<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1999
REGISTRATION STATEMENT NO. 333-65973
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 3
TO
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, Esq. Brett D. White, Esq.
Bryan Cave LLP Cooley Godward LLP
One Metropolitan Square Five Palo Alto Square
211 N. Broadway, Suite 3600 3000 El Camino Real
St. Louis, Missouri 63102-2750 Palo Alto, CA 94306
(314) 259-2000 (650) 843-5000
</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. [ ]
------------------------------------
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 March 2, 1999
[12,520,000] SHARES
MEMC ELECTRONIC MATERIALS, INC. LOGO
MEMC ELECTRONIC MATERIALS, INC.
COMMON STOCK
------------------------
MEMC is distributing to each of its stockholders, other than members of its
majority stockholder group, rights to purchase MEMC common stock. Each right
entitles the holder to purchase one share of MEMC common stock, plus a portion
of any shares remaining if not all of the rights are exercised. [We currently
estimate that the subscription price will be between $7.00 and $8.00 per share.
For purposes of this preliminary prospectus, we have assumed the subscription
price and the number of shares offered.]
------------------------
MEMC common stock trades on the New York Stock Exchange under the symbol
"WFR." We have applied to list the rights on the NYSE under the symbol "WFRRT."
We cannot assure you that an active trading market will develop or be maintained
for the rights.
------------------------
INVESTING IN MEMC COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
------------------------
SUBSCRIPTION PRICE $[7.50] PER SHARE
------------------------
<TABLE>
<CAPTION>
DEALER MANAGER OFFERING
PUBLIC OFFERING FEES AND ESTIMATED PROCEEDS TO
PRICE REIMBURSED EXPENSES MEMC
--------------- ------------------- -----------
<S> <C> <C> <C>
Per Share.................. $[7.50] $[.16] $[7.34]
Total...................... $93,900,000 $1,970,000 $91,930,000
</TABLE>
See "Plan of Distribution" beginning on page 54 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.
, 1999
<PAGE> 3
QUESTIONS & ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS THE RIGHTS OFFERING?
The rights offering is a distribution of rights on a pro rata basis to all
of our stockholders other than VEBA Corporation and its affiliates. We are
distributing [.66] rights for every share of MEMC common stock held on ,
1999.
WHAT IS A RIGHT?
Each right entitles stockholders to purchase one share of MEMC common stock
at a subscription price of $[7.50] per share. Each right carries with it a basic
subscription privilege and an over-subscription privilege.
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
The basic subscription privilege of each right entitles you to purchase one
share of MEMC common stock for $[7.50], the subscription price.
WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?
The over-subscription privilege of each right entitles you, if you fully
exercise your basic subscription privilege, to subscribe for additional shares
of MEMC common stock at the same subscription price of $[7.50] per share.
WHAT ARE THE LIMITATIONS ON THE OVER-SUBSCRIPTION PRIVILEGE?
We will be able to satisfy your exercise of the over-subscription privilege
only if rights holders subscribe for less than a total of [12,520,000] shares.
If sufficient shares are available, we will honor the 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.
WHAT SHOULD I DO IF I WANT TO PARTICIPATE IN THE RIGHTS OFFERING BUT MY SHARES
ARE HELD IN THE NAME OF MY BROKER OR A CUSTODIAN BANK?
If you hold shares of MEMC common stock through a broker, dealer or other
nominee, we will ask your broker, dealer or nominee to 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. To indicate your decision with
respect to your rights, you should complete and return to your broker, custodian
bank or other nominee the form entitled "Beneficial Owner Election Form." You
should receive this form from your broker or custodian bank with the other
rights offering materials.
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 Harris Trust and Savings Bank as
described beginning on page 30, it 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 TRANSFER 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.
HOW MAY I SELL MY RIGHTS?
You may contact Harris Trust and Savings Bank if you would like it to sell
your rights for you, as described beginning on page 30. Otherwise, you may try
to sell your rights through normal investment channels. We cannot assure you
that Harris Trust and Savings Bank or others will be able to sell any of your
rights.
AM I REQUIRED TO SUBSCRIBE IN THE RIGHTS OFFERING?
No.
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 affiliate's obligation to purchase shares after 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.
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<PAGE> 4
IF THE RIGHTS OFFERING IS NOT COMPLETED, WILL MY SUBSCRIPTION PAYMENT BE
REFUNDED TO ME?
Yes. Harris Trust and Savings Bank will hold all funds it receives in
escrow until completion of the rights offering. If the rights offering is not
completed, Harris Trust and Savings Bank will return promptly, without interest,
all subscription payments.
WHAT SHOULD I DO IF I HAVE OTHER QUESTIONS?
If you have questions or need assistance, please contact Morrow & Co.,
Inc., the information agent for the rights offering, 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
Harris Trust and Savings Bank, the subscription agent for the rights offering,
by mail or telephone at:
Harris Trust and 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
FOR A MORE COMPLETE DESCRIPTION OF THE RIGHTS OFFERING, SEE "THE RIGHTS
OFFERING" BEGINNING ON PAGE 25.
3
<PAGE> 5
PROSPECTUS SUMMARY
SUMMARY This summary highlights information contained
elsewhere in this prospectus. This summary 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.
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 8 and the information
contained elsewhere in this prospectus.
NO RECOMMENDATIONS TO
RIGHTS
HOLDERS Neither we nor the dealer managers are making any
recommendations as to whether or not you should
subscribe for MEMC common stock. You should decide
whether to subscribe for MEMC common stock based
upon your own assessment of your best interests.
THE RIGHTS OFFERING
RIGHTS We will distribute to each stockholder of record
(other than VEBA Corporation and its affiliates)
on , 1999, at no charge, [.66]
transferable subscription rights for every share
of MEMC common stock then owned. Because we will
not issue fractional rights, we will round up to
the nearest whole number the number of rights we
distribute to each stockholder. For example, if
you own 140 shares of MEMC common stock, you will
receive [93] rights instead of [92.4] rights. The
rights will be evidenced by a transferable rights
certificate and will entitle the holder to
subscribe for shares of MEMC common stock at
[$7.50] per share pursuant to the basic
subscription privilege and over-subscription
privilege described on page 25.
RECORD DATE , 1999, at 5:00 p.m., New York City
time.
EXPIRATION DATE The rights will expire at 5:00 p.m., New York City
time, on , 1999. 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.
TERMINATION OF THE RIGHTS
OFFERING We may terminate the rights offering prior to the
time the rights expire. If we terminate the rights
offering, we will promptly return all
4
<PAGE> 6
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.
PROCEDURE FOR EXERCISING
RIGHTS You may exercise rights by properly completing and
signing your rights certificate. You must deliver
to Harris Trust and Savings Bank your rights
certificate with payment of the subscription price
for each share of MEMC 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 Harris Trust and
Savings Bank on time, you may use the procedures
for guaranteed delivery described under "The
Rights Offering -- Guaranteed Delivery Procedures"
on page 29. We will not pay interest on
subscription payments. We have provided more
detailed instructions on how to exercise your
rights under "The Rights Offering" beginning with
the section "-- Exercise of Rights" on page 26 and
with the rights certificate and "Instructions for
Use of MEMC Electronic Materials, Inc. Rights
Certificates" that may accompany this prospectus.
HOW FOREIGN STOCKHOLDERS
AND
STOCKHOLDERS WITH APO OR
FPO
ADDRESSES 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, Harris Trust and Savings Bank
will hold rights certificates for your account. To
exercise such rights, you must notify Harris Trust
and Savings Bank on or prior to 11:00 a.m., New
York City time, on , 1999, and establish
to the satisfaction of Harris Trust and Savings
Bank that your exercise is permitted under
applicable law. If you do not notify Harris Trust
and Savings Bank and provide acceptable
instructions to Harris Trust and Savings Bank by
such time (if no contrary instructions are
received), Harris Trust and Savings Bank will try
to sell your rights, if feasible, and will pay the
estimated 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.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES Holders of MEMC common stock who receive rights,
more likely than not, will not recognize taxable
income in connection with the distribution or
exercise of rights. You may recognize a gain or
loss upon the sale of rights or shares of MEMC
common stock acquired through exercise of the
rights.
VEBA GROUP VEBA Corporation, a corporation owned by VEBA AG
and its subsidiaries, and VEBA Zweite
Verwaltungsgesellschaft mbH ("VEBA Zweite"),
another subsidiary of VEBA AG, own [35,637,609]
shares of MEMC common stock ([65.2%] of
outstanding shares). VEBA Corporation and VEBA
Zweite are referred to in this prospectus as the
VEBA group.
PRIVATE PLACEMENT TO VEBA
ZWEITE On , 1999, we sold [14,146,667]
shares of MEMC common stock to VEBA Zweite, at
$[7.50] per share, for aggregate net proceeds of
approximately $105.9 million. The sale increased
the
5
<PAGE> 7
VEBA group's percentage ownership from
approximately 53.1% to [65.2]% of the outstanding
shares.
REASONS FOR THE RIGHTS
OFFERING We are proceeding with the rights offering to
raise capital and to allow our stockholders (other
than the VEBA group) an opportunity to restore
their proportionate interest in MEMC at the same
price per share of common stock as was paid by
VEBA Zweite. If rights holders (other than the
VEBA group) purchase all shares of MEMC common
stock offered in the rights offering, the VEBA
group will again own approximately 53.1% of the
outstanding shares.
STANDBY AGREEMENT WITH VEBA
ZWEITE
Although we are not distributing any rights to the
VEBA group, VEBA Zweite 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 rights
holders exercise their rights, VEBA Zweite will
purchase all of the shares of MEMC common stock
offered in this rights offering, and the VEBA
group will own approximately [71.7]% of the shares
of outstanding MEMC common stock following this
rights offering.
USE OF PROCEEDS We will receive approximately $91.1 million from
the rights offering, after paying estimated
expenses, including the fees to the dealer
managers. We have received approximately $105.9
million from the private placement to VEBA Zweite,
after paying estimated expenses. We will use the
proceeds of the private placement to VEBA Zweite
to repay debt from VEBA AG and its affiliates
under revolving credit agreements, to make a
capital contribution to Taisil Electronic
Materials Corporation, our Taiwanese joint
venture, of approximately $12.3 million and for
general corporate purposes. We will use the
proceeds from the rights offering to repay
remaining debt from VEBA AG and its affiliates
under revolving credit agreements and for general
corporate purposes.
COMMON STOCK OUTSTANDING As of January 31, 1999, 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 Zweite, we had
outstanding [54,653,883] shares of MEMC common
stock. After the private placement, the rights
offering and completion of the transactions
contemplated by the standby agreement, we will
have outstanding approximately [67,173,883] shares
of MEMC common stock. These numbers do not include
2,418,999 shares issuable upon exercise of
employee stock options (as of January 31, 1999)
and 730,859 shares available for future grant
under our Equity Incentive Plan.
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 8 and "Cautionary Statement Regarding
Forward-Looking Statements" beginning on page 17.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except share data)
In the table below, we provide you with selected historical consolidated
financial data of MEMC. We prepared this information using the consolidated
financial statements of MEMC as of the dates indicated and for each of the
fiscal years in the five-year period ended December 31, 1998. We adjusted the
December 31, 1998 balance sheet data in two respects. The second column reflects
the estimated net proceeds of $105.9 million from the private placement to VEBA
Zweite after deducting estimated expenses attributed to the private placement
and after application of the net proceeds. The third column reflects estimated
net proceeds of $197.0 million collectively from the private placement to VEBA
Zweite, the consummation of this rights offering, and the transactions
contemplated by the standby agreement, after deducting estimated expenses and
after application of the net proceeds.
We also note the following with respect to the information provided in the
table:
- In 1998, we recorded restructuring costs totaling $146.3 million
primarily related to closing our Spartanburg, South Carolina facility,
foregoing construction of an 8-inch (200 millimeter) wafer facility in
Malaysia, withdrawing from our joint venture participation in the small
diameter wafer operation in China and implementing a voluntary separation
program.
- Our net earnings in 1994 were affected by the adoption of an accounting
standard related to postemployment benefits, SFAS No. 112. The effect of
this change was a charge of $1.3 million. Net earnings in 1993 were
affected by the adoption of accounting standards related to income taxes
and postretirement benefits other than pensions, SFAS Nos. 109 and 106.
The cumulative effect of such changes was a credit of $19.3 million,
related to income taxes, and a charge of $29.3 million, related to
postemployment benefits other than pensions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 660,807 $ 886,860 $1,119,500 $ 986,673 $ 758,916
Gross margin............................................. 143,210 223,279 250,185 124,759 (31,829)
Marketing and administration............................. 41,298 63,893 79,680 70,715 73,515
Research and development................................. 27,403 31,226 44,313 64,457 81,591
Restructuring costs...................................... -- -- -- -- 146,324
Operating profit (loss).................................. 74,509 128,160 126,192 (10,413) (333,259)
Equity in income (loss) of joint ventures................ (6,384) 13,199 26,716 5,480 (43,496)
Net earnings (loss)...................................... 34,475 86,564 103,388 (4,513) (316,332)
Earnings (loss) per share:
Basic.................................................. $ 1.60 $ 2.77 $ 2.50 $ (0.11) $ (7.80)
Diluted................................................ 1.60 2.75 2.49 (0.11) (7.80)
Shares used in earnings (loss) per share computation:
Basic.................................................. 21,490,942 30,612,636 41,308,806 41,345,193 40,580,869
Diluted................................................ 21,490,942 30,838,704 41,534,412 41,345,193 40,580,869
OTHER DATA:
Capital expenditures..................................... $ 78,676 $ 215,359 $ 590,049 $ 372,416 $ 194,610
Equity infusions in joint ventures....................... 20,922 29,904 14,698 10,638 25,533
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------------------------------
AS ADJUSTED FOR
PRIVATE PLACEMENT,
AS ADJUSTED RIGHTS OFFERING
FOR PRIVATE AND STANDBY
ACTUAL PLACEMENT AGREEMENT
---------- ----------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 40,494 $ 40,494 $ 93,757
Total assets................................................ 1,773,714 1,786,014 1,839,277
Long-term debt (including current portion).................. 873,680 780,130 742,280
Stockholders' equity........................................ 399,040 504,890 596,003
</TABLE>
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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.
WE HAVE HAD SIGNIFICANT OPERATING AND NET LOSSES AND WE ANTICIPATE FUTURE LOSSES
We have not reported an operating profit since the second quarter of 1997.
We reported an operating loss in 1997 of $10.4 million. In 1998, we had an
operating loss of $333.3 million, which included restructuring costs of $146.3
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.
WE NEED SUBSTANTIAL CAPITAL INVESTMENTS TO FUND OUR FUTURE OPERATIONS OTHERWISE
WE MAY NOT KEEP PACE WITH OUR COMPETITORS
We will need substantial amounts of cash to continue to fund capital
expenditures, research and development, and marketing and customer service and
support to keep pace with our competitors. Our business is very capital
intensive. Our capital needs depend on numerous factors, including our
profitability and investment in research and development and capital
expenditures. We cannot assure you that, even with the proceeds from this rights
offering, the private placement to, and standby agreement with, VEBA Zweite and
cash flows from operations, if any, we will have enough capital to be able to
fund our future operations. We have incurred negative cash flows from operations
in recent periods.
WE MAY NOT BE ABLE TO OBTAIN CAPITAL FROM OTHER PARTIES IN THE FUTURE TO MEET
OUR NEEDS AND MAY BE FORCED TO REDUCE OUR INVESTMENT IN OUR BUSINESS
We cannot assure you that we will be able to obtain capital in the future
to meet our needs. If we cannot obtain 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.
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.
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.
However, under the loan agreements between us and our principal lender, VEBA AG
and its affiliates, 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.
WE HAVE RELIED ON VEBA AG AND ITS AFFILIATES FOR CAPITAL FUNDING IN THE PAST,
BUT MAY NOT BE ABLE TO RELY ON THEM FOR SUCH FUNDING IN THE FUTURE WHICH MAY
FORCE US TO REDUCE EXPENDITURES
VEBA AG and its affiliates are not obligated to provide capital to us
except in connection with the private placement and standby agreement and under
current loan agreements. We cannot assure you that
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<PAGE> 10
VEBA AG and its affiliates will provide additional capital to us in the future.
We may be forced to reduce expenditures if VEBA AG and its affiliates do not
provide us with capital in the future. In such an event, we may not be able to
fund certain capital expenditures, research and development, and marketing and
customer service and support. See "Recent Developments -- Financial
Restructuring Plan" beginning on page 20.
WE HAVE A SIGNIFICANT AMOUNT OF DEBT THAT WILL ADVERSELY AFFECT OUR ABILITY TO
OBTAIN ADDITIONAL FINANCING
We currently have a significant amount of debt that will adversely affect
our ability to obtain additional financing for working capital, capital
expenditures or other purposes. As of January 31, 1999, we owed $777.0 million
to VEBA AG and its affiliates, and $163.0 million to other lenders. Our debt
service could make us more vulnerable to industry downturns and competitive
pressures. In addition, the cash flow required to service our debt may reduce
our ability to fund internal growth and capital requirements.
IF THE SEMICONDUCTOR INDUSTRY DOWNTURN CONTINUES WE WILL FACE INTENSE PRESSURE
TO FURTHER REDUCE PRICES WHICH MAY LEAD TO FURTHER LOSSES
If the current downturn in the semiconductor industry continues, or the
industry experiences other downturns in the future, we will face pressure to
further reduce prices. However, 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 we are unable to reduce our expenses sufficiently to offset the
decline in our prices, our operating results and financial condition could be
materially adversely affected.
Our business depends in large part upon the market demand for our
customers' semiconductors and products utilizing semiconductors. The
semiconductor industry experiences:
- rapid technological change;
- product obsolescence;
- price erosion; and
- 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.
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.
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SUBSTANTIAL EXCESS CAPACITY AND DECLINING WAFER PRICES LIMIT OUR ABILITY TO
BECOME PROFITABLE
Excess capacity in the silicon wafer industry 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. 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.
OUR DEPENDENCE ON THE SEMICONDUCTOR INDUSTRY CAUSES SUBSTANTIAL FLUCTUATIONS IN
OUR OPERATING RESULTS AND AT TIMES THIS HAS ADVERSELY AFFECTED THE MARKET PRICE
OF MEMC COMMON STOCK
Our quarterly and annual operating results can fluctuate dramatically, and
this can adversely affect the market price of MEMC common stock. 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 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:
- the timing of orders from major customers;
- product mix;
- competitive pricing pressures; and
- 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.
VEBA AG'S CONTROL OF MEMC COULD PREVENT A FAVORABLE ACQUISITION OF MEMC
VEBA AG's control of MEMC could prevent or discourage any unsolicited
acquisition of MEMC and consequently could prevent an acquisition favorable to
MEMC's other stockholders. After the rights offering, VEBA AG will continue to
have sufficient voting power to control our direction and policies. 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 MEMC. Four of the eight members
of our Board of Directors are employees of VEBA AG or its affiliates, not
including MEMC.
In addition, the VEBA group has advised us that VEBA AG or one of its
affiliates may purchase rights on the New York Stock Exchange during the rights
offering. However, the VEBA group has agreed not to exercise its
over-subscription privilege with respect to any rights. The VEBA group has also
advised us that it may decide to purchase additional shares of MEMC common stock
following the rights offering.
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RESTRICTIVE COVENANTS WILL, AND HIGHER INTEREST RATES MAY, APPLY TO MEMC IF VEBA
AG OR ITS AFFILIATES CEASE TO OWN A MAJORITY OF OUR STOCK
Certain of 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 later of January 1, 2001 or the
change of control date, for an average industrial borrower at an assumed
credit rating based on the remaining term of each such loan agreement.
See "Recent Developments -- Financial Restructuring Plan -- Debt
Restructuring" beginning on page 20.
In addition, in such an event we will become subject to certain affirmative
covenants set forth in all of our loan agreements with VEBA AG and its
affiliates. 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 January 31, 1999, 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 "-- We May Have
To Make Substantial Payments In Connection With Our Taisil Joint Venture, And
This Could Divert Funds From Other Needed Areas" beginning on page 13.
