As filed with the Securities and Exchange Commission on May 15, 2001
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-13546
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STMicroelectronics N.V.
(Exact name of Registrant as specified in its charter)
Not Applicable The Netherlands
(Translation of Registrant's (Jurisdiction of incorporation
name into English) or organization)
Route de Pre-Bois
ICC Bloc A1215
Geneva 15
Switzerland
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class: which registered:
- ------------------------------------------------ -----------------------------------
Common Shares, nominal value Euro 1.04 per share New York Stock Exchange
Liquid Yield OptionTM Notes due June 10, 2008 New York Stock Exchange
Liquid Yield OptionTM Notes due September 22, 2009 New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of
the Act: None
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Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None
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Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report:
889,881,287 Common Shares
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 which financial statement item the registrant
has elected to follow:
Item 17 [ ] Item 18 |X|
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TABLE OF CONTENTS
PART I............................................................................................................4
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..........................................4
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE........................................................4
ITEM 3: KEY INFORMATION................................................................................4
ITEM 4. INFORMATION ON THE COMPANY....................................................................15
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................................................42
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................................................54
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............................................65
ITEM 8. FINANCIAL INFORMATION.........................................................................68
ITEM 9. THE OFFER AND LISTING.........................................................................69
ITEM 10. ADDITIONAL INFORMATION........................................................................74
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................84
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........................................87
PART II..........................................................................................................88
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............................................88
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS..........................................................................88
ITEM 15. [RESERVED]....................................................................................88
ITEM 16. [RESERVED]....................................................................................88
PART III.........................................................................................................89
ITEM 17. FINANCIAL STATEMENTS..........................................................................89
ITEM 18. FINANCIAL STATEMENTS..........................................................................89
ITEM 19. EXHIBITS......................................................................................89
2
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this annual report, references to "we" and "us" are to
STMicroelectronics NV together with its consolidated subsidiaries, references to
"EU" are to the European Union, references to the "Euro" and the "euro" are to
the euro currency of the EU, references to the "United States" and "U.S." are to
the United States of America and references to "$" or to "U.S. dollars" are to
United States dollars.
References in this annual report to published industry data are
references to data published by Pathfinder Research, Inc. ("Pathfinder ") or
Dataquest-Gartner Group and references to trade association data are references
to World Semiconductor Trade Statistics ("WSTS"). Except as otherwise disclosed
herein, all references to our market positions in this annual report are based
on 2000 revenues according to published industry data. Certain terms used in
this annual report are defined in "Certain Terms."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not
historical facts, including without limitation, certain statements made in the
sections hereof entitled "Item 4: Information on the Company" and "Item 5:
Operating and Financial Review and Prospects," are statements of future
expectations and other forward-looking statements (within the meaning of Section
27A of the Securities Act of 1933, as amended) that are based on management's
current views and assumptions and involve known and unknown risks and
uncertainties that could cause actual results, performance or events to differ
materially from those in such statements due to, among other factors,
o General business and economic conditions in the countries, the markets
and the business segments in which we and our customers operate;
o Market demand for our products and changes in customer order patterns
and requirements including, but not limited to, order cancellation or
rescheduling;
o Competitive factors including the pricing of products in an
increasingly competitive environment;
o The development, qualification and availability of innovative products
in a rapidly changing technological environment;
o Our ability to implement cost reductions in a timely manner and the
success of those actions;
o Manufacturing risks;
o Insufficient, excess or obsolete inventory;
o Our ability to recruit and retain skilled personnel; and
o Currency fluctuations and other risks.
Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "are expected
to", "will", "will continue", "should", "would be", "seeks" or "anticipates" or
similar expressions or the negative thereof or other variations thereof or
comparable terminology, or by discussions of strategy, plans or intentions. Some
of these risk factors are set forth are discussed in more detail, including
under "Item 3: Key Information - Risk Factors," "Item 4: Information on the
Company" and "Item 5: Operating and Financial Review and Prospects." Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this annual report as anticipated, believed or expected. We do not
intend, and do not assume any obligation, to update any industry information or
forward-looking statements set forth in this annual report to reflect subsequent
events or circumstances.
3
PART I
Item 1: Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2: Offer Statistics and Expected Timetable
Not applicable.
Item 3: Key Information
Selected Financial Data
The table below sets forth our selected consolidated financial data for
each of the years in the five-year period ended December 31, 2000. Such data
have been derived from our consolidated financial statements. Consolidated
audited financial statements for each of the years in the three-year period
ended December 31, 2000, including the Notes thereto (collectively, the
"Consolidated Financial Statements"), are included elsewhere in this annual
report.
The following information should be read in conjunction with "Item 5:
Operating and Financial Review and Prospects" and the Consolidated Financial
Statements and the related notes thereto included elsewhere in this annual
report.
Year ended December 31,
1996 1997 1998(1) 1999(1) 2000(1)
---------- ---------- ------------ ----------- ----------
(in millions except per share and ratio data)
Consolidated Statement of Income Data:
Net sales ....................................... $ 4,078.3 $3,969.8 $4,210.6 $5,023.1 $ 7,764.4
Other revenues................................... 44.1 49.4 37.2 33.2 48.8
---- ---- ---- ---- ----
Net revenues..................................... 4,122.4 4,019.2 4,247.8 5,056.3 7,813.2
Cost of sales.................................... (2,414.7) (2,457.4) (2,623.0) (3,054.5) (4,216.9)
--------- --------- --------- --------- ---------
Gross profit..................................... 1,707.7 1,561.8 1,624.8 2,001.8 3,596.3
Operating expenses:
Selling, general and administrative............ (421.1) (454.3) (488.1) (534.2) (703.7)
Research and development(2) ................... (532.3) (610.9) (689.8) (836.0) (1,026.3)
Other income and expenses(2) .................. 45.1 23.2 76.5 39.9 (83.6)
---- ---- ---- ---- ------
Total operating expenses..................... (908.3) (1,042.0) (1,101.4) (1,330.3) (1,813.6)
------ -------- -------- -------- --------
Operating income................................. 799.4 519.8 523.4 671.5 1,782.7
Net interest income (expense).................... (11.2) (2.6) 8.7 35.6 46.7
Gain on disposal of investments.................. 7.3 - - - -
--- --- --- --- ---
Income before income taxes and minority interests 795.5 517.2 532.1 707.1 1,829.4
Income tax expense............................... (171.6) (113.0) (120.4) (157.2) (375.1)
------ ------ ------ ------ ------
Income before minority interests................. 623.9 404.2 411.7 549.9 1,454.3
Minority interests............................... 1.6 2.4 (0.6) (2.6) (2.2)
--- --- ---- ---- ----
Net income....................................... $ 625.5 $ 406.6 $ 411.1 $ 547.3 1,452.1
========= ======== ======== ======== =======
Earnings per share (basic)(3) ................... $ 0.75 $ 0.49 $ 0.49 $ 0.64 $ 1.64
Earnings per share (diluted)(3) ................. $ 0.75 $ 0.48 $ 0.48 $ 0.62 $ 1.58
Number of shares used in calculating
earnings per share (basic)..................... 832.2 834.6 845.1 859.1 885.7
Number of shares used in calculating
earnings per share (diluted)................... 835.2 839.1 864.3 901.2 936.1
Ratio of earnings to fixed charges(4) 18.6 13.4 12.7 16.3 29.3
Dividends per share(3) .......................... $ - $ - $ - $ 0.027 $ 0.03
4
Consolidated Balance Sheet Data (end of period):
Cash, cash equivalents and marketable
securities(1) $ 556.4 $ 702.2 $1,100.7 $1,823.1 $ 2,330.9
Working capital(5)............................... 611.8 443.5 855.1 398.5 372.5
Total assets..................................... 5,005.5 5,445.7 6,434.0 7,930.3 11,880.5
Short-term debt (including current portion)...... 428.2 424.6 191.2 123.2 141.6
Long-term debt (excluding current portion)(1) ... 194.9 356.4 755.8 1,348.5 2,700.5
Shareholders' equity(1) ......................... 3,260.0 3,307.4 4,083.3 4,563.9 6,124.6
Capital stock(6) ................................ 2,003.3 2,004.9 2,232.3 2,508.0 2,823.6
Consolidated Operating Data:
Capital expenditures(7) ........................ $ 1,125.2 $1,035.4 $ 947.3 $1,347.5 $ 3,317.6
Net cash provided by operating activities........ 980.7 983.8 1,012.5 1,469.3 2,431.8
Depreciation and amortization(7) ................ 535.9 608.1 704.0 806.8 1,108.2
- ---------
(1) On November 16, 2000, we issued $1,480.0 million initial aggregate
principal amount of zero-coupon unsubordinated convertible notes, due
2010, for net proceeds of $1,457.8 million. On September 22, 1999, we
completed an equity offering of 8,970,000 shares of capital stock at
$24.88 (adjusted for the 3-for-1 stock split) for net proceeds of $216.8
million. On September 22, 1999, we also completed a debt offering of
$720.9 million initial aggregate principal amount of zero-coupon
convertible Liquid Yield Option(TM) Notes, due 2009, for net proceeds of
$708.3 million. On June 10, 1998, we completed an equity offering of
18,000,000 shares of capital stock at $12.03 (adjusted for the 2-for-1
and 3-for-1 stock splits) for net proceeds of $208.8 million. On June 10,
1998, we also completed a debt offering of $431.7 million initial
aggregate principal amount of zero-coupon convertible Liquid Yield
Option(TM) Notes, due 2008, for net proceeds of $421.8 million. We have
issued a redemption notice for these LYONs and intend to redeem them at a
redemption price of $885.22 per $1,000 principal amount on June 11, 2001.
According to the information available to us, on May 11, 2001,
approximately $45.6 million in total indebtedness was outstanding under
the 1998 LYONs. Based on the amount outstanding on May 11, 2001, if all
remaining holders of the 1998 LYONs chose to convert them into Common
Shares before the redemption date, 2,772,291 Common Shares would be
issued.
(2) Other income and expenses include, among other things, funds received
through government agencies for research and development expenses, and
the cost of new plant start-ups, as well as foreign currency gains and
losses, the costs of certain activities relating to intellectual property
and goodwill amortization. Our reported research and development expenses
do not include design center, process engineering, pre-production or
industrialization costs.
(3) All share information has been adjusted to reflect the 2-for-1 stock
split effected in June 1999 and the 3-for-1 stock split effected in May
2000. See Note 2.19 to the Consolidated Financial Statements. Earnings
per share have been restated to reflect the adoption in 1997 of Statement
of Financial Accounting Standard No. 128 "Earnings per Share." See Note
2.10 and Note 12 to the Consolidated Financial Statements.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes and minority interests,
plus fixed charges. Fixed charges consist of interest expenses.
(5) Working capital is calculated as current assets (excluding cash, cash
equivalents and marketable securities) less current liabilities
(excluding bank overdrafts, short-term debt and current portion of
long-term debt.)
(6) Capital stock consists of common stock and capital surplus.
(7) Capital expenditures are net of certain funds received through government
agencies, the effect of which is to decrease depreciation.
Risk Factors
Risks related to the semiconductor industry
The semiconductor industry is highly cyclical, which causes our results
to vary significantly
The semiconductor industry is highly cyclical and has been subject to
significant economic downturns at various times. These downturns are typically
characterized by production overcapacity, accelerated erosion of average selling
prices and reduced revenues. When these downturns have occurred, such as in 1991
and 1996 through 1998, our results of operations have been adversely affected.
In addition, the markets for semiconductors and electronic systems that use
semiconductor products are characterized by rapid technological change, leading
to more complex and powerful products, evolving industry standards, intense
competition, and fluctuations in end-user demand. According to published
industry data, since the fourth quarter 2000, the market has been experiencing a
downturn which has led to a reduction in the production volume of semiconductor
products being shipped since the third quarter of 2000, primarily due to excess
inventory held by end-customers, particularly computer, telecom and other
manufacturers.
Overall, the semiconductor market expanded significantly from 1983
through 2000. According to trade association data, annual worldwide sales of all
semiconductor products, referred to as the total available market or TAM, has
grown from 1983 through 2000 at an average compound annual growth rate of
approximately 15.4%. During the upward industry cycle in the first half of the
1990s, the semiconductor industry experienced significantly increased demand and
production capacity constraints, with the total available market growth rate
reaching over 40% in 1995. During this period, semiconductor manufacturers
increased capacity significantly. However, in 1996
5
the market experienced a significant downturn characterized by production
overcapacity and severe reductions in average selling prices that resulted in an
8.6% decrease in the total available market compared to 1995.
According to trade association data, the total available market
decreased by 8.4% in 1998 compared to 1997. However, the total available market
for worldwide sales of semiconductor products increased by approximately 36.8%
in 2000 compared to 1999. In addition, the serviceable available market, or SAM,
(which consists of the TAM but excluding the market for DRAM and opto-electronic
products), increased by approximately 34.8% in 2000 compared to 1999. Capital
expenditures of many semiconductor manufacturers increased in 2000 and have
remained at high levels in 2001. In the event of weakening demand, the addition
of new capacity may give rise to over capacity and competitive pricing which
will affect margins. Since the third quarter 2000, the industry has experienced
a downturn. We cannot guarantee that the current downturn or any future downturn
will not be severe or that it would not have a material adverse effect on our
results of operations.
Changes in industry capacity could lead to overcapacity and exacerbate
future industry downturns
In the 1990s, many companies invested in building or improving
semiconductor-manufacturing capacity. According to published industry data and
other industry sources, investment in worldwide semiconductor fabrication
capacity totaled approximately $43 billion in 1996, $38 billion in 1997, $28
billion in 1998, $33 billion in 1999 and $59 billion in 2000 or approximately
32%, 28%, 22%, 22% and 29%, respectively, of the total available market for such
years. In addition to international semiconductor companies, companies
specializing in operating semiconductor foundries (companies providing
outsourcing capacity on a third party basis) such as UMC, TSMC and Chartered,
have added significant capacity, particularly in Asia. These capacity additions
contributed to an increase of supply over demand during 1997 and 1998 and to
declines in average selling prices and the downturn in the industry during this
period. Recent investments in 2000 could further increase overcapacity in 2001.
There has also been a shift in existing industry capacity to production of
products that compete with our products. We believe that future fluctuations in
the rate of industry capacity additions relative to the growth rate in demand
for semiconductor products or the transformation of manufacturing facilities to
produce products that compete with our products could contribute to fluctuations
in average selling prices and affect our results of operations.
During industry downturns, our high fixed costs may adversely impact
our results
In less favorable industry environments, we are driven to reduce prices
in response to competitive pressures. Since the semiconductor industry is
characterized by high fixed costs, we cannot guarantee our ability to reduce our
total costs in line with revenue declines during industry downturns. Reduced
average selling prices for our products therefore adversely affect our results
of operations. Our gross profit margin declined from 41.4% in 1996 to 38.9% in
1997 and 38.3% in 1998 during difficult market conditions. Our gross profit
margin was 39.6% in 1999 and 46.0% in 2000. In the difficult market conditions
encountered during the first quarter of 2001, our gross margin decreased by 2.9
percentage points compared to the fourth quarter 2000 and we expect that it will
further decrease by between 2.5 percentage points and 4.5 percentage points in
the second quarter of 2001 compared to the first quarter 2001. We cannot
guarantee that increased competition in our core product markets will not lead
to further price erosion, lower revenue growth rates and lower margins for us in
the future.
Competitive factors in our industry make our competitive environment
intense
We compete on the basis of a variety of factors, and our success
depends on our ability to compete successfully in all of the relevant areas. We
compete in different product lines to various degrees on the following bases:
o price
o technical performance
o product features
o product system compatibility
o product design
o availability
6
o quality
o sales and technical support
Our ability to compete successfully also depends on factors partially
outside of our control, including:
o successful and timely development of new products and
manufacturing processes
o manufacturing yields
o product availability
o industry and general economic trends
Our results may be adversely impacted by worldwide economic downturns
Our results are increasingly linked to worldwide economic trends,
especially in the United States, the European Union and Japan. The economic
situation in Asia in 1998 had a negative effect on the worldwide semiconductor
market and made semiconductor and end-use market requirements more difficult to
predict. The current economic slow-down in the United States, linked to a
declining GDP growth rate and to inventory build-ups by certain customers for
semiconductor products, is also negatively impacting the semiconductor market
which, following a growth of 36.8% in 2000, has declined by over 4% in the first
quarter of 2001, compared to the first quarter of 2000, and by over 19% over the
fourth quarter of 2000, according to industry sources. We believe that these
market developments are creating additional pressures on unit demand and on
semiconductor prices in general. To the extent economic uncertainties cause our
customers to experience reduced demand for their products that include our
products, our results of operations could be adversely affected.
Because we operate in an industry where technology changes rapidly, our
products may become obsolete and we may not be able to develop new ones in a
timely manner
The market for our products is characterized by rapidly changing
technology. Therefore, our success is highly dependent upon our ability to
develop and manufacture increasingly complex new products on a cost-effective
basis, to introduce them in the marketplace on a timely basis, and to have them
selected for design into future products of leading systems manufacturers. We
have committed and intend to continue to commit substantial resources to the
development of new products. Because new product development commitments must be
made well in advance of sales, however, our new product decisions must
anticipate both future demand and the technology that will be available to
supply such demand. Delays in developing new products with anticipated
technological advances, failure to win new design projects for customers or in
commencing volume shipments of new products, may have an adverse effect on our
business. In addition, there can be no assurance that new products, if
introduced, will gain market acceptance or will not be adversely affected by new
technological changes or new product announcements by others.
Our future success depends in part upon our ability to develop and
implement new design and process technologies
Semiconductor design and process technologies are subject to rapid
technological change and require large expenditures for capital investment and
research and development. We are developing advanced and standardized design
tools for our processes as well as libraries of macrofunctions and megafunctions
for many of our products. We are also focusing on improving our concurrent
engineering practices to better coordinate design activities and reduce overall
time-to-market. If we experience substantial delays in developing new design or
process technologies or inefficiently implement production increases or
transitions, our results of operations could be adversely affected.
Loss of our key employees could hurt our competitive position
As is common in the semiconductor industry, our success depends to a
significant extent upon the continued service of our key senior executives and
research and development, engineering, marketing, sales, manufacturing, support
and other personnel. Our success also depends upon our ability to continue to
attract, retain and motivate qualified personnel. The competition for such
employees is intense, and the loss of the services of any of these key personnel
without adequate replacement or the inability to attract new qualified personnel
could have a
7
material adverse effect on us. Mr. Pasquale Pistorio, age 65, has been our
president and chief executive officer since our formation in 1987 and he was
reappointed at our 1999 annual shareholders' meeting for a three-year term
expiring at our annual general meeting to be held in 2002. We do not maintain
insurance with respect to the loss of any of our key personnel.
Some of our production processes and materials are environmentally
sensitive, which could lead to increased costs due to environmental regulations
or to damage to the environment
We are subject to a variety of governmental regulations relating to the
use, storage, discharge and disposal of chemicals, gases and other hazardous
substances used in our manufacturing processes. We have established proactive
environmental policies with respect to the handling of chemicals, gases,
emissions and waste disposals from our manufacturing operations, and we have not
suffered material environmental claims in the past. We believe that our
activities comply with presently applicable environmental regulations in all
material respects. All of our facilities have been approved as being in
compliance with the EU Eco-Management and Audit Scheme regulations, and have
also obtained ISO 14001 certification. We are participating in various working
groups set up by the European Commission to propose new legislation regarding
the collection, recovery and disposal of electronic equipment, as well as
banning the use of lead and some flame retardants in manufacturing electronic
components. We intend to proactively implement such new legislation, when
enacted, in line with our commitment towards environmental protection.
We cannot assure you, however, that the implementation of any such
legislation could not adversely affect our manufacturing costs or product sales
by requiring us to acquire costly equipment or materials, or to incur other
significant expenses in adapting our manufacturing processes or waste and
emission disposal processes. Furthermore, environmental claims or our failure to
comply with present or future regulations could result in the assessment of
damages or imposition of fines against us, suspension of production or a
cessation of operations and, as with other companies engaged in similar
activities, any failure by us to control the use of, or adequately restrict the
discharge of hazardous substances could subject us to future liabilities.
Because we depend on a limited number of suppliers for raw materials,
we may experience supply disruptions or pricing pressure
Our manufacturing operations depend upon obtaining adequate supplies of
quality raw materials on a timely basis. Thus, our results of operations would
be adversely affected if we were unable to obtain adequate supplies of raw
materials in a timely manner or if there were significant increases in the costs
of raw materials or problems with the quality of these raw materials. A number
of materials are available from a limited number of suppliers, or from a limited
number of suppliers in a particular region. In addition, we purchase raw
materials such as silicon wafers, lead frames, mold compounds, ceramic packages
and chemicals and gases from a number of suppliers on a just-in-time basis.
Although supplies for the raw materials used by us are currently adequate,
shortages could occur in various essential materials due to interruption of
supply or increased demand in the industry. In addition, suppliers may extend
lead times, limit supply to us or increase prices due to capacity constraints or
other factors. Any such supply limitations or price increases could adversely
affect our quarterly or annual results of operations.
Risk factors related to our operations
Our operating results may vary significantly from quarter to quarter
and annually
Our operating results are affected by a wide variety of factors that
could materially and adversely affect revenues and profitability or lead to
significant variability of operating results. These factors include, among
others, the cyclicality of the semiconductor and electronic systems industries,
capital requirements and the availability of funding, competition, new product
development and technological change, and manufacturing problems. In addition, a
number of other factors could lead to fluctuations in quarterly and annual
operating results, including:
o order cancellations or reschedulings by customers
o reduced bookings or product returns by key customers
o changes in distribution arrangements
8
o intellectual property developments
o failure to win new design projects
o problems with product quality
o litigation
o possible acquisitions
o problems in obtaining adequate raw materials on a timely basis
o the loss of key personnel
Unfavorable changes in the above or other factors have in the past and
may in the future adversely affect our operating results. In addition, during
periods of industry overcapacity and declining selling prices, customer orders
are not generally made as far in advance of the scheduled shipment date as
during periods of capacity constraints and we have experienced an increasing
reliance on orders placed and shipped within the same month. During, industry
downturns, we experience lower levels of backlog, which in turn reduces our
management's ability to forecast production levels, revenues and margins.
We face intense competition in our core product lines as well as in
emerging applications from both large integrated manufacturers and smaller niche
companies
The semiconductor industry is intensely competitive and we face
significant competition in each of our product lines. Some of our competitors
are large integrated manufacturing groups that compete with us in most of our
product lines. A few of these large companies have substantially greater
financial and other resources than we do. As a result, these companies may be
able to invest more than we can afford in research and development, in the
construction of large-scale, advanced, cost effective manufacturing plants and
in the marketing of products, and this may adversely affect our ability to take
advantage of potentially profitable business opportunities. Such large
competitors include:
o Advanced Micro Devices
o Agere Systems
o Analog Devices
o Atmel
o Broadcom
o Fujitsu
o Hitachi
o Infineon Technologies
o Intel
o LSI Logic
o Matsushita
o Mitsubishi Electric Corporation
o Motorola
o National Semiconductor
o Nippon Electric Company
9
o ON Semiconductor
o Philips Semiconductors
o Samsung
o Texas Instruments
o Toshiba
In addition, we are facing increased competition from smaller niche
companies that specialize in certain product lines and who may decide to invest
more than we do in research and development, manufacturing and marketing of such
selected products. These competitors include design houses, many of which use
semiconductor foundry companies that produce high volume products and may offer
competitive pricing. These foundry companies have expanded significantly in
recent years, particularly in Asia. Other smaller niche competitors include
manufacturers of standard semiconductors, integrated circuits for specific
applications and fully customized integrated circuits, including both chip and
board-level products. In addition, some of our customers have developed their
own integrated circuit products and foundry operations.
Certain of our competitors have increased their focus on products that
compete with our products
In recent years, some of our competitors have redirected their
marketing focus and manufacturing capacity toward products that compete with our
products. We believe increased focus by our competitors in our core product
markets is generating greater pricing pressure, increased competition for market
share in the serviceable available market, and a generally more challenging
market environment for us. In addition, as new products are developed we will
face significant competition in each of these markets. We cannot guarantee that
we will be able to maintain or establish a strong market position in all of our
product markets.
Because we have our own manufacturing facilities, our capital needs are
high compared to competitors who do not produce their own products, and they
remain high during industry downturns
As a result of our strategic choice to maintain control of our advanced
proprietary manufacturing technologies to serve our customer base and develop
our strategic alliances, we require significant amounts of capital to build,
expand, modernize and maintain our facilities. Some of our competitors, however,
do not manufacture their own products, and therefore do not require significant
capital expenditures for their facilities. Our capital expenditures totaled $0.9
billion in 1998, $1.3 billion in 1999 and $3.3 billion in 2000. Due to the
current market situation, we have reduced our capital expenditure forecast for
2001 from approximately $2.5 billion to approximately $1.9 billion. However, we
expect to continue to invest significantly in the coming years as the
requirements of new technologies increase the cost of production equipment,
although we intend to modulate such investments in line with market
requirements. We will continue to monitor our level of capital spending, taking
into consideration factors such as trends in the semiconductor market and
capacity utilization.
The semiconductor industry also requires heavy commitments of funds for
research and development necessary to keep up with the rapid pace of
technological change and to consistently develop innovative, performing and
cost-effective products. We intend to continue to increase research and
development expenditures in the future, although not necessarily as a percentage
of net revenues.
We could need additional funding in the coming years
At December 31, 2000, we had a negative net financial position (total
debt, net of cash, cash equivalents and marketable securities) of $511.2
million. As the cost of new manufacturing facilities is increasing, due to the
complexity of advanced sub-micron technology and required manufacturing
equipment, we may expand or upgrade capacity based on market conditions. In that
event, or if we proceed with acquisitions, we may incur additional indebtedness,
which could increase our interest costs and adversely affect our results. In
such circumstances, we may need to issue additional debt or equity, or both.
Our manufacturing processes are highly complex, costly and potentially
vulnerable to impurities and disruptions that can significantly increase our
costs and delay product shipments to our customers
10
Our manufacturing processes are highly complex, require advanced and
increasingly costly equipment and are continuously being modified in an effort
to improve yields and product performance. Impurities or other difficulties in
the manufacturing process can lower yields, interrupt production or result in
losses of products in process. As system complexity has increased and sub-micron
technology has become more advanced, manufacturing tolerances have been reduced
and requirements for precision have become even more demanding. Although in the
past few years we have significantly enhanced our manufacturing capability in
terms of efficiency, precision and capacity, we have from time to time
experienced production difficulties that have caused delivery delays and quality
control problems, as is common in the semiconductor industry. We cannot
guarantee that we will be able to increase the capacity, efficiency or precision
of our manufacturing capabilities in the future to the same extent as in the
past. We might also experience production difficulties in the future. In
addition, during past periods of high revenue growth for us, our manufacturing
facilities have operated at high capacity, which has led to production
constraints.
As is common in the semiconductor industry, we have from time to time
experienced difficulty in ramping up production at new facilities or effecting
transitions to new manufacturing processes. As a result, we have suffered delays
in product deliveries or reduced yields. In the future, we might face:
o construction delays
o delays in ramping up production at new facilities or on new
lines, in upgrading or expanding existing facilities, or in
changing our process technologies
o interruptions in production
o delivery delays
o manufacturing problems in achieving acceptable yields
o capacity constraints
o contamination or fires, storms, earthquakes or other acts of
nature
the impact of which is exacerbated during a period of industry constraint.
In addition, our development of fabrication facilities that include
200mm or 300mm capabilities, or which require advanced technologies has
increased the potential for losses associated with production difficulties,
imperfections, or other causes of defects. If production is interrupted at a
manufacturing facility, we may not be able to shift production to other
facilities on a timely basis or customers may decide to purchase products from
another supplier. In either case the loss of revenues and impact on our
relationships with our customers could be significant. Our operating results
could also be adversely affected by the increase in fixed costs and operating
expenses related to increases in production capacity if revenues do not increase
commensurately.
We may not be able to increase capacity to meet additional demand,
which could adversely affect our ability to take advantage of profitable
business opportunities
Our ability to increase capacity in response to increasing customer
demand will be an important factor in our future profitability. To increase
capacity, we may need to expand or modernize our manufacturing facilities, which
may require significant amounts of capital and time to accomplish. In addition,
we are dependent upon suppliers of semiconductor manufacturing equipment to
provide us with the necessary equipment. During periods of increased demand,
these suppliers may not be able to provide such equipment on a timely basis. As
a result, we may lose opportunities to provide new products or greater volumes
of products to customers and the associated revenues.
In a period of market downturn, we may face overcapacity in some of our
older fabrication facilities
In a period of market downturn, we may have overcapacity, particularly
in our older fabrication facilities that use mature process technology. We, like
other semiconductor manufacturers, could have mature fabrication facility
capacity being only partially used. This may affect our cost of operations if we
are unable to simultaneously and proportionately cut our manufacturing costs or
make other necessary savings in due time.
11
If our outside wafer suppliers fail to perform, this could adversely
affect our ability to exploit growth opportunities
In 2000, to meet anticipated requirements for HCMOS wafers, we used
outside suppliers, or foundries, for the supply of up to 15% of our requirements
for these wafers. We do not intend to increase our reliance on front-end
manufacturing through external foundries beyond this level. In fact, in a period
of market downturn, our reliance on such suppliers may decrease. For example, in
the first quarter 2001, they represented only 9% of our wafer requirements,
compared to an average of 11% in the year 2000. However, when our markets grow,
we may face capacity constraints and we expect to continue to rely on
third-party wafer suppliers without having the same degree of management control
and supervision over their operations as we do over our own. If these suppliers
experience manufacturing difficulties, delays, or reduced yields, our results of
operations and ability to satisfy customer demand could suffer. In addition,
purchasing rather than manufacturing these products may adversely affect our
gross profit margin if the purchase costs of these products are higher than our
own manufacturing costs.
Our common share price and operating results may be negatively affected
by potential acquisitions
Our growth to date had primarily been organic. In 1999, however, we
made three acquisitions: the Peripheral Technology Solutions group from Adaptec
for a purchase price of approximately $72 million, Vision Group plc for a
purchase price of approximately $41 million and Arithmos for a purchase price of
approximately $42 million. In 2000 we acquired from Nortel Networks its
semiconductor business including a 150mm manufacturing facility located in
Ottawa, Canada, under the terms of a transaction which could involve a payment
of up to $100 million. In September 2000, we acquired the assets and business of
Waferscale Integration, Inc. for approximately $78 million. In December 2000, we
announced the acquisition of Portland Group Inc. (PGI), a vendor of compilers
and software developments tools to the high-performance parallel computing
market, for approximately $18 million. In January 2001, we announced the
acquisition of Ravisent's consumer electronics business for approximately $56
million, which transaction closed in March 2001. We may, from time to time,
consider making selected additional acquisitions that we believe would
complement or expand our existing business. We may pay for these acquisitions
with cash, our common shares or both. These acquisitions, if they occur, may
have a dilutive effect for existing shareholders and, whether they are paid for
in cash or common shares, may negatively affect our common share price. In
addition, acquisitions involve a number of risks and if not successful they
could adversely affect our operating results. Announcements concerning potential
acquisitions could be made at any time.
Our business can be adversely affected by changes in the value of the
U.S. dollar
A material variation in the value of the U.S. dollar against the
principal European and Asian currencies which have a material impact on us could
result in a favorable impact on our net income in the case of an appreciation of
the U.S. dollar, or a negative impact on our net income if the U.S. dollar
depreciates relative to these currencies. For example, the appreciation
registered by the U.S. dollar in 2000 against the principal European and Asian
currencies (excluding the Japanese yen, which appreciated compared to the U.S.
dollar) resulted in a favorable impact on results of operations for 2000,
because of the favorable impact on cost of sales and operating expenses. In
addition, the balance sheet impact of translation adjustments has been, and may
be expected to continue to be, material from period to period. Our policy is to
monitor and cover a portion of our exchange rate exposure, and we manage our
operations to mitigate, but not eliminate, the positive or negative impact of
exchange rate fluctuations.
Our controlling shareholders' interests may conflict with your
interests
STMicroelectronics Holding II B.V. ("ST Holding II"), a wholly owned
subsidiary of ST Holding N.V. ("ST Holding"), owns in excess of 40% of our
outstanding common shares and is effectively in a position to control actions
that require shareholder approval, including corporate actions and the election
of the Supervisory Board and the Managing Board. As permitted by our articles of
association, the Supervisory Board has specified further selected actions by our
Managing Board that require the approval of the Supervisory Board.
ST Holding is 50% owned by a French shareholder that is indirectly
controlled by the French government and 50% owned by an Italian shareholder in
whom the Italian government holds approximately 37% of the share capital and
retains special powers to approve or determine certain corporate actions. These
French and Italian shareholder groups of ST Holding have entered into a
shareholders agreement which enables each of them to designate three members of
our Supervisory Board and includes provisions requiring the approval of the
supervisory
12
board of ST Holding for actions by ST Holding, us and our subsidiaries. Such
shareholders agreement also contemplates that equilibrium will be maintained in
the levels of research and development and related expenditures between France
and Italy.
The shareholders of FT1CI (the holding company for the two indirect
French shareholders of ST Holding) also have entered into a separate
shareholders agreement that in effect requires the approval of the board of
directors of each such company before members of our Supervisory Board appointed
by the group of French shareholders may approve specified actions to be taken by
ST Holding, ST Holding II, us or our subsidiaries. In addition, as is the case
with other companies controlled by the French government, certain Ministries of
The Republic of France may veto any decision taken by the board of directors of
FT1CI. These requirements for the prior approval of various actions to be taken
by us and our subsidiaries may give rise to a conflict of interest between our
interests and your interests, on the one hand, and the interests of the
individual shareholders approving such actions, on the other, and may result in
a delay in the ability of our Managing Board to respond as quickly as may be
necessary in the rapidly changing environment of the semiconductor industry.
Such approval process is subject to the provisions of Dutch law requiring
members of the Supervisory Board to act independently in supervising our
management.
In addition, our indirect shareholders, their affiliates and we may
have contractual and other business relationships and may engage in significant
transactions from time to time. Although it is anticipated that any such
transactions and agreements will be on terms no less favorable to us than we
could obtain in comparable contracts with unaffiliated third parties, conflicts
of interest may arise between us and our indirect shareholders and their
affiliates in a number of circumstances.
Our shareholder structure and our preference shares may deter a change
of control
On May 31, 1999, our shareholders at the annual general meeting
approved the creation of up to 180,000,000 preference shares. Pursuant to the
3-for-1 stock split effected in May 2000, the number of such preference shares
has increased to 540,000,000. These preference shares entitle a holder to full
voting rights at any meeting of shareholders and to a preferential right to
dividends. On May 31, 1999, we agreed, in order to protect ourselves from a
hostile takeover or other similar action, to enter into an option agreement with
ST Holding II, which provides that up to 540,000,000 preference shares shall be
issued to ST Holding II upon its request and subject to the adoption of a
resolution of our Supervisory Board giving its consent to the exercise of the
option and upon payment of at least 25% of the par value of the preference
shares to be issued. The option is contingent upon ST Holding II retaining at
least 33% of our issued share capital. The preference shares, if issued, would
have priority with respect to dividends and distributions upon liquidation over
the common shares. The effect of the preference shares may be to deter potential
acquirors from effecting an unsolicited acquisition resulting in a change of
control. In addition, any issuance of additional capital within the limits of
our authorized share capital, as approved by our shareholders, is subject to the
approval of our Supervisory Board and of the Supervisory Board of ST Holding
(the entity which controls the entire share capital of ST Holding II).
Substantial sales of our common shares into the market could cause the
market price of our common shares to drop significantly
As of December 31, 2000, 889,881,287 of our common shares were
outstanding, not including (i) common shares issuable under our various employee
stock option plans or employee share purchase plans, or (ii) common shares
issuable upon conversion of our outstanding convertible debt securities.
Substantial sales of existing shares of our common shares by existing
shareholders, or newly issued shares or convertible debt securities by us, could
cause the market price of our common shares to drop significantly. The timing
and size of any future primary or secondary offerings will depend upon a variety
of factors, including, in particular, market conditions.
The shareholders of ST Holding entered into an agreement on August 31,
1999 pursuant to which they agreed to maintain their interest at least 40% of
our share capital and voting rights until at least December 31, 2000. ST Holding
has informed us that its shareholders have not extended such agreement.
Therefore, we cannot exclude the possibility that the percentage of our common
stock and of our voting rights held by ST Holding may change at any time. Any
such transaction, or publicity concerning such a potential transaction, could
affect the market price of our common shares and cause the market price of our
common shares to drop significantly. See "Item 7: Major Shareholders and Related
Party Transactions - Major Shareholders."
13
Disruptions in our relationships with any one of our key customers
could adversely affect our results of operations
We have several large customers, some of whom have entered into
strategic alliances with us. In 2000, our largest customer was Nokia and it
accounted for approximately 13% of net revenues, and our top ten customers
accounted for approximately 47% of net revenues. We cannot guarantee that our
largest customers will continue to book the same level of sales with us that
they have in the past. Many of our key customers operate in cyclical businesses
that are also highly competitive, and their own demands and market positions may
vary considerably. Our customers have in the past, and may in the future, vary
order levels significantly from period to period. In addition, approximately 18%
of our net revenues were made through distributors in each of 1998, 1999 and
2000. We cannot guarantee that such customers or distributors, or any other
customers, will continue to place orders with us in the future at the same
levels as in prior periods. If we were to lose one or more of our customers or
distributors, or if any key customer or distributor were to reduce its bookings,
increase its product returns or fail to meet its payment obligations, our
operating results could be adversely affected. If orders are canceled, we may
not be able to resell products previously made or require the customers who have
ordered these products to pay for them.
We depend on patents to protect our rights to our technology
We depend in part on patents and other intellectual property rights
covering our products and their design and manufacturing processes. We intend to
continue to seek patents on our inventions and manufacturing processes. The
process of seeking patent protection can be long and expensive, however, and we
cannot guarantee that we will receive patents from currently pending or future
applications. Even if patents are issued, they may not be of sufficient scope or
strength to provide meaningful protection or any commercial advantage. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in some countries. Competitors may also develop
technologies that are protected by patents and other intellectual property and
therefore either be unavailable to us or be made available to us subject to
adverse terms and conditions. We may not be able to obtain licenses or other
rights to necessary intellectual property on acceptable terms.
Because patent and other intellectual property litigation is costly and
unpredictable, our attempts to protect our rights or to defend ourselves against
claims made by others could impose high costs and risks on our business
Litigation that could demand financial and management resources may be
necessary to enforce our patents or other intellectual property rights. Also, we
may become involved in costly litigation brought against us regarding patents,
mask works, copyrights, trademarks or trade secrets. If we cannot obtain
licenses or other intellectual property rights, or if we have litigation
expenses or judgments that are contrary to us, our results of operations or
financial condition could be hurt. We have from time to time received, and may
in the future receive, communications alleging possible infringement of patents
and other intellectual property rights of others. Regardless of the validity or
the successful assertion of such claims, we could incur significant costs with
respect to the defense thereof which could have a material adverse effect on our
results of operations or financial condition.
We have benefitted from state funding in France and Italy which might
become unavailable, and as a result our costs could increase
Like many other semiconductor manufacturers operating in Europe, we
have had the benefit of governmental funding for research and development
expenses, industrialization costs (which include some of the costs incurred to
bring prototype products to the production stage) and capital investment as well
as low-interest financing. As a result of our history, our research and
development facilities and manufacturing activities are concentrated mainly in
France and Italy, and the substantial majority of our state funding has been
derived from national and European Union programs in these countries. We have
entered into funding agreements with France and Italy, which set forth the
parameters for state support to us under selected national programs. These
funding agreements require compliance with European Union ("EU") regulations and
approval by EU authorities and annual and project-by-project reviews and
approvals. Recently, the EU confirmed our right to receive Euro143 million
under programs funded by the Italian government in accordance with the Italian
law for the development of the south of Italy.
14
The EU adopted guidelines in 1995 seeking to limit state aid for
research and development activities routinely performed in the normal course of
business. We cannot guarantee that we will continue to benefit from state aid
for research and development, that such aid will not be revoked or discontinued,
or that material aid granted by a government for research and development will
not be reviewed or challenged by the EU.
We rely on receiving funds allocated by state governments on a timely
basis. However, funding of programs in France and Italy is subject to annual
appropriation. If these governments were unable to provide anticipated funding
on a timely basis or if existing government-funded programs were curtailed or
discontinued, this could have a material adverse effect on our business,
operating results and financial condition. From time to time we have experienced
delays in the receipt of funding under these programs. As the availability and
timing of such funding are substantially outside our control, we cannot
guarantee that we will continue to benefit from such government support, that
funding will not be delayed from time to time, that sufficient alternative
funding would be available if necessary or that any such alternative funding
would be provided on terms as favorable to us as those previously provided. In
addition, there can be no assurance that the funding granted to us may not be
revoked or challenged or discontinued in whole or in part by any competent state
or European authority, or competent administrative or judicial body, until the
legal time period for challenging or revoking such funding has elapsed.
Because we are a Dutch company subject to the corporate law of The
Netherlands, you might have difficulty protecting your interests in a court of
law or otherwise
The corporate affairs of STMicrolectronics NV are governed by our
articles of association and by the laws governing corporations incorporated in
The Netherlands. The corporate affairs of each of the consolidated subsidiaries
of STMicroelectronics NV are governed by the articles of association and by the
laws governing corporations incorporated in the jurisdiction in which such
consolidated subsidiary is incorporated. Your rights and the responsibilities of
members of our Supervisory Board under Dutch law are not as clearly established
as under the rules of some U.S. jurisdictions. Therefore, you may have more
difficulty in protecting your interests in the face of actions by our
management, members of our Supervisory Board or our controlling shareholders
than you would have if we were incorporated in the United States. Under our
articles of association, when our annual accounts are adopted by the general
meeting of shareholders, the members of our Managing Board and Supervisory Board
are discharged from liability for their actions during the financial year
concerned, unless a reservation is made by the general meeting of shareholders.
This is without prejudice to the provisions of Dutch law, including provisions
relating to liability of members of supervisory boards and managing boards upon
bankruptcy of a company pursuant to articles 2:138 and 2:149 of the Dutch Civil
Code.
Our executive offices and a substantial portion of our assets are
located outside the United States. In addition, ST Holding II and most members
of our Managaging and Supervisory Boards are residents of France, Italy,
Switzerland and jurisdictions other than the United States and Canada. As a
result, it may be difficult for you to effect service within the United States
or Canada upon us, ST Holding II, members of our Managing or our Supervisory
Boards. It may also be difficult for you to enforce outside the United States or
Canada judgments obtained against such persons in U.S. or Canadian courts, or to
enforce in U.S. or Canadian courts judgments obtained against such persons in
courts in jurisdictions outside the United States or Canada. This could be true
in any legal action, including actions predicated upon the civil liability
provisions of the U.S. securities laws. In addition, it may be difficult for you
to enforce, in original actions brought in courts in jurisdictions located
outside the United States, liabilities predicated upon the U.S. securities laws.
Removal of our common shares from the CAC 40 could adversely affect the
price of our common shares
Our common shares have been included in the CAC 40 index on Euronext
Paris since November 12, 1997. However, our common shares could be removed from
the CAC 40, which could adversely affect the market price of our common shares.
Item 4. Information on the Company
History and Development of the Company
STMicroelectronics N.V (formerly known as SGS-Thomson Microelectronics
N.V.). was formed in 1987 by the combination of the semiconductor business of
SGS Microelettronica (then owned by Societa Finanziaria Telefonica (S.T.E.T.) an
Italian corporation) and the non-military business of Thomson Semiconducteurs
(then owned by the former Thomson-CSF, now Thales, a French corporation) whereby
each company contributed their
15
respective semiconductor businesses in exchange for a 50% interest in
STMicroelectronics. We were incorporated in 1987, and our length of life is
indefinite. We have our corporate legal seat and are domiciled in Amsterdam, and
are organized under the laws of The Netherlands. We have our headquarters and
executive offices located in the vicinity of Geneva Airport at Route de Pre-Bois
20, ICC Bloc A, 1215 Geneva 15, Switzerland. Our main telephone number is
(41-22) 929-2929. We also maintain an administrative center at Technoparc du
Pays de Gex - B.P. 112, 165, rue Edouard Branly, 01637 Saint-Genis Pouilly,
France; telephone number (33-4) 5040-2640. STMicroelectronics N.V. is our parent
company and we also conduct our operations through our consolidated
subsidiaries.
For information on our principal capital expenditures and divestitures,
see "Item 5: Operating and Financial Review and Prospects."
Business Overview
We are a global independent limited liability semiconductor company
that designs, develops, manufactures and markets a broad range of semiconductor
integrated circuits and discrete devices used in a wide variety of
microelectronic applications, including automotive products, computer
peripherals, telecommunications systems, consumer products, industrial
automation and control systems. According to Dataquest-Gartner Group, we were
the sixth largest semiconductor company worldwide in 2000 based on sales.
According to the latest industry sources released in 2001, STMicroelectronics in
2000 was the world's leading supplier of telecom ICs and EPROM memories, and the
second leading supplier of total analog and mixed signal ICs, EEPROM memories,
NVRAM memories, power diodes and thyristors. According to published industry
data, we are the leader for differentiated and mixed signal ASSP ICs, digital
decoder ICs, disk drive ICs, special automotive ICs and the second leading
producer for ADSL kits. We currently offer more than 3,000 main types of
products to approximately 800 direct customers. Major customers include Alcatel,
Bosch, DaimlerChrysler, Delco, Echostar, Ericsson, Gemplus, Hewlett-Packard,
Marelli, Matsushita, Nokia, Nortel Networks, Pace, Philips, Pioneer, Samsung,
Schlumberger, Scientific Atlanta, Seagate Technology, Siemens, Sony, Thomson
Multimedia and Western Digital. We also sell our products through distributors.
We offer a diversified product portfolio and develop products for a
wide range of market applications to reduce our dependence on any single
product, industry or application market. Within our diversified portfolio, we
have focused on developing products that exploit our technological strengths in
creating customized, system-level solutions with substantial analog and
mixed-signal content. Products include differentiated ICs (which we define as
being our dedicated products, semicustom devices and microcontrollers) and
analog ICs (including mixed-signal ICs), the majority of which are also
differentiated ICs. As a leading provider of differentiated ICs, we have
developed close relationships with customers, resulting in early knowledge of
their evolving requirements and opportunities to access their markets for other
products. Differentiated ICs, which are less vulnerable to competitive pressures
than standard commodity products, accounted for approximately 63% of our net
revenues in each of 2000 and 1999. We also target applications that require
substantial analog and mixed-signal content and can exploit our system level
expertise. All analog ICs accounted for approximately 49% of our 2000 net
revenues compared to approximately 51% in 1999, while discrete devices accounted
for approximately 10% of our net revenues in 2000 compared to approximately 12%
in 1999.
Our products are manufactured and designed using a broad range of
manufacturing processes and proprietary design methods. We use all of the
prevalent function-oriented process technologies, including CMOS, bipolar and
nonvolatile memory technologies. In addition, by combining basic processes, we
have developed advanced systems-oriented technologies that enable us to produce
differentiated and application-specific products, including BiCMOS technologies
(bipolar and CMOS) for mixed-signal applications, BCD technologies (bipolar,
CMOS and DMOS) for intelligent power applications and embedded memory
technologies. This broad technology portfolio, a cornerstone of our strategy for
many years, enables us to meet the increasing demand for "system-on-a-chip"
solutions. To complement this depth and diversity of process and design
technology, we also possess a broad intellectual property portfolio that we use
to enter into cross-licensing agreements with many major semiconductor
manufacturers.
Our products are organized into the following principal groups:
o Telecommunications, Peripherals and Automotive
16
o Consumer and Microcontroller
o Memory Products
o Discrete and Standard ICs
As part of our activities outside the above principal product groups,
we also have a New Ventures Group, which identifies and develops new business
opportunities to complement our existing businesses, and a Subsystems Product
Group, which produces subsystems for industrial and other applications.
The tables below set forth information on our net revenues by product
group and by geographic region:
Year ended December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in millions except percentages)
Net Revenues by Product Group:(1)
Telecommunications, Peripherals and Automotive(1) $1,614.0 $1,606.9 $1,855.2 $2,305.5 $3,481.7
Discrete and Standard ICs(1)..................... 778.1 839.5 816.7 927.9 1,213.1
Memory Products.................................. 736.8 708.6 659.6 835.9 1,552.9
Consumer and Microcontrollers(1)................. 870.2 738.8 805.8 881.7 1,438.9
New Ventures Group and Others(2)................. 123.3 125.4 110.5 105.3 126.6
-------- -------- -------- -------- --------
Total........................................ $4,122.4 $4,019.2 $4,247.8 $5,056.3 $7,813.2
======== ======== ======== ======== ========
Net Revenues by Geographic Region: (3)
Europe........................................... $1,788.5 $1,753.3 $1,768.9 $1,833.6 $2,629.2
North America.................................... 903.0 899.1 937.3 1,156.1 1,843.0
Asia Pacific..................................... 1,125.7 1,065.8 1,247.9 1,658.2 2,614.7
Japan............................................ 228.2 214.5 180.7 239.7 402.4
Emerging Markets(3).............................. 77.0 86.5 113.0 168.7 323.9
-------- -------- -------- -------- --------
Total........................................ $4,122.4 $4,019.2 $4,247.8 $5,056.3 $7,813.2
======== ======== ======== ======== ========
(as a percentage of net revenues)
Net Revenues by Product Group:(1)
Telecommunications, Peripherals and Automotive(1) 39.1% 40.0% 43.6% 45.6% 44.6%
Discrete and Standard ICs(1)..................... 18.9 20.9 19.2 18.4 15.5
Memory Products.................................. 17.9 17.6 15.5 16.5 19.9
Consumer and Microcontrollers(1)................. 21.1 18.4 19.0 17.4 18.4
New Ventures Group and Others(2)................. 3.0 3.1 2.7 2.1 1.6
--- --- --- --- ---
Total........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
Net Revenues by Geographic Region: (3)
Europe........................................... 43.4% 43.6% 41.6% 36.3% 33.6%
North America.................................... 21.9 22.4 22.1 22.9 23.6
Asia Pacific..................................... 27.3 26.5 29.4 32.8 33.5
Japan............................................ 5.5 5.3 4.3 4.7 5.2
Emerging Markets(3).............................. 1.9 2.2 2.6 3.3 4.1
--- --- --- --- ---
Total........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
- ----------
(1) In January 1999, we implemented organizational changes to better orient
our product groups to end-use applications. As a result, net revenues
have been restated for prior periods to reflect these changes. In
addition, the former Dedicated Products Group has become the
Telecommunications, Peripherals and Automotive Groups, while the former
Programmable Products Group has become the Consumer and Microcontrollers
Groups.
