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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
(Mark
One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
[X]
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
[_]
OF THE THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13828
MEMC ELECTRONIC MATERIALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-1505767
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
501 Pearl Drive (City of O'Fallon) 63376
St. Peters, Missouri (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code (636) 474-5000
Securities registered pursuant to Section 12(b) of the Act:
________Title of Each Class__________: _______Name of Each Exchange on Which
$.01 par value Common Stock Registered___________________________:
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based upon the closing price of such stock on March 13, 2000, as
reported by the New York Stock Exchange, was approximately $360.0 million.
The number of shares outstanding of the registrant's Common Stock as of
March 13, 2000, was 69,557,000 shares.
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Documents Incorporated by Reference
(1) Portions of the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1999 (Part I, Part II, and Part IV of Form 10-K).
(2) Portions of the registrant's Notice of Annual Meeting of Stockholders and
Proxy Statement dated March 27, 2000 (Part III of Form 10-K).
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PART I
Item 1. Business
General
MEMC Electronic Materials, Inc. (MEMC or the Company) 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 microelectronic applications, including computer
systems, 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 only significant non-Japanese silicon wafer
manufacturer with manufacturing and research facilities in Japan.
MEMC was incorporated in 1984 under the name Dynamit Nobel Silicon Holdings,
Inc. (DNS). Huls AG, a subsidiary of VEBA AG, subsequently acquired ownership
of DNS. In 1989, Huls AG, through DNS and other related companies, acquired
the electronic materials businesses operated by Monsanto Company (Monsanto) in
the United States, Europe, Japan and Malaysia. Huls AG changed the name of DNS
to MEMC Electronic Materials, Inc. and combined the assets acquired from
Monsanto with the assets of its United States and Italian silicon wafer
business to form the current MEMC. VEBA Corporation, a subsidiary of VEBA AG,
acquired all of the outstanding common stock of MEMC from Huls AG in 1990,
which it subsequently transferred to its wholly-owned subsidiary, Huls
Corporation, in 1993. On July 12, 1995, we completed our initial public stock
offering. As a result of the public stock offering, Huls Corporation's
ownership of our outstanding common stock was reduced to 51.9%. On September
30, 1998, Huls Corporation merged into VEBA Corporation.
On March 22, 1999, we sold 15,399,130 shares of our common stock to VEBA
Zweite Verwaltungsgesellschaft mbH (VEBA Zweite), a subsidiary of VEBA AG, in
a private placement. On April 16, 1999, we sold an additional 13,069,898
shares of our common stock to VEBA Zweite in connection with a rights
offering. As a result, VEBA AG, through its subsidiaries VEBA Corporation and
VEBA Zweite, now owns 71.8% of our outstanding common stock.
We are engaged in one reportable industry segment--the design, manufacture
and sale of electronic grade silicon wafers for the semiconductor industry.
Financial information regarding this industry segment is contained in our 1999
Annual Report which information is incorporated herein by reference.
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 approximately two hundred
semiconductor manufacturers worldwide, we believe that the top twenty
semiconductor manufacturers accounted for over 70% of all semiconductor
revenues in 1999. We also believe that of the approximately 17 silicon wafer
manufacturers in the world today, six principal manufacturers, including MEMC,
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
14.4% from $24.3 billion in revenues in 1985 to $160.0 billion in revenues in
1999, 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.
1
Despite the semiconductor industry's history of significant growth,
semiconductor revenues grew by only 3.6% in 1997 and declined by 7.5% in 1998,
according to Dataquest estimates. This slowdown was attributable to excess
capacity and resultant price erosion, especially for DRAMs (commonly used
computer memory chips). This downturn extended through 1998 due to continued
overcapacity and the weak economic conditions in the Asia Pacific and Japanese
markets. In 1999, semiconductor revenues grew by 17.6%, according to Dataquest
estimates. This turnaround is attributable to improved demand for DRAMs,
improved economic conditions in the Asia Pacific and Japanese markets, and
newer technologies related to the Internet, telecommunications and
connectivity.
Throughout the downturn, semiconductor manufacturers exerted significant
price pressure on their raw material suppliers, including silicon wafer
manufacturers. Semiconductor manufacturers also accelerated the speed at which
they 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, during the downturn
the semiconductor industry experienced significant restructuring and
consolidation activities.
Semiconductor manufacturers greatly reduced their capital spending beginning
in late 1997 and throughout 1998. This reduced capital spending limited
additions to capacity. In 1999, capital spending increased as a result of the
improvement in the semiconductor market.
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 9.9% from 1.2 billion
square inches in 1985 to 4.5 billion square inches in 1999, 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
beginning in the second half of 1996.
The silicon wafer industry slowdown, which began in the summer of 1996 and
continued through 1998, left the industry in a state of overcapacity. This
overcapacity resulted in significant price declines. 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
8.7% in 1998 and increased by an estimated 22.6% in 1999. Despite the increase
in silicon wafer consumption, the silicon wafer industry still suffers from
overcapacity, predominately in the 8-inch market. As a result, pricing has
remained depressed, although by the end of 1999 the silicon wafer market
appears to have reached a period of price stabilization.
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, International Sematech in Austin, Texas, and Selete in Japan, for
the purpose of evaluating 12-inch equipment and materials. During 1999, the
primary use of 12-inch wafers was for semiconductor device process and tool
development, although we also supplied some 12-inch prime wafers to
semiconductor manufacturers. We are beginning to see renewed interest in 12-
inch wafers, as numerous semiconductor manufacturers have recently announced
plans for 12-inch fabrication lines. However, we do not expect customers to
start up large-scale 12-inch fabrication lines until the year 2002 or beyond.
2
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 12-inch diameter wafers from our
pilot development lines.
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.
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.
3
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
"Business--Risk Factors--We Depend on Certain Suppliers and Finding
Alternative Sources of Supply Could Affect Adversely Our Customer
Qualifications and Manufacturing Yields."
Manufacturing Process
Silicon wafers for the semiconductor industry are extremely complex
materials with characteristics such as high purity levels, highly uniform
crystal structure, and precise mechanical tolerances. Electronic grade silicon
is one of the most refined materials in the world, having an impurity level of
no more than one part per billion. Requirements for highly uniform crystal
structure, mechanical tolerances and cleanliness in the manufacture of silicon
wafers are at levels that stretch manufacturing processes to the limits of
measurement, and necessitate that we conduct certain processes in "clean
rooms."
The silicon wafer manufacturing process consists of three principal phases:
the crystal growth process, the wafer slicing process and the wafer finishing
process.
Crystal Growth Process
The first step in the wafer manufacturing process is the formation of a
large, silicon single crystal or ingot. This process begins with the melting
of polysilicon, together with minute amounts of electrically active elements
such as arsenic, boron, phosphorous or antimony in a quartz crucible.