WE EXPERIENCE INTENSE COMPETITION IN THE SILICON WAFER INDUSTRY AND OUR
CUSTOMERS EXPECT CONTINUING TECHNOLOGICAL INNOVATION AT A LOW COST
We face intense competition in the silicon wafer industry from established
manufacturers throughout the world. If we cannot compete effectively with other
silicon wafer manufacturers, our operating results could be materially adversely
affected. 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 1998. 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.
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.
IF WE FAIL TO MAKE SIGNIFICANT INVESTMENTS NECESSARY TO COMPLY WITH CHANGING
SEMICONDUCTOR INDUSTRY CUSTOMER SPECIFICATIONS, WE MAY LOSE CUSTOMERS
If we fail to meet future customer requirements, we could experience a
material adverse effect on our competitive position and operating results. 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
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customers on a cost-effective basis. As a result, we expect to continue to make
significant investments 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.
WE HAVE A LIMITED NUMBER OF PRINCIPAL CUSTOMERS, AND ACCORDINGLY A LOSS OF ONE
OR SEVERAL OF THOSE CUSTOMERS WOULD HURT OUR BUSINESS
Our operating results could materially suffer if we, or our joint ventures,
experience a significant reduction in, or loss of, purchases by one or more of
our top customers. Historically, we have sold a significant portion of our
products to a limited number of principal customers. In 1998, we made over one-
half of our sales to ten customers, with one customer accounting for
approximately 20% of our sales. 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.
CURRENCY EXCHANGE RATES AND INCREASED COMPETITION HAVE REDUCED WAFER PRICES AND
HAVE LED TO LOWER MARGINS AND PROFITS
Decreases in wafer prices have lowered our margins and profits. In 1998, we
had a gross margin of negative 4.2%. This negative gross margin was due in part
to the decline of the Japanese yen and the Deutsche mark relative to the U.S.
dollar over the past few years. Recently, the Japanese yen has recovered
moderately relative to the U.S. dollar. The currency declines have given, and
similar currency declines in the future may give, our Japanese and German
competitors significant cost advantages in the marketplace. These currency
pressures, together with the effects of the semiconductor industry downturn and
excess capacity in the silicon wafer industry, as described above, have
increased competition and resulted in significant decreases in wafer prices.
WE EXPECT THAT INTERNATIONAL SALES WILL CONTINUE TO REPRESENT A SIGNIFICANT
PERCENT OF OUR TOTAL SALES, AND ACCORDINGLY WE ARE SUBJECT TO PERIODIC FOREIGN
ECONOMIC DOWNTURNS AND FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE AND INTEREST
RATES
A number of factors in the past have affected adversely, and may affect
adversely in the future, our results of operations and international sales and
operations, including periodic economic downturns and fluctuations in interest
and foreign currency exchange rates.
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 euro. 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 some 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. Likewise, Taisil Electronic Materials Corporation, our
unconsolidated Taiwanese joint venture, has significant debt denominated in the
U.S.
dollar and New Taiwanese dollar. For U.S. generally accepted accounting
principles, 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
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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 both Korea and Taiwan, we may consider forward
contracts in the future.
The economic downturns in the Asia Pacific region and Japan and the
devaluation of the Japanese yen against the U.S. dollar have affected and in the
future could affect our operating results. Additionally, other factors may have
a material adverse effect on our operations in the future including:
- the imposition of governmental controls;
- export license requirements;
- restrictions on the export of technology;
- political instability;
- trade restrictions and changes in tariffs; and
- difficulties in staffing and managing international operations.
As a result, we may need to modify our current business practices.
WE MAY HAVE TO MAKE SUBSTANTIAL PAYMENTS IN CONNECTION WITH OUR TAISIL JOINT
VENTURE, AND THIS COULD DIVERT FUNDS FROM OTHER NEEDED AREAS
As of January 31, 1999, Taisil had approximately $202.9 million of debt
outstanding. We have guaranteed approximately $75 million of such debt (which
may increase to approximately $81 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 other collateral satisfactory to the banks, which may include 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:
- a material adverse change in Taisil;
- a reduction below 70% in the combined ownership of Taisil by the two
major joint venture partners (us and China Steel Corporation);
- a material adverse change in us or China Steel Corporation;
- a reduction below 50% in VEBA AG's and its affiliates' ownership of MEMC
common stock; or
- 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 occurred a material adverse change, or
they determine a material adverse change occurs in the future, in Taisil or
MEMC. If MEMC is required to make payments on any guarantees, this would divert
capital needed to fund future operations.
For more information about Taisil please see, "Recent Developments --
Taisil Electronic Materials Corporation" on page 21 and "Business -- Joint
Ventures -- Taisil Electronic Materials Corporation" on page 40.
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BECAUSE WE CANNOT EASILY TRANSFER PRODUCTION OF SPECIFIC PRODUCTS FROM ONE OF
OUR MANUFACTURING FACILITIES TO ANOTHER, MANUFACTURING DELAYS AT A SINGLE
FACILITY COULD RESULT IN A LOSS OF CUSTOMERS
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. Interruption of operations at
any of our primary manufacturing facilities could result in delays or
cancellations of shipments of silicon wafers and a loss of customers which could
materially and adversely affect our operating results. 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.
MUCH OF OUR PROPRIETARY INFORMATION IS NOT PATENTED AND MAY NOT BE PATENTABLE
Much of our proprietary information and technology relating to the wafer
manufacturing process is not patented and may not be patentable. 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, 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.
SOME OF OUR TECHNOLOGY MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD
PARTIES WHICH MAY SUBJECT US TO COSTLY PATENT LITIGATION
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 existing 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. 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.
DESPITE OUR EFFORTS WE HAVE FAILED TO RETAIN A NUMBER OF EXPERIENCED UPPER AND
MIDDLE MANAGEMENT, AND AS A RESULT WE FACE CHALLENGES IN ATTRACTING AND
RETAINING QUALIFIED PERSONNEL
The loss of key personnel or the inability to hire and retain qualified
personnel could have a material adverse effect on our operating results. We are
dependent upon a limited number of key management and technical personnel. We
compete for personnel with other companies, academic institutions, government
entities and other organizations. Our future success will depend in part upon
our ability to attract and retain highly qualified personnel. 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 MEMC.
In March 1998, we adopted a special incentive bonus program designed to
retain the services of 24 of our officers and key employees, including eleven
then executive officers. Under this program, the participants received a special
bonus. Half of this bonus was paid when the participant entered into a special
incentive bonus agreement; the other half becomes payable on June 30, 1999,
subject to continued employment. If the participant's employment is terminated
under certain circumstances, that participant
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must repay us all or a portion of the bonus the participant has already
received. Despite this program, a number of experienced members of upper and
middle management have left MEMC.
WE DEPEND ON CERTAIN SUPPLIERS AND FINDING ALTERNATIVE SOURCES OF SUPPLY COULD
AFFECT ADVERSELY OUR CUSTOMER QUALIFICATIONS AND MANUFACTURING YIELDS
We obtain substantially all our requirements for several raw materials,
equipment, parts and supplies from sole suppliers. We believe that we could find
adequate alternative sources of supply for these raw materials, equipment, parts
and supplies. However, we may be required to obtain new qualifications from our
customers in order to change or substitute suppliers. We cannot predict whether
we would be successful or how long that process would take. In addition, our
manufacturing yields could be adversely affected while we transition to a new
supplier. A decrease in our manufacturing yields could have a material adverse
effect on our operating results.
From time-to-time we have experienced limited supplies of certain raw
materials, equipment, parts and supplies, particularly polysilicon. We believe
that adequate quantities of all our key raw materials, equipment, parts and
supplies are currently available. However, because of the cyclical nature of our
industry, we may experience shortages in the future. Increases in prices
resulting from these shortages could have a material adverse effect on our
operating results.
BECAUSE THE PUBLIC IS FOCUSING MORE ATTENTION ON THE ENVIRONMENTAL IMPACT OF OUR
INDUSTRY AND OUR MANUFACTURING OPERATIONS, ENVIRONMENTAL LAWS AND REGULATIONS
MAY BECOME MORE STRINGENT IN THE FUTURE AND COULD FORCE MEMC TO EXPEND CAPITAL
TO COMPLY WITH SUCH LAWS
Because the public is focusing more attention on the environmental impact
of the semiconductor and related industries' manufacturing operations,
environmental laws and regulations related to our industry 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. 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. 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.
Also, we have been named as a defendant in two lawsuits with many other
defendants in which the plaintiffs allege damages related to environmental
problems. See "Business -- Legal Proceedings -- Texas Nuisance Actions" on page
42.
THE PUBLIC TRADING PRICE FOR MEMC COMMON STOCK MAY DECLINE BEFORE THE RIGHTS
EXPIRE
After you exercise your rights and before the expiration of the rights
offering, the public trading price of MEMC common stock may decline. 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.
YOU MAY NOT REVOKE YOUR EXERCISE OF RIGHTS, AND WE MAY TERMINATE THE RIGHTS
OFFERING
Once you exercise your rights, you may not revoke the exercise unless the
conditions to VEBA Zweite'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 Harris
Trust and Savings Bank will have any obligation with respect to the rights
except to return, without interest, any subscription payments.
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THE SUBSCRIPTION PRICE MAY NOT REFLECT THE VALUE OF MEMC
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 valuation. 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. You should not consider the subscription price as an
indication of the value of MEMC. See "The Rights Offering -- Determination of
Subscription Price" beginning on page 31.
YOUR INTEREST IN MEMC MAY BE DILUTED AS A RESULT OF THE PRIVATE PLACEMENT TO
VEBA ZWEITE
Each stockholder's ownership interest in MEMC was substantially diluted as
a result of the private placement of shares to VEBA Zweite. If you are a
stockholder and exercise your basic subscription privilege in full, you will
restore your proportionate ownership interest in MEMC to the same interest you
had prior to the private placement to VEBA Zweite. If you exercise your
over-subscription privilege and receive shares pursuant to the over-subscription
privilege, you will increase your proportionate ownership interest in MEMC. If
you do not exercise your rights, your proportionate interest in MEMC will
substantially decrease.
OUR FLUCTUATING FINANCIAL RESULTS, OUR POSITION IN THE SILICON WAFER INDUSTRY
AND OUR RELATIONSHIP WITH VEBA MAY CREATE FLUCTUATIONS IN THE 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:
- quarterly fluctuations in our financial results;
- announcements of technological innovations or new products by us or our
competitors;
- market conditions in the semiconductor industry;
- market conditions in the silicon wafer industry;
- developments in patent or other proprietary rights;
- changes in our relationships with our customers;
- any actual or perceived change in our relationship with VEBA AG and its
affiliates; and
- 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 the VEBA group 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.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements:
- statements set forth in this prospectus or statements incorporated by
reference from documents we have filed with the SEC, including possible
or assumed future results of our operations, including but not limited to
any statements contained herein or therein concerning:
- the manner, timing and estimated savings of restructuring activities
and the voluntary separation program;
- the transfer of Spartanburg-based small diameter production activities
to other existing locations;
- the utilization of the restructuring reserve;
- product volumes, pricing and operating results for the first quarter
of 1999;
- pricing for the near term;
- capital expenditures for 1999;
- our liquidity into 2000;
- excess capacity for future periods;
- the resolution of any intellectual property infringement claims;
- the shipment of 12-inch prime polished and epitaxial wafers in 1999
and timing of future demand for 12-inch wafers;
- the continued support of VEBA AG;
- the status, effectiveness and projected completion of our Year 2000
initiatives;
- the outcome of potential litigation;
- an increase in interest expense on existing debt with VEBA AG and its
affiliates; and
- the impact of the introduction of the euro;
- estimated cost reductions for the global purchasing, plant focus and
other initiatives;
- our expectations for an increase in market demand for silicon wafers
and semiconductors and an easing of pressure on pricing and margins in
the year 2000;
- our expectations concerning our lack of profitability in 1999 and our
ability to generate positive cash flows in the year 2000;
- implementations in our plants of QS 900 and ISO 14001 certifications;
- the expectations concerning Taisil and the Taiwanese silicon wafer
market;
- 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:
- the demand for our silicon wafers worldwide;
- utilization of manufacturing capacity;
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- demand for semiconductors generally;
- changes in the pricing environment for our products;
- general economic conditions in the Asia Pacific region and Japan;
- changes in financial market conditions;
- our competitors' actions;
- willingness of our customers to re-qualify Spartanburg-based production
at our other locations;
- the accuracy of our assumptions regarding savings from restructuring
activities;
- the status and effectiveness of our Year 2000 efforts;
- changes in interest and exchange rates; and
- the factors discussed above under "Risk Factors" beginning on page 8.
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 after completion of the rights offering to reflect later events or
circumstances or to reflect the occurrence of unanticipated events.
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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 are negotiating the terms of our
withdrawal with our joint venture partner. We took these actions 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;
- a number of our customers recently have undertaken restructuring
initiatives focused on permanently eliminating small diameter lines; and
- 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 estimated pre-tax savings from our restructuring activities and our
voluntary separation program to be $60 million on an annualized basis. We began
to realize approximately $30 million of these estimated savings in the third
quarter of 1998 through reduced personnel costs as a result of the voluntary
separation program.
We expect the other $30 million in annualized savings to come from the
closure of our Spartanburg facility. We expect approximately half of the savings
from the Spartanburg facility's closure to relate to personnel costs, and the
other half of these savings to relate to manufacturing costs such as
depreciation and supplies and utilities. As we re-qualify and transfer the
production of silicon wafers made at the Spartanburg facility to other
locations, we expect to reduce our Spartanburg workforce. With each workforce
reduction, we expect a portion of our annualized cost savings associated with
personnel costs to be realized. As a result, we began to realize a portion of
the remaining $30 million in annualized cost savings in the third quarter of
1998. As the manufacturing cost savings are fixed in nature, we expect they will
largely be realized upon the closure of the Spartanburg facility.
The time frame for achieving the $30 million in annualized cost savings
from the closing of the Spartanburg facility is largely dependent upon how long
it takes us to re-qualify the silicon wafers produced at the Spartanburg
facility at our other locations. This, in turn, determines how quickly
Spartanburg's workforce will be reduced. While we believe that this will occur
by April 30, 1999, the ability to re-qualify silicon wafers is highly dependent
upon the cooperation of our customers.
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 our "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 less
than $85 million.
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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 factors set forth above
and the accuracy of assumptions regarding savings from restructuring activities.
See "Cautionary Statement Regarding Forward-Looking Statements" beginning on
page 17 and "Risk Factors" beginning on page 8.
FINANCIAL RESTRUCTURING PLAN
In order to address our capital requirements, we have initiated a financial
restructuring that includes:
- the approximately $91.1 million net proceeds from this rights offering;
- the approximately $105.9 million of equity financing from VEBA Zweite
pursuant to the private placement;
- an additional $150 million of debt financing from VEBA AG and its
affiliates ($50 million of which became available on June 30, 1998 and
$100 million of which became available on September 23, 1998); and
- an extension until 2001 of the maturities on all our outstanding debt
maturing prior to January 1, 2001 with VEBA AG and its affiliates (but
only in the event we have used our best efforts to obtain replacement
financing on equivalent terms and have been unsuccessful).
Private Placement to VEBA Zweite and the Rights Offering. On
, 1999, we sold [14,146,667] shares of MEMC common stock to VEBA
Zweite at $[7.50] per share for aggregate net proceeds of approximately $105.9
million. Prior to the private placement to VEBA Zweite, VEBA Corporation owned
approximately 53.1% of the outstanding shares. Our primary purpose for the sale
to VEBA Zweite 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 the VEBA group) an opportunity to restore their
proportionate interest in MEMC at the same price per share of common stock as
was paid by VEBA Zweite.
We sold MEMC common stock to VEBA Zweite before the rights offering in
order to evidence the VEBA group's commitment to us and to increase our working
capital and reduce our interest expense. If rights holders (other than the VEBA
group) purchase all shares of MEMC common stock offered in this rights offering,
the VEBA group will again own approximately 53.1% of the outstanding shares.
Debt Restructuring. As part of the agreement with VEBA AG and its
affiliates to provide the additional debt financing and to extend the maturity
dates of outstanding loans that mature prior to January 1, 2001 until their
respective maturity date anniversaries in 2001, we agreed to increase the
interest rates payable by MEMC on all of our debt to VEBA AG and its affiliates.
On January 31, 1999, we had approximately $777.0 million of U.S. dollar and
Japanese yen based loans outstanding with VEBA AG and its affiliates, including
$135 million of the additional $150 million of debt financing. Prior to this
restructuring, interest rates ranged from 2.1% to 7.6%. As part of the debt
restructuring completed during the third quarter of 1998, our loans with VEBA AG
and its affiliates have been repriced at interest rates reflecting the longer
maturities and at interest rate spreads applicable to an average industrial
borrower at an assumed credit rating. As a result, as of January 31, 1999, our
loans with VEBA AG and its affiliates have interest rates ranging from 3.4% to
9.7%.
These higher rates will cause our interest payments on these loans to
increase by approximately $15 million per year, based on debt outstanding with
VEBA AG and its affiliates and the new interest rates that were in effect as of
September 30, 1998. In addition, for all existing loans that mature prior to
January 1, 2001 and which maturities are extended by VEBA AG and its affiliates
until 2001, the interest rates we must pay during the extension period will be
adjusted to reflect the then-current interest rate spreads applicable to an
average industrial borrower at an assumed credit rating.
We have also agreed to increase the annual commitment fee payable by us on
the undrawn portion of these loans from 1/8 of one percent to 1/4 of one
percent. Additionally, we have agreed that we will not allow any encumbrances,
such as
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mortgages and security interests, to be placed on our properties.
The additional $150 million of debt financing provided to us by VEBA AG and
its affiliates is also priced at interest rate spreads applicable to an average
industrial borrower at an assumed credit rating. As of January 31, 1999, $135
million of this additional debt financing was outstanding.
The assumed credit rating for these loan agreements was assumed solely for
purposes of the loan agreements and does not reflect a view by MEMC or VEBA AG
or its affiliates as to the rating that would be assigned by an independent
rating agency. No independent rating agency currently rates MEMC or its debt.
TAISIL ELECTRONIC MATERIALS CORPORATION
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 and the downturn
in the semiconductor industry in Taiwan have raised concerns with Taisil's
lenders. In recent months, several financial institutions have indicated that
they would no longer purchase Taisil's commercial paper. Thus, Taisil was forced
to use alternative financing. In addition, we believe that several lenders have
placed Taisil on their credit watch lists. Certain of these lenders have also
made inquiries to MEMC and VEBA AG regarding our continued financial support to
Taisil. We have also been informed by one member of a three bank syndicate of
lenders to Taisil, that another bank in the syndicate expressed a preliminary
concern that a material adverse change in the financial condition of Taisil
might have occurred and, without additional equity contributions, an event of
default should be declared. Action by such bank syndicate, however, required the
agreement of two of the three banks, and we have been informed by the two other
banks that they did not believe a material adverse change in the financial
condition of Taisil had occurred.
In order to improve Taisil's debt-to-equity ratio, certain of Taisil's
shareholders made capital contributions to Taisil of approximately $20.7 million
in November 1998 and $10.0 million in December 1998. Our share of these capital
contributions was approximately $10.3 million and $5.1 million, respectively. We
anticipate that we and certain of Taisil's other shareholders will make an
additional capital contribution to Taisil of approximately $24.8 million in
early 1999. Our share of this capital contribution would be approximately $12.3
million. In early 1999, Taisil also intends to raise up to approximately $6.2
million of additional capital through sale of stock to Taisil's employees and
possibly to other investors. We believe that these capital contributions will
satisfy the concerns of Taisil's current lenders, including the bank syndicate
member that had previously expressed concern about potential material adverse
changes in the condition of Taisil. However, if Taisil's financial performance
continues to be adversely affected by the downturn in the semiconductor industry
in Taiwan, we and Taisil's other shareholders may have to consider additional
financing alternatives for Taisil.
Statements above as to future capital contributions to Taisil and the
response to such capital contributions by Taisil's lenders are forward looking
statements. Such future capital contributions and response from Taisil's lenders
may not occur due to a variety of factors, including inability of Taisil's
shareholders to agree on the magnitude, apportionment or other terms of such
capital contributions, changes or perceived changes in Taisil's prospects,
regulatory requirements and the willingness of Taisil employees to make an
equity investment in Taisil.
