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, 1998
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Pearl Drive (City of O'Fallon) St. Peters, Missouri 63376
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(314) 279-5500
________________________________________________________________________________
(Registrant's telephone number, including area code)
________________________________________________________________________________
(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 July 31, 1998: 40,511,164 shares
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 202,153 $ 245,780 $ 437,396 $ 468,064
Cost of goods sold 205,965 214,948 417,440 409,163
------- ------- -------- -------
Gross margin (3,812) 30,832 19,956 58,901
Operating expenses:
Marketing and administration 18,940 16,878 37,370 34,859
Research and development 17,664 15,769 37,767 29,176
Restructuring costs 131,428 - 139,454 -
------- ------- -------- --------
Operating loss (171,844) (1,815) (194,635) (5,134)
-------- ------- -------- --------
Nonoperating (income) expense:
Interest expense 8,986 1,256 17,264 1,256
Interest income (376) (190) (879) (783)
Royalty income (1,423) (2,205) (2,524) (4,292)
Other, net 1,609 (8,248) 3,200 (6,541)
-------- -------- -------- --------
Total nonoperating (income) expense 8,796 (9,387) 17,061 (10,360)
--------- -------- -------- --------
Earnings (loss) before income taxes, equity
in loss of joint ventures and
minority interests (180,640) 7,572 (211,696) 5,226
Income taxes (36,935) 3,257 (47,494) 2,248
-------- ------- -------- --------
Earnings (loss) before equity in loss of joint
ventures and minority interests (143,705) 4,315 (164,202) 2,978
Equity in loss of joint ventures (5,303) (1,671) (15,391) (3,444)
Minority interests 1,920 1,109 3,200 1,442
-------- ------- -------- --------
Net earnings (loss) $ (147,088) $ 3,753 $ (176,393) $ 976
======== ======= ========= ========
Basic earnings (loss) per share $ (3.63) $ 0.09 $ (4.33) $ 0.02
Diluted earnings (loss) per share $ (3.63) $ 0.09 $ (4.33) $ 0.02
====== ==== ====== ====
Weighted average shares used in computing basic
earnings (loss) per share 40,511,164 41,338,426 40,703,636 41,409,163
Weighted average shares used in computing diluted
earnings (loss) per share 40,511,164 41,524,290 40,703,636 41,556,378
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,777 $ 30,053
Accounts receivable, less allowance for doubtful accounts of
$2,300 and $3,473 in 1998 and 1997, respectively 132,602 154,702
Income taxes receivable 7,634 14,382
Inventories 134,971 141,447
Prepaid and other current assets 38,008 36,391
--------- ---------
Total current assets 329,992 376,975
Property, plant and equipment, net of accumulated depreciation of
$483,377 and $465,384 in 1998 and 1997, respectively 1,154,887 1,200,827
Investment in joint ventures 91,663 95,307
Excess of cost over net assets acquired, net of accumulated amortization
of $4,440 and $3,752 in 1998 and 1997, respectively 49,084 49,772
Other assets 112,186 54,277
--------- ---------
Total assets $ 1,737,812 $ 1,777,158
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 109,154 $ 122,476
Accounts payable 93,018 146,172
Provision for restructuring costs 54,192 -
Accrued liabilities 57,187 48,611
Accrued wages and salaries 18,567 21,267
--------- ---------
Total current liabilities 332,118 338,526
Long-term debt, less current portion 669,880 510,038
Pension and similar liabilities 83,119 76,837
Customer deposits 68,122 67,141
Other liabilities 27,024 26,901
--------- ---------
Total liabilities 1,180,263 1,019,443
--------- ---------
Minority interests 56,027 59,227
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized, none
issued or outstanding in 1998 or 1997 - -
Common stock, $.01 par value, 200,000,000 shares authorized,
41,440,369 issued and outstanding in 1998 and 1997 414 414
Additional paid-in capital 574,317 574,317
Retained earnings (accumulated deficit) (11,997) 164,396
Accumulated other comprehensive loss (43,874) (38,887)
Unearned restricted stock awards (318) (424)
Treasury stock, at cost: 929,205 and 36,205 shares in 1998 and
1997, respectively (17,020) (1,328)
--------- ---------
Total stockholders' equity 501,522 698,488
--------- ---------
Total liabilities and stockholders' equity $ 1,737,812 $ 1,777,158
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in thousands)
Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (176,393) $ 976
Adjustments to reconcile net earnings (loss) to net cash used
in operating activities:
Depreciation and amortization 78,384 56,588
Restructuring costs 114,800 -
Minority interests (3,200) (1,442)
Equity in loss of joint ventures 15,391 3,444
Loss (gain) on sale of property, plant and equipment 34 (6,831)
Working capital and other (66,429) (55,643)
-------- --------
Net cash used in operating activities (37,413) (2,908)
-------- --------
Cash flows from investing activities:
Capital expenditures (107,939) (175,105)
Proceeds from sale of property, plant and equipment 3,043 12,284
Equity infusions in joint ventures (11,747) -
Dividend received from unconsolidated joint venture - 11,262
Other (398) 809
-------- --------
Net cash used in investing activities (117,041) (150,750)
-------- --------
Cash flows from financing activities:
Net short-term borrowings (3,726) 40,509
Proceeds from issuance of long-term debt 170,404 103,347
Principal payments on long-term debt (9,715) (1,368)
Stock options exercised - 156
Repurchase of common stock (15,692) -
-------- --------
Net cash provided by financing activities 141,271 142,644
-------- --------
Effect of exchange rate changes on cash and cash equivalents (93) (213)
-------- --------
Net decrease in cash and cash equivalents (13,276) (11,227)
Cash and cash equivalents at beginning of period 30,053 35,096
-------- --------
Cash and cash equivalents at end of period $ 16,777 $ 23,869
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except 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 (consisting of normal, recurring
items) 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-month periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
(2) Restructuring Costs
During the second quarter of 1998, the Company decided to close its small
diameter wafer facility in Spartanburg, South Carolina and to withdraw from
the Company's joint venture participation in the small diameter wafer
operations in China. In order to gain production efficiencies,
semiconductor manufacturers have increased their use of large diameter
manufacturing lines in preference to small diameter lines. In addition, a
number of semiconductor manufacturers recently have undertaken
restructuring initiatives focused on permanently eliminating small diameter
lines. The combination of these developments in the industry led the
Company to conclude that its small diameter wafer capacity would exceed
demand even after the semiconductor market begins to recover. Therefore,
the decisions concerning Spartanburg and the China joint venture were made.
The Company also decided to forego construction of a new eight inch wafer
facility in Malaysia. This decision is based upon industry overcapacity and
the resultant price erosion for eight inch wafers.
The Company recorded a charge to operations during the second quarter of
$114,800 (of which $78,100 is non-cash) related to the above actions,
comprised of the following:
Asset impairment/write-off $ 78,100
Dismantling costs 24,500
Personnel costs 12,200
-------
$114,800
=======
The assets for which an impairment loss has been recorded, or which have
been written off entirely, are primarily property, plant and equipment that
cannot be sold or used at other Company manufacturing facilities.
Accordingly, these assets have been written down to net realizable value.
Additionally, the Company wrote off architectural design and site
preparation fees and costs incurred to develop a computer integrated
manufacturing system for the Malaysian site that do not have applicability
elsewhere within the Company.
The provision for dismantling costs relates to the Spartanburg production
facility and includes estimates for the removal of production equipment,
dismantling of the facility, collection and disposal of process chemicals,
decontamination of manufacturing equipment, shutdown of the wastewater
treatment facility, freight and scrapping charges.
Personnel costs represent the expected cost of involuntary terminations for
approximately 900 hourly and salaried employees whom the Company does not
expect to relocate elsewhere within the organization.
In addition to the restructuring activities discussed above, the Company
recorded a $16,600 charge to complete the voluntary separation program for
approximately 600 hourly and salaried U.S. employees that began in the
first quarter of 1998. Substantially all this amount was paid to employees
as of June 30, 1998. The total charge to operations for this program was
$24,600, which includes an $8,000 provision made during the first quarter
of 1998.
These restructuring activities are expected to be implemented over the next
12 months. During this time the Company will transfer the small diameter
production activities of the Spartanburg facility to other existing Company
locations. Estimated pre-tax savings as a result of these restructuring
activities and the voluntary separation plan are $60,000 on an annualized
basis. One-half of the estimated savings will begin in the third quarter of
1998 through reduced personnel costs as a result of the voluntary
separation program. The remainder of the annualized savings relates to
personnel costs and manufacturing costs, such as depreciation,
manufacturing supplies and utilities. The time frame for achieving these
savings will depend upon such factors as the transfer of Spartanburg-based
customer orders to other wafer facilities within the Company and the
willingness of these customers to re-qualify at other sites, but these
savings will begin in the third quarter of 1998.
(3) Earnings (loss) per share
The numerator for basic and diluted earnings (loss) per share calculation
is net earnings (loss) for all periods presented. The denominator for the
basic and diluted earnings (loss) per share calculation for the three and
six-month periods ended June 30, 1998 are the same (the weighted average
shares outstanding for each respective period) due to the net loss incurred
during each period. A reconciliation of weighted average shares for the
basic and diluted earnings (loss) per share calculation for the three and
six-month periods ended June 30, 1997 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
1997 1997
---- ----
Weighed average shares used
for basic earnings (loss) per
share 41,338,426 41,409,163
Effect of dilutive securities:
Restricted stock 64,000 64,000
Stock options 121,864 83,215
---------- ----------
Weighted average shares used
for dilutive earnings (loss)
per share 41,524,290 41,556,378
========== ==========
The following options to purchase the Company's common stock were
outstanding as of June 30, 1998 but were not included in the computation of
diluted loss per share for the three and six month periods ended June 30,
1998:
Range of Number Outstanding
Exercise Prices at June 30, 1998
--------------- ------------------
$15.00-22.50 990,000
24.00-29.00 661,564
32.63-49.50 124,100
-------
1,775,664
=========
(4) Inventories
Inventories consist of the following:
June 30, December 31,
1998 1997
---- ----
Raw materials and supplies $ 69,465 $ 65,369
Goods in process 30,892 37,996
Finished goods 34,614 38,082
-------- --------
$ 134,971 $ 141,447
======= =======
(5) Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. All comparative information has been reclassified to
conform to the current year presentation.
Comprehensive loss for the three and six-month periods ended June 30, 1998
was $149,650 and $181,380, respectively. For the three and six-month
periods ended June 30, 1997, the Company had comprehensive income of $6,993
and a comprehensive loss of $10,610, respectively. The Company's
comprehensive loss is impacted only by foreign currency translation
adjustments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales. Net sales decreased 17.8% to $202.2 million for the three months
ended June 30, 1998, from $245.8 million for the three months ended June 30,
1997. Product volume declined 5.5% in the 1998 second quarter over the year ago
period due to weakening demand for smaller diameter wafers, partially offset by
a 23.8% increase in eight inch product volume. On a geographic basis, product
volumes decreased most significantly in the United States, followed by the Asia
Pacific region, while Japan was essentially flat and Europe experienced strong
volume growth compared to the second quarter of 1997.