Once the melt has reached the desired temperature, we lower a silicon seed
crystal, or "seed" into the melt. The melt is slowly cooled to the required
temperature, and crystal growth begins around the seed. As the growth
continues, the seed is slowly extracted or "pulled" from the melt. The
temperature of the melt and the speed of extraction govern the diameter of the
ingot, and the concentration of an electrically active element in the melt
governs the electrical properties of the silicon wafers to be made from the
ingot. This is a complex, proprietary process requiring many control features
on the crystal-growing equipment.
4
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 an 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 applications engineers to key
customer accounts worldwide.
Recent innovations of our research and development program include three new
products and one new product feature. We have either been granted patents or
applied for patent protection on all three new products and the new product
feature. The following is an overview of these new product offerings:
. HPS 2(TM)--A silicon wafer that has an extremely pure substrate that
eliminates even submicron defects in crystal structure. This wafer is
beneficial to manufacturers of very advanced logic and flash memory
semiconductor devices that require sophisticated integrated circuits with
a defect-free crystalline structure.
. Advanta(TM)--An advanced polished silicon wafer that fills the niche
between a standard polished wafer and our new HPS 2(TM) wafer.
Advanta(TM) wafers offer better performance than a standard polished
wafer at a competitive cost.
. EPI II(TM)--An epitaxial wafer that offers the same level of quality
performance as other advanced wafers but eliminates the need for process
changes by semiconductor manufacturers. We market EPI II(TM) wafers to
the DRAM and logic markets.
. MDZ(TM) or Magic Denuded Zone(TM)--A new product feature that can be
applied to any polished silicon wafer. MDZ(TM) offers a well-defined and
predictable level of internal gettering, which means impurities are drawn
away from the surface of the wafer. As a result, the MDZ(TM) product
feature provides greater manufacturing yield for our customers.
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 semiconductor
industry from our pilot development line. 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.
5
We are currently shipping small commercial volumes of HPS 2(TM) and
Advanta(TM) wafers, and wafers with the MDZ(TM) product feature, to certain
customers and evaluation samples of these wafers to other customers. We are
also shipping evaluation samples of EPI II(TM) wafers to selected customers.
Our new 12-inch wafers and new product offerings are all in the pilot stage
of development, and we cannot assure you that any of these products 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 commissioned a "Wafering Center of Excellence" in 1997 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.
Expenses incurred for research and development activities during 1999, 1998
and 1997, excluding expenses incurred by our unconsolidated joint ventures,
were $85.0 million, $81.6 million and $64.5 million, respectively,
representing 12.2%, 10.8% and 6.5% of our net sales for the respective
periods.
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. During 1999, our largest 10 customers generated over 60% of our
sales. Texas Instruments represented approximately 18% of our sales in 1999.
No other customer represented 10% or more of our 1999 sales.
Cost Reduction Plan
In 1999, we continued our cost reduction plan in response to the difficult
industry environment.
We have discontinued manufacturing operations at our small-diameter wafer
facility in Spartanburg, South Carolina and have withdrawn from our joint
venture participation in a small-diameter wafer facility in China. We took
these actions because:
. our customers had 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 undertook restructuring initiatives focused on
permanently eliminating small diameter lines; and
. we believed that even when the semiconductor market began to recover, we
would have excess small diameter wafer capacity.
As a result of these actions, we reduced our workforce by approximately 300
employees compared to December 31, 1998. This reduction follows a decrease of
1,700 employees in 1998.
We also continued a number of other cost cutting and savings initiatives:
. We had a limited number of short-term plant shutdowns to better align
production with the level of demand;
6
. We continued to implement our "best practices" worldwide and continued to
develop new manufacturing technologies in order to reduce our processing
costs;
. We continued a plant focus program that limits the number of wafer
diameters manufactured at each site;
. We continued to implement aggressive spending cuts;
. We obtained price concessions from our vendors; and
. We reduced our capital spending.
As a result of our cost cutting and savings initiatives, we believe that we
reduced costs by over $100 million in 1999 versus 1998.
We anticipate that we will continue to tightly control our capital
expenditures in 2000.
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 "Business--Risk Factors--We Experience Intense Competition in
the Silicon Wafer Industry and Our Customers Expect Continuing Technological
Innovation at a Low Cost."
Joint Ventures
We have entered into several 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 unconsolidated joint ventures with
prominent partners in South Korea and Taiwan.
POSCO HULS Co., Ltd.
In 1990, we entered into a joint venture in South Korea with Samsung
Electronics 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 primarily in South Korea. PHC generated sales of $158.0 million
in 1999, $121.0 million in 1998 and $215.9 million in 1997. 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. We
own 40% of PHC. Pohang owns 40%, and Samsung owns 20%. Pohang has notified us
of its desire to sell its 40% interest in PHC. We are engaged in on-going
negotiations with Pohang regarding our possible purchase of Pohang's interest
in PHC. We cannot assure you that we will be successful in purchasing Pohang's
interest in PHC.
We have agreed to provide technical assistance and information to PHC. We
have also granted licenses to PHC to use certain technology to manufacture,
promote and sell silicon wafers. In exchange for such technical assistance and
licenses, we receive quarterly royalties based on 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.
7
Taisil Electronic Materials Corporation
In 1994, we formed Taisil Electronic Materials Corporation (commonly known
as Taisil) with China Steel Corporation. China Steel Corporation is a
Taiwanese steel manufacturer. Taisil manufactures and sells silicon wafers in
Taiwan. Taisil generated sales of $94.4 million in 1999, $58.7 million in 1998
and $61.6 million in 1997. Taisil has the capacity to produce approximately
145,000 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
own 45% of Taisil. The remainder of Taisil is owned by China Steel Corporation
(35%), Chiao Tung Bank (5%), the China Development Corporation (10%) and
employees and others (5%).
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 "Business--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."
Option on Pasadena Facility
In September 1998, we granted Tokuyama Corporation, Marubeni Corporation and
Marubeni America Corporation an option to acquire a majority interest in MEMC
Pasadena, Inc. Tokuyama is a Japanese polysilicon manufacturer and Marubeni is
a Japanese trading company. MEMC Pasadena is our granular polysilicon
subsidiary. In exchange for the option, Tokuyama and Marubeni made an option
payment to us. The term of the option is two years, subject to a one year
extension at the option of Tokuyama and Marubeni. If Tokuyama and Marubeni
exercise their option, we will then negotiate the terms and conditions
(including price) of the exercise with them based on the market value at that
time. The entire option payment will be applied toward the ultimate purchase
price. If Tokuyama and Marubeni do not exercise their option, then we will
return one-half of the option payment to them. During the 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 has agreed to 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.
Proprietary Information and Intellectual Property
As of December 31, 1999, we owned of record or beneficially approximately
137 U.S. patents, of which approximately 14 will expire by 2003, approximately
19 will expire between 2004 and 2008 and approximately 104 will expire after
2008. As of December 31, 1999, we owned of record or beneficially
approximately 206 foreign patents, of which approximately 29 will expire by
2003, approximately 79 will expire between 2004 and 2008 and approximately 98
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 have also
submitted approximately 104 U.S. and 399 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.
