
to remediate and improve our internal controls. We have also been monitoring the
effectiveness of these remediated measures. We cannot be certain that these
measures will ensure adequate controls over our financial processes and
reporting in the future. We intend to continue implementing and monitoring
changes to our processes to improve internal controls over financial reporting.
Any failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm our operating results or cause
us to fail to meet our reporting obligations.
Inadequate internal controls could also
cause investors to lose confidence in our reported financial information, which
could have a negative effect on the trading price of our equity securities.
Further, the impact of these events could also make it more difficult for us to
attract and retain qualified persons to serve on our Board of Directors or as
executive officers, which could harm our business. The additions of our
manufacturing facility in China and acquisitions increase the burden on our
systems and infrastructure, and impose additional risk to the ongoing
effectiveness of our internal controls, disclosure controls, and
procedures.
Certain
provisions of New Jersey law and our charter may make a takeover of the Company
difficult even if such takeover could be beneficial to some of our
shareholders.
New Jersey law and our certificate of
incorporation, as amended, contain certain provisions that could delay or
prevent a takeover attempt that our shareholders may consider in their best
interests. Our Board of Directors is divided into three classes. Directors are
elected to serve staggered three-year terms and are not subject to removal
except for cause by the vote of the holders of at least 80% of our capital
stock. In addition, approval by the holders of 80% of our voting stock is
required for certain business combinations unless these transactions meet
certain fair price criteria and procedural requirements or are approved by
two-thirds of our continuing directors. We may in the future adopt other
measures that may have the effect of delaying or discouraging an unsolicited
takeover, even if the takeover were at a premium price or favored by a majority
of unaffiliated shareholders. Certain of these measures may be adopted without
any further vote or action by our shareholders and this could depress the price
of our common stock.
S-25
Acquisitions
of other companies or investments in joint ventures with other companies could
adversely affect our operating results, dilute our shareholders’ equity, or
cause us to incur additional debt or assume contingent liabilities.
To increase our business and maintain
our competitive position, we may acquire other companies or engage in joint
ventures in the future. Acquisitions and joint ventures involve a number of
risks that could harm our business and result in the acquired business or joint
venture not performing as expected, including:
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insufficient
experience with technologies and markets in which the acquired business is
involved, which may be necessary to successfully operate and integrate the
business;
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problems
integrating the acquired operations, personnel, technologies or products
with the existing business and
products;
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diversion
of management time and attention from the core business to the acquired
business or joint venture;
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potential
failure to retain key technical, management, sales and other personnel of
the acquired business or joint
venture;
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difficulties
in retaining relationships with suppliers and customers of the acquired
business, particularly where such customers or suppliers compete with
us;
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reliance
upon joint ventures which we do not
control;
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subsequent
impairment of the acquired assets, including intangible assets;
and
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assumption
of liabilities including, but not limited to, lawsuits, tax examinations,
warranty issues, etc.
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We may decide that it is in our best
interests to enter into acquisitions or joint ventures that are dilutive to
earnings per share or that negatively impact margins as a whole. In addition,
acquisitions or joint ventures could require investment of significant financial
resources and require us to obtain additional equity financing, which may dilute
our shareholders’ equity, or require us to incur additional
indebtedness.
Changes
to financial accounting standards may affect our consolidated results of
operations and cause us to change our business practices.
We prepare our financial statements to
conform to U.S. GAAP. These accounting principles are subject to interpretation
by the American Institute of Certified Public Accountants, the SEC and various
bodies formed to interpret and create appropriate accounting policies. A change
in those policies can have a significant effect on our consolidated reported
results and may affect our reporting of transactions completed before a change
is announced. Changes to those rules or the questioning of current practices may
adversely affect our reported financial results or the way we conduct our
business. For example, the Financial Accounting Standards Board
issued authoritative guidance related to the consolidation of variable interest
entities that may impact our accounting for future joint ventures or project
companies. In the event that we are deemed the primary beneficiary of a variable
interest entity, we may have to consolidate the assets, liabilities and
financial results of the joint venture. This could have an adverse impact on our
financial position, gross margin and operating results. Also, the
Securities and Exchange Commission (“SEC”) issued its long-anticipated proposed
International Financial Reporting Standards (“IFRS”) roadmap outlining
milestones that, if achieved, could lead to mandatory transition to IFRS for
U.S. domestic registrants starting in 2014. IFRS is a comprehensive series of
accounting standards published by the International Accounting Standards Board
(“IASB”). Under the proposed roadmap, the Company could be required to prepare
financial statements in accordance with IFRS, and the SEC will make a
determination in 2011 regarding the mandatory adoption of IFRS for U.S. domestic
registrants. Management is currently assessing the impact that this potential
change would have on the Company’s consolidated financial statements, and will
continue to monitor the development of the potential implementation of
IFRS.
S-26
Natural disasters or other
catastrophic events could have a material adverse affect on our
business.
Natural disasters, such as hurricanes,
earthquakes, and fires, particularly in California or in New Mexico, could
unfavorably affect our operations and financial performance. Such
events could result in physical damage to one or more of our facilities, the
temporary closure of one or more of our facilities or those of our suppliers,
the temporary lack of an adequate work force in a market, the temporary or
long-term disruption in the supply of products from some local and overseas
suppliers, the temporary disruption in the transport of goods from overseas, and
delays in the delivery of goods. Public health issues, such as a potential H1N1
flu pandemic (swine flu), whether occurring in the United States or abroad,
could disrupt our operations, disrupt the operations of suppliers or customers,
or have an adverse impact on customer demand. We may be required to suspend
operations in some or all of our locations, which could have a material adverse
effect on our business, financial condition, and results of operations. These
events could also reduce demand for our products or make it difficult or
impossible to receive products from suppliers. Although we maintain business
interruption insurance and other insurance intended to cover some or all of
these risks, such insurance may be inadequate, whether because of coverage
amount, policy limitations, the financial viability of the insurance companies
issuing such policies, or other reasons.
Risks
Relating to this Offering
Management
will have broad discretion as to the use of proceeds from this offering, and we
may not use the proceeds effectively.
We have not designated the amount of
net proceeds from this offering to be used for any particular
purpose. Accordingly, management of the Company will have broad
discretion as to the application of the net proceeds from this offering and
could use them for purposes other than those contemplated at the time of this
offering. Our shareholders may not agree with the manner in which our
management chooses to allocate ad spend the net proceeds. Moreover,
management may use the net proceeds for corporate purposes that may not increase
the Company’s profitability or market value.
Shareholders
will experience an immediate dilution in the net tangible book value per share
of the Company's common stock.
Since the price per share of our common
stock being offered is substantially lower than the book value per share of our
common stock, shareholders will experience an immediate dilution in the net
tangible book value of the common stock purchased in this
offering. See the section entitled “Dilution” below for a more
detailed discussion of the dilution associated with this offering.
The
issuance of the shares pursuant to this offering may depress the market value of
our common stock.
A significant number of shares may be
sold in the market following this offering, which may depress the market price
of our common stock. Sales of a substantial number of shares of our
common stock in the public market following this offering could cause the market
price of our common stock to decline. If there are more shares of
common stock offered for sale than buyers are willing to purchase, then the
market price of our common stock may decline to a market price at which buyers
are willing to purchase the offered shares of common and sellers remain willing
to sell the shares. All of the shares sold in the offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, as amended.
S-27
USE
OF PROCEEDS
We
estimate that we will receive net proceeds of approximately $2.0 million from the sale of the shares of common stock after
paying the underwriting discounts and commissions, placement agent fee and other
estimated expenses of this offering. We intend to use the net
proceeds from this offering for general corporate purposes, including working
capital.
DILUTION
The net
tangible book value of our common stock on December 31, 2009 was approximately
$117.2 million, or approximately $1.4338 per share. Net tangible book
value per share is equal to the amount of out total tangible assets, less total
liabilities, divided by the aggregate number of shares of common stock
outstanding. Dilution per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the net tangible book value per share of our common stock immediately after
this offering. After giving effect to the sale of 1,870,042 shares of
common stock in this offering at a price of approximately $1.07 per
share, and after deducting the estimated offering expenses, our net tangible
book value at December 31, 2009 would have been approximately $119.2 million, or
approximately $1.4254 per share. This represents an immediate
dilution of $0.0084 per share to the Company’s shareholders as a result of this
offering.
The
following table illustrates this dilution:
Assumed
public offering price per share
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$1.07
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Net
tangible book value per share as of December 31, 2009
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$1.4338
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Decrease
per share attributable to new investors
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$0.0084
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Net
tangible book value per share as of December 31, 2009 after giving effect
to this offering
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$1.4254
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Net
dilution per share to shareholders
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$0.0084
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DIVIDEND
POLICY
We have never declared or paid
dividends on our common stock since the Company's formation. We currently do not
intend to pay dividends on our common stock in the foreseeable future, so that
we may reinvest any earnings in our business. The payment of dividends, if any,
in the future is at the discretion of the Board of Directors. Due to
the Company’s credit facility signed in September 2008, the Company agreed to
not issue any dividends until full payment is made on any amounts outstanding
under the credit facility.
