DELAWARE
|
36-4324765
|
(State of Incorporation)
|
(I.R.S. Employer Identification No.)
|
870 NORTH COMMONS DRIVE
|
60504
|
AURORA, ILLINOIS
|
(Zip Code)
|
(Address of principal executive offices)
|
YES
|
X
|
NO
|
YES
|
X
|
NO
|
Large accelerated filer
|
X
|
Accelerated filer
|
Non-accelerated filer
|
Smaller reporting company
|
YES
|
NO
|
X
|
Part I. Financial Information
|
Page
|
|
Item 1.
|
||
3
|
||
4
|
||
5
|
||
6
|
||
7
|
||
Item 2.
|
20
|
|
Item 3.
|
27
|
|
Item 4.
|
28
|
|
Part II. Other Information
|
||
Item 1.
|
29
|
|
Item 1A.
|
29
|
|
Item 2.
|
33
|
|
Item 4.
|
34
|
|
Item 6.
|
34
|
|
35
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
2014
|
2013
|
|||||||
Revenue
|
$
|
111,934
|
$
|
100,515
|
||||
Cost of goods sold
|
54,960
|
52,801
|
||||||
Gross profit
|
56,974
|
47,714
|
||||||
Operating expenses:
|
||||||||
Research, development and technical
|
15,018
|
14,571
|
||||||
Selling and marketing
|
7,639
|
6,707
|
||||||
General and administrative
|
11,751
|
10,726
|
||||||
Total operating expenses
|
34,408
|
32,004
|
||||||
Operating income
|
22,566
|
15,710
|
||||||
Interest expense
|
906
|
872
|
||||||
Other income, net
|
1,057
|
617
|
||||||
Income before income taxes
|
22,717
|
15,455
|
||||||
Provision for income taxes
|
2,801
|
4,147
|
||||||
Net income
|
$
|
19,916
|
$
|
11,308
|
||||
Basic earnings per share
|
$
|
0.83
|
$
|
0.47
|
||||
Weighted average basic shares outstanding
|
23,651
|
23,590
|
||||||
Diluted earnings per share
|
$
|
0.80
|
$
|
0.45
|
||||
Weighted average diluted shares outstanding
|
24,486
|
24,623
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
2013
|
2012
|
|||||||
Net income
|
$
|
19,916
|
$
|
11,308
|
||||
Other comprehensive income (loss), net of tax:
|
||||||||
Foreign currency translation adjustments
|
(8,332
|
)
|
(4,760
|
)
|
||||
Net unrealized losses on cash flow hedges
|
(169
|
)
|
-
|
|||||
Unrealized gain on investment
|
-
|
151
|
||||||
Other comprehensive income (loss), net of tax
|
(8,501
|
)
|
(4,609
|
)
|
||||
Comprehensive income
|
$
|
11,415
|
$
|
6,699
|
December 31,
2014
|
September 30,
2014
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
295,429
|
$
|
284,155
|
||||
Accounts receivable, less allowance for doubtful accounts of $1,311 at December 31, 2014, and $1,392 at September 30, 2014
|
61,365
|
60,693
|
||||||
Inventories, net
|
62,618
|
64,979
|
||||||
Prepaid expenses and other current assets
|
16,940
|
10,645
|
||||||
Deferred income taxes
|
8,105
|
7,521
|
||||||
Total current assets
|
444,457
|
427,993
|
||||||
Property, plant and equipment, net
|
95,299
|
100,821
|
||||||
Goodwill
|
41,866
|
43,245
|
||||||
Other intangible assets, net
|
6,418
|
7,163
|
||||||
Deferred income taxes
|
8,494
|
11,353
|
||||||
Other long-term assets
|
11,540
|
10,592
|
||||||
Total assets
|
$
|
608,074
|
$
|
601,167
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
13,137
|
$
|
15,304
|
||||
Accrued expenses, income taxes payable and other current liabilities
|
31,832
|
31,394
|
||||||
Current portion of long-term debt
|
8,750
|
8,750
|
||||||
Total current liabilities
|
53,719
|
55,448
|
||||||
Long-term debt, net of current portion
|
161,875
|
164,063
|
||||||
Deferred income taxes
|
355
|
510
|
||||||
Other long-term liabilities
|
9,080
|
9,144
|
||||||
Total liabilities
|
225,029
|
229,165
|
||||||
Commitments and contingencies (Note 9)
|
||||||||
Stockholders’ equity:
|
||||||||
Common Stock: Authorized: 200,000,000 shares, $0.001 par value; Issued: 32,520,823 shares at December 31, 2014, and 31,927,601 shares at September 30, 2014
|
33
|
32
|
||||||
Capital in excess of par value of common stock
|
454,123
|
437,266
|
||||||
Retained earnings
|
247,858
|
227,942
|
||||||
Accumulated other comprehensive income
|
754
|
9,255
|
||||||
Treasury stock at cost, 8,506,276 shares at December 31, 2014, and 8,142,687 shares at September 30, 2014
|
(319,723
|
)
|
(302,493
|
)
|
||||
Total stockholders’ equity
