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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 3)
<Table>
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NUMBER 1-13828
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MEMC ELECTRONIC MATERIALS, INC.
(Exact name of registrant as specified in its charter)
<Table>
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)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(636) 474-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
-------------------- ------------------------------------------
$.01 Par Value Common Stock New York Stock Exchange
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(TITLE OF CLASS)
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 11, 2002, as
reported by the New York Stock Exchange, was approximately $96.1 million.
The number of shares outstanding of the registrant's Common Stock as of
March 11, 2002, was 69,612,900 shares.
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PART I
ITEM 1. BUSINESS
GENERAL
We are a leading worldwide producer of silicon wafers for the semiconductor
device industry. We operate manufacturing facilities owned directly in Europe,
Japan, Malaysia, South Korea and the United States and through a joint venture
in Taiwan. We sell silicon wafers to virtually all of the world's largest
manufacturers of semiconductors, which include the world's largest foundries as
well as the major memory, microprocessor and application specific integrated
circuit manufacturers. We provide three main types of silicon wafers. Our prime
polished wafer is a highly refined, pure silicon wafer with an ultraflat and
ultraclean surface. Our epitaxial wafer consists of a thin single-crystal
silicon layer grown on the polished surface of the silicon wafer. We also
provide test/monitor wafers, which are used by our customers for testing
semiconductor fabrication lines and processes.
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
businesses 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. On June
16, 2000, VEBA AG merged with VIAG AG. The VEBA/VIAG Group became known as E.ON
AG. VEBA Corporation became known as E.ON North America, Inc. E.ON AG and its
affiliates (E.ON) continued to own 71.8% of our outstanding common stock until
November 13, 2001.
On September 30, 2001, E.ON and an investor group led by Texas Pacific
Group, including TPG Wafer Holdings LLC and funds managed by Leonard Green &
Partners, L.P. and TCW/Crescent Mezzanine Management III LLC (collectively,
TPG), entered into a purchase agreement. Prior to the closing contemplated by
the purchase agreement, TPG Wafer Holdings formed MEMC Holdings Corporation as a
wholly owned subsidiary. Pursuant to the purchase agreement, on November 13,
2001, TPG Wafer Holdings and its assignees, including MEMC Holdings Corporation,
purchased all of E.ON's debt in MEMC of approximately $910 million and all of
E.ON's equity holdings in MEMC of 49,959,970 shares of MEMC common stock,
representing approximately 72% of the outstanding shares of MEMC common stock.
MEMC Holdings Corporation acquired approximately $411 million of the total $910
million debt.
In connection with the transactions contemplated by the purchase agreement,
on November 13, 2001, MEMC and TPG Wafer Holdings entered into a restructuring
agreement. Pursuant to the restructuring agreement, the following steps were
taken:
- TPG Wafer Holdings exchanged with MEMC all of the shares of the Class A
Common Stock of MEMC Holdings Corporation for 260,000 shares of our
Series A Cumulative Convertible Preferred Stock, having an aggregate
stated value of $260 million.
- TPG exchanged with MEMC approximately $449 million of the acquired debt,
all of which was then cancelled, for $50 million in principal amount of
our senior subordinated secured notes, with detachable warrants to
acquire up to 16,666,667 shares of our common stock.
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- TPG retained an existing 55 million Euro (approximately $50 million) note
from our Italian subsidiary.
- TPG established a five-year revolving credit facility to make available
to us up to $150 million in senior secured loans (which facility was
replaced in December 2001 by a substantially similar $150 million
Citibank revolving credit facility).
- We entered into other agreements, including a registration rights
agreement and an agreement and plan of merger relating to the merger
agreement between MEMC and TPG Wafer Holdings.
- All of the E.ON affiliated members and two independent members resigned
from the MEMC Board of Directors, and the Board appointed four nominees
designated by TPG Wafer Holdings. Shortly thereafter, the Board appointed
two additional persons to the Board. The size of the Board was
subsequently increased to ten persons and the Board appointed two
additional directors to fill the vacancies.
- TPG Wafer Holdings subsequently exchanged with MEMC the one outstanding
share of Class B Common Stock of MEMC Holdings Corporation held by TPG
Wafer Holdings for a promissory note from MEMC having a principal amount
of $250. MEMC Holdings Corporation, the holder of approximately $411
million of MEMC debt previously owed to E.ON, is now a wholly owned
subsidiary of MEMC.
As a result of these transactions, approximately $860 million of the MEMC
debt acquired from E.ON has been exchanged for our preferred stock, notes and
warrants and TPG now beneficially owns approximately 72% of the outstanding MEMC
common stock. Subject to the approval of our stockholders, the preferred stock
is convertible into shares of our common stock at a price of $2.25 per share.
The preferred stock bears dividends at a rate of 10% per annum if paid in cash
or 12% if paid in kind. Subject to the approval of our stockholders, the
preferred stock will have voting rights with the holders of the common stock.
Shares of preferred stock not converted by November 13, 2009, are redeemable for
cash at the holder's option. The warrants will be exercisable until November 13,
2011 at an exercise price of $3.00 per share, but only after we have obtained
stockholder approval.
Pursuant to the restructuring agreement, we agreed to use our best efforts
to obtain, as promptly as possible, any necessary approval of our stockholders
relating to the preferred stock, the shares of common stock issuable upon
conversion of the preferred stock, the warrants and the shares of common stock
issuable upon exercise of the warrants as required by the rules and regulations
of the New York Stock Exchange.
If we obtain such stockholder approval, TPG will own or have the right to
acquire, through ownership of the common stock acquired from E.ON, conversion of
the preferred stock (excluding accrued but unpaid dividends) and exercise of the
warrants, a minimum of approximately 182 million shares of common stock, which
would represent approximately 90% of our outstanding common stock. TPG has
agreed not to convert any of the preferred stock unless and until we have
obtained such stockholder approval. Because the preferred stock earns cumulative
dividends that may be payable in kind upon conversion, if TPG were not to
convert any preferred stock until immediately prior to the redemption date in
2009, TPG would own or have the right to acquire a maximum of approximately 364
million shares of common stock, which would represent approximately 95% 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 2001 Annual Report to Stockholders ("2001 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. The semiconductor device industry
historically has been a high-growth, cyclical industry.
2
The fabrication of semiconductor devices requires a large number of complex
and repetitive processing steps, including deposition, photolithography and
etch, to layer different materials and imprint various features on a single
wafer. Semiconductor device manufacturers require a reliable supply of
high-quality silicon wafers with consistent characteristics. As the
manufacturing process becomes more complex, the need for more advanced silicon
wafers becomes increasingly important. These wafers must have high purity
levels, highly uniform crystal structure and precise mechanical tolerances in
order for semiconductor device manufacturers to achieve their fundamental goals,
including improved device performance, higher yields and greater equipment
effectiveness.
Although the worldwide semiconductor device industry grew at a compound
annual growth rate of 16.0% from $24 billion in revenues in 1985 to $226 billion
in 2000 according to Dataquest estimates, the industry has been characterized by
cyclicality and periods of overcapacity. For example, semiconductor revenues
grew by only 3.5% in 1997 and declined by 5.6% in 1998, according to Dataquest
estimates. In 1999 and 2000, semiconductor revenues grew by 22.8% and 32.7%,
respectively, according to Dataquest estimates. This growth was attributable to
increased demand driven by growth in the Internet and mobile electronic device
markets, an upturn in global economic conditions and the resulting tightness in
capacity. In 2001, semiconductor industry revenues declined by an estimated 30%
to 34%, according to Dataquest estimates, as a result of weakened demand and a
broad-based inventory correction. This decrease was the worst year-over-year
revenue decline in the history of the semiconductor industry, according to
Dataquest.
The growth of the silicon wafer industry historically has been correlated
to the growth of the semiconductor device industry. The silicon wafer industry
grew at a compound annual growth rate of 11% from 1,177 million square inches in
1985 to 5,663 million square inches in 2000, according to Dataquest estimates.
From 1993 through the first half of 1996, the silicon wafer industry was
characterized by excess demand, wafer shortages and increases in average selling
prices of silicon wafers. Due to these shortages and anticipated future demand,
wafer manufacturers added significant capacity, especially for 200 millimeter
wafers, the predominant wafer used in the industry today. This additional
capacity, along with the semiconductor device industry slowdown, left the
silicon wafer industry in a state of overcapacity. This overcapacity resulted in
significant average selling price declines starting in 1997 and continuing
through early 1999. During this period, certain semiconductor device
manufacturers eliminated their silicon wafer manufacturing capabilities, and
several silicon wafer manufacturers, including us, rationalized their capacity
and reduced their workforces.
In 1999 and 2000, due to the increased demand for semiconductor devices,
silicon wafer consumption increased by 23.9% and 23.7%, respectively, according
to Dataquest. The increase in silicon wafer consumption, along with the
rationalization in the industry, resulted in more balanced supply and demand
conditions in the wafer industry, especially for 200 millimeter wafers. The
supply of 150 millimeter and smaller diameter wafers continued to exceed demand
in 2000. The more balanced supply and demand conditions nonetheless resulted in
a stabilized pricing environment in 2000.