PLAN
OF DISTRIBUTION
Please see the information set forth
under the caption “Plan of Distribution” in the accompanying prospectus, and the
disclosure set forth in our Current Report on Form 8-K relating to our equity
line of credit arrangement with Commerce Court, filed with the SEC on October 2,
2009, pursuant to the Securities Exchange Act, which is incorporated herein by
reference. For more information, please see the section entitled “Information
Incorporated by Reference” in this prospectus supplement.
S-28
LEGAL
MATTERS
The
validity of the shares of common stock offered hereby will be passed upon by
Jenner & Block LLP and, with respect to matters governed by New Jersey law,
by Dillon, Bitar & Luther, L.L.C.
WHERE
YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current
reports, proxy statements and other information with the SEC. You may read and
copy any document that we file at the Public Reference Room of the SEC located
at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an internet site at www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically, including EMCORE. Except as expressly set
forth under “Information Incorporated by Reference,” we are not incorporating
the contents of the SEC website into this prospectus
supplement.
We have
filed with the SEC a registration statement on Form S-3 (together with all
amendments and exhibits, the “registration statement”) under the Securities Act
of 1933, as amended with respect to the offering of common stock. This
prospectus supplement, which constitutes part of the registration statement,
does not contain all of the information set forth in the registration statement.
Certain parts of the registration statement are omitted from the accompanying
prospectus and this prospectus supplement in accordance with the rules and
regulations of the SEC.
Our
common stock is listed on The NASDAQ Global Market and similar information can
be inspected and copied at the offices of the Financial Industry Regulatory
Authority, 1735 K Street, N.W., Washington, D.C. 20006.
S-29
INFORMATION
INCORPORATED BY REFERENCE
The SEC allows us to incorporate by
reference in this prospectus supplement the information in documents we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information in this prospectus
supplement updates (and, to the extent of any conflict, supersedes) information
incorporated by reference that we have filed with the SEC prior to the date of
this prospectus supplement. You should read all of the
information incorporated by reference because it is an important part of the
accompanying prospectus and this prospectus supplement.
We incorporate by reference the
documents listed below and any future filings made with the SEC by us under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
we sell all of the securities (other than filings or portions of filings that
are furnished under applicable SEC rules rather than filed):
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•
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Annual
report on Form 10-K for the fiscal year ended September 30, 2009, filed
with the SEC on December 29, 2009, as amended by the Form 10-K/A filed on
January 28, 2010.
|
•
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Quarterly
Report on Form 10-Q for the quarter ended December 31, 2009, filed with
the SEC on February 9, 2010.
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•
|
Current
Reports on Forms 8-K filed with the SEC on February 26, 2010 and March 9,
2010.
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||
•
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The
description of our common stock contained in our Registration Statement on
Form 8-A filed with the SEC on February 26,
1997.
|
You may also find additional
information about us, including the documents mentioned above, on our website at
www.emcore.com. The information included or linked to this website is
not a part of this prospectus supplement.
We hereby undertake to provide without
charge to each person, including any beneficial owner, to whom a copy of this
prospectus supplement is delivered, upon written or oral request of any such
person, a copy of any and all of the reports or documents that have been
incorporated by reference in this prospectus supplement, other than exhibits to
such documents unless such exhibits have been specifically incorporated by
reference thereto. Requests for such copies should be directed to our Investor
Relations Department, at the following address:
EMCORE
Corporation
10420
Research Road, SE
Albuquerque,
New Mexico 87123
S-30
PROSPECTUS
|
|
$50,000,000
EMCORE
Corporation
Debt
Securities
Common
Stock
Preferred
Stock
Warrants
Units
This prospectus provides you with a
general description of debt and equity securities that we may offer and sell
from time to time. Each time we sell securities we will provide a prospectus
supplement that will contain specific information about the terms of that sale
and may add to or update the information in this prospectus. You should
carefully read this prospectus and the applicable prospectus supplement as well
as any documents incorporated or deemed to be incorporated in this prospectus
before you invest in any of our securities offered hereby. This prospectus may
not be used to sell securities unless accompanied by a prospectus
supplement.
We may offer and sell securities to or
through one or more underwriters, dealers and/or agents on a continuous or
delayed basis. For additional information on the methods of sale, you should
refer to the section entitled “Plan of Distribution.” If any underwriters are
involved in the sale of any securities with respect to which this prospectus is
being delivered, the names of such underwriters and any applicable discounts or
commissions and over-allotment options will be set forth in the prospectus
supplement. The price to the public of such securities and the net proceeds we
expect to receive from such sale will also be set forth in a prospectus
supplement.
We may also offer from time to time
shares of our common stock pursuant to this prospectus and any applicable
prospectus supplement in accordance with the terms of a stock purchase agreement
we have entered into with Commerce Court Small Cap Value Fund, Ltd., or Commerce
Court. The terms of the stock purchase agreement are described in
this prospectus under the section entitled “Plan of Distribution.” Commerce
Court is an “underwriter” within the meaning of Section 2(a)(11) of the
Securities Act of 1933, as amended, with respect to the shares of our common
stock that we may offer pursuant to the stock purchase agreement, and any
profits on the sales of shares of our common stock by Commerce Court and any
discounts, commissions or concessions received by Commerce Court may be deemed
to be underwriting discounts and commissions under the Securities
Act. We agreed to issue to Commerce Court pursuant to the
registration statement of which this prospectus forms a part, as payment of a
portion of its fees in connection with the stock purchase agreement, 185,185
shares of our common stock and warrants exercisable for an aggregate of
1,600,000 shares of our common stock, and this prospectus covers the sale to the
public of those shares and the shares issuable upon exercise of the
warrants.
We expect to deliver to Commerce Court
the above-referenced shares of common stock on or about October 5, 2009 and the
above-referenced warrants on or about October 1, 2009. Our common
stock is listed on The Nasdaq Global Market under the symbol “EMKR.” On
September 30, 2009, the last reported sale price of our common stock on The
Nasdaq Global Market was $1.30.
Investing in our common stock involves
risk. See “Risk Factors” on page 4. You should carefully
review the risks and uncertainties described under the heading “Risk Factors”
contained in the applicable prospectus supplement and under similar headings in
the documents that are incorporated by reference in this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is October 1, 2009
You
should rely only on the information contained or incorporated by reference in
this prospectus. We have not authorized anyone to provide you with
additional information or information different from that contained in this
prospectus. The information contained or incorporated by reference in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of securities offered by this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
In this
prospectus, the “Company”, “EMCORE”, “we”, “us”, and “our” refer to EMCORE
Corporation and its subsidiaries. Our fiscal year ends on September
30 of each calendar year. For example, fiscal year 2008 refers to the
year ended September 30, 2008. EMCORE is a registered trademark of
EMCORE Corporation. This prospectus contains product names, trade names and
trademarks of EMCORE and other organizations.
TABLE
OF CONTENTS
Page
|
|
About
this Prospectus
|
1
|
Special
Note Regarding Forward-Looking Statements
|
2
|
EMCORE
Corporation
|
3
|
Risk
Factors
|
4
|
Use
of Proceeds
|
5
|
Ratio
of Earnings to Fixed Charges and Preferred Stock Dividends
|
5
|
Description
of Common Stock
|
6
|
Description
of Preferred Stock
|
6
|
Description
of Debt Securities
|
7
|
Description
of Warrants
|
14
|
Description
of Units
|
15
|
Plan
of Distribution
|
15
|
Anti-takeover
Effects of Provisions of Our Restated Certificate of Incorporation and
Amended By-laws
|
19
|
New
Jersey Shareholders Protection Act
|
19
|
Legal
Matters
|
21
|
Experts
|
21
|
Where
You Can Find More Information
|
21
|
Information
Incorporated by Reference
|
22
|
ABOUT
THIS PROSPECTUS
This prospectus is part of a
registration statement that we have filed with the Securities and Exchange
Commission (the “SEC” or “Commission”) using a “shelf” registration process.
Under this shelf process, we may sell:
· Debt
securities;
· Common
stock;
· Preferred
stock;
· Warrants;
and
· Units
either
separately or in units, in one or more offerings. This prospectus provides you
with a general description of those securities. We will offer our securities in
amounts, at prices and on terms to be determined at the time we offer such
securities. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. Before purchasing any securities, you should
carefully read this prospectus and the applicable prospectus supplement and any
applicable free writing prospectus together with the additional information
described under the heading "Where You Can Find More Information." Under no
circumstances should the delivery to you of this prospectus or any offering or
sales made pursuant to this prospectus create any implication that the
information contained in this prospectus is correct as of any time after the
date of this prospectus.
