<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------------
MEMC ELECTRONIC MATERIALS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 56-1505767
(State or other jurisdiction of incorporation or (I.R.S. employer identification number)
organization)
</TABLE>
501 PEARL DRIVE (CITY OF O'FALLON)
ST. PETERS, MISSOURI 63376
(314) 279-5500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
HELENE F. HENNELLY, ESQ.
CORPORATE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
MEMC ELECTRONIC MATERIALS, INC.
501 PEARL DRIVE (CITY OF O'FALLON)
ST. PETERS, MISSOURI 63376
(314) 279-5500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF ALL CORRESPONDENCE TO:
<TABLE>
<S> <C>
R. Randall Wang, Esq. Patrick A. Pohlen, Esq.
Peter D. Van Cleve Cooley Godward LLP
Bryan Cave LLP Five Palo Alto Square
One Metropolitan Square 3000 El Camino Real
211 N. Broadway, Suite 3600 Palo Alto, CA 94306
St. Louis, Missouri 63102-2750 (650) 843-5000
(314) 259-2000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, par value $.01 per share...................... $93,900,000(1) $27,701(1)
Subscription Rights(2)...................................... $0(2) $0(2)
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</TABLE>
(1) The proposed maximum offering price per share is estimated solely for the
purposes of calculating the registration fee in accordance with Rule 457(o)
based on the estimated maximum aggregate offering price of the Common Stock.
(2) Evidencing the rights to subscribe for shares of the Common Stock. No
consideration will be received by the Company upon distribution of the
Rights. No registration fee is required for the registration of Rights
pursuant to Rule 457(g) of the Securities Act.
------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
PROSPECTUS (Not Complete)
Issued October 22, 1998
SHARES
MEMC ELECTRONIC MATERIALS, INC. LOGO
MEMC ELECTRONIC MATERIALS, INC.
COMMON STOCK
------------------------
MEMC Electronic Materials, Inc. is distributing to its stockholders (other
than its majority stockholder), at no charge, Rights to purchase MEMC common
stock. Each stockholder will receive Rights for each share of MEMC
common stock owned of record on , 1998. Each Right will entitle the
holder to purchase one share of MEMC common stock. We refer to this as the
"basic subscription privilege." Each Right will carry with it an
over-subscription privilege for shares that are not otherwise purchased through
the exercise of the basic subscription privilege. The Subscription Price for
MEMC common stock offered by the Rights is $ per share.
------------------------
MEMC common stock trades on the New York Stock Exchange under the symbol
"WFR." We will apply to list the Rights on the NYSE under the symbol "WFRRt."
------------------------
INVESTING IN MEMC COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 12.
------------------------
PRICE $ PER SHARE
------------------------
<TABLE>
<CAPTION>
DEALER MANAGER OFFERING
PUBLIC OFFERING FEES AND ESTIMATED PROCEEDS TO
PRICE REIMBURSED EXPENSES MEMC
--------------- ------------------- -----------
<S> <C> <C> <C>
Per Share.................. $ $ $
Total...................... $ $ $
</TABLE>
See "Plan of Distribution" beginning on page 55 for information relating to
fees and reimbursed expenses we will pay to the Dealer Managers.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
Dealer Managers
NATIONSBANC MONTGOMERY SECURITIES LLC J.P. MORGAN & CO.
, 1998
<PAGE> 3
QUESTIONS & ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS THE RIGHTS OFFERING?
The Rights Offering involves a distribution of Rights on a pro rata basis
to all of our stockholders other than VEBA Corporation. We are distributing
Rights for every share of MEMC common stock held on , 1998. Each
Right entitles stockholders to purchase one share of MEMC common stock at a
Subscription Price of $ per share. We will issue approximately shares
in the Rights Offering raising approximately $94 million of additional capital.
VEBA Corporation has agreed to purchase all of the shares not purchased by other
Rights holders in this Rights Offering, subject to certain conditions that are
customary in a firm commitment underwriting.
WHY ARE YOU NOT DISTRIBUTING RIGHTS TO VEBA CORPORATION?
On , 1998, we sold shares of MEMC common stock in a
private placement to VEBA Corporation at the Subscription Price for aggregate
proceeds of approximately $106 million. The sale increased VEBA Corporation's
percentage ownership from approximately 53.1% to % of the outstanding shares.
We are proceeding with the Rights Offering to allow our stockholders (other than
VEBA Corporation) an opportunity to restore their proportionate interest in the
Company at the same price per share of common stock as was paid by VEBA
Corporation.
WHAT IS THE PURPOSE OF THE RIGHTS OFFERING AND THE PRIVATE PLACEMENT TO VEBA
CORPORATION?
Our primary purpose for the Rights Offering and the sale to VEBA
Corporation is to raise approximately $200 million of additional capital. We
decided to raise capital through a sale of stock to VEBA Corporation and a
Rights Offering instead of other transactions (such as an underwritten public
offering) to allow all stockholders an equal opportunity to participate.
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
The basic subscription privilege of the Rights entitles you to purchase one
share of MEMC common stock at a Subscription Price for every Right you hold.
MAY I SUBSCRIBE FOR ADDITIONAL SHARES?
Yes. The over-subscription privilege included with the Rights entitles you,
if you fully exercise your basic subscription privilege, to subscribe for
additional shares of MEMC common stock to the extent that other Rights holders
do not exercise their Rights. If sufficient shares are available, we will honor
all over-subscription requests in full. If over-subscription requests exceed the
shares available, we will allocate the available shares pro rata among those who
over-subscribed based on the number of shares subscribed for pursuant to the
basic subscription privilege.
HOW DO I EXERCISE MY RIGHTS?
If you hold your shares in a brokerage account or by a custodian bank, you
will not receive a Rights Certificate. Contact your broker or custodian bank to
participate in the Rights Offering.
If you hold your shares directly, you will receive a Rights Certificate.
You may exercise your Rights by completing and signing the purchase form that
appears on the back of each Rights Certificate. You must then send the completed
and signed form, along with payment in full of the Subscription Price for all
shares of MEMC common stock to be purchased through the basic subscription
privilege and, if exercised, the over-subscription privilege, to Harris Trust &
Savings Bank, the Subscription Agent.
The Subscription Agent must receive these documents and the subscription
payment no later than the time and date the Rights Offering expires.
You may also exercise your Rights by following the procedures for
guaranteed delivery described under "The Rights Offering -- Guaranteed Delivery
Procedures" beginning on page 34. In this case, you must deliver the Notice of
Guaranteed Delivery and subscription payment to the Subscription Agent by the
time and date the Rights Offering expires. You must also deliver the properly
completed Rights Certificate to the Subscription Agent no later than three
business days following the time and date the Rights Offering expires.
2
<PAGE> 4
We have provided more detailed instructions on how to exercise your Rights
under "The Rights Offering -- Exercise of Rights" beginning on page 32 and with
the Rights Certificate accompanying this Prospectus.
WILL I BE CHARGED A SALES COMMISSION OR A FEE IF I EXERCISE MY RIGHTS?
No. We will not charge a brokerage commission or a fee to Rights holders
for exercising their rights. However, if you exercise your Rights through a
broker or nominee, you will be responsible for any fees charged by your broker
or nominee. If you sell your Rights through the Subscription Agent as described
on page 36, the Subscription Agent will not charge you any fees. If you sell
your Rights through other means, you will be responsible for any fees arising
from such sale.
MAY I SELL MY RIGHTS IF I DO NOT WANT TO PURCHASE ANY SHARES?
Yes. The Rights are transferable and will be listed for trading on the New
York Stock Exchange until the close of business on the last trading day before
the Rights Offering expires. You may contact the Subscription Agent if you would
like it to sell your Rights for you, as described on page 36. Otherwise, you may
try to sell your Rights through normal investment channels. We cannot assure you
that the Subscription Agent or others will be able to sell any of your Rights.
AM I REQUIRED TO SUBSCRIBE IN THE RIGHTS OFFERING?
No.
IF I AM A STOCKHOLDER, WHAT HAPPENS TO MY OWNERSHIP INTEREST IN THE COMPANY AS
COMPARED TO MY OWNERSHIP INTEREST BEFORE THE PRIVATE PLACEMENT OF MEMC COMMON
STOCK TO VEBA CORPORATION?
If you exercise your basic subscription privilege in full, you will
maintain your proportionate ownership interest in the Company. If you exercise
your over-subscription privilege and receive shares pursuant to the
over-subscription privilege, you will increase your proportionate ownership
interest in the Company. If you do not exercise your Rights, your proportionate
ownership interest in the Company will substantially decrease. If you do not
exercise or sell your Rights, you will lose any value inherent in the Rights.
HOW DO I PAY FOR MY SUBSCRIPTION?
You may pay for shares of MEMC common stock by:
- Check or bank draft drawn on a U.S bank or postal, telegraphic or
express money order payable to Harris Trust & Savings Bank, as
Subscription Agent; or
- Wire transfer of immediately available funds to the account maintained
by the Subscription Agent for such purpose at , ABA No. ,
Account No. (marked: MEMC Electronic Materials, Inc. Subscription).
We will consider you to have delivered payment to the Subscription Agent
when:
- in the case of any uncertified check, the check clears;
- in the case of a certified check or bank draft drawn upon a U.S. bank or
any postal, telegraphic or express money order, receipt of the payment;
or
- in the case of a wire transfer of immediately available funds, receipt
of collected funds in the specified account.
Funds paid by uncertified personal checks may take five business days or
more to clear. If you wish to pay the Subscription Price by uncertified personal
check, we urge you to make payment sufficiently in advance of the expiration
date to ensure that your payment is received and clears in time. We urge you to
consider using a certified or cashier's check, money order or wire transfer of
funds to avoid missing the opportunity to exercise your Rights.
WHEN DOES THE RIGHTS OFFERING EXPIRE?
The Rights Offering expires at 5:00 p.m., New York City time, on
, 1998. We may extend the expiration date until , 1999 for
any reason. We may extend the expiration date until some later date if a
material event occurs and we need more time to adequately disclose information
to Rights holders.
3
<PAGE> 5
IF I EXERCISE RIGHTS IN THE RIGHTS OFFERING, MAY I CANCEL OR CHANGE MY DECISION?
No. All exercises of Rights are irrevocable unless the conditions to VEBA
Corporation's obligation to purchase all of the shares not purchased by other
Rights holders in this Rights Offering are not satisfied or waived before the
time the Rights expire. In that case, you will be able to change your decision
and we may extend the date the Rights expire.
IF THE RIGHTS OFFERING IS NOT COMPLETED, WILL MY SUBSCRIPTION PAYMENT BE
REFUNDED TO ME?
Yes. The Subscription Agent will hold all funds it receives in escrow until
completion of the Rights Offering. If the Rights Offering is not completed, the
Subscription Agent will return, without interest, all subscription payments.
ARE THERE ANY CONDITIONS TO THE RIGHTS OFFERING?
No. However, we may amend or terminate the Rights Offering for any reason.
WHO IS VEBA CORPORATION?
VEBA Corporation is a corporation owned by VEBA AG and its subsidiaries.
VEBA Corporation owns shares of MEMC common stock, or % of the
outstanding shares.
VEBA AG, which is among the largest publicly held industrial corporations
in Germany, is engaged in businesses including electricity, chemicals, oil, real
estate management, distribution/logistics and telecommunications.
WHY DID YOU SELL MEMC COMMON STOCK TO VEBA CORPORATION BEFORE THE RIGHTS
OFFERING?
We sold MEMC common stock to VEBA Corporation before the Rights Offering in
order to meet certain of our financial needs arising before the completion of
the Rights Offering and to evidence VEBA Corporation's commitment to the
Company. If Rights holders (other than VEBA Corporation) purchase all shares of
MEMC common stock offered in the Rights Offering, VEBA Corporation will again
own 53.1% of the outstanding shares.
IS VEBA CORPORATION GOING TO PARTICIPATE IN THE RIGHTS OFFERING?
Although we are not distributing Rights to VEBA Corporation, VEBA
Corporation has agreed to purchase all shares not subscribed for by other Rights
holders in the Rights Offering, subject to certain conditions that are customary
in a firm commitment underwriting. If no other Rights holders exercise their
Rights and if the conditions to VEBA Corporation's obligation to purchase all
shares not purchased by other Rights holders in this Rights Offering are
satisfied or waived, VEBA Corporation will own approximately % of the
outstanding shares following the Rights Offering.
WHAT SHOULD I DO IF I HAVE OTHER QUESTIONS?
If you have questions or need assistance, please contact Morrow & Co.,
Inc., the Information Agent, at:
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, NY 10022
(212) 754-8000
Toll Free (800) 566-9061
Banks and Brokerage Firms
Please call (800) 662-5200
For further assistance on how to subscribe for shares, you may also contact
the Subscription Agent for the Rights Offering by mail or telephone at:
Harris Trust & Savings Bank
c/o Harris Trust Company of New York
Wall Street Station
P.O. Box 1010
New York, New York 10268-1010
(800) 245-7630
4
<PAGE> 6
PROSPECTUS SUMMARY
SUMMARY This summary highlights information contained
elsewhere in this prospectus. This summary is not
complete and does not contain all of the important
information that you should consider before
investing in the Rights or MEMC common stock. You
should carefully read the entire prospectus.
INFORMATION ABOUT MEMC MEMC is a leading worldwide producer of silicon
wafers. The silicon wafer is the fundamental
building block from which almost all semiconductors
are manufactured. Semiconductors are used in
virtually all electronic applications, including
computers, telecommunications equipment,
automobiles, consumer electronics products,
industrial automation and control systems, and
analytical and defense systems.
Worldwide silicon wafer industry product volume has
grown at a compound annual growth rate of 10.8%,
from 1.2 billion square inches in 1985 to 4.0
billion square inches in 1997, according to
Dataquest estimates. Because silicon wafers are the
material from which almost all semiconductor devices
are manufactured, the strength of the silicon wafer
industry is closely linked to the performance of the
semiconductor industry. Worldwide semiconductor
industry revenues have grown at a compound annual
growth rate of 16.2%, from $24.3 billion in revenues
in 1985 to $147.2 billion in revenues in 1997,
according to Dataquest estimates. There are an
estimated 24 silicon wafer manufacturers in the
world today with six principal manufacturers,
including ourselves, supplying a substantial
majority of the wafers used by the major
semiconductor manufacturers.
We operate manufacturing facilities directly or
through joint ventures in Italy, Japan, Malaysia,
South Korea, Taiwan and the United States. We sell
silicon wafers to most of the world's largest
manufacturers of semiconductors. We are the leading
worldwide supplier of silicon wafers outside of
Japan and the only significant non-Japanese silicon
wafer manufacturer with manufacturing and research
facilities in Japan.
Our principal executive offices are located at 501
Pearl Drive (City of O'Fallon), St. Peters, Missouri
63376, and our telephone number is (314) 279-5500.
RISK FACTORS A purchase of MEMC common stock involves a high
degree of risk. You should read and carefully
consider the information set forth under "Risk
Factors" beginning on page 12 and the information
contained elsewhere in this prospectus.
You should decide whether to subscribe for MEMC
common stock based upon your own assessment of your
best interests. Neither we nor the Dealer Managers
are making any recommendations as to whether or not
you should subscribe for MEMC common stock.
FORWARD-LOOKING STATEMENTS Parts of the information contained or referred to in
this prospectus, including information with respect
to possible future cost savings, are forward-looking
statements. For a discussion of important factors
that could cause actual results to differ materially
from the forward-looking statements, see "Risk
Factors" beginning on page 12 and "Cautionary
Statement Regarding Forward-Looking Statements" on
page 24.
5
<PAGE> 7
THE RIGHTS OFFERING
RIGHTS We will distribute to each stockholder of record
(other than VEBA Corporation) on , 1998,
at no charge, transferable subscription
Rights for every share of MEMC common stock then
owned. We will round up, to the nearest whole
number, the number of Rights we distribute to each
stockholder (we will not issue fractional Rights.)
For example: If you own 100 shares of MEMC common
stock, you will receive Rights instead
of Rights. The Rights will be evidenced
by a transferable Rights Certificate.
SUBSCRIPTION PRICE $ per share of MEMC common stock. The
Subscription Price will be set at an average
trading price per share of MEMC common stock
during a period shortly before the date of the
final prospectus. The Subscription Price will be
identical to the per share purchase price of MEMC
common stock sold to VEBA Corporation in the
private placement.
BASIC SUBSCRIPTION
PRIVILEGE Each Right entitles the holder to purchase one
share of MEMC common stock.
OVER-SUBSCRIPTION PRIVILEGE If you elect to exercise your basic subscription
privilege in full, you will also be entitled to
subscribe for additional shares of MEMC common
stock. If the number of shares available after
satisfaction of all basic subscriptions is
insufficient to satisfy fully all elections to
exercise the over-subscription privilege, we will
allocate the excess shares pro rata among those
over-subscribing. We will base the pro rata
allocation on the number of shares subscribed for
pursuant to the basic subscription privilege. The
opportunity to exercise the over-subscription
privilege is available to all Rights holders on
the same terms.
PRINCIPAL STOCKHOLDER VEBA Corporation, a corporation owned by VEBA AG
and its subsidiaries, owns shares of
MEMC common stock ( % of outstanding shares).
PRIVATE PLACEMENT TO VEBA
CORPORATION On , 1998, we sold shares
of MEMC common stock to VEBA Corporation, at the
Subscription Price, for aggregate proceeds of
approximately $106 million. The sale increased
VEBA Corporation's percentage ownership from
approximately 53.1% to % of the outstanding
shares. We are proceeding with the Rights Offering
to allow our stockholders (other than VEBA
Corporation) an opportunity to restore their
proportionate interest in the Company at the same
price per share of common stock as was paid by
VEBA Corporation. Our primary purpose for the sale
to VEBA Corporation and the Rights Offering is to
raise approximately $200 million of additional
capital. We sold MEMC common stock to VEBA
Corporation before the Rights Offering in order to
meet certain of our financial needs arising before
the completion of the Rights Offering and to
evidence VEBA Corporation's commitment to the
Company. If Rights holders (other than VEBA
Corporation) purchase all shares of MEMC common
stock offered in the Rights Offering, VEBA
Corporation will again own approximately 53.1% of
the outstanding shares.
6
<PAGE> 8
STANDBY COMMITMENT Although we are not distributing any Rights to
VEBA Corporation, VEBA Corporation has agreed to
purchase all shares issuable upon exercise of the
Rights that are not subscribed for pursuant to the
basic subscription privilege or the
over-subscription privilege by other stockholders,
subject to certain conditions that are customary
in a firm commitment underwriting. If no other
stockholders exercise their Rights, VEBA
Corporation will purchase all of the shares of
MEMC common stock offered in this Rights Offering
and will own approximately % of the shares of
outstanding MEMC common stock following this
Rights Offering.
RECORD DATE , 1998, at 5:00 p.m., New York City
time.
TRANSFERABILITY AND LISTING
OF
RIGHTS You may transfer your Rights. We expect the Rights
to trade on the New York Stock Exchange under the
symbol "WFRRt." You cannot trade Rights after the
close of business on the last trading day before
the Rights Offering expires. No prior public
market exists for the Rights, and we cannot assure
you that a market for the Rights will develop or
remain available throughout the offering period.
You may ask the Subscription Agent to try to sell
your Rights. In order for the Subscription Agent
to sell your Rights for you, you must deliver your
Rights Certificate, with properly executed
instructions, to the Subscription Agent by 11:00
a.m., New York City time, on , 1998, the
fifth business day prior to the date the Rights
expire. If the Subscription Agent cannot fill all
of the sales orders it receives, it will prorate
the proceeds from sales among the holders based
upon the number of Rights each person instructed
the Subscription Agent to sell.
We cannot assure you that the Subscription Agent
will be able to sell any of your Rights.
EXPIRATION DATE; AMENDMENTS
AND TERMINATION The Rights will expire at 5:00 p.m., New York City
time, on , 1998. We may extend the
expiration date until , 1999 for any
reason. We may extend the expiration date until
some later date if our Board of Directors believes
that a material event has occurred and we need
more time to adequately disclose information about
such event to you.
We may amend or terminate the Rights Offering for
any reason. If we terminate the Rights Offering,
we will promptly return all subscription payments.
We will not pay interest on, or deduct any amounts
from, subscription payments returned if we
terminate the Rights Offering. Rights that remain
unexercised at the expiration time will expire and
will no longer be exercisable.
PERSONS HOLDING COMMON
STOCK
AND DESIRING TO EXERCISE
RIGHTS
THROUGH OTHERS If you hold shares of MEMC common stock through a
broker, dealer or other nominee, we will send your
Rights Certificate to your broker, dealer or
nominee. Your broker, dealer or nominee will
notify you of the Rights Offering. If you wish to
sell or exercise your Rights, you will need to
have your broker, dealer or nominee act for you.
You should contact them and request that they take
the necessary and proper actions to sell or
exercise your Rights.
