EXHIBIT 10.19
Published on December 31, 2007
Exhibit
10.19
UNITED
STATES DISTRICT
COURT
FOR
THE DISTRICT OF NEW JERSEY
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LEWIS
EDELSTEIN, Derivatively
on
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Behalf
of Nominal
Defendant
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No.
07-00596
(FLW)
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EMCORE
CORPORATION,
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Plaintiff,
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v.
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HOWARD
W. BRODIE, REUBEN
F.
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RICHARDS,
JR., RICHARD A.
STALL,
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THOMAS
G. WERTHAN,
CRAIG
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FARLEY,
THOMAS GMITTER,
SCOTT
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MASSIE,
THOMAS J.
RUSSELL,
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ROBERT
LOUIS-DREYFUS,
ROBERT
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BOGOMOLNY,
CHARLES SCOTT
and
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JOHN
GILLEN,
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Defendants,
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and
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EMCORE
CORPORATION,
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Nominal
Defendant.
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KATHRYN
Y. GABALDON,
Derivatively
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On
Behalf of Nominal
Defendant
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No.
07-03185(FLW)
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EMCORE
CORPORATION,
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Plaintiff,
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v.
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HOWARD
W. BRODIE, et
al.,
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Defendants,
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and
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EMCORE
CORPORATION,
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Nominal
Defendant.
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MICHAEL
J. SACKRISON,
Derivatively
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On
Behalf of Nominal
Defendant
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No.
07-03186(FLW)
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EMCORE
CORPORATION,
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Plaintiff,
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v.
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HOWARD
W. BRODIE, et
al.,
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Defendants,
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and
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EMCORE
CORPORATION,
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Nominal
Defendant.
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STIPULATION
OF COMPROMISE
AND SETTLEMENT
This
Stipulation of Compromise and Settlement is made and entered into, subject
to
the approval of the Court, by and among (i) plaintiffs Lewis Edelstein, Kathryn
Y. Gabaldon and Michael J.
Sackrison, who have brought suit derivatively for and on behalf of
Nominal Defendant EMCORE Corporation (“EMCORE” or the “Company”), (ii)
Individual Defendants Howard W. Brodie, Reuben F. Richards, Jr., Richard
A.
Stall, Thomas G. Werthan, Craig Farley, Thomas Gmitter, Scott Massie, Thomas
J.
Russell, Robert Louis-Dreyfus, Robert Bogomolny, Charles Scott and John Gillen
and (iii) Nominal Defendant EMCORE.
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I.
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DEFINITIONS
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As
used
in this Stipulation, the following terms shall have the meanings specified
below:
1.1 “Actions”
means the Edelstein Action and the Gabaldon and Sackrison Actions, collectively,
as defined below.
1.2 “Board”
means the Board of Directors of EMCORE.
1.3 “Complaints”
means the complaints filed in the Actions.
1.4 “Court”
means the United States District Court for the District of New Jersey.
1.5 “Defendants”
means the Individual Defendants and the Nominal Defendant, collectively.
1.6 “Defendants’
Counsel” means all counsel for the Individual Defendants and the Nominal
Defendant, collectively.
1.7 “Edelstein”
means plaintiff in the Edelstein Action, Lewis Edelstein.
1.8 “Effective
Date” means the date of completion of the following: (a) (1) entry of
an Order and Final Judgment which approves in all material
respects: (i) the dismissal with prejudice of the claims that have
been made in the Actions and (ii) the releases provided for in the Stipulation;
and (2) either (i) expiration of the time to appeal or otherwise seek review
of
the Order and Final Judgment, as defined herein, without any appeal having
been
taken or review sought, or (ii) if an appeal is taken or review sought,
the
expiration of five (5) days after an appeal or review shall have been dismissed
or finally determined by the highest court before which such appeal or
review is
sought and which affirms the material terms of the Settlement and/or Order
and
Final Judgment and is not subject to further judicial review; and (b) entry
of
the final Court order regarding approval of Fees and Expenses.
3
1.9 “Edelstein
Action” means Edelstein v.
Brodie, et al., Case No. 07-00596, filed in the Court.
1.10 “Final”
means no longer subject to review upon appeal or review in connection with
a
Petition for Writ of Certiorari or other similar writ, whether by exhaustion
of
any possible appeal, lapse of time or otherwise.
1.11 “Gabaldon
and Sackrison Actions” means the actions captioned Gabaldon v. Brodie,
et al.,
Docket No. SOM-C-012038-07 and Sackrison v. Brodie, et al.,
Docket No. SOM-C-012037-07, which were commenced on or about May 22, 2007,
in
the Superior Court of New Jersey, Chancery Division, Somerset County, and
subsequently removed to this Court.
1.12 “Individual
Defendants” means Howard W. Brodie, Reuben F. Richards, Jr., Richard A. Stall,
Thomas G. Werthan, Craig Farley, Thomas Gmitter, Scott Massie, Thomas J.
Russell, Robert Louis-Dreyfus, Robert Bogomolny, Charles Scott, and John
Gillen.
1.13 “MOU”
means the Memorandum of Understanding entered into by the Parties in the
Edelstein Action on or about September 26, 2007 outlining the terms agreed
upon
by the Parties therein for the settlement of the Edelstein Action.
1.14 “Nominal
Defendant,” “EMCORE” and the “Company” mean EMCORE Corporation.
1.15 “Nominal
Defendant’s Counsel” means Jenner & Block LLP and Carella, Byrne, Bain,
Gilfillan, Cecchi, Stewart & Olstein.
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1.16 “Notice”
means the Notice of Pendency and Settlement of Actions.