In 2001, as a result of the decline in the semiconductor industry, silicon
wafer consumption decreased 29%, according to Dataquest's latest estimates. The
decline in silicon wafer demand resulted in excess supply in the wafer industry,
especially for 150 millimeter wafers. By the end of 2001, this excess supply
resulted in increased downward pressure on average selling prices.
Semiconductor device manufacturers continue to focus on improving their
efficiency and lowering their cost per device. Because larger silicon wafers
allow for an increased number of semiconductor devices per wafer, moving to
larger wafers can provide semiconductor device manufacturers with higher
productivity and reduced cost per device. Thus, semiconductor device
manufacturers have moved continuously to larger diameter wafers, with the 200
millimeter wafer being the primary wafer used today. According to Dataquest's
latest estimates, the 200 millimeter wafer is expected to be the primary wafer
size until at least 2006. We believe the next size wafer to be used in large
scale production will be a 300 millimeter diameter wafer. Semiconductor device
manufacturers are expected to gradually migrate to this larger wafer.
3
PRODUCTS
We manufacture silicon wafers according to precise specifications required
by our customers. These specifications include diameter, surface features,
composition, purity levels, crystal and electrical properties. We manufacture
wafers in sizes ranging in diameter from 100 to 300 millimeters.
Our silicon wafer manufacturing process begins with high purity electronic
grade polysilicon. The polysilicon is melted in a quartz crucible along with
minute amounts of electrically active elements such as arsenic, boron,
phosphorous or antimony. We then lower a silicon seed crystal into the melt and
slowly extract it from the melt. The resultant body of silicon is called an
ingot. The temperature of the melt, speed of extraction and rotation of the
crucible govern the diameter of the ingot, while the concentration of the
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.
We then grind the ingots to the specified diameter and 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. Final polishing and cleaning processes give the
wafers the clean and super flat mirror polished surfaces required for the
fabrication of semiconductor devices. We further process some of our products
into epitaxial wafers by utilizing a chemical vapor deposition process to
deposit a single crystal silicon layer on the polished surface.
We are continually advancing our products' capabilities. Our new products
and product features are designed to address the needs of our customers as they
move to more advanced devices. These more complex devices require advanced
silicon wafer capabilities to enable our customers to manufacture these devices
at acceptable yields. In addition to other new product offerings, we offer
wafers with the Magic Denuded Zone(R), or MDZ(R), product feature. This patented
product feature increases our customers' yields in both prime polished and
epitaxial wafers by drawing impurities away from the surface of the wafer.
Our products include three general categories of silicon wafers:
PRIME POLISHED WAFERS
Our prime polished wafer is a highly refined, pure silicon wafer with an
ultraflat and ultraclean surface. Our prime polished wafers are manufactured
with a sophisticated chemical-mechanical polishing process that removes defects
and leaves an extremely smooth surface. As semiconductor device geometries
continue to shrink and devices become more complex, wafer flatness and
cleanliness requirements, along with crystal perfection, become increasingly
important because these properties have a significant impact on yields.
We recently introduced our OPTIA(TM) silicon wafer, a defect-free silicon
wafer based on our patented technologies and processes, including MDZ(R). We
believe the OPTIA(TM) wafer is the most technically advanced silicon wafer
available today. We are shipping commercial volumes of OPTIA(TM) wafers to some
customers, and we are in the process of qualifying OPTIA(TM) wafers with other
customers.
In 2000, we introduced our ADVANTA(TM) product, which allows our customers
to make more complex semiconductor devices at acceptable yield levels by
reducing the number of defects in the crystal structure in the wafer. The
ADVANTA(TM) product, which may include the MDZ(R) feature, offers higher
performance than a standard polished wafer. We are currently shipping
significant volumes of ADVANTA(TM) wafers to our customers.
EPITAXIAL WAFERS
Our epitaxial wafers consist of a thin, single-crystal silicon layer grown
on the polished surface of the silicon wafer. Typically, the epitaxial layer has
different electrical properties from the underlying wafer. This provides our
customers with better isolation between circuit elements than a polished wafer.
Without sufficient isolation of the various elements, the elements could
communicate electrically with each other, which could render the device useless.
Epitaxial wafers provide improved isolation, thereby allowing for increased
4
reliability of the finished semiconductor device and greater efficiencies during
the semiconductor manufacturing process, which ultimately allows for more
complex semiconductor devices.
We recently introduced our AEGIS(TM) product that is designed as a drop-in
replacement for many polished, annealed, and other epitaxial wafers. The
AEGIS(TM) wafer includes a thin epitaxial layer grown on a standard substrate
and also incorporates our MDZ(R) product feature. The AEGIS(TM) wafer's thin
epitaxial layer eliminates harmful defects on the surface of the wafer, thereby
allowing chip manufacturers to increase yields and improve process reliability.
We are shipping commercial volumes of AEGIS(TM) wafers to some customers, and we
are in the process of qualifying AEGIS(TM) wafers with other customers.
TEST/MONITOR WAFERS
We supply test/monitor wafers to our customers for their use in testing
semiconductor fabrication lines and processes. Although test/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 test/monitor wafers from the portion of the silicon ingot
that does not meet customer specifications for wafers to be used in the
manufacture of semiconductors. Therefore, sales of test/monitor wafers allow us
to experience a higher overall yield.
SALES AND MARKETING
We sell our products to virtually all of the world's largest manufacturers
of semiconductors, including the world's major foundries, as well as the major
memory, microprocessor and application specific integrated circuit
manufacturers.
We market our products primarily through a global direct sales force. We
and our joint ventures have customer service and support centers globally,
including in China, France, Germany, Italy, Japan, Malaysia, South Korea,
Taiwan, the United Kingdom and the United States. A key element of our marketing
strategy is establishing and maintaining close relationships with our customers.
We accomplish this through multi-functional teams of technical, sales and
marketing, and manufacturing personnel. These teams work closely with our
customers to continually optimize our products for their production processes in
their current and future facilities. Our close relationships with our customers
are further developed through lengthy qualification processes by which customers
qualify silicon wafer manufacturing facilities and products. We monitor changing
customer needs and target our manufacturing to produce wafers adapted to each
customer's process and requirements.
We complete sales principally through indicative-only contracts of one year
or less which indicate expected volumes and specify price. Over half of our 2001
net sales were to customers located outside North America, and substantially all
of the 2001 sales of our unconsolidated joint venture were in the Asia Pacific
region, excluding Japan.
We derive most of our revenues from a small number of customers. In 2001,
we made approximately 63% of our sales to ten customers, with Samsung
Electronics Company, Ltd. and STMicroelectronics N.V. accounting for
approximately 18% and 10% of our sales, respectively. In 2001, no other customer
accounted for 10% or more of our sales. See "Risk Factors -- We have a limited
number of principal customers, and, accordingly, a loss of one or several of
those customers would hurt our business."
MANUFACTURING
To meet our customers' needs worldwide, we have established a global
manufacturing network consisting of eight silicon wafer manufacturing
facilities, including our unconsolidated joint venture in Taiwan. In certain of
these facilities, we have fully integrated manufacturing capabilities that
encompass the full range of wafer manufacturing process steps, including ingot
growth, wafer slicing, wafer polishing and epitaxial deposition. We conduct
certain of our processes in state-of-the-art Class 1 cleanroom environments.
5
RAW MATERIALS
The main raw material in our production process is polysilicon. We produce
over two-thirds of our total polysilicon requirements and purchase the remainder
of our requirements from others. Our requirements for polysilicon include chunk
polysilicon and granular polysilicon. The availability of chunk polysilicon
currently significantly exceeds demand. We believe that an adequate supply of
chunk polysilicon will be available internally or from others for the
foreseeable future. We produce all of our requirements for granular polysilicon
at our facility in Pasadena, Texas. We do not believe there are other sources of
electronic grade granular polysilicon. Chunk polysilicon can be substituted for
granular polysilicon, although in some cases we may be required to obtain new
qualifications from our customers in order to substitute chunk polysilicon for
granular polysilicon.
We obtain substantially all of our requirements for several other 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, it may take several months to
transition to a new supplier and we may be required to obtain new qualifications
from our customers in order to change or substitute materials or sources of
supply.
In the event we would be required to obtain new qualifications from our
customers in order to substitute materials or sources of supply, we cannot
predict whether we would be successful or how long the qualification process
would take. In addition, our manufacturing process could be interrupted and our
manufacturing throughput and yields could be adversely affected while we
transition to a new material or source of supply.
We believe that adequate quantities of all our key raw materials,
equipment, parts and supplies are currently available. However, because of the
cyclical nature of our industry, we may experience shortages in the future. See
"Risk Factors -- Our dependence on single and limited source suppliers could
adversely affect our operating results" and "Risk Factors -- 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 product volume."
