<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)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 011 (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 (CITY OF O'FALLON)
ST. PETERS, MISSOURI 63376
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
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 Tuesday, May 5, 1998, 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 9, 1998 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 23, 1998
St. Peters, 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 5, 1998 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 "IPO Date"), 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
(City of O'Fallon), 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 23, 1998.
VOTING
Only the holders of record of Common Stock at the close of business on
March 9, 1998 are entitled to notice of, and to vote, either in person or by
proxy, at the Annual Meeting and all adjournments thereof. At the close of
business on March 9, 1998, 40,511,164 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.
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
2
<PAGE> 4
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 Certificate of Incorporation of the Company (the "Certificate") and
the Company's Bylaws (the "Bylaws") provide that the Board shall consist of
not less than five and not more than fifteen 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 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 1998, each to
serve for a term of three years. All of the Board's nominees for election at
the 1998 Annual Meeting of Stockholders for a term expiring at the 2001 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 on the proxy.
<TABLE>
INFORMATION AS OF JANUARY 31, 1998 (EXCEPT AS DISCLOSED BELOW) REGARDING NOMINEES FOR DIRECTORS
TO BE ELECTED IN 1998 FOR TERMS EXPIRING IN 2001
<CAPTION>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<C> <C> <C> <S>
Dr. Erhard Meyer-Galow............. 56 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 Stinnes AG, an affiliate of the Company,
since April 1998 and Member of the Board of Management of
Stinnes AG from 1991 to 1993; Chairman of the Board of
Management of Huls AG, an affiliate of the Company, from
October 1993 to March 1998; Member of the Board of
Management of VEBA AG since October 1993; Member of the
Supervisory Board of Rutgers AG since January 1995; Member
of the Supervisory Board of Westfalische Hypothekenbank
Dortmund, Germany since March 1997.
Dr. Alfred Oberholz................ 45 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 the Supervisory Board of Huls
Silicone GmbH, an affiliate of the Company, since November
1997; Member of Central Department for Corporate Strategy of
Huls AG from May 1993 to December 1994.
Ludger H. Viefhues................. 55 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; Member
of the Advisory Board of Steag AG since January 1996.
3
<PAGE> 5
<CAPTION>
INFORMATION AS OF JANUARY 31, 1998 (EXCEPT AS DISCLOSED BELOW) REGARDING THE DIRECTORS
WHO ARE NOT NOMINEES FOR ELECTION AND WHOSE TERMS CONTINUE BEYOND 1998<F1>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<C> <C> <C> <S>
Klaus R. von Horde<F2>............. 55 1999 Director of the Company since November 1997; President and
Chief Operating Officer of the Company since December 1997;
Member of Board of Directors of Rohm GmbH, an affiliate of
the Company; Chief Executive Officer and Chairman of the
Management Board of Carl Schenck AG from January 1993 to
November 1997.
Willem D. Maris.................... 58 1999 Director of the Company since September 1995; President and
Chief Executive Officer of ASM Lithography Holdings since
1990.
Paul T. O'Brien.................... 52 1999 Director of the Company since May 1995; Assistant Secretary
of Huls Corporation since September 1996; Executive Vice
President of CREANOVA Inc. (formerly known as Huls America
Inc.), an affiliate of the Company, since October 1992;
General Counsel and Secretary of CREANOVA Inc. since June
1985; Corporate Vice President of Huls Corporation from July
1993 to September 1996.
Michael B. Smith................... 61 2000 Director of the Company since September 1995 and from August
1989 to May 1993; Vice Chairman of Global USA, Inc. since
August 1997; Senior Principal of Capitoline/Manning, Selvage
& Lee from 1996 to July 1997; President of SJS Advanced
Strategies from 1989 to 1995.
Helmut Mamsch<F3>.................. 53 2000 Director of the Company since March 1998; Member of the
Board of Management of VEBA AG since October 1993; Chairman
of the Board of Management of Stinnes AG from July 1996 to
March 1998; Chairman of the Board of Management of Raab
Karcher AG from February 1991 to June 1996; Member of the
Supervisory Boards of Readymix AG, SGF Deutsche Holding
GmbH, VEBA URBANA AG (an affiliate of the Company) since
July 1996; Member of the Board of Directors of Logica Plc
since July 1996.
<FN>
- --------
<F1> Dr. Robert M. Sandfort, whose term as a director would have expired at the
Annual Meeting in the year 2000, has resigned from the Board effective
March 20, 1998. The Board has not identified a replacement. Pursuant to
the Certificate, the Board may appoint a replacement for Dr. Sandfort for
the remainder of his term.
<F2> Klaus R. von Horde was appointed by the Board effective November 19, 1997
to replace Prof. Dr. Harald Jurgen Biangardi who resigned from the Board
effective November 18, 1997.
<F3> Helmut Mamsch was appointed by the Board effective March 21, 1998 to
replace Armin-Peter Bode who resigned from the Board effective March 20,
1998.
