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 March 31, 1999
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
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(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
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(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
The number of shares of the registrant's common stock outstanding at April 16,
1999 was 69,534,792.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
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MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; Dollars in thousands, except share data)
Three Months Ended
March 31,
1999 1998
---------- ----------
<S> <C> <C>
Net sales $ 159,800 $ 235,243
Costs of goods sold 173,616 211,475
---------- ----------
Gross margin (13,816) 23,768
Operating expenses:
Marketing and administration 16,879 18,430
Research and development 20,857 20,103
Restructuring costs - 8,026
---------- ----------
Operating loss (51,552) (22,791)
Nonoperating (income) expense:
Interest expense 17,459 8,278
Interest income (442) (503)
Royalty income (1,225) (1,101)
Other, net 557 1,591
---------- ----------
Total nonoperating expense 16,349 8,265
---------- ----------
Loss before income taxes, equity in
loss of joint ventures and minority interests (67,901) (31,056)
Income taxes (21,049) (10,559)
---------- ----------
Loss before equity in loss of joint
ventures and minority interests (46,852) (20,497)
Equity in loss of joint ventures (4,589) (11,621)
Minority interests 1,187 1,280
---------- ----------
Net loss $ (50,254) $ (30,838)
========== ==========
Basic loss per share $ (1.19) $ (0.75)
========== ==========
Diluted loss per share $ (1.19) $ (0.75)
========== ==========
Weighted average shares used in computing
basic loss per share 42,196,538 40,898,246
========== ==========
Weighted average shares used in computing
diluted loss per share 42,196,538 40,898,246
========== ==========
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)
March 31, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,985 $ 16,168
Accounts receivable, less allowance for doubtful accounts
$2,725 and $2,853 in 1999 and 1998, respectively 93,182 98,528
Income taxes receivable 7,379 10,161
Inventories 111,096 115,927
Deferred tax assets, net 20,046 23,129
Prepaid and other current assets 16,135 35,225
----------- -----------
Total current assets 263,823 299,138
Property, plant and equipment, net of accumulated depreciation of
$593,865 and $569,327 in 1999 and 1998, respectively 1,145,679 1,188,832
Investments in joint ventures 102,074 94,610
Excess of cost over net assets acquired, net of accumulated amortization of
$5,471 and $5,128 in 1999 and 1998, respectively 48,052 48,396
Deferred tax asset, net 131,236 104,650
Other assets 36,148 38,088
----------- -----------
Total assets $ 1,727,012 $ 1,773,714
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 18,523 $ 38,644
Accounts payable 83,091 112,581
Accrued liabilities 29,734 35,404
Customer deposits 19,474 17,639
Provision for restructuring costs 32,980 37,299
Accrued wages and salaries 22,823 17,077
----------- -----------
Total current liabilities 206,625 258,644
Long-term debt, less current portion 834,692 871,163
Pension and similar liabilities 93,566 92,466
Customer deposits 55,538 59,033
Other liabilities 43,520 45,126
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Total liabilities 1,233,941 1,326,432
------------ -----------
Minority interests 47,055 48,242
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized,
none issued or outstanding at 1999 or 1998 - -
Common stock, $.01 par value, 200,000,000 shares authorized,
56,835,551 and 41,436,421 issued in 1999 and 1998, respectively 568 414
Additional paid-in capital 679,884 574,188
Accumulated deficit (198,090) (147,836)
Accumulated other comprehensive loss (19,201) (10,581)
Unearned restricted stock awards (125) (125)
Treasury stock, at cost: 929,205 in 1999 and 1998 (17,020) (17,020)
------------ -----------
Total stockholders' equity 446,016 399,040
------------ -----------
Total liabilities and stockholders' equity $ 1,727,012 $ 1,773,714
============ ===========
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)
Three Months Ended
March 31,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (50,254) $ (30,838)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 40,824 38,448
Minority interests (1,187) (1,280)
Equity in loss of joint ventures 4,589 11,621
Working capital and other (37,543) (32,634)
---------- ----------
Net cash used in operating activities (43,571) (14,683)
---------- ----------
Cash flows from investing activities:
Capital expenditures (7,361) (49,330)
Proceeds from sale of property, plant and equipment 110 2,916
Equity infusions in joint ventures (12,052) (11,747)
Notes receivable from affiliates 9,290 -
Dividend received from unconsolidated joint venture - 550
---------- ----------
Net cash used in investing activities (10,013) (57,611)
---------- ----------
Cash flows from financing activities:
Net short-term borrowings (19,408) (13,778)
Proceeds from issuance of long-term debt 8,547 89,100
Principal payments on long-term debt (41,400) (495)
Repurchase of common stock - (15,692)
Proceeds from issuance of common stock 105,850 -
---------- ----------
Net cash provided by financing activities 53,589 59,135
---------- ----------
Effect of exchange rates on cash and cash equivalents (188) 84
---------- ----------
Net decrease in cash (183) (13,075)
Cash and cash equivalents at beginning of year 16,168 30,053
---------- ----------
Cash and cash equivalents at end of year $ 15,985 $ 16,978
========== ==========
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. This report on Form 10-Q, including unaudited consolidated financial
statements, should be read in conjunction with the Company's annual report to
shareholders for the fiscal year ended December 31, 1998, which contains the
Company's audited financial statements for such year and the related
management's discussion and analysis of financial condition and results of
operations. Operating results for the three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
(2) Earnings (loss) per share
The numerator for basic and diluted loss per share calculations is net loss for
all periods presented. The denominator for the basic and diluted loss per share
calculations for the three-month periods ended March 31, 1999 and 1998 is the
same within each period (the weighted average shares outstanding for each
respective period). Options outstanding at March 31, 1999, 2,426,824, were not
included in the computation of diluted loss per share due to the net loss
incurred during the three-month period ended March 31, 1999.
(3) Inventories
Inventories consist of the following:
March 31, December 31,
1999 1998
---------- ---------
Raw materials and supplies $ 53,837 $ 59,722
Goods in process 29,933 33,612
Finished goods 27,326 22,593
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$ 111,096 $ 115,927
========= =========
<PAGE>
(4) Restructuring Costs
During 1998, the Company recorded a charge to operations of $121,670 related to
the decisions to close its small diameter wafer facility in Spartanburg, South
Carolina, withdraw from its 60%-owned joint venture in a small diameter wafer
operation in China and to forego construction of a new 200 millimeter wafer
facility at its 75%-owned joint venture in Malaysia. Restructuring activity
since the provision for restructuring costs was recorded is as follows:
<TABLE>
<CAPTION>
Provision Amount Balance Balance
Utilized March 31, December 31,
1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Asset impairment/Write-off:
Spartanburg property, plant
and equipment $ 36,300 $ 36,300 $ - $ -
Malaysian joint venture assets 28,000 25,247 2,753 2,805
Chinese joint venture assets 13,800 9,653 4,147 4,158
Other infrastructure 3,225 3,225 - -
--------- --------- --------- ---------
Total 81,325 74,425 6,900 6,963
--------- --------- --------- ---------
Dismantling and related costs:
Dismantling costs 11,345 1,148 10,197 10,306
Costs incurred by
equipment suppliers 5,000 5,000 - -
Environmental costs 3,500 85 3,415 3,489
Operating leases 3,000 - 3,000 3,000
Other 3,000 6 2,994 3,000
--------- --------- --------- ---------
Total 25,845 6,239 19,606 19,795
--------- --------- --------- ---------
Personnel Costs 14,500 8,026 6,474 10,541
--------- --------- --------- ---------
Total Restructuring Costs $ 121,670 $ 88,690 $ 32,980 $ 37,299
========= ========= ========= =========
</TABLE>
Substantially all of the $32,980 restructuring reserve is expected to be
expended by 1999 year-end and relates primarily to costs associated with the
Spartanburg facility. At March 31, 1999 approximately 200 employees at the
Spartanburg facility had not yet been terminated. The Company expects most of
these employees will be terminated before June 30, 1999. Ongoing operating
expenses will continue to be recorded as period costs.