PROCEDURE FOR EXERCISING
RIGHTS You may exercise Rights by properly completing and
signing your Rights Certificate. You must deliver
to the Subscription Agent your
7
<PAGE> 9
Rights Certificate with payment of the
Subscription Price for each share of Common Stock
subscribed for (both pursuant to the basic
subscription privilege and the over-subscription
privilege) on or prior to the date and time when
the Rights Offering expires. If you use the United
States mail to send your Rights Certificate, we
recommend that you use insured, registered mail.
If you cannot deliver your Rights Certificate to
the Subscription Agent on time, you may use the
procedures for guaranteed delivery described under
"The Rights Offering -- Exercise of Rights"
beginning on page 32. We will not pay interest on
subscription payments.
Funds paid by uncertified personal checks may take
five business days or more to clear. If you wish
to pay the Subscription Price by uncertified
personal check, we urge you to make payment
sufficiently in advance of the expiration date to
ensure that your payment is received and clears in
time. We urge you to consider using a certified or
cashier's check, money order or wire transfer of
funds to avoid missing the opportunity to exercise
your Rights.
ONCE YOU EXERCISE YOUR RIGHTS, YOU CANNOT REVOKE
YOUR SUBSCRIPTION UNLESS THE CONDITIONS TO VEBA
CORPORATION'S OBLIGATION TO PURCHASE ALL OF THE
SHARES NOT PURCHASED BY OTHER RIGHTS HOLDERS IN
THIS RIGHTS OFFERING ARE NOT SATISFIED OR WAIVED
BEFORE THE TIME THE RIGHTS EXPIRE. IN THAT CASE,
YOU WILL BE ABLE TO CHANGE YOUR DECISION AND WE
MAY EXTEND THE DATE THE RIGHTS EXPIRE. IN ORDER TO
EXERCISE YOUR RIGHTS, YOU MUST EXERCISE THEM
BEFORE THEY EXPIRE.
HOW FOREIGN AND CERTAIN
OTHER
STOCKHOLDERS CAN EXERCISE
RIGHTS We will not mail Rights Certificates to you if you
are a stockholder with an address outside the
United States or if you have an APO or FPO
address. Instead, the Subscription Agent will hold
Rights Certificates for your account. To exercise
such Rights, you must notify the Subscription
Agent on or prior to 11:00 a.m., New York City
time, on , 1998, and establish to the
satisfaction of the Subscription Agent that your
exercise is permitted under applicable law. If you
do not notify the Subscription Agent and provide
acceptable instructions to the Subscription Agent
by such time (if no contrary instructions are
received), the Subscription Agent will try to sell
your Rights, if feasible, and will pay the net
proceeds, if any, to you.
ISSUANCE OF COMMON STOCK We will issue certificates representing shares of
MEMC common stock purchased pursuant to the
exercise of Rights as soon as practicable after
the expiration of the Rights Offering.
SUBSCRIPTION AGENT Harris Trust & Savings Bank is acting as the
Subscription Agent in connection with the Rights
Offering. Harris' telephone number is (800)
245-7630.
INFORMATION AGENT Morrow & Co., Inc. is acting as the Information
Agent in connection with the Rights Offering.
Morrow's telephone numbers are (212) 754-8000 and
(800) 566-9061. Banks and brokerage firms should
call (800) 662-5200.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES Generally, you will not recognize taxable income
in connection with the distribution or exercise of
Rights. You may recognize a gain or
8
<PAGE> 10
loss upon the sale of Rights or shares of MEMC
common stock acquired through exercise of the
Rights.
USE OF PROCEEDS We will receive approximately $ million
from the Rights Offering, after paying estimated
offering expenses, including the fees to the
Dealer Managers. We have received approximately
$106 million from the private placement to VEBA
Corporation. We will use the proceeds of the
private placement to VEBA Corporation to repay
debt from VEBA AG and its affiliates under
revolving credit agreements and for general
corporate purposes. We will use the proceeds from
the Rights Offering to repay any remaining debt
from VEBA AG and its affiliates under revolving
credit agreements and for general corporate
purposes.
COMMON STOCK OUTSTANDING As of September 30, 1998, we had outstanding
40,507,216 shares of MEMC common stock. As of such
date, on a pro forma basis giving effect to the
private placement to VEBA Corporation, we had
outstanding shares of MEMC common stock.
After the private placement and the Rights
Offering, we will have outstanding approximately
shares of MEMC common stock. These
numbers do not include 1,786,852 shares issuable
upon exercise of employee stock options (as of
September 30, 1998) and 1,363,006 shares available
for future grant under our Equity Incentive Plan.
9
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- ------------------------
1993 1994 1995 1996 1997 1997 1998
-------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $552,497 $ 660,807 $ 886,860 $1,119,500 $ 986,673 $ 468,064 $ 437,396
Gross margin............... 112,665 143,210 223,279 250,185 124,759 58,901 19,956
Marketing and
administration........... 37,868 41,298 63,893 79,680 70,715 34,859 37,370
Research and development... 25,509 27,403 31,226 44,313 64,457 29,176 37,767
Restructuring costs(1)..... -- -- -- -- -- -- 139,454
Operating profit (loss).... 49,288 74,509 128,160 126,192 (10,413) (5,134) (194,635)
Equity in income (loss) of
joint ventures........... (10,628) (6,783) 13,908 24,884 3,246 (3,444) (15,391)
Net earnings (loss)(2)..... 8,875 34,076 87,273 101,556 (6,747) 976 (176,393)
Earnings (loss) per share:
Basic.................... --(3) $ 1.43(4) $ 2.80(5) $ 2.46 $ (0.16) $ 0.02 $ (4.33)
Diluted.................. --(3) 1.43(4) 2.78(5) 2.45 (0.16) 0.02 (4.33)
Shares used in earnings
(loss) per share
computation:
Basic.................... --(3) 23,902,650(4) 31,215,563(5) 41,308,806 41,345,193 41,409,163 40,703,636
Diluted.................. --(3) 23,902,650(4) 31,441,631(5) 41,534,412 41,345,193 41,556,378 40,703,636
OTHER DATA:
Capital expenditures....... $ 67,541 $ 78,676 $ 215,359 $ 590,049 $ 372,416 $ 175,105 $ 107,939
Equity infusions in joint
ventures................. -- 20,922 29,904 14,698 10,638 -- 11,747
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------
AS
ACTUAL ADJUSTED(6)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ (2,126) $
Total assets................................................ 1,737,812
Long-term debt (including current portion).................. 673,110
Stockholders' equity........................................ 501,522
</TABLE>
- ---------------
(1) During 1998, we recorded restructuring costs totaling $139.5 million to
close our Spartanburg, South Carolina facility, to forego construction of
an 8-inch (200 millimeter) wafer facility in Malaysia, to withdraw from our
joint venture participation in the small diameter wafer operation in China
and to implement a voluntary separation program.
(2) Our net earnings in 1994 were affected by the adoption of Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits." The effect of such change was a charge of $1.3
million. Net earnings in 1993 were affected by the adoption of SFAS No.
109, "Accounting for Income Taxes," and the adoption of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions."
The cumulative effect of such changes was a credit of $19.3 million and a
charge of $29.3 million, respectively.
(3) Earnings per share information for 1993 is not meaningful.
(4) We calculated our earnings per share for 1994 on a pro forma basis using
the actual number of shares outstanding, plus the number of shares that
would have been required to be sold at the initial public
10
<PAGE> 12
offering price to fund the excess of the $100 million dividend in April
1995 to Huls Corporation (MEMC's then sole stockholder) over the Company's
net earnings for the prior twelve-month period.
(5) We calculated our earnings per share for 1995 on a pro forma basis using
the weighted average number of shares outstanding, plus for the three months
ended March 31, 1995, the number of shares that would have been required to
be sold at the initial public offering price to fund the excess of the $100
million dividend to Huls Corporation in April 1995 over the Company's net
earnings for the prior twelve-month period.
(6) Adjusted to reflect the proceeds of our sale of an aggregate of
shares of MEMC common stock in the private placement to VEBA Corporation
and the Rights Offering after deducting estimated offering expenses
(including fees paid to the Dealer Managers) and our application of the net
proceeds, as further described under "Use of Proceeds" on page 27 and "Plan
of Distribution" beginning on page 55. At , 1998, we had $
million of debt to VEBA AG and its affiliates under revolving credit
agreements, which are expected to be repaid with proceeds of the private
placement and the Rights Offering.
11
<PAGE> 13
RISK FACTORS
You should carefully consider the following factors, together with the
other information contained in this prospectus, before purchasing Rights or the
MEMC common stock we are offering. An investment in MEMC common stock involves a
high degree of risk and may not be appropriate for investors who cannot afford
to lose their entire investment.
HISTORY OF SIGNIFICANT
OPERATING
AND NET LOSSES; FUTURE
LOSSES
ANTICIPATED We have not reported an operating profit since the
third quarter of 1997. We reported an operating
loss in 1997 of $10.4 million. Through the first
two quarters of 1998, we had an operating loss of
$194.6 million, which included restructuring costs
of $139.5 million. Due to overcapacity and
decreasing prices in the semiconductor and silicon
wafer industries, weak economic conditions in the
Asia Pacific region and Japan, and other factors,
we do not expect to be profitable at least through
1999. We cannot predict how long we will continue
to experience significant or increasing operating
and net losses or whether we will become
profitable.
CAPITAL INTENSIVE INDUSTRY;
ADDITIONAL FINANCING NEEDS
AND
RESTRICTIONS ON PLEDGING
ASSETS;
UNCERTAINTY OF CAPITAL
FUNDING We have incurred negative cash flows from
operations in recent periods and have spent
substantial funds in connection with research and
development programs and other operating
activities. We have also experienced negative free
cash flows in the past because of our substantial
capital expenditures.
Our business is highly capital intensive. We will
need substantial amounts of cash to continue to
fund capital expenditures, research and
development, and marketing and customer service
and support. We cannot assure you that, even with
the proceeds from the private placement to VEBA
Corporation and this Rights Offering and cash
flows from operations, if any, our existing
capital resources will be able to fund our future
operations. Our capital needs depend on numerous
factors, including our profitability and
investment in research and development and capital
expenditures.
Historically, we have funded our operations
primarily through loans from VEBA AG and its
affiliates, internally generated funds, and our
initial public offering. To a lesser extent, we
have raised funds by borrowing money from
commercial banks. We will continue to explore and,
as appropriate, enter into discussions with other
parties regarding possible future sources of
capital. Under the loan agreements between us and
our principal lender, VEBA AG and its affiliates,
and one other lender we cannot pledge any of our
assets to secure additional financing. We do not
believe that we currently can obtain unsecured
financing from third parties on better terms than
those with VEBA AG and its affiliates.
For financial reporting purposes, both VEBA
Corporation and VEBA AG include VEBA Corporation's
share of our net earnings or losses in their
consolidated financial statements. Our recent
losses have adversely affected VEBA Corporation's
and VEBA AG's reported earnings. While we are not
one of the core businesses that VEBA AG has
identified as the focus of its future major
investments, VEBA AG
12
<PAGE> 14
and its affiliates have recently provided us
with substantial additional capital
commitments. Those capital commitments
include:
- an additional $150 million in debt
financing ($50 million of which became
available on June 30, 1998 and $100
million of which became available on
September 23, 1998);
- an extension until 2001 of the maturities
on all of our existing 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); and
- a purchase on , 1998 of
shares of MEMC common stock at
the Subscription Price for aggregate
proceeds to us of approximately $106
million.
VEBA Corporation has also committed to purchase
all of the shares not purchased by other
stockholders in this Rights Offering, subject to
certain conditions that are customary in a firm
commitment underwriting. However, VEBA AG and its
affiliates are not otherwise obligated to provide
capital to us. We cannot assure you that VEBA AG
and its affiliates will continue to provide
capital to us in the future.
Additionally, we cannot assure you that we will be
able to obtain capital in the future to meet our
needs. If we do find a source of additional
capital, the terms and pricing of any such
financing may be significantly more favorable to
the lender or investor than those in this Rights
Offering. Future capital raising could dilute or
otherwise materially adversely affect the holdings
or rights of our existing stockholders. If we
cannot locate additional funding (whether from
current or new lenders or investors), we may be
required to reduce our investments in research and
development, marketing and customer service and
support and capital expenditures. Such reductions
could materially adversely affect our ability to
compete and our business.
RISKS OF LEVERAGE AND DEBT
SERVICE REQUIREMENTS We currently have a significant amount of debt
which could adversely affect our ability to obtain
additional financing for working capital, capital
expenditures or other purposes. As of September
30, 1998, we owed $679.6 million to VEBA AG and
its affiliates, and $142.2 million to other
lenders. Our debt service could make us more
vulnerable to industry downturns and competitive
pressures. Our ability to meet our debt service
and other obligations will depend upon our future
performance and is subject to financial, economic
and other factors, many of which are beyond our
control. In addition, the cash flow required to
service our debt may reduce our ability to fund
internal growth and capital requirements.
13
<PAGE> 15
IMPACT OF SEMICONDUCTOR
INDUSTRY DOWNTURNS; EFFECT
OF
SUBSTANTIAL EXCESS CAPACITY
AND
DECLINING WAFER PRICES Our business depends in large part upon the market
demand for our customers' semiconductors and
products utilizing semiconductors. The
semiconductor industry experiences: (1) rapid
technological change, (2) product obsolescence,
(3) price erosion and (4) wide fluctuations in
product supply and demand. Recently, the
semiconductor industry rapidly expanded its
production capacity, resulting in overcapacity,
especially for DRAM (commonly used computer memory
chips). This overcapacity has caused semiconductor
prices to decline, which has depressed
semiconductor revenues and profitability.
From time to time the semiconductor industry has
experienced significant downturns and is currently
in the midst of such a downturn. These downturns
often occur in connection with, or in anticipation
of, maturing product cycles (of both the
semiconductor companies and their "end customers")
and declines in general economic conditions. Some
of these downturns have lasted for more than a
year. Also, during such periods, customers of
semiconductor manufacturers benefiting from
shorter lead times may delay some purchases of
semiconductors into future periods. The current
semiconductor industry downturn began in the
fourth quarter of 1995. The resulting downturn in
the silicon wafer industry began in the summer of
1996.
Our ability to reduce expenses during a downturn
is limited because of the fixed costs associated
with our substantial excess capacity and continued
investment in research and development and
marketing necessary to maintain our extensive
worldwide customer service and support
capabilities. If the current downturn continues,
or we experience other downturns in the future,
our business, operating results and financial
condition could be materially adversely affected.
The economic recessions in Japan and in nations in
the Asia Pacific region have made the current
downturn in the semiconductor industry worse. The
economies in these regions are contracting, and
demand for semiconductors and silicon wafers in
these regions has decreased significantly.
The growth in the worldwide supply of silicon
wafers has outpaced the growth in worldwide demand
in recent periods, especially for 8-inch silicon
wafers. As a result, the selling prices for our
products have decreased. Because of price
decreases and declining product volume, our
revenues are currently insufficient to offset our
costs, and this is adversely affecting our
operating results. We have no firm information
with which to determine the capacity and expansion
plans of our competitors. Although some of our
competitors have announced plans to slow their
capacity expansion programs, many have already
added significant capacity for the production of
8-inch wafers. We and our competitors have the
ability to increase our production of silicon
wafers through unused capacity and our ability to
expand our capacity quickly. This limits our
ability to maintain or raise prices and could
dramatically increase the worldwide supply of
silicon wafers in the future, increase the
downward pressure on prices and materially
adversely impact our operating results.
14
<PAGE> 16
FLUCTUATIONS IN OPERATING
RESULTS Our quarterly and annual operating results can
fluctuate dramatically. The main factor affecting
these fluctuations is our dependence on the
performance of the semiconductor industry, which
historically has been cyclical. Another factor is
currency exchange rate volatility, which affects
both the price we receive for our wafers and may
result in gains or losses on unhedged currency
exposure at our unconsolidated joint ventures.
Our operating results are also affected by: (1)
the timing of orders from major customers, (2)
product mix, (3) competitive pricing pressures,
and (4) the delay between the incurrence of
expenses to develop marketing and service
capabilities and expand capacity and the
realization of benefits from these expenditures.
Moreover, customers may cancel or reschedule
shipments, and production difficulties could delay
shipments. We cannot predict the future impact of
any of these factors. These and other factors
could have a material adverse effect on our
quarterly or annual operating results.
CONTROL OF THE COMPANY;
POTENTIAL CONFLICTS OF
INTEREST Immediately prior to the Rights Offering, VEBA AG,
through VEBA Corporation, beneficially owned %
of the outstanding MEMC common stock. After
completion of the Rights Offering, VEBA AG,
through VEBA Corporation, will beneficially own at
least 53.1% of the outstanding MEMC common stock
( % if no other holders exercise their
Rights). As a result, VEBA AG will continue to
have sufficient voting power to control the
direction and policies of the Company. VEBA AG
will continue to be able to control any merger,
consolidation or sale of all or substantially all
of our assets, to elect the members of the Board
of Directors and to prevent or cause a change in
control of the Company. VEBA AG's control could
prevent or discourage any unsolicited acquisition
of the Company and consequently could adversely
affect the market price of MEMC common stock. Five
of the nine members of our Board of Directors are
employees of VEBA AG or its affiliates, not
including the Company.
In addition, VEBA Corporation has advised us that
VEBA AG or one of its affiliates may purchase
Rights on the New York Stock Exchange during the
Rights Offering and may decide to purchase
additional shares of MEMC common stock following
the Rights Offering.
We have a number of agreements with VEBA AG and
some of its affiliates. See "Certain Relationships
and Related Party Transactions" beginning on page
48. These agreements include loan, raw material
supply, and services agreements. We believe that
the terms of these agreements are as favorable to
us as those we could negotiate with unrelated
parties. In the future, however, we may modify or
renegotiate these agreements and we may enter into
additional agreements or transactions with VEBA AG
or its affiliates. Conflicts of interest could
arise with VEBA AG and its affiliates with respect
to such agreements or other arrangements between
us and them. We expect to use a significant
portion of the proceeds from the private placement
to VEBA Corporation and this Rights Offering to
repay debt under revolving credit agreements with
VEBA AG and its affiliates. See "Use of Proceeds"
on page 27.
15
<PAGE> 17
RESTRICTIVE COVENANTS TIED
TO
CHANGE OF CONTROL Our loan agreements with VEBA AG and its
affiliates provide that if VEBA AG and its
affiliates own less than a majority of the
outstanding MEMC common stock on or after January
1, 2001, then the interest rates we pay on our
loans from VEBA AG and its affiliates will be the
higher of:
- the interest rate currently set forth in
each such loan agreement; or
- an interest rate determined as of the
change of control date for an average
industrial borrower at a specified credit
rating based on the remaining term of each
such loan agreement.
In addition, in such an event we will become
subject to certain affirmative covenants set forth
in these loan agreements. These affirmative
covenants include requirements that we maintain a
minimum net worth and a minimum amount of working
capital. We would also need to meet certain
financial ratios, including a minimum fixed charge
coverage ratio and minimum working capital ratio.
If we had been subject to these covenants as of
September 30, 1998, we would not have been in
compliance with all of these covenants. If VEBA AG
and its affiliates own less than a majority of our
outstanding common stock at any time on or after
January 1, 2001 and we are then not in compliance
with all of these affirmative covenants, then we
would be in default under these loan agreements.
If VEBA AG and its affiliates own less than a
majority of the outstanding MEMC common stock,
then Taisil Electronic Materials Corporation, our
Taiwanese joint venture, may become obligated to
repay certain debt. See "-- Risks of Taisil Joint
Venture" beginning on page 18.
INTENSE COMPETITION;
ADVERSE
EFFECT OF CURRENCY EXCHANGE
RATES We face intense competition in the silicon wafer
industry from established manufacturers throughout
the world. Some of our competitors have
substantial financial, technical, engineering and
manufacturing resources. We believe that our
Japanese competitors benefit from their dominance
of the Japanese market, which represented
approximately 38% of the worldwide silicon wafer
market in 1997. In particular, Shin-Etsu Handotai,
the largest supplier of silicon wafers in Japan
and the world, is able to leverage globally its
sales and technology base. If we cannot compete
effectively with Japanese silicon wafer
manufacturers, our operating results could be
materially adversely affected.
Over the past few years, the Japanese yen and
Deutsche mark have declined significantly relative
to the U.S. dollar. The currency declines have
given our competitors significant cost advantages
in the marketplace. These currency pressures,
together with the effects of the semiconductor
downturn and excess capacity, as described above,
have increased competition and resulted in
significant decreases in wafer prices.
We compete principally on the basis of product
quality, consistency and price, as well as
technical innovation, customer service and product
availability. We expect that our competitors will
continue to improve the design and performance of
their products and to
16
<PAGE> 18
introduce new products with competitive price and
performance characteristics. Competitive pressures
may cause additional price reductions, which could
have a material adverse effect on our operating
results.