(2) Includes revenues from sales of subsystems and other products and from
the New Ventures Group, which was created in May 1994 to act as a center
for our new business opportunities.
(3) Revenues are classified by location of customer invoiced. For example,
products ordered by U.S.-based companies to be invoiced to Asia Pacific
affiliates are classified as Asia Pacific revenues. Net revenues by
geographic region have been reclassified to reflect the creation of
Region Five in January 1998 which includes emerging markets such as South
America, Africa, Eastern Europe, the Middle East and India. Prior years
have been restated to reflect this reclassification. In the fourth
quarter of 2000, Region Five changed its name to become the Emerging
Markets region.
17
We have received many awards. We were the only semiconductor company to
receive a AAA rating in eco-efficiency from Innovest Strategic Value Advisors
and were recipients of both the EPA Climate Protection Award in 1999 and the
Akira Inoue Award for Outstanding Achievement in Environmental, Health and
Safety in the Semiconductor Industry in December 2000. In recent years, our
regional subsidiaries have also received several prestigious awards: the
prestigious Malcolm Baldrige National Quality Award in the U.S., the Singapore
Quality Award, the Moroccan National Quality Award, the EPA Climate Protection
Award (U.S.), the Malaysian Prime Minister Quality Award and the Malta Quality
Award. In 1997, we received the European Quality Award for Business Excellence
in the category of large businesses awarded by the European Foundation for
Quality Management. These awards illustrate the success of our unified Total
Quality and Environmental Management philosophy on four continents. Total
Quality and Environmental Management or "TQEM" defines a common set of
objectives and performance measurements for employees in all geographic regions,
at every stage of product design, development and production for all product
lines. See "--Strategy" and "--Description of Property--Manufacturing."
Strategy
The key elements of our strategy are set forth below.
Broad Product Portfolio. We offer a diversified product portfolio and
develop products for a wide range of market applications to reduce our
dependence on any single product, industry or application market. Within our
diversified portfolio, we have focused on developing products that exploit our
technological strengths in creating customized, system-level solutions with
substantial analog and mixed-signal content. Products include differentiated ICs
(which we define as being our dedicated products, semicustom devices and
microcontrollers) and analog ICs (including mixed-signal ICs), the majority of
which are also differentiated ICs. As a leading provider of differentiated ICs,
we have developed close relationships with customers, resulting in early
knowledge of their evolving requirements and opportunities to access their
markets for other products. Differentiated ICs, which are less vulnerable to
competitive pressures than standard commodity products, accounted for
approximately 63% of our net revenues in each of 2000 and 1999 and 62% in 1998.
We also target applications that require substantial analog and mixed-signal
content and can exploit our system level expertise. Analog ICs accounted for
approximately 49% of our 2000 net revenues compared to approximately 51% in 1999
and 50% in 1998, while discrete devices accounted for approximately 10% of our
net revenues in 2000 compared to approximately 12% in 1999 and 13% in 1998. In
general, differentiated ICs, in particular analog ICs, have experienced less
volatility in sales growth rates and average selling prices than the overall
semiconductor industry.
However, as a broad range supplier, we can also benefit from selling
standard products. Consistent with this view, we have established the Gold
Standard program to promote the sale of certain standard products meeting
specified quality, cost and lead-time criteria. The related initiatives include
worldwide advertising, promotional task forces in all regions, special
distribution initiatives and worldwide training of sales and marketing
personnel.
Total standard products (including all nonvolatile memories, discrete
devices, Smartcard ICs and all standard logical and linear ICs) represented
approximately 37% of our sales in 2000 and, in management's view, increased
sales of these products represent an opportunity to improve cash flow because
the manufacture of standard products requires moderate capital investment and to
saturate existing mature fabrication facilities.
Broad Range of Process and Design Technologies. We intend to continue
to exploit our expertise and experience with a wide range of process and design
technologies to develop our capabilities. We are committed to continuing to
increase research and development expenditures in the future as well as
continuing to develop alliances with other semiconductor companies and suppliers
of software development tools. Technological advances in the areas of transistor
performance and interconnection technologies are being developed through our
logic products and semicustom devices. We continually work with key suppliers to
develop advanced and standardized design methodologies for our CMOS, mixed
signals and nonvolatile memories processes as well as libraries of
macrofunctions and megafunctions for many of our products, and are focusing on
improving our concurrent engineering practices to better coordinate design
activities and reduce overall time-to-market. We are also working closely with
many of our key suppliers to develop easy-to-use design tools for specific
applications. Alliances with other semiconductor manufacturers are generally
designed both to permit costly research and development and manufacturing
resources to be shared to mutual advantage for joint technology development and
to reduce time to market.
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Leading Global Customer Base with Focus on Strategic Alliances. We work
with our key customers to identify evolving needs and new applications and to
develop innovative products and product features. We also seek to use our access
to key customers as a supplier of application-specific products to establish
ourselves as a supplier across a broad range of products. Alliances with
customers allow us and our customers to share some of the risks of product
development and the customers to gain access to our process technologies and
manufacturing infrastructure. We have targeted alliances with customers in each
of our key application markets of telecommunications, automotive, consumer and
computer. We have established alliances with Alcatel, Bosch, Hewlett-Packard,
Marelli, Nokia, Nortel Networks, Pioneer, Seagate Technology, Thomson Multimedia
and Western Digital, among others. In establishing these alliances, we have also
aimed to cover our key geographical markets.
Integrated Presence in Key Regional Markets. We have consistently
sought to develop a competitive advantage by building an integrated presence in
each of the world's three major economic zones: Europe, Asia and North America.
An integrated presence means having manufacturing, design, sales and marketing
capabilities in each region, in order to ensure that we are well positioned to
anticipate and meet our customers' business requirements in local markets.
Therefore, we have established front-end manufacturing facilities in the United
States (in Phoenix, Arizona; Carrollton, Texas; and Rancho Bernardo,
California), in Europe (Agrate, Castelletto and Catania, Italy; and Crolles,
Rennes, Rousset and Tours, France) and in Asia (Singapore); the more
labor-intensive back-end facilities have been located in Malaysia, Malta,
Morocco, Singapore and China, enabling us to take advantage of favorable
production costs (particularly labor costs). With major design centers and local
sales and marketing groups within close proximity of key customers in each
region, we believe we can maintain strong relationships with our customers. We
intend to continue to build our integrated local presence in each region where
we compete in our efforts to better serve our customers and to develop an early
presence in potential high growth markets such as China, where we have both a
back-end facility and a design center, and India, where we have a design center.
Balanced Sales by Application and Region in High Growth Market
Segments. We have developed a strong product portfolio across major application
markets including computer peripherals, wireless communications, digital
consumer electronics, Smartcards, automotive and power management. While we are
consolidating our position in our established high volume businesses, including
switching, engine management, car safety, traditional analog TV, VCR, computer
peripherals, power and industrial and consumer appliances, we have also been
investing research and development and design resources to develop the next
generation of high growth applications, such as smartcards, portable computing,
digital consumer (DVD, new generations of set-top boxes, digital TV, digital
cameras and MP3 digital music players), wireless communications (digital
cellular phones), data transport (fiber optic ICs and voice over IP, known as
VoIP), Internet (xDSL), new automotive products (car multimedia) and new
generations of mass storage devices. We also maintain a geographically diverse
customer base across a broad range of market applications.
Pervasive TQEM Culture. We are fostering a corporate-wide TQEM culture
that defines a common set of objectives and performance measurements for
employees in all geographic regions, at every stage of product design,
development, production and consignment for all product lines. TQEM in our
company is based on five key principles: management commitment, employee
empowerment, continuous improvement, management by fact and customer focus. TQEM
has become an integral part of our culture and it is designed to develop a
self-directed work force with a common set of values, objectives and
problem-solving processes. Since 1987, we have continually improved average AIQ
(electrical) status levels. Most of our manufacturing facilities have been
certified to conform to ISO international quality standards and Eco Management
and Audit Scheme ("EAMS"). Several major customers, including Hewlett-Packard,
Nokia, Sharp, DaimlerChrysler and Sanyo have recognized our commitment to
quality and have honored us with quality awards in the recent past. Also in
recent years, several prestigious awards have been accorded to our regional
subsidiaries, underscoring our long-standing commitment to business excellence:
the prestigious Malcolm Baldrige National Quality Award in the U.S., the
Singapore Quality Award, the Moroccan National Quality Award, the EPA Climate
Protection Award (U.S.), the Malaysian Prime Minister Quality Award, and the
Malta Quality Award. In 1997 the European Quality Award for Business Excellence
in the category of large businesses was awarded to us by the European Foundation
for Quality Management. These awards illustrate the success of our unified Total
Quality and Environmental Management philosophy on four continents.
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Pioneer in System-on-chip. Since our inception, we have leveraged our
know-how of a broad range of industries to integrate different system functions
on a single chip, pioneering the trend towards system evolutions on silicon and
superintegration. A modular approach is being utilized to develop options to the
main manufacturing processes and blocks of intellectual property; strategic
partnerships are the main lever for acquisitions of the system know-how to be
embedded on the chip. We currently supply highly integrated products in all our
main applications, and particularly in high volume domains such as hard disk
drives (disk controllers), set-top boxes and Digital video drives.
To date, our growth has been attributable primarily to internal growth.
However, we have recently proceeded with the acquisition of specific assets and
intellectual property, enhancing our expertise in specific business or markets.
In 1999, we acquired Peripheral Technology Solutions Group, a company
specialized in the design of products for the hard disk drive market, of Vision
Group, a leading designer and supplier of CMOS sensors and Arithmos, a company
which designs controller ICs for flat panel displays and LCD monitors. In 2000,
we acquired WSI, a manufacturer of programmable system memory devices, (in
September) and PGI, a vendor of computers and software development tools to the
high performance parallel computer market (in December). In June 2000, we also
acquired from Nortel Networks its semiconductor business, including its design
and manufacturing activity in Ottawa. Furthermore, in March 2001, we completed
the acquisition of Ravisent's consumer electronics business. We may, from time
to time, consider making selected acquisitions of or targeted equity investments
in companies that we believe would complement or expand our existing business.
Announcements concerning potential acquisitions could be made at any time.
Acquisitions involve a number of risks that could adversely affect our
operating results, including: (i) the diversion of management's attention; (ii)
the assimilation of the operations and personnel of the acquired companies;
(iii) the assumption of potential liabilities, disclosed or undisclosed,
associated with the business acquired, which liabilities may exceed the amount
of indemnification available from the seller; (iv) the risk that the financial
and accounting systems utilized by the business acquired will not meet our
standards; (v) the risk that the businesses acquired will not maintain the
quality of products and services that we have historically provided; (vi) the
inability to attract and retain qualified management for the acquired business;
and (vii) our inability to retain customers of the acquired entity. There can be
no assurance that (a) we will be able to consummate future acquisitions on
satisfactory terms, if at all, (b) adequate financing will be available for
future acquisitions on terms acceptable to us, if at all, or (c) any operations
acquired will be successfully integrated or that such operations will ultimately
have a positive impact on our business. See "Item 5: Operating and Financial
Review and Prospects -- Liquidity and Capital Resources."
Products and Technology
We design, develop, manufacture and market a broad range of products
used in a wide variety of microelectronic applications, including
telecommunications systems, computer systems, consumer goods, automotive
products and industrial automation and control systems. Our products include
standard commodity components, full custom devices, semicustom devices and ASSPs
for analog, digital and mixed-signal applications. Historically, we have not
produced DRAMs or x86 microprocessors.
In 2000, we had four principal products groups, Telecommunications
Peripherals and Automative, Consumer and Microcontroller, Memory Products and
Discrete and Standard ICs. As part of our activities outside the principal
product groups, we also have a New Ventures Group, which identifies and develops
new business opportunities to complement our existing businesses, and a
Subsystem Product Group, which produces subsystems for industrial and other
applications. For a breakdown of net revenues by product group and geographic
region each of the five years ended December 31, 2000, see " - Business
Overview."
Telecommunications, Peripherals and Automotive Groups
The Telecommunications Group has two application divisions, and the
Automotive and Peripherals Group has four divisions. The Groups also have two
support divisions (i) digital signal processing and microcontrollers cores and
(ii) digital and mixed analog/digital semi-custom. The Telecommunications,
Peripherals and Automotive Groups are responsible for the design, development
and manufacture of application-specific products using advanced bipolar, CMOS,
BiCMOS mixed-signal and power technologies as well as mixed analog/digital
semicustom devices. The Groups offer complete system solutions to customers in
several application markets. All
20
of the Groups' products are ASSPs, full-custom or semicustom devices that may
also include DSP and micro-controller cores.
The Telecommunications, Peripherals and Automotive Groups work closely
with customers to develop application-specific products using our technologies
and manufacturing capabilities. The breadth of our customer and application base
provides us with a source of stability in the cyclical semiconductor market. The
Telecommunications, Peripherals and Automotive Groups particularly emphasize
dedicated ICs for automotive, computer peripherals and industrial application
segments, as well as for communication, computing and networking application
segments.
The Telecommunications Group has two divisions:
(i) Wireline Telecommunications Products. Our wireline
telecommunications products are used in telephone sets,
modems, subscriber line interface cards (SLICs) for digital
central office switching equipment and high-speed electronic
and optical communications networks. In the field of broadband
networking, the success of our established strategic
partnership with Nortel Networks was reinforced by the new
agreements that included a commitment for $2 billion in sales
to Nortel over three years, and a development agreement
covering processes, packages and fundamental IP for high speed
optical interfaces, essential components for high-speed
optical-fiber network equipment. We also announced our entry
into the emerging market for optical switches, by signing a
letter of intent with Agilent Technologies for the development
and manufacture of innovative optical switch chips.
In the area of broadband access, we shipped more than four
million ADSL chipsets in 2000. Along with our strategic
partner Alcatel, we announced the joint development and
promotion of the DMT (Discrete Multi-Tone) modulation
technique as a worldwide standard for VDSL at the
international regulatory level. We also signed an agreement
with Telia AB for the transfer to us of all patent rights in
the Zipper-DMT VDSL technology jointly developed by us with
Telia.
In addition, we announced plans to develop an Enhanced G.Lite
ADSL (Asymmetrical Digital Subscriber Line) chipset for the
mass market through a joint project with Nortel Networks.
(ii) Wireless Telecommunications Products. In wireless
telecommunications, we focus our product offerings on cellular
phones, pagers and wireless local loop applications, serving
the major OEMs in each of these areas with differentiated ICs.
Regarding the cellular phone segment, new design wins for
radio frequency were achieved in Silicon-Germanium (SiGe)
technologies for next generation cellular phones (2.5G and
3G). Two leading manufacturers of mobile phones awarded us
with development contracts. One was for a multimedia processor
chip for next-generation mobile phones, while another leading
cellphone maker chose us to supply a radio frequency solution
for dual-mode terminals, using 0.35-micron SiGe technology. In
addition, we announced an agreement with TTPCom for the
development of GSM and GPRS (2.5G) baseband platform chips for
the next generation of mobile handsets and mobile Internet
devices based on our ST100 DSP core.
In addition, in the telecommunications area, Alcatel
Microelectronics has agreed to use our innovative ST100 as the
preferred DSP core for a variety of system-on-chip solutions
for GSM, xDSL, Voice-over-Internet Protocol (VoIP) and other
leading-edge technologies.
The Peripherals and Automotive Group has four divisions:
(i) Data Storage. We produce ICs for several data storage
applications, specializing in disk drives with advanced
solutions for read and write digital channels, controllers,
host interfaces, digital power processing and micromachinery.
We are working actively on super-integrating these
macro-functions into system-on-chip solutions. In September
2000, we announced two important additions to our Hard Disk
Drive IC portfolio. Aimed at 'dual servo' disk drives where
micropositioning will be used to increase drive density, the
L6670 Rotational Accelerometer System is a device containing
both a micromachined Micro-Electro-Mechanical System (MEMS)
sensor plus an interface chip, while the L6660 is a
Piezoelectric actuator driver built in 90V BCD technology. We
have also been awarded a design win from Seagate for the most
advanced
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system-on-chip solution for high-volume, low-cost hard disk
drives. The chip will be the first to integrate the hard disk
controller, the new Super10 micro/DSP core and the read/write
channel. In addition to delivering first samples of a hard
disk controller with embedded DRAM built in 0.18-micron
technology and gaining important new design wins for hard disk
drive preamplifiers and dedicated power devices for high-end
and mobile disk drives, we were chosen by Quantum Technologies
to supply a SoC solution for a new hard disk drive. Based on
our new Super10 DSP enhanced microcontroller core, the new
device will also incorporate a hard disk controller, 4Mbit of
embedded dynamic RAM memory and interface functions. We will
supply the complete system solution, including firmware. In
February 2001, we introduced the world's first single-chip
solution for 16x DVD- and 48x CD- ROM drives. Called "Verdi"
(STA1000), the new solution integrates an ST10 16-bit
microprocessor core, a proprietary digital signal processor
core, memories, interfaces and application-specific digital
and mixed analog/digital functions.
(ii) Printers. We are focusing on inkjet printer components and are
an important supplier of pen chips, motor drivers, head
drivers, high performance photo quality applications and
digital color copiers. We are an important partner of
Hewlett-Packard for technology development and manufacturing
and are currently developing printer system on chip platforms.
Other notable successes in the printer field included
contracts with two other leading printer manufacturers to
develop system-on-chip solutions with embedded DRAM memory for
the 'digital printer engines' used in inkjet printers. With
these new contracts, we are now the chosen supplier at three
out of the four leading manufacturers. In the first quarter of
2001, we won further design wins for both inkjet and laser
printer engines and also ramped up production of 0.18-micron
printer engines for a very high volume order.
(iii) Audio and Automotive Products. Our audio products include
audio power amplifiers, audio processors and graphic equalizer
ICs. Our automotive products include alternator regulators,
airbag controls, antiskid braking systems, ignition circuits,
injection circuits, multiplex wiring kits and products for
body and chassis electronics, engine management,
instrumentation systems and car multimedia. We believe we are
the leader in the manufacturing of car radio components, on
the basis of sales. We are currently developing solutions for
global positioning systems (GPS) and multimedia in the car. In
1999, we signed a strategic alliance for car entertainment
systems with Pioneer Electronics of Japan. Due to our
super-integration know-how, we have successfully expanded our
presence beyond Europe to the United States and Japan, further
accessing key customers such as Mitsubishi and Denso.
In 2000, we announced the world's first automotive grade
microcontroller with embedded Flash memory. Optimized for
automotive applications, the ST10F168 integrates the ST10
16-bit MCU core, 256kbytes of internal Flash memory plus
peripherals and RAM. We were awarded a contract to develop a
complex system-on-chip with both a powerful DSP - the ST120,
based on the ST100 core - and a 32-bit micro core for a new
traffic information system being developed by Cue Corporation
in the United States. In addition, we began a joint
development program with Marelli and Cadence for smart valves
for motor control in model year 2005. This program is based on
the ST120 DSP/MCU core. We signed an important agreement with
Italy's Autostrade for the development of a chipset that will
support the European standard for new generation tolling.
In 2001, our leading position in the automotive arena was
reinforced by the introduction of a new 16-bit
automotive-grade microcontroller chip with embedded Flash
memory whose performance is guaranteed over the entire
automotive temperature range, making it ideal for fast-growing
applications such as engine control. In addition, our
microcontroller built using 0.18 -micron embedded Flash
technology was selected by Siemens for a next generation
airbag system.
In the audio field, we achieved a major technical milestone
with XM Satellite Radio, the satellite radio broadcaster.
Following the successful fabrication and testing of XM's
custom chips, the devices are now being delivered to XM radio
partners for integration into XM satellite-capable radios. In
the first quarter 2001, we received an order for one million
kits for the WorldSpace satellite radio receivers, following
the successful launch of the second satellite.
22
(iv) Industrial and Power Supplies. We design and manufacture
products for industrial automation systems, lighting
applications (lamp ballast), battery chargers and switch mode
power supplies (SMPS). Our key products are power ICs for
motor controllers and read/write amplifiers, intelligent power
ICs for spindle motor control and head positioning in computer
disk drives and battery chargers for portable electronic
systems, particularly mobile telephone sets.
The Groups also have two support divisions (i) digital signal
processing and microcontroller cores and (ii) digital and mixed analog/digital
semicustom. These two divisions are centers of excellence to develop key
competences in the field of semicustom (digital and analog) as well as in DSP
and microcontrollers cores. We are currently developing superintegrated
solutions using our broad range of technologies (CMOS, BiCMOS, BCD) and our
expertise in microcontrollers/DSP cores, dedicated IC megacells and embedded
memory capability.
Other important technology deals concluded during the year included the
acquisition of Portland Group Inc. (PGI). PGI is a developer of compilers and
software development tools for the high-performance parallel computing market
and the acquisition of full ownership of PGI's operations substantially
reinforces our strength in embedded DSP system-on-chip solutions for
applications including wireless, wireline, data storage, multimedia and
automotive.
Consumer and Microcontroller Groups
The Consumer and Microcontroller Groups (CMG) are responsible for the
design, development and manufacture of microcontrollers, graphic accelerators
and Application Specific Standard Products (ASSP) targeted at high growth
digital consumer applications, including digital set-top boxes, Digital
Versatile Disk (DVD) players, digital cameras and digital TV.
Through year-end 2000, CMG was organized by system partitionings, with
front-end ICs (reception and demodulation of the video signal), back-end ICs
(decompression and control of the video signal) and micro cores. In the first
quarter 2001, CMG was reorganized by application and regrouped the front-end,
the back-end and the micro cores activities of each application. Two new
divisions have been created: the set-top-box division and the DVD division. The
TV, the Imaging and Display, the Graphics Products and the Microcontroller
divisions are unchanged.
The Consumer and Microcontroller Groups are divided into the Consumer
Group and the Microcontrollers Group. The Consumer Group is further divided into
five divisions: set-top boxes, DVD, TV, Imaging and Display division and the
Graphics Products division.
Consumer Group. We consolidated our leadership in digital consumer
applications on the basis of shipments in 2000, particularly for set-top boxes,
DVDs and digital TV, and we shipped more than 30 million MPEG2 decoder ICs
embedding our ST20 32-bit RISC core in 2000.
(i) Set-top box. We have expanded our product and customer base
introducing solutions for set-top boxes with web-browsing and
video recording and time-shifting functionality. We were the
only semiconductor company at the USA National Association of
Broadcasters show (NAB2000) in Las Vegas to demonstrate
advanced Personal Video Recording (PVR) and Hard Disk Drive
capability, on our STi5512 product family, in conjunction with
NDS Group. We reinforced the market leadership of our STi5500
(OMEGA) family of set-top box back-end decoders with the
introduction of the STi5518, which retains all of the features
of the STi5500 but adds support for Dolby Digital and MP3
audio decoding as well as additional logic to ease the
connection of hard disk drives, making the device ideal for
emerging 'convergence' products that offer features such as
pausing and time-shifting of live TV. In addition, we shipped
production quantities of our STi5508 OMEGA set-top box chip to
customers such as Echostar and major design wins were achieved
in the U.S. and Europe for the STV0399, the world's first
device to integrate a Zero IF tuner, a multi-standard
demodulator (QPSK and 8-PSK) and a Forward Error Correction
(FEC) block in a single CMOS chip.
We entered into new agreements for expanding our leadership
position in digital consumer applications on the basis of
sales. Following the 1999 agreement with Scientific Atlanta
(SA) on DOCSIS (Data Over Cable System Interface
Specification), we strengthened our cooperation with SA to
supply key components for the Explorer 2000 and 6000 digital
cable set-top boxes. In May
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2000, we announced a license agreement with France Telecom
that gives us worldwide rights to exploit France Telecom's
patented Turbo Code Forward Error Correction technology. This
allows the information carrying capacity of a communications
system to be substantially increased and could dramatically
affect the Digital Satellite TV market by significantly
increasing the number of TV channels broadcast by existing
satellites. In September 2000, we disclosed details of plans
with Norwegian company Nera to develop chipsets and related
software for providing turnkey interactive broadband solutions
for set-top boxes.
(ii) DVD. In the field of DVD players, after RCA and Philips, we
won designs for DVD and Combo boxes (set-top box plus DVD) in
the U.S. and China. Further strengthening our positioning, we
introduced in the second quarter 2000 a new DVD decoder/host
processor chip, the STi5508, that offers all the functions of
the popular STi5505 along with enhanced audio and video
features, including a powerful Karaoke processor and MP3
decoder. The STi5508 has been designed into DVD drives of
major Asian manufacturers. In 2001, following several years of
successful cooperation combining Ravisent's DVD software and
ST's OMEGA family of DVD decoder processors, we expanded our
ability to provide complete DVD system solutions by acquiring
the Consumer Electronics business of Ravisent Technologies.
(iii) TV. This division addresses both the analog and digital
television markets with a wide range of highly integrated
ASSPs and application-specific microcontrollers.
(iv) Imaging and Display Division. Our Imaging and Display Division
focuses on video camera recorders, monitors and flat panel
displays and image capturing and transmission. In 1999, we
finalized the acquisition of Vision Group plc, a U.K. company
based in Edinburgh, Scotland, which developed a technology for
production of CMOS sensors. CMOS sensors significantly reduce
the cost of digital cameras; it is thus possible to produce
the principal features of a camera on a single IC, which is
significantly cheaper than using a multi-component chip set
based on traditional Charge Coupled Devices (CCD) technology.
We are actively pursuing opportunities in webcam, digital
still camera and cellular phone applications. In 2000, we
unveiled a highly integrated digital color camera module
optimized for use in the next generation of cellular phones,
personal digital assistants and other portable communications
devices. The Digital Camera Module meets two key requirements
for portable applications - small size and low power
consumption.
(v) Graphics Products. In early 1999, we entered into a
partnership agreement with Imagination Technologies, (formerly
Videologic) of the United Kingdom for developing the next
generation 3D accelerator aimed at the PC and digital consumer
market. In June 2000, we introduced our KYRO 3D graphics and
video accelerator, which was the first full-featured PC
graphics and video accelerator based on Imagination
Technologies' PowerVR Series 3 technology. We gained several
design wins from PC-based graphics card manufacturers in
Taiwan and China. In March 2001, we announced our
second-generation 3D Graphics and Video Accelerator derived
from our partnership with Imagination Technologies. At the
same time, we announced a commercial partnership and technical
cooperation with Hercules to develop further leading-edge PC
Graphics add-in card solutions exploiting KYRO II's clear
performance leadership for PC games and similar applications
requiring high performance, cost-effective graphics.
Microcontroller Division. This division provides competitive,
high-volume 8- and 16- bit microcontrollers for all major application segments.
This family of products has been developed with a wide portfolio of processes
capable of embedding nonvolatile memories such as EPROM, EEPROM and Flash
memories.
Expanding on our cooperation with Hitachi on advanced SuperH RISC
cores, we have announced the formation of a jointly controlled independent
company, SuperH, Inc. In addition to licensing SuperH cores on the open market,
SuperH will complete the final development of the 64-bit SH-5 core and take over
development of the SH-6 and SH-7 cores. SuperH is expected to commence
operations in the third quarter of 2001 subject to receipt of all required
regulatory clearances.
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Memory Products Group
The Memory Products Group designs, develops and manufactures a broad
range of semiconductor memory products but does not produce DRAMs.
Our Memory Products Group is organized into the following divisions:
(i) Flash memories; (ii) smartcard products; (iii) EPROMs; (iv) EEPROMs; and (v)
other memories and application-specific memories. This last division was set up
following the acquisition of WSI.
(i) Flash Memories. In 2000, the market for Flash memories more
than doubled, according to published industry data, driven by
cellular phones and digital consumer applications growth. Our
Flash sales have more than tripled in the same period due to
advanced process technologies, new products development and
state-of-the-art manufacturing facilities. Flash memories must
have many capabilities because they are used in a wide variety
of applications, and thus are more comparable to dedicated
products than pure standard products. We offer a broad variety
of Flash memories, which we sell to customers in different
fields, such as wireless telephony, digital consumer,
automotive and computer products. For example, we currently
supply single voltage (down to 1.8 volt) NOR cell structure
Flash memory products up to 32 Mbit to the mobile phone
market, and we are now successfully processing wafers for the
first 64Mbit Flash memories using multi-bit/cell technology.
In addition, in the 2001 first quarter, we began ramping up
production of our dedicated Flash memories for Firmware Hub
BIOS applications, which are now qualified at most PC desktop
and notebook manufacturers. Targeted at high-performance PCs
employing Intel's Accelerated Hub Architecture, the device is
a 4Mbit Flash memory that performs the Firmware Hub function
and is built using our advanced 0.18-micron Flash technology.
(ii) Smartcard Products. Smartcards are credit card-like devices
containing integrated circuits that store data and provide an
array of security capabilities. They are used in a wide and
growing variety of applications, including public pay
telephone systems (primarily in France and Germany), cellular
telephone systems and bank cards (primarily in Europe), as
well as pay television systems (primarily in the United
States, United Kingdom and France). Other applications include
medical record applications, card-access security systems,
toll-payment secure transactions over the Internet and ID
cards applications. In 2000, our innovative SmartJ 32-bit RISC
and Java processing platform was awarded the prestigious 'Best
New Chip' award at the Smartcard 2000 show held in London. At
the same event, we demonstrated the world's fastest RF-powered
contactless microcontroller-based smartcard chip. Our
achievement in obtaining the world's first security
certification to the new international ISO 15408 standard for
our ST19 platform was followed by a similar certification
jointly achieved with Gemplus for a Smartcard solution that
combines Gemplus' embedded software and our ST19 hardware
platform. The ST19 platform and embedded Gemplus secure
software will be used in Smartcards for telecommunications
and banking applications. In 2001, we introduced a chipset
that simplifies the design of contactless Smartcard readers,
stimulating growth of new contactless Smartcard applications
such as access control, ticketing systems, E-purse and ID
cards. Finally, we are currently developing biometric
solutions based on fingerprint recognition.
(iii) EPROMs. We produce a broad range of EPROMs, from 16 Kbit to 32
Mbit. The EPROM market is relatively mature. We have succeeded
in maintaining our market leadership because of our EPROM
technology, which has allowed us to build one of the broadest
product portfolios currently offered in the market. At the
same time, this technology has permitted continuous
improvement of manufacturing yields and reduction of die size,
giving us an advantageous cost position. Efficient
manufacturing in our Singapore assembly plant, together with
our sales and distribution channels, has contributed to the
exploitation of our technological advantage.
(iv) EEPROMs. We offer serial EEPROMs up to 512 Kbit and parallel
EEPROMs up to 1 Mbit. Serial EEPROMs are the most popular type
of EEPROMs and are generally used in computer, automotive and
consumer applications. Parallel EEPROMs account for a smaller
portion of the EEPROM market, being used mainly in
telecommunications equipment. We intend to work closely with
our key customers and strategic allies to identify and develop
added-value application-specific memories.
25
(v) Other memories and application-specific memories. We focus on
producing nonvolatile RAMs (battery back-up) used in computers
and telecommunications equipment. Our strategy of developing
innovative differentiated and value-added products was
reflected by the acquisition of Waferscale Integration (WSI).
The acquisition of WSI allows us to offer configurable memory
systems, integrating multiple memory types and control logic,
which represent the ultimate step in term of value-added
memories.
Discrete and Standard ICs Group
The Discrete and Standard ICs Group designs, develops and manufactures
discrete power devices, power transistors, standard linear and logic ICs, and
radio frequency products.
This Group's discrete and standard products are manufactured using
mature technological processes. Although such products are less capital
intensive than our other principal products, we are continuously improving
product performance and developing new product features. The Group has a diverse
customer base, and a large percentage of the Group's products are sold through
distributors.
(i) Discrete Power Devices. We manufacture and sell a variety of
discrete power devices, including rectifiers, protection
devices and thyristors (SCRs and triacs). Our devices are used
in various applications, including telecommunications systems
(telephone sets, modems and line cards), household appliances
and industrial systems (motor control and power control
devices). More specifically, rectifiers are used in voltage
converters and voltage regulators, protection devices are used
to protect electronic equipment from power supply spikes or
surges, and thyristors are used to vary current flows through
a variety of electrical devices, including lamps and household
appliances. We offer a highly successful range of standard
products built with our proprietary Application Specific
Discretes (ASDTM) technology, which allows a variety of
discrete structures to be merged into a single device
optimized for specific applications such as EMI filtering for
cellular phones. We have recently started development of
electronic devices integrating both passive and active
components on the same chip (IPAD: Integrated Passive and
Active Devices).
(ii) Power Transistors. We design, manufacture and sell power
transistors, which (like our discrete power devices) operate
at high current and voltage levels in a variety of switching
and pulse mode systems. We have three power transistor
divisions: bipolar transistors, power MOSFETs
(metal-oxide-silicon field effect transistors) and new power
transistors such as IGBTs.
Our bipolar power transistors are used in a variety of
high-speed, high-voltage applications, including SMPS (switch
mode power supply) systems, television/monitor deflection
circuits and lighting systems.
We also offer a family of VIPower (vertical integration power)
products, as well as omnifets and application-specific
devices. VIPower products exhibit the operating
characteristics of power transistors while incorporating full
thermal, short circuit and overcurrent protection and allowing
logic level input. VIPower products are used in consumer goods
(lamp ballasts) and automotive products (ignition circuits,
central locking systems and transmission circuits). Omnifets
are power MOSFETs with fully integrated protection devices
that are used in a variety of sophisticated automotive and
industrial applications. Application-specific devices are
semicustom ICs that integrate diodes, rectifiers and
thyristors on the same chip, thereby providing cost-effective
and space-saving components with a short design time.
(iii) Standard Logic and Linear ICs. We produce a variety of bipolar
and HCMOS logic devices, including clocks, registers, gates
and latches. Such devices are used in a wide variety of
applications, including increasingly in portable computers,
computer networks and telecommunications systems. We also
offer standard linear ICs covering a variety of applications,
including amplifiers, comparators, decoders, detectors,
filters, modulators, multipliers and voltage regulators.
(iv) Radio Frequency Products. We supply components for RF
transmission systems used in television broadcasting
equipment, radar systems, telecommunications systems and
avionic equipment. We are targeting new applications for our
RF products, including two-way wireless communications
26
systems (in particular, cellular telephone systems) and
commercial radio communication networks for business and
government applications.
Strategic Alliances
We believe that strategic alliances are critical to success in the
semiconductor industry, and we have entered into strategic alliances with
customers, other semiconductor manufacturers and major suppliers of design
software. We have entered into several strategic customer alliances, including
alliances with Alcatel, Bosch, Hewlett-Packard, Marelli, Nokia, Nortel Networks,
Pioneer, Seagate Technology, Thomson Multimedia and Western Digital, among
others. In June 2000, in conjunction with our acquisition of the 150mm facility
in Ottawa, Canada, we entered into an agreement with Nortel Networks for the
development of processes, packages and fundamental IP for high-speed optical
interfaces. Customer alliances provide us with valuable systems and application
know-how and access to markets for key products, while allowing our customers to
share some of the risks of product development with us and gain access to our
process technologies and manufacturing infrastructure.
Alliances with other semiconductor manufacturers, such as the
cooperation with Philips Semiconductors in Crolles, France, for the development
of advanced CMOS logic manufacturing processes, as well as the building and
operations of a 300mm wafer pilot line fab in Crolles, France, the agreement
with Mitsubishi for CMOS Flash memory processes using 0.20 through 0.18-micron
lithography and the agreement with Hitachi on SuperH microprocessors, permit
costly research and development and manufacturing resources to be shared to
mutual advantage for joint technology development.
We have established joint development programs with leading suppliers
such as Air Liquide, Applied Materials, ASM Lithography, Canon, Hewlett-Packard,
KLA-Tencor, LAM Research, MEMC, Schlumberger, Teradyne and Wacker and with CAD
tool producers including Cadence, Co Ware and Synopsys. We are a participant in
Sematech I 300I for the development of 300 millimeter wafer manufacturing
processes. We are active in joint European research efforts such as the MEDEA
program, and also cooperate with major research institutions and universities.
In 2000, we pursued development of 0.15-micron drawn (0.13-micron
effective gate length) CMOS process technology, at Crolles, France. At the same
time we started production of our 0.15-micron effective gate length (0.18-micron
drawn) CMOS technology, known as HCMOS-8. This process is aimed at producing
"system-on-chip" products incorporating up to tens of millions of transistors
combined with embedded memory for telecom, digital consumer and computer
applications. In 2000, we started work on new generation 0.13 microFlash
technology in our R2 technology center in Agrate, Italy.
Customers and Applications
We design, develop, manufacture and market over 3,000 main types of
products that we sell to approximately 800 direct customers. We also sell our
products through distributors. Major customers include Alcatel, Bosch,
DaimlerChrysler, Ericsson, Gemplus, Hewlett-Packard, Marelli, IBM, Matsushita,
Maxtor, Motorola, Nokia, Nortel Networks, Philips, Pioneer, Samsung,
Schlumberger, Scientific Atlanta, Seagate Technology, Siemens, Sony, Thomson
Multimedia and Western Digital. To many of our key customers we provide a wide
range of products, including dedicated products, discrete devices, memory
products and programmable products. Our position as a strategic supplier of
application-specific products to certain customers fosters close relationships
that provide us with opportunities to supply such customers' requirements for
other products, including discrete devices, programmable products and memory
products.
The following table sets forth certain of our significant customers and
certain applications for our products:
27
- --------------------------------------------------------------------------------------------------------------------
Telecommunications
Customers: Alcatel Lucent Technologies Motorola Philips
Ericsson Marconi Nokia Sagem
Italtel Matsushita Nortel Networks Siemens
Applications: Central office switching systems Telephone terminals (wireline and wireless)
Digital cellular telephones Internet access (xDSL)
Wireless networking (Bluetooth) Data transport (routing, switching for electronic
and optical networks)
- --------------------------------------------------------------------------------------------------------------------
Computer Systems
Customers: ACER Delta Logitech Seagate
Agilent Hewlett-Packard Maxtor Sun Microsystems
Creative Technology IBM Samsung Western Digital
Applications: Data storage Webcams
Monitors and displays Printers
Graphics Imaging
Power management
- --------------------------------------------------------------------------------------------------------------------
Automotive
Customers: Bosch Denso Motorola Valeo
DaimlerChrysler Lear Pioneer VDO
Delphi Marelli Siemens Visteon
Applications: Airbags Engine management systems (ignition and
Injection)
Antiskid braking systems Multiplex wiring kits
Car radio Global positioning systems
Body and chassis electronics Car multimedia
- --------------------------------------------------------------------------------------------------------------------
Consumer Products
Customers: Agilent Technologies Hughes Philips Scientific Atlanta
Bose Corporation Kenwood Pioneer Sony
Echostar Matsushita Samsung Thomson Multimedia
Grundig Pace
Applications: Audio processing (CD, DVD, Hi-Fi) DVDs
Digital cameras Set-top boxes
Digital music players Analog TVs
Digitial TVs VCRs
- --------------------------------------------------------------------------------------------------------------------
Industrial and Other Applications
Customers: Astec Gemplus Nagra Schlumberger
Autostrade Giesecke & Devrient Oberthur Siemens
Bull IPM Orga
Delta Litton Philips
Applications: Battery chargers Lighting systems (lamp ballasts)
Smartcards ICs Motor controllers
Industrial automation and control systems Power supplies
Intelligent power switches Switch mode power supplies
- --------------------------------------------------------------------------------------------------------------------
In 2000, our largest customer, Nokia, represented approximately 13% of
our net revenues. No other single customer accounted for more than 10% of our
net revenues. Sales to our top ten customers accounted for approximately 47% of
our net revenues in 2000 (45% in 1999). We have several large customers, certain
of whom have entered into strategic alliances with us. Many of our key customers
operate in cyclical businesses and have in the past, and may in the future, vary
order levels significantly from period to period. In addition, approximately 18%
of our net revenues in 2000 were made through distributors. There can be no
assurance that such customers or distributors, or any other customers, will
continue to place orders with us in the future at the same levels as in prior
periods. The loss of one or more of our customers or distributors, reduced
bookings or product returns by our key
28
customers or distributors, could adversely affect our operating results. In
addition, in a declining market like the present, we have been in the past and
may in the future be driven to lower prices in response to competitive pressures
and may expect a higher number of order cancellations, particularly by
distributors and for commodity products.
Sales, Marketing and Distribution
We operate regional sales organizations in Europe, North America, the
Asia Pacific region, Japan and, since January 1, 1998, in Emerging Markets which
includes South America, Africa, Eastern Europe, the Middle East and India. For a
breakdown of net revenues by product group and geographic region for each of the
five years ended December 31, 2000, for " - Business Overview." In 2000, our
largest customer, Nokia, represented approximately 13% of our net revenues. No
other single customer accounted for more than 10% of our net revenues. Sales to
our top ten customers were approximately 47% and 45% of our net revenues in 2000
and 1999, respectively, which was an increase from 43% in 1998.
The European region is divided into five businesses units: automotive,
commodities, consumer and computers, industrial and smartcards, six
geographically configured units to cover mid-sized OEM customers (France and the
Benelux, Central Europe, Northern Europe, Southern Europe, Scandinavia and
Finland), and six regions (United Kingdom, France, Central Europe, Southern
Europe, Scandinavia and Finland) addressed through distributors.
In North America, the sales and marketing team is organized into five
business units that are located near major centers of activity for either a
particular application or geographic region: automotive (Detroit, Michigan),
industrial and consumer (Chicago, Illinois), computer and peripheral equipment
(San Jose, California and Longmont, Colorado following the acquisition of
Adaptec), communications (Dallas, Texas) and distribution (Boston,
Massachusetts). Each business unit has a sales force that specializes in the
relevant business sector, providing local customer service, market development
and specialized application support for differentiated system oriented products.
This structure allows us to monitor emerging applications, to provide local
design support, and to identify new products for development in conjunction with
the various product divisions as well as to develop new markets and applications
with our current product portfolio. A central product marketing operation in
Boston provides product support and training for standard products for the North
America region, while a logistics center in Phoenix supports just-in-time
delivery throughout North America. In addition, a comprehensive distribution
business unit provides product and sales support for the nationwide distribution
network.
In the Asia Pacific region, sales and marketing is organized by country
and is managed from our regional sales headquarters in Singapore. We have sales
offices in Taiwan, Korea, China, Hong Kong, Malaysia, Thailand and Australia.
The Singapore sales organization provides central marketing, customer service,
technical support, shipping, laboratory and design services for the entire
region. In addition, there are design centers in Taiwan, Korea, Hong Kong and
Shenzhen.
In Japan, the large majority of our sales are made through
distributors, as is typical for foreign suppliers to the Japanese market.
However, our sales and marketing engineers in Japan work directly with customers
as well as with the distributors to meet customers' needs. We provide marketing
and technical support services to customers through sales offices in Tokyo and
Osaka. In addition, we have established a design center and application
laboratory in Tokyo. The design center designs custom ICs for Japanese clients,
while the application laboratory allows Japanese customers to test our products
in specific applications.
The Emerging Markets region (designated as "Region Five" until January
1, 2001) was created as of January 1, 1998 and includes South America, Africa,
Eastern Europe, the Middle East and India. Prior to that time, these markets had
been covered, where appropriate, by the other existing sales and marketing
organizations. Emerging Markets also includes the design and software
development center in India, which employs approximately 700 people in a wide
range of activities. We intend to increase our focus on this region to enhance
our presence in these new markets.
The sales and marketing activities carried out by our regional sales
organizations are supported by the product marketing that is carried out by each
product division, which also include product development functions. This matrix
system reinforces our sales and marketing activities and our broader strategic
objectives.
29
We are pursuing the Gold Standard program, a long-term commitment to
excellence in standard products. The program consists of manufacturing and
offering standard products at the same price level as the market but with a
superior level of quality, service and lead time. The related initiatives
included worldwide advertising, promotional task forces in all regions, special
distribution initiatives and worldwide training of salespeople and marketing
personnel.
Each of the five regional sales organizations operates dedicated
distribution organizations. To support the distribution network, we operate
logistic centers in Saint Genis, France; Phoenix, Arizona; and Singapore, and
have made considerable investments in warehouse computerization and logistics
support.
We also use distributors and representatives to distribute our products
around the world. Typically, distributors handle a wide variety of products,
including products that compete with our products, and fill orders for many
customers. Most of our sales to distributors are made under agreements allowing
for price protection and/or the right of return on unsold merchandise. We
recognize revenues upon transfer of ownership of the goods at shipment. Sales
representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Representatives do not maintain a product inventory; instead, their customers
place large quantity orders directly with us and are referred to distributors
for smaller orders.
Research and Development
We believe that research and development is critical to our success and
we are committed to increasing research and development expenditures in the
future. In periods of industry downturn, such as in 1997 and 1998,
simultaneously as we made significant cost reductions in our overall expenses,
we continued increasing our research and development expenses, year-over-year.
In 2000, we spent $1,026 million on research and development, increased from
$836 million in 1999. The table below sets forth information with respect to our
research and development spending since 1996 (not including design center,
process engineering, pre-production or industrialization costs):
Year ended December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- ----------
(in millions, except percentages)
Expenditures....................... $532.3 $610.9 $689.8 $836.0 $1,026.3
As a percentage of net revenues.... 12.9% 15.2% 16.2% 16.5% 13.1%
- -------------------------------------------------------------------------------------------------------------------
As a result of our history, approximately 81% of our research and
development expenses in 2000 were incurred in Europe, primarily in France and
Italy. See "--Public Funding." As of December 31, 2000, approximately 6,800
employees were employed in research and development activities.
Our policy in the field of research and development is market driven,
focused on leading edge products and technologies and carried out by over 6,800
employees worldwide in close collaboration with strategic alliance partners,
leading universities and research institutes, key customers and blue chip
equipment manufacturers working at the cutting edge of their own markets. We
invest in a variety of research and development projects ranging from long term
advanced research for the acceleration, in line with industry requirements and
roadmaps, of our broad range of process technologies including BICMOS, BCD, High
Performance Logic, stand alone and embedded Flash and other nonvolatile
memories, to the continued expansion of our system level design expertise and IP
creation for advanced architecture for system-on-chip integration, as well as
new products for many key applications in the field of digital consumer wireless
communications and networking, computer peripherals, Smartcards and car
multimedia amongst others.
Our research and development activities focus on the VLSI technology
platform, new system architectures, new product developments and emerging
technologies in microsystems and photonics. The development of the technology
platform (VLSI technologies and design tools) is conducted by Central Research
and Development (CRD) while new systems architectures are studied in the
Advanced System Technology (AST) units. New product research and development is
conducted within each product group in conjunction with customers. The highest
concentration of our CRD activities is located in the two main VLSI facilities
of Crolles, France and Agrate, Italy. Other CRD activities are located in
Catania, Italy, Rousset, France, Carrollton, Texas, Berkeley, California,
Ottawa, Canada and Noida, India.
30
The central research and development units participate in several
strategic partnerships. Our manufacturing facility at Crolles, France houses a
research and development center that is operated in the legal form of a French
Groupement d'interet economique ("GIE") named "Centre Commun de
Microelectronique de Crolles", whose members are us, France Telecom R&D and
Laboratoire d'Electronique de Technologie d'Instrumentation ("LETI"), a research
laboratory of CEA-Industrie. The tripartite cooperation is intended to last
until the end of 2002. We also cooperate with Philips Semiconductors to jointly
develop sub-micron CMOS logic processes in Crolles, France and have extended
this cooperation to cover the building of an advanced 300mm wafer pilot line in
Crolles, France, which will be funded and operated jointly with Philips
Semiconductors. Since April 2001, the piles have been completed and the shell
building has commenced.
The CRD activities performed in the new 200mm facility of Agrate,
Italy, are focused on the development of new generation sub 0.18 micron Flash
memories from which other nonvolatile memory products are derived, such as
embedded memories, EEPROM and OTP. Current Flash developments, which are one of
our technology drivers, are targeting 0.13 micron very high density multilevel
memories and the introduction of innovative materials for nonvolatile
applications.
A technical center in Noida, India, develops design software and CAD
libraries and tools. At the Agrate, Italy site, we are developing nonvolatile
memory technologies and programmable logic processes using a pilot line, which
is being upgraded to 200mm with a capability of 0.25 -micron and below. See
"--Property, Plants and Equipment." We have developed a wide network of
cooperation with several universities in the United Kingdom (Bristol and
Newcastle), Italy (Bologna, Catania, Milan, Pavia and Turin), France (Grenoble,
Marseille, Toulouse and Tours), in the United States (Carnegie Mellon, Stanford,
Berkeley and UCLA) and Singapore for basic research projects on design and
process development.
We are a member of International Sematech, a non profit technology
development consortium of 13 semiconductor manufacturers, funded by dues from
the member companies. International Sematech works with members, equipment and
materials suppliers, international labs and institutes, academia, and other
consortia to accelerate the development of advanced precompetitive semiconductor
manufacturing processes, materials and equipment for their member companies.
In addition to central research and development, each operating
division also conducts independent research and development activities on
specific processes and products focusing on developing an advanced range of the
key technological building blocks required by targeted applications. These
building blocks include (i) MPEG2 decoder ICs, (ii) a family of 16 bit (ST10,
super 10), 32 bit (ST20) and 64 bit (ST50) microcontrollers, (iii) a family of
general purpose DSP cores for embedded applications based on the current D950
solution and the ST100 (currently being sampled to customers) as well as several
dedicated DSP cores (MMDSP, SAFIRE, EMIRALDA) for specific applications, and
(iv) embedded volatile (DRAM and SRAM) and nonvolatile (EPROM, EEPROM and Flash)
memories. Applying our broad range of technologies and our expertise in diverse
application domains, we are currently embedding dedicated, semicustom circuits
and these advanced building blocks on the same chip, in addition to the many
dedicated and semicustom ICs developed using power analog, digital and mixed
signal technologies.
Intellectual Property
Intellectual property rights that apply to our various products include
patents, copyrights, trade secrets, trademarks and maskwork rights. We own more
than 19,000 patents or pending patent applications corresponding to more than
11,000 original inventions, most of which have been registered in several
countries around the world. In 2000, we filed 685 new patent applications around
the world. Management believes that our intellectual property represents
valuable property and intends to protect our investment in technology by
enforcing all of our intellectual property rights. We have entered into several
patent cross-licenses with several major semiconductor companies.