8
Any litigation in the future to enforce patents issued to us, to protect
trade secrets or know-how possessed by us or to defend us or indemnify others
against claimed infringement of the rights of others could have a material
adverse effect on our financial condition and operating results. Also,
regardless of the validity or successful outcome of such claims, we may need to
expend significant time and expense to protect our intellectual property rights
or to defend against claims of infringement by third parties, which could have
a material adverse effect on us. If we lose any such litigation, we may be
required 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.
Employees
At December 31, 1999, we had approximately 5,600 full-time employees and 350
temporary workers worldwide. 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.
Geographic Information
Information regarding our foreign and domestic operations is contained in
Note 17 on page 40 of our 1999 Annual Report, which information is incorporated
herein by reference.
Risk Factors
This Annual Report on Form 10-K contains "forward-looking" statements within
the meaning of the Securities Litigation Reform Act of 1995, including those
set forth under "Item 1. Business" and "Item 3. Legal Proceedings." In addition
to the business risks and uncertainties discussed elsewhere in this Annual
Report on Form 10-K, the following are important risk factors which could cause
actual results and events to differ materially from those contained in any
forward-looking statement contained herein or made elsewhere by us.
We Have Had Significant Operating and Net Losses and We Anticipate Future
Losses
We have not reported an operating profit since the third 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. In 1999, we had an operating loss of $153.2 million, which included a
$5.7 million benefit attributable to a decrease in our restructuring reserve.
Due to overcapacity and continued depressed prices in the silicon wafer
industry and other factors, we do not expect to be profitable in 2000. We
cannot predict how long we will continue to experience 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 the liquidity provided by our existing
cash balances and credit facilities, together with cash generated from
operations, if any, will be adequate to fund our future operations. We have
incurred negative cash flows from operations in recent periods.
9
VEBA AG and its Affiliates Intend to Divest Their Interests in MEMC
On September 27, 1999, VEBA AG announced a merger with VIAG AG. The
VEBA/VIAG group has stated that its core businesses will be energy and
specialty chemicals. The VEBA/VIAG group's stated intent is to systematically
and optimally divest certain non-core businesses, including the debt and
equity interests of VEBA AG and its affiliates in MEMC. VEBA AG and its
affiliates are not obligated to provide additional capital to us except under
the terms of existing loan agreements. We cannot assure you that VEBA AG and
its affiliates will provide additional capital to us in the future.
Our loans from VEBA AG and its affiliates begin to mature in 2001. We cannot
assure you that VEBA AG and its affiliates or any future purchaser of these
loans will refinance these loans upon maturity on terms acceptable to us. In
such event, we will be required to obtain capital from other parties. See
"Business--Risk Factors--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 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 or divest assets. Such reductions or divestitures could
materially adversely affect our business and our ability to compete.
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 previously provided by us. 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 issuances of common
stock. 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 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 December 31, 1999, we owed $729.1
million to VEBA AG and its affiliates, and $162.8 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 Experiences Future Downturns, We Will Face
Pressure to Further Reduce Prices Which May Lead to Further Losses
If the semiconductor industry experiences future downturns, we will face
pressure to further reduce prices. However, our ability to reduce expenses
during a downturn is limited because of our significant fixed costs and the
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.
10
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.
From time to time the semiconductor industry has experienced significant
downturns. 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.
Excess Capacity and Depressed Wafer Prices Limit Our Ability to Become
Profitable
Excess capacity in the silicon wafer industry has limited our ability to
maintain or raise prices. Further capacity expansions could increase the
worldwide supply of silicon wafers in the future, increase the downward
pressure on prices and materially adversely impact our operating results. The
worldwide production capacity of silicon wafers has exceeded worldwide demand
in recent periods, especially for 8-inch silicon wafers. As a result, the
selling prices for our products have decreased, although by the end of 1999
the silicon wafer market appears to have reached a period of price
stabilization. Because of price decreases, 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 slowed 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 production of silicon wafers through
utilization of unmanned capacity and our ability to expand our capacity
quickly through available infrastructure.
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. VEBA AG and its affiliates have sufficient voting
power to control our direction and policies. VEBA AG and its affiliates can
also control
11
any merger, consolidation or sale of all or substantially all of our assets,
elect the members of the Board of Directors and prevent or cause a change in
control of MEMC. Four of the seven members of our Board of Directors are
employees of VEBA AG or its affiliates, not including MEMC. See "Business--
Risk Factors--VEBA AG and its Affiliates Intend to Divest Their Interests in
MEMC."
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 the change of control
date or January 1, 2001, for an average industrial borrower at an assumed
credit rating based on the remaining term of each such loan agreement.
In addition, in such an event we will become subject to certain affirmative
covenants set forth in 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 December 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, our unconsolidated Taiwanese joint venture,
may become obligated to repay certain debt.
See "Business--Risk Factors--VEBA AG and its Affiliates Intend to Divest
Their Interests in MEMC" and "Business--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."
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 36% of the worldwide silicon wafer market in
1999. 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
12
requirements for new and more demanding technology, product specifications and
manufacturing processes. Our ability to remain competitive will depend upon
our ability to develop technologically advanced products and processes. We
must continue to meet the increasingly demanding requirements of our customers
on a cost-effective basis. As a result, we expect to continue to make
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 1999, we made over 60%
of our sales to ten customers, with one customer accounting for approximately
18% of our sales. Likewise, PHC, our unconsolidated joint venture in South
Korea, sold over half 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.
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
and European euro-based currencies. 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, our unconsolidated Korean joint venture,
also has a portion of its debt denominated in the U.S. dollar and Korean won.
Likewise, Taisil, our unconsolidated Taiwanese joint venture, has 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 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.
Economic downturns in the Asia Pacific region and Japan and devaluations of
the Japanese yen against the U.S. dollar have affected our operating results
in the past and could affect our operating results in the future.
Additionally, other factors may have a material adverse effect on our
operations in the future including:
. the imposition of governmental controls;
13
. 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 December 31, 1999, Taisil had approximately $143 million of debt
outstanding. We have guaranteed approximately $49 million of such debt (which
may increase to approximately $62 million). Generally under the guarantees, if
VEBA AG's and its affiliates' ownership of MEMC common stock falls below 50%
of MEMC's 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. See "Business--Risk Factors--VEBA AG and its Affiliates Intend
to Divest Their Interests in MEMC."
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.
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, "Business--Joint Ventures--
Taisil Electronic Materials Corporation."
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 three to six months for our customers to qualify a
manufacturing facility to produce a specific product, but it could take longer
depending upon the customer's requirements. 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 South 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.
14
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.
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.
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 failure to obtain a new qualification
or 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.
15
Because the Public is Focusing More Attention on the Environmental Impact of
Our Industry and Its 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.
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;
. actual or perceived changes in our relationship with VEBA AG and its
affiliates; and
. the size of the public float of MEMC common stock.
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.