1
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
prospectus and the information incorporated by reference include forward-looking
statements, within the meaning of Section 27A of the Securities Act of
1933, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, or the Exchange Act. These statements are based on management’s current
expectations or predictions of future results or events. We make these
forward-looking statements in reliance on the safe harbor provisions provided
under the Private Securities Litigation Reform Act of 1995.
All
statements, other than statements of historical fact, included in this
prospectus and information incorporated by reference which relate to
performance, development or activities that we expect or anticipate will or may
happen in the future, are forward-looking statements. Other forward-looking
statements may be identified by the use of forward-looking words such as
“believe,” “expect,” “may,” “might,” “will,” “should,” “seek,” “could,”
“approximately,” “intend,” “plan,” “estimate,” or “anticipate” or the negative
of those words or other similar expressions.
Forward-looking
statements involve inherent risks and uncertainties and are based on numerous
assumptions. They are not guarantees of future performance. A number of
important factors could cause actual results to differ materially from those in
the forward-looking statement. Some factors include:
·
|
our
ability to obtain financing or sell assets and achieve levels of revenue
and cost reductions that are adequate to support our capital and operating
requirements in order to continue as a going
concern;
|
·
|
our
abilities to remain competitive and a leader in our industries and the
future growth of the Company, our industries, and the economy in
general;
|
·
|
our
ability to achieve structural and material cost reductions without
impacting product development or manufacturing
execution;
|
·
|
expected
improvements in our product and technology development
programs;
|
·
|
our
ability to successfully develop, introduce, market and qualify new
products, including our terrestrial solar
products;
|
·
|
our
ability to identify and acquire suitable acquisition targets and
difficulties in integrating recent or future acquisitions into our
operations;
|
·
|
other
risks and uncertainties described in our filings with the SEC such as:
cancellations, rescheduling, or delays in product shipments; manufacturing
capacity constraints; lengthy sales and qualification cycles; difficulties
in the production process; changes in semiconductor industry growth;
increased competition; delays in developing and commercializing new
products; and other factors.
|
Forward-looking
statements contained herein are made only as of the date made, and we do not
undertake any obligation to update them to reflect events or circumstances after
the date of this prospectus to reflect the occurrence of unanticipated
events.
2
EMCORE
CORPORATION
We are a provider of compound
semiconductor-based components and subsystems for the broadband, fiber optic,
satellite, and terrestrial solar power markets. We were established
in 1984 as a New Jersey corporation. We have two reporting segments: Fiber
Optics and Photovoltaics. Our Fiber Optics segment offers optical
components, subsystems, and systems that enable the transmission of video,
voice, and data over high-capacity fiber optic cables for high-speed data and
telecommunications, cable television (“CATV”) and fiber-to-the-premises (“FTTP”)
networks. Our Photovoltaics segment provides solar products for
satellite and terrestrial applications. For satellite applications, we offer
high-efficiency compound semiconductor-based gallium arsenide (“GaAs”) solar
cells, covered interconnect cells (“CICs”) and fully integrated solar
panels. For terrestrial applications, we offer concentrating
photovoltaic (“CPV”) systems for utility scale solar applications as well as our
high-efficiency GaAs solar cells and CPV components for use in solar power
concentrator systems.
Our headquarters and principal
executive offices are located at 10420 Research Road, SE, Albuquerque, New
Mexico, 87123, and our main telephone number is (505) 332-5000. For
specific information about our company, our products or the markets we serve,
please visit our website at http://www.emcore.com. The information
contained in or linked to our website is not part of this
prospectus.
3
RISK
FACTORS
Investing
in our securities involves risks. You should carefully read and
consider the risk factors and other disclosures relating to any investment in
securities issued by EMCORE Corporation described in our Annual Report on Form
10-K for the fiscal year ended September 30, 2008, as updated by annual,
quarterly and other reports and documents we file with the SEC after the date of
this prospectus and that are incorporated by reference herein. Before
making an investment decision, you should carefully consider those risks as well
as other information we include or incorporate by reference in this prospectus
and the applicable prospectus supplement. The risks and uncertainties
we have described are not the only ones facing our
company. Additional risks and uncertainties not presently known to us
or that we currently consider immaterial may also affect our business
operations. To the extent a particular offering implicates additional
risk, we will include a discussion of those risks in the applicable prospectus
supplement.
4
USE
OF PROCEEDS
Unless
otherwise specified in the applicable prospectus supplement, we will use the net
proceeds from the sale of securities for one or more of the
following:
•
repayment of debt;
•
acquisitions;
• capital
expenditures;
•
redemption or repurchase of any preferred stock or debt outstanding;
and
• working
capital and general corporate purposes.
Pending
any specific application, we may initially invest funds in marketable
short-term, interest-bearing securities.
RATIO
OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The
following table sets forth our ratio of earnings to fixed charges for the
periods indicated. No shares of preferred stock were outstanding during the
periods indicated and we did not pay preferred stock dividends during these
periods. Consequently, the ratio of earnings to fixed charges and preferred
stock dividends is the same as the ratio of earnings to fixed charges for the
periods indicated.
Quarter
Ended
|
Fiscal
Year Ended September 30,
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|||||||||||||||||||||||
June
30,
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||||||||||||||||||||||||
2009
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2008
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2007
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2006
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2005
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2004
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|||||||||||||||||||
N/M*
|
N/M*
|
N/M*
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9.0
|
N/M*
|
N/M*
|
We are
presenting the ratios above pursuant to the requirements set forth in Item 503
of Regulation S-K under the Securities Act of 1933. The earnings and fixed
charges in the above ratios are calculated using the definitions set forth by
Regulation S-K under the Securities Act of 1933.
*The
ratio of earnings to fixed charges for the nine-months ended June 30, 2009 and
for the years ended September 30, 2008, 2007, 2005 and 2004 are not meaningful
since earnings available for fixed charges is negative for those
periods. The shortfall in the earnings available for fixed charges to
achieve a ratio of earnings to fixed charges of 1.00 amounted to $122.5 million
for the nine months ended June 30, 2009 and $80.9 million, $58.7 million, $24.7
million, and $28.4 million for the years ended September 30, 2008, 2007, 2005
and 2004 respectively.
5
DESCRIPTION
OF COMMON STOCK
The
following is a description of our common stock. It does not purport
to be complete and is subject to, and qualified in its entirety by, the
provisions of our Restated Certificate of Incorporation and Amended By-Laws,
forms of which have previously been filed and are incorporated by reference into
this prospectus, and by the applicable provisions of New Jersey
law. See “Anti-takeover Effects of Provisions of Our Restated
Certificate of Incorporation and Amended By-laws” for more information regarding
the provisions of our Restated Certificate of Incorporation and Amended By-laws
that could effect an extraordinary corporate transaction.
General
Matters
Our
authorized capital stock consists of 200,000,000 shares of common stock, no par
value and 5,882,352 shares of preferred stock, $0.0001 par value. As
of September 30, 2009, we had 80,781,775 shares of common stock issued and
outstanding and no shares of preferred stock issued and
outstanding.
Common
Stock
Holders
of common stock are entitled to one vote per share on matters to be voted upon
by the shareholders of the Company. Subject to the preferences that may be
applicable to any outstanding shares of preferred stock, the holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. In the event
of liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior liquidation rights of any outstanding shares
of preferred stock. The common stock has no preemptive, redemption, conversion
or other subscription rights. The outstanding shares of common stock are, and
the shares offered by the Company in the offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock currently
outstanding or which the Company may designate and issue in the
future.
Transfer
Agent and Registrar
The
Transfer Agent and Registrar for our common stock is American Stock Transfer
& Trust Company, New York, New York.
Listing
Our
shares of common stock are quoted on The Nasdaq Global Market under the symbol
“EMKR”.
