<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 Section 240.14a-11(c) or Section
240.14a-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.
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
O-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously by written preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-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:
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(4) Date Filed:
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<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 6, 1999
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 Thursday, May 6, 1999 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 8, 1999 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
/s/Helene F. Hennelly
HELENE F. HENNELLY
Secretary
April 2, 1999
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 MEMC Electronic Materials,
Inc. (the "Company") for use at the Annual Meeting of its stockholders to be
held May 6, 1999 at 10:00 a.m., local time, at The Ritz-Carlton St. Louis, 100
Carondelet Plaza, St. Louis, Missouri 63105 (the "Annual Meeting"), and all
adjournments and postponements thereof. 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.
BACKGROUND
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 April 2, 1999.
VOTING
Only the holders of record of Common Stock of the Company (the "Common
Stock") at the close of business on March 8, 1999 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 8, 1999, 40,507,216
shares of Common Stock 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 Company 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 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 Company's Restated Certificate of Incorporation (the "Restated
Certificate") and Restated By-Laws (the "Restated By-Laws") 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
<PAGE> 4
of Directors. By resolution, the Board has currently set the number of directors
at nine. There is currently one vacancy on the Board of Directors created by the
resignation of Prof. Dr. Erhard Meyer-Galow, whose term would have expired at
the Annual Meeting in the year 2001. The Board has not identified a replacement
for Prof. Dr. Erhard Meyer-Galow on the Board. The Restated Certificate also
provides for a classified Board of Directors divided into three classes whose
terms expire at different times. Three members are to be elected to the Board of
Directors in 1999, each to serve for a term of three years. All of the Board's
nominees for election at the 1999 Annual Meeting of Stockholders for a term
expiring at the 2002 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.
Stockholders voting at the 1999 Annual Meeting of Stockholders may not vote for
more than the number of nominees listed in the enclosed proxy.
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.
INFORMATION REGARDING NOMINEES FOR DIRECTORS
TO BE ELECTED IN 1999 FOR TERMS EXPIRING IN 2002
<TABLE>
<CAPTION>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<S> <C> <C> <C>
Willem D. Maris........................ 59 1999 Director of the Company since September 1995;
President and Chief Executive Officer of ASM
Lithography Holdings since 1990.
Paul T. O'Brien........................ 53 1999 Director of the Company since May 1995;
Executive Vice President and a Director of
Degussa-Huls Corporation, an affiliate of the
Company, since March 1999; Executive Vice
President of CREANOVA Inc., an affiliate of
the Company, from October 1992 to March 1999;
General Counsel and Secretary of CREANOVA Inc.
from June 1985 to March 1999; Director of
CREANOVA Inc. from November 1994 to March
1999.
Klaus R. von Horde..................... 56 1999 Director of the Company since November 1997;
Chief Executive Officer of the Company since
February 1999; President of the Company since
December 1997; Chief Operating Officer of the
Company from December 1997 to February 1999;
Member of Board of Directors of Rohm GmbH, an
affiliate of the Company, from 1987 to 1998;
Chief Executive Officer and Chairman of the
Management Board of Carl Schenck AG from
January 1993 to November 1997.
</TABLE>
2
<PAGE> 5
INFORMATION REGARDING CONTINUING DIRECTORS
<TABLE>
<CAPTION>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<S> <C> <C> <C>
Dr. Hans Michael Gaul.................. 56 2000 Director of the Company since August 1998
(appointed by the Board to fill the vacancy
created by the resignation of Dr. Robert M.
Sandfort); Member of the Board of Management
of VEBA AG, an affiliate of the Company, since
1990; Chief Financial Officer of VEBA AG since
1996; Deputy Chairman of the Board of
Management of PreussenElektra AG, an affiliate
of the Company, since 1993; Member of the
Board of Management of PreussenElektra AG
since 1978; Member of the Supervisory Board of
Degussa-Huls AG, an affiliate of the Company,
since February 1999; Member of the Supervisory
Boards of Allianz Versicherungs-AG, RAG
Aktiengesellschaft, an affiliate of the
Company, and Raab Karcher -- VEBA Immobilien
Management, an affiliate of the Company, since
1998; Member of the Supervisory Boards of
Deutsche Krankenversicherung AG and Volkswagen
AG since 1997; Member of the Supervisory
Boards of PreussenElektra AG and VEBA Oel AG,
an affiliate of the Company, since 1996;
Member of the Supervisory Board of Thuga AG,
an affiliate of the Company, since 1978;
Member of the Supervisory Board of VAW
aluminum AG since 1985; Member of the
Supervisory Board of Stinnes AG, an affiliate
of the Company, since 1998; Member of the
Supervisory Board of Huls AG, an affiliate of
the Company, from 1996 to February 1999;
Member of the Supervisory Board of Degussa AG,
an affiliate of the Company, from 1998 to
February 1999.
Helmut Mamsch.......................... 54 2000 Chairman of the Board of Directors of the
Company since August 1998; 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, an
affiliate of the Company, from February 1991
to June 1996; Member of the Board of Directors
of Logica Plc since July 1996; Member of the
Supervisory Board of Degussa-Huls AG since
February 1999; Member of the Supervisory
Boards of Commerzbank AG, Kali und Salz
Beteiligungs AG, Readymix AG, SGE Deutsche
Holding GmbH and Steag AG, an affiliate of the
Company.
</TABLE>
3
<PAGE> 6
INFORMATION REGARDING CONTINUING DIRECTORS
<TABLE>
<CAPTION>
PRESENT
TERM
NAME AGE EXPIRES BUSINESS EXPERIENCE
---- --- ------- -------------------
<S> <C> <C> <C>
Michael B. Smith....................... 62 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.
Dr. Alfred Oberholz.................... 46 2001 Director of the Company since March 1997;
Member of the Board of Management of
Degussa-Huls AG since February 1999; Member of
the Board of Management of Huls AG from March
1998 to February 1999; Deputy Member of the
Board of Management of Huls AG from July 1996
to March 1998; 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..................... 56 2001 Director of the Company since 1989; Chief
Executive Officer of the Company from August
1996 to February 1999; Chairman of the Board
of Directors of the Company from March 1993 to
August 1996; 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.
Mr. Viefhues retired as Chief Executive
Officer of the Company in February 1999. He
has agreed to remain on the Board until August
1999 to assist in the transition. The Board
has not identified a replacement for Mr.
Viefhues on the Board.
</TABLE>
4
<PAGE> 7
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
On October 22, 1998, the Company filed a registration statement with the
Securities and Exchange Commission (the "SEC") for the sale of its Common Stock
in a rights offering to existing stockholders except VEBA AG and its affiliates
(the "Offering"). The Company expects to sell approximately 13,628,446 shares in
the Offering. On March 22, 1999, the Company sold 15,399,130 shares of Common
Stock to VEBA Zweite Verwaltungsgesellschaft mbH ("VEBA Zweite"), a subsidiary
of VEBA AG, in a private placement. VEBA Zweite has also agreed to purchase all
shares of Common Stock issuable upon exercise of the rights that are not
subscribed for by other stockholders in the Offering, subject to certain
conditions that are customary in a firm commitment underwriting.
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 1999 by (i) each director, which includes
nominees for election as a director, (ii) each executive officer named in the
Summary Compensation Table (the "Named Executive Officers"), and (iii) all
directors and executive officers of the Company as a group. None of the
aforementioned individuals own one percent or more of the issued and outstanding
Common Stock of the Company. All directors and executive officers of the Company
as a group own in the aggregate less than one percent of the issued and
outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Marcel Coinne...................... 49,207(1)
Dr. John P. DeLuca................. 43,882(2)
Dr. Hans Michael Gaul.............. --
Helmut Mamsch...................... 600(3)
Willem D. Maris.................... 2,100(3)
Dr. Alfred Oberholz................ 1,867(3)
Paul T. O'Brien.................... 2,100(3)
</TABLE>
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Michael B. Smith................... 2,500(4)
James M. Stolze.................... 69,082(5)
Ludger H. Viefhues................. 67,700(6)
Klaus R. von Horde................. 34,500(3)
All directors and executive
officers as a group (16
persons)......................... 316,201
</TABLE>
- -------------------------
(1) Sole voting and investment power over 31,578 shares issuable upon exercise
of stock options granted under the Company's 1995 Equity Incentive Plan, as
amended and restated (the "Equity Incentive Plan"); sole voting power but no
investment power over 2,200 shares of unvested restricted stock awarded
under the Equity Incentive Plan; shared voting and investment power over
15,429 shares including 3,370 shares owned by Mr. Coinne's spouse.
