<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MEMC ELECTRONIC MATERIALS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE
O'FALLON, MISSOURI 63376
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 14, 1997
To the Stockholders of MEMC Electronic Materials, Inc.:
The Annual Meeting of Stockholders of MEMC Electronic Materials, Inc. (the
"Company"), a Delaware corporation, will be held at The Ritz-Carlton St. Louis,
100 Carondelet Plaza, St. Louis, Missouri 63105 on Wednesday, May 14, 1997, at
10:00 a.m., local time, for the following purposes:
1. To elect directors; and
2. To transact such other business as may properly come before the meeting
and all adjournments thereof.
The Board of Directors has fixed March 17, 1997 as the record date for the
determination of the stockholders entitled to notice of, and to vote at, the
Annual Meeting and all adjournments thereof. A list of stockholders entitled to
vote at the Annual Meeting will be available for examination by any stockholder
at the executive offices of the Company not less than ten days prior to the
Annual Meeting.
By Order of the Board of Directors
HELENE F. HENNELLY
Secretary
March 24, 1997
O'Fallon, Missouri
EVEN IF YOU EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE MARK, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED RETURN ENVELOPE, WHICH
DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND
THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE.
<PAGE> 3
MEMC ELECTRONIC MATERIALS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
The enclosed proxy is solicited on behalf of the Board of Directors of MEMC
Electronic Materials, Inc. (the "Company") for use at the Annual Meeting of its
stockholders to be held May 14, 1997 at 10:00 a.m. at The Ritz-Carlton St.
Louis, 100 Carondelet Plaza, St. Louis, Missouri 63105 (the "Annual Meeting").
If the proxy is executed and returned to the Company, it nevertheless may be
revoked at any time before it is exercised (i) by written notice to the
Secretary of the Company at the Company's principal executive offices at the
address set forth below, (ii) by properly submitting to the Company a duly
executed proxy bearing a later date, or (iii) by attending the meeting and
voting in person. If matters other than the election of directors properly come
before the meeting, the proxy will be voted by the persons named therein in a
manner which they consider to be in the best interests of the Company.
BACKGROUND
Prior to July 12, 1995, the Company was a wholly owned subsidiary of Huls
Corporation. Huls Corporation is wholly owned by VEBA Corporation, the U.S.
holding company for activities of the VEBA group in the United States. VEBA
Corporation is directly and indirectly wholly owned by VEBA AG, which is among
the largest publicly held industrial corporations in Germany. VEBA AG is engaged
in businesses including power generation and distribution, chemicals, oil
exploration, refining and distribution of oil products, trading, transportation
services and telecommunications.
On July 12, 1995, the Company completed its initial public offering ("IPO")
of 19,550,000 shares of the Company's Common Stock (the "Common Stock"). At the
conclusion of the IPO and as of the date hereof, VEBA AG, through its indirect
ownership of Huls Corporation, retained and currently maintains ownership of
slightly more than a majority of the issued and outstanding Common Stock of the
Company.
The Company's principal executive offices are located at 501 Pearl Drive,
St. Peters, Missouri 63376. All correspondence to the Company should be directed
to P.O. Box 8 at the aforementioned address. This Proxy Statement and the
accompanying form of proxy are first being sent to stockholders on or about
March 24, 1997.
VOTING
Only the holders of record of Common Stock at the close of business on
March 17, 1997 are entitled to vote, either in person or by proxy, at the Annual
Meeting and all adjournments thereof. At the close of business on March 17,
1997, 41,436,066 shares of Common Stock of the Company were issued and
outstanding. A majority of the outstanding shares of Common Stock on the record
date, present in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. Each share of Common Stock held
of record as of the record date is entitled to one vote on each matter submitted
to a vote at a meeting of stockholders. The Board knows of no matters other than
the election of directors to be presented for consideration at the Annual
Meeting. If any other matters properly come before the meeting, the proxies
solicited hereby will be voted on such matters in accordance with the judgment
of the persons voting such proxies.
The MEMC Stock Fund holds Common Stock as an investment alternative for
participants in the MEMC Retirement Savings Plan (the "Plan"). Plan participants
have the right under the Plan to direct the Plan's trustee how to vote the
shares of Common Stock that are held by the Plan. The Plan requires the trustee
to vote shares for which participants do not provide voting direction in
proportion to the votes cast by all voting participants.
<PAGE> 4
Shares represented by proxies which are marked "withhold authority" with
respect to the election of any one or more nominees for election as directors
will be counted for the purpose of determining whether there is a quorum for the
transaction of business at the Annual Meeting.
The affirmative vote of a plurality of the shares present in person or
represented by proxy at the Annual Meeting is required to elect directors.
"Plurality" means that the nominees who receive the largest number of votes cast
are elected as directors up to the maximum number of directors to be elected at
the Annual Meeting. Consequently, any shares represented at the Annual Meeting
but not voted for any reason, have no impact on the election of directors.
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of the Company (the "Restated
Certificate") and the Company's Amended and Restated Bylaws (the "Bylaws")
provide that the Board shall consist of not less than five and not more than 15
directors, the exact number of directors to be determined from time to time by
resolution of the Board of Directors. By resolution, the Board has currently set
the number of directors at nine members. The Restated Certificate also provides
for a classified Board of Directors divided into three classes whose terms
expire at different times. Three members are to be elected to the Board of
Directors in 1997, each to serve for a term of three years. All of the Board's
nominees for election at the 1997 Annual Meeting of Stockholders for a term
expiring at the 2000 Annual Meeting of Stockholders are currently directors of
the Company. The Board of Directors has no reason to doubt the availability of
its slate of nominees and each nominee has indicated his willingness to serve if
elected. If any nominee shall decline or be unable to serve for any reason, it
is intended that, at the discretion of the Board of Directors, the Board will
appoint a replacement director or the size of the Board will be reduced.
The persons named in the enclosed form of proxy intend to vote such proxy
for the election of the three nominees named below as directors of the Company,
unless the stockholder indicates on the form of proxy that the vote should be
withheld or contrary directions are indicated. If the proxy card is signed and
returned without any direction given, stock represented by the form of proxy
will be voted FOR the election of the three nominees named below.
Information as of January 31, 1997 Regarding
Nominees for Directors to be Elected in 1997
for Terms Expiring in 2000
<TABLE>
<CAPTION>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<S> <C> <C> <C>
Armin-Peter Bode....................... 55 1997 Director of the Company since August 1996;
Member of the Board of Management and Chief
Financial Officer of Huls AG, an affiliate of
the Company, since August 1996; Member of the
Board of Management of Brenntag AG, an
affiliate of the Company, from December 1989
to July 1996; Deputy Chairman of the Board of
Management of Brenntag AG from October 1993 to
July 1996.
Dr. Robert M. Sandfort................. 54 1997 Director of the Company since 1990; President
and Chief Operating Officer of the Company
since November 1992; President, U.S.
Operations and Corporate Vice President of the
Company from April 1989 to November 1992.
Michael B. Smith....................... 60 1997 Director of the Company since September 1995
and from August 1989 to May 1993; Senior
Principal of Capitoline/Manning, Selvage & Lee
since 1996; President of SJS Advanced
Strategies from 1989 to 1995.
</TABLE>
2
<PAGE> 5
Information as of January 31, 1997 Regarding
the Directors Who are not Nominees for Election
and Whose Terms Continue Beyond 1997
<TABLE>
<CAPTION>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<S> <C> <C> <C>
Dr. Alfred Oberholz.................... 44 1998 Director of the Company since March 1997;
Deputy Member of the Board of Management of
Huls AG since July 1996; Head of
Silicones/Silanes Business Unit of Huls AG
from January 1995 to November 1996; Member of
Central Department for Corporate Strategy of
Huls AG from May 1993 to December 1994.
Dr. Erhard Meyer-Galow................. 55 1998 Chairman of the Board of Directors of the
Company since August 1996; Vice Chairman of
the Board of Directors of the Company from May
1995 to August 1996; Chairman of the Board of
Management of Huls AG since October 1993;
Member of the Board of Management of VEBA AG,
an affiliate of the Company, since October
1993; Member of the Supervisory Board of
Rutgers AG since January 1995; Member of the
Board of Management of Stinnes AG, an
affiliate of the Company, from 1991 to 1993.
Ludger H. Viefhues..................... 54 1998 Director of the Company since 1989; Chief
Executive Officer of the Company since August
1996; Chairman of the Board of Directors of
the Company from March 1993 to August 1996;
Executive Vice President and Chief Financial
Officer of the Company from 1989 to 1992;
Chief Financial Officer of Huls AG from
January 1993 to July 1996; Member of the Board
of Management of Huls AG from October 1993 to
July 1996.
Prof. Dr. Harald Jurgen Biangardi...... 49 1999 Director of the Company since March 1996;
Corporate Vice President, Technology, of the
Company from February 1991 to April 1994;
Corporate Vice President of the Company from
April 1994 to February 1996; President and
Chief Executive Officer of Huls Corporation,
an affiliate of the Company, since March 1996.
Willem D. Maris........................ 57 1999 Director of the Company since September 1995;
President and Chief Executive Officer of ASM
Lithography Holdings since 1990.
Paul T. O'Brien........................ 51 1999 Director of the Company since May 1995;
Corporate Vice President of Huls Corporation
since July 1993; Executive Vice President of
Huls America Inc., an affiliate of the
Company, since October 1992; General Counsel
and Secretary of Huls America Inc. since June
1985; Vice President of Huls America, Inc.
from June 1985 to September 1992.
</TABLE>
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 1997, by (i) each director, which includes
nominees for election as a director, (ii) each executive officer named in the
Summary Compensation Table (the "Named Executive Officers"), and (iii) all
directors and executive officers of the Company as a group. None of the
aforementioned individuals own one percent or more of the issued and outstanding
Common Stock of the Company. All directors and executive officers of the Company
as a group own in the aggregate slightly less than one percent of the issued and
outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Prof. Dr. Harald Jurgen
Biangardi....................... 21,374(1)
Armin-Peter Bode.................. --
Marcel Coinne..................... 22,855(2)
Willem D. Maris................... --
Roger D. McDaniel................. 40,000(3)
Dr. Erhard Meyer-Galow............ --
Dr. Alfred Oberholz............... --
Paul T. O'Brien................... --
</TABLE>
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Dr. Robert M. Sandfort............ 65,946(4)
Dr. Werner Schmitz................ 15,380(5)
Michael B. Smith.................. 400(6)
James M. Stolze................... 42,830(7)
Ludger H. Viefhues................ 4,000(6)
All directors and executive
officers as a group (23
persons)........................ 342,831
</TABLE>
- -------------------------
(1) Sole voting and investment power.