1.17 “Order
and Final Judgment” means an order and Final judgment.
1.18 “Parties”
means the Plaintiffs, the Individual Defendants and the Nominal Defendant.
1.19 “Person”
means a natural person, individual, corporation, partnership, limited
partnership, limited liability partnership, limited liability company,
association, joint venture, joint stock company, estate, legal representative,
trust, unincorporated association, government or any political subdivision
or
agency thereof, any business or legal entity, and any spouse, heir, legatee,
executor, administrator, predecessor, successor, representative, or assign
of
any of the foregoing.
1.20 “Plaintiffs”
means Lewis Edelstein, Kathryn Y. Gabaldon and Michael J. Sackrison.
1.21 “Plaintiffs’
Counsel” means Schiffrin Barroway Topaz & Kessler, LLP, Stull, Stull &
Brody, and Weiss & Lurie.
1.22 “Preliminary
Order” means an order preliminarily approving the Stipulation and the form of
Notice.
1.23 “Related
Persons” means, with respect to any Person, such Person’s present and former
parent entities, subsidiaries (direct or indirect) and affiliates, and
each of
their respective present and former shareholders, general partners, limited
partners, affiliates, divisions, joint ventures, partnerships, officers,
directors, employees, agents, representatives, attorneys, excess insurers,
experts, advisors, investment advisors, underwriters, fiduciaries, trustees,
auditors, accountants, representatives, spouses and immediate family members,
and the predecessors, heirs, legatees, successors, assigns, agents, executors,
devisees, personal representatives, attorneys, advisors and administrators
of
any of them, and the predecessors, successors, and assigns of each of the
foregoing, and any other Person in which any such Person has or had a
controlling interest or which is or was related to or affiliated with such
Person, and any trust of which such Person is the settler or which is for
the
benefit of such Person or member(s) of his or her family.
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1.24 “Released
Claims” means any and all claims, rights or causes of action, or liabilities
whatsoever, whether asserted directly, individually, derivatively, or in
a
representative capacity, whether known or unknown or suspected to exist,
whether
based on federal, state, local, statutory, common, foreign, international,
or
any other law, rule, or regulation, and whether fixed or contingent, accrued
or
unaccrued, liquidated or unliquidated, or matured or unmatured, that have
been
or could have been asserted against the Individual Defendants, nominal
defendant
EMCORE, and each of their respective parents, subsidiaries, affiliates,
predecessors, successors, agents, advisors or consultants (including, without
limitation, any of their present or former officers, directors, the Board
of
Directors and any Committees of the Board of Directors, employees, agents,
consultants, attorneys, stockholders, financial advisors, accountants,
commercial bank lenders, investment bankers, representatives, affiliates,
associates, parents, subsidiaries, general and limited partners and
partnerships, heirs, executors, administrators, successors, and assigns),
which
arise out of or relate in any way to the allegations, transactions, acts,
facts,
matters or occurrences, representations, or omissions described, set forth,
or
referred to in the Complaints or any amendment thereof, including but not
limited to (1) claims related to options back-dating, forward-dating,
spring-loading, bullet-dodging, or any other options dating practice, procedure
or policy, (2) claims for breach of fiduciary duty, insider trading,
misappropriation of information, failure to disclose, abuse of control,
breach
of EMCORE’s policies or procedures, waste, mismanagement, gross mismanagement,
unjust enrichment, misrepresentation, fraud, violations of law, money damages,
or other relief and (3) claims that arise out of or relate in any way to
any
stock-option grants made since the inception of EMCORE through the effective
date of this Settlement.
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1.25 “Released
Parties” means the Defendants and their Related Persons.
1.26 “SEC”
means the Securities and Exchange Commission.
1.27 “Settlement”
means the settlement and compromise of the Actions as provided for herein.
1.28 “Settlement
Hearing” means the hearing or hearings at which the Court will review the
adequacy, fairness, and reasonableness of the Settlement, and whether the
application of Plaintiffs’ Counsel for the Fees and Expenses award should be
approved.
1.29 “Special
Committee” means the special committee of the Board of Directors appointed to
review the Company’s historical stock option grant procedures.
1.30 “Stipulation”
means this Stipulation of Settlement.
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II.
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FACTUAL
AND PROCEDURAL HISTORY
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2.1 On
February 2, 2007, plaintiff Edelstein, by and through his counsel Schiffrin
Barroway Topaz & Kessler, LLP, commenced a derivative action captioned Edelstein v. Brodie,
et al.,
Case No. 07-00596 (FLW), in the United States District Court for the District
of
New Jersey.
2.2 The
Edelstein Action was brought by a shareholder of EMCORE on behalf of Nominal
Defendant EMCORE and alleges that, from 1999 to 2006 (the “Relevant Period”),
stock option grants to officers and directors of the Company were improperly
“backdated.”
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2.3 On
November 6, 2006, in the Company’s Form 8-K filing, EMCORE announced that the
Special Committee had concluded that it is likely that the measurement
dates for
certain EMCORE stock option grants differed from the recorded grant dates
for
such awards.
2.4 On
November 15, 2006, EMCORE announced the results of its stock option grant
review
and the expectation that it would record non-cash charges for a stock-based
compensation expense of approximately $24 million.
2.5 The
Special Committee recommended certain remedial measures to address these
issues,
which the Company has implemented.
2.6 EMCORE
has produced certain nonpublic documents to Edelstein’s counsel relating to the
stock option granting practices of EMCORE during the Relevant Period.
2.7 Counsel
for Edelstein conferred with counsel for EMCORE on multiple occasions to
discuss
possible additional remedial measures beyond those recommended by the Special
Committee and to discuss the documents provided to Edelstein’s counsel.
