UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-13828
MEMC ELECTRONIC MATERIALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1505767
(State of incorporation) (I. R. S. Employer Identification No.)
501 Pearl Drive, St. Peters, Missouri 63376
(Address of principal executive offices) (Zip Code)
(314) 279-5500
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock outstanding at June 30, 1996: 41,438,198 shares
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; Dollars in thousands, except share data)
Three-Months Ended Six-Months Ended
June 30, June 30,
1996 1995 1996 1995
Net sales $ 324,331 $ 199,980 $ 614,142 $ 373,268
Cost of goods sold 233,498 148,864 443,987 282,330
------- ------- ------- -------
Gross margin 90,833 51,116 170,155 90,938
Marketing, administration and
technology expenses 33,195 21,045 60,107 38,791
------- ------- ------- -------
Operating profit 57,638 30,071 110,048 52,147
------- ------- ------- -------
Nonoperating (income) expense:
Interest expense 98 4,056 494 7,150
Interest income (1,717) (723) (3,735) (1,444)
Joint venture royalty income (1,540) (1,306) (3,337) (2,355)
Other, net 396 1,082 2,505 572
------- ------- ------- -------
(2,763) 3,109 (4,073) 3,923
------- ------- ------- -------
Earnings before income taxes,
equity in income of joint
ventures and minority
interests 60,401 26,962 114,121 48,224
Income taxes 24,159 11,976 45,649 21,044
------- ------- ------- -------
Earnings before equity in
income of joint ventures
and minority interests 36,242 14,986 68,472 27,180
Equity in income of joint
ventures (11,134) (1,662) (20,045) (1,864)
Minority interests 890 - 2,405 -
-------- ------- ------- -------
Net earnings $ 46,486 $ 16,648 $ 86,112 $ 29,044
======== ======= ======= =======
Net earnings per share $ 1.12 $ 0.77 $ 2.08 N/A
==== ==== ====
Pro forma net earnings per share N/A N/A N/A $1.28
====
Weighted average shares used
in computing earnings per
share/pro forma earnings
per share (in thousands) 41,405 21,491 41,411 22,697
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 30,917 $ 77,192
Deposit with affiliate 39,000 55,000
Accounts receivable, less allowance for
doubtful accounts of $1,800 and $2,040
in 1996 and 1995, respectively 193,944 165,994
Notes receivable from affiliates - 3,149
Inventories 100,833 89,574
Prepaid and other current assets 41,451 38,264
--------- ---------
Total current assets 406,145 429,173
Property, plant and equipment, net of
accumulated depreciation of $333,671 and
$295,228 in 1996 and 1995, respectively 701,787 528,374
Investment in joint ventures 94,259 66,001
Excess of cost over net assets acquired,
net of accumulated amortization of
$1,690 and $1,001 in 1996 and 1995,
respectively 51,834 52,523
Other assets 25,643 25,792
--------- ---------
Total assets $ 1,279,668 $ 1,101,863
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
portion of long-term debt $ 15,705 $ 15,407
Accounts payable 137,725 141,459
Accrued liabilities 29,582 29,242
Accrued wages and salaries 26,194 24,142
Income taxes payable 18,528 19,665
--------- ---------
Total current liabilities 227,734 229,915
Long-term debt with external parties 38,619 40,418
Long-term debt with affiliates 96,680 49,280
Pension and similar liabilities 65,307 59,009
Customer deposits 30,862 -
Other liabilities 32,263 27,936
--------- ---------
Total liabilities 491,465 406,558
--------- ---------
Minority interests 58,067 52,914
Stockholders' equity:
Preferred stock, $.01 par value,
50,000,000 shares authorized, none
issued or outstanding in 1996 or 1995 - -
Common stock, $.01 par value, 200,000,000
shares authorized, 41,438,198 and
41,399,998 issued and outstanding in
1996 and 1995, respectively 414 414
Additional paid-in capital 572,919 569,959
Retained earnings 155,699 69,587
Cumulative translation adjustment 4,707 4,447
Unearned restricted stock awards (2,275) (2,016)
Treasury stock, at cost: 36,205 shares
in 1996 (1,328) -
--------- ---------
Total stockholders' equity 730,136 642,391
--------- ---------
Total liabilities and
stockholders' equity $ 1,279,668 $ 1,101,863
========= =========
See accompanying notes to consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Six-Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net earnings $ 86,112 $ 29,044
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 44,506 27,593
Minority interests 2,405 -
Equity in income of joint ventures (20,045) (887)
Working capital and other (2,032) (23,491)
-------- --------
Net cash provided by operating
activities 110,946 32,259
-------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment (219,078) (71,034)
Investment in joint ventures (8,213) (29,905)
Deposit with affiliate, net 16,000 -
Notes receivable from affiliates, net 3,188 27,401
Other 48 276
--------- --------
Net cash used in investing activities (208,055) (73,262)
--------- --------
Cash flows from financing activities:
Net short-term borrowings (71) 1,202
Proceeds from issuance of long-term debt 560 150,440
Proceeds from issuance of long-term debt
from affiliates 50,000 10,000
Principal payments on long-term debt (204) (848)
Contribution from minority interest 1,732 -
Dividends paid - (100,000)
Repurchase of common stock (1,328) -
--------- ---------
Net cash provided by financing activities 50,689 60,794
--------- ---------
Effect of exchange rate changes on cash 145 68
--------- ---------
Net (decrease) increase in cash and cash
equivalents (46,275) 19,859
Cash and cash equivalents at beginning of period 77,192 5,112
--------- ---------
Cash and cash equivalents at end of period $ 30,917 $ 24,971
========= =========
See accompanying notes to consolidated financial statements.