(2) Sole voting and investment power over 5,226 shares issuable upon exercise of
stock options granted under the MEMC Electronic Materials, Inc. 1995 Equity
Incentive Plan, as amended and restated (the "Equity Incentive Plan"); sole
voting power but no investment power over 2,200 shares of unvested
restricted stock awarded under the Equity Incentive Plan; shared voting and
investment power over 15,429 shares including 3,370 shares owned by Mr.
Coinne's spouse. Mr. Coinne disclaims beneficial ownership of the shares
owned by his spouse.
(3) Sole voting but no investment power over these shares of restricted stock
awarded under the Equity Incentive Plan. Pursuant to the terms of Mr.
McDaniel's Amended and Restated Employment Agreement dated May 21, 1996,
these shares of restricted stock will be forfeited by Mr. McDaniel on August
1, 1997. See "Employment Agreements -- Roger D. McDaniel."
(4) Sole voting and investment power over 33,246 shares including 21,141 shares
issuable upon exercise of stock options granted under the Equity Incentive
Plan; sole voting but no investment power over 30,100 shares of unvested
restricted stock awarded under the Equity Incentive Plan; shared voting and
investment power over 2,600 shares.
(5) Sole voting and investment power over 12,880 shares including 5,376 shares
issuable upon exercise of stock options granted under the Equity Incentive
Plan; sole voting but no investment power over 2,500 shares of unvested
restricted stock awarded under the Equity Incentive Plan.
(6) Shared voting and investment power.
(7) Sole voting and investment power over 32,030 shares including 5,526 shares
issuable upon exercise of stock options granted under the Equity Incentive
Plan; sole voting but no investment power over 2,800 shares of unvested
restricted stock awarded under the Equity Incentive Plan; shared voting and
investment power over 8,000 shares.
4
<PAGE> 7
The following table sets forth information regarding all persons known to
the Company to be the beneficial owner of more than five percent of the Common
Stock of the Company as of January 31, 1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
- --------------------------------------------- ---------------- -------------------
<S> <C> <C>
Huls Corporation............................. 21,490,942(1) 51.9%
13801 Riverport Drive
Suite 500
Maryland Heights, Missouri 63043
</TABLE>
- -------------------------
(1) This information is based on a Schedule 13G dated February 14, 1996 jointly
filed with the Securities and Exchange Commission (the "SEC") by VEBA AG and
its indirect, wholly owned subsidiary, Huls Corporation. The aforementioned
companies report sole voting and investment power over these shares of
Common Stock.
BOARD MEETINGS AND COMMITTEES; COMPENSATION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors met four times in 1996. The Company's Bylaws provide
for an Audit Committee and a Compensation Committee, and authorize the Board, by
resolution, to designate other committees having such duties and functions as
provided in the resolution creating them. The Board has established four
committees having responsibility in specific areas of Board activity, the duties
and responsibilities of which are described herein. Each of the directors
attended 75% or more of the aggregate of the meetings of the Board and of the
Board committees on which they served in 1996.
AUDIT COMMITTEE
Members: Willem D. Maris and Michael B. Smith
The Audit Committee met four times in 1996. The Audit Committee reviews the
Company's internal accounting and auditing procedures, meets from time to time
with the Company's internal auditors and with the Company's independent auditors
to review their accounting recommendations to the Company, and submits reports
periodically on the foregoing matters to the Board of Directors.
COMPENSATION COMMITTEE
Members: Armin-Peter Bode, Erhard Meyer-Galow and Michael B. Smith
The Compensation Committee met four times in 1996. The responsibilities of
the Compensation Committee include: selecting the executive and salaried
employees who participate in the executive compensation program (the
"Participants"); reviewing and approving new compensation programs; setting base
salaries for Participants; reviewing and approving base salaries of recently
hired Participants; approving annual cash incentive plan participants, targets
and award amounts; approving profit sharing programs; and reviewing and
approving annual adjustments in compensation necessitated by competitive,
inflationary or governmental pressures.
ENVIRONMENTAL, SAFETY AND HEALTH COMMITTEE
Members: Paul T. O'Brien, Robert M. Sandfort and Michael B. Smith
The Environmental, Safety and Health Committee met four times in 1996. The
Environmental, Safety and Health Committee evaluates the impact that existing
and developing environmental, safety and health laws, regulations, trends and
issues may have on Company operations, personnel and performance. It
periodically meets with management to encourage the taking of appropriate
actions to minimize or mitigate the impact of such laws, regulations, trends and
issues on the Company, its operations and its personnel. The Environmental,
Safety and Health Committee also monitors the Company's performance in these
areas in light of its stated corporate guidelines.
5
<PAGE> 8
PLANNING AND CAPITAL EXPENDITURES COMMITTEE
Members: Harald Jurgen Biangardi, Armin-Peter Bode, Willem D. Maris, Robert
M. Sandfort and Ludger H. Viefhues
The Planning and Capital Expenditures Committee met six times in 1996. The
Planning and Capital Expenditures Committee reviews regularly with management of
the Company the capital expenditures planned or desired by the Company and makes
recommendations to the full Board of Directors with respect to such matters.
DIRECTOR NOMINATIONS
The Company does not have a standing nominating committee; the Board of
Directors performs this function. Pursuant to the Restated Certificate, the
Board will accept nominations of persons for election to the Board of Directors
by any stockholder of the Company on the record date for the annual meeting of
stockholders who submits a notice to the Company which sets forth the
information about both the nominee (including but not limited to the information
required by the federal proxy solicitation rules) and the stockholder making the
nomination.
To be timely, the stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Company not less than 60 days
nor more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders. If the annual meeting of stockholders is called
for a date that is not within 30 days before or after the anniversary date, in
order to be timely, notice by the stockholder must be received not later than
the close of business on the tenth day following the day on which notice of the
date of the annual meeting is mailed to stockholders or public disclosure of the
date of the annual meeting is made, whichever occurs first.
DIRECTORS FEES
Each director who is not an officer of the Company is paid an annual
retainer of $25,000 and is paid $1,000 for each Board meeting and each committee
meeting he attends, plus expenses. Commencing in August 1996, each non-employee
director is also paid an annual retainer of $3,000 for each committee on which
such non-employee director serves as a member and $6,000 (in lieu of the $3,000)
for each committee on which such non-employee director serves as chairman. In
addition, commencing in August 1996, each non-employee director who is the
chairman of a committee is paid $2,000 (in lieu of $1,000) for each committee
meeting he attends and serves as chairman. In 1996, each non-employee director
serving as a member of a committee (other than the chairman of the committee)
was paid an annual retainer of $2,250 for each committee on which such
non-employee director served as a member and each non-employee director serving
as the chairman of a committee was paid an annual retainer of $4,500 (in lieu of
the $2,250) for each committee on which such non-employee director served as
chairman, in both cases reflecting less than a full year's service under the new
committee compensation structure. Mr. McDaniel also received fees for consulting
services provided to the Company. See "Employment Agreements -- Roger D.
McDaniel" and footnote (9) to the Summary Compensation Table.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company's executive compensation program is based on the premise that a
balance is required between the needs of the Company in operating its business
in an effective and profitable manner and the competitiveness of rewards in
competing for management talent in the marketplace. The program is reviewed at
least annually by the Compensation Committee (the "Committee") to ensure
consistency with the compensation philosophy of the Company and that the stated
objectives continue to be met.
The Committee is made up of non-management directors. From January 1, 1996
to August 10, 1996, the Committee was comprised of Mr. Ludger H. Viefhues, Dr.
Jorn Ruter and Mr. Michael B. Smith. On August 10, 1996, the Committee was
reorganized. As of December 31, 1996, the Committee was comprised of Dr. Erhard
Meyer-Galow, Mr. Armin-Peter Bode, and Mr. Michael B. Smith.
6
<PAGE> 9
Policies, Goals and Responsibilities
The Committee provides a general review of the Company's compensation plans
to ensure that they meet corporate objectives.
The philosophy of the Committee is to establish compensation at a level
which will allow the Company to attract, retain and motivate the caliber of
individuals required to manage and expand the Company's business. Compensation
levels are established in part based upon survey data of comparable U.S.
companies, or comparable companies in the world area or country of the
respective business, developed by internationally recognized compensation
consultants, such as Towers Perrin. The guideline for compensation is the median
level of Towers Perrin Compensation Data Bank Executive Compensation Survey (the
"Survey"). Companies included in this Survey are considered to be representative
samples of those with which the Company competes for employees. Many of the
companies in the Survey are also included in the companies that make up the
indices for the Stock Price Performance Graph.
The 1996 executive compensation program consists of three components: 1)
base salary, 2) annual cash incentive awards, and 3) long term incentive awards.
Base Salary
The base salary of each executive officer is reviewed annually. In deciding
the appropriate salary, the Committee considers, as the primary driver, the
median external pay practices of the appropriate comparable group, internal
equity issues, level of responsibility, individual performance, time in
position, and prior experience and knowledge. The Committee uses broad
discretion when setting base salary levels and considers all of the above
criteria. It does not assign a specific weight to any of these factors.
In 1996, until his retirement on August 1, 1996, Mr. Roger D. McDaniel held
the position of CEO of the Company. Mr. McDaniel's base salary for that period
was $253,750. Effective August 1, 1996, Mr. Ludger H. Viefhues became CEO of the
Company. Mr. Viefhues' base salary from August 1, 1996 to December 31, 1996 was
$208,331. Mr. Viefhues' annual base salary as of December 31, 1996 was $500,000
per year pursuant to a letter agreement with the Company dated as of September
3, 1996.