Net sales for the six month period ended June 30, 1998 decreased 6.6% to $437.4
million from $468.1 million for the comparable period. Product volume increased
4.4% for the first half of 1998 over the year-ago period, led by a 38.4%
increase in eight inch volume, partially offset by volume declines in all
smaller diameter wafers. Volume increases by geographic region were highest in
Europe, followed by Japan. Sales to the Asia Pacific region were flat, and were
slightly lower in the United States.
Excess capacity in the semiconductor industry, particularly DRAMs, continuing
problems and weakness in the Asian and Japanese economies, and lower than
expected PC sales have caused product volumes in the silicon wafer industry to
decline over the past two quarters. These factors, in addition to excess
capacity in the silicon wafer industry, have caused average selling prices to
decline significantly since the beginning of 1997. As the Company believes these
industry conditions are likely to persist in the near term, the Company
anticipates that product volumes and pricing will continue to weaken in the 1998
third quarter, and that the Company's significant excess capacity will persist
through 1999.
Gross Margin. Gross margin declined from 12.5% in the second quarter of 1997 to
a negative 1.9% for the second quarter of 1998. The decline in gross margin is
primarily attributable to continuing pressure on prices, especially for advanced
large diameter wafers, and lower product volume. For the six months ended June
30, 1998, gross margin was 4.6%, as compared to 12.6 % for the year-ago period.
The decline in gross margin for the first six months of 1998 is also
attributable to falling prices, partially offset by an increase in eight inch
product volume and improved product mix.
Advanced large diameter and epitaxial products represented 45% and 39% of
product volume for the three months ended June 30, 1998 and 1997, respectively.
The increase in eight inch product volume is a result of the Company's customers
running larger diameter production lines in preference to smaller diameter lines
in order to gain production efficiencies during the semiconductor industry
downturn.
Marketing and Administration. Marketing and administration costs were $18.9
million for the second quarter of 1998, a 12.2% increase over the second quarter
of 1997. For the six month period, marketing and administration costs increased
$2.5 million, or 7.2%, over the same period in 1997. The increase in marketing
and administration costs for both the three and six-month periods is due
primarily to expenses associated with redesign of the Company's business systems
as part of a worldwide SAP implementation that began in 1998.
Research and Development. Research and development costs rose 12.0% to $17.7
million for the three months ended June 30, 1998, as compared to $15.8 million
for the year-ago period. Research and development costs increased 29.4% to $37.8
million for the six-month period as compared to the year-ago period. The
increase is due to continuing investments in the Company's 12 inch wafer
development program. The expenses for this program are anticipated to rise as a
result of depreciation associated with the installation of equipment and
start-up of the Company's 12 inch integrated development line in Utsunomiya,
Japan.
Restructuring Costs. Because of developments in the semiconductor industry,
including the increased use of large diameter lines by manufacturers and the
focus on permanent elimination by some manufacturers of small wafer diameter
lines, during the second quarter of 1998 the Company decided to close its small
diameter wafer facility in Spartanburg, South Carolina and to withdraw from the
Company's joint venture participation in the small diameter wafer operations in
China. These decisions were made principally because of the Company's
determination that even after the semiconductor market begins to recover, the
Company will have excess small diameter wafer capacity in light of industry
developments. In an effort to control further excess capacity of the Company's
large diameter wafer facilities, the Company also decided in the second quarter
to forego construction of a new eight inch wafer facility in Malaysia.
These actions resulted in a charge to operations during the second quarter of
$114.8 million (of which $78.1 million is non-cash), comprised of $78.1 million
for asset impairments, $24.5 million in dismantling costs and $12.2 million in
personnel related costs. The assets for which an impairment loss has been
recorded or which have been written off entirely are primarily property, plant
and equipment which cannot be sold or used at other Company facilities. In
addition, the Company wrote off architectural design and site preparation fees
as well as costs incurred to develop a computer integrated manufacturing system
for the Malaysian site. Personnel costs represent the expected cost of
involuntary terminations for approximately 900 hourly and salaried employees
whom the Company does not expect to relocate elsewhere within the organization.
See Note 2, Notes to Consolidated Financial Statements, above.
Also in the second quarter of 1998, the Company recorded a $16.6 million charge
to complete the voluntary separation program for approximately 600 hourly and
salaried U.S. employees that began in the first quarter of 1998. The total
charge to operations for this program was $24.6 million, which includes an $8.0
million provision made during the first quarter of 1998.
Management expects that the restructuring activities discussed above will be
implemented over the next 12 months. During this time, the Company will transfer
the small diameter production activities of the Spartanburg facility to other
Company locations. Estimated pre-tax savings as a result of these restructuring
activities and the voluntary separation plan are $60 million on an annualized
basis. One-half of the estimated savings are expected to begin in the third
quarter of 1998 through reduced personnel costs as a result of the voluntary
separation program. The remainder of the annualized savings relates to personnel
costs and manufacturing costs, such as depreciation, manufacturing supplies and
utilities. The time frame for achieving these savings will depend upon such
factors as the transfer of the Spartanburg-based customer orders to other wafer
facilities within the Company and the willingness of these customers to
re-qualify at other sites, but these savings will begin in the third quarter of
1998. The Company's ability to achieve the projected savings is in part
dependent upon the accuracy of certain assumptions, including replacement of
terminated employees and the cost of producing small diameter wafers at other
facilities.
Interest Expense. Interest expense totaled $9.0 million and $17.3 million for
the three and six-month periods ended June 30, 1998, respectively as compared to
$1.3 million for each of the three and six-month periods of 1997. The increase
in interest expense is due to the completion of capital projects for which
interest costs could no longer be capitalized and increased borrowings.
Other, Net. Other, net decreased approximately $10 million for the three and
six-month periods ended June 30, 1998 as compared to the same periods for 1997,
primarily due to the sale of the Company's Santa Clara wafer facility in May
1997 that resulted in a pre-tax gain of $6.0 million.
Income Taxes. The effective income tax rate was 22.4% for the first six months
of 1998, as compared to 43.0% for the same period of 1997. This fluctuation is
the result of changes in the composition of worldwide pretax income, certain of
the restructuring costs that are not deductible for tax purposes and
non-deductible operating expenses at the Malaysian and Chinese joint ventures.
Equity in Loss of Joint Ventures. Equity in loss of joint ventures was $5.3
million in the second quarter of 1998, as compared to a loss of $1.7 million in
the year-ago period. The loss in the second quarter of 1998 includes the
write-off of certain deferred tax assets totaling $5.4 million at Taisil, the
Taiwan joint venture, which are not anticipated to be utilized prior to the
initiation of a tax holiday beginning in 2000. This write-off was almost equally
offset by $5.2 million in foreign currency gains on Korean won exposure at PHC,
the Korean joint venture, and New Taiwanese dollar exposure at Taisil. Excluding
the write-off and currency gains, equity in loss of joint ventures would have
been $5.1 million in the second quarter of 1998, reflecting lower volumes and
prices at PHC, and lower prices at Taisil.
For the six months ended June 30, 1998, equity in loss of joint ventures was
$15.4 million, a $11.9 million increase over the first six months of 1997. In
addition to the deferred tax asset write-off discussed above, equity in loss of
joint ventures includes $2.2 million in net currency losses for both joint
ventures for the first half of 1998. Excluding the impact of currency and the
deferred tax asset write-off, equity in loss of joint ventures would have been
$7.8 million for the six months ended June 30, 1998. This decrease as compared
to the year-ago period is due to the lower volumes and prices at PHC and Taisil.
Liquidity and Capital Resources. At June 30, 1998, the Company had cash and cash
equivalents of $16.8 million. The Company's borrowings against its $936.1
million of credit facilities were $779.0 million at June 30, 1998. Outstanding
borrowings increased $146.5 million from December 31, 1997 to June 30, 1998, the
proceeds of which have been used to finance the Company's capital expenditures
and working capital requirements. The Company's weighted-average borrowing rate
was 6.0% at June 30, 1998.
A comparison of the components of the Company's financial condition follows
(dollars in millions):
June 30, December 31,
1998 1997
---- ----
Working capital $ (2.1) $ 38.4
Current ratio 1.0 to 1 1.1 to 1
Stockholders' equity $ 501.5 $ 698.5
Total debt to total capitalization 58.3% 45.5%
==== ====
The Company's primary sources of liquidity historically have been cash flows
from operating activities and borrowings from affiliates and, to a lesser
extent, from third parties. The Company's principal uses of cash have been to
support its operating activities, capital expenditures and equity infusions in
joint ventures. The Company's capital expenditures and its recent operating
performance have resulted in significant negative cash flow.
Cash flows used in operating activities were $37.4 million for the six months
ended June 30, 1998 compared to $2.9 million of cash flows used for the
comparable 1997 period. Operating cash flow was negatively impacted by the
results of operations for the period, a decrease in accounts payable due to
lower capital expenditures than in the prior period, a non-cash increase in
deferred taxes due to net operating loss carryforwards generated in 1998,
partially offset by non-cash items such as the restructuring charge recorded
during the 1998 second quarter, depreciation and equity in loss of joint
ventures.
Cash flows used in investing activities for the six months ended June 30, 1998
included capital expenditures of $107.9 million, which represents a $67.2
million reduction from the first six months of 1997. The Company had committed
capital expenditures of $95.8 million as of June 30, 1998. Capital expenditures
for the first half of 1998 primarily relate to equipping the 12 inch pilot line
in St. Peters, Missouri, the 12 inch integrated development line in Utsunomiya,
Japan and the polysilicon expansion at MEMC Pasadena. Given current market
conditions, the Company anticipates that capital expenditures will be
approximately $220 million for fiscal year 1998.
Cash flows from financing activities were essentially flat as compared to the
1997 six-month period, although the 1998 period includes higher long-term and
lower short-term borrowings than in 1997, and the repurchase of 893,000 shares
of the Company's common stock totaling $15.7 million during the first quarter of
1998.
The Company's liquidity and cash flow are being negatively impacted by the
Company's operating losses caused by excess capacity and declining prices,
increasing research and development costs and interest expense, and capital
expenditures. As a result, the Company could experience difficulty in obtaining
additional credit facilities from unrelated third parties on terms acceptable to
the Company. Management currently believes that cash generated from operations,
together with the liquidity provided by existing cash balances and credit
facilities will be insufficient to satisfy commitments for capital expenditures
and other cash requirements for the next twelve months. Accordingly, the Company
is discussing with its principal stockholder and related affiliates additional
financing and the restructuring of existing credit facilities. Although there
can be no assurance, management believes it can obtain sufficient financing to
meet its cash requirements for the next 12 months.
Year 2000. Many computer systems experience problems handling dates beyond the
year 1999. Many existing computer programs only use two digits to identify a
year in the date field. Such systems and programs must be modified or replaced
prior to January 1, 2000 in order to remain functional. The Company has
undertaken a company-wide Year 2000 project, staffed with a diverse team of
personnel representing all levels of the Company's operations and headed by the
Company's Executive Vice President and Chief Financial Officer. The Company has
also retained an outside consulting firm to assist in ensuring the proper
project structure is put in place and that the requisite level of awareness of
the Year 2000 issue is across all levels of the Company. These early phases of
the project are complete, a project structure is in place and the Company has
now entered the remediation, testing and implementation phases of the project.
All sites are at different stages of completion. The goal of management is to
have all systems and equipment Year 2000 ready by June 1999 and critical systems
and process equipment ready by 1998 year end.