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of MEMC
Electronic Materials, Inc. and Subsidiaries (the Company), in the opinion of
management, include all adjustments necessary to present fairly the Company's
financial position and results of operations and cash flows for the periods
presented. The consolidated financial statements are presented in accordance
with the requirements of Regulation S-X and consequently do not include all
disclosures required by generally accepted accounting principles. Operating
results for the three and six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996.
(2) Inventories
Inventories consist of the following:
June 30, December 31,
1996 1995
Raw materials and supplies $ 45,467 $ 39,726
Goods in process 33,465 26,669
Finished goods 21,901 23,179
------- ------
$ 100,833 $ 89,574
======= ======
(3) Earnings per Share (EPS)
Net EPS for the three month and six month periods ended June 30, 1996, and for
the three month period ended June 30, 1995 were calculated based on the
weighted average shares outstanding during each respective period.
Pro forma net EPS for the six months ended June 30, 1995 was calculated based
on the actual number of shares outstanding for the six months ended June 30,
1995 plus, for the three months ended March 31, 1995, the number of shares
that would have been required to be sold at the initial public offering price
of $24 per share to fund the excess of a $100,000 dividend paid to Huls
Corporation on April 28, 1995 over the Company's net earnings for the prior
twelve-month period.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net Sales. Consolidated net sales increased 62.2 percent to $324.3 million
for the three months ended June 30, 1996 from $200.0 million for the three
months ended June 30, 1995, and increased 64.5 percent to $614.1 million for
the six months ended June 30, 1996 compared to $373.3 for the year-earlier
period. Approximately one-third of the sales increase for each period is
attributable to the inclusion of MEMC Southwest, which was formed on June 30,
1995. The remainder of the sales increase is due to additional capacity,
price increases and a continued shift in the Company's product mix to more
advanced large diameter and epitaxial products.
Certain sectors of the semiconductor market continue to experience
difficulties associated with inventory corrections, over supply and reduced
prices. This, in turn, has led to rapid changes in silicon requirements. The
Company continues to collaborate closely with its customers to meet potential
changes in silicon product type, volume or timing of shipments. As a result,
sales for the third quarter of 1996 are not anticipated to meet the record
level achieved in the second quarter of 1996. The Company believes that sales
for the third quarter of 1996 will be similar to the run rate experienced
during the first half of 1996.
Gross Margin. For the three months ended June 30, 1996, gross margin
increased to 28.0 percent compared to 25.6 percent in the second quarter of
1995. For the six months ended June 30, 1996, gross margin was 27.7 percent
compared to 24.4 percent for the comparable 1995 period. Improvements in
gross margin are the result of price and sales mix improvements. For the
three months ended June 30, 1996, epitaxial and large diameter products
accounted for approximately 35.0 percent of sales volume, compared to
approximately 24.6 percent in the second quarter of 1995 and 26.5 percent for
the year 1995.
The 200 mm and epitaxial wafer expansions currently underway are proceeding
on schedule and are anticipated to strategically position the Company for
future expected growth. Start up and training costs for the expansions at
MEMC Southwest will accelerate in the third quarter in preparation for
anticipated production in the fourth quarter of 1996.
Marketing, Administration, and Technology Expenses. Marketing, administration
and technology expenses, at 10.2 percent of net sales for the second quarter
of 1996, were similar to the 10.5 percent level for the prior year period.
For the six months ended June 30, 1996 and 1995, marketing, administration and
technology expenses were 9.8 percent and 10.4 percent of net sales,
respectively.
Interest Expense. Interest expense for the three months ended June 30, 1996
amounted to $0.1 million compared to $4.1 million for the three months ended
June 30, 1995. The average debt outstanding for the 1996 quarter was
approximately $140 million, or 60.2 percent below the average debt for the
1995 quarter of $352 million. This decline results from debt repayments with
a portion of the proceeds from the initial public offering that took place on
July 12, 1995. Interest expense has also declined due to the capitalization
of interest related to capacity expansions.
