COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes EMCORE’s executive compensation program and analyzes the compensation decisions made for the executive officers included in the Summary Compensation Table (the “Named Executive Officers”) for fiscal 2008.  The analysis includes the disclosure of certain performance targets that are used in connection with the Company’s executive compensation program. These targets should not be understood to be statements of management’s expectations of the Company’s future results.

Objectives and Components of the Company’s Compensation Program

EMCORE’s executive compensation program is designed to motivate executives to achieve strong financial, operational, and strategic performance and recognizes individual contributions to that performance.  Through the compensation program, the Company seeks to attract and retain talented executive officers by providing total compensation that is competitive with that of other executives employed by companies of similar size, complexity and lines of business.  The Company’s executive compensation program is also designed to link executives’ interests with shareholders’ interests by providing a portion of total compensation in the form of stock-based incentives.

The Company’s Annual Compensation Decision-Making Process

The Compensation Committee of the Board of Directors is responsible for setting and administering policies that govern EMCORE’s executive compensation program.  In October/November of each year, the Compensation Committee reviews the Company’s performance and the performance of each of the Named Executive Officers for the prior fiscal year and market surveys and proxy statements of our peer group as well as companies that have our same Standard Industrial Classification (SIC) code and annual revenues of $500 million or less.  Based on this review, the Compensation Committee discusses and approves base salary increases related to the current fiscal year and awards annual cash incentives and stock option grants in recognition of Company and individual performance for the prior fiscal year.

The purpose of the Compensation Committee’s review of the market surveys and proxy statements that list the compensation paid by companies within our peer group as well as a broader market group is to provide a reference point that will assist the Compensation Committee in determining the competitiveness of our executive compensation program and is not determinative of the amount of compensation that is paid or awarded to our executives.  The Compensation Committee reviews and selects the companies that are included in our peer group, which is comprised of companies of similar size, complexity and lines of business.  For fiscal 2008, the peer group consisted of the following companies:

• Evergreen Solar, Inc.

• Sunpower Corporation

• First Solar, Inc.

• Finisar Corporation

• JDS Uniphase Corporation

• Opnext, Inc.

In addition to the use of market surveys and peer group proxy statements, the Compensation Committee intends to retain a compensation consultant in the coming year to assess EMCORE’s competitive position with respect to each component of the Company’s executive compensation program, which consists of: (i) base salary, (ii) annual cash incentives, and (iii) long term stock-based incentives.

 

 

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Base Salary

Base salaries for executives are determined based upon job responsibilities, level of experience, individual performance, and comparisons to the salaries of executives in similar positions obtained from market surveys and proxy statements.  The goal for the base salary component is to compensate executives at a level that approximates the median salaries of individuals in comparable positions and markets.  Mr. Richards, the Company’s Executive Chairman, reviews the performance of the Chief Executive Officer and the other executive officers and recommends salary increases for these individuals to the Compensation Committee.  In turn, the Compensation Committee reviews, adjusts, where appropriate, and approves the salary increases for these executive officers.  In executive session, the Compensation Committee reviews any salary increase for the Executive Chairman.

On November 13, 2007, the Compensation Committee approved a base salary increase, for each of the Named Executive Officers, effective retroactively to October 1, 2007.  The base salaries were adjusted as follows:

·	Mr. Richard’s base salary was increased from $416,500 to $437,325

·	Dr. Hou’s base salary was increased from $400,000 to $420,000

·	Mr. Gushard’s base salary was increased from $240,000 to $260,000

·	Dr. Iannelli’s base salary was increased from $225,000 to $236,250

·	Mr. Kosco’s base salary was increased from  $200,000 to $210,000

In August 2008, in connection with his appointment as Chief Financial Officer, the Compensation Committee approved for Mr. Markovich an annual base salary of $300,000.

Each of these base salary increases was based on market surveys and other data and each was intended to maintain the Company’s competitive position among similar companies with which it competes for executive talent.

Annual Cash Incentives

 

Each fiscal year EMCORE establishes a cash incentive plan, which provides the Company’s executive officers an opportunity to receive an annual cash payment in addition to their base salaries.  The cash incentive plan is designed to place at risk a significant portion of an executive’s annual cash compensation by linking the amount of compensation that an executive can achieve under the plan with individual and Company performance.  We believe that providing annual cash incentive opportunities is a key component of maintaining a competitive executive compensation program.