|
383,045
|
372,002
|
||||||
Total liabilities and stockholders’ equity
|
$
|
608,074
|
$
|
601,167
|
Three Months Ended December 31,
|
||||||||
2014
|
2013
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
19,916
|
$
|
11,308
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
4,731
|
5,009
|
||||||
Provision for doubtful accounts
|
(12
|
)
|
(122
|
)
|
||||
Share-based compensation expense
|
3,407
|
3,366
|
||||||
Deferred income tax expense
|
3,531
|
4,733
|
||||||
Non-cash foreign exchange gain
|
(50
|
)
|
(60
|
)
|
||||
Gain on disposal of property, plant and equipment
|
(150
|
)
|
(150
|
)
|
||||
Other
|
(105
|
)
|
(175
|
)
|
||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(2,846
|
)
|
1,311
|
|||||
Inventories
|
243
|
(3,817
|
)
|
|||||
Prepaid expenses and other assets
|
(6,763
|
)
|
(10,120
|
)
|
||||
Accounts payable
|
(906
|
)
|
(363
|
)
|
||||
Accrued expenses, income taxes payable and other liabilities
|
656
|
(10,581
|
)
|
|||||
Net cash provided by operating activities
|
21,652
|
339
|
||||||
Cash flows from investing activities:
|
||||||||
Additions to property, plant and equipment
|
(2,527
|
)
|
(3,690
|
)
|
||||
Proceeds from the sale of property, plant and equipment
|
160
|
160
|
||||||
Proceeds from the sale of investments
|
-
|
2,113
|
||||||
Net cash used in investing activities
|
(2,367
|
)
|
(1,417
|
)
|
||||
Cash flows from financing activities:
|
||||||||
Repayment of long-term debt
|
(2,188
|
)
|
(2,187
|
)
|
||||
Repurchases of common stock
|
(17,230
|
)
|
(10,072
|
)
|
||||
Net proceeds from issuance of stock
|
11,424
|
32,606
|
||||||
Tax benefits associated with share-based compensation expense
|
1,886
|
1,921
|
||||||
Net cash provided by (used in) financing activities
|
(6,108
|
)
|
22,268
|
|||||
Effect of exchange rate changes on cash
|
(1,903
|
)
|
(756
|
)
|
||||
Increase in cash and cash equivalents
|
11,274
|
20,434
|
||||||
Cash and cash equivalents at beginning of period
|
284,155
|
226,029
|
||||||
Cash and cash equivalents at end of period
|
$
|
295,429
|
$
|
246,463
|
||||
Supplemental disclosure of non-cash investing and financing activities:
|
||||||||
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period
|
$
|
648
|
$
|
1,408
|
||||
Issuance of restricted stock
|
7,099
|
7,067
|
December 31, 2014
|
Level 1
|
Level 2
|
Level 3
|
Total
Fair Value
|
||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents
|
$
|
295,429
|
$
|
-
|
$
|
-
|
$
|
295,429
|
||||||||
Other long-term investments
|
1,768
|
- | - |
1,768
|
||||||||||||
Derivative financial instruments
|
-
|
825
|
-
|
825
|
||||||||||||
Total assets
|
$
|
297,197
|
$
|
825
|
$
|
-
|
$
|
298,022
|
||||||||
Liabilities:
|
||||||||||||||||
Derivative financial instruments
|
-
|
1,197
|
-
|
1,197
|
||||||||||||
Total liabilities
|
$
|
-
|
$
|
1,197
|
$
|
-
|
$
|
1,197
|
September 30, 2014
|
Level 1
|
Level 2
|
Level 3
|
Total
Fair Value
|
||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents
|
$
|
284,155
|
$
|
-
|
$
|
-
|
$
|
284,155
|
||||||||
Other long-term investments
|
1,654
|
- | - |
1,654
|
||||||||||||
Derivative financial instruments
|
-
|
100
|
-
|
100
|
||||||||||||
Total assets
|
$
|
285,809
|
$
|
100
|
$
|
-
|
$
|
285,909
|
||||||||
Liabilities:
|
||||||||||||||||
Derivative financial instruments
|
-
|
270
|
-
|
270
|
||||||||||||
Total liabilities
|
$
|
-
|
$
|
270
|
$
|
-
|
$
|
270
|
December 31,
|
September 30,
|
|||||||
2014
|
2014
|
|||||||
Raw materials
|
$
|
33,358
|
$
|
37,009
|
||||
Work in process
|
5,242
|
4,505
|
||||||
Finished goods
|
24,018
|
23,465
|
||||||
Total
|
$
|
62,618
|
$
|
64,979
|
December 31, 2014
|
September 30, 2014
|
|||||||||||||||
Gross Carrying
|
Accumulated
|
Gross Carrying
|
Accumulated
|
|||||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
|||||||||||||
Other intangible assets subject to amortization:
|
||||||||||||||||
Product technology
|
$
|
8,167
|
$
|
6,896
|
$
|
8,278
|
$
|
6,750
|
