Equity

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”) of the Company previously approved, subject to stockholder approval, amendments to the 2012 Plan that would, among other changes, (1) increase the limit on the aggregate number of shares of common stock that may be delivered pursuant to awards granted under the 2012 Plan by 2,400,000 shares to a new aggregate share limit of 5,301,366 shares; (2) extend the ability to grant performance-based awards under the 2012 plan through the first annual meeting of shareholders that occurs in 2022; (3) extend the term of the 2012 Plan until March 17, 2027; (4) increase the annual limits on the number of different types of awards that may be granted to an individual under the 2012 Plan, so a participant may receive (a) a maximum of 200,000 stock options, 200,000 stock appreciation rights, 200,000 shares of restricted stock, 200,000 restricted stock units, 200,000 stock purchase rights and 200,000 share awards in any fiscal year of the Company, (b) in connection with their initial year of service, up to an additional 400,000 stock options, 400,000 stock appreciation rights, 400,000 shares of restricted stock, 400,000 restricted stock units, 400,000 stock purchase rights and 400,000 share awards, and (c) a maximum of $1,000,000 in cash earned in connection with the grant of performance units in any fiscal year; and (5) require all awards granted under the Amended 2012 Plan to have a minimum vesting period of one year and require that no award may vest earlier than the first anniversary of the grant date of the award, subject to limited exception. The Company’s stockholders approved the amendments to the 2012 Plan on March 17, 2017.

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 fiscal year ended September 30, 2017:



	Number of Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (*) (in thousands)
Outstanding as of September 30, 2016	750,338		$16.84
Granted	—		—
Exercised	(157,879	)	$3.38		$	920
Forfeited	(7,936	)	$4.83
Expired	(257,725	)	$22.03
Outstanding as of September 30, 2017	326,798		$19.54	1.94	$	295
Exercisable as of September 30, 2017	282,378		$21.88	0.99	$	138
Vested and expected to vest as of September 30, 2017	326,798		$19.54	1.94	$	295

(*) 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, 2016 and 2015, the intrinsic value of options exercised was $87,000 and $0.3 million, respectively.

As of September 30, 2017, there was approximately $0.1 million of unrecognized stock-based compensation expense related to non-vested stock options granted under the Equity Plans which is expected to be recognized over an estimated weighted average life of 2.8 years.

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.

On December 10, 2014, in connection with the sale of the Photovoltaics Business, which constituted a change in control under the equity plans, 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.

Valuation Assumptions

There were no stock option grants for the fiscal year ended September 30, 2017. The fair value of each stock option grant for the fiscal years ended September 30, 2016 and 2015, excluding the adjustment for a special dividend paid in July 2016, 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,
	2017			2016			2015
Black-Scholes weighted average assumptions:
Expected dividend rate	—		%	—		%	—	%
Expected stock price volatility rate	—		%	60.9		%	66.1	%
Risk-free interest rate	—		%	1.6		%	1.8	%
Expected term (in years)	—			6.0			6.0

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

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

Expected Stock Price Volatility Rate: The fair values of stock-based payments were calculated 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 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.

Restricted Stock

Restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) granted to employees under the 2010 Plan and 2012 Plan typically vest over 3 to 4 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. RSAs are considered issued and outstanding on the grant date and are subject to forfeiture if specified vesting conditions are not satisfied.

The following table summarizes the activity related to RSUs and RSAs for the fiscal year ended September 30, 2017:



Restricted Stock Activity	Restricted Stock Units			Restricted Stock Awards
Restricted Stock Activity	Number of Shares		Weighted Average Grant Date Fair Value	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2016	878,416		$4.25	—	$0.00
Granted	307,509		$8.44	8,154	$8.20
Vested	(357,013	)	$4.15	—	$0.00
Canceled	(8,154	)	$5.50	—	$0.00
Forfeited	(42,674	)	$4.66	—	$0.00
Non-vested as of September 30, 2017	778,084		$5.91	8,154	$8.20

As of September 30, 2017, there was approximately $3.4 million of remaining unamortized stock-based compensation expense associated with RSUs, which will be expensed over a weighted average remaining service period of approximately 2.3 years. The 0.8 million outstanding non-vested and expected to vest RSUs have an aggregate intrinsic value of approximately $6.4 million and a weighted average remaining contractual term of 1.3 years. For the fiscal years ended September 30, 2017, 2016 and 2015 the intrinsic value of RSUs vested were approximately $3.4 million, $1.6 million and $4.6 million, respectively. For the fiscal years ended September 30, 2016 and 2015, the weighted average grant date fair value of RSUs granted was $5.53 and $5.38, respectively.