(5) Comprehensive Earnings (Loss)
Comprehensive loss for the three-months ended March 31, 1999 and 1998, was
$58,874 and $33,263, respectively. The Company's only adjustment from net loss
to comprehensive loss was foreign currency translation adjustments of $8,620 and
$2,425 in the three-months ended March 31, 1999 and 1998, respectively.
(6) Private Placement
On March 22, 1999, the Company sold 15,399,130 shares of common stock to VEBA
Zweite Verwaltungsgesellschaft mbH (VEBA Zweite), a subsidiary of VEBA AG, for
$6.89 per share. The net proceeds of approximately $106,000 were used to repay
debt of approximately $100,000 under revolving credit agreements with the
balance used for general corporate purposes.
(7) Subsequent Event--Rights Offering
On April 16, 1999, the Company sold 13,628,446 shares of common stock for $6.89
per share. The net proceeds of approximately $91,000 were used to repay debt of
approximately $90,000 from VEBA AG and its affiliates under revolving credit
agreements and the balance for general corporate purposes. VEBA AG and its
affiliates now own 71.8% of the outstanding shares of common stock following the
private placement and rights offering.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations First Quarter 1999 compared to First Quarter 1998.
Net Sales. Net sales decreased 32% to $160 million for the first quarter of 1999
from $235 million for the first quarter of 1998. The decrease is primarily
attributable to a 17% decline in product volume and a decrease in average
selling price in the first quarter 1999 compared to the first quarter 1998. The
product volume decline was due to a continued weakening in demand for smaller
diameter wafers, which was partially offset by a 10% increase in 200-millimeter
product volume. On a geographic basis, product volumes decreased most
significantly in the United States followed by Japan, Europe and Asia Pacific.
As a percentage, Japan experienced the largest decline in volume. Excess
capacity in the semiconductor industry continues to be exacerbated by weak
economic conditions in the Asia Pacific and Japanese markets. In the first
quarter of 1999, the Company had an increase in product volume over the fourth
quarter of 1998. This is the first sequential increase in quarterly volume since
the third quarter of 1997.
Excess capacity in the semiconductor and silicon wafer industries has caused
average selling prices to decline significantly since the beginning of 1997.
Continued excess capacity in both of these industries will likely lead to
continued price pressure, at least in the near term.
Gross Margin. Gross margin declined from 10% in the first quarter of 1998 to a
negative 9% for the first quarter of 1999. The decline in gross margin is
primarily attributable to significant declines in volume and prices. Advanced
large diameter and epitaxial products represented 51% and 43% of product volume
for the first quarters of 1999 and 1998, respectively. The increase in this
ratio is indicative of the Company's customers utilizing 200-millimeter
facilities in preference to their smaller diameter facilities in order to obtain
the lowest cost per device.
Spartanburg Facility. To meet the orders of certain customers, the Company
expects to extend the operations of the Spartanburg facility until June 1999.
Ongoing operating expenses until plant closure of approximately $4 million will
be recorded as period costs as incurred.
Research and Development. Research and development costs were $21 million for
the first quarter 1999, which is consistent with $20 million for the first
quarter 1998. The increase is due to increased depreciation associated with
capital expenditures made in the Company's 300 millimeter pilot line in St.
Peters, MO and the 300 millimeter integrated development line in Utsunomiya,
Japan.
Interest Expense. Interest expense totaled $17 million for the first quarter
1999 as compared to $8 million for the first quarter 1998. The increase in
interest expense is primarily attributable to increased borrowings and to a
lesser extent, higher interest rates on loans from VEBA AG and its affiliates as
a result of the Company's debt restructuring in September 1998.
Income Taxes. The effective income tax rates were 31% and 34% for the three
months March 31, 1999 and 1998, respectively. This fluctuation is the result of
changes in the composition of worldwide taxable income.
Equity in Loss of Joint Ventures. Equity in loss of joint ventures was $5
million in the first quarter 1999, as compared to a loss of $12 million in the
first quarter 1998. The Company's share of the loss of Posco Huls Co., Ltd.
(PHC), the Company's 40%-owned, unconsolidated joint venture in South Korea, was
$3 million in the first quarter 1999 compared to a loss of $8 million in the
first quarter 1998. PHC's reduction in loss was primarily due to a significant
increase in product volume partially offset by a decrease in average selling
price. The Company's share of the loss of Taisil Electronic Materials
Corporation (Taisil), the Company's 45%-owned, unconsolidated joint venture in
Taiwan, was $2 million in the first quarter 1999 compared to a loss of $4
million in the first quarter 1998. Taisil's reduction in loss was primarily due
to a significant increase in product volume partially offset by a decrease in
average selling price. Both PHC and Taisil had positive operating cash flow in
the first quarter 1999.
<PAGE>
Liquidity and Capital Resources. At March 31, 1999 and December 31, 1998, the
Company had cash and cash equivalents of $16 million. The Company's borrowings
against its $1,024 million of credit facilities were $853 million at March 31,
1999. Outstanding borrowings decreased $57 million from December 31, 1998 to
March 31, 1999. The decrease in borrowings is primarily attributable to the
application of the net proceeds from the Company's private placement in March
1999 to repay $100 million of debt outstanding under revolving credit
agreements, offset by additional borrowings in the first quarter 1999 used to
finance the Company's working capital requirements and capital expenditures. In
April 1999, the Company received net proceeds of $91 million from the sale of
common stock in connection with its rights offering.
A comparison of the components of the Company's financial condition follows
(dollars in millions):
March 31, December 31,
1999 1998
--------- ----------
Working capital $ 57 $ 40
Stockholders' equity $ 446 $ 399
Current ratio 1.3 to 1 1.2 to 1
Total debt to total capitalization 63% 67%
Weighted average borrowing rate 7.7% 7.8%
Cash used by operating activities increased to $44 million in the first quarter
1999 from $15 million in the first quarter 1998. The primary factor in the
increase in cash used by operations was the $19 million increase in the net loss
in the first quarter 1999 versus the first quarter 1998.
Cash used in investing activities decreased in the first quarter 1999 to $10
million from $57 million in first quarter 1998. The primary reduction in cash
used by investing activities was a reduction in spending on capital projects.
The Company had committed capital expenditures of $33 million as of March 31,
1999. Capital expenditures for the first quarter 1999 were primarily for
equipping the 300-millimeter integrated development line in Utsunomiya, Japan
and capital expenditures related to the implementation of SAP worldwide. In
addition, the Company made a $12 million equity infusion in Taisil in the first
quarter of 1999.
Cash flows provided by financing activities decreased to $54 million in the
first quarter 1999 from $59 million in the first quarter 1998. The most
significant change in first quarter 1999 as compared to first quarter 1998 was
that financing in 1999 consisted primarily of proceeds from issuance of common
stock versus the issuance of debt in 1998.
Management currently believes that cash generated from operations, together with
the liquidity provided by existing cash balances and credit facilities will be
sufficient to satisfy commitments for capital expenditures and other operating
cash requirements into 2000.
The silicon wafer industry is highly capital intensive. Even with the proceeds
from the recently completed private placement and the rights offering and
anticipated cash generated from future operations, the Company may need to seek
additional capital in order to fund all its future needs for capital
expenditures, research and development, and marketing and customer service and
support. There can be no assurance such capital will be available on terms
acceptable to the Company. The Company's capital needs depend on numerous
factors, including its profitability and investment in capital expenditures and
research and development.