</TABLE>
4
<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, 1998 (except as disclosed below), by (i) each
director, which includes nominees for election as a director, (ii) each
executive officer, including former executive officers, 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. As of January 31, 1998, directors and executive officers of the
Company as a group own in the aggregate 1.22 percent of the issued and
outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- ------
<S> <C>
Armin-Peter Bode.................................. 700<F1>
Tom L. Cadwell.................................... 18,356<F2><F3>
Marcel Coinne..................................... 29,181<F4>
Ralph D. Hartung.................................. 30,256<F5>
Willem D. Maris................................... 700<F1>
Dr. Erhard Meyer-Galow............................ 12,700<F1><F6>
Dr. Alfred Oberholz............................... 584<F7>
Paul T. O'Brien................................... 700<F1>
Dr. Robert M. Sandfort............................ 213,934<F8>
Dr. Werner Schmitz................................ 22,006<F9>
Michael B. Smith.................................. 1,100<F1><F10>
James M. Stolze................................... 49,756<F11>
Ludger H. Viefhues................................ 16,025<F12>
Klaus R. von Horde................................ --
Helmut Mamsch..................................... -- <F13>
All directors and executive officers as a group
(22 persons).................................... 502,256
<FN>
- --------
<F1> Includes 700 shares issuable upon exercise of stock options granted over
the MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan, as
amended and restated (the "Equity Incentive Plan") over which he is
deemed to have sole voting and investment power.
<F2> Mr. Cadwell resigned from the Company effective December 31, 1997, and
his stock ownership information as of December 31, 1997.
<F3> Sole voting and investment power over 18,356 shares, including 9,352
shares issuable upon exercise of stock options granted under the Equity
Incentive Plan.
<F4> Sole voting and investment power over 11,552 shares issuable upon
exercise of stock options granted under 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.
<F5> Sole voting and investment power over 11,552 shares issuable upon
exercise of stock options granted under 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 16,504 shares.
<F6> Sole voting and investment power over 12,000 shares.
<F7> Consists of 584 shares issuable upon exercise of stock options granted
under the Equity Incentive Plan, over which he is deemed to have sole
voting and investment power.
<F8> Sole voting and investment power over 211,334 shares including 169,129
shares issuable upon exercise of stock options granted under the Equity
Incentive Plan; shared voting and investment power over 2,600 shares.
<F9> Sole voting and investment power over 19,506 shares including 12,002
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.
<F10> Shared voting and investment power over 400 shares.
5
<PAGE> 7
<F11> Sole voting and investment power over 38,956 shares including 12,452
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.
<F12> Sole voting and investment power over 10,025 shares issuable upon
exercise of stock options granted under the Equity Incentive Plan; shared
investment power over 6,000 shares.
<F13> Mr. Mamsch became a member of the Board on March 21, 1998 and his stock
ownership information is as of such date.
</TABLE>
The following table sets forth information regarding all persons or
entities 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, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
---------------- ---------------- -------------------
<S> <C> <C>
Huls Corporation...................................................... 21,490,942<F1> 52.2%
13801 Riverport Drive
Suite 500
Maryland Heights, MO 63043
State of Wisconsin Investment Board................................... 2,915,000<F2> 7.1%
P.O. Box 7842
Madison, WI 53707
<FN>
- --------
<F1> 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.
<F2> This information is based on a Schedule 13G dated January 13, 1998 filed
with the SEC. The State of Wisconsin Investment Board reports sole voting
and disposition power over all its shares.
</TABLE>
BOARD MEETINGS AND COMMITTEES; COMPENSATION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors met four times in 1997. 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 committees
having responsibility in specific areas of Board activity, and the duties and
responsibilities of the standing committees 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 1997.
AUDIT COMMITTEE
Members: Willem D. Maris and Michael B. Smith
The Audit Committee met five times in 1997. 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: Dr. Erhard Meyer-Galow, Michael B. Smith and Dr. Alfred Oberholz
The Compensation Committee met six times in 1997. The responsibilities of
the Compensation Committee include: selecting the executive and salaried
employees who participate in the executive compensation program (the
"Participants"); periodically reviewing management development efforts;
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.
6
<PAGE> 8
ENVIRONMENTAL, SAFETY AND HEALTH COMMITTEE
Members: Klaus R. von Horde, Paul T. O'Brien and Michael B. Smith
The Environmental, Safety and Health Committee met four times in 1997. 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.
PLANNING AND CAPITAL EXPENDITURES COMMITTEE
Members: Klaus R. von Horde, Willem D. Maris, Ludger H. Viefhues, Dr. Alfred
Oberholz and Helmut Mamsch
The Planning and Capital Expenditures Committee met four times in 1997. 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 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 employee 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. 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. Each non-
employee director who is the chairman of a committee is paid $2,000 (in lieu of
the $1,000) for each committee meeting he attends and serves as chairman.
In addition, on January 1, 1997, each non-employee director was awarded
stock options to purchase 2,100 shares of Common Stock under the Company's
Equity Incentive Plan. Dr. Oberholz was awarded stock options to purchase 1,750
shares due to his appointment to the Board on March 18, 1997. All such stock
options vest in 33 1/3% increments on January 1, 1998, January 1, 1999 and
January 1, 2000.
On December 1, 1997, in connection with his resignation and retirement as
the Company's Chief Operating Officer, Dr. Sandfort entered into a consulting
arrangement with the Company in which he agreed to make himself available for
consultation to the Company. Under this arrangement, the Company agreed to make
a lump sum payment of $539,751, which amount is included in "All Other
Compensation" in the Summary Compensation Table and, in addition, to pay Dr.