Pursuant to EMCORE’s Fiscal 2008 Executive Bonus Plan (the “2008 Bonus Plan”), bonus targets for each executive officer of the Company were established to promote the achievement of individual and Company performance objectives for fiscal 2008.  The bonus targets are a percentage of each executive’s base salary and are established based on each executive’s job responsibilities and experience as well as market surveys.  The following bonus targets were set under the 2008 Bonus Plan:

Name and Title		Target
Reuben F. Richards, Jr., Executive Chairman Hong Q. Hou, Ph.D., Chief Executive Officer		80% of base salary
Adam Gushard, Interim Chief Financial Officer		50% of base salary
John Iannelli, Ph.D., Chief Technology Officer Keith J. Kosco, Esq., Chief Legal Officer		35% of base salary

The portion of the target to be paid is based on both Company and individual performance.  The Company performance metrics are weighted equally and are measured on the attainment of revenue and adjusted EBITDA goals (earnings before interest, taxes, depreciation, amortization and other non-cash and non-recurring charges).  A threshold level of 75% of the revenue goal and 70% of the adjusted EBITDA goal is set.  If the Company’s performance is below both of these performance targets, no cash incentive payments are awarded.  Achievement of 100% of revenue and adjusted EBITDA goals correlates to payment of 100% of the bonus targets, and attainment of lesser percentages of the revenue and adjusted EBITDA goals correlates to payment of lesser percentages of the bonus targets.  Attainment of 110% of the revenue and adjusted EBITDA goals will result in eligibility for 120% of the bonus targets.

The individual performance component acts as a multiplier and can accelerate or decelerate the target bonus percentage based upon individual performance as determined by the Executive Chairman and the Compensation Committee.  The multiplier ranges from 0% to 140% of the executive’s target bonus.  The Compensation Committee reviews the Executive Chairman’s individual performance.  The Chief Executive Officer’s and other executive officers’ individual performance is reviewed by the Executive Chairman and approved by the Compensation Committee.

The Compensation Committee retains the discretion to modify individual executive cash incentive awards based upon individual performance and the successful completion of business objectives.

The Compensation Committee establishes revenue and adjusted EBITDA goals because it believes these financial performance metrics are the best indicators of the Company’s performance.  The Company’s revenue and adjusted EBITDA targets for fiscal 2008, as presented to the Compensation Committee, were approximately $292 million and $15.5 million, respectively, and revenue and adjusted EBITDA for fiscal 2008, as presented to the Compensation Committee were approximately $294 million and ($9.6) million, respectively.  The Compensation Committee has the discretion to make adjustments to these financial performance metrics to account for significant events that occur during the year, such as acquisitions, divestitures, and unusual items and, with respect to fiscal 2008, adjusted EBITDA was calculated by adding back interest, taxes, depreciation and amortization to net loss while also excluding non-cash stock-based compensation expense, one-time non-recurring charges related to the Company’s review of its historical stock option granting practices, certain legal, bad debt, inventory, severance and restructuring charges, and transition service charges related to the integration of acquired assets.  The Compensation Committee reviewed and approved the fiscal 2008 financial performance metrics calculations in November 2008. In addition to the Company’s financial performance, the Compensation Committee also considered the efforts of the Named Executive Officers in assisting the Company in aligning strategic directions, significant effort in growing its fiber optics business through acquisitions, and tremendous progress in developing product and business opportunities in the emerging terrestrial solar power segment. Based on these factors, the Compensation Committee approved cash incentive awards for the following Named Executive Officers as outlined below.

These awards are also set forth in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation”.

Name		Target Incentive Award		Actual Incentive Award		Actual Award as % of Target
Reuben F. Richards, Jr.		$  349,860		$  78,719		23%
Hong Q. Hou, Ph.D.		$  336,000		$  75,600		23%
Adam Gushard		$  130,000		$  39,000		30%
John Iannelli, Ph.D.		$    82,688		$  20,341		25%
Keith J. Kosco, Esq.		$    73,500		$  14,333		20%

 

 

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Long-Term Stock-Based Incentives

Long-term equity awards consist of stock options, which are designed to give executive officers an opportunity to acquire shares of common stock of the Company, to provide an incentive for the executives to continue to promote the best interests of the Company and enhance its long-term performance and to provide an incentive for executives to join and remain with the Company.  Equity awards are an effective tool for aligning the interests of our executives with the interests of our shareholders.

Stock options give an executive the right to buy a share of the Company’s common stock in the future at a predetermined exercise price.  The exercise price is the fair market value of the common stock on the grant date.  New hire stock option awards vest over a five-year period while annual stock option awards vest over a four-year period.  Other supplemental stock option awards vest over a four-year period.  All options expire ten years after the grant date.  In addition, no one recipient can be granted an award of options to purchase more than 600,000 shares of common stock in any twelve month period.  Executives who voluntarily resign or are terminated for cause immediately forfeit all options that have not vested unless otherwise determined by the Compensation Committee.