2.8 On
May
22, 2007, plaintiffs Gabaldon and Sackrison, by and through their counsel
Stull
Stull & Brody and Weiss & Lurie, commenced derivative actions captioned
Gabaldon v. Brodie,
et
al., Docket No. SOM-C-012038-07 and Sackrison v.
Brodie, et al.,
Docket No. SOM-C-012037-07, in the Superior Court of New Jersey, Chancery
Division, Somerset County.
2.9 The
Gabaldon and Sackrison Actions were also brought by shareholders of EMCORE
on
behalf of Nominal Defendant EMCORE and allege that, from 1999 to 2006,
stock
option grants to officers and directors of the Company were improperly
“backdated.”
2.10 On
or
about July 10, 2007, Defendants removed the Gabaldon and Sackrison Actions
to
federal court.
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2.11 The
Gabaldon and Sackrison Actions remain in federal court and are currently
captioned Gabaldon v. Brodie,
et al., Case No. 07-civ-03185(FLW)(JJH), and Sackrison v.
Brodie, et al.,
Case No. 07-civ-03186(FLW)(JJH).
2.12 EMCORE,
the Individual Defendants and Plaintiffs, by and through their undersigned
attorneys, have engaged in good-faith, arms-length discussions with regard
to
the settlement of the Actions.
2.13 Following
negotiations between plaintiff Edelstein, the Individual Defendants, and
the
Nominal Defendant, plaintiff’s counsel in the Edelstein Action and Defendants’
Counsel reached an agreement-in-principle providing for the Settlement
on the
terms and conditions set forth below, and the Parties believe that the
Settlement is in the best interests of the Parties.
2.14 On
or
about September 26, 2007, plaintiff Edelstein, the Individual Defendants
and the
Nominal Defendant entered into the MOU, pursuant to which the Parties in
the
Edelstein Action agreed to enter into the Settlement outlined in this
Stipulation.
2.15 Defendants
do not admit and expressly deny all of Plaintiffs’ claims in the Actions.
2.16 Plaintiffs
acknowledge and agree that the execution of the Stipulation by the Individual
Defendants is not an admission on the part of any of the Individual Defendants
that they have in any way committed or attempted to commit any alleged
violation
of law or breach of fiduciary duty, including a breach of any duty to EMCORE
or
its shareholders, or otherwise acted in any improper manner.
2.17 Plaintiffs
do not admit that any of their claims lack merit.
2.18 Both
Plaintiffs and EMCORE believe that the proposed Settlement is in the best
interests of EMCORE and EMCORE’s shareholders.
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NOW,
THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and between the undersigned
counsel for the Parties herein, and subject to the approval of the Court
pursuant to FED. R. CIV. P. 23.1, that all claims and causes of action that
have
been or could have been set forth in the Complaints in the Actions or any
amendment thereof, and all claims or causes of action in any way relating
to or
arising out of any of the acts, transactions and occurrences that were or
could
have been set forth therein, shall be and hereby are compromised, settled,
discontinued and dismissed with prejudice and without costs (except as defined
herein) as to all Defendants upon the following terms and
conditions.
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III.
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SETTLEMENT
OF THE ACTIONS
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3.1
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Principal
Terms of Settlement.
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a.
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Stock
Option Grants
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(1)
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Stock
options granted to newly hired employees shall be granted to such
employees on their first day of employment or on the date of Compensation
Committee approval with an exercise price not less than 100% of
the fair
market value of the Company's stock, as defined by the Company's
applicable stock option plan. The Company’s Compensation Committee, after
consultation with counsel, has determined that the historical practice
of
using the closing price on the grant date is consistent with the
terms of
the Plan and has memorialized that practice in a formal amendment
as
reported on a Form 8-K dated April 19, 2007.1
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_____________________
1“Fair
Market
Value” of a share of Stock as of a given date shall be: (i) if the Stock
is listed or admitted to trading on an established stock exchange (including,
for this purpose, The Nasdaq Global Market that comprises part of The Nasdaq
Stock Market), the closing sale price for a share of Stock on the composite
tape
or in Nasdaq Global Market trading as reported in The Wall Street Journal
(or,
if not so reported, such other nationally recognized reporting source as
the
Committee shall select) for such date, or, if no such price is reported
for such
date, the most recent day for which such price is available shall be used;
(ii)
if the Stock is not then listed or admitted to trading on such a stock
exchange,
the closing sale price for a share of Stock on such date as reported by
The
Nasdaq Capital Market or, if not so reported, by the OTC Bulletin Board
(or any
successor or similar quotation system regularly reporting the market value
of
the Stock in the over-the-counter market), or, if no such price is reported
for
such date, the most recent day for which such price is available shall
be used;
or (iii) in the event neither of the valuation methods provided for in
clauses
(i) and (ii) above is practicable, the fair market value of a share of
Stock
determined by such other reasonable valuation method as the Committee shall,
in
its discretion, select and apply in good faith as of the given date; provided, however, that for
purposes of paragraphs (a) and (b) of Section 6 of EMCORE’s Amended and Restated
2000 Stock Option Plan, such fair market value shall be determined subject
to
Section 422(c)(7) of the Internal Revenue Code of 1986.
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(2)
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The
Company shall not change the exercise prices of any stock options
after
Compensation Committee approval, nor exchange stock options for
other
stock options with lower exercise prices.
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(3)
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The
Company will prohibit any additions or modifications to the number
of
stock options granted to any employee after the Compensation Committee
has
approved the grants.