Annual Cash Incentive Award
Participation in the Annual Incentive Bonus Plan (the "Plan") is
discretionary on the part of the Company and the Plan is non-contractual. Under
current practice, annual cash awards are made to middle management and senior
executives to recognize and reward individual and corporate performance.
Participants are selected on the basis of their grade level which is reflective
of their positions in the Company.
The Committee establishes a performance/payout schedule each year to fix
target bonuses (as a percentage of salary) for each salary grade. Target bonus
levels are targeted at the median level of the comparable group, based upon the
Survey. The target bonus level for participants ranged from 5% to 50% of the
participant's annual base salary, and the maximum award payout can be as much as
220% of the target bonus level if superior performance levels are attained.
The award is subject to three performance factors: 1) the Company's
performance against its net earnings budget, 2) the Company's performance
against a set of quality goals, and 3) the individual's personal performance
contribution as judged by management. The portion of the award which is profit
dependent is triggered at 80% of budgeted profit and reaches a maximum payout of
1.2 times the target incentive level when 120% of the budgeted profit is
reached. An amount equal to the target incentive is dependent upon performance
against the quality goals.
The Committee awarded the former CEO, Mr. McDaniel, an annual incentive
cash award of $322,988. This amount was per the Amended and Restated Employment
Agreement dated as of May 21, 1996 between the Company and Mr. McDaniel and is a
pro rata incentive for 1996 at the maximum target and maximum payout levels (99%
of base salary), with proration reflecting accrued but unused vacation time.
The Committee awarded the current CEO, Mr. Viefhues, an annual incentive
cash award of $180,208 or 86.5% of his base salary as of December 31, 1996, pro
rated for the five (5) months Mr. Viefhues served as CEO of the Company. Mr.
Viefhues' maximum annual incentive target at the maximum payout level is 110% of
base salary.
7
<PAGE> 10
Long Term Incentive Awards
The Company established a long term incentive bonus plan (the "LTIP")
beginning in 1996 for senior executives and certain members of middle
management. The LTIP has a four (4)-year performance period beginning January 1,
1996 and ending December 31, 1999 (the "LTIP Period"). The LTIP consists of two
parts: (1) annual grants of non-qualified stock options with 25% of such options
vesting on each anniversary of such grant and (2) for certain executive
officers, a grant of performance vesting restricted stock vesting upon
attainment of certain cumulative earnings per share goals.
For each participant in the LTIP, the Committee determines a target
percentage of base salary to be received by such participant in the form of
equity-based compensation under the LTIP during the LTIP Period. For each
participant, such percentage is determined based on the median external pay
practices of the appropriate comparable group and such participant's level of
responsibility with the Company. Such percentages currently range from 25% to
100%. In general, the annual grants of non-qualified stock options are intended
to comprise 100% of the value of the total LTIP award to each participant during
the LTIP Period (with such non-qualified stock options valued under an option
pricing model). Notwithstanding the foregoing, for certain executive officers,
the annual grants of non-qualified stock options are intended to comprise 80% of
the total value of the LTIP award to each such executive officer and the grant
of performance vesting restricted stock is intended to comprise 20% of the total
value of the LTIP award.
Because of the amount of restricted stock and non-qualified stock options
received by Mr. McDaniel at the time of the Company's IPO, the Committee made no
award to Mr. McDaniel under the LTIP in 1996. For Mr. Viefhues, the Committee
determined a target LTIP award for the LTIP Period equal to 100% of Mr.
Viefhues' base salary. Based on the total remuneration provided to Mr. Viefhues
under his employment letter with the Company dated September 3, 1996, the
Committee determined that Mr. Viefhues' LTIP award would be comprised entirely
of annual grants of non-qualified stock options. In 1996, the Committee awarded
Mr. Viefhues non-qualified stock options to purchase 9,500 shares, reflecting
less than a full year's service as CEO of the Company. Pursuant to the terms of
his employment letter and the target LTIP award determined by the Committee for
Mr. Viefhues, beginning in January 1997, Mr. Viefhues will receive an annual
grant of stock options to purchase a number of shares with a market value equal
to 200% of his base salary (as of December 31 of the year prior to the grant),
which options will have an exercise price per share equal to 100% of the market
value on the date of grant.
Deductibility of Executive Officer Compensation
The Committee will review for future application the tax deductibility of
executive compensation in excess of $1 million to determine how to structure
benefit plans in such a manner that permits the deductibility of such
compensation under Section 162(m) of the Internal Revenue Code when the Company
can do so without material change to its overall compensation program.
Summary
The Company's executive compensation program is based on the premise that a
balance is required between the needs of the Company in operating its business
in an effective and profitable manner and the competitiveness of rewards in
competing for management talent in the marketplace. The program is reviewed at
least annually by the Committee to ensure consistency with the compensation
philosophy of the Company and that the stated objectives continue to be met.
Members of the Compensation Committee
Dr. Erhard Meyer-Galow, Chairman
Mr. Armin-Peter Bode
Ambassador Michael B. Smith
8
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------------
--------------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ ALL OTHER
POSITION YEAR ($)(1) ($) ($)(2) AWARDS($)(3) SARS(#) COMPENSATION($)
------------------ ---- ------ ----- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ludger H. Viefhues(4)..... 1996 241,331(5) 180,208 -- -- 9,500 6,300(6)
Chief Executive Officer 1995 -- -- -- -- -- --
1994 -- -- -- -- -- --
Roger D. McDaniel(7)...... 1996 345,673(8) 322,988 -- -- -- 50,294(9)
Former Chief Executive 1995 326,173 430,650 -- 1,920,000(10) 242,060 6,300(6)
Officer 1994 320,502 221,762 -- -- -- 6,300(6)
Dr. Robert M. Sandfort.... 1996 320,496 168,156 -- 199,013(11) 12,200 6,300(6)
President and Chief 1995 284,365 204,600 -- 1,152,000(10) 144,728 6,300(6)
Operating Officer 1994 247,306 110,000 -- -- -- 6,300(6)
James M. Stolze(12)....... 1996 237,806 103,973 -- 91,350(11) 5,600 2,945(6)
Executive Vice President 1995 124,583 454,495(13) -- 396,096(14) 16,504 --
and Chief Financial 1994 -- -- -- -- -- --
Officer
Marcel Coinne............. 1996 234,161(15) 102,825(15) 49,318(15)(16) 71,775(11) 4,400 --
Corporate Vice President 1995 245,666(17) 138,128(17) 98,265(16)(17) 396,096(14) 16,504 --
1994 216,514(18) 95,794(18) 55,461(16)(18) -- -- --
Dr. Werner Schmitz........ 1996 206,750 90,383 -- 81,563(11) 5,000 6,300(6)
Executive Vice President 1995 192,275 110,000 43,857(19)(20) 396,096(14) 16,504 6,300(6)
1994 178,775 76,027 43,568(20)(21) -- -- 6,300(6)
</TABLE>
- -------------------------
(1) Amounts shown include cash compensation earned and received as well as cash
compensation earned but deferred at the election of the Named Executive
Officer.
(2) Applicable regulations set reporting levels.
(3) The aggregate number of shares of restricted stock held by each of the
named executive officers and their value at December 31, 1996 ($22.50 per
share) are as follows: Mr. Viefhues - 0 shares, $0; Mr. McDaniel - 40,000
shares, $900,000; Dr. Sandfort - 30,100 shares, $677,250; Mr. Stolze -
2,800 shares, $63,000; Mr. Coinne - 2,200 shares, $49,500; and Dr. Schmitz
- 2,500 shares, $56,250. Notwithstanding the foregoing, pursuant to the
terms of Mr. McDaniel's Amended and Restated Employment Agreement dated May
21, 1996, Mr. McDaniel's shares of restricted stock will be forfeited on
August 1, 1997. See "Employment Agreements -- Roger D. McDaniel." No
dividends were paid on the restricted stock, as no dividends have been paid
to any stockholders of the Company since the restricted stock was initially
awarded.
(4) Mr. Viefhues was initially employed by the Company as Chief Executive
Officer on August 1, 1996.
(5) Of this amount, $208,331 represents Mr. Viefhues' base salary and $33,000
represents non-employee director fees received by Mr. Viefhues in 1996
prior to his appointment as Chief Executive Officer on August 1, 1996.
(6) Represents matching contributions by the Company to the MEMC Retirement
Savings Plan.
(7) Mr. McDaniel retired as Chief Executive Officer of the Company on August 1,
1996.
(8) Of this amount, $253,750 represents Mr. McDaniel's base salary, $66,923
represents payment in lieu of accrued vacation, and $25,000 represents
non-employee director fees received by Mr. McDaniel since August 1, 1996.
(9) Represents matching contributions by the Company to the MEMC Retirement
Savings Plan and consulting fees received by Mr. McDaniel since August 1,
1996. See "Employment Agreements -- Roger D. McDaniel."
9
<PAGE> 12
(10) Half of the restricted stock awarded to Mr. McDaniel and Dr. Sandfort at
the time of the IPO was cliff vesting restricted stock ("Cliff Vesting
Restricted Stock") which was to fully vest on the fourth anniversary of the
date of grant. The other half was performance vesting restricted stock
("Performance Vesting Restricted Stock"). The Performance Vesting
Restricted Stock awarded to Mr. McDaniel and Dr. Sandfort was to fully vest
on the fourth anniversary of the date of grant unless prior to the third
anniversary of the date of grant and other timing restrictions being
satisfied, (i) the market price appreciated by 55% or more from the IPO
price, in which case half of such Performance Vesting Restricted Stock
would vest or (ii) the market price appreciated by 100% or more from the
IPO price, in which case all of such Performance Vesting Restricted Stock
would vest. On December 11, 1995, the market price of the Common Stock
reached $37.875 and on January 12, 1996 the other timing restriction was
satisfied, such that all of the restrictions on half of the Performance
Vesting Restricted Stock awarded to Mr. McDaniel and Dr. Sandfort lapsed.
On April 30, 1996, the market price of the Common Stock reached $50.50 such
that all restrictions on the other half of the Performance Vesting
Restricted Stock awarded to Mr. McDaniel and Dr. Sandfort also lapsed.