(2) Sole voting and investment power over 41,882 shares, including 25,378 shares
issuable upon exercise of stock options granted under the Equity Incentive
Plan; sole voting but no investment power over 2,000 shares of unvested
restricted stock awarded under the Equity Incentive Plan.
(3) Consists of shares issuable upon exercise of stock options granted under the
Equity Incentive Plan.
(4) Sole voting and investment power over 2,100 shares issuable upon exercise of
stock options granted under the Equity Incentive Plan; shared voting and
investment power over 400 shares.
(5) Sole voting and investment power over 58,282 shares, including 31,778 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.
(6) Sole voting and investment power over 60,200 shares issuable upon exercise
of stock options granted under the Equity Incentive Plan; shared voting and
investment power over 7,500 shares.
5
<PAGE> 8
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 February 28, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
---------------- ---------------- -------------------
<S> <C> <C>
VEBA Corporation............................. 21,490,942(1) 53.1%
605 Third Avenue
New York, NY 10158
State of Wisconsin Investment Board.......... 3,595,000(2) 8.9%
P.O. Box 7842
Madison, WI 53707
</TABLE>
- -------------------------
(1) This information is based on a Schedule 13D dated October 22, 1998 jointly
filed with the SEC by VEBA AG and its direct and indirect, wholly owned
subsidiary, VEBA Corporation. This information does not include the
15,399,130 shares of Common Stock purchased by VEBA Zweite, an affiliate of
VEBA Corporation and VEBA AG, from the Company on March 22, 1999, in a
private placement. VEBA Zweite has also agreed to purchase all shares of
Common Stock issuable upon exercise of the rights issued by the Company in
the Offering that are not subscribed for by other stockholders, subject to
certain conditions that are customary in a firm commitment underwriting.
(2) This information is based on a Schedule 13G dated January 16, 1999 filed
with the SEC. The State of Wisconsin Investment Board reports sole voting
and dispositive power over all its shares.
BOARD MEETINGS AND COMMITTEES; COMPENSATION OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors met four times in 1998. The Company's Restated
By-Laws 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 below. Each of the directors attended 75% or more of the aggregate of
the meetings of the Board and of the Board committees on which he served in
1998, except for Dr. Hans Michael Gaul who was unable to attend one of two
meetings of the Board after he was appointed to the Board effective August 12,
1998.
AUDIT COMMITTEE
Members: Willem D. Maris and Michael B. Smith
The Audit Committee met five times in 1998. 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. Hans Michael Gaul, Helmut Mamsch, Dr. Alfred Oberholz, Paul T.
O'Brien and Michael B. Smith
The Compensation Committee met five times in 1998. The responsibilities of
the Compensation Committee include: selecting the executive and salaried
employees who participate in the executive compensation program; periodically
reviewing management development efforts; reviewing and approving new
compensation programs; setting base salaries for certain executives; reviewing
and approving base salaries of certain recently hired executives; 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> 9
ENVIRONMENTAL, SAFETY AND HEALTH COMMITTEE
Members: Paul T. O'Brien, Michael B. Smith and Klaus R. von Horde
The Environmental, Safety and Health Committee met four times in 1998. 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 taking 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.
PLANNING AND CAPITAL EXPENDITURES COMMITTEE
Members: Dr. Hans Michael Gaul, Willem D. Maris, Dr. Alfred Oberholz,
Ludger H. Viefhues and Klaus R. von Horde
The Planning and Capital Expenditures Committee met four times in 1998. The
Planning and Capital Expenditures Committee reviews regularly with management of
the Company the capital expenditures planned or desired by the Company and makes
recommendations to the full Board of Directors with respect to such matters.
DIRECTOR NOMINATIONS
The Company does not have a standing nominating committee; the Board of
Directors performs this function. Pursuant to the Restated Certificate, the
Board will accept nominations of persons for election to the Board of Directors
by any stockholder of the Company as of 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. See "STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS," below.
DIRECTORS' FEES
Each director who is not an employee of the Company is paid an annual
retainer of $25,000 and $1,000 for each Board meeting and each committee meeting
he attends, plus expenses. Each non-employee director is 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, 1998, each non-employee director was awarded
stock options to purchase 2,100 shares of Common Stock under the Company's
Equity Incentive Plan. Dr. Gaul was awarded stock options to purchase 800 shares
due to his appointment to the Board on August 12, 1998, and Helmut Mamsch was
awarded stock options to purchase 1,800 shares due to his appointment to the
Board on March 21, 1998. All such stock options vest pro-rata on the first,
second and third anniversaries of their respective dates of grant.
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 Compensation Committee
(the "Committee") reviews the program at least annually to ensure that this
balance is maintained.
7
<PAGE> 10
POLICIES, GOALS AND RESPONSIBILITIES
The objective 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 using guidelines based upon survey data of comparable
U.S. companies, or comparable companies in the relevant geographic area where
the executive is located, developed by internationally recognized compensation
consultants. In order to reflect the compensation practices that are prevalent
in the Company's industry, in 1998 the Committee placed greater emphasis on
variable pay elements, including annual performance-based bonuses and long-term
equity incentives, than on base salary.
The Company's 1998 guideline for executive compensation was based on the
Radford Associates High Technology Executive Compensation Database Survey and
the Towers Perrin Executive Compensation Database Survey, with a special
emphasis placed on a subset of the Towers Perrin Executive Compensation Database
Survey that included companies in the electric and electronic equipment
industries. Companies included in these surveys are considered to be
representative of those with which the Company competes for executive officers
and employees. Many of the companies in the surveys are also included among the
companies that make up the comparative indices for the Company's Stock Price
Performance Graph. For 1998, in order to effectuate a change in emphasis to
variable pay elements, the Committee targeted base salaries for executive
officers at the 40th percentile of the surveys and annual incentives and
long-term equity incentives for executive officers at the 75th percentile of the
surveys.
The 1998 executive compensation program consisted of four components: 1)
base salary, 2) annual cash incentive awards, 3) long-term equity incentive
awards, and 4) special retention bonuses.
BASE SALARIES
The base salary of each executive officer is reviewed annually. In making
base salary decisions, the Committee first reviews the comparable salary ranges
from the surveys. In 1998, the Committee targeted base salaries for executive
officers at the 40th percentile of companies included in the surveys. In
addition, the Committee considers certain other factors and uses discretion when
setting base salary levels. In setting base salaries for 1998, the Committee
also considered the need to retain executive officers during the difficult
market and financial conditions being experienced by the Company.
As a result, the Committee authorized a 4% increase in annual base salaries
over 1997 base salaries to executive officers in 1998. For 1998, the base salary
of the CEO, Ludger H. Viefhues, was $520,000 per year.
ANNUAL CASH INCENTIVE AWARDS
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.
The Committee establishes a performance/payout schedule each year to set
target bonuses (as a percentage of salary) for each designated participant. In
1998, the Committee targeted annual bonus levels for executive officers
comparable to the 75th percentile of companies included in the surveys. The 1998
target bonus levels for participants ranged from 10% to 140% of the
participant's annual base salary. The maximum award payout for 1998 was set at
125% of a participant's target bonus if superior performance levels were
attained.
The 1998 award was subject to three performance factors: 1) performance
against the Company's net income budget, 2) performance against a set of
strategic goals, and 3) the participant's individual performance contribution as
judged by management. The portion of the award that was based on budgeted net
income was triggered at 100% of budgeted net income and reached a maximum payout
of 100% of the target bonus if 180% of budgeted net income was attained. An
amount up to 25% of the target bonus was dependent upon performance against the
strategic goals, independent of the achievement of budgeted net income.