Our success depends in part on our ability to obtain patents, licenses
and other intellectual property rights covering our products and their design
and manufacturing processes. To that end, we have acquired certain patents and
patent licenses and intend to continue to seek patents on our inventions and
manufacturing processes. The process of seeking patent protection can be long
and expensive, and there can be no assurance that patents will issue from
currently pending or future applications or that, if patents are issued, they
will be of sufficient scope or strength to provide meaningful protection or any
commercial advantage to us. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain countries. Competitors may
also develop technologies that
31
are protected by patents and other intellectual property rights and therefore
such technologies may be unavailable to us or available to us subject to adverse
terms and conditions. Litigation, which could demand financial and management
resources, may be necessary to enforce our patents or other intellectual
property rights.
Also, there can be no assurance that litigation will not be commenced
in the future against us regarding patents, maskworks, copyrights, trademarks or
trade secrets, or that any licenses or other rights to necessary intellectual
property could be obtained on acceptable terms. The failure to obtain licenses
or other intellectual property rights, as well as the expense or outcome of
litigation, could adversely affect our results of operations or financial
condition. We have from time to time received, and we may in the future receive,
communications alleging possible infringement of certain patents and other
intellectual property rights of others. Regardless of the validity or the
successful assertion of such claims, we could incur significant costs with
respect to the defense thereof, which could have a material adverse effect on
our results of operations or financial condition.
Backlog
Our sales are made primarily pursuant to standard purchase orders that
are generally booked from one to twelve months in advance of delivery.
Quantities actually purchased by customers, as well as prices, are subject to
variations between booking and delivery to reflect changes in customer needs or
industry conditions. During periods of economic slowdown and/or industry
overcapacity and/or declining selling prices, customer orders are not generally
made far in advance of the scheduled shipment date. Such reduced lead time can
reduce management's ability to forecast production levels and revenues. During
periods of industry undercapacity, the backlog can exceed our manufacturing
capacity.
Our backlog increased steadily in the first half of 2000 while
registering a decline in the latter part of the year reflecting the industry
downturn. Backlog decline increased during the first quarter of 2001. In
industry downturns, customers tend to order products for immediate delivery,
which leads us to build up inventory of key products and lowers our backlog.
We also sell certain products to key customers pursuant to frame
contracts. Frame contracts are annual contracts with customers setting forth
quantities and prices on specific products that may be ordered in the future.
These contracts allow us to schedule production capacity in advance and allow
customers to manage their inventory levels consistent with just-in-time
principles while shortening the cycle times required to produce ordered
products. Orders under frame contracts are also subject to risks of price
reduction, order cancellation and modifications as to quantities actually
ordered.
Competition
Markets for our products are intensely competitive. While only a few
companies compete with us in all of our product lines, we face significant
competition in each of our product lines. We compete with major international
semiconductor companies, some of which have substantially greater financial and
other resources than us with which to pursue engineering, manufacturing,
marketing and distribution of their products. Smaller niche companies are also
increasing their participation in the semiconductor market, and semiconductor
foundry companies have expanded significantly, particularly in Asia. Competitors
include manufacturers of standard semiconductors, application-specific ICs and
fully customized ICs, including both chip and board-level products, as well as
customers who develop their own integrated circuit products and foundry
operations. Some of our competitors are also our customers.
According to published industry data in March 2001, we grew 55.4%
annually making us the sixth leading semiconductor manufacturer worldwide. The
primary international semiconductor companies, which compete with us include
Advanced Micro Devices, Agere Systems, Broadcom, Hitachi, Intel Corporation,
Mitsubishi Electric Corporation, Motorola, National Semiconductor Corporation,
Nippon Electric Company, Philips Semiconductors, Samsung, Infineon Technology,
Texas Instruments and Toshiba.
According to published industry data and other industry sources,
investment in worldwide semiconductor fabrication capacity totaled approximately
$28 billion in 1998, $33 billion in 1999 and $59 billion in 2000, or
approximately 22 %, 22% and 29%, respectively, of the TAM for such years. Such
capacity investment is made not only by international semiconductor companies,
but also companies specializing in operating semiconductor foundries,
particularly in Asia such as UMC, TSMC and Chartered Semiconductors.
32
We compete in different product lines to various degrees on the basis
of price, technical performance, product features, product system compatibility,
customized design, availability, quality and sales and technical support. In
particular, standard products may involve greater risk of competitive pricing,
inventory imbalances and severe market fluctuations than differentiated
products. Our ability to compete successfully depends on elements both within
and outside of our control, including successful and timely development of new
products and manufacturing processes, product performance and quality,
manufacturing yields and product availability, customer service, pricing,
industry trends and general economic trends.
Organizational Structure
We are a multinational group of companies that designs, develops,
manufactures and markets a broad range of products used in a wide variety of
microelectronic applications, including telecommunications systems, computer
systems, consumer goods, automotive products and industrial automation and
control systems. We are organized in a matrix structure with geographical
regions interacting with product divisions, bringing all levels of management
closer to the customer and facilitating communication among research and
development, production, marketing and sales organizations. STMicrolectronics
N.V., owns directly or indirectly, 100% of all of our significant operating
subsidiaries which have their own corporate organization and management bodies,
and are operated independently in compliance with the laws of their country of
incorporation. For a list of our subsidiaries, see note 3 to our consolidated
financial statements.
Property, Plants and Equipment
We currently operate 19 main manufacturing sites around the world. In
June 2000, we acquired a 150mm microconductor manufacturing facility owned by
Nortel Networks in Ottawa, Canada. The table below sets forth certain
information with respect to our current manufacturing facilities, products and
technologies. Front-end manufacturing facilities are wafer fabrication plants
(known as "fabs") and back-end facilities are assembly, packaging and final
testing plants.
Gross floor area
size (including
clean room,
facilities and
Location Products Technologies production offices)
--------- -------- ------------ -------------------
(in square meters)
Front-end facilities
Crolles, Semicustom devices, Fab: 200mm 0.35/0.18 -micron CMOS and 0.7/0.25 51,600
France microcontrollers and -micron BiCMOS; R&D on VLSI sub-micron
dedicated products technologies in conjunction with France Telecom
R&D and Philips Semiconductors
Phoenix, Dedicated products Fab: 200mm 0.5/0.35 -micron CMOS, 0.5/0.35 -micron 46,400
Arizona BiCMOS
Agrate, Italy Nonvolatile memories, Fab 1: 150mm 2.0/0.5 -micron BCD, nonvolatile 47,500
microcontrollers and memories
dedicated products
Fab 2: 200mm 0.35/0.18 -micron Flash, embedded 32,800
Flash, R&D on nonvolatile memories
Rousset, Microcontrollers, Fab 1: 150mm 0.8/0.5 -micron CMOS, Smartcard 32,000
France nonvolatile memories and
smartcard ICs and Fab 2: 200mm 0.35/0.18 -micron CMOS, Flash, 66,500
dedicated products Smartcard
33
Gross floor area
size (including
clean room,
facilities and
Location Products Technologies production offices)
--------- -------- ------------ -------------------
(in square meters)
Catania, Italy Power transistors, smart Fab 1: 150mm 4/1 -micron MOS power, BCD 22,500
power ICs and nonvolatile
memories Fab 2: 150mm 4/1 -micron pilot line RF 10,000
Fab 3: 200mm 0.35/0.18-micron, Flash, Smartcard 43,000
Rennes, France Dedicated and power products Fab: 150mm 2 -micron BiCMOS, BCD and bipolar 17,500
Castelletto, Smart power BCD Fab: 150mm 4.0/0.8 -micron BCD pilot line 12,500
Italy
Tours, France Protection thyristors, Fab: 100mm and 150mm discrete 36,500
diodes and
application-specific
discretes-power
transistors
Ang Mo Kio, Dedicated products, Fab 1: 100mm 1.5-micron, power MOS, bipolar 75,000
Singapore microcontrollers, power transistor, bipolar ICs, standard linear
transistors, commodity CMOS
products; nonvolatile
memories and dedicated Fab 2: 150mm 1-2-micron bipolar, power MOS and BCD 15,000
products
Fab 3: 200mm 0.50/0.18-micron BICMOS, Flash (should 58,500
enter volume production in 2001)
Carrollton, Memories, microcontrollers, Fab: 150mm 1.5/0.7-micron BiCMOS, BCD and CMOS 47,000
Texas dedicated products; and
semicustom devices
Rancho Dedicated products Fab: 150mm 2.0-micron BCD 18,500
Bernardo,
California
Ottawa, Dedicated products Fab: 150mm, 0.8-micron bipolar 11,000
Canada
Back-end
Facilities:
Muar, Malaysia Dedicated and standard 63,050
products, microcontrollers
Kirkop, Malta Dedicated products, 27,200
microcontrollers,
semicustom devices
Tuas, Dedicated products and 12,400
Singapore nonvolatile memories
Toa Payoh, Nonvolatile memories and 17,150
Singapore power ICs
34
Gross floor area
size (including
clean room,
facilities and
Location Products Technologies production offices)
--------- -------- ------------ -------------------
(in square meters)
Ain Sebaa, Discrete and standard 30,000
Morocco products
Bouskoura, Nonvolatile memories, 60,000
Morocco discrete and standard
products, micromodules,
RF and subsystems
Shenzhen, Nonvolatile memories, 40,000
China(1) discrete and standard
products
- -------------
(1) Jointly operated with Shenzhen Electronics Group.
In the last quarter of 2000, our front-end facilities had total
capacity of approximately 140,000 150mm equivalent wafer starts per week. The
number of wafer starts per week varies from facility to facility and from period
to period as a result of changes in product mix. We have five 200mm wafer
production facilities currently in operation. Of these, three (at Crolles,
France, Catania, Italy and Phoenix, Arizona) were operating at full capacity at
December 31, 2000 and the other two (in Rousset, France and Agrate, Italy) are
now in volume production and continue to be expanded. Construction of a new
200mm sub-micron facility is underway in Singapore. We have started construction
our 200mm sub-micron fabrication plant in Catania, Italy which will be
upgradeable to 300mm capacity and is planned to be operational by the year 2002.
We acquired a new facility in Singapore that entered volume production
of 150mm wafers in 2000, and we expanded our production of 150mm wafers in
Carrollton, Texas and Rancho Bernardo, California. In June 2000, we acquired
from Nortel Networks a 150mm manufacturing facility in Ottawa, Canada. In line
with our expansion of front-end facilities in 2000, we expanded all our back-end
plants at our existing facilities in Morocco, Malta, Malaysia, Singapore, and
China. We also equipped a newly acquired back-end plant in Tuas (Singapore) and
built a new back-end plant in Bouskoura (Morocco) in which the first assembly
lines were operational by the end of 2000.
We have also started the construction of a shell building for an
advanced 300mm wafer pilot-line fabrication facility in Crolles (France) that
will be operated jointly with Philips Semiconductors. The pilot line will
initially be designed to produce up to 1,000 wafers per week, with potential to
ramp up to 2,000 wafers per week as needed. The first 300mm wafers are expected
to be processed in 2002.
We have historically subcontracted approximately 15% of total volumes
for back-end operations to external suppliers. Since 1999, to cope with a sudden
surge in demand, and in particular, to meet anticipated requirements for HCMOS
wafers, we decided to significantly increase our use of external foundries for
front-end manufacturing as well, and they supplied up to approximately 15% of
our total wafers. We intend to maintain the percentage of front-end
manufacturing through external foundries at approximately this level in a period
of high demand, reducing it as required to meet market conditions. In the first
quarter 2001, the total wafer demand supplied by foundries represented
approximately 9%, compared to an average of 11% in year 2000.
We have expanded our diversified manufacturing infrastructure while
improving the cost, quality and flexibility of our operations. In 2000, we
invested in our manufacturing facilities to bring to full capacity and expand
the 200mm front-end manufacturing facility in Crolles, France and Catania,
Italy, to continue the ramp up of an 200mm front-end manufacturing facilities in
Phoenix, Arizona and Catania, Italy, and to build and equip the new 200mm
front-end facilities in Rousset, France and Agrate, Italy, which are today in
production, to expand 150mm front-end facilities in Carrollton, Texas and Rancho
Bernardo, California, to purchase and equip a new 150mm facility in Singapore,
to convert from 5-to 150mm the front-end facilities in Tours and Rennes, France
and Catania, Italy and to expand our back-end facilities in Morocco, Malta,
Malaysia, Singapore and China.
According to present visibility, as of the end of March 2001, we
currently expect that capital spending for 2001 will be in the range of $1.9
billion, significantly below the 2000 level and the initially announced $2.5
billion. This investment will primarily be used for the expansion of the 200mm
front-end facilities in France and Italy, the
35
start-up of the 200mm facility in Singapore, the expansion of the new back-end
facilities in Morocco and the conversion of the facilities in Crolles (France)
from 0.18 micron to 0.15 micron processes. As of December 31, 2000, we had
commitments of approximately $1.7 billion for equipment purchases. We will
continue to monitor our level of capital spending, taking into consideration
factors such as trends in the semiconductors market, capacity utilization and
announced additions.
Although each fabrication plant is dedicated to specific processes, our
strategy is to develop local presences, better serve customers and mitigate
manufacturing risks by having key processes operated in different manufacturing
plants. In certain countries, we have been granted tax incentives by local
authorities in line with local regulations, being recognized as an important
contributor to the economies where our plants are located. In 2000 we sought to
take advantage of industry capacity limitations by purchasing from
subcontractors both wafer foundry and back-end services and thereby minimizing
our capital expenditure needs.
Our manufacturing processes are highly complex, require advanced and
costly equipment and are continuously being modified in an effort to improve
yields and product performance. Impurities or other difficulties in the
manufacturing process can lower yields, interrupt production or result in losses
of products in process. As system complexity has increased and sub-micron
technology has become more advanced, manufacturing tolerances have been reduced
and requirements for precision have become even more demanding. Although our
increased manufacturing efficiency has been an important factor in our improved
results of operations, we have from time to time experienced production
difficulties that have caused delivery delays and quality control problems, as
is common in the semiconductor industry. No assurance can be given that we will
be able to increase manufacturing efficiency in the future to the same extent as
in the past or that we will not experience production difficulties in the
future.
We are fostering a corporate-wide TQEM culture that defines a common
set of objectives and performance measurements for employees in all geographic
regions, at every stage of product design, development, production and
consignment for all product lines. TQEM in our company is based on five key
principles: management commitment, employee empowerment, continuous improvement,
management by fact and customer focus. TQEM has become an integral part of our
culture and it is designed to develop a self-directed work force with a common
set of values, objectives and problem-solving processes. Since 1987, we have
improved average AIQ (electrical) status levels. Most of our manufacturing
facilities have been certified to conform to ISO international quality standards
and EMAS. Several major customers, including Hewlett-Packard, Nokia, Sharp,
DaimlerChrysler and Sanyo, have recognized our commitment to quality and have
honored us with quality awards in the recent past. We have also adopted an
environmental charter in order to reinforce our commitment to environmental
protections.
As is common in the semiconductor industry, we have from time to time
experienced difficulty in ramping up production at new facilities or effecting
transitions to new manufacturing processes and, consequently, have suffered
delays in product deliveries or reduced yields. There can be no assurance that
we will not experience manufacturing problems in achieving acceptable yields,
product delivery delays or interruptions in production in the future as a result
of, among other things, capacity constraints, construction delays, ramping up
production at new facilities, upgrading or expanding existing facilities,
changing our process technologies, or contamination or fires, storms,
earthquakes or other acts of nature, any of which could result in a loss of
future revenues. In addition, the development of larger fabrication facilities
that require state-of-the-art sub-micron technology has increased the potential
for losses associated with production difficulties, imperfections, or other
causes of defects. In the event of an incident leading to an interruption of
production at a fab, we may not be able to shift production to other facilities
on a timely basis or the customer may decide to purchase products from other
suppliers, and in either case the loss of revenues and impact on our
relationship with our customers could be significant. Our operating results
could also be adversely affected by the increase in fixed costs and operating
expenses related to increases in production capacity if revenues do not increase
commensurately. Finally, in periods of high demand, we increase our reliance on
external contractors for foundry and back-end service. Any failure to perform by
such subcontractors could impact our relationship with our customers and could
materially affect our results of operations.
Public Funding
We participate in certain programs established by the European
Commission and individual countries in Europe (France and Italy), which provide
public funding for research and development and capital investment in compliance
with local laws. The pan-European programs are generally open to eligible
companies operating and
36
investing in Europe and cover a period of several years.
In Italy, both electronics and economic development programs are open to
eligible companies regardless of their ownership or country of incorporation.
The main European programs for research and development in which we are
involved include: (i) the Micro-Electronics Development for European Application
("MEDEA+") cooperative research and development program, (ii) European Union
research and development projects with FWP5 for Information Technology; and
(iii) national programs for research and development and industrialization in
the electronics industries. We also participate in investment incentive programs
for the economic development of certain regions.
The MEDEA+ cooperative research and development program was launched in
June 2000 by the Eureka Conference and is designed to bring together many of
Europe's top researchers in a 12,000 man-year program that will cover the period
2000-2008. The MEDEA+ program replaced the joint European research program
called MEDEA, which was a European cooperative project in microelectronics among
several countries that covered the period 1996 through 2000 and involved more
than 80 companies. In Italy, the Programma Nazionale per la Bioelettronica has
more than 10 participants, and various programs for intervention in the
Mezzogiorno (southern Italy) are open to eligible companies, including
non-European companies, operating in the region and regulated by specific laws.
Italian programs often cover several years, but funding is typically subject to
annual budget appropriation. In France, support for microelectronics is provided
to over 30 companies manufacturing or using semiconductors. The amount of
support under French programs is decided annually and subject to budget
appropriation.
We have also entered into funding agreements with France and Italy
which set forth the parameters of state support under certain national programs
and require, among other things, compliance with European Commission ("EC")
regulations and approval by EU authorities and annual and project-by-project
reviews and approvals.
Funding of programs in France and Italy is subject to annual
appropriation, and if such governments were unable to provide anticipated
funding on a timely basis or if existing government-funded programs were
curtailed or discontinued, such an occurrence could have a material adverse
effect on our business, operating results and financial condition. From time to
time, we have experienced delays in the receipt of funding under these programs.
As the availability and timing of such funding are substantially outside our
control, there can be no assurance that we will continue to benefit from such
government support, that funding will not be delayed from time to time, that
sufficient alternative funding would be available if necessary or that any such
alternative funding would be provided on terms favorable to us as those
previously provided.
Public authority funding for research and development is reported in
"Other Income and Expenses" in our consolidated statements of income. See Note
17 to the Consolidated Financial Statements. Such funding has totaled $63.5
million, $60.4 million and $42.1 million in the years 1998, 1999 and 2000,
respectively. Government support for capital expenditures funding has totaled
$182.4 million, $53.4 million and $95.2 million in the years 1998, 1999 and
2000, respectively. Such funding has been used to support our capital
investment; while receipt of these funds is not directly reflected in our
results of operations, the resulting lower amounts recorded in property, plant
and equipment reduce the level of depreciation recognized by us.
Low interest financing has been made available (principally in Italy)
under programs such as the Italian Republic's Fund for Applied Research,
established in 1968 for the purpose of supporting Italian research projects
meeting specified program criteria. At year-end 1998, 1999 and 2000, we had
$49.4 million, $48.8 million and $31.3 million, respectively, of indebtedness
outstanding under state-assisted financing programs at an average interest cost
of 2.1%, 1.6% and 1.4%, respectively.
Due to changes in legislation and/or review by the competent
administrative or judicial bodies, there can be no assurance that government
funding granted to us may not be revoked or challenged or discontinued in whole
or in part, by any competent state or European authority, until the legal time
period for challenging or revoking such funding has fully lapsed.
Suppliers
The quality and technology of equipment used in the IC manufacturing
process defines the limits of our technology. Demand for increasingly smaller
chip structures means that semiconductor producers must quickly incorporate the
latest advances in process technology to remain competitive. Advances in process
technology
37
cannot be brought about without commensurate advances in equipment technology,
and equipment costs tend to increase as the equipment becomes more
sophisticated.
In the front-end process we use steppers, scanners, track equipment,
strippers, chemo-mechanical polishing equipment, cleaners, inspection equipment,
etchers, physical and chemical vapor deposition equipment, implanters, furnaces,
testers, probers and other specialized equipment. The manufacturing tools that
we use in the back-end process include bonders, burn-in ovens, testers and other
specialized equipment.
Our manufacturing processes use many raw materials, including silicon
wafers, lead frame, mold compound, ceramic packages and chemicals and gases. The
prices of many of these raw materials are volatile. We obtain our raw materials
and supplies from diverse sources on a just-in-time basis. Although supplies for
the raw materials used by us are currently adequate, shortages could occur in
various essential materials due to interruption of supply or increased demand in
the industry.
Environmental Matters
Our manufacturing operations use many chemicals, gases and other
hazardous substances, and we are subject to a variety of governmental
regulations related to the use, storage, discharge and disposal of such
chemicals and gases and other hazardous substances, emissions and wastes.
Consistent with our TQEM principles, we have established proactive environmental
policies with respect to the handling of such chemicals and gases and emissions
and waste disposals from our manufacturing operations. We have engaged outside
consultants to audit our environmental activities and have created environmental
management teams, information systems, education and training programs, and
environmental assessment procedures for new processes and suppliers. All of our
plants are validated for the Eco-Management and Audit Scheme ("EMAS") and have
also obtained ISO 14001 certification. We are also participating in various
working groups set up by the European Commission to propose new legislation
regarding the collection, recovery and disposal of electronic equipment, as well
as banning the use of lead and some flame retardants in manufacturing electronic
components. We intend to proactively implement such new legislation when enacted
in line with our commitment towards environmental protection.
Although we have not suffered material environmental claims in the past
and believe that our activities conform to presently applicable environmental
regulations in all material respects, environmental claims or the failure to
comply with present or future regulations could result in the assessment of
damages or imposition of fines against us, suspension of production or a
cessation of operations, and as with other companies engaged in similar
activities, any failure by us to control the use of or adequately restrict the
discharge of hazardous substances, emissions or wastes could subject us to
future liabilities.
Because we have manufacturing facilities located in California and
southern Italy (Sicily), we face the risk that an earthquake could damage these
facilities, which would cause a reduction in our revenue and profitability. Any
disruption in our product development capability or our manufacturing capability
arising from earthquakes could cause significant delays in the production or
shipment of our products until we are able to shift development or production to
different facilities or arrange for third parties to manufacture our products.
We may not be able to obtain alternate capacity on favorable terms or at all.
The risk of earthquakes to our manufacturing facilities in Catania (Italy) and
in California is significant due to the proximity of major earthquake fault
lines to these manufacturing facilities. In addition, some of our suppliers are
located in regions where there is a risk of earthquake.
Industry Background
The Semiconductor Market
Semiconductors are the basic building blocks used to create an
increasing variety of electronic products and systems. Since the invention of
the transistor in 1948, continuous improvements in semiconductor process and
design technologies have led to smaller, more complex and more reliable devices
at a lower cost per function. As performance has increased and size and cost
have decreased, semiconductors have expanded beyond their original primary
applications (military applications and computer systems), to applications such
as telecommunications systems, consumer goods, automotive products and
industrial automation and control systems. In addition, system users and
designers have demanded systems with more functionality, higher levels of
performance, greater reliability and shorter design cycle times, all in smaller
packages at lower costs. These demands have resulted in increased semiconductor
content as a percentage of system cost. Calculated on the basis of the total
available
38
market (the "TAM"), which includes all semiconductor products, as a percentage
of worldwide revenues from production of electronic equipment according to
published industry data, semiconductor pervasiveness has increased from
approximately 9% in 1991 to approximately 21% in 2000. The demand for electronic
systems has also expanded geographically with the emergence of new markets,
particularly in the Asia Pacific region.
Semiconductor sales have increased significantly over the long term but
have experienced significant cyclical variations in growth rates. According to
trade association data, the TAM increased from $17.8 billion in 1983 to $204.4
billion in 2000 (growing at a compound annual rate of approximately 15.4%). At
the same time the serviceable available market (the "SAM"), which prior to 1995
consisted of the TAM without DRAMS, microprocessors and opto-electronic products
and commencing in 1995 and for all subsequent periods presented, includes
microprocessors, increased from approximately $15.0 billion in 1983 to $165.7
billion in 2000 (growing at a compound annual rate of approximately15.2%). In
2000, the TAM increased by 36.8%. Based on trade association data for the first
quarter of 2001, the TAM decreased in the first quarter of 2001 by 4.5% compared
to the first quarter of 2000. In addition, in the first quarter of 2001, the TAM
decreased by 19.6% compared to the fourth quarter of 2000. The SAM increased
34.8% in 2000 compared to 1999; however, based on preliminary trade association
data for the first quarter of 2001, the SAM decreased by 1.6% compared to the
first quarter of 2000. In 2000, approximately 31.3% of all semiconductors were
shipped to the Americas, 22.9% to Japan, 20.7% to Europe, and 25.1% to the Asia
Pacific region.
The following table sets forth information with respect to worldwide
semiconductor sales by type of semiconductor and geographic region:
Worldwide Semiconductor Sales (1) Compound Annual Growth Rates (2)
------------------------------------------------------------------------------------
1983 1993 1998 1999 2000 83-93 93-97 98-99 99-00
----- ----- ------ ------ ------ ----- ----- ----- -----
(in billions of $) (expressed as percentages)
Integrated Circuits.... $13.3 $66.0 $109.1 $130.3 $176.9 17.4% 16.0% 19.3% 35.8%
Analog (linear and
Mixed-signal)....... 2.8 10.7 19.1 22.1 30.5 14.3 16.5 15.7 38.0
Digital Logic.......... 6.7 34.1 67.0 75.9 97.2 17.7 19.9 13.3 28.1
Memory:
DRAM.............. 1.7 13.1 14.0 20.7 28.9 22.7 10.7 47.8 39.6
Others............ 2.0 8.1 9.0 11.6 20.3 15.0 4.4 28.9 75.0
----- ----- ------ ------ ------ ----- ---- ---- ----
Total Memory........ 3.7 21.2 23.0 32.3 49.2 19.1 8.4 40.3 52.3
Total digital.......... 10.4 55.3 90.0 108.2 146.4 18.2 15.8 20.0 35.3
Discrete............... 3.7 8.6 11.9 13.4 17.7 8.8 11.1 12.6 32.0
Opto-electronics....... 0.7 2.6 4.6 5.7 9.8 14.0 14.7 23.9 71.9
----- ----- ------ ------ ------ ----- ---- ---- ----
TAM................. $17.8 $77.3 $125.6 $149.4 $204.4 15.8% 15.4% 18.9% 36.8%
===== ===== ====== ====== ====== ===== ==== ==== ====
Europe................. 3.3 14.6 29.4 31.9 42.3 16.0 18.8 8.5 32.6
Americas............... 7.8 24.7 41.4 47.5 64.1 12.2 16.8 14.7 34.9
Asia Pacific........... 1.2 14.2 28.9 37.2 51.3 28.0 20.7 28.7 37.9
Japan.................. 5.5 23.8 25.9 32.8 46.7 15.8 7.8 26.6 42.4
----- ----- ------ ------ ------ ----- ---- ---- ----
TAM................. $17.8 $77.3 $125.6 $149.4 $204.4 15.8% 15.4% 18.9% 36.8%
===== ===== ====== ====== ====== ===== ==== ==== ====
- ----------------------
(1) Source: WSTS
(2) Calculated using end points of the periods specified.
Although cyclical changes in production capacity in the semiconductor
industry and demand for electronic systems have resulted in pronounced cyclical
changes in the level of semiconductor sales and fluctuations in prices and
margins for semiconductor products from time to time, the semiconductor industry
has experienced substantial growth over the long term. Factors that are
contributing to long-term growth include the development of new semiconductor
applications, increased semiconductor content as a percentage of total system
cost, emerging strategic partnerships and growth in the electronic systems
industry in the Asia Pacific region.
Semiconductor Classifications
The process technologies, levels of integration, design specificity,
functional technologies and applications for different semiconductor products
vary significantly. As differences in these characteristics have increased, the
39
semiconductor market has become highly diversified as well as subject to
constant and rapid change. Semiconductor product markets may be classified
according to each of these characteristics.
Semiconductors can be manufactured using different process
technologies, each of which is particularly suited to different applications.
Since the mid-1970s, the two dominant processes have been bipolar (the original
technology used to produce integrated circuits) and CMOS (complementary
metal-oxide-silicon). Bipolar devices typically operate at higher speeds than
CMOS devices, but CMOS devices consume less power and permit more transistors to
be integrated on a single IC. While bipolar semiconductors were once used
extensively in large computer systems, CMOS has become the prevalent technology,
particularly for devices used in personal computer systems. In connection with
the development of new semiconductor applications and the demands of system
designers for more integrated semiconductors, advanced technologies have been
developed during the last decade that are particularly suited to more
systems-oriented semiconductor applications. For mixed-signal applications,
BiCMOS technologies have been developed to combine the high speed and high
voltage characteristics of bipolar technologies with the low power consumption
and high integration of CMOS technologies. For intelligent power applications,
BCD technologies have been developed that combine bipolar, CMOS and DMOS
technologies. Such systems-oriented technologies require more process steps and
mask levels, and are more complex than the basic function-oriented technologies.
The use of systems-oriented technologies requires knowledge of system design and
performance characteristics (in particular, analog and mixed-signal systems and
power systems) as well as expertise and experience with several semiconductor
process technologies.
Semiconductors are often classified as either discrete devices (such as
individual diodes, thyristors, transistors as well as opto-electronic products)
or integrated circuits (in which thousands of functions are combined on a single
"chip" of silicon to form a more complex circuit). Compared to the market for
ICs, there is typically less differentiation among discrete products supplied by
different semiconductor manufacturers. Also, discrete markets have generally
grown at slower, but more stable, rates than IC markets.
Semiconductors may also be classified as either standard components or
application-specific ICs ("ASICs"). Standard components are used by a large
group of systems designers for a broad range of applications, while ASICs are
designed to perform specific functions in specific applications. Generally,
there are three types of ASICs: full-custom devices, semicustom devices and
application-specific standard products ("ASSPs"). Full custom devices are
typically designed to meet the particular requirements of one specific customer.
Semicustom devices are more standardized ICs that can be customized with
efficient CAD tools within a short design cycle time to perform specific
functions. ASSPs are standardized ASICs that are designed to perform specific
functions in a specific application, but are not proprietary to a single
customer.
The two basic functional technologies for semiconductor products are
analog and digital. Analog (or linear) devices monitor, condition, amplify or
transform analog signals, which are signals that vary continuously over a wide
range of values. Analog circuits are critical as an interface between electronic
systems and a variety of real world phenomena such as sound, light, temperature,
pressure, weight or speed. Electronics systems continuously translate analog
signals into digital data, and vice versa.
The analog semiconductor market consists of a large and growing group
of specific markets that serve numerous and widely differing applications,
including applications for automotive systems, instrumentation, computer
peripheral equipment, industrial controls, communications devices, video
products and medical systems. Because of the varied applications for analog
circuits, manufacturers typically offer a greater variety of devices to a more
diverse group of customers. Compared to the market for commodity digital devices
such as standard memory and logic devices, the analog market is characterized by
longer product life cycles, products that are less vulnerable to technological
obsolescence, and lower capital requirements due to the use of mature
manufacturing technologies. Such characteristics have resulted in growth rates
that have been less volatile than growth rates for the overall semiconductor
industry.
Digital devices perform binary arithmetic functions on data represented
by a series of on/off states. Historically, the digital IC market has been
primarily focused on the fast growing markets for computing and information
technology systems. Increasing demands for high-throughput computing and
networking and the proliferation of more powerful personal computers and
workstations in recent years have led to dramatic increases in digital device
density and integration. As a result, significant advances in electronic system
integration have occurred in the design and manufacture of digital devices.
40
There are two major types of digital ICs: memory products and logic
devices. Memory products, which are used in electronic systems to store data and
program instructions, are generally classified as either volatile memories
(which lose their data content when power supplies are switched off) or
nonvolatile memories (which retain their data content without the need for
constant power supply). Volatile memories are used to store data in virtually
all computer systems, from large and mid-range computers to personal computers
and workstations. Memory products are typically standard, general purpose ICs
that can be manufactured in high volumes using basic CMOS processes, and they
are generally differentiated by cost and physical and performance
characteristics, including data capacity, die size, power consumption and access
speed.
The primary volatile memory devices are DRAMs, which accounted for
58.7% of semiconductor memory sales in 2000, and SRAMs (static RAMs). DRAMs are
volatile memories that lose their data content when power supplies are switched
off, whereas SRAMs are volatile memories that allow the storage of data in the
memory array but without the need for clock or refresh logic circuitry. SRAMs
are roughly four times as complex as DRAMs (four transistors per bit of memory
compared to one transistor) and are significantly more expensive than DRAMs per
unit of storage. DRAMs are used in a computer's main memory to temporarily store
data retrieved from low cost external mass memory devices such as hard disk
drives. SRAMs are principally used as caches and buffers between a computer's
microprocessor and its DRAM-based main memory.
Nonvolatile memories are typically used to store program instructions
that control the operation of microprocessors and electronic systems. Among such
nonvolatile memories, read-only memories ("ROMs") are permanently programmed
when they are manufactured while programmable ROMs (PROMs) can be programmed by
system designers or end-users after they are manufactured. Erasable PROMs
(EPROMs) may be erased and reprogrammed several times, but to do so EPROMs must
be physically removed from electronic systems, exposed to ultraviolet light,
reprogrammed using an external power supply and then returned to the systems.
Electrically erasable PROMs (EEPROMs) can be erased byte by byte and
reprogrammed "in-system" without the need for removal. Using EEPROMs, a system
designer or user can program or reprogram systems at any time. "Flash" memories
are products that represent an intermediate solution for system designers
between EPROMs and EEPROMs based on their cost and functionality.
Flash memories are typically less expensive per bit of stored
information than EEPROMs, and can also be erased and rewritten. The entire
content of a Flash memory or large blocks of data (not individual bytes) can be
erased with a "Flash" of current. Because Flash memories can be erased and
reprogrammed electrically and in-system, they are more flexible than EPROMs and,
therefore, are progressively replacing EPROMs in many of their current
applications. Flash memories are typically used in high volume in digital mobile
phones and digital consumer applications (set-top boxes, DVDs, digital cameras,
MP3 digital music players) and are also suitable for solid state mass storage of
data and emerging high volume application.
Logic devices process digital data to control the operation of
electronic systems. The largest segment of the logic market, standard logic
devices, includes microprocessors, microcontrollers and digital signal
processors. Microprocessors are the central processing units of computer
systems. Microcontrollers are complete computer systems contained on single
integrated circuits that are programmed to specific customer requirements. They
contain microprocessor cores as well as logic circuitry and memory capacity.
Microcontrollers control the operation of electronic and electromechanical
systems by processing input data from electronic sensors and generating
electronic control signals, and are used in a wide variety of consumer products
(including alarm systems, household appliance controls and video products),
automotive systems (including engine control and dashboard instrumentation),
computer peripheral equipment (including disk drives, facsimile machines,
printers and optical scanners), industrial applications (including motor drives
and process controllers), and telecommunications systems (including telephones,
answering machines and digital cellular phones). Digital signal processors
("DSPs") are parallel processors used for high complexity, high speed real-time
computations in a wide variety of applications, including answering machines,
modems, digital cellular telephone systems, audio processors and data
compression systems. Standard devices are intended for utilization by a large
group of systems designers for a broad range of applications. Consequently,
standard devices usually contain more functions than are actually required and,
therefore, may not be cost-effective for certain specific applications. In
addition to standard logic devices, a broad range of full-custom, semicustom and
ASSP logic devices is developed for a wide variety of applications. These
devices are typically designed to meet particular customer requirements.
Compared to memory markets, logic device markets are much more differentiated
and dependent upon intellectual property and advanced product design skills.
41
Analog/digital (or "mixed-signal") ICs combine analog and digital
devices on a single chip to process both analog signals and digital data.
Historically, analog and digital devices have been developed separately as they
are fundamentally different and it has been technically difficult to combine
analog and digital devices on a single IC. System manufacturers have generally
addressed mixed-signal requirements using printed circuit boards containing many
separate analog and digital circuits acquired from multiple suppliers. However,
system designers are increasingly demanding system level integration in which
complete electronic systems containing both analog and digital functions are
integrated on a single IC.
Mixed-signal ICs are typically characterized as analog ICs due to their
similar market characteristics, including longer product life cycles, diverse
applications and customers and more stable growth through economic cycles as
compared to digital devices. However, certain parts of the mixed-signal market
are becoming higher volume markets as the increasing use of mixed-signal devices
has enhanced the options of system designers and contributed to the development
of new applications, including multimedia, video conferencing, automotive, mass
storage and personal communications.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with our
Consolidated Financial Statements and Notes thereto included elsewhere in this
annual report. The following discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future actual results to
differ materially from our recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Cautionary Statement Regarding Forward-Looking Statements" and under the
caption "Item 3: Key Information - Risk Factors". We assume no obligation to
update the forward-looking statements or such factors.
Overview
Business conditions in 1999 and 2000 improved from the difficult
conditions experienced in the semiconductor industry in 1997 and 1998. According
to trade association data, worldwide sales of semiconductor products (the total
available market or "TAM") increased 36.8% in 2000 over 1999. Based on trade
association data, the estimated market for products produced by us (the
serviceable available market or "SAM") (which consists of the TAM without DRAMs,
and opto-electronic products) increased approximately 34.8% in 2000 over 1999.
However, the higher rates of increase were recorded in the first three quarters
of 2000, while during the fourth quarter 2000 the semiconductor industry showed
some signs of decreased growth rates with the total market declining
approximately 3% in that quarter compared to the third quarter 2000. The reverse
in the trend in the semiconductor industry which began in the fourth quarter of
2000 led to negative growth expectations for 2001. Industry analysts at the end
of 2000 were forecasting a downturn in the 2001 semiconductor market.
Our net revenues for 2000 increased 54.5% compared to 1999, a stronger
increase than both the TAM and the SAM. We benefited from increased volumes in
virtually all product families and an improved product mix, including sales of
new products.
In the last five years, despite the difficult market conditions in 1997
and 1998, our net revenues increased from $4,122.4 million in 1996 to $7,813.2
million in 2000, representing a compound annual growth rate of 17.3%. According
to trade association data, the TAM increased from $132.0 billion in 1996 to
$204.4 billion in 2000, representing a compound annual growth rate of 11.6%,
while the SAM increased from $102.7 billion in 1996 to $165.7 billion in 2000,
representing a compound annual growth rate of 12.7%. During the same period, our
share of the TAM increased from 3.1% to 3.8%, while our share of the SAM
increased from 4.0% to 4.7%. Our revenue growth from 1996 through 2000 was
particularly significant for differentiated ICs (which we define as being our
dedicated products, semicustom devices and microcontrollers).
As a result of our performance during the period 1996 to 2000, we not
only gained market share against both the TAM and SAM, but, according to ranking
by leading market analysts, became the sixth largest semiconductor company in
the world during 2000, up from ninth in 1999. However, we believe that the
general market conditions have led certain of our competitors to redirect their
marketing focus and manufacturing capacity toward products that compete with our
products. We believe increased competition in our core product markets is
42
generating greater pricing pressure, increased competition for market share in
the SAM and a generally more challenging market environment for us.
There can be no assurance that we will experience revenue growth at or
above the growth rate for the TAM or the SAM, or that increased competition in
our core product markets will not lead to further price erosion, lower revenue
growth rates and lower margins for us.
In 2000, we continued to focus on differentiated ICs and analog ICs.
Differentiated ICs accounted for approximately 63% of our net revenues in both
2000 and 1999. Such products foster close relationships with customers,
resulting in early knowledge of their evolving requirements and opportunities to
access their markets for other products, and are less vulnerable to competitive
pressures than standard commodity products. Analog ICs (including mixed signal
ICs), the majority of which are also differentiated ICs, accounted for
approximately 49% of our net revenues in 2000 compared to 51% in 1999, while
discrete devices accounted for approximately 10% of our net revenues in 2000
compared to approximately 12% in 1999. In recent years, these families of
products, in particular analog ICs, have experienced less volatility in sales
growth rates and average selling prices than the overall semiconductor industry.
However, the difficult competitive environment in the semiconductor market in
more recent years has led to price pressures in these product families as well.
In order to reinforce our presence in certain strategic business
segments, we completed the acquisition from Nortel Networks of a 150mm facility
in Ottawa, Canada, in June 2000 with a commitment for $2 billion in sales to
Nortel Networks over the following three years (in conjunction with the
acquisition, we entered into an agreement with Nortel Networks for the
development of processes, packages and fundamental IP for high-speed optical
interfaces). We also acquired Waferscale Integration (a leading manufacturer of
programmable system memory devices) and Portland Group (a vendor of compilers
and software development tools for the high-performance parallel computing
market).
Our gross profit margin increased from 41.4% in 1996 to 46.0% in 2000.
Benefiting from a favorable industry environment in 1996, we had a gross profit
margin of approximately 41% and an operating income margin of approximately 19%.
In 1997 and 1998, in an unfavorable industry environment, which generated lower
margins due to the negative impact of pricing pressures, gross profit margin
declined to slightly above 38%. This decline in gross profit margin coupled with
a higher level of research and development expenditure, resulted in a lower
operating income as a percentage of net revenues which, however, remained above
12%. Benefiting from the market recovery in 1999 and 2000, gross profit margin
increased in 2000 to 46.0% while operating income as a percentage of net
revenues rose significantly to 22.8%.
Preliminary projections for 2001 assumed a worsening of the market
correction. According to industry data, the market for the first quarter of 2001
declined 19.6% compared to the fourth quarter of 2000 and 4.5% compared to the
first quarter of 2000. The latest forecasts by industry analysts at the end of
March 2001 estimate a 12% decline in the TAM and a 10% decline in the SAM in
2001 compared to 2000. We estimate that the market correction which began
abruptly with a sharp inventory adjustment in the fourth quarter of 2000 is
likely to continue through much of 2001. Its duration is closely tied to
macroeconomic conditions, particularly in the United States and Japan, as well
as to industry-specific issues such as overcapacity and excess inventory levels.
While we are expecting a difficult business environment, we are
confident in our ability to continue to outperform the industry by a meaningful
margin. Within this challenging near term environment, our strategy continues to
be based upon profitable market share gains through the development of
world-leading products, strong customer alliances, efficient global
manufacturing and a modular approach to capital expenditure.
43
Results of Operations
The tables below set forth information on our net revenues by product
group and by geographic region:
Year ended December 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
-----------------------------------------------------------
(in millions)
Net Revenues by Product Group: (1)
Telecommunications, Peripherals and
Automotive(1)............................. $1,614.0 $1,606.9 $1,855.2 $2,305.5 $3,481.7
Discrete and Standard ICs(1) ............. 778.1 839.5 816.7 927.9 1,213.1
Memory Products........................... 736.8 708.6 659.6 835.9 1,552.9
Consumer and Microcontrollers(1) ......... 870.2 738.8 805.8 881.7 1,438.9
New Ventures Group and Others(2) ......... 123.3 125.4 110.5 105.3 126.6
----- ----- ----- ----- -----
Total............................... $4,122.4 $4,019.2 $4,247.8 $5,056.3 $7,813.2
======== ======== ======== ======== ========
Net Revenues by Geographic Region:(3)
Europe.................................... $1,788.5 $1,753.3 $1,768.9 $1,833.6 $2,629.2
North America............................. 903.0 899.1 937.3 1,156.1 1,843.0
Asia Pacific.............................. 1,125.7 1,065.8 1,247.9 1,658.2 2,614.7
Japan..................................... 228.2 214.5 180.7 239.7 402.4
Emerging Markets(3) ...................... 77.0 86.5 113.0 168.7 323.9
---- ---- ----- ----- -----
Total............................... $4,122.4 $4019.2 $4,247.8 $5,056.3 $7,813.2
======== ======== ======== ======== ========
(As a percentage of net revenues)
Net Revenues by Product Group:(1)
Telecommunications, Peripherals and
Automotive(1)............................. 39.1% 40.0% 43.6% 45.6% 44.6%
Discrete and Standard ICs(1) ............. 18.9 20.9 19.2 18.4 15.5
Memory Products........................... 17.9 17.6 15.5 16.5 19.9
Consumer and Microcontrollers(1) ......... 21.1 18.4 19.0 17.4 18.4
New Ventures Group and Others(2) ......... 3.0 3.1 2.7 2.1 1.6
--- --- --- --- ---
Total............................... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
Net Revenues by Geographic Region:(3)
Europe.................................... 43.4% 43.6% 41.6% 36.3% 33.6%
North America............................. 21.9 22.4 22.1 22.9 23.6
Asia Pacific.............................. 27.3 26.5 29.4 32.8 33.5
Japan..................................... 5.5 5.3 4.3 4.7 5.2
Emerging Markets(3)....................... 1.9 2.2 2.6 3.3 4.1
--- --- --- --- ---
Total............................... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
- ----------
(1) In January 1999, we implemented organizational changes to better
orient our product groups to end-use applications. As a result, net
revenues have been restated for prior periods to reflect these changes.
In addition, the former Dedicated Products Group has become the
Telecommunications, Peripherals and Automotive Groups, while the former
Programmable Products Group has become the Consumer and
Microcontrollers Groups.
(2) Includes revenues from sales of subsystems and other products and from
the New Ventures Group, which was created in May 1994 to act as a
center for our new business opportunities.
(3) Revenues are classified by location of customer invoiced. For example,
products ordered by U.S.-based companies to be invoiced to Asia Pacific
affiliates are classified as Asia Pacific revenues. Net revenues by
geographic region have been reclassified to reflect the creation of
Region Five in January 1998 which includes emerging markets such as
South America, Africa, Eastern Europe, the Middle East and India. Prior
years have been restated to reflect this reclassification. In the
fourth quarter of 2000, Region Five changed its name to become the
Emerging Markets region.
44
The following table sets forth certain financial data from our
consolidated statements of income since 1996, expressed in each case as a
percentage of net revenues:
Year ended December 31,
------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
Net sales......................................... 98.9% 98.8% 99.1% 99.3% 99.4%
Other revenues.................................... 1.1 1.2 0.9 0.7 0.6
--- --- --- --- ---
Net revenues...................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales..................................... (58.6) (61.1) (61.7) (60.4) (54.0)
----- ----- ----- ----- -----
Gross profit...................................... 41.4 38.9 38.3 39.6 46.0
Operating Expenses:
Selling, general and administrative............... (10.2) (11.3) (11.5) (10.6) (9.0)
Research and development.......................... (12.9) (15.2) (16.2) (16.5) (13.1)
Other income and expenses......................... 1.1 0.5 1.7 0.8 (1.1)
--- --- --- --- ----
Total operating expenses.......................... (22.0) (26.0) (26.0) (26.3) (23.2)
----- ----- ----- ----- -----
Operating income.................................. 19.4 12.9 12.3 13.3 22.8
Net interest income (expense)..................... (0.3) -- 0.2 0.7 0.6
Gain on disposal of investment.................... 0.2 -- -- -- --
--- --- --- --- ---
Income before income taxes and minority interests. 19.3 12.9 12.5 14.0 23.4
Income tax expense................................ (4.2) (2.9) (2.8) (3.1) (4.8)
---- ---- ---- ---- ----
Income before minority interests ................. 15.1 10.0 9.7 10.9 18.6
Minority interests................................ 0.1 0.1 -- (0.1) --
--- --- --- ---- ---
Net income........................................ 15.2% 10.1% 9.7% 10.8% 18.6%
==== ==== === ==== ====
2000 vs. 1999
In 2000, we benefited from the industry recovery and our strong market
position, and increased significantly our net revenues, operating income, net
income and diluted earnings per share in each successive quarter. We continued
to invest significant amounts in research and development and completed several
strategic acquisitions which enhanced our intellectual property portfolio. We
accelerated our capital spending during the year in order to build up capacity
to meet demand.
Net revenues. Net sales increased 54.6%, from $5,023.1 million in 1999
to $7,764.4 million in 2000. The increase in net sales was primarily the result
of higher volume and an improved product mix, including sales of new products.
The exchange rate impact on net sales in 2000 was estimated to be negative.
Other revenues increased from $33.2 million in 1999 to $48.8 million in 2000 due
primarily to an increase in licensing revenues. Net revenues increased 54.5%,
from $5,056.3 million in 1999 to $7,813.2 million in 2000.
The Telecommunications, Peripherals and Automotive Groups' net revenues
increased 51.0% primarily as a result of volume increases in wireless and
wireline telecommunications, data storage devices and automotive products and a
more favorable product mix in wireline products. The Discrete and Standard ICs
Group's net revenues increased 30.7%, as the volume increases in basically all
major product families and the more favorable product mix in standard
commodities and discrete devices more than offset the price declines in
basically all major product families. Net revenues of the Memory Products Group
increased by 85.8% as a result of volume increases in basically all product
families (such as Flash memories, smartcard ICs and EEPROMs) and improved mix in
Flash memories and EPROMs. The Consumer and Microcontrollers Groups' net
revenues increased 63.2% as a result of significantly higher volumes in digital
video, digital consumer applications and imaging products, partially offset by a
general decrease in prices in most major product families.
Gross profit. Our gross profit increased 79.7%, from $2,001.8 million
in 1999 to $3,596.3 million in 2000 primarily as a result of higher net
revenues. As a percentage of net revenues, gross profit increased from 39.6% in
45
1999 to 46.0% in 2000, benefiting from higher production volumes, improved
product mix and a more cost-effective utilization of manufacturing facilities.
Cost of sales increased from $3,054.5 million in 1999 to $4,216.9
million in 2000, primarily due to a significant increase in production volume,
the increase in purchases of wafers from external foundries and the increased
depreciation associated with new capital investments.
The exchange rate impact on gross profit in 2000 compared to 1999 was
estimated to be favorable. The appreciation of the U.S. dollar versus the euro
had a favorable impact on cost of sales that was higher than the unfavorable
impact on net revenues. See "--Impact of Changes in Exchange Rates."
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 31.7%, from $534.2 million in 1999 to $703.7
million in 2000, reflecting increased efforts in the marketing and
administrative functions and the information technology area. As a percentage of
net revenues, selling, general and administrative expenses decreased from 10.6%
in 1999 to 9.0% in 2000.
