Equity

Dividend Payment

On July 5, 2016, the Company declared a special cash dividend of $1.50 per share, or a total of $39.2 million. The dividend was paid on July 29, 2016 to shareholders of record as of July 18, 2016. The dividend has been reflected as a reduction of common stock during the fiscal year ended September 30, 2016 in the Consolidated Statements of Shareholders' Equity. Under the terms of our credit facility with Wells Fargo Bank, N. A., we are restricted from paying dividends that result in the liquidity of the Company being less than $25.0 million after paying the dividend if any amounts are outstanding under our credit facility.

Common Stock Repurchase

In April 2015, EMCORE's Board of Directors authorized the Company to repurchase $45.0 million of shares of its common stock. On May 15, 2015, we announced the commencement of a modified "Dutch auction" tender offer to purchase for cash shares of our common stock (the "Tender Offer"). On June 15, 2015, we completed the Tender Offer and purchased 6.9 million shares of our common stock at a purchase price of $6.55 per share, for an aggregate cost of $45.0 million excluding fees and expenses. Repurchased common stock was recorded to treasury stock. The Company incurred costs of $0.7 million in connection with the Tender Offer, which were recorded to treasury stock.

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,


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


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

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

The Board of Directors (the “Board”) and stockholders of the Company previously approved, amendments to the 2012 Plan that among other changes, (1) increased the limit on the aggregate number of shares of common stock that may be delivered pursuant to awards granted under the 2012 Plan by 500,000 shares to a new aggregate share limit of 2,500,000 shares; (2) made shares exchanged or withheld by the Company to satisfy any purchase price and tax withholding obligations related to options or “full value awards” (such as restricted stock or stock unit awards), and the total number of shares subject to stock appreciation rights (whether or not issued) count against the 2012 Plan’s share limit and no longer available for new grants under the 2012 Plan; (3) implemented a maximum grant date fair value limit for awards granted to non-employee directors under the 2012 Plan during any one calendar year of $250,000 (or $350,000 in the case of awards to a non-employee director serving as Chairman of the Board or Lead Independent Director at the time of grant, or to a newly elected or appointed non-employee director during the first calendar year of service), (4) expressly allowed the administrator to permit or require participants to defer awards granted under the 2012 Plan, (5) extended the term of the 2012 Plan until March 11, 2026; and (6) extended the performance-based award feature of the 2012 Plan through the first annual meeting of stockholders that occurs in 2021. As a result of the March 2016 approval of the amendments to the 2012 Plan by the Company's stockholders, no more shares may be granted under the 2007 Directors' Stock Award Plan. As of September 30, 2016, there were 921,527 shares available for issuance under the 2012 Plan after equitably and proportionately adjusting such share limit to preserve the intended effect of the overall share limit following the special cash dividend declared by the Board and paid to shareholders in July 2016.

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 the fiscal year ended September 30, 2016:



	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (*) (in thousands)
Outstanding as of September 30, 2015	696,459		$22.47
Granted	27,900		$6.01
Share adjustment for special dividend	185,726		$17.09
Exercised	(45,340	)	$4.97		$	87
Forfeited	(9,353	)	$5.49
Expired	(105,054	)	$27.72
Outstanding as of September 30, 2016	750,338		$16.84	2.31	$	479
Exercisable as of September 30, 2016	680,859		$17.06	1.64	$	406
Vested and expected to vest as of September 30, 2016	736,937		$18.08	2.19	$	466

(*) 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, 2015 and 2014, the intrinsic value of options exercised was $0.3 million and $0.1 million, respectively.

As of September 30, 2016, there was approximately $0.2 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 3.7 years.

On December 10, 2014, in connection with the sale of the Photovoltaics Business, which constituted a change in control, the terms of approximately 56,000 stock options for approximately 80 employees were modified to include accelerated vesting effective as of that date. The total incremental benefit resulting from the modifications was approximately $0.2 million and is included in the Company's income from discontinued operations, net of tax, for the fiscal year ended September 30, 2015.

With the dividend of $1.50 per share declared on July 5, 2016, payable to shareholders of record as of the close of business on July 18, 2016 and paid by the Company on July 29, 2016, the number of shares subject to all outstanding options as of that dividend payable date and the exercise price of each such options were equitably and proportionately adjusted to preserve the intrinsic value of the outstanding awards in accordance with the original terms of the options. The impact of the dividend adjustment to outstanding options as of the dividend payable date has increased the exercisable, vested and expected to vest shares in the above table.

Valuation Assumptions

The fair value of each stock option grant, excluding the adjustment for the special dividend, 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,
	2016			2015			2014
Black-Scholes weighted average assumptions:
Expected dividend rate	—		%	—		%	—		%
Expected stock price volatility rate	60.9		%	66.1		%	92.8		%
Risk-free interest rate	1.6		%	1.8		%	1.9		%
Expected term (in years)	6.0			6.0			6.0

Weighted average grant date fair value per share of stock options granted:	$	3.40		$	3.73		$	3.53

Expected Dividend Yield: The Black-Scholes valuation model calls for a single expected dividend rate as an input. Although we have paid a special dividend in July 2016, no dividend rate is assumed in the valuation.