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
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<PAGE> 23
return one-half of the option payment to them. During the 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) to help
improve the quality of MEMC Pasadena's granular polysilicon products.
SHORT TERM LINE OF CREDIT WITH AN AFFILIATE OF VEBA AG
On February 26, 1999, we received a short term $75 million revolving line
of credit from an affiliate of VEBA AG. We did not draw on this short term line
of credit and it terminated on the closing of the private placement to VEBA
Zweite. We paid a 1/4 percent commitment fee for all unused amounts of this line
of credit. Interest on our borrowings under this short term line of credit would
have reflected interest rates applicable to an average industrial borrower at an
assumed credit rating.
CHANGE OF OUR CHIEF EXECUTIVE OFFICER
On February 17, 1999, Ludger Viefhues elected to retire as our Chief
Executive Officer. Klaus von Horde, formerly President and Chief Operating
Officer, became President and Chief Executive Officer. Mr. Viefhues agreed to
remain a director and employee of MEMC for a short period to assist in an
orderly transition.
CHANGES IN OUR 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 resigned from the Board of Directors
effective as of November 30, 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 OUR PRINCIPAL STOCKHOLDER
On September 30, 1998, Huls Corporation, our former principal stockholder,
merged into its corporate parent, VEBA Corporation. 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 to VEBA Zweite, the VEBA group now directly
owns [65.2]% of MEMC common stock.
USE OF PROCEEDS
We have received approximately $105.9 million from the private placement to
VEBA Zweite, after paying estimated expenses. We will use the proceeds of the
private placement to repay debt under our revolving credit agreements with VEBA
AG and its affiliates and to make a capital contribution to Taisil of
approximately $12.3 million. We will receive approximately $91.1 million 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 the standby agreement and any remaining proceeds from the private
placement to repay the remaining debt under our revolving credit agreements with
VEBA AG and its affiliates. At January 31, 1999, $166.9 million had been
borrowed under these agreements. The interest rate under these agreements
becomes fixed for each borrowing based upon the term of that borrowing and an
assumed credit rating for an average industrial borrower as of the date of such
borrowing. The credit rating was assumed solely for purposes of the agreements
and does not reflect a view by MEMC or VEBA AG or its affiliates as to the
rating that would be assigned by an independent rating agency. No independent
rating agency currently rates MEMC or its debt. As of January 31, 1999, the
interest rate ranged from approximately 9.3% to approximately 9.6% with respect
to such borrowings. The debt under these agreements has been and will be used to
fund capital expenditures and operating losses. The remaining net proceeds will
be used for general corporate purposes. We
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<PAGE> 24
expect to reborrow additional amounts under the revolving credit agreements that
are repaid from the proceeds of the private placement and the rights offering
and the standby agreement 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.
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............................................. 19 14 1/2
Second Quarter............................................ 16 7/16 9 1/4
Third Quarter............................................. 10 13/16 2 15/16
Fourth Quarter............................................ 12 5/8 2 15/16
Year Ending December 31, 1999
First Quarter (through March 1, 1999)..................... 11 1/8 7
</TABLE>
On January 31, 1999, we had 821 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, and at $7 9/16 on March 1, 1999.
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<PAGE> 25
CAPITALIZATION
The following table shows our short-term debt and capitalization as of
December 31, 1998. The table also shows our short-term debt and capitalization
as adjusted for the consummation of the private placement to VEBA Zweite and
rights offering and the transactions contemplated by the standby agreement
(including application of the net proceeds from such transactions) at the
assumed subscription price of [$7.50] per share.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
AS ADJUSTED FOR
PRIVATE PLACEMENT,
AS ADJUSTED RIGHTS OFFERING
FOR PRIVATE AND STANDBY
ACTUAL PLACEMENT AGREEMENT
---------- ----------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Short-term debt to related parties................ $ -- $ -- $ --
Short-term debt to third parties.................. 38,644 38,644 38,644
---------- ---------- ----------
Total short-term debt (including current
maturities of long-term debt)................ $ 38,644 $ 38,644 38,644
========== ========== ==========
Long-term debt to related parties................. $ 740,840 $ 647,290 $ 609,440
Long-term debt to third parties................... 130,323 130,323 130,323
---------- ---------- ----------
Total long-term debt (excluding current
maturities).................................. $ 871,163 $ 777,613 $ 739,763
---------- ---------- ----------
Minority interests.................................. 48,242 48,242 48,242
---------- ---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value: 50,000,000
shares authorized, none issued and outstanding
Common stock, $0.01 par value: 200,000,000 shares
authorized, 41,436,421 shares issued (actual),
55,583,088 shares issued (as adjusted for the
private placement) and 68,103,088 shares issued
(as adjusted for the private placement, rights
offering and standby agreement)(1)............. 414 556 681
Additional paid-in capital........................ 574,188 679,896 770,884
Accumulated deficit............................... (147,836) (147,836) (147,836)
Accumulated other comprehensive loss.............. (10,581) (10,581) (10,581)
Unearned restricted stock awards.................. (125) (125) (125)
Treasury stock, at cost: 929,205 shares........... (17,020) (17,020) (17,020)
---------- ---------- ----------
Total stockholders' equity..................... 399,040 504,890 596,003
---------- ---------- ----------
Total capitalization........................... $1,318,445 $1,330,745 $1,384,008
========== ========== ==========
</TABLE>
- ---------------
(1) Excludes 1,773,174 shares of MEMC common stock issuable upon exercise of
employee stock options as of December 31, 1998 and 1,376,684 shares
available for future grant under our Equity Incentive Plan.
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<PAGE> 26
THE RIGHTS OFFERING
THE RIGHTS
On , 1999, we will distribute to each holder of MEMC common stock
(except the VEBA group), at no charge, [.66] transferable subscription rights
for each share of MEMC common stock they 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 , 1999. We will round up,
to the nearest whole number, the number of rights we distribute to each
stockholder.
BEFORE EXERCISING OR SELLING ANY RIGHTS, YOU SHOULD READ CAREFULLY THE
INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 8.
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 see "-- Beneficial Owners" on page 28 below.
NO FRACTIONAL RIGHTS
We will not issue fractional rights, but rather will round up any
fractional rights to the nearest whole right. For example, if you own 140 shares
of MEMC common stock, you will receive [93] rights, instead of [92.4] rights you
would have received without rounding.
You may request that Harris Trust and Savings Bank divide your rights
certificate into transferable parts, for instance if you are the record holder
for a number of beneficial holders of MEMC common stock. However, Harris Trust
and Savings Bank will not divide your rights certificate so that (through
rounding or otherwise) you would receive a greater number of rights than those
to which you otherwise would be entitled.
EXPIRATION DATE OF THE RIGHTS OFFERING
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 , 1999.
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 Harris Trust and
Savings Bank 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 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
"-- Extensions and Termination" on page 32.
SUBSCRIPTION PRIVILEGES
Your rights entitle you to the basic subscription privilege and the
over-subscription privilege.
Basic Subscription Privilege. With the basic subscription privilege, you
may purchase one share of MEMC common stock per right, upon delivery of the
required documents and payment of the subscription price of $[7.50] 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
$[7.50] per share before the time the rights expire. You may only exercise your
over-subscription privilege if you exercised your basic subscription privilege
in full and other holders of rights do not exercise their basic subscription
privileges in full.
Pro Rata Allocation. 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)
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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.
Full Exercise of Basic 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 individually and shares of MEMC common
stock you own 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 MEMC 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:
- the number of shares held on , 1999, the record date, on
your behalf;
- the number of rights you exercised under your basic subscription
privilege;
- that your entire basic subscription privilege held in the same capacity
has been exercised in full; and
- the number of shares of MEMC 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.
Return of Excess Payment. 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.
EXERCISE OF RIGHTS
You may exercise your rights by delivering the following to Harris Trust
and Savings Bank at or before the time the rights expire:
- Your properly completed and executed rights certificate evidencing those
rights with any required signature guarantees or other supplemental
documentation; 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.
METHOD OF PAYMENT
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 and Savings Bank, as
subscription agent; or
- Wire transfer of immediately available funds to the account maintained
by the subscription agent for such purpose at The Chase Manhattan Bank,
New York, N.Y., ABA No. 021 000 021, Account No.: 617-999988 (marked:
"MEMC Electronic Materials, Inc. Subscription").
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<PAGE> 28
RECEIPT OF PAYMENT
Your payment of the subscription price will be deemed to have been received
by Harris Trust and Savings Bank, the subscription agent, only upon:
- Clearance of any uncertified check;
- Receipt by Harris Trust and Savings Bank 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 Harris Trust and Savings Bank's account at
The Chase Manhattan Bank, New York, N.Y. designated above.
CLEARANCE OF UNCERTIFIED CHECKS
You should note that funds paid by uncertified personal checks may take
five business days or more 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.
DELIVERY OF SUBSCRIPTION MATERIALS AND PAYMENT
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 OR 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 Harris Trust and Savings Bank at (800) 245-7630.
CALCULATION OF RIGHTS EXERCISED
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 Harris Trust and Savings Bank. 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.
EXERCISING A PORTION OF YOUR RIGHTS
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 direct Harris Trust and Savings Bank to attempt to sell your remaining
rights or receive from Harris Trust and Savings Bank a new rights certificate
representing the unused rights. See "-- Method of Transferring and Selling
Rights" beginning on page 30.
FUNDS WILL BE HELD BY HARRIS TRUST AND SAVINGS BANK UNTIL SHARES OF COMMON STOCK
ARE ISSUED
Harris Trust and Savings Bank 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.
SIGNATURE GUARANTEE MAY BE REQUIRED
Your signature on each rights certificate must be guaranteed by an eligible
institution such as 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 Harris Trust and Savings
Bank, unless
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<PAGE> 29
- 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.
NOTICE TO BENEFICIAL HOLDERS
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 we have provided to you for your
distribution 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 Harris Trust and Savings Bank with the proper payment. Nominee
record date holders that hold shares for the account(s) of more than one
beneficial owner may exercise the number of rights to which all such beneficial
owners in the aggregate otherwise would have been entitled if they had been
direct record holders of MEMC common stock on , 1999, the record date,
provided the nominee record date holder makes a proper showing to Harris Trust
and Savings Bank.
BENEFICIAL OWNERS
If you are a beneficial owner of shares of MEMC common stock or rights that
you hold through a nominee record date holder, we will ask your broker,
custodian bank or other nominee to notify you of this rights offering. If you
wish to sell or exercise your rights, you will need to have your broker,
custodian bank or other nominee act for you. To indicate your decision with
respect to your rights, you should complete and return to your broker, custodian
bank or other nominee the form entitled "Beneficial Owners Election Form." You
should receive this form from your broker, custodian bank or other nominee with
the other rights offering materials.
INSTRUCTIONS FOR COMPLETING THE RIGHTS CERTIFICATE
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 Harris Trust and Savings Bank. YOU SHOULD NOT SEND THE
RIGHTS CERTIFICATES TO US.
YOU ARE RESPONSIBLE FOR THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES, ANY
NECESSARY ACCOMPANYING DOCUMENTS AND PAYMENT OF THE SUBSCRIPTION PRICE TO HARRIS
TRUST AND SAVINGS BANK. IF YOU SEND THE RIGHTS CERTIFICATES AND PAYMENT OF THE
AGGREGATE 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 HARRIS TRUST AND SAVINGS
BANK AND CLEARANCE OF PAYMENT PRIOR TO THE TIME THE RIGHTS EXPIRE.
DETERMINATIONS REGARDING THE EXERCISE OF RIGHTS
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 as we decide, in our sole discretion.
Neither we nor Harris Trust and Savings Bank, 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 32 and "--
Compliance with State Regulations Pertaining to the Rights Offering" on page 34.
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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 "-- Method of Payment" on page 26)
to Harris Trust and Savings Bank on or before the time the rights
expire;
- Deliver a notice of guaranteed delivery to Harris Trust and Savings Bank
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 Harris Trust and Savings Bank, within one New York Stock Exchange
trading day following the date of the notice of guaranteed delivery was
delivered to Harris Trust and Savings Bank.
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, or other eligible guarantee institutions which are
a member of, or a participant in, a signature guarantee program acceptable to
Harris Trust and Savings Bank. 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 any, you are subscribing for pursuant to the over-
subscription privilege; and
- Your guarantee that you will deliver to Harris Trust and Savings Bank
any rights certificates evidencing the rights you are exercising within
one New York Stock Exchange trading day following the date Harris Trust
and Savings Bank receives your notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery to Harris Trust and
Savings Bank in the same manner as the rights certificate at the addresses set
forth above, under "-- Delivery of Subscription Materials and Payment" on page
27. You may also transmit the notice of guaranteed delivery to Harris Trust and
Savings Bank by telegram or facsimile transmission (telecopier no. (212)
701-7636). To confirm facsimile deliveries, you may call (212) 701-7624.
Morrow & Co., Inc. will send you additional copies of the form of notice of
guaranteed delivery if you need them. Please call Morrow & Co., Inc. at (800)
566-9061. Banks and brokerage firms please call (800) 622-5200 to request any
copies of the form of notice of guaranteed delivery.
SUBSCRIPTION AGENT
We have appointed Harris Trust and Savings Bank as subscription agent for
the rights offering. We will pay its fees and expenses related to the rights
offering. We also have agreed to indemnify Harris Trust and Savings Bank from
certain liabilities which it may incur in connection with the rights offering.
QUESTIONS ABOUT EXERCISING RIGHTS -- INFORMATION AGENT
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 Morrow & Co.,
Inc., 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
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<PAGE> 31
NO REVOCATION OF EXERCISE OF RIGHTS UNLESS VEBA ZWEITE'S CONDITIONS ARE NOT MET
Once you have exercised your basic subscription privilege and/or
over-subscription privilege, you may not revoke your exercise, unless the
conditions to VEBA Zweite'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, we plan to notify you
through a prospectus supplement, you will be able to change your decision, and
we may extend the date the rights expire.
NO FRACTIONAL SHARES WILL BE ISSUED
We will not issue any fractional shares of MEMC common stock. You may not
exercise a right in part.
METHOD OF TRANSFERRING AND SELLING RIGHTS
We have applied to list the rights 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. If you do not
exercise or sell your rights you will lose any value inherent in the rights. See
"-- General Considerations Regarding the Partial Exercise, Transfer or Sale of
Rights" on page 31.
Transfer of Rights. 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 Harris Trust and
Savings Bank. 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 issue a new rights certificate to the transferee evidencing
such transferred rights). If there is sufficient time before the expiration of
the rights offering, 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 Harris Trust and Savings
Bank to send the rights certificate to one or more additional transferees. If
you do not wish to receive your remaining rights, you may instruct Harris Trust
and Savings Bank to sell your rights for you as described below.
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 Harris Trust and Savings Bank 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.
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.
Sales of Rights Through Harris Trust and Savings Bank. You may also sell
the rights, in whole or in part (but not fractional rights), through Harris
Trust and Savings Bank as the subscription agent. If you wish to have Harris
Trust and Savings Bank try to sell your rights, you must deliver your properly
executed rights certificate, with appropriate instructions, to Harris Trust and
Savings Bank. If you want the subscription agent to try to sell only a portion
of your rights, you must send Harris Trust and Savings Bank instructions setting
forth what you would like done with the rights, along with your rights
certificate.
If Harris Trust and Savings Bank sells rights for you, it will send you a
check for the 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 Harris Trust and Savings Bank. We will pay the fees charged by Harris Trust
and Savings Bank for making your sale. We cannot assure you, however, that a
market will develop for the rights or that Harris Trust and Savings Bank will be
able to sell your rights.
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You must have your order to sell your rights to Harris Trust and Savings
Bank before 11:00 a.m., New York City time, on , 1999, the fifth
business day before the date the rights are expected to expire. If less than all
sales orders received by Harris Trust and Savings Bank are filled, it will
prorate the sales proceeds among you and the other holders based upon the number
of rights each holder has instructed Harris Trust and Savings Bank to sell
during such period, irrespective of when during such period the instructions are
received by it. Harris Trust and Savings Bank is required to sell your rights
only if it is able to find buyers. If Harris Trust and Savings Bank cannot sell
your rights by 5:00 p.m. New York City time, on , 1999, the third
business day prior to the dates the rights are expected to expire, Harris Trust
and Savings Bank will return your rights certificate promptly by mail to you.
General Considerations Regarding the Partial Exercise, Transfer or Sale of
Rights. 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 Harris Trust and Savings Bank to effect. Neither we nor
Harris Trust and Savings Bank 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, transfer
or sale of rights only if Harris Trust and Savings Bank 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. Harris Trust and Savings Bank
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 Harris Trust and Savings Bank by that time and date, you will lose
your power to sell or exercise your remaining rights.
Unless you make other arrangements with Harris Trust and Savings Bank, 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 Harris Trust and Savings Bank's hand delivery address provided herein. You
bear the responsibility for all newly issued rights certificates.
Except for fees charged by Harris Trust and Savings Bank (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 (commonly known as 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 properly executing and delivering to Harris Trust
and Savings Bank, at or prior to the time the rights expire, a DTC participant
over-subscription exercise form and a nominee holder certification and making
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 Harris Trust and Savings Bank at (800) 245-7630 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 , 1999 to ,
1999. We completed the private placement of shares to VEBA Zweite on ,
1999 at $[7.50] per share. 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
place-
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ment to VEBA Zweite and the rights offering and the results of analyses
performed by NationsBanc Montgomery Securities LLC to assist us in determining
the appropriate and desirable pricing terms for the private placement to VEBA
Zweite 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 Zweite 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 54.
EXTENSIONS 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 terminate the rights offering at any time
prior to the time the rights expire.
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 STOCKHOLDERS AND STOCKHOLDERS WITH APO OR FPO ADDRESSES
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 Harris Trust and Savings Bank 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 , 1999, 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
and provide acceptable instructions to Harris Trust and Savings Bank by such
time (if no contrary instructions have been received), the rights will be sold,
subject to Harris Trust and Savings Bank'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 Harris Trust and Savings Bank. See "- Method of Transferring and
Selling Rights" beginning on page 30. If the rights can be sold, Harris Trust
and Savings Bank will remit a check for the proceeds from the sale of any rights
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 Harris Trust and Savings Bank or to whom delivery cannot be made will
be held in an interest bearing account. Any amount remaining unclaimed on the
second anniversary of the date the rights expire will be turned over to us.
REGULATORY LIMITATION
We will not be required to issue to you shares of MEMC common stock
pursuant to the rights offering 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
Harris Trust and Savings Bank 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 aggregate subscription price will be retained by Harris
Trust and Savings Bank, 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 Harris Trust and Savings Bank, 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 MEMC with respect to shares of MEMC
common stock subscribed for until certificates representing such shares are
issued to you. Upon our issuance of such certificates, you will be deemed the
owner of the shares you purchased by exercise of your rights. Unless otherwise
instructed in the rights certificates, your certificates for shares issued
pursuant to your exercise of rights will be registered in your name.
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If the rights offering is not completed for any reason, Harris Trust and
Savings Bank will promptly return, without interest, all funds received by it.
We will retain any interest earned on the funds held by Harris Trust and
Savings Bank prior to the closing or termination of the rights offering.
VEBA GROUP
As of , 1999, the record date, the VEBA group will
beneficially own approximately [35,637,609] shares of the outstanding MEMC
common stock ([65.2]% of the outstanding shares). The VEBA group is comprised of
VEBA Zweite and VEBA Corporation, each a subsidiary of VEBA AG and its
subsidiaries.
PRIVATE PLACEMENT TO VEBA ZWEITE
On , 1999, we sold [14,146,667] shares of MEMC common stock
to VEBA Zweite at $[7.50] per share, the subscription price, for aggregate
proceeds to us of approximately $105.9 million, after paying estimated expenses.
See "Recent Developments -- Financial Restructuring Plan -- Private Placement to
VEBA Zweite and the Rights Offering" on page 20.