Research and development expenses. Research and development expenses
increased 22.8%, from $836.0 million in 1999 to $1,026.3 million in 2000. We
continued to invest heavily in research and development and plan to continue
increasing our research and development staff. We continue to allocate
significant financial resources to expand our market leadership in key
applications, reflecting our commitment to service and continuous innovation.
Our reported research and development expenses do not include marketing design
center, process engineering, pre-production or industrialization costs. As a
percentage of net revenues, research and development expenses decreased from
16.5% in 1999 to 13.1% in 2000.
Other income and expenses. Other income and expenses decreased from
income of $39.9 million in 1999 to expenses of $83.6 million in 2000. Other
income and expenses include primarily funds received from government agencies in
connection with our research and development programs, the cost of new plant
start-ups, the amortization of goodwill and related acquisition costs, as well
as foreign currency gains and losses, the costs of certain activities relating
to intellectual property and miscellaneous revenues and expenses. The decrease
in other income and expenses resulted primarily from higher start-up costs of
new production facilities. In addition, lower funds received from government
agencies in connection with our research and development programs, higher patent
expenses and higher goodwill amortization contributed to the increase in
expenses.
Operating income. Our operating income increased by 165.5%, from $671.5
million in 1999 to $1,782.7 million in 2000. The exchange rate impact on
operating income in 2000 was estimated to be favorable since the appreciation of
the U.S. dollar against the euro had a favorable impact on gross profit and
operating expenses.
Net interest income (expense). Net interest income increased from
income of $35.6 million in 1999 to income of $46.7 million in 2000 primarily as
a result of the increase in cash and cash equivalents following the share
offering and the Liquid Yield Option (TM) Notes ("LYONs") offering completed on
September 22, 1999 and to the convertible debt offering completed on November
16, 2000.
Income tax expense. Provision for income tax was $375.1 million in 2000
compared to $157.2 million in 1999, primarily as a result of the increase in
income before income taxes and minority interests. The accrued effective tax
rate decreased from 22.2% in 1999 to 20.5% in 2000 mainly due to the application
of new benefits in certain countries. As such benefits may not be available
after 2000, an increase in the effective tax rate could result in the coming
years.
Net income. Our net income increased 165.3%, from $547.3 million to
$1,452.1 million. As a percentage of net revenues, 2000 net income was 18.6%, up
from 10.8% of 1999 net income. Diluted earnings per share reached $1.58, an
increase of 154.8% compared to diluted earnings per share of $0.62 in 1999. All
per share numbers have been adjusted to reflect the 2-for-1 stock split effected
in June 1999 and for the 3-for-1 stock split effected in May 2000.
1999 vs. 1998
In 1999, we benefited from the industry recovery and our strong market
position, and increased our net revenues, operating income, net income and
diluted earnings per share in each successive quarter. We continued to
46
invest significant amounts in research and development and completed several
strategic acquisitions which enhanced our intellectual property portfolio. We
accelerated our capital spending in the second half of the year.
Net revenues. Net sales increased 19.3%, from $4,210.6 million in 1998
to $5,023.1 million in 1999. The increase in net sales was primarily the result
of higher volume and an improved product mix, including sales of new products,
partly offset by declining average selling prices. The exchange rate impact on
net sales in 1999 was estimated to be negligible. Other revenues decreased from
$37.2 million in 1998 to $33.2 million in 1999 due primarily to a reduction in
licensing revenues. Net revenues increased 19.0%, from $4,247.8 million in 1998
to $5,056.3 million in 1999.
The Telecommunications, Peripherals and Automotive Groups' net revenues
increased 24.3% primarily as a result of volume increases in wireless
telecommunications, data storage and automotive products and a more favorable
product mix. The Discrete and Standard ICs Group's net revenues increased 13.6%,
as the volume increases in basically all major product families and the more
favorable product mix in standard commodities more than offset the price
declines in all product families. Net revenues to the Memory Products Group
increased by 26.7% as the volume increases in all product families more than
offset the price declines in nearly all product families (such as EPROMs,
EEPROMs, smartcard ICs and flash memories). The Consumer and Microcontrollers
Groups' net revenues increased 9.4% as a result of significantly higher volumes
in digital video and microcontrollers products, partially offset by decreased
volumes in graphics products and lower prices in all product families.
Gross profit. Our gross profit increased 23.2%, from $1,624.8 million
in 1998 to $2,001.8 million in 1999 primarily as a result of higher net
revenues. As a percentage of net revenues, gross profit increased from 38.3% in
1998 to 39.6% in 1999, due to higher sales volumes and improved manufacturing
efficiency.
Costs of sales increased from $2,623.0 million in 1998 to $3,054.5
million in 1999, primarily due to a significant increase in production volume
and the increased depreciation associated with new capital investments.
The exchange rate impact on gross profit in 1999 compared to 1998 was
estimated to be favorable, as the negligible impact of the variation of the U.S.
dollar on net revenues was more than offset by the positive impact on cost of
sales of the appreciation of the U.S. dollar versus the euro. See "--Impact of
Changes in Exchange Rates".
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 9.4%, from $488.1 million in 1998 to $534.2
million in 1999, reflecting higher expenditure for information technology,
marketing and administrative functions, including the expenses for year 2000
compliance. As a percentage of net revenues, selling, general and administrative
expenses decreased slightly from 11.5% in 1998 to 10.6% in 1999.
Research and development expenses. Research and development expenses
increased 21.2%, from $689.8 million in 1998 to $836.0 million in 1999. We
continued to invest heavily in research and development and plan to continue
increasing our research and development staff. We continue to allocate
significant financial resources to expand our market leadership in key
applications, reflecting our commitment to service and continuous innovation.
Our reported research and development expenses do not include marketing design
center, process engineering, pre-production or industrialization costs. As a
percentage of net revenues, research and development expenses increased from
16.2% in 1998 to 16.5% in 1999.
Other income and expenses. Other income and expenses decreased from
income of $76.5 million in 1998 to income of $39.9 million in 1999. Other income
and expenses include primarily funds received from government agencies in
connection with our research and development programs, the cost of new plant
start-ups, as well as foreign currency gains and losses, the costs of certain
activities relating to intellectual property and miscellaneous revenues and
expenses. The decrease in other income and expenses resulted primarily from
higher start-up costs of new production facilities, from the inclusion of the
goodwill amortization of Vision Group, of Peripherals Technology Solutions and,
to a lesser extent, of Arithmos, and from a slight decrease in funds received
from government agencies in connection with our research and development
programs.
Operating income. Our operating income increased by 28.3%, from $523.4
million in 1998 to $671.5 million in 1999. The exchange rate impact on operating
income in 1999 was favorable since the appreciation of the U.S. dollar against
the euro had a favorable impact on gross profit and operating expenses.
47
Net interest income (expense). Net interest income increased from
income of $8.7 million in 1998 to income of $35.6 million in 1999 primarily as a
result of the increase in cash and cash equivalents following the 1999 Share
Offering and the 1999 LYONs Offering completed on September 22, 1999.
Income tax expense. Provision for income tax was $157.2 million in 1999
compared to $120.4 million in 1998, primarily as a result of the increase in
income before income taxes and minority interests. The accrued effective tax
rate decreased from 22.6% in 1998 to 22.2% in 1999 mainly due to the application
of benefits in certain countries. As such benefits may not be available after
1999, an increase in the effective tax rate could result in the coming years.
Net income. Our net income increased 33.1%, from $411.1 million to
$547.3 million. As a percentage of sales, 1999 net income was 10.8%, up from
9.7% of 1998 net income. The increase was mainly due to higher net sales.
Diluted earnings per share reached $0.62 compared to diluted earnings per share
of $0.48 in 1998. All per share numbers have been adjusted to reflect the
2-for-1 stock split effected in June 1999 and the 3-for-1 stock split effected
in May 2000.
Quarterly Results of Operations
The following table sets forth certain financial information for the
years 1999 and 2000. Such information is derived from unaudited consolidated
financial statements, prepared on a basis consistent with the audited
consolidated financial statements, that include, in the opinion of management,
only normal recurring adjustments necessary for a fair presentation of the
information set forth therein. Operating results for any quarter are not
necessarily indicative of results for any future period. In addition, in view of
the significant growth experienced by us in recent years, the increasingly
competitive nature of the markets in which we operate, the changes in product
mix and the currency effects of changes in the composition of sales and
production among different geographic regions, we believe that period-to-period
comparisons of our operating results should not be relied upon as an indication
of future performance.
Our quarterly and annual operating results are also affected by a wide
variety of other factors that could materially and adversely affect revenues and
profitability or lead to significant variability of operating results,
including, among others, capital requirements and the availability of funding,
competition, new product development and technological change and manufacturing.
In addition, a number of other factors could lead to fluctuations in operating
results, including order cancellations or reduced bookings by key customers or
distributors, intellectual property developments, international events, currency
fluctuations, problems in obtaining adequate raw materials on a timely basis,
and the loss of key personnel. As only a portion of our expenses varies with our
revenues, there can be no assurance that we will be able to reduce costs
promptly or adequately in relation to revenue declines to compensate for the
effect of any such factors. As a result, unfavorable changes in the above or
other factors have in the past and may in the future adversely affect our
operating results.
48
Quarter ended (Unaudited)
----------------------------------------------------------------------------------------
April 3, July 3, Oct. 2, Dec. 31, April 1, July 1, Sept. 30, Dec. 31,
1999 1999 1999 1999 2000 2000 2000 2000
---------- --------- --------- ---------- ----------- --------- ----------- ------------
(in millions, except percentages and per share data)(1)
Consolidated Statement of
Income Data
Net revenues.............. $1,113.3 $1,190.6 $1,274.2 $1,478.2 $1,702.2 $ 1,877.3 $ 2,042.0 $ 2,191.7
Cost of sales............. (685.4) (719.9) (766.8) (882.4) (985.1) (1,001.6) (1,077.1) (1,153.1)
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Gross profit.............. 427.9 470.7 507.4 595.8 717.1 875.7 964.9 1,038.6
Operating expenses:
Selling, general and
administrative.......... (119.1) (130.3) (136.8) (148.0) (159.5) (177.1) (174.0) (193.1)
Research and development.. (193.5) (202.8) (205.5) (234.1) (235.1) (245.1) (259.8) (286.4)
Other income and expenses. 16.1 14.9 5.0 3.8 (30.5) (37.7) (19.3) 4.1
Total operating expenses.. (296.5) (318.2) (337.3) (378.3) (425.1) (459.9) (453.1) (475.4)
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Operating income.......... 131.4 152.5 170.1 217.5 292.0 415.8 511.8 563.2
Net interest income....... 3.7 6.0 8.2 17.7 16.4 14.0 7.3 9.0
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Income before income taxes
and minority interests.. 135.1 158.5 178.3 235.2 308.4 429.8 519.1 572.2
Income tax expense....... (29.9) (35.4) (41.6) (50.3) (69.4) (92.7) (103.6) (109.5)
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Income before minority
interests............... 105.2 123.1 136.7 184.9 239.0 337.1 415.5 462.7
Minority interests........ (0.1) (0.6) (1.4) (0.6) (0.6) (0.6) (0.2) (0.8)
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Net income................ $ 105.1 $ 122.5 $ 135.3 $ 184.3 $ 238.4 $ 336.5 $ 415.3 $ 461.9
========== ========= ========= ========== =========== ========= =========== ============
Earnings per share (basic) $0.12 $ 0.14 $ 0.16 $ 0.21 $ 0.27 $ 0.38 $ 0.47 $ 0.52
Earnings per share (diluted) $0.12 $ 0.14 $ 0.15 $ 0.21 $ 0.26 $ 0.37 $ 0.45 $ 0.50
Number of shares used in
calculating earnings per
share (basic)........... 855.1 856.5 858.2 866.8 878.2 887.0 888.5 889.3
Number of shares used in
calculating earnings per
share (diluted)......... 888.3 890.6 896.2 930.6 933.5 934.5 934.0 942.4
As a percentage of net revenues
Net revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. (61.6) (60.5) (60.2) (59.7) (57.9) (53.4) (52.7) (52.6)
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Gross profit.............. 38.4 39.5 39.8 40.3 42.1 46.6 47.3 47.4
Operating expenses:
Selling, general and
administrative.......... (10.7) (10.9) (10.7) (10.0) (9.4) (9.4) (8.5) (8.8)
Research and development.. (17.4) (17.0) (16.1) (15.8) (13.8) (13.1) (12.7) (13.1)
Other income and expenses. 1.5 1.2 0.3 0.2 (1.8) (2.0) (0.9) 0.2
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Total operating expenses.. (26.6) (26.7) (26.5) (25.6) (25.0) (24.5) (22.2) (21.7)
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Operating income.......... 11.8 12.8 13.3 14.7 17.2 22.1 25.1 25.7
Net interest income....... 0.3 0.5 0.7 1.2 1.0 0.8 0.3 0.4
Income before income taxes
and minority interests.. 12.1 13.3 14.0 15.9 18.1 22.9 25.4 26.1
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Income tax expense........ (2.7) (3.0) (3.3) (3.4) (4.1) (4.9) (5.1) (5.0)
Income before minority
interests............... 9.4 10.3 10.7 12.5 14.0 18.0 20.3 21.1
---------- --------- --------- ---------- ----------- --------- ----------- ------------
Minority interests........ - - (0.1) - - (0.1) - -
Net income................ 9.4% 10.3% 10.6% 12.5% 14.0% 17.9% 20.3% 21.1%
========== ========= ========= ========== =========== ========= =========== ============
- -------------
(1) All share information has been adjusted to reflect the 2-for-1 stock
split effected in June 1999 and the 3-for-1 stock split effected in May
2000.
Net revenues. Fourth quarter 2000 net revenues recorded a 7.3%
sequential improvement over the third quarter of 2000, with gains mainly from
the Memory Products Group and the Telecommunications, Peripherals and Automotive
Groups. We recorded an increase in net revenues of 48.3% versus the fourth
quarter of 1999, experiencing strong sales gains across all product groups.
Third quarter 2000 net revenues showed an 8.8% sequential increase over the
second quarter of 2000 in spite of seasonal factors that generally reduce sales
during the
49
summer months and were 60.3% above 1999 third quarter net revenues. Second
quarter 2000 net revenues increased 10.3% compared to the first quarter of 2000,
and were 57.7% above second quarter 1999 net revenues. First quarter 2000 net
revenues increased 15.2% compared to the fourth quarter of 1999, and were 52.9%
above first quarter 1999 net revenues.
With respect to the product groups, the Memory Products Group had the
highest year-over-year and quarter-over-quarter results; its revenues in the
2000 fourth quarter rose 84.1% in comparison to the 1999 fourth quarter and
increased 13.7% in comparison to the 2000 third quarter, reflecting our
significant progress in penetrating the market with new generation flash
products. In the 2000 fourth quarter, net revenues from the Telecommunications,
Peripherals and Automotive Groups increased 49.2% over the year ago quarter and
12.0% sequentially, reflecting the strength in sales of ICs for
telecommunications, mainly wireless, hard disk drives, digital cellular phones
and automotive applications. Net revenues for the Consumer and Microcontrollers
Groups increased 39.4% compared to the 1999 fourth quarter and net revenues for
the Discrete and Standards ICs Products Group increased 15.5%. Overall, our
48.3% revenue growth of the 2000 fourth quarter over the 1999 fourth quarter
resulted from the rapidly increasing demand for our products as well as our
ability to effectively deploy our resources.
In 2000, approximately 34% of our net revenues originated in Europe,
compared to approximately 36% in 1999. Our third quarter revenues in Europe have
generally been slightly less than average revenues during other quarters due to
production slowdowns by our European customers in July and August. Quarterly
results have also been and may be expected to continue to be substantially
affected by the cyclical nature of the semiconductor and electronic systems
industries, the timing and success of new product introductions and the levels
of provisions and other unusual charges incurred.
Gross profit. In the fourth quarter of 2000, gross profit was $1,038.6
million, 74.3% above the year-ago period. Gross profit margin in the 2000 fourth
quarter was 47.4%, representing a significant improvement compared to 40.3 % in
the fourth quarter of 1999, as a result of higher production volumes, improved
product mix, and more cost-effective utilization of manufacturing facilities.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $193.1 million in the fourth quarter of 2000, or
8.8% of net revenues, compared to $148.0 million, or 10.0% of net revenues in
the fourth quarter of 1999. The percentage decrease results principally from the
increase in net revenues.
Research and development expenses. In the fourth quarter of 2000,
research and development costs of $286.4 million increased 22.3% compared to the
fourth quarter of 1999. Research and development represented 13.1% of net
revenues in the fourth quarter of 2000 compared to 15.8% of net revenues in the
fourth quarter of 1999, as a result of the increase in net revenues.
Other income and expenses. Other income and expenses remained basically
unchanged from income of $3.8 million in the 1999 fourth quarter to income of
$4.1 million in 2000 fourth quarter as the gain from the sale of certain
marketable securities was offset by lower research and development funding
received from government agencies in connection with our research and
development programs and slightly higher start-up costs of new production
facilities.
Operating income. Operating income reached $563.2 million in the fourth
quarter of 2000 which represented an increase of 158.9% compared to the level of
the fourth quarter of 1999. Operating income margin for the 2000 fourth quarter
was 25.7% compared to 14.7% in the 1999 fourth quarter.
Net income. Net income for the 2000 fourth quarter rose sharply,
increasing 150.6% to $461.9 million compared to $184.3 million in the 1999
fourth quarter and 11.2% compared to $415.3 million in the third quarter 2000.
Diluted earnings per share increased 138.1% to $0.50 from $0.21 in the fourth
quarter 1999 and 11.1% from $0.45 in the third quarter 2000. All per share
figures have been adjusted to reflect the 2-for-1 stock split effected in June
1999 and the 3-for-1 stock split effect May 2000.
During the first quarter of 2001, the semiconductor industry
experienced a decline in revenues in excess of earlier forecasts, estimated at a
4% decrease versus the first quarter of 2000 and 19% sequentially. Based on
this, the latest forecasts by industry analysts estimate a 12% decline in the
TAM and a 10% decline in the SAM in 2001 compared to 2000. Our revenues have
been affected by the strong negative market correction that is currently taking
place. On a comparative basis with the first quarter of 2000, our first quarter
2001 revenues recorded a 12.9% increase, in excess of the industry average, but
12.3% below the revenue level reached in the fourth quarter of 2000.
50
We have taken steps to significantly reduce costs during this period of
uncertain market conditions. Specifically, capital expenditure plans for 2001
have been reduced from $2.5 billion to $1.9 billion and stringent cost control
programs have taken effect throughout our company, including a hiring freeze.
These forward-looking statements are subject to certain risks and
uncertainties, in particular the rapid pace of change in the semiconductor
industry, and may differ materially from actual events.
Impact of Changes in Exchange Rate
Our results of operations and financial condition can be significantly
affected by changes in exchange rates between the U.S. dollar and other
currencies, particularly the euro (with respect to prior periods, the Italian
lira, the French franc, the German mark), the Japanese yen and other Asian
currencies.
Revenues for certain products (primarily dedicated products sold in
Europe and Japan) that are quoted in currencies other than the U.S. dollar are
directly affected by fluctuations in the value of the U.S. dollar. Revenues for
all other products, which are quoted in U.S. dollars and translated into local
currencies for payment, tend not to be affected significantly by fluctuations in
exchange rates except to the extent that there is a lag between changes in
currency rates and adjustments in the local currency equivalent price paid for
such products.
Certain significant costs incurred by us, such as manufacturing labor
costs and depreciation charges, selling, general and administrative expenses,
and research and development expenses, are incurred in the currencies of
jurisdictions where our operations are located. Fluctuations in the value of
these currencies, particularly the euro, compared to the U.S. dollar can affect
our costs and therefore our profitability.
The appreciation in the U.S. dollar in 2000 compared to 1999 against
the principal European and Asian currencies (excluding the Japanese yen, which
appreciated compared to the U.S. dollar) that have a material impact on us
resulted in a favorable impact on results of operations because of the favorable
impact on cost of sales and operating expenses.
Our principal strategies to reduce the risks associated with exchange
rate fluctuations have been (i) to increase the proportion of sales to customers
denominated in U.S. dollars, (ii) to purchase raw materials and services in
transactions denominated in U.S. dollars (thereby reducing the exchange rate
risk for costs relative to revenues, which are principally denominated or
determined by reference to the U.S. dollar), and (iii) to manage certain other
costs, such as financial costs, to maintain an appropriate balance between U.S.
dollars and other currencies based upon the currency environment at the time.
From time to time, we purchase or sell currencies forward to cover currency risk
in obligations or receivables. We have not experienced significant gains or
losses as a result of exchange coverage activities. Our management strategies to
reduce exchange rate risks have served to mitigate, but not eliminate, the
positive or negative impact of exchange rate fluctuations. Furthermore, the
introduction of the euro as of January 1, 1999, has served to reduce the number
of currencies whose exchange rate fluctuations versus the U.S. dollar may impact
our results, thus making our exposure to exchange rate fluctuations more
concentrated.
Assets and liabilities of subsidiaries are, for consolidation purposes,
translated into U.S. dollars at the period-end exchange rate. See Note 2.3 to
the Consolidated Financial Statements. Income and expenses are translated at the
average exchange rate for the period. Adjustments resulting from the translation
are recorded directly in shareholders' equity, and are shown as "accumulated
other comprehensive income (loss)" in the consolidated statements of changes in
shareholders' equity. The balance sheet impact of such translation adjustments
has been, and may be expected to be, significant from period to period.
At December 31, 2000, our outstanding indebtedness was denominated
principally in U.S. dollars, French francs and Italian lire. See Note 14 to the
Consolidated Financial Statements.
Liquidity and Capital Resources
Treasury activities are regulated by our procedures which define
policies, objectives and controls. The policies focus on the management of our
financial risk in terms of exposure to exchange rates and interest rates. Our
objectives are to neutralize our exposure to changes in exchange rates, to
optimize the use of credit facilities and funds available, and to obtain the
best possible market conditions for our financial and treasury operations. Our
treasury controls include systematic reporting to senior management and are
subject to internal and external audits. Most of our treasury activities are
centralized, with any local treasury activities subject to oversight from our
head
51
treasury office. Basically all of our cash and cash equivalents are held in U.S.
dollars and are placed with financial institutions rated "A+" or higher.
Marginal amounts are held in other currencies. Foreign currency operations and
hedging transactions are performed only to cover commercial positions. For
further information on our funding and treasury policies, see "Item 11:
Quantitative and Qualitative Disclosures About Market Risk."
On November 16, 2000, we issued $1,480.0 million initial aggregate
principal amount of zero-coupon unsubordinated convertible notes, due 2010, with
yield to maturity of 3.75% per annum. Our net proceeds in connection with the
2000 notes offering were $1,457.8 million. On September 22, 1999, we completed
an equity offering of 8,970,000 shares of capital stock at $24.88 per share
(adjusted for the three-for-one stock split). Our net proceeds in connection
with the 1999 equity offering were $216.8 million. On September 22, 1999, we
also issued $720.9 million initial aggregate principal amount of zero-coupon
convertible Liquid Yield Option(TM) Notes, due 2009, with yield to maturity of
2.4375% per annum. Our net proceeds in connection with the 1999 LYONs offering
was $708.3 million. Our net cash generated from operations totaled $2.4 billion
in 2000 compared to $1.5 billion in 1999 and $1.0 billion in 1998. Significant
amounts of net cash generated from operations in 1998, 1999 and 2000 coupled
with the debt offering undertaken by us in November 2000, and the equity and
debt offerings in September 1999, enabled us to finance capital expenditures and
strengthen our balance sheet over the last five years.
We had a negative net financial position (cash, cash equivalents and
marketable securities net of total debt) of $511.2 million at December 31, 2000
compared to a positive net financial position of $351.4 million at December 31,
1999. At December 31, 2000, cash and cash equivalents totaled $2,295.7 million,
compared to $1,823.1 million at December 31, 1999. At December 31, 2000, the
aggregate amount of our long-term debt was approximately $2,806 million, all of
which was outstanding, and additionally the aggregate amount of our short-term
credit facilities was approximately $884 million, under which approximately $36
million of indebtedness was outstanding. At December 31, 2000, we had
approximately $106 million of long-term indebtedness that will become due within
one year and expect to fund such debt repayments from available cash. During
2000, certain holders of our 1998 and 1999 LYONs requested conversion of the
LYONs into our shares for approximately $334 million principal amount at
maturity. We have issued a redemption notice for these LYONs and intend to
redeem them at a redemption price of $885.22 per $1,000 principal amount on June
11, 2001. According to the information available to us, on May 11, 2001,
approximately $45.6 million in total indebtedness was outstanding under the 1998
LYONs. Based on the amount outstanding on May 11, 2001, if all remaining holders
of the 1998 LYONs chose to convert them into Common Shares before the redemption
date, 2,772,291 Common Shares would be issued.
In 2000, our capital expenditure payments totaled $3.3 billion,
compared to $1.3 billion in 1999. Capital expenditures for 2000 were devoted
principally to (i) the conversion from 150mm to 200mm and expansion at one of
our front-end wafer fabrication plants in Agrate (Italy), (ii) the increase of
capacity of the 200mm facilities and upgrading of the 150mm fabrication plant in
Catania (Italy), (iii) the completion of construction of our new 200mm front-end
wafer fabrication facility in Rousset (France), (iv) the conversion of our
facilities in Crolles (France), to 0.25 micron and 0.18 micron processes, (v)
the construction of a new 200mm facility and the equipment of a new 150mm
facility in Singapore, (vi) the increase of capacity of our 200mm facilities in
Phoenix (Arizona), and of the 150mm facility in Carrollton (Texas), and (vii)
the expansion of the back-end facilities in Muar (Malaysia), Morocco and
Singapore. Capital expenditures for 1999 were used principally to (i) expand a
150mm facility and the construction of a new 200mm front-end facility in Agrate
(Italy), (ii) equip and upgrade both the new 200mm and existing 150mm front-end
facilities at the Catania (Italy) plant, (iii) expand the 200mm front-end wafer
fabrication plant in Crolles (France), (iv) expand the 150mm facility in
Carrollton (Texas), (v) upgrade the 150mm facility in Rousset (France), (vi)
ramp-up of production at the Phoenix (Arizona) 200mm front-end facility, (vii)
construct the new 200mm front-end plant in Rousset (France) and (viii) expand
the back-end facilities in Muar (Malaysia), Morocco, Malta and Shenzhen (China).
According to present visibility, as of the end of March 2001, we
currently expect that capital spending for 2001 will be in the range of $1.9
billion, with the ability to adjust that amount up or down in response to the
changes in market conditions. The most significant of our 2001 capital
expenditure projects are expected to be (i) the expansion of the 200mm front-end
facilities in France and Italy, (ii) the start-up of the 200mm facility in
Singapore, (iii) the expansion of the new back-end facilities in Morocco and
(iv) the conversion of the facilities in Crolles (France), from 0.18 micron to
0.15 micron processes. We have also decided to build a new 300mm wafer research
fabrication and pilot line at Crolles (France) using 0.18 micron and below
process technology. The pilot line will be operated in partnership with LETI and
CNET, which are already working with us in Crolles. We will continue to monitor
our level of capital spending, however, taking into consideration factors such
as trends in the semiconductor market, capacity utilization and announced
additions.
52
At December 31, 2000, our receivables from government agencies totaled
$139.4 million compared to $152.2 million in 1999. See Note 7 to the
Consolidated Financial Statements. In 2000, our advances from government
agencies totaled $10.6 million compared to $38.7 million in 1999. See Note 15 to
the Consolidated Financial Statements. The timing of receipt of funds under
government contracts has been delayed from time to time in the past, and while
generally we have received the amounts recorded in such receivables, there have
been instances in which such funds ultimately have not been paid.
We expect to have significant capital requirements in the coming years
and intend to continue to devote a substantial portion of our net revenues to
research and development. We plan to fund our capital requirements from cash
from operations, available funds, available support from third parties
(including state support) and may make recourse to borrowings under available
credit lines and, to the extent necessary or attractive based on market
conditions prevailing at the time, the sale of debt or additional equity
securities. There can be no assurance that additional financing will be
available as necessary to fund our working capital requirements, research and
development, industrialization costs or expansion plans, or that any such
financing, if available, will be on terms acceptable to us.
We believe that our available funds, available support from third
parties, and additional borrowings will be sufficient to meet our anticipated
needs for liquidity through at least 2001. For further information on our
research and development, including amounts spent, see "Item 4: Information on
the Company -- Research and Development."
Impact of Recently Issued U.S. Accounting Standards
In June 1998, the U.S. Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement No. 133"), which is required to be adopted in fiscal years beginning
after June 15, 2000. Statement No. 133 requires us to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not used for hedging
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. We have adopted the standards required by this statement
in the first quarter of 2001. We believe that adoption of Statement No. 133 has
not had a material effect on our financial position or results of operations.
In December 1999, the U.S. Securities and Exchange Commission released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"), providing the staff's views on applying generally accepted
accounting principles to selected revenue recognition issues. For companies with
fiscal years that begin between December 16, 1999 and March 15, 2000, portions
of SAB 101 became effective in the fourth quarter of 2000. We believe that
adoption of these portions of SAB 101 has not had a material effect on our
financial position or overall trends in results of operations.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
national currencies and the euro. The participating countries agreed to adopt
the euro as their common legal currency on that date. Until January 1, 2002,
either the euro or a participating country's present currency (a "national
currency") will be accepted as legal currency. On January 1, 2002,
euro-denominated bills and coins will be issued and national currencies will be
withdrawn from circulation during the subsequent six months. We do not expect
that the introduction and use of the euro will materially affect our foreign
exchange activities, or our use of derivatives and other financial instruments,
or will result in any material increase in costs to us. We will continue to
assess the impact of the introduction of the euro currency over the transition
period as well as the period subsequent to the transition, as applicable.
Backlog
Our backlog has increased steadily since the end of 1998 and we
continued to experience record incoming order rates and backlog levels during
2000. In order to meet this backlog, we are ramping up production at the new
200mm facility at Rousset, France, and Agrate, Italy, facilities and we are also
increasing our use of front-end external foundry services. Orders under frame
contracts also increased during 2000. Frame contracts are annual
53
fixed-price contracts with customers setting forth the forecasted quantities and
schedule for purchase and sale of specific products that may be ordered in the
future. Frame contracts are intended to secure capacity availability for the
customer and improved visibility with respect to customer requirements. Due to
the deterioration of the semiconductor industry recorded during the first
quarter of 2001, our backlog at the end of March 2001 declined in comparison to
the end of December 2000.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
Supervisory Board
Our management is entrusted to the Managing Board under the
supervision of the Supervisory Board. The Supervisory Board advises the
Managing Board and is responsible for supervising the policies pursued by the
Managing Board and the general course of our affairs and business. In
fulfilling their duties under Dutch law, the members of the Supervisory Board
must serve our interests and business.
The Supervisory Board consists of such number of members as is resolved
by the general meeting of shareholders upon proposal of the Supervisory Board,
with a minimum of six members. The members of the Supervisory Board are
appointed upon proposal of the Supervisory Board by the general shareholders'
meeting by a majority of the votes cast at a meeting where at least one-third of
the outstanding share capital is present or represented.
Pursuant to various shareholders agreements, the membership of our
Supervisory Board must include three members designated by the French
shareholders from the Board of Directors of FT1CI (following the merger of FT2CI
and FT1CI, a corporation owned by CEA-Industrie and France Telecom), and three
members designated by the Italian shareholder. See "Item 7: Major Shareholders
and Related Party Transactions - Major Shareholders - Shareholder Agreements."
Our Supervisory Board currently includes three members who are not affiliated
with ST Holding and its direct and indirect shareholders.
The members of the Supervisory Board appoint a chairman and vice
chairman of the Supervisory Board from among the members of the Supervisory
Board (with approval of at least three-quarters of the members of the
Supervisory Board) and may appoint one or more members as a delegate supervisory
director to communicate on a regular basis with the Managing Board. Resolutions
of the Supervisory Board require the approval of at least three-quarters of its
members. The Supervisory Board must meet upon request by two or more of its
members or by the Managing Board. The Supervisory Board has adopted internal
regulations to clarify the manner by which it carries out the supervisory duties
imposed upon it by law, our Articles of Association and resolutions of the
shareholders and the Supervisory Board itself. By such resolution the
Supervisory Board has authorized (i) the establishment of a secretariat (headed
by an individual approved by it and appointed for a one-year renewable term)
whose functions are to: (a) assist the Chairman and Vice Chairman of the
Supervisory Board in the operations of the Board, (b) implement and oversee the
execution within our company of decisions adopted by the Supervisory Board, and
(c) cooperate in and contribute to the execution of the functions of the
designated Secretary and Assistant Secretary of the Supervisory Board; (ii) (a)
the possibility of the appointment by the members of the Supervisory Board of
assistants and (b) the appointment by such board of two controllers to exercise
operational and financial control over our operations who, with assistants, will
also review operation reports and the implementation of Supervisory Board
decisions; and (iii) the establishment by the Supervisory Board of advisory
committees. In addition, the Supervisory Board has established procedures for
the preparation of Supervisory Board resolutions and the setting of the Board's
calendar.
Members of the Supervisory Board must retire no later than at the
ordinary general meeting of shareholders held after a period of three years
following their appointment, but may be re-elected. A member of the Supervisory
Board must retire at the ordinary general meeting of shareholders held in the
year in which he reaches the age prescribed by Dutch law for retirement of a
supervisory director (currently at age 72). Members of the Supervisory Board may
be suspended or dismissed by the general meeting of shareholders. The
Supervisory Board may make a proposal to the general meeting of shareholders for
the suspension or dismissal of one or more of its members. The members of the
Supervisory Board may receive compensation if authorized by the general meeting
of shareholders.
The shareholders agreement between the group of French shareholders and
the Italian shareholder, as shareholders of ST Holding, also includes certain
provisions requiring the approval of the Supervisory Board of ST
54
Holding for certain actions by ST Holding, STMicroelectronics and our
subsidiaries. In addition, pursuant to the shareholders agreement among the
group of French shareholders and a decree issued by certain Ministries of The
Republic of France, the approval by members of the Supervisory Board appointed
by the French shareholders of certain actions to be taken by STMicroelectronics
N.V. or our subsidiaries requires the approval of the Board of Directors of
FT1CI and is subject to a veto by certain Ministries of The Republic of France.
These requirements for the prior approval of various actions to be taken by us
and our subsidiaries may give rise to a conflict of interest between our
interests and the individual shareholders approving such actions, and may result
in a delay in the ability of the Managing Board to respond as quickly as may
be necessary in the rapidly changing environment of the semiconductor industry.
Such approval process is subject to the provisions of Dutch law requiring
members of the Supervisory Board to act independently in the supervision of our
management.
The members of the Supervisory Board are:
Name Position Year Appointed Term Expires Age
- ---------- -------------- -------------------- ------------ ------
Jean-Pierre Noblanc................... Chairman 1994 2002 62
Bruno Steve........................... Vice Chairman 1989 2002 59
Tom de Waard.......................... Member 1998 2002 54
Remy Dullieux......................... Member 1993 2002 50
Douglas Dunn.......................... Member 2001 2002 57
Riccardo Gallo........................ Member 1997 2002 57
Francis Gavois........................ Member 1998 2002 65
Alessandro Ovi........................ Member 1994 2002 57
Robert M. White....................... Member 1996 2002 62
Jean-Pierre Noblanc has been the Chairman of the Supervisory Board
since May 31, 1999, and has been a member of the Supervisory Board since 1994.
He served as Vice Chairman of the Supervisory Board from June 1996 to May 31,
1999. Mr. Noblanc is presently General Manager of the Components Sector of CEA
Industrie. Prior to joining CEA Industrie, Mr. Noblanc served at CNET, the
Research Center of France Telecom, as Director of the Applied Research Center of
Bagneux and of the Microelectronics Center of Grenoble. Mr. Noblanc holds a
degree in engineering from the Ecole Superieure d'Electricite and a doctoral
degree in physical sciences from the University of Paris. Mr. Noblanc is a
Member of the French Academy of Technology and serves on the Board of Directors
of CEA Industrie, FT1CI and Picogiga S.A. He is also the Chairman of the Board
of MEDEA+, an industry research and development program on microelectronics
belonging to the EUREKA organization.
Bruno Steve has been a member of our Supervisory Board since 1989 and
its Chairman until May 31, 1999. He served as Vice Chairman of the Supervisory
Board from 1989 to July 1990. From July 1990 to March 1993, Mr. Steve served as
Chairman of the Supervisory Board. He has been with I.R.I., Finmeccanica's
parent company, Finmeccanica and other affiliates of I.R.I. in various senior
positions for over 17 years. Mr. Steve is currently President of the board of
statutory auditors of Alitalia S.p.a., Italia Express S.p.a. and Sigma S.p.A.,
Chairman of the Board of EEMS S.p.A., and member of statutory auditors of
Stretto di Messina S.p.A. Until December 1999, he served as Chairman of MEI. He
served as the Chief Operating Officer of Finmeccanica from 1988 to July 1997 and
Chief Executive Officer from May 1995 to July 1997. He was Senior Vice President
of Planning, Finance and Control of I.R.I. from 1984 to 1988. Prior to 1984, Mr.
Steve served in several key executive positions at Telecom Italia, I.R.I.'s
holding company for the telecommunications sector.
Tom de Waard was appointed to the Supervisory Board in 1998. Mr. de
Waard has been a partner of Clifford Chance, a leading English law firm, since
March 2000. Prior to that, he was a partner at Stibbe, Simont, Monahan, & Duhot,
where he held several positions since 1979 and gained extensive experience
working with major international companies, particularly with respect to
corporate finance. He is a member of the Amsterdam bar and received his law
degree from Leiden University in 1979.
Remy Dullieux has been a member of the Supervisory Board since 1993. He
is a graduate of the Ecole Polytechnique. Since June 1996, Mr. Dullieux has
served as a France Telecom Executive Manager for the Northern and Eastern areas
of France. From 1991 to June 1996, Mr. Dullieux served as Group Executive Vice
President for Strategic Procurement and Development of France Telecom. From 1985
to 1988, Mr. Dullieux served as Regional Manager of Creteil. Mr Dullieux also
serves on the Board of Directors of FT1CI.
55
Douglas Dunn was appointed to the Supervisory Board in 2001. He is
President and Chief Executive Officer of ASM Lithography Holding N.V. He was a
member of the Managing Board of Royal Philips Electronics in 1998. From 1996 to
1998 he was Chairman and Chief Executive Officer of Philips Consumer
Electronics. From 1993 to 1996 Chairman and Chief Executive Officer of Philips
Semiconductors. From 1980 to 1993 he held various positions at Plessey
Semiconductors. Prior to 1980, Mr. Dunn served in executive positions at
Motorola Semiconductors.
Riccardo Gallo was appointed to the Supervisory Board in 1997. He is
Associate Professor of Industrial Economics at the Engineering Faculty of "La
Sapienza" University in Rome. He has also been a member of the board of
directors of Comitato Sir from 1981 until the present. From 1982 to 1991, he
served as Director General at the Italian Ministry of the National Budget. In
the early 1990s, he served as Vice Chairman of I.R.I. In 1994, he was appointed
by the Italian Minister of Industry as Extraordinary Commissioner of Fidia, a
research-oriented pharmaceutical company.
Francis Gavois was appointed to the Supervisory Board in 1998. Mr.
Gavois is the Chairman of the Supervisory Board of ODDO et Cie. He is also a
member of the Board of Directors of Plastic Omnium, FT1CI and the Supervisory
Board of the Consortium de Realisation (CDR). From 1984 to 1997, Mr. Gavois held
several positions, including Chairman of the Board of Directors and Chief
Executive Officer of Banque Francaise du Commerce Exterieur (BFCE). Prior to
that time Mr. Gavois held positions in the French government. He is Inspecteur
des Finances and a graduate of the Institut d'Etudes Politiques de Paris and the
Ecole Nationale d'Administration.
Alessandro Ovi has been a member of the Supervisory Board since 1994.
He received a doctoral degree in Nuclear Engineering from the Politecnico in
Milan and a masters degree in operations research from Massachusetts Institute
of Technology. He currently is a Special Advisor to the President of the
European Community and also serves on the boards of Carnegie Mellon University
and Corporation Development Committee of the Massachusetts Institute of
Technology. Until April 2000, Mr. Ovi was the Chief Executive Officer of
Tecnitel S.p.a., a subsidiary of Telecom Italia Group. Prior to joining Tecnitel
S.p.A., Mr. Ovi was the Senior Vice President of International Affairs and
Communications at I.R.I.
Robert M. White was appointed to the Supervisory Board in June 1996.
Mr. White is a University Professor and Director of the Data Storage Systems
Center at Carnegie Mellon University and serves as a member of several corporate
boards, including those of Ontrack Data Systems, Inc., and Read-Rite, Inc. He is
a member of the U.S. National Academy of Engineering. From 1990 to 1993, Mr.
White served as Under Secretary of Commerce for Technology in the United States
Government. Prior to 1990, Mr. White served in several key executive positions
at Xerox Corporation, Control Data Corporation and MCC. He received a doctoral
degree in physics from Stanford University and graduated with a degree in
physics from Massachusetts Institute of Technology.
Supervisory Board Committees
Audit Committee. The Audit Committee was established in 1996 to assist
the Supervisory Board in fulfilling its oversight responsibilities relating to
corporate accounting, reporting practices, and the quality and integrity of our
financial reports. Its primary duties and responsibilities according to its
charter are to oversee that:
o Our management has maintained the reliability and integrity of
the accounting policies and financial reporting and disclosure
practices;
o Our management has established and maintained processes to
assure compliance with all applicable laws, regulations and
corporate policy concerning financial accounting; and
o The independence and performance of our external auditors.
Our Audit Committee is composed of four directors, and meets at least
five times annually, and more frequently as circumstances dictate. It is
currently chaired by Mr. de Waard and also comprised of Messrs. Gavois, Ovi and
White.
Compensation Committee. Our Compensation Committee approves the
compensation for the sole member of our Managing Board. It also approves any
increase in the incentive compensation component of our executive officers.
Finally, the Compensation Committee is informed of the compensation plans for
our executive officers. It is currently comprised of the Chairman (Mr. Noblanc),
the Vice-Chairman (Mr. Steve) and Mr. White.
56
Strategic Committee. Our Strategic Committee was instituted to monitor
key developments within the semiconductor industry and our overall strategy, and
is particularly involved in supervising the execution of significant
transactions. Our Strategic Committee does not have a charter or regular
meetings, but meets as often as is required by our ongoing business or any new
significant opportunities. It is currently comprised of Messrs. Noblanc and
Steve.
Managing Board
Our management is entrusted to the Managing Board under the supervision
of the Supervisory Board. Mr. Pasquale Pistorio, our President and Chief
Executive Officer, is currently the sole member of the Managing Board. His term
expires in 2002. There is no mandatory retirement age for members of our
Managing Board.
Under the Articles of Association, the Managing Board must obtain prior
approval from the Supervisory Board for (i) all proposals to be submitted to a
vote at the general meeting of shareholders; (ii) the formation of all
companies, acquisition or sale of any participation, and conclusion of any
cooperation and participation agreement; (iii) all of our multi-year plans and
the budget for the coming year, covering investment policy, policy regarding
research and development, as well as commercial policy and objectives, general
financial policy, and policy regarding personnel; and (iv) all acts, decisions
or operations covered by the foregoing and constituting a significant change
with respect to decisions already taken by the Supervisory Board. The Managing
Board must seek approval from the general meeting of shareholders for decisions
relating to (i) the sale of all or of an important part of our assets or
concerns; and (ii) all mergers, acquisitions or joint ventures which we wish to
enter into and which the Supervisory Board considers to be of material
significance. In addition, under the Articles of Association, the Supervisory
Board may specify by resolution certain actions by the Managing Board that
require its prior approval. Following the adoption of such a resolution, the
actions by the Managing Board requiring such prior approval include the
following: (i) modification of our Articles of Association; (ii) change in our
authorized share capital, issue, acquisition or disposal of our own shares,
change in any shareholder rights or issue of any instruments granting an
interest in our capital or profits; (iii) liquidation or disposal of all or a
substantial and material part of our assets or any shares we hold in any of our
subsidiaries; (iv) entering into any merger, acquisition or joint venture
agreement (and, if substantial and material, any agreement relating to
intellectual property) or formation of a new company; (v) approval of such
company's draft consolidated balance sheets and financial statements or any
profit distribution by such company; (vi) entering into any agreement with any
of the direct or indirect French or Italian shareholders outside the normal
course of business; (vii) submission of documents reporting on (a) approved
policy, expected progress and results and (b) strategic long-term business plans
and consolidated annual budgets or any modifications to such; (viii) preparation
of long-term business plans and annual budgets; (ix) adoption and implementation
of such long-term business plans and annual budgets; (x) approval of all
operations outside the normal course of business, including operations already
provided for in the annual budget; and (xi) approval of the quarterly,
semi-annual and annual consolidated financial statements prepared in accordance
with internationally accepted accounting principles. Such resolution also
requires that the Managing Board obtain prior approval from the Supervisory
Board for (i) the appointment of the members of the statutory management,
administration and control bodies of our French and Italian subsidiaries; and
(ii) the nomination of our statutory management, administration and control
bodies and each of our other direct and indirect subsidiaries followed by
confirmation to the Supervisory Board of such nominees' appointments. The
general meeting of shareholders may also specify certain actions of the Managing
Board that require shareholder approval. Our Articles of Association provide
that the Managing Board must obtain shareholder approval prior to (i) the sale
of all or an important part of our assets and concerns; and (ii) all mergers,
acquisitions or joint ventures which we wish to enter into and which the
Supervisory Board considers to be of material significance. However, during a
meeting held on September 23, 2000, the Supervisory Board authorized the
Managing Board to proceed with acquisitions without prior consent of the
Supervisory Board subject to a maximum amount of $25 million per transaction,
provided the Managing Board keeps the Supervisory Board informed of progress
regarding transactions and gives a full report once the transaction is
completed. See "Item 4: Information on the Company" and "Item 7: Major
Shareholders and Related Party Transactions - Related Party Transactions."
The Managing Board shall consist of such number of members as resolved
by the general meeting of shareholders upon the proposal of the Supervisory
Board. The members of the Managing Board are appointed for three year terms upon
proposal by the Supervisory Board at the general shareholders' meeting by a
majority of the votes cast at a meeting where at least one-third of the
outstanding share capital is present or represented. The Supervisory Board
appoints one of the members of the Managing Board to be chairman of the Managing
Board require the approval of a majority of its members.
57
Board for a three year term (upon approval of at least three-quarters of the
members of the Supervisory Board). Resolution
The general meeting of shareholders may suspend or dismiss one or more
members of the Managing Board at a meeting at which at least one-half of the
outstanding share capital is present or represented. No quorum is required if a
suspension or dismissal is proposed by the Supervisory Board. The Supervisory
Board may suspend members of the Managing Board, but a general meeting of
shareholders must be convened within three months after such suspension to
confirm or reject the suspension. The Supervisory Board shall appoint one or
more persons who shall, at any time, in the event of absence or inability to act
of all the members of the Managing Board, be temporarily responsible for our
management. Upon delegation from the Supervisory Board, the Compensation
Committee determines the compensation and other terms and conditions of
employment of the members of the Managing Board.
Executive Officers
Our executive officers support the Managing Board in its management of
us, without prejudice to the Managing Board's ultimate responsibility. We are
organized in a matrix structure with geographical regions interacting with
product divisions, bringing all levels of management closer to the customer and
facilitating communication among research and development, production, marketing
and sales organizations. Our executive officers are:
Years in
Years with Semiconduct
Name Position Company(1) or Industry Age
- ---------- ------------- -------------- ------------ ---
Pasquale Pistorio President and Chief Executive
Officer 21 37 65
Georges Auguste Corporate Vice President, Total
Quality and Environmental
Management 14 27 52
Laurent Bosson Corporate Vice President, Front-end
Manufacturing 18 18 58
Carlo Bozotti Corporate Vice President, Memory
Products Group 24 24 48
Salvatore Castorina Corporate Vice President, Discrete
and Standard ICs Group 19 35 64
Alain Dutheil Corporate Vice President, Strategic
Planning and Human Resources 18 31 56
Philippe Geyres Corporate Vice President, Consumer
and Microcontroller Group 17 25 49
Maurizio Ghirga Corporate Vice President, Chief
Financial Officer 18 18 63
Jean-Claude Marquet Corporate Vice President,
Asia/Pacific Region 15 34 59
Pier Angelo Martinotti Corporate Vice President, New
Ventures Group 20 33 60
Joel Monnier Corporate Vice President, Central
Research and Development 18 27 55
Piero Mosconi Corporate Vice President, Treasurer 37 37 61
Carmelo Papa Corporate Vice President, Emerging
Markets 17 17 52
Richard Pieranunzi Corporate Vice President, Americas
Region 20 35 62
Aldo Romano Corporate Vice President,
Telecommunications, Peripherals
and Automotive Group 36 36 60
Giordano Seragnoli Corporate Vice President, Back-end
Manufacturing and Subsystems
Products Group 36 38 64
Keizo Shibata Corporate Vice President, Japan
Region 9 36 64
Enrico Villa Corporate Vice President, European
Region 33 33 60
- ----------------------
(1) Including years with Thomson Semiconducteurs or SGS Microelettronica.
58
Pasquale Pistorio has more than 37 years of experience in the
semiconductor industry. After graduating in Electrical Engineering from the
Polytechnical University of Turin in 1963, he started his career selling
Motorola products. Mr. Pistorio joined Motorola in 1967, becoming Director of
World Marketing in 1977 and General Manager of the International Semiconductor
Division in 1978. Mr. Pistorio joined SGS Microelettronica as President and
Chief Executive Officer in 1980 and became our President and Chief Executive
Officer upon our formation in 1987.
Georges Auguste has served as Corporate Vice President, Total Quality
and Environmental Management since 1999. Mr. Auguste received a degree in
engineering from the Ecole Superieure d'Electricite (SUPELEC) in 1974 and a
diploma in business administration from the Caen University in 1976. Prior to
joining us, Mr. Auguste worked with Philips Components from 1974 to 1986, in
various positions in the field of manufacturing. From 1990 to 1997 he headed our
operations in Morocco and from 1997 to 1999 Mr. Auguste served as director of
Total Quality and Environmental Management.