We believe we must continue to make a high level
of investment in research and development,
marketing and customer service and support to
remain a leading supplier of silicon wafers. An
inability to maintain such investments could have
a material adverse effect on our operating
results.
RISKS ASSOCIATED WITH
CHANGING
CUSTOMER SPECIFICATIONS The silicon wafer industry changes rapidly.
Changes include requirements for new and more
demanding technology, product specifications and
manufacturing processes. Our ability to remain
competitive will depend upon our ability to
develop technologically advanced products and
processes. We must continue to meet the
increasingly demanding requirements of our
customers on a cost-effective basis. As a result,
we expect to continue to make a significant
investment in research and development. We cannot
assure you that we will be able to successfully
introduce, market and cost-effectively manufacture
any new products, or that we will be able to
develop new or enhanced products and processes
that satisfy customer needs or achieve market
acceptance. If we fail in these efforts, we could
experience a material adverse effect on our
competitive position and operating results.
LIMITED NUMBER OF PRINCIPAL
CUSTOMERS Historically, we have sold a significant portion
of our products to a limited number of principal
customers. In 1997 and the first six months of
1998, we made over one-half of our sales to ten
customers. Likewise, POSCO HULS Co., Ltd.
(commonly known as PHC), our unconsolidated joint
venture in Korea, sold most of its products to
Samsung, one of our partners in that joint
venture. We cannot assure you that we or PHC will
realize equivalent sales from our top customers in
the future. Our operating results could materially
suffer if we lose, or experience a significant
reduction in, purchases by one or more of our top
customers.
RISKS OF INTERNATIONAL
OPERATIONS We expect that international sales will continue
to represent a significant percentage of our total
sales. In addition, a significant portion of our
manufacturing operations are located outside of
the United States. Sales outside of the United
States expose us to currency exchange rate
fluctuations. Our risk exposure from these sales
is primarily limited to the Japanese yen, Deutsche
mark and European ecu. Our risk exposure from
expenses at international manufacturing facilities
is concentrated in Italian lira, Japanese yen and
Malaysian ringgit. We generally hedge receivables
denominated in foreign currencies at the time of
sale. We hedge foreign currency denominated
intercompany loans by entering into long-dated
forward exchange contracts. However, we cannot
predict whether exchange rate fluctuations will
have a material adverse effect on our operations
and financial results in the future.
Our unconsolidated joint ventures have sales
denominated in the U.S. dollar and manufacturing
expenses primarily denominated in the U.S. dollar,
Korean won and New Taiwanese dollar. PHC also has
significant debt denominated in the U.S. dollar
and Korean won.
17
<PAGE> 19
Likewise, Taisil Electronic Materials Corporation,
our unconsolidated Taiwanese joint venture, has
significant debt denominated in the U.S. dollar
and New Taiwanese dollar. These two unconsolidated
joint ventures use the U.S. dollar as their
functional currency and do not hedge net Korean
won or New Taiwanese dollar exposures. We do not
hedge our net Korean won exposure, because the
forward contract market is limited for the Korean
won and we do not believe the prices of such
contracts are attractive. To date, we have not
hedged net New Taiwanese dollar exposure. However,
given the increasingly broader market and depth
for forward contracts in Taiwan, we may consider
forward contracts in the future.
A number of factors could adversely affect our
international sales and operations, including (1)
periodic economic downturns, (2) fluctuations in
interest and foreign currency exchange rates, (3)
the imposition of governmental controls, (4)
export license requirements, (5) restrictions on
the export of technology, (6) political
instability, (7) trade restrictions and changes in
tariffs and (8) difficulties in staffing and
managing international operations. The economic
downturns in the Asia Pacific region and Japan,
and the devaluation of the Japanese yen against
the U.S. dollar, are currently adversely affecting
our operating results. Such factors, and the other
factors listed above, may continue to have a
material adverse effect on our operations in the
future. As a result, we may need to modify our
current business practices.
RISKS OF TAISIL JOINT
VENTURE Taisil's financial performance has been adversely
affected in recent periods due to the downturn in
the semiconductor industry in Taiwan. As a result
of this downturn, Taisil has incurred losses,
which have negatively impacted its debt-to-equity
ratio. The increase in the debt-to-equity ratio
has raised concerns with Taisil's lenders. We, and
other joint venture partners representing 90% of
the capital ownership of Taisil, expect to make a
pro rata equity infusion in Taisil in the near
future. We anticipate that this will satisfy the
concerns of Taisil's lenders. However, if Taisil's
performance continues to cause additional
increases in its debt-to-equity ratio following
our anticipated capital infusion, we and our joint
venture partners will again have to consider
alternatives to satisfy the concerns of Taisil's
lenders.
As of September 30, 1998, Taisil had approximately
$221.8 million of debt outstanding. We have
guaranteed approximately $70.9 million of such
debt (which may increase to approximately $84.5
million). Generally under the guarantees, if VEBA
AG's and its affiliates' ownership of MEMC common
stock falls below 50% of our total issued and
outstanding shares, we become obligated to either
pay, or provide a letter of credit in an amount
equal to, the maximum amount we may owe under the
guarantees.
The terms of Taisil's loan agreements vary. If
Taisil defaults on its obligations to its lenders,
in some circumstances Taisil may immediately be
required to repay all of its obligations to its
lenders. If Taisil is required to make an
immediate repayment of its obligations to its
lenders, we may be required to make payments on
our guarantees of Taisil's debt. The circumstances
in which immediate repayment may occur include,
without limitation, (1) a material adverse change
in
18
<PAGE> 20
Taisil, (2) a reduction below 70% in the combined
ownership of Taisil by the two major joint venture
partners (us and China Steel Corporation), (3) a
material adverse change in us or China Steel
Corporation, (4) a reduction below 50% in VEBA
AG's and its affiliates' ownership of MEMC common
stock, or (5) other customary circumstances. We
cannot assure you that Taisil's lenders will not
declare a default on Taisil's debt if they
determine there has occured a material adverse
change, or they determine a material adverse
change occurs in the future, in Taisil or the
Company.
RISKS OF MANUFACTURING
INTERRUPTIONS Interruption of operations at any of our primary
manufacturing facilities could result in delays or
cancellations of shipments of silicon wafers. A
number of factors could cause interruptions,
including labor disputes, equipment failures, or
shortages of raw materials or supplies. A union
represents employees at PHC's facility in Korea. A
strike at this facility could cause interruptions
in manufacturing. We cannot assure you that
alternate qualified capacity would be available on
a timely basis or at all. It typically takes six
months for one of our customers to qualify one of
our manufacturing facilities to produce a specific
product, but it could take longer in today's
environment of excess capacity. Interruptions
could result in a loss of customers and could
materially adversely affect our operating results.
LIMITED INTELLECTUAL
PROPERTY
PROTECTION; NOTICES OF
POSSIBLE
INFRINGEMENT We believe that the success of our business
depends in part on our proprietary technology,
information and processes and know-how. We
generally try to protect our intellectual property
rights based on trade secrets and patents as part
of our ongoing research, development and
manufacturing activities. Recently, we have
increased our efforts to obtain patent protection
for our technology in response to an increase in
patent applications by our competitors. However,
much of our proprietary information and technology
relating to the wafer manufacturing process is not
patented and may not be patentable. We cannot
assure you that we have adequately protected or
will be able to adequately protect our technology,
that our competitors will not be able to utilize
our existing technology or develop similar
technology independently, that the claims allowed
on any patents held by us will be broad enough to
protect our technology or that foreign
intellectual property laws will adequately protect
our intellectual property rights.
Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy
or otherwise obtain and use our products or
technology that we consider proprietary, and third
parties may attempt to develop similar technology
independently. In addition, effective protection
of intellectual property rights may be unavailable
or limited in certain countries. Accordingly,
there can be no assurance that our means of
protecting our proprietary rights will be adequate
or that our competitors will not independently
develop similar technology.
Although third parties have not sued us based on
claims of infringement of intellectual property
rights during the last several years, we cannot
assure you that third parties will not bring such
suits in the future. Competitors, suppliers and
others frequently sue each other regarding
intellectual property rights in other technology
industries, including the semiconductor industry.
From time to time,
19
<PAGE> 21
we receive notices from substantial companies with
significant patent portfolios that we may be
infringing certain of their patents or other
rights. We may receive more of these notices in
the future. If such companies were to assert any
claims against us based on patents or other rights
described in such notices, we believe, based on
strategic and other considerations, that we should
be able to resolve them outside of litigation
without a material adverse effect to us; however,
this conclusion is subject to significant
uncertainty. We expect to try to resolve these
matters through negotiation or, if necessary, by
obtaining a license. However, if we are not able
to resolve these matters satisfactorily, or to
obtain a license on acceptable terms, we may face
litigation. In that event, the ultimate outcome of
these matters could have a material adverse effect
on our business, results of operations or
financial condition.
Under certain contracts, we are required to
indemnify some third parties against claims of
infringement of the intellectual property rights
of others.
Any litigation in the future to enforce patents
issued to us, to protect trade secrets or know-how
possessed by us or to defend us or indemnify
others against claimed infringement of the rights
of others could have a material adverse effect on
our financial condition and operating results.
Also, regardless of the validity or successful
outcome of such claims, we may need to expend
significant time and expense to protect our
intellectual property rights or to defend against
claims of infringement by third parties, which
could have a material adverse effect on us. If we
lose any such litigation, we may be required (1)
to pay substantial damages, (2) to seek licenses
from others, or (3) to change, or stop
manufacturing or selling, some of our products.
Any of these outcomes could have a material
adverse effect on our business, results of
operations or financial condition.
DEPENDENCE ON KEY
PERSONNEL;
CHALLENGES IN ATTRACTING
AND
RETAINING QUALIFIED
PERSONNEL We are dependent upon a limited number of key
management and technical personnel. Since the
beginning of the year, a number of experienced
members of upper and middle management have left
the Company. Our future success will depend in
part upon our ability to attract and retain highly
qualified personnel. We compete for personnel with
other companies, academic institutions, government
entities and other organizations. We cannot assure
you that we will be successful in hiring or
retaining qualified personnel, or that any of our
personnel will remain employed by the Company. The
loss of key personnel or the inability to hire and
retain qualified personnel could have a material
adverse effect on our operating results.
YEAR 2000 RISKS We are currently assessing the readiness of our
computer systems to handle dates beyond the year
1999. Although we expect to implement successfully
the systems and programming changes necessary to
address Year 2000 issues, we do not believe that
the cost of such actions will materially adversely
affect our results of operations or financial
condition.
Year 2000 issues create risks for us from
unforeseen problems in our own computers and
embedded systems and from customers, suppliers and
other organizations with which we conduct
transactions world-
20
<PAGE> 22
wide. We are working with our principal customers
and suppliers to address Year 2000 issues.
Failures by our customers' computer systems could
adversely affect their demand for our products.
Failures by our suppliers could adversely affect
our ability to obtain critical raw materials and
equipment. Failure by our computer systems could
adversely affect our manufacturing processes
and/or our ability to cost-effectively manage the
Company during the time required to fix such
problems. If any one of these events occurs, our
business, financial condition and results of
operations could be materially and adversely
affected. For more information on this subject,
see "Business -- Year 2000" beginning on page 45.
DEPENDENCE ON CERTAIN
SUPPLIERS We obtain some raw materials from a limited number
of suppliers. We believe that we have developed
reliable sources for all of our raw materials and
that we could find qualified alternative sources
to supply such materials. Our operating results
could suffer if we are unable to obtain raw
materials for a prolonged period of time.
Increases in the prices of raw materials resulting
from tight supplies could have a material adverse
effect on our operating results.
RISKS ASSOCIATED WITH
ENVIRONMENTAL REGULATIONS We are subject to a variety of foreign, federal,
state and local laws and regulations governing the
protection of the environment. These environmental
regulations include those related to the use,
storage, handling, discharge and disposal of
toxic, volatile or otherwise hazardous materials
used in our manufacturing processes. Because the
public is focusing more attention on the
environmental impact of the semiconductor and
related industries' manufacturing operations,
these laws and regulations may become more
stringent in the future. Any failure to comply
with environmental laws could subject us to
substantial liability or could force us to
significantly change our manufacturing operations.
In addition, under some of these laws and
regulations, we could be held financially
responsible for remedial measures if our
properties are contaminated, even if we did not
cause such contamination.
In early 1998, a valve at our Italian facility
malfunctioned, resulting in a release of a
hazardous gas. Governmental authorities are
continuing to investigate the incident and, in
addition to private individuals, could seek to
assert claims against us. However, based on
information currently available, we do not believe
any such claims should have a material adverse
effect on us.
MARKET CONSIDERATIONS We cannot assure you that the public trading
market price of MEMC common stock will not decline
before the Rights expire. Further, we cannot
assure you that following the exercise of Rights,
you will be able to sell the shares of MEMC common
stock you purchase at a price equal to or greater
than the Subscription Price. Until certificates
are delivered upon expiration of the Rights
Offering, you may not be able to sell the shares
of MEMC common stock you purchase in the Rights
Offering. Certificates representing shares of MEMC
common stock purchased will be delivered as soon
as practicable after expiration of the Rights
Offering. We will not pay you interest on funds
delivered to the Subscription Agent pursuant to
the exercise of Rights.
21
<PAGE> 23
NO REVOCATION OF EXERCISE
OF
RIGHTS; CANCELLATION OF
RIGHTS OFFERING Once you exercise your Rights, you may not revoke
the exercise unless the conditions to VEBA
Corporation's obligation under its standby
commitment are not satisfied or waived prior to
the time the Rights expire. In that case, we will
extend the date the Rights expire and you will be
able to change your decision. If we elect to
withdraw or terminate the Rights Offering, neither
we nor the Subscription Agent will have any
obligation with respect to the Rights except to
return, without interest, any subscription
payments.
ABSENCE OF PUBLIC MARKET
FOR
THE RIGHTS; DETERMINATION
OF THE
SUBSCRIPTION PRICE The Rights are a new issue of securities. There
currently is no public trading market for the
Rights. We will apply to list the Rights on the
New York Stock Exchange under the symbol "WFRRt."
We expect that you will be able to trade Rights
until the close of business on the last trading
day before the Rights Offering expires. We cannot
assure you, however, that an active public trading
market will develop or be maintained for the
Rights. Moreover, we cannot assure you that the
Rights will trade at any price.
A special committee of the Board of Directors set
the Subscription Price at the average trading
price per share of MEMC common stock during a
period shortly before the date of the final
prospectus. The Subscription Price does not
necessarily bear any relationship to the book
value of our assets, past operations, cash flows,
losses, financial condition or any other
established criteria for value. You should not
consider the Subscription Price as an indication
of the value of the Company.
DILUTION Your ownership interest in MEMC was substantially
diluted as a result of the private placement of
shares to VEBA Corporation. If you are a
stockholder and exercise your basic subscription
privilege in full, you will restore your
proportionate ownership interest in the Company to
the same interest you had prior to the private
placement to VEBA Corporation. If you exercise
your over-subscription privilege and receive
shares pursuant to the over-subscription
privilege, you will increase your proportionate
ownership interest in the Company. If you do not
exercise your Rights, your proportionate interest
in the Company will substantially decrease. If you
do not exercise or sell your Rights you will lose
any value inherent in the Rights.
After completion of the Rights Offering (and
assuming that optionholders do not exercise any
stock options and that we do not issue any other
shares of MEMC common stock), we will have
approximately shares of MEMC
common stock issued and outstanding. This compares
to approximately 40,507,216 shares of MEMC common
stock issued and outstanding as of September 30,
1998, and shares as of such
date on a pro forma basis giving effect to the
private placement to VEBA Corporation.
EFFECT ON PRICE OF MEMC
COMMON STOCK OF FUTURE
SALES
OF SHARES The market price of MEMC common stock could be
adversely affected if stockholders were to sell a
large number of shares in the future. Of the
approximately shares of MEMC
common stock that will be issued and outstanding
upon completion of the Rights Offering,
approximately shares (assuming
all holders exercise their Rights) will be freely
tradable immediately. The
shares that will be owned by
22
<PAGE> 24
VEBA Corporation ( shares, if
no Rights holder other than VEBA Corporation
exercises its Rights) are not freely transferable.
VEBA Corporation may not sell its shares without
registration under the Securities Act of 1933
unless an exemption from registration is
available, such as under Rule 144. Under Rule 144,
VEBA Corporation may sell, within any three-month
period, a number of shares that does not exceed
the greater of (1) one percent of the then
outstanding shares of MEMC common stock and (2)
the average weekly trading volume during the four
calendar weeks preceding such sale.
We have granted to VEBA Corporation certain
registration rights. These rights entitle VEBA
Corporation, on up to three occasions, to require
us to register under the Securities Act at least
25% of its shares (including the shares issued to
VEBA Corporation in the private placement and
under the standby commitment or otherwise
purchased or acquired by VEBA Corporation) but
subject to certain conditions and limitations. In
addition, except in certain circumstances and
subject to certain limitations, if we register any
other shares of MEMC common stock for public sale
under the Securities Act at any time, VEBA
Corporation would have the right to include shares
in the registration.
In addition, as of September 30, 1998 we have
reserved 1,786,852 shares of MEMC common stock for
issuance pursuant to the options granted under our
Equity Incentive Plan. The shares issuable upon
exercise of these options will generally be freely
transferable upon exercise of the options.
VOLATILITY OF MEMC STOCK
PRICE Based on the trading history of MEMC common stock,
we believe that certain factors cause the market
price of MEMC common stock to fluctuate
significantly. These factors include, without
limitation, (1) quarterly fluctuations in our
financial results, (2) announcements of
technological innovations or new products by us or
our competitors, (3) market conditions in the
semiconductor industry, (4) market conditions in
the silicon wafer industry, (5) developments in
patent or other proprietary rights, (6) changes in
our relationships with our customers, (7) any
actual or perceived change in our relationship
with VEBA AG and its affiliates, and (8) the size
of the public float of MEMC common stock (which
will depend, in part, on the number of shares of
MEMC common stock purchased or acquired by Rights
holders other than by VEBA Corporation in this
Rights Offering). Technology company stocks in
general have experienced extreme price and trading
volume fluctuations that often have been unrelated
to the operating performance of these companies.
This market volatility may adversely affect the
market price of MEMC common stock. In addition, if
we suffer an actual or anticipated shortfall in
net sales, gross margin or net earnings from
security analysts' expectations, the trading price
of MEMC common stock in any given period could
decline.
23
<PAGE> 25
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements:
- Statements set forth in this prospectus or in statements incorporated by
reference from documents we filed with the SEC, including possible or
assumed future results of our operations, including any statements
contained herein or therein concerning: (1) the manner, timing and
estimated savings of restructuring activities and the voluntary
separation program; (2) the transfer of Spartanburg-based small diameter
production activities to other existing locations; (3) product volume
and pricing for the third quarter of 1998; (4) capital expenditures and
research and development costs for 1998; (5) the Company's liquidity and
profitability for the next twelve months; (6) excess capacity for future
periods; (7) the resolution of any intellectual property infringement
claims; (8) the continued support of VEBA AG; (9) the successful
implementation of our Year 2000 initiatives; (10) an increase in
interest expense on existing debt; and (11) the outcome of potential
litigation;
- any statements preceded by, followed by or that include the words
"believes," "expects," "predicts," "anticipates," "intends,"
"estimates," "should," "may" or similar expressions; and
- other statements contained or incorporated by reference in this
prospectus regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to: (1) the demand for our silicon
wafers; (2) utilization of manufacturing capacity; (3) demand for semiconductors
generally; (4) changes in the pricing environment; (5) general economic
conditions in the Asia Pacific region and Japan; (6) our competitors' actions;
(7) willingness of our customers to re-qualify Spartanburg-based production at
our other locations; (8) the accuracy of our assumptions regarding savings from
restructuring activities; (9) the status and effectiveness of our Year 2000
efforts; (10) changes in interest and exchange rates; and (11) the factors
discussed above under "Risk Factors" beginning on page 12.
You should not place undue reliance on such statements, which speak only as
of the date that they were made. Our independent public accountants have not
examined or compiled the forward-looking statements and, accordingly, do not
provide any assurance with respect to such statements. These cautionary
statements should be considered in connection with any written or oral
forward-looking statements that we may issue in the future. We do not undertake
any obligation to release publicly any revisions to such forward-looking
statements to reflect later events or circumstances or to reflect the occurrence
of unanticipated events.
24
<PAGE> 26
RECENT DEVELOPMENTS
COST REDUCTION PLAN
During the first half of 1998 we accelerated our cost reduction plan in
response to the difficult industry environment.
We decided to close our small-diameter wafer facility in Spartanburg, South
Carolina and to withdraw from our joint venture participation in a
small-diameter wafer facility in China. We did this because our customers have
been operating their 8-inch fabrication lines in preference to their smaller
diameter fabrication lines, reducing the demand for smaller diameter wafers. In
addition, we believe that even when the semiconductor market begins to recover,
we will have excess small diameter wafer capacity. We also decided not to
construct a new 8-inch wafer facility in Malaysia due to the substantial excess
capacity for these wafers.