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(4)
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With
respect to any yearly retention grants to employees, the Company
will
maintain the practice of awarding any retention grants to senior
management on the same date and with the same exercise price as
any
retention grants awarded to non-senior management employees.
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(5)
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The
exercise prices for all stock options granted to employees, except
new-hire grants, shall be set at the closing price of the Company's
common
stock on the date on which the Compensation Committee approves
the grants.
Plaintiffs require that the exercise prices of all stock options
shall be
at least 100% of the fair market value of the Company's stock,
as defined
by the Company's applicable stock option plan, on the date on which
the
Compensation Committee approves the grants.
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(6)
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Other
than new-hire grants, the Company’s CEO and Vice President of Human
Resources will recommend to the Compensation Committee the recipients
of
grants and amount of stock options to be awarded to each
grantee. The Compensation Committee may consider and approve
the CEO’s and Vice President of Human Resources’ recommendations in the
exercise of their own judgment. The Compensation Committee
shall make grant determinations only at duly convened meetings
and not
through unanimous written consents.
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(7)
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All
stock option grants will be communicated to employees as soon as
practicable after the grant date, as required by applicable accounting
rules. Plaintiffs require written documentation identifying grantees,
amounts and prices of all stock options granted on a particular
date which
shall be complete and final and approved by all members of the
Compensation Committee on the date of grant.2 Grant
packages
shall be distributed to employees on or as soon as practicable
following
the grant date. In the event such grant package is not available
for
distribution as of the grant date, an electronic communication
shall be
sent to the respective employee within two business days of the
grant
date. Additionally, Plaintiffs require that this signed documentation
shall be transmitted to the Company's legal and accounting departments
within seven (7) days of the grant.
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_____________________
2
Approval
of grants will only occur at a duly convened meeting of the Compensation
Committee. However, many meetings are telephonic. It is
impractical to ask each member of the committee to sign the grant list
at the
time of the meeting as that presents the same potential problem as unanimous
written consents.
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(8)
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The
Company will designate a member of its in-house legal and accounting
staffs to oversee documentation and accounting for all stock
option
grants. Plaintiffs require that the Compensation Committee shall
designate
one Company legal officer and one Company accounting officer
who shall be
responsible for ensuring compliance with applicable laws and
regulations
by option grantees (e.g., timely and accurate filing of SEC Forms
3, 4 and
5) and shall provide effective monitoring mechanisms to ensure
that such
laws and regulations, and the Company's policies, procedures
and stock
option plans, are followed.
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(9)
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The
Board of Directors will conduct a biannual review of all new-hire
grants
to ensure compliance with the Company's policies and procedures.
Plaintiffs require that the Board shall biannually conduct a review
of all
stock option grants to ensure compliance with the Company's policies,
procedures and stock option plans.
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(10)
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The
Company will monitor industry and regulatory practices and revise
its
practices as developments occur. Plaintiffs require that management
shall
annually assess the adequacy of the Company's internal controls
with
regard to stock option grants and shall report its assessment in
the
Company's annual report on internal controls pursuant to section
404 of
the Sarbanes-Oxley Act.
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(11)
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Grants
of stock options to new hires shall vest over a five-year period,
20%
vesting per year. Retention grants for existing employees shall
vest over
a four-year period, 25% vesting per year.
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(12)
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The
Company will comply with SEC disclosure rules regarding the grantees,
amounts, dates, prices and vesting schedules of stock options.
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(13)
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The
Company shall maintain all documentation relating to all stock
option
grants until at least seven (7) years after the expiration of the
pertinent stock option grants.
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b.
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Insider
Trading Policy
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(1)
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The
Company shall maintain an Insider Trading Policy that provides
as follows:
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(a)
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The
Insider Trading Policy shall specifically prohibit all Company
directors,
officers and employees from trading in Company securities while
in
possession of material nonpublic information regarding the Company,
including, but not limited to, (i) information regarding actual
or
estimated results of operations and earnings; (ii) proposals or
agreements
relating to mergers, acquisitions or divestitures; and (iii) information
regarding significant contracts, patents or new product development.
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(b)
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The
Insider Trading Policy shall encourage all directors and Section
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officers who wish to trade in Company securities to adopt a valid
trading
plan pursuant to SEC Rule 10b-5-1.
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(c)
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The
Insider Trading Policy shall require all Company employees who
wish to
trade in Company securities to do so only within prescribed "trading
windows." Each quarter there will be a Blackout Period beginning
on the
last day of the quarter and running until the business day after
the
earnings conference call of such quarter. For example, with respect
to the
quarter ended March 31, if the earnings call is scheduled for Friday,
May
3, the Blackout Period would run from March 31 through May 6, and
trading
could resume on May 7. In addition, from time to time as a result
of
material corporate developments, the Company may impose additional
Blackout Periods during which no trading may occur. All Executives
will be
notified of the commencement and end of such Blackout Periods by
the CFO
or the General Counsel.
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(2)
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The
Board shall appoint the Company's General Counsel or another senior
officer to serve as the Company's "Trading Compliance Officer."
The Trading Compliance Officer shall be responsible for developing
(along
with the full Board); presenting to the Board for approval; and
monitoring
and updating a comprehensive program (the "Trading Compliance Program")
designed to ensure compliance with the foregoing insider trading
policies
and providing for appropriate sanctions for noncompliance. The
independent directors shall be responsible for direct oversight
of the
Trading Compliance Program and the Trading Compliance Officer and
shall
have regular access to the Trading Compliance Officer, including
the
opportunity to meet with the Trading Compliance Officer outside
the
presence of any other senior executives.
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13
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c.