Laurent Bosson has served as Corporate Vice President, Front-end
Manufacturing and VLSI Fabs since 1989 and from 1992 to 1996 he was given
additional responsibility as President and Chief Executive Officer of our
operations in the Americas. Mr. Bosson received a Masters degree in Chemistry
from the University of Dijon in 1969. He joined Thomson-CSF in 1964 and has held
several positions in engineering and manufacturing. In 1982, Mr. Bosson was
appointed General Manager of the Tours and Alencon facilities of Thomson
Semiconducteurs. In 1985, he joined the French subsidiary of SGS
Microelettronica as General Manager of the Rennes, France manufacturing
facility.
Carlo Bozotti has served as Corporate Vice President, Memory Products
since August 1998. Mr. Bozotti joined SGS Microelettronica in 1977 after
graduating in Electronic Engineering from the University of Pavia. Mr. Bozotti
served as Product Manager for the Industrial, Computer Peripheral and Telecom
divisions and as Product Manager for the Monolithic Microsystems' Telecom
business unit from 1986 to 1987. He was appointed Director of Corporate
Strategic Marketing and Key Accounts for the Headquarters Region in 1988 and
became Vice President, Marketing and Sales, Americas Division in 1991. Mr.
Bozotti has served as Corporate Vice President, Memory Products since August
1998, after having served as Corporate Vice President, Europe and Headquarters
Region from 1994 to 1998.
Salvatore Castorina has served as Corporate Vice President, Discrete
and Standard ICs Group since 1989. Mr. Castorina received his engineering degree
in Electronics from the Polytechnical University of Turin and began his career
as a teacher of electrical and electronic technologies prior to joining
Thomson-CSF in Milan in 1965. In 1967, he joined Motorola Semiconductors and
held various positions in sales and marketing. In 1981, Mr. Castorina joined us
as General Manager of Transistors in Catania and became the General Manager of
our Discrete Division in 1989.
Alain Dutheil has served as Corporate Vice President, Strategic
Planning and Human Resources since 1994 and 1992, respectively. Mr. Dutheil is
also President of our French subsidiary. After graduating in Electrical
Engineering from the Ecole Superieure d'Ingenieurs de Marseilles (ESIM), Mr.
Dutheil joined Texas Instruments in 1969 as a Production Engineer, becoming
Director for Discrete Products in France and Human Resources Director for Texas
Instruments, France in 1980 and Director of Operations for Texas Instruments,
Portugal in 1982. He joined Thomson Semiconducteurs in 1983 as General Manager
of a plant in Aix-en-Provence, France and then became General Manager of our
Discrete Products Division. From 1989 to 1994, Mr. Dutheil served as Director
for Worldwide Back-end Manufacturing, in addition to serving as Corporate Vice
President for Human Resources from 1992 until the present.
Philippe Geyres has served as Corporate Vice President, General Manager
Consumer and Microcontroller Group (formerly Programmable Products Group) since
1990. Mr. Geyres graduated from the Ecole Polytechnique in 1973 and began his
career with IBM in France before joining Schlumberger Group in 1980 as Data
Processing Director. He was subsequently appointed Deputy Director of the IC
Division at Fairchild Semiconductors. Mr. Geyres joined Thomson Semiconducteurs
in 1983 as Director of the Bipolar Integrated Circuits Division. He was
appointed Strategic Programs Director in 1987 and, later the same year, became
our Corporate Vice President, Strategic Planning.
Maurizio Ghirga became Corporate Vice President, Chief Financial
Officer in 1987, after having served as chief financial controller of SGS
Microelettronica since 1983. Mr. Ghirga has a degree in Business Administration
59
from the University of Genoa. He spent more than ten years of his career in
various financial capacities at ESSO Company (an Exxon subsidiary in Italy) and
prior to joining us was Financial Controller of one of the largest refinery
plants in Italy and of an ESSO chemical subsidiary.
Jean-Claude Marquet has served as Corporate Vice President,
Asia/Pacific Region since July 1995. After graduating in Electrical and
Electronics Engineering from the Ecole Breguet Paris, Mr. Marquet began his
career in the French National Research Organization and later joined Alcatel. In
1969, he joined Philips Components. He remained at Philips until 1978, when he
joined Ericsson, eventually becoming President of Ericsson's French operations.
In 1985, Mr. Marquet joined Thomson Semiconducteurs as Vice President Sales and
Marketing, France. Thereafter, Mr. Marquet served as Vice President Sales and
Marketing for France and Benelux, and Vice President Asia Pacific and Director
of Sales and Marketing for the region.
Pier Angelo Martinotti has served as Corporate Vice President, General
Manager New Ventures Group since 1994. A graduate in Electronic Engineering from
the Polytechnical University of Turin, Mr. Martinotti began his career with us
in 1965 as an Application and Marketing Engineer. In 1968, he joined Motorola
Semiconductors in the area of strategic marketing in Europe, and in 1975 became
the Marketing (Sales) Director for Europe. From 1986 to 1990, Mr. Martinotti was
Chief Executive Officer of Innovative Silicon Technology, our former subsidiary.
Mr. Martinotti was appointed Director of Corporate Strategic Planning in 1990.
Joel Monnier has served as Corporate Vice President, Director of
Central Research and Development since 1989. After graduating in Electrical
Engineering from the Institut National Polytechnique of Grenoble, Ecole
Nationale Superieure de Radio Electricite, Mr. Monnier obtained a doctoral
degree in microelectronics at LETI/CENG. He began his career in the
semiconductor industry in 1968 as a researcher with CENG, and subsequently
joined the research and development laboratories of Texas Instruments in
Villeneuve Loubet, France and Houston, Texas, eventually becoming Engineering
Manager and Operation Manager at Texas Instruments. Mr. Monnier joined
Thomson-CSF in 1983 as head of the research and manufacturing unit of Thomson
Semiconducteurs. In 1987, he was appointed Vice President and Corporate Director
of Manufacturing.
Piero Mosconi has served as Corporate Vice President, Treasurer since
1987. After graduating in accounting from Monza in 1960, Mr. Mosconi joined the
faculty at the University of Milan. Mr. Mosconi worked with an Italian bank
before joining the Foreign Subsidiaries Department at SGS Microelettronica in
1964 and becoming Corporate Director of Finance in 1980.
Carmelo Papa has served as Corporate Vice President, Emerging Markets
since January 2000. Mr. Papa received his degree in nuclear physics at Catania
University. Mr. Papa joined us in 1983 and since 1986 has been Director of
Product Marketing and Customer Service for Transistors and Standard ICs. During
this time, he has overseen a substantial growth both in the product portfolio
and the sales volume. He has also played a key role both in the expansion of our
facility in Catania, Italy, from its origin as a low-cost assembly plant to its
present position as one of our most important and dynamic centres, hosting
advanced R&D in areas ranging from process technology to fuzzy logic and other
"soft computing" disciplines, leading-edge wafer manufacturing and Sales and
Marketing HQ for our Discrete and Standard Circuits division.
Richard Pieranunzi has served as Corporate Vice President, Americas
Region since August 1996. Mr. Pieranunzi received his BSEE from the University
of Rhode Island, and started his career in process engineering. Later, he joined
Motorola's international marketing organization, including in Europe where he
held management positions in sales and strategic marketing and applications. Mr.
Pieranunzi joined SGS Semiconducteurs in 1981 as Marketing and Sales Manager
and, upon our formation in 1987, he became Vice President Marketing and Sales
for the U.S. organization. For three years, Mr. Pieranunzi headed our Corporate
Strategic Marketing and Corporate Key Account programs.
Aldo Romano has served as Corporate Vice President, General Manager
Telecommunications, Peripherals and Automotive Group (formerly Dedicated
Products Group) since 1987. Mr. Romano is also Managing Director of our Italian
subsidiary. A graduate in Electronic Engineering from the University of Padua in
1963, Mr. Romano joined SGS Microelettronica in 1965 as a designer of linear
ICs, becoming head of the linear IC design laboratory in 1968 and head of
Marketing and Applications in 1976. Mr. Romano became Director of the Bipolar IC
Division (which has evolved into the Dedicated Products Group) in 1980.
60
Giordano Seragnoli has served as Corporate Vice President, General
Manager Subsystems Products Group since 1987 and since 1994, Director for
Worldwide Back-end Manufacturing. After graduating in Electrical Engineering
from the University of Bologna, Mr. Seragnoli joined the Thomson Group as RF
Application Designer in 1962 and joined SGS Microelettronica in 1965.
Thereafter, Mr. Seragnoli served in various capacities within our management,
including Strategic Marketing Manager and Subsystems Division Manager,
Subsystems Division Manager (Agrate), Technical Facilities Manager, Subsystems
Division Manager and Back-End Manager.
Keizo Shibata has served as Corporate Vice President and President of
our Japanese subsidiary since 1992. Mr. Shibata obtained bachelors and masters
degrees in Engineering from Osaka University and has 32 years of experience in
the semiconductor industry. Prior to joining us, Mr. Shibata was employed with
Toshiba Corporation since 1964 in various capacities. From 1987 to 1988, Mr.
Shibata served as Chairman of both World Semiconductor Trade Statistics and the
Trade Policy Committee of the Electric Industry Association of Japan.
Enrico Villa has served as Corporate Vice President, Europe since
January 1, 2000. Mr. Villa has served in various capacities within our
management since 1968 after obtaining a degree in Business Administration from
the University of Genoa and has 30 years of experience in the semiconductor
industry. He is currently a member of the European Electronics Component
Association ("EECA") for which he is now Chairman of the European Semiconductor
Council as well as Chairman for Europe at the Joint Steering Committee of the
World Semiconductor Council.
As is common in the semiconductor industry, our success depends to a
significant extent upon, among other factors, the continued service of its key
senior executives and research and development, engineering, marketing, sales,
manufacturing, support and other personnel, and on our ability to continue to
attract, retain and motivate qualified personnel. The competition for such
employees is intense, and the loss of the services of any of these key personnel
without adequate replacement or the inability to attract new qualified personnel
could have a material adverse effect on us. We do not maintain insurance with
respect to the loss of any of our key personnel.
Compensation
The aggregate compensation paid in 2000 to the members of our
Supervisory Board by us was approximately $500,000. The amount of compensation
paid in 2000 to our executive officers and members of our Managing Board as a
group by us was approximately $8.7 million.
In 1989, we established a Corporate Executive Incentive Program (the
"EIP") that entitles selected executives and members of the Managing Board to a
yearly bonus based upon the individual performance of such executives. The
maximum bonus awarded under the EIP is based upon a percentage of the executive
or member's salary and is adjusted to reflect our overall performance. The
participants in the EIP must satisfy certain personal objectives that are
focused on customer service, profit, cash flow and market share.
For information regarding stock options granted to members of our
Supervisory Board, the Managing Board and our executive officers please refer to
"--Stock Option Plans" below.
The executive officers and the Managing Board were also covered in 2000
under certain group life and medical insurance programs provided by us. The
aggregate additional amount set aside by us in 2000 to provide pension,
retirement or similar benefits for executive officers and our Managing Board as
a group is estimated to have been approximately $3.5 million, which includes
statutory employer contributions for state-run retirement and similar benefit
programs. We do not have any service agreements with members of our Supervisory
Board, the Managing Board or our executive officers that provide for benefits
upon termination of employment, beyond their legal entitlement in accordance
with applicable employment laws.
Share Ownership
None of the members of our Supervisory and Managing Boards, or our
executive officers hold more than 1% of our shares.
61
Stock Option Plans
The following description of our stock options plans has been adjusted
for the 2:1 stock split effected on June 16, 1999 and the 3:1 stock split
effected on May 5, 2000. Taking into account these stock splits, the total
options outstanding as of March 31, 2000 give the right to acquire 26,441,561
Common Shares by our employees and 402,500 Common Shares by members and
professionals of our Supervisory Board, or a total of 26,844,061 shares.
On October 20, 1995, our shareholders approved resolutions authorizing
the Supervisory Board for a period of five years to adopt and administer a stock
option plan that provides for the granting to our managers and professionals of
options to purchase up to a maximum of 33.0 million Common Shares (the "1995
Stock Option Plan"). We granted options to acquire a total of 31,561,441 shares
pursuant to the 1995 Stock Option Plan as follows:
o On March 1, 1996, we granted options to purchase 7,200,000
Common Shares with an exercise price per Common Share of
$6.04. All such options will expire on March 1, 2004. As of
March 31, 2001, options to purchase 2,840,600 shares were
outstanding, of which 681,200 were held by the members of the
Managing Board and our executive officers, as a group.
o On September 12, 1997, we granted options to purchase
3,873,000 Common Shares with an exercise price per Common
Share of $14.23, which will expire on September 12, 2005. As
of March 31, 2001, options to purchase 3,515,820 shares were
outstanding, of which 1,034,100 were held by the members of
the Managing Board and our executive officers, as a group.
o On July 28, 1998, we granted options to purchase 3,900,000
Common Shares with an exercise price per Common Share of
$12.03, which will expire on July 28, 2006. As of March 31,
2001, options to purchase 3,820,140 shares were outstanding,
of which 1,069,140 were held by the members of the Managing
Board and our executive officers, as a group.
o On September 16, 1999, we granted options to purchase
8,878,200 Common Shares with an exercise price per Common
Shares of $24.88, which will expire on September 16, 2007. As
of March 31, 2001, options to purchase 8,680,200 shares were
outstanding, of which 1,772,400 were held by the members of
the Managing Board and our executive officers, as a group.
o On January 24, 2000, we made a special grant of options to
purchase 150,000 Common Shares to former employees of Arithmos
with an exercise price of $55.25 and which expire on January
24, 2008. As of March 31, 2001, options to purchase 113,730
shares were outstanding pursuant to this grant.
o On June 16, 2000, we granted options to purchase 5,331,250
Common Shares with an exercise price per Common Shares of
$62.01, which will expire on June 16, 2008. As of March 31,
2001, options to purchase 5,269,150 shares were outstanding,
of which 712,000 were held by the members of the Managing
Board and our executive officers, as a group.
o On September 18, 2000, we made a special grant of options to
purchase 70,000 Common Shares to former employees of
Waferscale Integration Inc. with an exercise price per Common
Shares of $52.88, which will expire on September 18, 2008. As
of March 31, 2001, options to purchase 69,370 shares were
outstanding.
o On December 11, 2000, we granted options to purchase 2,019,640
Common Shares with an exercise price per Common Shares of
$50.69, which will expire on December 11, 2008. As of March
31, 2001, options to purchase 1,993,200 shares were
outstanding.
o On December 18, 2000, we made a special grant of options to
purchase 26,501 Common Shares to former employees of PGI with
an exercise price per Common Shares of $44.00, which will
expire on December 18, 2008. As of March 31, 2001, options to
purchase 26,501 shares were outstanding.
62
o On March 1, 2001, we made a special grant of options to
purchase 112,850 Common Shares with an exercise price per
Common Shares of $31.65, which will expire on March 1, 2008.
As of March 31, 2001, options to purchase 112,850 shares were
outstanding.
As of March 31, 2001, of the total options outstanding under the 1995
Stock Option Plan, options to purchase 5,268,840 shares were held by the member
of the Managing Board and executive officers as a group.
On April 25, 2001, our shareholders approved resolutions authorizing
the Supervisory Board for a period of five years to adopt and administer a new
stock option plan that provides for the granting to our managers and
professionals of options to purchase up to a maximum of 60.0 million Common
Shares (the "2001 Stock Option Plan"). On April 27, 2001, our Supervisory Board
authorized the granting of options to purchase 9,462,800 options with an
exercise price per Common Share of $39.00, which will expire on April 27, 2011.
Of this amount, options to purchase 981,000 Common Shares were granted to the
member of the Managing Board and our executive officers, as a group.
In June 1996, the general meeting of shareholders approved the granting
of options to members and professionals of the Supervisory Board which
correspond to the right to purchase approximately 378,000 of our Common Shares
over a period of three years, beginning in 1996. Following this grant, certain
persons have renounced the right to retain the stock options granted to them.
The following options have been granted to members and professionals of our
Supervisory Board:
o On October 24, 1996, we granted to members and professionals
of the Supervisory Board options to purchase 198,000 Common
Shares with an exercise price per Common Share of $9.00, which
will expire on October 22, 2004. As of March 31, 2001, options
to purchase 57,000 shares were outstanding.
o On September 12, 1997, we granted to members and professionals
of the Supervisory Board options to purchase 90,000 Common
Shares with an exercise price per Common Share of $14.23,
which will expire on September 12, 2005. As of March 31, 2001,
options to purchase 30,500 shares were outstanding.
o On July 28, 1998, we granted to members and professionals of
the Supervisory Board options to purchase 103,500 Common
Shares with an exercise price per Common Share of $12.03,
which will expire on July 28, 2006. As of March 31, 2001,
options to purchase 45,000 shares were outstanding.
In 1999, the general meeting of the shareholders voted to renew the
Supervisory Board Option Plan whereby members of the Supervisory Board may
receive, during the three-year period 1999-2001, at least the same number of
options as were granted during the first three-year period. The following
options have been granted:
o On September 16, 1999, we granted options to members and
professionals of the Supervisory Board to purchase 180,000
Common Shares with an exercise price per Common Share of
$24.88, which will expire on September 16, 2007. As of March
31, 2001, options to purchase 180,000 shares were outstanding.
o On June 16, 2000, we granted options to members and
professionals of the Supervisory Board to purchase 103,500
Common Shares with an exercise price per Common Share of
$62.01, which will expire on June 16, 2008. As of March 31,
2001, options to purchase 90,000 shares were outstanding.
o On April 27, 2001, we granted options to members and
professionals of the Supervisory Board to purchase 112,500
Common Shares with an exercise price per Common Share of
$39.00, which will expire on April 27, 2009.
63
Employees
The tables below set forth the breakdown of employees by main category
of activity and geographic area for the past three years.
At December 31,
----------------------------------
1998 1999 2000
---------- -------- --------
France........................................................ 5,950 7,200 9,600
Italy......................................................... 6,350 7,650 9,200
Rest of Europe................................................ 650 850 1,050
United States................................................. 2,650 3,250 4,350
Malta and Morocco............................................. 5,450 6,000 7,450
Asia ....................................................... 8,150 9,550 12,000
----- ----- ------
Total ....................................................... 29,200 34,500 43,650
====== ====== ======
At December 31,
----------------------------------
1998 1999 2000
---------- -------- --------
Research and Development...................................... 4,400 5,350 6,800
Marketing and Sales........................................... 1,700 1,900 2,250
Manufacturing................................................. 20,200 23,800 30,450
Administration and General Services........................... 1,600 1,800 2,200
Divisional Functions.......................................... 1,300 1,650 1,950
----- ----- -----
Total ....................................................... 29,200 34,500 43,650
====== ====== ======
Our future success, in particular in a period of strong increased
demand will also depend on our ability to continue to attract, retain and
motivate highly qualified technical, marketing, engineering and management
personnel. Unions are present in France, Italy, Malta, Morocco and Singapore. We
have not experienced any significant strikes or work stoppages in recent years,
other than in connection with national strikes in Italy, and management believes
that our relations with employees are good.
As part of our commitment to the principles of TQEM, we decided in July
1994 to develop an internal education organization called "ST University",
responsible for organizing training courses to executives, engineers,
technicians and sales personnel within STMicroelectronics and coordinating all
training for our employees. In 2000, ST University organized over 130,000 hours
of training for 5,000 employees.
We have also established an Employee Stock Purchase Plan that includes
the following provisions:
o A total of 4.5 million shares are to be offered to employees
of STMicroelectronics N.V. and its majority owned subsidiaries
in 20 specified countries and such other countries to which
the Supervisory Board may extend the Plan, on the
recommendation of our Managing Board.
o The first 1.5 million shares offered will be new shares. The
source of the remaining 3.0 million shares is to be decided by
the Supervisory Board in due course.
o The Plan has a three year term, from 2000 to 2003 and features
semi-annual offering periods.
o For each offering period, the subscription price will be equal
to 85% of the lesser of the NYSE closing price for shares on
the first day of the offering period and the last day of the
offering period.
o The maximum fair value of the shares that may be subscribed
per employee per offering period is $12,500.
The first tranche of the Employee Stock Purchase Plan was offered in
November 2000 and the second tranche has now been launched, with the
subscription period ending May 21, 2001.
64
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
Major Shareholders
The following table sets forth certain information with respect to the
ownership of our Common Shares as of April 28, 2001.
Shareholders Common Shares Owned (1)
- ------------------ --------------------------------
Number %
-------- ------
STMicroelectronics Holding II B.V.
("ST Holding II")........................ 389,483,280 43.55
- ----------------------
(1) Following the 2:1 stock split and 3:1 stock split effected by us on
June 16, 1999, and May 5, 2000, respectively.
ST Holding is 50% owned by FT1CI, a group of French shareholders that
are indirectly controlled by the French government, and 50% owned by
Finmeccanica S.p.A., also directly and indirectly controlled by the Italian
government. FT1CI, the group of French shareholders, is comprised of France
Telecom, the French state-controlled telephone company, and CEA-Industrie, a
corporation controlled by the French atomic energy commission, who hold through
FT1CI. Finmeccanica is an Italian holding company owned by both the Italian
Ministry of Treasury, which controls important actions of Finmeccanica due to
its significant holding in it, Istituto per la Ricostruzione Industriale-IRI
S.p.A. in liquidazione ("I.R.I.", the holding company for Italian state-owned
industrial and commercial interests) and the public. The Italian Ministry of
Treasury has appointed a majority of the members of Finmeccanica's Board of
Directors and pursuant to the provisions of its articles of association and
Italian law, retains veto rights over certain major transactions involving
Finmeccanica. The shares of France Telecom are listed on Euronext Paris and the
New York Stock Exchange. Certificats d'investissement of CEA-Industrie are
listed on Euronext Paris. The shares of Finmeccanica are listed on the Milan
Stock Exchange.
The chart below illustrates the current shareholding structure as of
April 28, 2001:
This information was represented by an organizational chart in the
original document.
Description of Shareholding Structure: STMicroelectronics N.V. is owned
43.55% by STMicroelectronics Holding II B.V. and 56.45% by the public.
STMicroelectronics II B.V. is a wholly owned subsidiary of STMicroelectronics
Holding N.V., which is 50% owned by a group of French shareholders and 50% owned
by a group of Italian shareholders. The French shareholder, FT1CI, is owned 51%
by CEA-Industrie and 49% by France Telecom. The Italian shareholder,
Finmeccanica, is owned 5% by I.R.I., 32.4% by the Italian Ministry of Treasury,
and 62.6% by the public.
Shareholder Agreements
In connection with our formation, Thomson-CSF and STET, as our
shareholders, entered into a shareholders agreement on April 30, 1987. In
connection with the formation of ST Holding in 1989, which coincided with the
acquisition by Thorn EMI of its interest in STMicroelectronics N.V., the
shareholders agreement (as amended, the "Holding Shareholders Agreement") was
amended to apply to the parties' ownership in ST Holding. The rights and
obligations of Thomson-CSF and STET under the Holding Shareholders Agreement
were
65
subsequently transferred to or assumed by, as the case may be, FT2CI for
Thomson-CSF, and Finmeccanica and MEI for STET. As a result of the merger of
FT1CI and FT2CI, the rights and obligations of FT2CI under the Holdings
Shareholders Agreement have been transferred to FT1CI. In connection with the
transfer by Finmeccanica of its interest in ST Holding to MEI, the rights and
obligations of Finmeccanica under the Holding Shareholders Agreement were
transferred to or assumed by, as the case may be, MEI. Finally, following the
merger of MEI into Finmeccanica (effective on December 31, 1999), Finmeccanica
acquired all of the obligations and rights of MEI under the Holding Shareholders
Agreement.
The Holding Shareholders Agreement contemplates that the parties shall
agree upon common proposals and jointly exercise their powers of decision and
their full control of the strategies and actions of ST Holding and us. Under the
Holding Shareholders Agreement, the Supervisory Board of ST Holding, which is
composed of three representatives of the French Owner and three representatives
of the Italian Owner, and our Supervisory Board, each one within its respective
sphere of competence, must give their respective prior approval before ST
Holding, STMicroelectronics N.V., or any of our subsidiaries may: (i) modify our
articles of incorporation; (ii) change our authorized share capital, issue,
acquire or dispose of our shares, change any shareholder rights or issue any
instruments granting an interest in our capital or profits; (iii) be liquidated
or dispose of all or a substantial and material part of our assets or any shares
we hold in any of our subsidiaries; (iv) enter into any merger, acquisition or
joint venture agreement (and, if substantial and material, any agreement
relating to intellectual property) or form a new company; (v) approve such
company's draft consolidated balance sheets and financial statements or any
profit distribution by such company; or (vi) enter into any agreement with any
of the direct or indirect French or Italian Owners outside the normal course of
business. The Holding Shareholders Agreement also provides that our long-term
business plans and annual budgets and for our subsidiaries, as well as any
significant modifications thereto, shall be approved in advance by the
Supervisory Board of each of ST Holding and STMicroelectronics, each one within
its respective sphere of competence. In addition, the Supervisory Board of ST
Holding shall also decide upon operations of exceptional importance contained in
the annual budget even after financing thereof shall have been approved.
Pursuant to the terms of the Holding Shareholders Agreement, ST Holding
and STMicroelectronics are not permitted, as a matter of principle, to operate
outside the field of semiconductor products. The parties to the Holding
Shareholders Agreement also undertake to refrain directly or indirectly from
competing with us in the area of semiconductor products, subject to certain
exceptions, and to offer us opportunities to commercialize or invest in any
semiconductor product developments by them. Any financing or capital provided by
the parties to ST Holding or us is intended to be provided pro rata based on the
parties' respective shareholdings in ST Holding. See further details below.
The admission of a third party to the share capital of ST Holding,
whether through the sale of ST Holding's outstanding shares or through the issue
by ST Holding of new shares, or by any other means, must be unanimously agreed
upon. In the event of a disagreement that cannot be resolved between the parties
as to the conduct of the business and actions contemplated by the Holding
Shareholders Agreement, each party has the right to offer its interest in ST
Holding to the other, which then has the right to acquire, or to have a third
party acquire, such interest. If neither party agrees to acquire or have
acquired the other party's interest, then together the parties are obligated to
try to find a third party to acquire their collective interests, or such part
thereof as is suitable to change the decision to terminate the agreement. The
Holding Shareholders Agreement otherwise terminates in the event that one of the
parties thereto ceases to hold shares in ST Holding.
Pursuant to the terms of the Holding Shareholders Agreement and for the
duration of such agreement, FT1CI (the "French Owner"), on the one hand, and
Finmeccanica (the "Italian Owner"), on the other hand, have agreed to maintain
equal interests in our share capital. See further details below.
We have been informed that the shareholders of FT1CI have also entered
into a separate shareholder agreement that requires the consent of the Board of
Directors, with a two-thirds majority, for certain actions taken by ST Holding,
STMicroelectronics and our subsidiaries. These agreements provide for the
management of the interests of CEA-Industrie and France Telecom in ST Holding
and us, with the object of defining between them the positions, strategies and
decisions to be taken by the French Owner in ST Holding affecting the management
of ST Holding, and STMicroelectronics and our subsidiaries. We are not a party
to such agreement.
The agreement between the shareholders of FT1CI (CEA-Industrie and
France Telecom) provides that the following acts with respect to ST Holding or
us must be approved by three-quarters of the Board of Directors of
66
FT1CI (which consists of five directors, three of whom are chosen by
CEA-Industrie and two of whom are chosen by France Telecom): (i) any
modification of the articles of association of ST Holding or us, (ii) any change
in the capital of ST Holding or us, or issuance, purchase or sale by ST Holding
or us of our shares or rights attached thereto, or the issuance of any
securities giving rights to a share in the capital or profits of ST Holding or
us, (iii) the liquidation or dissolution of ST Holding or us or the sale of all
or an important and material part of the business or assets of ST Holding or us
representing at least $10,000,000 of our consolidated shareholders' equity, (iv)
any merger, acquisition, partnership in interest or the execution of any
material agreement relating to intellectual property rights, in each case in
which ST Holding or we participate or in which a proposal is made to
participate, or the establishment by ST Holding or us of new companies or
groups, (v) approval of the balance sheets and consolidated accounts of ST
Holding, us and our subsidiaries as well as the policies of distributions of
profits among the group, (vi) any agreement between ST Holding and/or us and the
shareholders of FT1CI which is out of the ordinary course of business, (vii) the
approval of, or material modifications to, shareholders agreements with the
Italian Owner with respect to ST Holding or us and (viii) approval of strategic
multi-year plans and annual consolidated budgets of ST Holding and us. Transfers
of shares in FT1CI to third parties are subject to the approval of at least four
members of the Board of Directors, and are subject to a right of first refusal
of the other shareholders, as well as other provisions. In the event
CEA-Industrie proposes to sell its interest in FT1CI, in whole or in part,
France Telecom has the right to require the acquirer to purchase its interest as
well. The FT1CI shareholders agreement terminates upon the termination of FT1CI.
As is the case with other companies controlled by the French
Government, the French Government has appointed a Commissaire du Gouvernement
and a Controleur d'Etat for FT1CI. Pursuant to Decree No. 94-214, dated March
10, 1994, these Government representatives have the right (i) to attend any
board meeting of FT1CI, and (ii) to veto any board resolution or any decision of
the president of FT1CI within 10 days of such board meeting (or, if they have
not attended the meeting, within 10 days of the receipt of the board minutes or
the notification of such president's decision); such veto lapses if not
confirmed within one month by the Ministry of the Economy or the Secretariat
d'Etat a l'Industrie (Secretary of Industry). FT1CI is subject to certain points
of the arrete of August 9, 1953 pursuant to which the Ministry of the Economy
and any other relevant ministries (a) have the authority to approve decisions of
FT1CI relating to budgets or forecasts of revenues, operating expenses and
capital expenditures, and (b) may set accounting principles and rules of
evaluation of fixed assets and amortization.
Pursuant to the principal Italian privatization law, certain special
government powers may be introduced into the by-laws of firms considered
strategic by the Italian government. In the case of Finmeccanica, these powers
were established by decrees adopted by the Minister of the Treasury on November
8, 1999 and Finmeccanica's by-laws were subsequently amended on November 23,
1999. The special powers of the Minister of the Treasury (who will act in
agreement with the Minister of Industry) include (i) the approval or disapproval
of the acquisition of material interests in Finmeccanica's share capital, (ii)
approval of material shareholders' agreements relating to Finmeccanica's share
capital, (iii) appointment of members of Finmeccanica's board of directors and
board of statutory auditors, and (iv) powers to veto resolutions to dissolve
Finmeccanica, transfer its business, merge, conduct spin-offs, sell businesses
or lines of business, including the transfer of equity participations in
subsidiaries or affiliates, transfer its registered office outside of Italy,
change Finmeccanica's corporate purposes or amend or modify any of the Minister
of the Treasury's special powers.
In connection with the Initial Public Offering, we entered into a
registration rights agreement with ST Holding II pursuant to which we agreed
that, upon request from ST Holding II, we will file a registration statement
under the Securities Act of 1933, as amended, to register Common Shares held by
ST Holding II, subject to a maximum number of five requests in total as well as
a maximum of one request in any twelve-month period. Subject to certain
conditions, we will grant ST Holding II the right to include our Common Shares
in any registration statements covering offerings of Common Shares by us. ST
Holding II will pay a portion of the costs of any requested or incidental
registered offering based upon its proportion of the total number of Common
Shares being registered, except that ST Holding II will pay any underwriting
commissions relating to Common Shares that it sells in such offerings and any
fees and expenses of its separate advisors, if any. Such registration rights
agreement will terminate upon the earlier of December 15, 2004 and such time as
ST Holding II and its affiliates own less than 10% of our outstanding Common
Shares.
The French and Italian shareholders of ST Holding agreed in a document
dated August 31, 1999, to continue to manage their interest in us through ST
Holding until at least December 31, 2000, and they agreed (i) to jointly hold
100% of ST Holding's capital and voting rights, (ii) to maintain equality
between the shareholdings of
67
the French and Italian shareholders, (iii) to ensure that ST Holding maintains
more than 40% of our share capital and voting rights on a fully diluted basis
after exercise or conversion of all stock options and convertible securities,
and (iv) to jointly exercise their decision-making powers and monitor strategies
and actions as part of ST Holding's management bodies. Both the French and
Italian governments have the authority to veto certain decisions of the French
and Italian shareholders, respectively, as explained above. ST Holding has
informed us that its shareholders have not extended this agreement. Therefore,
we cannot exclude the possibility that the percentage of our common stock and of
our voting rights held by ST Holding may change at any time. Any such
transaction, or publicity concerning such a potential transaction, could affect
the market price of our common shares and cause the market price of our common
shares to drop significantly.
On May 31, 1999, our shareholders at the annual general meeting
approved the creation of 180,000,000 Preference Shares (540,000,000 Preference
Shares, as adjusted for the 3:1 stock split implemented in May 2000). These
Preference Shares entitle a holder to full voting rights at any meeting of
shareholders and to a preferential right to dividends. On May 31, 1999, we
entered into an option agreement with ST Holding II, which provides that
Preference Shares shall be issued to ST Holding II upon request subject to the
adoption of a resolution of our Supervisory Board recognizing that a hostile
takeover or similar action exists and giving our consent to the exercise of the
option and upon payment of at least 25% of the par value of the Preference
Shares to be issued. The option is contingent upon ST Holding II retaining at
least 33% of our issued share capital.
Related Party Transactions
We have in the normal course of our business taken certain equity
positions, in each case less than 20% of the share capital of the companies in
question. In this context, we have entered into development contracts where
certain of these companies provide us services on arms' length terms. These
contracts are not material to our business.
We have formed a joint venture research and development center with
France Telecom R&D and LETI in the form of a GIE named "Centre Commun de
Microelectronique de Crolles". France Telecom R&D is a research laboratory that
is wholly owned by France Telecom, one of our indirect shareholders. The
Laboratoire d'Electronique et de Technologie d'Instrumentation is a wholly owned
research laboratory of CEA, one of our indirect shareholders. See "Item 4:
Information on the Company--Research and Development" and "--Major
Shareholders." The research center is housed at our Crolles, France
manufacturing facility, and is developing sub-micron process technologies. The
joint venture with France Telecom R&D was created in 1990 before France Telecom
became our indirect shareholder. The activity of the Centre Commun de
Microelectronique de Crolles is directed towards sub 0.13-micron technologies
with a view to preparing the technology to begin production of 300mm wafers and
associated wafer fabrication processes. The tripartite cooperation is intended
to last until the end of 2002.
We participate in certain programs sponsored by the French and Italian
governments for the funding of research and development and industrialization
through direct grants as well as low interest financing. See "Item 4:
Information on the Company -- Public Funding." The shareholders of ST Holding,
the corporate parent of our principal shareholder, are controlled, directly or
indirectly, by the governments of the Republics of France and Italy. See
"--Principal Shareholders."
Sales to our shareholders and our affiliates totaled $0.2 million in
2000.
ITEM 8. FINANCIAL INFORMATION
Legal Proceedings
As is the case with many companies in the semiconductor industry, we
have from time to time received communications alleging possible infringement of
certain intellectual property rights of others. Irrespective of the validity or
the successful assertion of such claims, we could incur significant costs with
respect to the defense thereof which could have a material adverse effect on our
results of operations or financial condition.
We are currently involved in certain legal proceedings; however, we do
not believe that the ultimate resolution of pending legal proceedings will have
a material adverse effect on our financial condition.
68
Dividend policy
On April 25, 2001, our shareholders approved the payment of a cash
dividend with respect to the year ended December 31, 2000 of $0.04 per share
payable to shareholders of record as of April 27, 2001. This dividend was
approximately 2.5% of our earnings for 2000. In 2000, we paid a dividend of
$0.03 per share, which represented 4.9% of our earnings for 1999. In 1999, we
paid a dividend of $0.027 per share, which represented approximately 5.5% of our
earnings for 1998. In the future, we may consider proposing dividends
representing a similar proportion of our earnings for a particular year.
ITEM 9. THE OFFER AND LISTING.
Trading History of the Company's Shares
Since 1994, the Common Shares have been traded on the New York Stock
Exchange under the symbol "STM" and on Euronext Paris (formerly known as
ParisBourse) and were quoted on SEAQ International. On June 5, 1998, the Common
Shares were also listed for the first time on the Italian Stock Exchange, where
they have been traded since that date.
The Common Shares have been included in the CAC 40, the principal index
published by Euronext Paris, since November 12, 1997. The CAC 40 is derived
daily by comparing the total market capitalization of 40 stocks included in the
monthly settlement market of Euronext Paris to a baseline established on
December 31, 1987. Adjustments are made to allow for expansion of the sample due
to new issues. The CAC 40 indicates the trends in the French stock market as a
whole and is one of the most widely followed stock price indices in France.
The table below indicates the range of the high and low prices in U.S.
dollars for the ADSs on the New York Stock Exchange and the high and low prices
in euros for the Common Shares on Euronext Paris and the Italian Stock Exchange
during each quarter in 1998, 1999 and, to date in 2000. In December 1994, we
completed the Initial Public Offering of 21,000,000 Common Shares at an initial
price to the public of $22.25 per share. On June 16, 1999, we effected a 2:1
stock split and on May 5, 2000, we effected a 3:1 stock split. The table below
has been adjusted to reflect the split. Each range is based on the highest or
lowest rate within each day for Common Share price ranges for the relevant
exchange.
69
New York Stock Exchange Euronext Paris Price per Italian Stock Exchange
Price per Common Share Common Share (1) Price per Common Share (2)
--------------------------- --------------------------- ----------------------------
Calendar Period High Low High Low High Low
--------------- ---- --- ---- --- ---- ---
Annual information for the past five years
1996......................... $12.02 $4.75 Euro10.09 Euro3.58 -- --
1997......................... $16.51 $8.58 Euro15.83 Euro7.96 -- --
1998......................... $15.29 $5.98 Euro14.16 Euro5.01 Lira 23,166.64 Lira 9,833.32
1999......................... $51.33 $13.42 Euro51.67 Euro11.47 Euro51.67 Euro10.68
2000......................... $73.88 $39.06 Euro76.93 Euro39.53 Euro76.67 Euro40.35
Quarterly information for the past two
years
1999
First quarter............... $17.94 $13.44 Euro16.17 Euro11.47 Euro 16.00 Euro10.68
Second quarter.............. $24.17 $16.33 Euro23.00 Euro14.83 Euro 23.33 Euro14.83
Third quarter............... $27.13 $21.27 Euro26.07 Euro20.03 Euro 26.15 Euro20.27
Fourth quarter.............. $51.33 $25.00 Euro51.67 Euro23.05 Euro 51.67 Euro23.17
2000
First quarter............... $73.88 $40.67 Euro76.93 Euro39.53 Euro76.67 Euro40.35
Second quarter.............. $69.94 $46.88 Euro75.90 Euro50.50 Euro74.33 Euro51.30
Third quarter............... $68.13 $46.94 Euro74.50 Euro53.50 Euro72.90 Euro56.05
Fourth quarter.............. $52.38 $39.06 Euro60.90 Euro44.20 Euro60.80 Euro44.45
2001
First quarter............... $48.70 $29.35 Euro52.45 Euro31.55 Euro52.35 Euro31.60
Second quarter
(through April 23, 2001) $41.13 $31.05 Euro44.85 Euro35.00 Euro44.30 Euro35.20
Monthly information for most recent six months
October 2000................ $52.38 $40.06 Euro59.65 Euro46.15 Euro59.60 Euro46.60
November 2000............... $52.25 $39.06 Euro60.90 Euro47.12 Euro60.80 Euro47.20
December 2000............... $51.44 $40.69 Euro58.55 Euro44.20 Euro56.70 Euro44.45
January 2001................ $48.70 $37.00 Euro52.45 Euro37.65 Euro52.35 Euro38.15
February 2001............... $47.60 $31.20 Euro50.85 Euro34.00 Euro50.85 Euro34.05
March 2001.................. $38.40 $29.35 Euro42.48 Euro31.55 Euro42.30 Euro31.60
- ----------------------
Source: Reuters
(1) For periods prior to January 1, 1999, the share prices on Euronext
Paris have been converted into euro at the official exchange rate of
Euro 1.00 = FF 6.55957.
(2) For periods prior to January 1, 1999, the share prices on the Italian
Stock Exchange have been converted into euro at the official exchange
rate of Euro 1.00 = Lit. 1,936.27. The shares have been listed on the
Italian Stock Exchange since June 5, 1998.
At December 31, 2000, there were 889,881,287 Common Shares issued and
outstanding, of which 45,234,378 or 5% were registered in the Common Share
registry maintained on our behalf in New York.
70
1998 Liquid Yield OptionTM Notes
Our 1998 Liquid Yield OptionTM Notes ("LYONs") are traded on the New
York Stock Exchange and Euronext Paris. The table below indicates the range of
the high and low prices on the New York Stock Exchange and the high and low
prices for the LYONs on Euronext Paris, in both cases as a percentage of
principal amount at maturity, during each quarter in 1999 and to date in 2000.
Each range is based on the highest or lowest rate at the end of each closing day
on the relevant exchange. We have issued a redemption notice for these LYONs and
intend to redeem them at a redemption price of $885.22 per $1,000 principal
amount on June 11, 2001. According to the information available to us, on May
11, 2001, approximately $45.6 million in total indebtedness was outstanding
under the 1998 LYONs. Based on the amount outstanding on May 11, 2001, if all
remaining holders of the 1998 LYONs chose to convert them into Common Shares
before the redemption date, 2,772,291 Common Shares would be issued.
New York Stock Exchange Euronext Paris
Price per LYON Price per LYON
------------------------------- ------------------------------------
Calendar Period High Low High Low
- --------------- ---- --- ---- ---
Annual information for the past five years
1998........................................ 89% 69.87% 88.88% 69.25%
1999........................................ 277.75% 88.88% 277.25% 87.63%
2000........................................ 389.25% 221.47% 379.20% 222.70%
Quarterly information for the past two years
1999
First quarter............................... 105.04% 88.88% 104.00% 87.63%
Second quarter.............................. 129.66% 98.92% 132.75% 100.19%
Third quarter............................... 147.03% 119.98% 146.25% 119.94%
Fourth quarter.............................. 277.75% 141.64% 277.25% 143.51%
2000
First quarter............................... 389.25% 227.94% 379.20% 319.80%
Second quarter.............................. 368.59% 283.47% 368.05% 301.35%
Third quarter............................... 360.71% 263.38% 361.18% 263.75%
Fourth quarter.............................. 276.67% 221.47% 276.65% 222.70%
2001
First quarter............................... 256.96% 159.90% 254.13% 169.15%
Second quarter
(through April 23, 2001)................ 209.06% 172.48% 208.50% 171.62%
Monthly information for most recent six months
October 2000................................ 270.45% 221.47% 268.38% 222.70%
November 2000............................... 276.67% 222.10% 276.65% 226.13%
December 2000............................... 265.09% 230.70% 255.88% 229.78%
January 2001................................ 256.96% 199.79% 254.13% 203.98%
February 2001............................... 251.91% 169.17% 221.53% 208.10%
March 2001 ................................. 202.83% 159.50% 203.90% 169.15%
- ----------------------
Source: Bloomberg
71
1999 Liquid Yield OptionTM Notes
Our 1999 Liquid Yield OptionTM Notes ("LYONs") are traded on the New
York Stock Exchange and Euronext Paris. The table below indicates the range of
the high and low prices on the New York Stock Exchange and the high and low
prices for the LYONs on Euronext Paris, in both cases as a percentage of
principal amount at maturity, during each quarter in 1999 and to date in 2000.
Each range is based on the highest or lowest rate at the end of each closing day
on the relevant exchange.
New York Stock Euronext Paris
Exchange Price per LYON Price per LYON
------------------------------- ------------------------------------
Calendar Period High Low High Low
- --------------- ---- --- ---- ---
Annual information for the past five years
1999........................................ 138.09% 81.56% 140.25% 81.94%
2000........................................ 192.10% 118.27% 192.10% 118.44%
Quarterly information for the past two years
1999
Third quarter (since September 16)....... 84.06% 81.56% 84.5% 82%
Fourth quarter........................... 138.09% 81.88% 140.25% 81.94%
2000
First quarter............................ 192.10% 119.13% 192.10% 118.48%
Second quarter........................... 182.66% 143.30% 183.25% 142.95%
Third quarter............................ 179.23% 135.65% 195% 134.75%
Fourth quarter........................... 142.06% 118.27% 201.75% 160%
2001
First quarter............................ 132.62% 94.54% 146.50% 102.50%
Second quarter
(through April 23, 2001)............. 114.79% 100.20% 114.41% 100.65%
Monthly information for most recent six months
October 2000................................ 138.63% 119.03% 139.20% 118.64%
November 2000............................... 142.06% 118.27% 141.72% 118.44%
December 2000............................... 136.06% 121.23% 136.25% 121.77%
January 2001................................ 132.62% 110.13% 132.83% 109.56%
February 2001............................... 130.50% 97.68% 130.82% 98.26%
March 2001 ................................. 116.66% 94.54% 112.23% 94.61%
- ----------------------
Source: Bloomberg
Market Information
Euronext Paris
On September 22, 2000, upon successful completion of an exchange offer,
the ParisBourse SBF SA, or the "SBF", the Amsterdam Stock Exchanges and the
Brussels Stock Exchanges merged to create Euronext, the first pan-European
exchange. Through the exchange offer, all the shareholders of SBF, the Amsterdam
Stock Exchange and the Brussels Stock Exchanges contributed their shares to
Euronext N.V., a Dutch holding company. Securities quoted on exchanges
participating in Euronext will be traded over a common Euronext platform, with
central clearinghouse, settlement and custody structures. However, these
securities will remain listed on their local exchanges. As part of Euronext,
Euronext Paris retains responsibility for the admission of shares to Paris
Bourse's trading markets as well as the regulation of those markets.
Securities approved for listing by Euronext Paris are traded in one of
three markets. The securities of most large public companies are listed on the
Premier Marche with the Second Marche available for small and medium-sized
companies. Trading on the Nouveau Marche was introduced in March 1996 to allow
companies seeking
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development capital to access the stock market. Securities of certain other
companies are traded on a non-regulated over-the-counter market, the Marche
Libre-OTC, which is also operated by Euronext Paris.
The Common Shares are listed on the Premier Marche. Shares listed on
Euronext Paris are placed in one of four categories depending on the volume of
transactions. The Common Shares are listed in the category known as Continu A,
which includes the most actively traded shares (with a minimum daily trading
volume of FF 250,000 or twenty trades).
Official trading of listed securities on Euronext Paris is transacted
through providers of investment services (investment companies and other
financial institutions) and takes place continuously on each business day from
9:00 a.m. to 5:30 p.m., with a pre-opening session from 7:15 a.m. to 9:00 a.m.
and a pre-closing session from 5:30 p.m. to 5:35 p.m. during which transactions
are recorded but not executed and a closing auction at 5:35 p.m. Any trade
effected after the close of a stock exchange session will be recorded, on the
next Euronext Paris trading day, at the closing price for the relevant security
at the end of the previous day's session.
Euronext Paris publishes a daily Official Price List that includes
price information on each listed security. Euronext Paris has introduced
continuous trading by computer for most listed securities.
Trading in the listed securities of an issuer may be suspended by
Euronext Paris if quoted prices exceed certain price limits defined by the
regulations of Euronext Paris. In particular, if the quoted price of a Continu A
security varies by more than 10 percent from the previous day's closing price,
trading may be suspended for up to 15 minutes. Further suspensions for up to 15
minutes are also possible if the price again varies by more than five percent.
Euronext Paris may also suspend trading of a listed security in certain other
limited circumstances, including, for example, the occurrence of unusual trading
activity in such security.
Trades of securities listed on the Premier Marche are settled on a cash
basis on the third trading day following the trade. Market intermediaries are
also permitted to offer investors a deferred settlement service (service de
reglement differe) for a fee. The deferred settlement service is only available
for trades in securities which either (i) are a component of the Index SBF 120
or (ii) have both a total market capitalization of at least Euro 1 billion and
a daily average volume of trades of at least Euro 1 million. The Common Shares
are eligible to the deferred settlement service. Investors can elect on the
determination date (date de liquidation), which is the fifth trading day before
the end of the month, either to settle the trade by the last trading day of the
month or to pay an additional fee and postpone the settlement decision to the
determination date of the following month.
Ownership of equity securities traded on a deferred settlement basis
passes at the time of registration of the securities in the shareholders'
account. In accordance with French securities regulations, any sale of shares
executed on a deferred settlement basis during the month of a dividend payment
date is deemed to occur after the payment of the dividend. In such cases, the
purchaser' account is credited with an amount equal to the dividend paid and the
seller's account is debited by the same amount.
Securities Trading in Italy
The Mercato Telematico Azionario (the "MTA"), the Italian automated
screen-based quotation system on which our Common Shares are listed, is
organized and administered by Borsa Italiana S.p.A. ("Borsa Italiana") subject
to the supervision of the CONSOB, the public authority charged, inter alia, with
regulating investment companies, securities markets and public offerings of
securities in Italy to ensure the transparency and regularity of dealings and
protect investors. Borsa Italiana was established to manage the Italian
regulated financial markets (including the MTA) as part of the implementation in
Italy of the EU Investment Services Directive pursuant to Legislative Decree No.
415 of July 23, 1996 (the "Eurosim Decree") and as modified by Legislative
Decree 58 of February 24, 1998 (the "Financial Act"). Borsa Italiana became
operative in January 1998, replacing the administrative body Consiglio di Borsa,
and has issued rules governing the organization and the administration of the
Italian stock exchange, futures and options markets as well as the admission to
listing on and trading in these markets. The shareholders of Borsa Italiana are
primarily financial intermediaries.
A three-day rolling cash settlement period applies to all trades of
equity securities in Italy effected on a regulated market. Any person, through
an authorized intermediary, may purchase or sell listed securities following (i)
in the case of sales, deposit of the securities; and (ii) in the case of
purchases, deposit of 100% of such securities' value in cash, or deposit of
listed securities or government bonds of an equivalent amount. No "closing
price" is reported for the electronic trading system, but an "official price",
calculated for each security as a weighted average
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of all trades effected during the trading day net of trades executed on a
"cross-order" basis, and a "reference price", calculated for each security as a
weighted average of the last 10% of the trades effected during such day, are
reported daily.