8
<PAGE> 11
Because the Company did not achieve budgeted net income, Mr. Viefhues did
not receive the portion of his target award that was based on budgeted net
income. Based on the performance of the Company against strategic goals,
however, the Committee awarded $121,339 to Mr. Viefhues for 1998. Mr. Viefhues'
target bonus for 1998 was 140% of his base salary.
SPECIAL RETENTION BONUSES
In an effort to retain the services of certain key executive officers
during the difficult market and financial conditions being experienced by the
Company, in 1998 the Committee provided special retention bonuses to certain key
executive officers and employees. Because of the substantial long-term equity
incentive award granted to Mr. Viefhues in 1998, the Committee did not grant a
special retention bonus to Mr. Viefhues.
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 had a four (4) year performance period beginning January 1,
1996 and ending December 31, 1999 (the "LTIP Period"). The LTIP originally
consisted 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 vested only upon attainment of certain cumulative earnings per share
goals. For each participant in the LTIP, the Committee originally determined a
target percentage of base salary to be received by such participant in the form
of equity-based compensation during the LTIP Period.
In 1998, the Committee revised the LTIP in order to place a greater
emphasis on long-term equity incentives. As revised, the LTIP now provides for
equity-based compensation only in the form of annual grants of non-qualified
stock options with 25% of such options vesting on each anniversary of such
grant. 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, a
target percentage of base salary to be received by the participant in the form
of equity-based compensation is determined each year. Each participant receives
a grant of non-qualified stock options to purchase shares having a market value
on the date of grant, as adjusted using a Black-Scholes valuation factor, equal
to his or her target percentage of base salary.
In 1998, the Committee targeted equity-based compensation for executive
officers at the 75th percentile of companies included in the surveys. In 1998,
participants in the LTIP received non-qualified stock options to purchase shares
having an adjusted market value on the date of grant equal to 24% to 365% of the
participant's annual base salary.
Consistent with the terms of his employment letter and a LTIP award at the
75th percentile, the Committee awarded Mr. Viefhues non-qualified stock options
to purchase 160,600 shares representing 340% of his base salary in 1998.
MEMBERS OF THE COMPENSATION COMMITTEE
Mr. Helmut Mamsch, Chairman
Dr. Hans Michael Gaul
Dr. Alfred Oberholz
Mr. Paul T. O'Brien
Ambassador Michael B. Smith
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------------
------------------------------------------ SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) ($) AWARDS($)(2) SARS(#) ($)
------------------ ---- ------ ----- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ludger H. Viefhues(3)... 1998 514,986 121,339(4) -- -- 160,600 6,720(5)
Former Chief 1997 500,000 -- -- -- 30,600 6,720(5)
Executive Officer 1996 241,331(6) 180,208(4) -- -- 9,500 6,300(5)
Klaus R. von Horde(7)... 1998 420,806(8) 97,072(4) -- -- 138,000 --
Chief Executive 1997 33,204(8) -- -- -- -- --
Officer and President 1996 -- -- -- -- -- --
James M. Stolze......... 1998 257,586 157,514(9) -- -- 49,600 6,720(5)
Executive Vice 1997 247,662 -- -- -- 5,600 6,720(5)
President and Chief 1996 237,806 103,973(4) -- 91,350(10) 5,600 2,945(5)
Financial Officer
Marcel Coinne........... 1998 218,002(11) 171,313(11)(12) 260,607(11)(13) -- 54,800 90,746(11)(14)
Corporate Vice 1997 206,444(11) -- 360,899(11)(13) -- 4,400 --
President Customer 1996 234,161(11) 102,825(4)(11) 234,329(11)(13) 71,775(10) 4,400 --
Operations
Dr. John P. DeLuca...... 1998 183,800 146,678(15) -- -- 32,000 6,720(5)
Corporate Vice 1997 176,075 -- -- -- 4,000 6,720(5)
President Technology 1996 169,050 73,914(4) -- 65,250(10) 4,000 6,720(5)
</TABLE>
- -------------------------
(1) Amounts shown include cash compensation earned and received as well as cash
compensation earned but deferred at the election of the Named Executive
Officer.
(2) The aggregate number of shares of restricted stock held by each of the
Named Executive Officers and their value at December 31, 1998 are as
follows: Mr. Viefhues -- 0 shares; Mr. von Horde -- 0 shares; Mr. Stolze --
2,800 shares, $23,800; Mr. Coinne -- 2,200 shares, $18,700; and Dr. DeLuca
-- 2,000 shares, $17,000. 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, 1998 ($8.50 per share). The Company may pay dividends on the
restricted stock. However, no dividends have been paid to any stockholder
by the Company since the restricted stock was initially awarded.
(3) Mr. Viefhues resigned from service as Chief Executive Officer of the
Company effective February 17, 1999 and will retire as an employee of the
Company effective as of August 17, 1999.
(4) Represents annual bonus paid pursuant to the Annual Incentive Plan.
(5) Represents matching contributions by the Company to the MEMC Retirement
Savings Plan.
(6) 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.
(7) Mr. von Horde was initially appointed by the Company as President and Chief
Operating Officer in December 1997. Mr. von Horde was employed by MEMC
Electronic Materials, S.p.A., the Company's Italian subsidiary, from
December 1997 until April 1, 1998 when he became an employee of the
Company. On February 17, 1999, Mr. von Horde was appointed Chief Executive
Officer and President of the Company.
(8) Deutsche mark amounts have been translated into U.S. dollars at the noon
buying rate in New York City for cable transfer in Deutsche marks 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, 1998,
the noon
10
<PAGE> 13
buying rate was DM 1.6670 = $1.00. On December 31, 1997, the noon buying
rate was DM 1.7991 = $1.00.
(9) Includes a $32,514 annual bonus paid pursuant to the Annual Incentive Plan
and a $125,000 special incentive bonus paid pursuant to the Special
Incentive Bonus Program.
(10) 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;
Mr. Coinne, 2,200; and Dr. DeLuca, 2,000. Twenty-five percent (25%) of the
restricted stock awarded to Messrs. Stolze and Coinne and to Dr. DeLuca 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 Messrs.
Stolze and Coinne and to Dr. DeLuca will vest on January 1, 2000 if the
Company's CEPS for the four fiscal years ending December 31, 1999 meet
certain percentages of the target level for such period as follows:
<TABLE>
<CAPTION>
CEPS AS A PERCENTAGE PERCENT OF SHARES WHICH
OF TARGET LEVEL WILL VEST ON JANUARY 1, 2000
- -------------------- ----------------------------
<S> <C>
100% or more............................................... 100%
95% to 99%................................................. 80%
90% to 94%................................................. 60%
Below 90%.................................................. 0%
</TABLE>
Notwithstanding the foregoing, all such restricted stock will vest at the
end of any calendar quarter ending before December 31, 1999 as of which the
CEPS for the period commencing January 1, 1996 and ending as of the end of
such calendar quarter is at least 100% of the target level for the entire
four-year period. If no CEPS target is met before January 1, 2000, all such
restricted stock will be forfeited. 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.
(11) 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, 1998,
the noon buying rate was BFr 34.36 = $1.00. 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.
(12) Includes a $36,418 annual bonus paid pursuant to the Annual Incentive Plan
and a $134,895 special incentive bonus paid pursuant to the Special
Incentive Bonus Program.
(13) Consists primarily of tax payments paid by the Company due to the
acceptance by Mr. Coinne of an international assignment. Until Mr. Coinne
became an employee of the Company on October 1, 1998, the Company
reimbursed 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.
(14) Includes an adjustment payment of $45,000 in connection with the transfer
of Mr. Coinne's employment from Huls Benelux S.A. to the Company effective
October 1, 1998 and an allowance of $45,746 required by Belgian law in
connection with Mr. Coinne's leaving the Belgian social security system and
transfer of employment.
(15) Includes a $21,678 annual bonus paid pursuant to the Annual Incentive Plan
and a $125,000 special incentive bonus paid pursuant to the Special
Incentive Bonus Program.