In addition, some Year 2000 exposures relate to the Company's suppliers and
customers. The Company has identified its key suppliers and business partners
and has sent out initial requests for information on their Year 2000 compliance
status. The Company has dedicated resources to monitor these parties' progress
as they address the Year 2000 issue. Additional requests will be sent, responses
tracked and contingency plans developed as required to address potential
failures of these parties to be Year 2000 ready.
Failure by the Company and/or the third parties with whom it does business to be
prepared for and properly address the Year 2000 issue could have a material
adverse effect on the Company and its ability to conduct business. The Company
expects to implement successfully the systems and programming changes necessary
to address the Year 2000 issue and does not believe the cost of such actions
will have a material adverse effect on the Company, its results of operations or
financial condition.
Recently Issued Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires the recognition of all derivatives as assets or
liabilities within the balance sheet, and requires both the derivatives and the
underlying exposure to be recorded at fair value. Any gain or loss resulting
from changes in fair value will be recorded as part of the results of
operations, or as a component of comprehensive income or loss, depending upon
the intended use of the derivative. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company has not yet
determined the impact of this Statement.
This Form 10-Q contains "forward-looking" statements within the meaning of the
Securities Litigation Reform Act of 1995, including those concerning the manner,
timing and estimated savings of restructuring activities and the voluntary
separation program, transfer of Spartanburg-based small diameter production
activities to other existing locations, product volume and pricing for the third
quarter of 1998, excess capacity through 1999, increases in research and
development expenses, capital expenditures for 1998, the Company's ability to
secure financing in the future on terms acceptable to the Company, liquidity for
the next twelve months and the successful implementation of Year 2000
initiatives. Such statements 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 the demand
for the Company's wafers, utilization of manufacturing capacity, demand for
semiconductors generally, changes in the pricing environment, general economic
conditions in Asia and Japan, competitors' actions, willingness of customers to
re-qualify Spartanburg-based production at other Company locations, accuracy of
assumptions regarding savings from restructuring activities, success of the
Company's discussions with its principal stockholder and related affiliates
concerning financing matters and other risks described in the Company's filings
with the Securities and Exchange Commission, including the report on Form 10-K
for the year ended December 31, 1997.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 5, 1998. The directors listed
in the Notice of Annual Meeting of Stockholders dated March 23, 1998 were
elected to terms expiring in 2001, with voting for each as follows:
Director For Withheld
-------- --- --------
Dr. Erhard Meyer-Galow 38,453,140 385,908
Dr. Alfred Oberholz 38,510,949 328,099
Ludger Viefhues 38,501,174 337,874
Messrs. von Horde, Maris, O'Brien, Smith and Mamsch and Dr. Gaul are the
remaining board members who are expected to serve through the remainder of their
respective terms. Dr. Gaul was appointed a director of the Company effective as
of August 12, 1998 to serve a term expiring at the 2000 Annual Meeting of
Stockholders.
Item 5. Other Information
Under Section 9 of Article II of the Company's Bylaws, any shareholder proposal
submitted with respect to the Company's 1999 Annual Meeting of Stockholders,
which proposal is submitted outside the requirements of Rule 14a-8 under the
Securities Exchange Act of 1934, will be considered untimely if notice thereof
is received by the Company before February 4, 1999 or after March 6, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the Exhibit Index at page 13 of this report.
(b) Reports on Form 8-K
During the second quarter of 1998, the Company filed one current report
on Form 8-K, dated April 14, 1998. The Form 8-K was filed to report,
under Item 5, the Company's outlook for its financial results for the
first and second quarters of 1998.
<PAGE>
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 13, 1998 /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)
<PAGE>
EXHIBIT INDEX
The exhibits below are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
Exhibit
Number Exhibit
------- -------
3(i) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3-a of the Company's
Form 10-Q for the Quarter ended June 30, 1995)
3(ii) Restated By-laws of the Company (incorporated by reference to
Exhibit 3-b of the Company's Form 10-Q for the Quarter
ended September 30, 1996)
10-gg(1) First Amendment to Credit Agreement effective as of July 1, 1998
between the Company and Huls AG
10-ii(1) Amendment to Loan Agreement effective March 4, 1998 between the
Company and Huls AG
10-qqq MEMC Electronic Materials, Inc. Special Incentive Plan Summary
10-rrr Special Incentive Bonus Agreement dated as of March 26, 1998
between the Company and Marcel Coinne
10-sss Special Incentive Bonus Agreement dated as of March 24, 1998
between the Company and Ralph D. Hartung
10-ttt Special Incentive Bonus Agreement dated as of March 31, 1998
between the Company and James M. Stolze
10-uuu Employment Agreement effective as of April 1, 1998 between the
Company and Klaus R. von Horde
10-vvv Letter Agreement dated April 17, 1998 between the Company and
Dr. Werner Schmitz
10-www Agreement dated May 19, 1998 between the Company and Ralph D.
Hartung
10-xxx Loan Agreement dated as of June 30, 1998 between the Company and
Huls Corporation
27 Financial Data Schedule (filed electronically with the SEC only)
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement ("First Amendment") is effective
as of July 1, 1998 between MEMC ELECTRONIC MATERIALS, INC., a Delaware
corporation, as the Borrower, and HULS AG, a company formed under the laws of
the Federal Republic of Germany ("Huls"), as the sole Lender and as Agent.
Recitals
WHEREAS, Borrower and Huls entered into a Credit Agreement dated as of July
10, 1995 (the "Credit Agreement") pursuant to which Huls agreed to extend up to
US $25,000,000 of credit to Borrower on a term basis; and
WHEREAS, Borrower and Huls desire to amend the Credit Agreement to extend
the final maturity date of the US $25,000,000 term credit facility to September
30, 1998 and to change the interest rate payable by Borrower to Huls during such
extension period.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1. The definition of "Final Maturity Date" set forth in Section 1.01 of the
Credit Agreement is deleted in its entirety and the following is substituted in
lieu thereof:
"Final Maturity Date" means September 30, 1998.
2. Section 2.06(a) of the Credit Agreement is deleted in its entirety and
the following is substituted in lieu thereof:
(a) Interest on the Advances. The Borrower shall pay interest on the
unpaid principal amount of the Advances, if any, from the date of the
Advances until such principal amount shall be paid in full, payable
semiannually, at an interest rate per annum equal to 7.12%; provided,
however, that as of the date occurring 45 Business Days after the
Change of Control Date, the interest rate per annum shall be the Base
Rate in effect for such Advances plus the Applicable Margin.
3. Section 5.02 of the Credit Agreement is deleted in its entirety and the
following is substituted in lieu thereof:
SECTION 5.02. Negative Covenants.
(a) Accounting Changes. On and after the Change of Control Date and so
long as any Advance shall remain unpaid or any Lender shall have any
Commitment hereunder, the Borrower will not, unless the Lenders shall
otherwise consent in writing, make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as allowed by generally accepted
accounting principles.
(b) Liens, etc. On and after July 1, 1998 and so long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder,
the Borrower will not, unless the Lenders shall otherwise consent in
writing, create or suffer to exist, or permit any of its Subsidiaries
to create or suffer to exist, any lien, security interest or other
charge or encumbrance, or any other type of preferential arrangement,
upon or with respect to any of its properties, whether now owned or
hereafter acquired, or assign, or permit any of its Subsidiaries to
assign, any right to receive income, in each case to secure any Debt
of any Person, other than:
(i) purchase money liens or purchase money security interests
upon or in any property acquired or held by the Borrower or any
Subsidiary in the ordinary course of business to secure the
purchase price of such property or to secure indebtedness
incurred solely for the purpose of financing the acquisition of
such property;
(ii) liens or security interests existing on such property at the
time of its acquisition (other than any such lien or security
interest created in contemplation of such acquisition);
(iii) liens for taxes, assessments and government charges or
levies to the extent not required to be paid under Section
5.01(b) hereof:
(iv) liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's liens and other similar
liens arising in the ordinary course of business securing
obligations that are not overdue for a period of more than 30
days;
(v) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
statutory obligations;
(vi) easements, rights of way and other encumbrances on title to
real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of
such property for its present purposes; and
(vii) liens incurred or deposits made in the ordinary course of
business to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, surety, appeal and performance
bonds and other similar obligations not incurred in connection
with the borrowing of money.
4. Unless otherwise provided herein, any term in initial capital letters or
all capital letters used as a defined term but not defined in this First
Amendment shall have the meaning set forth in the Credit Agreement.
5. Except as modified herein, all terms and conditions of the Credit
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties to this First Amendment have caused it to
be executed by their duly authorized representatives effective as of the day and
year first above written. This First Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
MEMC ELECTRONIC MATERIALS, INC., as Borrower
By: /s/ James M. Stolze
_________________________________________
Title: Executive Vice President and
Chief Financial Officer
HULS AG, as Agent
By: /s/ Jurgen Buchsteiner /s/ Georg Muller
__________________________________________
Title:
HULS AG, as the sole Lender
By: /s/ Jurgen Buchsteiner /s/ Georg Muller
__________________________________________
Title:
MEMC Electronic Materials, Inc.
Ken Young
501 Pearl Drive
St. Peters, MO 63376-0008
USA
Amendment to Loan Agreement
Dear Mr. Young,
reference is made to the USD 75,000,000 Revolving Credit Agreement dated as of
July 10, 1995 between MEMC Electronic Materials, Inc. and Huls AG.
We confirm to extend the credit line for 6 month at a margin of 1.25%.
Subsequently "Termination Date" ist defined as the earlier of (a)
September 30, 1998 and (b) the date of the termination in whole of the
Commitments pursuant to Section 2.04 or Section 6.01.
Section 2.07 (a) Interest on the Advances is modified to: The Borrower
shall pay interest on the unpaid principal amount of each Advance owing
to each Lender from the date of such Advance until such principal
amount shall be paid in full at a rate per annum equal at all times
during each Interest Period for such Advance to the sum of (i) the
Eurodollar Rate for such Interest Period for such Advance plus (ii)
1.25%, payable in arrears on the last day of such Interest Period and
on the date such Advance shall be paid in full.
Please return a signed copy of this confirmation to show your agreement with
these terms.
Yours truly, Terms Accepted by MEMC
HULS AKTIENGESELLSCHAFT 3/4/98
/s/ Jurgen Buchsteiner /s/ Kenneth L. Young, Treasurer
/s/ Rembert Tewes /s/ James M. Stolze, CFO
MEMC ELECTRONIC MATERIALS, INC.
SPECIAL INCENTIVE PLAN
SUMMARY
In March 1998, the Company adopted a special incentive plan designed to retain
the services of certain officers and key employees during the period commencing
April 1, 1998 and ending June 30, 1999 (the "Retention Period"). Under the
special incentive plan, the participants received a special incentive bonus.
Fifty percent (50%) of the special incentive bonus (the "Advance Payment") was
paid to each participant at the time the participant executed a special
incentive bonus agreement with the Company. The remaining fifty percent (50%) of
each participant's special incentive bonus will be paid on June 30, 1999
provided that such participant remains an employee of the Company through June
30, 1999.
In the event a participant terminates his or her employment with the Company
prior to April 1, 1999, the incentive bonus agreement provides that such
participant must reimburse the Company the entire amount of the Advance Payment.