<PAGE>
YEAR 2000. Many existing software programs, computers and other types of
equipment were not designed to accommodate the Year 2000 and beyond. If not
corrected, these computer applications and equipment could fail or create
erroneous results. For the Company, this could disrupt purchasing,
manufacturing, sales, finance and other support areas and affect the Company's
ability to timely deliver silicon wafers with the exacting specifications
required by the Company's customers, thereby causing potential lost sales and
additional expenses.
STATE OF READINESS. The Company has created a Year 2000 Project Team that is
comprised of a Program Office, including a Global Project Manager, Customer and
Vendor Management groups, and Year 2000 representatives from all sites around
the world, including the Company's unconsolidated joint ventures. This team is
responsible for planning and monitoring all Year 2000 activities and reporting
to the Company's executive management. The Company's Chief Financial Officer is
the sponsor for the Year 2000 project and reports to the Company's Board of
Directors on a periodic basis.
The Company's Year 2000 project encompasses both information and non-information
systems within the Company as well as the investigation of the readiness of the
Company's strategic suppliers/business partners. The Company's goal is to have
all Year 2000 issues substantially resolved by June 1999. Year 2000 issues
relating to the most critical business systems (i.e., financial, order
processing) have already been substantially resolved. As part of its Year 2000
project, the Company has inventoried and assessed the Year 2000 readiness of the
following:
- - In-house Applications -- Those applications that are developed and
supported in-house or purchased applications that are heavily customized
and supported in-house. This classification also includes
end-user-developed applications deemed critical to the business.
- - Business Software (Purchased) -- Applications purchased from an outside
vendor and used for automating business processes (i.e., financial systems,
order processing systems, purchasing systems).
- - Manufacturing Software (Purchased) -- Applications purchased from an
outside vendor and used for automating manufacturing processes.
- - Personal Computer Software (Purchased) -- All software packages
resident on personal computers. This includes things such as operating
systems, word processing software, communications software, project
management software, and spreadsheet software.
- - Infrastructure Software (Purchased) -- Purchased software used in the
client/server and network environments.
- - IT Hardware -- Information Technology hardware components including
midrange machines, personal computers, printers, network hardware.
- - Facilities & Utilities -- Components in the office and manufacturing
supporting systems environments. Types of components include: copy
machines, fax machines, telephone/communications systems, security systems,
fire alarm/control, electrical, waste treatment, alarms, and air handlers.
- - Manufacturing Equipment -- Shop floor equipment such as clean rooms,
crystal pullers, epitaxial reactors, inspection, lab, lappers, laser
markers, measurement tools, grinders, polishers, slicers, and wet benches.
IN-HOUSE APPLICATIONS. The Company is evaluating the extent to which
modifications of the Company's in-house applications will be necessary to
accommodate the Year 2000 and is modifying the Company's in-house applications
to enable continued processing of data into and beyond the Year 2000. This phase
of the Company's Year 2000 project is approximately 90% complete and the Company
anticipates substantially completing remediation and testing of the Company's
in-house applications by the end of the second quarter of 1999.
PURCHASED SOFTWARE. The Company is obtaining, where feasible, contractual
warranties from systems vendors that their products are or will be Year 2000
compliant. The Company has completed approximately 95%, 75% and 90% of its Year
2000 project related to business software, manufacturing software and personal
computer software, respectively, and has completed its Year 2000 project related
to infrastructure software. The Company expects this phase of its Year 2000
project to be substantially completed by the end of the second quarter of 1999.
The Company requires Year 2000 contractual warranties from all vendors of new
software and hardware. In addition, the Company is testing newly purchased
computer hardware and software systems in an effort to ensure their Year 2000
compliance.
EMBEDDED SYSTEMS. For in-house embedded systems, the Company is modifying its
systems to enable the continuing functioning of equipment into and beyond the
Year 2000. For third-party embedded systems, the Company is obtaining, where
feasible, contractual warranties from systems vendors that their products are or
will be Year 2000 compliant. The Company has completed this phase of its Year
2000 project for hardware and has completed approximately 65% and 55% of its
Year 2000 project related to facilities and utilities, and manufacturing
equipment, respectively. The Company anticipates that such embedded systems will
be fully tested by June 1999.
SUPPLIERS/BUSINESS PARTNERS. The Company has also communicated with its
strategic suppliers and equipment vendors seeking assurances that they will be
Year 2000 ready. The Company's goal is to obtain as much detailed information as
possible about its strategic suppliers/business partners' Year 2000 plans so as
to identify those companies which appear to pose a significant risk of failure
to perform their obligations to the Company as a result of the Year 2000.
Detailed information regarding all of its strategic suppliers and equipment
vendors has been compiled and Year 2000 audits have been completed for the most
critical suppliers. This will be an ongoing process during the Company's Year
2000 project. For those strategic suppliers and equipment vendors that do not
respond as to their status or their response is not satisfactory, the Company is
developing contingency plans to ensure that sufficient resources are available
to continue with business operations.
COSTS TO ADDRESS THE YEAR 2000. Spending for modifications and updates is being
expensed as incurred and is not expected to have a material impact on the
Company's results of operations or cash flows. The cost of the Company's Year
2000 project is being funded through borrowings. The Company estimates that its
total incremental Year 2000 expenditures will be in the range of $5 - $7
million. Through March 31, 1999, the Company has expended approximately $2.8
million of incremental costs consisting mainly of contract programmers and
consulting costs associated with the evaluation, assessment and remediation of
computer systems and manufacturing equipment. The Company anticipates that
contract programming costs will be its most significant cost as the Year 2000
project proceeds to completion.
RISK ANALYSIS. Like most large business enterprises, the Company is dependent
upon its own internal computer technology and relies upon the timely performance
of its suppliers/business partners. A large-scale Year 2000 failure could impair
the Company's ability to timely deliver silicon wafers with the exacting
specifications required by its customers, thereby causing potential lost sales
and additional expenses. The Company's Year 2000 project seeks to identify and
minimize this risk and includes testing of its in-house applications, purchased
software and embedded systems to ensure that all such systems will function
before and after the Year 2000. The Company is continually refining its
understanding of the risk the Year 2000 poses to its strategic
suppliers/business partners based upon information obtained through its surveys.
This refinement will continue into mid-1999.
CONTINGENCY PLANS. The Company's Year 2000 project includes the development of
contingency plans for business critical systems and manufacturing equipment as
well as for strategic suppliers/business partners to attempt to minimize
disruption to its operations in the event of a Year 2000 failure. The Company
will be formulating plans to address a variety of failure scenarios, including
failures of its in-house applications, as well as failures of strategic
suppliers/business partners. The Company anticipates it will substantially
complete Year 2000 contingency planning by June 1999.
YEAR 2000 CAUTIONARY STATEMENT. Year 2000 issues are widespread and complex.
While the Company believes it will address them on a timely basis, the Company
cannot guarantee that it will be successful or that these problems will not
materially adversely affect its business or results of operations. To a large
extent, the Company depends on the efforts of its customers, suppliers and other
organizations with which it conducts transactions to address their Year
2000 issues, over which the Company has no control.
EURO CONVERSION. On January 1, 1999, eleven of the fifteen member countries of
the European union established fixed conversion rates between their existing
sovereign currencies and the Euro. The participating countries have agreed to
adopt the Euro as their common legal currency as of that date while still
utilizing their local currency until January 1, 2002.
