Equity

12 Months Ended

Sep. 30, 2013

Equity [Abstract]

Equity

Equity

Stock Sales

During August 2012, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may, from time to time, sell up to an aggregate of $50 million of our common or preferred stock, warrants or debt securities. On August 23, 2012, the registration statement was declared effective by the SEC, which will allow us to access the capital markets for the three year period following this effective date. On October 3, 2012, we sold 1,832,410 shares of common stock for net proceeds of $9.5 million. In addition, on September 18, 2013, we sold 2,875,000 shares of common stock for net proceeds of $11.7 million.

Equity Plans

We provide long-term incentives to eligible officers, directors, and employees in the form of equity-based awards.  We maintain three equity incentive compensation plans, collectively described below as our Equity Plans:

• the 2000 Stock Option Plan (2000 Plan),

• the 2010 Equity Incentive Plan (2010 Equity Plan),

• the 2012 Equity Incentive Plan (2012 Equity Plan).

The 2000 Plan expired in February 2010 and no additional shares are available for grant under this plan. However certain stock options issued under the 2000 Plan are still outstanding and exercisable.

The total number of stock-based awards that may be granted under the 2010 Equity Plan is 1,750,000 stock-based awards.

In March 2012, our shareholders approved the 2012 Equity Plan at our 2012 Shareholder Annual Meeting and authorized the reservation of 1,000,000 shares of EMCORE common stock for issuance under the 2012 Equity Plan. Employees, non-employee directors, and consultants of EMCORE and its subsidiaries are eligible to receive awards of EMCORE common stock, stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, or stock purchase rights at the Compensation Committee's discretion.

We issue new shares of common stock to satisfy awards issued under our Equity Plans.

Stock Options

Most of our stock options vest and become exercisable over a four to five year period and have a contractual life of 10 years. Certain stock options awarded are intended to qualify as incentive stock options pursuant to Section 422A of the Internal Revenue Code.

The following table summarizes stock option activity under the Equity Plans for our fiscal year ended September 30, 2013:

	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (*) (in thousands)
Outstanding as of September 30, 2012	2,032,215		$17.76
Granted	84,000		$4.46
Exercised	(78,690	)	$4.93		$	94
Forfeited	(67,192	)	$7.04
Expired	(224,385	)	$20.34
Outstanding as of September 30, 2013	1,745,948		$17.78	4.34
Exercisable as of September 30, 2013	1,535,077		$19.56	3.81	$	43
Vested and expected to vest as of September 30, 2013	1,711,395		$18.04	4.26	$	110

(*) Intrinsic value for stock options represents the “in-the-money” portion or the positive variance between a stock option's exercise price and the underlying stock price. For the fiscal years ended September 30, 2012 and 2011, the intrinsic value of options exercised was $12,000 and $218,000, respectively.

As of September 30, 2013, there was approximately $0.6 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to non-vested stock options granted under the Equity Plans which is expected to be recognized over an estimated weighted average life of 3.1 years.

Valuation Assumptions

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option valuation model, adhering to the straight-line attribution approach using the following weighted-average assumptions, of which the expected term and stock price volatility rate are highly subjective:

	For the Fiscal Years Ended September 30,
	2013			2012			2011
Black-Scholes weighted average assumptions:
Expected dividend rate	—		%	—		%	—		%
Expected stock price volatility rate	96.7		%	101.8		%	99.4		%
Risk-free interest rate	1.2		%	0.8		%	1.4		%
Expected term (in years)	6.0			5.4			4.9
Weighted average grant date fair value per share of stock options granted:	$	3.45		$	3.54		$	4.44

Expected Dividend Yield: The Black-Scholes valuation model calls for a single expected dividend rate as an input. We have not issued any dividends.

Expected Stock Price Volatility Rate: The fair values of stock-based payments were valued using the Black-Scholes valuation

method with a volatility factor based on our historical common stock prices.

Risk-Free Interest Rate: The risk-free interest rate used in the Black-Scholes valuation method was based on the implied yield that was currently available on U.S. Treasury zero-coupon notes with an equivalent remaining term. Where the expected term of stock-based awards do not correspond with the terms for which interest rates are quoted, we performed a straight-line interpolation to determine the rate from the available maturities.

Expected Term: Expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Estimated Pre-vesting Forfeitures: We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. If we use different assumptions for estimating stock-based compensation expense in future periods or if actual forfeitures differ materially from our estimated forfeitures, the change in our non-cash stock-based compensation expense could adversely affect our results of operations.