As of September 30, 2017, there was approximately $0.1 million of remaining unamortized stock-based compensation expense associated with RSAs, which will be expensed over a weighted average remaining service period of approximately 3.0 years.

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, Jeffrey Rittichier, that will vest in 4 equal annual installments beginning on October 18, 2017.

On September 29, 2017, the Company amended the October 18, 2016 grant of 70,000 RSUs by (i) reducing 17,500 of the 70,000 RSUs that are schedule to vest on October 18, 2020 to 9,346 RSUs that are scheduled to vest as of that same date, resulting in a new total of 61,846 RSUs granted pursuant to this award and (ii) issuing Mr. Rittichier 8,154 RSAs that were originally subject to the RSA award and that had a grant date fair value of $0.1 million that are scheduled to vest on October 18, 2020.

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 CFO, 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 10 - Accrued Expenses and Other Current Liabilities for additional information.

Performance Stock

Performance based restricted stock units (“PSUs”) and performance based shares of restricted stock (“PRSAs”) granted to employees under the 2012 Plan typically vest over 1 to 3 years and are subject to forfeiture if employment terminates prior to the lapse of the restrictions. PRSAs are considered issued and outstanding on the grant date and are subject to forfeiture if specified vesting conditions are not satisfied. PSUs and PRSAs are not considered issued or outstanding common stock until they vest. PSUs that are granted to our executive officers and key employees are provided as long-term incentive compensation that is based on relative total shareholder return, which measures our performance against that of our competitors.

On October 18, 2016, the Company granted our CEO, Mr. Rittichier, 100,000 target PSUs with a grant date fair value of $0.7 million and our CFO, Jikun Kim, 195,180 target PSUs with a grant date fair value of $1.4 million.

The PSUs issued will vest based on a combination of the relative total shareholder return of EMCORE’s stock compared to the Russell Microcap Index and the executive's continued employment. The total number of shares to be issued to each individual ranges 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.

On December 14, 2016, the Company granted 71,669 target PSUs with a grant date fair value of $1.0 million to certain employees. The PSUs issued will vest based on a combination of the relative total shareholder return of EMCORE’s stock compared to the Russell Microcap Index and the employee's continued employment. 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 the target PSUs granted will vest, if at all, on December 14, 2019.

On September 29, 2017, the Company amended the October 18, 2016 grant of 100,000 target PSUs by (i) eliminating 33,333 (at target level) of the 100,000 target PSUs that were scheduled to vest, if at all, on October 17, 2019 and (ii) issuing Mr. Rittichier 33,333 (at target level) PRSAs that were originally subject to the PSU award and that had a grant date fair value of $0.4 million.

The PRSAs will vest based on a combination of the relative total shareholder return of EMCORE’s stock compared to the Russell Microcap Index and the executive's continued employment. The total number of shares to be issued to each individual ranges from zero (0) to 200% of the target PRSAs granted. Between zero (0) and 200% of one third of the target PRSAs will vest, if at all, on October 17, 2019.

The following table summarizes the activity related to PSUs and PRSAs for the fiscal year ended September 30, 2017:



Performance Stock Activity	Performance Stock Units			Performance Stock Awards
Performance Stock Activity	Number of Shares (at Target)		Weighted Average Grant Date Fair Value	Number of Shares (at Target)	Weighted Average Grant Date Fair Value
Non-vested as of September 30, 2016	—		$0.00	—	$0.00
Granted	366,849		$8.34	33,333	$12.25
Vested	—		$0.00	—	$0.00
Canceled	(33,333	)	$7.34	—	$0.00
Forfeited	(4,808	)	$13.36	—	$0.00
Non-vested as of September 30, 2017	328,708		$8.36	33,333	$12.25

As of September 30, 2017, there was approximately $1.4 million of remaining unamortized stock-based compensation expense associated with PSUs, which will be expensed over a weighted average remaining service period of approximately 1.2 years. The 0.3 million outstanding non-vested and expected to vest PSUs have an aggregate intrinsic value of approximately $2.7 million and a weighted average remaining contractual term of 1.2 years. For the fiscal years ended September 30, 2017, 2016 and 2015, there were no PSUs vested. There were no PSUs granted during the fiscal years ended September 30, 2016 and 2015.