In granting equity awards, the Compensation Committee does not issue a targeted number of stock options, but rather reviews the executive’s performance and the performance of the Company in the prior fiscal year as well as market surveys to determine the appropriate value of the award at the time it is granted.  The ultimate value of the award depends in large part on the future performance of our common stock.  For this reason we do not consider the value of past equity awards when determining current compensation.

In March 2008, in connection with his appointment as Executive Chairman, the Compensation Committee approved for Mr. Richards a grant of options to purchase 500,000 shares of our common stock. This grant vests in four equal installments over a four year period, with the first installment of options vesting on the one-year anniversary of the grant date and equal amounts vesting on each subsequent anniversary of the grant date.

In April 2008, in connection with his appointment as Chief Executive Officer, the Compensation Committee approved for Dr. Hou a grant of options to purchase 150,000 shares of our common stock. This grant vests in four equal installments over a four year period, with the first installment of options vesting on the one-year anniversary of the grant date and equal amounts vesting on each subsequent anniversary of the grant date.

In May 2008, in connection with the Company’s annual stock option retention grant plan, the Compensation Committee approved the following stock option grant awards;

Name		Number of Stock Options
Reuben F. Richards, Jr.		100,000
Hong Q. Hou, Ph.D.		195,000
Adam Gushard		100,000
John Iannelli, Ph.D.		75,000
Keith J. Kosco, Esq.		80,000

This grant vests in four equal installments over a four year period, with the first installment of options vesting on the one-year anniversary of the grant date and equal amounts vesting on each subsequent anniversary of the grant date.

In August 2008, in connection with his appointment as Chief Financial Officer, the Compensation Committee approved for Mr. Markovich a grant of options to purchase 475,000 shares of our common stock. This grant vests in five equal installments over a five year period, with the first installment of options vesting on the one-year anniversary of the grant date and equal amounts vesting on each subsequent anniversary of the grant date.  In addition, if performance metrics are met, the Company has agreed that it would recommend to the Compensation Committee of its Board of Directors that Mr. Markovich be granted options to purchase 125,000 shares of the Company’s common stock in the second calendar quarter of 2010 as a performance based award.  If granted, these options would vest equally over 4 years and expire 10 years after the grant date, and the exercise price of these options would be the closing price of the Company’s common stock on the grant date, as determined pursuant to the Plan.

The exercise price for each of the above-described grants of options was the fair market value of the common stock on the grant date.

Based on our review of historical stock option granting practices in fiscal 2006, the Audit Committee concluded that, pursuant to Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, the applicable measurement dates on certain stock options awarded differed from the grant dates previously used in accounting for such awards. Certain affected options may be deemed to have been granted with below-market exercise prices, which could have potentially subjected the affected option grantee to adverse taxation under Section 409A of the Internal Revenue Code, referred to as Section 409A.

 

To provide employees of the Company holding those options with an opportunity to avoid such adverse taxation, the Company commenced a special tender offer on November 19, 2008. The tender offer allowed those employees to tender options that were potentially subject to Section 409A for replacement. Following the completion of the tender offer on December 17, 2008, each tendered option was amended to increase the exercise price of the option to fair market value as of the actual measurement dates that should have been used for financial accounting purposes. Accordingly, the Company entered into agreements with Dr. Hou and Dr. Iannelli since they both received discounted option grants prior to becoming Section 16 officers of the Company.  To compensate them for the increased amounts reflected in the exercise price of their amended options, the Company paid Dr. Hou $9,100 and Dr. Iannelli $1,560 in January 2009.

 

 

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Company Benefits

EMCORE’s benefits are an important tool in our ability to attract and retain outstanding employees throughout the Company.  As a business matter, we weigh the benefits we need to offer to attract and retain talented employees against the benefits we can afford to pay and still remain competitive.  Benefit levels are reviewed periodically to ensure they are cost-effective and competitive and support the overall needs of Company employees.

 

This section describes the benefits that EMCORE provides to key executives and notes those instances when benefits for the Named Executive Officers differ from the general plan. In some instances, we also describe the programs we offer across the Company as context to specific discussions about executive benefits.

Medical, Dental, and Vision Benefits

The Company offers a standard benefits package to all of its employees, which includes medical, dental, and vision coverage.  The Named Executive Officers receive coverage at 100% whereas all other employees of the Company receive coverage ranging from 50% - 100% depending on the service performed.