Cautionary Statement Regarding Forward-Looking Statements
The following statements are or may constitute forward-looking statements:
. statements set forth in this Annual Report on Form 10-K or statements
incorporated by reference from documents we have filed with the
Securities and Exchange Commission, including possible or assumed future
results of our operations, including but not limited to any statements
contained herein or therein concerning:
. stabilization and improvements in average selling prices of silicon
wafers;
. stabilization and improvements in demand for silicon wafers;
. our ability to generate future taxable income as it relates to the
realization of our net deferred tax asset;
. utilization of the restructuring reserve;
. tight control of capital expenditures in 2000;
. future sources of capital;
. liquidity through 2000;
. continued investment in research and development;
16
. continued dependence on international sales;
. excess capacity;
. the resolution of any intellectual property infringement claims;
. timing of future demand for 12-inch wafers, including the start up of
large-scale 12-inch fabrication lines by our customers;
. the outcome of potential litigation;
. our ability to find adequate alternative sources of supply;
. the impact of the introduction of the euro;
. the impact of the implementation of SFAS No. 133;
. the impact of an adverse change in exchange rates;
. our expectations concerning our lack of profitability in 2000;
. our expectation that we will not pay dividends in the foreseeable
future;
. our intention to work closely with the VEBA/VIAG group to effectuate
an orderly divestiture process that preserves and optimizes our
value; and
. any statements preceded by, followed by or that include the words
"believes," "expects," "predicts," "anticipates," "intends,"
"estimates," "should," "may" or similar expressions.
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 are set forth under "Business--Risk Factors."
You should not place undue reliance on such statements, which speak only as
of the date that they were made. Our independent public accountants have not
examined or compiled the forward-looking statements and, accordingly, do not
provide any assurance with respect to such statements. These cautionary
statements should be considered in connection with any written or oral
forward-looking statements that we may issue in the future. We do not
undertake any obligation to release publicly any revisions to such forward-
looking statements to reflect later events or circumstances or to reflect the
occurrence of unanticipated events.
Executive Officers of the Registrant
The following is information concerning our executive officers as of March
1, 2000. Each executive officer's term will end upon the appointment of his or
her successor or upon his or her earlier resignation, except that Mr. von
Horde's term of office expires in 2003 pursuant to the terms of his employment
agreement. There are no family relationships between or among any of the named
persons and the directors.
Name Age All Positions and Offices Held
---- --- ------------------------------
Klaus R. von Horde 58 President, Chief Executive Officer and Director
James M. Stolze 56 Executive Vice President and Chief Financial
Officer
Marcel Coinne 59 Corporate Vice President
Dr. John P. DeLuca 57 Corporate Vice President
Julius R. Glaser 43 Corporate Vice President
Helene F. Hennelly 53 Corporate Vice President, General Counsel
and Secretary
Jonathon P. Jansky 48 Corporate Vice President
Dr. Thomas Knothe 42 Corporate Vice President
James G. Weathers 46 Corporate Vice President
James W. Wick 57 Corporate Vice President
17
Each executive officer has held the same position or another executive
position with us during the past five years except as indicated below.
Mr. von Horde was our President and Chief Operating Officer from December
1997 to February 1999 and has been our President and Chief Executive Officer
since February 1999. Mr. von Horde was Chief Executive Officer and Chairman of
the Board of Management of Carl Schenck AG from 1993 to 1997.
Mr. Stolze was a Partner with KPMG LLP from 1977 until joining us as
Executive Vice President and Chief Financial Officer in June 1995.
Mr. Coinne was Corporate Vice President and President of the U.S. Region
from March 1993 to October 1996, Corporate Vice President and President--North
America from October 1996 to December 1997, Corporate Vice President, Customer
Operations from December 1997 to October 1999 and has been our Corporate Vice
President, Marketing Operations since November 1999.
Dr. DeLuca has been our Corporate Vice President, Technology since November
1994.
Mr. Glaser was our Vice President, Sales from March 1999 to November 1999,
and has been our Corporate Vice President, Sales since November 1999. From
1992 until 1999, Mr. Glaser held various sales and marketing management
positions with GE Power Systems and GE Aircraft Systems. When he joined us in
March 1999, Mr. Glaser had been General Manager of Global Sales & Business
Development of GE Aircraft Engines since April 1998.
Ms. Hennelly has been our General Counsel and Secretary since October 1990.
She was a Vice President from October 1990 until May 1996, a Corporate Vice
President from May 1996 to June 1999, and has been our Corporate Vice
President, Corporate Projects since June 1999.
Mr. Jansky was Plant Manager of our St. Peters facility from 1992 until
January 1997, Corporate Vice President, Investment Planning from January 1997
to May 1998 and has been our Corporate Vice President, Operations since May
1998.
Dr. Knothe was Director, Corporate Development Plastics Business for Huls AG
from 1994 to 1995 and Director, Corporate Development Electronic Materials for
Huls AG from 1995 until January 1998, when he joined MEMC. Dr. Knothe was our
Vice President, Strategy Development from January 1998 until August 1998 and
has been our Corporate Vice President, Corporate Development since August
1998.
Mr. Weathers was our Director, Manufacturing Services from May 1991 to July
1997, Director, Strategic Capital Planning from August 1997 to May 1998, Vice
President, Operations Services from June 1998 to October 1999, and has been
our Corporate Vice President, Customer Services and Scheduling since November
1999.
Mr. Wick was Vice President, Human Resources for Bunge Corporation from 1990
until joining us as Corporate Vice President, Human Resources in January 1999.
Bunge Corporation is an international, privately-held, multi-billion dollar,
integrated agri-business company engaged in commodity trading, grain and
edible oil exporting and food processing.
18
Item 2. Properties
Our principal executive offices are located at 501 Pearl Drive (City of
O'Fallon), St. Peters, Missouri 63376, and our telephone number at that
address is (636) 474-5000. Our principal manufacturing and administrative
facilities and the principal manufacturing and administrative facilities of
our joint ventures comprised approximately 3.8 million square feet as of
December 31, 1999 and were situated in the following locations:
Location Square Footage
-------- --------------
St. Peters, MO, USA...................................... 737,000
Sherman, TX, USA......................................... 707,000
Pasadena, TX, USA........................................ 436,000
Merano, Italy............................................ 319,000
Novara, Italy............................................ 322,000
Utsunomiya, Japan........................................ 305,000
Kuala Lumpur, Malaysia................................... 53,000
Chonan, South Korea...................................... 460,000
(PHC joint venture)
Hsinchu, Taiwan.......................................... 450,000
(Taisil joint venture)
We lease a portion of our St. Peters facility pursuant to a lease agreement
between us and the City of O'Fallon, Missouri that was entered into in
connection with an industrial revenue bond financing. The term of the St.
Peters lease expires in 2011, and we have the option to purchase the leased
portion of the St. Peters facility at the end of the lease. We also lease our
small diameter facility in Sherman, Texas. The initial term of this lease
expires in 2001 and is extendable at our option for three (3) additional
renewal terms of five (5) years each. We lease our facility in Pasadena,
Texas. The term of the Pasadena lease expires in 2030 and is extendable for
four (4) additional renewal terms of five (5) years each. Taisil leases the
land on which its Hsinchu, Taiwan facility is located. This lease expires in
2014. We also lease our facility in Kuala Lumpur, Malaysia. This lease expires
in 2000. We are currently negotiating an extension of the lease. In 1999, we
discontinued manufacturing operations at our small diameter wafer facility in
Spartanburg, South Carolina. The Spartanburg facility is now held for sale.