Notwithstanding the foregoing, no reimbursement of the Advance Payment is
required in the event of the death or total and permanent disability of a
participant, or in the event a participant's employment with the Company is
involuntarily terminated by the Company as a result of a change in control of
the Company or a reduction in the Company's workforce.
In the event a participant terminates his or her employment with the Company
after March 31, 1999 and before July 1, 1999, the incentive bonus agreement
provides that such participant must reimburse the Company a pro rata portion of
the Advance Payment (such reimbursement based on the portion of the Retention
Period during which the participant failed to remain an employee of the
Company).
There are 24 participants in the special incentive plan, including eleven
executive officers. Approximately $2.9 million of special incentive bonuses were
awarded under the plan. A form of the special incentive bonus agreement is
attached. The special incentive bonus agreements for the three named executive
officers who participated in the special incentive plan have been separately
filed.
<PAGE>
Form of
MEMC Electronic Materials, Inc.
Special Incentive Bonus Agreement
THIS AGREEMENT is entered into between MEMC Electronic Materials, Inc.
("MEMC") and __________________ ("Employee").
Employee is employed by MEMC.
MEMC recognizes the value of the services performed by Employee and wishes
to encourage Employee to continue employment with MEMC. Employee wishes to be
paid a certain amount of additional compensation in return for continuous
employment with MEMC for a designated period of time.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, the parties agree as follows:
1. Nature of Contract. This Agreement provides for an additional bonus (the
"Special Incentive Bonus") to be paid by MEMC to Employee in consideration for
Employee's continuous employment throughout the period of April 1, 1998 through
June 30, 1999 (the "Retention Period").
Nothing contained in this Agreement shall be construed to be a contract of
employment for any term, nor as conferring upon Employee the right to continue
in the employment of MEMC in Employee's present capacity or in any other
capacity. Nothing contained in this Agreement shall be construed to preclude
either party from terminating the employment relationship at any time.
It is expressly understood by the parties that this Agreement relates
exclusively to additional compensation for Employee's services and is not
intended to be the entire employment contract. This Agreement merely supplements
Employee's employment contract with MEMC.
The Special Incentive Bonus provided by this Agreement is in addition to
the cash compensation and other fringe benefits provided to Employee pursuant to
any plan or plans maintained by MEMC for its employees generally.
2. Special Incentive Bonus. If Employee remains in the employment of MEMC
continuously throughout the Retention Period of April 1, 1998 through June 30,
1999, Employee shall be entitled to a Special Incentive Bonus in the amount of
_____________.
3. Terms of Payment. Fifty percent of the Special Incentive Bonus will be
payable with the March 31, 1998 payroll (the "Advance Payment"); the remaining
fifty percent of the Special Incentive Bonus will be payable with the June 30,
1999 payroll (the "Final Payment").
Subject to the exceptions below, in the event Employee terminates
employment with MEMC before April 1, 1999, Employee shall reimburse MEMC the
entire amount of the Advance Payment (including any payroll tax withheld).
Subject to the exceptions below, in the event Employee terminates
employment with MEMC after March 31, 1999 and before July 1, 1999, Employee
shall reimburse MEMC that portion of the Advance Payment (including any payroll
tax withheld) that the number of days in the period beginning on the date of
Employee's termination of employment with MEMC and ending on June 30, 1999 bears
to 456. For example, if Employee terminates employment with MEMC on June 1,
1999, Employee shall reimburse MEMC 30 / 456 (or 6.58%) of the Advance Payment.
No reimbursement of the Advance Payment shall be required in the event of
the death or total and permanent disability of Employee, or in the event
Employee's employment with MEMC is involuntarily terminated by MEMC as a result
of a change in control of MEMC or a reduction in the workforce of MEMC. The
reimbursement as described above shall be required in the event of Employee's
termination of employment with MEMC for any other reason.
In no event shall Employee be entitled to the Final Payment in the event of
Employee's termination of employment with MEMC for any reason before July 1,
1999.
4. Tax Withholding
MEMC shall withhold from the Special Incentive Bonus the amount necessary
to enable MEMC to remit to the appropriate government entity or entities the
amount required to be withheld from wages with respect to such payments. All
references to the Special Incentive Bonus, the Advance Payment, and the Final
Payment shall mean the gross amount of such amount before such payroll taxes are
withheld.
5. Collection of Reimbursement
Employee agrees that any reimbursement of the Advance Payment due MEMC in
the event of termination of employment of the Employee before July 1, 1999 may
be withheld by MEMC from any amounts owed by MEMC to Employee.
6. Confidentiality
Employee agrees that the terms of this Special Incentive Bonus Agreement
are confidential and will not be discussed with or disclosed to any present or
former employee of MEMC or its affiliates or subsidiaries.
7. Governing Law
The interpretation and enforcement of this Agreement shall be governed by
the laws of the State of Missouri.
Employee acknowledges that this Agreement has been reviewed in detail by
Employee and that Employee voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Special Incentive Bonus
Agreement this ____ day of __________, 1998.
MEMC ELECTRONIC MATERIALS, INC.
By:___________________________________________
Ludger H. Viefhues, Chief Executive Officer
_____________________________________________
MEMC ELECTRONIC MATERIALS, INC.
SPECIAL INCENTIVE BONUS AGREEMENT
THIS AGREEMENT is entered into between MEMC Electronic Materials, Inc.
("MEMC") and Marcel Coinne ("Employee").
Employee is employed by MEMC.
MEMC recognizes the value of the services performed by Employee and wishes
to encourage Employee to continue employment with MEMC. Employee wishes to be
paid a certain amount of additional compensation in return for continuous
employment with MEMC for a designated period of time.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, the parties agree as follows:
1. Nature of Contract. This Agreement provides for an additional bonus (the
"Special Incentive Bonus") to be paid by MEMC to Employee in consideration for
Employee's continuous employment throughout the period of April 1, 1998 through
June 30, 1999 (the "Retention Period").
Nothing contained in this Agreement shall be construed to be a contract of
employment for any term, nor as conferring upon Employee the right to continue
in the employment of MEMC in Employee's present capacity or in any other
capacity. Nothing contained in this Agreement shall be construed to preclude
either party from terminating the employment relationship at any time.
It is expressly understood by the parties that this Agreement relates
exclusively to additional compensation for Employee's services and is not
intended to be the entire employment contract. This Agreement merely supplements
Employee's employment contract with MEMC.
The Special Incentive Bonus provided by this Agreement is in addition to
the cash compensation and other fringe benefits provided to Employee pursuant to
any plan or plans maintained by MEMC for its employees generally.
2. Special Incentive Bonus. If Employee remains in the employment of MEMC
continuously throughout the Retention Period of April 1, 1998 through June 30,
1999, Employee shall be entitled to a Special Incentive Bonus in the amount of
BFr 9,270,006.
3. Terms of Payment. Fifty percent of the Special Incentive Bonus will be
payable with the March 31, 1998 payroll (the "Advance Payment"); the remaining
fifty percent of the Special Incentive Bonus will be payable with the June 30,
1999 payroll (the "Final Payment").
Subject to the exceptions below, in the event Employee terminates
employment with MEMC before April 1, 1999, Employee shall reimburse MEMC the
entire amount of the Advance Payment (including any payroll tax withheld).
Subject to the exceptions below, in the event Employee terminates
employment with MEMC after March 31, 1999 and before July 1, 1999, Employee
shall reimburse MEMC that portion of the Advance Payment (including any payroll
tax withheld) that the number of days in the period beginning on the date of
Employee's termination of employment with MEMC and ending on June 30, 1999 bears
to 456. For example, if Employee terminates employment with MEMC on June 1,
1999, Employee shall reimburse MEMC 30 / 456 (or 6.58%) of the Advance Payment.
No reimbursement of the Advance Payment shall be required in the event of
the death or total and permanent disability of Employee, or in the event
Employee's employment with MEMC is involuntarily terminated by MEMC as a result
of a change in control of MEMC or a reduction in the workforce of MEMC. The
reimbursement as described above shall be required in the event of Employee's
termination of employment with MEMC for any other reason.
In no event shall Employee be entitled to the Final Payment in the event of
Employee's termination of employment with MEMC for any reason before July 1,
1999.
4. Tax Withholding
MEMC shall withhold from the Special Incentive Bonus the amount necessary
to enable MEMC to remit to the appropriate government entity or entities the
amount required to be withheld from wages with respect to such payments. All
references to the Special Incentive Bonus, the Advance Payment, and the Final
Payment shall mean the gross amount of such amount before such payroll taxes are
withheld.
5. Collection of Reimbursement
Employee agrees that any reimbursement of the Advance Payment due MEMC in
the event of termination of employment of the Employee before July 1, 1999 may
be withheld by MEMC from any amounts owed by MEMC to Employee.
6. Confidentiality
Employee agrees that the terms of this Special Incentive Bonus Agreement
are confidential and will not be discussed with or disclosed to any present or
former employee of MEMC or its affiliates or subsidiaries.
7. Governing Law
The interpretation and enforcement of this Agreement shall be governed by
the laws of the State of Missouri.
Employee acknowledges that this Agreement has been reviewed in detail by
Employee and that Employee voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Special Incentive Bonus
Agreement this 26th day of March, 1998.
MEMC ELECTRONIC MATERIALS, INC.
By: /s/ Ludger H. Viefhues
___________________________________________
Ludger H. Viefhues, Chief Executive Officer
/s/ Marcel Coinne
___________________________________________
Marcel Coinne
MEMC ELECTRONIC MATERIALS, INC.
SPECIAL INCENTIVE BONUS AGREEMENT
THIS AGREEMENT is entered into between MEMC Electronic Materials, Inc.
("MEMC") and Ralph D. Hartung ("Employee").
Employee is employed by MEMC.
MEMC recognizes the value of the services performed by Employee and wishes
to encourage Employee to continue employment with MEMC. Employee wishes to be
paid a certain amount of additional compensation in return for continuous
employment with MEMC for a designated period of time.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, the parties agree as follows:
1. Nature of Contract. This Agreement provides for an additional bonus (the
"Special Incentive Bonus") to be paid by MEMC to Employee in consideration for
Employee's continuous employment throughout the period of April 1, 1998 through
June 30, 1999 (the "Retention Period").
Nothing contained in this Agreement shall be construed to be a contract of
employment for any term, nor as conferring upon Employee the right to continue
in the employment of MEMC in Employee's present capacity or in any other
capacity. Nothing contained in this Agreement shall be construed to preclude
either party from terminating the employment relationship at any time.
It is expressly understood by the parties that this Agreement relates
exclusively to additional compensation for Employee's services and is not
intended to be the entire employment contract. This Agreement merely supplements
Employee's employment contract with MEMC.
The Special Incentive Bonus provided by this Agreement is in addition to
the cash compensation and other fringe benefits provided to Employee pursuant to
any plan or plans maintained by MEMC for its employees generally.
2. Special Incentive Bonus. If Employee remains in the employment of MEMC
continuously throughout the Retention Period of April 1, 1998 through June 30,
1999, Employee shall be entitled to a Special Incentive Bonus in the amount of
$250,000.
3. Terms of Payment. Fifty percent of the Special Incentive Bonus will be
payable with the March 31, 1998 payroll (the "Advance Payment"); the remaining
fifty percent of the Special Incentive Bonus will be payable with the June 30,
1999 payroll (the "Final Payment").