The Company has begun to assess the potential impact that may result from the
Euro conversion. In addition to tax accounting considerations, the Company is
also assessing the potential impact from the Euro conversion in a number of
other areas, including the technical challenges to adapt information technology
and other systems to accommodate Euro-denominated transactions; the competitive
impact of cross-border price transparency, which may make it more difficult for
businesses to charge different prices for the same products on a
country-by-country basis; the impact on currency exchange costs and currency
exchange rate risk; and the impact on existing contracts. While the Company will
continue to assess the impact of the introduction of the Euro, based on
currently available information, management does not believe that the
introduction of the Euro will have a material adverse effect on the Company's
financial condition or results of operation.
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 does not
believe that the implementation of this Statement will have a material adverse
effect on its financial condition or results of operations.
Cautionary Statement Regarding Forward-Looking Statements. This Form 10-Q
contains "forward-looking" statements within the meaning of the Securities
Litigation Reform Act of 1995, including those concerning: the utilization of
the restructuring reserve; liquidity into 2000; the successful implementation of
Year 2000 initiatives; continued pricing pressure on silicon wafers; the timing
of the closure of the Spartanburg facility and the ongoing operating expenses to
be incurred until such closure; the timing of the termination of the remaining
employees at the Spartanburg facility; and the impact of the introduction of the
Euro. 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 the Asia Pacific region and Japan; competitors' actions;
willingness of customers to re-qualify Spartanburg-based customer orders at
other Company facilities; the status and effectiveness of the Company's Year
2000 efforts; and other risks described in the Company's filings with the
Securities and Exchange Commission, including the Company's annual report on
Form 10-K for the year ended December 31, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign exchange rates. The Company enters into
currency swaps to minimize the risk and costs associated with its financing
activities in currencies other than its functional currency. The Company does
not hold derivatives for trading purposes. There have been no significant
changes in Company's holdings of interest rate sensitive or foreign currency
exchange rate sensitive instruments during the first quarter of 1999.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to PART I, Item 3. Legal Proceedings, in the Company's annual
report on Form 10-K for the year ended December 31, 1998 for descriptions of
legal proceedings.
As previously reported, the Company was a named defendant in two class action
lawsuits filed against companies operating industrial facilities along I-10 and
along the Houston Ship Channel in Harris County, Texas. The lawsuits alleged
that the defendants had discharged various pollutants into the air, soil, ground
and surface waters. See the Company's annual report on Form 10-K for the 1998
fiscal year. The Company has agreed to a settlement of these lawsuits and has
been dismissed without prejudice as a defendant in such lawsuits. The settlement
is conditioned upon the Company receiving signed releases from substantially all
of the plaintiffs in these lawsuits.
<PAGE>
Item 2. Changes in Securities and Use of Proceeds.
On March 22, 1999, pursuant to Regulation D promulgated under the Securities Act
of 1933, as amended, the Company sold 15,399,130 shares of common stock to VEBA
Zweite for $6.89 per share. The net proceeds of $106 million were used to repay
debt of $100 million under revolving credit agreements and the balance for
general corporate purposes.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
3(i) Restated Certificate of Incorporation of the Company
(Incorporated by reference to Exhibit 3-a of the Company's
10-Q for the Quarter ended June 30, 1995).
3(ii) Restated By-laws of the Company (Incorporated by reference
to Exhibit 3.2 of Amendment No. 4 to the Company's Form S-3
Registration Statement No. 333-65973).
4 Form of Rights Certificate to Subscribe for Shares of Common
Stock of the Company (Incorporated by reference to Exhibit
4.1 of Amendment No. 3 to the Company's Form S-3
Registration Statement No. 333-65973).
10-cc MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan
as Amended and Restated on February 17, 1999.
27 Financial Data Schedule (filed electronically with the
SEC only).
(b) Reports on Form 8-K
During the first quarter of 1999, we filed the following six current reports on
Form 8-K:
1. Item 5 Form 8-K filed on January 28, 1999;
2. Item 5 Form 8-K filed on March 1, 1999;
3. Item 5 Form 8-K filed on March 2, 1999;
4. Item 5 Form 8-K filed on March 5, 1999;
5. Form 8-K/A filed on March 16, 1999 amending Form 8-K
filed March 2, 1999;
6. Item 5 Form 8-K filed on March 26, 1999.
<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.
May 13, 1999 /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
- ------ ------
10-cc MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan
as Amended and Restated on February 17, 1999.
27 Financial Data Schedule (filed electronically with SEC only).
MEMC Electronic Materials, Inc.
1995 EQUITY INCENTIVE PLAN
as Amended and Restated on February 17, 1999
1. Purpose. The purpose of the MEMC Electronic Materials, Inc. 1995 Equity
Incentive Plan as amended and restated herein (the "Plan") is to provide an
additional incentive to officers, other eligible key employees and directors of
MEMC Electronic Materials, Inc., a Delaware corporation (the "Company"), and its
Subsidiaries (as hereinafter defined) upon whom responsibilities for the
successful operation, administration and management of the Company rest and
whose present or potential contributions are important to the continued success
of the Company, and to enable the Company to attract and retain in its employ
and as directors highly qualified persons for the successful conduct of its
business. It is intended that this purpose will be effected through the granting
of incentive and nonqualified Stock Options, Restricted Stock Awards, or
Performance Share Awards, as provided herein (as each term is hereinafter
defined and collectively defined as the "Awards").
2. Definitions. For purposes of the Plan, the following terms shall be
defined as follows:
"Affiliate" and "Associate" have the respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
"Award" means an award to an Eligible Employee (as hereinafter
defined) in the form of Stock Options, Restricted Stock Awards, or
Performance Share Awards.
"Award Agreement" means an agreement granting an Award and containing
such terms and conditions as the Committee deems appropriate and that are
not inconsistent with the terms of the Plan.
"Beneficial Owner" has the meaning ascribed to such term in Rule 13d-3
promulgated under the Exchange Act.
"Board" means the Board of Directors of the Company.
A "Change in Control" of the Company shall be deemed to have occurred
when (A) any Person (other than (x) the Company, any Subsidiary of the
Company, or any Parent of the Company including VEBA AG, Huls Corporation
and any of their Affiliates or (y) any employee benefit plan of the Company
or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company or any Subsidiary of the Company
for or pursuant to the terms of any such plan, alone or together with its
Affiliates and Associates) shall become the Beneficial Owner of twenty
percent (20%) or more of the then outstanding shares of Common Stock or the
Combined Voting Power of the Company's then outstanding voting securities
(except pursuant to an offer for all outstanding shares of Common Stock at
a price and upon such terms and conditions as a majority of the Continuing
Directors determine to be in the best interests of the Company and its
shareholders (other than the Person on whose behalf the offer is being
made) (an "Acquiring Person")), or (B) during any period of two (2)
consecutive years, individuals who at the beginning of such period
constitute the Board, and any new director (other than a director who is a
representative or nominee of an Acquiring Person) whose election by the
Board or nomination for election by the Company's shareholders was approved
by a vote of at least a majority of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (collectively, the
"Continuing Directors"), cease for any reason to constitute a majority of
the Board. Notwithstanding the foregoing, no Change in Control shall be
deemed to have occurred if VEBA AG and any of its Affiliates are the
Beneficial Owners of fifty percent (50%) or more of the Combined Voting
Power of the Company's then outstanding voting securities and designees of
VEBA AG and its Affiliates constitute a majority of the Board.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Voting Power" means the combined voting power of the
Company's then outstanding voting securities.
"Committee" means the Compensation Committee appointed by the Board
pursuant to Section 3(a) hereof to administer the Plan.
"Common Stock" means the Voting Common Stock, par value $.01 per
share, of the Company.