||||||||
Acquired patents and licenses
|
8,270
|
7,611
|
8,270
|
7,534
|
||||||||||||
Trade secrets and know-how
|
2,550
|
2,550
|
2,550
|
2,550
|
||||||||||||
Customer relationships, distribution rights and other
|
11,799
|
8,501
|
12,193
|
8,484
|
||||||||||||
Total other intangible assets subject to amortization
|
30,786
|
25,558
|
31,291
|
25,318
|
||||||||||||
Total other intangible assets not subject to amortization*
|
1,190
|
1,190
|
||||||||||||||
Total other intangible assets
|
$
|
31,976
|
$
|
25,558
|
$
|
32,481
|
$
|
25,318
|
* | Total other intangible assets not subject to amortization consist primarily of trade names. |
Fiscal Year
|
Estimated Amortization
Expense
|
|||
Remainder of 2015
|
$
|
1,744
|
||
2016
|
1,925
|
|||
2017
|
1,106
|
|||
2018
|
436
|
|||
2019
|
11
|
December 31,
|
September 30,
|
|||||||
2014
|
2014
|
|||||||
Auction rate securities (ARS)
|
$
|
5,895
|
$
|
5,895
|
||||
Other long-term assets
|
3,877
|
3,043
|
||||||
Other long-term investments
|
1,768
|
1,654
|
||||||
Total
|
$
|
11,540
|
$
|
10,592
|
December 31,
|
September 30,
|
|||||||
2014
|
2014
|
|||||||
Accrued compensation
|
$
|
14,638
|
$
|
16,980
|
||||
Goods and services received, not yet invoiced
|
2,288
|
3,167
|
||||||
Deferred revenue and customer advances
|
775
|
1,223
|
||||||
Warranty accrual
|
246
|
246
|
||||||
Income taxes payable
|
7,171
|
5,448
|
||||||
Taxes, other than income taxes
|
1,350
|
1,182
|
||||||
Other
|
5,364
|
3,148
|
||||||
Total
|
$
|
31,832
|
$
|
31,394
|
Fiscal Year
|
Principal
Repayments
|
|||
Remainder of 2015
|
$
|
6,562
|
||
2016
|
8,750
|
|||
2017
|
7,656
|
|||
2018
|
14,219
|
|||
2019
|
133,438
|
|||
Total
|
$
|
170,625
|
Asset Derivatives
|
Liability Derivatives
|
||||||||||||||||
Balance Sheet Location
|
December 31, 2014
|
September 30, 2014
|
December 31, 2014
|
September 30, 2014
|
|||||||||||||
Derivatives designated as hedging instruments
|
|||||||||||||||||
Interest rate swap contracts
|
Other noncurrent assets
|
$
|
808
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Accrued expenses and other current liabilities
|
$ | - | $ | - | $ | 977 | $ | - | |||||||||
Derivatives not designated as hedging instruments
|
|||||||||||||||||
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
$
|
17
|
$
|
100
|
$
|
-
|
$
|
-
|
||||||||
Accrued expenses and other current liabilities
|
$ | - | $ | - | $ | 220 | $ | 270 |
Gain (Loss) Recognized in Statement of Income
|
|||||||||
Three Months Ended
|
|||||||||
Statement of Income Location |
December 31, 2014
|
December 31, 2013
|
|||||||
Derivatives not designated as hedging instruments
|
|||||||||
Foreign exchange contracts
|
Other income (expense), net
|
$
|
(1,336
|
)
|
$
|
(392
|
)
|
Balance as of September 30, 2014
|
$
|
246
|
||
Reserve for product warranty during the reporting period
|
164
|
|||
Settlement of warranty
|
(164
|
)
|
||
Balance as of December 31, 2014
|
$
|
246
|
Foreign Currency Translation Adjustment
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
Pension and Other Postretirement Liabilities
|
Unrealized Gain (Loss) on Marketable Securities
|
Accumulated Other Comprehensive Income
|
||||||||||||||||
Balance September 30, 2014
|
$
|
10,115
|
$
|
-
|
$
|
(860
|
)
|
$
|
-
|
$
|
9,255
|
|||||||||
Increase (decrease) in OCI
|
(9,958
|
)
|
(169
|
)
|
-
|
-
|
(10,127
|
)
|
||||||||||||
Reclassifications
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Income tax benefit (expense)
|
1,626
|
-
|
-
|
-
|
1,626
|
|||||||||||||||
Balance December 31, 2014
|
$
|
1,783
|
$
|
(169
|
)
|
$
|
(860
|
)
|
$
|
-
|
$
|
754
|
Foreign Currency Translation Adjustment
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
Pension and Other Postretirement Liabilities
|
Unrealized Gain (Loss) on Marketable Securities
|
Accumulated Other Comprehensive Income
|
||||||||||||||||
Balance September 30, 2013
|
$
|
18,251
|
$
|
-
|
$
|
(664
|
)
|
$
|
(151
|
)
|
$
|
17,436
|
||||||||
Increase (decrease) in OCI