Sandfort an hourly rate of $250 for consulting services.
7
<PAGE> 9
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. The Committee members
consist of: Dr. Erhard Meyer-Galow, Chairman, Armin-Peter Bode, Michael B.
Smith, and Dr. Alfred Oberholz. Dr. Oberholz was appointed to the Committee on
November 18, 1997.
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 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 1997 guideline for compensation is the median level of
Towers Perrin Compensation Data Bank Executive Compensation Survey
("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 1997 executive compensation program consisted 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 comparator 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 1997, the base salary of the CEO, Ludger H. Viefhues, was $500,000 per
year.
ANNUAL CASH INCENTIVE AWARD
Participation in the Annual Incentive Bonus 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 salary grade level which is reflective of their
positions in the Company.
The Committee establishes a performance/payout schedule each year to set
target bonuses (as a percentage of salary) for each salary grade. Target bonus
levels are targeted at the median level of the comparator group, based upon the
Survey. The target bonus level for participants range from 5% to 45% of the
participant's annual 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) performance against
its net earnings budget, 2) 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 1.76 times the target incentive level
when 120% of the budgeted profit is reached. An amount equal to 0.44 times the
target incentive is dependent upon performance against the quality goals and
the achievement of at least 80% of budgeted profit.
8
<PAGE> 10
Based on the financial performance of the Company, the Committee made no
award to the CEO, Mr. Viefhues, in 1997.
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 one time grant of performance vesting restricted stock which vest
only upon attainment of certain cumulative earnings per share goals. The
non-qualified stock options have an exercise price per share equal to 100% of
the market value on the date of the grant.
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 participants'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).
Pursuant to the target LTIP award determined by the Committee for the CEO,
Mr. Viefhues was awarded non-qualified stock options to purchase 30,600 shares
for the LTIP performance year 1997.
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. There
was no individual executive who received compensation in excess of $1 million
in 1997.
SEVERANCE ARRANGEMENTS
In recognition of his long term service to the Company, his knowledge of
the industry and the Company's desire to have Dr. Sandfort available to serve
as a consultant and to enter into a non-competition agreement, the Company, in
connection with his retirement and termination of employment, agreed to make
lump sum payments to Dr. Sandfort. These are reflected in the "All Other
Compensation" column opposite his name in the Summary Compensation Table. The
agreement with Dr. Sandfort includes a full release of any claims he might have
against the Company. In recognition of Mr. Cadwell's long-term service to the
Company and in connection with his resignation and termination of employment,
the Company agreed to make lump sum payments to Mr. Cadwell. These are
reflected in the "All Other Compensation" column opposite his name in the
Summary Compensation Table. The agreement with Mr. Cadwell includes a full
release of any claims he might have against the Company.
MEMBERS OF THE COMPENSATION COMMITTEE
Dr. Erhard Meyer-Galow, Chairman
Mr. Armin-Peter Bode
Ambassador Michael B. Smith
Dr. Alfred Oberholz
9
<PAGE> 11
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
-------------------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR ($)<F1> ($) ($)<F2> ($)<F3> SARs(#) ($)
------------------ ---- ------- ----- ------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ludger H. Viefhues 1997 500,000 -- -- -- 30,600 6,720<F4>
Chief Executive Officer 1996 241,331<F5> 180,208 -- -- 9,500 6,300<F4>
1995 -- -- -- -- -- --
James M. Stolze<F6> 1997 247,662 -- -- -- 5,600 6,720<F4>
Executive Vice President 1996 237,806 103,973 -- 91,350<F7> 5,600 2,945<F4>
and Chief Financial Officer 1995 124,583 454,495<F8> -- 396,096<F9> 16,504
Dr. Werner Schmitz 1997 215,300 -- -- -- 5,000 6,720<F4>
Executive Vice President 1996 206,750 90,393 -- 81,563<F7> 5,000 6,300<F4>
Customer Affairs 1995 192,275 110,000 43,857<F10><F11> 396,096<F9> 16,504 6,300<F4>
Marcel Coinne 1997 206,444<F12> -- 360,899<F12><F13> -- 4,400 --
Corporate Vice President 1996 234,161<F12> 102,825<F12> 234,329<F12><F13> 71,775<F7> 4,400 --
Customer Operations 1995 245,666<F12> 138,128<F12> 232,012<F12><F13> 396,096<F9> 16,504 --
Ralph D. Hartung 1997 197,775 -- 666,019<F14> -- 4,400 6,720<F4>
Corporate Vice President 1996 186,875 83,040 485,116<F14> 71,775<F7> 4,400 6,300<F4>
Operations 1995 174,600 97,075 333,241<F14> 396,096<F9> 16,504 6,300<F4>
Dr. Robert M. Sandfort<F15> 1997 353,182<F16> -- -- -- 12,200 2,596,156<F17>
Former President and 1996 320,496 168,156 -- 199,013<F7> 12,200 6,300<F4>
Chief Operating Officer 1995 284,365 204,600 -- 1,152,000<F18> 144,729 6,300<F4>
Tom L. Cadwell<F19> 1997 249,480<F20> -- -- -- 4,400<F21> 242,490<F22>
Former Corporate Vice 1996 199,367 90,825 -- 71,775<F7> 4,400<F21> 6,255<F4>
President and President, Asia 1995 173,975 99,660 -- 396,096<F9> 16,504<F21> 6,081
<FN>
- ----------
<F1> Amounts shown include cash compensation earned and received as well as
cash compensation earned but deferred at the election of the Named
Executive Officer.