RESEARCH AND DEVELOPMENT
The silicon wafer market is characterized by continuous technological
development and product innovation. We believe that continued and timely
development of new products and enhancements to existing products are necessary
to maintain our competitive position. Accordingly, we devote a significant
portion of our financial and human resources to research and development
programs. Our goal is to maintain a close working relationship with our
customers to continually develop new products and refine existing products to
meet the needs of the marketplace. To strengthen this relationship and
interaction, we assign research and development applications engineers to key
customer accounts worldwide.
Our Applications Engineering Group is organized worldwide and consists of
three world class laboratories located in the U.S., Italy and Japan, as well as
field and resident engineers who are located at strategic locations throughout
the world, some of whom are dedicated to specific accounts. The primary purpose
of this group is to establish a close, technical working relationship with our
customers to obtain a better knowledge of our customers' material requirements.
Our technology efforts are closely aligned with our customers'
requirements. Our current research and development activities are focused on:
- enhancement of existing products;
- manufacturing process improvements and cost reduction; and
- development of advanced silicon wafer products.
We continue to devote a significant portion of our research and development
resources to enhance our position in the crystal technology area. We have a
large number of engineers and scientists, located in our St. Peters, Missouri,
Merano, Italy and Utsunomiya, Japan facilities, who are devoted to this area and
to our
6
further understanding of defect control, cost reduction and the use of granular
polysilicon. We are also developing our advanced epitaxial wafer technology with
a dedicated staff of scientists located in our St. Peters, Missouri, Novara,
Italy and Utsunomiya, Japan facilities, who focus on the development of new
epitaxial wafer products and cost reduction processes.
We produced our first 300 millimeter diameter wafers in 1991. We continue
to enhance our 300 millimeter technology program utilizing our staff of research
and development scientists, engineers and technicians located in our St. Peters,
Missouri and Utsunomiya, Japan facilities. We are working with industry-wide 300
millimeter organizations and consortia and selected early 300 millimeter
semiconductor device manufacturers. We are also focusing on process design cost
improvement. In January 2002, we announced the transition of our 300 millimeter
Center of Excellence from a pilot line to a full-scale 300 millimeter silicon
wafer manufacturing facility.
Research and development expenses were $65.7 million in 2001, $72.2 million
in 2000, and $85.0 million in 1999, or 10.6%, 8.3%, and 12.3% of our net sales
for those periods, respectively. We expect research and development expenditures
will continue to constitute a substantial percentage of our revenues for the
foreseeable future.
COMPETITION
The market for silicon wafers is highly competitive. We face intense
competition from established manufacturers throughout the world. Some of our
competitors have greater financial, engineering, manufacturing and marketing
resources than we have. Our major competitors include Shin-Etsu Handotai,
Sumitomo Mitsubishi Silicon, Wacker Siltronic and Komatsu Electronic Metals. 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 ability to compete in
the silicon wafer market and on our operating results. For other risks related
to competition, see "Risk Factors -- We experience intense competition in the
silicon wafer industry, which may have an adverse effect on our business."
JOINT VENTURES
STRATEGIC ALLIANCES
We have entered into several strategic alliances 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 an unconsolidated joint venture in
Taiwan, a consolidated joint venture in South Korea, and a strategic alliance
with Texas Instruments through our consolidated joint venture, MEMC Southwest
Inc., in the United States.
TAISIL ELECTRONIC MATERIALS CORPORATION
In 1994, we formed Taisil Electronic Materials Corporation, commonly known
as Taisil, with China Steel Corporation, a Taiwanese steel manufacturer. Taisil
manufactures and sells silicon wafers in Taiwan. Taisil generated net sales of
$83.5 million in 2001, $126.0 million in 2000, and $94.4 million in 1999. A
majority of Taisil's sales in each of these years was to three customers. 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 semi-annual royalties based on Taisil's net sales and operating
income.
We have guaranteed certain indebtedness of Taisil. At December 31, 2001,
these guarantees totaled $10.2 million. In January 2002, Taisil fully paid the
debt underlying these guarantees. Accordingly, as of January 2002, we have no
guarantees outstanding against Taisil's debt.
7
MEMC KOREA COMPANY
In 1990, we entered into a joint venture in South Korea with Samsung
Electronics Company, Ltd. and Pohang Iron and Steel Company, Limited. Samsung is
a South Korean manufacturer of integrated circuits and was our largest customer
in 2001. The South Korean joint venture, originally known as POSCO HULS Company
Limited, manufactures and sells silicon wafers primarily in South Korea.
Until September 29, 2000, we owned 40% of the joint venture, Pohang owned
40%, and Samsung owned 20%. Effective September 29, 2000, we acquired Pohang's
40% interest for a purchase price of approximately $68 million, thus increasing
our ownership to 80%. After the acquisition, we renamed the joint venture MEMC
Korea Company (MKC). As a consequence of this transaction, we consolidated MKC's
operating results with our operating results beginning in the fourth quarter of
2000. In addition, we consolidated MKC's assets and liabilities effective as of
September 29, 2000. Under Korean law, there are restrictions on MKC's ability to
pay dividends and make loans, thus limiting our access to MKC's cash.
MKC generated net sales of $142.4 million for the first nine months of 2000
and sales of $158.0 million in 1999. A significant majority of MKC's sales in
each of these periods was to Samsung.
We have agreed to provide technical assistance and information to MKC. We
have also granted licenses to MKC 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.
MEMC SOUTHWEST INC.
In 1995, we entered into a joint venture in Sherman, Texas with Texas
Instruments Incorporated named MEMC Southwest Inc. Texas Instruments is a
Dallas-based manufacturer of integrated circuits and is one of our largest
customers. In connection with the formation of the joint venture, Texas
Instruments contributed substantially all of the assets relating to its then
existing in-house silicon wafer manufacturing operations for 150 millimeter and
smaller diameter wafers. The joint venture constructed a new, state-of-the-art,
200 millimeter wafer manufacturing facility, also located in Sherman, Texas,
that commenced commercial production in 1997. In 2001, as a part of our
continuing efforts to focus our manufacturing facilities, to improve our cost
structure, and to balance our production capabilities with the evolving market
conditions, we decided to close the 150 millimeter and smaller diameter wafer
line at MEMC Southwest. We own 80% of MEMC Southwest, and Texas Instruments owns
20%. We consolidate the operating results, assets and liabilities of MEMC
Southwest in our financial statements.
We have agreed to provide technical assistance and information to MEMC
Southwest. We have also granted licenses to MEMC Southwest to use certain
technology to manufacture, promote and sell silicon wafers.
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 initial term of the option was two years, subject to a one
year extension at the option of Tokuyama and Marubeni. On September 22, 2000,
Tokuyama and Marubeni extended the option for one year until September 30, 2001.
During 2001, Tokuyama and Marubeni further extended the option until October 31,
2002. 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 connection with
the option, Tokuyama agreed to provide technical assistance to MEMC Pasadena for
two
8
years to help improve the quality of MEMC Pasadena's granular polysilicon
products. In connection with the extensions of the option, the parties have
extended the technical assistance agreement through October 31, 2002.
PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY
We believe that the success of our business depends in part on our
proprietary technology, information, processes and know-how. We generally try to
protect our intellectual property rights based on patents and trade secrets as
part of our ongoing research, development and manufacturing activities. However,
we cannot be certain 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.
As of December 31, 2001, we owned of record or beneficially approximately
200 U.S. patents, of which approximately 10 will expire by 2005, approximately
20 will expire between 2006 and 2010 and approximately 170 will expire after
2010. As of December 31, 2001, we owned of record or beneficially approximately
310 foreign patents, of which approximately 30 will expire by 2005,
approximately 65 will expire between 2006 and 2010 and approximately 215 will
expire after 2010. These foreign patents are generally counterparts of our U.S.
patents. We cannot be certain, 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 December 31, 2001, we had approximately
120 pending U.S. patent applications.
We have agreed to indemnify some of our customers against claims of
infringement of the intellectual property rights of others in our sales
contracts with these customers. In addition, in the technology transfer
agreement among us, Texas Instruments Incorporated and MEMC Southwest, we have
agreed to indemnify MEMC Southwest and Texas Instruments Incorporated against
certain claims of infringement of the intellectual property rights of others.
See "Risk Factors -- Much of our proprietary information is not patented
and may not be patentable" and "Risk Factors -- The protection of our
intellectual property rights and the defense of claims of infringement against
us by third parties may subject us to costly patent litigation".
EMPLOYEES
At December 31, 2001, we had approximately 4,700 full-time employees and 50
temporary workers worldwide. We have not experienced any material work stoppages
at any of our facilities during the last several years.
GEOGRAPHIC INFORMATION
Information regarding our foreign and domestic operations is contained in
Note 19 on page F-43 of our 2001 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 Private Securities Litigation Reform Act of 1995,
including those set forth under "Item 1. Business" and "Item 3. Legal
Proceedings" and those incorporated herein by reference from our 2001 Annual
Report. 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 made by us.