DESCRIPTION
OF PREFERRED STOCK
The Board
of Directors has the authority, without action by the stockholders, to designate
and issue preferred stock in one or more series and to designate the rights,
preferences and privileges of each series, which may be greater than the rights
of the common stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the Board of Directors determines the specific rights of the
holders of this preferred stock. However, the effects might include, among other
things:
•
|
restricting
dividends on the common stock;
|
|
•
|
diluting
the voting power of the common stock;
|
|
•
|
impairing
the liquidation rights of the common stock; or
|
|
•
|
delaying
or preventing a change in control of the company without further action by
the stockholders.
|
6
No shares
of preferred stock are outstanding. The summary above is qualified by provisions
of applicable law. If we offer a specific series of preferred stock
under this prospectus, we will describe the terms of the preferred stock in the
prospectus supplement for such offering and will file a copy of the certificate
establishing the terms of the preferred stock with the SEC. To the extent
required, this description will include:
|
•
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the
title and stated value;
|
|
•
|
the
number of shares offered, the liquidation preference per share and the
purchase price;
|
|
•
|
the
dividend rate(s), period(s) and/or payment date(s), or method(s) of
calculation for such dividends;
|
|
•
|
whether
dividends will be cumulative or non-cumulative and, if cumulative, the
date from which dividends will
accumulate;
|
|
•
|
the
procedures for any auction and remarketing, if
any;
|
|
•
|
the
provisions for a sinking fund, if
any;
|
|
•
|
the
provisions for redemption, if
applicable;
|
|
•
|
any
listing of the preferred stock on any securities exchange or
market;
|
|
•
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whether
the preferred stock will be convertible into our common stock, and, if
applicable, the conversion price (or how it will be calculated) and
conversion period;
|
|
•
|
whether
the preferred stock will be exchangeable into debt securities, and, if
applicable, the exchange price (or how it will be calculated) and exchange
period;
|
|
•
|
voting
rights, if any, of the preferred
stock;
|
|
•
|
a
discussion of any material and/or special U.S. federal income tax
considerations applicable to the preferred
stock;
|
|
•
|
the
relative ranking and preferences of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the
affairs of EMCORE; and
|
|
•
|
any
material limitations on issuance of any class or series of preferred stock
ranking senior to or on a parity with the series of preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
EMCORE.
|
DESCRIPTION
OF DEBT SECURITIES
The following description of the terms
of the debt securities sets forth certain general terms and provisions of the
debt securities to which any prospectus supplement may relate. The particular
terms of the debt securities offered by any prospectus supplement and the
extent, if any, to which these general provisions may apply to those debt
securities will be described in the prospectus supplement relating to those debt
securities. Accordingly, for a description of the terms of a particular issue of
debt securities, reference must be made to both the prospectus supplement
relating thereto and to the following description.
General
We may issue debt securities from time
to time in one or more series. The debt securities will be general obligations
of EMCORE Corporation. The debt securities may be fully and unconditionally
guaranteed on a secured or unsecured senior or subordinated basis, jointly and
severally, by guarantors, if any. In the event that any series of debt
securities will be subordinated to other indebtedness that we have outstanding
or may incur, the terms of the subordination will be set forth in the prospectus
supplement relating to the subordinated debt securities. Debt securities will be
issued under one or more indentures between us and one or more trustees named in
the prospectus supplement, which we refer to as the trustee. The statements made
in this prospectus relating to the indenture and the debt securities to be
issued under the indenture are summaries of certain terms and provisions of the
form of indenture that has been filed as Exhibit 4.2 to the registration
statement of which this prospectus forms a part and are not
complete. You should read the indenture for provisions that may be
important to you.
7
The prospectus supplement relating to a
particular series of debt securities will describe the terms of such debt
securities being offered, including:
|
•
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|
the
title;
|
|
•
|
|
the
maturity date;
|
|
•
|
|
the
interest rate, if any, and the method for calculating the interest
rate;
|
|
•
|
|
the
interest payment dates and the record dates for the interest
payments;
|
|
•
|
|
any
mandatory or optional redemption terms or prepayment, conversion, and
sinking fund terms;
|
|
•
|
|
the
place where we will pay principal and
interest;
|
|
•
|
|
if
other than denominations of $1,000 or multiples of $1,000 in excess
thereof, the denominations the debt securities will be issued
in;
|
|
•
|
|
whether
the debt securities will be issued in the form of global securities or
certificates;
|
|
•
|
|
additional
provisions, if any, relating to
defeasance;
|
|
•
|
|
the
currency or currencies, if other than the currency of the United States,
in which principal and interest will be
paid;
|
|
•
|
|
any
United States federal income tax
consequences;
|
|
•
|
|
the
dates on which premium, if any, will be
paid;
|
|
•
|
|
our
right, if any, to defer payment of interest and the maximum length of this
deferral period;
|
|
•
|
|
any
listing on a securities exchange;
|
|
•
|
|
limits
on aggregate principal amount;
|
|
•
|
|
terms
of subordination of any subordinated debt
securities;
|
|
•
|
|
the
initial public offering price; and
|
|
•
|
|
other
specific terms, including any additional events of default or
covenants.
|
We may, from time to time, without
notice to or the consent of registered holders of a particular series of debt
securities, create and issue further securities ranking pari passu with that series
of debt securities in all respects (or in all respects except for the payment of
interest accruing prior to the issue date of such further debt securities or
except for the first payment of interest following the issue date of such
further debt securities) and so that such further debt securities shall be
consolidated and form a single series with that particular series of debt
securities and shall have the same terms as to status, redemption or otherwise
as that series of debt securities.
We can issue an unlimited amount of
debt securities under the indenture that may be in one or more series with the
same or various maturities, at par, at a premium, or at a discount. The
indenture does not limit our ability to issue convertible or subordinated debt
securities. Any conversion or subordination provisions of a particular series of
debt securities will be set forth in the officer’s certificate or supplemental
indenture related to that series of debt securities and will be described in the
relevant prospectus supplement. Such terms may include provisions for
conversions, either mandatory, at the option of the holder or at our option, in
which case the number of shares of common stock, preferred stock or other
securities to be received by the holders of debt securities would be calculated
as of a time and in the manner stated in the prospectus supplement.
The debt securities will be issuable
only in fully registered form without coupons or in the form of one or more
global securities, as described below under “—Global Securities”. Unless the
prospectus supplement specifies otherwise, debt securities denominated in U.S.
dollars will be issued only in denominations of U.S.$1,000 and any integral
multiple of U.S.$1,000 in excess thereof. The prospectus supplement relating to
debt securities denominated in a foreign or composite currency will specify the
authorized denominations.
8
If the amount of payments of principal
of and premium, if any, or any interest on debt securities of any series is
determined with reference to any type of index or formula or changes in prices
of particular securities or commodities, the federal income tax consequences,
specific terms and other information with respect to these debt securities and
this index or formula, securities or commodities will be described in the
relevant prospectus supplement.
If the principal of and premium, if
any, or any interest on debt securities of any series are payable in a foreign
or composite currency, the restrictions, elections, federal income tax
consequences, specific terms and other information with respect to such debt
securities and such currency will be described in the relevant prospectus
supplement.
Payment of principal of and premium, if
any, on debt securities will be made in the designated currency against
surrender of any debt securities at the Corporate Trust Office of the trustee in
The City of New York. Unless otherwise indicated in the prospectus supplement,
payment of any installment of interest on debt securities will be made to the
person in whose name a relevant debt security is registered at the close of
business on the regular record date for such interest. Unless otherwise
indicated in the prospectus supplement, payments of such interest will be made
at the Corporate Trust Office of the trustee in The City of New York or by a
check in the designated currency mailed to the holder at such holder’s
registered address.
Debt securities may be issued as
original issue discount securities to be offered and sold at a substantial
discount below their stated principal amount. Federal income tax consequences
and other special considerations applicable to any original issue discount
securities will be described in the relevant prospectus supplement. “Original
issue discount security” means any debt security that provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the maturity thereof upon the occurrence of an event of
default and the continuation thereof.
Covenants
Consolidation,
Merger and Sale of Assets
We will agree under the indenture that
we will not consolidate with or merge into, or convey, transfer or lease all or
substantially all of our properties and assets to, any Person (a “Successor
Person”), and will not permit any Person to merge into us in a transaction in
which we are not the surviving entity, unless:
(i) the
Successor Person (if not EMCORE) is a corporation, limited liability company,
partnership or trust organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on any outstanding debt
securities and under the indenture;
(ii)
immediately after giving effect to the transaction, and treating any
Indebtedness which becomes our obligation as a result of the transaction as
having been incurred by us at the time of the transaction, no event of default
and no event which, after notice or lapse of time or both, would become an event
of default, shall have occurred and be continuing; and
(iii) the
trustee receives an officers’ certificate and an opinion of counsel stating that
such action complies with this covenant.
Events
of Default
The indenture specifies that each of
the following will constitute an event of default with respect to the debt
securities of a particular series:
(a)
failure to pay principal of any debt security of that series at its
maturity;
(b)
failure to pay any interest on any debt security of that series when due,
continued for 30 days;
(c)
failure to deposit any sinking fund payment, when and as due by the terms of
that series;
9
(d)
failure to perform any covenant of ours applicable to that series in the
indenture, continued for 60 days after written notice of such failure is given
by the trustee or the holders of at least 25% in principal amount of the
outstanding debt securities of that series, as provided in the indenture;
and
(e)
certain events in bankruptcy, insolvency or reorganization.
If an event of default (other than an
event of default described in clause (e) above) shall occur and be continuing,
either the trustee or the holders of at least 25% in aggregate principal amount
of the outstanding debt securities of that series by notice as provided in the
indenture may declare the principal amount of such series of the debt securities
to be due and payable immediately. If an event of default described in clause
(e) above shall occur, the principal amount of all the outstanding debt
securities of that series will automatically, and without any action by the
trustee or any holder, become immediately due and payable. After any such
acceleration, but before a judgment or decree for payment of the money due, the
holders of a majority in aggregate principal amount of the outstanding debt
securities of a particular series may, under certain circumstances, rescind and
annul such acceleration if all events of default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the indenture.
For information as to waiver of defaults, see “—Modification and
Waiver.”