<F2> Applicable regulations set reporting levels.
<F3> The aggregate number of shares of restricted stock held by each of the
Named Executive Officers and their value at December 31, 1997 are as
follows: Mr. Viefhues--0 shares; Mr. Stolze--2,800 shares, $42,700; Dr.
Schmitz--2,500 shares, $38,125; Mr. Coinne--2,200 shares, $33,550; Mr.
Hartung--2,200 shares, $33,550; Dr. Sandfort--0 shares; and Mr.
Cadwell--0 shares. The value of the restricted stock is determined by
multiplying the total number of shares held by the Named Executive
Officer by the closing price on the New York Stock Exchange ("NYSE") on
December 31, 1997 ($15.25 per share). Pursuant to Dr. Sandfort's Amended
Employment Agreement dated December 1, 1997, the restricted stock held by
Dr. Sandfort fully vested and all restrictions pertaining thereto lapsed
on December 1, 1997. Due to Mr. Cadwell's resignation of employment
effective December 31, 1997, the unvested restricted stock held by Mr.
Cadwell (2,200 shares) was forfeited and canceled pursuant to the terms
of the Equity Incentive Plan. 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.
<F4> Represents matching contributions by the Company to the MEMC Retirement
Savings Plan.
<F5> 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.
<F6> Mr. Stolze was initially employed by the Company in June 1995.
<F7> 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: Mr. Stolze, 2,800,
Dr. Schmitz, 2,500, Mr. Coinne, 2,200, Mr. Hartung, 2,200, Dr. Sandfort,
6,100, and Mr. Cadwell, 2,200. Twenty-five percent (25%) of the
restricted stock awarded to Drs. Sandfort and Schmitz and to Messrs.
Stolze, Coinne, Hartung, and Cadwell was to vest on January 1, 1998 if
the Company's cumulative earnings per share ("CEPS") for the two fiscal
years ending December 31, 1997 met a certain target level for such
period. The Company's CEPS did not meet the requisite target levels so
that these shares of restricted stock did not vest on January 1, 1998. Up
to 100% of the restricted stock awarded to Dr. Schmitz and to Messrs.
Stolze, Coinne, and Hartung 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:
<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%
10
<PAGE> 12
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 commencing
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.
Notwithstanding the foregoing, pursuant to Dr. Sandfort's Amended
Employment Agreement dated December 1, 1997, Dr. Sandfort's restricted
stock (6,100 shares) fully vested on December 1, 1997. See "Employment
Agreements--Dr. Robert M. Sandfort." In addition, due to Mr. Cadwell's
resignation of employment with the Company effective December 31, 1997,
Mr. Cadwell's restricted stock (2,200 shares) was forfeited and canceled
pursuant to the terms under which it was awarded as described above. See
"Employment Agreements--Tom L. Cadwell."
<F8> 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.
<F9> The restricted stock awarded at the time of the Company's initial public
offering (the "IPO") to Messrs. Stolze, Coinne, Hartung, and Cadwell
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, Coinne, Hartung, and Cadwell and Dr. Schmitz lapsed.
<F10> 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.
<F11> Includes, among other things, a mortgage interest subsidy paid by Huls
AG.
<F12> Belgian franc amounts have been translated into U.S. dollars at the noon
buying rate in New York City for cable transfer in Belgian francs as
certified for customs purposes by the Federal Reserve Bank of New York on
the last trading day of the respective fiscal year. On December 31, 1997,
the noon buying rate was BFr 37.08 = $1.00. On December 31, 1996, the
noon buying rate was BFr 31.71 = $1.00. On December 29, 1995, the noon
buying rate was BFr 29.43 = $1.00.
<F13> Consists primarily of tax payments paid by the Company due to the
acceptance of an international assignment. The Company reimburses Huls
Benelux S.A. for direct payments of, among other things, a housing
allowance, a vacation bonus and other payments made in connection with
the international assignment.
<F14> Consists primarily of tax payments paid by the Company due to the
acceptance of an international assignment and also includes, among other
things, a career development bonus, a housing allowance, relocation and
miscellaneous international expenses.
<F15> Dr. Sandfort retired as President and Chief Operating Officer of the
Company effective December 1, 1997.
<F16> Of this amount, $305,656 represents Dr. Sandfort's base salary, and
$47,526 represents payment in lieu of accrued vacation.
<F17> Of this amount, $1,101,418 represents lump-sum payments in connection
with Dr. Sandfort's retirement and termination of employment pursuant to
Dr. Sandfort's Amended Employment Agreement dated December 1, 1997;
$94,141 represents additional compensation associated with an interest
free loan; $1,393,877 represents additional SEPP benefits that will be
paid in monthly installment payments over ten years; and $6,720
represents matching contributions to the MEMC Retirement Savings Plan.
See "Employment Agreements--Dr. Robert M. Sandfort."
<F18> Half of the restricted stock awarded to 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 Dr. Sandfort was to fully vest on the fourth
anniversary of the date of grant but was subject to early acceleration if
certain performance objectives were attained. Those performance
objectives were attained, such that all restrictions on the Performance
Vesting Restricted Stock awarded to Dr. Sandfort lapsed. Pursuant to Dr.