Joint Ventures. For the three months and six months ended June 30, 1996 the
joint ventures contributed $11.1 million and $20.0 million of net income
compared to $1.7 million and $1.9 million of net income in the comparable
periods of the prior year. These improvements relate to the Company's 40
percent interest in Posco Huls Co. Ltd., the Korean joint venture, which
continues to add capacity. Taisil, the Taiwanese joint venture which is
initiating production of qualification wafers in the first 200 mm wafer plant
in Taiwan, reported near break-even results for the second quarter of 1996 as
a result of certain investment tax credits.
Income Taxes. Provisions for income taxes in the three months and six months
ended June 30, 1996 were $24.2 million and $45.6 million, respectively,
representing approximately 40 percent of pre tax earnings. This is lower than
the rate of approximately 44 percent in the comparable 1995 quarter, but is
consistent with anticipated effective tax rate for 1996.
Liquidity and Capital Resources. At June 30, 1996 the Company had cash, cash
equivalents, deposits and notes with affiliates of $69.9 million. The Company
also has $151 million of outstanding borrowings under committed credit
facilities, totaling $435 million. The $284 million of unused facilities,
including $200 million with affiliates, have expiration dates ranging from
1996 to 2001.
A comparison of components of the Company's financial condition follows
(dollars in millions):
June 30, December 31,
1996 1995
Working Capital $ 178.4 $199.3
Current Ratio 1.78 to 1 1.87 to 1
Stockholders' Equity $ 730.1 $642.4
Total Debt to Total Capitalization 16.1 percent 13.1 percent
Cash flow provided by operating activities was $110.9 million for the six
months ended June 30, 1996 compared to $32.3 million for the comparable 1995
period. This increase is principally attributable to higher net earnings and
depreciation and amortization, and approximately $31 million received under
agreements with customers to pay in advance for wafer production, offset by
increased equity in income of joint ventures and increased accounts
receivable.
Capital expenditures for the first six months of 1996 totaled $219.1 million.
At June 30, 1996 the Company had $291.4 million of committed capital
expenditures.
Other. During May 1996, the MEMC Board of Directors approved the
establishment of a joint venture between MEMC and Khazanah Nasional Berhad to
be named MEMC Kulim Electronic Materials, SDN.BHD for the manufacture and
distribution of 200 mm silicon wafers. It is anticipated that the joint
venture will have an initial capacity of 170,000 wafers per month. The timing
of the construction of this green-field facility will be dictated by market
demand. The Company continues to view the Asia-Pacific region as a
significant long-term opportunity.
In order to accommodate customer requests for an incremental supply of silicon
wafers beyond that currently provided by the Company, a program was initiated
in the fourth quarter of 1995 for these customers to pay in advance for future
orders. As of June 30, 1996, the Company has received approximately $31
million related to this program.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995 -- except for the historical information contained herein, the matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward looking statements. Potential risks and
uncertainties include such factors as overall economic conditions, demand for
semiconductors generally, demand for the Company's silicon wafers,
availability of manufacturing capacity, polysilicon availability,
technological and product development risks, competitors' actions and other
risks described in the Company's Form 10-K for the year ended December 31,
1995.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 8, 1996. The directors
listed in the Notice of Annual Meeting to Stockholders dated April 1, 1996
were elected for terms expiring in 1999, with voting for each as follows:
Director For Withheld
-------- --- --------
H. J. Biangardi 38,763,001 332,382
W. D. Maris 36,661,452 2,433,931
P. T. O'Brien 38,770,122 325,261
Messrs. Sandfort, Smith, Meyer-Galow, McDaniel and Viefhues are the
remaining board members who are expected to serve through the remainder of
their respective terms. Dr. Ruter resigned from the Board of Directors
effective August 10, 1996. The Board of Directors has not yet designated a
replacement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at the end of this report.
(b) Reports on Form 8-K
No reports were filed by the Company on Form 8-K during the three months
ended June 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEMC Electronic Materials, Inc.
August 12, 1996 /s/ James M. Stolze
--------------------
James M. Stolze
Executive Vice President and Chief Financial
Officer
(on behalf of the registrant and as principal
financial and accounting officer)
EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
2 Omitted - Inapplicable
3-a Omitted - Inapplicable
3-b Omitted - Inapplicable
4 Omitted - Inapplicable
10-p Amended and Restated Employment Agreement between the
Company and Roger D. McDaniel
11 Omitted - Inapplicable
15 Omitted - Inapplicable
18 Omitted - Inapplicable
19 Omitted - Inapplicable
22 Omitted - Inapplicable
23 Omitted - Inapplicable
24 Omitted - Inapplicable
27 Financial Data Schedule (filed electronically with the SEC
only)
99 Omitted - Inapplicable
Exhibit 10-p
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of May 1, 1995 and amended and
restated as of May 21, 1996 (the "Agreement"), between MEMC
ELECTRONIC MATERIALS, INC. of St. Peters, Missouri, a Delaware
corporation ("MEMC"), and Roger D. McDaniel (the "Executive").