|
(5,765
|
)
|
-
|
-
|
234 |
(5,531
|
)
|
|||||||||||||
Reclassifications
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Income tax benefit (expense)
|
1,005
|
-
|
-
|
(83
|
) |
922
|
||||||||||||||
Balance December 31, 2013
|
$
|
13,491
|
$
|
-
|
$
|
(664
|
)
|
$
|
-
|
$
|
12,827
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
Income statement classifications:
|
2014
|
2013
|
||||||
Cost of goods sold
|
$
|
498
|
$
|
480
|
||||
Research, development and technical
|
415
|
366
|
||||||
Selling and marketing
|
320
|
353
|
||||||
General and administrative
|
2,174
|
2,167
|
||||||
Total share-based compensation expense
|
3,407
|
3,366
|
||||||
Tax benefit
|
(1,122
|
)
|
(1,092
|
)
|
||||
Total share-based compensation expense, net of tax
|
$
|
2,285
|
$
|
2,274
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
2014
|
2013
|
|||||||
Interest income
|
$
|
103
|
$
|
58
|
||||
Other income (expense)
|
954
|
559
|
||||||
Total other income, net
|
$
|
1,057
|
$
|
617
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
2014
|
2013
|
|||||||
Numerator:
|
||||||||
Net income
|
$
|
19,916
|
$
|
11,308
|
||||
Less: income attributable to participating securities
|
(231
|
)
|
(127
|
)
|
||||
Earnings available to common shares
|
$
|
19,685
|
$
|
11,181
|
||||
Denominator:
|
||||||||
Weighted average common shares
|
23,651,405
|
23,589,627
|
||||||
(Denominator for basic calculation)
|
||||||||
Weighted average effect of dilutive securities:
|
||||||||
Share-based compensation
|
834,197
|
1,033,333
|
||||||
Diluted weighted average common shares
|
24,485,602
|
24,622,960
|
||||||
(Denominator for diluted calculation)
|
||||||||
Earnings per share:
|
||||||||
Basic
|
$
|
0.83
|
$
|
0.47
|
||||
Diluted
|
$
|
0.80
|
$
|
0.45
|
Three Months Ended
|
||||||||
December 31,
|
||||||||
Revenue:
|
2014
|
2013
|
||||||
Tungsten slurries
|
$
|
45,144
|
$
|
37,369
|
||||
Dielectric slurries
|
28,183
|
29,946
|
||||||
Other Metals slurries
|
19,897
|
17,805
|
||||||
Polishing pads
|
8,762
|
7,410
|
||||||
Data storage slurries
|
4,366
|
4,982
|
||||||
Engineered Surface Finishes
|
5,582
|
3,003
|
||||||
Total revenue
|
$
|
111,934
|
$
|
100,515
|
·
|
Research related to fundamental CMP technology;
|
·
|
Development of new and enhanced CMP consumables products, including collaboration on joint development projects with technology-leading customers;
|
·
|
Process development to support rapid and effective commercialization of new products;
|
·
|
Technical support of CMP products in our customers' research, development and manufacturing facilities; and,
|
·
|
Evaluation and development of new polishing and metrology applications outside of the semiconductor industry.
|
CONTRACTUAL OBLIGATIONS
|
Less Than
|
1-3
|
3-5 |
After 5
|
||||||||||||||||
(In millions)
|
Total
|
1 Year
|
Years
|
Years
|
Years
|
|||||||||||||||
Long-term debt
|
$
|
170.6
|
$
|
8.7
|
$
|
17.5
|
$
|
144.4
|
$
|
-
|
||||||||||
Interest expense and fees on long-term debt
|
16.3
|
4.4
|
7.1
|
4.8
|
-
|
|||||||||||||||
Purchase obligations
|
87.0
|
53.4
|
33.2
|
0.3
|
0.1
|
|||||||||||||||
Operating leases
|
9.8
|
2.1
|
2.5
|
1.3
|
3.9
|
|||||||||||||||
Severance agreements
|
1.7
|
1.4
|
0.3
|
-
|
-
|
|||||||||||||||
Other long-term liabilities
*
|
9.1
|
-
|
-
|
0.9
|
8.2
|
|||||||||||||||
Total contractual obligations
|
$
|
294.5
|
$
|
70.0
|
$
|
60.6
|
$
|
151.7
|
$
|
12.2
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
|
||||||||||||
Oct. 1 through
Oct. 31, 2014
|
-
|
-
|
-
|
$
|
125,000
|
|||||||||||
Nov. 1 through
Nov. 30, 2014
|
194,900
|
$
|
47.71
|
194,900
|
$
|
115,702
|
||||||||||
Dec. 1 through
Dec. 31, 2014
|
168,689
|
$
|
47.02
|
120,964
|
$
|
109,990
|
||||||||||
Total
|
363,589
|
$
|
47.39
|
315,864
|
$
|
109,990
|
Exhibit
Number
|
Description
|
10.67
|
Employment Offer Letter dated December 12, 2014 (William P. Noglows).
|
10.68
|
Employment Offer Letter dated December 12, 2014 (David H. Li).