Sandfort's Amended Employment Agreement dated December 1, 1997, Dr.
Sandfort's Cliff Vesting Restricted Stock fully vested on December 1,
1997. See "Employment Agreements--Dr. Robert M. Sandfort."
11
<PAGE> 13
<F19> Mr. Cadwell resigned as Corporate Vice President of the Company effective
December 31, 1997.
<F20> Of this amount, $216,300 represents Mr. Cadwell's base salary, and
$33,180 represents payment in lieu of accrued vacation.
<F21> A total of 15,952 shares granted to Mr. Cadwell were forfeited and
canceled pursuant to Mr. Cadwell's Agreement with the Company dated as of
December 31, 1997 and the terms of the Equity Incentive Plan. See
"Employment Agreements--Tom L. Cadwell." Options reflected in the table
which were unvested as of December 31, 1997 were forfeited and canceled.
<F22> Of this amount, $235,770 represents a lump-sum payment to Mr. Cadwell in
connection with his resignation and termination of employment pursuant to
Mr. Cadwell's Agreement with the Company dated as of December 31, 1997
and $6,720 represents matching contributions by the Company to the MEMC
Retirement Savings Plan. See "Employment Agreements--Tom L. Cadwell."
</TABLE>
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS/ AT ASSUMED ANNUAL RATES
UNDERLYING SARs EXERCISE OF STOCK PRICE
OPTIONS/ GRANTED TO OR BASE APPRECIATION FOR OPTION TERM<F1>
SARs EMPLOYEES IN PRICE EXPIRATION -----------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
---- ---------- ------------ -------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ludger H. Viefhues.............. 30,600<F2> 18.8% 22.50 1/1/07 0 432,994 1,097,292
James M. Stolze................. 5,600<F2> 3.4% 22.50 1/1/07 0 79,241 200,812
Dr. Werner Schmitz.............. 5,000<F2> 3.1% 22.50 1/1/07 0 70,751 179,296
Marcel Coinne................... 4,400<F2> 2.7% 22.50 1/1/07 0 62,261 157,780
Ralph D. Hartung................ 4,400<F2> 2.7% 22.50 1/1/07 0 62,261 157,780
Dr. Robert M. Sandfort.......... 12,200<F3> 7.5% 22.50 1/1/07 0 172,632 437,482
Tom L. Cadwell.................. 4,400<F4> 2.7% 22.50 <F4> <F4> <F4> <F4>
All Stockholders<F5>............ N/A N/A N/A N/A 0 585,815,345 1,484,571,101
All Optionees<F6><F7>........... 163,000 100% 22.50-29.00 1/1/07-9/1/07 0 2,313,978 5,864,076
Optionee's Gain as % of All
Stockholders' Gain............ N/A N/A N/A N/A N/A .40% .40%
<FN>
- ---------
<F1> 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.
<F2> These options become exercisable at the rate of 25% per year on January 1,
1998, January 1, 1999, January 1, 2000 and January 1, 2001. 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.
<F3> These options became exercisable on December 1, 1997, pursuant to the
terms of Dr. Sandfort's Amended Employment Agreement dated December 1,
1997. See "Employment Agreements--Dr. Robert M. Sandfort."
<F4> Mr. Cadwell forfeited these options pursuant to the terms of his Agreement
with the Company dated as of December 31, 1997. See "Employment
Agreements--Tom L. Cadwell."
<F5> Gain for all stockholders was determined based on approximately 41.4
million shares outstanding on January 1, 1997, assuming a price per share
of $22.50.
<F6> On January 1, 1997, the Company granted options to purchase 161,000 shares
at a price per share of $22.50. On May 1, 1997, the Company granted
options to purchase 1,000 shares at a price per share of $28.125. On
August 1, 1997, the Company granted options to purchase 600 shares at a
price per share of $28.6875. On September 1, 1997, the Company granted
options to purchase 400 shares at a price per share of $29.00.
<F7> 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.
</TABLE>
12
<PAGE> 14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS/SARs AT
FY-END
(#)
-----------------
EXERCISABLE/
NAME UNEXERCISABLE<F1>
---- -----------------
<S> <C>
Ludger H. Viefhues................. 2,375/37,725
James M. Stolze.................... 9,652/18,052
Dr. Werner Schmitz................. 9,502/17,002
Marcel Coinne...................... 9,352/15,952
Ralph D. Hartung................... 9,352/15,952
Dr. Robert M. Sandfort............. 169,129/0<F2>
Tom L. Cadwell..................... 9,352/0<F3>
<FN>
- --------
<F1> None of the unexercised options were in-the-money based on the per share
closing price of the Common Stock of $15.25 on the New York Stock Exchange
on December 31, 1997.
<F2> Pursuant to Dr. Sandfort's Amended Employment Agreement dated December 1,
1997, all stock options previously awarded to Dr. Sandfort that had not
vested prior to December 1, 1997, vested as of December 1, 1997. See
"Employment Agreements--Dr. Robert M. Sandfort."
<F3> Pursuant to Mr. Cadwell's Agreement with the Company dated as of December
31, 1997, Mr. Cadwell's unvested options to purchase a total of 15,952
shares were forfeited and canceled. See "Employment Agreements--Tom L.