11
<PAGE> 14
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
--------------------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Ludger H. Viefhues............. 160,600(2) 18.5% 15.25 8/17/02 1,540,257 3,903,314
Klaus R. von Horde............. 138,000(3) 15.9% 15.25 1/1/08 1,323,509 3,354,031
James M. Stolze................ 49,600(3) 5.7% 15.25 1/1/08 475,696 1,205,507
Marcel Coinne.................. 54,800(3) 6.3% 15.25 1/1/08 525,567 1,331,891
Dr. John P. DeLuca............. 32,000(3) 3.7% 15.25 1/1/08 306,901 777,746
</TABLE>
- -------------------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the Company's Common Stock price.
(2) Pursuant to the terms of a Supplemental Retirement Agreement effective as of
February 17, 1999 between Mr. Viefhues and the Company, on August 17, 1999,
these options will vest and become exercisable for a period of three years.
See "Employment Agreements -- Ludger H. Viefhues."
(3) These options become exercisable at the rate of 25% per year on January 1,
1999, January 1, 2000, January 1, 2001 and January 1, 2002. 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.
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(#)
-------------------------
NAME EXERCISABLE/UNEXERCISABLE
---- -------------------------
<S> <C>
Ludger H. Viefhues.......................................... 12,400/188,300
Klaus R. von Horde.......................................... 0/138,000
James M. Stolze............................................. 16,578/60,726
Marcel Coinne............................................... 15,678/64,426
Dr. John P. DeLuca.......................................... 15,378/41,126
</TABLE>
The Named Executive Officers did not exercise any options during 1998. None
of the unexercised options were in-the-money based on the per share closing
price of the Common Stock of $8.50 on the New York Stock Exchange on December
31, 1998.
PENSION PLAN
The Company sponsors the MEMC Pension Plan, a defined benefit pension plan
covering most domestic employees of the Company and its subsidiaries.
12
<PAGE> 15
The basic benefit payable under the MEMC Pension Plan is a lump sum equal
to 8% of the participant's average total earnings 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 (the "Basic
Formula"). In addition to the normal annuity options, the benefit payable to
employees hired on or after January 1, 1997, and to participants who were
covered by the MEMC Southwest Inc. Pension Plan 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
Basic Formula. The basic benefit payable under the Salaried Plan formula is a
single life annuity equal to 1.2% of the participant's average total earnings
multiplied by the participant's years of benefit service. However, if the
participant was hired in the United States by Monsanto Company ("Monsanto"), 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) 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 the 1.2% or 1.4% 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
twelve times the greater of (a) the monthly average earnings received in the 36
full calendar 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, relocation
payments, non-employee director fees and the special incentive bonuses paid in
1998. In addition, since annual incentive bonuses are paid in the year following
the year earned, such bonuses will be included in "earnings" utilized for
pension formula purposes in the year following the year such bonuses are
reported in the bonus column of the Summary Compensation Table.
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 1998 is $130,000. 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 1998 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.
13
<PAGE> 16
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 using the Basic Formula. The table is based on the
1998 Social Security Wage Base, a 6.0% interest rate and the GAM83(50/50)
Mortality Table. The amounts shown in the table are calculated on a single life
annuity basis and assume retirement at age 65.
PENSION PLAN TABLE(1)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25
- ------------ - -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$125,000......................... $ 6,402 $12,804 $19,207 $ 25,609 $ 32,011
150,000......................... 7,811 15,622 23,433 31,245 39,056
175,000......................... 9,220 18,440 27,660 36,880 46,100
200,000......................... 10,629 21,258 31,887 42,516 53,145
225,000......................... 12,038 24,076 36,114 48,152 60,190
250,000......................... 13,447 26,894 40,341 53,787 67,234
300,000......................... 16,265 32,529 48,794 65,059 81,324
400,000......................... 21,900 43,801 65,701 87,602 109,502
500,000......................... 27,536 55,072 82,609 110,145 137,681
600,000......................... 33,172 66,344 99,516 132,688 165,860
</TABLE>
Mr. von Horde is covered by the Basic Formula. As of December 31, 1998, Mr.
von Horde has 0.75 years of benefit service and annualized average total
earnings of $416,000 under the MEMC Pension Plan and MEMC SEPP. Under the terms
of the MEMC Pension Plan and MEMC SEPP, because Mr. von Horde did not
participate in the MEMC Pension Plan and MEMC SEPP until April 1, 1998, as of
December 31, 1998, Mr. von Horde had no vested benefit.
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 using the 1.4% Salaried Plan formula described above.
As discussed above, the 1.4% formula is an alternative to the Basic Formula. The
amounts shown in the table are calculated on a single life annuity basis and
assume retirement at age 65 (without regard to the offsets described above).
PENSION PLAN TABLE(2)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------
REMUNERATION 20 25 30 35
------------ -- -- -- --
<S> <C> <C> <C> <C>
$125,000............... $ 35,000 $ 43,750 $ 52,500 $ 61,250
150,000............... 42,000 52,500 63,000 73,500
175,000............... 49,000 61,250 73,500 85,750
200,000............... 56,000 70,000 84,000 98,000
225,000............... 63,000 78,750 94,500 110,250
250,000............... 70,000 87,500 105,000 122,500
300,000............... 84,000 105,000 126,000 147,000
400,000............... 112,000 140,000 168,000 196,000
450,000............... 126,000 157,500 189,000 220,500
500,000............... 140,000 175,000 210,000 245,000
</TABLE>
Dr. DeLuca is covered by the 1.4% formula. As of December 31, 1998, Dr.
DeLuca had 21.6 years of benefits service and annualized average total earnings
of $243,836 under the MEMC Pension Plan and the MEMC SEPP.
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 using the 1.2% Salaried Plan
14
<PAGE> 17
formula described above. As discussed above, the 1.2% formula is an alternative
to the Basic Formula. The table presents the better of the Basic Formula or the
grandfathered 1.2% formula for each level of remuneration and years of service
classification as a single life annuity assuming retirement at age 65. The basic
benefit is calculated using the 1998 Social Security Wage Base, a 6% interest
rate and the GAM83(50/50) Mortality Table to convert the lump sums to annuities.
PENSION PLAN TABLE(3)
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------
REMUNERATION 5 10 15
- ------------ - -- --
<S> <C> <C> <C>
$225,000................................ $13,500 $27,000 $ 40,500
250,000................................ 15,000 30,000 45,000
300,000................................ 18,000 36,000 54,000
400,000................................ 24,000 48,000 72,000
500,000................................ 30,000 60,000 90,000
600,000................................ 36,000 72,000 108,000
700,000................................ 42,000 84,000 126,000
</TABLE>
Mr. Viefhues and Mr. Stolze are eligible for the 1.2% formula. As of
December 31, 1998, Mr. Viefhues had 4.6 years of benefit service and annualized
Average Total Earnings of $512,658, and Mr. Stolze had 3.5 years of benefit
service and annualized Average Total Earnings of $324,509 under the MEMC Pension
Plan and MEMC SEPP. Mr. Viefhues' years of benefit service reflect his prior
period of benefit service with the Company from June 1, 1989 through August 15,
1991. Pursuant to the terms of the Supplemental Retirement Agreement between Mr.
Viefhues and the Company effective as of February 17, 1999, Mr. Viefhues will
resign his employment with the Company on August 17, 1999 and receive an
additional year of benefit service credit under the MEMC SEPP. See "Employment
Agreements -- Ludger H. Viefhues." Under the terms of the MEMC Pension Plan and
because Mr. Stolze joined the Company in June 1995, as of December 31, 1998, Mr.
Stolze had no vested benefit.
Mr. Coinne does not participate in either the MEMC Pension Plan or the MEMC
SEPP.
In accordance with his employment agreement, Mr. Coinne currently
participates in a pension arrangement maintained by the Company through an
insurance contract with Royale Belge and a pension agreement with the Company.