In addition, we implemented a voluntary separation program for our hourly
and salaried U.S. employees. As a result of the actions described above and
other initiatives, we are reducing our workforce by approximately 2,000
employees, or 25% compared to December 31, 1997.
We estimate pre-tax savings from these restructuring activities and the
voluntary separation plan to be approximately $60 million on an annualized
basis. We expect approximately one-half of the annualized estimated savings to
begin in the third quarter of 1998 as a result of the voluntary separation
program. The remainder of the annualized savings relates to personnel and
manufacturing costs. The time frame for achieving these savings will depend upon
such factors as the transfer of the Spartanburg-based customer orders to our
other wafer facilities and the willingness of these customers to re-qualify our
other sites.
We are also implementing a number of other cost cutting and savings
initiatives:
- We have initiated short-term plant shutdowns to better align production
with the current lower level of demand;
- We are accelerating the implementation of best practices worldwide and
the development of new manufacturing technologies in order to reduce our
processing costs;
- We are implementing a plant focus program that limits the number of
wafer diameters manufactured at each site;
- We have implemented aggressive spending cuts for all of our departments;
- We are obtaining price concessions from our vendors; and
- We are performing a critical review of our capital spending and research
and development requirements and reducing these planned investments
where possible.
We anticipate that we will reduce our capital expenditures in 1999 to a
level at least 50% less than our capital expenditures in 1998.
The statements above regarding expected future savings and cost reduction
efforts are forward-looking statements. Actual results could differ materially
from our expectations due to, among other things, the accuracy of assumptions
regarding savings from restructuring activities. See "Cautionary Statement
Regarding Forward-Looking Statements" on page 24 and "Risk Factors" beginning on
page 12.
FINANCIAL RESTRUCTURING PLAN
In order to address our capital requirements, we have initiated a financial
restructuring that includes:
- this approximately $94 million Rights Offering;
- the approximately $106 million of equity financing from VEBA Corporation
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).
25
<PAGE> 27
On , 1998, we sold shares of MEMC common stock to
VEBA Corporation at the Subscription Price for aggregate proceeds of
approximately $106 million. Prior to the private placement to VEBA Corporation,
VEBA Corporation owned approximately 53.1% of the outstanding shares. Our
primary purpose for the sale to VEBA Corporation and the Rights Offering is to
raise approximately $200 million of additional capital. We are proceeding with
the Rights Offering to allow our stockholders (other than VEBA Corporation) an
opportunity to restore their proportionate interest in the Company at the same
price per share of common stock as was paid by VEBA Corporation.
We sold MEMC common stock to VEBA Corporation before the Rights Offering in
order to meet certain of our financial needs arising before the completion of
the Rights Offering and to evidence VEBA Corporation's commitment to us. If
Rights holders (other than VEBA Corporation) purchase all shares of MEMC common
stock offered in the Rights Offering, VEBA Corporation will again own
approximately 53.1% of the outstanding shares.
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 have agreed to increase the interest rates payable by
the Company on all of our existing debt to VEBA AG and its affiliates. On
September 30, 1998, we had approximately $679.6 million of U.S. dollar and
Japanese yen based loans outstanding with VEBA AG and its affiliates, including
$50 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 a specified credit rating. As a result, our loans with VEBA AG and
its affiliates now have interest rates ranging from 3.4% to 9.8%. 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 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 a specified 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 a specified credit rating. As of September 30, 1998, $50
million of this additional debt financing was outstanding.
OPTION ON PASADENA FACILITY
In September 1998, we granted Tokuyama Corporation, Marubeni Corporation
and Marubeni America Corporation an option to acquire a majority interest in
MEMC Pasadena, Inc. Tokuyama is a Japanese polysilicon manufacturer and Marubeni
is a Japanese trading company. MEMC Pasadena is our granular polysilicon
subsidiary. In exchange for the option, Tokuyama and Marubeni made an option
payment to us. The term of the option is two years, subject to a one year
extension at the option of Tokuyama and Marubeni. If Tokuyama and Marubeni
exercise their option, we will then negotiate the terms and conditions
(including price) of the exercise with them based on the market value at that
time. The entire option payment will be applied toward the ultimate purchase
price. If Tokuyama and Marubeni do not exercise their option, then we will
return one-half of the option payment to them. During the initial two year term
of the option, Tokuyama and Marubeni have a right of first refusal over any
transfer of MEMC Pasadena's granular polysilicon business. In addition, for two
years, we cannot solicit offers from third parties for this business. In
connection with the option, Tokuyama will provide technical assistance to MEMC
Pasadena for two years (unless the option is earlier terminated by Tokuyama and
Marubeni)
26
<PAGE> 28
to help improve the quality of MEMC Pasadena's granular polysilicon products.
BOARD OF DIRECTORS
On August 12, 1998, Mr. Helmut Mamsch became Chairman of the Board and Dr.
Hans Michael Gaul joined the Board of Directors. Mr. Mamsch has been a member of
our Board of Directors since March 1998 and he replaced Dr. Erhard Meyer-Galow
as Chairman of the Board. Dr. Meyer-Galow will remain a member of the Board of
Directors through December 8, 1998. Mr. Mamsch is a member of the Board of
Management of VEBA AG and recently assumed responsibility for VEBA AG's
corporate strategy and development. Dr. Gaul is a member of the Board of
Management of VEBA AG and serves as VEBA AG's Chief Financial Officer.
CHANGE OF PRINCIPAL STOCKHOLDER
On September 30, 1998, Huls Corporation, our former principal stockholder,
merged into its corporate parent, VEBA Corporation, in conjunction with the
pending combination of VEBA AG's chemical subsidiary with Degussa AG, a publicly
traded German chemical company. As a result, VEBA Corporation now owns the MEMC
common stock previously owned by Huls Corporation. Immediately after the merger,
VEBA Corporation owned 53.1% of MEMC common stock. As a result of the private
placement, VEBA Corporation now directly owns % of MEMC common stock.
USE OF PROCEEDS
We have received approximately $106 million from the private placement to
VEBA Corporation. We will use the proceeds of the private placement to repay $75
million of debt under one of our revolving credit agreements with VEBA AG and
its affiliates. We will receive approximately $ upon completion of this
Rights Offering, after deducting Dealer Managers' fees and our other estimated
offering expenses. We will use the proceeds from the Rights Offering and any
remaining proceeds from the private placement to repay any remaining debt under
our $100 million revolving credit agreement with VEBA AG and its affiliates. At
September 30, 1998, no amounts had been borrowed under that agreement. The
interest rate under this agreement will be based upon a specified credit rating
for an average industrial borrower. Any debt under that agreement will be used
to fund capital expenditures and operating losses. The remaining net proceeds
will be used for general corporate purposes. We expect to reborrow additional
amounts under the revolving credit agreements that are repaid from the proceeds
of the private placement and the Rights Offering for general corporate purposes.
Our ability to reborrow will be subject to customary conditions.
Pending their ultimate application, we may deposit the remainder of the net
proceeds with VEBA AG or one of its affiliates and receive a market rate of
interest on the funds deposited. Alternatively, pending their ultimate
application, we may invest the net proceeds in interest or non-interest bearing
accounts or short-term government obligations, interest-bearing securities,
money market instruments or certificates of deposit.
DIVIDEND POLICY
We are presently not paying dividends on MEMC common stock. We plan to
retain all net earnings, if any, to fund the development of our business. We do
not presently plan to pay dividends on MEMC common stock for the foreseeable
future. Our Board of Directors has sole discretion over the declaration and
payment of future dividends. Any future dividends will depend upon our
profitability, financial condition, cash requirements, future prospects, general
business conditions, the terms of any of our debt agreements and other factors
our Board of Directors believes are relevant.
27
<PAGE> 29
PRICE RANGE OF COMMON STOCK
You can find MEMC common stock traded on the NYSE under the symbol "WFR."
The following table shows the high and low sales prices of MEMC common stock
over recent periods.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1996
First Quarter............................................. $37 1/4 $26 1/2
Second Quarter............................................ 55 36 1/4
Third Quarter............................................. 40 5/8 20 1/4
Fourth Quarter............................................ 28 1/2 16 3/4
Year Ended December 31, 1997
First Quarter............................................. 29 3/4 22 1/4
Second Quarter............................................ 38 1/4 22 7/8
Third Quarter............................................. 38 7/8 25 5/8
Fourth Quarter............................................ 30 14 7/16
Year Ending December 31, 1998
First Quarter............................................. 18 3/4 14 1/2
Second Quarter............................................ 16 7/16 9 1/4
Third Quarter............................................. 10 13/16 2 15/16
Fourth Quarter (through October 21, 1998)................. 8 3/4 2 15/16
</TABLE>
On September 30, 1998, we had 789 record stockholders. MEMC common stock's
price closed at $7 7/8 on October 21, 1998, the last full trading day before we
publicly announced the Rights Offering.
28
<PAGE> 30
CAPITALIZATION
The following table shows our short-term debt and capitalization as of June
30, 1998. The table also shows our short-term debt and capitalization as
adjusted for the Rights Offering and the private placement to VEBA Corporation
and our use of the net proceeds from the Rights Offering and the private
placement.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Short-term debt to related parties........................ $ 75,503 $
Short-term debt to third parties.......................... 33,651
---------- ----------
Total short-term debt (including current maturities of
long-term debt)....................................... $ 109,154 $
========== ==========
Long-term debt to related parties......................... $ 553,720
Long-term debt to third parties........................... 116,160
---------- ----------
Total long-term debt (excluding current maturities).... $ 669,880
---------- ----------
Minority interests.......................................... 56,027
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value: 50,000,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value: 200,000,000 shares
authorized, 41,440,369 shares issued and outstanding
(actual) and shares issued and
outstanding (as adjusted)(1)........................... 414
Additional paid-in capital................................ 574,317
Accumulated deficit....................................... (11,997)
Accumulated other comprehensive loss...................... (43,874)
Unearned restricted stock awards.......................... (318)
Treasury stock, at cost: 929,205 shares................... (17,020)
---------- ----------
Total stockholders' equity............................. 501,522
---------- ----------
Total capitalization................................... $1,227,429
========== ==========
</TABLE>
- ---------------
(1) Excludes 1,795,864 shares of MEMC common stock issuable upon exercise of
employee stock options as of June 30, 1998 and 1,353,994 shares available
for future grant under our Equity Incentive Plan.
29
<PAGE> 31
THE RIGHTS OFFERING
THE RIGHTS
On , 1998, as a holder of MEMC common stock, you will receive, at
no charge, transferable subscription Rights for each share of MEMC
common stock you own. We will distribute the Rights to you only if you are a
record holder of MEMC common stock on the Record Date, which is 5:00 p.m., New
York City time, on , 1998. We will round up, to the nearest whole
number, the number of Rights we distribute to each stockholder.
If you hold your shares in a brokerage account or by a custodian bank, you
will not receive a Rights Certificate, and your Rights must be exercised through
the broker or custodian bank. The following describes the Rights Offering in
general and assumes (unless specifically provided otherwise) that you are a
record holder of MEMC common stock. If you hold your shares in a brokerage
account or by a custodian bank, please contact your broker or custodian bank to
participate in the Rights Offering.
If you hold your shares directly, you will receive a transferable Rights
Certificate. As a holder of Rights you will be entitled to two subscription
privileges: (1) a basic subscription privilege and (2) an over-subscription
privilege. These privileges are described below.
We will not issue fractional Rights, but rather will round up any
fractional Rights to the nearest whole Right. For example, if you own 100 shares
of MEMC common stock, you will receive Rights, instead of
Rights you would have received without rounding.
Your purchase of shares of MEMC common stock pursuant to the Rights
Offering is not conditioned upon the subscription of any minimum number of
shares by you and the other holders of the Rights.
Although we will not distribute Rights to VEBA Corporation, VEBA
Corporation has agreed to purchase any shares which are not purchased by other
stockholders in the Rights Offering, subject to certain conditions that are
customary in a firm commitment underwriting. See "-- Standby Agreement" on page
32.
BEFORE EXERCISING OR SELLING ANY RIGHTS, YOU SHOULD READ THE INFORMATION
SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 12 CAREFULLY.
SUBSCRIPTION PRICE
To exercise your Rights, you must pay the Subscription Price of $
per share of MEMC common stock, payable in cash. We cannot assure you that the
MEMC common stock will trade at prices equal to or greater than the Subscription
Price. Nor can we assure you that, following the issuance of the shares, you
will be able to sell your shares of MEMC common stock purchased in the Rights
Offering at a price equal to or greater than the Subscription Price.
EXPIRATION DATE
You may exercise the basic subscription privilege and the over-subscription
privilege at any time before 5:00 p.m., New York City time, on , 1998.
We may extend the time for exercising the Rights. If you do not exercise your
Rights before the time they expire, then your Rights will be null and void. We
will not be obligated to honor your exercise of Rights if the Subscription Agent
receives the documents relating to your exercise after the time they expire,
regardless of when you transmitted the documents, except when you have timely
transmitted the documents pursuant to the guaranteed delivery procedures
described below.
We will not extend the date the Rights expire beyond , 1999,
unless our Board of Directors believes that a material event has occurred and we
need more time to disclose adequately to you the information about the event.
If we terminate the Rights Offering, we will promptly return all of your
subscription payments to you, without interest or deduction.
If we elect to extend the date the Rights expire, we will issue a press
release announcing the extension before the first New York Stock Exchange
trading day after the most recently announced expiration date. If we extend the
date the Rights will expire by more than 14 calendar days, we will send prompt
written notice of the extension to you and all Rights holders of record. See
"-- Amendments and Termination" on page 37.
30
<PAGE> 32
SUBSCRIPTION PRIVILEGES
Your Rights entitle you to (1) the basic subscription privilege and (2) the
over-subscription privilege.
Basic Subscription Privilege. With the basic subscription privilege, you
may purchase one share of the MEMC common stock per Right, upon delivery of the
required documents and payment the Subscription Price of $ per share,
before the time the Rights expire. You are not required to exercise all of your
Rights unless you wish to purchase shares under your over-subscription privilege
described below.
Over-Subscription Privilege. In addition to your basic subscription
privilege, you may subscribe for additional shares of MEMC common stock, upon
delivery of the required documents and payment of the Subscription Price of
$ per share before the time the Rights expire, if (1) you exercised
your basic subscription privilege in full and (2) other holders of Rights do not
exercise their basic subscription privileges in full.
If there are not enough shares to satisfy all subscriptions pursuant to the
exercise of the over-subscription privilege, we will allocate the remaining
shares pro rata (subject to the elimination of fractional shares) among those
over-subscribing. Pro rata means in proportion to the number of shares you and
the other holders have purchased pursuant to the exercise of the basic
subscription privilege. If there is a pro rata distribution of the remaining
shares and the pro ration results in the allocation to you of a greater number
of shares than you subscribed for pursuant to the over-subscription privilege,
then we will allocate to you only the number of shares for which you subscribed.
We will allocate the remaining shares among all other holders exercising their
over-subscription privilege.
You may exercise the over-subscription privilege only if you exercise your
basic subscription privilege in full. To determine if you have fully exercised
your basic subscription privilege, we will consider only the basic subscription
privileges held by you in the same capacity. For example, suppose you were
granted Rights for shares of MEMC common stock you own (1) individually and (2)
collectively with your spouse. If you wish to exercise your over-subscription
privilege with respect to the Rights you own individually, but not with respect
to Rights you own collectively with your spouse, you only need to exercise your
basic subscription right with respect to your individually owned Rights. You do
not have to subscribe for any shares under the basic subscription privilege
owned collectively with your spouse to exercise your individual
over-subscription privilege.
When you complete the portion of the Rights Certificate to exercise the
over-subscription privilege, you will be representing and certifying that you
have fully exercised your basic subscription privilege received in respect of
shares of the Common Stock you hold in that capacity. You must exercise your
over-subscription privilege at the same time you exercise your basic
subscription privilege in full.
If you own your shares of MEMC common stock through your bank, broker or
other nominee holder who will exercise your over-subscription privilege on your
behalf, the nominee holder will be required to certify to us and the
Subscription Agent:
(1) the number of shares held on the Record Date on your behalf;
(2) the number of Rights you exercised under your basic subscription
privilege;
(3) that your entire basic subscription privilege held in the same
capacity has been exercised in full; and
(4) the number of shares of Common Stock you subscribed for pursuant to
the over-subscription privilege.
Your nominee holder must also disclose to us certain other information
received from you.
PRINCIPAL STOCKHOLDER
As of the Record Date, VEBA Corporation beneficially owned approximately
shares of the outstanding MEMC common stock ( % of the outstanding
shares). VEBA Corporation is a subsidiary of VEBA AG and its subsidiaries.
STOCK SALE TO VEBA CORPORATION
On , 1998, we sold shares of MEMC common stock to
VEBA Corporation at the Subscription Price for aggregate proceeds of
approximately $106 million. The sale
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to VEBA Corporation increased its percentage ownership from approximately 53.1%
to % of the outstanding shares. We are proceeding with the Rights Offering to
allow our stockholders (other than VEBA Corporation) an opportunity to restore
their proportionate interest in the Company at the same price per share of
common stock as was paid by VEBA Corporation. Our primary purpose for the sale
to VEBA Corporation and the Rights Offering is to raise approximately $200
million of additional capital.
We sold MEMC common stock to VEBA Corporation before the Rights Offering in
order to meet certain of our financial needs arising before the completion of
the Rights Offering and to evidence VEBA Corporation's commitment to the
Company. If Rights holders (other than VEBA Corporation) purchase all shares of
MEMC common stock offered in the Rights Offering, VEBA Corporation will again
own approximately 53.1% of the outstanding shares.
STANDBY AGREEMENT
Although we will not distribute any Rights to VEBA Corporation, VEBA
Corporation has agreed to purchase at the Subscription Price all shares of MEMC
common stock not purchased by Rights holders in the Rights Offering. This
commitment is subject to certain conditions that are customary in a firm
commitment underwriting, including an absence of a material adverse change in
our business. The number of shares VEBA Corporation purchases will be determined
after all Rights holders exercise their basic subscription and over-subscription
privileges. VEBA Corporation will pay for the shares of MEMC common stock it
purchases under the standby agreement on or after the date the Rights expire. If
VEBA Corporation purchases any Rights, it will not exercise its
over-subscription privilege with respect to those Rights.
Assuming no other holders exercise their Rights and VEBA Corporation
purchases all unsubscribed shares of MEMC common stock offered hereby, VEBA
Corporation will own approximately % of the MEMC common stock issued and
outstanding after the Rights Offering, based on the number of shares purchased
by VEBA Corporation in the private placement and the number of shares of MEMC
common stock outstanding as of September 30, 1998.
EXERCISE OF RIGHTS
You may exercise your Rights by delivering the following to the
Subscription Agent at or before the time the Rights expire:
- Your properly completed and executed Rights Certificate evidencing those
Rights with any required signature guarantees; and
- Your payment in full of the Subscription Price for each share of MEMC
common stock subscribed for pursuant to the basic subscription privilege
and the over-
subscription privilege.
Your payment of the Subscription Price must be made by either:
- Check or bank draft drawn upon a U.S. bank or postal, telegraphic, or
express money order payable to Harris Trust & Savings Bank, as
Subscription Agent; or
- Wire transfer of immediately available funds to the account maintained
by the Subscription Agent for such purpose at , ABA No. ,
Account No. (marked: "MEMC Electronic Materials, Inc.
Subscription").
Your payment of the Subscription Price will be deemed to have been received
by the Subscription Agent only upon:
- Clearance of any uncertified check;
- Receipt by the Subscription Agent of any certified check or bank draft
drawn upon a U.S. bank or any postal, telegraphic or express money
order; or
- Receipt of collected funds in the Subscription Agent's account
designated above.
YOU SHOULD NOTE THAT FUNDS PAID BY UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR. IF YOU WISH TO PAY THE SUBSCRIPTION PRICE BY
AN UNCERTIFIED PERSONAL CHECK, WE URGE YOU TO MAKE PAYMENT SUFFICIENTLY IN
ADVANCE OF THE TIME THE RIGHTS EXPIRE TO ENSURE THAT YOUR PAYMENT IS RECEIVED
AND CLEARS BY THAT TIME. WE URGE YOU TO CONSIDER USING A CERTIFIED OR CASHIER'S
CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS TO AVOID MISSING THE OPPORTUNITY TO
EXERCISE YOUR RIGHTS.
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You should deliver the Rights Certificate and payment of the Subscription
Price, as well as any Nominee Holder Certifications, Notices of Guaranteed
Delivery and DTC Participant Over-subscription Forms,
IF BY MAIL TO:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
P.O. Box 1010
New York, New York 10268-1010
IF BY HAND DELIVERY TO:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
Wall Street Plaza
88 Pine Street, 19th Floor
New York, New York 10005
IF BY OVERNIGHT COURIER TO:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
Wall Street Plaza
88 Pine Street, 19th Floor
New York, New York 10005
You may call the Subscription Agent at (800) 245-7630.