Pursuant to the terms of Mr. McDaniel's Amended and Restated Employment
Agreement dated May 21, 1996, effective August 1, 1997, Mr. McDaniel's
remaining Cliff Vesting Restricted Stock (40,000 shares) will be forfeited
and canceled. In the event of a change in control of the Company and except
as the Compensation Committee of the Board of Directors may otherwise
determine, all restrictions and conditions on the remaining unvested
restricted stock owned by Dr. Sandfort shall lapse as of the date of a
change in control. Upon termination of employment by Dr. Sandfort, due to
death or permanent disability, the Cliff Vesting Restricted Stock owned by
Dr. Sandfort will continue to vest as if Dr. Sandfort's employment had not
terminated, provided that if Dr. Sandfort is terminated without cause prior
to the expiration of his employment contract with the Company, all Cliff
Vesting Restricted Stock owned by him will vest.
(11) On January 1, 1996, restricted stock was awarded in the following amounts
at the per share price of $32.625, the closing price of the Common Stock on
the NYSE on December 29, 1995 (the last day of trading of 1995), which
dollar amounts are reflected in this column for 1996: Dr. Sandfort, 6,100,
Mr. Stolze, 2,800, Mr. Coinne, 2,200, and Dr. Schmitz, 2,500. Twenty-five
percent (25%) of the restricted stock awarded to Drs. Sandfort and Schmitz
and to Messrs. Stolze and Coinne will vest on January 1, 1998 if the
Company's cumulative earnings per share ("CEPS") for the two fiscal years
ending December 31, 1997 meet a certain target level for such period. Up to
100% of the restricted stock awarded to Drs. Sandfort and Schmitz and to
Messrs. Stolze and Coinne, less any of the restricted stock which vests on
January 1, 1998, will vest on January 1, 2000 if the Company's CEPS for the
four fiscal years ending December 31, 1999 meet certain percentages of the
target level for such period as follows:
<TABLE>
<CAPTION>
CEPS AS A PERCENTAGE PERCENT OF SHARES WHICH
OF TARGET LEVEL WILL VEST ON JANUARY 1, 2000
- -------------------- ----------------------------
<S> <C>
100% or more.............................................. 100%
95% to < 100%............................................. 80%
90% to < 95%.............................................. 60%
Below 90%................................................. 0%
</TABLE>
Notwithstanding the foregoing, all such restricted stock will vest at the
end of any calendar quarter ending before December 31, 1999 as of which
the CEPS for the period commencing January 1, 1996 and ending as of the
end of such calendar quarter is at least 100% of the target level for the
entire four-year period. Upon termination of employment due to death,
permanent disability or retirement before January 1, 2000, a participant
will forfeit a percentage of his or her restricted stock equal to a
fraction the numerator of which is the number of days from the date of
such termination of employment through December 31, 1999 and the
denominator of which is 1,460 (the number of days in the period commending
January 1, 1996 and ending December 31, 1999). The remaining restricted
stock will continue to be held by the participant subject to the CEPS
conditions described above. Upon termination of employment for reasons
other than death, permanent disability or retirement before January 1,
2000, a participant will forfeit all of his or her restricted stock.
10
<PAGE> 13
(12) Mr. Stolze was initially employed by the Company in June 1995.
(13) Of this amount, $126,500 represents Mr. Stolze's bonus under the Annual
Incentive Bonus Plan, and $327,995 represents a bonus awarded to Mr. Stolze
to induce him to accept employment with the Company. Pursuant to the terms
under which the inducement bonus was awarded, Mr. Stolze is obligated to
repay it if he terminates his employment prior to completing five years of
service.
(14) The restricted stock awarded at the time of the IPO to Messrs. Stolze and
Coinne and Dr. Schmitz was to vest at the rate of 20% annually on each
anniversary of the date of grant unless, other timing restrictions being
satisfied, the market price of the Common Stock appreciated by 55% or more
from the IPO offering price, in which case all of the restricted stock
awarded to them would fully vest. On December 11, 1995 the market price of
the Common Stock reached $37.875 and on January 12, 1996 the other timing
restriction was satisfied such that all of the restrictions on all of the
restricted stock awarded at the time of the IPO to each of Messrs. Stolze
and Coinne and Dr. Schmitz lapsed.
(15) Belgian franc amounts have been translated into U.S. dollars at the rate of
BFr 31.71 = $1.00, the noon buying rate in New York City for cable transfer
in Belgian francs as certificated for customs purposes by the Federal
Reserve Bank of New York on December 31, 1996.
(16) Includes, among other things, a housing allowance and payments made in
connection with the acceptance of an international assignment paid by Huls
Belgium S.A. The Company reimburses Huls Belgium S.A. for these payments.
(17) Belgian Franc amounts have been translated into U.S. Dollars at the rate of
BFr 29.43 = $1.00, the noon buying rate in New York City for cable
transfers in Belgian francs as certified for customs purposes by the
Federal Reserve Bank of New York on December 29, 1995.
(18) Belgian Franc amounts have been translated into U.S. Dollars at the rate of
BFr 31.85 = $1.00, the noon buying rate in New York City for cable
transfers in Belgian francs as certified for customs purposes by the
Federal Reserve Bank of New York on December 30, 1994.
(19) German Deutsche Mark amounts have been translated into U.S. Dollars at the
rate of DM 1.4345 = $1.00, the noon buying rate in New York City for cable
transfers in Deutsche Marks as certified for customs purposes by the
Federal Reserve Bank of New York on December 29, 1995.
(20) Includes, among other things, a mortgage interest subsidy paid by Huls AG.
(21) German Deutsche Mark amounts have been translated into U.S. Dollars at the
rate of DM 1.5495 = $1.00, the noon buying rate in New York City for cable
transfers in Deutsche Marks as certified for customs purposes by the
Federal Reserve Bank of New York on December 30, 1994.
11
<PAGE> 14
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(1)
------------------------------------------------------ -----------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
---- ------------ ------------ ----------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ludger H. Viefhues...... 9,500(2) 6.7% 35.25 9/1/06 0 210,601 533,705
Roger D. McDaniel....... 0 0.0% N/A N/A N/A N/A N/A
Dr. Robert M.
Sandfort.............. 12,200(3) 8.6% 32.625 1/1/06 0 250,316 634,349
James M. Stolze......... 5,600(3) 4.0% 32.625 1/1/06 0 114,899 291,177
Marcel Coinne........... 4,400(3) 3.1% 32.625 1/1/06 0 90,278 228,782
Dr. Werner Schmitz...... 5,000(3) 3.5% 32.625 1/1/06 0 102,588 259,979
All Stockholders(4)..... N/A N/A N/A N/A 0 849,432,250 2,152,628,097
All Optionees(5)........ 141,300 100% 32.625- 1/1/06- 0 2,899,149 7,347,013
49.50 9/1/06
Optionee's Gain as % of
All Stockholders'
Gain.................. N/A N/A N/A N/A N/A 0.34% 0.34%
</TABLE>
- -------------------------
(1) The dollar amounts under these columns are the result of calculations at 0%
and at the 5% and 10% rates set by the SEC and therefore are not intended to
forecast possible future appreciation, if any, of the Company's Common Stock
price.
(2) These options become exercisable at the rate of 25% per year, on September
1, 1997, September 1, 1998, September 1, 1999 and September 1, 2000. All of
these options expire ten years from the date of grant. In the event of a
change in control of the Company and except as the Compensation Committee of
the Board of Directors may otherwise determine, all restrictions and
conditions on the remaining unvested stock options (other than any stock
options granted within six months of such change of control) owned by Mr.
Viefhues shall lapse as of the date of a change in control. If Mr. Viefhues
is terminated without cause prior to the expiration of his employment
agreement with the Company or if Mr. Viefhues terminates his employment by
reason of death or permanent disability, all unvested stock options awarded
to him shall become immediately exercisable. In addition, if Mr. Viefhues
retires on or after July 31, 2002, or earlier if Mr. Viefhues retires with
the consent of the Compensation Committee, then all unvested stock options
awarded to Mr. Viefhues will become immediately exercisable.
(3) These options become exercisable at the rate of 25% per year on January 1,
1997, January 1, 1998, January 1, 1999 and January 1, 2000. All of these
options expire ten years from the date of grant. In the event of a change in
control of the Company and except as the Compensation Committee of the Board
of Directors may otherwise determine, all restrictions and conditions on the
remaining unvested stock options (other than stock options granted within
six months of such change of control) owned by these individuals shall lapse
as of the date of a change in control. In addition, upon termination of
employment due to death, permanent disability or retirement, all stock
options awarded to the terminated individual shall become immediately
exercisable.
(4) Gain for all stockholders was determined based on approximately 41.4 million
shares outstanding on January 1, 1996, at a price per share of $32.625. On
January 1, 1996, the Company granted options to purchase 130,200 shares at a
price per share of $32.625. On June 1, 1996, the Company granted options to
purchase 1,600 shares at a price per share of $49.50. On September 1, 1996,
the Company granted options to purchase 9,500 shares at a price per share of
$35.25.
(5) No gain to the optionees is possible without an increase in the price of the
Company's Common Stock, which increase would benefit all stockholders
commensurately. A zero percent stock price appreciation will result in zero
dollars for the optionee.
12
<PAGE> 15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
FY-END OPTIONS/SARS AT
(#) FY-END($)
SHARES ACQUIRED --------------- ----------------
ON EXERCISE VALUE REALIZED(1) EXERCISABLE/ EXERCISABLE/
NAME (#) $ UNEXERCISABLE UNEXERCISABLE(2)
---- --------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Ludger H. Viefhues............... 0 0 0/9,500 0/0
Roger D. McDaniel................ 30,258 423,612 0/211,802(3) 0/0
Dr. Robert M. Sandfort........... 0 0 18,091/138,837 0/0
James M. Stolze.................. 0 0 4,126/17,978 0/0
Marcel Coinne.................... 0 0 4,126/16,778 0/0
Dr. Werner Schmitz............... 0 0 4,126/17,378 0/0
</TABLE>
- -------------------------
(1) Market value on the date of exercise of shares covered by option exercise,
less option exercise price.
(2) The aggregate values of unexercised options are based on the difference
between (i) the per share closing price of the Common Stock of $22.50 on the
NYSE on December 31, 1996, the last trading day of 1996, multiplied by the
number of unexercised options, and (ii) the per share exercise price of the
options ($24.00-$49.50) multiplied by the number of unexercised options.