Company-sponsored Retirement Plans

The EMCORE Corporation 401(k) Plan (the “401(k) Plan”) is a defined contribution plan with a 401(k) arrangement and is designed to comply with ERISA, the Internal Revenue Code, as well as federal and state legal requirements.  The 401(k) Plan is designed to provide retirement benefits to eligible employees of EMCORE and is administered by Prudential Financial.  Participants in the 401(k) Plan may elect to reduce compensation by a specific percentage, which is contributed to the participant’s 401(k) account on a pre-tax basis as a salary deferral.

Employees may elect to contribute to the 401(k) Plan through salary reduction up to the yearly maximum tax-deductible deferral allowed pursuant to IRS regulations.  A participant may elect to defer between 1-30% of his or her compensation per pay period.  The deferral amount will not be subject to income tax until distribution.   Each participant is able to direct his or her investment into any of the available investment options.  Participant’s contributions are vested at 100%.

EMCORE may provide a discretionary match of 50% of the first 6% of base compensation of a participant’s contribution to the 401(k) Plan and this matching contribution vests over an initial five-year period.  This matching contribution is in the form of our common stock.   Participants are able to exchange out of our common stock to other investment options within the 401(k) Plan.  However, matching contributions continue to be directed to our common stock.  Exchanges from our common stock have the effect of transferring both vested and non-vested contributions in our common stock into other investments.  Exchanges into our common stock are not permitted under the 401(k) Plan.

An employee becomes eligible to participate in the 401(k) Plan on the first day of the month following his or her date of hire and attaining the age of 20 years.  An EMCORE re-hire is eligible to participate in the 401(k) Plan immediately.

Perquisites

EMCORE provides perquisites to key executive officers, including the Named Executive Officers, as a recruiting and retention tool.  We believe that our perquisites are appropriate and we benchmark our perquisites against generally accepted corporate practices.

 

The perquisites provided to our Named Executive Officers in fiscal 2008 were relocation and housing expenses.  For more information regarding perquisites provided to the Named Executive Officers in fiscal 2008 see the footnotes to the “All Other Compensation” column of the Summary Compensation Table.

 

EMCORE’s Severance Policy and Severance Agreements

Under the Company’s Executive Severance Policy, participants are eligible to receive certain severance benefits if their employment with the Company is terminated and the termination constitutes a “Separation of Service” within the meaning of Section 409A of the Internal Revenue Code.  However, participants are not eligible to receive severance benefits if they are terminated with cause, due to death or disability or if they voluntarily terminate their employment other than for good reason.  In addition, a participant that is eligible to receive severance benefits under the Severance Policy must execute an agreement (a “Separation Agreement”) prepared by the Company that includes, among other things, a release by the participant of the Company from any liability or obligation to the participant.  A participant will not receive severance benefits if the participant does not enter into a Separation Agreement with the Company and all severance benefits will cease if the participant violates any provision of his or her Separation Agreement.

Under the Severance Policy participants at the Chief /C-level Officers or higher will receive (i) for those hired or promoted prior to May 1, 2007, the continuation of their base salary for a period equal to one year and two weeks plus two additional weeks for each year the participant was employed by the Company or (ii) for those hired or promoted on or after May 1, 2007, the continuation of their base salary for a period equal to one year and one week plus one additional week for each year the participant was employed by the Company.

Participants at the Vice President level will receive (i) for those hired or promoted prior to May 1, 2007, the continuation of their base salary for a period equal to five months and two weeks plus two additional weeks for each year the participant was employed by the Company or (ii) for those hired or promoted on or after May 1, 2007, the continuation of their base salary for a period equal to five months and one week plus one additional week for each year the participant was employed by the Company.

If, following a disposition, a participant’s employment is terminated after the end of a fiscal year but before annual cash incentive awards or pay-for-performance payments are distributed and the participant would otherwise be entitled to a cash incentive award, the participant will remain entitled to the annual cash incentive award or pay-for-performance payment attributable to the immediately preceding fiscal year.  The Severance Policy also provides that participants will be eligible for certain benefits, including continued payment of certain health insurance premiums, outplacement services and other perquisites.

Compensation of the Executive Chairman

 

The Compensation Committee annually reviews the compensation of Mr. Richards, Executive Chairman, and recommends any adjustments to the Board of Directors for approval.  Mr. Richards participates in the same compensation programs and receives compensation based upon the same criteria as EMCORE’s other executive officers.  However, Mr. Richards’ compensation reflects the higher level of responsibility that he has with respect to the strategic direction of EMCORE, the Company’s financial and operating results, and interactions with the investment community.