We believe that our existing facilities and equipment are well maintained,
in good operating condition and are adequate to meet our current requirements.
The extent of utilization of these facilities varies from plant to plant and
from time to time during the year.
Item 3. Legal Proceedings
Damewood vs. Ethyl Corporation, et al.
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 in favor of the plaintiffs that resulted in a judgment
against Ethyl Corporation in the amount of $6.8 million. Ethyl Corporation
appealed this judgment. Recently, Ethyl Corporation and the plaintiffs settled
this matter for $5.2 million.
On September 29, 1998, Albemarle Corporation made a demand against us for
defense and indemnity in this case on behalf of Ethyl Corporation. 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.
In November 1998, we made a demand for indemnity in this case 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
19
the MEMC Pasadena plant from Albemarle Corporation to us. These cross-
indemnity claims have not been resolved.
Due to uncertainty regarding the litigation process, the scope and
interpretation of contractual indemnity provisions and the status of any
insurance coverage, the outcome of this matter could be unfavorable, in which
event we might be required to pay damages and other expenses, which could have
a material adverse effect on us.
Settlement of Parden vs. Ethyl Corporation, et al.
As previously reported, we were a named defendant in a lawsuit entitled
Parden vs. Ethyl Corporation, et al. (Case No. 97-34857) filed in the 61st
Judicial District Court, Harris County, Texas on June 13, 1997. This lawsuit
was filed by two employees of the former operator of the MEMC Pasadena plant
who were injured when flaming liquid escaped from a valve under repair. See
our annual report on Form 10-K for the year ended December 31, 1998. In
November 1999, we settled this matter. Under the settlement, this matter is
completely covered by insurance. In consideration of the settlement, on
January 11, 2000, the court issued a final judgment in favor of the other
defendants and us.
Lemelson Foundation Partnership
In July 1999, we received notification from attorneys representing the
Lemelson Medical, Education & Research Foundation, Limited Partnership
alleging that we infringed on certain patents owned by the Lemelson Foundation
related to bar coding and laser mark reading systems. The attorneys for the
Lemelson Foundation have not filed suit, but have requested that we enter into
a licensing agreement with the Lemelson Foundation in order to avoid
litigation. We are in the process of reviewing the patents at issue and how
they might relate to our activities. Should the Lemelson Foundation file suit,
we would vigorously defend ourselves in this matter. However, due to
uncertainty regarding the litigation process, the outcome of this action could
be unfavorable, in which event we might be required to pay damages and other
expenses, which could have a material adverse effect on us.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The narrative or tabular information regarding the market for our common
equity and related stockholder matters required by this item is set forth
under Note 18, "Unaudited Quarterly Financial Information", on page 40 of our
1999 Annual Report and under "Stockholder Information" on page 44 of our 1999
Annual Report, which information is incorporated herein by reference. We have
not paid any dividends on our common stock for the last two fiscal years.
Item 6. Selected Financial Data
The tabular information (including the footnotes thereto) required by this
item is set forth under "Five Year Selected Financial Data" on page 12 of our
1999 Annual Report, which information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is set forth on pages 13 through 20 of
our 1999 Annual Report, which information is incorporated herein by reference.
20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is set forth under "Market Risk" on
page 20 of our 1999 Annual Report, which information is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements appearing on pages 21 through 40, and
the Independent Auditors' Report thereon of KPMG LLP appearing on page 42 of
our 1999 Annual Report, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
We will file a definitive proxy statement with the Securities and Exchange
Commission within 120 days of year-end (the 2000 Proxy Statement). The
information required by this item with respect to compliance with Section
16(a) of the Exchange Act will be set forth in the 2000 Proxy Statement under
"Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated
herein by reference. The remaining information required by this item with
respect to directors will be set forth in the 2000 Proxy Statement under "ITEM
NO. 1. ELECTION OF DIRECTORS" and is incorporated herein by reference. The
remaining information required by this item with respect to executive officers
is set forth in Part I of this Annual Report on Form 10-K under "Executive
Officers of the Registrant."
Item 11. Executive Compensation
Information appearing under (i) "BOARD MEETINGS--COMMITTEES--Director
Compensation and Attendance"; (ii) "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION"; (iii) "SUMMARY COMPENSATION TABLE" and related footnotes; (iv)
"OPTION GRANTS IN LAST FISCAL YEAR" and related footnotes; (v) "AGGREGATED
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES" and
related footnotes; (vi) "Pension Plan"; (vii) "Pension Plan Table (1),"
"Pension Plan Table (2)," and "Pension Plan Table (3)"; (viii) "Employment
Agreements"; (ix) "Annual Incentive Bonus Plan"; (x) "Special Incentive Bonus
Plan"; (xi) "Severance Plan for Senior Officers"; (xii) "Compensation
Committee Interlocks and Insider Participation"; and (xiii) "STOCK PERFORMANCE
GRAPH" of the 2000 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information appearing under "COMMON STOCK OWNERSHIP BY DIRECTORS AND
EXECUTIVE OFFICERS" and related footnotes and "OWNERSHIP OF MEMC COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS" and related footnotes of the 2000 Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under "CERTAIN TRANSACTIONS" of the 2000 Proxy Statement is
incorporated herein by reference.
21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following consolidated financial statements of us and our
subsidiaries, included on pages 21 through 40 of the 1999 Annual
Report, and the Independent Auditors' Report thereon of KPMG LLP
appearing on page 42 of such report are incorporated herein by
reference.
Consolidated Statements of Operations--Years ended December 31,
1999, 1998 and 1997.
Consolidated Balance Sheets--December 31, 1999 and 1998.