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 terms 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 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 units (RSUs) granted to employees under the 2010 Plan and 2012 Plan typically vest over 3 years and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. RSUs are not considered issued or outstanding common stock until they vest.

The following table summarizes the activity related to RSUs for the fiscal year ended September 30, 2016:



Restricted Stock Activity	Restricted Stock Units
	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2015	570,231		$5.26
Granted	449,250		$5.53
Share adjustment for special dividend	200,061		$0.00
Vested	(283,553	)	$5.17
Forfeited	(57,573	)	$5.04
Non-vested as of September 30, 2016	878,416		$4.25

As of September 30, 2016, there was approximately $2.6 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 2.4 years. The 0.9 million outstanding non-vested RSUs have an aggregate intrinsic value of approximately $5.0 million and a weighted average remaining contractual term of 1.4 years. For the fiscal years ended September 30, 2016, 2015 and 2014, the intrinsic value of RSUs vested was approximately $1.6 million, $4.6 million and $2.4 million, respectively. Of the 0.9 million outstanding non-vested RSUs at September 30, 2016, approximately 0.8 million are expected to vest and have an aggregate intrinsic value of approximately $4.7 million and a weighted average remaining contractual term of 1.4 years. For the fiscal years ended September 30, 2015 and 2014, the weighted average grant date fair value of RSUs granted was $5.38 and $4.89, respectively.

In connection with the appointment of Mr. Jikun Kim as the Company's Chief Financial Officer on June 20, 2016, he was granted a time based equity award of 150,000 RSUs that are scheduled to vest in five equal annual installments on each of the first five anniversaries of his hiring date.

On October 18, 2016, the Company granted 70,000 RSUs with a grant date fair value of $0.4 million to its CEO, Jeff Rittichier, that will vest in 4 equal annual installments beginning on October 18, 2017. Also on that date the Company granted Mr. Rittichier 100,000 target Performance Based Restricted Stock Units (PSUs) with a grant date fair value of $0.7 million and Mr. Kim 195,180 target PSUs with a grant date fair value of $1.4 million.

The PSUs to be issued are based on the total shareholder return of EMCORE’S stock compared to the Russell Microcap Index. The total number of shares to be issued to each individual may range from zero (0) to 200% of the target PSUs granted. Between zero (0) and 200% of one third of the target PSUs will vest, if at all, on each of October 17, 2017, 2018 and 2019.

With the dividend of $1.50 per share declared on July 5, 2016, payable to shareholders of record as of the close of business on July 18, 2016 and paid by the Company on July 29, 2016, the number of shares subject to all outstanding RSUs as of the dividend payable date was equitably and proportionately adjusted to preserve the intrinsic value of the outstanding awards in accordance with the original terms of the awards. The impact of the dividend adjustment to outstanding RSUs as of the dividend payable date has increased the non-vested RSUs outstanding and the expected to vest RSUs as disclosed in the above table.

On December 10, 2014, in connection with the sale of the Photovoltaics Business, which constituted a change in control, the terms of approximately 147,000 RSUs for approximately 80 employees were modified to include accelerated vesting effective as of that date. The total incremental expense resulting from the modifications was approximately $49,000 and is included in the Company's income from discontinued operations, net of tax, for the fiscal year ended September 30, 2015. In total, approximately 0.3 million RSU's vested due to change in control provisions.

On June 24, 2016, in connection with the resignation of the Company's former Chief Financial Officer, Mark Weinswig, approximately $0.3 million of stock compensation expense was recorded for acceleration of some and cancellation of other restricted stock units. See Note 9 - Accrued Expenses and Other Current Liabilities.

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)	2016		2015		2014
Employee stock options	$	38	$	194	$	135
Restricted stock awards and units	1,683		2,658		1,683
Employee stock purchase plan	223		143		289
401(k) match in common stock	—		284		513
Outside director fees in common stock	218		341		367
Total stock-based compensation expense	$	2,162	$	3,620	$	2,987



Stock-based Compensation Expense - by expense type	For the Fiscal Years Ended September 30,
(in thousands)	2016		2015		2014
Cost of revenue	$	345	$	341	$	466
Selling, general, and administrative	1,445		2,847		1,912
Research and development	372		432		609
Total stock-based compensation expense	$	2,162	$	3,620	$	2,987

For the fiscal year ended September 30, 2016, total stock-based compensation expense did not agree with the amount listed on our statements of shareholders' equity primarily due to the timing difference between the expense accrued and the issuance of common stock for the payment of outside directors fees and due to reclassification of stock-based compensation expense related to discontinued operations. For the fiscal years ended September 30, 2015 and 2014, total stock-based compensation expense did not agree with the amount listed on our statements of shareholders' equity primarily due to the timing difference between the expense accrued and the issuance of common stock for the payment of outside directors fees and our 401(k) company match and due to reclassification of stock-based compensation expense related to discontinued operations.