WE HAVE HAD SIGNIFICANT OPERATING AND NET LOSSES, AND WE MAY HAVE FUTURE
LOSSES
With the exception of the third and fourth quarters of 2000, we have not
reported an operating profit since the third quarter of 1997. In 2001, we had an
operating loss of $219 million and a net loss of $518 million,
9
which included restructuring costs of $32 million and an increase in our
valuation allowance related to deferred tax assets of $333 million. We have not
reported an annual operating profit since 1996. Due to current market conditions
in the silicon wafer industry and other factors, we cannot predict how long we
will continue to experience net losses or whether we will experience operating
losses in the future.
OUR LOAN INSTRUMENTS CONTAIN RESTRICTIVE COVENANTS
The $150 million Citibank revolving credit facility and the indenture for
our senior subordinated secured notes contain certain covenants, including
covenants to maintain minimum quarterly consolidated EBITDA, minimum monthly
consolidated backlog, minimum monthly consolidated revenues, maximum annual
capital expenditures and other covenants customary for revolving loans and
indentures of this type and size. In the event that we were in violation of
these covenants, the loan commitments under the revolving credit facility may
terminate and the loans and accrued interest then outstanding under the facility
and the senior subordinated secured notes and accrued interest thereon may be
due and payable immediately. This would have a material adverse effect on us.
WE MAY BE REQUIRED TO PREPAY OUTSTANDING BORROWINGS UNDER THE $150 MILLION
CITIBANK REVOLVING CREDIT FACILITY IN THE EVENT THAT ANY GUARANTOR DOES NOT
RENEW ITS GUARANTY, TERMINATES ITS GUARANTY OR DEFAULTS UNDER ITS GUARANTY
The $150 million Citibank revolving credit facility is guaranteed by TPG.
The terms of the various guaranties are shorter than the term of the revolving
credit facility. In addition, each guarantor may terminate its guaranty for any
reason. In the event that a guarantor terminates its guaranty, or does not renew
its guaranty and in the case of a non-renewal the lenders have not received cash
collateral or a replacement guaranty executed by a replacement guarantor
satisfactory to the lenders, then the loan commitments under the revolving
credit facility will terminate and we will be required to repay all outstanding
loans and accrued interest under this facility. Likewise, if any guarantor
defaults under its guaranty, then the guarantor's default will constitute an
event of default under this revolving credit facility. In such event, the loan
commitments under this revolving credit facility may terminate and the loans and
accrued interest under the facility may be due and payable immediately.
In any of these events, the guarantors have severally agreed to make new
revolving credit loans available to us on terms and conditions no less favorable
to us than provided in the original $150 million revolving credit facility
between us and TPG. The original TPG $150 million revolving credit facility was
substantially similar to the Citibank $150 million revolving credit facility
except that the interest rates were 2% higher than the interest rates under the
Citibank revolving credit facility. Accordingly, we could be required to pay
higher interest rates on any replacement financing provided by the guarantors.
In addition, the guarantors may not have sufficient funds and assets to provide
this replacement financing and we may be required to obtain replacement
financing from third parties. We cannot be certain that we would be able to
obtain the replacement financing on a timely basis or at all. This would have a
material adverse effect on us.
WE MAY BE REQUIRED TO REDEEM OUR PREFERRED STOCK, REPAY OUTSTANDING LOANS AND
ACCRUED INTEREST UNDER THE $150 MILLION CITIBANK REVOLVING CREDIT FACILITY AND
REPURCHASE OUR SENIOR SUBORDINATED NOTES IN THE EVENT THAT TPG DOES NOT
CONTINUE TO OWN A SUBSTANTIAL PORTION OF OUR STOCK
The $150 million Citibank revolving credit facility, the indenture for our
senior subordinated secured notes and the certificate of designations for our
Series A Cumulative Convertible Preferred Stock contain change in control
provisions. Under these instruments, if (1) TPG's ownership interest in us is
reduced below 15% (or, in the case of the indenture, 30%) of our total
outstanding equity interests, (2) another person or group acquires ownership of
a greater percentage of our outstanding equity than TPG, or (3) a majority of
our board of directors is neither nominated by our board of directors nor
appointed by directors so nominated, then:
- our Series A Cumulative Convertible Preferred Stock becomes redeemable at
the option of the holders at 101% of its stated value plus the amount, if
any, of all accumulated and unpaid dividends;
10
- an event of default shall be deemed to have occurred under the Citibank
revolving credit facility in which event the loan commitments under this
facility may terminate and the loans and accrued interest then
outstanding may become immediately due and payable; and
- the holders of the senior subordinated secured notes will have the right
to require us to repurchase the notes at a purchase price equal to 101%
of the principal amount plus accrued and unpaid interest.
In such event, we may not have sufficient funds to redeem the preferred stock,
repay the outstanding loans and accrued interest under the Citibank revolving
credit facility and/or repurchase the senior subordinated secured notes and we
would need to seek and obtain replacement financing. We cannot be certain that
we would be able to refinance these amounts. This would have a material adverse
effect on us.
WE MAY NOT BE ABLE TO OBTAIN CAPITAL FROM OTHER PARTIES IN THE FUTURE TO MEET
OUR NEEDS AND MAY BE FORCED TO REDUCE OR FOREGO INVESTMENTS IN OUR BUSINESS
The silicon wafer industry is highly capital intensive. Our capital needs
depend on numerous factors, including our profitability and our investment in
capital expenditures and research and development. We incurred negative cash
flows from operations in 1998, 1999 and 2001. Historically, we have funded our
capital needs primarily through loans from or guaranteed by our majority owner,
issuances of common stock and internally generated funds. To a lesser extent, we
have raised funds by borrowing money from commercial banks.
We cannot be certain that we will be able to obtain capital in the future
to meet our needs. If we cannot obtain future funding, whether from current or
new lenders or investors, we may be required to reduce or forego our investments
in research and development, marketing, customer service and support and capital
expenditures for existing and new products, including 300 millimeter products.
In addition, we may have to divest assets. Such reductions or divestitures could
materially adversely affect our business and our ability to compete. Moreover,
the terms and pricing of any such future financing may be significantly less
favorable to us than those in our current debt and equity instruments. Future
financing transactions could dilute or otherwise materially adversely affect the
holdings or rights of our investors.
Under the terms of the $150 million Citibank revolving credit facility and
the indenture for our senior subordinated secured notes, we generally cannot
borrow from third parties or pledge assets without the consent of the lenders
and note holders, respectively. Under these instruments, we are also generally
required to use 75% of the net proceeds from the issuance of debt or equity,
first, to repay outstanding borrowings under the revolving credit facility and,
second, to the extent such borrowings are repaid in full, to redeem the notes.
Under the terms of the 55 million Euro note issued by our Italian subsidiary, we
are required to pay 100% of any net proceeds from the issuance of debt and 50%
of our annual net free cash flow, which is net of capital expenditures, as a
mandatory principal repayment of this note. Finally, under the terms of the Euro
note, we are required to pay 75% of any cash received from MEMC Korea Company,
our 80% owned subsidiary in Korea, through dividends, reductions or repurchases
of equity, share redemptions or loans, as a mandatory principal repayment of
this note.
WE HAVE A SIGNIFICANT AMOUNT OF CONTRACTUAL OBLIGATIONS THAT MAY ADVERSELY
AFFECT OUR ABILITY TO OBTAIN ADDITIONAL FINANCING
We currently have a significant amount of contractual obligations that may
adversely affect our ability to obtain additional financing for working capital,
capital expenditures or other purposes. As of December 31, 2001, our contractual
commitments included $319 million face value in debt obligations and $264
million face value (including accumulated but unpaid dividends) of the Series A
Cumulative Convertible Preferred Stock, which is redeemable at the option of the
holders on or after November 13, 2009, as well as $20 million related to
operating leases and committed capital expenditures. Our contractual commitments
could make us more vulnerable to industry downturns and competitive pressures.
In addition, the cash flow required to service these obligations may reduce our
ability to fund internal growth and capital requirements.
11
TPG HAS SUFFICIENT VOTING POWER TO CONTROL OUR DIRECTION AND POLICIES, AND
COULD PREVENT A FAVORABLE ACQUISITION OF US
TPG, through its majority interest, has sufficient voting power to control
our direction and policies, including controlling any merger, consolidation or
sale of all or substantially all of our assets. TPG may also elect the members
of our Board of Directors. This control could prevent or discourage any
unsolicited acquisition of us and consequently could prevent an acquisition
favorable to our other stockholders.