Consolidated Statements of Cash Flows--Years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial Statement Schedules
Independent Auditors' Report on Financial Statement Schedule......... F-1
Valuation and Qualifying Accounts.................................... F-2
Financial Statements of POSCO HULS Co., Ltd.:
Independent Auditors' Report of KPMG San Tong Corp................. F-3
Balance sheets as of December 31, 1999 (unaudited) and 1998........ F-4
Statements of Operations--Years ended December 31, 1999
(unaudited), 1998 and 1997........................................ F-5
Statements of Appropriation (Disposition) of Retained Earnings
(Accumulated Deficit)-- Years ended December 31, 1999 (unaudited),
1998 and 1997..................................................... F-6
Statements of Cash Flows--Years ended December 31, 1999
(unaudited), 1998 and 1997........................................ F-7
Notes to Financial Statements...................................... F-8
Financial Statements of Taisil Electronic Materials Corporation:
Independent Auditors' Report of KPMG Certified Public Accountants.. F-26
Balance sheets as of December 31, 1999 (unaudited) and 1998........ F-27
Statements of Operations--Years ended December 31, 1999
(unaudited), 1998 and 1997........................................ F-29
Statements of Changes in Stockholders' Equity--Years ended December
31, 1999 (unaudited), 1998 and 1997............................... F-30
Statements of Cash Flows--Years ended December 31, 1999
(unaudited), 1998 and 1997........................................ F-31
Notes to Financial Statements...................................... F-32
3. Exhibits
Exhibit No. Description
----------- -----------
3(i) 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)
3(ii) Restated By-laws of the Company (Incorporated by
reference to Exhibit 3(ii) of the Company's Form 10-Q
for the Quarter ended June 30, 1999)
22
Exhibit No. Description
----------- -----------
*10-a Shareholders Agreement dated May 24, 1994 among the
Company and China Steel Corporation ("China Steel"),
China Development Corporation and Chiao Tung Bank
(Incorporated by reference to Exhibit 10(a) of Amendment
No. 4 to the Company's Form S-1 Registration Statement
No. 33-92412)
*10-b Technology Cooperation Agreement dated October 26, 1994
between the Company and Taisil Electronic Materials
Corporation ("Taisil") (Incorporated by reference to
Exhibit 10-b of Amendment No. 4 to the Company's Form S-
1 Registration Statement No. 33-92412)
10-c Joint Venture Agreement dated August 28, 1990 among the
Company, Pohang Iron and Steel Company, Ltd. ("POSCO")
and Samsung Electronics Company, Ltd. ("Samsung")
(Incorporated by reference to Exhibit 10-c of Amendment
No. 1 to the Company's Form S-1 Registration Statement
No. 33-92412)
10-c(1) First Amendment to Joint Venture Agreement dated
December 9, 1993 among the Company, POSCO and Samsung
(Incorporated by reference to Exhibit 10-d of Amendment
No. 1 to the Company's Form S-1 Registration Statement
No. 33-92412)
10-c(2) Second Amendment to Joint Venture Agreement dated
December 30, 1994 among the Company, POSCO and Samsung
(Incorporated by reference to Exhibit 10-e of Amendment
No. 1 to the Company's Form S-1 Registration Statement
No. 33-92412)
*10-d Technical Agreement dated December 19, 1990 between the
Company and POSCO HULS Company Ltd. ("PHC")
(Incorporated by reference to Exhibit 10-d of the
Company's Form 10-K for the Year Ended December 31,
1998)
*10-d(1) Amendment to Technical Agreement dated as of January 1,
1995 between the Company and PHC (Incorporated by
reference to Exhibit 10-g of Amendment No. 1 to the
Company's Form S-1 Registration Statement No. 33-92412)
10-d(2) Second Amendment to Technical Agreement effective as of
September 30, 1998 between the Company and PHC
(Incorporated by reference to Exhibit 10-g(1) of the
Company's Current Report on Form 8-K dated October 22,
1998)
*10-d(3) Third Amendment to PHC Technical Agreement effective as
of October 1, 1998 by and between the Company and PHC
(Incorporated by reference to Exhibit 10-d(3) of the
Company's Form 10-K for the Year Ended December 31,
1998)
*10-e Shareholder's Agreement dated as of May 16, 1995 between
the Company and Texas Instruments Incorporated ("TI")
(Incorporated by reference to Exhibit 10-h of Amendment
No. 4 to the Company's Form S-1 Registration Statement
No. 33-92412)
*10-f TI Purchase Agreement dated as of June 30, 1995 between
the Company, MEMC Southwest Inc. ("MEMC Southwest") and
TI (Incorporated by reference to Exhibit 10-i of the
Company's Form 10-Q for the Quarter ended June 30, 1995)
*10-f(1) Amendment to TI Purchase Agreement dated as of June 5,
1997, between MEMC Southwest and TI (Incorporated by
reference to Exhibit 10-i of the Company's Form 10-Q for
the Quarter ended June 30, 1997)
10-g Lease Agreement Covering Silicon Wafer Operation
Premises dated June 30, 1995 between TI and MEMC
Southwest (Incorporated by reference to Exhibit 10-j of
the Company's Form 10-Q for the Quarter ended June 30,
1995)
23
Exhibit No. Description
----------- -----------
10-g(1) Sublease Agreement covering Silicon Wafer Operation
Premises dated June 30, 1995 between TI and MEMC
Southwest (Incorporated by reference to Exhibit 10-j(1)
of the Company's Form 10-Q for the Quarter ended June
30, 1995)
*10-h Technology Transfer Agreement dated as of June 30, 1995
between the Company, TI and MEMC Southwest (Incorporated
by reference to Exhibit 10-k of the Company's Form 10-Q
for the Quarter ended June 30, 1995)
10-i Registration Rights Agreement between the Company and
VEBA Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-l of the
Company's Form 10-K for the Year ended December 31,
1995)
10-i(1) Amendment to Registration Rights Agreement by and
between the Company and VEBA Corporation dated March 19,
1999
10-j Form of Master Reserve Volume Agreement (Incorporated by
reference to Exhibit 10-m of the Company's Form 10-K for
the Year ended December 31, 1995)
10-m MEMC Technology License Agreement dated as of July 31,
1995, between Albemarle Corporation and the Company
(Incorporated by reference to Exhibit 10-tt of the
Company's Form 10-K for the Year ended December 31,
1995)
*10-n Seller Technology License Agreement dated as of July 31,
1995, among Albemarle Corporation, the Company, and MEMC
Pasadena, Inc. (Incorporated by reference to Exhibit 10-
ll of the Company's Form 10-K/A Amendment No. 2 for the
Year ended December 31, 1997)
*10-o Technology Purchase Agreement dated as of July 31, 1995,
among Albemarle Corporation and the Company
(Incorporated by reference to Exhibit 10-mm of the
Company's Form 10-K/A Amendment No. 2 for the Year ended
December 31, 1997)
10-p Ground Lease Agreement dated as of July 31, 1995,
between Albemarle Corporation and MEMC Pasadena, Inc.