STANDBY AGREEMENT WITH VEBA ZWEITE
Although we will not distribute any rights to VEBA Zweite, it has agreed to
purchase at $[7.50] per share, the subscription price, all shares of MEMC common
stock not purchased by rights holders in the rights offering. This standby
agreement is subject to certain conditions, including the following material
conditions which have not yet been satisfied:
- VEBA Zweite must receive a specified opinion of our counsel;
- VEBA Zweite must receive a specified letter from our certified public
accountants;
- we must not have received a stop order suspending our registration
statement of which this prospectus forms a part;
- we must not have experienced any material adverse change in our capital
stock or any material increase in our short-term or long-term debt other
than in the ordinary course of business or pursuant to existing
agreements with VEBA Corporation and its affiliates;
- we must not have experienced any material adverse change since October
22, 1998;
- we must not have incurred any material liabilities or obligations,
except liabilities with VEBA Corporation and its affiliates, that were
not in existence on October 22, 1998; and
- all representations and warranties we made in the standby agreement with
VEBA Zweite must be true and correct as of the day the rights expire.
The number of shares VEBA Zweite purchases will be determined after all
rights holders exercise their basic subscription and over-subscription
privileges. VEBA Zweite 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 Zweite or its affiliates purchases any rights, they will not exercise their
over-subscription privilege with respect to those rights.
Assuming no other holders exercise their rights and VEBA Zweite purchases
all unsubscribed shares of MEMC common stock offered hereby, the VEBA group will
own approximately [71.7]% of the MEMC common stock issued and outstanding after
the rights offering, based on the number of shares purchased by VEBA Zweite in
the private placement and the number of shares of MEMC common stock outstanding
as of January 31, 1999.
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 [67,173,883] shares of MEMC common stock will be
issued and outstanding. Based on the [14,146,667] shares purchased by VEBA
Zweite in the private placement and the 40,507,216 shares of MEMC common stock
outstanding as of January 31, 1999, our issuance of shares in the rights
offering would result (on a pro forma basis as of January 31, 1999) in a [22.9]%
increase in the number of outstanding shares of MEMC common stock.
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COMPLIANCE WITH STATE REGULATIONS PERTAINING TO THE RIGHTS OFFERING
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 1998. We also believe that of the approximately 18 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 14.1%
from $24.3 billion in revenues in 1985 to $134.8 billion in revenues in 1998,
according to Dataquest estimates. Continuous improvements in semiconductor
process and design technologies, semiconductor fabrication equipment and the
composition of 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 grew by only 3.6% in 1997 and declined by 8.4% in 1998,
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 extended through 1998 due to continued
overcapacity and the weak economic conditions in the Asia Pacific and Japanese
markets.
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 line widths, or the distance between
circuit elements, in an effort to reduce costs. The reduction in line widths
results in a requirement of 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 9.2% from 1.2 billion square
inches in 1985 to 3.7 billion square inches in 1998, 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 in demand
over the next several years. This growth rate declined significantly in late
1996.
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The silicon wafer industry slowdown, which began in the summer of 1996, has
left the industry in a state of overcapacity. Price declines have resulted from
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, silicon wafer consumption
declined by an estimated 7.6% in 1998.
Major silicon wafer manufacturers, including MEMC, 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, MEMC 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 has 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 our 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
over 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.
We obtain substantially all of our requirements for several raw materials,
equipment, parts and supplies from sole suppliers. Although we believe that we
could find adequate alternative sources of supply for these raw materials,
equipment, parts and supplies, we may be required to obtain new qualifications
from our customers in order to change or substitute suppliers. Because we cannot
predict whether we would be successful or how long that process would take, our
manufacturing yields could be adversely affected while we transition to a new
supplier.
We believe that adequate quantities of all our key raw materials,
equipment, parts and supplies are currently available. However, because of the
cyclical nature of our industry, we may experience shortages in the future. See
"Risk Factors -- We Depend on Certain Suppliers and Finding Alternative Sources
Of Supply Could Affect Adversely Our Customer Qualifications And Manufacturing
Yields" on page 15.
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.
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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
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:
- the development and improvement of large diameter and advanced silicon
wafer products,
- manufacturing process improvements, and
- 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.
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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
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 1998.
COMPETITION
We face intense competition in the silicon wafer industry from established
manufacturers throughout the world. 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. For other risks related to competition,
see "Risk Factors -- We Experience Intense Competition in the Silicon Wafer
Industry And Our Customers Expect Continuing Technological Innovation At A Low
Cost" on page 11 and "Risk Factors -- Currency Exchange Rates and Increased
Competition Have Reduced Wafer Prices And Have Led To Lower Margins And Profits"
on page 12.
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 $121.0 million in 1998, $215.9 million in
1997, $275.1 million in 1996 and $180.5 million in 1995. Over half of PHC's
sales in each of these years were to Samsung. PHC has the capacity to produce
per month an aggregate of approximately 320,000 6-inch and 8-inch wafers.
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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 royalties. Through September 30, 1998 we received quarterly
royalties based on PHC's net sales. Effective October 1, 1998, the agreement by
which we provide technical assistance and information and have granted licenses
to PHC was amended. The amendment, among other things, extends the term of the
technical agreement. Under the amendment, we receive quarterly royalties based
on net sales and an annual royalty based on net income after taxes. The
quarterly royalties and the annual royalty we receive from PHC are separate and
independent calculations. Accordingly, if PHC has a net loss for the fiscal
year, then we will not receive an annual royalty based on net income after
taxes, but we will receive and retain the full amount of the quarterly royalties
based on net sales.
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 $58.7
million in 1998, $61.6 million in 1997 and $7.2 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.
For other information regarding Taisil, see "Risk Factors -- We May Have to
Make Substantial Payments In Connection With Our Taisil Joint Venture, And This
Could Divert Funds From Other Needed Areas" beginning on page 13 and "Recent
Developments -- Taisil Electronic Materials Corporation" on page 21.
PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
As of November 30, 1998, we owned of record or beneficially approximately
112 U.S. patents, of which approximately 14 will expire by 2003, approximately
22 will expire between 2004 and 2008 and approximately 76 will expire after
2008. As of November 30, 1998, we owned of record or beneficially approximately
174 foreign patents, of which approximately 34 will expire by 2003,
approximately 79 will expire between 2004 and 2008 and approximately 61 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 96 U.S. and 440 foreign patent applications. However, we cannot
assure you that any of these applications will be granted.
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.
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
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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 to:
- pay substantial damages;
- seek licenses from others; or
- 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
Equipment Purchase Dispute
We have a dispute with a manufacturer of equipment for the production of
silicon wafers. The dispute involves our cancellation of an order for a number
of pieces of equipment. The manufacturer claims that we are obligated for
approximately $5 million for costs related to the cancelled order, including the
cost of inventory it has on hand and on order with its vendors. We are in the
process of evaluating the merits of the manufacturer's claim. The manufacturer
has advised us that if we are unable to resolve this dispute, it will file suit
against us. While we will assert all of our defenses in this dispute, we cannot
assure you that we will be able to resolve this dispute on terms favorable to
us.
Litigation Related To MEMC Pasadena
In a case entitled Damewood vs. Ethyl Corporation, et al., (Case No.
96-38521), filed on August 1, 1996, three employees of the former operator of
MEMC Pasadena's plant, Albemarle Corporation, filed suit against us and others
in the 189th Judicial District Court, Harris County, Texas. The employees
alleged that they sustained injuries during an explosion at that plant on
January 27, 1996. We have settled this matter with plaintiffs and have been
dismissed as a party. One of the other defendants, Ethyl Corporation, was the
only defendant in this case at the time of trial in October 1998. A jury awarded
a verdict against Ethyl Corporation in the amount of $6.1 million.
In July of 1996, two employees of the former operator of the MEMC Pasadena
plant were injured when flaming liquid escaped from a valve under repair. These
individuals filed suit on June 13, 1997, against us and others in a case
entitled Parden vs. Ethyl Corporation, et al. (Case No. 97-34857) in the 61st
Judicial District Court, Harris County, Texas. Plaintiffs are seeking actual and
exemplary damages in an unstated amount. We believe that we have meritorious
defenses to this cause of action. This case is currently set for trial on August
16, 1999.
A demand against us for defense and indemnity in both these cases was made
on behalf of Ethyl Corporation by Albemarle Corporation on September 29, 1998.
Albemarle Corporation has assumed the obligation to defend and indemnify Ethyl
Corporation under an agreement in which Ethyl Corporation transferred ownership
of the plant where the injury took place to Albemarle Corporation. Albemarle
Corporation's demand for defense and indemnification against us on behalf of
Ethyl Corporation is under evaluation by our counsel. In early November, we made
a demand for indemnity in these cases against Albemarle. Demands for indemnity
made by Albemarle Corporation on behalf of Ethyl Corporation and by us are both
based on contractual indemnity language contained in the contract for the sale
of the MEMC Pasadena plant from Albemarle Corporation to us.
In October 1997, a flash ignition occurred at the MEMC Pasadena plant.
Eleven employees of U.S. Contractors, Inc., a construction contractor, received
injuries from the impact. Three of these individuals have filed suit against us,
Albemarle Corporation and another party for injuries allegedly sustained in this
accident in a case entitled Larry Lambert, Andres Garcia and Rogers Patino vs.
MEMC Pasadena, Inc., (Cause No. 97-61639). The case was filed in the 152nd
Judicial District, Harris County, Texas. Two of these individuals allege head
injuries and all three allege hearing loss. The plaintiffs are seeking actual,
punitive and exemplary damages against the defendants in an unstated amount. We
believe all of the defendants have significant defenses to the plaintiffs'
claims.
Pursuant to a construction contract between us and U.S. Contractors, Inc.,
U.S. Contractors, Inc. originally agreed to defend and indemnify us in this suit
up to $25 million. Under a contract between us and Albemarle Corporation, we are
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contractually obligated to defend Albemarle Corporation in this suit. We have
also made a demand upon U.S. Contractors, Inc. to defend and indemnify Albemarle
Corporation pursuant to the construction contract between us and U.S.
Contractors, Inc. U.S. Contractors, Inc. and its insurance carrier have recently
indicated to us that they may dispute their obligation to defend and indemnify
us and Albemarle Corporation despite U.S. Contractors, Inc.'s prior agreement to
defend and indemnify us.
Due to uncertainty regarding the litigation process, the scope and
interpretation of contractual indemnity provisions and the status of any
insurance coverage, we cannot assure you that the ultimate outcome of the
foregoing matters will not have a material adverse effect on us.
Texas Nuisance Actions
In a case entitled Crye, et al. vs. Reichhold Chemicals, Inc., et al. (Case
No. 97-24399), over 7,000 plaintiffs filed suit against MEMC Pasadena and
approximately 31 other companies operating industrial facilities along I-10 and
along the Houston Ship Channel in Harris County, Texas. The suit was filed in
the 334th Judicial District, Harris County, Texas. MEMC Pasadena was served in
this matter on December 30, 1998. In a similar case entitled Gerlich, et al. vs.
Merichem Company, et al. (Case No. 98-59745), almost 400 plaintiffs filed suit
against MEMC Pasadena and approximately 26 other companies operating industrial
facilities along I-10 and along the Houston Ship Channel in Harris County,
Texas. The suit was filed in the 80(th) Judicial District, Harris County, Texas.
MEMC Pasadena was served in this matter on February 2, 1999.
In both cases, plaintiffs allege that defendants have discharged various
pollutants into the air, soil, ground and surface water. Plaintiffs also allege
that these facilities generate deafening noise, sickening foul odors and glaring
and intrusive lights. Plaintiffs have sued all defendants alleging nuisance,
trespass, negligence and gross negligence. Plaintiffs are seeking an injunction
and actual and exemplary damages in an unstated amount. We are in the process of
evaluating these lawsuits. Because these suits were only recently served on us,
we have not fully evaluated our potential exposure, if any. Due to the early
stage of our investigation of these lawsuits and the uncertainty regarding the
status of any insurance coverage, we cannot assure you that the ultimate outcome
of these matters will not have a material adverse effect on us.
For certain other potential disputes see "Risk Factors -- Because The
Public Is Focusing More Attention On The Environmental Impact Of Our Industry
And Our Manufacturing Operations, Environmental Laws And Regulations May Become
More Stringent In The Future And Could Force MEMC To Expand Capital To Comply
With Such Laws" on page 15.
EMPLOYEES
At January 31, 1999, we had approximately 6,000 full-time employees and 100
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 first quarter of 1999. As of January 31, 1999,
approximately 530 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.
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
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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 MEMC 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 the first
quarter of 1999. 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
approximately 75% complete 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 have completed approximately 85% of our Year 2000 project related
to business software, approximately 55% of our Year 2000 project related to
manufacturing software, and approximately 75% of our Year 2000 project for
personal computer software. We have substantially completed our Year 2000
project related to infrastructure software. 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 have completed this phase of our Year 2000 project for
our hardware. We have completed approximately 65% of our Year 2000 project with
respect to facilities and utilities, and approximately 55% of our Year 2000
project with respect to manufacturing equipment. We anticipate having
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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 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 have compiled detailed
information regarding all of our strategic suppliers and equipment vendors. This
analysis 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 whose responses are 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 incremental Year 2000 expenditures will be in the range
of $5-7 million. Through January 31, 1999, we have expended approximately $2.3
million of incremental costs 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 into mid-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 March 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" beginning on page 17.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The VEBA group owns [65.2]% of the outstanding shares of MEMC common stock,
including the shares of MEMC common stock purchased by VEBA Zweite in the
private placement. VEBA Corporation and VEBA Zweite are owned by VEBA AG and its
subsidiaries. On , 1999, we sold [14,146,667] shares of MEMC common
stock to VEBA Zweite at $[7.50] per share for aggregate net proceeds of
approximately $105.9 million. See "Recent Developments -- Financial
Restructuring Plan -- Private Placement to VEBA Zweite and the Rights Offering"
on page 20. VEBA Zweite 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 with VEBA Zweite" on page 33.
In an effort to minimize conflicts of interest by members of our Board of
Directors affiliated with VEBA AG or other related parties, the Audit Committee
generally approves or ratifies any material transaction with a related party.
Our Audit Committee currently consists of two independent directors.
In 1998, we made payments to VEBA Corporation and certain of its affiliates
for raw materials, equipment, office space, services, credit commitments and
interest. We also reimbursed VEBA Corporation and certain of its affiliates for
certain insurance premiums paid on our behalf. The following discussion
summarizes our significant agreements and arrangements with VEBA Corporation and
its affiliates.
SERVICE AGREEMENT
We have entered into a service agreement with VEBA Corporation (as
successor to Huls Corporation), which requires VEBA Corporation 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. In 1998, we paid VEBA Corporation approximately $478,000 under this
agreement.
We had arrangements with an affiliate of VEBA AG that permitted this
affiliate to use our computer hardware to implement its software systems. The
affiliate paid us $67,000 in 1998 pursuant to these arrangements. These
arrangements terminated in 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. To date, we have not made any reimbursement
payments to VEBA Corporation under this agreement.
LOAN AGREEMENTS AND GUARANTEES
We have entered into credit and loan arrangements with VEBA AG and its
affiliates. See "Recent Developments -- Financial Restructuring Plan -- Debt
Restructuring" beginning on page 20 and "Recent Developments -- Short Term Line
of Credit With An Affiliate of VEBA AG" on page 22. We and an affiliate of VEBA
AG have guaranteed certain indebtedness of PHC with an aggregate principal
amount outstanding of approximately $581,000 as of January 31, 1999, the latest
portion of which matures in March 1999. Neither we nor the affiliate of VEBA AG
has been
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required to make any payments under these guarantees. We have agreed to
indemnify the affiliate of VEBA AG with respect to its guarantee. We have agreed
to pay the affiliate of VEBA AG an annual fee of 1/8 of one percent calculated
on the outstanding principal balance under the PHC credit agreements for this
guarantee. In 1998, we incurred approximately $47.9 million in interest,
commitment fees and other financing fees to VEBA Corporation and certain of its
affiliates.
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 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 AG and its affiliates 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 AG and its affiliates 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 AG and its affiliates:
- 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;
- more than once during any six-month period; and
- for up to 90 days after a request from VEBA AG or its affiliates 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 AG or any affiliate of VEBA AG will be entitled to require us to
include all or a portion of the shares of MEMC common stock which VEBA AG or
such affiliate 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 AG or its
affiliates. 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 AG
or certain of its affiliates on a short term basis our excess cash on hand 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
arrange-
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<PAGE> 48
ments may be modified from time to time or terminated at any time on short
notice, either by us or VEBA AG 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 distributed our silicon
products and silicon products manufactured by affiliated companies in various
European countries and South Korea under certain agency and services agreements
that covered the distribution arrangements. In the agency agreements, affiliates
of VEBA AG 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 these affiliates of 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. In 1998, we paid
approximately $1.5 million to affiliates of VEBA AG under these agency
agreements.
PURCHASES AND SALES OF RAW MATERIALS, FINISHED PRODUCTS AND EQUIPMENT
We purchase raw materials from an affiliate of VEBA AG pursuant to a supply
contract dated December 31, 1995. The supply contract has a term of five years.
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. In 1998, we paid approximately $7.8 million for raw
materials purchased under this supply contract.
We also have purchased equipment from Steag Microtech, Inc., an entity in
which VEBA AG holds a significant minority ownership interest. We believe that
the price we paid for this equipment was not materially different from the price
that we could have obtained from unrelated third parties for comparable
equipment. In 1998, we purchased approximately $6.1 million of equipment from
Steag Microtech, Inc.
SAP SOFTWARE SUBLICENSE
We expect to obtain the use of SAP R/3 software to integrate our business
processes through a sublicense from VEBA AG. However, if we were to cease being
an indirect subsidiary of VEBA AG, we may incur higher maintenance charges from
SAP AG or its affiliates because of our inability to continue to benefit from
VEBA AG's volume pricing.
INSURANCE
We participate in a marine cargo insurance policy maintained by VEBA AG or
an affiliate. In 1998, we paid premiums of $60,980 under this policy. We also
participate in a blended liability insurance policy sponsored by an unrelated
third party. Our participation in the blended liability policy was arranged by
VEBA AG. The premiums on the blended liability policy are paid by VEBA AG on our
behalf. We reimburse VEBA AG for these premiums. In 1998, we reimbursed VEBA AG
in the amount of $1.4 million for a three-year premium paid under this policy.
We believe that the total premiums paid for the marine cargo policy and the
blended liability policy are comparable to premiums that are available from
unrelated third parties.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Bryan Cave LLP, our special counsel, has advised us that the following
discussion as to legal matters is its opinion as to the material United States
federal income tax consequences of the rights offering. Their opinion is based
on current provisions of the U.S. Internal Revenue Code of 1986, as amended,
applicable final, temporary and proposed Treasury Regulations, judicial
authority, and current administrative rulings and pronouncements of the Internal
Revenue Service, and upon the facts concerning MEMC as of today. We cannot
assure you that the Internal Revenue Service will not disagree with their
opinion, and we are not requesting a ruling from the Internal Revenue Service.
Legislative, judicial or administrative changes or interpretations may be issued
in
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<PAGE> 49
the future that could alter or modify their opinion. Such changes or
interpretations could be retroactive and therefore affect the tax consequences
to you.
Moreover, the opinion of Bryan Cave LLP does not purport to fully address
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 this opinion does not address applicable tax
consequences if you hold MEMC common stock as part of a hedging, straddle,
constructive sale, conversion or other risk reduction transaction. This opinion
also does not address any aspect of state, local or foreign tax laws.
This opinion 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 Internal Revenue 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, more likely than not you
will not be required to recognize taxable income upon the receipt of the rights.
Subject to certain exceptions, 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 the
receipt of property (including cash) by some stockholders and 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 the VEBA group,
more likely than not, will not constitute a taxable distribution based on
representations by MEMC that:
- the private placement to VEBA Zweite 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,
- there is a single class of stock outstanding, and
- there has not been nor is there expected to be any property
distributions to any stockholder in connection with the distribution of
rights.
If despite these representations, the Internal Revenue Service were to
conclude that the distribution of rights is independent from the private
placement to VEBA Zweite and there were other property distributions to
shareholders in connection with the distribution of rights, based on the absence
of any direct authority, the Internal Revenue Service could treat the
distribution of rights as a taxable distribution, with the result that 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 MEMC. To the
extent the deemed distribution exceeds the current and accumulated earnings and
profits of MEMC, 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. We intend to treat the distribution of
rights as a nontaxable distribution.
Except as provided above, the following discussion assumes that the
distribution of the rights will be treated as a nontaxable distribution.