If the opening price of a security (established each trading day prior
to the commencement of trading based on bids received) differs by more than 10%
(or such other amount established by Borsa Italiana) from the previous day's
reference price, trading in that security will not be permitted until Borsa
Italiana authorizes it. If in the course of a trading day the price of a
security fluctuates by more than 5% from the last reported sale price (or 10%
from the previous day's reference price), an automatic five minute suspension in
the trading of that security will be declared. In the event of such a
suspension, orders already placed may not be modified or cancelled and new
orders may not be processed. Borsa Italiana has the authority to suspend trading
in any security, among other things, in response to extreme price fluctuations.
In urgent circumstances, CONSOB may, where necessary, adopt measures required to
ensure the transparency of the market, orderly trading and protection of
investors.
Italian law requires that trading of equity securities, as well as any
other investment services, may be carried out on behalf of the public only by
registered securities dealing firms and banks (with minor exceptions). Banks and
investment services firms organized in a member nation of the EU are permitted
to operate in Italy provided that the intent of the bank or investment services
firm to operate in Italy is communicated to (i) Bank of Italy and to (ii) Bank
of Italy and CONSOB, respectively, by the competent authority of the member
state. Non-EU banks and non-EU investment services firms may operate in Italy
subject to a specific authorization granted by a decree of the Italian Ministry
of Treasury and a resolution of the CONSOB, respectively.
The settlement of stock exchange transactions is facilitated by Monte
Titoli, a centralized securities clearing system owned by the Banca d'Italia and
certain major Italian banks and financial institutions. Almost all Italian banks
and some registered securities dealing firms have securities accounts with Monte
Titoli. Beneficial owners of shares may hold their interests through specific
deposit accounts with any depositary having an account with Monte Titoli.
Beneficial owners of shares held with Monte Titoli may transfer their shares,
collect dividends, create liens and exercise other rights with respect to those
shares through such accounts.
Participants in Euroclear and Cedelbank may hold their interests in
shares and transfer the shares, collect dividends and exercise their
shareholders' rights through Euroclear and Cedelbank. A holder may require
Euroclear and Cedelbank to transfer its shares to an account of such holder with
an Italian bank or any authorized broker
ITEM 10. ADDITIONAL INFORMATION
Memorandum and articles of association
We were incorporated under the law of The Netherlands by deed of May
21, 1987. Set forth below is a summary of certain provisions of our articles of
association and relevant Dutch corporate law. The summary below does not purport
to be complete and is qualified in its entirety by reference to the articles of
association and relevant Dutch corporate law.
References herein to shares include common and preference shares and
references herein to shareholders include common and preference shareholders,
unless otherwise provided.
Share Capital
Our authorized share capital is Euro 1,809,600,000, consisting of
1,200,000,000 common shares and 540,000,000 preference shares, nominal value of
Euro1.04 per share. As of March 31, 2001, 890,310,233 common shares were
outstanding, as well as options to acquire 26,844,061 common shares. No
preference shares are currently outstanding. Pursuant to a shareholders'
resolution adopted at the annual general meeting on April 25, 2001, our
Supervisory Board has been authorized for a period of five years to resolve upon
(i) the issuance of any number of new ordinary or preference shares, (ii) the
terms and conditions of an issuance of shares; (iii) waiver of existing
shareholders' pro rata preemptive rights; and (iv) granting of rights to
subscribe for ordinary shares and or preference shares.
Shares are issued in registered form only. The preference shares are
intended to protect us from a hostile take-over or similar action. Share
registers are maintained in New York by The Bank of New York, the New York
Transfer Agent and Registrar (the "New York Registry"), and in Amsterdam, The
Netherlands, by Netherlands
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Management Company B.V., the Dutch Transfer Agent and Registrar (the "Dutch
Registry"). Shares of New York Registry held through The Depository Trust
Company ("DTC") are registered in the name of Cede & Co., the nominee of DTC,
and shares of Dutch Registry held through the French clearance and settlement
system, Euroclear France, are registered in the name of Euroclear France or its
nominee.
Dividends
Our Supervisory Board may establish reserves out of our annual profits,
upon proposal of our Managing Board. The portion of our annual profits that
remains after the establishment of reserves is at the disposal of the general
meeting of shareholders. If the general meeting of shareholders resolves to
distribute profits, preference shareholders shall first be paid a percentage
equal to the Euribor interest for one-year cash loans computed over the paid up
capital on the preference shares, provided that the amount paid to preference
shareholders may not exceed the total amount resolved to be distributed to
shareholders. If the paid up capital of the preference shares is increased or
decreased in the financial year in respect of which the dividend is paid, the
payment thereon will be adjusted accordingly. The profits remaining after
payment has been made to preference shareholders may be distributed to the
common shareholders.
Our general meeting of shareholders may declare distributions out of
our share premium reserve and other reserves available for shareholder
distributions under Dutch law, upon the proposal of our Supervisory Board.
Pursuant to a resolution of our Supervisory Board, distributions approved by the
general meeting of shareholders may be fully or partially made in the form of
our new shares to be issued. We may not pay dividends if the payment would
reduce shareholders' equity below the paid-up and called portion of the share
capital, plus the reserves which are required by statute. Our Supervisory Board
may, subject to certain statutory provisions, distribute one or more interim
dividends in respect of any year before the accounts for such year have been
approved and adopted at a general meeting of shareholders. Rights to cash
dividends and distributions that have not been collected within five years after
the date on which they became due and payable shall revert to us.
At December 31, 2000, the amount of retained earnings available to pay
dividends under Dutch law was approximately $5,263 million. Retained earnings
for purposes of this calculation are based on our unconsolidated accounts using
generally accepted accounting principles in The Netherlands ("Dutch GAAP"). The
only material difference between our Dutch GAAP and U.S. GAAP accounts resulted
because we canceled our accumulated deficit through a share capital reduction in
1993. Under U.S. GAAP, as this operation was not a quasi-reorganization, the net
effect of the par value reduction was applied against capital surplus. At
December 31, 2000, under U.S. GAAP, we had accumulated earnings of approximately
$3,977 million.
As approved by the annual general meeting of shareholders on May 31,
1999, we paid a cash dividend in respect of the year ended December 31, 1998 of
$0.027 per common share on June 15, 1999 to shareholders of record as of June 1,
1999. As approved by the annual general meeting on April 26, 2000, we paid on
May 4, 2000 a cash dividend in respect of the year ended December 31, 1999 of
$0.03 per share issued and outstanding as per April 28, 2000. As approved by the
annual general meeting on April 25, 2001, we paid on May 11, 2001 a cash
dividend in respect of the year ended December 31, 2000 of $0.04 per share
issued and outstanding at April 27, 2001. In the event that dividends are
declared in the future, we expect that we would pay such dividends in U.S.
dollars, although dividends may be declared in other currencies. Cash dividends
to holders of shares of Dutch Registry will be paid to the Dutch Transfer Agent
and Registrar who will, if necessary, convert such dividends into French francs
or Italian lira at the rate of exchange on the date such dividends are paid, for
disbursement to such holders. Cash dividends to holders of shares of New York
Registry will be paid to the New York Transfer Agent and Registrar, who will, if
necessary, convert such dividends into U.S. dollars at the rate of exchange on
the date such dividends are paid, for disbursement to such holders.
Shareholder Meetings and Voting Rights
Each registered shareholder has the right to attend general meetings of
shareholders, either in person or represented by a person holding a written
proxy, to address shareholder meetings and to exercise voting rights, subject to
the provisions of the articles of association. Our ordinary general meetings of
shareholders are held at least annually, within six months after the close of
each financial year, in Amsterdam, Haarlemmermeer (Schiphol Airport), Rotterdam
or The Hague, The Netherlands. Extraordinary general meetings of shareholders
may be held as often as our Supervisory Board deems necessary, and must be held
upon the written request of registered holders
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of at least 10% of the total outstanding share capital to our Managing Board
or our Supervisory Board specifying in detail the business to be dealt with.
We will give notice by mail to registered holders of shares of each
shareholders' meeting, and will publish notice thereof in a national daily
newspaper distributed throughout The Netherlands and in at least one daily
newspaper in each country other than the United States in which the shares are
admitted for official quotation. Such notice shall be given no later than the
twenty-first day prior to the day of the meeting and shall either state the
business to be considered or state that the agenda is open to inspection by the
shareholders at our offices. We are exempt from the proxy rules under the United
States Securities Exchange Act of 1934. Euroclear France will provide notice of
general meetings of shareholders to, and compile voting instructions from,
holders of shares held directly or indirectly through Euroclear France. DTC will
provide notice of general meetings of shareholders to holders of shares held
directly or indirectly through DTC and the New York Transfer Agent and Registrar
will compile voting instructions. In order for holders of shares held directly
or indirectly through Euroclear France to attend general meetings of
shareholders in person, such holders must withdraw their shares from Euroclear
France and have such shares registered directly in their name or in the name of
their nominee. In order for holders of shares held directly or indirectly
through DTC to attend general meetings of shareholders in person, such holders
need not withdraw such shares from DTC but must follow rules and procedures
established by the New York Transfer Agent and Registrar.
Each share is entitled to one vote. Unless otherwise required by the
articles of association or Dutch law, resolutions of general meetings of
shareholders require the approval of a majority of the votes cast at a meeting
at which at least one-third of the outstanding share capital is present or
represented.
The articles of association allow for separate meetings for holders of
common shares and for holders of preference shares. At a meeting of holders of
preference shares at which the entire issued capital of shares of such class is
represented, valid resolutions may be adopted even if the requirements in
respect of the place of the meeting and the giving of notice have not been
observed, provided that such resolutions are adopted by unanimous vote. Also,
valid resolutions of preference shareholder meetings may be adopted outside a
meeting if all holders of preference shares and holders of a right of usufruct
on preference shares indicate by letter, telegram, telex communication or
facsimile that they vote in favor of the proposed resolution, provided that no
depositary receipts for preference shares have been issued with our cooperation.
Approval of Annual Accounts and Discharge of Management Liability
Each year, our Managing Board must prepare annual accounts and submit
them to the general meeting of shareholders for approval within five months
after the end of our financial year, unless the general meeting of shareholders
has extended this period by a maximum of six months on account of special
circumstances.
Adoption of our annual accounts by the general meeting of shareholders
discharges the members of our Managing Board and our Supervisory Board from
liability in respect of the exercise of their duties during the financial year
concerned, unless an explicit reservation is made by the general meeting of
shareholders and without prejudice to the provisions of Dutch law relating to
liability of members of supervisory boards and managing boards upon bankruptcy
of a company pursuant to articles 138 and 149 of Book 2 of the Dutch Civil Code.
Under Dutch law, this discharge does not extend to matters not disclosed to
shareholders.
Liquidation Rights
In the event of our dissolution and liquidation, after payment of all
debts and liquidation expenses, the holders of preference shares shall, if
possible, receive the paid up portion of the nominal amount of their preference
shares. Any assets then remaining shall be distributed among the registered
holders of common shares in proportion to the nominal value of their
shareholdings.
Issue of Shares; Preemptive Rights
Unless limited or eliminated by the general meeting of shareholders or
our Supervisory Board as described below, registered holders of common shares
have a pro rata preemptive right to subscribe for any newly issued common
shares, except for common shares issued for consideration other than cash and
common shares issued to our employees or of one of our group companies.
Shareholders do not have a preemptive right to subscribe for any newly issued
preference shares. Holders of preference shares have no preemptive rights.
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The general meeting of shareholders, upon proposal and on the terms and
conditions set by our Supervisory Board, has the power to issue shares. The
general meeting of shareholders may also authorize our Supervisory Board, for a
period of no more than five years, to issue shares and to determine the terms
and conditions of share issuances. At the general meeting of shareholders held
on April 25, 2001, our Supervisory Board was delegated this authority for a
period of five years.
The general meeting of shareholders, upon proposal by the Supervisory
Board, also has the power to limit or exclude preemptive rights in connection
with new issuances of shares. Such a resolution of the general meeting of
shareholders requires the approval of at least two-thirds of the votes cast at a
general meeting of shareholders at which at least 50% of the outstanding share
capital is present or represented. The general meeting of shareholders may
authorize our Supervisory Board, for a period of no more than five years, to
limit or exclude preemptive rights. At the general meeting of shareholders held
on April 25, 2001, our Supervisory Board was delegated this authority for a
period of five years.
Acquisition of Shares
We may acquire shares, subject to certain provisions of Dutch law and
of our articles of association, if and to the extent that (i) the shareholders'
equity less the payment required to make the acquisition does not fall below the
sum of the paid-up and called-up portion of the share capital and any reserves
required by Dutch law and (ii) the aggregate nominal value of shares that we or
our subsidiaries acquire, hold or hold in pledge would not exceed one-tenth of
our issued share capital. Share acquisitions may be effected by our Managing
Board, subject to the approval of our Supervisory Board, only if the general
meeting of shareholders has authorized the Managing Board to effect such
repurchases, which authorization may apply for a maximum period of 18 months. We
may not vote shares we hold. Our articles of association have been amended
effective as of May 5, 2000 by the general annual meeting on April 26, 2000 to
provide that we shall be able to acquire shares in our own share capital in
order to transfer these shares under employee stock option or stock purchase
plans, without an authorization of the general meeting of shareholders being
required.
Capital Reduction
Upon proposal by our Supervisory Board, the general meeting of
shareholders may resolve to reduce our issued share capital by canceling shares
held by us or by reducing the nominal value of shares, subject to certain
statutory provisions. Upon proposal by our Supervisory Board, the general
meeting of shareholders also may cancel all preference shares against payment of
the amount paid up on those shares, subject to certain statutory provisions.
Amendment of the Articles of Association
The articles of association may be amended if amendments are proposed
by our Supervisory Board and approved by a simple majority of the votes cast at
a general meeting of shareholders at which at least one-third of the outstanding
share capital is present or represented. The complete proposal for the amendment
must be made available for inspection by the shareholders and the other persons
entitled to attend general meetings of shareholders at our offices as from the
day of the notice convening such meeting until the end of the meeting. Any
amendment of the articles of association that negatively affects the rights of
the holders of a certain class of shares, requires the prior approval of the
meeting of holders of such class of shares.
Managing Board
Responsibility for our management lies with our Managing Board. Our
Managing Board consists of such number of members as resolved by the general
meeting of shareholders upon the proposal of the Supervisory Board.
The members of the Managing Board are appointed for three-year terms by
the general shareholders' meeting. Our Supervisory Board appoints one of the
members of the Managing Board to be chairman of the Managing Board. The
remuneration and other conditions of employment of the members of the Managing
Board are determined by the Supervisory Board.
The Managing Board and each member of the Managing Board is authorized
to represent us. Resolutions of our Managing Board require the approval of a
majority of its members. Under the articles of association, the Managing Board
is required to obtain prior approval from the Supervisory Board for:
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o all proposals to be submitted to a vote at the general meeting
of the shareholders,
o the formation of all companies, acquisition or sale of any
participation and the entering into of any joint venture or
participation agreement,
o all of our multi-annual plans and the budget for the upcoming
year, covering investment policy, policy regarding research
and development, as well as commercial policy and objectives,
general financial policy and policy regarding personnel, and
o all acts, decisions or operations covered by the above list
and constituting a significant change with respect to
decisions already adopted by the Supervisory Board or not
provided for in the above list and as specifically laid down
by the Supervisory Board in a resolution adopted by it to that
effect. The Supervisory Board has, by resolution, specified
additional resolutions of the Managing Board that require
its approval.
In addition, under the articles of association, our Managing Board
must obtain prior approval from the general meeting of shareholders for
decisions relating to:
o the sale of all or of an important part of our assets or
business enterprise(s), and
o the entering into of mergers, acquisitions or joint ventures
that the Supervisory Board considers of material significance.
The general meeting of shareholders may by resolution specify
additional resolutions that require its approval.
The general meeting of shareholders may suspend or dismiss one or more
members of the Managing Board at a meeting at which at least one-half of the
outstanding share capital is present or represented. A quorum of one-third is
required if a suspension or dismissal is proposed by the Supervisory Board. The
Supervisory Board may suspend members of the Managing Board, but a general
meeting of shareholders must be convened within three months after such
suspension to confirm or reject the suspension.
Supervisory Board
Our Supervisory Board advises our Managing Board and is responsible for
supervising the policies pursued by the Managing Board and the general course of
our affairs. In addition, certain resolutions by the Managing Board require the
prior approval of the Supervisory Board, and the Supervisory Board may by
resolution specify additional resolutions that require such approval.
Resolutions of the Supervisory Board require the approval of three-quarters of
its members, In fulfilling their duties, members of the Supervisory Board must
serve our interests.
The members of the Supervisory Board are appointed by the general
meeting of shareholders. The general meeting of shareholders, upon proposal of
the Supervisory Board, determines the number of the members of the Supervisory
Board, provided that there shall always be at least six supervisory directors.
The remuneration of the members of the Supervisory Board is determined by the
general meeting of shareholders. The general meeting of shareholders may dismiss
or suspend the members of the Supervisory Board with a simple majority vote.
Each member of the Supervisory Board must resign no later than three
years after he has been appointed, but may offer himself for re-election
following the expiry of his term of office. Each member of the Supervisory Board
must retire at the annual general meeting of shareholders held in the financial
year in which he reaches the statutory maximum age of members of the Supervisory
Board (currently 72 years).
Disclosure of Holdings
Under the Dutch Act on Disclosure of Holdings in listed companies ("Wet
melding zeggenschap in ter beurze genoteerde vennootschappen 1996"), registered
shareholders and beneficial owners must promptly notify us and the Securities
Board of The Netherlands established in Amsterdam if their holding in us
reaches, exceeds or falls below 5%, 10%, 25%, 50% or 66% of the capital interest
and/or voting rights, including rights to acquire capital interest and/or voting
rights, of us. Failure to comply constitutes a criminal offense and could result
in criminal as well as civil sanctions, including suspension of voting rights
and the right to acquire the same. We must in turn
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inform the Conseil des Marches Financiers of all such notifications provided by
registered shareholders and beneficial owners to us.
Limitations on Right to Hold or Vote Shares
There are currently no limitations imposed by Dutch law or by the
articles of association on the right of non-resident holders to hold or vote the
shares.
Exchange controls
None.
Taxation
Certain Dutch tax consequences for holders of Common Shares
Following is a summary of the principal Dutch tax consequences of the
ownership and disposition of Common Shares.
It applies only to a holder of Common Shares who is neither resident
nor deemed to be resident in The Netherlands for Dutch tax purposes and, in the
case of an individual, has not elected to be treated as a resident of The
Netherlands for Dutch income tax purposes (a "Non-Resident Shareholder"). The
summary does not apply to any Non-Resident Shareholder who is or has been or is
deemed to be or has been deemed to be an employee of us or of any entity related
to us.
It is a general summary that does not discuss every aspect of Dutch
taxation that may be relevant to a Non-Resident Shareholder, for instance if
such holder is subject to special circumstances or if such holder is subject to
special treatment under applicable law. This summary assumes that we are
organized and that our business will be conducted in the manner outlined in this
annual report on Form 20-F. Changes in our organizational structure or the
manner in which we conduct our business may invalidate the contents of this
summary. Furthermore, this summary assumes that each transaction with respect to
Common Shares is at arm's length.
Unless stated otherwise, this summary is based on Dutch tax laws in
effect as of the date of this annual report on Form 20-F. These laws are subject
to change, which changes may have retroactive effect. A change to such laws may
invalidate the contents of this summary. This summary will not be updated to
reflect changes in laws.
EACH INVESTOR SHOULD CONSULT HIS PROFESSIONAL TAX ADVISOR REGARDING THE
PARTICULAR TAX CONSEQUENCES OF HIS OWNING AND DISPOSING OF COMMON SHARES.
Withholding tax
Dividends we distribute to Non-Resident Shareholders are generally
subject to a withholding tax imposed by The Netherlands at a rate of 25%. The
concept "dividends we distribute," as used in this summary, includes (but is not
limited to) the following:
(i) distributions in cash or in kind, deemed and constructive
distributions, and repayments of capital not recognized as
paid-in for Dutch dividend withholding tax purposes;
(ii) liquidation proceeds, proceeds of redemption of Common Shares
or, as a rule, consideration for the repurchase of Common
Shares by us in excess of the average capital recognized as
paid-in for Dutch dividend withholding tax purposes;
(iii) the par value of shares issued to a holder of Common Shares or
an increase of the par value of Common Shares, as the case may
be, to the extent that it does not appear that a contribution,
recognized for Dutch dividend withholding tax purposes, has
been made or will be made; and
(iv) partial repayment of capital, recognized as paid-in for Dutch
dividend withholding tax purposes, if and to the extent that
there are net profits (zuivere winst), unless (a) the general
meeting of our shareholders has resolved in advance to make
such repayment and (b) the par value of the
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Common Shares concerned has been reduced by an equal amount by
way of an amendment of our articles of association.
If a Non-Resident Shareholder is resident in a country with which The
Netherlands has concluded a double taxation treaty that is in effect, such
Non-Resident Shareholder may be eligible for a full or partial relief from the
Dutch dividend withholding tax provided that such relief is duly claimed.
Legislation is in force, but not effective, pursuant to which withholding tax
will only be creditable or refundable to the beneficial owner of dividends we
distribute. The Dutch tax authorities have taken the position that the
beneficial ownership test can also be applied to deny relief from Dutch dividend
withholding tax under double taxation treaties. Following consultations with the
Dutch financial sector, the Dutch government has announced its intention to
submit a new legislative proposal on the subject of beneficial ownership of
dividends. The intention is that this new legislation will take effect
retroactively to April 27, 2001.
We are not required to withhold dividend tax from a dividend we
distribute to a Non-Resident Shareholder, who is resident in the Netherlands
Antilles or Aruba or in a member state of the European Union or in a country
that has concluded a double taxation treaty with The Netherlands, to the extent
that the temporary special distribution tax, discussed below in the section
"Distribution tax," applies to the distribution.
Dutch -- U.S. double taxation treaty
Under the Dutch -- United States double taxation treaty of December 18,
1992 (the "Dutch -- U.S. Treaty"), the dividend withholding tax rate on
dividends we distribute in respect of Common Shares held by a resident of the
United States who is entitled to the benefits of the Dutch -- U.S. Treaty will
generally be reduced to 15%. As a rule, if the 15% rate is applicable under the
Dutch -- US Treaty, we may apply this rate at source if, at the payment date,
the relevant shareholders have submitted a duly signed form IB 92 USA. Only
where the person entitled to relief has not been able to claim the relief at
source, will he be entitled to a refund of the excess tax withheld. In that case
he should as yet file a form IB 92 USA and state the circumstances that
prevented him from claiming relief at source.
Dividends paid by us to qualifying U.S. pension funds and qualifying
U.S. exempt organizations may be eligible for full relief of the Dutch dividend
withholding tax.
Distribution tax
We are subject to a temporary special distribution tax at a rate of 20%
to the extent that dividends we distribute during the period from January 1,
2001 up to and including December 31, 2005 are classified as "excessive." For
purposes of this distribution tax, dividends we distribute are considered to be
"excessive" to the extent that during a particular calendar year the total
thereof exceeds the highest of the following three amounts:
(i) 4% of our market capitalization at the beginning of the
relevant calendar year;
(ii) twice the amount of the average annual dividends (exclusive of
extraordinary distributions) that we distributed in the three
calendar years immediately preceding January 1, 2001; and
(iii) our consolidated commercial result for the preceding book
year, subject to certain adjustments.
See the section "Withholding tax" for a discussion of the concept
"dividends we distribute."
The special distribution tax will not be levied if and to the extent
the aggregate amount of dividends we distribute during the period from January
1, 2001 up to and including December 31, 2005 exceeds the fair market value of
our assets ending on December 31, 2000, net of liabilities and provisions and
reduced by our paid-in capital.
The special distribution tax will be reduced in proportion to the
percentage of our shares that were held, at the time of the "excessive"
distribution, during an uninterrupted period of three years, by individuals or
entities (other than investment institutions (beleggingsinstellingen) as defined
in the Dutch Corporate Income Tax Act 1969) holding at least 5% of our nominal
paid-in capital, provided such shareholders are resident in The Netherlands, the
Netherlands Antilles or Aruba, or in a member state of the European Union, or in
a country that has concluded a double taxation treaty with The Netherlands. In
that connection, shares that have been held since September 14, 1999 are deemed
to have been held during an uninterrupted periodof three years. The special
distribution tax is not
80
a withholding tax; it is imposed directly on us. Therefore, if it is reduced
because there are shareholders who own at least 5% of our paid-in capital, we
will receive the benefit of the reduction and it will inure indirectly to all of
our shareholders, not only to the shareholders whose shareholdings caused the
reduction to apply.
Taxes on income and capital gains
Individuals
A Non-Resident Shareholder who is an individual will not be subject to
any Dutch taxes on income or capital gains in respect of dividends we distribute
(other than the withholding tax described above) or in respect of any gain
realized on the disposal of Common Shares, unless:
(i) such holder derives profits from an enterprise, whether as an
entrepreneur (ondernemer) or pursuant to a co-entitlement to
the net worth of such enterprise (other than as an
entrepreneur or a shareholder), which enterprise is, in whole
or in part, carried on through a permanent establishment or a
permanent representative in The Netherlands and such holder's
Common Shares are attributable to that enterprise, or
(ii) such holder derives benefits from Common Shares that are
taxable as benefits from miscellaneous activities in The
Netherlands (resultaat uit overige werkzaamheden in
Nederland), or
(iii) such holder's Common Shares form part or are deemed to form
part of a substantial interest (aanmerkelijk belang) in us
that does not form part of the assets of an enterprise.
See the section "Withholding tax" for a discussion of the concept
"dividends we distribute."
A Non-Resident Shareholder who is an individual may, inter alia, derive
benefits from Common Shares that are taxable as benefits from miscellaneous
activities in The Netherlands:
(i) if the investment activities of such individual go beyond the
activities of an active portfolio investor, for instance in
case of the use of insider knowledge (voorkennis) or
comparable forms of special knowledge; or
(ii) if such individual makes Common Shares available or is deemed
to make Common Shares available, legally or in fact, directly
or indirectly, to certain connected individuals, associations
or entities.
The holder of Common Shares has a substantial interest in us if such
holder - alone or together with his partner (partner) - has, directly or
indirectly, the ownership of, or certain rights, for instance a right of
usufruct, over shares of us representing 5% or more of our total issued and
outstanding capital (or the issued and outstanding capital of any class of
shares), or rights to acquire, directly or indirectly, shares, whether or not
already issued, that represent at any time 5% or more of our total issued and
outstanding capital (or the issued and outstanding capital of any class of
shares) or the ownership of, or certain rights, for instance a right of
usufruct, over profit participating certificates (winstbewijzen) that relate to
5% or more of our annual profit or to 5% or more of our liquidation proceeds. If
a holder of Common Shares has a substantial interest pursuant to the previous
sentence, his Common Shares form part of a substantial interest. Furthermore,
the holder's Common Shares form part of a substantial interest in us if such
holder's partner or any of the relatives by blood or by marriage in the direct
line (including foster-children) of the holder or of his partner holds shares
that form part of, or are deemed to form part of, a substantial interest in us.
Finally, if a holder's Common Shares do not form part of a substantial interest
pursuant to the two previous sentences, they may be deemed to form part of a
substantial interest in us if they have been acquired or are deemed to have been
acquired by such holder under a non-recognition provision.
Entities
A Non-Resident Shareholder who is (a) a legal person, or (b) a
partnership or other form of association without legal personality that has a
capital that is wholly or partly divided into shares, or (c) a trust or a form
of co-investment (doelvermogen) or a similar legal form that is for Dutch
purposes taxable as a corporation, will not be subject to any Dutch taxes on
income or capital gains in respect of any payment under the Common Shares or in
respect of any gain realized on the disposal of Common Shares, provided that the
following two conditions are satisfied.
81
(i) All of the following are true:
- such holder derives profits from an enterprise,
whether as an entrepreneur (ondernemer) or pursuant
to a co-entitlement to the net worth of such
enterprise (other than as an entrepreneur or a
shareholder), which enterprise is, in whole or in
part, carried on through a permanent establishment or
a permanent representative in the Netherlands;
- such holder's Common Shares are attributable to that
enterprise; and
- the benefits derived from such holder's Common Shares
are not exempt under the participation exemption (as
laid down in the Dutch Corporate Income Tax Act
1969).
(ii) If such holder's Common Shares form part or are deemed to form
part of a substantial interest (aanmerkelijk belang) in us,
these Common Shares form part of the assets of an enterprise.
See the section "Taxes on income and capital gains - Individuals" for a
discussion of the concept "substantial interest in us."
Gift and inheritance taxes
No gift tax or inheritance taxes will arise in The Netherlands with
respect to an acquisition of Common Shares by way of a gift by, or on the death
of, a Non-Resident Shareholder, unless:
(i) such Non-Resident Shareholder at the time of the gift has or
at the time of his death had an enterprise or an interest in
an enterprise that is or was, in whole or in part, carried on
through a permanent establishment or a permanent
representative in The Netherlands and to which enterprise or
part of an enterprise, as the case may be, the Common Shares
are or were attributable; or
(ii) in the case of a gift of Common Shares by an individual who at
the time of the gift was a Non-Resident Shareholder, such
individual dies within 180 days after the date of the gift,
while (at the time of his death) being resident or deemed to
be resident in The Netherlands.
For purposes of Dutch gift and inheritance tax, an individual who holds
Dutch nationality will be deemed to be resident in The Netherlands if he has
been resident in The Netherlands at any time during the ten years preceding the
date of the gift or his death. For purposes of Dutch gift tax, an individual not
holding Dutch nationality will be deemed to be resident in The Netherlands if he
has been resident in The Netherlands at any time during the twelve months
preceding the date of the gift.
Other taxes and duties
No Dutch registration tax, transfer tax, stamp duty or any other
similar documentary tax or duty will be payable in The Netherlands in respect of
or in connection with the delivery of the Common Shares.
United States Taxation
The following discussion is a summary of certain U.S. federal income
tax consequences of the ownership and disposition of Common Shares by you if you
are a U.S. Holder, as defined below. This summary applies to you only if you are
a beneficial owner of Common Shares (a) who owns, directly or indirectly, less
than 10% of our voting stock, (b) who is (i) an individual citizen or resident
of the United States for U.S. federal income tax purposes, (ii) a U.S. domestic
corporation, (iii) an estate whose income is subject to U.S. federal income
taxation regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over its administration and one
or more U.S. persons have the authority to control all of the substantial
decisions of the trust, (c) who holds the Common Shares as capital assets, (d)
whose functional currency is the U.S. dollar, (e) who is a resident of the
United States and not also a resident of The Netherlands for purposes of the
Convention, (f) who is entitled under the "limitation on benefits" provisions
contained in the Convention to the benefits of the Convention and (g) who does
not have a permanent establishment or fixed base in The Netherlands (a "U.S.
Holder"). Certain holders (including, but not limited to, United States
expatriates, tax-exempt organizations, persons subject to the alternative
minimum tax, securities broker-dealers and certain other financial institutions,
persons holding the Common Shares in a hedging transaction or as part of a
straddle or conversion transaction or holders whose functional currency is not
the U.S. dollar) may be subject to special rules not discussed below. Because
this is a
82
general summary, investors are advised to consult their own tax advisors with
respect to the U.S. federal, state, local and applicable foreign tax
consequences of the ownership and disposition of Common Shares.
This summary is based on the Internal Revenue Code of 1986, as amended
the Convention, judicial decisions, administrative pronouncements and existing
and proposed Treasury regulations as of the date hereof, all of which are
subject to change, possibly with retroactive effect.
Dividends
For U.S. federal income tax purposes, the gross amount of distributions
made by us with respect to the Common Shares (including the amount of any
Netherlands taxes withheld therefrom) will generally be includable in your gross
income in the year received as foreign source dividend income to the extent that
such distributions are paid out of our current or accumulated earnings and
profits as determined under U.S. federal income tax principles. To the extent,
if any, that the amount of any such distribution exceeds our current or
accumulated earnings and profits, it will be treated first as a tax-free return
of your tax basis in the Common Shares (thereby increasing the amount of any
gain or decreasing the amount of any loss realized on the subsequent sale or
disposition of such Common Shares) and thereafter as capital gain. No dividends
received deduction will be allowed with respect to dividends paid by us. The
amount of any distribution paid in Dutch guilders will be equal to the U.S.
dollar value of such Dutch guilders on the date of distribution, regardless of
whether the payment is in fact converted into U.S. dollars at that time. Gain or
loss, if any, realized on the sale or other disposition of such Dutch guilders
will be U.S. source ordinary income or loss. The amount of any distribution of
property other than cash will be the fair market value of such property on the
date of distribution.
Subject to certain limitations, Netherlands taxes withheld from a
distribution at the rate provided in the Convention will be eligible for credit
against your U.S. federal income tax liability. Under current Dutch law, we,
under certain circumstances, may be permitted to deduct and retain from such
withholding a portion of the amount that would otherwise be required to be
remitted to the taxing authorities in The Netherlands. This amount generally may
not exceed 3% of the total dividend distributed by us. To the extent that we
have withheld an amount from dividends paid to shareholders which we then are
not required to remit to any taxing authority in The Netherlands, such amount in
all likelihood would not qualify as a creditable tax for U.S. tax purposes. We
will endeavor to provide to you information concerning the extent to which we
have applied the reduction described above to dividends paid to you. The
limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends distributed
by us with respect to the Common Shares will generally constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income."
The rules relating to the determination of the U.S. foreign tax credit are
complex and holders should consult their tax advisors to determine whether and
to what extent a credit would be available. If you do not elect to claim a
foreign tax credit you may instead claim an itemized deduction for all foreign
taxes paid in the taxable year.
Sale or other disposition of Common Shares
Upon a sale or other disposition of Common Shares, you will recognize
capital gain or loss for U.S. federal income tax purposes in an amount equal to
the difference between the amount realized and your tax basis in such Common
Shares. Any such gain or loss, if any, will generally be U.S. source gain or
loss and will be treated as long-term gain or loss if your holding period in the
Common Shares exceeds one year. If you are an individual, any capital gain
generally will be subject to U.S. federal income tax at preferential rates if
specified minimum holding periods are met. The deductibility of capital losses
is subject to significant limitations.
U.S. information reporting and backup withholding
Dividend payments with respect to Common Shares and proceeds from the
sale, exchange or redemption of Common Shares may be subject to information
reporting to the Internal Revenue Service ("IRS") and possible U.S. backup
withholding at a 31% rate. Backup withholding will not apply, however, to a
holder who furnishes a correct taxpayer identification number or certificate of
foreign status and makes any other required certification or who is otherwise
exempt from backup withholding. U.S. persons who are required to establish their
exempt status generally must provide such certification on IRS Form W-9
("Request for Taxpayer Identification Number and Certification"). Non-U.S.
holders generally are not subject to U.S. information reporting or backup
withholding. However, such holders may be required to provide certification of
non-U.S. status in connection with payments received in the United States or
through U.S.-related financial intermediaries. Finalized Treasury regulations
have
83
generally expanded the circumstances under which U.S. information reporting
and backup withholding may apply. Holders of Common Shares should consult their
tax advisors regarding the application of the U.S. information reporting and
backup withholding rules, including the finalized Treasury regulations.
Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder's U.S. federal income tax
liability, and a holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the
IRS and furnishing any required information.
Documents on display
The documents filed by us with the U.S. Securities and Exchange
Commission can be read at its public reference facilities at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in financial market conditions in the normal
course of business due to our operations in different foreign currencies and our
ongoing investing and financing activities. Market risk is the uncertainty to
which future earnings or asset/liability values are exposed due to operating
cash flows denominated in foreign currencies and various financial instruments
used in the normal course of operations. We have established policies,
procedures and internal processes governing our management of market risks and
the use of financial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of
our borrowing activities which include long-term debt used to fund business
operations. We borrow in U.S. dollars as well as in other currencies from banks
and other sources. We primarily enter into debt obligations to support general
corporate and local purposes including capital expenditures and working capital
needs. The nature and amount of our long-term debt can be expected to vary as a
result of future business requirements, market conditions, and other factors.
The principal interest rate risks to which we are exposed relate to our
investment portfolio and long-term debt obligations. We primarily utilize
fixed-rate debt and do not expect changes in interest rates to have a material
effect on income or cash flows in 2001.
The functional currency of our subsidiaries is generally the local
currency. Our operating cash flows are denominated in various foreign currencies
as a result of our international business activities and certain of our
borrowings are exposed to changes in foreign exchange rates. We continually
evaluate our foreign currency exposure based on current market conditions and
the business environment. In order to mitigate the impact of changes in foreign
currency exchange rates, we enter into forward exchange contracts. The magnitude
and nature of such activities are explained further in Note 22 to the
Consolidated Financial Statements.
We place our cash and cash equivalents with high credit quality
financial institutions. We manage the credit risks associated with financial
instruments through credit approvals, investment limits and centralized
monitoring procedures but do not normally require collateral or other security
from the parties to the financial instruments with off-balance sheet risk. We
are averse to principal loss and manage the safety and preservation of our
invested funds by limiting default risk, market risk and reinvestment risk.
We enter into forward contracts and foreign currency options to protect
against the volatility of foreign currency exchange rates and to cover a portion
of both our probable anticipated, but not firmly committed, transactions and
transactions with firm foreign currency commitments. The risk of loss associated
with purchased options is limited to premium amounts paid for the option
contracts. The risk of loss associated with forward contracts is equal to the
exchange rate differential from the date the contract is made until the time it
is settled.
Forward contracts outstanding as of December 31, 2000 have remaining
terms of one to 3 months, which matured mainly during the first quarter of 2001.
The notional amounts of foreign exchange forward contracts totaled $780.4
million at December 31, 2000, and $611.6 million at December 31, 1999. The
principal currencies covered are the U.S. dollar, the euro, the Italian lira,
the Japanese yen and the Swiss franc.
We do not anticipate any material adverse effect on our financial
position, result of operations or cash flows resulting from the use of our
instruments in the future. There can be no assurance that these strategies will
be
84
effective or that transaction losses can be minimized or forecasted accurately.
We do not use financial instruments for speculative or trading purposes.
The information below summarizes our market risks associated with cash
equivalents, debt obligations, and other significant financial instruments as of
December 31, 2000. The information below should be read in conjunction with
Notes 4, 14 and 22 to the Consolidated Financial Statements.
The table below presents principal amounts and related weighted-average
interest rates by year of maturity for our investment portfolio and debt
obligations (in thousands of U.S. dollars, except percentages):
Fair value at
December 31,
2001 2002 2003 2004 2005 Thereafter TOTAL 2000
------ ------ ------ ------ ------ ---------- ------- -----
Assets:
Cash equivalents..... 2,295,703 2,295,703 2,295,703
Average interest rate 6.57% 6.57%
Long-term debt:
Fixed rate........... 105,972 111,572 84,457 57,555 47,492 2,339,406 2,806,454 3,325,678
Average interest rate 5.72% 6.01% 5.91% 5.45% 5.01% 3.26% 3.62%
Amounts in thousands
of U.S. dollars
---------------------
Long-term debt by currency as of December 31, 2000:
U.S. dollar......................................... 2,445,569
Italian lira........................................ 128,398
French franc........................................ 199,593
Other currencies.................................... 32,894
------
TOTAL in U.S. dollars.................................. 2,806,454
=========
Amounts in thousands
of U.S. dollars
---------------------
Long-term debt by currency as of December 31, 1999:
U.S. dollar........................................ 1,157,366
Italian lira....................................... 192,432
French franc....................................... 82,993
Other currencies................................... 12,355
------
TOTAL in U.S. dollars................................. 1,445,146
=========
85
The following table provides information about our foreign exchange
forward contracts at December 31, 2000 (in thousands of U.S. dollars):
Average Contractual
Forward Exchange
Buy Sell Notional Amount Rate Fair Value
------- -------- ------------------- -------- ----------
Foreign currency forward exchange contracts to buy U.S. dollars for foreign currencies:
U.S. dollar........ Euro 273,082 0.89 (12,772)
U.S. dollar........ French franc 25,000 7.30 (845)
U.S. dollar........ Italian lira 96,112 1,738.98 18,779
U.S. dollar........ Malaysian ringgit 106,063 3.79 206
U.S. dollar........ Singapore dollar 94,360 1.73 (11)
------
Total............. 594,617 5,357
======= =====
Foreign currency forward exchange contracts to buy euro for foreign currencies:
Euro............... Malaysian ringgit 5,155 3.25 415
Euro............... U.S. dollar 60,000 0.85 6,121
------ -----
Total.............. 65,155 6,536
====== =====
Foreign currency forward exchange contracts to buy Japanese yen for foreign
currencies:
Japanese yen....... Euro 26,108 101.51 (1,465)
Japanese yen(1).... French franc 12,619 7.08 (1,959)
Japanese yen....... Malaysian ringgit 3,684 0.03 (71)
----- ----
Total.............. 42,411 (3,495)
====== =======
Foreign currency forward exchange contracts to buy Swiss francs for foreign currencies
Swiss franc........ Euro 1,833 1.52 (6)
Swiss franc........ French franc 2,138 4.36 (26)
Swiss franc........ U.S. dollar 31,765 1.67 771
------ ---
Total.............. 35,736 739
====== ===
Foreign currency forward exchange contracts to buy Singapore dollars for foreign currencies:
Singapore dollar... Euro 418 1.61 (2)
Singapore dollar... Japanese yen 21,035 0.02 323
------ ---
Total.............. 21,453 321
====== ===
Foreign currency forward exchange contracts to buy French francs for foreign
currencies:
French franc....... U.S. dollar 15,000 7.79 1,551
------ -----
Total.............. 15,000 1,551
====== =====
Foreign currency forward exchange contracts to buy Swedish kroners for foreign currencies
Swedish kroner..... U.S. dollar 4,560 9.49 7
----- -
Total.............. 4,560 7
===== =
Foreign currency forward exchange contracts to buy British pounds for foreign currencies:
British pound...... French franc 1,491 11.06 (73)
----- ----
Total.............. 1,491 (73)
===== ====
TOTAL.............. 780,423 10,943
======= ======
- ----------------------
(1) Forward exchange rate for 100 Japanese yen.
86
The following table provides information about our foreign exchange
forward contracts at December 31, 1999 (in thousands of U.S. dollars):
Average Contractual
Forward Exchange
Buy Sell Notional Amount Rate Fair Value
- --------------------------- -------------------- -------------------- --------------------- ------------
Foreign currency forward exchange contracts to buy U.S. dollars for foreign currencies:
U.S. dollar........ Euro 50,373 1.02 (943)
U.S. dollar........ British pound 34,790 1.62 61
U.S. dollar........ Italian lira 144,066 1,785.35 8,062
U.S. dollar........ Malaysian ringgit 131,760 3.79 185
------- -----
Total.............. 360,989 7,365
======= =====
Foreign currency forward exchange contracts to buy Singapore dollars for foreign currencies:
Singapore dollar... Euro 4,968 1.68 31
Singapore dollar... Japanese yen (1) 36,186 1.61 (410)
Singapore dollar... U.S. dollar 77,600 1.66 180
------ -----
Total.............. 118,754 (199)
======= =====
Foreign currency forward exchange contracts to buy French francs for foreign
currencies:
French franc....... U.S. dollar 43,000 6.43 (547)
------ -----
Total.............. 43,000 (547)
====== =====
Foreign currency forward exchange contracts to buy Japanese yen for foreign
currencies:
Japanese yen....... Euro 19,558 104.92 460
Japanese yen(1).... French franc 17,015 6.16 696
------ -----
Total.............. 36,573 1,156
====== =====
Foreign currency forward exchange contracts to buy euro for foreign currencies:
Euro............... Malaysian ringgit 781 3.85 (2)
Euro............... U.S. dollar 23,000 1.02 379
------ -----
Total.............. 23,781 377
====== =====
Foreign currency forward exchange contracts to buy Swiss francs for foreign currencies
Swiss franc........ French franc 2,706 4.09 (2)
Swiss franc........ U.S. dollar 16,345 1.58 (236)
------ -----
Total.............. 19,051 (238)
====== =====
Foreign currency forward exchange contracts to buy Swedish kroners for foreign currencies:
Swedish kroner..... U.S. dollar 7,000 8.43 (56)
----- -----
Total.............. 7,000 (56)
===== =====
Foreign currency forward exchange contracts to buy British pounds for foreign currencies:
British pound...... French franc 2,419 10.19 81
----- -----
Total.............. 2,419 81
===== =====
TOTAL.............. 611,567 7,939
======= =====
- ----------------------
(1) Forward exchange rate for 100 Japanese yen.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
87
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
88
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Page
Financial Statements:
Report of Independent Accountants for Years Ended December 31, 2000, 1999 and 1998................ F-2
Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 and 1998............. F-3
Consolidated Balance Sheet as at December 31, 2000 and 1999....................................... F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998......... F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 2000,
1999 and 1998.................................................................................. F-6
Notes to Consolidated Financial Statements........................................................ F-7
Financial Statement Schedules:
For each of the three years in the period ended December 31, 2000 Schedule II
Valuation and
Qualifying Accounts............................................................................ S-1
Report of Independent Accountants on Financial Statement Schedule................................. S-2
ITEM 19. EXHIBITS
1.1 Articles of Association, as amended as of May 5, 2000, of
STMicroelectronics N.V. (incorporated by reference to the Annual Report on Form
20-F for the year ended December 31, 1999, as filed with the Commission on June
27, 2000)
4.1 Indenture, dated as of November 16, 2000, among STMicroelectronics
N.V. as issuer and The Bank of New York, as Trustee, of our Zero Coupon Senior
Convertible Bonds due 2010
8.1 Subsidiaries of the Company (see Note 3 to the Consolidated
Financial Statements)
10.1 Consent of PricewaterhouseCoopers N.V.
89
CERTAIN TERMS
ADSL............................asymetrical digital subscriber line
ASD.............................application-specific discrete technology
ASIC............................application-specific IC
ASSP............................application-specific standard product
ATM.............................asynchronous transfer mode
BCD.............................bipolar, CMOS and DMOS process technology
BiCMOS..........................bipolar and CMOS process technology
CAD.............................computer aided design
CDMA............................code division multiple access
CIM.............................computer integrated manufacturing
CMOS............................complementary metal oxide silicon
DMOS............................diffused metal oxide silicon
DRAMS...........................dynamic random access memory
DSP.............................digital signal processor
EMAS............................the Eco-Management and Audit Scheme (EAMS)
is the voluntary European Community scheme
for companies performing industrial
activities for the evaluation and
improvement of environmental performance
EEPROM..........................electrically erasable programmable read-only
memory
EPROM...........................erasable programmable read-only memory
GPS.............................global positioning system
HCMOS...........................high-speed complementary metal-oxide-silicon
IC..............................integrated circuit
IGBT............................insulated gate bipolar transistors
ISDN............................integrated services digital network
JavaCard(TM)applets.............application software for smartcard developed
on Java platform
Java............................operating system developed by Sun Microsystems.
Kbit............................Kilobit
Mbit............................Megabit
MCUs............................microcontrollers units
MIPS............................million instructions per second
MOS.............................metal oxide silicon process technology
MOSFET..........................metal oxide silicon field effect transistor
MPEG............................motion picture experts group
NVRAM...........................nonvolatile SRAM
OEM.............................original equipment manufacturer
OTP.............................one-time programmable
PROM............................programmable read-only memory
RAM.............................random access memory
RF..............................radio frequency
RISC............................reduced instruction set computing
ROM.............................read-only memory
SAM.............................serviceable available market
SLIC............................subscriber line interface card
SPC.............................statistical process control
SRAM............................static random access memory
TAM.............................total available market
VLSI............................very large scale integration
VDSL............................very high-bit rate digital subscriber line
VoIP............................voice over Internet protocol
WCDMA...........................wide-band CDMA
90
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this Annual Report on its behalf.
STMICROELECTRONICS N.V.
Date: May 15, 2001
By: /s/ Pasquale Pistorio
---------------------------------------
Name: Pasquale Pistorio
Title: President and
Chief Executive Officer
91
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements:
Report of Independent Accountants for Years Ended December 31, 2000, 1999 and 1998................ F-2
Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 and 1998............. F-3
Consolidated Balance Sheet as at December 31, 2000 and 1999....................................... F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998......... F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 2000,
1999 and 1998.................................................................................. F-6
Notes to Consolidated Financial Statements........................................................ F-7
Financial Statement Schedules:
For each of the three years in the period ended December 31, 2000 Schedule II
Valuation and
Qualifying Accounts............................................................................ S-1
Report of Independent Accountants on Financial Statement Schedule................................. S-2
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Supervisory Board and Shareholders of
STMicroelectronics N.V:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholder's
equity present fairly, in all material respects, the financial position of
STMicroelectronics N.V. and its subsidiaries at December 31, 2000 and December
31, 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers N.V.
PricewaterhouseCoopers N.V.
Amsterdam, The Netherlands
February 1, 2001
F-2
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF INCOME
Year ended
-----------------------------------------------------
December 31, December 31, December 31,
In thousands of U.S. dollars except per share amounts 1998 1999 2000
- --------------------------------------------------------------------------------------------------------------------
Net sales 4,210,618 5,023,109 7,764,404
Other revenues 37,134 33,167 48,799
-----------------------------------------------------
Net revenues 4,247,752 5,056,276 7,813,203
Cost of sales (2,622,943) (3,054,476) (4,216,921)
-----------------------------------------------------
Gross profit 1,624,809 2,001,800 3,596,282
Selling, general and administrative (488,072) (534,178) (703,675)
Research and development (689,785) (835,964) (1,026,348)
Other income and expenses 76,458 39,840 (83,533)
-----------------------------------------------------
Operating income 523,410 671,498 1,782,726
Net interest income 8,691 35,624 46,703
-----------------------------------------------------
Income before income taxes and minority interests 532,101 707,122 1,829,429
Income tax expense (120,351) (157,214) (375,119)
-----------------------------------------------------
Income before minority interests 411,750 549,908 1,454,310
-----------------------------------------------------
Minority interests (629) (2,656) (2,207)
-----------------------------------------------------
Net income 411,121 547,252 1,452,103
-----------------------------------------------------
Earnings per share (Basic) 0.49 0.64 1.64
-----------------------------------------------------
Earnings per share (Diluted) 0.48 0.62 1.58
The accompanying notes are an integral part of these consolidated financial statements
F-3
STMicroelectronics N.V.
