UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
November
9, 2006
Date
of Report (Date of earliest event reported)
EMCORE
CORPORATION
Exact
Name of Registrant as Specified in its Charter
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New
Jersey
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0-22175
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22-2746503
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State
of Incorporation
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Commission
File Number
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IRS
Employer Identification Number
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145
Belmont Drive, Somerset, New Jersey, 08873
Address
of principal executive offices, including zip code
(732)
271-9090
Registrant's
telephone number, including area code
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Item
2.02 Results
of Operations and Financial Condition.
The
disclosure set forth in Item 8.01 below is incorporated herein by
reference.
Item
8.01 Other
Events.
Completion
of Historical Stock Option Grant Review
EMCORE
announced today that a Special Committee of its Board of Directors, comprised
solely of independent directors, has issued its findings in a report regarding
EMCORE’s previously announced voluntary review of its historical stock option
grants initiated by senior management. On
November 6, 2006, the Company filed a Current Report on Form 8-K with respect
to
the investigation and other matters.
Scope
of Option Grant Review
The
Special Committee, together with independent counsel and outside accounting
experts, reviewed option grants from the time of EMCORE’s initial public
offering in 1997 through 2006. The Special Committee’s advisors also reviewed
more than 250,000 e-mail messages, Board and Compensation Committee minutes,
and
other documents, files and data. Additionally, these advisors interviewed
present and former officers and employees of the Company who were involved
in
the option grants.
Special
Committee Findings
The
Special Committee’s investigation and report included the following key findings
and conclusions:
· The
investigation was initiated as a result of senior management’s recommendation to
the Board, in a manner consistent with senior management’s past conduct in
instances where it has learned of issues concerning accounting, legal or
regulatory compliance.
· The
Company, through its senior management, cooperated fully with the investigation,
providing all requested documents and making senior management and the Company’s
current and former employees available for interviews, all in a conscientious
and timely fashion.
· There
is
no evidence that senior management in any way tampered with or fabricated
documents or took other actions consistent with an intent to
defraud.
· Senior
management did not seek to profit from the issuance of the option grants at
the
expense of the Company or its shareholders. Senior management received only
12%
of the options granted; 88% of all the option grants went to the Company’s
non-senior management employees.
· Senior
management did not receive any option grants between the October 3, 2001 and
the
May 18, 2004 grants. This period marked the absolute historic low point of
EMCORE stock’s market value. During this period EMCORE stock routinely traded at
or below $2 per share and reached its low point of around $1.
· In
addition, in 2002, EMCORE implemented a 6+1 exchange plan whereby the Company
offered to exchange all options with a strike price greater than $4. Senior
management voluntarily elected not to participate in the repricing and retained
their underwater options, while the options belonging to those participating
in
the exchange were repriced to $1.82.
· Senior
management exercised only a small portion of the options granted since the
Company’s Initial Public Offering, and the Chief Executive Officer, Chief
Financial Officer and Chief Legal Officer informed the Company that they did
not
wish to retain any potential benefit that they may have derived from any
erroneously priced options. Specifically, the Chief Financial Officer has not
exercised any of those stock option grants and voluntarily surrendered all
of
his rights to the grants that have been identified as misdated. The Chief
Executive Officer and the Chief Legal Officer voluntarily tendered payments
of
$147,775 and $97,000, respectively, representing the entire benefit received
for
the misdated grants they exercised. The Chief Legal Officer further voluntarily
surrendered all rights to any unexercised grants that have been identified
as
misdated.
· The
investigation found no evidence that the Board generally did not properly
exercise oversight duties with respect to the Company’s stock option
plans.
· The
Special Committee stated that it was unable to conclude that the Company or
anyone involved in the stock option granting process at the Company engaged
in
willful misconduct. Rather, the grant process was often characterized by
carelessness and inattention to applicable accounting and disclosure rules
and
the Company failed to maintain adequate controls concerning the issuance of
stock options.