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Board
of Directors
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(1)
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The
Company shall revise its articles of incorporation and/or by-laws
to
require that at least a majority of the members of the Board be
independent, where independence is defined as follows:
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(a)
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is
not, and in the past three years has not been, employed by the
Company or
any of its subsidiaries or affiliates;
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(b)
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does
not receive, and in the past three years has not received, any
remuneration as an advisor, consultant or legal counsel to the
Company or
any of its subsidiaries, affiliates, executive officers or directors;
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(c)
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does
not have, and in the past three years has not had, any contract
or
agreement with the Company or any of its subsidiaries or affiliates
pursuant to which the director performed or agreed to perform any
personal
services for the Company;
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(d)
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does
not have, and in the past three years has not had, any business
relationship or engaged in any transaction with the Company or
any of its
subsidiaries or affiliates other than his or her service as a director;
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(e)
|
is
not, and in the past three years has not been, affiliated with,
or
employed by any present or former independent auditor of the Company
or
any of its subsidiaries or affiliates;
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(f)
|
is
not, and in the past three years has not been, a director or executive
officer of any company for which any executive officer of EMCORE
Corporation serves as a director; and
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(g)
|
is
not a member of the immediate family of a person who is not independent
pursuant to subsections a-f above.
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(2)
|
Each
independent director shall certify in writing that he or she is
independent as defined above and shall immediately inform the Board
of any
change in his or her independent status.
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14
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(3)
|
In
the event that the Chairman of the Board is not an independent
director,
the independent directors shall annually elect or reaffirm by majority
vote a Lead Independent Director. The holder of the Lead Independent
Director position shall rotate at least once every two years. In
addition
to the duties of all Board members, which shall not be limited
or
diminished by the Lead Independent Director's role, the specific
responsibilities of the Lead Independent Director shall be to:
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(a)
|
advise
the Chairman of the Board as to an appropriate schedule of Board
meetings,
seeking to ensure that the independent directors can perform their
duties
responsibly while not interfering with the flow of the Company's
operations;
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(b)
|
provide
the Chairman of the Board with input as to the preparation of agendas
for
Board and Committee meetings;
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(c)
|
advise
the Chairman of the Board as to the quality, quantity, and timeliness
of
the flow of information from the Company's management that is necessary
for the independent directors to effectively and responsibly perform
their
duties; and although the Company's management is responsible for
the
preparation of materials for the Board, the Lead Independent Director
may
specifically request the inclusion of certain material;
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(d)
|
recommend
to the Chairman of the Board the retention of consultants who report
directly to the Board;
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(e)
|
coordinate,
develop the agenda, and preside at executive sessions of the independent
directors, which shall be held at least quarterly;
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(f)
|
act
as principal liaison between the independent directors and the
Chairman of
the Board on sensitive issues; and
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(g)
|
evaluate,
along with the members of the Compensation Committee (consistent
with the
Compensation Committee Charter) and the full Board, the CEO's performance
and meet with the CEO to discuss the Board's evaluation.
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(4)
|
The
Company shall revise its articles of incorporation and/or by-laws
to
provide a reasonable procedure whereby any shareholder or group
of
shareholders who hold an aggregate of at least 20% of the Company's
outstanding shares may nominate a candidate for election to the
Board and
have the nominee included in the Company's annual proxy materials.
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15
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(5)
|
The
Company shall revise its articles of incorporation and/or by-laws
to
provide that, starting as of June 1, 2007, independent directors
may serve
on the Board for no more than a total of 10 consecutive years.
After
serving a ten-year term during any period after June 1, 2007, an
independent director must step down from the Board for at least
one year
before seeking re-election to the Board.
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(6)
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Directors
shall participate in an initial orientation program upon election
to the
Board and, if required by the rules of the applicable listing exchange,
in
regular continuing education thereafter.
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(7)
|
Absent
extraordinary circumstances, each member of the Board shall attend
each
annual shareholder meeting in person.
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|
|
d.
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Compensation
Committee
|
|
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(1)
|
The
Compensation Committee shall circulate a comprehensive and responsible
set
of assumptions, policies and procedures for determining executive
compensation (e.g., company
compensation levels should be compared to similar-sized businesses
in
similar industries or with similar profitability), and shall establish
objective measures for all cash and non-cash compensation, including
bonuses, stock options, stock grants, and benefits such as health
care;
use of company vehicles; memberships; travel for friends, relatives
or
personal trips; personal housing; and tax or legal services paid
for or
provided by the Company.
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|
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(2)
|
At
least once every three years the Compensation Committee shall select
and
retain an independent consultant to conduct a comparative study
of the
Company's executive compensation policies, practices, and procedures
relative to other public companies and prepare and submit to the
Compensation Committee a report and recommendations.
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|
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(3)
|
The
Compensation Committee shall set, in writing, annual and long-term
performance goals for each executive officer of the Company. The
Compensation Committee shall annually complete a written evaluation
of
each executive officer's performance against such goals and recommend
compensation (including cash bonuses, stock options, restricted
shares,
performance shares or other performance-based compensation) to
be awarded
based on whether the goals have been achieved.
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16
|
|
e.
|
Audit
Committee
|
|
|
(1)
|
At
least once every three years, the Audit Committee shall request
that its
independent auditing firm conduct a comprehensive review and assessment
of
the Company's internal controls and internal audit function, and
prepare
and submit to the Audit Committee a report and recommendations.