CONSOLIDATED BALANCE SHEET
As at
------------------------------------
December 31, December 31,
In thousands of U.S. dollars 1999 2000
- -------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 1,823,086 2,295,703
Marketable securities -- 35,155
Trade accounts and notes receivable 913,282 1,496,446
Inventories 619,402 876,476
Other receivables and assets 435,784 554,035
---------------------------------
Total current assets 3,791,554 5,257,815
---------------------------------
Intangible assets, net 179,947 286,121
Property, plant and equipment, net 3,873,019 6,201,071
Investments and other non-current assets 85,783 135,488
---------------------------------
4,138,749 6,622,680
---------------------------------
Total assets 7,930,303 11,880,495
---------------------------------
Liabilities and shareholders' equity
Current liabilities
Bank overdrafts 26,471 35,599
Current portion of long-term debt 96,669 105,972
Trade accounts and notes payable 998,881 1,745, 553
Other payables and accrued liabilities 381,845 509,165
Accrued and deterred income tax 189,308 299,638
---------------------------------
Total current liabilities 1,693,174 2,695,927
---------------------------------
Long-term debt 1,348,477 2,700,482
Reserves for pension and termination indemnities 108,294 110,244
Other non-current liabilities 191,660 216,235
---------------------------------
1,648,431 3,026,961
---------------------------------
Total liabilities 3,341,605 5,722,888
---------------------------------
Commitments and contingencies
---------------------------------
Minority interests 24,757 32,958
---------------------------------
Common stock 1,112,680 1,133,739
Capital surplus 1,395,307 1,689,824
Accumulated result 2,551,817 3,977,316
Accumulated other comprehensive income (495,863) (676,230)
---------------------------------
Shareholders' equity 4,563,941 6,124,649
---------------------------------
Total liabilities and shareholders' equity 7,930,303 11,880,495
---------------------------------
The accompanying notes are an integral part of these consolidated financial statements
F-4
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended
------------------------------------------------------------
December 31, December 31, December 31,
In thousands of U.S. dollars 1998 1999 2000
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income 411,121 547,252 1,452,102
Add (deduct) non-cash items:
Depreciation and amortization 704,004 806,789 1,108,180
Amortization of discount on convertible debt 4,657 12,576 29,077
Other non-cash items 5,240 4,285 10,133
Minority interest in net income of subsidiaries 629 2,656 2,207
Deferred taxes 34,333 28,711 (4,535)
Changes in assets and liabilities:
Trade accounts and notes receivable (115,879) (164,564) (631,049)
Inventories (18,807) (38,340) (299,993)
Trade accounts and notes payable 45,982 208,899 579,436
Other assets and liabilities, net (58,733) 61,018 186,214
----------------------------------------------------------
Net cash provided by operating activities 1,012,547 1,469,282 2,431,772
----------------------------------------------------------
Cash flows from investing activities:
Payment for purchases of tangible assets (947,253) (1,347,537) (3,317,600)
Other investing activities (18,997) (190,290) (249,543)
----------------------------------------------------------
Net cash used in investing activities (966,250) (1,537,827) (3,567,143)
----------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 424,955 756,836 1,661,202
Repayment of long-term debt (72,396) (48,080) (87,223)
Increase (decrease) in short-term facilities (233,261) (110,308) 30,665
Capital increase 233,334 230,437 38,175
Dividends paid -- (22,848) (26,603)
----------------------------------------------------------
Net cash provided by financing activities 352,632 806,037 1,616,216
----------------------------------------------------------
Effect of changes in exchange rates (334) (15,158) (8,228)
----------------------------------------------------------
Net cash increase 398,595 722,334 472,617
----------------------------------------------------------
Cash and cash equivalents at beginning of the period 702,157 1,100,752 1,823,086
----------------------------------------------------------
Cash and cash equivalents at end of the period 1,100,752 1,823,086 2,295,703
----------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements
F-5
STMicroelectronics N.V.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
In thousands of U.S. dollars, except per share amounts Accumulated
Other
Common Capital Accumulated Comprehensive Shareholders'
Stock Surplus Result Income (Loss) Equity
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Balance as of December 31, 1997 1,073,990 930,945 1,616,292 (313,781) 3,307,446
Capital increase 22,753 204,581 227,334
Comprehensive income:
Net Income 411,121 411,121
Other comprehensive income, net of tax 137,409 137,409
-------------
Comprehensive income 548,530
------------------------------------------------------------------------------------
Balance as of December 31, 1998 1,096,743 1,135,526 2,027,413 (176,372) 4,083,310
------------------------------------------------------------------------------------
Capital increase 15,937 259,781 275,718
Comprehensive income:
Net Income 547,252 547,252
Other comprehensive loss, net of tax (319,491) (319,491)
-------------
Comprehensive income 227,761
Dividends, $0.027 per share (22,848) (22,848)
------------------------------------------------------------------------------------
Balance as of December 31, 1999 1,112,680 1,395,307 2,551,817 (495,863) 4,563,941
------------------------------------------------------------------------------------
Capital increase 21,059 294,517 315,576
Comprehensive income:
Net Income 1,452,103 1,452,103
Other comprehensive loss, net of tax (180,367) (180,367)
-------------
Comprehensive income 1,271,736
Dividends, $0.03 per share (26,604) (26,604)
------------------------------------------------------------------------------------
Balance as of December 31, 2000 1,133,739 1,689,824 3,977,316 (676,230) 6,124,649
------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements
F-6
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
1. The Company
STMicroelectronics N.V. (formerly known as SGS-THOMSON Microelectronics
N.V.) (the "Company") was formed in 1987 by the combination of the
semiconductor business of SGS Microelettronica (then owned by Societa
Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and the
non-military business of Thomson Semiconducteurs (then owned by
Thomson-CSF, a French corporation) whereby each company contributed their
respective semiconductor businesses in exchange for a 50% interest in the
Company. The Company designs, develops, manufactures and markets a broad
range of semiconductor integrated circuits and discrete devices that are
used in a wide variety of microelectronic applications.
The Company is registered in The Netherlands with its statutory domicile
in Amsterdam.
At December 31, 2000, the Company was 43.77% (December 31, 1999: 44.80%)
owned by STMicroelectronics Holding II B.V., and 56.23% by the public
(December 3l, 1999: 55.20%).
At December 31, 1999, and at December 31, 2000, STMicroelectronics Holding
II B.V. was 100% owned by STMicroelectronics Holding N.V.
At December 31, 1999, STMicroelectronics Holding N.V. was owned as follows:
- 50% by FT1CI, a French holding company, whose shareholders are
CEA-Industrie (51%) and France Telecom (49%).
- 50% by Finmeccanica, an Italian holding company, whose shareholders are
Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (54.2%), the
Italian Ministry of Treasury (28.9%) and the public (16.9%).
At December 31, 2000, STMicroelectronics Holding N.V. was owned as follows:
- 50% by FT1CI, a French holding company, whose shareholders are
CEA-Industrie (51%) and France Telecom (49%).
- 50% by Finmeccanica, an Italian holding company, whose shareholders are
Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (5.0%), the
Italian Ministry of Treasury (32.4%) and the public (62.6%).
2. Summary of accounting policies
2.1) Principles of consolidation
The accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP).
The Company's consolidated financial statements include the assets,
liabilities and results of operations of its majority-owned
subsidiaries. The ownership of other interest holders is reflected as
minority interests. Intercompany balances and transactions have been
eliminated in consolidation.
2.2) Use of estimates
The preparation of financial statements in accordance with U.S. GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes to
the financial statements.
Actual results could differ from those estimates and may affect
amounts reported in future periods.
2.3) Foreign currency
The U.S. dollar is the reporting currency for the Company because the
dollar is the currency of reference in terms of market pricing in the
world-wide semiconductor industry. Furthermore, there is no currency
in which the majority of transactions are denominated, and revenues
from external sales in U.S. dollars exceed revenues in any other
currency.
F-7
STMICROELECTRONICS 1.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
The functional currency of each subsidiary throughout the group is
generally the local currency.
For consolidation purposes, assets and liabilities of these
subsidiaries are translated at current rates of exchange at the
balance sheet date. Income and expense items are translated at the
average exchange rate for the period. The effects of translating the
financial position and results of operations from local functional
currencies are included in "other comprehensive income".
Assets, liabilities, revenue, expenses, gains or losses arising from
foreign currency transactions are recorded in the functional currency
of the recording entity at the exchange rate in effect at the date of
the transaction. At each balance street date, recorded balances
denominated in a currency other than the recording entity's functional
currency are translated at the exchange rate prevailing at that date.
The related exchange gains and losses are recorded in the income
statement.
The Company conducts its business on a global basis in various major
international currencies. As a result, it is exposed to adverse
movements in foreign currency exchange rates.
The Company utilizes foreign exchange forward contracts and currency
options to cover foreign currency exposure. For the forward contracts
and currency options that are considered identifiable hedges,
recognition of gains and losses is deferred until settlement of the
underlying commitments. Realized gains and losses are recorded as
other income or expense when the underlying exposure materializes or
the hedged transaction is no longer expected to occur. The discount or
premium on these forward contracts designated as a hedge, are recorded
as an asset or liability and amortized to interest expense over the
terms of the contract. For the forward contracts and currency options
that are not considered identifiable hedges, recognition of gains and
losses is recognized at each reporting period, based on the fair
market value of the forward contract. Realized gains or losses are
recorded as other income and expense.
2.4) Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2.5) Income recognition
* Sales
Revenue on sales of semiconductor products is recognized upon transfer
of the ownership of the goods at shipment. A portion of the Company's
sales are made to distributors who participate in certain programs
common in the semiconductor industry whereby the distributors are
allowed to return merchandise under certain circumstances and may
receive future price reductions. Provision is made at the time of sale
for estimated product returns and price protection which may occur
under programs the Company has with these customers.
* Fundings
Government fundings are recognized as the related costs are incurred,
commencing when the fundings' contract is signed with the relevant
government department or agency. Government fundings for research and
development are included in "other income and expenses". Government
fundings for capital expenditures are deducted from the cost of the
related fixed assets and reduce depreciation over the assets'
remaining estimated useful lives.
* Other revenue
Other revenue consists of co-development contract fees, certain
contract indemnity payments and patent royalty income. Other revenue
is recognized rateably over the term of the agreement.
In December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), providing the staff's view on
applying generally accepted accounting principles to selected revenue
recognition issues. The Company adopted SAB 101 in the fourth quarter
of 2000, as required. The adoption of SAB 101 did not have a material
effect on the Company's financial position or overall trends in
results of operations.
2.6) Advertising costs
Advertising costs are expensed as incurred. Advertising expenses for
1998, 1999 and 2000 were $16,012. $21,102 and $30,421, respectively.
F-8
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
2.7) Research and development
Research and development costs are charged to expense as incurred.
Research and development costs include costs incurred by the Company
as well as the Company's share of costs incurred by other research and
development interest groups.
2.8) Start-up costs
Start-up costs incurred in the Company's new manufacturing
facilities, before reaching a minimum level of production, are
included in "other income and expenses" in the accompanying
consolidated statement of income.
2.9) Income taxes
The provision for current taxes represents the income taxes expected
to be payable for the current year. Deferred tax assets and
liabilities are recorded for all temporary differences arising between
the tax and book bases of assets and liabilities and for the benefits
of tax credits and loss carryforwards. Those deferred tax assets and
liabilities are measured using the enacted tax rates at which they are
expected to be realized or paid. A valuation allowance is provided
where necessary to reduce deferred tax assets to the amount expected
to be "more likely than not" realized in the future.
2.10) Earnings per share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the
period.
Diluted earnings per share are computed by dividing net income (less
interest expense, net of tax effects, related to convertible debt) by
the weighted average number of common shares and common share
equivalents outstanding during the period. The weighted average shares
used to compute diluted earnings per share include the incremental
shares of common stock relating to outstanding options and convertible
debt to the extent such incremental shares are dilutive.
2.11) Cash equivalents
All highly liquid investments purchased with an original maturity of
ninety days or less are considered to be cash equivalents.
2.12) Marketable securities
Management determines the appropriate classification of debt and
equity securities at the time of purchase and reassesses the
classification at each reporting date. All marketable securities are
classified as available-for-sale and are reported at fair value with
net unrealized gains or losses reported as a separate component of
comprehensive income in the statement of shareholders' equity.
Unrealized losses that are other than temporary are recognized in net
income. Gains and losses on securities sold are determined based on
the specific identification method and are included in other income
and expense.
2.13) Inventories
Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis which approximates
actual cost on a current average basis.
2.14) Intangible assets
Intangible assets include the cost of technologies and licenses
purchased from third parties, amortized over a period ranging from
three to seven years, and goodwill acquired in business combinations
amortized over its estimated useful life, generally three to five
years.
The carrying value of long-lived assets, including intangibles, is
evaluated whenever changes in circumstances indicate the carrying
amount of such assets may not be recoverable.
In performing such review for recoverability, the Company compares the
expected future cash flow to the carrying value of long-lived assets
and identifiable intangibles. If the anticipated undiscounted future
cash flows are less than the carrying amount of such assets, the
Company recognizes an impairment loss for the difference between the
carrying amount of the assets and their estimated fair value.
F-9
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
2.15) Property, plant and equipment
Property, plant and equipment are stated at cost, net of government
fundings. Major renewals and improvements are capitalized; minor
replacements, maintenance and repairs are charged to current
operations. Depreciation is computed using the straight-line method
over the following estimated useful lives:
-----------------------------------------------------
Buildings 33 years
Leasehold improvements 10 years
Machinery and equipment 6 years
Computer and R&D equipment 3-6 years
Other 2-5 years
-----------------------------------------------------
Assets subject to leasing agreements and classified as capital leases
are included in property, plant and equipment and depreciated over
the shorter of the estimated useful life or the lease term.
When property, plant or equipment is retired or otherwise disposed of,
the net book value of the asset is removed from the Company's books
and the net gain or loss is included in the determination of income.
2.16) Investments
The equity accounting method is used when the Company has both a 20%
to 50% equity interest and the ability to exercise significant
influence over the investee. The Company also holds certain equity
investments constituting less than 20% ownership of the investee.
These investments are carried at historical cost. Although the market
value of the investments is not readily determinable, management
believes the fair value of these investments exceeds their carrying
amounts.
For those investments with readily determinable market values, the
Company has accounted for those investments as available-for-sale.
These investments are reported at fair value with the net unrealized
gains or losses reported as a separate component of comprehensive
income in the statement of shareholders' equity. Unrealized losses
that are other than temporary are recognized in net income.
2.17) Pension and termination indemnities
The Company sponsors various retirement plans for its employees; such
plans include both defined benefit and defined contribution plans.
Upon retirement, the Company's employees receive benefits provided by
the pension plan arrangements. These plans conform with local
regulations and practices of the countries in which the Company
operates.
2.18) Comprehensive income
Comprehensive income is defined as the change in equity of a business
during a period from transactions and circumstances related to
non-owner sources, and includes all changes in equity except those
resulting from investment by owners and distributions to owners.
In the Company's case, "other comprehensive income" consists of
foreign currency translation adjustments and the unrealized gain or
loss on marketable securities.
2.19) Stock splits
In May 1999, the Company's shareholders approved a two-for-one stock
split of the Company's common stock.
The record date for the stock split was June 16, 1999, and the
distribution date was June 17, 1999.
In April 2000, the Company's shareholders approved a three-for-one
stock split of the Company's common stock.
The record date for the stock split was May 5, 2000, and the
distribution date was May 6, 2000.
All earnings per share amounts, references to common stock,
shareholders' equity amounts and stock option plan data have been
restated as if the stock splits had occurred as of the earliest period
presented.
2.20) New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities". FAS
133 is required to be adopted for fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting
standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the balance sheet, and the
measurement of those instruments at fair value. The Company has
adopted the standards required by this statement in the first quarter
of 2001. Management believes that adoption of FAS 133 has not had a
material effect on the Company's financial position or results of
operations.
F-10
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
3. Consolidated entities
The consolidated financial statements include the accounts of
STMicroelectronics N.V. and the following entities as of December 31, 2000:
Percentage
Ownership
(Direct or
Legal Seat Name Indirect)
- -------------------------------------------------------------------------------------------------------
United Kingdom London STMicroelectronics LTD 100
London Thomson Components LTD 100
Bristol STMicroelectronics E.E.I.G. 100
Canada Nepean STMicroelectronics (Canada), Inc. 100
Israel Netania W.S.I. Ltd. 100
Sweden Stockholm STMicroelectronics A.B. 100
Germany Munich STMicroelectronics GmbH 100
Switzerland Geneva STMicroelectronics S.A. 100
Malta Malta STMicroelectronics LTD 100
Spain Madrid STMicroelectronics S.A. 100
France Paris STMicroelectronics S.A. 100
Paris STMicroelectronics S.A.S. 100
Italy Milano STMicroelectronics S.R.L. 100
Catania CO.RI.M.ME. 100
Milano Accent S.R.L. 51
Singapore Singapore STMicroelectronics PTE LTD 100
Singapore STMicroelectronics ASIA PACIFIC PTE LTD 100
Malaysia Muar STMicroelectronics SDN BHD 100
Muar STMicroelectronics (Malaysia) SDN BHD 100
Japan Tokyo STMicroelectronics KK 100
Hong Kong Hong Kong STMicroelectronics LTD 100
Australia Sydney STMicroelectronics PTY LTD 100
United States Dallas STMieroelectronics Inc. 100
Rancho Bernardo STMicroelectronics (RB), Inc. 100
Dallas STMicroelectronics Leasing Co. Inc. 100
La Jolla Metaflow Technologies Inc. 100
Wilsonville The Portland Group, Incorporated 100
Brazil Sao Paulo STMicroelectronics Ltda 100
Morocco Casablanca STMicroelectronics S.A. 100
Casablanca Electronic Holding S.A. 100
China Shenzhen Shenzhen STS Microelectronics Co. LTD 60
Shenzhen STMicroelectronics (Shenzen) Co. LTD. 100
India New Delhi STMicroelectronics PTE LTD 100
Finland Helsinki STMicroelectronics OY 100
- -------------------------------------------------------------------------------------------------------
4. Marketable securities and certain investments
The marketable securities and certain investments had a cost basis of
$31,831 and a fair value of $42,093 at December 31, 2000. The unrealized
gain at December 31, 2000 related to these investments was $10,262. The
Company did not own any marketable securities or investments accounted for
at fair value at December 31, 1999. For fiscal years 1998, 1999 and 2000,
gross realized gains and losses were $0, $0 and $8,952, respectively.
F-11
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
5. Trade accounts and notes receivable
Trade accounts and notes receivable consist of the following:
- --------------------------------------------------------------------------------
December 31, December 31,
--------------------------------
1999 2000
- --------------------------------------------------------------------------------
Trade accounts and notes receivable 924,872 1,512,270
Less valuation allowance (11,590) (15,824)
--------------------------------
Total 913,282 1,496,446
- --------------------------------------------------------------------------------
During 1998 no customer individually represented over ten percent of
consolidated net revenues. In 1999, one customer represented 11.4% of
consolidated net revenues and in 2000 one customer represented 13.4% of
consolidated net revenues.
6. Inventories
Inventories consist of the following:
- --------------------------------------------------------------------------------
December 3l, December 31,
--------------------------------
1999 2000
- --------------------------------------------------------------------------------
Raw materials 101,590 88,501
Work-in-process 395,320 588,263
Finished products 122,492 199,712
--------------------------------
Total 619,402 876,476
- --------------------------------------------------------------------------------
7. Other receivables and assets
Other receivables and assets consist of the following:
- --------------------------------------------------------------------------------
December 31, December 31,
-------------------------
1999 2000
- --------------------------------------------------------------------------------
Receivables from government agencies 152,237 139,418
Taxes and other government receivables 61,523 99,499
Down payment to suppliers 11,394 20,283
Loans to employees 3,557 3,914
Prepaid expenses 17,648 71,800
Sundry debtors 35,053 97,708
Deferred tax assets 73,079 71,651
Other 81,293 49,762
-------------------------
Total 435,784 554,035
- --------------------------------------------------------------------------------
Receivables from government agencies relate to research and development
contracts, industrialization contracts and capital expenditures.
8. Intangible assets
Intangible assets consist of the following:
- --------------------------------------------------------------------------------
December 31, December 31,
-------------------------
1999 2000
- --------------------------------------------------------------------------------
Goodwill 67,417 116,898
Technologies and licenses 202,560 315,532
Less accumulated amortization (90,030) (146,309)
-------------------------
Total 179,947 286,121
- --------------------------------------------------------------------------------
F-12
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
9. Property, plant and equipment
Property, plant and equipment consist of the following:
--------------------------------------------------------------------------
December 31, 1999 Gross Depreciation Net
--------------------------------------------------------------------------
Land and buildings 616,035 (132,973) 483,062
Machinery and equipment 6,216,830 (3,266,819) 2,950,011
Other tangible fixed assets 321,494 (235,968) 85,526
Construction in progress 354,420 -- 354,420
--------------------------------------
Total 7,508,779 (3,635,760) 3,873,019
--------------------------------------------------------------------------
--------------------------------------------------------------------------
December 31, 2000 Gross Depreciation Net
--------------------------------------------------------------------------
Land and buildings 710,456 (144,422) 566,034
Machinery and equipment 8,698,233 (3,689,854) 5,008,379
Other tangible fixed assets 385,581 (254,406) 131,175
Construction in progress 495,483 -- 495,483
--------------------------------------
Total 10,289,753 (4,088,682) 6,201,071
--------------------------------------------------------------------------
10. Investments and other non-current assets
Investments and other non-current assets consist of the following:
--------------------------------------------------------------------------
December 31, December 31,
--------------------------
1999 2000
--------------------------------------------------------------------------
Investments 20,056 18,132
Long-term deposits and receivables 12,435 66,426
Deferred tax assets 33,373 15,916
Debt issuance costs, net 19,919 35,014
---------------------------
Total 85,783 135,488
--------------------------------------------------------------------------
11. Shareholders' equity
Public offerings of shares
In connection with a secondary offering of common stock in June 1998, the
Company issued 18,000,000 new shares of common stock, which resulted in an
increase in common stock and capital surplus of $20,378 and $188,320,
respectively. In connection with a secondary offering of common stock in
September 1999, the Company issued 8,970,000 new shares of common stock,
which resulted in an increase in common stock and capital surplus of
$9,740 and $207,027, respectively.
Outstanding shares
The authorized share capital of the Company is EUR 1,809,600,000,
consisting of 1,200,000,000 common shares and 540,000,000 preference
shares each with a nominal value of EUR 1.04. As of December 31, 1998,
1999 and 2000, the number of shares of common stock outstanding at a par
value of EUR 1.04 was 854,868,636 shares, 869,424,420 shares and
889,881,287 shares, respectively. There were no preference shares
outstanding as of December 31, 1998, 1999 and 2000.
Preference shares
In May 1999, the Company's shareholders approved the creation of
540,000,000 preference shares. The preference shares entitle a holder to
full voting rights and to a preferential right to dividends and
distributions upon liquidation. In May 1999, the Company entered into an
option agreement with ST Holding II B.V. in order to protect the Company
from a hostile takeover or other similar action. The option agreement
provides for 540,000,000 preference shares to be issued to ST Holding II
B.V. upon their request based on approval by the Company's Supervisory
Board. ST Holding II B.V. would be required to pay at least 25% of the
par value of the preference shares to be issued, and to retain ownership
of at least 33% of the Company's issued share capital.
Stock option plans
In 1995, the Shareholders voted to adopt the 1995 Stock Option Plan (the
"1995 Plan") whereby options for up to 33,000,000 shares may be granted in
installments over a five year period. Under the 1995 Plan, the options may
be granted to purchase shares of common stock at a price not lower than
the market price of the shares on the date of grant, and generally vest
over four years and are exercisable over a period of eight years.
In 1996, the Shareholders voted to adopt the Supervisory Board Option Plan
whereby each member of the Supervisory Board was eligible to receive,
during the three year period 1996-1998, 18,000 options for 1996 and
F-13
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
9,000 options for both 1997 and 1998, to purchase shares of common stock
at the closing market price of the shares on the date of the grant. In the
same three-year period, each professional of the Supervisory Board was
eligible to receive 9,000 options for 1996 and 4,500 options for both 1997
and 1998. Under the Plan, the options vest over one year and are
exercisable for a period expiring eight years from the date of grant.
In 1999, the Shareholders voted to renew the Supervisory Board Option Plan
whereby each member of the Supervisory Board may receive, during the three
year period 1999-2001, 18,000 options for 1999 and 9,000 options for both
2000 and 2001, to purchase shares of capital stock at the closing market
price of the shares on the date of the grant. In the same three-year
period, each professional of the Supervisory Board may receive 9,000
options for 1999 and 4,500 options for both 2000 and 2001.
Under the Plan, the options vest over one year and are exercisable for a
period expiring eight years from the date of grant.
A summary of stock option activity for the plans for the three years ended
December 31, 2000, follows:
Price Per Share
---------------
Number of Weighted
Shares Range Average
---------------------------------------
Outstanding at December 31, 1997 12,000,180 $1.50-$14.23 $ 8.48
Options granted:
1995 Plan 3,900,000 $12.03 $12.03
Supervisory Board Plan 90,000 $12.03 $12.03
Options cancelled (57,390) $6.04-$14.23 $ 8.00
Options exercised (344,460) $1.54- $9.00 $ 2.14
---------------------------------------
Outstanding at December 31, 1998 15,588,330 $1.54-$14.23 $ 9.53
Options granted:
1995 Plan 8,878,200 $24.88 $24.88
Supervisory Board Plan 180,000 $24.88 $24.88
Options cancelled (161,640) $6.04-$24.88 $14.30
Options exercised (2,767,200) $1.33-$14.23 $ 5.47
---------------------------------------
Outstanding at December 31, 1999 21,717,690 $6.04-$24.88 $16.41
Options granted:
1995 Plan 7,570,890 $50.69-$62.01 $58.77
Supervisory Board Plan 103,500 $62.01 $62.01
Options cancelled (253,950) $ 6.04-$62.01 $27.57
Options exercised (1,988,195) $ 6.04-$24.88 $ 6.94
---------------------------------------
Outstanding at December 31, 2000 27,149,935 $6.04-$62.01 $28.98
- --------------------------------------------------------------------------------
Stock options exercisable were as follows:
- --------------------------------------------------------------------------------
December 31, December 31, December 31,
-----------------------------------------
1998 1999 2000
- --------------------------------------------------------------------------------
Options exercisable 820,920 2,631,330 5,149,338
Weighted average exercise price $4.92 $6.46 $9.72
- --------------------------------------------------------------------------------
The weighted average remaining contractual life of options outstanding as of
December 3l, 1999 and December 31, 2000 was 6.4 and 6.1 years respectively.
F-14
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
The range of exercise prices, the weighted average exercise price and the
weighted average remaining contractual life of options outstanding as of
December 31, 2000 was as follows:
----------------------------------------------------------------------
Weighted
Weighted average
Option price average renaming
Number of shares range exercise price contractual life
----------------------------------------------------------------------
3,017,360 $6.04 $6.04 3.2 years
3,657,455 $14.23 $14.23 4.7 years
3,885,840 $12.03 $12.03 5.6 years
8,918,100 $24.88 $24.88 6.7 years
126,840 $55.25 $55.25 7.1 years
5,391,700 $62.01 $62.01 7.5 years
70,000 $52.88 $52.88 7.7 years
2,019,640 $50.69 $50.69 7.9 years
63,000 $9.00 $9.00 3.8 years
----------------------------------------------------------------------
The range of exercise prices, the weighted average exercise price and the
weighted average remaining contractual life of options exercisable as of
December 31, 2000 was as follows:
----------------------------------------------------------------------
Weighted
Weighted average
Option price average renaming
Number of shares range exercise price contractual life
----------------------------------------------------------------------
3,017,360 $6.04 $6.04 3.2 years
1,843,978 $14.23 $14.23 4.7 years
63,000 $9.00 $9.00 3.8 years
45,000 $12.03 $12.03 5.6 years
180,000 $24.88 $24.88 6.7 years
----------------------------------------------------------------------
Employee stock purchase plans
In June 1998, the Company offered to certain of its employees worldwide
the right to acquire up to 2,400 shares of capital stock per employee, at
a price of $10.59 (63 French francs, 18,467 Italian lira) per share,
representing a discount of twelve percent from the market price. A total
of 1,729,794 shares were issued to participating employees worldwide as
a result of the offering.
In November 2000, the Company offered to certain of its employees
world-wide the right to acquire up to 275 shares of capital stock per
employee, at a price of $38.675 (45 Euro) per share, representing a
discount of fifteen percent from the market price. A total of 559,929
shares were issued to participating employees worldwide as a result of
the offering.
Fair value of stock-based compensation
The Company has various stock option plans and employee stock purchase
plans, as described above. The Company applies the intrinsic-value-based
method prescribed by Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB 25), and related Interpretations, in
accounting for stock-based awards to employees. Under APB 25, the Company
generally recognizes no compensation expense with respect to such awards.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" (FAS 123) as if the Company had accounted for
its stock-based awards to employees under the fair value method prescribed
by FAS 123.
The fair value of the Company's stock-based awards to employees was
estimated using a Black-Scholes option pricing model.
The fair value was estimated using the following weighted-average
assumptions:
1998 1999 2000
---- ---- ----
Expected life (years) 5 5 5
Volatility 38.2% 41.0% 42.2%
Risk-free interest rate 5.4% 5.8% 6.0%
Dividend yield --- 0.1% 0.05%
The weighted average fair value of options granted during 1998, 1999 and
2000 was $5.65, $11.08 and $27.12 per option, respectively.
F-15
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
If compensation cost for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates consistent with
FAS 123, the Company's net income and earnings per share would have been
adjusted to the pro forma amounts indicated below:
Year ended Year ended Year ended
Dec 31, 1998 Dec 31, 1999 Dec 31, 2000
------------ ------------ ------------
Net income
Pro forma 393,398 522,593 1,387,278
Pro forma earnings per share
Basic 0.47 0.61 1.57
Diluted 0.46 0.59 1.51
These pro forma amounts include amortized fair values attributable to
stock-based awards granted after December 31, 1995 only, and are therefore
not representative of future pro forma amounts.
Retained earnings
At December 31, 2000, the amount of retained earnings available to pay
dividends under Dutch law was approximately $5,263,500 (1999: $3,653,000).
Retained earnings for purposes of this calculation are based upon generally
accepted accounting principles in The Netherlands. The Company's
subsidiaries are subject to the laws of the countries in which they are
domiciled. These laws may restrict the ability of the subsidiaries to
transfer funds to the Company. Such restrictions are not considered to be
significant as of December 31, 2000.
Other comprehensive income
The accumulated balances related to each component of other comprehensive
income were as follows:
- ------------------------------------------------------------------------------------------------------------
Foreign Accumulated
currency Unrealized other
translation gains (losses) comprehensive
gains (losses) on securities income (loss)
- ------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1997 (313,781) --- (313,781)
Other comprehensive income, net of tax 137,409 --- 137,409
- ------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 (176,372) --- (176,372)
Other comprehensive income, net of tax (319,49l) --- (319,491)
- ------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 (495,863) --- (495,863)
Other comprehensive income, net of tax (190,629) 10,262 (180,367)
- ------------------------------------------------------------------------------------------------------------
Balance as of December 31, 2000 (686,492) 10,262 (676,230)
- ------------------------------------------------------------------------------------------------------------
F-16
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
12. Earnings per share
For the years ended December 31, 1998, 1999 and 2000 earnings per share
(EPS) was calculated as follows:
Year ended Year ended Year ended
Dec 31, 1998 Dec 31, 1999 Dec 31, 2000
------------ ------------ ------------
Basic EPS
---------
Net income 411,121 547,252 1,452,103
Weighted average shares outstanding 845,112,048 859,111,668 885,728,493
Basic EPS 0.49 0.64 1.64
Diluted EPS
-----------
Net income 411,121 547,252 1,452,103
Convertible debt interest, net of tax 4,566 13,387 28,204
----------- ----------- -----------
Net income adjusted 415,687 560,639 1,480,307
Weighted average shares outstanding 845,112,048 859,111,668 885,728,493
Dilutive effect of stock options 3,795,378 7,995,558 13,831,539
Dilutive effect of convertible debt 15,425,754 34,116,684 36,499,180
----------- ----------- -----------
Number of shares used in calculating EPS 864,333,180 901,223,910 936,059,212
Diluted EPS 0.48 0.62 1.58
13. Retirement plans
The Company and its subsidiaries have a number of defined benefit
pension plans covering employees in various countries. The plans
provide for pension benefits, the amounts of which are calculated based
on factors such as years of service and employee compensation levels.
Eligibility is generally determined in accordance with local statutory
requirements.
- ----------------------------------------------------------------------------------------------------------------------------
December 31, December 31,
----------------------------
1999 2000
- ----------------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year 87,949 102,363
Service cost 8,087 7,762
Interest cost 5,693 6,189
Benefits paid (3,110) (2,532)
Actuarial losses 9,137 14,053
Foreign currency translation adjustments (3,656) (5,964)
Other (1,737) 634
----------------------------
Benefit obligation at end of year 102,363 122,505
----------------------------
Change in plan assets:
Plan assets at fair value at beginning of year 83,287 99,448
Actual return on plan assets 13,424 1,266
Employer contributions 8,080 2,777
Benefits paid (3,110) (2,532)
Foreign currency translation adjustments (2,286) (6,076)
Other 53 405
----------------------------
Plan assets at fair value at end of year 99,448 95,288
----------------------------
Funded status (2,915) (27,217)
Unrecognized prior service cost 7,853 6,967
Unrecognized transition obligation (3,022) (2,310)
Unrecognized net actuarial gain (loss) (2,034) 16,957
----------------------------
Accrued benefit cost (118) (5,603)
----------------------------
Net amount recognized in the balance sheet consists of the following:
Prepaid benefit cost 5,663 7,423
Accrued benefit liability (8,005) (15,174)
Intangible asset 2,224 2,148
----------------------------
Net amount recognized (118) (5,603)
----------------------------
- ----------------------------------------------------------------------------------------------------------------------------
F-17
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
The components of the net periodic benefit cost includes the following:
- ---------------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
- ---------------------------------------------------------------------------------------------------------------------------
Service cost 5,618 8,087 7,762
Interest cost 5,202 5,693 6,189
Expected return on plan assets (6,147) (5,956) (7,020)
Amortization of unrecognized transition obligation (366) (324) (303)
Recognized gains and losses 56 503 70
Recognition of prior service cost 762 850 847
-------------------------------------------
Net periodic benefit cost 5,125 8,853 7,545
- ---------------------------------------------------------------------------------------------------------------------------
The weighted average assumptions used in the determination of the net pension
cost for the pension plans were as follows:
Assumptions 1998 1999 2000
-------------------------------------------
Discount rate 7.16% 6.30% 6.22%
Salary increase rate 4.49% 3.81% 4.15%
Expected rate of return on funds 8.42% 7.04% 6.20%
- ---------------------------------------------------------------------------------------------------------------------------
The Company also has defined contribution pension plans which provide
retirement benefits to certain of its employees.
The benefit accrues to the employees on a pro-rata basis, adjusted for
inflation, during their employment period and is based on the individuals'
salary. As of December 31, 1999 and 2000, the Company accrued $100,290 and
$99,961 respectively, for these defined contribution pension plans. The annual
cost of these plans amounted to approximately $13,800, $15,200 and $18,000 in
1998, 1999 and 2000 respectively.
14. Long-term debt
Long-term debt, all of which is unsecured, includes debt held by the following subsidiaries:
-----------------------------------------------------------------------------------------------------------------
December 3l, December 3l,
-------------------------
1999 2000
-----------------------------------------------------------------------------------------------------------------
STMicroelectronics S.A. (France)
- 4.90% Bank loan due 2002 30,718 21,278
- 4.88% Bank loan due 2002 30,718 21,278
- 5.21% Other bank loans 21,557 157,037
STMicroelectronics s.r.l. (Italy)
- 5.68% Bank loan due 2002 52,033 32,928
- 5.35% Bank loan due 2006 34,322 27,501
- 4.22% Other bank loans 95,234 57,955
STMicroelectronics N.V. (Netherlands)
- 1.75% Liquid Yield Option Notes (LYONs due 2008) 398,251 112,520
- 2.44% Liquid Yield Option Notes (LYONs due 2009) 725,813 743,371
- 3.75% Convertible Bonds (due 2010) -- 1,486,738
STMicroelectronics (other countries)
- 6.53% Other bank loans 56,500 145,848
-------------------------
Total long-term debt 1,445,146 2,806,454
Less current portion 96,669 105,972
-------------------------
Long-term debt, less current portion 1,348,477 2,700,482
-----------------------------------------------------------------------------------------------------------------
F-18
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
Long-term debt is denominated in the following currencies:
-----------------------------------------------------------------------------------------------------------------
December 3l, December 31,
-------------------------
1999 2000
U.S. dollar 1,157,366 2,445,569
Italian lira 192,432 128,398
French franc 82,993 199,593
Other 12,355 32,894
-------------------------
Total 1,445,146 2,806,454
-----------------------------------------------------------------------------------------------------------------
Aggregate future maturities of long-term debt outstanding are as follows:
----------------------------------------------------------------------------
December 31,
------------
2000
----------------------------------------------------------------------------
2001 105,972
2002 111,572
2003 84,457
2004 57,555
2005 47,492
Thereafter 2,399,406
------------
Total 2,806,454
----------------------------------------------------------------------------
In June 1998, the Company issued $513,852 face value of zero-coupon
subordinated convertible notes (LYONs), due 2008, for net proceeds of
$421,837. The notes are convertible at any time by the holders at the rate
of 53.712 shares of the Company's common stock for each one thousand
dollar face value of the notes. The notes may be redeemed by the holders on
June 10, 2003 or by the Company on or after that date at the book value,
payable in cash. The notes are subordinated to all the other existing and
future indebtedness of the Company.
In September 1999, the Company issued $918,530 face value of zero-coupon
subordinated convertible notes (LYONs), due 2009, for net proceeds of
$708,288. The notes are convertible at any time by the holders at the rate
of 26.292 shares of the Company's common stock for each one thousand dollar
face value of the notes. The notes may be redeemed by the holders on
September 22, 2004 or by the Company on or after that date at the book
value, payable in cash. The notes are subordinated to all the other
existing and future indebtedness of the Company.
In November 2000, the Company issued $2,145,923 face value of zero-coupon
unsubordinated convertible bonds, due 2010, for net proceeds of $1,457,828.
The debt discount of $665,923 is amortized straight-line over the term of
the debt and recorded as interest expense. The notes are convertible at any
time by the holders at the rate of 9.32 shares of the Company's common
stock for each one thousand dollar face value of the notes. The notes may be
redeemed by the holders on November 16, 2005 or by the Company on or after
that date at the book value, payable in cash. The notes are unsubordinated
to all the other existing and future indebtedness of the Company.
During 1999, $52,476 face amount of convertible bonds were converted into
939,528 shares of common stock. During 2000, $333,580 face amount of
convertible bonds were converted into 17,908,743 shares of common Stock.
Credit facilities
The Company has revolving line of credit agreements with several financial
institutions totaling $884,000. At December 31, 2000, amounts available
under the lines of credit are reduced by borrowings of $35,599 at an average
interest rate of 6.47%.
F-19
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
15. Other payables and accrued liabilities
Other payables and accrued liabilities consist of the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31,
---------------------------
1999 2000
--------------------------------------------------------------------------------------------------------------------
Taxes other than income taxes 64,950 50,228
Salaries and wages 111,125 181,516
Social charges 53,781 70,957
Advances received on fundings 38,686 10,562
Commercial rebates 23,775 32,755
Royalties payable 13,195 42,313
Other 76,333 120,834
---------------------------
Total 381,845 509,165
--------------------------------------------------------------------------------------------------------------------
16. Other revenues
Other revenues consist of the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Licensing revenues 1,765 -- --
Miscellaneous sales 27,833 30,205 41,229
Other 7,536 2,962 7,570
-------------------------------------------
Total 37,134 33,167 48,799
--------------------------------------------------------------------------------------------------------------------
17. Other income and expenses
Other income and expenses consist of the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Research and development funding 63,531 60,352 42,065
Start-up costs (12,609) (24,736) (115,137)
Exchange gain, net 19,019 14,653 15,767
Other 6,517 (10,429) (26,228)
-------------------------------------------
Total 76,458 39,840 (83,533)
--------------------------------------------------------------------------------------------------------------------
18. Net interest income
Net interest income consists of the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Income 54,294 81,888 111,403
Expense (45,603) (46,264) (64,700)
-------------------------------------------
Total 8,691 35,624 46,703
Cash paid for interest was $48,569 in 1998, $48,086 in 1999 and $64,681
in 2000. Capitalized interest was $5,487 in 1998, $8,317 in 1999 and
$1,846 in 2000.
19. Income tax
Income before income tax expense is comprised of the following:
F-20
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
--------------------------------------------------------------------------------------------------------------------
December 31, December 3l, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Loss recorded in The Netherlands (18,730) (17,494) (6,393)
Income from foreign operations 550,831 724,616 1,835,822
-------------------------------------------
Income before income tax expense 532,101 707,122 1,829,429
--------------------------------------------------------------------------------------------------------------------
STMicroelectronics N.V. and its subsidiaries are individually liable for
income tax. Tax losses can only offset profits generated by the taxable
entity incurring such loss.
Income tax expense is comprised of the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Domestic taxes - current (3,886) (4,353) (7,585)
Foreign taxes - current (82,132) (130,904) (342,837)
-------------------------------------------
Current taxes (86,018) (135,257) (350,422)
Deferred taxes (34,333) (21,957) (24,697)
-------------------------------------------
Income tax expense (120,351) (157,214) (375,119)
--------------------------------------------------------------------------------------------------------------------
The principal items comprising the differences in income taxes computed
at The Netherlands statutory rate (35%) and the effective income tax rate
are the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Income tax expense computed at statutory rate (186,235) (247,493) (640,300)
Benefit (deductions) for financial reporting with no tax effect 7,864 (699) (13,349)
Variation in valuation allowance 397 3,107 (7,185)
Other tax and credits 2,995 8,549 (4,770)
Earnings of subsidiaries taxed at different rates 54,628 79,322 290,485
-------------------------------------------
Income tax expense (120,351) (157,214) (375,119)
--------------------------------------------------------------------------------------------------------------------
Permanent differences reflect mainly the effects of capital allowance
programs and special tax incentive programs existing in some Asia Pacific
and Mediterranean countries, and of various non-deductible items.
Included in the line "Earnings of subsidiaries taxed at different rates"
are benefits related to certain tax holidays totaling $41,758 in 1998,
$49,911 in 1999, $225,193 in 2000.
Deferred tax assets and liabilities consist of the following:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31,
---------------------------
1999 2000
--------------------------------------------------------------------------------------------------------------------
Tax loss carryforwards and capital allowances 74,321 22,672
Inventory 41,256 32,702
Other assets 111,447 67,375
---------------------------
Total deferred tax assets 227,024 122,749
Valuation allowance (12,251) (5,066)
---------------------------
Deferred tax assets, net 214,773 117,683
Fixed assets depreciation (272,184) (191,632)
Other liabilities (52,979) (25,086)
---------------------------
Deferred tax liabilities (325,163) (216,718)
---------------------------
Net deferred income tax liability (110,390) (99,035)
--------------------------------------------------------------------------------------------------------------------
Deferred income taxes were classified in the consolidated balance as follows:
F-21
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
--------------------------------------------------------------------------------------------------------------------
December 31, December 31,
---------------------------
1999 2000
--------------------------------------------------------------------------------------------------------------------
Other receivables and assets 73,079 71,651
Investments and other non-current assets 33,373 15,916
Accrued and deferred income tax (31,072) (8,041)
Other non-current liabilities (185,770) (178,561)
Net deferred income tax liability (110,390) (99,035)
--------------------------------------------------------------------------------------------------------------------
As of December 31, 2000, the Company and its subsidiaries have net
operating loss carryforwards of $66,323 which expire between 2001 and
2006.
The Company paid $75,886 cash for income taxes in 1998, $99,930 cash for
income taxes in 1999 and $242,929 cash for income taxes in 2000.
20. Commitments
Lease commitments
The Company leases land. building, plant and equipment under
non-cancellable lease agreements. As of December 31, 2000 the future
minimum lease payments to which the Company was committed under operating
leases were as follows:
-------------------------------------------------------------------------
Year
-------------------------------------------------------------------------
2001 16,231
2002 12,524
2003 11,331
2004 9,681
2005 7,629
Thereafter 19,124
--------
Total 76,520
-------------------------------------------------------------------------
Other commitments
As of December 31, 2000, the Company had commitments of $1,670,263 for
equipment purchases.
21. Contingencies
The Company is involved in various lawsuits, claims, investigations and
proceedings incidental to the normal conduct of its operations. These
matters mainly include the risks associated with external patents
utilization, various investigations, claims from customers and tax
disputes. Management has accrued for these loss contingencies when the
loss is probable and can be estimated. Management believes that these
contingencies will not have a material adverse effect on the business,
financial condition or results of operations of the Company.
During 2000, the Company acquired a manufacturing facility. The terms of
the agreement require the Company to pay additional amounts up to $40,000
if certain conditions are met during the next three years. The contingent
payments have not been recorded as of December 31, 2000, as it is not
beyond a reasonable doubt that the amounts will be paid.
22. Financial Instruments and Risk Management
Financial instruments and derivatives are used exclusively for purposes
other than trading.
Foreign exchange forward contracts and currency options
The Company enters into foreign exchange forward contracts and currency
options to manage exposure to fluctuations in foreign currency exchange
rates and to cover a portion of both its probable anticipated, but not
firmly committed. transactions and transactions with firm foreign
currency commitments. These transactions include international sales by
various subsidiaries in foreign currencies, foreign currency denominated
purchases, intercompany sales and other intercompany transactions. Such
contracts outstanding as of December 31, 2000 have remaining terms of one
to three months, maturing mainly during the first quarter of 2001.
F-22
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
The notional amounts of foreign exchange forward contracts totaled
$611,567 and $780,423 at December 31, 1999 and 2000, respectively. The
principal currencies covered are the US dollar, the euro, the Italian
lira, the Japanese yen, and the Swiss franc.
The risk of loss associated with purchased options is limited to premium
amounts paid for the option contracts. The risk of loss associated with
forward contracts is equal to the exchange rate differential from the
time the contract is entered into until the time it is settled.
Concentration of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of interest-bearing
investments, financial instruments with off-balance sheet risks
(primarily forward contracts), and trade receivables. The Company places
its cash and cash equivalents and certain other financial instruments
with a variety of high credit quality financial institutions and has not
experienced any material losses relating to such instruments. The Company
invests its excess cash in accordance with its investment policy which
aims to minimize credit risk.
The Company controls the credit risks associated with financial
instruments through credit approvals, investment limits and centralized
monitoring procedures but does not normally require collateral or other
security from the parties to the financial instruments with off-balance
sheet risk. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers and their
dispersion across many geographic areas. The Company monitors the
creditworthiness of its customers to which it grants credit terms in
the normal course of business. The Company does not anticipate
non-performance by counterparties which could have a significant impact
on its financial position or results of operations.
Fair value or financial instruments
The estimates of fair value were obtained using prevailing financial
market information resulting from various valuation techniques. The
methodologies used to estimate fair value are as follows:
Cash and cash equivalents, accounts and notes receivable, bank
overdrafts, short-term borrowings, accounts and notes payables
The carrying amounts reflected in the consolidated financial statements
are reasonable estimates of fair value because of the relatively short
period of time between the origination of the instruments and their
expected realization.
Long-term debt and current portion of long-term debt
The fair values of long-term debt were determined based on quoted market
prices, and by estimating future cash flows on a borrowing-by-borrowing
basis and discounting these future cash flows using the Company's
incremental borrowing rates for similar types of borrowing arrangements.
Foreign exchange forward contracts
The fair values of these instruments are estimated based upon quoted
market prices for the same or similar instruments.
------------------------------------------------------------------------------------------------------------------------
1999 2000
-------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------------------------------------------------
Balance sheet
- Bank loans (including current portion) 321,082 323,482 463,825 465,922
- Convertible debt 1,124,064 2,521,752 2,342,629 2,859,756
Off-balance sheet
-Forward exchange contracts 10,412 7,939 8,886 10,943
------------------------------------------------------------------------------------------------------------------------
F-23
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
23. Related party transactions
Transactions with significant shareholders and their affiliates were as
follows:
--------------------------------------------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
Sales 5,608 19,033 196
Research and development expenses (16,215) (16,958) (13,663)
Other purchases and expenses (12,406) (2,772) (17,991)
Accounts receivable 1,872 6,222 774
Accounts payable 10,509 1,876 1,346
--------------------------------------------------------------------------------------------------------------------
24. Segment information
In June 1997, the United States Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, "Disclosure
about Segments of an Enterprise and Related Information" (FAS 131),
which the Company adopted effective December 31, 1998. FAS 131 requires
that enterprises report certain information about operating segments. It
also requires that enterprises report certain information about their
products and services, the geographic areas in which they operate, and
their major customers.
The Company concluded that it has two principal businesses and operates
in two segments: the Semiconductor segment and the Subsystems segment.
In the Semiconductor segment, the Company designs, develops, manufactures
and markets a broad range of products, including discrete, memories and
standard commodity components, ASICSs (full custom devices and semicustom
devices) and ASSPs for analog, digital, and mixed-signal applications.
In the Subsystems segment, the Company designs, develops, manufactures
and markets subsystems and modules for the Telecom, Automotive and
Industrial markets including mobile phone accessories, battery chargers,
ISDN power supplies and in-vehicle equipment for electronic toll payment.
The Subsystems segment does not meet the requirements for a reportable
segment as defined in FAS 131. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies.
The following is a summary of operations by entities located within the
indicated geographic areas for 1998, 1999 and 2000. Long-lived assets
consist of net property and equipment and other intangible assets.
Net revenues
---------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
---------------------------------------------------------------------------------
France 474,580 451,243 651,116
Italy 171,143 174,087 249,588
Germany 444,362 470,554 611,115
Other European countries 737,112 828,879 1,484,654
USA 978,662 1,222,743 1,761,783
Singapore 1,261,165 1,669,129 2,277,772
Other countries 180,728 239,641 777,175
-------------------------------------------
Total 4,247,752 5,056,276 7,813,203
---------------------------------------------------------------------------------
Long-lived assets
---------------------------------------------------------------------------------
December 31, December 31, December 31,
-------------------------------------------
1998 1999 2000
---------------------------------------------------------------------------------
France 1,169,273 1,239,540 1,889,729
Italy 899,689 1,117,241 1,650,506
Germany 1,134 1,094 1,620
Other European countries 19,922 236,202 345,359
USA 587,734 736,187 1,081,327
Singapore 216,817 245,386 649,116
Other countries 472,007 477,316 869,530
-------------------------------------------
Total 3,366,576 4,052,966 6,487,187
F-24
STMICROELECTRONICS N.V.