In accordance with agreements with TPG in connection with its acquisition
of MEMC and the related restructuring of our debt with TPG, we were required to
appoint to our Board of Directors a total of four nominees designated by TPG, to
be allocated to the different director classes as specified by TPG. In addition,
the agreements provide that commencing with the next annual meeting of our
stockholders, and at each annual meeting thereafter, TPG shall be entitled to
present to the Board of Directors a number of nominees for election to the class
of directors up for election at such meeting equal to the number of TPG nominees
in such class immediately prior to such election. We have agreed to cause each
such TPG designated nominee to be included in the slate of nominees recommended
by the Board to the stockholders for election, and to use our best efforts to
cause those nominees to be elected. TPG will have these contractual rights so
long as at least $130.0 million in stated value of the Series A Cumulative
Convertible Preferred Stock remains outstanding and TPG beneficially owns
greater than 50% of the preferred stock. As a practical matter, TPG currently
possesses the power to elect all of our directors through its beneficial
ownership of a majority of our voting stock. Five of the ten members of our
current Board of Directors are partners or employees of Texas Pacific Group and
its co-investors.
Under the restructuring agreement, we must either obtain the consent of TPG
or give TPG a right of first refusal over any issuances of our equity securities
to any person or group to the extent that the equity securities would have 10%
or more of the voting power of all of our then outstanding voting securities,
including our common stock and our Series A Cumulative Convertible Preferred
Stock.
EXCESS CAPACITY AND DEPRESSED WAFER PRICES MAY LIMIT OUR PROFITABILITY
During the past several years, excess capacity in the silicon wafer
industry has limited our ability to maintain or raise prices. The worldwide
production capacity of silicon wafers has exceeded worldwide demand in recent
years. As a result, the average selling prices for our products have decreased
during the last several years. Because of price decreases and volume declines,
our revenues have been insufficient to offset our costs and expenses. Further
capacity expansions in the industry could increase the worldwide supply of
silicon wafers, decrease prices and materially adversely impact our operating
results. We have no firm information with which to determine the capacity and
expansion plans of our competitors. Although we and some of our competitors have
rationalized our respective operations and slowed capacity expansion programs,
we and some of our competitors have the ability to increase production of
silicon wafers by expansion of capacity through utilization of available
infrastructure.
IF THE SEMICONDUCTOR DEVICE INDUSTRY EXPERIENCES FUTURE DOWNTURNS, WE WILL FACE
PRESSURE TO REDUCE PRICES AND WE MAY NEED TO RATIONALIZE CAPACITY, WHICH MAY
LEAD TO CONTINUED LOSSES
If the semiconductor device industry experiences future downturns, we will
face pressure to reduce prices and we may need to further rationalize capacity.
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 global infrastructure necessary to maintain our extensive
customer service and support capabilities. If we are unable to reduce our
expenses sufficiently to offset the reduction in our prices, our operating
results and financial condition could be materially adversely affected.
Our business depends in large part upon the market demand for our
customers' semiconductors and products utilizing semiconductors. The
semiconductor device industry experiences:
- rapid technological change;
- product obsolescence;
12
- price erosion; and
- wide fluctuations in product supply and demand.
From time to time, the semiconductor device 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. During such periods,
semiconductor manufacturers may close smaller diameter manufacturing facilities
or convert such facilities to larger diameter facilities, thus reducing the
demand for smaller diameter silicon wafers.
OUR DEPENDENCE ON THE SEMICONDUCTOR DEVICE INDUSTRY COULD ADVERSELY AFFECT OUR
OPERATING RESULTS
Our quarterly and annual operating results can fluctuate dramatically, and
this can adversely affect the market price of our common stock. The main factor
affecting these fluctuations is our dependence on the performance of the
semiconductor device industry, which historically has been cyclical.
Our operating results are also affected by:
- the timing of orders from major customers;
- product mix;
- competitive pricing pressures;
- the delay between the incurrence of expenses to develop new products and
marketing and service capabilities and to expand capacity and the
realization of benefits from these expenditures; and
- the introduction of new products, product enhancements and technological
developments by our competitors.
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.
WE EXPERIENCE INTENSE COMPETITION IN THE SILICON WAFER INDUSTRY, WHICH MAY HAVE
AN ADVERSE EFFECT ON OUR BUSINESS
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 31% of the worldwide silicon wafer market in 2001.
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
CUSTOMER SPECIFICATION AND DIAMETERS, 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 in our customers' requirements
result in new and more demanding technology, product specifications and
diameters, and manufacturing processes. Our ability to remain competitive will
depend upon our ability to develop
13
technologically advanced products and processes, including 300 millimeter
products. 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 be certain
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 venture
in Taiwan, 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 2001, we made
approximately 63% of our sales to ten customers, with Samsung Electronics
Company, Ltd. and STMicroelectronics, N.V. accounting for approximately 18% and
10% of our sales, respectively. Likewise, Taisil, our unconsolidated joint
venture in Taiwan, sold a majority of its products to three customers. We cannot
be certain that we will realize equivalent sales from our top customers in the
future.
WE EXPECT THAT INTERNATIONAL SALES WILL CONTINUE TO REPRESENT A SIGNIFICANT
PERCENTAGE OF OUR TOTAL SALES, AND, ACCORDINGLY, WE ARE SUBJECT TO PERIODIC
FOREIGN ECONOMIC DOWNTURNS AND FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE AND
INTEREST 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 is 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, Korean won
and Euro currencies. Our risk exposure from expenses at international
manufacturing facilities is concentrated in Japanese yen, Korean won, Malaysian
ringgit and Euro currencies. We generally hedge receivables denominated in
foreign currencies at the time of sale.
Although we have debt denominated in the U.S. dollar, our foreign
subsidiaries have debt denominated in the U.S. dollar, Japanese yen, Korean won
and Euro currencies. We generally do not hedge these net foreign currency
exposures.
Taisil, our unconsolidated joint venture in Taiwan, has sales denominated
primarily in the U.S. dollar and operating expenses primarily denominated in the
U.S. dollar and New Taiwanese dollar. Taisil has debt denominated in the U.S.
dollar and New Taiwanese dollar. For U.S. generally accepted accounting
principles, Taisil uses the U.S. dollar as its functional currency and does not
hedge net New Taiwanese dollar exposures. To date, we have not hedged our net
New Taiwanese dollar exposure related to our investment in Taisil. However,
given the increasingly broader market and depth for forward contracts in Taiwan,
we may consider such 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 or changes in government
regulation;
- 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.
14
We cannot predict whether exchange rate fluctuations will have a material
adverse effect on our operations and financial results in the future.
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 PRODUCT VOLUME
It typically takes three to six months for our customers to qualify a
manufacturing facility to produce a specific product, but it can take longer
depending upon a customer's requirements and market conditions. Interruption of
operations at any of our primary silicon wafer manufacturing facilities could
result in delays or cancellations of shipments of silicon wafers and a loss of
product volume which could materially and adversely affect our operating
results. Likewise, interruption of operations at our granular polysilicon
manufacturing facility could adversely affect our silicon wafer manufacturing
throughput and yields, result in our inability to produce certain qualified
silicon wafer products, delays or cancellations of shipments of silicon wafers
and a loss of product volume, all of 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.
Certain unions represent the employees at our silicon wafer facility in South
Korea and our granular polysilicon facility in Pasadena, Texas. A strike at
either of these facilities could cause interruptions in manufacturing. We cannot
be certain that alternate qualified capacity would be available on a timely
basis or at all.
MUCH OF OUR PROPRIETARY INFORMATION IS NOT PATENTED AND MAY NOT BE PATENTABLE
Much of our proprietary information and technology relating to the wafer
manufacturing process is not patented and may not be patentable. We believe that
the success of our business depends in part on our proprietary technology,
information, 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. However, we cannot
be certain 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 with respect to 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.
THE PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS AND THE DEFENSE OF CLAIMS OF
INFRINGEMENT AGAINST US BY THIRD PARTIES MAY SUBJECT US TO COSTLY PATENT
LITIGATION
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. 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. We believe, based on
strategic and other considerations, that we should be able to resolve existing
claims 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
unable to resolve these matters satisfactorily, or to obtain a license on
acceptable terms, we may face litigation. We cannot be certain that third
parties will not bring suit against us based on infringement of intellectual
property rights.
Regardless of the validity or successful outcome of any such intellectual
property 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.
15
Any of these outcomes could have a material adverse effect on our business,
results of operations or financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY 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 be
certain that we will be successful in hiring or retaining qualified personnel,
or that any of our personnel will remain employed by us.
OUR DEPENDENCE ON SINGLE AND LIMITED SOURCE SUPPLIERS COULD ADVERSELY AFFECT
OUR OPERATING RESULTS
We obtain substantially all of our requirements for several raw materials,
equipment, parts and supplies from sole suppliers. Likewise, we obtain all of
our requirements for granular polysilicon from our facility in Pasadena, Texas.
We believe that we could find adequate alternative sources of supply for these
raw materials, equipment, parts and supplies. In the case of granular
polysilicon, we believe that we could substitute chunk polysilicon for granular
polysilicon. However, in either case, we may be required to obtain new
qualifications from our customers in order to change or substitute materials or
sources of supply. We cannot predict whether we would be successful or how long
the qualification process would take. In addition, our manufacturing process
could be interrupted and our manufacturing throughput and yields could be
adversely affected while we transition to a new material or source of supply. A
failure to obtain a new qualification or a decrease in our manufacturing
throughput or 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.