(3) Pursuant to the terms of Mr. McDaniel's Amended and Restated Employment
Agreement dated May 21, 1996, effective as of August 1, 1997, Mr. McDaniel
will forfeit options to purchase 61,030 shares of Common Stock.
PENSION PLAN
The Company sponsors the MEMC Pension Plan, a defined benefit pension plan
covering most domestic employees of the Company and its subsidiaries. The MEMC
Pension Plan was formed effective January 1, 1997 as the result of the merger of
the MEMC Electronic Materials, Inc. Pension Plan for Salaried Employees (the
"Salaried Plan"), the MEMC Electronic Materials, Inc. Pension Plan for
Hourly-Paid Employees, and the MEMC Southwest Inc. Pension Plan into a single
plan.
The basic benefit payable under the MEMC Pension Plan is a lump sum equal
to 8% of the participant's "average total earnings" (as defined below) up to
one-half of the Social Security wage base plus 12% of the participant's "average
total earnings" (as defined below) over one-half of the Social Security wage
base, multiplied by the participant's years of benefit service, less 2% of such
amount for every year by which the current age of the participant is less than
age 65. In addition to the normal annuity options, the benefit for employees
hired on or after January 1, 1997, and to participants who were employed by MEMC
Southwest Inc. on December 31, 1996, is also available in an immediate lump sum
distribution at termination of employment. The benefit for other participants is
payable only in the form of an annuity with monthly payments for life beginning
at the participant's retirement age, the amount of which annuity is the
actuarial equivalent value of the participant's lump sum formula amount.
Employees who were participants in the Salaried Plan as of December 31,
1996 are entitled to a benefit calculated under the formula in effect as of such
date under the Salaried Plan, if such benefit is greater than the benefit
calculated under the above formula. The basic monthly benefit payable under the
Salaried Plan formula is a single life annuity equal to 1.2% of the
participant's "average total earnings" (as defined below) multiplied by the
participant's years of benefit service. However, if the participant was hired by
Monsanto Company ("Monsanto") in the U.S., a prior owner of a substantial part
of the Company's business, before April 1, 1986 and was employed by the Company
at any time during the period April 1, 1989 through May 31, 1989, or if the
participant was employed by the Company at any time during the period January 1,
1989 through March 31, 1989, the factor is 1.4% of the participant's "average
total earnings" (as defined below) instead of 1.2%. The basic benefit amount
under the grandfathered formula is reduced to the extent the
13
<PAGE> 16
portion attributable to pre-April 1, 1989 service with Monsanto exceeds the
amount to which the participant would have been entitled had his base salary (as
of March 31, 1989) increased at a rate of 6% per year. If a participant with
either the 1.2% or 1.4% formula retires on or after age 55 but prior to age 65,
his benefit will be reduced 1/4% for each month that his retirement date
precedes his 65th birthday. However, if the participant is under age 65 but at
least age 55 at the time of his retirement, and the participant's age and years
of vesting service add up to at least 80, then the benefit is not subject to
this reduction.
The basic benefit under either formula is reduced by the amount the
participant is entitled to receive under any other designated Monsanto defined
benefit pension plan.
For purposes of the MEMC Pension Plan, "average total earnings" means the
greater of (a) the monthly average earnings received in the 36 months
immediately prior to the date of employment termination or (b) the monthly
average of earnings received during the highest three of the five calendar years
immediately prior to the year in which employment terminates. "Earnings" means
amounts paid to participants that are subject to federal income tax withholding
(including salary and bonus payments), subject to certain adjustments.
Generally, "earnings" utilized for pension formula purposes includes salary and
annual bonus reported in the salary and bonus columns of the Summary
Compensation Table. However, earnings utilized for pension formula purposes does
not include payment in lieu of accrued vacation and non-employee director fees.
Retirement benefits payable under qualified defined benefit plans are
subject to the annual pension limitations imposed under Section 415 of the
Internal Revenue Code of 1986, as amended (the "Code"), for which limitations
vary annually. The Section 415 limitation for 1996 is $120,000. In addition,
Section 401(a)(17) of the Code specifies a maximum amount of annual
compensation, also adjusted annually, that may be taken into account in
computing benefits under a qualified defined benefit plan. The Section
401(a)(17) limitation for 1996 is $150,000. The MEMC Electronic Materials, Inc.
Supplemental Executive Pension Plan (the "MEMC SEPP"), a nonqualified and
unfunded plan, will provide benefits over the applicable Code limitations.
Benefits under the MEMC SEPP are payable in the form of a lump sum distribution
and/or in the form of an annuity with monthly payments for life beginning at the
participant's retirement age.
The following table shows the estimated annual pension benefits under the
MEMC Pension Plan and the MEMC SEPP in the remuneration and years of service
classifications indicated (without regard to the offsets described above) using
the 1.4% Salaried Plan formula described above.
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000...................... $ 26,250 $ 35,000 $ 43,750 $ 52,500 $ 61,250
150,000...................... 31,500 42,000 52,500 63,000 73,500
175,000...................... 36,750 49,000 61,250 73,500 85,750
200,000...................... 42,000 56,000 70,000 84,000 98,000
225,000...................... 47,250 63,000 78,750 94,500 110,250
250,000...................... 52,500 70,000 87,500 105,000 122,500
300,000...................... 63,000 84,000 105,000 126,000 147,000
400,000...................... 84,000 112,000 140,000 168,000 196,000
450,000...................... 94,500 126,000 157,500 189,000 220,500
500,000...................... 105,000 140,000 175,000 210,000 245,000
550,000...................... 115,500 154,000 192,500 231,000 269,500
600,000...................... 126,000 168,000 210,000 252,000 294,000
650,000...................... 136,500 182,000 227,500 273,000 318,500
700,000...................... 147,000 196,000 245,000 294,000 343,000
750,000...................... 157,000 210,000 262,500 315,000 367,500
800,000...................... 168,000 224,000 280,000 336,000 392,000
</TABLE>
14
<PAGE> 17
As discussed above, the 1.4% formula is actually an alternative to the
basic formula. Mr. McDaniel and Dr. Sandfort are covered by the 1.4% formula.
Therefore, Pension Plan Table(1) displayed above is based on the 1.4% formula.
The amounts shown in the table are calculated on a single life annuity basis,
and assume retirement at age 65.
When he retired, Mr. McDaniel had 34.1 years of benefit service and average
total earnings of $752,424 under the MEMC Pension Plan. At retirement, Mr.
McDaniel began receiving monthly annuities from the MEMC Pension Plan and the
SEPP. Mr. McDaniel also received a portion of his benefit under the SEPP in the
form of a lump sum payment which he agreed to defer until January 2, 1997. MEMC
paid Mr. McDaniel interest at the rate of 8% on the amount that was deferred.
As of December 31, 1996, Dr. Sandfort had 25.9 years of benefit service and
average total earnings of $420,509 under the MEMC Pension Plan.
The estimated annual pension benefit payable to Mr. Viefhues and Mr.
Stolze, who are eligible for the 1.2% grandfathered formula under the MEMC
Pension Plan, may be determined using Pension Plan Table (2) below. The table
presents the better of the basic benefit or the grandfathered 1.2% formula for
each level of remuneration and years of service as a single life annuity at
retirement age 65. The basic benefit is calculated using the 1997 Social
Security Wage Base and a 7% interest rate to convert the lump sums to annuities.
PENSION PLAN TABLE (2)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------
REMUNERATION 5 10 15
------------ - -- --
<S> <C> <C> <C>
$ 225,000............................. $13,500 $ 27,000 $ 40,500
250,000............................. 15,000 30,000 45,000
300,000............................. 18,000 36,000 54,000
400,000............................. 24,000 48,000 72,000
500,000............................. 30,000 60,000 90,000
600,000............................. 36,000 72,000 108,000
700,000............................. 42,000 84,000 126,000
800,000............................. 48,000 96,000 144,000
900,000............................. 54,031 108,062 162,093
1,000,000............................. 60,108 120,216 180,324
1,100,000............................. 66,185 132,370 198,555
1,200,000............................. 72,262 144,524 216,786
</TABLE>
As of December 31, 1996, Mr. Viefhues had 2.6 years of benefit service and
average total earnings of $323,434 and Mr. Stolze had 1.5 years of benefit
service and average total earnings of $319,537 under the MEMC Pension Plan. Mr.
Viefhues' years of benefit service reflect his prior period of benefit service
with the Company from June 1, 1989 through August 15, 1991. Under the terms of
the MEMC Pension Plan and because Mr. Stolze joined the Company in June 1995, as
of December 31, 1996, Mr. Stolze had no vested benefit.
Neither Mr. Coinne nor Dr. Schmitz participate in either the MEMC Pension
Plan or the MEMC SEPP.
Mr. Coinne currently participates in a pension plan maintained by Huls
Belgium S.A. and a pension agreement with the Company as set forth in his
employment agreement. The annual amount that Mr. Coinne would receive as a
pension under his employment agreement would be equal to 1.75% of "pensionable
earnings times years of service." "Pensionable earnings" means the average of
earnings in the currency of the country of last assignment for the final
36-month period of employment. Pension benefits under Mr. Coinne's employment
agreement are subject to reduction for accrued pension benefits under a
combination of government benefits and company-provided benefits. If Mr. Coinne
were to retire on or after age 55 but prior to age 65, his pension benefit would
be reduced by 1/4% per month that is prior to his attaining age 65.
15
<PAGE> 18
Dr. Schmitz currently participates in a pension plan maintained by Huls AG
pursuant to which he would be eligible to receive, had he retired on December
31, 1996, a monthly pension benefit equal to approximately $5,644 using the
exchange rate for German Deutsche Marks on December 31, 1996.