As of September 30, 2017, there was approximately $0.4 million of remaining unamortized stock-based compensation expense associated with PRSAs, which will be expensed over a weighted average remaining service period of approximately 2.0 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)	2017		2016		2015
Employee stock options	$	45	$	38	$	194
Restricted stock units and awards	1,643		1,683		2,658
Performance stock units and awards	1,367		—		—
Employee stock purchase plan	300		223		143
401(k) match in common stock	—		—		284
Outside director fees in common stock	247		218		341
Total stock-based compensation expense	$	3,602	$	2,162	$	3,620



Stock-based Compensation Expense - by expense type	For the Fiscal Years Ended September 30,
(in thousands)	2017		2016		2015
Cost of revenue	$	492	$	345	$	341
Selling, general, and administrative	2,605		1,445		2,847
Research and development	505		372		432
Total stock-based compensation expense	$	3,602	$	2,162	$	3,620

For the fiscal year ended September 30, 2017, total stock-based compensation expense did not agree with the amount listed on our statements of shareholders' equity due to the timing difference between the expense accrued and the issuance of common stock for the payment of outside directors' fees. 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 year ended September 30, 2015, 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. Stock-based compensation within selling, general and administrative expense was higher for the fiscal year ended September 30, 2017 due to stock-based compensation expense associated with the grants of PSUs and PRSAs. Included within discontinued operations is $0, $(77,000) and $1.0 million of stock based compensation expense for the fiscal years ended September 30, 2017, 2016 and 2015, 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, 2017, we had 33.9 million and 27.0 million shares of common stock issued and outstanding, respectively. There were no shares of preferred stock issued or outstanding as of September 30, 2017 and 2016.

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. Since June 2015, all employer contributions are made in cash. Our matching contribution in cash for the fiscal years ended September 30, 2017, 2016 and 2015 was approximately $0.5 million, $0.4 million and $0.2 million, respectively. For the fiscal year ended September 30, 2015, we contributed approximately $0.3 million 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)	2017		2016		2015
Numerator:
Income from continuing operations	$	8,221	$	2,619	$	(2,272	)
(Loss) income from discontinued operations	14		5,647		65,372
Undistributed earnings allocated to common shareholders for basic and diluted net income per share	8,235		8,266		63,100
Denominator:
Denominator for basic net income per share - weighted average shares outstanding	26,659		25,979		30,012
Dilutive options outstanding, unvested stock units, unvested stock awards and ESPP	885		539		—
Denominator for diluted net income per share - adjusted weighted average shares outstanding	27,544		26,518		30,012

Net income (loss) per basic share:
Continuing operations	$	0.31	$	0.10	$	(0.08	)
Discontinued operations	0.00		0.22		2.18
Net income per basic share	$	0.31	$	0.32	$	2.10

Net income (loss) per diluted share:
Continuing operations	$	0.30	$	0.10	$	(0.08	)
Discontinued operations	0.00		0.21		2.18
Net income per diluted share	$	0.30	$	0.31	$	2.10
Weighted average antidilutive options, unvested restricted stock units and awards, unvested performance stock units and ESPP shares excluded from the computation	398		508		1,391

Average market price of common stock	$	8.92	$	5.88	$	5.81

For diluted income (loss) per share, the denominator includes all outstanding common shares and all potential dilutive common shares to be issued. For the year ended September 30, 2017, we excluded 0.4 million of weighted average outstanding stock options, RSUs and PSUs from the calculation of diluted net income per share because their effect would have been anti-dilutive. For the years ended September 30, 2016 and 2015, we excluded 0.5 million and 1.4 million, respectively, of weighted average outstanding stock options and RSUs from the calculation of diluted net income 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, 2017, 2016 and 2015 totaled 133,000, 193,000 and 121,000 shares, respectively. As of September 30, 2017, the total amount of common stock issued under the ESPP totaled 2,604,503 shares and the total shares remaining available for issuance under the ESPP totaled 911,071.

Future Issuances

As of September 30, 2017, 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	326,798
Unvested restricted stock units	778,084
Unvested performance stock units	657,416
Purchases under the employee stock purchase plan	911,071
Issuance of stock-based awards under the Equity Plans	2,413,289
Purchases under the officer and director share purchase plan	88,741
Total reserved	5,175,399