Cadwell."
</TABLE>
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 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 payable to 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 former MEMC Electronic Materials,
Inc. Pension Plan for Salaried Employees (the "Salaried Plan"), a prior plan
merged into the MEMC Pension 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
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)
13
<PAGE> 15
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 any 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 ten 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 payments 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 1997 is $125,000. 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 1997 is $160,000. The MEMC 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, in the form of an
annuity with monthly payments for life beginning at the participant's
retirement age, or in annual installments not to exceed fifteen years.
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.
<TABLE>
PENSION PLAN TABLE<F1>
<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
</TABLE>
As discussed above, the 1.4% formula is actually an alternative to the
basic formula. Mr. Hartung and Mr. Cadwell 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 on December 1, 1997, Dr. Sandfort had 26.8 years of benefit
service and average total earnings of $471,369 under the MEMC Pension Plan. Dr.
Sandfort is covered under the 1.4% formula. At retirement, Dr. Sandfort began
receiving an annuity from the MEMC Pension Plan.
14
<PAGE> 16
Dr. Sandfort also received a SEPP benefit of $1,267,405 which will be paid
by MEMC in monthly installments for 10 years. The installments will be paid
according to the following schedule:
<TABLE>
<CAPTION>
MONTHLY
YEAR PAYMENTS
- ---- --------
<S> <C>
1998............................... $10,588
1999............................... $10,765
2000............................... $10,946
2001............................... $11,134
2002............................... $11,329
2003............................... $11,533
2004............................... $11,749
2005............................... $11,984
2006............................... $12,254
2007............................... $12,621
</TABLE>
As of December 31, 1997, Mr. Hartung had 29.5 years of benefit service and
annualized Average Total Earnings of $271,227 under the MEMC Pension Plan.
When he terminated employment with MEMC, Mr. Cadwell had 29.4 years of
benefit service and annualized Average Total Earnings of $283,875 under the
MEMC Pension Plan. Mr. Cadwell will not be eligible for an annuity from the
MEMC Pension Plan until he reaches 55 years of age. Under his Agreement with
the Company, dated as of December 31, 1997, however, he was paid $321,122 from
the MEMC SEPP in 1998.
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 1998 Social
Security Wage Base and a 6% interest rate to convert the lump sums to
annuities.
<TABLE>
PENSION PLAN TABLE(2)
<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.......................... 54,000 108,000 162,000
1,000,000......................... 60,000 120,000 180,000
1,100,000......................... 66,000 132,000 198,000
1,200,000......................... 72,000 144,000 216,000
</TABLE>
As of December 31, 1997, Mr. Viefhues had 3.6 years of benefit service and
annualized Average Total Earnings of $459,399, and Mr. Stolze had 2.5 years of
benefit service and annualized Average Total Earnings of $332,376 under the
MEMC Pension Plan. Mr. Viefhues' years of benefit service reflect his prior
period of benefit service with the
15
<PAGE> 17
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, 1997, 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
Benelux S.A. and a pension agreement with the Company as set forth in his
employment agreement. The annual pension from the Huls Benelux S.A. plan that
Mr. Coinne would be eligible to receive, had he retired on December 31, 1997
and began receiving payment at age 65, is approximately $30,229. In addition,
pursuant to his employment agreement with the Company, Mr. Coinne would be
eligible to receive an annual pension of $39,339 beginning at age 65, if he had
terminated employment on December 31, 1997. Amounts provided reflect the
exchange rate for Belgian francs on December 31, 1997. 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
and begin receiving his pension benefit from the Company, his pension benefit
would be reduced by 1/4% per month that is prior to his attaining age 65.
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, 1997, an annual pension benefit equal to approximately $62,700 using the
exchange rate for Deutsche marks on December 31, 1997.
EMPLOYMENT AGREEMENTS
Ludger H. Viefhues
Mr. 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 initial 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
received 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 had an
exercise price per share equal to 100% of the market value on the date of grant
and will continue to receive an annual grant of stock options under the Equity
Incentive Plan to purchase a number of shares with a market value equal to at
least 200% of his base salary throughout the term of the Viefhues Agreement.
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.
James M. Stolze
Mr. 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 Financial Officer of the Company. The
Stolze Agreement has no specified term. The Stolze Agreement provides for an
initial 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 provisions regarding payment in the
event of termination or change of control.
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<PAGE> 18
Marcel Coinne
Mr. Coinne entered into an employment agreement dated as of April 1, 1993
with Huls Benelux 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 Benelux 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 Benelux 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 Company, the Company's former
parent. In addition, Mr. Coinne would be relocated to Belgium. The Coinne
Agreement does not contain any change of control provisions.
Ralph D. Hartung
Mr. Hartung and the Company entered into a standard arrangement to
reimburse Mr. Hartung for expenses reasonably expected to be incurred due to
his overseas assignment. This arrangement provides for a lump sum payment, a
cost of living allowance, income tax equalization and other tax related
payments and reimbursement for travel, relocation, automobile and other related
expenses in the aggregate amount set forth opposite Mr. Hartung's name in the
"Other Annual Compensation" column in the Summary Compensation Table. Mr.
Hartung's arrangement contains no provisions regarding payment in the event of
termination or change of control.