EMPLOYMENT AGREEMENTS
Ludger H. Viefhues
Mr. Ludger H. Viefhues entered into an employment agreement dated as of
September 3, 1996 with the Company (the "Viefhues Agreement"). The term of the
Viefhues Agreement commenced as of August 1, 1996, and will terminate on July
31, 2002. The Viefhues Agreement provides for an annual base salary of $500,000,
annual incentives, grants of options under the Equity Incentive Plan and other
benefits. Pursuant to the terms of the Viefhues Agreement, in 1996, Mr. Viefhues
received options to purchase 9,500 shares of Common Stock under the Equity
Incentive Plan. In addition, beginning in January 1997, Mr. Viefhues will
receive an annual grant of stock options under the Equity Incentive Plan to
purchase a number of shares with a market value equal to 200% of his base salary
(as of December 31 of the year prior to the grant), which options will have an
exercise price per share equal to 100% of the market value on the date of grant.
The Company may terminate the Viefhues Agreement upon six (6) months' prior
notice provided no advance notice will be required if Mr. Viefhues is terminated
for cause. In the event of Mr. Viefhues' involuntary termination without cause,
he will receive his base salary through the date of termination as well as a pro
rata bonus for the year of termination to be paid at the same time and to the
same extent (i.e., based on MEMC's performance for the full year) as bonuses are
paid generally to the Company's executives with respect to such year. Mr.
Viefhues will also be reimbursed for all reasonable relocation expenses incurred
by him (and his family) in returning to Germany, and all unvested options under
the Equity Incentive Plan will vest. In addition, if Mr. Viefhues retires on or
after July 31, 2002, or earlier if he retires with the consent of the
Compensation Committee, then all unvested stock options awarded to him under the
Equity Incentive Plan will become immediately exercisable.
Roger D. McDaniel
Mr. Roger D. McDaniel entered into an employment agreement dated as of May
1, 1995 with the Company (the "Original McDaniel Agreement"). The term of the
Original McDaniel Agreement commenced July 12, 1995 (the "IPO Date"), and was to
terminate on August 1, 1999. The Original McDaniel Agreement was amended and
restated effective as of May 21, 1996 (as amended and restated, the "Amended
McDaniel Agreement"). Pursuant to the terms of the Amended McDaniel Agreement,
Mr. McDaniel retired from service as Chief Executive Officer and as an employee
of the Company effective as of August 1, 1996. During the period commencing
August 1, 1996 and ending August 1, 1997 (the "Consulting Term"), Mr. McDaniel
agreed to provide consulting services to the Company.
The Original McDaniel Agreement provided for an annual base salary of
$435,000, annual incentives, grants of options and restricted stock under the
Equity Incentive Plan and other benefits. Mr. McDaniel received 242,060 options
effective as of the IPO Date under the Equity Incentive Plan, half of which were
to vest at the rate of 25% per year (the "Ratable Vesting Options"), and half of
which were to vest fully on the fourth anniversary of the IPO Date (the "Cliff
Vesting Options"). Mr. McDaniel also received 80,000 shares of restricted stock
as of the IPO Date under the Equity Incentive Plan, all of which were to vest
fully (i.e., all forfeiture restrictions were to lapse) on the fourth
anniversary of the IPO Date. However, the vesting of 40,000 of such shares of
restricted stock were Performance Vesting Restricted Stock and so were subject
to early acceleration if certain performance objectives were attained. If, at
any time within three years after the IPO Date, (a) the Common Stock were to
appreciate by 55% or more from the IPO price, 50% of such Performance Vesting
Restricted Stock would vest and (b) the Common Stock were to appreciate by 100%
or more from the IPO price, all of such Performance Vesting Restricted Stock
would vest. Because of the increase in market value of the Common Stock, 50% of
such Performance Vesting Restricted Stock vested as of January 12, 1996 and the
remaining 50% of such Performance Vesting Restricted Stock vested as of April
30, 1996. The Original McDaniel Agreement also provided for a supplemental
pension payment equal to
16
<PAGE> 19
the amount by which Mr. McDaniel's benefit under the MEMC Pension Plan and the
MEMC SEPP would increase if neither of such plans contained the 6% per year
limit on increases in compensation that apply for purposes of computing the
pension that was attributable to Mr. McDaniel's prior Monsanto service.
The Amended McDaniel Agreement provides for the payment of a pro rata
annual incentive for 1996 to Mr. McDaniel at the maximum target and maximum
payout levels (99% of base salary) and payment for accrued but unused vacation
time in accordance with the Company's customary practice. Under the Amended
McDaniel Agreement, beginning in August 1996, Mr. McDaniel received fees as a
non-employee director of the Company at the same level as paid to the Company's
other non-employee directors. During the Consulting Term, Mr. McDaniel will
receive consulting fees at a rate equal to his base salary as in effect
immediately prior to August 1, 1996, minus a pension offset relating to benefits
due to Mr. McDaniel under the MEMC Pension Plan (expressed as the exact
mathematical average of a single-life annuity and a joint and 100% survivor
annuity, and assuming that benefits commenced on August 1, 1996, regardless of
whether benefits actually commenced on such date). The Amended McDaniel
Agreement also provides that (i) Mr. McDaniel's Ratable Vesting Options will be
retained by Mr. McDaniel and will continue to vest at the rate of 25% per year
(and will remain outstanding until August 1, 2000, unless sooner exercised),
(ii) effective August 1, 1997, 60,000 of Mr. McDaniel's Cliff Vesting Options
will vest (and will remain outstanding until August 1, 2000, unless sooner
exercised) and, (iii) effective as of August 1, 1997, Mr. McDaniel's remaining
Cliff Vesting Options (options to purchase 61,030 shares) and restricted stock
(40,000 shares) will be forfeited and canceled.
In the event of Mr. McDaniel's death or disability during the Consulting
Term, he (or his estate, as applicable) will be entitled to the fees, payments
and benefits described above, and the vesting of the Ratable Vesting Options and
Cliff Vesting Options as described above shall occur as if Mr. McDaniel had
provided consulting services to the Company until August 1, 1997.
The Company is obligated to require any successor to the Company to assume
or agree to perform the Amended McDaniel Agreement.
Robert M. Sandfort
Dr. Robert M. Sandfort entered into an employment agreement dated as of May
1, 1995 with the Company (the "Sandfort Agreement"). The term of the Sandfort
Agreement commenced on the IPO Date and will terminate on August 1, 1999. The
Sandfort Agreement provides for an annual base salary of $310,000, annual
incentives, participation in any long term incentive bonus plan established by
the Company, grants of options and restricted stock under the Equity Incentive
Plan and other benefits. Dr. Sandfort received 144,728 options effective as of
the IPO Date under the Equity Incentive Plan, half of which become exercisable
at the rate of 25% per year, and half of which become fully exercisable on the
fourth anniversary of the IPO Date. Dr. Sandfort also received 48,000 shares of
restricted stock as of the IPO Date under the Equity Incentive Plan, all of
which vest fully on the fourth anniversary of the IPO Date. One-half of such
shares of Restricted Stock were Performance Vesting Restricted Stock, subject to
the terms summarized above under the description of the Original McDaniel
Agreement. Because of the increase in market value of the Common Stock, 50% of
such Performance Vesting Restricted Stock vested as of January 12, 1996 and the
remaining 50% of such Performance Vesting Restricted Stock vested as of April
30, 1996. The Sandfort Agreement also provides for pension benefits under the
MEMC Pension Plan.
If Dr. Sandfort is terminated by the Company without cause, he will receive
his then current base salary for the remainder of the term of employment, as
well as his annual incentive bonus for the year of termination, and all unvested
options granted to him as of the IPO Date will vest and all restrictions on
restricted stock granted to him as of the IPO Date will lapse. The Company is
obligated to require any successor to the Company to assume or agree to perform
the Sandfort Agreement.
James M. Stolze
Mr. James M. Stolze entered into an employment arrangement effective as of
June 16, 1995 with the Company (the "Stolze Agreement"). Pursuant to the Stolze
Agreement, Mr. Stolze was appointed Chief
17
<PAGE> 20
Financial Officer of the Company. The Stolze Agreement has no specified term.
The Stolze Agreement provides for an annual base salary of $230,000, annual
incentives, participation in any long term incentive plan established by the
Company, grants of options and restricted stock under the Equity Incentive Plan,
a signing bonus of $327,995 (which must be repaid to the Company if Mr. Stolze
terminates his employment prior to completing five years of service) and other
pension and welfare benefits. The Stolze Agreement contains no termination or
change of control provisions.
Marcel Coinne
Mr. Marcel Coinne entered into an employment agreement dated as of April 1,
1993 with Huls Belgium S.A., as the employer, and the Company, as the
beneficiary (the "Coinne Agreement"). The Coinne Agreement has no specified term
and provides for a minimum base salary of BFr 510,443 per month, paid 13 times
per annum, and certain other benefits, including a vacation bonus equivalent to
85% of one month's base salary, an international service premium equivalent to
15% of his base salary each month and other pension and welfare benefits. Mr.
Coinne will also participate in the Huls Belgium S.A. Pension Plan. His prior
years of service with a previous employer will be included in his years of
service for purposes of the pension provided for in the Coinne Agreement.
Because Mr. Coinne was relocated from Belgium to the United States as part of
his employment arrangement, the Coinne Agreement also provides for relocation
expense reimbursements, location living adjustment payments, housing allowance
payments, an automobile and income tax equalization payments.
In the event of Mr. Coinne's involuntary termination without cause, he is
eligible to receive separation pay from Huls Belgium S.A. consistent with the
legal practices and statutes in Belgium at the time of the termination, based on
his service both with the Company and Monsanto. In addition, Mr. Coinne would be
relocated to Belgium. The Coinne Agreement does not contain any change of
control provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, prior to his appointment as Chief Executive Officer of the
Company, Mr. Viefhues served as a member of the Compensation Committee of the
Company's Board of Directors. Because the full Board of Directors approved
certain compensation recommendations of the Compensation Committee, Mr.
Viefhues, Mr. McDaniel and Dr. Sandfort are deemed to have participated in
deliberations of the Board of Directors regarding remuneration paid to executive
officers.
18
<PAGE> 21
STOCK PRICE PERFORMANCE GRAPH
The graph below compares cumulative total stockholder return with the
cumulative total return (assuming reinvestment of dividends) of the Standard &
Poor's 500 Stock Index and the Standard & Poor's Technology 500 Index. The
information on the graph covers the period from July 12, 1995 (the date the
Company's Common Stock began trading pursuant to the IPO), through December 31,
1996. The interim measure point shows the value on December 31, 1995. The stock
price performance shown on the graph below is not necessarily indicative of
future stock price performance.