Subject to the exceptions below, in the event Employee terminates
employment with MEMC before April 1, 1999, Employee shall reimburse MEMC the
entire amount of the Advance Payment (including any payroll tax withheld).
Subject to the exceptions below, in the event Employee terminates
employment with MEMC after March 31, 1999 and before July 1, 1999, Employee
shall reimburse MEMC that portion of the Advance Payment (including any payroll
tax withheld) that the number of days in the period beginning on the date of
Employee's termination of employment with MEMC and ending on June 30, 1999 bears
to 456. For example, if Employee terminates employment with MEMC on June 1,
1999, Employee shall reimburse MEMC 30 / 456 (or 6.58%) of the Advance Payment.
No reimbursement of the Advance Payment shall be required in the event of
the death or total and permanent disability of Employee, or in the event
Employee's employment with MEMC is involuntarily terminated by MEMC as a result
of a change in control of MEMC or a reduction in the workforce of MEMC. The
reimbursement as described above shall be required in the event of Employee's
termination of employment with MEMC for any other reason.
In no event shall Employee be entitled to the Final Payment in the event of
Employee's termination of employment with MEMC for any reason before July 1,
1999.
4. Tax Withholding
MEMC shall withhold from the Special Incentive Bonus the amount necessary
to enable MEMC to remit to the appropriate government entity or entities the
amount required to be withheld from wages with respect to such payments. All
references to the Special Incentive Bonus, the Advance Payment, and the Final
Payment shall mean the gross amount of such amount before such payroll taxes are
withheld.
5. Collection of Reimbursement
Employee agrees that any reimbursement of the Advance Payment due MEMC in
the event of termination of employment of the Employee before July 1, 1999 may
be withheld by MEMC from any amounts owed by MEMC to Employee.
6. Confidentiality
Employee agrees that the terms of this Special Incentive Bonus Agreement
are confidential and will not be discussed with or disclosed to any present or
former employee of MEMC or its affiliates or subsidiaries.
7. Governing Law
The interpretation and enforcement of this Agreement shall be governed by
the laws of the State of Missouri.
Employee acknowledges that this Agreement has been reviewed in detail by
Employee and that Employee voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Special Incentive Bonus
Agreement this 24th day of March, 1998.
MEMC ELECTRONIC MATERIALS, INC.
By: /s/ Ludger H. Viefhues
___________________________________________
Ludger H. Viefhues, Chief Executive Officer
/s/ Ralph D. Hartung
______________________________________________
Ralph D. Hartung
MEMC ELECTRONIC MATERIALS, INC.
SPECIAL INCENTIVE BONUS AGREEMENT
THIS AGREEMENT is entered into between MEMC Electronic Materials, Inc.
("MEMC") and James M. Stolze ("Employee").
Employee is employed by MEMC.
MEMC recognizes the value of the services performed by Employee and wishes
to encourage Employee to continue employment with MEMC. Employee wishes to be
paid a certain amount of additional compensation in return for continuous
employment with MEMC for a designated period of time.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, the parties agree as follows:
1. Nature of Contract. This Agreement provides for an additional bonus (the
"Special Incentive Bonus") to be paid by MEMC to Employee in consideration for
Employee's continuous employment throughout the period of April 1, 1998 through
June 30, 1999 (the "Retention Period").
Nothing contained in this Agreement shall be construed to be a contract of
employment for any term, nor as conferring upon Employee the right to continue
in the employment of MEMC in Employee's present capacity or in any other
capacity. Nothing contained in this Agreement shall be construed to preclude
either party from terminating the employment relationship at any time.
It is expressly understood by the parties that this Agreement relates
exclusively to additional compensation for Employee's services and is not
intended to be the entire employment contract. This Agreement merely supplements
Employee's employment contract with MEMC.
The Special Incentive Bonus provided by this Agreement is in addition to
the cash compensation and other fringe benefits provided to Employee pursuant to
any plan or plans maintained by MEMC for its employees generally.
2. Special Incentive Bonus. If Employee remains in the employment of MEMC
continuously throughout the Retention Period of April 1, 1998 through June 30,
1999, Employee shall be entitled to a Special Incentive Bonus in the amount of
$250,000.
3. Terms of Payment. Fifty percent of the Special Incentive Bonus will be
payable with the March 31, 1998 payroll (the "Advance Payment"); the remaining
fifty percent of the Special Incentive Bonus will be payable with the June 30,
1999 payroll (the "Final Payment").
Subject to the exceptions below, in the event Employee terminates
employment with MEMC before April 1, 1999, Employee shall reimburse MEMC the
entire amount of the Advance Payment (including any payroll tax withheld).
Subject to the exceptions below, in the event Employee terminates
employment with MEMC after March 31, 1999 and before July 1, 1999, Employee
shall reimburse MEMC that portion of the Advance Payment (including any payroll
tax withheld) that the number of days in the period beginning on the date of
Employee's termination of employment with MEMC and ending on June 30, 1999 bears
to 456. For example, if Employee terminates employment with MEMC on June 1,
1999, Employee shall reimburse MEMC 30 / 456 (or 6.58%) of the Advance Payment.
No reimbursement of the Advance Payment shall be required in the event of
the death or total and permanent disability of Employee, or in the event
Employee's employment with MEMC is involuntarily terminated by MEMC as a result
of a change in control of MEMC or a reduction in the workforce of MEMC. The
reimbursement as described above shall be required in the event of Employee's
termination of employment with MEMC for any other reason.
In no event shall Employee be entitled to the Final Payment in the event of
Employee's termination of employment with MEMC for any reason before July 1,
1999.
4. Tax Withholding
MEMC shall withhold from the Special Incentive Bonus the amount necessary
to enable MEMC to remit to the appropriate government entity or entities the
amount required to be withheld from wages with respect to such payments. All
references to the Special Incentive Bonus, the Advance Payment, and the Final
Payment shall mean the gross amount of such amount before such payroll taxes are
withheld.
5. Collection of Reimbursement
Employee agrees that any reimbursement of the Advance Payment due MEMC in
the event of termination of employment of the Employee before July 1, 1999 may
be withheld by MEMC from any amounts owed by MEMC to Employee.
6. Confidentiality
Employee agrees that the terms of this Special Incentive Bonus Agreement
are confidential and will not be discussed with or disclosed to any present or
former employee of MEMC or its affiliates or subsidiaries.
7. Governing Law
The interpretation and enforcement of this Agreement shall be governed by
the laws of the State of Missouri.
Employee acknowledges that this Agreement has been reviewed in detail by
Employee and that Employee voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Special Incentive Bonus
Agreement this 31st day of March, 1998.
MEMC ELECTRONIC MATERIALS, INC.
By: /s/ Ludger H. Viefhues
___________________________________________
Ludger H. Viefhues, Chief Executive Officer
/s/ James M. Stolze
______________________________________________
James M. Stolze
EMPLOYMENT AGREEMENT
The following sets out Klaus R. von Horde's agreement regarding his
employment with MEMC Electronic Materials, Inc. ("MEMC")
1. Employment Term. Mr. von Horde will be employed by MEMC as President and
Chief Operating Officer for the period commencing effective April 1, 1998
and terminating March 31, 2003.
2. Reporting Responsibility. Mr. von Horde will report directly to the Chief
Executive Officer. During the employment period, Mr. von Horde will devote
his full business time to the duties as President and Chief Operating
Officer of MEMC.
3. Base Salary. Mr. von Horde's base salary will be $416,000.00 per annum,
which may be increased, but not decreased, at the discretion of the
Compensation Committee of the Board of Directors of MEMC (the "Compensation
Committee") based upon performance and upon the Compensation Committee's
review of the appropriate base salary for the titles and responsibilities
assigned to Mr. von Horde from time to time. The Compensation Committee
will review Mr. von Horde's base salary annually. Compensation of the Chief
Operating Officer is primarily a function of company performance and
individual performance and could, in any given year, be higher or lower
than that of other Chief Operating Officers in comparable positions. But it
is the intent that MEMC's compensation opportunity be structured to afford
comparable pay given comparable performance.
4. Annual Bonus. Mr. von Horde will be eligible to receive an annual bonus
with a target at 140% of his annual base salary as of December 31. The
target bonus will be payable to Mr. von Horde only upon achievement of
performance objectives set by the Compensation Committee, and the payment
of any bonus above target will be at the Compensation Committee's sole
discretion. The bonus will be paid under the Annual Incentive Plan under
the same performance objectives and terms applicable to other executive
employees. Subsequent target levels for annual bonuses, performance
objectives, and payout terms will be at the discretion of the Compensation
Committee.
5. Stock Options. In accordance with the MEMC Equity Incentive Plan, Mr. von
Horde will be awarded stock options annually. For the 1998 Plan year, Mr.
von Horde's grant will be comprised of options to purchase a number of
shares with a face value equal to 365% of Mr. von Horde's salary (as of
December 31 of the year prior to the grant), which options will have an
exercise price per share equal to 100% of market value on the date of the
grant. The options will vest at the rate of 25% per year starting one year
after the grant such that 100% vesting will occur on the fourth anniversary
of the grant; provided, however, that all options will vest upon Mr. von
Horde's retirement on or following August 31, 2002, or earlier, if with the
consent of the Compensation Committee. The options shall in other respects
be subject to the same terms applicable to options granted to other senior
executives. Subsequent grants, the value and vesting, shall be at the
discretion of the Compensation Committee and shall follow the guidelines
set for other senior executives.
6. Benefits. Mr. von Horde will participate in the all welfare and fringe
benefit plans maintained by MEMC for its senior executive, assuming
insurability, with credit given for Mr. von Horde's prior MEMC service
solely for the purpose of eligibility to participate.
7. Pension. Mr. von Horde will participate in the MEMC Pension Plan as well as
the MEMC Supplemental Executive Pension Plan in accordance with their
terms, based on an employment date with MEMC of April 1, 1998.
8. Termination of Employment. Either party may terminate Mr. von Horde's
employment under this Agreement upon twelve (12) months' prior notice,
delivered in writing. In the event of such a termination of employment; (a)
Mr. von Horde will receive all salary accrued through the date of
termination, (b) MEMC will pay Mr. von Horde a pro rata bonus for the year
of termination (to be paid at the same time and to the same extent, i.e.,
based on MEMC's performance for the full year that bonuses are paid
generally to executives with respect to such year), (c) Mr. von Horde will
be reimbursed for all reasonable relocation expenses incurred by him in
returning to Germany with his family and (d) all stock options granted to
Mr. von Horde will vest and remain outstanding and exercisable for three
(3) years following his termination date. Notwithstanding the foregoing, no
advance notice will be required and items (b) through (d) above shall not
apply in the event that Mr. von Horde is terminated for cause by MEMC or if
he resigns.
9. Arbitration. Any dispute, controversy or claim regarding Mr. von Horde's
employment with MEMC or the termination of his employment will be resolved
exclusively by final and binding arbitration. Such disputes, controversies
or claims would include but not be limited to claims based upon statutes,
ordinances, express or implied contracts or which sound in tort. The
arbitrator would have the authority to award damages in conformity with
controlling substantive law. Such arbitration would be held in St. Louis,
Missouri, U.S.A., in accordance with the rules of the American Arbitration
Association.