If you do not indicate the number of Rights being exercised, or do not
forward full payment of the aggregate Subscription Price for the number of
Rights that you indicate are being exercised, then you will be deemed to have
exercised the basic subscription privilege with respect to the maximum number of
Rights that may be exercised for the aggregate Subscription Price payment you
delivered to the Subscription Agent. If your aggregate Subscription Price
payment is greater than the amount you owe for your subscription, you will be
deemed to have exercised the over-subscription privilege to purchase the maximum
number of Shares with your overpayment. If we do not apply your full
Subscription Price payment to your purchase of shares of MEMC common stock, we
will return the excess amount to you by mail without interest or deduction as
soon as practicable after the date the Rights expire.
If you subscribe for fewer than all of the shares of MEMC common stock
represented by your Rights Certificate, you may, under certain circumstances,
either (1) direct the Subscription Agent to attempt to sell your remaining
Rights, or (2) receive from the Subscription Agent a new Rights Certificate
representing the unused Rights. See "-- Method of Transferring Rights" beginning
on page 35.
The Subscription Agent will hold your payment of the Subscription Price in
a segregated account with other payments received from holders of Rights until
we issue to you your shares of MEMC common stock.
If you exercised your over-subscription privilege and are allocated less
than all of the shares of MEMC common stock for which you wished to subscribe,
the excess funds you paid for shares of MEMC common stock that are not allocated
to you will be returned by mail without interest or deduction as soon as
practicable after the expiration date of the Rights.
Your signature on each Rights Certificate must be guaranteed by an Eligible
Institution (a member firm of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States),
subject to standards and procedures adopted by the Subscription Agent, unless
- Your Rights Certificate provides that the shares of the MEMC common
stock you subscribed for are to be delivered to you; or
- You are an Eligible Institution.
If you are a broker, a trustee or a depositary for securities who holds
shares of MEMC common stock for the account of others (a "Nominee Record Date
Holder"), you should notify the respective beneficial owners of such shares of
the Rights as soon as possible to find out such beneficial owners' intentions.
You should obtain instructions from the beneficial owner with respect to the
Rights, as set forth in the instructions distributed by Nominee Record Date
Holders to beneficial owners. If the beneficial owner so instructs, you should
complete the appropriate Rights Certificates and, in the case of the over-
subscription privilege, the related Nominee Holder Certification, and submit
them to the Subscription Agent with the proper payment.
If you are a beneficial owner of shares of MEMC common stock or Rights that
you hold through a Nominee Record Date Holder, you should contact the Nominee
Record Date Holder
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<PAGE> 35
and request the Nominee Record Date Holder to effect transactions in accordance
with your instructions.
You should read and follow the instructions accompanying the Rights
Certificates carefully. If you want to exercise your Rights, you must send your
Rights Certificates to the Subscription Agent. YOU SHOULD NOT SEND THE RIGHTS
CERTIFICATES TO THE COMPANY.
YOU ARE RESPONSIBLE FOR THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES AND
PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT. IF YOU SEND THE
RIGHTS CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE BY MAIL, WE RECOMMEND
THAT YOU SEND THEM BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED. YOU SHOULD ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE TIME THE RIGHTS
EXPIRE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS
TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF
CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
We will decide all questions concerning the timeliness, validity, form and
eligibility of your exercise of Rights. Our decisions will be final and binding.
We, in our sole discretion, may waive any defect or irregularity, or permit a
defect or irregularity to be corrected within such time as we may determine. We
may reject the exercise of any of your Rights because of any defect or
irregularity. Your subscription will not be deemed to have been received or
accepted until all irregularities have been waived by us or cured by you within
such time we decide, in our sole discretion.
Neither we nor the Subscription Agent will be under any duty to notify you
of a defect or irregularity. We will not be liable for failing to give you such
notice. We reserve the right to reject your exercise of Rights if your exercise
is not in accordance with the terms of the Rights Offering or in proper form. We
will also not accept your exercise of Rights if our issuance of shares of MEMC
common stock pursuant to your exercise could be deemed unlawful or materially
burdensome. See "--Regulatory Limitation" on page 38.
GUARANTEED DELIVERY PROCEDURES
If you wish to exercise your Rights, but you do not have sufficient time to
deliver the Rights Certificates evidencing your Rights to the Subscription Agent
on or before the time the Rights expire, you may exercise your Rights by the
following guaranteed delivery procedures:
- Make your payment in full of the Subscription Price for each share of
MEMC common stock being subscribed for pursuant to the basic
subscription privilege and the over-subscription privilege to be
received (in the manner set forth in "--Exercise of Rights" beginning on
page 32) to the Subscription Agent on or before the time the Rights
expire;
- Deliver a Notice of Guaranteed Delivery to the Subscription Agent at or
before the time the Rights expire; and
- Deliver the properly completed Rights Certificate evidencing the Rights
being exercised (and, if applicable for a nominee holder, the related
Nominee Holder Certification), with any required signatures guaranteed,
to the Subscription Agent within three New York Stock Exchange trading
days following the date of the Notice of Guaranteed Delivery was
delivered to the Subscription Agent.
Your Notice of Guaranteed Delivery must be substantially in the form
provided with the Instructions as to Use of Rights Certificates distributed to
you with your Rights Certificate. Your Notice of Guaranteed Delivery must come
from an Eligible Institution (a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States). In your Notice of Guaranteed Delivery you must state:
- Your name;
- The number of Rights represented by your Rights Certificates, the number
of shares of MEMC common stock you are subscribing for pursuant to the
basic subscription privilege and the number of the shares of MEMC common
stock, if
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<PAGE> 36
any, you are subscribing for pursuant to the over-subscription privilege; and
- Your guarantee that you will deliver to the Subscription Agent any
Rights Certificates evidencing the Rights you are exercising within
three New York Stock Exchange trading days following the date the
Subscription Agent receives your Notice of Guaranteed Delivery.
You may deliver the Notice of Guaranteed Delivery to the Subscription Agent
in the same manner as the Rights Certificate at the addresses set forth in
"-- Exercise of Rights" beginning on page 32. You may also transmit the Notice
of Guaranteed Delivery to the Subscription Agent by telegram or facsimile
transmission (telecopier no. ). To confirm facsimile deliveries, you
may call .
The Subscription Agent will send you additional copies of the form of
Notice of Guaranteed Delivery if you need them. Please call the Subscription
Agent at (800) 245-7630 to request any copies of the form of Notice of
Guaranteed Delivery.
SUBSCRIPTION AGENT
We have appointed Harris Trust & Savings Bank as Subscription Agent for the
Rights Offering. We will pay the fees and expenses of the Subscription Agent. We
also have agreed to indemnify the Subscription Agent from certain liabilities
which it may incur in connection with the Rights Offering.
QUESTIONS ABOUT EXERCISING RIGHTS
You may direct any questions or requests for assistance concerning the
method of exercising your Rights, additional copies of this Prospectus, the
Instructions, the Nominee Holder Certification, the Notice of Guaranteed
Delivery or other subscription documents referred to herein, to the Information
Agent at the following telephone number and address.
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, NY 10022
(212) 754-8000
Toll Free (800) 566-9061
Banks and Brokerage Firms
Please call (800) 662-5200
NO REVOCATION
Once you have exercised your basic subscription privilege and/or
over-subscription privilege, you may not revoke your exercise, unless the
conditions to VEBA Corporation's obligation to purchase all of the shares not
purchased by other Rights holders in this Rights Offering are not satisfied or
waived before the time the Rights expire. In that case, you will be able to
change your decision and we may extend the date the Rights expire.
FRACTIONAL SHARES
We will not issue any fractional shares of MEMC common stock. You may not
exercise a Right in part.
METHOD OF TRANSFERRING RIGHTS
We expect that the Rights will be listed on the New York Stock Exchange
under the symbol "WFRRt." Additionally, we expect that Rights may be purchased
or sold through usual investment channels until the close of business on the
last trading day preceding the date the Rights expire. However, there has been
no prior public market for the Rights. We cannot assure you that a trading
market for the Rights will develop or, if a market develops, that the market
will remain available throughout the subscription period. Additionally, we
cannot assure you of the price at which the Rights will trade, if at all.
You may transfer Rights in whole by endorsing the Rights Certificate for
transfer. Please follow the instructions for transfer included in the
information sent to you with your Rights Certificate. If you wish to transfer
only a portion of the Rights (but not fractional Rights), you should deliver
your properly endorsed Rights Certificate to the Subscription Agent. With your
Rights Certificate, you should include instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to
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<PAGE> 37
issue a new Rights Certificate to the transferee evidencing such transferred
Rights). The Subscription Agent will send you a new Rights Certificate
evidencing the balance of the Rights issued to you, but not transferred to the
transferee. You may also instruct the Subscription Agent to send the Rights
Certificate to one or more additional transferees. If you do not wish to receive
your remaining Rights, you may instruct the Subscription Agent to sell your
Rights for you as described below.
You may also sell the Rights, in whole or in part (but not fractional
Rights), through the Subscription Agent. If you wish to have the Subscription
Agent try to sell your Rights, you must deliver your properly executed Rights
Certificate, with appropriate instructions, to the Subscription Agent. If you
want the Subscription Agent to try to sell only a portion of your Rights, you
must send the Subscription Agent instructions setting forth what you would like
done with the Rights, along with your Rights Certificate.
If the Subscription Agent sells Rights for you, the Subscription Agent will
send you a check for the net proceeds from the sale of any of your Rights as
soon as possible after the date the Rights expire. If your Rights can be sold,
the sale will be deemed to have been made at the weighted average sale price of
all Rights sold by the Subscription Agent, less the pro rata portion of any
applicable brokerage commissions, taxes and other expenses. We will pay the fees
charged by the Subscription Agent for making your sale. We cannot assure you,
however, that a market will develop for the Rights or that the Subscription
Agent will be able to sell your Rights.
You must have your order to sell your Rights to the Subscription Agent
before 11:00 a.m., New York City time, on , 1998, the fifth business
day before the date the Rights expire. If less than all sales orders received by
the Subscription Agent are filled, the Subscription Agent will prorate the sales
proceeds among you and the other holders based upon the number of Rights each
holder has instructed the Subscription Agent to sell during such period,
irrespective of when during such period the instructions are received by the
Subscription Agent. The Subscription Agent is required to sell your Rights only
if it is able to find buyers. If the Subscription Agent cannot sell your Rights
by 5:00 p.m. New York City time, on , 1998, the third business day
prior to the dates the Rights expire, the Subscription Agent will return your
Rights Certificate promptly by mail to you.
If you wish to transfer your Rights to any person other than a bank or
broker, the signatures on your Rights Certificate must be guaranteed by an
Eligible Institution.
If you wish to transfer all or a portion of your Rights (but not fractional
Rights), you should allow a sufficient amount of time prior to the time the
Rights expire for the Subscription Agent to:
- Receive and process your transfer instructions; and
- Issue and transmit a new Rights Certificate to your transferee or
transferees with respect to transferred Rights, and to you with respect
to Rights you retained, if any.
You should also allow two to ten business days for your transferee to
exercise or sell the Rights evidenced by such new Rights Certificates. The
amount of time needed by your transferee to exercise or sell its Rights depends
upon the method by which the transferee delivers the Rights Certificates, the
method of payment made by the transferee, and the number of transactions which
the holder instructs the Subscription Agent to effect. Neither the Company nor
the Subscription Agent will be liable to a transferee or transferor of Rights if
Rights Certificates or any other required documents are not received in time for
exercise or sale prior to the time the Rights expire.
You will receive a new Rights Certificate upon a partial exercise or sale
of Rights only if the Subscription Agent receives your properly endorsed Rights
Certificate no later than 5:00 p.m., New York City time, five business days
before the date the Rights expire. The Subscription Agent will not issue a new
Rights Certificate if your Rights Certificate is received after that time and
date. If your instructions and Rights Certificate are not received by the
Subscription Agent by that time and date, you will lose your power to sell or
exercise your remaining Rights.
If the Rights have ceased trading on a when-issued basis, the Subscription
Agent will send you a new Rights Certificate by first class mail if the
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Subscription Agent receives your properly completed Rights Certificate by 5:00
p.m., New York City time, on the seventh business day before the date the Rights
expire. Unless you make other arrangements with the Subscription Agent, a new
Rights Certificate issued to you after 5:00 p.m., New York City time, five
business days before the date the Rights expire will be held for pick-up by you
at the Subscription Agent's hand delivery address provided herein. You bear the
responsibility for all newly issued Rights Certificates.
Except for fees charged by the Subscription Agent (which will be paid by
us), you are responsible for all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of your Rights. Any amounts you owe will be deducted
from your account.
IF YOU DO NOT EXERCISE YOUR RIGHTS BEFORE THE SPECIFIED EXPIRATION TIME,
YOUR RIGHTS WILL EXPIRE AND WILL NO LONGER BE EXERCISABLE.
PROCEDURES FOR DTC PARTICIPANTS
We expect that the Rights will be eligible for transfer through, and that
your exercise of your basic subscription privilege (but not your over-
subscription privilege) may be made through, the facilities of The Depository
Trust Company ("DTC"). If your Rights are exercised as part of the basic
subscription privilege through DTC we refer to them as "DTC Exercised Rights."
If you hold DTC Exercised Rights, you may exercise your over-subscription
privilege by (1) properly executing and delivering to the Subscription Agent, at
or prior to the time the Rights expire, a DTC Participant Over-subscription
Exercise Form and a Nominee Holder Certification, and (2) make payment of the
appropriate Subscription Price for the number of shares of MEMC common stock for
which your over-subscription privilege is to be exercised. Please call the
Subscription Agent at to obtain copies of the DTC Participant
Over-subscription Exercise Form and the Nominee Holder Certification.
DETERMINATION OF SUBSCRIPTION PRICE
A special committee of our Board of Directors set the Subscription Price at
an average trading price of MEMC common stock from , 1998 to,
1998. We sold shares to VEBA Corporation on , 1998 at the Subscription
Price. In approving the Subscription Price, the special committee considered a
number of factors, including advice provided by the Dealer Managers with respect
to the size, pricing and structure of the private placement to VEBA Corporation
and the Rights Offering and the results of analyses performed by the Dealer
Managers to assist us in determining the appropriate and desirable pricing terms
for the private placement to VEBA Corporation and the Rights Offering. The
special committee also considered additional factors, such as the alternatives
available to us for raising capital, the market price of MEMC common stock, the
pro rata nature of the private placement to VEBA Corporation and the Rights
Offering, the pricing of similar transactions, our business prospects and the
general condition of the securities markets. See "Plan of Distribution"
beginning on page 55.
AMENDMENTS AND TERMINATION
We may extend the Rights Offering and the period for exercising your
Rights. However, we will not extend the Rights Offering or exercise period
beyond , 1999. We may amend the terms of the Rights Offering or
withdraw or terminate the Rights Offering at any time prior to the Expiration
Time.
NO RECOMMENDATIONS TO RIGHTS HOLDERS
We are not making any recommendation as to whether or not you should
exercise your Rights. You should make your decision based on your own assessment
of your best interests. None of our Board of Directors, the special committee,
our officers, the Dealer Managers or any other person are making any
recommendations as to whether or not you should exercise your Rights.
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
We will not mail Rights Certificates to Record Date holders or to
subsequent transferees whose addresses are outside the United States or who have
an APO or FPO address. Instead, we will have the Subscription Agent hold such
Rights Certificates for such holders' accounts. To exercise their Rights, such
holders must notify the Subscription Agent prior to 11:00 a.m., New York City
time, on , 1998, three business days prior to the date the Rights
expire, and must establish to the satisfaction of the Subscription Agent that
such exercise is permitted under applicable law. If such holder does not notify
the
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Subscription Agent and provide acceptable instructions to the Subscription Agent
by such time (if no contrary instructions have been received), the Rights will
be sold, subject to the Subscription Agent's ability to find a purchaser. Any
such sales will be deemed to be effected at the weighted average sale price of
all Rights sold by the Subscription Agent. See "- Method of Transferring Rights"
beginning on page 35. If the Rights can be sold, a check for the proceeds from
the sale of any Rights, less a pro rata portion of any applicable brokerage
commissions, taxes and other expenses, will be remitted to such holders by mail.
The proceeds, if any, resulting from sales of Rights pursuant to the basic
subscription privilege of holders whose addresses are not known by the
Subscription Agent or to whom delivery cannot be made will be held in a
non-interest bearing account. Any amount remaining unclaimed on the second
anniversary of the date the Rights expire will be turned over to the Company.
REGULATORY LIMITATION
We will not be required to issue shares of MEMC common stock pursuant to
the Rights Offering to you if, in our opinion, you would be required to obtain
prior clearance or approval from any state or federal regulatory authorities to
own or control such shares if, at the time the Rights expire, you have not
obtained such clearance or approval.
ISSUANCE OF COMMON STOCK
The Subscription Agent will issue to you certificates representing shares
of MEMC common stock you purchase pursuant to the Rights Offering as soon as
practicable after the time the Rights expire.
Your payment of the Subscription Price will be retained by the Subscription
Agent, and will not be delivered to us, until your subscription is accepted and
you are issued your stock certificates. We will not pay you any interest on
funds paid to the Subscription Agent, regardless of whether such funds are
applied to the Subscription Price or returned to the you. You will have no
rights as a stockholder of the Company with respect to shares of MEMC common
stock subscribed for until certificates representing such shares are issued to
you. Unless otherwise instructed in the Rights Certificates, your certificates
for shares issued pursuant to your exercise of Rights will be registered in your
name.
If the Rights Offering is not completed for any reason, the Subscription
Agent will promptly return, without interest, all funds received by it.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming we issue all of the shares of MEMC common stock offered in the
Rights Offering, approximately shares of MEMC common stock will be
issued and outstanding. Based on the number of shares purchased by VEBA
Corporation in the private placement and the shares of MEMC common
stock outstanding as of September 30, 1998, our issuance of shares in the Rights
Offering would result (on a pro forma basis as of today) in a %
increase in the number of outstanding shares of MEMC common stock.
OTHER MATTERS
We are not making the Rights Offering in any state or other jurisdiction in
which it is unlawful to do so. We will not sell or accept an offer to purchase
MEMC common stock from you if you are a resident of any such state or other
jurisdiction. We may delay the commencement of the Rights Offering in certain
states or other jurisdictions in order to comply with the laws of such states or
other jurisdictions. We do not expect that there will be any changes in the
terms of the Rights Offering. However, we may decide, in our sole discretion,
not to modify the terms of the Rights Offering as may be requested by certain
states or other jurisdictions. If that happens and you are a resident of that
state, you will not be eligible to participate in the Rights Offering.
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BUSINESS
GENERAL
MEMC is a leading worldwide producer of silicon wafers. The silicon wafer
is the fundamental building block from which almost all semiconductors are
manufactured. Semiconductors are used in virtually all electronic applications,
including computers, telecommunications equipment, automobiles, consumer
electronics products, industrial automation and control systems, and analytical
and defense systems. We operate manufacturing facilities, directly or through
joint ventures, in Italy, Japan, Malaysia, South Korea, Taiwan, and the United
States. We sell silicon wafers to most of the world's largest manufacturers of
semiconductors. We are the leading worldwide supplier of silicon wafers outside
of Japan and the only significant non-Japanese silicon wafer manufacturer with
manufacturing and research facilities in Japan.
INDUSTRY OVERVIEW
Almost all semiconductors are manufactured from silicon wafers and thus the
strength of the silicon wafer industry is highly correlated to the performance
of the semiconductor industry. Although there are over two hundred semiconductor
manufacturers worldwide, we believe that the top twenty semiconductor
manufacturers accounted for over 70% of all semiconductor revenues in 1997. We
also believe that of the approximately 24 silicon wafer manufacturers in the
world today, six principal manufacturers, including ourselves, supply a
substantial majority of the wafers used by the major semiconductor
manufacturers.
Semiconductor Industry
The semiconductor industry historically has been a high growth cyclical
industry. Worldwide, the industry grew at a compound annual growth rate of 16.2%
from $24.3 billion in revenues in 1985 to $147.2 billion in revenues in 1997,
according to Dataquest estimates. Continuous improvements in semiconductor
process and design technologies, semiconductor fabrication equipment and silicon
wafers have allowed semiconductor manufacturers to produce more complex, higher
performance and more reliable devices at a lower cost per device. The result has
been a large proliferation of uses for semiconductors and historically rapid
growth in semiconductor revenue.
Despite the semiconductor industry's history of significant growth,
semiconductor revenues declined by 6.3% in 1996 and grew by only 3.6% in 1997,
according to Dataquest estimates. This slowdown has been attributed to excess
capacity and resultant price erosion, especially for DRAM (commonly used
computer memory chips). This downturn has been extended into 1998 due to
continued overcapacity and the weak economic conditions in the Asia Pacific and
Japanese markets. Dataquest and other industry sources have forecasted that
semiconductor industry revenues will be down 5.9% to 13.0% in 1998.