(Incorporated by reference to Exhibit 10-nn of the
Company's Form 10-K/A Amendment No. 2 for the Year ended
December 31, 1997)
10-p(1) Amendment to Ground Lease Agreement dated as of May 31,
1997, between the Company, MEMC Pasadena, Inc., and
Albemarle Corporation (Incorporated by reference to
Exhibit 10-nn(1) of the Company's Form 10-K/A Amendment
No. 2 for the Year ended December 31, 1997)
10-q Purchase Agreement dated as of October 22, 1998 by and
among 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-q(1) First Amendment to Purchase Agreement dated as of
December 29, 1998 by and among the Company and VEBA
Corporation (Incorporated by reference to Exhibit
10.1(a) of Amendment No. 2 to the Company's Form S-3
Registration Statement No. 333-65973)
10-q(2) Second Amendment to Purchase Agreement dated as of
February 14, 1999 by and among the Company and VEBA
Zweite Verwaltungsgesellschaft mbH (as successor to VEBA
Corporation) (Incorporated by reference to Exhibit
10.1(b) of Amendment No. 3 to the Company's Form S-3
Registration Statement No. 333-65973)
24
Exhibit No. Description
----------- -----------
10-r Standby Agreement dated as of October 22, 1998 by and
among 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-aa Employment Agreement dated as of April 1, 1993 among
Huls Belgium S.A., the Company and Marcel Coinne
(Incorporated by reference to Exhibit 10-r of Amendment
No. 1 to the Company's Form S-1 Registration Statement
No. 33-92412)
+10-bb MEMC Supplemental Executive Pension Plan 1997
Restatement (Incorporated by reference to Exhibit 10-s
of the Company's Form 10-Q for the Quarter ended March
31, 1997)
+10-cc MEMC Electronic Materials, Inc. 1995 Equity Incentive
Plan as Amended and Restated on December 6, 1999
+10-cc(1) Form of Stock Option and Restricted Stock Agreement
(Incorporated by reference to Exhibit 10-t(1) of the
Company's Form 10-K for the Year ended December 31,
1995)
+10-cc(2) Form of Stock Option and Performance Restricted Stock
Agreement (Incorporated by reference to Exhibit 10-yy of
the Company's Form 10-K for the Year ended December 31,
1995)
+10-cc(3) Form of Stock Option Agreement (Incorporated by
reference to Exhibit 10-zz of the Company's Form 10-K
for the Year ended December 31, 1995)
+10-cc(4) Form of Stock Option and Performance Restricted Stock
Agreement (Incorporated by reference to Exhibit 10-nnn
of the Company's Form 10-Q for the Quarter ended March
31, 1997)
+10-cc(5) Form of Stock Option Agreement (Incorporated by
reference to Exhibit 10-ooo of the Company's Form 10-Q
for the Quarter ended March 31, 1997)
+10-cc(6) Form of Stock Option Agreement (Nonemployee Directors)
(Incorporated by reference to Exhibit 10-ppp of the
Company's Form 10-Q for the Quarter ended March 31,
1997)
+10-cc(7) Form of Stock Option Agreement
+10-dd Annual Incentive Plan for Selected Key Employees of MEMC
Electronic Materials, Inc. and its Subsidiaries
(Incorporated by reference to Exhibit 10-u of Amendment
No. 1 to the Company's Form S-1 Registration Statement
No. 33-92412)
+10-ee Employment Agreement effective as of June 16, 1995
between the Company and James M. Stolze (Incorporated by
reference to Exhibit 10-ee of Amendment No. 1 to the
Company's Form S-1 Registration Statement No. 33-92412)
+10-ff Supplemental Retirement Agreement dated as of February
17, 1999 between the Company and Ludger H. Viefhues
(Incorporated by reference to Exhibit 10-xx(1) of the
Company's Current Report on Form 8-K dated February 17,
1999)
+10-ff(1) Supplemental Retirement Agreement Clarification dated
March 17, 1999 between the Company and Ludger H.
Viefhues (Incorporated by reference to Exhibit 10.6 of
Amendment No. 4 to the Company's Form S-3 Registration
Statement No. 333-65973)
25
Exhibit No. Description
----------- -----------
+10-gg Stock Option Agreement dated as of September 1, 1996
between the Company and Ludger H. Viefhues (Incorporated
by reference to Exhibit 10-iii of the Company's Form 10-
Q for the Quarter ended September 30, 1996)
+10-hh Consulting Agreement dated December 1, 1997, between the
Company and Dr. Robert M. Sandfort (Incorporated by
reference to Exhibit 10-nnn of the Company's Form 10-K/A
Amendment No. 2 for the Year ended December 31, 1997)
+10-jj Agreement dated as of April 1, 1993, between the Company
and Ralph D. Hartung (Incorporated by reference to
Exhibit 10-ppp of the Company's Form 10-K for the Year
ended December 31, 1997)
+10-kk MEMC Electronic Materials, Inc. Special Incentive Plan
Summary (Incorporated by reference to Exhibit 10-qqq of
the Company's Form 10-Q for the Quarter ended June 30,
1998)
+10-kk(1) Special Incentive Bonus Agreement dated as of March 26,
1998 between the Company and Marcel Coinne (Incorporated
by reference to Exhibit 10-rrr of the Company's Form 10-
Q for the Quarter ended June 30, 1998)
+10-kk(2) Special Incentive Bonus Agreement dated as of March 24,
1998 between the Company and Ralph D. Hartung
(Incorporated by reference to Exhibit 10-sss of the
Company's Form 10-Q for the Quarter ended June 30, 1998)
+10-kk(3) Special Incentive Bonus Agreement dated as of March 31,
1998 between the Company and James M. Stolze
(Incorporated by reference to Exhibit 10-ttt of the
Company's Form 10-Q for the Quarter ended June 30, 1998)
+10-kk(4) Special Incentive Bonus Agreement dated as of March 24,
1998 between the Company and John P. DeLuca
(Incorporated by reference to Exhibit 10-kk(4) of the
Company's Form 10-K for the Year Ended December 31,
1998)
+10-ll Employment Agreement effective as of April 1, 1998
between the Company and Klaus R. von Horde (Incorporated
by reference to Exhibit 10-uuu of the Company's Form 10-
Q for the Quarter ended June 30, 1998)
+10-ll(1) Employment Agreement effective as of February 17, 1999
between the Company and Klaus R. von Horde (Incorporated
by reference to Exhibit 10.5 of Amendment No. 4 to the
Company's Form S-3 Registration Statement No. 333-65973)
+10-mm Letter Agreement dated April 17, 1998 between the
Company and Dr. Werner Schmitz (Incorporated by
reference to Exhibit 10-vvv of the Company's Form 10-Q
for the Quarter ended June 30, 1998)
+10-nn Agreement dated May 19, 1998 between the Company and
Ralph D. Hartung (Incorporated by reference to Exhibit
10-www of the Company's Form 10-Q for the Quarter ended
June 30, 1998)
+10-oo International Transfer Letter Agreement effective as of
October 1, 1998 between the Company and Marcel Coinne
(Incorporated by reference to Exhibit 10-yyy of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-aaa Credit Agreement dated as of July 10, 1995, between the
Company and Fidelia Corporation (as successor to Huls
Corporation) (Incorporated by reference to Exhibit 10-jj
of the Company's Form 10-Q for the Quarter ended June
30, 1995)
26
Exhibit No. Description
----------- -----------
10-aaa(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-cc(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-bbb Credit Agreement dated as of July 10, 1995, between the
Company and Fidelia Corporation (as successor to Huls
Corporation) (Incorporated by reference to Exhibit 10-kk
of the Company's Form 10-Q for the Quarter ended June
30, 1995)
10-bbb(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA
Corporation (Incorporated by reference to Exhibit
10-dd(1) of the Company's Current Report on Form 8-K
dated October 21, 1998)
10-ccc Credit Agreement dated as of July 10, 1995, between the
Company and Fidelia Corporation (as successor to Huls
Corporation) (Incorporated by reference to Exhibit 10-ll
of the Company's Form 10-Q for the Quarter ended June
30, 1995)