10. Confidentiality Agreement. MEMC's Confidentiality Agreement is incorporated
by reference in this Agreement and has been executed and acknowledged by
Mr. von Horde.
11. Miscellaneous. This Agreement shall be construed in accordance with and be
governed by the laws of the State of Missouri applicable to contracts
executed and to be performed within such State. It also represents the
entire agreement of the parties regarding its subject matter and supersedes
any prior or contemporaneous agreements or understandings, whether written
or oral.
MEMC ELECTRONIC MATERIALS, INC.
/s/ Klaus R. von Horde /s/ Ludger H. Viefhues
________________________________ By:__________________________________
Klaus R. von Horde Ludger H. Viefhues
Chief Executive Officer
Date: 4/8/98 Date: 4/7/98
April 17, 1998
Dr. Werner Schmitz
16534 Saddlecreek Road
Chesterfield, MO 63005
Dear Dr. Schmitz:
This letter is to confirm our mutual understanding with respect to the
terms and conditions under which you will provide consulting services to MEMC
Electronic Materials, Inc. ("MEMC") for the period commencing July 1, 1998, and
ending September 30, 1998, inclusive, which period may be extended by mutual
agreement. Unless the context clearly indicates otherwise, all of your
obligations and duties under this agreement will be for the benefit of both MEMC
and any MEMC Affiliate for which you are rendering services. As used in this
letter agreement, the term "MEMC Affiliate" means any entity which is controlled
by, under common control with, or controls MEMC.
1. The services ("Services") which you will provide shall consist of
consulting with members of MEMC management on issues regarding the joint
venture agreements and Board of Directors' activities for Taisil, PHC,
Kulim, and MCL and/or other business issues relating to Asia as requested.
The MEMC Coordinator shall be Ludger H. Viefhues or such other person whom
MEMC designates in writing.
2. It is understood that the fee for your Services will consist of a lump-sum
payment of $57,680 payable July 1, 1998 ("Lump-Sum Fee"). MEMC shall be
authorized to deduct from any sums otherwise due you hereunder any amounts
which by law MEMC may be required to withhold from such sums; provided,
however, that MEMC does not assume nor shall be deemed to assume hereby
(unless instructed or ordered by appropriate governmental authority) any of
your responsibilities as a self-employed individual to pay any federal,
state or local income or earnings taxes or self-employment taxes, all of
which shall remain your sole obligation.
In addition, an MEMC laptop computer shall be provided to you for the
duration of this agreement.
3. MEMC will reimburse you for reasonable and necessary expenses you incur in
connection with your Services, including: (a) business travel expenses when
travel is required and pre-approved by the MEMC Coordinator; (b) costs of
room and board for you while you are located more than 100 miles from your
home; and (c) special items agreed to by the MEMC Coordinator in advance of
being incurred.
4. You will submit monthly a detailed invoice for Services rendered setting
forth the days worked and services performed and itemizing any reimbursable
expenses. Your invoices shall be submitted to the MEMC Coordinator. To the
extent approved by the MEMC Coordinator, payment shall be made by MEMC
within ten (10) days after the receipt of your invoice. Unless it is
otherwise agreed in writing by the parties, payments to you will be made
solely in U.S. Dollars, sent to the address specified in your invoice, or
deposited in a United States bank account specified by you.
5. This agreement shall automatically terminate in the event of your death,
your incapacity or inability (as determined by MEMC) to perform your duties
hereunder or if you refuse to accept an assignment offered to you. MEMC
terminate this agreement upon thirty (30) days written notice. In addition,
MEMC may terminate this agreement on written notice if you breach any of
the provisions of this agreement. In the event of the termination of this
agreement for any reason, MEMC shall only be liable for the Lump-Sum Fee
and reimbursable expenses incurred prior to the effective termination date.
6. In providing the Services, you shall disclose to MEMC only such information
as you are legally free to disclose. MEMC shall have the right, without
further payment over and above that set forth in Paragraph 2 above, forever
to use freely any and all information disclosed by you to MEMC. In
addition, you shall not disclose or divulge to MEMC any proprietary,
confidential or trade secret information of third parties.
7. It is recognized that, in providing the Services to MEMC hereunder, you
will or may acquire or develop certain confidential information and data
("Information") concerning the plans, profits, programs, plants, processes,
products, costs, equipment, operations, customers, raw materials or
suppliers of, or belonging to, MEMC. Therefore, you shall treat the
Information as MEMC's confidential property and shall not, except for the
limited purpose of providing Services hereunder, use or disclose such
Information to third parties, without in each instance securing the prior
written consent of MEMC. All notes, memoranda, records, tapes, print-outs,
and other documents (including, but not limited to, all drafts, copies and
excerpts thereof) embodying or referring to the Information shall be the
property of MEMC and shall be delivered to MEMC upon the completion or
termination of Services hereunder or at MEMC's request. The above
obligations shall survive completion or termination of Services hereunder.
8. Nothing contained herein shall prevent you from using or disclosing
Information which you can prove (a) has become part of the public domain
other than by your acts or omissions, (b) has been furnished or made known
to you by third parties (other than those acting on behalf of MEMC) as a
matter of legal right and without restriction on disclosure or use, or (c)
was in your possession prior to disclosure by MEMC and was not acquired by
you directly or indirectly from MEMC. It is further understood and agreed
that specific Information shall not be deemed to be available to the public
or in your prior possession merely because it is embraced by more general
information available to the public or in your prior possession, and that
the existence of MEMC's particular interests and plans in the electronic
materials business are recognized as a type of such specific information.
9. It is agreed that the entire right, title and interest in and to all
copyrightable works, including all copyright interests therein, created or
authored by you (a) during the period of time you are providing services to
MEMC or within one year of the completion or termination thereof and which
are directly related to any assignment or project with respect to which
MEMC has utilized your services hereunder, and/or (b) as a result of
Information received from MEMC, shall be the sole and exclusive property of
MEMC. You shall, upon request by and without expense to MEMC, promptly
execute any and all applications, assignments or other instruments which
MEMC shall reasonably deem necessary or useful to acquire or register the
copyright interest therein.
10. You shall make no warranties or representations of any kind with respect to
MEMC or any of its products, nor shall you be authorized to execute any
contracts or consummate any sale of any of MEMC's products, unless in each
instance you shall have received prior written authorization from MEMC to
so act in its behalf. You shall have no right to use the name "MEMC" or
"MEMC Electronic Materials, Inc." by way of display on any real or personal
property, nor shall you have the right to use any trademark of MEMC, other
than on forms of literature furnished to you by MEMC, without first
obtaining MEMC's prior written consent, and you shall not acquire any
rights in any such name. You agree to hold MEMC harmless, and to indemnify
MEMC, from and against any expenses (including, but not limited to,
reasonable attorneys' fees and expenses) or losses incurred by MEMC in
connection with any misrepresentation of your authority or the making of
any unauthorized warranties or representations with respect to MEMC of its
products.
11. You agree that you will not, without MEMC's prior written consent, for your
own account or as an officer, member, employee, consultant, representative
or advisor to any other person, corporation, partnership or organization,
during the term of this agreement and during the period ending one year
following the termination of this agreement, for any reason, engage in or
contribute your knowledge to the development, research (including market as
well as technical research) or sales relating to any compound, product,
equipment, process or material that is or was involved in, or is
competitive with, any work or services performed pursuant to this
agreement.
12. In performing Services hereunder, your status shall be that of an
independent contractor and not that of an employee or part-time employee of
MEMC. Accordingly, you will not be entitled to receive with respect to any
of your Services hereunder any of the benefits applicable to employees of
MEMC or accrue any benefits for such Services under any of the benefit
plans of MEMC.
13. You shall not (by operation of law or otherwise) assign rights or delegate
your performance hereunder without the prior written consent of MEMC, and
any attempted assignment or delegation without such consent shall be void.
MEMC may assign its rights and obligations in whole or in part to any other
MEMC Affiliate. Subject to the foregoing, this letter shall be binding upon
and inure to the benefit of the parties hereto and, except as regards
personal services, shall be binding upon and inure to the benefit of the
successors, assigns, personal representatives, executors and administrators
of the parties hereto.
14. With regard to any access by you to MEMC's facilities, you shall comply
with the security and safety rules and regulations of that facility.
15. The validity, interpretation and performance of this agreement and any
dispute connected herewith shall be governed and construed in accordance
with the laws of the State of Missouri, except its choice of law rules, and
all disputes or controversies shall be litigated in the courts of the State
of Missouri.
16. All provisions of this letter are severable and any provision which may be
prohibited by law shall be ineffective to the extent of such prohibition
without invalidating the remaining provisions.
17. This letter constitutes the full understanding of the parties, a complete
allocation of risks between them and a complete and exclusive statement of
the terms and conditions of their agreement relating to the subject matter
hereof and supersedes any and all prior agreements, whether written or
oral, that may exist between the parties with respect thereto. Except as
otherwise specifically provided in this letter, no conditions, usage of
trade, course of dealing or performance, understanding or agreement
purporting to modify, vary, explain or supplement the terms or conditions
of this letter shall be binding unless hereafter made in writing and signed
by the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of documents or forms containing terms or
conditions at variance with or in addition to those set forth in this
letter. No waiver by any party with respect to any breach or default or of
any right or remedy and no course of dealing, shall be deemed to constitute
a continuing waiver of any other breach or default or of any other right or
remedy, unless such waiver be expressed in writing signed by the party to
be bound. Failure of a party to exercise any right shall not be deemed a
waiver of such right or rights in the future.
If the foregoing terms and conditions are acceptable to you, please indicate
your acceptance and agreement by executing this letter in duplicate at the place
indicated below and returning one copy to MEMC. The other copy is for your
files.
Very truly yours,
MEMC Electronic Materials, Inc.
By: /s/ Huston E. Sherrill
----------------------------
Huston E. Sherrill
Title: Corporate Vice President, Human Resources
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN:
/s/ Werner Schmitz
- ----------------------------
Dr. Werner Schmitz
SEPARATION AGREEMENT, GENERAL RELEASE AND COVENANT NOT TO SUE
This Separation Agreement, General Release and Covenant Not to Sue
("Agreement") is made and entered into by and between Ralph D. Hartung
(hereafter "EMPLOYEE") and MEMC Electronic Materials, Inc. (hereafter "MEMC").
In consideration of the following promises, the parties agree as follows:
1. Separation from Employment. EMPLOYEE acknowledges that he will separate
from employment with MEMC effective as of August 1, 1998 (hereafter "Separation
Date"), which will be his last effective day of work. As of such Separation
Date, EMPLOYEE's employment relationship with MEMC will end. MEMC and EMPLOYEE
have agreed to settle all matters relating to EMPLOYEE's employment relationship
with MEMC and the termination.
2. Resignation of EMPLOYEE. EMPLOYEE tenders his resignation effective as
of the Separation Date, which resignation is hereby accepted by MEMC. EMPLOYEE's
MEMC personnel file will reflect a voluntary resignation.
3. Payments and Benefits. MEMC shall provide the following to EMPLOYEE in
consideration and in exchange for EMPLOYEE's promises and obligations herein so
long as he submits this Agreement, properly executed, to MEMC on or before June
11, 1998 and adheres to the promises and agreements set out in this Agreement.