WHEREAS, MEMC and the Executive have mutually agreed that the
Executive will retire from service as Chief Executive Officer of
MEMC, and as a member of the Board at certain mutually agreeable
dates;
WHEREAS, the Executive and MEMC desire to amend and restate
their employment agreement of May 1, 1995 to set forth the
arrangements for the Executive's retirement;
NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth in this Agreement, the parties
hereto agree as follows:
1. Transition Date.
The Executive shall retire from service as Chief Executive
Officer and as an employee of MEMC effective as of August 1, 1996
or, if later, the appointment of a successor to the Executive as
Chief Executive Officer (the "Transition Date"). The Company shall
use its best efforts to promptly identify and appoint such a
successor by or as soon as reasonably practicable following August
1, 1996. The Executive shall continue to serve as member of the
Board until the annual meeting of shareholders of MEMC in 1998, at
which time he shall retire from the Board (it being understood that
the Executive shall retire from the Board prior to that date upon
request by the Board).
2. Term.
Subject to Sections 4, 5 and 6 below, the term of the
Executive's employment as Chief Executive Officer under this
Agreement shall commence on the effective date of the Registration
Statement on Form S-1 in connection with the initial public offering
(the "IPO") (hereinafter, the "IPO Date") of securities of MEMC and
shall terminate on the Transition Date (the "Employment Term").
During the Employment Term, the Executive will devote his full
business time to his duties as Chief Executive Officer ("CEO") of
MEMC. In such capacity, the Executive agrees to serve MEMC
faithfully and to the best of his ability under the direction of the
Board of Directors of MEMC (the "Board"). The Executive also agrees
to serve, if elected or appointed, at no compensation in addition to
that provided for in this Agreement, in the position of officer or
director of any affiliate of MEMC. During the Employment Term, the
Executive shall receive compensation and benefits as set forth in
Sections 3 through 6 below.
From the Transition Date through August 1, 1997 (the
"Retirement Date"), the Executive shall provide consulting services
to MEMC (the "Consulting Term"). For the Consulting Term, the
Executive shall receive compensation and benefits set forth in
Sections 7 through 9 below.
Part I: Arrangements During the Employment Term
3. Compensation and Benefits.
3.1. Compensation. In consideration of the Executive's
agreement to be employed by MEMC under the terms and provisions of
this Agreement, MEMC shall provide the Executive with the
compensation arrangements listed on the attached Schedule 1 during
the Employment Term. The Executive's compensation as described in
Schedule 1 shall be reviewed by the Board, based upon the
Executive's performance and then current titles and
responsibilities, not less often than annually. The Executive's
base salary may be increased, but not decreased, based on his
performance and upon the Board's view of the appropriate base salary
for the titles and responsibilities assigned to the Executive from
time to time. Compensation of the Executive is primarily a function
of company performance and individual performance and could, in any
given year, be higher or lower than that of other CEOs in comparable
positions. But it is the intent that MEMC's compensation
opportunity be structured to afford comparable pay given comparable
performance by the Executive and MEMC. In addition to any increases
effected as a result of such review, the Board at any time may in
its sole discretion increase the Executive's base salary.
Compensation will include but not be limited to: (a) base salary;
(b) annual incentives; and (c) grants of options, restricted stock
or other awards under the MEMC 1995 Equity Incentive Plan (the
"Equity Incentive Plan").
3.2. Pension Benefits. The Executive shall continue to be
entitled to participate in the MEMC Pension Plan for Salaried
Employees (the "MEMC Pension Plan"). The Executive's prior years of
service with Monsanto from July 1962 through March 31, 1989 shall be
added to his years of service with MEMC from April 1, 1989 through
the time of execution of this Agreement and to such time as the
Executive's employment with MEMC shall terminate for purposes of
determining pension benefits and other pension considerations,
including, but not limited to, retirement prior to age 65 without
reduction of benefits for early retirement. Pension benefits paid
to the Executive pursuant to the MEMC Pension Plan shall be reduced
to the extent of payments made to the Executive by Monsanto. The
Executive shall not be subject to the 6% cap on increases in annual
base salary described in Section 5.1 of the MEMC Pension Plan.
3.3. Other Employee Benefits. The Executive shall be
entitled to continue to participate as a vested employee in any
welfare plans of MEMC, including, but not limited to, medical,
dental, life insurance, and disability income, and perquisites to
which an employee of comparable or lesser grade level in MEMC is
entitled.