TOTAL RETURN TO STOCKHOLDERS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD MEMC S&P 500 S&P
(FISCAL YEAR COVERED) TECHNOLOGY
500
<S> <C> <C> <C>
JULY 12, 1995 100 100 100
DECEMBER 31, 1995 136 114 104
DECEMBER 31, 1996 94 136 137
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Huls Corporation is the Company's majority stockholder. Huls Corporation is
directly wholly owned by VEBA Corporation, which is directly and indirectly
wholly owned by VEBA AG.
The Company made payments to Huls Corporation and certain of its affiliates
for goods, services and interest payments in an aggregate amount of
approximately $18.1 million in 1996. The following discussion summarizes certain
of the significant agreements and arrangements among the Company and certain of
its affiliates.
AGREEMENTS AND ARRANGEMENTS WITH AFFILIATES
Service Agreement
Pursuant to the terms of an amended service agreement (the "Huls Service
Agreement") between the Company and Huls Corporation, Huls Corporation provides
the Company with accounting services as well as office space. The Huls Service
Agreement may be modified from time to time, or terminated at any time on 30
days' notice, at the option of either party. The Company believes that the terms
of the Huls Service Agreement are comparable to those that could be obtained
from unrelated third parties.
19
<PAGE> 22
Pursuant to an ongoing arrangement between Huls America Inc., a wholly
owned subsidiary of Huls Corporation, and the Company, Huls America Inc. uses
the Company's computer hardware to implement its software system for a monthly
charge. The Company believes that the terms of this arrangement are comparable
to those that could be obtained from unrelated third parties.
Agreement for Communication Services
In 1996, Huls Corporation entered into an agreement with AT&T (the
"Communication Services Agreement") pursuant to which AT&T agreed to provide
certain communication services to Huls Corporation and certain of its
affiliates, including the Company (and certain of the Company's subsidiaries).
In return for volume pricing discounts, Huls Corporation provided AT&T with
minimum revenue commitments for each contract year during the term of the
Communication Services Agreement. The Communication Services Agreement has a
term of five years. The Company and Huls Corporation have entered into an
agreement dated as of June 21, 1996, (the "Reimbursement Agreement") pursuant to
which the Company has agreed to reimburse Huls Corporation if the Company's
payments to AT&T under the Communication Services Agreement do not meet certain
minimum levels specified in the Reimbursement Agreement for each contract year
and as a result Huls Corporation is required to make payments to AT&T to satisfy
the minimum revenue commitments to AT&T for such contract year as specified in
the Communication Services Agreement. Because of the combined volume of Huls
Corporation and its affiliates (including the Company), the Company believes
that the pricing terms available to the Company under the Communication Services
Agreement are better than the Company could obtain if it independently entered
into a contract for similar communication services.
Loan Agreements and Guarantees
The Company has available to it approximately $325 million in long-term
loan commitments from Huls Corporation and certain of its affiliates pursuant to
long-term loan agreements. Interest on these loans will be payable at fixed
rates ranging from 5.980% to 7.21% (with agreements relating to $150 million of
borrowings providing for a fixed interest rate of 50 basis points above the
Inter-Bank Offered Rate at the time of borrowing). Approximately $225 million
was outstanding under these agreements as of December 31, 1996, with maturity
dates on these outstanding loans ranging from June 1998 to December 2004.
The Company also has available to it approximately $35 million in Japanese
Yen denominated long-term loan commitments from Huls Corporation and certain of
its affiliates pursuant to long-term loan agreements. Interest on these loans is
payable at fixed rates ranging from 2.12% to 3.21%, with maturity dates on these
loans ranging from December 1999 to December 2002. Approximately $35 million was
outstanding under these agreements as of December 31, 1996.
In the event that Huls Corporation in the future owns less than a majority
of the outstanding Common Stock of the Company, the credit spread on the
interest rates under the U.S. Dollar and Yen denominated agreements will be
adjusted to reflect the credit quality of the Company at that time and the terms
of certain of these agreements require that the Company maintain certain
financial ratios as to minimum net worth, minimum fixed charge coverage and
minimum working capital. The Company also has a $75 million revolving credit
facility and a $10 million line of credit with Huls Corporation and its
affiliates. There was no balance outstanding under these agreements as of
December 31, 1996. The Company has agreed to pay Huls Corporation and its
affiliates an annual fee of 1/8th of one percent, calculated on the unused
portion of the long-term loan and revolving credit agreements, in order to
maintain the commitments. The Company believes that interest rates and
commitment fees with respect to such financing agreements are no less favorable
to the Company than those that could be obtained from unrelated third parties.
The Company and Huls AG have guaranteed certain indebtedness of POSCO HULS
Company, Ltd., a joint venture with Samsung and Pohang Iron and Steel, operating
in South Korea ("PHC"), with an aggregate principal amount outstanding of
approximately $6.9 million as of December 31, 1996, the latest of which
indebtedness matures in March 1999. Neither the Company nor Huls AG have been
required to make any payments pursuant to these guarantees. The Company has
agreed to indemnify Huls AG with respect to
20
<PAGE> 23
any payments required to be made by Huls AG under such guarantee. The Company
has agreed to pay Huls AG an annual fee of 1/8th of one percent, calculated on
the outstanding principal balance under the PHC credit agreements, in order to
maintain the Huls AG guarantees.
In connection with the establishment of the MEMC Southwest Inc. joint
venture between the Company and Texas Instruments, the Company provided the
joint venture with a $130 million demand note. The provisions of the agreement
required the note be supported by a standby letter of credit from a commercial
bank. In order to facilitate the issuance of the letter of credit, Huls AG
agreed to cross guarantee the bank on behalf of the Company. The Company agreed
to pay Huls AG an annual fee of 0.16%, calculated against the outstanding
balance of the letter of credit. The Company's obligation under the note was
paid in full in October 1996, at which time the bank's standby letter of credit
and the Huls AG cross guarantee were terminated.
Tax Agreements
Since January 1, 1990, the Company had been a party to various tax sharing
agreements with VEBA Corporation, Huls Corporation and certain of their
subsidiaries (collectively, the "Tax Sharing Agreements") pursuant to which each
of the parties thereto agreed to join in the filing of a consolidated U.S.
federal income tax return with VEBA Corporation. The Tax Sharing Agreements
provided for the calculation by each of the parties of their respective federal
income tax provision and liability on a stand-alone basis and obligated Huls
Corporation to pay the difference, if any, between the sum of each of its
subsidiaries' stand-alone calculations and the consolidated calculation.
Effective July 12, 1995, the Company entered into a tax disaffiliation
agreement with VEBA Corporation and Huls Corporation (the "Tax Disaffiliation
Agreement") terminating the Tax Sharing Agreements. The Company is now
responsible for its own federal, state, and local tax returns and tax
liabilities. Pursuant to the terms of the Tax Disaffiliation Agreement, VEBA
Corporation and Huls Corporation on behalf of themselves and their respective
subsidiaries (other than the Company), as one party, and the Company, as the
other party, have agreed to indemnify each other from and against any additional
federal income tax liability that is attributable to each such party's
operations and which is determined to be due with respect to taxable periods
during which the Company was included in the consolidated federal income tax
return of VEBA Corporation.
Under the Tax Sharing Agreement with VEBA Corporation, the Company's
stand-alone federal income tax liability was calculated in such a manner that
its net earnings were offset by its own tax loss carryover, even though under
the applicable federal income tax ordering rules, such net earnings were, in
fact, offset primarily by VEBA Corporation's tax loss carryover and alternative
minimum tax carryover (collectively, the "VEBA Carryovers") from earlier years.
As a result, the VEBA Carryovers were diminished in order to offset the
Company's net earnings, but the Company did not compensate VEBA Corporation for
the use of such VEBA Carryovers, and the Company's own loss carryovers remained
relatively undiminished and available to offset the Company's net earnings in
future taxable years. In order to remedy this, pursuant to the Tax
Disaffiliation Agreement, the Company agreed to pay VEBA Corporation
approximately $13.1 million for the federal tax savings achieved by the Company
through the use of the above-described carryovers of VEBA Corporation and its
affiliated companies. In 1996, the Company paid VEBA Corporation $11.8 million
as reimbursement for the utilization of its tax loss carryover. The Company
remains obligated to pay an additional $1.3 million to VEBA Corporation for the
alternative minimum tax credit carryovers at the earlier of when the tax credit
carryovers are utilized, or December 31, 1997. No further obligation will be due
VEBA Corporation under the Tax Disaffiliation Agreement after this date. In
addition, no obligations remain under the Tax Sharing Agreement with VEBA
Corporation.
Under the Tax Sharing Agreement with Huls Corporation, the Company made a
payment of $4.4 million in 1996, representing the remaining portion of its
stand-alone federal income tax liability for the portion of the 1995 tax year
ended July 12, 1995. During this time the Company was included in the
consolidated federal income tax return of VEBA Corporation. The Company filed a
separate consolidated federal income tax return with certain of its own
subsidiaries for the remainder of the 1995 tax year. No obligations remain under
the Tax Sharing Agreement with Huls Corporation.
21
<PAGE> 24
Registration Rights Agreement
Pursuant to a registration rights agreement (the "Registration Rights
Agreement") between Huls Corporation and the Company, Huls Corporation has the
right to demand registration under the Securities Act of 1933 (the "Securities
Act") of any or all of the shares of the Common Stock it owns. Such demand
rights became exercisable 180 days after July 12, 1995, and must be exercised
for at least 25% of the Common Stock covered by the Registration Rights
Agreement. The Company may be required to effect up to three such demand
registrations, and the expenses of any such demand registration shall be borne
by Huls Corporation. The Company is not obligated to take any action to register
shares of Common Stock owned by Huls Corporation: (i) during the period starting
30 days prior to the Company's estimated date of filing of, and ending 90 days
after the effective date of, any other registration statement filed by the
Company under the Securities Act; (ii) more than once during any six-month
period; and (iii) for up to 90 days after a request from Huls Corporation if an
officer of the Company certifies that the Board of Directors of the Company has
determined that such registration would interfere with a material transaction
then being pursued by the Company. In addition, except in certain circumstances
and subject to certain limitations, if the Company proposes to register any
shares of Common Stock under the Securities Act, Huls Corporation will be
entitled to require the Company to include all or a portion of the shares of
Common Stock which Huls Corporation owns in such registration. The expenses of
any such "piggyback" registration, other than underwriting discounts and
commissions relating to Common Stock to be sold by Huls Corporation, shall be
borne by the Company. In addition, the Company has agreed to indemnify any
underwriter in connection with any registration made pursuant to the
Registration Rights Agreement against certain liabilities, including liabilities
under the Securities Act.