Throughout this downturn, semiconductor manufacturers have been exerting
significant price pressure on their raw material suppliers, including silicon
wafer manufacturers. Semiconductor manufacturers have also accelerated the speed
at which they have reduced their device linewidths in an effort to reduce costs.
The reduction in linewidths results in a requirement for less silicon per
device. Additionally, the semiconductor industry has recently experienced
significant restructuring and consolidation activities.
Semiconductor manufacturers greatly reduced their capital spending
beginning in late 1997 and throughout 1998. This reduced capital spending has
limited additions to capacity.
Silicon Wafer Industry
The silicon wafer industry historically has been a high growth cyclical
industry correlated to the growth of the semiconductor industry. Worldwide, the
industry grew at a compound annual growth rate of 10.8% from 1.2 billion square
inches in 1985 to 4.0 billion square inches in 1997, according to Dataquest
estimates. From 1993 through the first half of 1996 the industry was
characterized by excess demand and wafer shortages. Due to these shortages and
anticipated future demand, wafer manufacturers quickly added capacity,
especially for 8-inch wafers, the predominant wafer used in the industry today
and the wafer diameter anticipated to have the most significant growth over the
next several years. This growth rate declined significantly in late 1996.
The silicon wafer industry slowdown, which began in late 1996, has left the
industry in a state of overcapacity. Price declines have resulted from
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this overcapacity. Moreover, the weakness of the Japanese yen and Deutsche mark
have allowed Japanese and German competitors to offer lower dollar based
pricing. The price declines have been greatest for 8-inch wafers where the
highest overcapacity exists. According to Dataquest, the industry saw the growth
rate in silicon wafer consumption decline to 7.1% in 1997. Dataquest and another
industry source have forecasted that silicon wafer consumption will be flat to a
decline of 4.2% in 1998.
Major silicon wafer manufacturers, including the Company, invested in
12-inch wafer manufacturing capacity in anticipation that the semiconductor
industry would migrate to this larger diameter wafer. However, in 1998, the
industry experienced a softening semiconductor market and successful
implementation of thinner device linewidths on the current diameters. This
resulted in industry recognition that the transition to 12-inch wafers would be
delayed. The new transition timing requires 12-inch wafer characteristics to be
even more advanced at the time they are introduced for production of integrated
circuits.
The leading semiconductor manufacturers organized and funded two industry
consortia for the purpose of evaluating 12-inch equipment and materials. These
consortia, International Sematech in Austin, Texas, and SELETE in Japan, heavily
influenced the 12-inch market during 1998. While the primary use of 12-inch
wafers in 1999 will continue to be for semiconductor device process and tool
development, the Company expects to also ship samples of 12-inch prime polished
and epitaxial wafers.
PRODUCTS
Our silicon wafers vary in diameter, surface features (polished or
epitaxial), composition, electrical properties and method of manufacture. Our
silicon wafers are manufactured according to the exacting specifications
required by our customers; we currently produce wafers with a variety of product
features satisfying more than 1,000 unique product specifications. Semiconductor
manufacturers require wafers of larger diameter and more stringent technical
specifications in order to produce increasingly complex semiconductor devices
such as the larger megabit memory chips and microprocessors.
Our customers have increased their focus on efficient semiconductor
production processes because their manufacturing processes for semiconductor
devices have become more expensive. Our customers make many semiconductor
devices, or chips, from the same wafer, and all chips from a particular wafer
are manufactured and processed simultaneously at each stage in the device
manufacturing process. Because of this, larger-sized wafers allow for a greater
throughput from the same semiconductor manufacturing process and allow
semiconductor manufacturers to spread their fixed costs of production over a
larger volume of finished products. For example, a 6-inch (150 millimeter) wafer
has a surface area of approximately 27.4 square inches, whereas an 8-inch (200
millimeter) wafer has a surface area of approximately 48.7 square inches. Thus,
the 8-inch wafer is approximately 78% more surface area than the 6-inch wafer. A
12-inch (300 millimeter) wafer has a surface area of approximately 109.6 square
inches or approximately 125% more surface area than an 8-inch wafer. Despite the
industry's focus on 6-inch and larger diameter wafers, we continue to
manufacture and sell a significant amount of 4-inch (100 millimeter) and 5-inch
(125 millimeter) wafers.
We manufacture wafers in sizes ranging from 4 inches to 8 inches in
diameter as well as a limited number of pilot development 12-inch diameter
wafers from our pilot development lines. Customers use the larger diameter
wafers in more sophisticated applications where semiconductor manufacturers
benefit from the increased efficiencies and greater number of available die per
wafer.
Our silicon wafers fall into one of three general types:
Prime Polished Wafers
Our principal product is the prime polished wafer, which is a highly
refined, pure silicon wafer with an ultraflat and ultraclean surface. We put
prime polished wafers through a sophisticated chemical-mechanical polishing
process that removes defects and leaves an extremely smooth surface. This makes
the wafers suitable for the advanced technologies used by the Company's
customers. Our customers use prime polished wafers in a broad range of
applications for integrated circuit devices.
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Epitaxial Wafers
Customers have forced semiconductor manufacturers to use smaller and
smaller device features in order to incorporate more complex functionality in
the integrated circuit. Smaller devices also improve performance and control
power consumption and heat production. We manufacture epitaxial wafers to serve
the technological demands of our customers that manufacture advanced
semiconductors.
Epitaxial wafers consist of a thin, single-crystal silicon layer grown on
the polished surface of the silicon wafer. The wafer is designed to have
different composition and electrical properties from the epitaxial layer on the
wafer surface. The wafer, among other things, helps to improve isolation between
circuit elements our customers fabricate on the silicon film surface of the
wafer. One result of such smaller devices is the requirement that the distance
between circuit elements becomes increasingly narrow. The industry refers to the
distance between circuit elements as line widths. A critical aspect in the
construction of any integrated circuit device is the isolation of these
different elements that comprise the integrated circuit device. Without
sufficient isolation of the various elements, the elements could communicate
electrically with each other, which could ruin the device. Epitaxial wafers
provide improved isolation and allow for increased reliability of the finished
semiconductor device, greater efficiencies during the semiconductor
manufacturing process, and ultimately more complex integrated circuit devices.
Test/Monitor Wafers
We supply test/monitor wafers, or monitor wafers, to our customers for
their use in testing semiconductor fabrication lines and processes. Although
monitor wafers are substantially the same as prime polished wafers with respect
to cleanliness, and in some cases flatness, other specifications are generally
less rigorous. This allows us to produce monitor wafers from the portion of a
silicon ingot that does not meet customer specifications for wafers to be used
in the manufacture of semiconductors. Therefore, sales of monitor wafers allow
us to experience a higher yield from each silicon ingot produced.
RAW MATERIALS
The main raw material in our production process is polysilicon. We produce
almost one-half of our total polysilicon requirements and purchase the remainder
of our requirements from others. The availability of polysilicon currently
significantly exceeds demand. We believe that an adequate supply of polysilicon
will be available internally or from others for the foreseeable future.
MANUFACTURING PROCESS
Silicon wafers for the semiconductor industry are extremely complex
materials with characteristics such as high purity levels, highly uniform
crystal structure, and precise mechanical tolerances. Electronic grade silicon
is one of the most refined materials in the world, having an impurity level of
no more than one part per billion. Requirements for highly uniform crystal
structure, mechanical tolerances and cleanliness in the manufacture of silicon
wafers are at levels that stretch manufacturing processes to the limits of
measurement, and necessitate that we conduct certain processes in "clean rooms."
The silicon wafer manufacturing process consists of three principal phases:
the crystal growth process, the wafer slicing process and the wafer finishing
process.
Crystal Growth Process
The first step in the wafer manufacturing process is the formation of a
large, silicon single crystal or ingot. This process begins with the melting of
polysilicon, together with minute amounts of electrically active elements such
as arsenic, boron, phosphorous or antimony in a quartz crucible.
Once the melt has reached the desired temperature, we lower a silicon seed
crystal, or "seed" into the melt. The melt is slowly cooled to the required
temperature, and crystal growth begins around the seed. As the growth continues,
the seed is slowly extracted or "pulled" from the melt. The temperature of the
melt and the speed of extraction govern the diameter of the ingot, and the
concentration of an electrically active element in the melt governs the
electrical properties of the silicon wafers to be made from the ingot. This is a
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complex, proprietary process requiring many control features on the
crystal-growing equipment.
Wafer Slicing Process
After we grow the ingots, we extract them from the crystal pulling furnaces
and allow them to cool. We grind the ingots to the specified diameter, and then
we slice the ingots into thin wafers. Next, we prepare the wafers for the
surface polishing steps with a multi-step process using precision lapping
machines, edge contour machines and chemical etchers.
Wafer Finishing Process
Final polishing and cleaning processes give the wafers the clean and
superflat mirror polished surfaces required for the fabrication of semiconductor
devices. For wafer polishing, we currently use our proprietary, ninth-generation
polishers together with our innovative chemical-mechanical polishing process.
This form of polishing was one of our early inventions that first allowed solid
state devices to move from individual circuits to the complexities of today's
integrated circuits. We further process some of our products into epitaxial
wafers.
RESEARCH AND DEVELOPMENT
A number of factors drive our current research and development efforts.
These include our business strategy and focus mainly on: (1) the development and
improvement of large diameter and advanced silicon wafer products, (2)
manufacturing process improvements, and (3) enhancement and cost reduction of
existing products. Customer focus also influences research and development. We
work closely with customers in developing new products and refining existing
products to faster meet the needs of the marketplace. To strengthen this
relationship and interaction, we assign research and development application
engineers to key customer accounts worldwide.
A recent product innovation of our research and development program
includes a new class of polished wafer with a virtually defect-free wafer
surface. We are currently delivering 6-inch and 8-inch diameters of this class
of polished wafer to customers for evaluation in increasing their yields. We
also engage in ongoing research and development to continuously improve the
surface of epitaxial wafers. Further, as a result of our commitment to develop
the next diameter of silicon wafers, we are now supplying high quality 12-inch
wafers to the industry from pilot development lines. We first produced our
12-inch diameter wafers in 1991 and believe we are one of the industry leaders
in the development of this next generation of wafers. Our new class of polished
wafer and 12-inch wafers are in the pilot stage of development, and we cannot
assure you that either will ever mature to a commercial product.
We continue to see rapid technological change and product innovation in the
market for silicon wafer products. In response to this business environment, we
recently commissioned a "Wafering Center of Excellence" to direct our wafering
process research and development. The Wafering Center of Excellence is located
at our plant in Utsunomiya, Japan and has the capacity to produce 12-inch
wafers.
We do not expect the demand for 12-inch wafers to develop until the year
2001 or beyond. In the interim, we expect semiconductor customers to continue
their support of two industry consortia to develop the tool set and processes
necessary to fabricate integrated circuits on 12-inch wafers.
MARKETING AND SALES
We market most of our products through a direct sales force. We believe a
key element of our marketing strategy is establishing and maintaining close
relationships with our customers. We try to accomplish this through
multi-functional teams of technical, marketing and sales, and manufacturing
personnel. These teams work closely with customers in developing their new
production facilities, qualifying our products for use at such new facilities
and maintaining qualification at all existing manufacturing facilities. We
complete sales principally through indicative-only contracts of one year or less
that indicate expected volumes and specify price.
Our close relationships with our customers are partly the result of the
lengthy and expensive "qualification" process by which customers qualify silicon
wafer manufacturers, and their individual facilities, to supply a particular
product. We are aware of changing customer needs and target our manufacturing to
try to produce wafers adapted to each customer's process and requirements. For
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1997 and the first six months of 1998, the
following ten customers generated over half of our sales: Advanced Micro
Devices, Inc.; Chartered Semiconductor Manufacturing, Ltd.; Cypress
Semiconductor Corporation; International Business Machines Corporation;
Motorola, Inc.; National Semiconductor Corporation; Philips Electronics N.V.;
Samsung Electronics Co., Ltd.; ST Microelectronics N.V.; and Texas Instruments
Incorporated. Texas Instruments alone represented more than 10% of our sales in
1997 and the first six months of 1998.
COMPETITION
We face intense competition in the silicon wafer industry from established
manufacturers throughout the world. Some of our competitors have substantial
financial, technical, engineering and manufacturing resources, particularly the
very large, well-capitalized Japanese manufacturers. We believe that the
Japanese competitors benefit from their dominance of the Japanese market, which
represented approximately 38% of the worldwide silicon wafer market in 1997. In
particular, Shin-Etsu Handotai is the largest supplier of silicon wafers in
Japan and the world, providing it with the sales and technology base to compete
effectively throughout the world. If we cannot compete effectively with Japanese
silicon wafer manufacturers, our operating results could be materially adversely
affected.
Over the past few years, the Japanese yen and Deutsche mark have declined
significantly relative to the U.S. dollar. The currency declines have given our
competitors significant cost advantages in the marketplace. These currency
pressures, together with the effects of the semiconductor downturn and excess
capacity, as described above, have increased competition and resulted in
significant decreases in wafer prices.
We compete principally on the basis of product quality, consistency and
price, as well as technical innovation, customer service and product
availability. We expect that our competitors will continue to improve the design
and performance of their products and to introduce new products with competitive
price and performance characteristics. Competitive pressures may cause
additional price reductions, which could have a material adverse effect on our
operating results.
We believe that we possess certain technological and other strengths
relative to our competitors. However, realizing and maintaining such strengths
requires us to continue making a high level of investment in research and
development, marketing and customer service and support. Our inability to
maintain such investments could have a material adverse effect on our operating
results.
JOINT VENTURES
We have entered into a number of joint ventures as part of our strategy to
leverage our capital, to enter expanding markets, to forge closer working
relationships with our principal customers and to broaden the geographic
diversification of our operations. We have joint ventures with prominent
partners in South Korea, Taiwan and the United States.
POSCO HULS Co., Ltd.
In 1990, we entered into a joint venture in South Korea with Samsung
Electronic Co., Ltd. and Pohang Iron and Steel. Samsung is a South Korean
manufacturer of integrated circuits and one of our largest customers. Pohang is
a South Korean steel manufacturer. The South Korea joint venture is named POSCO
HULS Co., Ltd. (commonly known as PHC) and manufactures and sells silicon wafers
in South Korea. PHC generated sales of $64.3 million for the first six months of
1998, $111.9 million for the first six months of 1997, $226.4 million in 1997,
$275.5 million in 1996 and $181.2 million in 1995. Over half of PHC's sales are
to Samsung. PHC has the capacity to produce per month an aggregate of
approximately 320,000 6-inch and 8-inch wafers. We currently own 40% of PHC.
Pohang currently owns 40% and Samsung currently owns 20%.
We have agreed to provide technical assistance and information to PHC. We
have also granted licenses to PHC to use certain technology to manufacture,
promote and sell silicon wafers. In exchange for such technical assistance and
licenses, we receive quarterly royalties based on PHC's net sales. The term of
the agreement by which we provide technical assistance and information and have
granted licenses to PHC has been extended from September 30, 1998 to December
31, 1998. We are in the process of negotiating a long-term extension of this
technical
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agreement. The parties have agreed that the terms of any such long-term
extension will be retroactive to October 1, 1998.
Taisil Electronic Materials Corporation
In 1994, we formed Taisil Electronic Materials Corporation with China Steel
Corporation. China Steel Corporation is a Taiwanese steel manufacturer. Taisil
manufactures and sells silicon wafers in Taiwan. Taisil generated sales of $30.2
million for the first six months of 1998, $16.1 million for the first six months
of 1997, $61.9 million for 1997 and $7.3 million in 1996. Taisil did not
generate sales in 1995 because it did not finish construction of its
manufacturing facilities until May of 1996. Taisil has the capacity to produce
approximately 140,000 8-inch wafers per month. Taisil has in place
infrastructure that could support the production of approximately 240,000 8-inch
wafers per month. We currently own 45% of Taisil. The remainder of Taisil is
owned by China Steel Corporation (35%), Chao Tung Bank (10%) and the China
Development Corporation (10%).
We have agreed to provide technical assistance and information to Taisil.
We have also granted licenses to Taisil to use certain technology to manufacture
and sell silicon wafers. In exchange for such technical assistance and licenses,
we receive semiannual royalties based on Taisil's net sales and operating
income.
Taisil's financial performance has been adversely affected in recent
periods due to the downturn in the semiconductor industry in Taiwan. As a result
of this downturn, Taisil has incurred losses, which have negatively impacted its
debt-to-equity ratio. The increase in the debt-to-equity ratio has raised
concerns with Taisil's lenders. We, and other joint venture partners
representing 90% of the capital ownership of Taisil, expect to make a pro rata
equity infusion in Taisil in the near future. We anticipate that this will
satisfy the concerns of Taisil's lenders. However, if Taisil's performance
continues to cause additional increases in its debt-to-equity ratio following
our anticipated capital infusion, we and our joint venture partners will again
have to consider alternatives to satisfy the concerns of Taisil's lenders. See
"Risk Factors -- Risks of Taisil Joint Venture" beginning on page 18.
PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
We believe our success depends in part on our proprietary technology,
information and processes and know-how. We generally try to maintain internal
and external protections of our proprietary information and intellectual
property. As of September 30, 1998, we owned of record or beneficially
approximately 106 U.S. patents, of which approximately 14 will expire by 2003,
approximately 22 will expire between 2004 and 2008 and approximately 70 will
expire after 2008. As of September 30, 1998, we owned of record or beneficially
approximately 178 foreign patents, of which approximately 34 will expire by
2003, approximately 80 will expire between 2004 and 2008 and approximately 64
will expire after 2008. These foreign patents are generally counterparts of our
U.S. patents. We cannot assure you, however, that any of these patents will not
be challenged, invalidated or circumvented in the future, or that they do or
will provide a competitive advantage. As of that date, we had also submitted
approximately 89 U.S. and 390 foreign patent applications. However, we cannot
assure you that any of these applications will be granted.
We generally try to protect our intellectual property rights based on trade
secret protection and non-disclosure agreements, which provide only limited
protection. Recently, we have increased our efforts to obtain patent protection
for our technology in response to an increase in patent applications by our
competitors. However, much of our proprietary information and technology
relating to the manufacturing process is not patented and may not be patentable.
We cannot assure you that we have adequately protected or will be able to
adequately protect our technology, that competitors will not be able to develop
similar technology independently, that the claims allowed on any patents held by
us will be broad enough to protect our technology or that foreign intellectual
property laws will adequately protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or technology that
we consider proprietary, and third parties may attempt to develop similar
technology independently. In addition, effective protection of intellectual
property rights may be unavailable or limited in certain countries. Accordingly,
there can
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be no assurance that our means of protecting our proprietary rights will be
adequate or that our competitors will not independently develop similar
technology.
Although third parties have not sued us based on claims of infringement of
intellectual property rights during the last several years, we cannot assure you
that third parties will not bring such suits in the future. Competitors,
suppliers and others frequently sue each other regarding intellectual property
rights in other technology industries, including the semiconductor industry.
From time to time, we receive notices from substantial companies with
significant patent portfolios that we may be infringing certain of their patents
or other rights. We may receive more of these notices in the future. If such
companies were to assert any claims against us based on patents or other rights
described in such notices, we believe, based on strategic and other
considerations, that we should be able to resolve them outside of litigation
without a material adverse effect to us; however, this conclusion is subject to
significant uncertainty. We expect to try to resolve these matters through
negotiation or, if necessary, by obtaining a license. However, if we are not
able to resolve these matters satisfactorily, or to obtain a license on
acceptable terms, we may face litigation. In that event, the ultimate outcome of
these matters could have a material adverse effect on our business, results of
operations or financial condition.
Under certain contracts, we are required to indemnify some third parties
against claims of infringement of the intellectual property rights of others.
Any litigation in the future to enforce patents issued to us, to protect
trade secrets or know-how possessed by us or to defend us or indemnify others
against claimed infringement of the rights of others could have a material
adverse effect on our financial condition and operating results. Also,
regardless of the validity or successful outcome of such claims, we may need to
expend significant time and expense to protect our intellectual property rights
or to defend against claims of infringement by third parties, which could have a
material adverse effect on us. If we lose any such litigation, we may be
required (1) to pay substantial damages, (2) to seek licenses from others, or
(3) to change, or stop manufacturing or selling, some of our products. Any of
these outcomes could have a material adverse effect on our business, results of
operations or financial condition.
LEGAL PROCEEDINGS
We have a dispute with a manufacturer of equipment for the production of
silicon wafers, which we have been unable to resolve. We have been advised that
if there is no resolution of this matter in the near future, the equipment
manufacturer will file suit against us for up to $6.5 million. While we will
assert all of our defenses in this dispute we can not assure you that we will be
able to resolve this dispute on terms favorable to us.
For other potential disputes see "Risk Factors -- Limited Intellectual
Property Protection; Notices of Possible Infringement" beginning on page 19 and
"-- Risks Associated with Environmental Regulations" on page 21.