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
CABOT MICROELECTRONICS CORPORATION
|
|||
[Registrant]
|
|||
Date: February 6, 2015
|
By:
|
/s/ WILLIAM S. JOHNSON
|
|
William S. Johnson
|
|||
Executive Vice President and Chief Financial Officer
|
|||
[Principal Financial Officer]
|
|||
Date: February 6, 2015
|
By:
|
/s/ THOMAS S. ROMAN
|
|
Thomas S. Roman
|
|||
Corporate Controller
|
|||
[Principal Accounting Officer]
|
1.
|
Position.
On the Effective Date, you will continue only in the position of CMC's Executive Chairman and your service as CMC's President and Chief Executive Officer will cease.
|
2.
|
Term.
The initial term of your employment as Executive Chairman under this letter will commence on the Effective Date and will continue until December 31, 2015 (the "
Initial Term
"), subject to extension if you and CMC mutually agree in writing no later than September 30, 2015 to extend the Initial Term for a period of at least six months (the Initial Term, as it may be extended, is referred to herein as the "
Term
"). Your employment with CMC will cease on the last day of the Term (the "
Cessation Date
"), although prior to the expiration of the Term, your employment with CMC can be terminated for any reason by the Company with or without "Cause" (as such term is defined in CMC's 2012 Omnibus Incentive Plan) or by you.
|
3.
|
Board Service.
Your current term as a member of the Board will expire at CMC's annual meeting in March 2015 and you will be nominated for re-election to the Board for a three-year term (the "
Renewal Term
"). If you are re-elected to the Board for the Renewal Term, following the Cessation Date, you will serve CMC solely in your capacity as a non-employee director of the Board and your compensation will be in accordance with CMC's compensation plans, practices and policies for non-employee directors.
|
4.
|
Salary.
During the Term, your annual base salary will be $500,000 (such base salary, as it may be adjusted from time to time, your "
Base Salary
"). CMC will pay your Base Salary in accordance with its normal payroll practices and procedures as in effect from time to time. If, during the Term and other than in connection with a Change in Control of CMC (as defined in your Amended and Restated Change in Control Severance Protection Agreement with CMC, dated as of September 23, 2008 (the "
CIC Agreement
")), your employment is terminated by CMC other than for Cause or you terminate employment because CMC materially breaches the terms of this letter (subject to the notice and cure provisions set forth below), you will receive a lump-sum cash payment equal to the Base Salary you would have received had you continued to be employed for the remainder of the then current Term payable within 30 days of your date of termination (subject to Section 9 of this letter), subject to the effectiveness of a release of claims signed by you in favor of CMC and delivered to CMC within 21 days following your date of termination (the "
Release
"). In order to invoke a termination due to CMC's material breach of this letter, (i) you must provide written notice to CMC of the basis for such claim within 30 days following the occurrence of such condition or event, (ii) CMC will have 30 days following receipt of such written notice (the "
Cure Period
") during which it may remedy the condition or event, and (iii) if CMC fails to remedy the condition or event giving rise to such breach during the Cure Period, you must terminate employment, if at all, within 30 days following the Cure Period.
|
5.
|
Incentive Compensation.
With respect to each completed and partial fiscal year of CMC ending during the Term, you will be eligible for an annual cash incentive award as determined by the Compensation Committee of the Board (the "
Compensation Committee
") in its sole discretion, based upon CMC's achievement of performance goals established by the Compensation Committee in respect of each fiscal year and otherwise in accordance with CMC's Annual Incentive Program (the "
AIP
") and customary procedures. Your target annual incentive opportunity under the AIP will be 100% of your Base Salary. Your annual cash incentive under the AIP will be paid at the same time as annual cash incentives are generally paid to other employees of CMC, but in no event later than December 15 of the year following the year such amount is earned. If the Cessation Date occurs prior to the close of the applicable fiscal year or if you are terminated by CMC other than for Cause during the Term, or you terminate employment because CMC materially breaches the terms of this letter (subject to the notice and cure and Release provisions set forth above), and prior to a Change in Control, you will be entitled to a pro-rata bonus equal to (a) the actual amount of annual cash incentive awarded to you by the Compensation Committee based on the level of achievement of the performance goals as provided pursuant to the AIP and such other considerations determined in a manner no less favorable than those applied to other employees of CMC for the fiscal year in which the Cessation Date occurs,
multiplied by
(b) a fraction, the numerator of which is the number of days that have elapsed through the Cessation Date in CMC's then-current fiscal year and the denominator of which is 365. During the Term, you will not be eligible to be granted any additional CMC equity incentive awards, including any Deposit Share Program awards.
|
6.
|
Benefits.