After considering EMCORE’s overall performance in fiscal 2008 and competitive practices, the Compensation Committee recommended, and the Board of Directors approved, a 5% increase to Mr. Richards’ base salary, to $437,325.  This increase was made effective on October 1, 2007.  Annual cash incentive compensation for Mr. Richards is based upon achievement of targets set by the Board of Directors.  Based on the attainment of certain strategic corporate milestones, including significant effort in growing the fiber optics business through acquisitions, and tremendous progress in developing product and business opportunities in the emerging terrestrial solar power segment, the Compensation Committee awarded Mr. Richards $78,719 in the form of a cash incentive award.

Tax and Accounting Considerations

Under Section 162(m) of the Internal Revenue Code, EMCORE may not deduct annual compensation in excess of $1 million paid to certain employees; generally it’s Chief Executive Officer and its four other most highly compensated executive officers, unless that compensation qualifies as performance-based compensation. While the Compensation Committee intends to structure performance-related awards in a way that will preserve the maximum deductibility of compensation awards, the Compensation Committee may from time to time approve awards that would vest upon the passage of time or other compensation, which would not result in qualification of those awards as performance-based compensation.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the annual and long-term compensation earned for services in all capacities to the Company for the fiscal year ended September 30, 2008 of those persons who during such fiscal year (i) served as the Company’s Chief Executive Officer, (ii) served as the Company’s Chief Financial Officer, (ii) were the three most highly-compensated officers (other than the Chief Executive Officer and Chief Financial Officer) and (iv) one additional individual for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year:

 

 

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Summary Compensation Table for Fiscal 2008

 

Name and Principal Position	Year	Salary ($)(5)	Option Awards ($)(6)	Non-Equity Incentive Plan Compensation ($)(7)	All Other Compensation ($)		Total ($)
Reuben F. Richards, Jr. Executive Chairman and Chairman of the Board (1)	2008 2007	437,325 412,165	463,914 250,532	78,719 326,536	374 384	(8) (8)	980,332 989,617
Hong Q. Hou, Ph.D. Chief Executive Officer (2)	2008 2007	421,000 360,080	713,889 1,181,529	75,600 313,600	5,196 179,334	(9) (10)	1,215,685 2,034,543
John M. Markovich Chief Financial Officer (3)	2008	36,997	31,284	-	4,720	(11)	73,001
John Iannelli, Ph.D. Chief Technology Officer	2008 2007	237,625 203,857	179,998 87,760	20,341 34,294	6,588 5,877	(12) (13)	444,552 331,788
Keith J. Kosco, Esq. Chief Legal Officer	2008 2007	210,000 132,308	109,031 25,874	14,333 45,733	374 25,174	(14) (15)	333,738 229,089
Adam Gushard Former Interim Chief Financial Officer  (4)	2008 2007	262,395 236,835	170,134 261,280	39,000 192,600	15,816 13,338	(16) (17)	487,345 704,053

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(1)	Mr. Richards was appointed to Executive Chairman and Chairman of the Board on March 31, 2008 and previously served as the Company’s Chief Executive Officer.
(2)	Dr. Hou was appointed to Chief Executive Officer on March 31, 2008 and previously served as the Company’s President and Chief Operating Officer.
(3)	Mr. Markovich was appointed to Chief Financial Officer on August 18, 2008.
(4)	Mr. Gushard was the Company’s Interim Chief Financial Officer until August 18, 2008 and continues to serve as Vice President of Finance for the Company.
(5)	Salary represents amounts paid to the individual during the fiscal year ended September 30, 2008.  It does not represent an employee’s current annual base salary.
(6)	The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes in fiscal 2008, in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (revised 2004) (without regard to estimated forfeitures related to a service based condition) and includes amounts from awards granted in and prior to fiscal 2008. Assumptions used in the calculation of these amounts are included in footnote 4 to the Company’s audited financial statements for the fiscal year ended September 30, 2008, included in the Company’s Annual Report on Form 10-K filed with the SEC on December 30, 2008.
(7)	The amounts in this column reflect the cash incentive awards earned in each fiscal year presented as approved by the Compensation Committee.
(8)	Consists of life insurance premiums.
(9)	Consists of life insurance premiums of $374, EMCORE’s matching contributions under its 401(k) plan of $4,822, which are made in EMCORE common stock.
(10)	Consists of life insurance premiums of $384, EMCORE’s matching contributions under its 401(k) plan of $4,673, which are made in EMCORE common stock, relocation and housing of $45,000, and $129,277 to cover the reimbursement of Section 409A taxes that the Company paid on behalf of Dr. Hou relating to events prior to him being a Section 16 officer of the Company.
(11)	Consists of life insurance premiums of $374 and EMCORE’s matching contributions under its 401(k) plan of $346, which are made in EMCORE common stock and relocation of $4,000.
(12)	Consists of life insurance premiums of $374 and EMCORE’s matching contributions under its 401(k) plan of $6,214, which are made in EMCORE common stock.
(13)	Consists of life insurance premiums of $384 and EMCORE’s matching contributions under its 401(k) plan of $5,493, which are made in EMCORE common stock.
(14)	Consists of life insurance premiums.
(15)	Consists of life insurance premiums of $384 and relocation of $24,790.
(16)	Consists of life insurance premiums of $374 and EMCORE’s matching contributions under its 401(k) plan of $9,442, which are made in EMCORE common stock and a car allowance of $6,000.
(17)	Consists of life insurance premiums of $384 and EMCORE’s matching contributions under its 401(k) plan of $6,954, which are made in EMCORE common stock and a car allowance of $6,000.