The Royale Belge contract duplicates the benefit provided under Mr. Coinne's
prior employer's pension plan. If Mr. Coinne had retired on December 31, 1998
and began receiving payment at age 65, Mr. Coinne would be eligible to receive
an annual pension from the Royale Belge contract arrangement of approximately
$59,617. Under the pension agreement with the Company, Mr. Coinne would be
eligible to receive an annual pension of $26,145 beginning at age 65, if he had
terminated employment on December 31, 1998. Amounts provided reflect the
exchange rate for Belgian francs on December 31, 1998. Pension benefits under
Mr. Coinne's pension arrangement 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.
EMPLOYMENT AGREEMENTS
Ludger H. Viefhues
Mr. Viefhues entered into an employment agreement dated as of September 3,
1996 with the Company (the "Original Viefhues Agreement"). The Original Viefhues
Agreement provided for an initial annual base salary of $500,000, annual
incentives, grants of options under the Equity Incentive Plan and other
benefits. The term of the Original Viefhues Agreement commenced as of August 1,
1996 and was to terminate on July 31, 2002. Effective as of February 17, 1999,
the Original Viefhues Agreement was superseded by a Supplemental Retirement
Agreement between Mr. Viefhues and the Company, as modified by a Supplemental
Retirement
15
<PAGE> 18
Agreement Clarification between Mr. Viefhues and the Company (as modified, the
"Viefhues Retirement Agreement").
Pursuant to the terms of the Viefhues Retirement Agreement, Mr. Viefhues
resigned from service as Chief Executive Officer of the Company effective as of
February 17, 1999. During the period commencing February 17, 1999 and ending
August 17, 1999 (the "Transition Term"), Mr. Viefhues agreed to remain an
employee and a director of the Company. During the Transition Term, Mr. Viefhues
has agreed to assist in an orderly transition of the Company's leadership. On
August 17, 1999, Mr. Viefhues will resign his employment with the Company and
retire from the Company's Board of Directors, provided that Mr. Viefhues will
resign from the Board of Directors prior to that date if he is requested to do
so by the Chairman of the Board of Directors of the Company.
During the Transition Term, Mr. Viefhues will continue to receive his base
salary, at the current annual rate of $520,000, and the full amount of his
annual incentive payment for 1998, as was determined by the Compensation
Committee. Mr. Viefhues will also retain options to purchase 126,800 shares of
the Company's common stock at an exercise price of $8.50 per share which options
were awarded to Mr. Viefhues on January 1, 1999. Mr. Viefhues will also be
eligible to receive 62.4658% of his full annual incentive payment for 1999,
which annual incentive amount shall be determined based on the Compensation
Committee's review of the Company's actual performance for 1999 and shall be
payable at such time as annual incentive payments are paid to other participants
in the Company's Annual Incentive Plan. Finally, during the Transition Term, Mr.
Viefhues is entitled to continue to participate in all pension and welfare
benefit plans and programs of the Company applicable to senior executives,
including medical, dental, life insurance, disability and pension.
Effective as of August 17, 1999 (the "Transition Date"), Mr. Viefhues will
receive a supplemental severance payment of $520,000. On the Transition Date,
Mr. Viefhues will also receive a lump sum amount of $45,455 in order to defray
expenses to be incurred by him and his family in returning to Germany. In
addition, effective as of the Transition Date, all stock options previously
awarded to Mr. Viefhues under the Equity Incentive Plan shall vest and Mr.
Viefhues will be allowed to exercise all such stock options until the earlier of
(i) three years following the Transition Date and the (ii) the expiration of the
option's term. The Company will also provide Mr. Viefhues with reasonable and
customary tax preparation services and financial planning assistance for the
1999 tax year. As of the Transition Date, Mr. Viefhues shall receive an
additional year of credit for service under the MEMC SEPP. Mr. Viefhues' accrued
benefit under the MEMC SEPP will be paid as soon as practicable after August 18,
2000. Finally, on the Transition Date, the Company will provide Mr. Viefhues
with a one-year, $1 million term life insurance policy and pay Mr. Viefhues the
cost of continuing certain dental benefits. The Company will also pay Mr.
Viefhues a tax gross-up associated with the term life insurance policy and the
dental benefits. The Company is obligated to require any successor to the
Company to assume and agree to perform the Viefhues Retirement Agreement.
Klaus R. von Horde
Mr. von Horde entered into an employment agreement with the Company that
was effective as of April 1, 1998 (the "Original von Horde Agreement"). The
Original von Horde Agreement provided that Mr. Von Horde would be employed by
the Company as President and Chief Operating Officer for the period commencing
April 1, 1998 and terminating on March 31, 2003. On February 17, 1999, Mr. von
Horde was appointed as President and Chief Executive Officer of the Company. In
connection with Mr. von Horde's new position, the Company entered into a new
employment agreement with Mr. von Horde effective as of February 17, 1999 (the
"New von Horde Agreement"). The New von Horde Agreement supersedes the Original
von Horde Agreement.
The Original von Horde Agreement provided for an initial annual base salary
of $416,000 which could be increased, but not decreased, at the discretion of
the Company's Compensation Committee based on performance and responsibilities
assigned to Mr. von Horde. Mr. von Horde was also eligible to receive annual
incentives, annual grants of stock options under the Equity Incentive Plan and
other benefits. Pursuant to the terms of the Original von Horde Agreement, in
1998, Mr. von Horde received options to purchase 138,000 shares of the Company's
Common Stock at an exercise price of $15.25 per share. All these options vest at
the
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<PAGE> 19
rate of 25% per year starting one year after the date of grant such that 100%
vesting will occur on the fourth anniversary of the date of grant.
Notwithstanding the foregoing, for all options granted to Mr. von Horde prior to
February 17, 1999, the Original von Horde Agreement provides that such stock
options will vest upon Mr. von Horde's retirement on or following August 31,
2002 or earlier with the consent of the Compensation Committee.
The New von Horde Agreement provides that Mr. von Horde will be employed by
the Company as President and Chief Executive Officer for the period commencing
February 17, 1999 and ending March 31, 2003.
The New von Horde Agreement provides for an initial annual base salary of
$520,000 which may be increased, but not decreased, at the discretion of the
Company's Compensation Committee based on performance and responsibilities
assigned to Mr. von Horde. The New von Horde Agreement provides for annual
incentives, annual grants of stock options under the Equity Incentive Plan and
other benefits. Mr. von Horde is eligible to receive an annual bonus under the
Company's Annual Incentive Plan with a target bonus of no less than 50% of his
annual base salary. In January 2000, 2001, and 2002, Mr. von Horde will receive
a stock option grant comprised of options to purchase a number of shares with a
face value of no less than 200% of Mr. von Horde's base salary, not to exceed
100,000 shares in any one year. These options will have an exercise price per
share equal to 100% of market value on the date of grant. All options will vest
at the rate of 25% per year starting one year after the date of grant such that
100% vesting will occur on the fourth anniversary of the date of grant.
Notwithstanding the foregoing, the New von Horde Agreement provides that all
stock options granted to Mr. von Horde after February 17, 1999 will vest upon
Mr. von Horde's retirement on or following March 31, 2003, or earlier, with the
consent of the Compensation Committee.
Either party may terminate the New von Horde Agreement upon twelve months'
prior written notice. In the event of Mr. von Horde's involuntary termination
without cause (other than by reason of death, total and permanent disability or
retirement at the end of the agreement term) or Mr. von Horde's resignation for
good reason, he will receive his base salary, benefits and pension credit
through the notice period, the end of which will be the date of termination. Mr.
von Horde will also receive 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 the Company's
performance for the full year) as bonuses are paid generally to the Company's
executives with respect to such year. Mr. von Horde will also be reimbursed for
all reasonable relocation expenses incurred by him in returning to Germany with
his family, and all unvested options under the Equity Incentive Plan will vest
and remain outstanding and exercisable for three (3) years following his
termination date unless the options are exercised or expire sooner by their
terms. In such event, Mr. von Horde will also receive a lump sum cash payment
equal to six (6) months' salary, continued medical and dental plan coverage for
six (6) months (but not beyond March 31, 2003 or his return to Germany), pension
service credit through March 31, 2003 for benefit accrual purposes, and
accelerated pension vesting and waiver of early retirement reduction factors
such that a full unreduced normal retirement pension amount (including benefits
under the MEMC SEPP) will be available to Mr. von Horde six (6) months after his
termination date (or March 31, 2003, if sooner), based on five (5) years of
service.