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BASIS AND HOLDING PERIOD OF THE RIGHTS
If you hold MEMC common stock on the record date, your basis in the rights
received by you will be zero. If, however, either
- 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
- you properly elect under Section 307 of the Internal Revenue 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 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 Internal Revenue Code, you may be
subject to 31% backup withholding with respect to any reportable payments made
to you 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
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<PAGE> 51
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.
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 our capital stock 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 (commonly
known as 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 $0.01 per share, and 50,000,000 shares of preferred stock, par
value $0.01 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 23. If we liquidate
MEMC, you will be entitled to share ratably with the other stockholders in the
distribution of all assets that we have 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 MEMC 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 MEMC.
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.
SHARES OWNED BY THE VEBA GROUP
The [35,637,609] shares that will be owned by the VEBA group ([48,157,609]
shares, if no rights holder (other than the VEBA group) exercises its rights)
are not freely transferable. The VEBA group 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, the VEBA
group may sell, within any three-month period, a number of shares that does not
exceed the greater of one percent of the then outstanding shares of MEMC common
stock and the average weekly trading volume during the four calendar weeks
preceding such sale. We have granted to VEBA AG and its affiliates certain
registration rights, as described under "Certain Relationships and Related Party
Transactions -- Registration Rights Agreement" on page 46.
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS THAT MAY HAVE
ANTI-TAKEOVER EFFECTS
Certain provisions of our Certificate of Incorporation and By-Laws may have
an anti-takeover effect. These provisions may delay, defer or make more
difficult a takeover attempt of MEMC that you may consider not to be in your
best interest. However, because the VEBA group 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
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submitted to a vote of stockholders, such provisions currently have limited
significance to you. See "Risk Factors -- VEBA AG's Control of MEMC Could
Prevent a Favorable Acquisition of MEMC" on page 10.
Board of Directors
Our 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;
- Directors may be removed with or without cause by the holders of a
majority of the shares of capital stock then entitled to vote at an
election of directors; 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
Our 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 a stockholder proposal at an annual meeting or
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 or nomination must be received by our Secretary not less
than 60 days and not more than 90 days before (after the 1999 annual
meeting this period for a stockholder proposal will be not less than 90
days and not more than 120 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
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- 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 MEMC. Specifically, a director is not liable to MEMC 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 MEMC or our 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.
The effect of these provisions on you is to eliminate your rights and our
rights (through stockholders' derivative suits on behalf of MEMC) 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 we are 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 Zweite, VEBA AG or one of its specified
subsidiaries. Because of this approval, we may engage in the future in any
"business combination" with any 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 and Savings Bank, 111 West Monroe, P.O. Box 755, Chicago, Illinois
60690.
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PLAN OF DISTRIBUTION
We are making this rights offering directly to you, the holders of MEMC
common stock other than the VEBA group. 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 have accompanied us on
meetings that we have had with certain investors after the filing of the
registration statement to solicit their participation in the rights offering,
and may continue to solicit participation by investors throughout the rights
offering. The dealer managers are not obligated, and do not intend, to purchase
any of the shares offered in the rights offering.
We will pay the dealer managers a fee of $1,200,000. 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 $270,000 of the dealer managers' expenses incurred in connection with
the rights offering.
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............................. $1,237,500
J.P. Morgan Securities Inc........ $ 732,500
----------
$1,970,000
==========
</TABLE>
We will pay Morrow & Co., Inc., the information agent, a fee of
approximately $16,000 and Harris Trust and Savings Bank, the subscription agent,
a fee of approximately $20,000.
We estimate that our total expenses in connection with the rights offering,
including fees to the dealer managers, Morrow & Co., Inc., and Harris Trust and
Savings Bank, will be $2,787,005.
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 so long as
stabilizing bids do not exceed a specified maximum. The dealer managers do not
currently intend to engage in stabilizing transactions. However, if they do
engage in stabilizing transactions, such transactions will occur on the New York
Stock Exchange and in compliance with the rules of the SEC, and will 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 Zweite 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
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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. NationsBanc Montgomery Securities LLC 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.
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 LLP, independent auditors, audited our consolidated financial
statements and schedules as of December 31, 1998, 1997 and 1996 and for each of
the four years in the period ended December 31, 1998. 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, 1998, 1997 and 1996 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 Certified Public Accountants, independent auditors, audited Taisil
Electronic Materials Corporation's financial statements as of and for the year
ended December 31, 1998 and 1997 and for the years then ended. We incorporate by
reference those financial statements in this prospectus with the permission of
KPMG Certified Public Accountants 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
55
<PAGE> 57
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, on Form
10-K/A filed on December 10, 1998 and on Form 10-K/A filed on March 2,
1999;
- our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998, as each was amended on a
Form 10-Q/A filed on March 2, 1999;
- our Current Reports on Form 8-K dated April 14, 1998 (filed April 14,
1998), October 21, 1998 (filed October 22, 1998), October 22, 1998
(filed October 27, 1998), January 26, 1999 (filed January 28, 1999),
February 17, 1999 (filed March 1, 1999) and March 2, 1999 (filed March
2, 1999); 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 JANINE ORF, DIRECTOR, INVESTOR RELATIONS, MEMC ELECTRONIC
MATERIALS, INC., 501 PEARL DRIVE (CITY OF O'FALLON), ST. PETERS, MISSOURI 63376
(TELEPHONE: (314) 279-5500).
56
<PAGE> 58
- ------------------------------------------------------
- ------------------------------------------------------
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..................... 4
Risk Factors........................... 8
Cautionary Statement Regarding Forward-
Looking Statements................... 17
Recent Developments.................... 19
Use of Proceeds........................ 22
Dividend Policy........................ 23
Price Range of Common Stock............ 23
Capitalization......................... 24
The Rights Offering.................... 25
Business............................... 35
Certain Relationships and Related Party
Transactions......................... 45
Certain Federal Income Tax
Considerations....................... 47
Description of Capital Stock........... 51
Plan of Distribution................... 54
Lawyers................................ 55
Experts................................ 55
Where You Can Find More Information.... 55
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[12,520,000] Shares
MEMC ELECTRONIC MATERIALS, INC. LOGO
MEMC Electronic
Materials, Inc.
Common Stock
------------------------------------
PROSPECTUS
------------------------------------
NationsBanc Montgomery
Securities LLC
J.P. Morgan & Co.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 59
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........................................ $ 26,105
NASD Filing Fee............................................. 9,900
NYSE Listing Fee............................................ 75,000
Dealer Manager Fees and Expenses............................ 1,970,000
Subscription Agent Fee...................................... 20,000
Information Agent Fee....................................... 16,000
Printing and Engraving Expenses............................. 125,000
Legal Fees and Expenses..................................... 250,000
Accounting Fees and Expenses................................ 250,000
Miscellaneous............................................... 45,000
----------
Total..................................................... $2,787,005
==========
</TABLE>
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> 60
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> 61
(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> 62
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 Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in St. Louis, Missouri, on March 2, 1999.
MEMC ELECTRONIC MATERIALS, INC.
By: /s/ JAMES M. STOLZE
------------------------------------
James M. Stolze
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer March 2, 1999
- --------------------------------------------- and Director (Principal Executive
Klaus R. von Horde Officer)
/s/ JAMES M. STOLZE Executive Vice President and Chief March 2, 1999
- --------------------------------------------- Financial Officer (Principal
James M. Stolze Financial and Accounting Officer)
* Director March 2, 1999
- ---------------------------------------------
Dr. Hans Michael Gaul
* Director March 2, 1999
- ---------------------------------------------
Helmut Mamsch
* Director March 2, 1999
- ---------------------------------------------
Willem D. Maris
* Director March 2, 1999
- ---------------------------------------------
Paul T. O'Brien
* Director March 2, 1999
- ---------------------------------------------
Dr. Alfred Oberholz
* Director March 2, 1999
- ---------------------------------------------
Michael B. Smith
* Director March 2, 1999
- ---------------------------------------------
Ludger H. Viefhues
</TABLE>
*By: /s/ JAMES M. STOLZE
---------------------------------------------------------
James M. Stolze, Attorney-In-Fact
II-4
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*1.1 Form of Dealer Manager Agreement among MEMC 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 Rights Certificate to Subscribe for Shares of Common
Stock of the Company
5.1 Opinion of Bryan Cave LLP
*5.1(a) Opinion of Richards, Layton & Finger, P.A.
*8.1 Tax Opinion of Bryan Cave LLP
10.1 Purchase Agreement dated October 22, 1998 between the
Company and VEBA Corporation (incorporated by reference to
Exhibit 2 of the Schedule 13D dated October 30, 1998 filed
by VEBA Aktiengesellschaft and VEBA Corporation with respect
to the Company)
*10.1(a) First Amendment to Purchase Agreement
10.1(b) Second Amendment to Purchase Agreement
10.2 Standby Agreement dated October 22, 1998 between the Company
and VEBA Corporation (incorporated by reference to Exhibit 3
of the Schedule 13D dated October 30, 1998 filed by VEBA
Aktiengesellschaft and VEBA Corporation with respect to the
Company)
10.3 Form of Amendment to Registration Rights Agreement by and
between VEBA Corporation and MEMC
10.4 Revolving Credit Agreement by and between VEBA Corporation
and MEMC dated February 26, 1999
23.1 Consents of Bryan Cave LLP (included in Exhibits 5.1 and
8.1)
23.2 Consent of KPMG LLP
23.3 Consent of KPMG San Tong Corp.
23.4 Consent of KPMG Certified Public Accountants
23.5 Consent of Richards, Layton & Finger, P.A. (included in
Exhibit 5.1(a))
*24.1 Power of Attorney
*99.1 Form of Instructions for Use of MEMC Rights Certificates
*99.2 Form of Notice of Guaranteed Delivery for Subscription
Rights
*99.3 Form of DTC Participant Over-Subscription Exercise Form
*99.4 Announcement of Rights Offering Distributed to Record and
Beneficial Holders on December 7, 1998
*99.5 Form of Letter to Stockholders Who Are Record Holders
*99.6 Form of Letter to Stockholders Who Are Beneficial Holders
*99.7 Form of Letter to Clients of Stockholders Who Are Beneficial
Holders
*99.8 Form of Nominee Holder Certification Form
*99.9 Substitute Form W-9 for Use with the Rights Offering
*99.10 Form of Beneficial Owner Election Form
*99.11 Form of Subscription Agent Agreement by and between MEMC and
Harris Trust and Savings Bank
*99.12 Information Agent Agreement, dated December 7, 1998, by and
between MEMC and Morrow & Co., Inc.
99.13 Consent of NationsBanc Montgomery Securities LLC
</TABLE>
- ---------------
* Previously filed.
II-5
<PAGE> 1
Exhibit 4.1
552715 11 2
--------------- CUSIP NUMBER
RIGHTS CERTIFICATE NUMBER
---------------
NUMBER OF RIGHTS REPRESENTED
SUBSCRIPTION PRICE: $ PER SHARE
---
[Name of Rights holder]
[Address Line 1]
[Address Line 2]
[Address Line 3]
MEMC ELECTRONIC MATERIALS, INC.
RIGHTS CERTIFICATE TO SUBSCRIBE FOR SHARES OF COMMON STOCK
FOR HOLDERS OF RECORD ON , 199
-------- -
EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON , 199 ,
UNLESS EXTENDED BY THE COMPANY. ---------- -
MEMC Electronic Materials, Inc., a Delaware corporation (the "Company"), is
conducting a rights offering (the "Rights Offering") which entitles the holders
(other than VEBA Corporation or its permitted transferees) of the Company's
common stock, $0.01 par value per share (the "Common Stock"), as of the close of
business on _____, 199_ (the "Record Date") to receive ____ transferable rights
(each, a "Right") for each share of Common Stock held of record on the Record
Date. Each Right entitles the holder thereof to subscribe for and purchase one
share of Common Stock (the "Basic Subscription Privilege") at a subscription
price of $ __ per share. If any shares of Common Stock are not purchased by the
Rights holders pursuant to such Rights holders' Basic Subscription Privileges
(the "Excess Shares"), any Rights holder fully exercising such Rights holder's
Basic Subscription Privilege may purchase an additional number of the Excess
Shares, if so specified by such Rights holder on Form 1 or on separate
instructions accompanying this Rights Certificate delivered to the Subscription
Agent pursuant to the terms and conditions of the Rights Offering (or if the
aggregate subscription price delivered or transmitted by such Rights holder
exceeds the aggregate subscription price for all shares for which such Rights
holder would be entitled to subscribe pursuant to such Rights Holder's Basic
Subscription Privilege), subject to proration (the "Over-Subscription
Privilege") as described in the prospectus (the "Prospectus") dated February __,
1999. No fractional Rights or cash in lieu thereof will be issued or paid. Set
forth above is the number of Rights evidenced by this Rights Certificate that
the Rights holder is entitled to exercise pursuant to such Rights holder's Basic
Subscription Privilege. The Rights are governed by the substantive law of the
State of Delaware.
MEMC ELECTRONIC MATERIALS, INC.
By:
- ----------------------------- --------------------------
Secretary President
<PAGE> 2
Countersigned:
HARRIS TRUST AND SAVINGS BANK
By:
-------------------------------
Authorized Signature
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE RIGHTS
OFFERING, PLEASE REFER TO THE PROSPECTUS, WHICH IS INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE
INFORMATION AGENT, MORROW & CO., INC., AT (800) 566-9061. CAPITALIZED TERMS USED
BUT NOT DEFINED HEREIN SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO SUCH TERMS
IN THE PROSPECTUS.
THIS RIGHTS CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, HARRIS TRUST
AND SAVINGS BANK, WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK CITY TIME, ON
________, 199_ (UNLESS EXTENDED IN THE SOLE DISCRETION OF THE COMPANY) (AS IT
MAY BE EXTENDED, THE "EXPIRATION DATE"). ANY RIGHTS NOT EXERCISED PRIOR TO THE
EXPIRATION DATE WILL BE NULL AND VOID. ANY SUBSCRIPTION FOR SHARES OF COMMON
STOCK IN THE RIGHTS OFFERING MADE HEREBY IS IRREVOCABLE, EXCEPT AS DESCRIBED IN
THE PROSPECTUS. HARRIS TRUST AND SAVINGS BANK WILL ISSUE CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK PURCHASED PURSUANT TO THE RIGHTS OFFERING AS
SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE.
Some or all of the Rights represented by this Rights Certificate may be
exercised by duly completing Form 1; and may be transferred to a designated
transferee or assigned to a bank or broker to sell for you by duly completing
Form 2; and may be transferred to the Subscription Agent to sell for you by duly
completing Form 3. Rights holders are advised to review the Prospectus and
instructions, copies of which are available from the Information Agent, Morrow &
Co., Inc., before exercising, assigning, transferring or selling their Rights.
The registered owner whose name is inscribed hereon or its assigns, is
entitled to subscribe for shares of Common Stock upon the terms and subject to
the conditions set forth in the Prospectus and instructions relating to the use
hereof.
THE RIGHTS CERTIFICATE IS TRANSFERABLE, AND MAY BE COMBINED OR DIVIDED (BUT ONLY
INTO RIGHTS CERTIFICATES EVIDENCING FULL RIGHTS) AT THE OFFICE OF HARRIS TRUST
AND SAVINGS BANK.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE, ASSIGN, TRANSFER
OR SELL ONLY PART OF THEIR RIGHTS, THEY MAY NOT RECEIVE A NEW RIGHTS CERTIFICATE
IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY.
<PAGE> 3
FORM 1
EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercises one or
more Rights to subscribe for shares of Common Stock as indicated below, on the
terms and subject to the conditions specified in the Prospectus, receipt of
which is hereby acknowledged.*
(a) Number of shares subscribed for pursuant to the Basic Subscription
Privilege
_______ X $___.__ = $________ payment. (One Right needed to subscribe
for one share.)
(b) Number of shares subscribed for pursuant to the Over-Subscription
Privilege
_______ X $___.__ = $________ payment.
By exercising this Over-Subscription Privilege, the undersigned Rights holder
hereby represents and certifies that the undersigned has fully exercised its
Basic Subscription Privilege received in respect of shares of Common Stock held
in the capacity described on the face of the Rights Certificate.
(c) Total Subscription (total number of shares on lines (a) and (b)
multiplied by the Subscription Price) = $__________ payment.
METHOD OF PAYMENT (CHECK AND COMPLETE APPROPRIATE BOX(ES)):
[_] Check, bank draft, or money order payable to "Harris Trust
and Savings Bank, as Subscription Agent": or
[_] Wire transfer of immediately available funds directed to The
Chase Manhattan Bank, New York, NY ABA No. 021 000 021. Account:
617-999988 (marked: MEMC Electronic Materials, Inc.
Subscription).
(d) If the Rights being exercised pursuant to the Basic Subscription
Privilege do not account for all of the Rights represented by the Rights
Certificate (check only one):
[_] Deliver to the undersigned a new Rights Certificate
evidencing the remaining unexercised Rights to which the
undersigned is entitled.
[_] Deliver one or more Rights Certificates in accordance with
the undersigned's Form 2 instructions (which include any
required signature guarantees).
[_] Sell the remaining unexercised Rights in accordance with the
undersigned's Form 3 instructions (which include any
required signature guarantees).
<PAGE> 4
[_] Do not deliver any new Rights Certificates to me; instead,
deliver such Rights Certificates in accordance with the
undersigned's Form 4 instructions (which include any
required signature guarantees).
(e) If Notice of Guaranteed Delivery procedures are being utilized:
[_] Check here if Rights are being exercised pursuant to the
Notice of Guaranteed Delivery delivered to the Subscription
Agent prior to the date hereof and complete the following:
Name(s) of Registered Holder(s)
---------------------------------
Window Ticket Number (if any)
-----------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------
Name of Institution Which Guaranteed Delivery
-------------------
* If the aggregate Subscription Price enclosed or transmitted is insufficient to
purchase the total number of shares of Common Stock included in lines (a) and
(b), or if the number of shares being subscribed for is not specified, the
Rights holder exercising this Right Certificate shall be deemed to have
subscribed for the maximum amount of shares of Common Stock that could be
subscribed for with the aggregate Subscription Price received. If the number of
shares of Common Stock to be subscribed for pursuant to the Over-Subscription
Privilege is not specified and the amount enclosed or transmitted exceeds the
aggregate Subscription Price for all shares which may be purchased pursuant to
the Basic Subscription Privilege represented by this Rights Certificate (the
"Subscription Excess"), the Rights holder exercising this Rights Certificate
shall be deemed to have exercised the Over-Subscription Privilege to purchase,
to the extent available, that number of whole shares of Common Stock equal to
the quotient obtained by dividing the Subscription Excess by the Subscription
Price, subject to the limit on the number of shares a Rights holder may purchase
pursuant to the Over-Subscription Privilege. To the extent any portion of the
aggregate Subscription Price enclosed or transmitted remains after the foregoing
procedures, such funds shall be mailed to the Rights holder without interest or
deduction as soon thereafter as practicable.
Rights holder's Signature(s)
--------------------------------------
Rights holder's Signature(s)
--------------------------------------
(If held jointly)
Telephone No. ( )
-------------------------------------------------
<PAGE> 5
FORM 2
TO TRANSFER SOME OR ALL OF YOUR UNEXERCISED RIGHTS TO A DESIGNATED TRANSFEREE,
OR TO ASSIGN SOME OR ALL OF YOUR UNEXERCISED RIGHTS TO A BANK OR BROKER TO SELL
FOR YOU:
For value received, ______ Rights represented by this Rights Certificate are
hereby assigned to (please print name and address and Taxpayer Identification
Number (see Instructions to Substitute Form W-9 accompanying this Rights
Certificate) of transferee in full (see instructions below regarding the
transfer of all or a portion of your unexercised Rights to more than one
person):
Name:
---------------------------------
Address:
------------------------------
------------------------------
Taxpayer Identification Number:
---------------------------------
Signature(s) of Transferor(s):
------------------------------------
Signature(s) of Transferor(s):
------------------------------------
(If held jointly)
Signature(s) Guaranteed By:
----------------------------------------
Eligible Institution
Proceeds from the sale of Rights may be subject to withholding of U.S. taxes
unless the seller's certified U.S. taxpayer identification number (or
certificate regarding foreign status) is on file with the Subscription Agent and
the seller is not otherwise subject to U.S. backup withholding.