4. Termination Payments.
4.1. Termination Without Cause.
4.1.1. General. Subject to Section 10 below, if MEMC
terminates the Executive's employment without Cause (as defined
below) prior to the expiration of the Employment Term, (i) MEMC
shall be obligated to pay the Executive his then current base salary
for the period from the date of such termination until the first day
of the month following the fourth anniversary of the IPO Date (the
"Severance Period") in accordance with MEMC's payroll practices,
(ii) all unvested options granted under the Equity Incentive Plan
shall vest and all restrictions on awards granted under the Equity
Incentive Plan shall lapse and (iii) the Executive shall be allowed
to exercise all stock options granted under the Equity Incentive
Plan until the earlier of (A) the later of (x) one year following
the date of termination and (y) the first day of the month following
the fourth anniversary of the IPO Date, and (B) the expiration of
the term of the stock option; provided, however, that the Executive
may exercise any incentive stock options until three months
following the date of termination (or, if earlier, until expiration
of the term of such incentive stock options). In addition, in the
event of termination without Cause, the then current year annual
incentive will be paid at such level and at such time as payment is
made to MEMC's other executives under the applicable bonus plan.
The Executive shall have no further right to receive any other
compensation or benefits after such termination or resignation of
employment, except as determined in accordance with the terms of the
employee benefit plans or programs of MEMC or as provided in
Section 3.2 above.
4.1.2. Conditions Applicable to the Severance Period.
If, during the Severance Period, the Executive breaches his
obligations under Section 10 of this Agreement, MEMC may, upon
written notice to the Executive, terminate the Severance Period and
cease to make any further payments or provide any benefits described
in Section 4.1.1 except as determined in accordance with the terms
of the employee benefit plans or programs of MEMC as provided for in
Section 3.2 above.
4.1.3. Death During Severance Period. In the event of
the Executive's death during the Severance Period, payments of the
severance amounts under this Section 4 shall continue to be made
during the remainder of the Severance Period to the beneficiary
designated in writing for this purpose by the Executive or, if no
such beneficiary is specifically designated, to the Executive's
estate.
4.1.4. Date of Termination. The date of termination of
employment without Cause shall be the date specified in a written
notice of termination to the Executive (which date shall be
coincident with or subsequent to the date of such notice).
4.2. Termination for Cause; Resignation by the Executive.
4.2.1. General. If, prior to the expiration of the
Employment Term, the Executive's employment is terminated by MEMC
for Cause, or the Executive resigns from his employment hereunder
other than in accordance with Section 6 below, the Executive shall
be entitled to payment of his base salary as then in effect through
and including the date of termination or resignation. The Executive
shall have no further right to receive any other compensation or
benefits after such termination or resignation of employment, except
as determined in accordance with the terms of the employee benefit
plans or programs of MEMC or as provided in Section 3.2 above.
4.2.2. Date of Termination. Subject to the proviso to
Section 4.3, the date of termination for Cause shall be the date
specified in a written notice of termination to the Executive. The
date of resignation shall be the date specified in the written
notice of resignation from the Executive to MEMC (which date shall
be coincident with or subsequent to the date of such notice) or, if
no date is specified therein, 10 business days after receipt by MEMC
of written notice of resignation from the Executive.
4.3. Cause. For purposes of this Section, termination for
"Cause" shall mean termination of the Executive's employment because
of:
(i) any act or omission that constitutes a material
breach by the Executive of any of his material obligations
under this Agreement (other than by reason of his death or
Permanent Disability (as defined below));
(ii) the continued failure or refusal of the Executive
to perform the material duties required of him as an employee
of MEMC (other than by reason of his death or Permanent
Disability);
(iii) any willful material violation by the Executive of
any law or regulation applicable to the business of MEMC or any
of its subsidiaries, or the Executive's conviction of a felony,
or any willful perpetration by the Executive of a common law
fraud; or
(iv) any other willful misconduct by the Executive which
is materially injurious to the financial condition or business
reputation of, or is otherwise materially injurious to, MEMC or
any of its subsidiaries or affiliates;
provided, however, that if any such Cause relates to the Executive's
obligations under this Agreement and (x) is susceptible to cure and
(y) does not constitute a repetition of such Cause, MEMC shall not
terminate the Executive's employment hereunder unless MEMC first
gives the Executive notice of its intention to terminate and of the
grounds for such termination, and the Executive has not, within 10
business days following receipt of the notice, cured such Cause, or
in the event such Cause is not susceptible to cure within such 10
business day period, the Executive has not taken all reasonable
steps within such 10 business day period to cure such Cause as
promptly as practicable thereafter.
5. Death or Disability.
In the event of termination of the Executive's employment by
reason of death or Permanent Disability (as hereinafter defined),
the Executive (or his estate, as applicable) shall be entitled to
base salary and benefits determined under Section 3 hereof through
the date of death or, in the case of Permanent Disability, through
the later of the date of termination or the date (not later than one
year following the date of termination) on which the Executive
commences to receive disability benefits (including a pro rata
annual incentive for the year of death or disability at the maximum
opportunity level). For 50% of the restricted stock held by the
Executive on the date of the termination of his employment, all
restrictions will immediately lapse. The remaining restricted stock
and options outstanding will continue to vest in accordance with
Schedule 1 as if his employment had not terminated. Other benefits
shall be determined in accordance with the benefit plans maintained
by MEMC, including, without limitation, the Equity Incentive Plan,
and MEMC shall have no further obligation hereunder. For purposes
of this Agreement, "Permanent Disability" means a physical or mental
disability or infirmity of the Executive that prevents the normal
performance of substantially all his duties as an employee of MEMC,
which disability or infirmity shall exist, or in the opinion of an
independent physician is reasonably likely to exist, for any
continuous period of 180 days.