· The
Special Committee found that there were occasions after the grant date and
exercise price was set that administrative changes were made to the grant
lists.
· With
respect to retention grants awarded in 2000 and 2004, the Special Committee
found that even after lists had been announced as “final” and a grant date set,
later adjustments to the lists sometimes included changes both in the number
of
options granted to individuals and in the aggregate number of options granted.
For the year 2000 retention grants, from the last version of the list of
grantees circulated prior to the recorded grant date, to the final version
of
the list approved by the Board, approximately 13% of the individuals on the
list
registered a change in the number of options they were awarded, and the
aggregate number of options set forth on the list increased by approximately
9%.
For the year 2004 retention grants, from the version of the list of grantees
approved on the recorded grant date, to the final version of the list approved
by the Board, approximately 22% of the individuals on the list registered a
change in the number of options they were awarded, and the aggregate number
of
options set forth on the list increased by approximately 2.2%. No changes to
the
retention grant lists benefited any member of senior management.
· The
Special Committee further concluded that, as a result of, among other things,
such inadequate controls and practices, there were certain instances where
the
exercise prices of certain stock option grants, principally related to new
hire
grants, appear to have been selected with the benefit of hindsight --
i.e.,
selected to reflect the stock price at a date, prior to the actual date of
grant, when the Company’s stock price was lower.
· Between
1998 and 2006, the Company issued ten retention grants. Senior management
participated in six of the ten grants. With respect to the Company’s ten
retention grants, the appropriate measurement date for six of the grants was
determined to be incorrect. In five of the six instances, the Company’s closing
stock price at the originally stated grant date was lower than the closing
price
on the appropriate measurement dates. The sixth grant had an exercise price
that
was higher than the closing price on the appropriate measurement date.
Accordingly, no additional compensation expense is necessary for this sixth
grant. Finally, one retention grant had a correct measurement date, but was
incorrectly priced under the terms of the Company’s 1995 Stock Option Plan. As a
result, the Special Committee recommended that the Company should recognize,
for
accounting purposes, additional compensation expense with respect to six
retention grants.
· Seven
of
the retention grants were not made at or near the lowest stock price for the
year, and three were made at or near the lowest stock price for the
year.
· With
respect to new hire grants, two sets of new hire grants totaling 25 employees,
none of whom were in a management position, appear to require that the Company
recognize, for accounting purposes, additional compensation expense. One set
of
new hire grants was assigned an incorrect strike price, while another set of
new
hire grants was repriced by the Board without the Company recording the
corresponding compensation expense.
Remedial
Actions and Reporting
Special
Committee Recommendations; Board Action
The
Special Committee’s report included the following recommendations, all of which
the Company has adopted:
· The
Company should develop and implement best practices with respect to option
grants, and should continue to monitor industry and regulatory practices and
revise its practices as developments occur.
· The
Company should designate a member of its in-house legal and accounting staffs
to
oversee documentation and accounting for all option grants.
· All
grants should be communicated to employees as soon as practicable after the
grant date, as required by applicable accounting rules.
· Non-administrative
grant responsibilities should not be delegated and must, other than with respect
to new-hire options, be set by the Compensation Committee.
· New-hire
options should be issued to employees on their first day of employment with
an
exercise price of not less than 100% of the fair market value of the Company’s
stock on the employee’s hire date.
· The
Board
should conduct a biannual review of all new-hire grants to ensure compliance
with the Company’s policies and procedures.
· Grant
dates for all options awarded to employees other than new-hire options should
be
the date on which the Compensation Committee meets and approves the
grants.
· The
exercise price of options other than new hire-options should be set at the
closing price of the common stock of the Company on the date on which the
Compensation Committee approves the grants.
· The
Company should, with respect to any yearly retention grants to employees,
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.
· No
additions or modifications to options grants approved by the Compensation
Committee should be permitted after the Compensation Committee has approved
the
grants.
Management
prepared a revised option grant policy in order to implement the recommendations
of the Special Committee and impose a higher degree of control over the
Company’s option grant process. On November 13, 2006, the Board of Directors of
the Company adopted the revised grant policy.