If you desire to transfer or assign all or a portion of the unexercised Rights
represented by this Rights Certificate to more than one person, attach separate
instructions to the Subscription Agent regarding such transfer(s) in accordance
with Paragraph 3(d) of the "Instructions For Use of MEMC Electronic Materials,
Inc. Rights Certificates." Note that any such request will require a signature
guarantee from an Eligible Institution (as defined in the Instructions), unless
such requirement is waived by the Subscription Agent in its sole and absolute
discretion.
<PAGE> 6
If not all of the Rights represented by this Rights Certificate are exercised
pursuant to Form 1, transferred to a designated transferee or assigned to a bank
or broker to sell for you pursuant to Form 2 or transferred to the Subscription
Agent to sell for you pursuant to Form 3, the Subscription Agent will issue a
new Rights Certificate to the transferor for the remaining Rights not so
exercised, transferred, assigned or sold unless otherwise separately instructed,
subject to the terms of the Rights Offering, as described in the Prospectus.
<PAGE> 7
FORM 3
TO SELL SOME OR ALL OF YOUR UNEXERCISED RIGHTS THROUGH THE SUBSCRIPTION AGENT:
The undersigned hereby authorizes the Subscription Agent to sell _______ Rights
represented by the Rights Certificate but not exercised on Form 1, upon the
terms and conditions described in the Prospectus, and to deliver to the
undersigned a check for the proceeds, if any, from the sale thereof, less any
applicable brokerage commissions, taxes or other direct expenses of sale (see
instructions below regarding the sale of only a portion of your unexercised
Rights). The Subscription Agent's obligation to execute orders is subject to its
ability to find buyers for the Rights.
Proceeds from the sale of Rights may be subject to withholding of U.S. taxes
unless the seller's certified U.S. taxpayer identification number (or
certificate regarding foreign status) is on file with the Subscription Agent and
the seller is not otherwise subject to U.S. backup withholding.
In order to sell Rights through the Subscription Agent, you must complete and
sign the substitute Form W-9, as provided in Section 8 of the "Instructions For
Use of MEMC Electronic Materials, Inc. Rights Certificates".
Rights holder's Signature(s):
-----------------------------------
Rights holder's Signature(s):
-------------------------------
(If held jointly)
Signatures Guaranteed by:
--------------------------------------
Eligible Institution
If you desire to sell only a portion of the unexercised Rights represented by
this Rights Certificate, attach separate instructions to the Subscription Agent
regarding such sale(s) in accordance with Paragraph 3(f) of the Instructions.
Note that any such request will require a signature guarantee from an Eligible
Institution (as defined in the Instructions), unless such requirement is waived
by the Subscription Agent in its sole and absolute discretion.
If not all of the Rights represented by this Rights Certificate are exercised
pursuant to Form 1, transferred to a designated transferee or assigned to a bank
or broker to sell for you pursuant to Form 2 or sold by the Subscription Agent
pursuant to Form 3, the Subscription Agent will issue a new Rights Certificate
to the transferor for the remaining Rights not so exercised, transferred,
assigned or sold unless otherwise instructed, subject to the terms of the Rights
Offering, as described in the Prospectus.
<PAGE> 8
FORM 4
DELIVERY INSTRUCTIONS: Address for mailing of Common Stock or new Rights
Certificate or any cash payment in accordance with the Prospectus if other than
shown on this reverse hereof:
Name:
--------------------------------------
Address:
-----------------------------------
Rights holder's Signature(s):
-----------------------------------
Rights holder's Signature(s):
-----------------------------------
(If held jointly)
Signatures Guaranteed by:
--------------------------------------
Eligible Institution
If the addressee above is not an Eligible Institution (as defined in the
"Instructions For Use of MEMC Electronic Materials, Inc. Rights Certificates")
or the Rights holder named on this Rights Certificate, then the Rights holder
completing this Form 4 must have an Eligible Institution guarantee such Rights
holder's signature.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF BRYAN CAVE LLP]
March 2, 1999
Board of Directors
MEMC Electronic Materials, Inc.
501 Pearl Drive (City of O'Fallon)
St. Peters, Missouri 63376
Gentlemen:
We are acting as special counsel to MEMC Electronic Materials, Inc., a
Delaware corporation (the "Company"), in connection with its Registration
Statement on Form S-3 filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Act"), on October 22, 1998, as
amended on December 11, 1998, December 31, 1998 and February , 1999
(Registration No. 333-65973) (the "Registration Statement"). The Registration
Statement covers the registration of $93,900,000 of shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), and of
transferable rights which are exercisable for the Common Stock (the "Rights").
The Company proposes to issue the Common Stock upon the exercise of the Rights,
which will be distributed pro rata to eligible holders of record of the
Company's common stock other than VEBA Corporation or its permitted transferees
(the "Rights Offering").
In connection herewith, we have examined and relied without independent
investigation as to matters of fact upon such certificates of public officials,
such statements and certificates of officers of the Company and such other
corporate records, documents, certificates and instruments as we have deemed
necessary or appropriate in order to enable us to render the opinions expressed
herein. We have assumed the genuineness of all signatures on all documents
examined by us, the authenticity of all documents submitted to us as originals
and the conformity to authentic originals of all documents submitted to us as
certified or photostatted copies.
Based upon the foregoing and in reliance thereon and subject to the
effectiveness of the Registration Statement, we are of the opinion that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware;
(ii) Upon distribution of the Rights pursuant to the Rights
Offering, as described in the Registration Statement and the
Prospectus constituting a part of the Registration Statement (the
"Prospectus"), then such Rights will be duly authorized and validly
issued and are valid and binding obligations of the Company; and
(iii) Upon issuance and sale against payment therefor pursuant to the
Rights Offering, as described in the Registration Statement and the
Prospectus, then such shares of Common Stock will be duly authorized,
validly issued, fully paid and non-assessable.
<PAGE> 2
Board of Directors
MEMC Electronic Materials, Inc.
March 2, 1999
Page 2
This opinion is not rendered with respect to any laws other than the Law of
the State of Delaware and the Act. We have relied, only in part, on an opinion
of Richards, Layton & Finger, P.A. to us of December 31, 1998 with respect to
certain aspects of Delaware law set forth in paragraphs (ii) and (iii) above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Lawyers" in the Prospectus filed as a part of the Registration Statement. We
also consent to your filing copies of this opinion as an exhibit to the
Registration Statement with agencies of such states as you deem necessary in the
course of complying with the laws of such states regarding the offering and sale
of such shares of Common Stock and the issuance of such Rights. In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
BRYAN CAVE LLP
<PAGE> 1
Exhibit 10.1(b)
SECOND AMENDMENT
TO
PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AGREEMENT (the "Second
Amendment") is entered into as of February 14, 1999, by and between VEBA Zweite
Verwaltungsgesellschaft mbH, a German limited liability company ("VEBA Zweite"),
and MEMC Electronic Materials, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Company and VEBA Corporation, a Delaware corporation,
entered into that certain Purchase Agreement, dated as of October 22, 1998 (the
"Original Purchase Agreement"), pursuant to which the Company agreed to sell and
VEBA Corporation agreed to purchase shares of the Company's common stock, par
value $0.01 per share (the "Common Stock"), on the terms and conditions set
forth therein;
B. The First Amendment to Purchase Agreement, dated as of
December 29, 1998, by and among the Company and VEBA Corporation (together with
the Original Purchase Agreement, the "Purchase Agreement"), amended Section 2 of
the Original Purchase Agreement to extend the date after which the Closing (as
defined in the Purchase Agreement) shall not occur to February 15, 1999.
C. VEBA Corporation assigned to VEBA Zweite all of VEBA
Corporation's rights under the Purchase Agreement to purchase the shares of
Common Stock and all of the other rights and benefits afforded to VEBA
Corporation under the Purchase Agreement pursuant to an Assignment and
Assumption Agreement, dated as of December 30, 1998, by and between VEBA
Corporation and VEBA Zweite.
D. The parties hereto desire to amend Section 2 of the
Purchase Agreement to extend further the date after which the Closing shall not
occur.
NOW, THEREFORE, in consideration of the recitals and the
mutual covenants, representations, warranties, conditions and agreements
hereinafter expressed, the parties agree as follows:
<PAGE> 2
AMENDMENT
1. Section 2 of the Purchase Agreement is amended by deleting
the date "February 15, 1999" in the proviso of the first sentence, and replacing
it with "April 30, 1999".
2. Except as modified herein, all terms and conditions of the
Purchase Agreement shall remain in full force and effect.
3. This Second Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Second Amendment to be executed as of the date first above written.
VEBA ZWEITE VERWALTUNGSGESELLSCHAFT MBH
/s/ Friedrich Oschmann
By _____________________________
Name: Dr. Friedrich Oschmann
Title: Attorney-in-Fact
MEMC ELECTRONIC MATERIALS INC.
/s/ James M. Stolze
By _____________________________
Name: James M. Stolze
Title: Exec. V.P. and C.F.O.
2
<PAGE> 3
[Letterhead of
VEBA ZWEITE VERWALTUNGSGESELLSCHAFT MBH]
POWER OF ATTORNEY
We, VEBA Zweite Verwaltungsgesellschaft, Bennigsenplatz 1, 40474 Dusseldorf,
Germany, represented by Dr. Rolf Pohlig as Director, hereby appoint Dr. Michael
Bangert, Dr. Klaus Grundler, Mrs. Judith Witte, Dr. Friedrich Oschmann, Mr.
Frank Jungfermannn and Mr. Jens-Uwe Herrmann of VEBA Aktiengesellschaft,
Bennigsenplatz 1, 40474 Dusseldorf, Germany, each acting alone with power to
execute and deliver on our behalf
the Purchase Agreement between MEMC Electronic Materials, Inc. and
ourselves,
the Registration Rights Agreement between MEMC Electronic Materials, Inc.
and ourselves,
the Escrow Agreement between MEMC Electronic Materials, Inc., ourselves and
Chadbourne & Parke LLP (collectively the "Agreements"), and
the Amendment to Schedule 13 D required to be filed with the Securities
and Exchange Commission
in connection with the private placement by MEMC Electronic Materials, Inc. as
issuer, and ourselves, as buyer, of MEMC Common Stock pursuant to the terms of
the Purchase Agreement, and to take any other action necessary in connection
with the Agreements and the filing of Schedule 13 D.
The appointed are exempt from the restrictions of section 181 of the German
Civil Code.
Dusseldorf, 21 December 1998
VEBA Zweite Verwaltungsgesellschaft
/s/ Dr. Rolf Pohlig
(Dr. Rolf Pohlig)
-----------------------------------
Geschftsfuhrar: Ulrich Huppe - Dr. Rolf Pohlig
Amtsgericht Dusseldorf HRB 33266
<PAGE> 1
Exhibit 10.3
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT DATED FEBRUARY ___, 1999
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT is made
and entered into the ___ day of February, 1999 ("Amendment"), between MEMC
Electronic Materials, Inc., a Delaware corporation (the "Company"), and VEBA
Corporation, a Delaware corporation ("VEBA").
WHEREAS, the Company and Huls Corporation ("Huls") entered
into a Registration Rights Agreement dated as of July 12, 1995 (the
"Agreement");
WHEREAS, on September 30, 1998, Huls merged with and into VEBA
and thus VEBA became the successor in interest to Huls under the Agreement;
WHEREAS, on the date hereof VEBA (as successor to Huls) is the
owner of 21,490,942 shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock");
WHEREAS, the Company and VEBA entered into (i) a Purchase
Agreement dated as of October 22, 1998 (the "Purchase Agreement") pursuant to
which VEBA agreed to purchase and the Company agreed to issue to VEBA a number
of shares of Common Stock equal to 106,100,000 divided by the Purchase Price (as
defined in the Purchase Agreement) rounded up to the nearest whole number and
(ii) a Standby Agreement dated as of October 22, 1998 (the "Standby Agreement")
pursuant to which VEBA agreed to purchase and the Company agreed to issue to
VEBA the shares of Common Stock offered in a registered rights offering (the
"Rights Offering") to all of the Company's existing stockholders (other than
VEBA) and not otherwise subscribed for by the other stockholders of the Company
prior to the expiration time of such rights;
WHEREAS, it is a condition to the closing under each of the
Purchase Agreement and the Standby Agreement that the Agreement shall have been
amended to include all shares of Common Stock acquired or to be acquired or
purchased or to be purchased by VEBA, VEBA Aktiengesellschaft, a German stock
corporation ("VEBA AG"), or any Subsidiaries of VEBA AG after October 22, 1998.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants,
promises, representations, warranties and conditions set forth in this
Amendment, the parties hereto, intending to be legally bound, hereby agree as of
November , 1998, as follows:
1. All references in the Agreement to "Huls Corporation" and
"Huls" are hereby amended by deleting each such reference and substituting in
lieu thereof "VEBA Corporation" or "VEBA," respectively.
2. The definitions of "Holder" and "Registrable Stock" in
Section 1 of the Agreement are hereby deleted in their entirety and the
following definitions are substituted in lieu thereof:
""Holder" shall mean (i) VEBA, VEBA AG and any Subsidiary of
VEBA AG that beneficially owns on the date hereof, or hereinafter
acquires or purchases, shares of Common Stock and (ii) any transferee
or assignee to whom the rights under this Agreement are assigned in
accordance with the provisions of Section 9 hereof;
"Purchase Agreement" shall mean that certain Purchase
Agreement dated as of October 22, 1998, as amended from time to time,
by and among the Company and VEBA;
"Registrable Stock" shall mean the Common Stock beneficially
owned on the date hereof, or hereafter acquired or purchased, by VEBA,
VEBA AG or any Subsidiary of VEBA AG, including, without limitation,
any Common Stock (i) acquired by VEBA, VEBA AG or any Subsidiary of
VEBA AG as a result of the transactions contemplated by the Purchase
Agreement or the Standby Agreement or upon exercise of any rights to
purchase Common Stock, (ii) purchased on the open market by VEBA, VEBA
AG or any Subsidiary of VEBA AG or (iii) issued to VEBA, VEBA AG or any
Subsidiary of VEBA AG as a dividend or other distribution or by way of
a stock split. For purposes of this Agreement, any Registrable Stock
shall cease to be Registrable Stock when (x) a registration statement
covering such Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such effective
registration statement or (y) such Registrable Stock is
2
<PAGE> 3
sold or distributed pursuant to Rule 144 (or any similar or successor
provision (but not Rule 144A)) under the Securities Act.
"Standby Agreement" shall mean that certain Standby Agreement
dated as of October 22, 1998, as amended from time to time, by and
among the Company and VEBA.
"Subsidiary" shall mean, with respect to any person or entity,
any other person or entity of which more than 50% of the capital stock
or other ownership interest is owned, or is controlled, either directly
or indirectly, by such person or entity.
"VEBA AG" shall mean VEBA Aktiengesellschaft, a German
corporation and the direct and indirect owner of 100% of the common
stock of VEBA."
3. Section 2, paragraph (a) of the Agreement is hereby amended
by inserting at the end thereof the following:
"Within 10 days following the receipt of each notice under
this Section 2, the Company shall give all Holders (other than the
Requesting Holders) written notice of the receipt thereof, which
written notice shall include a copy of the notice by the Requesting
Holders. Upon the written request of any Holder received by the Company
no later than 15 days after the Company's notice, the Company shall use
its best efforts to cause to be included in the Demand Registration all
of the Registrable Stock that each such Holder has so requested to be
included."
4. The following new Section 18 is hereby inserted
after Section 17 of the Agreement:
"Section 18. Third Party Beneficiaries." Each Holder shall be
deemed to be a third party beneficiary of this Agreement and shall have
the right to enforce directly against the Company all of the provisions
contained in this Agreement, as amended from time to time,
notwithstanding that it is not a signatory to this Agreement."
3
<PAGE> 4
5. Unless otherwise provided herein, any term in initial
capital letters used as a defined term but not defined in this Amendment shall
have the meaning set forth in the Agreement.
6. Except as modified herein, all terms and conditions of the
Agreement shall remain in full force and effect.
7. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed as of the date first above written.
VEBA CORPORATION
By: ____________________________________
Name:
Title:
MEMC ELECTRONIC MATERIALS, INC.
By: ____________________________________
Name:
Title:
5
<PAGE> 1
Exhibit 10.4
================================================================================
$75,000,000
REVOLVING CREDIT AGREEMENT
Dated as of February 26, 1999
Between
MEMC ELECTRONIC MATERIALS, INC.
as Borrower
and
VEBA CORPORATION
as Initial Lender and as Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS....................................1
SECTION 1.01. Certain Defined Terms...........................................1
SECTION 1.02. Computation of Time Periods.....................................5
SECTION 1.03. Accounting Terms................................................5
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES..................................5
SECTION 2.01. The Advances....................................................5
SECTION 2.02. Making the Advances.............................................5
SECTION 2.03. Commitment Fee..................................................6
SECTION 2.04. Optional Termination or Reduction of the Commitments............6
SECTION 2.05. Repayment.......................................................7
SECTION 2.06. Interest........................................................7
SECTION 2.07. Reserved........................................................7
SECTION 2.08. Interest Rate Determination.....................................7
SECTION 2.09. Increased Costs, Etc............................................7
SECTION 2.10. Illegality......................................................8
SECTION 2.11. Payments and Computations.......................................8
SECTION 2.12. Taxes...........................................................9
SECTION 2.13. Sharing of Payments, Etc.......................................10
SECTION 2.14. Use of Proceeds................................................11
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING..........................11
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01..........11
SECTION 3.02. Conditions Precedent to each Borrowing.........................12
SECTION 3.03. Determinations Under Section 3.01..............................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES....................................12
SECTION 4.01. Representations and Warranties of the Borrower.................12
ARTICLE V COVENANTS OF THE BORROWER..........................................13
SECTION 5.01. Covenant to Repay from Private Placement Proceeds..............13
SECTION 5.02. Negative Covenants.............................................14
ARTICLE VI EVENTS OF DEFAULT.................................................15
SECTION 6.01. Events of Default..............................................15
<PAGE> 3
ii
ARTICLE VII THE AGENT........................................................16
SECTION 7.01. Authorization and Action.......................................16
SECTION 7.02. Agent's Reliance, Etc..........................................17
SECTION 7.03. VEBA...........................................................17
SECTION 7.04. Lender Credit Decision.........................................17
SECTION 7.05. Indemnification................................................17
SECTION 7.06. Successor Agent................................................18
ARTICLE VIII MISCELLANEOUS...................................................18
SECTION 8.01. Amendments, Etc................................................18
SECTION 8.02. Notices, Etc...................................................18
SECTION 8.03. No Waiver; Remedies............................................19
SECTION 8.04. Costs and Expenses.............................................19
SECTION 8.05. Right of Setoff................................................20
SECTION 8.06. Binding Effect.................................................20
SECTION 8.07. Assignments and Participations.................................20
SECTION 8.08. Confidentiality................................................23
SECTION 8.09. Governing Law..................................................23
SECTION 8.10. Execution in Counterparts......................................23
SECTION 8.11. Jurisdiction, Etc..............................................23
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Borrowing Notice
Exhibit C - Form of Assignment and Acceptance
<PAGE> 4
REVOLVING CREDIT AGREEMENT
Dated as of February 26, 1999
MEMC ELECTRONIC MATERIALS, INC., a Delaware corporation, as
the borrower (the "Borrower"), and VEBA CORPORATION, a corporation formed under
the laws of the State of Delaware ("VEBA"), as the initial lender (the "Initial
Lender") and as agent (together with any successor appointed pursuant to Article
VII, the "Agent") for the Lenders (as hereinafter defined), hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Advance" has the meaning specified in Section 2.01.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the voting
stock of such Person or to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting stock, by
contract or otherwise.
"Agent" has the meaning specified in the recital of parties
to this Agreement.
"Agent's Account" means the Dollar account of the Agent
maintained with such bank as the Agent shall specify in writing to the Borrower
and the Lenders from time to time.
"Applicable Spread" means a percentage per annum equal to the
excess of (a) the Bloomberg fair market sector curves (adjusted for the chosen
interest rate method and period) applicable one Business Day prior to March 1,
1999, to a B3 rated industrial borrower for the period from March 1, 1999
through June 30, 1999 over (b) the corresponding British Bankers' Association
(BBA) LIBOR fixing rate (as shown on the Reuters page FRBD or comparable pages)
for such four-month period.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee and accepted by the Agent, in
substantially the form of Exhibit C hereto.