6. Retirement.
If the parties mutually agree to the Executive's retirement
prior to expiration of the Employment Term, the Executive shall
receive in addition to his normal retirement benefits, base salary
and benefits determined under Section 3 hereof through the date of
retirement (including a pro rata annual incentive for the year of
retirement at the same level as determined for MEMC's other
executives for such year). If the parties mutually agree to the
Executive's retirement after the second anniversary of the IPO Date,
all restrictions on the Performance Vesting Restricted Stock (as
defined in Schedule 1) will lapse. The vesting schedule for Ratable
Vesting Options (as defined in Schedule 1) would remain the same;
provided, however, that Cliff Vesting Options or Cliff Vesting
Restricted Stock (as defined in Schedule 1) will be forfeited and
cancelled.
Part II: Arrangements During the Consulting Term
7. Payments During the Consulting Term. Effective as of the
Transition Date, the Executive shall begin receiving the following
additional payments and benefits:
7.1 Annual Incentive. The Executive shall receive on the
Transition Date, but in no event later than December 31, 1996, a pro
rata annual incentive for 1996 at the maximum target (99% of
salary), with proration reflecting accrued but unused vacation time.
7.2 Unused Vacation Pay. The Executive shall receive
compensation in lieu of accrued but unused vacation time in
accordance with customary practice and MEMC's records (it being
understood that such compensation in lieu of vacation shall not be
considered compensation for the purpose of calculating the
Executive's pension benefits or any other such benefits he may
receive from MEMC).
7.3 Pension Benefits. The Executive shall receive the
pension benefits described in Section 3.2 of this Agreement.
7.4 Director Fees. The Executive shall receive fees as a
non-employee director of MEMC at the same level as determined for
MEMC's other non-employee directors, payable during such time as the
Executive continues to serve as a member of the Board.
7.5 Consulting Fee. For consulting services that the
Executive shall provide the Board during the Consulting Period as
directed by the Chairman of the Board, the Executive shall receive
consulting fees, in addition to his Director fees, at a rate equal
to his base salary in effect immediately prior to the Transition
Date, minus a pension offset relating to the benefits due to the
Executive pursuant to Section 3.2 above (expressed as the exact
mathematical average of a single-life annuity and a joint and 100%
survivor annuity, and assuming that benefits commenced on the
Transition Date, regardless of whether benefits actually commence on
such date). In the event that the Executive, upon request by the
Board, retires from the Board prior to the Retirement Date, such
retirement shall in no way affect the payments due to the Executive
under this Section 7.5, except as provided in Section 9 below.
7.6 Death or Permanent Disability During the Consulting
Term. In the event of a termination of the Executive's service to
the Company by reason of death or Permanent Disability (as defined
above in Section 5) during the Consulting Term, the Executive (or
his estate, as applicable) shall be entitled to the fees, payments
and benefits determined under this Section 7, other than Director
Fees set forth in Section 7.4, through the Consulting Term, and the
vesting of Stock Options and Restricted Stock set forth in Section 8
below shall occur as if the Executive had provided consulting
services to MEMC until the Retirement Date.
8. Stock Options and Restricted Stock. Except as provided in
Section 9 below, regardless of whether the Executive is a member of
MEMC's Board on the Retirement Date, it shall be deemed on that date
that the Executive and MEMC have mutually agreed to the Executive's
retirement after the second anniversary of the IPO Date, in
accordance with Section 6 above such that the following will occur:
(i) the vesting schedule of the Executive's Ratable Vesting Options
shall continue as provided in Schedule 1 of the Agreement; (ii) on
the Retirement Date, 60,000 of the Executive's Cliff Vesting
Options, as defined in Schedule 1 of the Agreement, shall vest (and
will remain outstanding until August 1, 2000, unless exercised
sooner), and (iii) the remaining Cliff Vesting Options and Cliff
Vesting Restricted Stock shall be forfeited and cancelled. The
Executive's Ratable Vesting Options will remain outstanding until
August 1, 2000, unless exercised sooner.
9. Requested Retirement for Cause.
9.1 General. In the event that the Board requests that
the Executive retire from the Board during the Consulting Term, and
such request is for Cause (as defined below), then (i) the
Consulting Fee provided for in Section 7.5 of this Agreement shall
be payable only through the date of such requested retirement, and
(ii) all provisions of Section 8 of this Agreement shall be null and
void, and all of the Executive's outstanding unvested Options and
Restricted Stock shall be forfeited and cancelled.