Subject to the provisions of the
indenture relating to the duties of the trustee in case an event of default
shall occur and be continuing, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request or
direction of any of the holders, unless such holders shall have offered to the
trustee reasonable indemnity. Subject to such provisions for the indemnification
of the trustee, the holders of a majority in aggregate principal amount of the
outstanding debt securities of that series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee with
respect to such series of the debt securities.
No holder of a debt security will have
any right to institute any proceeding with respect to the indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless:
(i) such
holder has previously given to the trustee written notice of a continuing event
of default with respect to such series of the debt securities;
(ii) the
holders of at least 25% in aggregate principal amount of the outstanding debt
securities of that series have made written request, and such holder or holders
have offered reasonable indemnity, to the trustee to institute such proceeding
as trustee; and
(iii) the
trustee has failed to institute such proceeding, and has not received from the
holders of a majority in aggregate principal amount of the outstanding debt
securities of that series a direction inconsistent with such request, within 60
days after such notice, request and offer. However, such limitations do not
apply to a suit instituted by a holder of a debt security for the enforcement of
payment of the principal of or interest on such debt security on or after the
applicable due date specified in such debt security.
Modification
and Waiver
Together with the trustee, we may
modify the indenture without the consent of any holder for certain purposes,
including evidencing the succession of another person to us and such person’s
assumption of our obligations under the indenture, adding to our covenants or
events of default, establishing forms or terms of debt securities, curing
ambiguities and other purposes which do not adversely affect the holders in any
material respect.
Other modifications and amendments of
the indenture may be made by us and the trustee with the consent of the holders
of at least a majority in aggregate principal amount of each series of the
outstanding debt securities that is affected by such modification or amendment,
all holders of all such affected series voting together as one
class.
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No such modification or amendment
may, without the consent of the holder of each outstanding debt security
affected thereby:
(a)
change the stated maturity of the principal of, or any installment of interest
on, or the redemption price of, any such debt security;
(b)
reduce the principal amount of or interest on, any such debt
security;
(c)
change currency of payment of principal of or interest on, any such debt
security;
(d)
impair the right to institute suit for the enforcement of any payment on any
such debt security;
(e)
reduce the percentage in principal amount of outstanding debt securities of a
particular series, the consent of whose holders is required for modification or
amendment of the indenture, or for waiver of compliance with certain provisions
of the indenture or waiver of certain defaults; or
(f)
modify such provisions with respect to modification and waiver.
The holders of at least a majority in
principal amount of each series of the outstanding debt securities that is
affected by such waiver, all holders of all such affected series voting together
as one class, may waive our compliance with certain restrictive provisions of
the indenture, and may waive any past default under the indenture, except a
default in the payment of principal or interest and certain covenants and
provisions of the indenture which cannot be amended without the consent of the
holder of each outstanding debt security affected by such default.
Defeasance
and Discharge; Covenant Defeasance
Unless the terms of a particular series
provide otherwise, we may elect, at our option at any time, to have the
indenture provisions relating to defeasance and discharge of indebtedness, or
relating to defeasance of certain restrictive covenants in the indenture,
applied to any series of the outstanding debt securities.
Defeasance
and Discharge
The indenture provides that upon our
exercise of our option to have the provisions relating to defeasance and
discharge applied to a particular series of the debt securities, we will be
discharged from all our obligations with respect to such series of the debt
securities (except for certain obligations to exchange or register the transfer
of debt securities, to replace stolen, lost or mutilated debt securities, to
maintain paying agencies and to hold moneys for payment in trust) upon the
deposit in trust for the benefit of the holders of the debt securities of such
series of money or U.S. government obligations, or both, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
interest on the debt securities of such series at maturity in accordance with
the terms of the indenture and such debt securities. Such defeasance or
discharge may occur only if, among other things, we have delivered to the
trustee an opinion of counsel to the effect that we have received from, or there
has been published by, the United States Internal Revenue Service a ruling, or
there has been a change in tax law, in either case to the effect that holders of
the debt securities of such series will not recognize gain or loss for federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge were not to occur.
Defeasance
of Certain Covenants
The indenture provides that, upon our
exercise of our option to have the provisions relating to defeasance of certain
restrictive covenants applied to a particular series of the debt securities, we
may, with respect to such series, omit to comply with certain restrictive
covenants, including those described under “—Consolidation, Merger and Sale of
Assets,” and the occurrence of certain events of default, which are described
above in clause (d) under “Events of Default,” will be deemed not to be or
result in an event of default, in each case with respect to such
series.
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We, in order
to exercise such option, will be required, among other things:
(1) to
deposit, in trust for the benefit of the holders of such series of the debt
securities, money or U.S. government obligations, or both, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
interest on such series of the debt securities at maturity in accordance with
the terms of the indenture and such debt securities, and
(2) to
deliver to the trustee an opinion of counsel to the effect that holders of such
series of the debt securities will not recognize gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain obligations
and will be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and defeasance
were not to occur.
In the event we exercise this option
and the debt securities are declared due and payable because of the occurrence
of any event of default, the amount of money and U.S. government obligations so
deposited in trust would be sufficient to pay amounts due on that series of the
debt securities at maturity but may not be sufficient to pay amounts due on that
series of the debt securities upon any acceleration resulting from such event of
default. In such case, we would remain liable for such payments.
Regarding
the Trustee
The indenture provides that, except
during the continuance of an event of default, the trustee will perform only
such duties as are specifically set forth in the indenture. During the existence
of an event of default, the trustee will exercise such rights and powers vested
in it under the indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person’s own affairs.
The indenture and provisions of the
Trust Indenture Act incorporated by reference therein contain limitations on the
rights of the trustee, should it become a creditor of us, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claim as security or otherwise. The trustee is permitted to
engage in other transactions with us or any affiliate of us; provided, however,
that if it acquires any conflicting interest (as defined in the indenture or in
the Trust Indenture Act), it must eliminate such conflict or
resign.
The trustee for any debt securities
will be set forth in the applicable prospectus supplement.
Form of Debt
Securities
Each debt security will be represented
either by a certificate issued in definitive form to a particular investor or by
one or more global securities representing the entire issuance of securities.
Certificated securities in definitive form and global securities will be issued
in registered form.
Definitive securities name you or your
nominee as the owner of the security, and in order to transfer or exchange these
securities or to receive payments other than interest or other interim payments,
you or your nominee must physically deliver the securities to the trustee,
registrar, paying agent or other agent, as applicable.
Global securities name a depositary or
its nominee as the owner of the debt securities represented by these global
securities. The depositary maintains a computerized system that will reflect
each investor’s beneficial ownership of the securities through an account
maintained by the investor with its broker/dealer, bank, trust company or other
representative, as we explain more fully below.
Global
Securities
We may issue the debt securities in
whole or in part in the form of one or more fully registered global securities
that will be deposited with a depositary or its nominee identified in the
prospectus supplement relating to that series and registered in the name of that
depositary or nominee. In those cases, one or more registered global securities
will be issued in a denomination or aggregate denominations equal to the portion
of the aggregate principal or face amount of the securities to be represented by
registered global securities. Unless and until it is exchanged in whole for
securities in definitive registered form, a registered global security may not
be transferred except as a whole by and among the depositary for the registered
global security, the nominees of the depositary or any successors of the
depositary or those nominees.
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If not described below, any specific
terms of the depositary arrangement with respect to any securities to be
represented by a registered global security will be described in the prospectus
supplement relating to those securities. We anticipate that the following
provisions will apply to all depositary arrangements.
Ownership of beneficial interests in a
registered global security will be limited to persons, called participants, that
have accounts with the depositary or persons that may hold interests through
participants. Upon the issuance of a registered global security, the depositary
will credit, on its book-entry registration and transfer system, the
participants’ accounts with the respective principal or face amounts of the
securities beneficially owned by the participants. Any dealers, underwriters or
agents participating in the distribution of the securities will designate the
accounts to be credited. Ownership of beneficial interests in a registered
global security will be shown on, and the transfer of ownership interests will
be effected only through, records maintained by the depositary, with respect to
interests of participants, and on the records of participants, with respect to
interests of persons holding through participants. The laws of some states may
require that some purchasers of securities take physical delivery of these
securities in definitive form. These laws may impair your ability to own,
transfer or pledge beneficial interests in registered global
securities.