The payments and benefits are made in lieu of any payments or benefits that
might otherwise be available to EMPLOYEE arising out of his employment with
MEMC.
a. Separation Payments and Benefits. EMPLOYEE shall be entitled to
the separation payments and benefits set forth on Exhibit A
hereto as though EMPLOYEE were part of MEMC's Voluntary
Separation Plan (including the Furloughed Early Retirement Plan).
In addition, if prior to December 31, 1998, the MEMC Compensation
Committee removes the 6% limitation on the amount of annual
increases in base salary that may be taken into consideration for
purposes of determining final average pay under the MEMC Pension
Plan and the MEMC Supplemental Executive Pension Plan, then the
pension benefits payable to EMPLOYEE under such plans will be
determined (on a retroactive basis) without regard to such 6%
limitation.
b. Retention of Special Incentive Bonus. Effective as of March 24,
1998, EMPLOYEE entered into a Special Incentive Bonus Agreement
pursuant to which EMPLOYEE was paid a sum of money in
consideration for his agreement to continue employment with MEMC
through June 30, 1999. Pursuant to said Special Incentive Bonus
Agreement, EMPLOYEE is required to reimburse MEMC for the Advance
Payment as defined in said agreement in the amount of $125,000 as
a result of the termination of his employment with MEMC prior to
June 30, 1999. However, MEMC hereby waives said requirement and
EMPLOYEE shall be permitted to retain said Advance Payment in the
amount of $125,000. Notwithstanding the foregoing, the Advance
Payment shall not be considered for purposes of determining
EMPLOYEE'S final average pay under the MEMC Pension Plan and the
MEMC Supplemental Executive Pension Plan.
c. International Assignment Letter of Agreement. MEMC and EMPLOYEE
agree to comply with the terms of EMPLOYEE's International
Assignment Letter of Agreement dated April 1, 1993, as modified
by the memorandum to EMPLOYEE from Larry Norman dated January 8,
1998 addressing EMPLOYEE's repatriation from Italy to the United
States (as so modified, the "International Assignment
Agreement"). In connection with EMPLOYEE's international
assignment, EMPLOYEE and MEMC agree to comply with the tax return
preparation provisions (which provisions provide for the
preparation of EMPLOYEE's tax returns at MEMC's expense for a
specified period of time) of MEMC's International Assignment
Policy (including the provisions addressing foreign tax credits).
4. Agreement Not to File Suit. In consideration of the promises of MEMC set
forth in this Agreement, EMPLOYEE agrees for himself and on behalf, as
applicable, his heirs, beneficiaries, executors, administrators, successors,
assigns, and anyone claiming through or under any of the foregoing, that he will
not file or otherwise submit any charge, claim, complaint or action to any
agency, court, organization, or judicial forum (nor will he permit any person,
group of persons, or organization to take such action on his behalf) against
MEMC, nor file any such charge, claim, complaint or action against any
subsidiary, affiliate or parent company of MEMC, or any officer, agent,
employee, successor or assign of any of MEMC or any of said entities, arising
out of any actions or non-action on the part of MEMC or on the part of any such
entity or any officer, agent or employee of MEMC or any such entity that
occurred on or prior to the date of execution of this Agreement. Said claims,
complaints and actions include, but are not limited to, (i) any breach of an
actual or implied contract of employment between EMPLOYEE and MEMC, (ii) any
claim of unjust, wrongful, or tortious discharge (including any claim of fraud,
negligence, whistle blowing, or intentional infliction of emotional distress),
(iii) any claim of defamation or other common-law action, or (iv) any claim of
violations arising under the Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e et seq., 42 U.S.C. Section 1981, the Age Discrimination in
Employment Act, 29 U.S.C. Section 621 et seq., the American with Disabilities
Act, 42 U.S.C. Section 12101 et seq., the Fair Labor Standards Act of 1938, as
amended, 29 U.S.C. Section 201 et seq., the Rehabilitation Act of 1973, as
amended, 29 U.S.C. Section 701 et seq., the Employee Retirement Income Security
Act ("ERISA"), 29 U.S.C. Section 1001 et seq., or any other relevant federal,
state, or local statute or ordinance.
5. Release of Claims. EMPLOYEE hereby agrees for himself, and as applicable
his heirs, beneficiaries, executors, administrators, successors, assigns and
anyone claiming through or under any of the foregoing, to remise, release and
forever discharge MEMC and the subsidiaries, affiliates, and parent companies of
MEMC, and all officers, agents, employees, successors and assigns of MEMC or of
said entities, from any and all matters, claims, demands, damages, causes of
action, debts, liabilities, controversies, judgments and suits of every kind and
nature whatsoever, foreseen, unforeseen, known or unknown, including claims,
complaints and actions described in Paragraph 4, which have arisen or could
arise between EMPLOYEE, on the one hand, and MEMC or said related entities, on
the other hand, from matters which occurred on or prior to the date of execution
of this Agreement, which matters include this Agreement and EMPLOYEE's
separation of employment with MEMC.
6. Release and Waiver of Other Claims. Except as expressly provided in this
Agreement, EMPLOYEE agrees, for himself, and, as applicable, for and on behalf,
of his heirs, beneficiaries, executors, administrators, successors, assigns, and
anyone claiming through or under any of the foregoing, to further release and
waive any claims related to pay, vacation pay, insurance or welfare benefits or
any other benefits of employment with MEMC arising from events occurring on or
prior to the date of execution of this Agreement. Notwithstanding any provision
of this Agreement, this Agreement does not include any release or waiver of
EMPLOYEE's non-forfeitable rights to his accrued benefits (within the meaning of
Sections 203 and 204 of ERISA), if any, under the MEMC Pension Plan, MEMC
Supplemental Executive Pension Plan and the MEMC Retirement Savings Plan, as
such plans may hereafter be amended, which rights are not released hereby but
survive unaffected by this Agreement. In addition, this Agreement does not
include any release or waiver of EMPLOYEE'S rights existing as of the Separation
Date under the MEMC Electronics Materials, Inc. Welfare Benefit Plan.
7. Obligation Regarding Confidential Information. EMPLOYEE agrees that he
has continuing obligations to MEMC pursuant to his Employment Agreement between
him and MEMC dated March 17, 1989. Any violation of those obligations by
EMPLOYEE constitutes a material breach of this Agreement and subjects the
EMPLOYEE to forfeiture of all benefits and payments pursuant to this Agreement.
MEMC expressly reserves the right to pursue all other legal remedies available
to it by virtue of any breach of the Employment Agreement.
8. Nondisparagement. EMPLOYEE represents that he will not, in any way,
disparage MEMC nor any subsidiary, affiliate or parent of MEMC, or any officer,
agent, employee, successor or assign of any of them, or make or solicit any
comments, statements or the like to the media or to others that may be
considered to be derogatory or detrimental to the good name or business
reputation of any of the aforementioned persons or entities. MEMC represents
that it will not, in any way, disparage EMPLOYEE, or make or solicit any
comments, statements or the like to the media or to others that may be
considered to be derogatory or detrimental to the good name or business
reputation of EMPLOYEE.
9. No Admission of Wrongdoing. The parties agrees that nothing in this
Agreement is an admission by any party of any wrongdoing, either in violation of
an applicable law or otherwise, and that nothing in this Agreement is to be
construed as such by any person.
10. Confidentiality of Agreement. EMPLOYEE agrees to keep the terms of this
Agreement confidential except as he might be lawfully compelled to give
testimony by a court of competent jurisdiction or as he may be required by law,
regulation, governmental authority or similar body to disclose. This means that
except as stated above, he will not, at any time, talk about, write about or
otherwise publicize this Agreement, or its negotiation, execution or
implementation, except with (1) an attorney who may be advising him in
connection with it; (2) a financial consultant or executive outplacement
counselor, and (3) his wife provided that said persons to whom disclosure is
permitted pursuant to this sentence promise to keep the information that may be
revealed to them confidential and not to disclose it to others.
11. Knowing and Voluntary Agreement. EMPLOYEE hereto represents, declares
and agrees that he voluntarily accepts the provisions of this Agreement for the
purposes of making a full and final compromise, adjustment and settlement of all
claims herein described. EMPLOYEE is advised to consult an attorney. EMPLOYEE
understands the effect of signing this Agreement.
12. Entire Agreement. This Agreement, when executed, contains the entire
agreement between the parties and there are no other understandings or
agreements, written or oral, between them on the subject except as expressly
stated herein. This Agreement fully supersedes and replaces any and all prior
agreements or understandings, if any, between EMPLOYEE and MEMC on any matter
that is addressed in this Agreement. This Agreement cannot be amended or
modified except by a written document signed by both MEMC and EMPLOYEE. Separate
copies of this document shall constitute original documents which may be signed
separately, but which together will constitute one single agreement.
13. Governing Law; Invalidity of Provisions. This Agreement shall be
construed and governed by the laws of the State of Missouri (except its laws and
decisions regarding conflicts of law which shall be disregarded in their
entirety). If any part or provision of this Agreement is determined to be
invalid or unenforceable under applicable law, the validity or enforceability of
the remaining provisions shall be unaffected. To the extent that any provision
of this Agreement is adjudicated to be invalid or unenforceable because it is
over broad, that provision shall not be void, but rather shall be limited only
to the extent required by applicable law and enforced as so limited.
14. Consequences of Violation of this Agreement. If EMPLOYEE violates any
of his promises contained in this Agreement, then EMPLOYEE shall pay for all
costs incurred by any of the released parties, including reasonable attorneys'
fees, in defending against EMPLOYEE's claims. For example, if any released party
is required to defend a lawsuit filed by EMPLOYEE or on his behalf that relates
to EMPLOYEE'S employment or the termination of his employment, EMPLOYEE shall be
liable for all expenses (including attorneys' fees) that are incurred in
defending this suit. If MEMC violates any of its promises contained in this
Agreement, then MEMC shall pay for all costs incurred by EMPLOYEE, including
reasonable attorneys' fees, in enforcing EMPLOYEE's rights under this Agreement.
15. Consideration Period. EMPLOYEE acknowledges that he has been given at
least twenty-one (21) days within which to consider this Agreement before its
execution. This Agreement shall not be effective until seven (7) calendar days
after the date of execution by EMPLOYEE. During this seven-day period, EMPLOYEE
may revoke this Agreement by notifying MEMC in writing. Upon expiration of the
seven-day period, EMPLOYEE acknowledges that this Agreement becomes final and
binding.
16. By signing this Agreement, EMPLOYEE acknowledges:
A. HE HAS READ THIS AGREEMENT COMPLETELY.
B. HE HAS HAD AN OPPORTUNITY TO CONSIDER THE TERMS OF THIS
AGREEMENT.
C. HE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY OF HIS CHOOSING
PRIOR TO EXECUTING THIS AGREEMENT.
D. HE KNOWS THAT HE IS GIVING UP IMPORTANT LEGAL RIGHTS BY SIGNING
THIS AGREEMENT.
E. HE UNDERSTANDS AND MEANS EVERYTHING THAT HE HAS SAID IN THIS
AGREEMENT, AND HE AGREES TO ALL ITS TERMS.