WE ARE SUBJECT TO NUMEROUS ENVIRONMENTAL LAWS AND REGULATIONS, WHICH COULD
FORCE US TO INCREASE CAPITAL SPENDING TO COMPLY WITH SUCH LAWS
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 relating 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 AND OUR POSITION IN THE SILICON WAFER
INDUSTRY MAY CREATE FLUCTUATIONS IN THE TRADING PRICE OF OUR COMMON STOCK
Based on the trading history of our common stock, we believe that certain
factors may cause the market price of our common stock to fluctuate
significantly. These factors include, without limitation:
- quarterly fluctuations in our financial results;
- announcements of technological innovations, new products or upgrades to
existing products by us or our competitors;
- market conditions in the semiconductor device industry;
- market conditions in the silicon wafer industry;
- developments in patent or other proprietary rights;
- changes in our relationships with our customers;
16
- actual or perceived changes in our relationship with our majority owners;
- the size of the public float of our common stock;
- changes in earnings estimates by securities analysts or announcements of
operating results that are not aligned with the expectations of analysts
and investors;
- the economic and competitive conditions in the industries in which our
customers operate; and
- general stock market trends.
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 our common stock.
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:
- the expectation that the write-down of our property, plant and
equipment, goodwill, and intangible assets will result in a reduction of
our depreciation and amortization of approximately $150 million in 2002
which in turn will result in a significant improvement in gross margin
and a reduction in marketing and administration and research and
development expenses;
- our intent to tightly control capital expenditures in 2002;
- the impact of the implementation of SFAS Nos. 142, 143, and 144;
- the expectation that the write-down of our goodwill and certain
intangible assets will result in a significant reduction in our
amortization in 2002;
- the impact of an adverse change in interest and currency exchange rates;
- the expectation that $4.8 million of the restructuring reserve will be
paid out in the first half or 2002;
- the adequacy and timing of the utilization of the remaining portion of
our restructuring reserve;
- the expectation that we will not pay dividends on our Common Stock in
the foreseeable future.
- future compensation expense related to stock options granted in January
2002;
- our belief that a significant majority of our U.S. net operating loss
carryforwards will be utilized or will be applied to reduce our tax
attributes under IRC section 108(b), as a result of the transaction with
TPG;
- the expectation that expenses related to our benefit plans will be
reduced in the future as a result of amendments to the benefit plans;
- the expectation that the 200 millimeter wafer will be the primary wafer
size until at least 2006;
- expectations regarding the future of 300 millimeter wafers;
- future availability of chunk polysilicon;
- our ability to substitute chunk polysilicon for granular polysilicon;
- our ability to find adequate alternative sources of supply of raw
materials, equipment, parts and supplies obtained from sole source
suppliers;
- our expectations regarding future research and development expenditures
and investments;
17
- our expectation that our competitors will continue to improve their
products and to introduce new products with competitive price and
performance characteristics;
- our expectation that international sales will continue to represent a
significant percentage of our total sales;
- the resolution of any intellectual property infringement claims;
- the belief that our future success will depend in part upon our ability
to attract and retain highly qualified personnel;
- the outcome of litigation; 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 "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, 2002. Each executive officer has entered into an employment agreement with
us. Mr. von Horde's employment agreement provides that he will be employed as
our President and Chief Executive Officer through 2003. Our employment
agreements with Messrs. Stolze, Jansky and Weathers provide that they will be
employed as executive officers through November 2004. Our employment agreements
with Mr. Stiffler and Dr. Pirooz provide that they will be employed as executive
officers through December 2003 and January 2005, respectively. There are no
family relationships between or among any of the named persons and the
directors.
<Table>
<Caption>
NAME AGE ALL POSITIONS AND OFFICES HELD
- ---- --- ------------------------------
Klaus R. von Horde................... 60 President, Chief Executive Officer and Director
James M. Stolze...................... 58 Executive Vice President and Chief Financial
Officer
Jonathon P. Jansky................... 50 Corporate Vice President
Thomas P. Stiffler................... 55 Corporate Vice President
James G. Weathers.................... 48 Corporate Vice President
Saeed Pirooz......................... 42 Vice President
</Table>
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, a German engineering and equipment
manufacturing company, from 1993 to 1997.
Mr. Stolze has been our Executive Vice President and Chief Financial
Officer since June 1995.
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.
18
Mr. Stiffler has been our Corporate Vice President, Human Resources since
December 2000. Mr. Stiffler was a senior human resources officer of ITT
Industries, a global, multi-industry company, from 1999 to 2000, Senior Vice
President, Director of Administration of ITT Automotive Corporation, an
automotive parts and systems supplier, from 1998 to 1999 and Senior Vice
President, Director of Administration of ITT Financial Corporation, a commercial
financing company, from 1992 to 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, Corporate Vice
President, Customer Service and Scheduling from November 1999 to December 2000,
Corporate Vice President, Customer Service and Product Management from December
2000 to January 2002 and has been our Corporate Vice President, Sales and
Commercial, since January 2002.
Dr. Pirooz was our Director, Applications Engineering Technology from 1996
to 2000. From 2000 to February 2002, Dr. Pirooz was a global account manager for
one of our major customers. Since March 2002, Dr. Pirooz has been our Vice
President, Chief Technology Officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHLDER MATTERS
The narrative and tabular information regarding the market for our common
equity and related stockholder matters required by this item is set forth under
Note 20, "Unaudited Quarterly Financial Information", on page F-44 of our 2001
Annual Report and under "Stockholders' Information" on the back cover of our
2001 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.
Under the terms of our $150 million revolving credit facility and the indenture
for our senior subordinated secured notes, we are prohibited from paying cash
dividends on our common stock. Likewise, under the restructuring agreement
between us and TPG, we cannot pay cash dividends on our common stock without the
consent of TPG. Information regarding restrictions on our ability to access the
cash of our South Korean subsidiary is set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" on pages F-8 through F-13 of our 2001 Annual Report, which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The tabular information (including the footnotes thereto) required by this
item is set forth under "Five Year Selected Financial Highlights" on page F-1 of
our 2001 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 F-2 through
F-17 of our 2001 Annual Report, which information is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth under "Market Risk" on
pages F-16 and F-17 of our 2001 Annual Report, which information is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements appearing on pages F-18 through F-44,
and the Independent Auditors' Report thereon of KPMG LLP appearing on page F-45
of our 2001 Annual Report, are incorporated herein by reference.
19
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 F-18 through F-44 of the 2001 Annual
Report, and the Independent Auditors' Report thereon of KPMG LLP appearing
on page F-45 of such report are incorporated herein by reference.
Consolidated Statements of Operations -- Period from January 1, 2001
through November 13, 2001, Period from November 14, 2001 through December
31, 2001, and Years ended December 31, 2000, and 1999.
Consolidated Balance Sheets -- December 31, 2001 and 2000.
Consolidated Statements of Cash Flows -- Period from January 1, 2001
through November 13, 2001, Period from November 14, 2001 through December
31, 2001, and Years ended December 31, 2000, and 1999.