Restricted Stock

Restricted stock awards (RSAs) and restricted stock units (RSUs) granted under the 2010 Equity Plan and 2012 Equity Plan typically vest over 3 years and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. RSAs are considered issued and outstanding shares on the grant date and have the same dividend and voting rights as other common stock. RSUs are not considered issued or outstanding common stock until they vest.

The following table summarizes the activity related to RSAs and RSUs:

Restricted Stock Activity	Restricted Stock Awards			Restricted Stock Units
	Number of Shares		Weighted Average Grant Date Fair Value	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2012	216,703		$5.83	700,043		$4.44
Granted	—		—	530,700		$4.63
Vested	(106,797	)	$5.83	(256,390	)	$4.59
Forfeited	(10,345	)	$5.68	(119,425	)	$4.48
Non-vested as of September 30, 2013	99,561		$5.84	854,928		$4.51

Restricted stock awards: As of September 30, 2013, there was approximately $0.2 million of remaining unamortized stock-based compensation expense, net of estimated forfeitures, associated with RSAs, which will be expensed over a weighted average remaining service period of approximately 0.3 years.

Restricted stock units: As of September 30, 2013, there was approximately $2.4 million of remaining unamortized stock-based compensation expense, net of estimated forfeitures, associated with RSUs, which will be expensed over a weighted average remaining service period of approximately 1.8 years. The 0.9 million outstanding non-vested RSUs have an aggregate intrinsic value of approximately $3.8 million and a weighted average remaining contractual term of 1.1 years. Of the 0.9 million outstanding non-vested RSUs, approximately 0.8 million RSUs are expected to vest and have an aggregate intrinsic value of approximately $3.4 million and a weighted average remaining contractual term of 1.0 years.

Stock-based compensation

The effect of recording stock-based compensation expense was as follows:

Stock-based Compensation Expense - by award type	For the Fiscal Years Ended September 30,
(in thousands)	2013		2012		2011
Employee stock options	$	495	$	2,563	$	5,147
Restricted stock awards and units	2,006		3,211		557
Employee stock purchase plan	501		666		600
401(k) match in common stock	1,041		1,034		935
Outside director fees in common stock	166		282		189
Total stock-based compensation expense	$	4,209	$	7,756	$	7,428

Stock-based Compensation Expense - by expense type	For the Fiscal Years Ended September 30,
(in thousands)	2013		2012		2011
Cost of revenue	$	1,143	$	1,566	$	1,412
Selling, general, and administrative	1,754		3,889		3,927
Research and development	1,312		2,301		2,089
Total stock-based compensation expense	$	4,209	$	7,756	$	7,428

For the fiscal years ended September 30, 2013 and 2011, total stock-based compensation expense does not agree with the amount listed on our statement of shareholders' equity primarily due to the timing difference between the expense accrued and the issuance of common stock for the payment of outside director fees and our 401(k) company match. For the fiscal year ended September 30, 2012, total stock-based compensation expense did not agree with the amount listed on our statement of shareholders' equity primarily due to compensation of $0.3 million related to the acceleration of restricted stock expense related to the sale of our Fiber Optics segment that was reported as a reduction of the gain on sale of assets and a timing difference between expense accrued and issuance of common stock for the payment of outside director fees.

Capital Stock

Our authorized capital stock consists of 50 million shares of common stock, no par value, and 5,882,000 shares of preferred stock, $0.0001 par value. As of September 30, 2013, we had 30.0 million shares of common stock issued and outstanding. There were no shares of preferred stock issued or outstanding as of September 30, 2013.

Warrants

As of September 30, 2013 and 2012, warrants representing 400,001 and 750,011 shares of our common stock were outstanding.

On February 20, 2008, in conjunction with a private placement transaction, we issued warrants representing the right to purchase up to an aggregate of 350,010 shares of common stock (2008 Warrants). On October 1, 2009, we entered into an equity line financing facility with Commerce Court Small Cap Value Fund, Ltd. wherein we issued three warrants representing the right to purchase up to an aggregate of 400,001 shares of common stock, (2009 Warrants, and together with the 2008 Warrants, the 2008 and 2009 Warrants). See Note 4 - Fair Value Accounting for additional information related to the valuation of our warrants.

Prior to January 1, 2011, the 2008 Warrants were classified as equity instruments. During the quarter ended March 31, 2011, we determined that the 2008 Warrants should have been accounted for as a liability since these warrants met the definition of a derivative instrument and did not qualify for equity classification. During the three months ended March 31, 2011, we adjusted common stock and accumulated deficit, both equity-related accounts, by $8,218,000 and $8,022,000, respectively, and recorded the liability related to the fair value of the warrants as of January 1, 2011 of $196,000 to correct the initial accounting treatment of the warrants from equity to liability accounting as an out-of-period adjustment. The 2008 and 2009 Warrants are reported as a current liability since these warrant agreements include a fundamental transaction clause whereby, in the event that another person becomes the beneficial owner of 50% of the outstanding shares of the Company's common stock, and if other conditions are met, we may be required to purchase the warrants from the holders by paying cash in an amount equal to the Black-Scholes value of the remaining unexercised portion of the warrants on the date of such fundamental transaction.