"Disability" means, with respect to any Participant, that, as a result
of incapacity due to physical or mental illness, such Participant is, or is
reasonably likely to become, unable to perform his or her duties for more
than six (6) consecutive months or six (6) months in the aggregate during
any twelve (12) month period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, on any given date, the closing price of the
shares of Common Stock, as reported on the New York Stock Exchange for such
date or such national securities exchange as may be designated by the Board
or, if Common Stock was not traded on such date, on the next preceding day
on which Common Stock was traded.
"Incentive Stock Option" means a Stock Option which is an "incentive
stock option" within the meaning of Section 422 of the Code and designated
by the Committee as an Incentive Stock Option in an Award Agreement.
"Nonqualified Stock Option" means a Stock Option which is not an
Incentive Stock Option.
"Parent" means any corporation which is a "parent corporation" within
the meaning of Section 424(e) of the Code with respect to the Company.
"Participant" means an Eligible Employee to whom an Award has been
granted under the Plan.
"Performance Share Award" means a conditional Award of shares of
Common Stock granted to an Eligible Employee pursuant to Section 9 hereof.
"Person" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"Restricted Stock Award" means an Award of shares of Common Stock
granted to an Eligible Employee pursuant to Section 8 hereof.
"Retirement" means retirement from active employment with the Company
and its Subsidiaries on or after the attainment of age 55, or such other
retirement date as may be approved by the Committee for purposes of the
Plan and specified in the applicable Award Agreement, but shall not include
the termination of the directorship of a nonemployee director.
"Stock Option" means an Award to purchase shares of Common Stock
granted to an Eligible Employee pursuant to Section 7 hereof.
"Subsidiary" means any corporation which is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code with respect to the
Company.
"Ten Percent Shareholder" means an Eligible Employee who, at the time
an Incentive Stock Option is to be granted to him or her, owns (within the
meaning of Section 422(b)(6) of the Code,) stock possessing more than ten
percent (10%) of the total Combined Voting Power of all classes of stock of
the Company, or of a Parent or a Subsidiary.
"Window Period" means the ten (10) business day period in each fiscal
quarter of the Company commencing on the third (3rd) business day following
the release for publication of the Company's quarterly or annual sales and
earnings for the next preceding fiscal quarter or year, as the case may be,
and ending on the twelfth (12th) business day following such date of
release.
3. Administration of the Plan.
(a) The Plan shall be administered by the Committee, which shall be
comprised of no fewer than two members of the Board who shall be appointed from
time to time by the Board. Members of the Committee shall serve at the pleasure
of the Board and the Board may from time to time remove members from, or add
members to, the Committee. All determinations of the Committee at a meeting
shall be made by a majority of the members in attendance. Any decision or
determination reduced to writing and signed by all the members shall be fully as
effective as if it had been made by a majority vote at a meeting duly called and
held. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan, and
all members of the Committee shall be indemnified by the Company to the fullest
extent permitted by the certificate of incorporation or by-laws of the Company
or applicable Delaware law with respect to any such action, determination or
interpretation.
(b) Within the limitations described herein, the Committee shall administer
the Plan, select the Eligible Employees to whom Awards will be granted,
determine the number and type of Awards to be granted to each such Eligible
Employee, determine the terms and conditions applicable to each Award (which
need not be identical), make any amendment or modification to any Award
Agreement consistent with the terms of the Plan, and interpret, construe and
implement the provisions of the Plan. The Committee shall have the authority to
adopt rules and regulations for administering the Plan which shall not be
inconsistent with the terms of the Plan. Decisions of the Committee shall be
binding on the Company, on all Eligible Employees and Participants and all other
persons having any interest in the Plan. The Company shall effect the granting
of Awards under the Plan in accordance with the determinations made by the
Committee, which shall be evidenced by an Award Agreement.
(c) The Committee shall have the authority to adopt such rules and
regulations and to add such terms, conditions and sub-schemes to the Plan as it
deems necessary or desirable to permit or facilitate the granting of Awards
under the Plan to, or obtain favorable tax treatment for, Eligible Employees
resident for tax purposes in jurisdictions outside the United States; provided,
however, that any such rule, regulation, term, condition or sub-scheme shall not
be inconsistent with the terms of the Plan.
(d) Any act that the Committee is authorized to perform hereunder may
instead be performed by the Board at its discretion, and to the extent the Board
so acts, references in the Plan to the Committee shall refer to the Board as
applicable.
4. Duration of Plan. The Plan shall remain in effect until terminated by
the Board of Directors and thereafter until all Awards granted under the Plan
are satisfied by the issuance of shares of Common Stock or the payment of cash
or are terminated under the terms of the Plan or under the Award Agreement
entered into in connection with the grant thereof. Notwithstanding the
foregoing, no Awards may be granted under the Plan after the tenth anniversary
of the Effective Date (as hereinafter defined).
5. Shares of Stock Subject to the Plan. Subject to adjustment as provided
in Section 13(b) hereof, the number of shares of Common Stock that may be issued
under the Plan pursuant to Awards shall not exceed, in the aggregate, 3,597,045,
less the number of shares that may be reserved for issuance under the Company's
Retirement Savings Plan or under any broad-based employee stock purchase plan.
Notwithstanding the foregoing, no more than 1,692,727 shares may be made subject
to Awards hereunder without the approval of the Board. Such shares may consist
in whole or in part, as the Board shall from time to time determine, of
authorized but unissued shares or treasury shares. To the fullest extent
permitted under Section 422 of the Code, any shares subject to an Award which
lapses, expires or is otherwise terminated without the issuance of such shares,
may again be available for purposes of the Plan.
6. Maximum Number of Shares per Eligible Employee. To satisfy the
requirements under Section 162(m) of the Code, no Eligible Employee whose
Performance Award the Committee reasonably believes will be subject to Section
162(m) of the Code shall receive a grant of Awards with respect to more than
325,000 shares of Common Stock in any Plan year.
7. Eligible Employees. Awards may be granted by the Committee to
individuals ("Eligible Employees") who are either directors or salaried
employees of the Company or a Subsidiary with potential to contribute to the
future success of the Company or its Subsidiaries. Awards shall not be affected
by any change of duties or positions so long as the holder continues to be an
employee or director of the Company or of a Subsidiary.
8. Stock Options. Stock Options granted under the Plan may be in the form
of Incentive Stock Options or Nonqualified Stock Options. Stock Options granted
under the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate:
(a) Award Agreement. Stock Options shall be evidenced by an Award
Agreement in such form and containing such terms and conditions as the
Committee deems appropriate and which are not inconsistent with the terms
of the Plan.
(b) Terms of Stock Options Generally. Subject to the terms of the Plan
and the applicable Award Agreement, each Stock Option shall entitle the
Participant to whom such Stock Option was granted to purchase, upon payment
of the relevant exercise price, the number of shares of Common Stock
specified in the Award Agreement.
(c) Exercise Price. The Exercise Price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee at
the time of grant and set forth in the Award Agreement.
(d) Option Term. The term of each Stock Option shall be fixed by the
Committee and set forth in the Award Agreement; provided, however, that a
Stock Option shall not be exercisable after the expiration of ten (10)
years after the date the Stock Option is granted (five (5) years in the
case of an Incentive Stock Option granted to a Ten Percent Shareholder).
(e) Exercisability. A Stock Option shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by
the Committee. The Committee may provide that Stock Options shall be
exercisable in whole or in part based upon length of service or attainment
of specified performance criteria. The Committee, in its sole discretion,
may provide for the acceleration of vesting of a Stock Option, in whole or
in part, based on such factors or criteria (including specified performance
criteria) as the Committee may determine.