 

 

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Grants of Plan-Based Awards in Fiscal 2008

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)			All Other Option Awards: Number of Securities Underlying Options (#) (2)	Exercise or Base Price of Option Awards ($/Sh) (3)	Closing Price on Date of Grant ($/Sh)	Grant Date Fair Value of Stock and Option Awards ($) (4)
		Threshold ($)	Target ($)	Maximum ($)
Reuben F. Richards, Jr.	3/31/08 5/19/08 N/A	87,465	349,860	419,832	500,000 100,000	5.76 8.38	5.76 8.38	1,999,150 583,540
Hong Q. Hou, Ph.D.	4/3/08 5/19/08 N/A	84,000	336,000	403,200	150,000 195,000	6.67 8.38	6.67 8.38	697,305 1,137,903
John M. Markovich (5)	8/18/08				475,000	5.57	5.57	1,607,558
John Iannelli, Ph.D.	5/19/08 N/A	20,672	82,688	99,226	75,000	8.38	8.38	437,655
Keith J. Kosco, Esq.	5/19/08 N/A	18,375	73,500	88,200	80,000	8.38	8.38	466,832
Adam Gushard	5/19/08 N/A	32,,500	130,000	156,000	100,000	8.38	8.38	583,540

 

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(1)	These columns reflect the possible payment amounts under performance-based cash incentive awards granted for fiscal 2008 to the Named Executive Officers, as described above under “Compensation Discussion and Analysis”. The amounts actually awarded to these executives for 2008 are reported above in the Summary Compensation Table as “Non-Equity Incentive Plan Awards”.  Threshold is defined as 25% of Target and Maximum is defined as 120% of Target.  At the Compensation Committee’s sole discretion, they may adjust the non-equity incentive award obtained down to 0% or up to 140% based upon the level of individual achievements.
(2)	This column reflects the number of shares underlying options granted to the Named Executive Officers in fiscal 2008.
(3)	All options were granted at an exercise price equal to the closing price of our common stock on the option grant date.
(4)	This column reflects the fair value of these awards on the grant date as determined under the accounting principles used to calculate the value of equity awards. For the assumptions and methodologies used to value the awards reported in this column, see footnote (6) to the Summary Compensation Table.
(5)	Due to Mr. Markovich’s hire date of August 18, 2008, he was not eligible for a 2008 Incentive Plan Award.  As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on August 18, 2008, Mr. Markovich received an option to purchase 475,000 shares of the Company’s common stock pursuant to his offer letter dated August 7, 2008.

 

 

 

 

 

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Outstanding Equity Awards at September 30, 2008

 

Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)	Option Expiration Date
Reuben F. Richards, Jr.	50,000 25,000 72,500 225,000 - -		- - - - 500,000 100,000	(16)     (1) (2)	6.44 22.00 2.63 3.42 5.76 8.38	12/1/08 4/14/10 5/18/14 5/18/15 3/31/18 5/19/18
Hong Q. Hou, Ph.D.	35,000 - 27,500 245,000 63,750 - -		- 6,875 27,500 - 191,250 150,000 195,000	(17) (4) (5)   (6) (7) (2)	2.63 3.00 7.29 5.76 8.78 6.67 8.38	5/18/14 2/28/15 8/28/16 12/14/16 9/25/17 4/3/18 5/19/18
John M. Markovich	-		475,000	(3)	5.57	8/18/18
John Iannelli, Ph.D.	40,000 6,000 8,250 881 9,000 6,000 1,000 2,500 18,750 -		- - 2,750 - 9,000 6,000 1,000 7,500 56,250 75,000	(17) (4)   (9) (10) (11) (12) (13) (2)	1.87 2.63 3.00 7.32 5.18 7.95 9.75 4.98 5.33 8.38	1/22/13 5/18/14 2/28/15 12/29/15 10/12/15 3/10/16 4/5/16 3/29/17 6/25/17 5/19/18
Keith J. Kosco, Esq.	6,000 12,500 -		24,000 37,500 80,000	(14) (15) (2)	5.49 5.08 8.38	1/8/17 4/27/17 5/19/18
Adam Gushard	17,000 8,000 5,000 17,500 7,500 2,000 17,500 20,625 1,598 22,500 62,500 -		- - - - - - - 6,875 - 22,500 37,500 100,000	(16)           (4)   (5) (8) (2)	1.82 1.82 1.82 1.82 1.82 1.82 2.63 3.00 7.32 7.29 4.06 8.38	12/1/08 4/14/10 4/26/12 10/3/11 4/4/11 3/2/11 5/18/14 2/28/15 12/29/15 8/28/16 2/20/17 5/19/18