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(2)
|
At
least annually, the Audit Committee shall meet with the Company's
internal
auditors and independent auditors to review, discuss, and approve
the
Company's accounting for stock-based compensation.
|
f. The
Company represents that three current or former Section 16 officers (the
“Section 16 Officers”) voluntarily tendered money or unexercised options to the
Company, or otherwise committed to surrender the financial benefit that
they may
have received as a result of their exercise of any mispriced stock options
that
they were awarded since the Company became a public company (the “Tendered
Payments”). The Company further represents that it has not repaid any
of the Section 16 Officers any portion of the Tendered Payments or taken
any
action that has the effect of repaying the Section 16 Officers the Tendered
Payments or otherwise compensating the Section 16 Officers for any surrendered
mispriced options. The Company further warrants that it shall not in
the future make any payments or take any action that has the effect of
compensating the Section 16 Officers for any improper financial benefit
resulting from their receipt of any options that the Company, in consultation
with its auditors, determines were mispriced.
g. EMCORE
agrees that the settlement of the Actions and the remedial measures specified
herein provide a substantial benefit to EMCORE and its shareholders.
3.2 Reliance
Upon Own
Knowledge. Plaintiffs expressly represent and warrant that, in
entering into the Settlement, they relied upon their own knowledge and
investigation (including the knowledge of and investigation performed by
Plaintiffs’ Counsel), and not upon any promise, representation, warranty, or
other statement made by or on behalf of any of the Defendants or their
Related
Persons not expressly contained in the Stipulation.
17
3.3 Defendants’
Denial
of
Liability. EMCORE and each of the Individual Defendants have
denied and continue to deny all of the claims in the Actions, and have
denied
and continue to deny having committed, aided, or attempted to commit any
violations of law or breach of any duty of any kind or otherwise acted
in any
improper manner. Defendants are entering into the Stipulation because
the Settlement would eliminate the expenses, burdens, and risks associated
with
further litigation of the Actions. EMCORE is entering into the
Stipulation for the further reason that it believes that the Settlement
is in
the best interests of EMCORE and its shareholders.
3.4 Notice.EMCORE
shall be responsible for the cost of printing and mailing appropriate
Court-directed individual notice to the shareholders of EMCORE entitled
to
receive such notice, substantially in the form of the Notice submitted
contemporaneously herewith, and also shall be responsible for the cost
and
administration of any other Court-directed notice to be made by publication.
3.5 Attorneys’
Fees
and
Expenses. Subject to Court approval, EMCORE or its insurer
shall pay, on behalf of and for the benefit of the Defendants, to Plaintiffs’
Counsel attorneys’ fees and reimbursement of expenses in the aggregate amount of
$700,000 (the “Fees and Expenses”). The Parties agree that the Fees
and Expenses will be paid by the Company’s insurer on behalf of the Defendants
into an interest-bearing escrow account with a national banking association
and
subject to the terms of an escrow agreement approved by the insurer within
10
business days of the later of (i) Defendants’ receipt of notice of the Court’s
order approving the Settlement; and (ii) the insurer’s receipt of payee
information. Said monies will be paid out to Schiffrin Barroway Topaz
& Kessler, LLP, as receiving agent for Plaintiffs’ Counsel, immediately upon
the Settlement becoming effective as set forth in paragraph 5.1
below. Except as expressly provided herein, Plaintiffs and
Plaintiffs’ Counsel shall bear their own fees, costs, and expenses and no
Defendant shall assert any claim for expenses, costs, and fees against
Plaintiffs.
18
3.6 Releases. Upon
the Effective Date, Plaintiffs, individually and derivatively on behalf
of
EMCORE and all other shareholders of EMCORE, and their respective heirs,
executors, administrators, representatives, agents, successors, transferees,
and
assigns, will release all Released Claims against the Released
Parties. Plaintiffs will also release all claims against Defendants’
Counsel related to the defense of the Actions. The Defendants shall
also release any claims they may have against Plaintiffs and Plaintiffs’ Counsel
related to their bringing and prosecuting the Actions.
|
IV.
|
PRELIMINARY
ORDER AND SETTLEMENT HEARING
|
4.1 Application
for Preliminary
Order. The Parties shall jointly submit the Stipulation
together with its related documents to the Court, and the Parties shall
apply
for the Preliminary Order by filing proper notice and supporting papers
with the
Court:
a. Approving
the form of the Notice substantially in the form of such submitted
contemporaneously herewith;
b. Setting
forth the method for providing Notice to EMCORE shareholders of the Settlement
and Settlement Hearing;
c. Finding
that the methods of providing Notice set forth in the Preliminary Order
constitute the best Notice practicable under the circumstances and meet
all
requirements of Rule 23.1 of the Federal Rules of Civil Procedure and due
process; and
19
d. Setting
a
date for the Settlement Hearing to determine whether the Settlement should
be
approved as reasonable, adequate and in the best interests of EMCORE and
its
shareholders.
|
V.
|
EFFECTIVE
DATE OF SETTLEMENT, WAIVER, OR TERMINATION
|
5.1 This
Settlement shall become effective on the Effective Date.
5.2 If
the
conditions identified in paragraph 1.8 fail to occur, then any of Parties
may
terminate the Stipulation and withdraw from the Settlement by providing
written
notice of such action to undersigned counsel for all of the Parties within
thirty (30) days after the failure of such condition. In the event that
the
Settlement is not approved or is terminated, the Settlement and any actions
taken in connection therewith shall be vacated and terminated and shall
become
null and void for all purposes, and all negotiations, transactions, and
proceedings connected with it: (i) shall be without prejudice to the rights
of
any Party hereto; (ii) shall not be deemed to be or construed as evidence
of, or
an admission by any Party of, any fact, matter, or thing; and (iii) shall
not be
admissible in evidence or be used for any purpose in any subsequent proceedings
in the Actions or any other action or proceeding. The Parties to the Stipulation
shall be deemed to have reverted to their respective status in the Actions
as of
the date and time immediately prior to the execution of the MOU, and, except
as
otherwise expressly provided, the Parties shall proceed in all respects
as if
the Stipulation and any related orders had not been entered.