(f) Method of Exercise. A Stock Option may be exercised, in whole or
in part, by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the exercise price either by cash, certified or bank
check, note or other instrument acceptable to the Committee. Except as set
forth in Section 8(i) hereof, as determined by the Committee in its sole
discretion, payment of the exercise price may also be made in full or in
part in shares of Common Stock with a Fair Market Value (determined as of
the date of exercise of such Stock Option and, where such shares are
withheld (as described below), net of the applicable exercise price) at
least equal to such full or partial payment. Common Stock used to pay the
exercise price may be shares that are already owned by the Participant, or
the Company may withhold shares of Common Stock that would otherwise have
been received by the Participant upon exercise of the Stock Option. In its
discretion, the Committee may also permit any Participant to exercise an
Option through a "cashless exercise" procedure involving a broker or dealer
approved by the Committee, provided that the Participant has delivered an
irrevocable notice of exercise (the "Notice") to the broker or dealer and
such broker or dealer agrees: (A) to sell immediately the number of shares
of Common Stock specified in the Notice to be acquired upon exercise of the
Option in the ordinary course of its business, (B) to pay promptly to the
Company the aggregate exercise price (plus the amount necessary to satisfy
any applicable tax liability) and (C) to pay to the Participant the balance
of the proceeds of the sale of such shares over the amount determined under
clause (B) of this sentence, less applicable commissions and fees;
provided, however, that the Committee may modify the provisions of this
sentence to the extent necessary to conform the exercise of the Option to
Regulation T under the Exchange Act. The manner in which the exercise price
may be paid may be subject to certain conditions specified by the
Committee. If requested by the Committee, the Participant shall deliver the
Award Agreement evidencing an exercised Stock Option to the Secretary of
the Company, who shall endorse thereon a notation of such exercise and
return such Award Agreement to the Participant exercising the Option. No
fractional shares (or cash in lieu thereof) shall be issued upon exercise
of a Stock Option and the number of shares that may be purchased upon
exercise shall be rounded to the nearest number of whole shares.
(g) Rights as Shareholder. A Participant shall have no rights as a
shareholder with respect to any shares of Common Stock issuable upon
exercise of a Stock Option until a certificate or certificates evidencing
the shares of Common Stock shall have been issued to the Participant and,
subject to Sections 13(b) and 13(c), no adjustment shall be made for
dividends or distributions or other rights in respect of any share for
which the record date is prior to the date on which the Participant shall
become the holder of record thereof.
(h) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under the Plan, if the aggregate Fair
Market Value (determined as of the date the Incentive Stock Option is
granted) of the number of shares with respect to which Incentive Stock
Options are exercisable for the first time by a Participant during any
calendar year under all plans of the Company or a Parent or Subsidiary
exceeds One Hundred Thousand Dollars ($100,000) or such other limit as may
be required by the Code, such Incentive Stock Options shall be treated, to
the extent of such excess, as Nonqualified Stock Options. No Incentive
Stock Option shall be granted to any person who is not an employee at the
time of grant.
(i) Payment Alternatives for Section 16 Persons. Persons subject to
Section 16 of the Exchange Act shall have the unfettered right (but not the
obligation) to pay the exercise price in full or in part in shares of
Common Stock with a Fair Market Value (determined as of the date of
exercise of such Stock Option and, where such shares are withheld (as
described below), net of the applicable exercise price) at least equal to
such full or partial payment. Common Stock used to pay the exercise price
may be shares that are already owned by the Participant who is subject to
Section 16 of the Exchange Act, or such Participant shall have the right
but not the obligation to direct the Company to withhold shares of Common
Stock that would otherwise have been received by such Participant upon
exercise of the Stock Option. It is the intent of this provision that the
transactions described in this subsection qualify for the exemption from
short-swing profit liability under Section 16 of the Exchange Act pursuant
to the "disposition to the issuer" exemption set forth at Rule 16b-3(e)
promulgated under Section 16 of the Exchange Act.
9. Restricted Stock Awards. Restricted Stock Awards granted under the Plan
shall be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the Plan, as the
Committee shall deem appropriate:
(a) Award Agreement. Restricted Stock Awards shall be evidenced by an
Award Agreement in such form and containing such restrictions, terms and
conditions as the Committee deems appropriate and which are not
inconsistent with the terms of the Plan, including, without limitation,
restrictions on the sale, assignment, transfer or other disposition of such
shares and provisions requiring that a Participant forfeit such shares upon
a termination of employment or directorship for specified reasons within a
specified period of time.
(b) Terms of Restricted Stock Awards Generally. Restricted Stock
Awards may be granted under the Plan in such form as the Committee may from
time to time approve. Restricted Stock Awards may be granted for no
consideration or such consideration as the Committee deems appropriate.
Restricted Stock Awards may be granted alone or in addition to other Awards
under the Plan. Subject to the terms of the Plan, the Committee shall
determine the number of shares of Common Stock subject to each Restricted
Stock Award granted to a Participant, and the Committee may impose
different terms and conditions on any particular Restricted Stock Award
granted to any Participant. Each Participant receiving a Restricted Stock
Award shall be issued a certificate or certificates in respect of such
shares of Common Stock at the time of grant. Such certificate shall be
registered in the name of such Participant, and shall bear an appropriate
legend referring to the terms, conditions and restrictions applicable to
such Award. The Committee may require that the certificate or certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Common Stock covered by such Award.
(c) Restriction Period. Restricted Stock Awards shall provide that, in
order for a Participant to vest in such Awards, such Participant must
remain in the employment or directorship of the Company or its
Subsidiaries, subject to such exceptions as the Committee may determine in
its sole discretion for specified reasons for a period commencing on the
date of the Award and ending on such later date or dates as the Committee
may designate at the time of the Award and set forth in the Award Agreement
(the "Restriction Period"). During the Restriction Period, a Participant
may not sell, assign, transfer, pledge, encumber or otherwise dispose of
shares of Common Stock received under a Restricted Stock Award. The
Committee, in its sole discretion, may provide for the lapse of
restrictions in installments during the Restriction Period and may waive or
accelerate such restrictions in whole or in part, based on such factors or
criteria, including specified performance criteria, as the Committee may
determine. Upon expiration of the applicable Restriction Period (or lapse
of restrictions during the Restriction Period), the Participant shall be
vested in the Restricted Stock Award, or applicable portion thereof.
(d) Rights as Shareholder. Except as otherwise provided by the
Committee in its sole discretion, a Participant shall have, with respect to
the shares of Common Stock received under a Restricted Stock Award, all of
the rights of a shareholder of the Company, including the right to vote the
shares and the right to receive any cash dividends. Stock dividends issued
with respect to shares covered by a Restricted Stock Award shall be treated
as additional shares under the Restricted Stock Award and shall be subject
to the same restrictions and other terms and conditions that apply to the
shares with respect to which such dividends are issued.
10. Performance Share Awards. Performance Share Awards granted under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the Plan, as the
Committee shall deem appropriate:
(a) Award Agreement. Performance Share Awards shall be evidenced by an
Award Agreement in such form and containing such terms and conditions as
the Committee deems appropriate and which are not inconsistent with the
terms of the Plan. Each Award Agreement shall set forth the number of
shares of Common Stock to be received by a Participant upon satisfaction of
certain specified performance criteria and subject to such other terms and
conditions as the Committee deems appropriate.
(b) Terms of Performance Share Awards Generally. Performance Share
Awards may be granted under the Plan in such form as the Committee may from
time to time approve. Performance Share Awards may be granted for no
consideration or such consideration as the Committee deems appropriate.
Performance Share Awards may be granted alone or in addition to other
Awards under the Plan. Subject to the terms of the Plan, the Committee
shall determine the number of shares of Common Stock subject to each
Performance Share Award granted to a Participant.