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(1)	The unvested portions of these awards are scheduled to vest in four installments on March 31, 2009, 2010, 2011 and 2012.
(2)	The unvested portions of these awards are scheduled to vest in four installments on May 19, 2009, 2010, 2011 and 2012.
(3)	The unvested portions of these awards are scheduled to vest in five installments on August 18, 2009, 2010, 2011, 2012 and 2013.
(4)	The unvested portions of these awards are scheduled to vest in one installment on February 28, 2009.
(5)	The unvested portions of these awards are scheduled to vest in two installments on August 28, 2009 and 2010.
(6)	The unvested portions of these awards are scheduled to vest in three installments on September 25, 2009, 2010 and 2011.
(7)	The unvested portions of these awards are scheduled to vest in four installments on April 3, 2009, 2010, 2011 and 2012.
(8)	The unvested portions of these awards are scheduled to vest in three installments on February 20, 2009, 2010 and 2011.
(9)	The unvested portions of these awards are scheduled to vest in two installments on October 12, 2008 and 2009.
(10)	The unvested portions of these awards are scheduled to vest in two installments on March 10, 2009 and 2010.
(11)	The unvested portions of these awards are scheduled to vest in two installments on April 5, 2009 and 2010.
(12)	The unvested portions of these awards are scheduled to vest in three installments on March 29, 2009, 2010 and 2011.
(13)	The unvested portions of these awards are scheduled to vest in three installments on June 25, 2009, 2010, and 2011.
(14)	The unvested portions of these awards are scheduled to vest in four installments on January 8, 2009, 2010, 2011 and 2012.
(15)	The unvested portions of these awards are scheduled to vest in three installments on April 27, 2009, 2010, and 2011.
(16)	This option grant expired and was cancelled on December 1, 2008.
(17)	In December 2008, the Company entered into a special tender offer with Dr. Hou and Dr. Iannelli regarding this option grant which increased the exercise price from $2.63 to $2.89, which represents the fair market value as of the actual measurement date for this option grant.

Option Exercises in Fiscal 2008

	Option Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)
Reuben F. Richards, Jr. (1)	100,000	487,200
Hong Q. Hou, Ph.D. (2)	133,750	1,079,707
John M. Markovich	-	-
Adam Gushard (3)	10,000	109,700
John Iannelli, Ph.D.	-	-
Keith J. Kosco, Esq.	-	-

__________

(1)	These shares were exercised in two tranches of 65,000 shares on February 25, 2008 and 35,000 shares on February 26, 2008.
(2)	These shares were exercised in three tranches of 120,000 shares on December 19, 2007, 6,875 shares on December 31, 2007 and 6,875 shares on March 14, 2008.
(3)	These shares were exercised on December 14, 2007, prior to expiration, and have not been sold.

 

 

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Potential Payments upon Termination or Change-in-Control

Under the Company’s Executive Severance Policy, participants are eligible to receive certain severance benefits if their employment with the Company is terminated and the termination constitutes a “Separation of Service” within the meaning of Section 409A of the Internal Revenue Code.  However, participants are not eligible to receive severance benefits if they are terminated with cause, due to death or disability or if they voluntarily terminate their employment other than for good reason.  In addition, a participant that is eligible to receive severance benefits under the Severance Policy must execute an agreement (a “Separation Agreement”) prepared by the Company that includes, among other things, a release by the participant of the Company from any liability or obligation to the participant.  A participant will not receive severance benefits if the participant does not enter into a Separation Agreement with the Company and all severance benefits will cease if the participant violates any provision of his or her Separation Agreement.