Financial
Statements & Related Considerations
In
the
Company’s Current Report on Form 8-K filed on November 6, 2006, the Company
stated that “at this time and based on the preliminary analysis available, the
Company expects to record non-cash charges for stock-based compensation expense
of approximately $24 million.” The Company further stated its belief that these
non-cash charges principally would affect fiscal years 2000-2003, and reported
that it had “not yet determined the financial impact of any tax consequences
related to these stock option grants, what remedial actions may be taken, nor
the financial impact of any remedial actions taken. Accordingly, on November
6,
2006, senior management and the Audit Committee determined that the Company’s
financial statements included in its annual and interim reports and any related
reports of its independent registered public accounting firm, earnings press
releases and similar communications previously issued by the Company for the
periods beginning with fiscal year 2000 should no longer be relied upon.”
Management
believes that the report of the Special Committee is consistent with
management’s preliminary expectations and the conclusions of management and the
Audit Committee regarding the Company’s financial statements referenced above.
The
Company plans to file its Form 10-K for its fiscal year ended September 30,
2006
as promptly as practicable after determining the amount of required accounting
adjustments, how they will be reflected in the Company’s financial statements
and related matters.
The
Company contacted the Securities and Exchange Commission prior to filing its
Current Report on 8-K on November 6, 2006. To date, the Company does not know
what actions, if any, the SEC may decide to take.
*
*
*
The
foregoing contains forward-looking statements regarding the Company’s current
estimate of the accounting adjustment expected to result from the findings
of
the Special Committee. These forward-looking statements are based on the
Company’s current expectations and are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in the
forward-looking statements, including risks and uncertainties relating to
developments in regulatory and legal guidance regarding stock option grants
and
accounting for such grants. For example, information may be learned and analysis
may be undertaken concerning the Company’s historic stock option grants and
accounting that may materially impact the Company’s financial statements or
results. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof, and the
Company undertakes no obligation to update these forward-looking statements
to
reflect subsequent events or circumstances.
In
addition, other factors, risks and uncertainties may cause the actual results
or
performance of the Company to be materially different from any future results
or
performance expressed or implied by the forward-looking statements contained
herein. These include, but are not limited to the fact that financial results
for the quarter are estimates that have not been finally reviewed and therefore
remain subject to additional adjustments; the possibility that the Company,
in
consultation with the Company's independent public accountants or the SEC,
will
determine that the proper accounting for the Company's prior stock option grants
differs from the accounting treatment upon which the assumptions and
forward-looking statements in this Current Report are based; that the scope
of
the issues as to the timing and accuracy of measurement dates for option awards
and the timing of formal corporate approvals may change; that the amount and
timing of additional stock-based compensation expenses and other additional
expenses to be recorded in connection with affected option grants, and the
corresponding restatement of our financial statements, may change; that our
ability to file required reports with the SEC on a timely basis may be further
impaired; that our ability to meet the requirements of the Nasdaq National
Market for continued listing of our shares may be further impaired; that
potential claims and proceedings may arise relating to such matters, including
additional shareholder litigation and action by the SEC or other governmental
agencies; that other actions may be taken or required as a result of the Special
Committee's findings; that the anticipated accounting adjustments and other
factors described above could have negative tax or other implications for the
Company; and other factors described in EMCORE's filings with the SEC.
Item
9.01 Financial
Statements and Exhibits.
(d) Exhibits
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Exhibit
Number
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Description
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99.1
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Press
Release, dated November 14, 2006, issued by EMCORE
Corporation.
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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EMCORE
CORPORATION
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Dated:
November 14, 2006
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By: /s/
Thomas G. Werthan
Name:
Thomas G. Werthan
Title:
Chief Financial Officer
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EXHIBIT
INDEX
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Exhibit
Number
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Description
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99.1
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Press
Release, dated November 14, 2006, issued by EMCORE
Corporation.
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