(c) Performance Goals. Performance Share Awards shall provide that, in
order for a Participant to be entitled to receive shares of Common Stock
under such Award, the Company and/or the Participant must achieve certain
specified performance goals ("Performance Goals") over a designated
performance period ("Performance Period"). The Performance Goals and
Performance Period shall be established by the Committee in its sole
discretion. The Committee shall establish the Performance Goals for each
Performance Period before, or as soon as practicable after, the
commencement of the Performance Period. In setting Performance Goals, the
Committee may use such measures as net earnings, operating earnings or
income, absolute and/or relative return on equity or assets, earnings per
share, cash flow, pretax profits, earnings growth, revenue growth,
comparison to peer companies, any combination of the foregoing, or such
other measure or measures of performance, including individual measures of
performance, in such manner as it deems appropriate. Prior to the end of a
Performance Period, with respect to any Participant the deductibility of
whose Performance Award will not, in the reasonable belief of the
Committee, be subject to Section 162(m) of the Code, the Committee may, in
its discretion, adjust the performance objectives to reflect a Change in
Capitalization (as hereinafter defined) or any other event which may
materially affect the performance of the Company, a Subsidiary or a
division, including, but not limited to, market conditions or a significant
acquisition or disposition of assets or other property by the Company, a
Subsidiary or a division. With respect to any Participant, the
deductibility of whose Performance Award may, in the reasonable belief of
the Committee, be subject to Section 162(m) of the Code, the Committee
shall not be entitled to exercise the discretion conferred upon it in the
preceding sentence to the extent the existence or exercise of such
discretion would result in a loss of tax deductibility under such Section
162(m) of the Code. The extent to which a Participant is entitled to
payment of a Performance Share Award at the end of the Performance Period
shall be determined by the Committee, in its sole discretion, based on the
Committee's determination of whether the Performance Goals established by
the Committee in the granting of such Performance Share Award have been
met.
(d) Payment of Awards. Payment in settlement of a Performance Share
Award shall be made as soon as practicable following the conclusion of the
respective Performance Period, or at such other time as the Committee shall
determine, in shares of Common Stock.
(e) Rights as Shareholder. Except as otherwise provided by the
Committee in the applicable Award Agreement, a Participant shall have no
rights as a shareholder with respect to a Performance Share Award until a
certificate or certificates evidencing the shares of Common Stock shall
have been issued to the Participant following the conclusion of the
Performance Period, and, subject to Sections 13(b) and 13(c), no adjustment
shall be made for dividends or distributions or other rights in respect of
any share for which the record date is prior to the date on which the
Participant shall become the holder of record thereof.
11. Termination of Employment.
(a) Disability or Retirement. Except as may otherwise be provided by
the Committee in its sole discretion at the time of grant or subsequent
thereto, if a Participant's employment with the Company and its
Subsidiaries terminates by reason of Retirement or if a Participant's
employment (or, with respect to a nonemployee director, his directorship)
terminates by reason of Disability, (i) any Stock Option held by the
Participant may thereafter be exercised, to the extent it was exercisable
on the date of termination, for a period (the "Exercise Period") of one (1)
year from the date of such Disability or Retirement or until the expiration
of the stated term of the Stock Option, whichever period is shorter, and to
the extent not exercisable on the date of termination, such Stock Option
shall be forfeited; provided, however, that if a Participant terminates
employment by reason of Retirement and such Participant holds an Incentive
Stock Option, the Exercise Period shall not exceed the shorter of three (3)
months from the date of Retirement and the remainder of the stated term of
such Incentive Stock Option; provided further, however, that if the
Participant dies during the Exercise Period, any unexercised Stock Option
held by such Participant may thereafter be exercised to the extent it was
exercisable on the date of Disability or Retirement, by the legal
representative or beneficiary of the Participant, for a period of one (1)
year from the date of such death or until the expiration of the stated term
of such Stock Option, whichever period is shorter (or, in the case of an
Incentive Stock Option, for a period equal to the remainder of the Exercise
Period), and (ii) if such termination is prior to the end of the applicable
Restriction Period (with respect to a Restricted Stock Award) or
Performance Period (with respect to a Performance Share Award), the number
of shares of Common Stock subject to such Award which have not been earned
as of the date of Disability or Retirement shall be forfeited. In
determining whether to exercise its discretion under the first sentence of
this Section 11(a) with respect to an Incentive Stock Option the Committee
may consider the provisions of Section 422 of the Code.
(b) Death. Except as may otherwise be provided by the Committee in its
sole discretion at the time of grant or subsequent thereto, if a
Participant's employment or directorship with the Company and its
Subsidiaries terminates by reason of death, (i) any Stock Option held by
the Participant may thereafter be exercised, to the extent it was
exercisable on the date of death, by the legal representative or
beneficiary of the Participant, for a period of one (1) year from the date
of the Participant's death or until the expiration of the stated term of
such Stock Option, whichever period is shorter, and to the extent not
exercisable on the date of death, such Stock Option shall be forfeited and
(ii) if such termination is prior to the end of the applicable Restriction
Period (with respect to a Restricted Stock Award) or Performance Period
(with respect to a Performance Share Award), the number of shares of Common
Stock subject to such Award which have not been earned as of the date of
death shall be forfeited.
(c) Other Terminations. Unless the Committee determines otherwise in
its sole discretion at the time of grant or subsequent thereto, if a
Participant's employment or directorship with the Company and its
Subsidiaries terminates for any reason other than death, Disability or
Retirement, (i) any Stock Option held by the Participant may thereafter be
exercised, to the extent it was exercisable on the date of termination, for
a period of sixty (60) days from the date of such termination or until the
expiration of the stated term of such Stock Option, whichever period is
shorter, and to the extent not exercisable on the date of termination, such
Stock Option shall be forfeited, and (ii) if such termination is prior to
the end of the applicable Restriction Period (with respect to a Restricted
Stock Award) or Performance Period (with respect to a Performance Share
Award), the number of shares of Common Stock subject to such Award which
have not been earned as of the date of such termination shall be forfeited.
In determining whether to exercise its discretion under the first sentence
of this Section 10(c) with respect to an Incentive Stock Option, the
Committee may consider the provisions of Section 422 of the Code.
12. Non-transferability of Awards. No Awards under the Plan or any rights
or interests therein may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of except by will or the laws of descent and
distribution; provided, however, that with respect to any Award that is not an
Incentive Stock Option, the foregoing restrictions shall not apply to the extent
determined by the Committee in its sole discretion at the time of grant and set
forth in the applicable Award Agreement; provided further, however, that if so
determined by the Committee, a Participant may, in the manner established by the
Committee, designate a beneficiary to exercise the rights of the Participant
with respect to any Award upon the death of the Participant. During the lifetime
of a Participant, Stock Options shall be exercisable only by, and payments in
settlement of Awards shall be payable only to, the Participant.
13. Recapitalization or Reorganization.
(a) The existence of the Plan, the Award Agreements and the Awards granted
hereunder shall not affect or restrict in any way the right or power of the
Company or the shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Stock or the rights thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
(b) Notwithstanding any provision of the Plan or any Award Agreement, in
the event of any change in the outstanding Common Stock by reason of a stock
dividend, recapitalization, reorganization, merger, consolidation, stock split,
combination or exchange of shares (a "Change in Capitalization"), (i) such
proportionate adjustments as may be necessary (in the form determined by the
Committee in its sole discretion) to reflect such change shall be made to
prevent dilution or enlargement of the rights of Participants under the Plan
with respect to (a) the aggregate number of shares of Common Stock for which
Awards in respect thereof may be granted under the Plan, (b) the aggregate
number of shares of Common Stock which are subject to Awards hereunder without
the approval of the Board pursuant to Section 5 hereof, (c) the number of shares
of Common Stock covered by each outstanding Award, and (d) the exercise or Award
prices in respect thereof and (ii) the Committee may make such other
adjustments, consistent with the foregoing, as it deems appropriate in its sole
discretion.