F. HE IS NOT RELYING ON MEMC OR ANY REPRESENTATIVE OF MEMC TO
EXPLAIN THIS AGREEMENT OR HIS RIGHTS TO HIM
G. HE HAS HAD AN OPPORTUNITY TO CONSULT AN ATTORNEY AND OTHER
ADVISORS TO EXPLAIN THIS AGREEMENT AND ITS CONSEQUENCES TO HIM
BEFORE HE SIGNED IT, AND HE HAS AVAILED HIMSELF OF THIS
OPPORTUNITY TO WHATEVER EXTENT HE DESIRED.
H. HE HAS SIGNED THIS AGREEMENT VOLUNTARILY AND ENTIRELY OF HIS OWN
FREE WILL WITHOUT ANY PRESSURE FROM MEMC OR ANY REPRESENTATIVE OF
MEMC.
[Remainder of Page Intentionally Left Blank.]
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this SEPARATION
AGREEMENT, GENERAL RELEASE AND COVENANT NOT TO SUE.
MEMC ELECTRONIC MATERIALS, INC. EMPLOYEE
By: /s/ Klaus R. von Horde /s/ Ralph D. Hartung
--------------------------- ------------------------------
Company Representative (Employee Signature)
President, COO 19 May 1998
---------------------------- ------------------------------
Title Date
May 19, 1998
----------------------------
Date
MEMC Witness to EMPLOYEE Signature
/s/ Huston E. Sherrill
-------------------------------
(Witness Signature)
May 19, 1998
-------------------------------
(Date)
<PAGE>
Exhibit A
Separation Payments and Benefits
Upon execution of the Agreement to which this Exhibit A is attached,
EMPLOYEE shall be entitled to the following separation payments and benefits:
1. Release Payment. EMPLOYEE shall recieve a lump sum payment of
$263,942.30, representing one week's pay plus an additional two weeks' pay for
each of whole year of service through the Separation Date (with each week of pay
representing EMPLOYEE's current annual base salary divided by 52). Such payment
will be paid within thirty (30) days after the Separation Date and will be
subject to all withholding and deductions applicable to such compensation
received by EMPLOYEE. This payment shall not be considered for purposes of
determining EMPLOYEE'S final average pay under the MEMC Pension Plan and the
MEMC Supplemental Executive Pension Plan.
2. Vacation Pay. Payment of EMPLOYEE's accrued and unused vacation as of
the Separation Date. Such payment will be subject to all withholding and
deductions currently applicable to compensation received by EMPLOYEE.
3. Pension Benefits. EMPLOYEE shall receive pension benefits under the MEMC
Pension Plan and the MEMC Supplemental Executive Pension Plan as have been
generally made available to highly compensated MEMC employees under the MEMC
Voluntary Separation Plan (including the Furloughed Early Retirement Plan).
4. Retiree Medical and Life Insurance. EMPLOYEE will be eligible for such
retiree medical and life insurance under the MEMC Electronic Materials, Inc.
Welfare Benefit Plan as have been generally made available to MEMC employees
under the MEMC Voluntary Separation Plan (including the Furloughed Early
Retirement Plan).
5. Restricted Stock and Stock Options. EMPLOYEE's separation of employment
from MEMC will be treated as a retirement for purposes of any restricted stock
and stock options awarded to EMPLOYEE under the MEMC Electronic Materials, Inc.
1995 Equity Incentive Plan.
LOAN AGREEMENT
LOAN AGREEMENT, dated as of June 30, 1998 between Huls Corporation located at
13801 Riverport Drive, Maryland Heights, Missouri/USA, ("HC") and MEMC
Electronic Materials, Inc., located at 501 Pearl Drive, O'Fallon, Missouri/USA,
("MEMC").
MEMC desires to borrow until September 30, 1998 an original principal amount not
to exceed $50,000,000.00 and HC is willing, subject to and upon the terms and
conditions herein set forth, to make such a loan to MEMC.
NOW THEREFORE IT IS AGREED:
1. Principal and Value: From time to time, beginning July 1, 1998, HC shall
lend to MEMC and MEMC shall borrow from HC an amount to be designated by
MEMC, not to exceed $50,000,000.00 outstanding at any one time. The loan
shall be evidenced by a promissory note in substantially the form of
Exhibit "A" attached hereto. All loans and repayments shall be made by MEMC
by drawing funds in multiples of $5,000,000 from an MEMC account at
Citibank N.A., New York, New York that will zero balance with the HC
account at Citibank N.A., New York , New York (Account No.
4070-0001)("designated account"). MEMC shall notify HC of borrowing[s] by
10 am Central time on the third business day prior to the day the money is
to be borrowed.
2. Term and Maturity: The principal amount of the loan outstanding together
with any interest due and outstanding shall be paid by MEMC to HC on
September 30, 1998, or at such later date as may be mutually agreed in
writing by the parties. MEMC shall not be entitled to repay the loan[s]
before maturity without the prior written consent of HC.
3. Interest Rates: Interest shall be calculated daily at 7.22%, beginning with
the date of borrowing and shall be calculated based upon a 365/360 day
year.
4. Payment of Interest: Payments of interest shall be made by wire transfer,
or other method of same day settlement, only on banking days, not later
than 10:00 a.m. Central time, to the account of HC, with Citibank N.A., New
York, New York, (Account No. 4070-0001) or to such other account of HC as
it may designate. Interest will be payable monthly, on the last banking day
of each month.
5. PENALTIES: If MEMC shall borrow an amount different than which it notifies
HC pursuant to paragraph 1, MEMC shall pay to HC a penalty equal to the .5%
of the amount of the understatement divided by 360. If MEMC shall draw an
amount in excess of $50,000,000, MEMC shall pay HC a penalty equal to 3.0%
of the excess amount multiplied by the number of days outstanding divided
by 360. All penalties shall be in addition to interest computed in
accordance with other provisions of this agreement.
6. Liens, etc. On and after the date of this Loan Agreement until September
30, 1998 or such later date as any loan hereunder shall remain unpaid, MEMC
will not, unless HC shall otherwise consent in writing, create or suffer to
exist, any lien, security interest or other charge or encumbrance, or any
other type of preferential arrangement, upon or with respect to any of its
properties, whether now owned or hereafter acquired, or assign any right to
receive income, in each case to secure any debt owed to any person or
entity, other than:
(a) purchase money liens or purchase money security interests upon or
in any property acquired or held by MEMC in the ordinary course of
business to secure the purchase price of such property or to secure
indebtedness incurred solely for the purpose of financing the
acquisition of such property;
(b) liens or security interests existing on such property at the time
of its acquisition (other than any such lien or security interest
created in contemplation of such acquisition);
(c) liens for taxes, assessments and government charges or levies to
the extent not yet due or to the extent such taxes, assessments or
government charges or levies are being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained, unless and until any lien resulting therefrom attaches to
MEMC's property and becomes enforceable against its other creditors;
(d) liens imposed by law, such as materialmen's, mechanics',
carriers', workmens' and repairmen's liens and other similar liens
arising in the ordinary course of business securing obligations that
are not overdue for a period of more than 30 days;
(e) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
statutory obligations;
(f) easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property
for its present purposes; and
(g) liens incurred or deposits made in the ordinary course of business
to secure the performance of letters of credit, bids, tenders, sales
contracts, leases, surety, appeal and performance bonds and other
similar obligations not incurred in connection with the borrowing of
money.
7. Copies: This agreement is made up of two (2) identical copies, of which one
copy is for HC and the other for MEMC.
8. Applicable Law: This agreement shall be governed by the laws of
Missouri/U.S.A.
9. Notice: All notices to HC shall be sent by telefax to:
Mitchell Solomowitz
Telefax: (314)-298-4185
with a copy to John Schaffner @ (314) 298 - 4185
The original should be sent to Mitchell Solomowitz
All notices to MEMC shall be sent by telefax;
Kenneth Young
Telefax: (314) 279 - 5158
10. Assignment/Subrogation:
MEMC shall not transfer or assign any or all of its rights and obligations
hereunder without the prior written consent of HC. HC may at any time upon
at least three days' prior written notice to MEMC assign its rights and
obligations hereunder, in full or in part, in which case the assignee shall
be subrogated to the rights of HC to the extent of such assignment
Agreed upon as of this 30th day of June, 1998.
Maryland Heights, Missouri O'Fallon, Missouri
Huls Corporation MEMC Electronic Materials, Inc.
By: /s/ H. J. Biangardi By: /s/ Kenneth L. Young
_______________________ _______________________
Name: H. J. Biangardi Kenneth L. Young
Title: President & CEO Treasurer
By: /s/ Mitchell Solomowitz
_______________________
Mitchell Solomowitz
Treasurer
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
U.S. $50,000,000.00 O'Fallon, Missouri,
June 30, 1998
MEMC Electronic Materials, Inc. ("MEMC"), for value received, hereby promises to
pay to the order of HULS Corporation ("HC") in lawful money of the United States
of America (in freely transferable U.S. dollars and in same day funds), in
accordance with the method of payment specified in that certain Loan Agreement
dated as of June 30, 1998, between HC and MEMC ("the Agreement"), the full
principal amount outstanding (as specified in paragraph 1 of the Agreement), not
to exceed $50,000,000.00, which amount shall be payable at such times as
provided in the Agreement.
MEMC promises also to pay interest on the unpaid principal amount hereof in like
money and in like manner at the rates which shall be determined in accordance
with the provisions of the Agreement, said interest to be payable at the times
provided for in the Agreement. This Note is referred to in the Agreement and is
entitled to the benefits thereof and the security contemplated thereby. This
Note evidences a loan made by HC, during such time as such loan is being
maintained. This Note is subject to prepayment as specified in the Agreement. In
case MEMC defaults on the loan, the principal and accrued interest on this Note
may be declared to be due and payable in the manner and with the effect provided
in the Agreement. It is contemplated that by reason of payment hereon there may
be times when no indebtedness is owing hereunder; but notwithstanding such
occurrences, this Note shall remain valid and shall be in full force and effect
as to amounts borrowed under the Agreement subsequent to each such occurrence.
MEMC hereby waives presentment, demand, protest or notice of any kind in
connection with this Note.
This Note shall be governed and construed and interpreted in accordance with the
laws of the State of Missouri.
MEMC Electronic Materials, Inc.
By: /s/ Kenneth L. Young
_____________________________
Kenneth L. Young
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of June 30, 1998 and the consolidated statement of
operations for the six month period ended June 30, 1998, and is qualified in its
entirety by reference to such financial information.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,777
<SECURITIES> 0
<RECEIVABLES> 134,902
<ALLOWANCES> 2,300
<INVENTORY> 134,971
<CURRENT-ASSETS> 362,785
<PP&E> 1,638,264
<DEPRECIATION> 483,377
<TOTAL-ASSETS> 1,737,812
<CURRENT-LIABILITIES> 332,118
<BONDS> 669,880
0
0
<COMMON> 414
<OTHER-SE> 501,108
<TOTAL-LIABILITY-AND-EQUITY> 1,737,812
<SALES> 437,396
<TOTAL-REVENUES> 437,396
<CGS> 417,440
<TOTAL-COSTS> 417,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,264
<INCOME-PRETAX> (211,696)
<INCOME-TAX> (47,494)
<INCOME-CONTINUING> (176,393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,393)
<EPS-PRIMARY> (4.33)
<EPS-DILUTED> (4.33)
</TABLE>