EMPLOYEES
At September 30, 1998, we had approximately 6,600 full-time employees and
190 temporary workers worldwide. We intend to close our Spartanburg, South
Carolina facility in the first half of 1999 and withdraw from our joint venture
in Luoyang, China during the fourth quarter of 1998. As of September 30, 1998,
approximately 850 full-time employees worked at our Spartanburg, South Carolina
facility and joint venture in Luoyang, China.
We have not experienced any material work stoppages at any of our
facilities during the last several years. We believe our relationships with
employees are satisfactory.
YEAR 2000
Many existing software programs, computers and other types of equipment
were not designed to accommodate the Year 2000 and beyond. If not corrected,
these computer applications and equipment could fail or create erroneous
results. For us, this could disrupt purchasing, manufacturing, sales, finance
and other support areas and affect our ability to timely deliver silicon wafers
with the exacting specifications required by our customers, thereby causing
potential lost sales and additional expenses.
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Our State of Readiness
We have created a Year 2000 Project Team that is comprised of a Program
Office, including a Global Project Manager, Customer and Vendor Management
groups and Year 2000 representatives from all sites around the world, including
our unconsolidated joint ventures. This team is responsible for planning and
monitoring all Year 2000 activities and reporting to our executive management.
Our Chief Financial Officer is the sponsor for the Year 2000 project and reports
to our Board of Directors on a periodic basis.
Our Year 2000 project encompasses both information and non-information
systems within the Company as well as the investigation of the readiness of our
strategic suppliers/business partners. Our goal is to have all Year 2000 issues
resolved by June 1999, with Year 2000 issues relating to the most critical
business systems (i.e., financial, order processing) resolved by December 1998.
To that end, we have inventoried and assessed the Year 2000 readiness of the
following:
- In-house Applications -- Those applications that are developed and
supported in-house or purchased applications that are heavily customized
and supported in-house. This classification also includes
end-user-developed applications deemed critical to the business.
- Business Software (Purchased) -- Applications purchased from an outside
vendor and used for automating business processes (i.e., financial
systems, order processing systems, purchasing systems).
- Manufacturing Software (Purchased) -- Applications purchased from an
outside vendor and used for automating manufacturing processes.
- Personal Computer Software (Purchased) -- All software packages resident
on personal computers. This includes things such as operating systems,
word processing software, communications software, project management
software, and spreadsheet software.
- Infrastructure Software (Purchased) -- Purchased software used in the
client/server and network environments.
- IT Hardware -- Information Technology hardware components including
midrange machines, personal computers, printers, network hardware.
- Facilities & Utilities -- Components in the office and manufacturing
supporting systems environments. Types of components include: copy
machines, fax machines, telephone/communications systems, security
systems, fire alarm/control, electrical, waste treatment, alarms, and
air handlers.
- Manufacturing Equipment -- Shop floor equipment such as clean rooms,
crystal pullers, epitaxial reactors, inspection, lab, lappers, laser
markers, measurement tools, grinders, polishers, slicers, and wet
benches.
In-House Applications. We are evaluating the extent to which modifications
of our in-house applications will be necessary to accommodate the Year 2000 and
are modifying our in-house applications to enable continued processing of data
into and beyond the Year 2000. This phase of our Year 2000 project is nearing
completion and we anticipate completing remediation and testing of our in-house
applications by the end of the first quarter of 1999.
Purchased Software. We are obtaining, where feasible, contractual
warranties from systems vendors that their products are or will be Year 2000
compliant. We expect this phase of our Year 2000 project to be completed by the
end of the first quarter of 1999. We require Year 2000 contractual warranties
from all vendors of new software and hardware. In addition, we are testing newly
purchased computer hardware and software systems in an effort to ensure their
Year 2000 compliance.
Embedded Systems. For in-house embedded systems, we are modifying our
systems to enable the continuing functioning of equipment into and beyond the
Year 2000. For third party embedded systems, we are obtaining, where feasible,
contractual warranties from systems vendors that their products are or will be
Year 2000 compliant. We anticipate having fully tested such embedded systems by
the end of the second quarter of 1999.
Suppliers/Business Partners. We have also communicated with our strategic
suppliers and
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equipment vendors seeking assurances that they will be Year 2000 ready. Our goal
is to obtain as much detailed information as possible about our strategic
suppliers/business partners' Year 2000 plans so as to identify those companies
which appear to pose a significant risk of failure to perform their obligations
to us as a result of the Year 2000. We expect to have compiled detailed
information regarding all of our strategic suppliers and equipment vendors by
December 1998. This will be an ongoing process during our Year 2000 project. For
those strategic suppliers and equipment vendors that do not respond as to their
status or their response is not satisfactory, we intend to develop contingency
plans to ensure that sufficient resources are available to continue with
business operations.
Costs to Address the Year 2000
Spending for modifications and updates is being expensed as incurred and is
not expected to have a material impact on our results of operations or cash
flows. The cost of our Year 2000 project is being funded through borrowings. We
estimate that our total Year 2000 expenditures will be in the range of $5-7
million. To date, we have expended approximately $1.0 million which consists
mainly of contracting programmers and consulting costs associated with the
evaluation, assessment and remediation of computer systems and manufacturing
equipment. We anticipate that contract programming costs will be our most
significant cost as the Year 2000 project proceeds to completion.
Risk Analysis
Like most large business enterprises, we are dependent upon our own
internal computer technology and rely upon the timely performance of our
suppliers/business partners. A large-scale Year 2000 failure could impair our
ability to timely deliver silicon wafers with the exacting specifications
required by our customers, thereby causing potential lost sales and additional
expenses. Our Year 2000 project seeks to identify and minimize this risk and
includes testing of our in-house applications, purchased software and embedded
systems to ensure that all such systems will function before and after the Year
2000. We are continually refining our understanding of the risk the Year 2000
poses to our strategic suppliers/business partners based upon information
obtained through our surveys. This refinement will continue through the rest of
1998 and into 1999.
Contingency Plans
Our Year 2000 project includes the development of contingency plans for
business critical systems and manufacturing equipment as well as for strategic
suppliers/business partners to attempt to minimize disruption to our operations
in the event of a Year 2000 failure. We will be formulating plans to address a
variety of failure scenarios, including failures of our in-house applications,
as well as failures of strategic suppliers/business partners. We anticipate that
we will complete Year 2000 contingency planning by June 1999.
Cautionary Statement
Year 2000 issues are widespread and complex. While we believe we will
address them on a timely basis, we cannot assure you that we will be successful
or that these problems will not materially adversely affect our business or
results of operations. To a large extent, we depend on the efforts of our
customers, suppliers and other organizations with which we conduct transactions
to address their Year 2000 issues, over which we have no control.
The statements regarding the expected outcome and timing of Year 2000
efforts are forward-looking statements. Actual results could differ materially
from our expectations. See "Cautionary Statement Regarding Forward-Looking
Statements" on page 24 and "Risk Factors -- Year 2000 Risks" beginning on page
20.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our majority stockholder is VEBA Corporation. VEBA Corporation owns
% of the outstanding shares of MEMC common stock, including the
shares of MEMC common stock purchased by VEBA Corporation in the private
placement. VEBA Corporation is owned by VEBA AG and its subsidiaries. On
, 1998, we sold shares of MEMC common stock to VEBA
Corporation at the Subscription Price for aggregate proceeds of approximately
$106 million. See "Recent Developments -- Financial Restructuring Plan"
beginning on page 25. VEBA Corporation has also agreed to purchase all shares
not subscribed for by other stockholders in the Rights Offering, subject to
certain conditions that are customary in a firm commitment underwriting. See
"The Rights Offering -- Standby Agreement" on page 32.
We made payments to VEBA Corporation and certain of its affiliates for
goods, services and interest payments in an aggregate amount of approximately
$31.3 million in 1997. The following discussion summarizes some of our other
significant agreements and arrangements with VEBA Corporation and its
affiliates.
SERVICE AGREEMENT
We have entered into a service agreement with a wholly-owned subsidiary of
VEBA Corporation, which requires such subsidiary to provide us 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. We believe that the terms of the service agreement are
comparable to terms that we could obtain from unrelated third parties. We
terminated our accounting services with VEBA Corporation during 1998.
AGREEMENT FOR COMMUNICATION SERVICES
We have an arrangement with VEBA Corporation covering our communication
service needs. Our arrangement allows us to participate with VEBA Corporation
and several of its affiliates in a communication services 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. We entered into a reimbursement agreement with
VEBA Corporation which requires us to reimburse VEBA Corporation if our 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 our volume), we believe that the
pricing terms available to us under the communication services agreement are no
less favorable than we could obtain if we independently entered into a contract
for similar communication services.
LOAN AGREEMENTS AND GUARANTEES
We have entered into credit and loan arrangements with VEBA AG and its
affiliates. See "Recent Developments -- Financial Restructuring Plan" beginning
on page 25. We and VEBA Corporation have guaranteed certain indebtedness of PHC
with an aggregate principal amount outstanding of approximately $3.7 million as
of December 31, 1997, the latest portion of which matures in September 1999.
Neither we nor VEBA Corporation has been required to make any payments under
these guarantees. We have agreed to indemnify VEBA Corporation with respect to
its guarantee. We have agreed to pay VEBA Corporation an annual fee of 1/8 of
one percent calculated on the outstanding principal balance under the PHC credit
agreements for this guarantee.
TAX AGREEMENTS
From 1990 to 1995, we were 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, we entered into a tax disaffiliation agreement with VEBA Corporation
terminating the tax sharing agreements. As a result, we are now responsible for
our own federal, state, and local tax returns and tax liabilities. Pursuant to
the terms of the tax disaffiliation agreement, we agreed with VEBA Corporation
to indemnify each
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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, we granted VEBA Corporation the right to demand
registration under the Securities Act of 1933 of its shares of MEMC common
stock, including shares purchased in the private placement and shares that may
be purchased under the standby commitment or otherwise. The demand rights are
exercisable and must be exercised for at least 25% of MEMC common stock covered
by the registration rights agreement. We may be required to effect up to three
such demand registrations. VEBA Corporation will bear the expenses of any such
demand registration. We are not obligated to take any action to register shares
of MEMC common stock owned by VEBA Corporation: (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 us 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 Corporation if our president certifies that
our Board of Directors has determined that such registration would interfere
with a material transaction then being pursued by us. In addition, except in
certain circumstances and subject to certain limitations, if we propose to
register any shares of MEMC common stock under the Securities Act, VEBA
Corporation will be entitled to require us to include all or a portion of the
shares of MEMC common stock which VEBA Corporation owns in such registration. We
will bear the expenses of any such "piggyback" registration, other than
underwriting discounts, commissions and filing fees relating to MEMC common
stock to be sold by VEBA Corporation. In addition, we have agreed to indemnify
any underwriter in connection with any registration made pursuant to the
registration rights agreement against certain liabilities, including liabilities
under the Securities Act.
TREASURY MANAGEMENT
Pursuant to an informal arrangement, we participate in VEBA AG's global
treasury management system. As a condition to our participation, we offer VEBA
AG or an affiliate a right of first refusal to act as our financial intermediary
in transacting our currency hedging activities. As a result of this arrangement,
we have entered into a number of foreign exchange hedging contracts using VEBA
AG or an affiliate as our financial intermediary. We believe that our 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 our past practice, we may deposit with VEBA
Corporation or certain of its affiliates on a short term basis our excess cash
on hand at month end at market rates of interest. We believe 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 us or VEBA Corporation or certain
affiliates.
AGENCY AND SERVICES AGREEMENTS WITH AFFILIATED COMPANIES
Through our wholly owned Italian subsidiary, MEMC Electronic Materials,
S.p.A. and certain other foreign subsidiaries, we distribute our silicon
products and silicon products manufactured by affiliated companies in various
European countries and South Korea under certain agency and services agreements
that cover the distribution arrangements. In the agency agreements, an affiliate
of VEBA AG provided sales agency, administrative and other related services to
MEMC Electronic Materials, S.p.A. in conjunction with the distribution of
silicon products in the various countries. In return for these services, MEMC
Electronic Materials, S.p.A. paid VEBA AG on a commission or cost plus
commission basis. During 1998, we terminated these agency agreements. We believe
that the terms of the agency agreements were comparable to those that we could
have obtained from unrelated third parties.
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PURCHASES AND SALES OF RAW MATERIALS, FINISHED PRODUCTS AND EQUIPMENT
During 1998, we purchased raw materials from an affiliate of VEBA AG
pursuant to a supply contract dated December 31, 1995. The supply contract has
an initial term of five years and is automatically renewable for successive one-
year periods unless terminated upon one year's prior written notice by either
party. We believe that the prices we pay for raw materials under this supply
contract are not materially different from those which we could obtain from
third parties for similar products.
We also have purchased equipment from Steag Microtech, Inc., an entity in
which VEBA AG holds a substantial ownership interest. The purchases were
governed by a master equipment agreement dated as of August 1, 1995 which
expired in August 1998. We believe that the terms of the equipment agreement
were comparable to those that we could have obtained from unrelated third
parties.
INSURANCE
We participate in a marine cargo insurance policy maintained by VEBA AG or
an affiliate. We also participate in a directors and officers liability
insurance policy sponsored by an unrelated third party. Our participation in the
directors and officers policy was arranged by VEBA AG. The premiums on the
directors and officers policy are paid by VEBA AG on our behalf. We reimburse
VEBA AG for these premiums. We believe that the total premiums paid for the
marine cargo policy and the directors and officers policy are comparable to
premiums that are available for unrelated third parties.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
matters that you should consider with respect to the Rights. This summary
describes provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations under the Code, judicial authority and administrative rulings and
practice. This summary only speaks as of the date of this prospectus, and any
such authority could change, possibly with retroactive effect.
Moreover, this summary does not discuss all aspects of federal income
taxation that may be relevant to you, especially if you are subject to special
treatment under the federal income tax laws. For example, if you are a bank,
dealer in securities, life insurance company, tax-exempt organization or foreign
taxpayer, this discussion may not cover all relevant tax issues. Also we have
not discussed applicable tax consequences if you hold MEMC common stock as part
of a hedging, straddle, constructive sale, conversion or other risk reduction
transaction. This summary also does not address any aspect of state, local or
foreign tax laws.
This summary is only applicable to you if you hold MEMC common stock,
and/or will hold the Rights and any shares of MEMC common stock you acquire upon
the exercise of Rights, as capital assets (generally, property held for
investment) within the meaning of Section 1221 of the Code. YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE RIGHTS
OFFERING TO YOU.
ISSUANCE OF THE RIGHTS
If you hold MEMC common stock on the Record Date, you should not be
required to recognize taxable income upon the receipt of the Rights.
In general, a distribution by a corporation to its stockholders of rights
to acquire stock in the distributing corporation is not taxable. An exception to
this general rule applies in the case of a distribution which constitutes a
"disproportionate distribution" with respect to any class or classes of stock of
the corporation. A distribution of stock rights constitutes a "disproportionate
distribution" if it is a part of a distribution or a series of distributions
(including deemed distributions) that has the effect of (1) the receipt of
property (including cash) by some stockholders and (2) an increase in the
proportionate interests of other stockholders in the assets or earnings and
profits of the distributing corporation.
The distribution of the Rights to all stockholders except VEBA Corporation
should not constitute a "disproportionate distribution" taxable as a dividend
since (1) the private placement to
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VEBA Corporation was made with the expectation of promptly thereafter making the
distribution of Rights to the remaining stockholders, which may be exercised on
the same economic terms as the private placement, (2) there is a single class of
stock outstanding, and (3) there has not been nor is there expected to be any
property distributions to any stockholder in connection with the distribution of
Rights.
We intend to treat the distribution of Rights as a nontaxable distribution.
If the Internal Revenue Service were to take a contrary position with respect to
this matter, by deeming the distribution of Rights to constitute a taxable
distribution, a person receiving a Right would recognize a dividend, taxable as
ordinary income, in an amount equal to the fair market value of the Right
received, but only to the extent of the current and accumulated earnings and
profits of the Company. To the extent the deemed distribution exceeds the
current and accumulated earnings and profits of the Company, such excess would
be treated first as a nontaxable recovery of adjusted tax basis in the MEMC
common stock with respect to which the Right was distributed and then as gain
from the sale or exchange of the MEMC common stock. A person's tax basis in a
Right received in a taxable distribution would equal the fair market value of
the Right as of the date of distribution of the Right. A person's holding period
in the Rights would begin on the day following the date of distribution of the
Rights.
Except as provided above, the following discussion assumes that the
distribution of the Rights will be treated as a nontaxable distribution.
BASIS AND HOLDING PERIOD OF THE RIGHTS
Generally, if you hold MEMC common stock on the Record Date, your basis in
the Rights received by you will be zero. If, however, either
(1) the fair market value of the Rights on the date we issue the
Rights is 15% or more of the fair market value (on that same date) of MEMC
common stock (which could occur if unanticipated market demand for Rights
develops); or
(2) you properly elect under Section 307 of the Code in your federal
income tax return to allocate part of the basis of your MEMC common stock
to the Rights;
then your basis in your shares of MEMC common stock will be allocated between
the MEMC common stock and the Rights in proportion to the fair market values of
each on the date we issue the Rights.
The holding period of your Rights will include your holding period (as of
the date of issuance) for the MEMC common stock with respect to which we
distributed the Rights to you.
If you purchase Rights, your basis in the Rights will be equal to your
purchase price for the Rights. Your holding period for those Rights will begin
on the date following the date you purchase the Rights.
TRANSFER OF THE RIGHTS
If you sell or exchange your Rights, you generally will recognize gain or
loss equal to the difference between the amount you realized and your basis, if
any, in the Rights. Such gain or loss generally will be capital gain or loss so
long as you held the rights as a capital asset at the time of the sale or
exchange. Gain or loss from an asset held for more than one year will generally
be taxable as long term capital gain or loss. If you recognize any such long
term capital gain, the Internal Revenue Service will generally tax such gain at
a maximum rate of 20%.
EXPIRATION OF THE RIGHTS
If your basis in your Rights is zero, and you allow your Rights to expire
unexercised, you will not recognize any gain or loss.
If you have a basis in your Rights and you allow your Rights to expire
unexercised, you will recognize a loss equal to the basis of those Rights. Any
loss you recognize on the expiration of your Rights will be a capital loss if
the MEMC common stock obtainable by you after the exercise of the Rights would
be a capital asset.
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF ACQUIRED SHARES
You will not recognize any gain or loss upon the exercise of your Rights.
Your basis in each share of MEMC common stock you acquire through exercise of
your Rights will equal the sum
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of the Subscription Price you paid to exercise your Rights and your basis, if
any, in the Rights. Your holding period for the MEMC common stock you acquire
through exercise of your Rights will begin on the date you exercise your Rights.
SALE OR EXCHANGE OF COMMON STOCK
If you sell or exchange shares of MEMC common stock, you will generally
recognize gain or loss on the transaction. The gain or loss you recognize is
equal to the difference between the amount you realize on the transaction and
your basis in your shares you sold. Such gain or loss generally will be capital
gain or loss so long as you held the shares as a capital asset at the time of
the sale or exchange. Gain or loss from an asset held for more than one year
will generally be taxable as long term capital gain or loss. If you recognize
any such long term capital gain, the Internal Revenue Service will generally tax
such gain at a maximum rate of 20%.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the backup withholding rules of the Code, you may be subject to 31%
backup withholding with respect to payments made pursuant to the Rights
Offering. You will not be subject to backup withholding if you:
- Are a corporation or fall within certain other exempt categories and,
when required, demonstrate that fact; or
- Provide a correct taxpayer identification number and certify under
penalties of perjury that your taxpayer identification number is correct
and that you are not subject to backup withholding because you
previously failed to report all dividends and interest income.
Any amount withheld under these rules will be credited against your federal
income tax liability. We may require you to establish your exemption from backup
withholding or make other arrangements with respect to the payment of backup
withholding.
THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS REGARDING THE CONSEQUENCES OF THE RIGHTS OFFERING TO YOUR
PARTICULAR TAX SITUATION, INCLUDING STATE AND LOCAL INCOME AND OTHER TAX LAWS.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary of the capital stock of the Company and
highlights some of the provisions of our Certificate of Incorporation and
By-Laws. We have also summarized a provision of the General Corporation Law of
Delaware (the "DGCL"). Since the terms of our Certificate of Incorporation and
By-laws, and the DGCL may differ from the general information we are providing,
you should only rely on the actual provisions of the Certificate of
Incorporation, the By-Laws or the DGCL. If you would like to read the
Certificate of Incorporation or By-Laws, they are on file with the Securities
and Exchange Commission.
GENERAL
Our authorized capital stock consists of 200,000,000 shares of common
stock, par value $.01 per share, and 50,000,000 shares of preferred stock, par
value $.01 per share.