During the Term, you will be entitled to continue to participate in all employee benefit plans, programs and arrangements applicable to employees and executive officers of CMC, as in effect from time to time, including, without limitation, paid time off, medical, dental, short-term and long-term disability, life insurance and 401(k) plan, according to the terms of such plans and on terms no less favorable than those available to other employees and executive officers of CMC. It is the intent of you and CMC that during the Term you will be an employee for purposes of participation in its benefit plans and that your change in position to Executive Chairman will not constitute a "separation from service" (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the "
Code
")). Following the Cessation Date, you will have no further right to participate as an active employee in CMC's employee benefit and compensation plans, programs and arrangements. During the Term, CMC will also reimburse you for normal business, travel and entertainment expenses, in accordance with its written policies and on the same basis as applied to you prior to the Effective Date.
|
7.
|
Equity Acceleration.
Subject to your continued employment through the Cessation Date, all of the unvested outstanding non-qualified stock options to acquire CMC common stock and any restricted CMC stock awards that you hold as of the Cessation Date will vest in full. Your vested stock options will remain exercisable for the period specified in the applicable award agreements and plan documents applicable upon your termination by reason of retirement. If, prior to the Cessation Date, your employment is terminated by CMC other than for Cause, or you terminate employment because CMC materially breaches the terms of this letter (subject to the notice and cure provisions set forth above), your outstanding and unvested stock options and restricted stock awards will vest in full as of such termination date, subject to your timely delivery and the effectiveness of the Release.
|
8.
|
Insurance and Indemnification
. As applied prior to the Effective Date, CMC will maintain you as an insured party on all directors' and officers' insurance maintained by CMC for the benefit of its directors and officers on at least the same basis as all other covered individuals and provide you with at least the same corporate indemnification as its other executive officers and directors.
|
9.
|
Section 409A of the Code
. This letter is intended to comply with Section 409A of the Code and the interpretive guidance thereunder, including the exceptions for separation pay arrangements, short-term deferrals, reimbursements and in-kind distributions, and shall be administered accordingly. This letter shall be construed and interpreted in accordance with such intent. For purposes of clarity, the severance payments provided under Section 4 hereof are intended to satisfy the separation pay arrangement and short-term deferral exceptions under Section 409A of the Code, and, to the extent such exceptions are satisfied, no six-month delay (as set forth below) shall be required. However, notwithstanding any provision herein or in the CIC Agreement to the contrary, if you would be entitled to a payment under this letter or the CIC Agreement on account of your separation from service that is not excluded from Section 409A of the Code under the exceptions for separation pay arrangements, short-term deferrals, reimbursements, in-kind distributions, or an otherwise applicable exemption, if you are a "specified employee" within the meaning of Section 409A of the Code (determined as of your date of termination), any payment(s) that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code will be accumulated and paid to you on the first day of the seventh month following your separation from service, or, if earlier, on the date of your death, to your estate. The right to the series of installment payments hereunder is to be treated as a right to a series of separate payments in accordance with Treas. Reg. § 1.409A-2(b)(2)(iii). In no event may you, directly or indirectly, designate the calendar year of payment of any amounts payable under this letter.
|
10.
|
Entire Agreement.
This letter contains the entire agreement between you and CMC with respect to the subject matter hereof, and supersedes any and all prior understandings or agreements, whether written or oral, except that during the Term, the CIC Agreement, which will supersede and replace this letter in the event of a Change in Control, and your CMC Intellectual Property and Non-Competition Agreement dated November 2, 2003, will both remain in full force and effect in accordance with their terms. In addition, you will continue to be subject to all CMC policies, procedures and practices applicable to employees and compensation, including without limitation, its Code of Business Conduct.
|
1.
|
Positions.
On the Effective Date, you will become the President and Chief Executive Officer of CMC, reporting directly to the Board of Directors of CMC (the "
Board
"). In addition, on the Effective Date, you will be elected as a member of the Board and thereafter will be nominated for election to the Board, with your class to be determined.
|
2.
|
Annual Salary.
Your annual base salary will be $550,000 (such base salary, as it may be adjusted from time to time, your "
Base Salary
"). CMC will pay your Base Salary in accordance with its normal payroll practices and procedures as in effect from time to time. Following the close of each fiscal year, beginning with the fiscal year 2015, the Compensation Committee of the Board (the "
Compensation Committee
") will meet to consider an increase in your annual base salary in accordance with its normal practices.
|
3.
|
Incentive Compensation.
