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Emcore Staves Off Nasdaq, Investor Wrath

Company could still face delisting if it can’t meet new deadlineSOMERSET – Emcore Corp., a Somerset maker of products for the fiber-optic, satellite and solar-power markets, hung on to its Nasdaq listing last week and managed to strike a deal with irate investors.

Emcore ran afoul of Nasdaq regulators in February after an internal probe of $24 million of backdated stock options caused the company to delay filing its fourth-quarter and annual reports for the fiscal year that ended last September. The missed filings caused representatives of investors who hold about $16.5 million of Emcore notes due in 2011 to demand immediate payment, a move that could have gutted Emcore’s cash.

Last week, Emcore reached a truce with those lenders. In exchange for concessions that included a half-point increase in the notes’ interest rate to 5.5 percent, the note holders agreed to stay their claims if the company files audited financials by Dec. 31.

Meanwhile, Nasdaq ordered the company to file its 10-Q and 10-K financial statements by May 10 or face delisting. Emcore, whose products include transceivers that send and receive telecommunications, says it will try to meet the deadline, but will request another extension if it cannot do so.

Emcore stock traded between $4 and $5 a share last week, well below its 52-week high of $12.65 last May.

Emcore is far from the only local company to be caught short by misdated stock options. Princeton-based Medarex Inc., Secaucus-based Children’s Place Retail Stores Inc. and Bed Bath & Beyond Inc. in Union have all been tripped up by stock options, which typically lock in the price of a company’s shares for a specified period.

The price generally coincides with the price of the stock when the option was granted, enabling the holder to profit if the stock goes up during the life of the option. But if the stock plunges below the exercise price, the options become worthless.

To prevent that from happening, some companies have backdated their options after the fact to a day on which the stock traded below the original exercise price. This can give the option holder a built-in gain, but also requires the companies to recognize the backdated options as an expense that reduces profits or increases losses.

At Medarex, Donald Drakeman, president and CEO, resigned last November after a company investigation found “many instances” in which senior management stock options and restricted stock grants had been backdated without being disclosed in public filings or expensed as accounting regulations require.

At Emcore, unaudited results for the fiscal year that ended last September showed that the company had financial as well as stock-option problems. The preliminary report showed a loss of $38.1 million on revenue of $143.5 million before such extraordinary gains as $9.6 million from the sale of a division, and $87.3 million on the sale of an investment. Emcore lost $13.1 million on $115.4 million of revenue in the prior fiscal year. Company Spokesman Joseph Kuo declined to comment on the reports and directed a reporter to the company’s SEC filings.

“Emcore and similar companies are going through a period of transition, but the industry as a whole is posting impressive gains,” says John Lau, a managing director with Jefferies & Co. in New York City. “Like other companies, including JDS Uniphase, Emcore is still recovering from the Internet bubble that burst in 2000, when a lot of industry providers geared up to meet telecom and other spending that never materialized.

“Now, however, cable TV and satellite are driving demand on a steady basis, with segments like high-speed [satellite and cable] telecommunications posting year-over-year gains of up to 35 percent” says Lau, who personally holds no Emcore stock, according to a Jeffries spokesman.

“Emcore is strong in fiber optics, satellite and solar cell technology,” Lau adds. “These are the areas that show great promise, and I see an eventual return to profitability.”

He dismisses the stock-option mess, noting that Emcore’s preliminary investigation found that few management-level employees had benefited from the errors. The company says two executives who did benefit will return gains from the misdated options.

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