Treasury Management
The Company participates in VEBA AG's global treasury management system,
pursuant to which it offers Huls AG a right of first refusal to act as the
Company's financial intermediary in transacting the Company's hedging activities
before the Company may engage unrelated third parties to do so. The Company
believes that its hedging arrangements with Huls AG allow for transactions on a
basis that is comparable to terms available from unrelated third party financial
intermediaries. Consistent with past practice, it is expected that from time to
time the Company will deposit with Huls Corporation or certain of its affiliates
on a short term basis its excess cash on hand at month end at market rates of
interest. As of December 31, 1996, the Company had no deposits with Huls AG. The
Company believes that the interest rates received under these arrangements are
comparable to market rates charged for similar transactions. The treasury
management arrangements may be modified from time to time or terminated at any
time on short notice, either by the Company or Huls Corporation or certain of
their affiliates.
Agency and Services Agreements with Affiliated Companies
Through its wholly owned Italian subsidiary, MEMC Electronic Materials,
S.p.A. ("MEMC SpA"), the Company distributes its silicon products and those of
affiliated companies in various European countries and South Korea under certain
agency and services agreements (the "Agency Agreements") entered into between
MEMC SpA and Huls AG or certain of its affiliates. Pursuant to the terms of the
Agency Agreements, certain of Huls AG's affiliates have agreed to provide sales
agency, administrative and other related services to MEMC SpA in the
distribution of silicon products in various countries. For these services, Huls
AG and its affiliates are paid on a commission or on a cost plus commission
basis. These services may be terminated by either party. The Company believes
that the terms of the Agency Agreements are comparable to those that could be
obtained from unrelated third parties.
Purchases and Sales of Raw Materials and Finished Products
During 1996, the Company purchased raw materials from a wholly owned
subsidiary of Huls AG pursuant to a supply contract dated December 31, 1995.
Purchases of raw materials under this contract totaled $5.2 million for the year
ended December 31, 1996. The supply contract has an initial term of five years
and is automatically renewable for successive one-year periods unless terminated
upon one year's prior written notice
22
<PAGE> 25
by either party. The Company believes that the prices paid by the Company for
raw materials under this supply contract are not materially different from those
which are obtained by the Company from third parties for similar products.
Insurance
During 1996, the Company participated as a coinsured under a marine cargo
insurance policy maintained by Huls AG. Premiums paid to Huls AG under this
policy totaled $83,800 during 1996. The Company also participates in a directors
and officers liability insurance policy with an unrelated third party which
policy was arranged by VEBA AG. The premiums on this policy are paid by VEBA AG
on behalf of the Company and the Company reimburses VEBA AG for these premiums.
In 1996, the Company reimbursed VEBA AG in the amount of $566,000 for premiums
paid by VEBA AG on this policy. The Company believes that the total premiums it
paid during 1996 for the insurance coverage described above are comparable to
those which could be obtained from unrelated third parties. The Company
maintains its own separate property and workers' compensation insurance
coverage.
INDEPENDENT AUDITORS
The Company is presently utilizing the services of KPMG Peat Marwick LLP,
who have been the Company's independent auditors since 1989 and who will serve
as the Company's independent auditors for the fiscal year ending December 31,
1997. Representatives of KPMG Peat Marwick LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholder proposals intended for inclusion in the Company's proxy
statement and form of proxy to be prepared and distributed in connection with
the Company's annual stockholders meeting in 1998 must be received by the
Company no later than November 24, 1997.
OTHER MATTERS
As stated elsewhere herein, the Board of Directors knows of no other
matters to be presented for consideration at the Annual Meeting by the Board of
Directors or by stockholders who have requested inclusion of proposals in the
Proxy Statement. If any other matter shall properly come before the meeting, the
persons named in the accompanying form of proxy intend to vote on such matters
in accordance with their judgment.
The cost of preparing and mailing this Proxy Statement and the accompanying
materials, and the cost of any supplementary solicitations, will be borne by the
Company. In addition to the use of the mail, proxies may be solicited
personally, or by telephone or telefax, by regular employees of the Company,
without additional compensation. Brokerage firms, banks, nominees and others
will be requested to forward proxy materials to the beneficial owners of Common
Stock held by them of record, and the Company will reimburse them for their
reasonable out-of-pocket and clerical expenses.
March 24, 1997
23
<PAGE> 26
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE
O'FALLON, MISSOURI 63376
March 24, 1997
Dear Stockholder:
The annual meeting of stockholders of MEMC Electronic Materials, Inc.
will be held at The Ritz-Carlton St. Louis, 100 Carondelet Plaza, St. Louis,
Missouri 63105 at 10:00 a.m. local time on Wednesday, May 14, 1997.
It is important that your shares are represented at this meeting.
Whether or not you plan to attend the meeting, please review the enclosed proxy
materials, complete the attached proxy form below, and return it promptly in
the envelope provided.
Thank you.
HELENE F. HENNELLY
Secretary
- --------------------------------------------------------------------------------
MEMC ELECTRONIC MATERIALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS ON MAY 14, 1997
The undersigned hereby appoints Ludger H. Viefhues, James M. Stolze and
Helene F. Hennelly, and each of them, with power of substitution, as proxies of
the undersigned, to attend the Annual Meeting of Stockholders of MEMC ELECTRONIC
MATERIALS, INC. (the "Company"), to be held at The Ritz-Carlton St. Louis, 100
Carondelet Plaza, St. Louis, Missouri 63105 on Wednesday, May 14, 1997, at
10:00 a.m. local time, and all adjournments thereof, and to vote, as indicated
below, the shares of Common Stock of the Company which the undersigned is
entitled to vote with all the powers the undersigned would possess if present
at the meeting.
<TABLE>
<S><C>
1. Election of Directors
FOR all nominees listed below (except WITHHOLD AUTHORITY to vote for
as marked to the contrary below) / / all nominees listed below / /
Armin-Peter Bode Robert M. Sandfort Michael B. Smith
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- -------------------------------------------------------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote upon any other business which may properly come before the meeting and
all adjournments thereof.
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder(s). If no
direction is made, this proxy will be voted FOR the election of the nominees listed.
PLEASE DATE AND SIGN ON THE REVERSE SIDE AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all proxies heretofore given by the undersigned for said meeting. This proxy may be revoked
prior to its exercise.
Dated:
-------------------------------------------
-------------------------------------------------
Signature
-------------------------------------------------
(Signature if held jointly)
Note: Please sign exactly as your name or names appear
hereon. When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.
PLEASE MARK, SIGN AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
</TABLE>
<PAGE> 27
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE
O'FALLON, MISSOURI 63376
March 24, 1997
TO PARTICIPANTS IN THE MEMC RETIREMENT SAVINGS PLAN
Enclosed with this voting direction card are the Notice of Annual Meeting
and Proxy Statement for the Annual Meeting of Stockholders of MEMC Electronic
Materials, Inc. (the "Company") which will be held on May 14, 1997. The number
of shares of Company common stock (the "Common Stock") shown on the voting
direction card represents the number of shares with respect to which you are
entitled to direct the voting because of your MEMC Stock Fund account in the
MEMC Retirement Savings Plan (the "Plan"). In order for these shares to be
voted by State Street Bank and Trust Company (the "Trustee") as trustee of the
Plan in accordance with your confidential instructions, the Trustee must receive
your executed voting direction card not later than May 12, 1997. If your
executed voting direction card is not received by May 12, 1997, the Trustee will
vote the shares in proportion to the votes of other Plan participants. Please
note that you will not be able to vote the shares shown on the voting direction
card at the Annual Meeting; only the Trustee can vote these shares.
- --------------------------------------------------------------------------------
MEMC ELECTRONIC MATERIALS, INC.
The undersigned hereby directs State Street Bank and Trust Company as
trustee (the "Trustee") of the MEMC Retirement Savings Plan (the "Plan") to vote
as designated below, all of the shares of Common Stock of MEMC Electronic
Materials, Inc. (the "Company") which the undersigned is entitled to direct the
Trustee to vote pursuant to the terms of the Plan, on the matters set forth
below and upon any other business which may properly come before the Annual
Meeting of Stockholders of the Company, to be held at The Ritz-Carlton St.
Louis, 100 Carondelet Plaza, St. Louis, Missouri 63105 on Wednesday, May 14,
1997, at 10:00 a.m. local time, and all adjournments thereof.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Election of Directors
FOR all nominees listed below WITHOUT AUTHORITY to vote for
(EXCEPT as marked to the contrary below) [ ] all nominees listed below [ ]
Armin-Peter Bode Robert M. Sandfort Michael B. Smith
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. In its discretion, the Trustee is authorized to vote upon any other business
which may properly come before the meeting and all adjournments thereof.
This direction card, when properly executed, will be voted in the manner
directed herein by the undersigned participant. If no direction is made by a
participant, voting will be controlled by the terms of the Plan.
PLEASE DATE AND SIGN ON THE REVERSE SIDE AND MAIL PROMPTLY IN THE ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
THE PROXY FOR WHICH YOUR INSTRUCTIONS ARE REQUESTED
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all prior directions heretofore given by the
undersigned to the Trustee with respect to the subject matter hereof for said
meeting. This direction may be revoked prior to its exercise.
Dated:________________________
______________________________
Signature of Plan Participant
Note: Please sign exactly as
your name appears hereon.
PLEASE MARK, SIGN AND PROMPTLY RETURN THIS VOTING DIRECTION CARD IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- -------------------------------------------------------------------------------
</TABLE>