Dr. Robert M. Sandfort
Dr. Sandfort entered into an employment agreement dated as of May 1, 1995
with the Company (the "Original Sandfort Agreement"). The term of the
Original Sandfort Agreement commenced on the IPO Date and was to terminate on
August 1, 1999. The Original Sandfort Agreement was amended effective as of
December 1, 1997 (as amended, the "Amended Sandfort Agreement"). Pursuant to
the terms of the Amended Sandfort Agreement, Dr. Sandfort retired and resigned
from service as President and Chief Operating Officer effective December 1,
1997. During the period commencing December 2, 1997, and ending December 2,
1998 (the "Consulting Term"), Dr. Sandfort agreed to provide consulting
services to the Company.
The Original Sandfort Agreement provided 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 were to become exercisable at the rate of 25% per year, and half of which
were to 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 were to vest fully on the fourth
anniversary of the IPO Date (the "IPO Restricted Stock"). Notwithstanding the
foregoing, 24,000 shares of such restricted stock were subject to early
acceleration if certain performance objectives were attained. These performance
objectives were attained, such that 24,000 shares vested and 24,000 shares
remained unvested immediately prior to December 1, 1997. The Sandfort Agreement
also provided for pension benefits under the MEMC Pension Plan.
The Amended Sandfort Agreement provides for the payment of compensation due
him under the Original Sandfort Agreement in the aggregate amount of $561,667
and payment for accrued but unused vacation time in accordance with the
Company's customary practice. During the Consulting Term, Dr. Sandfort will
receive consulting fees as well as a lump sum payment in the amount of
$539,751. The Amended Sandfort Agreement also provides that (i) all stock
options, previously awarded to Dr. Sandfort under the Equity Incentive Plan
that had not previously vested, were to (and did) vest as of December 1, 1997;
(ii) Dr. Sandfort be allowed to exercise all options until the tenth
anniversary of the date on which each option was granted; (iii) all shares of
restricted stock previously awarded that had not vested (consisting of the
unvested 24,000 shares of IPO Restricted Stock and 6,100 shares of unvested
restricted stock) were to (and did) vest as of December 1, 1997. In addition,
the Amended Sandfort Agreement
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<PAGE> 19
provides for an interest free loan in an amount required to pay his withholding
tax obligations related to the vesting of his IPO Restricted Stock and other
restricted stock and also provides for payments in addition to his SEPP
benefits. See "Summary Compensation Table." The Company is obligated to
require any successor to the Company to assume or agree to perform the Amended
Sandfort Agreement.
Tom L. Cadwell
Mr. Cadwell entered into an Agreement with the Company dated as of December
31, 1997 (the "Separation Date") regarding his resignation and separation
from employment with the Company (the "Cadwell Agreement"). The Cadwell
Agreement provides for a lump sum payment equivalent to Mr. Cadwell's one year
full salary, payment for accrued but unused vacation time in accordance with
the Company's customary practice, payment of the net present value of his
accrued benefits under the SEPP and payment for COBRA medical insurance costs
and other payments. See "Pension Plan." Pursuant to the Cadwell Agreement,
all Company benefits ceased as of the Separation Date. The Cadwell Agreement
also provides that (i) any stock options held by Mr. Cadwell are exercisable to
the extent they were exercisable on the Separation Date for a period of one
year from the Separation Date or until the expiration of the option; and (ii)
any stock options not exercisable on the Separation Date shall be forfeited. In
addition, as a result of Mr. Cadwell's resignation of employment, pursuant to
the terms of the Equity Incentive Plan, Mr. Cadwell forfeited his unvested
restricted stock in the amount of 2,200 shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Because the full Board of Directors approved certain compensation
recommendations of the Compensation Committee, Mr. Viefhues and Dr. Sandfort
are deemed to have participated in deliberations of the Board of Directors
regarding remuneration paid to executive officers.
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 Index, Standard & Poor's Technology 500 Index and the Hambrecht &
Quist Semiconductor 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, 1997. The stock price performance shown on the
graph below is not necessarily indicative of future stock price performance.
[GRAPH]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
JULY 12, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEMC 100 136 94 64
- ---------------------------------------------------------------------------------------
S&P 500 100 114 136 183
- ---------------------------------------------------------------------------------------
S&P Technology 500 100 104 137 173
- ---------------------------------------------------------------------------------------
H&Q Semiconductor 100 72 94 99
- ---------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
The Standard & Poor's Technology 500 Index is a market capitalization-
weighted index of all of the stocks in the Standard & Poor's 500 Index that
offer products or services that are on the cutting edge of technology. It is
composed of 57 companies in the semiconductor, software, personal computer,
telecommunications, health care, aerospace, defense, and office automation
industries, among others. The Hambrecht & Quist Semiconductor Index is a market
capitalization-weighted index of 35 companies that are involved in the design,
distribution, manufacture, and sale of semiconductors. As the Hambrecht & Quist
Semiconductor Index comprises only companies dealing directly in the
semiconductor or semiconductor capital equipment businesses, the Company
believes the correlation in this index with MEMC's future performance will be
higher and, accordingly, this index will be used in future years rather than the
Standard & Poor's Technology 500 Index.
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 $31.3 million in 1997. 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.
Pursuant to an ongoing arrangement between CREANOVA Inc. and Sivento Inc.