So long as the depositary, or its
nominee, is the registered owner of a registered global security, that
depositary or its nominee, as the case may be, will be considered the sole owner
or holder of the securities represented by the registered global security for
all purposes under the indenture. Except as described below, owners of
beneficial interests in a registered global security will not be entitled to
have the securities represented by the registered global security registered in
their names, will not receive or be entitled to receive physical delivery of the
securities in definitive form and will not be considered the owners or holders
of the securities under the indenture. Accordingly, each person owning a
beneficial interest in a registered global security must rely on the procedures
of the depositary for that registered global security and, if that person is not
a participant, on the procedures of the participant through which the person
owns its interest, to exercise any rights of a holder under the indenture. We
understand that under existing industry practices, if we request any action of
holders or if an owner of a beneficial interest in a registered global security
desires to give or take any action that a holder is entitled to give or take
under the indenture, the depositary for the registered global security would
authorize the participants holding the relevant beneficial interests to give or
take that action, and the participants would authorize beneficial owners owning
through them to give or take that action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal, premium, if any, and
interest payments on debt securities represented by a registered global security
registered in the name of a depositary or its nominee will be made to the
depositary or its nominee, as the case may be, as the registered owner of the
registered global security. None of EMCORE, the trustee or any agent of EMCORE
or agent of the trustee will have any responsibility or liability for any aspect
of the records relating to payments made on account of beneficial ownership
interests in the registered global security or for maintaining, supervising or
reviewing any records relating to those beneficial ownership
interests.
We expect that the depositary for any
of the securities represented by a registered global security, upon receipt of
any payment of principal, premium or interest to holders on that registered
global security, will immediately credit participants’ accounts in amounts
proportionate to their respective beneficial interests in that registered global
security as shown on the records of the depositary. We also expect that payments
by participants to owners of beneficial interests in a registered global
security held through participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the accounts of customers in bearer form or registered in “street
name,” and will be the responsibility of those participants.
If the depositary for any of these
securities represented by a registered global security is at any time unwilling
or unable to continue as depositary or ceases to be a clearing agency registered
under the Exchange Act and a successor depositary registered as a clearing
agency under the Exchange Act is not appointed by us within 90 days, we will
issue securities in definitive form in exchange for the registered global
security that had been held by the depositary. In addition, we may at any time
and in our sole discretion decide not to have any of the securities represented
by one or more registered global securities. If we make that decision, we will
issue securities in definitive form in exchange for all of the registered global
security or securities representing those securities. Any securities issued in
definitive form in exchange for a registered global security will be registered
in the name or names that the depositary gives to the trustee or other relevant
agent of ours or theirs. It is expected that the depositary’s instructions will
be based upon directions received by the depositary from participants with
respect to ownership of beneficial interests in the registered global security
that had been held by the depositary.
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DESCRIPTION
OF WARRANTS
We
may issue warrants to purchase shares of our common stock, preferred stock
and/or debt securities in one or more series together with other securities or
separately, as described in the applicable prospectus supplement. Below is a
description of certain general terms and provisions of the warrants that we may
offer. Particular terms of the warrants will be described in the warrant
agreements and the prospectus supplement to the warrants.
The
applicable prospectus supplement will contain, where applicable, the following
terms of and other information relating to the warrants:
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the
title of the warrants;
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the
offering price of the warrants;
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the
aggregate number of the warrants;
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the
currency or currency units in which the offering price, if any, and the
exercise price are payable;
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the
designation, amount and terms of the securities purchasable upon exercise
of the warrants;
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if
applicable, the exercise price for shares of our common stock and the
number of shares of common stock to be received upon exercise of the
warrants;
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if
applicable, the exercise price for shares of our preferred stock, the
number of shares of preferred stock to be received upon exercise, and a
description of that series of our preferred
stock;
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if
applicable, the exercise price for our debt securities, the amount of debt
securities to be received upon exercise, and a description of that series
of debt securities;
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the
date on which the right to exercise the warrants will begin and the date
on which that right will expire or, if you may not continuously exercise
the warrants throughout that period, the specific date or dates on which
you may exercise the warrants;
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whether
the warrants will be issued in fully registered form or bearer form, in
definitive or global form or in any combination of these forms, although,
in any case, the form of a warrant included in a unit will correspond to
the form of the unit and of any security included in that
unit;
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any
applicable material U.S. federal income tax
consequences;
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the
identity of the warrant agent for the warrants and of any other
depositaries, execution or paying agents, transfer agents, registrars or
other agents;
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the
proposed listing, if any, of the warrants or any securities purchasable
upon exercise of the warrants on any securities
exchange;
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if
applicable, the date from and after which the warrants and the common
stock, preferred stock and/or debt securities will be separately
transferable;
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if
applicable, the minimum or maximum amount of the warrants that may be
exercised at any one time;
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information
with respect to book-entry procedures, if
any;
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the
anti-dilution provisions of the warrants, if
any;
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any
redemption or call provisions;
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whether
the warrants are to be sold separately or with other securities as parts
of units; and
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any
additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
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Transfer
Agent and Registrar
The transfer agent and registrar for
any warrants will be set forth in the applicable prospectus
supplement.
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DESCRIPTION
OF UNITS
We may issue units consisting of common
stock, preferred stock, debt securities and/or warrants for the purchase of
common stock, preferred stock and/or debt securities in one or more series. In
this prospectus, we have summarized certain general features of the units. We
urge you, however, to read the prospectus supplements related to the series of
units being offered, as well as the unit agreements that contain the terms of
the units. We will file as exhibits to an amendment to the registration
statement of which this prospectus is a part, or will incorporate by reference
from a current report on Form 8-K that we file with the SEC, as applicable, the
form of unit agreement and any supplemental agreements that describe the terms
of the series of units we are offering before the issuance of the related series
of units.
We
will evidence each series of units by unit certificates that we will issue under
a separate agreement. We will enter into the unit agreements with a unit agent.
Each unit agent will be a bank or trust company that we select. We will indicate
the name and address of the unit agent in the applicable prospectus supplement
relating to a particular series of units.
PLAN
OF DISTRIBUTION
Any of
the securities being offered hereby and in any accompanying prospectus
supplement may be sold in any one or more of the following ways from time to
time:
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directly
to purchasers;
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through
agents;
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to
or through underwriters;
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through
dealers;
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directly
to our stockholders; or
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through
a combination of any such methods of
sale.
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The
distribution of the securities may be effected from time to time in one or more
transactions at a fixed price or prices, which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices.
We may
solicit offers to purchase directly. Offers to purchase securities also may be
solicited by agents designated by us from time to time. Any such agent involved
in the offer or sale of the securities in respect of which this prospectus is
delivered will be named, and any commissions payable by us to such agent will be
set forth, in the applicable prospectus supplement. Unless otherwise indicated
in such prospectus supplement, any such agent will be acting on a reasonable
best efforts basis for the period of its appointment. Any such agent may be
deemed to be an underwriter, as that term is defined in the Securities Act, of
the securities so offered and sold.
If
securities are sold by means of an underwritten offering, we will execute an
underwriting agreement with an underwriter or underwriters at the time an
agreement for such sale is reached, and the names of the specific managing
underwriter or underwriters, as well as any other underwriters, the respective
amounts underwritten and the terms of the transaction, including commissions,
discounts and any other compensation of the underwriters and dealers, if any,
will be set forth in the applicable prospectus supplement which will be used by
the underwriters to make resales of the securities in respect of which this
prospectus is being delivered to the public. If underwriters are utilized in the
sale of any securities in respect of which this prospectus is being delivered,
such securities will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices, at market prices
prevailing at the time of sale or at varying prices determined by the
underwriters at the time of sale. Securities may be offered to the public either
through underwriting syndicates represented by managing
15
underwriters
or directly by one or more underwriters. If any underwriter or underwriters are
utilized in the sale of securities, unless otherwise indicated in the applicable
prospectus supplement, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of such securities will be
obligated to purchase all such securities if any are purchased.
We may
grant to the underwriters options to purchase additional securities, to cover
over-allotments, if any, at the initial public offering price (with additional
underwriting commissions or discounts), as may be set forth in the prospectus
supplement relating thereto. If we grant any over-allotment option, the terms of
such over-allotment option will be set forth in the prospectus supplement for
such securities.
If a
dealer is used in the sale of the securities in respect of which this prospectus
is delivered, we will sell such securities to the dealer, as principal. The
dealer may then resell such securities to the public at varying prices to be
determined by such dealer at the time of resale. Any such dealer may be deemed
to be an underwriter, as such term is defined in the Securities Act, of the
securities so offered and sold. The name of the dealer and the terms of the
transaction will be set forth in the prospectus supplement relating
thereto.
Offers to
purchase securities may be solicited directly by us and the sale thereof may be
made by us directly to institutional investors or others, who may be deemed to
be underwriters within the meaning of the Securities Act with respect to any
resale thereof. The terms of any such sales will be described in the prospectus
supplement relating thereto.
We may
offer our equity securities into an existing trading market on the terms
described in the applicable prospectus supplement. Underwriters and dealers who
may participate in any at-the-market offerings will be described in the
prospectus supplement relating thereto.
Agents,
underwriters and dealers may be entitled under relevant agreements with us to
indemnification by us against certain liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments which such
agents, underwriters and dealers may be required to make in respect
thereof.