9.2 Date of Requested Retirement. Subject to the proviso
to Section 9.3 below, the date of the requested retirement for Cause
shall be the date specified in a written notice of such requested
retirement to the Executive.
9.3 Cause. For purposes of this Section 9, "Cause" shall
mean:
(i) any act of omission that constitutes a breach by the
Executive of any of his material obligations under this
Agreement, including any breach of any of the covenants
contained in Section 10 of this Agreement (other than by reason
of his death or Permanent Disability (as defined above in
Section 5)); or
(ii) any other willful misconduct by the Executive which
is materially injurious to the financial condition or business
reputation of, or is otherwise materially injurious to, MEMC or
any of its subsidiaries or affiliates;
provided, however, that if any such Cause relates to the Executive's
obligations under this Agreement and (i) is susceptible to cure and
(ii) does not constitute a repetition of such Cause, a request by
the Board that the Executive retire shall not be for Cause unless
the Board first gives the Executive notice of its intention to
request his retirement and of the grounds for such request, and the
Executive has not, within 30 days following receipt of the notice,
cured such Cause.
Part III: Provisions Applicable to both the Employment Term and
the Consulting Term
10. Protection of MEMC's Interest.
10.1. Non-Compete; Confidentiality. For the period
extending through April 1, 2000 (the "Restricted Period"), the
Executive will not accept employment nor engage in business,
directly or indirectly, as a sole proprietor, member of a
partnership, stockholder or investor (other than a stockholder or
investor owning not more than a 5% interest), officer or director of
a corporation, or as an employee, associate, consultant or agent for
any person, partnership, corporation or other business organization
or entity other than MEMC or any of its subsidiaries which competes
with MEMC without the express written consent of MEMC. In addition,
the terms of the confidentiality agreement dated March, 1989 between
MEMC and the Executive are incorporated herein by reference.
Notwithstanding anything contained in this Section 10 to the
contrary, the period of applicability of this Section 10 shall be
extended an additional day for each day on which the Executive is in
breach of this Section 10.
10.2. Injunctive Relief. Without intending to limit
the remedies available to the parties hereto, the parties
acknowledge that a breach of any of the covenants contained in this
Section 10 may result in material and irreparable injury to MEMC for
which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in
the event of such a breach or threat thereof, MEMC shall be entitled
to seek a temporary restraining order and/or a preliminary or
permanent injunction restraining the Executive from engaging in
activities prohibited by this Section 10 or such other relief as may
be required specifically to enforce any of the covenants in this
Section 10. If, for any reason, it is held that the restrictions
under this Section 10 are not reasonable or that consideration
therefor is inadequate, such restrictions shall be interpreted or
modified to include as much of the duration and scope identified in
this Section 10 as will render such restrictions valid and
enforceable.
10.3 No Public Comment. The Executive hereby agrees now
and at any time in the future to refrain from making any comments or
statements to the press, the employees of MEMC or any individual or
entity with whom MEMC has a business relationship or others, (i)
which would be likely to adversely affect the conduct of the
business of MEMC or any of its affiliates, or any of their plans or
prospects, or their business reputations, or the business
reputations of any of their representatives or members of their
respective boards of directors, or (ii) which would disparage in any
way or cast in a negative light on MEMC or any of its affiliates, or
any of their respective directors, officers, agents or employees.
MEMC hereby agrees now and at any time in the future to refrain from
making any comments or statements to the press or any individual or
entity with whom the Executive has a business relationship or
others, (i) which would be likely to adversely affect the business
reputation of the Executive, or (ii) which would disparage in any
way or cast in a negative light on the Executive.
11. Successors. MEMC will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of MEMC to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that MEMC would be required to perform
it if no such succession had taken place. As used in this
Agreement, "MEMC" shall mean MEMC as defined above and any successor
to its business and/or assets which by reason hereof assumes and
agrees to perform this Agreement by operation of law, or otherwise.
12. General Release. In consideration of the above, the
Executive hereby releases and forever discharges MEMC and its
affiliates, including both current and future, and each of their
respective officers, employees, directors and agents from any and
all claims, actions and causes of action that he may have, or in the
future may possess, arising out of his employment relationship with
MEMC or any of its affiliates, his service as an officer, director
or employee of MEMC or any of its affiliates and the termination of
such relationship or service, including, without limitation, any
claims arising under the Age Discrimination in Employment Act or any
other applicable federal, state, local or foreign law. The
Executive further agrees that the payments and benefits described in
this Agreement will be in full satisfaction of any and all claims
for payment or benefits that he may have against MEMC or its
affiliates arising out of his employment relationship, his service
as an officer, director or employee of MEMC or any of its affiliates
and the termination thereof. The release and discharge of this
Section 12 will not apply to MEMC's obligations under this
Agreement.
13. Press Release. In connection with the Executive's
retirement from service as Chief Executive Officer of MEMC as of the
Transition Date, the Executive agrees that MEMC may issue a press
release substantially in the form of Exhibit B to this Agreement.