Private Placement

On May 31, 2011, we completed an equity private placement transaction with Shanghai Di Feng Investment Co. Ltd. pursuant to which we sold 1,101,901 shares of our common stock for approximately $9.7 million. We used the proceeds from this private placement for general corporate purposes.

401(k) Plan

We have a savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under this savings plan, participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. All employer contributions are made in common stock. For the fiscal years ended September 30, 2013, 2012 and 2011, we contributed approximately $1.0 million, $1.0 million and $0.9 million, respectively, in common stock to the savings plan.

Employee Stock Purchase Plan

We maintain an Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is a 6-month duration plan with new participation periods beginning on February 25 and August 26 of each year. The purchase price is set at 85% of the average high and low market price of our common stock on either the first or last day of the participation period, whichever is lower, and contributions are limited to the lower of 10% of an employee's compensation or $25,000. At the 2012 Annual Meeting, our shareholders approved an amendment to the ESPP that increased the total number of shares of common stock on which options may be granted under the ESPP to 2,250,000 shares. We issue new shares of common stock to satisfy the issuance of shares under this stock-based compensation plan. Common stock issued under the ESPP during the fiscal years ended September 30, 2013, 2012, and 2011 totaled 344,000 and 250,000, 359,000 shares, respectively. As of September 30,2013, the total amount of common stock issued under the ESPP totaled 1,813,816 shares.

Officer and Director Share Purchase Plan

On January 21, 2011, the Compensation Committee of the Board approved an Officer and Director Share Purchase Plan, or ODPP, which allows executive officers and directors to purchase shares of our common stock at fair market value in lieu of salary or, in the case of directors, director fees. Eligible individuals may voluntarily participate in the ODPP by authorizing payroll deductions or, in the case of directors, deductions from director fees for the purpose of purchasing common stock. Elections to participate in the ODPP may only be made during open trading windows under our insider trading policy when the participant does not otherwise possess material non-public information concerning the Company. The Board of Directors has authorized 125,000 shares to be made available for purchase by officers and directors under the ODPP. Common stock issued under the ODPP during the fiscal years ended September 30, 2013, 2012, and 2011 totaled 4,500, 21,000 and 9,000, shares, respectively.

Income (Loss) Per Share.

The following table sets forth the computation of basic and diluted net income (loss) per share:

Basic and Diluted Net Income (Loss) Per Share	For the Fiscal Years Ended September 30,
(in thousands, except per share)	2013			2012			2011
Numerator - Net income (loss)	$	4,988		$	(39,171	)	$	(34,219	)
Less: Undistributed earnings allocated to participating securities	(26		)	—			—
Undistributed earnings allocated to common shareholders for basic net income (loss) per share	$	4,962		$	(39,171	)	$	(34,219	)
Undistributed earnings allocated to common shareholders for diluted net income (loss) per share	$	4,962		$	(39,171	)	$	(34,219	)
Denominator:
Denominator for basic net income (loss) per share - weighted average shares outstanding	26,531			23,559			22,228
Dilutive options outstanding, unvested stock units and ESPP	281			—			—
Denominator for diluted net income (loss) per share - adjusted weighted average shares outstanding	26,812			23,559			22,228
Basic net income (loss) per share	$	0.19		$	(1.66	)	$	(1.54	)
Diluted net income (loss) per share	$	0.19		$	(1.66	)	$	(1.54	)
Weighted average antidilutive options, unvested restricted stock units and awards, warrants and ESPP shares excluded from the computation	2,391			3,999			3,333
Average market price of common stock	$	4.64		$	4.44		$	7.64

The antidilutive stock options and unvested stock were excluded from the computation of diluted net income (loss) per share due to the assumed proceeds from the award’s exercise or vesting being greater than the average market price of the common shares or due to the Company incurring a net loss for the periods presented.

Future Issuances

As of September 30, 2013, we had common stock reserved for the following future issuances:

Future Issuances	Number of Common Stock Shares Available for Future Issuances
Exercise of outstanding stock options	1,745,948
Unvested restricted stock units	854,928
Purchases under the employee stock purchase plan	433,958
Issuance of stock-based awards under the Equity Plans	608,395
Exercise of outstanding warrants	400,001
Purchases under the officer and director share purchase plan	90,323
Total reserved	4,133,553