In the event Mr. von Horde voluntarily retires on or after March 31, 2003,
his pension will be fully vested and the early retirement reduction factors
shall be waived, such that a full unreduced normal retirement pension amount
(including benefits under the MEMC SEPP) will be available to Mr. von Horde on
his retirement date. Mr. von Horde will also be entitled to continued medical
and dental plan coverage until the earlier of (i) the first anniversary of his
retirement date and (ii) his return to Germany.
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 and contains no termination provision.
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
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<PAGE> 20
Equity Incentive Plan, a signing bonus of $327,994 (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.
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 "Original Coinne Agreement"). The Original Coinne Agreement had no
specified term and provided 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 also participated in the Huls Benelux S.A. Pension Plan.
His prior years of service with a previous employer are included in his years of
service for purposes of the pension provided for in the Original Coinne
Agreement.
Because Mr. Coinne was relocated from Belgium to the United States as part
of his employment arrangement, the Original Coinne Agreement also provided for
relocation expense reimbursements, location living adjustment payments, housing
allowance payments, an automobile and income tax equalization payments.
On October 1, 1998, Mr. Coinne became an employee of the Company. In
connection with his employment with the Company, Mr. Coinne entered into a new
employment arrangement with the Company effective as of October 1, 1998 (the
"New Coinne Agreement"). The New Coinne Agreement supersedes the Original Coinne
Agreement.
The New Coinne Agreement has no specified term and contains no termination
provision. The New Coinne Agreement provides for an initial base salary of
$230,000 per year, reduced by certain insurance and retirement expenses. Under
the New Coinne Agreement, Mr. Coinne also is entitled to participate in the MEMC
Electronic Materials, Inc. Annual Incentive Plan and Long Term Incentive Bonus
Plan and to participate in certain medical, dental, insurance and pension plans.
Mr. Coinne also is entitled to certain tax preparation, estate planning, tax
planning and other legal services. The New Coinne Agreement provides for a
one-time payment to Mr. Coinne of $115,000, which is payable in two
installments.
The New Coinne Agreement provides that Mr. Coinne will be entitled to two
weeks pay for each year of service, plus one additional week pay, in the event
Mr. Coinne is terminated without cause. The Company is also obligated to pay
certain relocation and transportation expenses in the event of Mr. Coinne's
retirement or termination.
ANNUAL INCENTIVE PLAN
The Company has adopted the MEMC Electronic Materials, Inc. Annual
Incentive Plan (the "Annual Incentive Plan") which is administered by the
Compensation Committee. Employees assigned to certain management, professional
and technical positions are eligible to participate in the Annual Incentive
Plan.
Under the Annual Incentive Plan, annual bonuses are paid based upon the
extent to which the Company's financial and qualitative performance has met or
exceeded certain performance goals specified by the Compensation Committee. A
portion of the annual awards may also be based on individual performance. Awards
under the Annual Incentive Plan are paid in cash.
In the event a participant terminates employment prior to the end of a year
for any reason other than disability, retirement, death or involuntary layoff,
no award is paid to the participant unless otherwise determined by the
Compensation Committee in its sole discretion. If a participant's employment
terminates by reason of disability, retirement, death or involuntary layoff,
then the participant is entitled to receive a pro rata award provided that such
participant participated in the Annual Incentive Plan for at least six months.
In the event of a change of control of the Company, the payment of awards are
accelerated and the amount of such awards is calculated as if the applicable
performance goals have been met.
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<PAGE> 21
The Board of Directors may terminate or amend the Annual Incentive Plan, in
whole or in part, at any time. Because awards under the Annual Incentive Plan
are based on the attainment of specified performance goals, it is not possible
to determine the benefits and amounts that will be received by any individual
participant or group of participants in the future.
SPECIAL INCENTIVE BONUS PLAN
In March 1998, the Company adopted a Special Incentive Bonus Program (the
"Program") designed to retain the services of certain officers and key employees
during the period commencing April 1, 1998 and ending June 30, 1999 (the
"Retention Period"). Under the Program, the participants received a special
incentive bonus. Fifty percent (50%) of the special incentive bonus (the
"Advance Payment") was paid to each participant at the time the participant
executed a special incentive bonus agreement with the Company. The remaining
fifty percent (50%) of each participant's special incentive bonus will be paid
on June 30, 1999 provided that such participant remains an employee of the
Company through June 30, 1999.
In the event a participant terminates his or her employment with the
Company prior to April 1, 1999, the incentive bonus agreement provides that such
participant must reimburse the Company the entire amount of the Advance Payment.
Notwithstanding the foregoing, no reimbursement of the Advance Payment is
required in the event of the death or total and permanent disability of a
participant or in the event a participant's employment with the Company is
involuntarily terminated by the Company as a result of a change of control of
the Company or a reduction in the Company's workforce.
In the event a participant terminates his or her employment with the
Company after March 31, 1999 and before July 1, 1999, the incentive bonus
agreement provides that such participant must reimburse the Company a pro rata
portion of the Advance Payment. Such reimbursement is based on the portion of
the Retention Period during which the participant failed to remain an employee
of the Company.
There were originally 24 participants in the Program. Approximately $2.9
million of special incentive bonuses were awarded to these participants under
the Program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee was comprised of Mr. Armin-Peter
Bode (until March 20, 1998), Dr. Hans Michael Gaul (after December 8, 1998), Mr.
Helmut Mamsch (after March 21, 1998), Prof. Dr. Erhard Meyer-Galow (until
November 30, 1998), Dr. Alfred Oberholz, Mr. Paul T. O'Brien (after December 8,
1998), and Ambassador Michael B. Smith.
None of such directors has been an officer or employee of the Company or
any of its subsidiaries. Because the full Board of Directors approved certain
compensation recommendations of the Compensation Committee, Mr. Viefhues and Mr.
von Horde are deemed to have participated in deliberations of the Board of
Directors regarding remuneration paid to executive officers.
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<PAGE> 22
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 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 Company's initial public offering), through
December 31, 1998. The stock price performance shown on the graph below is not
necessarily indicative of future stock price performance.
<TABLE>
<CAPTION>
MEMC S&P 500 H&Q SEMICONDUCTOR
---- ------- -----------------
<S> <C> <C> <C>
July 12, 1995 100.00 100.00 100.00
December 31, 1995 136.00 114.00 72.00
December 31, 1996 94.00 136.00 94.00
December 31, 1997 64.00 183.00 99.00
December 31, 1998 35.00 234.00 139.00
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
July 12, December 31, December 31, December 31, December 31,
1995 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MEMC 100 136 94 64 35
- ------------------------------------------------------------------------------------------------------------
S&P 500 100 114 136 183 234
- ------------------------------------------------------------------------------------------------------------
H&Q Semiconductor 100 72 94 99 139
- ------------------------------------------------------------------------------------------------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
VEBA Corporation, a corporation owned by VEBA AG and its subsidiaries, and
VEBA Zweite, another subsidiary of VEBA AG, own 66.0% of the outstanding shares
of the Company's Common Stock, including 15,399,130 shares of Common Stock
purchased by VEBA Zweite from the Company in a private placement on March 22,
1999. VEBA Zweite has also agreed to purchase all shares of Common Stock
issuable upon exercise of rights that are not subscribed for by other
stockholders in the Company's pending Offering, subject to certain conditions
that are customary in a firm commitment underwriting.
In an effort to minimize conflicts of interest by members of the Company's
Board of Directors affiliated with VEBA AG or other related parties, the Audit
Committee generally approves or ratifies any material transaction with a related
party.
In 1998, the Company made payments to VEBA Corporation and certain of its
affiliates for raw materials, equipment, office space, services, credit
commitments and interest. The Company also reimbursed VEBA Corporation and
certain of its affiliates for certain insurance premiums paid on the Company's
behalf. The following discussion summarizes the significant agreements and
arrangements between the Company and VEBA Corporation and its affiliates.