(collectively formerly known as Huls America Inc.), a wholly owned subsidiary
of Huls Corporation, and the Company, CREANOVA Inc. and Sivento Inc. use 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 $525 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 5.98% to 7.59%. Approximately $425 million was outstanding
under these agreements as of December 31, 1997, with maturity dates on these
outstanding loans ranging from June 1998 to June 2005.
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<PAGE> 21
The Company also has available to it approximately $31 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 $31
million was outstanding under these agreements as of December 31, 1997.
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 Japanese 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. In addition, in the event that the Company were to
obtain U.S. dollar denominated loans from third parties on similar terms and
conditions, the interest rate on $200 million of the Huls Corporation debt
would be adjusted to reflect the credit pricing of the third party lender. 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 $75 million
outstanding under these agreements as of December 31, 1997. 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 $3.7 million as of December 31, 1997, the latest
of which indebtedness matures in September 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 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.
Tax Agreements
From January 1, 1990, until July 12, 1995, 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
20
<PAGE> 22
above-described carryovers of VEBA Corporation and its affiliated companies. In
1997, the Company paid VEBA Corporation $1.3 million as reimbursement for the
alternative minimum tax credit carryovers. No further obligation is due VEBA
Corporation under the Tax Disaffiliation Agreement after 1997. In addition, no
obligations remain under the Tax Sharing Agreement with VEBA Corporation.
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. As
of December 31, 1997, the Company entered into foreign exchange contracts with
a total contract value of $82.5 million with Huls AG to manage foreign currency
exchange risks. 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 may 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, 1997, 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, Finished Products and Equipment
During 1997, 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 $9.1 million for the
year ended December 31, 1997. 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 by either party. The Company
21
<PAGE> 23
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.
During 1997, the Company also purchased equipment from Steag Microtech,
Inc., an entity in which VEBA AG holds a substantial ownership interest,
pursuant to a Master Equipment Agreement dated as of August 1, 1995. Purchases
under this contract totaled $6.9 million for the year ended December 31, 1997.
The Master Equipment Agreement has an initial term of three years and may be
extended by mutual agreement. The Company believes that the terms of the
Equipment Agreement are comparable to those that could be obtained from
unrelated third parties.
Insurance
During 1997, 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 $71,800 during 1997. 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 1997, the Company reimbursed VEBA AG in the amount of $529,600 for
premiums paid by VEBA AG on this policy. The Company believes that the total
premiums it paid during 1997 for the insurance coverage described above are
comparable to those which could be obtained from unrelated third parties. The
Company maintains its own separate general liability, 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,
1998. 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 1999 must be received by the
Company no later than November 23, 1998.
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 23, 1998
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<PAGE> 24
PROXY PROXY
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 on the reverse side, 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 on the reverse side 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 Tuesday, May 5, 1998, at 10:00 a.m. local time, 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.
(Continued and to be signed on reverse side.)
<PAGE> 25
MEMC ELECTRONIC MATERIALS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
1. ELECTION OF DIRECTORS: For Withheld For All
Erhard Meyer-Galow, Alfred Oberholz and All All Except
Ludger H. Viefhues. [ ] [ ] [ ]
(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.
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. The direction may be revoked prior to its exercise.
Dated: _______________________, 1998
____________________________________
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.
- -------------------------------------------------------------------------------
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE (CITY OF O'FALLON)
ST. PETERS, MISSOURI 63376
March 23, 1998
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 5, 1998.
The number of shares of Company common stock (the "Common Stock") shown on
the voting direction card represents the number of shares which you are
entitled to direct State Street Bank and Trust Company (the "Trustee") to
vote. This share amount is based on your balance in the MEMC Stock Fund
account in the MEMC Retirement Savings Plan (the "Plan") on March 9, 1998,
the record date for the determination of stockholders eligible to vote. In
order for these shares to be voted by the Trustee of the Plan in accordance
with your confidential instructions, the Trustee must receive your executed
voting direction card not later than May 1, 1998. Under the provisions of the
Plan, all shares for which no executed voting direction cards are received by
May 1, 1998 are to be voted by the Trustee in the same proportion for which
directions are received. 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.
<PAGE> 26
PROXY PROXY
MEMC ELECTRONIC MATERIALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS ON MAY 5, 1998
The undersigned hereby appoints 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 Tuesday, May 5, 1998, at 10:00
a.m. local time, and all adjournments thereof, and to vote, as indicated on
the reverse side, 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.
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.
(Continued and to be signed on reverse side.)
<PAGE> 27
MEMC ELECTRONIC MATERIALS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
1. ELECTION OF DIRECTORS: For Withheld For All
Erhard Meyer-Galow, Alfred Oberholz and All All Except
Ludger H. Viefhues. [ ] [ ] [ ]
(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 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: _______________________, 1998
____________________________________
(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, admini-
strator, 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.
- -------------------------------------------------------------------------------
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE (CITY OF O'FALLON)
ST. PETERS, MISSOURI 63376
March 23, 1998
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 Tuesday, May 5, 1998.
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 above, and return it
promptly in the envelope provided.
Thank you.
HELENE F. HENNELLY
Secretary
<PAGE> 28
Appendix
Page 18 of the printed Proxy Statement contains a Stock Price Performance
Graph. The information contained in the graph is set forth in the table
following the graph.