5.3 Standstill
Agreement.Pending
entry of the Final Judgment and Order based on the Settlement provided
for in
the Stipulation, Plaintiffs are barred and enjoined from commencing,
prosecuting, instigating, or in any way participating in the commencement
or
prosecution of any action asserting any Released Claims, either directly,
representatively, derivatively, or in any other capacity, against EMCORE
or any
Individual Defendant, that have been or could have been asserted, or that
arise
out of or relate in any way to any of the transactions or events described
in
the Complaints in the Actions. Plaintiffs also agree not to oppose any
motions
to dismiss any other proceedings to the extent any claims that are the
subject
of this release and dismissal contemplated by the Stipulation are asserted
or
continue to be asserted in any court prior to or after the entry of a judgment
based on the Settlement in the Actions.
20
|
VI.
|
MISCELLANEOUS
PROVISIONS
|
6.1 Cooperation
of the
Parties. The Parties (a) acknowledge that it is their intent
to consummate this Settlement, and (b) agree to cooperate to the extent
reasonably necessary to effectuate and implement all terms and conditions
of the
Stipulation and to exercise their reasonable efforts to accomplish the
foregoing
terms and conditions of the Stipulation. The Parties will seek the
Court’s approval of the Preliminary Order and, when appropriate, the Final Order
and Judgment.
6.2 Acknowledgment
of Adequate
Consideration. The Parties acknowledge, represent and warrant
to each other that the terms of the Settlement are such that each of the
Parties
is to receive adequate consideration for the consideration given.
6.3 No
Admissions. Neither the Stipulation nor the Settlement, nor
any act performed or document executed pursuant to or in furtherance of
the
Stipulation or the Settlement: (a) is or may be deemed to be or may
be used as an admission of, or evidence of the validity or lack of validity
of
any Released Claims, or any wrongdoing or liability of the Parties or any
of
their Related Persons; (b) is or may be deemed to be or may be used as
an
admission of, or evidence of, any fault or omission of any of the Parties
or any
of their Related Persons in any civil, criminal, or administrative proceeding
in
any court, administrative agency, or other tribunal; or (c) is or may be
alleged
or mentioned so as to contravene clause (a) above in any litigation or
other
action unrelated to the enforcement of the
Stipulation. Notwithstanding the foregoing, the Parties may file the
Stipulation or any judgment or order of the Court related hereto in any
action
that may be brought against them in order to support a defense or a counterclaim
based on res judicata,
collateral estoppel, release, good-faith settlement, judgment bar or reduction,
or any other theory of claim preclusion or issue preclusion, or similar
defense
or counterclaim.
21
6.4 Confidentiality
Agreements. All agreements made during the course of the
negotiations relating to the confidentiality of information shall survive
the
Stipulation and the Settlement.
6.5 Costs.Except
as
otherwise expressly provided herein, the Parties shall bear their own costs.
6.6 Entire
Agreement. The Stipulation and all documents executed pursuant
hereto constitute the entire agreement between the Parties with respect
to the
Settlement of the Actions and supersede any and all prior negotiations,
discussions, agreements, or undertakings, whether oral or written, with
respect
to the Settlement of the Actions.
6.7 Counterparts.The
Stipulation may be executed in one or more counterparts, and all such
counterparts together shall be deemed to be one and the same instrument.
6.8 Binding
Effect. The Stipulation shall be binding upon, and inure to
the benefit of all Parties. The Stipulation is not intended, and
shall not be construed, to create rights in or confer benefits on any other
Persons, and there shall not be any third-party beneficiaries hereto, except
as
expressly provided hereby with respect to such aforementioned Persons who
are
not Parties hereto.
22
6.9 Judicial
Enforcement.The
Court
shall retain jurisdiction with respect to the implementation and enforcement
of
the terms of the Stipulation and the Settlement, and the Parties submit
to the
jurisdiction of the Court for purposes of implementing and enforcing the
terms
of the Stipulation and Settlement.
6.10
Choice
of
Law. The Stipulation shall be governed by the laws of the
State of New Jersey, without regard to New Jersey’s choice of law rules.
6.11
Warrant
of
Authority.Each
counsel or person executing the Stipulation or any of the related documents
on
behalf of any Party hereto hereby warrants that such Person has the full
authority to do so.
6.12
Waiver
of
Breach. The Parties may not waive or vary any right hereunder
except by an express written waiver or variation. Any failure to
exercise or any delay in exercising any of such rights, or any partial
or
defective exercise of such rights, shall not operate as a waiver or variation
of
that or any other such right. The waiver by one Party of any breach
of the Stipulation by another Party shall not be deemed a waiver of any
other
prior or subsequent breach of the Stipulation.
6.13
Fair
Construction. The Stipulation shall not be construed more
strictly against one Party than another merely by virtue of the fact that
it, or
any part of it, may have been prepared by counsel for one of the Parties,
it is
recognized as the result of arm’s length negotiations between the Parties, and
all Parties have contributed substantially and materially to the preparation
of
the Stipulation.
6.14
No
Assignment of
Claims. Plaintiffs hereby represent and warrant that they have
not assigned any rights, claims, or causes of action that were asserted
or could
have been asserted in connection with, under or arising out of any of the
claims
being settled or released herein.