14. Miscellaneous.
14.1. Severability. Each provision of this Agreement
shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held
to be prohibited by or invalid under applicable law, such provision
will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Agreement.
14.2. Disputes. Any disputes between the parties to
this Agreement shall be settled by arbitration in St. Louis,
Missouri under the auspices of, and in accordance with the rules of,
the American Arbitration Association. The decision in such
arbitration shall be final and conclusive on the parties and
judgment upon such decision may be entered in any court having
jurisdiction thereof.
14.3. Entire Agreement; Amendment.
(i) Except as expressly set forth herein, this Agreement
represents the entire agreement of the parties concerning the
subject matter hereof and shall supersede any and all previous
contracts, arrangements or understandings between MEMC and the
Executive. This Agreement, together with a side letter between
the Executive and Huls AG executed June 22, 1995, also
supersedes in its entirety the Employment Agreement dated May
5, 1995 and the Employment Agreement dated February 7, 1989
between Huls AG and the Executive, as amended (the "Prior
Agreements"). The Executive acknowledges that he has no
further claims or rights under the Prior Agreements.
(ii) This Agreement may be amended at any time by mutual
written agreement of the parties hereto.
14.4. Withholding. The payment of any amount pursuant
to this Agreement shall be subject to applicable withholding and
payroll taxes, and such other deductions as may be required under
MEMC's employee benefit plans, if any.
14.5 Tax Preparation. MEMC agrees that it will provide
the Executive with reasonable and customary tax preparation services
for the 1996 and 1997 tax years.
14.6. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State
of Missouri.
The parties have executed this Agreement as of the day and year
first above written.
MEMC Electronic Materials, Inc.
/s/ Roger D. McDaniel /s/ Ludger H. Viefhues
- -------------------------------- ----------------------------
Roger D. McDaniel Chairman of the Board
16629 Caulks Creek Ridge
Chesterfield, MO 63005
Schedule 1
Current Compensation Program
o Annual Base Salary - USD $435,000 per annum
o 1995 Incentive Program Target Incentive Opportunity as a
percent of base salary - Annual Incentive Target/Maximum
Opportunity; 45%/99%
o Grants of Stock Options and Performance Contingent Vesting
Restricted Stock in connection with the IPO:
STOCK OPTIONS
121,030 Options at IPO price which vest at the rate of 25% per year,
such that 100% vesting will occur on the fourth anniversary of the
IPO Date.* ("Ratable Vesting Options")
121,030 Options at IPO price which vest 100% on the fourth
anniversary of the IPO Date. ("Cliff Vesting Options")
_______________
*The number of shares representing .286% of outstanding stock on a
fully diluted basis is assumed to be 121,030 shares. If the IPO
results in a different number of shares equaling .286% of
outstanding stock on a fully diluted basis, the Executive shall
receive, for each of the Ratable Vesting and Cliff Vesting Option
grants, the greater of 121,030 shares or .286% of outstanding stock
on a fully diluted basis. The number of both Ratable Vesting and
Cliff Vesting Restricted Stock shares referenced granted to the
Executive will also be determined in this manner.
RESTRICTED STOCK
40,000 shares of Restricted Stock which vest 100% (i.e., all
forfeiture restrictions lapse) on the fourth anniversary of the IPO
Date. ("Performance Vesting Restricted Stock"). However, if, at any
time during the first 3 years, the common stock share appreciation
is greater than 55% from the IPO price, 50% of the Performance
Vesting Restricted Stock will become fully vested. If such share
appreciation is greater than 100%, then all Performance Vesting
Restricted Stock will become fully vested.
40,000 shares of Restricted Stock which vest 100% on the fourth
anniversary of the IPO Date. ("Cliff Vesting Restricted Stock")
Performance Vesting Restricted Stock, Cliff Vesting Options, and
Cliff Vesting Restricted Stock will be forfeited and cancelled, if
the employment of the Executive is terminated for Cause or due to
his option to retire prior to the fourth anniversary of the IPO
Date.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,917
<SECURITIES> 0
<RECEIVABLES> 192,020
<ALLOWANCES> 1,800
<INVENTORY> 100,833
<CURRENT-ASSETS> 406,145
<PP&E> 1,035,458
<DEPRECIATION> 333,671
<TOTAL-ASSETS> 1,279,668
<CURRENT-LIABILITIES> 227,734
<BONDS> 135,299
0
0
<COMMON> 414
<OTHER-SE> 729,722
<TOTAL-LIABILITY-AND-EQUITY> 1,279,668
<SALES> 614,142
<TOTAL-REVENUES> 614,142
<CGS> 443,987
<TOTAL-COSTS> 443,987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 494
<INCOME-PRETAX> 114,121
<INCOME-TAX> 45,649
<INCOME-CONTINUING> 86,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,112
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
</TABLE>