Under the Severance Policy, participants at the Chief /C-level Officer or higher will receive (i) for those hired or promoted prior to May 1, 2007, the continuation of their base salary for a period equal to one year and two weeks plus two additional weeks for each year the participant was employed by the Company or (ii) for those hired or promoted on or after May 1, 2007, the continuation of their base salary for a period equal to one year and one week plus one additional week for each year the participant was employed by the Company.

Participants at the Vice President level will receive (i) for those hired or promoted prior to May 1, 2007, the continuation of their base salary for a period equal to five months and two weeks plus two additional weeks for each year the participant was employed by the Company or (ii) for those hired or promoted on or after May 1, 2007, the continuation of their base salary for a period equal to five months and one week plus one additional week for each year the participant was employed by the Company.

If, following the sale, transfer, spin-off or other disposition of the stock or assets of any subsidiary, business unit or division of the Company, a participant’s employment is terminated after the end of a fiscal year but before annual cash incentive awards or pay-for-performance payments are distributed and the participant would otherwise be entitled to such awards or payments, the participant will remain entitled to the annual cash incentive award or pay-for-performance payment attributable to the immediately preceding fiscal year.  The Severance Policy also provides that participants will be eligible for certain benefits, including continued payment of certain health insurance premiums, outplacement services and other perquisites.

 

The following are estimated payments and benefits that would be provided to each of Messrs. Richards, Hou, Markovich, Iannelli, Kosco, and Gushard in the event the executive’s employment is terminated under certain circumstances.  We have calculated these amounts based on the Company’s Executive Severance Policy (the “Severance Policy”) and, in some cases, the terms of individual offer letters that were entered into in connection with an executive’s promotion to his current position. The calculations assume a termination date of September 30, 2008, the last business day of fiscal 2008.  The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from the Company.

Name	Severance	Cash Incentive Award	COBRA (Company Portion)	Outplacement Services (1)	Perquisites (2)
Reuben F. Richards, Jr.	$655,988	$78,719	$19,154	$30,000	-
Hong Q. Hou, Ph.D.	$597,692	$75,600	$19,154	$30,000	-
John M. Markovich	$311,538	-	$  3,928	$30,000	-
John Iannelli, Ph.D.	$304,399	$20,341	$16,818	$30,000	-
Keith J. Kosco, Esq.	$226,154	$14,333	$13,834	$30,000	-
Adam Gushard	$370,000	$39,000	$19,154	$30,000	$59,000

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(1)	On December 30, 2008, the Compensation Committee amended the Company’s Executive Severance Plan to reduce the outplacement services maximum amount payable by the Company to $15,000.
(2)	Include $9,000 for a car allowance and an estimated cost of $50,000 for relocation-related expenses, which is payable to Mr. Gushard if terminated without cause.

 

 

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Vesting of Equity Awards in Connection with a Change in Control

 

Upon a change in control of the Company, unvested stock options will vest and become exercisable pursuant to the terms of the Company’s 2000 Stock Option Plan applicable to all plan participants.  The value of accelerating unvested stock options, as measured by the difference between the closing price of $4.94 on September 30, 2008, and the option grant price, would be zero for Mr. Richards, Mr. Markovich, and Mr. Kosco, $46,525 for Mr. Gushard, $13,338 for Dr. Hou, and $5,335 for Dr. Iannelli.

COMPENSATION COMMITTEE REPORT

 

The information contained under this “Compensation Committee Report”, shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act of 1933, as amended, or under the  Securities Exchange Act of 1934, as amended (the “Exchange Act”), or be subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates this information by reference into any such filing.

The Compensation Committee is responsible for evaluating the performance of the Executive Chairman, the Chief Executive Officer and other EMCORE officers as well as reviewing and approving their compensation. The Committee also establishes and monitors overall compensation programs and policies for the Company, including administering the incentive compensation plans. The Committee’s processes and procedures for the consideration and determination of executive compensation are explained in greater detail in the Compensation Discussion and Analysis section.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K/A and its Proxy Statement in accordance with Item 407(e) of Regulation S-K.

 

This report is submitted by the Compensation Committee.

 

 January 28, 2009

 

COMPENSATION COMMITTEE   John Gillen, Chairman Charles T. Scott Robert Bogomolny

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

The Company’s Compensation Committee is comprised of Messrs. Gillen, Scott and Bogomolny.  No member of the Compensation Committee served as one of the Company’s officers or employees during fiscal 2008 or was formerly an officer or employee of the Company at any time.  None of the Company’s executive officers served as a member of the compensation committee of any other company that has an executive officer serving as a member of the Company’s Board of Directors or Compensation Committee during fiscal 2008.  None of the Company’s executive officers served as a member of the board of directors of any other company that has an executive officer serving as a member of the Company’s Compensation Committee during fiscal 2008.