23
6.15
Facsimile
and Scanned
Signatures.Any
signature to the Stipulation, to the extent signed and delivered by means
of a
facsimile machine or electronically scanned and sent via email, shall be
treated
in all manner and respects as an original signature and shall be considered
to
have the same binding legal effect as if it were the original signed version
thereof delivered in person. At the request of a Party to the Stipulation,
any
other Party to the Stipulation so executing and delivering this document
by
means of a facsimile machine or via email shall reexecute original forms
thereof
and deliver them to the requesting Party. No Party to the Stipulation shall
raise the use of a facsimile machine or email to deliver a signature or
the fact
that any signature or agreement was transmitted or communicated through
the use
of a facsimile machine as a defense to the formation or the enforceability
of
the Stipulation and each such Person forever waives any such defense.
6.16
Extensions
of
Time. Without further order of the Court, the Parties hereto
may agree to reasonable extensions of time to carry out any of the provisions
of
the Stipulation.
The
Parties have caused the Stipulation to be duly executed and delivered by
their
counsel of record:
IT
IS
HEREBY AGREED by the undersigned as dated below.
|
DATED: November
28, 2007
|
SCHIFFRIN
BARROWAY TOPAZ & KESSLER, LLP
By:
/s/
Michael J.
Hynes
Eric
Zagar
Michael
Hynes
Alison
Clark
280
King of Prussia Road
Radnor,
PA 19087
Telephone: (610)
667-7706
Facsimile: (610)
667-7056
Lead
Counsel for Plaintiff in the Edelstein Action
LITE
DEPALMA GREENBERG & RIVAS, LLC
Joseph
L. DePalma
Susan
D. Pontonriero
Two
Gateway Center, 12th
Floor
Newark,
NJ 07102
Tel:
(973) 623-6000
Fax:
(973) 623-0858
Liaison
Counsel for Plaintiff in the Edelstein Action
|
24
|
DATED: November
28, 2007
|
KANTROWITZ,
GOLDHAMER & GRAIFMAN
By: /s/
Gary S.
Graifman
Gary
S. Graifman
210
Summit Avenue
Montvale,
NJ 07645
Tel:
(201) 391-7000
Fax:
(201) 391-1086
Jules
Brody
Aaron
Brody
James
E. Lahm
STULL,
STULL & BRODY
6
East 45th Street
New
York, NY 10017
Tel:
(212) 687-7230
Fax:
(212) 490-2022
Joseph
H. Weiss
WEISS
& LURIE
551
Fifth Avenue
New
York, NY 10176
Tel:
(212) 682-3025
Fax:
(212) 682-3010
Counsel
for Plaintiffs in the Gabaldon and Sackrison Actions
|
25
|
DATED:
November 27, 2007
|
JENNER
& BLOCK LLP
By: /s/
Michael K.
Lowman
Michael
K. Lowman
Howard
S. Suskin
330
North Wabash Avenue
Chicago,
IL 60611
Tel: (312)
923-2604
Fax: (312)
840-7604
Richard
Ross
CARELLA,
BYRNE, BAIN, GILFILLAN, CECCHI, STEWART & OLSTEIN
5
Becker Farm Rd.
Roseland,
NJ 07068
Tel: (973)
994-1700
Fax: (973)
994-1744
Attorneys
for EMCORE Corporation
|
|
DATED: November
13. 2007
|
By:
/s/
Jerry
Isenberg
Jerry
Isenberg
ALSTON
& BIRD LLP
The
Atlantic Building
950
F Street NW
Washington,
D.C. 20004
Tel: (202)
756-5596
Fax: (202)
654-4886
Attorney
for Individual Defendants Dr. Richard A. Stall, Thomas Gmitter,
and Craig
Farley
|
|
DATED: November
9, 2007
|
By:
/s/
James R.
Doty
James
R. Doty
BAKER
BOTTS LLP
The
Warner
1299
Pennsylvania Ave, NW
Washington,
D.C. 20004
Tel: (202)
639-7792
Fax: (202)
585-1018
Attorney
for Individual Defendant Reuben F. Richards, Jr.
|
26
|
DATED: November
14, 2007
|
By:
/s/
Seymour
Glanzer
Seymour
Glanzer
DICKSTEIN
& SHAPIRO LLP
1825
Eye Street NW
Washington,
D.C. 20006
Tel: (202)
420-2210
Fax: (202)
420-2201
Attorney
for Individual Defendant Robert Bogomolny
|
|
DATED: November
20, 2007
|
By: /s/
Teresa L.
Davis
Teresa
L. Davis
KATTEN
MUCHIN ROSENMAN, LLP
525
West Monroe Street, Suite 1900
Chicago,
IL 60661
Tel: (312)
902-5452
Fax: (312)
577-4481
Attorney
for Individual Defendants Thomas Werthan and Scott Massie
|
|
DATED: November
9, 2007
|
By:
/s/ Robert
Mahoney
Robert
Mahoney
NORRIS,
MCLAUGHLIN & MARCUS, P.A.
P.O.
Box 1018
Somerville,
NJ 08876
Tel: (908)
722-0700
Fax: (908)
722-0755
Attorney
for Individual Defendant Howard W. Brodie
|
|
DATED: November
21, 2007
|
By:
/s/
Michael R.
Young
dsMichael
R. Young
WILLKIE
FARR & GALLAGHER, LLP
787
Seventh Avenue
New
York, NY 10019
Tel: (212)
728-8280
Fax: (212)
728-9280
Attorney
for Individual Defendants John Gillen, Robert Louis-Dreyfus,
Thomas J.
Russell, and Charles Scott
|
27