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<PAGE> 23
LOAN AGREEMENTS AND GUARANTEES
In 1998, the Company incurred approximately $47.9 million in interest,
commitment fees and other financing fees to VEBA Corporation and certain of its
affiliates. The Company has entered into credit and loan arrangements with VEBA
AG and its affiliates. See "Financial Restructuring -- Debt Restructuring,"
below. In addition, on February 26, 1999, we received a short term $75 million
revolving line of credit from an affiliate of VEBA AG. We did not draw on this
short term line of credit, and it terminated on the closing of the private
placement to VEBA Zweite. We paid a 1/4 percent commitment fee for all unused
amounts of this line of credit. The Company and an affiliate of VEBA 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 $581,000 as of
January 31, 1999, which matures in March 1999. Neither the Company nor the
affiliate of VEBA AG has been required to make any payments under these
guarantees. The Company has agreed to indemnify the affiliate of VEBA AG with
respect to its guarantee. The Company has agreed to pay the affiliate of VEBA AG
an annual fee of 1/8 of one percent calculated on the outstanding principal
balance under the PHC credit agreements for this guarantee.
FINANCIAL RESTRUCTURING
In order to address our capital requirements in 1998, we initiated a
financial restructuring that included:
- - the approximately $91.1 million net proceeds anticipated from the pending
Offering;
- - the approximately $105.9 million of equity financing from VEBA Zweite pursuant
to the private placement;
- - an additional $150 million of debt financing from VEBA AG and its affiliates
($50 million of which became available on June 30, 1998 and $100 million of
which became available on September 23, 1998); and
- - an extension until 2001 of the maturities on all our outstanding debt maturing
prior to January 1, 2001 with VEBA AG and its affiliates (but only in the
event we have used our best efforts to obtain replacement financing on
equivalent terms and have been unsuccessful).
Private Placement to VEBA Zweite and the Rights Offering
On March 22, 1999, we sold 15,399,130 shares of Common Stock to VEBA Zweite
at $6.89 per share for aggregate net proceeds of approximately $105.9 million.
Our primary purpose for the sale to VEBA Zweite and the Offering is to raise
approximately $200 million of additional capital. We are proceeding with the
Offering to allow our stockholders (other than VEBA AG and its affiliates) an
opportunity to restore their proportionate interest in the Company at the same
price per share of Common Stock as was paid by VEBA Zweite.
We sold Common Stock to VEBA Zweite before the Offering in order to
evidence VEBA AG's and its affiliates' commitment to us and to increase our
working capital and reduce our interest expense. If rights holders (other than
VEBA AG and its affiliates) purchase all shares of the Common Stock offered in
the Offering, VEBA AG and its affiliates will again own approximately 53.1% of
the outstanding shares.
Debt Restructuring
As part of the agreement with VEBA AG and its affiliates to provide the
additional debt financing and to extend the maturity dates of outstanding loans
that mature prior to January 1, 2001 until their respective maturity date
anniversaries in 2001, we agreed to increase the interest rates payable by the
Company on all of our debt to VEBA AG and its affiliates. On January 31, 1999,
we had approximately $777.0 million of U.S. dollar and Japanese yen based loans
outstanding with VEBA AG and its affiliates, including $135 million of the
additional $150 million of debt financing. Prior to this restructuring, interest
rates ranged from 2.1% to 7.6%. As part of the debt restructuring completed
during the third quarter of 1998, our loans with VEBA AG and its affiliates have
been repriced at interest rates reflecting the longer maturities and at interest
rate spreads applicable to an average industrial borrower at an assumed credit
rating. As a result, as of January 31, 1999, our loans with VEBA AG and its
affiliates have interest rates ranging from 3.4% to 9.7%.
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<PAGE> 24
These higher rates will cause our interest payments on these loans to
increase by approximately $15 million per year, based on debt outstanding with
VEBA AG and its affiliates and the new interest rates that were in effect as of
September 30, 1998. In addition, for all existing loans that mature prior to
January 1, 2001 and which maturities are extended by VEBA AG and its affiliates
until 2001, the interest rates we must pay during the extension period will be
adjusted to reflect the then-current interest rate spreads applicable to an
average industrial borrower at an assumed credit rating.
We have also agreed to increase the annual commitment fee payable by us on
the undrawn portion of these loans from 1/8 of one percent to 1/4 of one
percent. Additionally, we have agreed that we will not allow any encumbrances,
such as mortgages and security interests, to be placed on our properties.
The additional $150 million of debt financing provided to us by VEBA AG and
its affiliates is also priced at interest rate spreads applicable to an average
industrial borrower at an assumed credit rating. As of January 31, 1999, $135
million of this additional debt financing was outstanding.
The assumed credit rating for these loan agreements was assumed solely for
purposes of the loan agreements and does not reflect a view by the Company or
VEBA AG or its affiliates as to the rating that would be assigned by an
independent rating agency. No independent rating agency currently rates the
Company or its debt.
SERVICE AGREEMENTS
The Company has entered into a service agreement with VEBA Corporation (as
successor to Huls Corporation), which requires VEBA Corporation to provide the
Company with accounting services and office space. According to the terms of the
service agreement, either party may terminate the service agreement at any time
on 30 days' notice. The service agreement also may be modified from time to time
by mutual consent of the parties. The Company believes that the terms of the
service agreement are comparable to terms that the Company could obtain from
unrelated third parties. The Company terminated the accounting services provided
by VEBA Corporation during 1998. In 1998, the Company paid VEBA Corporation
approximately $478,000 under this agreement.
The Company had arrangements with an affiliate of VEBA AG that permitted
this affiliate to use the Company's computer hardware to implement its software
systems. The Company received $67,000 from this affiliate in 1998 pursuant to
these arrangements. These arrangements terminated in 1998.
AGREEMENT FOR COMMUNICATION SERVICES
The Company has an arrangement with VEBA Corporation covering the Company's
communication service needs. This arrangement allows the Company to participate
with VEBA Corporation and several of its affiliates in a communication service
agreement between VEBA Corporation and AT&T. The term of the communication
services agreement expires in 2001. In return for volume pricing discounts, VEBA
Corporation provided AT&T with minimum revenue commitments for each contract
year during the term of the communication services agreement. The Company
entered into a reimbursement agreement with VEBA Corporation which requires the
Company to reimburse VEBA Corporation if the Company's payments to AT&T under
the communication services agreement do not meet certain specified minimum
levels for each contract year. Because of the combined volume of VEBA
Corporation and its affiliates (including the Company's volume), the Company
believes that the pricing terms available to it under the communication services
agreement are no less favorable than the Company could obtain if it
independently entered into a contract for similar communication services. To
date, the Company has not made any reimbursement payments to VEBA Corporation
under this agreement.
TAX AGREEMENTS
From 1990 to 1995, the Company was a party to various tax sharing
agreements with VEBA Corporation and its affiliates. The tax sharing agreements
provided a method to determine each party's respective federal income tax
liabilities. In 1995, the Company entered into a tax disaffiliation agreement
with VEBA
22
<PAGE> 25
Corporation terminating the tax sharing agreements. As a result, 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, the
Company and VEBA Corporation agreed to indemnify each other from and against any
additional federal income tax liability attributable to each other's operations
that is determined to be due with respect to taxable periods covered by the tax
sharing agreements.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement, as amended in connection with
the private placement, the Company granted VEBA AG and its affiliates the right
to demand registration under the Securities Act of 1933, as amended (the
"Securities Act"), of its shares of Common Stock, including shares purchased in
the private placement and shares that may be purchased under the standby
commitment or otherwise. Except as described below, the demand rights are
exercisable at any time 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. VEBA AG and its affiliates will
bear the expenses of any such demand registration. The Company is not obligated
to take any action to register shares of Common Stock owned by VEBA AG and its
affiliates: (1) during the period starting 30 days prior to the 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; (2) more
than once during any six-month period; and (3) for up to 90 days after a request
from VEBA AG or its affiliates if the Company's President 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 the Company's
Common Stock under the Securities Act, VEBA AG or any affiliate of VEBA AG will
be entitled to require the Company to include all or a portion of the shares of
Common Stock which VEBA AG or such affiliate owns in such registration. The
Company will bear the expenses of any such "piggyback" registration, other than
underwriting discounts, commissions and filing fees relating to Common Stock to
be sold by VEBA AG or its affiliates. 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. VEBA AG and its affiliates have waived
their registration rights in connection with the Company's pending Offering.