"Bank" means any Lender other than the Initial Lender or any
Affiliate of the Initial Lender.
"Borrower" has the meaning specified in the recital of
parties to this Agreement.
<PAGE> 5
2
"Borrowing" means the borrowing consisting of the Advances
made by the Lenders.
"Borrowing Notice" has the meaning specified in
Section 2.02(a).
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City and, if the applicable
business day relates to any Advances, on which dealings are carried on in the
London interbank market.
"Commitment" has the meaning specified in Section 2.01.
"Confidential Information" means information that the Borrower
furnishes to the Agent or any Lender in a writing designated as confidential,
but does not include any such information that is or becomes generally available
to the public or that is or becomes available to the Agent or such Lender from a
source other than the Borrower, an Affiliate of the Borrower or an Affiliate of
the Initial Lender.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Debt" means (a) indebtedness for borrowed money, (b)
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) obligations to pay the deferred purchase price of property or services, (d)
obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, and (e) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (a) through (d) of this
definition.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
"Dollars" and the sign "$" each means lawful money of the
United States of America.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means any Person approved by all of the
Lenders; provided, however, that neither the Borrower nor any Subsidiary of the
Borrower shall qualify as an Eligible Assignee.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Eurodollar Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Eurodollar Lending Office" in the
Assignment and Acceptance pursuant to which it became a Lender, or such other
office of such Bank as such Bank may from time to time specify to the Borrower
and the Agent.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve System, as
in effect from time to time.
<PAGE> 6
3
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all Advances comprising part of the same Borrowing means the reserve
percentage applicable two Business Days before the first day of such Interest
Period under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Advances is determined) having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"GAAP" has the meaning specified in Section 1.03.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any federal, state, local or
foreign court or governmental, executive, legislative, judicial, administrative
or regulatory agency, department, authority, instrumentality, commission, board
or similar body.
"Indemnified Party" has the meaning specified in
Section 8.04(b).
"Initial Lender" has the meaning specified in the recital of
parties to this Agreement.
"Interest Period" means, for each Advance comprising part of
the same Borrowing, the period commencing on the date of such Advance and ending
on the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on the last
day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one week or one, two, three or
four months, as the Borrower may, upon notice received by the Agent not later
than 11:00 A.M. (New York City time) on the third Business Day prior to the
first day of such Interest Period, select; provided, however, that:
(a) the Borrower may not select any Interest Period that ends
after the Termination Date;
(b) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;
(c) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on the
next preceding Business Day; and
<PAGE> 7
4
(d) whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in
such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Interest Rate" for any Interest Period means a rate per annum
at all times equal to the sum of (i) the British Bankers' Association (BBA)
LIBOR rate (as shown on the Reuters page FRBD or comparable pages) for such
Interest Period for such Advance, divided by a percentage equal to 100% minus
the Eurodollar Rate Reserve Percentage for such Interest Period, plus (ii) the
Applicable Spread.
"Lender" means the Initial Lender and each Person that shall
become a party hereto pursuant to Section 8.07.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole.
"Note" means a promissory note of the Borrower payable to the
order of any Lender, substantially in the form of Exhibit A hereto, evidencing
the Debt of the Borrower to such Lender resulting from the Advance made by such
Lender.
"Other Taxes" has the meaning specified in Section 2.12(b).
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust, unincorporated
association, joint venture, limited liability company or other entity, or a
government or any political subdivision or agency thereof.
"Private Placement Closing" means the closing under the
Purchase Agreement dated as of October 22, 1998 by and among VEBA and the
Borrower, as amended from time to time and as assigned by VEBA to VEBA Zweite
Verwaltungsgesellschaft mbH, a German limited liability company, as of December
30, 1998.
"Register" has the meaning specified in Section 8.07(c).
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries; provided,
however, that the term "Subsidiary" shall not include any joint venture of the
Borrower with respect to any action or decision of the board of directors of
such joint venture if, by
<PAGE> 8
5
written agreement, such action or decision requires a vote in excess of the
number of members of such board of directors elected or controlled by the
Borrower.
"Taxes" has the meaning specified in Section 2.12(a).
"Termination Date" means the earliest of (a) June 30, 1999,
(b) the termination in whole of the Commitments pursuant to Section 2.04 or
Section 6.01 or (c) the date of the Private Placement Closing.
"United States" and "U.S." each means the United States
of America.
The words "include," "includes" and "including" shall be
deemed to be followed by the phrase "without limitation."
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding."
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. Each Lender severally agrees, on
the terms and conditions hereinafter set forth, to make advances (each, an
"Advance") to the Borrower from time to time on any Business Day during the
period from the Effective Date until the Termination Date in an amount not to
exceed the amount set forth opposite such Lender's name on the signature pages
hereof or, if such Lender has entered into any Assignment and Acceptance, set
forth for such Lender in the Register maintained by the Agent pursuant to
Section 8.07(c), as such amount may be reduced pursuant to Section 2.04 (such
Lender's "Commitment"). Each Borrowing shall be in an aggregate amount of
$5,000,000 or an integral multiple of $5,000,000 in excess thereof and shall be
made simultaneously by the Lenders ratably according to their respective
Commitments. Within the limits of each Lender's Commitment, the Borrower may
borrow and reborrow under this Section 2.01.
SECTION 2.02. Making the Advances. (a) Each Borrowing shall be
made on notice, given not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the date of the proposed Borrowing by the Borrower
to the Agent, which shall give to each Lender prompt notice thereof by
telecopier or telex. Each notice of a Borrowing (a "Borrowing Notice") shall be
by telephone, confirmed immediately in writing, or telecopier or telex, in
substantially the form of Exhibit B hereto, specifying therein, among other
things, the requested (i) date of such Borrowing, (ii) the amount of such
Borrowing and (iii) the initial Interest Period for such Advances. Each Lender
shall, before 11:00 A.M. (New York City time) on the date of such Borrowing,
make available for the account of its Eurodollar
<PAGE> 9
6
Lending Office to the Agent at the Agent's Account, in same day funds, such
Lender's ratable portion of such Borrowing. After the Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Agent will make such funds available to the Borrower by depositing the
proceeds of the Advances in such Dollar account of the Borrower (or of such
Person as the Borrower shall specify to the Lender in the Borrowing Notice or by
other written notice to the Lender given simultaneously with or prior to such
Borrowing Notice) maintained with such bank as the Borrower shall specify to the
Agent in such Borrowing Notice.
The parties hereto understand and agree that the Initial
Lender may, in its sole discretion (but shall have no obligation to), designate
a financial institution or another Person to perform the Initial Lender's
obligations hereunder in accordance with the terms hereof. The Borrower agrees
that performance of any such obligation by any such designee of the Initial
Lender shall be deemed to constitute performance by the Initial Lender for all
purposes of this Agreement and the Note and shall discharge the Initial Lender
from such obligation to the extent of such performance.
(b) Anything in subsection (a) of this Section 2.02 to the contrary
notwithstanding, the Borrower may not request a Borrowing if the obligation of
the Lenders to make Advances shall then be suspended pursuant to Section 2.10.
(c) Each Borrowing Notice delivered by the Borrower to the Agent shall
be irrevocable and binding on the Borrower. The Borrower shall indemnify each
Lender against any loss, cost or expense incurred by such Lender as a result of
any failure to fulfill on or before the date specified in such Borrowing Notice
for such Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund the Advance to be made
by such Lender as part of such Borrowing when such Advance, as a result of such
failure, is not made on such date.
(d) The Agent shall only make available to the Borrower on the date of
any Borrowing the ratable portion of such Borrowing of each Lender that such
Lender has made available to the Agent on or prior to the date of such
Borrowing.
(e) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Commitment Fee. The Borrower agrees to pay to
the Agent for the account of each Lender a commitment fee on the unused portion
of such Lender's Commitment from the Effective Date in the case of the Initial
Lender and from the effective date specified in the Assignment and Acceptance
pursuant to which it became a Lender in the case of each other Lender until the
Termination Date at a rate per annum equal to 1/4 of 1%, payable in arrears on
March 31, 1999 and on the Termination Date.
<PAGE> 10
7
SECTION 2.04. Optional Termination or Reduction of the
Commitments. The Borrower shall have the right, upon at least three Business
Days' notice to the Agent, to terminate in whole or reduce ratably in part the
unused portions of the respective Commitments of the Lenders, provided that each
partial reduction shall be in the aggregate amount of $5,000,000 or an integral
multiple of $1,000,000 in excess thereof.
SECTION 2.05. Repayment. The Borrower shall repay to the Agent
for the ratable account of the Lenders on the Termination Date the aggregate
principal amount of the Advances then outstanding.
SECTION 2.06. Interest. (a) Interest on the Advances. The
Borrower shall pay interest on the unpaid principal amount of each Advance owing
to each Lender from the date of such Advance until such principal amount shall
have been paid in full at an interest rate per annum equal to the Interest Rate,
payable in arrears on the last day of such Interest Period and on the date such
Advance shall be paid in full.
(b) Interest on Overdue Amounts. In the event that any principal amount
of any Advance or any interest, fees, costs, expenses or other amounts payable
hereunder are not paid when due, the Borrower shall pay interest on such unpaid
amount from the date such amount is due until the date such amount is paid in
full, payable on demand, at an interest rate per annum equal to the interest
rate referred to in subsection (a) of this Section 2.06 then in effect plus 2%.
SECTION 2.07. Reserved.
SECTION 2.08. Interest Rate Determination. (a) The Agent
shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Agent for purposes of Section 2.06(a).
(b) If the Borrower shall fail to select the duration of any Interest
Period for any Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01, the Agent will forthwith so
notify the Borrower and the Lenders and such Advances will automatically, on the
last day of the then existing Interest Period therefor, convert into an Advance
bearing interest at the Interest Rate applicable to Advances of the same
aggregate amount having an Interest Period of four months.
(c) On the date on which the aggregate unpaid principal amount of
Advances comprising any Borrowing shall be reduced, by payment or prepayment or
otherwise, to less than $5,000,000, such Advances shall automatically convert
into an Advance bearing interest at the Interest Rate applicable to Advances of
the same aggregate amount having an Interest Period of four months.
SECTION 2.09. Increased Costs, Etc. If due to either (a) the
introduction of or any change (including, without limitation, any change by way
of imposition or increase of reserve requirements) in or in the interpretation
of any law or regulation or (b) the compliance with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to any Bank of agreeing
to make or making, funding or
<PAGE> 11
8
maintaining an Advance, then the Borrower shall from time to time, upon demand
by such Bank (with a copy of such demand to the Agent), pay to the Agent for the
account of such Bank additional amounts sufficient (as applicable) to compensate
such Bank for such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower by such Bank, shall be conclusive and
binding for all purposes, absent manifest error.
SECTION 2.10. Illegality. Notwithstanding any other provision
of this Agreement, if any Bank shall notify the Borrower that any law or
regulation, or the introduction of or any change in or in the interpretation of
any law or regulation, makes it unlawful, or any central bank or other
Governmental Authority asserts that it is unlawful, for such Bank to perform its
obligations hereunder to make an Advance or to fund or maintain an Advance
hereunder, (a) the obligation of such Bank to make, fund and maintain any
Advance shall be suspended until such Bank shall notify the Borrower that the
circumstances causing such suspension no longer exist, (b) such Bank shall
promptly notify the Borrower of such circumstances and such suspension, and (c)
unless the Borrower and such Bank shall have otherwise agreed within ten
Business Days of such notice, the Borrower shall forthwith on such tenth
Business Day prepay in full the Advances then outstanding together with interest
accrued thereon.
SECTION 2.11. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 1:00 P.M.
(New York City time) on the day when due in Dollars to the Agent at the Agent's
Account, in each case in immediately available funds. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest or fees ratably (other than amounts payable pursuant to
Section 2.09, 2.12 or 8.04(c)) to the Lenders for the account of their
respective Eurodollar Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Eurodollar Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
(b) All computations of interest and of fees shall be made in good
faith by the Agent on the basis of a year of 360 days for the actual number of
days (including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable.
(c) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fee, as the case may be;
provided, however, that, if such extension would cause payment of interest on or
principal of any Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
(d) Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in
<PAGE> 12
9
full, the Agent may assume that the Borrower has made such payment in full to
the Agent on such date and the Agent may, in reliance upon such assumption,cause
to be distributed to each Lender on such due date an amount equal to the amount
then due such Lender. If and to the extent the Borrower shall not have so made
such payment in full to the Agent, each Lender shall repay to the Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Agent, at the
Federal Funds Rate.
SECTION 2.12. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made in accordance with Section 2.11, free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Agent, net income
taxes that are imposed by the United States and net income taxes (or franchise
taxes imposed in lieu thereof) that are imposed on such Lender or the Agent by
the state or foreign jurisdiction under the laws of which such Lender or the
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Lender, net income taxes (or franchise taxes imposed in
lieu thereof) that are imposed on such Lender by the state or foreign
jurisdiction of such Lender's Eurodollar Lending Office or any political
subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities in respect of payments hereunder or under
the Notes being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note, (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.12), such Lender or
the Agent receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or other taxes, charges or levies that arise from
any payment made hereunder or under the Notes or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender and the Agent for the full
amount of Taxes or Other Taxes and for the full amount of Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.12 imposed
on or paid by such Lender or the Agent (as the case may be) or any liability
(including penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within 30 days from the
date such Lender or the Agent makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the Borrower
shall furnish to the Agent, at its address referred to in Section 8.02, the
original receipt of payment or a certified copy of such receipt. If no Taxes are
payable in respect of any payment hereunder or under the Notes, the Borrower
shall furnish to the Agent, at such address, a certificate from each appropriate
taxing authority,
<PAGE> 13
10
or an opinion of counsel acceptable to the Lenders, in either case stating that
such payment is exempt from or not subject to Taxes.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States shall, on the Effective Date in the case of the Initial Lender and
on the date of the Assignment and Acceptance pursuant to which it became a
Lender in the case of each other Lender, and from time to time thereafter if
requested in writing by the Borrower or the Agent (but only so long as such
Lender remains lawfully able to do so), provide each of the Borrower and the
Agent with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
that such Lender is exempt from or entitled to a reduced rate of United States
withholding tax on payments of interest pursuant to this Agreement or the Notes.
If the form provided by such Lender at the time such Lender becomes a party to
this Agreement indicates a United States interest withholding tax rate in excess
of zero, withholding tax at such rate shall be considered excluded from Taxes
unless and until such Lender provides the appropriate form certifying that a
lesser rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such form; provided,
however, that, if at the date of the Assignment and Acceptance pursuant to which
a Lender becomes a party to this Agreement, the Lender assignor was entitled to
payments under Section 2.12(a) in respect of United States withholding tax with
respect to interest paid at such date, then, to such extent, the term Taxes
shall include (in addition to withholding taxes that may be imposed in the
future or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Lender assignee on such date. If any
form or document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001 or
4224, that the Lender reasonably considers to be confidential, the Lender shall
give notice thereof to the Borrower and shall not be obligated to include in
such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to provide
the Borrower with the appropriate form described in Section 2.12(e) (other than
if such failure is due to a change in law occurring subsequent to the date on
which a form originally was required to be provided, or if such form otherwise
is not required under the first sentence of Section 2.12(e) above), such Lender
shall not be entitled to indemnification under Section 2.12(a) with respect to
Taxes imposed by the United States; provided, however, that should such Lender
become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as such Lender shall reasonably
request to assist such Lender to recover such Taxes.
SECTION 2.13. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of setoff, or otherwise) on account of the Advance owing to it (other than
pursuant to Section 2.09, 2.12 or 8.04(c)) in excess of its ratable share of
payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Advances owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (a) the amount of such Lender's required
<PAGE> 14
11
repayment to (b) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.13
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.14. Use of Proceeds. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely for general corporate purposes of the Borrower and its Subsidiaries.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section
2.01. Section 2.01 of this Agreement shall become effective on and as of the
first date (the "Effective Date") on which the following conditions precedent
have been satisfied:
(a) There shall have occurred no Material Adverse Change since
September 30, 1998.
(b) There shall exist no action, suit, investigation,
litigation or proceeding affecting the Borrower or any of its
Subsidiaries pending or threatened in writing before any court,
governmental agency or arbitrator that (i) may materially adversely
affect the financial condition or operations of the Borrower or any of
its subsidiaries or (ii) purports to affect the legality, validity or
enforceability of this Agreement or any Note or the consummation of the
transactions contemplated hereby.
(c) On the Effective Date, the following statements shall be
true and the Agent shall have received a certificate signed by a duly
authorized officer of the Borrower, dated the Effective Date, stating
that:
(i) the representations and warranties contained in
Section 4.01 are correct on and as of the Effective Date, and
(ii) no event has occurred and is continuing that
constitutes a Default.
(d) The Agent shall have received on or before the Effective
Date the following, each dated such date, in form and substance
satisfactory to the Lenders (except for the Notes):
(i) executed counterparts of this Agreement duly
executed and delivered by the Borrower;
(ii) the Notes to the order of the Lenders;
<PAGE> 15
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(iii) certified copies of the resolutions of the board
of directors of the Borrower approving this Agreement and the
Notes, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes; and
(iv) a certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign
this Agreement and the Notes and the other documents to be
delivered hereunder.
SECTION 3.02. Conditions Precedent to each Borrowing. The
obligation of each Lender to make an Advance on the occasion of each Borrowing
shall be subject to the conditions precedent that the Effective Date shall have
occurred and on the date of such Borrowing the following statements shall be
true (and each of the giving of the applicable Borrowing Notice and the
acceptance by the Borrower of the proceeds of such Borrowing shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
such statements are true):
(a) the representations and warranties contained in Section
4.01 (other than the last sentence of subsection (e) thereof) are
correct on and as of the date of such Borrowing, before and after
giving effect to such Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date, and
(b) no event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds therefrom,
that constitutes a Default.
SECTION 3.03. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Agent responsible for the transactions contemplated by this Agreement
shall have received notice from such Lender prior to the date that the Borrower,
by notice to the Lenders, designates as the proposed Effective Date, specifying
its objection thereto. The Agent shall promptly notify the Lenders of the
occurrence of the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
<PAGE> 16
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(b) The execution, delivery and performance by the Borrower of
this Agreement and the Notes are within the Borrower's corporate
powers, have been duly authorized by all necessary corporate action,
and do not contravene (i) the Borrower's charter or by-laws or (ii) any
law or any contractual restriction binding on or affecting the
Borrower.
(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required for
the due execution, delivery and performance by the Borrower of this
Agreement and the Notes.
(d) This Agreement has been, and the Notes when delivered
hereunder will have been, duly executed and delivered by the Borrower.
This Agreement is, and each of the Notes when delivered hereunder will
be, legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms.
(e) The Consolidated balance sheets of the Borrower and its
Subsidiaries as at December 31, 1997 and September 30, 1998, and the
related Consolidated statements of income and cash flows of the
Borrower and its Subsidiaries for the fiscal year and the nine months
then ended, copies of which have been furnished to the Lenders, fairly
present the financial condition of the Borrower and its Subsidiaries as
at such date and the results of the operations of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with
GAAP. Since September 30, 1998, there has been no Material Adverse
Change.
(f) There is no pending or threatened action or proceeding
affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, that (i) may materially adversely
affect the financial condition or operations of the Borrower or any of
its Subsidiaries or (ii) purports to affect the legality, validity or
enforceability of this Agreement or the Notes or the consummation of
the transactions contemplated hereby.