Any
underwriter may engage in stabilizing and syndicate covering transactions in
accordance with Rule 104 under Regulation M. Rule 104 permits stabilizing bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. The underwriters may over-allot shares of the
securities in connection with an offering of securities, thereby creating a
short position in the underwriters’ account. Syndicate covering transactions
involve purchases of the securities in the open market after the distribution
has been completed in order to cover syndicate short positions. Stabilizing and
syndicate covering transactions may cause the price of the securities to be
higher than it would otherwise be in the absence of such transactions. These
transactions, if commenced, may be discontinued at any time.
We may
elect to list any series of securities on an exchange but, unless otherwise
specified in the applicable prospectus supplement, we shall not be obligated to
do so. No assurance can be given as to the liquidity of the trading market for
any of the securities.
Agents,
underwriters and dealers may be customers of, engage in transactions with, or
perform services for, us and our subsidiaries in the ordinary course of
business.
The anticipated date of delivery of
securities will be set forth in the applicable prospectus supplement relating to
each offer.
Pursuant to a requirement by the
Financial Industry Regulatory Authority, or FINRA, the maximum commission or
discount to be received by any FINRA member or independent broker/dealer may not
be greater than eight percent (8%) of the gross proceeds received by us for the
sale of any securities being registered pursuant to SEC Rule 415 under the
Securities Act of 1933.
Equity
Line of Credit
On October 1, 2009, we entered into
what is sometimes termed an equity line of credit arrangement with Commerce
Court Small Cap Value Fund, Ltd., or Commerce Court. Specifically, we entered
into a Common Stock Purchase Agreement, or the Purchase Agreement, that provides
that, upon the terms and subject to the conditions set forth therein, Commerce
Court is committed to purchase up $25 million worth of shares of our common
stock over the 24-month term of the Purchase Agreement; provided, however, in no
event may we sell under the Purchase Agreement more than
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15,971,169
shares of common stock, which is equal to one share less than twenty percent of
our outstanding shares of common stock on the closing date of the Purchase
Agreement, less the number of shares of common stock we issued to Commerce Court
on the closing date in partial payment of its commitment fee. Under
the Purchase Agreement, on the closing date, we also issued warrants to purchase
up to an aggregate of 1,600,000 shares of our common stock. The terms
of the warrants are described below.
From time to time over the term of the
Purchase Agreement, and at our sole discretion, we may present Commerce Court
with draw down notices to purchase our common stock over ten consecutive trading
days or such other period mutually agreed upon by us and Commerce Court, or the
draw down period, with each draw down subject to limitations based on the price
of our common stock and a limit of 2.5% of our market capitalization at the time
of such draw down. We are able to present Commerce Court with up to 24 draw down
notices during the term of the Purchase Agreement, with only one such draw down
notice allowed per draw down period and a minimum of five trading days required
between each draw down period.
Once presented with a draw down notice,
Commerce Court is required to purchase a pro rata portion of the shares on each
trading day during the trading period on which the daily volume weighted average
price for our common stock exceeds a threshold price determined by us for such
draw down. The per share purchase price for these shares will equal the daily
volume weighted average price of our common stock on each date during the draw
down period on which shares are purchased, less a discount of 5%. If the daily
volume weighted average price of our common stock falls below the threshold
price on any trading day during a draw down period, the Purchase Agreement
provides that Commerce Court will not be required to purchase the pro-rata
portion of shares of common stock allocated to that day. However, at its
election, Commerce Court may buy the pro-rata portion of shares allocated to
that day at the threshold price less the discount described above.
The Purchase Agreement also provides
that, from time to time and at our sole discretion, we may grant Commerce Court
the right to exercise one or more options to purchase additional shares of our
common stock during each draw down period for an amount of shares specified by
us based on the trading price of our common stock. Upon Commerce Court’s
exercise of an option, we would sell to Commerce Court the shares of our common
stock subject to the option at a price equal to the greater of the daily volume
weighted average price of our common stock on the day Commerce Court notifies us
of its election to exercise its option or the threshold price for the option
determined by us, less a discount calculated in the same manner as it is
calculated in the draw down notices.
In addition to our issuance of shares
of common stock to Commerce Court pursuant to the Purchase Agreement, the
registration statement to which this prospectus relates also covers the sale of
those shares from time to time by Commerce Court to the public. Commerce Court
is an “underwriter” within the meaning of Section 2(a)(11) of the Securities
Act. Commerce Court has informed us that it will use an unaffiliated
broker-dealer to effectuate all sales, if any, of common stock that it may
purchase from us pursuant to the Purchase Agreement. Such sales will be made on
the Nasdaq Global Market at prices and at terms then prevailing or at prices
related to the then current market price. Each such unaffiliated broker-dealer
will be an underwriter within the meaning of Section 2(a)(11) of the Securities
Act. Commerce Court has informed us that each such broker-dealer will receive
commissions from Commerce Court which will not exceed customary brokerage
commissions. Commerce Court may also pay other expenses associated with the sale
of the common stock it acquires pursuant to the Purchase Agreement.
The shares of common stock issued under
the Purchase Agreement may be sold in one or more of the following
manners:
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ordinary
brokerage transactions and transactions in which the broker solicits
purchasers; or
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a
block trade in which the broker or dealer so engaged will attempt to sell
the shares as agent, but may position and resell a portion of the block as
principal to facilitate the
transaction.
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Commerce Court has agreed that during
the term of and for a period of 90 days after the termination of the Purchase
Agreement, neither Commerce Court nor any of its affiliates will, directly or
indirectly, sell any of our securities except the shares that it owns or has the
right to purchase pursuant to the provisions of a draw down notice. Commerce
Court has agreed that during the periods listed above neither it nor any of its
affiliates will enter into a short position with respect to shares of our common
stock except that Commerce Court may sell shares that it is obligated to
purchase under a pending draw down notice but has not yet taken possession of so
long as Commerce Court covers any such sales with the shares purchased pursuant
to such draw down notice. Commerce Court has further agreed that during the
periods listed
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above it
will not grant any option to purchase or acquire any right to dispose or
otherwise dispose for value of any shares of our common stock or any securities
convertible into, or exchangeable for, or warrants to purchase, any shares of
our common stock, or enter into any swap, hedge or other agreement that
transfers, in whole or in part, the economic risk of ownership of our common
stock, except for the sales permitted by the prior two sentences.
In addition, Commerce Court and any
unaffiliated broker-dealer will be subject to liability under the federal
securities laws and must comply with the requirements of the Securities Act and
the Exchange Act, including, without limitation, Rule 10b-5 and Regulation M
under the Exchange Act. These rules and regulations may limit the timing of
purchases and sales of shares of common stock by Commerce Court or any
unaffiliated broker-dealer. Under these rules and regulations, Commerce Court
and any unaffiliated broker-dealer:
·
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may
not engage in any stabilization activity in connection with our
securities;
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must
furnish each broker which offers shares of our common stock covered by the
prospectus that is a part of our Registration Statement with the number of
copies of such prospectus and any prospectus supplement which are required
by each broker; and
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may
not bid for or purchase any of our securities or attempt to induce any
person to purchase any of our securities other than as permitted under the
Exchange Act.
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These restrictions may affect the
marketability of the shares of common stock purchased and sold by Commerce Court
and any unaffiliated broker-dealer.
We have agreed to indemnify and hold
harmless Commerce Court, any unaffiliated broker-dealer and each person who
controls Commerce Court or any unaffiliated broker-dealer against certain
liabilities, including certain liabilities under the Securities Act. We have
agreed to pay up to $45,000 of Commerce Court’s attorneys’ fees and expenses
incurred by Commerce Court in connection with the preparation, negotiation,
execution and delivery of the Purchase Agreement and related transaction
documentation. We have also agreed to pay certain fees and expenses incurred by
Commerce Court in connection with any amendments, modifications or waivers of
the Purchase Agreement, ongoing due diligence of our company and other
transaction expenses associated with fixed requests made by us from time to time
during the term of the Purchase Agreement, provided that we shall not be
required to pay any reimbursement for any such expenses in any calendar quarter
in which we provide a fixed request notice. Further, if we issue a draw down
notice and fail to deliver the shares to Commerce Court on the applicable
settlement date, and such failure continues for ten trading days, we have agreed
to pay Commerce Court liquidated damages in cash or restricted shares of our
common stock, at Commerce Court’s option.
Commerce Court has agreed to indemnify
and hold harmless us and each of our directors, officers and persons who control
us against certain liabilities under the Securities Act that may be based upon
written information furnished by Commerce Court to us for inclusion in this
prospectus or any other prospectus or prospectus supplement related to this
transaction.
Upon each sale of our common stock to
Commerce Court under the Purchase Agreement, we have also agreed to pay Reedland
Capital Partners, an Institutional Division of Financial West Group, a placement
fee equal to 1% of the aggregate dollar amount of common stock purchased by
Commerce Court. We have agreed to indemnify and hold harmless Reedland against
certain liabilities, including certain liabilities under the Securities
Act.