The stock based compensation expense above relates to continuing operations. Included within stock based-compensation for selling, general and administrative expense for the fiscal year ended September 30, 2016 was approximately $0.3 million associated with the acceleration of some and cancellation of other restricted stock units associated with the resignation of the Company's former Chief Financial Officer, Mark Weinswig. Stock based-compensation within selling, general and administrative expense was higher for fiscal year ended September 30, 2015 due to stock-based compensation expense associated with the sale of the Photovoltaics and Digital Products Businesses. Included within discontinued operations is $(0.1) million, $1.0 million and $1.5 million of stock based compensation expense for the fiscal years ended September 30, 2016, 2015 and 2014, respectively.

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, 2016, we had 33.2 million and 26.2 million shares of common stock issued and outstanding, respectively. There were no shares of preferred stock issued or outstanding as of September 30, 2016.

Warrants

As of September 30, 2014, warrants representing the right to purchase 400,001 shares, of our common stock were outstanding. Since the warrants expired on April 1, 2015, no warrants were outstanding as of September 30, 2015. See Note 5 - Fair Value Accounting for additional information related to the valuation of our warrants.

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 were made in common stock through June 30, 2015 and since then have been made in cash. Our matching contribution in cash for the fiscal years ended September 30, 2016 and 2015 was approximately $0.4 million and $0.2 million, respectively. For the fiscal years ended September 30, 2015 and 2014, we contributed approximately $0.3 million and $0.5 million, respectively, in common stock to the savings plan. All participant accounts had their holdings in company stock liquidated as of December 3, 2015.

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)	2016		2015			2014

Numerator:
Income (loss) from continuing operations	$	2,619	$	(2,272	)	$	4,082
Income from discontinued operations	5,647		65,372			770
Undistributed earnings allocated to common shareholders for basic and diluted net income (loss) per share	8,266		63,100			4,852
Denominator:
Denominator for basic net income (loss) per share - weighted average shares outstanding	25,979		30,012			30,453
Dilutive options outstanding, unvested stock units and ESPP	539		—			324
Denominator for diluted net income (loss) per share - adjusted weighted average shares outstanding	26,518		30,012			30,777

Net income (loss) per basic share:
Continuing operations	$	0.10	$	(0.08	)	$	0.13
Discontinued operations	0.22		2.18			0.03
Net income per basic share	$	0.32	$	2.10		$	0.16

Net income (loss) per diluted share:
Continuing operations	$	0.10	$	(0.08	)	$	0.13
Discontinued operations	0.21		2.18			0.03
Net income per diluted share	$	0.31	$	2.10		$	0.16
Weighted average antidilutive options, unvested restricted stock units and awards, warrants and ESPP shares excluded from the computation	508		1,391			1,936

Average market price of common stock	$	5.88	$	5.81		$	4.69

For diluted income (loss) per share, the denominator includes all outstanding common shares and all potential dilutive common shares to be issued. For the fiscal years ended September 30, 2016, 2015 and 2014, we excluded 0.5 million, 1.4 million and 1.9 million, respectively, of weighted average outstanding stock options, restricted stock awards, restricted stock units and warrants from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive.

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 annual contributions are limited to the lower of 10% of an employee's compensation or $25,000. Per the amended ESPP, the total number of shares of common stock on which options may be granted under the ESPP are 3,250,000 shares. With the special dividend paid in July 2016, the total number of shares of common stock on which options may be granted under the ESPP were increased by 265,574 shares to a total of 3,515,574 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, 2016, 2015 and 2014 totaled 193,000, 121,000 and 341,000 shares, respectively. As of September 30, 2016, the total amount of common stock issued under the ESPP totaled 2,470,896 shares and the total shares remaining available for issuance under the ESPP as of September 30, 2016 totaled 1,044,678.

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, 2016, 2015 and 2014 totaled 0, 0 and 1,600 shares, respectively.

Future Issuances

As of September 30, 2016, 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	750,338
Unvested restricted stock units	878,416
Purchases under the employee stock purchase plan	1,044,678
Issuance of stock-based awards under the Equity Plans	926,893
Purchases under the officer and director share purchase plan	88,741
Issuance of deferred stock-based awards under the Directors' Stock Award Plan, as amended	28,840
Total reserved	3,717,906

With the dividend of $1.50 per share declared on July 5, 2016, payable to shareholders of record as of the close of business on July 18, 2016 and paid by the Company on July 29, 2016, the number of shares subject to outstanding equity awards, the exercise price of outstanding stock options and the overall limit on the number of shares remaining available for future issuance under the 2010 Plan and 2012 Plan were equitably and proportionately adjusted to preserve the intrinsic value of the outstanding awards under the original terms of the plans and to preserve the intended effect of the overall share limits. Accordingly, the impact of the dividend adjustment has increased the share amounts reserved for future issuances as disclosed in the above table.