With respect to each completed fiscal year of CMC ending during your employment, you will be eligible for an annual cash incentive award, as determined by the Compensation Committee in its sole discretion, based upon CMC's achievement of performance goals established by the Compensation Committee in respect of each fiscal year and otherwise in accordance with CMC's Annual Incentive Program (the "
AIP
") and CMC's customary procedures. Your target annual incentive opportunity under the AIP will be 100% of your Base Salary (or such other amount as shall be established by the Compensation Committee from time to time). Your annual cash incentive under the AIP will be paid at the same time as annual cash incentives are generally paid to other employees of CMC, but in no event, later than December 15 of the year following the year such amount is earned. In addition, you will be eligible to be granted long-term incentive awards as determined by the Compensation Committee in its sole discretion.
|
4.
|
Promotion Equity Award
. Effective on January 2, 2015 (the "Award Date"), CMC will award you a non-qualified option to purchase 38,500 shares of CMC's common stock (the "
Option
") and 14,700 restricted shares of CMC common stock (the "
Restricted Shares
") under and in accordance with the terms of the CMC 2012 Omnibus Incentive Plan (the "
2012 Plan
"). The grant date of the Option will be the Award Date, and the exercise price of the Option will be the closing price of CMC's common stock on the Award Date. The Option and Restricted Shares will each vest 25% on the first anniversary of the Award Date and 25% on each subsequent anniversary of the Effective Date, so that they are fully vested on the fourth anniversary of the Award Date, as long as you remain in continuous service with CMC on each such anniversary, except as may be otherwise provided under the 2012 Plan or applicable award agreement, including, upon a Change in Control of CMC, or as provided in Section 5 of this letter. The Option will expire ten (10) years from the Award Date, unless sooner exercised or terminated, pursuant to the 2012 Plan and the applicable award agreement. Upon a termination of your employment, the unvested portion of the Option and Restricted Shares will be immediately forfeited (except as otherwise provided in the applicable award agreement or Section 5 of this letter), and any vested portion of the Option will be exercisable in accordance with the terms of the award agreement.
|
5.
|
Severance
. If, other than in connection with a Change in Control of CMC (as defined in your Amended and Restated Change in Control Severance Protection Agreement with CMC, dated as of September 23, 2008, as it may be amended from time to time (the "
CIC Agreement
")), CMC terminates your employment without Cause (as defined in the 2012 Plan) or you terminate employment because CMC materially breaches the terms of this letter (subject to the notice and cure provisions set forth below), CMC will continue your Base Salary for twelve (12) months in accordance with its normal payroll practices and procedures as in effect from time to time, subject to the effectiveness of a release of claims signed by you in favor of CMC and delivered to CMC within 21 days following your date of termination (the "
Release
");
provided
that, notwithstanding the foregoing, if on your date of termination, your Base Salary is greater than the maximum amount of severance that is payable as "separation pay" under Section 409A of the Internal Revenue Code of 1986, as amended (the "
Code
"), the amount in excess of such separation pay limit that otherwise is not payable within the short-term deferral period (
i.e.
, within 75 days of your date of termination) will be paid in a lump sum within 30 days of your date of termination. In addition, subject to the effectiveness of the Release as described above, any outstanding and unvested stock options and restricted shares, including the Option and the Restricted Shares, will vest immediately as of the effective date of the Release to the extent that such awards would have otherwise vested in accordance with their terms during the twelve (12)-month period following the date of termination, had your employment with CMC not been terminated. Further, to the extent the lease for your housing in Shanghai is held by CMC, CMC agrees not to terminate such lease prior to 60 days following your date of termination (or such earlier date as you shall notify CMC that you no longer need access to such housing). In order to invoke a termination due to CMC's material breach of this letter, (i) you must provide written notice to CMC of the basis for such claim within 30 days following the occurrence of such condition or event, (ii) CMC will have 30 days following receipt of such written notice (the "
Cure Period
") during which it may remedy the condition or event, and (iii) if CMC fails to remedy the condition or event giving rise to such breach during the Cure Period, you must terminate employment, if at all, within 30 days following the Cure Period. While employed, the CIC Agreement will continue in full force and effect, although following the Effective Date, the multiple for purposes of Section 4.2(c) thereof will be three (3) and the benefits continuation period for purposes of Section 4.2(d) thereof will be 36 months.
|
6.
|
Benefits
. You will continue to be entitled to participate in all employee benefit plans, programs and arrangements applicable to employees and executive officers of CMC, as in effect from time to time, including, without limitation, paid time off, medical, dental, short-term and long-term disability, life, and 401(k) plan, according to the terms of such plans and on terms no less favorable than those available to other employees and executive officers of CMC. From and after the Effective Date, your Current Letter will terminate and the foreign service benefits thereunder will cease, although, due to the significant time you are required to spend in China, you will continue to be provided with the following benefits: (i) continued provision of a car and driver in China, on the same basis as applied prior to the Effective Date; (ii) a housing allowance of up to $100,000 per year to be used for housing expenses (whether paid by CMC or by you) in Shanghai, China and Aurora, Illinois; and (iii) a tax equalization benefit to reimburse you solely for the difference of any "excess U.S. and China tax" assessed on your income paid by CMC or its affiliates, over and above your "stay-at-home" tax responsibility, on the same basis as applied prior to the Effective Date pursuant to the Current Letter, including but not limited to those matters set forth in (i) and (ii) (for purposes of clarity, with respect to the housing in Shanghai, China) of this Section 6, as applicable. CMC will also reimburse you for normal business, travel and entertainment expenses, in accordance with its written policies. You will be authorized to fly first class at your discretion.