As payment of a portion of Commerce
Court’s fees in connection with the Purchase Agreement, we agreed to issue to
Commerce Court upon the execution of the Purchase Agreement 185,185 shares of
our common stock and three warrants representing the right to purchase up to an
aggregate of 1,600,000 shares of our common stock, as follows: (i) a
warrant, pursuant to which Commerce Court may purchase up to 666,667 shares of
our common stock at an initial exercise price of $1.69, which is equal to 125%
of the average of the volume weighted average price of our common stock for the
three trading days immediately preceding the execution date of the Purchase
Agreement, (ii) a warrant, pursuant to which Commerce Court may purchase from up
to 666,667 shares of our common stock at an initial exercise price of $2.02,
which is equal to 150% of the average of the volume weighted average price of
our common stock for the three trading days immediately preceding the execution
date of the Purchase Agreement, and (iii) a warrant, pursuant to which Commerce
Court may purchase up to 266,666 shares of our common stock at an initial
exercise price of $2.36, which is equal to 175% of the average of the volume
weighted average price of our common stock for the three trading days
immediately preceding the execution date of the Purchase Agreement. The warrants
may be exercised at any time or from time to time between April 1, 2010 and
April 1, 2015. The warrants may not be offered for sale, sold,
transferred or assigned without our consent, in whole or in part, to any person
other than an affiliate of Commerce Court. If we (i) pay a stock
dividend on our
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common
stock or otherwise make a distribution that is payable in shares of common
stock, (ii) subdivide our common stock into a larger number of shares or (iii)
combine our then outstanding shares of common stock into a smaller number of
shares, then in each case the exercise price of the warrants and the number of
shares issuable upon the exercise of the warrants will be proportionately
adjusted. If after April 1, 2010, our common stock trades at a price
greater than 140% of the exercise price of any warrant for a period of 10
consecutive trading days and we meet certain equity conditions, then we have the
right to effect a mandatory exercise of such warrant.
ANTITAKEOVER
EFFECTS OF PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND AMENDED
BY-LAWS
Our Board
of Directors is divided into three classes. As a result of this provision, at
least two annual meetings of shareholders may be required for shareholders to
change a majority of the Board of Directors. Our by-laws provide that the Board
of Directors shall consist of not less than six nor more than twelve members,
with the exact number to be determined by the vote of not less than 66 2/3 % of
the Board of Directors from time to time. Directors are elected to serve
staggered three-year terms and are not subject to removal except for cause by
the vote of the holders of at least 80% of our capital stock. Unless otherwise
required by law, vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors or the removal of
directors, may only be filled by an affirmative vote of 66 2/3% of the directors
then in office. The classification of directors, the ability of the
Board of Directors to increase the number of directors, the inability of the
shareholders to remove directors without cause or fill vacancies on the Board of
Directors and the inability of holders of less than 80% of our capital stock to
remove directors even with cause will make it more difficult to change the Board
of Directors, and will promote the continuity of existing
management.
These and
other provisions also may have the effect of deterring, preventing or delaying
changes in control or management. These provisions are intended to enhance the
likelihood of continued stability in the composition of the Board of Directors
and in the policies furnished by the Board of Directors and to discourage types
of transactions that may involve an actual or threatened change of control.
These provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage tactics
that may be used in proxy fights. However, such provisions could have the effect
of discouraging others from making tender offers for our shares and, as a
consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in our
management.
NEW
JERSEY SHAREHOLDERS PROTECTION ACT
The New
Jersey Shareholders Protection Act, NJSA 14A:10A−1 et seq., which we refer to as
New Jersey Act, prohibits certain New Jersey corporations, such as us following
this offering, from entering into certain “business combinations” with an
“interested shareholder” (any person who is the beneficial owner of 10% or more
of such corporation’s outstanding voting securities) for five years after such
person became an interested shareholder, unless the business combination or the
interested shareholder’s acquisition of stock was approved by the corporation’s
Board of Directors prior to such interested shareholder’s stock acquisition
date. After the five-year waiting period has elapsed, a business combination
between such corporation and an interested shareholder will be prohibited unless
the business combination is approved by the holders of at least two-thirds of
the voting stock not beneficially owned by the interested shareholder, or unless
the business combination satisfies the New Jersey Act’s fair price provision
intended to provide that all shareholders (other than the interested
shareholders) receive a fair price for their shares.
The New
Jersey Act defines “business combination” to include the following transactions
between a corporation or a subsidiary and an interested shareholder or such
interested shareholder’s affiliates: (1) the merger or consolidation of the
corporation with the interested shareholder or any corporation that after the
merger or consolidation would be an affiliate or associate of the interested
shareholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with the interested shareholder, which has an aggregate market
value equal to 10% or more of the aggregate market value of all of the assets or
of the outstanding stock, or 10% or more of the income of the corporation or its
subsidiaries; (3) the issuance or transfer to the interested shareholder of any
stock of the corporation having an aggregate
19
market
value equal to or greater than 5% of the corporation’s outstanding stock; (4)
the adoption of a plan or proposal for the liquidation or dissolution of the
corporation proposed by the interested shareholder; (5) any reclassification of
securities proposed by the interested shareholder that has the effect, directly
or indirectly, of increasing any class or series of stock that is owned by the
interested shareholder; and (6) the receipt by the interested shareholder of any
loans or other financial assistance from the corporation.
The New
Jersey Act does not apply to certain business combinations, including those with
persons who acquired 10% or more of the voting power of the corporation prior to
the time the corporation was required to file periodic reports pursuant to the
Exchange Act or prior to the time the corporation’s securities began to trade on
a national securities exchange.
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LEGAL
MATTERS
The
validity of the shares of common stock offered hereby will be passed upon by
Jenner & Block LLP and, with respect to matters governed by New Jersey law,
by Dillon, Bitar & Luther, L.L.C.
EXPERTS
The consolidated financial statements
incorporated in this Prospectus by reference from the Company’s Annual Report on
Form 10-K, and the effectiveness of EMCORE Corporation's internal control over
financial reporting have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports which
are incorporated herein by reference (which reports (1) express an unqualified
opinion on the consolidated financial statements and include an explanatory
paragraph relating to the Company’s ability to continue as a going concern and
(2) express an unqualified opinion on the effectiveness of internal control over
financial reporting). Such financial statements have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document that we file at the Public
Reference Room of the SEC located at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site at www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically, including
EMCORE. Except as expressly set forth under “Information Incorporated by
Reference,” we are not incorporating the contents of the SEC website into this
prospectus.
We have
filed with the SEC a registration statement on Form S-3 (together with all
amendments and exhibits, the “registration statement”) under the Securities Act
of 1933, as amended with respect to the offering of common stock. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement. Certain
parts of the registration statement are omitted from the prospectus in
accordance with the rules and regulations of the SEC.
Our
common stock is listed on The NASDAQ Global Market and similar information can
be inspected and copied at the offices of the Financial Industry Regulatory
Authority, 1735 K Street, N.W., Washington, D.C. 20006.
21
INFORMATION
INCORPORATED BY REFERENCE
The SEC
allows us to incorporate by reference in this prospectus the information in
documents we file with the SEC, which means that we can disclose important
information to you by referring you to those documents. The
information in this prospectus updates (and, to the extent of any conflict,
supersedes) information incorporated by reference that we have filed with the
SEC prior to the date of this prospectus. You should read all of the
information incorporated by reference because it is an important part of this
prospectus.
We
incorporate by reference the documents listed below and any future filings made
with the SEC by us under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until we sell all of the securities (other than filings or
portions of filings that are furnished under applicable SEC rules rather than
filed):
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Annual
report on Form 10-K for the fiscal year ended September 30, 2008, filed
with the SEC on December 30, 2008, as amended by the Form 10-K/A filed on
January 28, 2009.
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•
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Definitive
Proxy Statement pursuant to Section 14(a) of the Exchange Act, filed with
the SEC on March 27, 2009.
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Quarterly
Reports on Form 10-Q for the quarters ended December 31, 2008, March 31,
2009, and June 30, 2009, filed with the SEC on February 17, 2009, May 11,
2009, and August 17, 2009, respectively.
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•
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Current
Reports on Forms 8-K filed with the SEC on February 10, 2009, March 6,
2009, May 6, 2009, May 15, 2009, June 4, 2009, August 18, 2009, September
16, 2009, and October 1, 2009.
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•
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The
description of our common stock contained in our Registration Statement on
Form 8-A filed with the SEC on February 26,
1997.
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You may
also find additional information about us, including the documents mentioned
above, on our website at www.emcore.com. The information included or
linked to this website is not a part of this prospectus.
We hereby
undertake to provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon written or oral
request of any such person, a copy of any and all of the reports or documents
that have been incorporated by reference in this prospectus, other than exhibits
to such documents unless such exhibits have been specifically incorporated by
reference thereto. Requests for such copies should be directed to our Investor
Relations department, at the following address:
EMCORE
Corporation
10420
Research Road, SE
Albuquerque,
New Mexico 87123
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PROSPECTUS