10-ccc(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-ee(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-ddd Credit Agreement dated as of July 10, 1995, between the
Company and Fidelia Corporation (as successor to Huls
Corporation) (Incorporated by reference to Exhibit 10-mm
of the Company's Form 10-Q for the Quarter ended June
30, 1995)
10-ddd(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-ff(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-eee Credit Agreement dated as of July 10, 1995, between the
Company and VEBA AG (as successor to Huls AG)
(Incorporated by reference to Exhibit 10-nn of the
Company's Form 10-Q for the Quarter ended June 30, 1995)
10-eee(1) First Amendment to Credit Agreement effective as of July
1, 1998 between the Company and VEBA AG (as successor to
Huls AG) (Incorporated by reference to Exhibit 10-gg(1)
of the Company's Form 10-Q for the Quarter ended June
30, 1998)
10-eee(2) Second Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-gg(2) of the Company's Current Report on Form
8-K dated October 21, 1998)
10-fff Credit Agreement dated as of July 10, 1995, between the
Company and Fidelia Corporation (as successor to Huls
AG) (Incorporated by reference to Exhibit 10-oo of the
Company's Form 10-Q for the Quarter ended June 30, 1995)
10-fff(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-hh(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
27
Exhibit No. Description
----------- -----------
10-hhh Revolving Credit Agreement dated as of July 10, 1995,
between the Company and VEBA AG (as successor to Huls
AG) (Incorporated by reference to Exhibit 10-pp of the
Company's Form 10-Q for the Quarter ended June 30, 1995)
10-hhh(1) Amendment to Loan Agreement effective March 4, 1998
between the Company and VEBA AG (as successor to Huls
AG) (Incorporated by reference to Exhibit 10-ii(1) of
the Company's Form 10-Q for the Quarter ended June 30,
1998)
10-hhh(2) Second Amendment to Revolving Credit Agreement effective
as of September 1, 1998 between the Company and VEBA AG
(as successor to Huls AG) (Incorporated by reference to
Exhibit 10-ii(2) of the Company's Current Report on Form
8-K dated October 21, 1998)
10-jjj Credit Agreement between the Company and VEBA AG (as
successor to Huls AG) dated as of December 22, 1995
(Incorporated by reference to Exhibit 10-aaa of the
Company's Form 10-K for the Year ended December 31,
1995)
10-jjj(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-qq(1) of the Company's Current Report on Form
8-K dated October 21, 1998)
10-kkk Credit Agreement between the Company and VEBA AG (as
successor to Huls AG) dated as of December 22, 1995
(Incorporated by reference to Exhibit 10-bbb of the
Company's Form 10-K for the Year ended December 31,
1995)
10-kkk(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-rr(1) of the Company's Current Report on Form
8-K dated October 21, 1998)
10-lll Credit Agreement between the Company and VEBA AG (as
successor to Huls AG) dated as of December 22, 1995
(Incorporated by reference to Exhibit 10-ccc of the
Company's Form 10-K for the Year ended December 31,
1995)
10-lll(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-ss(1) of the Company's Current Report on Form
8-K dated October 21, 1998)
10-mmm Credit Agreement between the Company and VEBA AG (as
successor to Huls AG) dated as of December 22, 1995
(Incorporated by reference to Exhibit 10-ddd of the
Company's Form 10-K for the Year ended December 31,
1995)
10-mmm(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-tt(1) of the Company's Current Report on Form
8-K dated October 21, 1998)
10-nnn Credit Agreement dated as of December 1, 1996 between
the Company and VEBA AG (as successor to Huls AG)
(Incorporated by reference to Exhibit 10-jjj of the
Company's Form 10-K for the Year ended December 31,
1996)
10-nnn(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-ccc(1) of the Company's Current Report on
Form 8-K dated October 21, 1998)
28
Exhibit No. Description
----------- -----------
10-ooo Credit Agreement dated as of December 1, 1996 between
the Company and VEBA AG (as successor to Huls AG)
(Incorporated by reference to Exhibit 10-kkk of the
Company's Form 10-K for the Year ended December 31,
1996)
10-ooo(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-ddd(1) of the Company's Current Report on
Form 8-K dated October 21, 1998)
10-ppp Credit Agreement dated as of April 1, 1996 between the
Company and VEBA AG (as successor to Huls AG)
(Incorporated by reference to Exhibit 10-lll of the
Company's Form 10-K for the Year ended December 31,
1996)
10-ppp(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and VEBA AG (as
successor to Huls AG) (Incorporated by reference to
Exhibit 10-eee(1) of the Company's Current Report on
Form 8-K dated October 21, 1998)
10-qqq Fourth Short-Term Loan Agreement dated as of March 31,
1996 between the Company and VEBA Corporation (as
successor to Huls Corporation) (Incorporated by
reference to Exhibit 10-mmm of the Company's Form 10-K
for the Year ended December 31, 1996)
10-qqq(1) First Amendment to Overnight Loan Agreement effective as
of September 1, 1998 between the Company and VEBA
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-fff(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-rrr Five Year Credit Agreement dated as of June 26, 1997,
between the Company and Fidelia Corporation (as
successor to Huls Corporation) (Incorporated by
reference to Exhibit 10-qqq of the Company's Form 10-Q
for the Quarter ended June 30, 1997)
10-rrr(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-jjj(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-sss Six Year Credit Agreement dated as of June 26, 1997,
between the Company and Fidelia Corporation (as
successor to Huls Corporation) (Incorporated by
reference to Exhibit 10-rrr of the Company's Form 10-Q
for the Quarter ended June 30, 1997)
10-sss(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-kkk(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-ttt Seven Year Credit Agreement dated as of June 26, 1997,
between the Company and Fidelia Corporation (as
successor to Huls Corporation) (Incorporated by
reference to Exhibit 10-sss of the Company's Form 10-Q
for the Quarter ended June 30, 1997)
10-ttt(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-lll(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
29
Exhibit No. Description
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10-uuu Eight Year Credit Agreement dated as of June 26, 1997,
between the Company and Fidelia Corporation (as
successor to Huls Corporation) (Incorporated by
reference to Exhibit 10-ttt of the Company's Form 10-Q
for the Quarter ended June 30, 1997)
10-uuu(1) First Amendment to Credit Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-mmm(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-vvv Loan Agreement dated as of June 30, 1998 between the
Company and Fidelia Corporation (as successor to Huls
Corporation) (Incorporated by reference to Exhibit 10-
xxx of the Company's Form 10-Q for the Quarter ended
June 30, 1998)
10-vvv(1) First Amendment to Loan Agreement effective as of
September 1, 1998 between the Company and Fidelia
Corporation (as successor to Huls Corporation)
(Incorporated by reference to Exhibit 10-xxx(1) of the
Company's Current Report on Form 8-K dated October 21,
1998)
10-www Revolving Credit Agreement dated as of September 23,
1998 between the Company and VEBA AG (Incorporated by
reference to Exhibit 10-zzz of the Company's Current
Report on Form 8-K dated October 21, 1998)
10-xxx Revolving Credit Agreement dated as of February 26, 1999
between the Company and Fidelia Corporation (as