Consolidated Statements of Stockholders' Equity -- Period from
January 1, 2001 through November 13, 2001, Period from November 14, 2001
through December 31, 2001, and Years ended December 31, 2000, and 1999.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial Statement Schedules
<Table>
Independent Auditors' Report on Financial Statement
Schedule.................................................. F-1
Valuation and Qualifying Accounts........................... F-2
</Table>
3. EXHIBITS
<Table>
<Caption>
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(i)(a) Certificate of Amendment of Restated Certificate of
Incorporation of the Company as filed with the Secretary of
State of the State of Delaware on June 2, 2000 (Incorporated
by reference to Exhibit 3(i)(a) of the Company's Form 10-Q
for the Quarter ended June 30, 2000)
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 September 30, 2001)
3(iii) Certificate of Designations of Series A Cumulative
Convertible Preferred Stock of the Company, dated as of
November 13, 2001 (Incorporated by reference to Exhibit 3.1
of the Company's Current Report on Form 8-K dated November
28, 2001)
2-a Restructuring Agreement between TPG Wafer Holdings LLC and
the Company, dated as of November 13, 2001 (Incorporated by
reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated November 28, 2001)
2-b Merger Agreement between TPG Wafer Holdings LLC and the
Company, dated as of November 13, 2001 (Incorporated by
reference to Exhibit 2.2 of the Company's Current Report on
Form 8-K dated November 28, 2001)
4-a Amended and Restated Indenture, dated as of December 21,
2001, among the Company, Citibank, N.A., as trustee, and
Citicorp USA, Inc., as collateral agent, and Form of Note
attached as an exhibit thereto (Incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K
dated January 14, 2002)
</Table>
20
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4-a(1) Security Agreement among the Company, each subsidiary listed
on Schedule I thereto, and Citicorp USA, Inc., dated as of
November 13, 2001 (Incorporated by reference to Exhibit 4.2
of the Company's Current Report on Form 8-K dated November
28, 2001)
4-a(2) Pledge Agreement among the Company, each subsidiary listed
on Schedule I thereto, and Citicorp USA, Inc., dated as of
November 13, 2001 (Incorporated by reference to Exhibit 4.3
of the Company's Current Report on Form 8-K dated November
28, 2001)
4-a(3) Indemnity, Subrogation and Contribution Agreement among the
Company, each subsidiary listed on Schedule I thereto, and
Citicorp USA, Inc., dated as of November 13, 2001
(Incorporated by reference to Exhibit 4.4 of the Company's
Current Report on Form 8-K dated November 28, 2001)
4-a(4) Guarantee Agreement among the Company, each subsidiary
listed on Schedule I thereto, and Citicorp USA, Inc., dated
as of November 13, 2001 (Incorporated by reference to
Exhibit 4.5 of the Company's Current Report on Form 8-K
dated November 28, 2001)
4-b Form of Warrant Certificate (Incorporated by reference to
Exhibit 4.6 of the Company's Current Report on Form 8-K
dated November 28, 2001)
*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 MEMC Korea Company ("MKC") (formerly, POSCO HULS
Company Ltd.) (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 MKC (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 MKC (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 Technical Agreement effective as of
October 1, 1998 by and between the Company and MKC
(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, MEMC Southwest Inc. ("MEMC Southwest") 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)
</Table>
21
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10-e(1) Second Amendment to Shareholders' Agreement dated as of
April 1, 2000 by and among the Company, MEMC Southwest and
TI (Incorporated by reference to Exhibit 10-e(1) of the
Company's Form 10-Q for the Quarter ended June 30, 2000)
*10-f TI Purchase Agreement dated as of June 30, 1995 between the
Company, 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-f(2) First Amendment to TI Purchase Agreement dated as of April
1, 2000 by and among the Company, MEMC Southwest and TI
(Incorporated by reference to Exhibit 10-f(2) of the
Company's Form 10-Q for the Quarter ended June 30, 2000)
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)
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-g(2) First Amendment to Lease Agreement dated as of April 1, 2000
between TI and MEMC Southwest (Incorporated by reference to
Exhibit 10-g(2) of the Company's Form 10-Q for the Quarter
ended June 30, 2000)
*10-g(3) First Amendment to Sublease Agreement dated as of April 1,
2000 between TI and MEMC Southwest (Incorporated by
reference to Exhibit 10-g(3) of the Company's Form 10-Q for
the Quarter ended June 30, 2000)
*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 by and among the Company, TPG
Wafer Holdings LLC and the Guarantors specified therein,
dated as of November 13, 2001 (Incorporated by reference to
Exhibit 10.2 of the Company's Current Report on Form 8-K
dated November 28, 2001)
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-k Management Advisory Agreement between the Company and TPG
GenPar III, L.P., dated as of November 13, 2001
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated November 28, 2001)
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)
</Table>
22
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
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-s Share Sale and Purchase Agreement dated as of September 7,
2000 by and between Pohang Iron & Steel Co., Ltd. and the
Company (Incorporated by reference to Exhibit 10-s of the
Company's Form 10-Q for the Quarter ended September 30,
2000)
+10-aa Employment Agreement effective as of February 10, 1999
between the Company and Julius R. Glaser (Incorporated by
reference to Exhibit 10-aa of the Company's Form 10-K for
the Year ended December 31, 2000)
+10-bb The Company Supplemental Executive Pension Plan 1998
Restatement (Incorporated by reference to Exhibit 10-bb of
the Company's Form 10-K for the Year ended December 31,
2000)
+10-cc The Company 1995 Equity Incentive Plan as Amended and
Restated on August 3, 2000 (Incorporated by reference to
Exhibit 10-cc of the Company's Form 10-Q for the Quarter
ended June 30, 2000)
+10-cc(1) First Amendment to MEMC Electronic Materials, Inc. 1995
Equity Incentive Plan[P]
+10-cc(2) 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(3) 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(4) 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(5) 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(6) 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(7) 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(8) Form of Stock Option Agreement (Incorporated by reference to
Exhibit 10-cc(7) of the Company's Form 10-K for the Year
ended December 31, 1999)
+10-dd MEMC Electronic Materials, Inc. 2001 Annual Incentive Plan
(Incorporated by reference to Exhibit 10-dd of the Company's
Form 10-Q for the Quarter ended March 31, 2001)
+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 Stock Option Grant Agreement (Incorporated herein by
reference to Exhibit 99.1 to the Company's Form S-8
Registration Statement filed March 1, 2002)
+10-gg Stock Option Grant Agreement (Incorporated herein by
reference to Exhibit 99.2 to the Company's Form S-8
Registration Statement filed March 1, 2002)
+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-oo Consulting Agreement dated December 4, 2000 between the
Company and Marcel Coinne (Incorporated by reference to
Exhibit 10-oo(1) of the Company's Form 10-K for the Year
ended December 31, 2000)
</Table>
23
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
+10-pp MEMC Electronic Materials, Inc. Severance Plan for Senior
Officers (Incorporated by reference to Exhibit 10-pp of the
Company's Form 10-Q for the Quarter ended September 30,
1999)
10-aaa U.S. $25,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-aaa of the
Company's Form 10-K for the Year ended December 31, 2000)
10-bbb U.S. $10,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-bbb of the
Company's Form 10-K for the Year ended December 31, 2000)
10-ccc U.S. $75,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-ccc of the
Company's Form 10-K for the Year ended December 31, 2000)
10-ddd U.S. $75,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-ddd of the
Company's Form 10-K for the Year ended December 31, 2000)
10-eee JPY 1,000,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-eee of the
Company's Form 10-K for the Year ended December 31, 2000)
10-fff JPY 1,000,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-fff of the
Company's Form 10-K for the Year ended December 31, 2000)
10-ggg JPY 1,000,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-ggg of the
Company's Form 10-K for the Year ended December 31, 2000)
10-hhh JPY 1,000,000,000 Amended and Restated Credit Agreement
between the Company and E.ON AG dated as of December 31,
2000 (Incorporated by reference to Exhibit 10-hhh of the
Company's Form 10-K for the Year ended December 31, 2000)
10-iii U.S. $75,000,000 Amended and Restated Revolving Credit
Agreement between the Company and E.ON AG dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-iii of the Company's Form 10-K for the Year ended
December 31, 2000)
10-jjj U.S. $100,000,000 Amended and Restated Revolving Credit
Agreement between the Company and E.ON AG dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-jjj of the Company's Form 10-K for the Year ended
December 31, 2000)
10-kkk U.S. $10,000,000 Amended and Restated Overnight Loan
Agreement between the Company and E.ON North America, Inc.
dated as of December 31, 2000 (Incorporated by reference to
Exhibit 10-kkk of the Company's Form 10-K for the Year ended
December 31, 2000)
10-lll U.S.$10,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-lll of the Company's Form 10-K for the Year ended
December 31, 2000)
10-mmm U.S. $40,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-mmm of the Company's Form 10-K for the Year ended
December 31, 2000)
10-nnn U.S. $10,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-nnn of the Company's Form 10-K for the Year ended
December 31, 2000)
10-ooo U.S. $30,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-ooo of the Company's Form 10-K for the Year ended
December 31, 2000)
10-ppp U.S. $50,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-ppp of the Company's Form 10-K for the Year ended
December 31, 2000)
</Table>
24
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10-qqq U.S. $25,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-qqq of the Company's Form 10-K for the Year ended
December 31, 2000)
10-rrr U.S. $50,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-rrr of the Company's Form 10-K for the Year ended
December 31, 2000)
10-sss U.S. $50,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-sss of the Company's Form 10-K for the Year ended
December 31, 2000)
10-ttt U.S. $75,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-ttt of the Company's Form 10-K for the Year ended
December 31, 2000)
10-uuu U.S. $50,000,000 Amended and Restated Credit Agreement
between the Company and Fidelia Corporation dated as of
December 31, 2000 (Incorporated by reference to Exhibit
10-uuu of the Company's Form 10-K for the Year ended
December 31, 2000)
10-vvv Euro 55,000,000 Amended and Restated Credit Agreement dated
as of September 22, 2001 between MEMC Electronic Materials,
S.p.A. and TPG Wafer Partners LLC (as assignee of E.ON
International Finance B.V.) (Incorporated by reference to
Exhibit 10-vvv of the Company's Form 10-Q for the Quarter
ended September 30, 2001)
10-vvv(1) Amended and Restated Guaranty Agreement dated as of
September 22, 2001 between the Company and and TPG Wafer
Partners LLC (as assignee of E.ON International B.V.)