TREASURY MANAGEMENT
Pursuant to an informal arrangement, the Company participates in VEBA AG's
global treasury management system. As a condition to the Company's
participation, the Company offers VEBA AG or an affiliate a right of first
refusal to act as its financial intermediary in transacting currency hedging
activities. As a result of this arrangement, the Company has entered into a
number of foreign exchange hedging contracts using VEBA AG or an affiliate as
its financial intermediary. The Company believes that these hedging arrangements
with VEBA AG or an affiliate allow for transactions on terms that are comparable
to terms available from unrelated third party financial intermediaries.
Consistent with the Company's past practice, the Company may deposit with VEBA
AG or certain of its affiliates on a short term basis the Company's excess cash
on hand at market rates of interest. The Company believes that the interest
rates received under these short term arrangements are comparable to market
rates received for similar transactions from non-affiliated persons. The
treasury management arrangements may be modified from time to time or terminated
at any time on short notice, either by the Company or VEBA AG or certain
affiliates.
AGENCY AND SERVICES AGREEMENTS WITH AFFILIATED COMPANIES
Through the Company's wholly owned Italian subsidiary, MEMC Electronic
Materials, S.p.A., and certain other foreign subsidiaries, the Company
distributed its silicon products and silicon products manufactured by affiliated
companies in various European countries and South Korea under certain agency and
services agreements that covered the distribution arrangements. In the agency
agreements, affiliates of VEBA AG provides sales agency, administrative and
other related services to MEMC Electronic Materials, S.p.A. in
23
<PAGE> 26
conjunction with the distribution of silicon products in the various countries.
In return for these services, MEMC Electronic Materials, S.p.A. paid these
affiliates of VEBA AG on a commission or cost plus commission basis. During
1998, the Company terminated these agency and services agreements. The Company
believes that the terms of the agency and services agreements were comparable to
those that the Company could have obtained from unrelated third parties. In
1998, the Company paid approximately $1.5 million to affiliates of VEBA AG under
these agency and services agreements.
PURCHASES AND SALES OF RAW MATERIALS AND EQUIPMENT
The Company purchases raw materials from an affiliate of VEBA AG pursuant
to a supply contract dated December 31, 1995. The supply contract has a term of
five years. The Company believes that the prices it pays for raw materials under
this supply contract are not materially different from those which the Company
could obtain from third parties for similar products. In 1998, the Company paid
approximately $7.8 million for raw materials purchased under this supply
contract.
The Company also has purchased equipment from Steag Microtech, Inc., an
entity in which VEBA AG holds a significant minority ownership interest. The
Company believes that the price it paid for this equipment was not materially
different from the price that the Company could have obtained from unrelated
third parties for comparable equipment. In 1998, the Company purchased
approximately $6.1 million of equipment from Steag Microtech, Inc.
SAP SOFTWARE SUBLICENSE
The Company expects to obtain the use of SAP R/3 software through a
sublicense from VEBA AG. SAP R/3 software is a comprehensive enterprise resource
planning software package designed to integrate the Company's business
processes. However, if the Company were to cease being an indirect subsidiary of
VEBA AG, it may incur higher maintenance charges from SAP AG or its affiliates
because of the Company's inability to continue to benefit from VEBA AG's volume
pricing.
INSURANCE
The Company participates in a marine cargo insurance policy maintained by
VEBA AG or an affiliate. In 1998, the Company paid premiums of $60,980 under
this policy. The Company also participates in a blended liability insurance
policy sponsored by an unrelated third party. The Company's participation in the
blended liability policy was arranged by VEBA AG. The premiums on the blended
liability policy are paid by VEBA AG on the Company's behalf. The Company
reimburses VEBA AG for these premiums. In 1998, the Company reimbursed VEBA AG
in the amount of $1.4 million for a three-year premium paid under this policy.
The Company believes that the total premiums paid for the marine cargo policy
and the blended liability policy are comparable to premiums that are available
from unrelated third parties.
INDEPENDENT AUDITORS
The Company is presently utilizing the services of KPMG LLP, which has been
the Company's independent auditors since 1989 and which will serve as the
Company's independent auditors for the fiscal year ending December 31, 1999.
Representatives of KPMG 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 AND DIRECTOR NOMINATIONS
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 2000 must be received by the
Company no later than December 4, 1999. Upon receipt of any such proposal, the
Company will determine whether or not to include such proposal in the proxy
statement and proxy in accordance with the regulations governing the
solicitation of proxies.
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In order for a stockholder to nominate a candidate for director, under the
Company's Restated Certificate, timely notice of the nomination must be given to
the Company in advance of the meeting. Ordinarily, in the case of an annual
meeting, such notice must be given not less than 60 nor more than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders. However, if the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, or in the case of a
special meeting of stockholders called for the purpose of electing directors, in
order to be timely, the stockholder must give notice within 10 days after notice
of the meeting is mailed or other public disclosure of the meeting is made,
whichever occurs first. The stockholder filing the notice of nomination must
describe various matters as specified in the Company's Restated Certificate,
including such information as name, address, occupation and number of shares
held.
In order for a stockholder to bring other business before an annual
stockholders meeting, timely notice must be given to the Company in advance of
the annual meeting. Ordinarily, such notice must be given not less than 90 nor
more than 120 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders. However, if the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, in order
to be timely, the stockholder must give notice within 10 days after notice of
the meeting is mailed or other public disclosure of the meeting is made,
whichever occurs first. Such notice must include a description of the proposed
business, the reasons therefor, and other matters specified in the Company's
Restated By-Laws. The Board or chairman of such meeting may reject any such
proposal that is not made in accordance with these procedures or that is not a
proper subject for stockholder action in accordance with applicable law. These
requirements are separate from and in addition to the requirements a stockholder
must meet to have a proposal included in the Company's proxy statement. These
time limits also apply in determining whether notice is timely for purposes of
rules adopted by the SEC relating to the exercise of discretionary voting
authority.
In each case, the notice must be given to the Company's Secretary, whose
address is 501 Pearl Drive (City of O'Fallon), P. O. Box 8, St. Peters, Missouri
63376.
Any stockholder desiring a copy of the Company's Restated Certificate or
Restated By-Laws will be furnished a copy without charge upon written request to
the Secretary.
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.
April 2, 1999
25
<PAGE> 28
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, in the discretion of the Trustee and
its proxies, 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 Thursday, May 6, 1999,
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> 29
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
Willem D. Maris, Paul T. O'Brien All All Except
and Klaus R. von Horde. [ ] [ ] [ ]
- --------------------------------------------------------------------------------
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED ABOVE.)
2. In its discretion, the Trustee and its proxies are 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: ,1999
-------------------------------
,1999
-------------------------------------
Signature of Plan Participant Date
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
April 2, 1999
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 6, 1999.
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 8, 1999, 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 April 30, 1999. Under the provisions of the Plan, all shares for
which no executed voting direction cards are received by April 30, 1999 are to
be voted by the Trustee and its proxies 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 and its proxies can vote these shares.
<PAGE> 30
PROXY PROXY
MEMC ELECTRONIC MATERIALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS ON MAY 6, 1999
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 Thursday, May 6, 1999, 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> 31
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
Willem D. Maris, Paul T. O'Brien All All Except
and Klaus R. von Horde. [ ] [ ] [ ]
- --------------------------------------------------------------------------------
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED ABOVE.)
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.
,1999
------------------------------------
Signature Date
,1999
------------------------------------
Signature if held jointly Date
Note: Please sign exactly as your
name or names appear hereon. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
PLEASE MARK, SIGN AND PROMPTLY RETURN THIS
PROXY CARD IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
- --------------------------------------------------------------------------------
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE (CITY OF O'FALLON)
ST. PETERS, MISSOURI 63376
April 2, 1999
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 Thursday, May 6, 1999.
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