(c) Upon the occurrence of a merger of, or consolidation involving, the
Company in which the Common Stock is converted into securities of another
corporation or into cash, or any other transaction that results in the Common
Stock no longer being publicly traded, at the sole discretion of the Committee,
and on such terms and conditions as it deems appropriate, the Committee may
provide either by the terms of an Award granted under the Plan or by a
resolution adopted prior to the occurrence of such event that upon such event,
such Award shall be assumed by the successor corporation, or a Parent or
Subsidiary thereof, or shall be substituted for by a similar Award, covering the
stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and exercise or
Award prices.
14. Change in Control. In the event of a Change in Control and except as
the Committee (as constituted immediately prior to such Change in Control) may
otherwise determine in its sole discretion, (i) all Stock Options then
outstanding shall become fully exercisable as of the date of the Change in
Control, whether or not then exercisable, (ii) all restrictions and conditions
of all Restricted Stock Awards then outstanding shall lapse as of the date of
the Change in Control and (iii) all Performance Share Awards shall be deemed to
have been fully earned as of the date of the Change in Control.
15. Amendment of the Plan. The Board may at any time and from time to time
terminate, modify, or amend the Plan in any respect, except that no termination,
modification or amendment shall be effective without shareholder approval if
such approval is required to comply with any law, regulation or stock exchange
rule. No termination or amendment of the Plan shall, without the consent of a
Participant to whom any Awards shall previously have been granted, adversely
affect his or her rights under such Awards.
16. Miscellaneous.
(a) Tax Withholding. (i) The Company and its Subsidiaries shall have the
right to deduct from any cash payment made under the Plan any federal, state or
local taxes of any kind required to be withheld with respect to such payment. It
shall be a condition to the obligation of the Company to deliver shares of
Common Stock pursuant to any Award under the Plan that the recipient of such
Award pay to the Company such amount as may be required by the Company for the
purpose of satisfying any liability for any such withholding taxes. Any Award
granted under the Plan may require the Company, or permit the recipient of such
Award to elect, in accordance with any applicable rules established by the
Committee, to withhold or to pay all or a part of the amount of such withholding
taxes in shares of Common Stock, provided, however, that regardless of whether
set forth in the Award Agreement, any person subject to Section 16 of the
Exchange Act shall have the unfettered right but not the obligation to direct
and compel the Company to withhold, or to accept from such person, such number
of shares of Common Stock valued at the Fair Market Value on the date of such
payment as is necessary to pay, in whole or in part, such person's withholding
tax obligation. Except for elections made by persons subject to Section 16 of
the Exchange Act, elections by all other Participants may be denied by the
Committee in its sole discretion, or may be made subject to certain conditions
specified by the Committee. Neither the Board of Directors nor the Committee
shall have any discretion with respect to the elections by persons subject to
Section 16 of the Exchange Act in order that such transactions shall qualify for
the exemption from short-swing profit liability pursuant to the "disposition to
the issuer" exemption set forth at Rule 16b-3(e) promulgated under Section 16 of
the Exchange Act.
(ii) The applicable Award Agreement for an Incentive Stock Option
shall provide that if a Participant makes a disposition, within the meaning
of Section 424(c) of the Code and the regulations promulgated thereunder,
of any share of Common Stock issued to such Participant pursuant to the
exercise of an Incentive Stock Option within the two (2)-year period
commencing on the day after the date of the grant or within the one
(1)-year period commencing on the day after the date of transfer of such
share of Common Stock to the Participant pursuant to such exercise, the
Participant shall, within ten (10) days of such disposition, notify the
Company thereof, by delivery of written notice to the Company at its
principal executive office.
(b) Loans. On such terms and conditions as shall be approved by the
Committee, the Company may directly or indirectly lend money to a Participant to
accomplish the purposes of the Plan, including to assist such Participant to
acquire or carry shares of Common Stock acquired upon the exercise of Stock
Options granted hereunder, and the Committee may also separately lend money to
any Participant to pay taxes with respect to any of the transactions
contemplated by the Plan.
(c) No Right to Grants or Employment. No Eligible Employee or Participant
shall have any claim or right to receive grants of Awards under the Plan.
Nothing in the Plan or in any Award or Award Agreement shall confer upon any
employee of the Company or any Subsidiary any right to continued employment with
the Company or any Subsidiary, as the case may be, or interfere in any way with
the right of the Company or a Subsidiary to terminate the employment of any of
its employees at any time, with or without cause.
(d) Unfunded Plan. The Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Awards
under the Plan. Any liability of the Company to any person with respect to any
Award under the Plan shall be based solely upon any contractual obligations that
may be effected pursuant to the Plan. No such obligation of the Company shall be
deemed to be secured by any pledge of, or other encumbrance on, any property of
the Company.
(e) Other Employee Benefit Plans. Payments received by a Participant under
any Award made pursuant to the provisions of the Plan shall not be included in,
nor have any effect on, the determination of benefits under any other employee
benefit plan or similar arrangement provided by the Company.
(f) Securities Law Restrictions. The Committee may require each Eligible
Employee purchasing or acquiring shares of Common Stock pursuant to a Stock
Option or other Award under the Plan to represent to and agree with the Company
in writing that such Eligible Employee is acquiring the shares for investment
and not with a view to the distribution thereof. All certificates for shares of
Common Stock delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, the New York Stock Exchange or any other stock exchange upon which
the Common Stock is then listed, and any applicable federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. No shares of
Common Stock shall be issued hereunder unless the Company shall have determined
that such issuance is in compliance with, or pursuant to an exemption from, all
applicable federal and state securities laws.
(g) Compliance with Rule 16b-3. Notwithstanding anything contained in the
Plan or any Award Agreement to the contrary, if the consummation of any Award
under the Plan would result in the possible imposition of liability on a
Participant pursuant to Section 16(b) of the Exchange Act, the Committee shall
have the right, in its sole discretion, but shall not be obligated, to defer
such transaction to the extent necessary to avoid such liability, but in no
event for a period in excess of 180 days.
(h) Deductibility Under Code Section 162(m). Awards granted under the Plan
to Eligible Employees which the Committee reasonably believes may be subject to
Section 162(m) of the Code shall not be exercisable, and payment under the Plan
in connection with such an Award shall not be made, unless and until the
Committee has determined in its sole discretion that such exercise or payment
would no longer be subject to Section 162(m) of the Code.
(i) Award Agreement. Each Eligible Employee receiving an Award under the
Plan shall enter into an Award Agreement in a form specified by the Committee
agreeing to the terms and conditions of the Award and such other matters as the
Committee shall, in its sole discretion, determine. In the event of any conflict
or inconsistency between the Plan and any such Award Agreement, the Plan shall
govern, and the Award Agreement shall be interpreted to minimize or eliminate
any such conflict or inconsistency.
(j) Costs of Plan. The costs and expenses of administering the Plan shall
be borne by the Company.
(k) Governing Law. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to conflicts of law
principles.
(l) Effective Date. The Plan as amended and restated herein shall be
effective on February 17, 1999 (the "Effective Date").
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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<RECEIVABLES> 95,907
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<DEPRECIATION> 593,865
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,727,012
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<INCOME-PRETAX> (67,901)
<INCOME-TAX> (21,049)
<INCOME-CONTINUING> (50,254)
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<NET-INCOME> (50,254)
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