COMMON STOCK
As a holder of MEMC common stock, you are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders. You
are entitled to receive dividends declared by our Board of Directors. The right
of our Board of Directors to declare dividends, however, is subject to the
rights of any holders of our preferred stock and the availability of sufficient
funds to pay the dividends. See "Dividend Policy" on page 27. If we liquidate
the Company, you will be entitled to share ratably with the other stockholders
in the distribution of all assets that the Company has left after we pay all of
our liabilities, and all of our obligations to the holders of preferred stock.
You have no preemptive rights to subscribe for additional shares of the Company
and no right to convert your MEMC common stock into any other securities. In
addition, you do not have the benefit of a sinking fund for your shares of MEMC
common stock. Your MEMC common stock is not redeemable by us.
PREFERRED STOCK
Your rights as a holder of MEMC common stock may be affected by any
preferred stock that we may issue. As of the date of this prospectus, we have
not issued any preferred stock and we do not have any plans to issue any
preferred stock in the future. However, our Board of Directors is authorized to
issue up to 50,000,000 shares of preferred stock. The issuance of preferred
stock could adversely affect your voting power as a holder of MEMC common stock
and could have the effect of delaying, deferring or impeding a change in control
of the Company.
If we authorize the issuance of preferred stock, our Board of Directors has
the authority to determine whether any or all shares of authorized preferred
stock should be issued as a class without series or in one or more series and to
fix the rights, preferences, privileges and restrictions of the preferred stock.
The rights and restrictions on the preferred stock may include dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series.
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS THAT MAY HAVE
ANTI-TAKEOVER EFFECTS
Certain provisions of the Certificate of Incorporation and By-Laws of the
Company may have an anti-takeover effect. These provisions may delay, defer or
make more difficult a takeover attempt of the Company that you may consider not
to be in your best interest. However, because VEBA Corporation can currently
(and after the Rights Offering will continue to be able to) elect all members of
our Board of Directors and control the outcome of most matters submitted to a
vote of stockholders, such provisions currently have limited significance to
you. See "Risk Factors -- Control of the Company; Potential Conflicts of
Interest" on page 15.
Board of Directors
The Certificate of Incorporation provides the following concerning our
Board of Directors:
- The Board of Directors is divided into three classes; each class
contains a relatively equal number of members;
- Members of the Board of Directors serve in staggered three-year terms,
so approximately one-third of the members are elected annually;
- The number of members on the Board of Directors is between five and
fifteen;
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- Directors may be removed with or without cause; and
- Vacancies on the Board of Directors may be filled by a majority of the
remaining members of the Board of Directors, unless any director
determines that the stockholders should fill the vacancy.
Stockholder Consents and Special Meetings
The Certificate of Incorporation provides that you and the other
stockholders may take action only by unanimous written consent if the action is
not taken at a meeting of stockholders. Our By-Laws provide that special
meetings of stockholders may be called only upon the request of the holders of a
majority of the outstanding MEMC common stock, by the Chairman of the Board or
by a majority of the Board of Directors.
Stockholder Proposals or Nominations
To bring a stockholder proposal you must follow the procedures set forth in
our By-Laws and to nominate a candidate to our Board of Directors, you must
follow the procedures set forth in our Certificate of Incorporation. The advance
notice procedures bringing either (1) a stockholder proposal at an annual
meeting or (2) a stockholder nomination for a candidate for the Board of
Directors at an annual meeting or special meeting called for the purpose of
electing directors, are summarized as follows:
- Your proposal must be received by our Secretary not less than 60 days
and not more than 90 days before the anniversary date of the previous
annual meeting of stockholders, or
- If the meeting is not held within 30 days of the anniversary date of the
previous annual meeting or if the meeting is a special meeting called
for the purpose of electing directors, then your proposal or nomination
must be received by the Secretary within 10 days after the notice of the
meeting is mailed to stockholders.
You must include the following information in your notice of a stockholder
proposal:
- A brief reasoned description of the business to be brought at the
meeting;
- Your name and record address;
- The class and number of shares of capital stock you own either of record
or beneficially;
- A description of any agreements you may have with other persons in
connection with the proposal; and
- A representation that you will appear in person or by proxy at the
meeting.
Your notice of a nomination of a candidate to our Board of Directors must
include the following:
- The name, age, business address and residence of the nominee;
- The principal occupation of the nominee;
- The class and number of shares of our capital stock the nominee owns;
- Your name and record address;
- The class and number of shares of capital stock you own;
- A description of any agreements you may have with the nominee;
- A representation that you will appear in person or by proxy at the
meeting; and
- Other information regarding the nominee and yourself as required by the
Securities Exchange Act of 1934, as amended.
Limitation of Liability of Directors
The Certificate of Incorporation limits the Directors' liability to
stockholders and the Company. Specifically, a director is not liable to the
Company or you, as one of its stockholders, for monetary damages for breach of
fiduciary duty as a director, except for liability for a director's
- Breach of his or her duty of loyalty to the Company or its stockholders;
- Acts or omissions that are either not in good faith or which involve his
or her intentional misconduct or a knowing violation of law;
- Unlawful dividend payments or stock redemptions or repurchases pursuant
to Section 174 of the DGCL; and
- Participation in a transaction from which he or she received an improper
personal benefit.
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The effect of these provisions on you is to eliminate your rights and the
rights of the Company (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from grossly negligent
behavior), except in the situations described above. These provisions, however,
will not limit the liability of directors to you under federal securities laws.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Because the Company is a Delaware corporation, Delaware law may have an
effect on your rights as a stockholder. In particular, Section 203 of the DGCL
prohibits certain transactions between a Delaware corporation and an "interested
stockholder." An interested stockholder is defined as a person who, together
with any affiliates or associates of such person, beneficially owns, directly or
indirectly, 15% or more of the outstanding voting shares of a Delaware
corporation. This provision prohibits certain business combinations between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder becomes an interested stockholder. The term
"business combination" is broadly defined to include mergers, consolidations,
sales or other dispositions of assets having a total value in excess of 10% of
the consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation.
This prohibition is effective unless:
- The business combination is approved by the corporation's board of
directors prior to the time the interested stockholder becomes an
interested stockholder;
- The interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in which
it becomes an interested stockholder; or
- The business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
In general, the prohibitions do not apply to business combinations with
persons who became interested stockholders prior to the corporation becoming
subject to Section 203, which generally takes place when a corporation's voting
stock becomes publicly traded or is held of record by more that 2,000
stockholders. VEBA Corporation is not subject to the restrictions on "business
combinations" under Section 203. Moreover, for purposes of Section 203, our
Board of Directors has approved of the transfer of shares of MEMC common stock
by VEBA Corporation to VEBA AG or one of its specified subsidiaries. Because of
this approval, we may engage in the future in any "business combination" with
either of these parties as well as VEBA Corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for MEMC common stock and the Rights is
Harris Trust & Savings Bank, 111 West Monroe, P.O. Box 755, Chicago, Illinois
60690.
PLAN OF DISTRIBUTION
We are making this Rights Offering directly to you, the holders of MEMC
common stock. We have retained NationsBanc Montgomery Securities LLC and J.P.
Morgan Securities Inc. to act as the Dealer Managers in connection with the
Rights Offering. The Dealer Managers will assist us in marketing the Rights
Offering. The Dealer Managers are not obligated to purchase any of the shares
offered in the Rights Offering.
We will pay the Dealer Managers a fee of $ . We have agreed to pay
NationsBanc Montgomery Securities LLC $500,000 in connection with certain
additional advisory services it is performing. In addition, we will reimburse an
estimated $ of the Dealer Managers' expenses incurred in connection
with the Rights Offering.
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The total compensation MEMC will pay to the Dealer Managers, including
reimbursement of estimated expenses, is as follows:
<TABLE>
<S> <C>
NationsBanc Montgomery Securities
LLC............................... $
J.P. Morgan Securities Inc.......... $
-------
$
=======
</TABLE>
We will pay the Information Agent a fee of $ and the Subscription
Agent a fee of $ .
We estimate that our total expenses in connection with the Rights Offering,
including fees to the Dealer Managers, the Information Agent and the
Subscription Agent, will be $ .
We have agreed to indemnify the Dealer Managers for certain liabilities,
including civil liabilities under the Securities Act of 1933. We have also
agreed to contribute to payments that the Dealer Managers may need to make
arising out of such liabilities.
Other than the Dealer Managers, we have not employed any brokers, dealers
or underwriters in connection with the solicitation of exercise of Rights.
Except as described in this section, we are not paying any other commissions,
fees or discounts in connection with the Rights Offering. Some of our employees
may solicit responses from you as a holder of Rights, but we will not pay our
employees any commissions or compensation for such services other than their
normal employment compensation.
Until the distribution of the MEMC common stock in the Rights Offering is
completed, the rules of the Securities and Exchange Commission may limit the
ability of the Dealer Managers to bid for and purchase MEMC common stock. As an
exception to these rules, the Dealer Managers are permitted to engage in certain
transactions that stabilize the price of the MEMC common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the MEMC common stock. In general, purchases of a
security for the purpose of stabilization could cause the price of the security
to be higher than it might be in the absence of such purchases. Neither we nor
either of the Dealer Managers makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the MEMC common stock. In addition, neither we nor either
of the Dealer Managers makes any representation that the Dealer Managers will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
The Dealer Managers are also acting as our financial advisors in connection
with the Rights Offering. In their capacity as financial advisors, they have
advised us regarding the size, pricing and structure of the private placement to
VEBA Corporation and the Rights Offering. Their advice has included assistance
in determining the purchase price for the private placement, the Subscription
Price, and the impact of the private placement and the Rights Offering on us and
our stockholders from a financial point of view. They have also discussed with
management and the special committee of the Board of Directors the possible
effects of the private placement and the Rights Offering. The Dealer Managers
have also performed analyses to assist us in determining the appropriate and
desirable pricing terms for the private placement and the Rights Offering. The
Dealer Managers are not making a recommendation as to whether or not you should
exercise your Rights. You should make your decision based on your own assessment
as to whether to exercise your Rights.
The Dealer Managers or some of their affiliates have performed in the past
and may perform in the future other financial advisory and investment banking
services for us. We have paid, and may in the future pay, such parties
compensation for their services. In addition, affiliates of J.P. Morgan
Securities Inc. have performed financial advisory and investment banking
services for VEBA AG and its affiliates, and a retired vice chairman and
director of an affiliate of J.P. Morgan Securities Inc. is a member of the
supervisory board of VEBA AG.
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LAWYERS
Bryan Cave LLP, St. Louis, Missouri, represented the Company in connection
with the Rights Offering. Cooley Godward LLP, Palo Alto, California, represented
the Dealer Managers in connection with the Rights Offering.
EXPERTS
KPMG Peat Marwick LLP, independent auditors, audited our consolidated
financial statements and schedule as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997. We incorporate by
reference those financial statements in this prospectus with the permission of
KPMG and rely on KPMG's reports given upon their authority as experts in
accounting and auditing.
KPMG San Tong Corp., independent auditors, audited PHC's financial
statements as of December 31, 1996 and 1997 and for the years then ended. We
incorporate by reference those financial statements in this prospectus with the
permission of KPMG San Tong Corp. and rely on their report given upon their
authority as experts in accounting and auditing.
KPMG Peat Marwick, independent auditors, audited Taisil Electronic
Materials Corporation's financial statements as of and for the year ended
December 31, 1997. We incorporate by reference those financial statements in
this prospectus with the permission of KPMG Peat Marwick and rely on their
report given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-3 under the
Securities Act of 1933 covering the shares of MEMC common stock to be issued in
the Rights Offering. As allowed by SEC rules, this prospectus does not contain
all of the information set forth in the Registration Statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
documents are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to the Registration Statement, you should
read the exhibit for a more complete understanding of the document or subject
matter involved.
Because we are subject to the informational requirements of the Securities
Exchange Act of 1934, we file reports, proxy statements and other information
with the SEC. You may read and copy the Registration Statement, including the
attached exhibits and schedules, and any reports, proxy statements or other
information that we file at the SEC's public reference room in Washington, D.C.
at 450 Fifth Street, N.W., 20549. You can request copies of these documents by
writing to the SEC and paying a duplicating charge. Please call the SEC at
1-800-SEC-0330 for further information on the operation of its public reference
rooms in other cities. The SEC makes our filings available to the public on its
Internet site (http://www.sec.gov). In addition, you may inspect such reports
and other information at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to other documents that we filed separately with the SEC. You
should consider the incorporated information as if we reproduced it in this
prospectus, except for any information directly superseded by information
contained in this prospectus.
We incorporate by reference into this prospectus the following documents
(SEC File No. 1-13828), which contain important information about us and our
business and financial results:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as amended on Form 10-K/A filed on October 22, 1998;
57
<PAGE> 59
- our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998
and June 30, 1998;
- our Current Reports on Form 8-K dated April 14, 1998 (filed April 14,
1998) and October 22, 1998 (filed October 22, 1998); and
- the description of the MEMC common stock contained in our Registration
Statement on Form 8-A filed with the SEC on June 21, 1995.
We may file additional documents with the SEC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or after the date
of this prospectus and before the expiration of the Rights Offering. The SEC
allows us to incorporate by reference into this prospectus such documents. You
should consider any statement contained in this prospectus (or in a document
incorporated into this prospectus) to be modified or superseded to the extent
that a statement in a subsequently filed document modifies or supersedes such
statement.
YOU MAY GET COPIES OF ANY OF THE INCORPORATED DOCUMENTS (EXCLUDING
EXHIBITS, UNLESS THE EXHIBITS ARE SPECIFICALLY INCORPORATED) AT NO CHARGE TO YOU
BY WRITING OR CALLING SAMUEL W. DUGGAN, DIRECTOR, INVESTOR RELATIONS, MEMC
ELECTRONIC MATERIALS, INC., 501 PEARL DRIVE (CITY OF O'FALLON), ST. PETERS,
MISSOURI 63376 (TELEPHONE: (314) 279-5500).
58
<PAGE> 60
- ------------------------------------------------------
- ------------------------------------------------------
MEMC Electronic Materials, Inc. has not authorized any person to give you
information that differs from the information in this prospectus. You should
rely solely on the information contained in this prospectus. This prospectus is
not an offer to sell these securities, and we are not soliciting offers to buy
these securities in any state where the offer or sale of these securities is not
permitted. The information in this prospectus is accurate only as of the date of
this prospectus, even if the prospectus is delivered to you after the prospectus
date, or you buy MEMC common stock after the prospectus date.
------------------------------------
TABLE OF CONTENTS
------------------------------------
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Questions & Answers About the Rights
Offering............................. 2
Prospectus Summary..................... 5
Risk Factors........................... 12
Cautionary Statement Regarding Forward-
Looking Statements................... 24
Recent Developments.................... 25
Use of Proceeds........................ 27
Dividend Policy........................ 27
Price Range of Common Stock............ 28
Capitalization......................... 29
The Rights Offering.................... 30
Business............................... 39
Certain Relationships and Related Party
Transactions......................... 48
Certain Federal Income Tax
Considerations....................... 50
Description of Capital Stock........... 53
Plan of Distribution................... 55
Lawyers................................ 57
Experts................................ 57
Where You Can Find More Information.... 57
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
MEMC ELECTRONIC MATERIALS, INC. LOGO
MEMC Electronic
Materials, Inc.
Common Stock
------------------------------------
PROSPECTUS
------------------------------------
NationsBanc Montgomery
Securities LLC
J.P. Morgan & Co.
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities offered hereby.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 27,701
NASD Filing Fee............................................. 9,900
NYSE Listing Fee............................................ *
Dealer Manager Fees and Expenses............................ *
Subscription Agent Fee...................................... *
Information Agent Fee....................................... *
Printing and Engraving Expenses............................. *
Registrar and Transfer Agent Fees........................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Miscellaneous............................................... *
--------
Total..................................................... $ *
========
</TABLE>
- ---------------
* To be provided by Amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company's Restated Certificate of Incorporation contains such a
provision.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action"),
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The Company's Restated Certificate of Incorporation contains
such a provision.
ITEM 16. EXHIBITS
See Index to Exhibits.
II-1
<PAGE> 62
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 63
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in St. Louis, Missouri, on October 22, 1998
MEMC ELECTRONIC MATERIALS, INC.
By: /s/ LUDGER H. VIEFHUES
------------------------------------
Ludger H. Viefhues
Chief Executive Officer and
Director
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James M. Stolze and Helene F. Hennelly,
and any of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him or her and in his or her
name, place, and stead, in any and all capacities to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
other documents and instruments incidental thereto, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents
and/or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LUDGER H. VIEFHUES Chief Executive Officer and October 22, 1998
- --------------------------------------------- Director (Principal Executive
Ludger H. Viefhues Officer)
/s/ KLAUS R. VON HORDE President, Chief Operating Officer October 22, 1998
- --------------------------------------------- and Director
Klaus R. von Horde
/s/ JAMES M. STOLZE Executive Vice President and Chief October 22, 1998
- --------------------------------------------- Financial Officer (Principal
James M. Stolze Financial and Accounting Officer)
/s/ DR. HANS MICHAEL GAUL Director October 22, 1998
- ---------------------------------------------
Dr. Hans Michael Gaul
/s/ HELMUT MAMSCH Director October 22, 1998
- ---------------------------------------------
Helmut Mamsch
/s/ WILLEM D. MARIS Director October 22, 1998
- ---------------------------------------------
Willem D. Maris
</TABLE>
II-4
<PAGE> 65
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DR. ERHARD MEYER-GALOW Director October 22, 1998
- ---------------------------------------------
Dr. Erhard Meyer-Galow
/s/ PAUL T. O'BRIEN Director October 22, 1998
- ---------------------------------------------
Paul T. O'Brien
/s/ DR. ALFRED OBERHOLZ Director October 22, 1998
- ---------------------------------------------
Dr. Alfred Oberholz
/s/ MICHAEL B. SMITH Director October 22, 1998
- ---------------------------------------------
Michael B. Smith
</TABLE>
II-5
<PAGE> 66
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Dealer Manager Agreement between the Company and
NationsBanc Montgomery Securities LLC and J.P. Morgan
Securities Inc.
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3-a of the Company's
Form 10-Q for the quarter ended June 30, 1995 (File No.
1-13828))
3.2 Restated By-laws of the Company (incorporated by reference
to Exhibit 3-b of the Company's Form 10-Q for the quarter
ended September 30, 1995 (File No. 1-13828))
*4.1 Form of Specimen Certificate for Rights of the Company
*5.1 Opinion of Bryan Cave LLP
*10.1 Stock Purchase Agreement dated October 22, 1998 between the
Company and VEBA Corporation
*10.2 Standby Agreement dated October 22, 1998 between the Company
and VEBA Corporation
23.1 Consent of Bryan Cave LLP (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG San Tong Corp.
23.4 Consent of KPMG Peat Marwick
24.1 Power of Attorney (included on signature page)
*99.1 Form of Instructions to Stockholders as to use of
Subscription Rights
*99.2 Form of Notice of Guaranteed Delivery for Subscription
Rights and Important Tax Information
*99.3 Form of Letter to Stockholders who are record holders
*99.4 Form of Letter to Stockholders who are beneficial holders
</TABLE>
- ---------------
* To be filed by Amendment.
II-6
<PAGE> 1
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
MEMC Electronic Materials, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-3 of MEMC Electronic Materials, Inc. of our reports dated January 26, 1998,
relating to the consolidated balance sheets of MEMC Electronic Materials, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, and the related
schedule, which reports appear in or are incorporated by reference therein in
the December 31, 1997 annual report on Form 10-K of MEMC Electronic Materials,
Inc. and to the reference to our firm under the heading "Experts" in the
registration statement.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
October 21, 1998
<PAGE> 1
Exhibit 23.3
Independent Auditors' Consent
The Stockholders and Board of Directors
POSCO HULS Co., Ltd.:
We consent to incorporation by reference in the registration statement on Form
S-3 of MEMC Electronic Materials, Inc. of our report dated January 10, 1998,
relating to the balance sheets of POSCO HULS Co., Ltd. as of December 31, 1997
and 1996, and the related statements of earnings, appropriation (disposition)
of retained earnings (deficit), and cash flows for the years ended December 31,
1997 and 1996, which report appears in the December 31, 1997 annual report on
Form 10-K of MEMC Electronic Materials, Inc. and to the reference to our firm
under the heading "Experts" in the registration statement.
/s/KPMG San Tong Corp.
Seoul, Korea
October 21, 1998
<PAGE> 1
Exhibit 23.4
Independent Auditors' Consent
The Board of Directors
Taisil Electronic Materials Corporation:
We consent to incorporation by reference in the registration statement on Form
S-3 of MEMC Electronic Materials, Inc. of our report dated January 14, 1998,
relating to the balance sheet of Taisil Electronic Materials Corporation as of
December 31, 1997, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year ended December 31, 1997, which
report appears in the December 31, 1997 annual report on Form 10-K of MEMC
Electronic Materials, Inc. and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG Peat Marwick
Taipei, Taiwan
October 21, 1998