(g) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
(h) The Advances and all related obligations of the Borrower
under this Agreement and the Notes rank pari passu with all other
unsecured obligations of the Borrower that are not, by their terms,
expressly subordinate to such other obligations of the Borrower.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Covenant to Repay from Private Placement
Proceeds. Unless the Lenders shall otherwise consent in writing, if the Private
Placement Closing has occurred prior to the dates specified under (a) and (b) in
the definition of "Termination Date" in Section 1.01, Borrower will
<PAGE> 17
14
use the proceeds from the Private Placement Closing to make the repayment in
accordance with Section 2.05.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will not, unless the Lenders shall otherwise consent in writing:
(a) Liens, Etc. Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any lien, security
interest or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any of its
properties, whether now owned or hereafter acquired, or assign, or
permit any of its Subsidiaries to assign, any right to receive income,
in each case to secure any Debt of any Person, other than:
(i) purchase money liens or purchase money security
interests upon or in any property acquired or held by the
Borrower or any Subsidiary in the ordinary course of business
to secure the purchase price of such property or to secure
indebtedness incurred solely for the purpose of financing the
acquisition of such property;
(ii) liens or security interests existing on such
property at the time of its acquisition (other than any such
lien or security interest created in contemplation of such
acquisition);
(iii) liens for taxes, assessments and governmental
charges or levies;
(iv) liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and
other similar liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more
than 30 days;
(v) pledges or deposits to secure obligations under
workers' compensation laws or similar legislation or to secure
public or statutory obligations;
(vi) easements, rights of way and other encumbrances on
title to real property that do not render title to the
property encumbered thereby unmarketable or materially
adversely affect the use of such property for its present
purposes; and
(vii) liens incurred or deposits made in the ordinary
course of business to secure the performance of letters of
credit, bids, tenders, sales contracts, leases, surety, appeal
and performance bonds and other similar obligations not
incurred in connection with the borrowing of money;
provided that the aggregate principal amount of the Debt, other
indebtedness, taxes, assessments, governmental charges or levies and
other obligations secured by the liens or security interests referred
to in clauses (i) through (vii) of this Section 5.02(a) shall not
exceed $45,000,000 in the aggregate at any time outstanding.
<PAGE> 18
15
(b) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as allowed by generally accepted accounting
principles.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) the Borrower shall fail to pay (i) any principal of any
Advance when the same becomes due and payable or (ii) any interest on
any Advance or any other amount payable under this Agreement or any
Note within ten days from the date the same becomes due and payable; or
(b) any representation or warranty made by the Borrower herein
or by the Borrower (or any of its officers) in connection with this
Agreement shall prove to have been incorrect in any material respect
when made; or
(c) (i) the Borrower shall fail to perform or observe any
term, covenant or agreement contained in Section 5.02 or (ii) the
Borrower shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement or any Note on its part to be
performed or observed if such failure shall remain unremedied for 30
days after written notice thereof shall have been given to the Borrower
by the Agent or any Lender; or
(d) the Borrower or any of its Subsidiaries shall fail to pay
any principal of or premium or interest on any Debt that is outstanding
in a principal amount of at least $5,000,000 in the aggregate (but
excluding Debt outstanding hereunder) of the Borrower or such
Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Debt shall be required to be
made, in each case prior to the stated maturity thereof; or
(e) the Borrower or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the Borrower or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or
<PAGE> 19
16
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of 60 days, or any of the
actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or the Borrower or any
of its Subsidiaries shall take any corporate action to authorize any of
the actions set forth above in this Section 6.01(e); or
(f) any judgment or order for the payment of money in excess
of $5,000,000 shall be rendered against the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there
shall be any period of 30 consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Lenders, by notice to the Borrower, declare the obligation of
each Lender to make Advances to be terminated, whereupon the same shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the Lenders, by notice to the Borrower, declare the Notes, all interest thereon
and all other amounts payable under this Agreement to be forthwith due and
payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to the Borrower under the Federal Bankruptcy
Code, (A) the obligation of each Lender to make Advances shall automatically be
terminated and (B) the Notes, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers and discretion under this Agreement as are delegated to
the Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes), the Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Lenders, and such instructions shall be binding upon all Lenders and all
holders of Notes; provided, however, that the Agent shall not be required to
take any action that exposes the Agent to personal liability or that is contrary
to this Agreement or applicable law. The Agent agrees to give to each Lender
prompt notice of each notice given to it by the Borrower pursuant to the terms
of this Agreement.
<PAGE> 20
17
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with this
Agreement, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (a) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (b) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations (whether written
or oral) made in or in connection with this Agreement; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of the Borrower
or to inspect the property (including the books and records) of the Borrower;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, this Agreement or any other instrument
or document furnished pursuant hereto; and (f) shall incur no liability under or
in respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. VEBA. With respect to its Commitment, the
Advance made by it and the Note issued to it, VEBA shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as
though it were not the Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include VEBA in its individual capacity.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Agent or any other
Lender and based on the financial statements referred to in Section 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
the Agent (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts of the Notes then held by each of them (or if
no Notes are at the time outstanding or if any Notes are held by Persons that
are not Lenders, ratably according to the respective amounts of their
Commitments), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to reimburse
the Agent promptly upon demand for its ratable share of
<PAGE> 21
18
any out-of-pocket expenses (including counsel fees) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower and may be
removed at any time with or without cause by the all of the Lenders. Upon any
such resignation or removal, the Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States or of any state thereof and having a long-term senior
unsecured debt rating by S&P of "A" or better. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, discretion,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Lenders, do any of the following: (a)
waive any of the conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder or (f)
amend this Section 8.01; and provided further that no amendment, waiver or
consent shall, unless in writing and signed by the Agent in addition to the
Lenders required above to take such action, affect the rights or duties of the
Agent under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed
or delivered, if to the Borrower, at its address at 501 Pearl Drive, St. Peters,
Missouri 63376, Attention: Treasurer (telecopier number (314) 279-5163); if to
the Initial Lender or the Agent, at 605 Third Avenue, New York, New York, 10158,
Attention: President (telecopier
<PAGE> 22
19
number (212) 922-2798); if to any other Lender or any Bank, at its Eurodollar
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender; or, as to any party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall, when mailed, telecopied, telegraphed or
telexed, be effective when received by the party to whom such notice is
addressed, except that notices and communications pursuant to Section 2.08 shall
not be effective until confirmed in writing by the party to whom such notice is
addressed. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Agreement or the Notes or of any Exhibit hereto
to be executed and delivered hereunder shall be effective as delivery of a
manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender or the Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand all reasonable costs and expenses of the Agent in connection with
the preparation, execution, delivery, modification and amendment of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, the reasonable fees and expenses of counsel for
the Agent with respect thereto and with respect to advising the Agent as to its
rights and responsibilities under this Agreement. The Borrower further agrees to
pay on demand all costs and expenses of the Agent and the Lenders, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other documents to be
delivered hereunder, including, without limitation, reasonable fees and expenses
of counsel for the Agent and each Lender in connection with the enforcement of
rights under this Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the Agent and
each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with the Notes, this Agreement, any
of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances, whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, shareholders or creditors
or an Indemnified Party or any other Person or any Indemnified Party is
otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated, except to the extent such claim, damage, loss, liability
or expense is found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. The Borrower also agrees not to assert any claim against the
Agent, any Lender, any of their Affiliates, or any of their respective
directors, officers, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise
<PAGE> 23
20
relating to the Notes, this Agreement, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances.
(c) If any payment of principal of any Advance is made by the Borrower
to or for the account of a Lender other than on the last day of the Interest
Period for such Advance, as a result of a payment pursuant to Section 2.08(b),
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, the Borrower shall, upon demand by such Lender (with a copy of
such demand to the Agent), pay to the Agent for the account of such Lender any
amounts required to compensate such Lender for any additional losses, costs or
expenses that it may reasonably incur as a result of such payment including,
without limitation, any loss (including loss of anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.09, 2.12 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05. Right of Setoff. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 to authorize the Agent
to declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Note held by such Lender, whether or not such Lender shall
have made any demand under this Agreement or such Note and although such
obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such setoff and application, provided that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of each Lender and its Affiliates under this Section 8.05 are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) that such Lender and its Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become
effective (other than Section 2.01, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower, the Agent and the Initial Lender and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent and the Initial Lender and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender
may assign to one or more Persons all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment, the Advance owing to it and the Note or Notes held by it); provided,
however, that (i) each such assignment shall be of a constant, and not a
varying, percentage of all rights and obligations under this Agreement, (ii)
except in the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an assignment of all of a Lender's rights and
<PAGE> 24
21
obligations under this Agreement, the amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall in
no event be less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, (iii) each such assignment shall be to an Eligible Assignee, and (iv)
the parties to each such assignment shall execute and deliver to the Agent, for
its acceptance and recording in the Register, an Assignment and Acceptance,
together with any Note subject to such assignment. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (A) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (B) the Lender assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations that
by the terms of this Agreement are required to be performed by it as a Lender.
(c) The Agent shall maintain at its address referred to in Section 8.02
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Advances owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this
<PAGE> 25
22
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Note or Notes subject to such assignment, the Agent shall, if
such Assignment and Acceptance has been completed and is in substantially the
form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the Agent
in exchange for the surrendered Note a new Note to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
hereunder, a new Note to the order of the assigning Lender in an amount equal to
the Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit A
hereto.
(e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) such Lender's obligations
under this Agreement (including, without limitation, its Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Notes or
any fees or other amounts payable hereunder, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 8.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to the Borrower
received by it from such Lender.
(g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Note held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
<PAGE> 26
23
(h) In connection with the initial assignment or proposed initial
assignment by the Initial Lender pursuant to this Section 8.07, the Borrower
shall, upon the request of the Initial Lender, furnish to the Initial Lender a
favorable opinion of counsel for the Borrower acceptable to the Initial Lender,
in form and substance reasonably satisfactory to the Initial Lender.
SECTION 8.08. Confidentiality. Neither the Agent nor any
Lender shall disclose any Confidential Information to any Person without the
consent of the Borrower, other than (a) to the Agent's or such Lender's
Affiliates and their officers, directors, employees, agents and advisors and to
actual or prospective assignees and participants, and then, in each case, only
on a confidential and need-to-know basis, (b) as required by any law, rule or
regulation or judicial process and (c) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking.
SECTION 8.09. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.
SECTION 8.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the Notes, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York State court or, to
the extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
<PAGE> 27
24
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives effective as
of the day and year first above written.
MEMC ELECTRONIC MATERIALS, INC., as Borrower
/s/ KENNETH L. YOUNG
By: ___________________________________________
Name: Kenneth L. Young
Title: Treasurer
VEBA CORPORATION, as Agent
/s/ HEINZ HELMER PUTTHOFF
By: ___________________________________________
Name: Heinz Helmer Putthoff
Title: President
/s/ A. PAUL BRANDIMARTE, JR.
By: ___________________________________________
Name: A. Paul Brandimarte, Jr.
Title: Vice President and General Counsel
VEBA CORPORATION, as Initial Lender
/s/ HEINZ HELMER PUTTHOFF
By: ___________________________________________
Name: Heinz Helmer Putthoff
Title: President
/s/ A. PAUL BRANDIMARTE, JR.
By: ___________________________________________
Name: A. Paul Brandimarte, Jr.
Title: Vice President and General Counsel
<PAGE> 28
EXHIBIT A TO THE
REVOLVING CREDIT AGREEMENT
FORM OF PROMISSORY NOTE
U. S. $____________________ Dated: __________________, ______
FOR VALUE RECEIVED, the undersigned, MEMC ELECTRONIC
MATERIALS, INC., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of [NAME OF LENDER], a [JURISDICTION OF INCORPORATION ] corporation
(the "Lender") for its account on the Termination Date (as defined in the Credit
Agreement referred to below) the principal SUM Of U.S.$[AMOUNT OF THE LENDER'S
COMMITMENT IN FIGURES] or, if less, the principal amount of the Advances made by
the Lender to the Borrower pursuant to the Revolving Credit Agreement dated as
of February 26, 1999 between the Borrower and VEBA, as the Lender and as Agent
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein being used herein as therein defined)
outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal
amount of the Advances from the date of the Advances until such principal amount
is paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to VEBA, as Agent, at the Agent's Account, in same day
funds. The Advances owing to the Lender by the Borrower pursuant to the Credit
Agreement, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Promissory Note.
This Promissory Note is one of the Notes referred to in, and
is entitled to the benefits of, the Credit Agreement. The Credit Agreement,
among other things, (i) provides for the making of Advances by the Lender to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the Dollar amount first above mentioned, the indebtedness of the
Borrower resulting from the Advances being evidenced by this Promissory Note,
and (ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
MEMC ELECTRONIC MATERIALS, INC.
By: ____________________________________
Title:
<PAGE> 29
2
ADVANCES AND PAYMENTS OF PRINCIPAL
_______________________________________________________________________________
AMOUNT OF
AMOUNT OF PRINCIPAL PAID UNPAID PRINCIPAL NOTATION MADE
DATE ADVANCE OR PREPAID BALANCE BY
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE> 30
2
EXHIBIT B TO THE
REVOLVING CREDIT AGREEMENT
FORM OF NOTICE OF BORROWING
VEBA CORPORATION, as Agent
for the Lenders parties
to the Credit Agreement
referred to below
605 Third Avenue
New York, NY 10158 [Date]
Attention: _________________________
Ladies and Gentlemen:
The undersigned, MEMC ELECTRONIC MATERIALS, INC., refers to
the Revolving Credit Agreement, dated as of February 26, 1999 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement",
the terms defined therein being used herein as therein defined), between the
undersigned and VEBA CORPORATION, as Initial Lender and as Agent for the Lenders
thereunder, and hereby gives you notice, irrevocably, pursuant to Section 2.02
of the Credit Agreement, that the undersigned hereby requests a Borrowing under
the Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
2.02(a) of the Credit Agreement:
(a) The Business Day of the Proposed Borrowing
is _______________, ________.
(b) The initial Interest Period for each Advance made as part
of the Proposed Borrowing is [one week] [one month] [two months] [three months]
[four months].
(c) The aggregate amount of the Proposed Borrowing is
$________________.
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on and as of the date of the
Proposed Borrowing:
(i) the representations and warranties contained in Section
4.01 [(other than the representations set forth in the last sentence of
subsection (e) thereof)]* of the Credit Agreement
_______________
* To be included in any Borrowing Notice requesting a Borrowing to be
made on any Business Day other than the Effective Date.
<PAGE> 31
2
are correct, before and after giving effect to the Proposed Borrowing
and to the application of the proceeds therefrom, as though made on
and as of such date; and
(ii) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
Very truly yours,
MEMC ELECTRONIC MATERIALS, INC.
By: ____________________________________
Title:
<PAGE> 32
EXHIBIT C TO THE
REVOLVING CREDIT AGREEMENT
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Revolving Credit Agreement dated as
of February 26, 1999 (as amended, supplemented or otherwise modified from time
to time, the "Credit Agreement") between MEMC ELECTRONIC MATERIALS, INC., a
Delaware corporation (the "Borrower"), and VEBA CORPORATION, a corporation
formed under the laws of the State of Delaware, ("VEBA"), as Initial Lender and
as Agent (the "Agent") for the Lenders thereunder (each as defined in the Credit
Agreement). Terms defined in the Credit Agreement are used herein with the same
meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1
hereto agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the
Credit Agreement as of the date hereof equal to the percentage interest
specified on Schedule 1 hereto of all outstanding rights and
obligations under the Credit Agreement. After giving effect to such
sale and assignment, the Assignee's Commitment and the amount of the
Advances owing to the Assignee will be as set forth on Schedule 1
hereto.
2. The Assignor (a) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse
claim; (b) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement or any other instrument or
document furnished pursuant thereto; (c) makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Credit Agreement or any
other instrument or document furnished pursuant thereto; and (d)
attaches the Note held by the Assignor and requests that the Agent
exchange such Note for a new Note payable to the order of the Assignee
in an amount equal to the Commitment assumed by the Assignee pursuant
hereto or new Notes payable to the order of the Assignee in an amount
equal to the Commitment assumed by the Assignee pursuant hereto and the
Assignor in an amount equal to the Commitment retained by the Assignor
under the Credit Agreement, respectively, as specified on Schedule 1
hereto.
3. The Assignee (a) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements
referred to in Section 4.01 thereof and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (b)
agrees that it will, independently and without reliance upon the Agent,
the Assignor or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under the
Credit Agreement; (c) confirms that it is an Eligible Assignee; (d)
appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers and discretion under the Credit
Agreement as are delegated to
<PAGE> 33
2
the Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; (e) agrees that it
will perform in accordance with their terms all of the obligations that
by the terms of the Credit Agreement are required to be performed by it
as a Lender; and (f) attaches any U.S. Internal Revenue Service forms
required under Section 2.12 of the Credit Agreement.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Agent for acceptance and recording by the
Agent. The effective date for this Assignment and Acceptance (the
"Effective Date") shall be the date of acceptance hereof by the Agent,
unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (a) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and
(b) the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations
under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and
after the Effective Date, the Agent shall make all payments under the
Credit Agreement and the Notes in respect of the interest assigned
hereby (including, without limitation, all payments of principal,
interest and facility fees with respect thereto) to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in
payments under the Credit Agreement and the Notes for periods prior to
the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of Schedule 1 to
this Assignment and Acceptance by telecopier shall be effective as
delivery of a manually executed counterpart of this Assignment and
Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
<PAGE> 34
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _______%
Assignee's Commitment: $_______________
Aggregate outstanding principal amount of Advances assigned: $_______________
Principal amount of Note payable to Assignee: $_______________
Principal amount of Note payable to Assignor: $_______________
Effective Date* : ___________________, _____
[NAME OF ASSIGNOR], as Assignor
By: ____________________________________
Title:
Date: ___________________, _____
[NAME OF ASSIGNEE], as Assignee
By: ____________________________________
Title:
Eurodollar Lending Office
[ADDRESS]
________________
* This date should be no earlier than five Business Days after the
delivery of this Assignment and Acceptance to the Agent.
<PAGE> 35
Accepted this ______ day
of _______________, ____
VEBA CORPORATION, as Agent
By: ___________________________
Title:
<PAGE> 1
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
MEMC Electronic Materials, Inc.:
We consent to incorporation by reference in Amendment No. 3 to the registration
statement on Form S-3 of MEMC Electronic Materials, Inc. of: our report dated
January 25, 1999, relating to the consolidated balance sheets of MEMC Electronic
Materials, Inc. and subsidiaries as of December 31, 1998 and 1997, 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, 1998,
and the related schedule, which report appears in the Form 8-K dated March 2,
1999 of MEMC Electronic Materials, Inc.; our report 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 report appears in the Form 10-K/A Amendment No. 3 of MEMC
Electronic Materials, Inc.; and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG LLP
St. Louis, Missouri
March 2, 1999
<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 Amendment No. 3 to the registration
statement on Form S-3 of MEMC Electronic Materials, Inc. of: our report dated
January 11, 1999, relating to the balance sheets of POSCO HULS Co., Ltd. as of
December 31, 1998 and 1997, and related statements of operations, appropriation
(disposition) of retained earnings (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1998, which report is included
in the Form 8-K dated March 2, 1999 of MEMC Electronic Materials, Inc.; our
report dated January 10, 1998, except as to note 18 which is as of February 9,
1999, 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 year ended
December 31, 1997 and 1996, which report is included in the Form 10-K/A
Amendment No. 3 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
March 2, 1999
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Taisil Electronic Materials Corporation:
We consent to incorporation by reference in Amendment No. 3 to the registration
statement on Form S-3 of MEMC Electronic Materials, Inc. of our report dated
February 9, 1999, relating to the balance sheets of Taisil Electronic Materials
Corporation as of December 31, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity, and cash flows for each of the
years ended December 31, 1998 and 1997, which report is included in the Form 8-K
dated March 2, 1999 of MEMC Electronic Materials, Inc. and to the reference to
our firm under the heading "Experts" in the registration statement.
/s/ KPMG Certified Public Accountants
Taipei, Taiwan
March 2, 1999
<PAGE> 1
Exhibit 99.13
CONSENT OF NATIONSBANC MONTGOMERY SECURITIES LLC
We hereby consent to the inclusion of our name in Amendment No. 3 to
the Registration Statement on Form S-3 relating to the proposed rights offering
of MEMC Electronic Materials, Inc., a Delaware corporation, and to the
references to our analyses performed for the Special Committee of the Board of
Directors of MEMC Electronic Materials, Inc. in the Registration Statement under
the captions "The Rights Offering -- Determination of Subscription Price" and
"Plan of Distribution." In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations issued by the
Securities and Exchange Commission thereunder (collectively, the "Securities
Act") nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "expert" as used in the
Securities Act.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Rex Sherry
----------------------------------
Rex Sherry
Senior Managing Director
February 28, 1999