(Incorporated by reference to Exhibit 10-vvv(1) of the
Company's Form 10-Q for the Quarter ended September 30,
2001)
10-www Revolving Credit Agreement, dated as of December 21, 2001,
among the Company, the lenders party thereto, and Citicorp
USA, Inc. (Incorporated by reference to Exhibit 10.7 of the
Company's Current Report on Form 8-K dated January 14, 2002)
10-www(1) Security Agreement, dated as of December 21, 2001, among the
Company, each subsidiary listed on Schedule I thereto, and
Citicorp USA, Inc. (Incorporated by reference to Exhibit
10.8 of the Company's Current Report on Form 8-K dated
January 14, 2002)
10-www(2) Pledge Agreement, dated as of December 21, 2001, among the
Company, each subsidiary listed on Schedule I thereto, and
Citicorp USA, Inc. (Incorporated by reference to Exhibit
10.9 of the Company's Current Report on Form 8-K dated
January 14, 2002)
10-www(3) Indemnity, Subrogation and Contribution Agreement, dated as
of December 21, 2001, among the Company, each subsidiary
listed on Schedule I thereto, and Citicorp USA, Inc.
(Incorporated by reference to Exhibit 10.10 of the Company's
Current Report on Form 8-K dated January 14, 2002)
10-www(4) Guarantee Agreement, dated as of December 21, 2001, among
the Company, each subsidiary listed on Schedule I thereto,
and Citicorp USA, Inc. (Incorporated by reference to Exhibit
10.11 of the Company's Current Report on Form 8-K dated
January 14, 2002)
10-xxx Reimbursement Agreement, dated as of December 21, 2001 by
and among the Company, TPG Partners III, L.P., TCW/Crescent
Mezzanine Partners III, L.P., TCW/Crescent Mezzanine Trust
III, Green Equity Investors III, L.P. and Green Equity
Investors Side III, L.P., and Citicorp USA, Inc.
(Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K dated January 14, 2002)
10-xxx(1) Amended and Restated Security Agreement, dated as of
December 21, 2001, among the Company, each subsidiary listed
on Schedule I thereto, and Citicorp USA, Inc. (Incorporated
by reference to Exhibit 10.2 of the Company's Current Report
on Form 8-K dated January 14, 2002)
10-xxx(2) Amended and Restated Pledge Agreement, dated as of December
21, 2001, among the Company, each subsidiary listed on
Schedule I thereto, and Citicorp USA, Inc. (Incorporated by
reference to Exhibit 10.3 of the Company's Current Report on
Form 8-K dated January 14, 2002)
</Table>
25
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10-xxx(3) Amended and Restated Indemnity, Subrogation and Contribution
Agreement, dated as of December 21, 2001, among the Company,
each subsidiary listed on Schedule I thereto, and Citicorp
USA, Inc. (Incorporated by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-K dated January 14, 2002)
10-xxx(4) Amended and Restated Guarantee Agreement, dated as of
December 21, 2001, among the Company, each subsidiary listed
on Schedule I thereto, and Citicorp USA, Inc. (Incorporated
by reference to Exhibit 10.5 of the Company's Current Report
on Form 8-K dated January 14, 2002)
10-yyy U.S. $50,000,000 Second Amended and Restated Revolving
Credit Agreement dated as of September 4, 2001 among the
Company, MEMC Pasadena, Inc. and E.ON AG (Incorporated by
reference to Exhibit 10-yyy of the Company's Form 10-Q for
the Quarter ended September 30, 2001)
10-yyy(1) Amendment No. 1 to the Second and Restated Revolving Credit
Agreement dated as of September 28, 2001 among the Company,
MEMC Pasadena, Inc. and E.ON AG (Incorporated by reference
to Exhibit 10-yyy(1) of the Company's Form 10-Q for the
Quarter ended September 30, 2001)
10-yyy(2) Amended and Restated Security Agreement dated as of July 26,
2001 among the Company, MEMC Pasadena, Inc. and E.ON AG
(Incorporated by reference to Exhibit 10-yyy(2) of the
Company's Form 10-Q for the Quarter ended September 30,
2001)
10-yyy(3) Amendment No 1. to the Security Agreement dated September 4,
2001 among the Company, MEMC Pasadena, Inc. and E.ON AG
(Incorporated by reference to Exhibit 10-yyy(3) of the
Company's Form 10-Q for the Quarter ended September 30,
2001)
10-yyy(4) Amended and Restated Pledge Agreement dated as of September
28, 2001 between the Company and E.ON AG (Incorporated by
reference to Exhibit 10-yyy(4) of the Company's Form 10-Q
for the Quarter ended September 30, 2001)
10-yyy(5) Pledge Agreement dated as of September 28, 2001 between the
Company and E.ON AG (Incorporated by reference to Exhibit
10-yyy(5) of the Company's Form 10-Q for the Quarter ended
September 30, 2001)
10-zzz Termination and Funding Agreement, dated as of December 21,
2001, by and among the Company, TPG Wafer Credit Partners
LLC, T(3) Partners II, L.P., T(3) Parallel II, L.P.,
TCW/Crescent Mezzanine Partners III, L.P., TCW/Crescent
Mezzanine Trust III, Green Equity Investors III, L.P., Green
Equity Investors Side III, L.P., and Citicorp USA, Inc.
(Incorporated by reference to Exhibit 10.6 of the Company's
Current Report on Form 8-K dated January 14, 2002)
13 Pages F-1 through F-45 and the back cover of the Company's
2001 Annual Report
21 Subsidiaries of the Company[P]
23 Consent of KPMG LLP
24 Powers of Attorney submitted by Robert Boehlke, Richard
Boyce, Jean-Marc Chapus, James Coulter, John Danhakl, John
Marren, C. Douglas Marsh, William E. Stevens and William
Watkins[P]
</Table>
- ---------------
* Confidential treatment of certain portions of these documents has been
granted.
+ These Exhibits constitute all management contracts, compensatory plans and
arrangements required to be filed as an Exhibit to this form pursuant to Item
14(c) of this report.
[P] Previously filed
(b) REPORTS ON FORM 8-K
During the fourth quarter of 2001, we filed the following two (2) current
reports on Form 8-K:
Item 1 and Item 7 Form 8-K filed on October 15, 2001; and Item 1(a), Item 2
and Item 7 Form 8-K filed on November 28, 2001.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MEMC ELECTRONIC MATERIALS, INC.
By: /s/ JAMES M. STOLZE
------------------------------------
James M. Stolze
Executive Vice President and
Chief Financial Officer
Date: June 4, 2002
27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MEMC Electronic Materials, Inc.
Under date of March 1, 2002, we reported on the consolidated balance sheets
of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity (deficiency) and cash flows for the periods from January 1, 2001 through
November 13, 2001 and from November 14, 2001 through December 31, 2001 and for
each of the years in the two-year period ended December 31, 2000, as contained
in the 2001 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K/A (Amendment No. 3) for the year 2001. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed in item 14(a)(2) of
this Form 10-K/A (Amendment No. 3). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the Consolidated Financial Statements, MEMC's
former majority shareholder divested of its interest in MEMC to an unaffiliated
investor group. The transaction has been accounted for as a purchase, and the
investor group's basis in MEMC has been pushed-down to the MEMC accounting
records creating a new basis of accounting, effective November 13, 2001. As a
result of the acquisition, the consolidated financial information for the period
after the acquisition is presented on a different cost basis than that for the
periods before the acquisition and, therefore, is not comparable.
/s/ KPMG LLP
St. Louis, Missouri
March 1, 2002
F-1
MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
---------- ---------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 31, 1999........ 2,853 653 (91)(a) (1,006)(b) 2,409
Year ended December 31, 2000........ 2,409 689 3(a)(e) (12)(b) 3,089
Year ended December 31, 2001........ 3,089 419 (115)(a) (52)(b) 3,341
====== ====== ====== ====== ======
Inventory reserves:
Year ended December 31, 1999........ 16,709 6,342(d) (942)(a) (9,403)(c) 12,706
Year ended December 31, 2000........ 12,706 7,136(d) (413)(a) (8,898)(c) 10,531
Year ended December 31, 2001........ 10,531 16,152(d) (1,075)(a) (8,115)(c) 17,493
====== ====== ====== ====== ======
Spare parts reserves:
Year ended December 31, 1999........ 2,893 2,060(d) 676(a) (1,650)(c) 3,979
Year ended December 31, 2000........ 3,979 3,246(d) 12(a) (809)(c) 6,428
Year ended December 31, 2001........ 6,428 3,060(d) 723(a) (1,991)(c) 8,220
====== ====== ====== ====== ======
</Table>
- ---------------
(a) Currency fluctuations
(b) Write-off of uncollectible accounts
(c) Write-off of inventory
(d) Charged to cost of goods sold
(e) Increase due to consolidation of MEMC Korea Company
F-2
EXHIBIT INDEX
The following exhibits are filed as part of this report:
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Pages F-1 through F-45 and the back cover of the Company's
13 2001 Annual Report
23 Consent of KPMG LLP
</Table>