|
7.
|
Insurance and Indemnification
. As applied prior to the Effective Date, CMC will maintain you as an insured party on all directors' and officers' insurance maintained by CMC for the benefit of its directors and officers on at least the same basis as all other covered individuals and provide you with at least the same corporate indemnification as its other executive officers and directors.
|
8.
|
Legal Fees
. CMC will pay for all reasonable attorneys' fees, costs and expenses incurred by you in connection with the negotiation, execution and delivery of this letter, up to $10,000.
|
9.
|
Section 409A of the Code
. This letter is intended to comply with Section 409A of the Code and the interpretive guidance thereunder, including the exceptions for separation pay arrangements, short-term deferrals, reimbursements and in-kind distributions, and shall be administered accordingly. This letter shall be construed and interpreted in accordance with such intent. For purposes of clarity, the severance payments provided under Section 5 hereof are intended to satisfy the separation pay arrangement and short-term deferral exceptions under Section 409A of the Code, and, to the extent such exceptions are satisfied, no six-month delay (as set forth below) shall be required. However, notwithstanding any provision herein or in the CIC Agreement to the contrary, if you would be entitled to a payment under this letter or the CIC Agreement on account of your separation from service that is not excluded from Section 409A of the Code under the exceptions for separation pay arrangements, short-term deferrals, reimbursements, in-kind distributions, or an otherwise applicable exemption, if you are a "specified employee" within the meaning of Section 409A of the Code (determined as of your date of termination), any payment(s) that constitute nonqualified deferred compensation within the meaning of Section 409A of the Code will be accumulated and paid to you on the first day of the seventh month following your separation from service, or, if earlier, on the date of your death, to your estate. The right to the series of installment payments hereunder is to be treated as a right to a series of separate payments in accordance with Treas. Reg. § 1.409A-2(b)(2)(iii). In no event may you, directly or indirectly, designate the calendar year of payment of any amounts payable under this letter.
|
10.
|
Entire Agreement.
This letter contains the entire agreement between you and CMC with respect to the subject matter hereof, and supersedes any and all prior understandings or agreements, whether written or oral, except that, following the Effective Date, (i) the tax equalization policy provision under your Current Letter which will continue to apply as provided in Section 6 of this letter as if set forth herein, and (ii) your CIC Agreement (consistent with Section 5), which will supersede and replace this letter in the event of a Change in Control, and your CMC Intellectual Property and Non-Competition Agreement dated
May 12, 2000, will both remain in full force and effect. In addition, you will continue to be subject to all CMC policies, procedures and practices applicable to employees and compensation, including without limitation, its Code of Business Conduct.
|
11.
|
Mediation
. You and CMC agree to initially attempt to resolve any dispute, claim or controversy based on, arising out of, or relating to this letter, or breach thereof, through non-binding mediation. CMC shall select the mediator and pay the direct costs related to such mediation (for purposes of clarity, not to include your attorneys' fees).
|
12.
|
Successors and Assigns
. This letter shall inure to the benefit of and be binding upon you and your legal representatives and estate and CMC and it successors and assigns whether by operation of law or otherwise. Any such successor of CMC shall be deemed to have assumed this letter and to have become obligated hereunder to the same extent as CMC, and your obligations hereunder shall continue in favor of such successor. In the event you are owed amounts pursuant to this letter at the time of your death, then CMC will pay those amounts to your beneficiaries or, if none, to your estate.
|
13.
|
Miscellaneous
. Subject to Section 5 above, your employment will be on an "at will" basis, which means you will be free to resign at any time, for any reason or for no reason, as you deem appropriate. Similarly, CMC will have a similar right to terminate your employment at any time, with or without cause.
|
1. | I have reviewed this quarterly report on Form 10-Q of Cabot Microelectronics Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 6, 2015
|
/s/ DAVID H. LI
|
|
|
David H. Li
|
|
|
Chief Executive Officer
|
1. | I have reviewed this quarterly report on Form 10-Q of Cabot Microelectronics Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 6, 2015
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/s/ WILLIAM S. JOHNSON
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William S. Johnson
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Chief Financial Officer
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Date: February 6, 2015
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/s/ DAVID H. LI
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David H. Li
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Chief Executive Officer
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Date: February 6, 2015
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/s/ WILLIAM S. JOHNSON
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William S. Johnson
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Chief Financial Officer
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