Notes to consolidated financial statements
(In thousands of U.S. dollars, except per share amounts)
25. Subsequent Events (Unaudited)
At the annual shareholders' meeting held on April 25, 2001, the shareholders
approved the payment of a cash dividend of $0.04 per share and the creation of a
new five-year stock option plan that provides for the granting to management and
selected employees of options to purchase up to a maximum of 60 million Common
Shares. On April 27, 2001, the Supervisory Board authorized the granting of
options to purchase 9,462,800 Common Shares under the new plan.
The Company issued a redemption notice for the LYONs due 2008 for a redemption
price of $885.22 per $1,000 principal amount on June 11, 2001. On May 11, 2001,
approximately $45,600 in total indebtedness was outstanding under the LYONs due
2008; based on this amount outstanding, if all remaining holders chose to
convert the instruments into Common Shares before the redemption date, 2,772,291
Common Shares would be issued.
F-25
STMICROELECTRONICS N.V.
VALUATION AND QUALIFYING ACCOUNTS
(Currency - Thousands of U.S. dollars)
Balance at Charged to Balance at
Valuation and qualifying accounts beginning Translation costs and end of
deducted from the related asset accounts of period adjustment expenses Deductions period
---------- ---------- --------- ------------ ----------
2000
Inventories.............................. 42,137 -- 73,835 (42,137) 73,835
Accounts Receivable ..................... 11,590 (621) 4,869 (14) 15,824
1999
Inventories.............................. 53,955 -- 42,137 (53,955) 42,137
Accounts Receivable ..................... 10,494 (452) 1,662 (114) 11,590
1998
Inventories.............................. 68,182 -- 53,955 (68,182) 53,955
Accounts Receivable...................... 15,228 89 (3,741) (1,082) 10,494
S-1
Report of Independent Accountants on
Financial Statement Schedule
To the Supervisory Board of STMicroelectronics N.V.:
Our audits of the consolidated financial statements referred to in our report
dated February 1, 2001 appearing in this Annual Report on Form 20-F also
included an audit of the financial statement schedule listed in Item 18 of this
Form 20-F. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers N.V.
Amsterdam, The Netherlands
February 1, 2001
S-2
INDEX TO EXHIBITS
1.1 Articles of Association, as amended as of May 5, 2000, of
STMicroelectronics N.V. (incorporated by reference to the Annual Report on
Form 20-F for the year ended December 31, 1999, as filed with the Commission on
June 27, 2000)
4.1 Indenture, dated as of November 16, 2000, among STMicroelectronics
N.V. as issuer and The Bank of New York, as Trustee, of our Zero Coupon Senior
Convertible Bonds due 2010
8.1 Subsidiaries of the Company (see Note 3 to the Consolidated
Financial Statements)
10.1 Consent of PricewaterhouseCoopers N.V.
E-1
STMICROELECTRONICS N.V.
(a company incorporated under the laws of The Netherlands)
Zero Coupon Senior Convertible Bonds due 2010
-----------------------
INDENTURE
Dated as of November 16, 2000
-----------------------
The Bank of New York,
Trustee
TABLE OF CONTENTS
----------------------
PAGE
----
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.....................................................2
SECTION 1.02. Other Definitions...............................................7
SECTION 1.03. Incorporation by Reference of Trust Indenture Act...............9
SECTION 1.04. Rules of Construction...........................................9
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating................................................10
SECTION 2.02. Execution and Authentication; Transfers........................10
SECTION 2.03. Registrar, Paying Agent and Conversion Agent...................11
SECTION 2.04. Paying Agent to Hold Money and Securities in Trust.............12
SECTION 2.05. Securityholder Lists...........................................13
SECTION 2.06. Replacement Securities.........................................13
SECTION 2.07. Outstanding Securities; Determinations of Holders' Action......14
SECTION 2.08. Cancellation...................................................15
SECTION 2.09. Restrictive Legends............................................15
SECTION 2.10. Transfer and Exchange..........................................16
SECTION 2.11. Book-entry Provisions for Global Bonds.........................18
SECTION 2.12. Special Transfer Provisions....................................18
SECTION 2.13. CUSIP and ISIN Numbers.........................................21
SECTION 2.14. Restrictions Upon Conversion of Restricted Securities..........21
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01. Right to Redeem; Notices to Trustee............................22
SECTION 3.02. Selection of Securities to Be Redeemed.........................22
SECTION 3.03. Notice of Redemption...........................................23
SECTION 3.04. Effect of Notice of Redemption.................................24
SECTION 3.05. Deposit of Redemption Price....................................24
SECTION 3.06. Securities Redeemed in Part....................................24
SECTION 3.07. Conversion Arrangement on Call for Redemption..................24
SECTION 3.08. Purchase of Securities at the Option of the Holder.............25
SECTION 3.09. Purchase of Securities at the Option of the Holder Upon
Change in Control.........................................28
PAGE
----
SECTION 3.10. Effect of Purchase Notice or Change in Control Purchase
Notice....................................................32
SECTION 3.11. Deposit of Purchase Price or Change in Control Purchase
Price.....................................................33
SECTION 3.12. Securities Purchased in Part...................................34
SECTION 3.13. Covenant to Comply with Securities Laws Upon Purchase
of Securities.............................................34
SECTION 3.14. Repayment to the Company.......................................34
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities..........................................35
SECTION 4.02. SEC Reports....................................................35
SECTION 4.03. Compliance Certificate; Notice of Defaults.....................36
SECTION 4.04. Further Instruments and Acts...................................36
SECTION 4.05. Maintenance of Office or Agency................................36
SECTION 4.06. Additional Amounts.............................................37
SECTION 4.07. Calculation of Original Issue Discount.........................39
SECTION 4.08. Limitation on Liens............................................39
SECTION 4.09. 144 Information Requirement....................................40
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge or Transfer Assets......................41
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default..............................................42
SECTION 6.02. Acceleration...................................................44
SECTION 6.03. Other Remedies.................................................45
SECTION 6.04. Waiver of past Defaults........................................45
SECTION 6.05. Control by Majority............................................45
SECTION 6.06. Limitation on Suit.............................................45
SECTION 6.07. Rights of Holders to Receive Payment...........................46
SECTION 6.08. Collection Suit by Trustee.....................................46
SECTION 6.09. Trustee May File Proofs of Claim...............................46
SECTION 6.10. Priorities.....................................................47
SECTION 6.11. Undertaking for Costs..........................................48
SECTION 6.12. Notice of Defaults.............................................48
ii
PAGE
----
SECTION 6.13. Waiver of Stay, Extension or Usury Laws........................48
ARTICLE 7
TRUSTEE
SECTION 7.01. Duties and Responsibilities of the Trustee; During Default;
Prior to Default..........................................49
SECTION 7.02. Rights of Trustee..............................................50
SECTION 7.03. Trustee's Disclaimer...........................................51
SECTION 7.04. Notice of Defaults.............................................52
SECTION 7.05. Reports by Trustee to Holders..................................52
SECTION 7.06. Compensation and Indemnity.....................................52
SECTION 7.07. Replacement of Trustee.........................................53
SECTION 7.08. Successor Trustee by Merger....................................54
SECTION 7.09. Eligibility; Disqualification..................................54
SECTION 7.10. Preferential Collection of Claims Against Company..............54
SECTION 7.11. Appointment of Authenticating Agent............................54
SECTION 7.12. Trustee's Application for Instructions from the Company........56
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Discharge of Liability on Securities...........................57
SECTION 8.02. Repayment to the Company.......................................57
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders.....................................58
SECTION 9.02. With Consent of Holders........................................58
SECTION 9.03. Revocation and Effect of Consent, Waivers and Actions..........59
SECTION 9.04. Notation on or Exchange of Securities..........................60
SECTION 9.05. Trustee to Sign Supplemental Indentures........................60
SECTION 9.06. Effect of Supplemental Indentures..............................60
ARTICLE 10
CONVERSION
SECTION 10.01. Conversion Privilege..........................................60
SECTION 10.02. Conversion Procedure..........................................62
SECTION 10.03. Fractional Shares.............................................64
SECTION 10.04. Taxes on Conversion...........................................64
iii
PAGE
----
SECTION 10.05. Company to Provide Stock......................................64
SECTION 10.06. Adjustments for Change in Capital Stock.......................65
SECTION 10.07. Adjustment for Rights Issue...................................66
SECTION 10.08. Adjustment for Other Distributions............................67
SECTION 10.09. Adjustment for Certain Other Issuances........................69
SECTION 10.10. When Adjustment May Be Deferred...............................72
SECTION 10.11. When No Adjustment Required...................................73
SECTION 10.12. Notice of Adjustment..........................................73
SECTION 10.13. Voluntary Increase............................................73
SECTION 10.14. Notice of Certain Transactions................................74
SECTION 10.15. Reorganization of Company; Special Distributions..............74
SECTION 10.16. Company Determination Final...................................75
SECTION 10.17. Trustee's Adjustment Disclaimer...............................75
SECTION 10.18. Simultaneous Adjustments......................................76
SECTION 10.19. Successive Adjustments........................................76
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls..................................76
SECTION 11.02. Notices.......................................................76
SECTION 11.03. Certificate and Opinion to Conditions Precedent...............77
SECTION 11.04. Statements Required in Certificate or Opinion.................77
SECTION 11.05. Separability Clause...........................................78
SECTION 11.06. Rules by Trustee, Paying Agents, Conversion Agent and
Registrar.................................................78
SECTION 11.07. Legal Holiday.................................................78
SECTION 11.08. Governing Law.................................................78
SECTION 11.09. Submission to Jurisdiction; Appointment of Agent for
Service...................................................78
SECTION 11.10. Successors....................................................79
SECTION 11.11. Acts of Holders...............................................79
SECTION 11.12. Waiver of Jury Trial..........................................80
SECTION 11.13. Multiple Originals............................................80
EXHIBIT A-1 - Form of Face of Rule 144A Global Bond........................A-1-1
EXHIBIT A-2 - Form of Face of Regulation S Global Bond.....................A-2-1
EXHIBIT A-3 - Form of Face of Definitive Registered Bond...................A-3-1
EXHIBIT B-1 - Form of Reverse of Bond......................................B-1-1
EXHIBIT C - Form of Certificate to be delivered in connection
with transfers pursuant to Regulation S..................C-1
iv
CROSS-REFERENCING TABLE1
Indenture
TIA Section Section
- ----------- ---------
310 (a)(1) ..................................................... 7.09
(a)(2) ..................................................... 7.09
(a)(3) ..................................................... N.A.
(a)(4) ..................................................... N.A.
(a)(5) ..................................................... 7.09
(b)......................................................... 7.07; 7.09
(c)......................................................... N.A.
311 (a)......................................................... 7.10
(b)......................................................... 7.10
(c)......................................................... N.A.
312 (a)......................................................... 2.05
(b)......................................................... 11.03
(c)......................................................... 11.03
313 (a)......................................................... 7.05
(b)......................................................... 7.05
(c)......................................................... 7.05, 11.02
(d) ..................................................... 7.05
314 (a)......................................................... 4.02, 11.02
(b)......................................................... N.A.
(c)(1) ..................................................... 11.04
(c)(2) ..................................................... 11.04
(c)(3) ..................................................... N.A.
(d)......................................................... N.A.
(e)......................................................... 11.05
(f)......................................................... 4.04
315 (a)......................................................... 7.01
(b)......................................................... 7.04; 11.02
(c)......................................................... 7.01
(d)(1)...................................................... 7.01
(d)(2)...................................................... 7.01
(d)(3)...................................................... 7.01
(e)......................................................... 6.11
316 (a)(1)(A)................................................... 6.05
(a)(1)(B)................................................... 6.04
(a)(2)...................................................... N.A.
(a)(last sentence).......................................... 2.07
(b)......................................................... 6.07
- ----------
1 This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
v
317 (a)(1) ..................................................... 6.08
(a)(2) ..................................................... 6.09
(b)......................................................... 2.04
318 (a)......................................................... 11.01
vi
INDENTURE, dated as of November 16, 2000 between STMicroelectronics
N.V., a company incorporated under the laws of The Netherlands with its
corporate seat in Amsterdam, The Netherlands (the "Company"), and The Bank of
New York, a New York banking corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's Zero Coupon Senior
Convertible Bonds due 2010 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control", when used with respect to any specified person, means the power to
direct or cause the direction of the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Authenticating Agent" means any person authorized by the Trustee
pursuant to Section 7.11 to act on behalf of the Trustee to authenticate
Securities.
"Board" means, with respect to any matter, either the Managing Board of
the Company or any committee of such Board duly authorized, with respect to such
matter, to exercise the powers of such Board.
"Bonds" means Global Bonds and Definitive Registered Bonds,
collectively.
"Business Day" means each day of the year on which banking institutions
in Amsterdam, any Place of Payment or any Place of Conversion are not required
or authorized by law or regulation to close.
"Capital Market Indebtedness" means any obligation to repay money that
is borrowed through the issuance of bonds, notes or other debt securities which
are capable of being listed or traded on a stock exchange or other
2
recognized securities market; except as expressly provided in Section 4.08, it
does not include any off-balance sheet assets and obligations.
"Capital Stock" for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) capital stock issued by that
corporation.
"Cash" or "cash" means such coin or currency of The United States of
America as at any time of payment is legal tender for the payment of public and
private debts.
"Common Shares" means the common shares, nominal value (U)1.04 per
share, of the Company as it exists on the date of this Indenture or any other
shares of capital stock of the Company into which such Common Shares shall be
reclassified or changed. "Common Shares" includes Dutch Shares and New York
Shares.
"Company" means the party named as the "Company" in the first paragraph
of this Indenture until a successor replaces it pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor. The
foregoing sentence shall likewise apply to any subsequent successor to such
successor or successors.
"Company Order" means a written request or order signed in the name of
the Company by one or more of its Managing Directors (bestuurder) and one of its
authorized officers and delivered to the Trustee.
"Consolidated Subsidiary" means, at any date, any Subsidiary the
accounts of which are consolidated with those of the Company as of such date for
public financial reporting purposes.
"Conversion Price" means, at any date, the then applicable Redemption
Price divided by the Conversion Rate.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Definitive Registered Bond" means any Security registered in the
Registrar's books, substantially in the form attached hereto as Exhibit A-3.
"Depositary" means The Depository Trust Company ("DTC") and its nominee
and successors.
3
"Dutch Shares" means Common Shares maintained in Amsterdam, the
Netherlands on the register of Netherlands Management Company B.V., the Dutch
registrar.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Global Bonds" means, the Rule 144A Global Bond and the Regulation S
Global Bond, collectively.
"Holder" or "Securityholder" means a person in whose name a Security is
registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time in accordance with the terms hereof.
"Issue Date" of any Security means the date on which the Security was
originally issued or deemed issued as set forth on the face of the Security.
"Issue Price" of any Security means, in connection with the original
issuance of such Security, the initial issue price at which the Security is sold
as set forth on the face of the Security.
"Lien" means a preference arrangement on property, such as, a mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, charge, preference, priority, security agreement, capital
lease obligation, conditional sale or any other agreement that has the same
economic effect as any of the foregoing.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"New York Shares" means Common Shares maintained in New York, New York
on the register of The Bank of New York, the New York registrar.
"Officers' Certificate" means a written certificate containing the
information specified in Sections 11.04(1) and 11.05, and, if applicable,
Sections 3.08(a), 4.06 and 5.01, signed in the name of the Company by one or
more of its Managing Directors and one of its authorized officers and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion containing the information
specified in Sections 11.04(2) and 11.05 and, if applicable, Section 5.01
rendered
4
by legal counsel who may be (i) an employee of, or counsel to, the Company or
(ii) other counsel designated by the Company and reasonably satisfactory to the
Trustee.
"Original Issue Discount" of any Security means the difference between
the Issue Price and the Principal Amount of the Security as set forth on the
face of the Security, and shall accrue as set forth in paragraph 1 of the
Security and pursuant to the provisions set forth herein.
"Participant" means, with respect to DTC, a Person who has an account
with DTC.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal" or "Principal Amount" of a Security means the principal
amount due at the Stated Maturity of the Security as set forth on the face of
the Security.
"Private Placement Legend" means the restrictive legend initially set
forth in the Global Bond or the Definitive Registered Bonds, as set forth in
Exhibits A-1, A-2 or A-3, as applicable.
"QIB" means a "qualified institutional buyer" as defined under Rule
144A.
"Redemption Date" shall mean the date specified for redemption of any
of the Securities in accordance with the terms of the Securities and this
Indenture.
"Redemption Price" shall have the meaning set forth in paragraph 5 of
the Securities.
"Regulation S Definitive Registered Bond" means a Definitive Registered
Security issued in respect of an interest in a Regulation S Global Bond.
"Regulation S Global Bond" means the global Bond or Bonds without
coupons, substantially in the form of Exhibit A-2 attached hereto, which will
represent all of the Bonds sold in reliance on Regulation S unless or until
Definitive Registered Bonds are issued in respect of all or any Bonds
represented by the Regulation S Global Bond in which case the "Regulation S
Global Bond" will represent all those Bonds that are not from time to time
evidenced by Definitive Registered Bonds.
5
"Regulation S" means Regulation S promulgated under the Securities Act.
"Rule 144A Definitive Registered Bond" means a Definitive Registered
Security issued in respect of an interest in a Rule 144A Global Bond.
"Rule 144A Global Bond" means the global Bond or Bonds without coupons,
substantially in the form of Exhibit A-1 attached hereto, which will represent
all of the Bonds sold in compliance with Rule 144A, unless or until Definitive
Registered Bonds are issued in respect of all or any Bonds represented by the
Rule 144A Global Bond in which case the "Rule 144A Global Bond" will represent
all those Bonds that are not from time to time evidenced by Definitive
Registered Bonds.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale Price" of a single Common Share on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case the average of the
average bid and the average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which the
Common Shares are traded or, if the Common Shares are not listed on a United
States national or regional stock exchange, as reported by NASDAQ; or, if the
Common Shares are not listed or admitted to trading on any United States
national or regional stock exchange or quoted on NASDAQ, the average of the
closing bid and asked prices in the over-the-counter market as furnished by any
New York Stock Exchange member firm selected from time to time by the Company
for that purpose.
"SEC" means the Securities and Exchange Commission.
"Securities" means any of the Company's Zero Coupon Senior Convertible
Bonds due 2010, as amended or supplemented from time to time in accordance with
the terms hereof, issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"SICOVAM" means SICOVAM S.A. and its successors.
"Stated Maturity", when used with respect to any Security, means the
date specified in such Security as the fixed date on which the Principal of such
Security is due and payable.
6
"Subsidiary" means (i) a corporation, a majority of whose Capital Stock
with voting power, under ordinary circumstances, to elect directors (or other
governing body of such corporation) is, at the date of determination, directly
or indirectly owned by the Company, by one or more Subsidiaries of the Company
or by the Company and one or more Subsidiaries of the Company, (ii) a
partnership in which the Company or a Subsidiary of the Company holds a majority
interest in the equity capital or profits of such partnership, or (iii) any
other person (other than a corporation) in which the Company, a Subsidiary of
the Company or the Company and one or more Subsidiaries of the Company, directly
or indirectly, at the date of determination, has (x) at least a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the directors or other governing body of such person.
"TIA" means the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990, and as in effect on the date of this Indenture.
"Trading Day" means each day on which the securities exchange or
quotation system which is used to determine the Sale Price is open for trading
or quotation.
"Trustee" means the party named as the "Trustee" in the first paragraph
of this Indenture until a successor replaces it pursuant to the applicable
provisions of this Indenture and, thereafter, shall mean such successor.
"Trust Officer" when used with respect to the Trustee means any officer
within the corporate trust department of the Trustee, including any vice
president, assistant vice president, assistant treasurer, trust officer or any
other officer of the Trustee who customarily performs functions similar to those
performed by the Persons who at the time shall be such officers, respectively,
or to whom any corporate trust matter is referred because of such person's
knowledge of and familiarity with the particular subject and who shall have
direct responsibility for the administration of this Indenture.
SECTION 1.02. Other Definitions.
Defined in
Term Section
- ---- ----------
"Additional Amounts".................................................. 4.06
"Associate"........................................................... 3.09
"Authorized Agent".................................................... 11.10
"Average Sale Price".................................................. 10.01
"Bankruptcy Law"...................................................... 6.01
7
Defined in
Term Section
- ---- ----------
"beneficial owner".................................................... 3.09(a)
"Change in Control"................................................... 3.09(a)
"Change in Control Purchase Date"..................................... 3.09(a)
"Change in Control Purchase Notice"................................... 3.09(c)
"Change in Control Purchase Price".................................... 3.09(a)
"close of business"................................................... 3.03
"Company Notice"...................................................... 3.08(c)
"Company Notice Date"................................................. 3.08(c)
"Conversion Agent".................................................... 2.03
"Conversion Date"..................................................... 10.02
"Conversion Rate"..................................................... 10.01
"Custodian"........................................................... 6.01
"Dutch Registrar...................................................... 2.03
"Event of Default".................................................... 6.01
"Ex-Dividend Time".................................................... 10.01
"Extraordinary Cash Dividend"......................................... 10.08
"Legal Holiday"....................................................... 11.08
"New York Conversion Agent"........................................... 2.03
"New York Paying Agent"............................................... 2.03
"New York Registrar".................................................. 2.03
"Notice of Default"................................................... 6.01
"Managers' Increase Option"........................................... 2.02
"Paris Conversion Agent".............................................. 2.03
"Paris Paying Agent".................................................. 2.03
"Paying Agent"........................................................ 2.03
"Place of Conversion"................................................. 2.03
"Place of Payment".................................................... 2.03
"Principal Shareholders".............................................. 3.09(a)
"Purchase Date"....................................................... 3.08(a)
"Purchase Notice"..................................................... 3.08(a)
"Purchase Price"...................................................... 3.08(a)
"Registrar"........................................................... 2.03
"Relevant Date"....................................................... 4.06
8
Defined in
Term Section
- ---- ----------
"Successor Jurisdiction".............................................. 5.01
"Taxes"............................................................... 4.06
"Time of Determination"............................................... 10.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, such provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company.
All other TIA terms used in this Indenture that are defined by the TIA
or defined by TIA reference to another statute or regulation have the meanings
assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in effect
from time to time in The United States of America;
(3) "or" is not exclusive;
(4) "including" means including, without limitation; and
9
(5) words in the singular include the plural, and words in the plural
include the singular.
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibits
A-1, A-2, A-3 and B-1, which are a part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule or
usage (provided that any such notation, legend or endorsement required by usage
is in a form acceptable to the Company and the Trustee). Each Security shall be
dated the date of its authentication.
SECTION 2.02. Execution and Authentication; Transfers. The Securities
shall be executed by the Company by one or more of its Managing Directors. The
signature of any of these Managing Directors on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the Issue Date of such Securities.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
The Trustee shall authenticate and deliver Securities for original
issue in an aggregate Principal Amount of $1,866,020,000 upon a Company Order
without any further action by the Company; provided, however, that in the event
that the Company sells any Securities pursuant to the Managers' increase option
(the "Managers' Increase Option") granted pursuant to Section 2 of the Purchase
Agreement, dated November 6, 2000, among the Company and UBS AG, acting through
its business group UBS Warburg, and other Managers named therein, then the
Trustee shall authenticate and deliver Securities for original issue in an
aggregate Principal Amount of up to $1,866,020,000 plus up to $279,903,000
10
aggregate Principal Amount of Securities sold pursuant to the Managers' Increase
Option upon a Company Order. The aggregate Principal Amount of Securities
outstanding at any time, plus the aggregate Principal Amount of any Securities
that have been converted or redeemed pursuant to the provisions of this
Indenture prior to such time, may not exceed the amount set forth in the
foregoing sentence, subject to the proviso set forth therein, except as provided
in Section 2.06.
The Securities shall be issued in fully registered form without
interest coupons in the form of two or more certificates. The Securities
initially offered and sold in reliance on Rule 144A shall be held through The
Depository Trust Company and shall be represented by a Rule 144A Global Bond in
definitive, fully registered form without interest coupons, substantially in the
form set forth in Exhibit A-1 hereto. The Rule 144A Global Bond shall be
deposited with the Bank of New York, as custodian for DTC, and registered in the
name of the nominee of DTC. Securities initially offered and sold in reliance on
Regulation S shall be held through SICOVAM, in which case they shall be
represented by a Regulation S Global Bond in definitive, fully registered form
without interest coupons, substantially in the form set forth in Exhibit A-2
hereto. The Regulation S Global Bond shall be registered in the name of, and
deposited with, SICOVAM.
Subject to the other provisions of this Indenture, upon a request to
exchange beneficial interests in the Rule 144A Global Bond for beneficial
interests in the Regulation S Global Bond, the New York Registrar shall
appropriately adjust the register relating to the Rule 144A Global Bond and
shall then instruct the Dutch Registrar to adjust the register relating to the
Regulation S Global Bond accordingly. The Dutch Registrar shall then
appropriately adjust the register relating to the Regulation S Global Bond,
notify SICOVAM of the increase in the number of Securities held through SICOVAM
and ask SICOVAM to have the exchanged Securities credited to the appropriate
account. Upon a request to SICOVAM to exchange beneficial interests in the
Regulation S Global Bond for beneficial interests in the Rule 144A Global Bond,
SICOVAM shall instruct the Dutch Registrar to appropriately adjust the register
relating to the Regulation S Global Bond and the Dutch Registrar shall instruct
the New York Registrar to adjust the register relating to the Rule 144A Global
Bond. The New York Registrar shall then appropriately adjust the register
relating to the Rule 144A Global Bond, notify DTC of the increase in the number
of Securities held through DTC and instruct DTC to have the exchanged Securities
credited to the appropriate account.
SECTION 2.03. Registrar, Paying Agent and Conversion Agent. The Company
shall maintain an office or agency where Securities may be presented for (a)
registration of transfer or for exchange in each of The City of New York (the
"New York Registrar") and Amsterdam (the "Dutch Registrar" and
11
together with the New York Registrar, the "Registrar"), (b) purchase or payment
in each of The City of New York (the "New York Paying Agent") and Paris (the
"Paris Paying Agent" and together with the New York Paying Agent, the "Paying
Agent") and (c) conversion in each of The City of New York (the "New York
Conversion Agent") and Paris (the "Paris Conversion Agent" and together with the
New York Conversion Agent, the "Conversion Agent").
Any city in which any Paying Agent or any Conversion Agent is located
shall be called herein a "Place of Payment" or a "Place of Conversion",
respectively. The New York Registrar and the Dutch Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
have one or more co-registrars, one or more additional paying agents and one or
more additional conversion agents. The term Paying Agent includes any additional
paying agent. The term Conversion Agent includes any additional conversion
agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent, Conversion Agent or co-registrar other than the
Trustee. The agreement shall implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee and the Holders of
the name and address of any such agent and of any change in any office or agency
referred to in Section 4.05. If the Company fails to maintain any required
Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such and
shall be entitled to appropriate compensation therefor pursuant to Section 7.06.
The Company or any Subsidiary or an Affiliate of either of them may act as
Paying Agent, Registrar, Conversion Agent or co-registrar.
The Company initially appoints The Bank of New York as New York
Conversion Agent and New York Paying Agent in connection with the Securities and
initially appoints BNP Paribas, a societe anonyme organized under the laws of
the French Republic, as Paris Conversion Agent and Paris Paying Agent in
connection with the Securities, pursuant to a Paying and Conversion Agency
Agreement dated as of November 16, 2000. The Company initially appoints The Bank
of New York as New York Registrar. The Company also initially appoints
Netherlands Management Company B.V., a company incorporated under the laws of
The Netherlands, as Dutch Registrar pursuant to a Registrar's Agreement dated as
of November 16, 2000.
SECTION 2.04. Paying Agent to Hold Money and Securities in Trust. In
accordance with Section 4.05 and except as otherwise provided herein, prior to
or on each due date for payments in respect of any Security, the Company shall
deposit with any Paying Agent a sum of money or, if permitted by the terms
hereof, securities sufficient to make such payments when so becoming due.
12
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that such Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money and securities held by such Paying
Agent for the making of payments in respect of the Securities and shall promptly
notify the Trustee of any default by the Company in making any such payment. At
any time during the continuance of any default by the Company in making any
payments in respect of the Securities, each Paying Agent shall, upon the written
request of the Trustee, forthwith pay to the Trustee all money and securities so
held in trust.
If the Company, a Subsidiary or an Affiliate of either of them acts as
Paying Agent, it shall segregate the money and securities held by it as Paying
Agent and hold it as a separate trust fund. The Company at any time may require
a Paying Agent to pay all money and securities held by it to the Trustee and to
account for any money and securities disbursed by it. Upon doing so, such Paying
Agent shall have no further liability for such money and securities.
SECTION 2.05. Securityholder Lists. Each of the New York Registrar and
the Dutch Registrar shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders.
The Company shall furnish or cause to be furnished to the Trustee (i)
at least semiannually on June 1 and December 1 a list of the names and addresses
of Securityholders dated within 15 days of the date on which the list is
furnished and (ii) at such other times as the Trustee may request in writing a
list, in such form and as of such date as the Trustee may reasonably require, of
the names and addresses of Securityholders, other than (unless the Trustee is
not the New York Registrar) those registered with the New York Registrar.
SECTION 2.06. Replacement Securities. If (a) any mutilated Security is
surrendered to the Company or the Trustee, or (b) the Company and the Trustee
receive evidence to their satisfaction of the destruction, loss or theft of any
Security, and there is delivered to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Company or the Trustee that such Security has been
acquired by a bona fide purchaser, the Company shall execute, and upon its
written request the Trustee shall authenticate and deliver, in exchange for any
such mutilated Security or in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and Principal Amount, bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, or is about to be purchased by the
13
Company pursuant to Article 3 hereof, the Company in its discretion, but subject
to any conversion rights, may, instead of issuing a new Security, pay or
purchase such Security, as the case may be.
Upon the issuance of any new Securities under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.07. Outstanding Securities; Determinations of Holders'
Action. Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, mutilated, destroyed, lost or stolen Securities for which the
Trustee has authenticated and delivered a new Security in lieu therefor pursuant
to Section 2.06 and those described in this Section 2.07 as not outstanding.
Subject to Section 2.08, a Security does not cease to be outstanding because the
Company or an Affiliate thereof holds the Security; provided, however, that in
determining whether the Holders of the requisite Principal Amount of Securities
have given or concurred in any request, demand, authorization, direction,
notice, consent or waiver hereunder, Securities owned by the Company, or any
other obligor upon the Securities, or any Affiliate of the Company or such other
obligor, shall be disregarded and deemed not to be outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which a Trust Officer of the Trustee has actual knowledge or has
received written notice to be so owned shall be so disregarded. Subject to the
foregoing, only Securities outstanding at the time of such determination shall
be considered in any such determination (including, without limitation,
determinations pursuant to Articles 6 and 9).
14
If a Security is replaced pursuant to Section 2.06, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If any Paying Agent holds, in accordance with this Indenture, on a
Redemption Date, or on the Business Day following the Purchase Date, or on the
Business Day following a Change in Control Purchase Date, or on Stated Maturity,
money sufficient to pay the Securities payable on that date, then on and after
that date such Securities shall cease to be outstanding and Original Issue
Discount and interest, if any, on such Securities shall cease to accrue and all
other rights of the Holder shall terminate (other than the right to receive the
applicable Redemption Price, Purchase Price or Change in Control Purchase Price,
as the case may be, upon delivery of the Security in accordance with the terms
of this Indenture); provided, that if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made.
If a Security is converted in accordance with Article 10, then from and
after the Conversion Date such Security shall cease to be outstanding and
Original Issue Discount and interest, if any, shall cease to accrue on such
Security.
SECTION 2.08. Cancellation. All Securities surrendered for payment,
redemption or purchase by the Company pursuant to Article 3, conversion pursuant
to Article 10, registration of transfer or exchange shall, if surrendered to any
person other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. The Company may not
issue new Securities to replace Securities it has paid or delivered to the
Trustee for cancellation or that any Holder has converted pursuant to Article
10. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. Unless the Company requests otherwise, the Trustee shall
dispose of all cancelled Securities in accordance with its outstanding
procedures.
SECTION 2.09. Restrictive Legends. Unless and until a Security is
registered under the Securities Act, (i) the Rule 144A Global Bond and Rule 144A
Definitive Registered Bonds shall bear a restrictive legend in the face thereof
substantially in the form contained in Exhibits A-1 and A-3 respectively, and
(ii) the Regulation S Global Bond and the Regulation S Definitive Registered
Bonds shall bear a restrictive legend in the face thereof substantially in the
form
15
contained in Exhibits A-2 and A-3, respectively, until the 41st day after the
date hereof.
SECTION 2.10. Transfer and Exchange. (a) Transfers of any Global Bond
shall be limited to transfers of such Global Bond in whole, but not in part.
Transfers of interests in the Rule 144A Global Bond and the Regulation S Global
Bond shall be effected by an increase or a reduction in the aggregate amount of
Bonds represented by the Rule 144A Global Bond and the corresponding reduction
or increase in the aggregate amount of Bonds represented by the Regulation S
Global Bond, as the case may be.
(b) When Definitive Registered Bonds are presented to the Registrar
with a request from the Holder of such Definitive Registered Bonds to register a
transfer, the Registrar shall register the transfer as requested. Every
Definitive Registered Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Registrar,
duly executed by the Holder thereof or his attorneys duly authorized in writing.
At the option of the Holder, Definitive Registered Bonds may be
exchanged for other Definitive Registered Bonds in denominations of $1,000
principal amount at maturity and integral multiples thereof evidencing an
equivalent aggregate principal amount at maturity, upon surrender of the
Definitive Registered Bonds to be exchanged at the office or agency maintained
for such purpose pursuant to Section 2.04.
To permit registrations of transfers and exchanges, the Company shall
issue and execute and the Trustee shall authenticate new Definitive Registered
Bonds evidencing such transfer or exchange at the Registrar's request. No
service charge shall be made to the Holder for any registration of transfer or
exchange. The Company shall not charge a service charge for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges that may be imposed in
connection with the transfer or exchange of the Securities from the
Securityholder requesting such transfer or exchange (other than any exchange of
a temporary Security for a definitive Security not involving any change in
ownership). The Registrar shall not be required to exchange or register a
transfer of any Definitive Registered Security for a period of 15 days
immediately preceding the first mailing of notice of redemption of Definitive
Registered Bonds to be redeemed or of any Definitive Registered Security
selected, called or being called for redemption except, in the case of any
Definitive Registered Security where public notice has been given that such
Definitive Registered Security is to be redeemed in part, the portion thereof
not to be redeemed.
16
The Company shall not be required to make, and the Registrar need not
register, transfers or exchanges of (a) Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed), (b) any Securities in respect of which the Purchase Notice
or a Change in Control Purchase Notice has been given and not withdrawn by the
Holder thereof in accordance with the terms of this Indenture (except, in the
case of Securities to be purchased in part, the portion thereof not to be
purchased) or (c) any Securities for a period of 15 days before a selection of
Securities to be redeemed.
(c) Definitive Registered Bonds will also be issued in exchange for
the Rule 144A Global Bond or the Regulation S Global Bond as directed by the
Holder thereof (i) if an Event of Default occurs, upon the written request of
the Holder of such Global Bond or, (ii) if the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary, and a successor
thereof is not appointed by the Company within 90 days of such notice, and, in
each case, in accordance with the provisions of Section 2.12. In any such event,
(A) the Company shall execute, and the Trustee, upon
receipt of an Officers' Certificate for the authentication and
delivery of Definitive Registered Bonds, shall authenticate
and deliver, without service charge, to the Persons specified
by the Holder of such Global Bond, Definitive Registered Bonds
each evidencing $1,000 principal amount at maturity or
integral multiples thereof and registered in such names as
such Holder shall instruct the Trustee evidencing an aggregate
principal amount at maturity equal to and in exchange for such
Global Bond held by such Holder; and
(B) if the principal amount at maturity evidenced by the
surrendered Global Bond is greater than the aggregate
principal amount at maturity evidenced by all the Definitive
Registered Bonds authenticated and delivered pursuant to
clause (i) above, the Registrar shall adjust the register
relating to such Global Bond to decrease the principal amount
at maturity evidenced by such Global Bond by an amount equal
to the aggregate principal amount at maturity evidenced by all
such Definitive Registered Bonds.
Upon the exchange of such Global Bond for Definitive Registered Bonds
evidencing an aggregate principal amount of indebtedness at maturity equal to
that of such Global Bond, such Global Bond shall be canceled by the Trustee.
17
The Company shall reimburse the Registrar and the Trustee for
reasonable expenses they incur in documenting such exchanges and issuances of
Definitive Registered Bonds.
(d) Any Rule 144A Definitive Registered Security delivered in exchange
for an interest in a Rule 144A Global Bond pursuant to paragraph (c) of this
Section 2.10 shall, except as otherwise provided by paragraph (d) of Section
2.12, bear the legend regarding transfer restrictions applicable to a Rule 144A
Definitive Registered Security set forth in Exhibit A-1. Any Regulation S
Definitive Registered Security delivered in exchange for an interest in the
Regulation S Global Bonds pursuant to paragraph (c) of this Section 2.10 shall,
except as otherwise provided by paragraph (d) of Section 2.12, bear the legend
regarding transfer restrictions applicable to the Regulation S Definitive
Registered Security set forth in Exhibit A-3.
(e) All Definitive Registered Bonds issued upon any exchange of
beneficial interests in the Rule 144A Global Bond or the Regulation S Global
Bond shall be valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Bonds evidenced by
such Global Bond surrendered upon such exchange.
SECTION 2.11. Book-entry Provisions for Global Bonds. (a) Any
beneficial interest in one of the Global Bonds that is transferred to a person
who takes delivery in the form of an interest in another Global Bond will, upon
transfer, cease to be an interest in such Global Bond and become an interest in
such other Global Bond and, accordingly, will thereafter be subject to all
transfer restrictions, if any, and other procedures applicable to beneficial
interests in such other Global Bond for as long as it remains such an interest.
(b) The Holder of a Global Bond may grant proxies and otherwise
authorize any person to take any action which a Holder is entitled to take under
this Indenture or the Bonds.
SECTION 2.12. Special Transfer Provisions. Unless and until a Security
is registered under the Securities Act, the following provisions shall apply:
(a) Transfers to U.S. Persons. The following provisions shall apply
with respect to any proposed transfer of a Security to a U.S. Person (excluding
Non-U.S. Persons):
(i) If the Bond to be transferred consists of (A) either Rule
144A Definitive Registered Bonds or Regulation S Definitive Registered
Bonds prior to the removal of the Private Placement Legend, the
transferor must
18
advise the Company and the Trustee in writing that the sale has been
made in compliance with the provisions of Rule 144A to a transferee who
has advised the Company and the Trustee in writing that it is
purchasing the Security for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges
that it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A or (B) an interest in a Rule 144A
Global Bond, the transfer of such interest may be effected only through
the book-entry system maintained by the Depositary.
(ii) If the Security to be transferred consists of a Rule 144A
Definitive Registered Bond, upon receipt by the Trustee of the
documents referred to in paragraph (i) above and instructions given in
accordance with the relevant Depositary's procedures, the New York
Registrar shall adjust the register relating to the Rule 144A Global
Bond to reflect an increase in the principal amount at maturity of Rule
144A Global Bonds in an amount equal to the principal amount at
maturity of the Rule 144A Definitive Registered Bonds to be
transferred, and the Trustee shall cancel the Rule 144A Definitive
Registered Bonds so transferred.
(b) Transfers of Interests in the Regulation S Global Bonds or
Regulation S Definitive Registered Bonds. The following provisions shall apply
with respect to any transfer of interests in Regulation S Global Bonds or
Regulation S Definitive Registered Bonds:
(i) prior to the removal of the Private Placement Legend from
the Regulation S Global Bonds or Regulation S Definitive Registered
Bonds, such transfer must comply with paragraph (a) or (c) of this
Section 2.12, as the case may be, and
(ii) after such removal, transfers of any such Bond may be
made without provision of any additional certification.
(c) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Security to a Non-U.S. Person:
19
(i) any proposed transfer to any Non-U.S. Person of a Rule
144A Definitive Registered Security or an interest in a Rule 144A
Global Bond may be made upon receipt by the Trustee of a certificate
substantially in the form of Exhibit C hereto from the proposed
transferor.
(ii) (a) If the proposed transferor holds a beneficial
interest in a Rule 144A Global Bond, upon receipt by the Trustee of the
documents, if any, required by paragraph (i), the New York Registrar
and the Dutch Registrar shall perform the actions described in the last
paragraph of Section 2.02.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the Trustee
shall deliver Securities that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Bonds bearing the Private Placement Legend,
the Trustee shall deliver only Bonds that bear the Private Placement Legend
unless (i) the Private Placement Legend is no longer required by Section 2.09,
or (ii) if the time period referred to in Rule 144(k) has expired and there is
delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(e) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture. In connection with any transfer of Securities, each Holder
agrees by its acceptance of the Securities to furnish the Trustee or the Company
such certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Trustee shall not be required to
determine (but may conclusively rely on a determination made by the Company with
respect to) the sufficiency of any such certifications, legal opinions or other
information.
The Trustee shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.11 or this Section 2.12 in
accordance with its customary record retention procedures. The Company shall
have the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Trustee.
20
SECTION 2.13. CUSIP and ISIN Numbers. The Company in issuing the
Securities may use "CUSIP" and/or "ISIN" numbers (if then generally in use),
and, if so, the Trustee shall use "CUSIP" and/or "ISIN" numbers in notices of
redemption as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the "CUSIP" or "ISIN" numbers.
SECTION 2.14. Restrictions Upon Conversion of Restricted Securities.
Any purchaser of Securities, other than a foreign purchaser outside the U.S.,
shall, upon conversion of any Securities, if at the time of conversion such
Securities are "restricted securities" within the meaning of Rule 144 under the
Securities Act, be required to sign a letter addressed to the Company agreeing
that:
(a) if it should offer, resell or otherwise transfer any common shares
issued upon conversion of its beneficial interests in the Securities within the
time period referred to in Rule 144(k) under the Securities Act after the
original issuance of the Securities, it will do so only:
(i) to the Company or any Subsidiary thereof,
(ii) outside the United States in compliance with Rule 903 or
904 under the Securities Act (and not in a pre-arranged transaction
resulting in the resale of such interests in the Securities into the
U.S.), or
(iii) pursuant to the exemption from registration provided by
Rule 144A (if available); and
(b) the Common Shares received upon conversion of the Securities may
not be registered as New York Shares for so long as such Common Shares are
"restricted securities" (within the meaning of Rule 144(a)(3)) that are not
eligible for sale pursuant to Rule 144(k) under the Securities Act.
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01. Right to Redeem; Notices to Trustee. The Company, at its
option, may redeem the Securities for cash in accordance with the provisions set
forth in paragraphs 5 and 7 of the Securities; provided, however, that the
Securities may not be redeemed prior to November 16, 2003 except as provided
21
for in the last two paragraphs of paragraph 5 of the Securities. If the Company
elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall
notify the Trustee in writing of the Redemption Date, the Principal Amount of
Securities to be redeemed and the Redemption Price.
The Company shall give the notice to the Trustee provided for in this
Section 3.01 at least 45 days but not more than 60 days before the Redemption
Date (unless a shorter notice shall be satisfactory to the Trustee). If fewer
than all the Securities are to be redeemed, the record date relating to such
redemption shall be selected by the Company and given to the Trustee, which
record date shall not be less than ten days after the date of notice to the
Trustee.
SECTION 3.02. Selection of Securities to Be Redeemed. If less than all
the Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by any other method the Trustee considers fair
and appropriate (so long as such method is not prohibited by the rules of any
stock exchange on which the Securities are then listed). The Trustee shall make
the selection at least 30 but not more than 60 days before the Redemption Date
from outstanding Securities not previously called for redemption. The Trustee
may select for redemption portions of the Principal Amount of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in Principal Amounts of $1,000 or an integral multiple
of $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed.
If any Security selected for partial redemption is thereafter
surrendered for conversion in part before termination of the conversion right
with respect to the portion of the Security so selected and prior to such
redemption, the converted portion of such Security shall be deemed (so far as
may be), solely for purposes of determining the aggregate Principal Amount of
Securities to be redeemed by the Company, to be the portion selected for
redemption. Securities that have been converted during a selection of Securities
to be redeemed may be treated by the Trustee as outstanding for the purpose of
such selection. Nothing in this Section 3.02 shall affect the right of any
Holder to convert any Security pursuant to Article 10 before the termination of
the conversion right with respect thereto.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first-class mail to each Holder of Securities to be redeemed in the manner
provided in Section 11.02.
The notice shall identify the Securities to be redeemed and shall
state:
22
(1) the Redemption Date;
(2) the Redemption Price;
(3) the Conversion Rate;
(4) the name and address of each Paying Agent and Conversion Agent and
of the offices or agencies referred to in Section 4.05;
(5) that Securities called for redemption may be converted at any time
before the close of business on the Redemption Date;
(6) that Holders who want to convert Securities must satisfy the
requirements set forth in paragraph 8 of the Securities;
(7) that Securities called for redemption must be surrendered to any
Paying Agent or at any applicable office or agency referred to in Section 4.05
to collect the Redemption Price;
(8) the CUSIP, ISIN, SICOVAM or other certificate number, if any, of
the Securities;
(9) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers, if any, and Principal Amounts of the particular
Securities to be redeemed; and
(10) that, unless the Company defaults in payment of the Redemption
Price, Original Issue Discount on Securities called for redemption and interest,
if any, will cease to accrue on and after the Redemption Date.
Wherever mentioned herein, the "close of business" on any day shall
mean the close of business in Amsterdam, any Place of Conversion or any Place of
Payment, as the case may be.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
is given, Securities called for redemption become due and payable on the
Redemption Date stated in the notice and at the Redemption Price therefor except
for Securities that are converted in accordance with the terms of this
Indenture. Upon the later of the Redemption Date and the date such Securities
are surrendered to any Paying Agent or at any applicable office or agency
referred to
23
in Section 4.05, such Securities called for redemption shall be paid at the
Redemption Price therefor. Notice of redemption shall be deemed to be given when
mailed, whether or not the Holder receives such notice.
SECTION 3.05. Deposit of Redemption Price. Prior to the Redemption
Date, the Company shall deposit or cause to be deposited with any Paying Agent
(or if the Company or a Subsidiary or an Affiliate of either of them is a Paying
Agent, shall segregate and hold in trust) money sufficient to pay the Redemption
Price of all Securities to be redeemed on that date other than Securities or
portions of Securities called for redemption which prior thereto have been
delivered by the Company to the Trustee for cancellation. Each Paying Agent
shall as promptly as practicable return to the Company any money, with interest,
if any, thereon (subject to the provisions of Section 7.02(f)), not required for
that purpose because of conversion of Securities pursuant to Article 10. If such
money is then held by the Company or a Subsidiary or an Affiliate of the Company
in trust and is not required for such purpose it shall be discharged from such
trust.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder, a new Security in an authorized
denomination equal in Principal Amount to the unredeemed portion of the Security
surrendered.
SECTION 3.07. Conversion Arrangement on Call for Redemption. In
connection with any redemption of Securities, the Company may arrange for the
purchase and conversion of any Securities called for redemption by an agreement
with one or more investment bankers or other purchasers to purchase all or a
portion of such Securities by paying to the Trustee in trust for the Holders
whose Securities are to be so purchased, before the close of business on the
Redemption Date, an amount that, together with any amounts deposited with the
Trustee by the Company for redemption of such Securities, is not less than the
Redemption Price, together with interest, if any, accrued to the Redemption
Date, of such Securities. Notwithstanding anything to the contrary contained in
this Article 3, the obligation of the Company to pay the Redemption Price of
such Securities, including all accrued interest, if any, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such purchasers
but no such agreement shall relieve the Company of its obligation to pay such
Redemption Price and interest, if any. If such an agreement is entered into, any
Securities not duly surrendered for conversion by the Holders thereof may, at
the option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such Holders and (notwithstanding anything to
the contrary contained in Article 10) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the
Redemption Date, subject to
24
payment of the above amount as aforesaid. The Trustee shall hold and pay to the
Holders whose Securities are selected for redemption any such amount paid to it
for purchase and conversion in the same manner as it would moneys deposited with
it by the Company for the redemption of Securities. Without the Trustee's prior
written consent, no arrangement between the Company and such purchasers for the
purchase and conversion of any Securities shall increase or otherwise affect any
of the powers, duties, responsibilities or obligations of the Trustee as set
forth in this Indenture, and the Company agrees to fully indemnify the Trustee
from, and hold it harmless against, any and all loss, liability or expense
(including taxes other than taxes based on the income of the Trustee) arising
out of or in connection with any such arrangement for the purchase and
conversion of any Securities between the Company and such purchasers, including
the costs and expenses incurred by the Trustee in the defense of any claim
(whether asserted by the Company, any Holder or any other Person) or liability
arising out of or in connection with the exercise or performance of any of its
powers, duties, responsibilities or obligations under this Indenture other than
resulting from the Trustee's gross negligence or willful misconduct.
SECTION 3.08. Purchase of Securities at the Option of the Holder. (a)
General. Securities shall be purchased by the Company pursuant to paragraph 6 of
the Securities as of January 17, 2005 (the "Purchase Date"), at the purchase
price specified therein (the "Purchase Price"), at the option of the Holder
thereof, upon:
(i) delivery to any Paying Agent or to any applicable office
or agency referred to in Section 4.05 by the Holder of a written notice
of purchase (the "Purchase Notice") at any time from the opening of
business on the date that is 20 Business Days prior to the Purchase
Date until the close of business on the Purchase Date stating:
(A) the certificate number, if any, of the Security
that the Holder will deliver to be purchased;
(B) the portion of the Principal Amount of the
Security which the Holder will deliver to be purchased, which
portion must be $1,000 or an integral multiple thereof; and
(C) that such Security shall be purchased on the
Purchase Date pursuant to the terms and conditions specified
in this Indenture and in paragraph 6 of the Securities.
(ii) delivery of such Security prior to, on or after the
Purchase Date (together with all necessary endorsements) to any Paying
Agent at
25
any office of such Paying Agent or to any applicable office or agency
referred to in Section 4.05, such delivery being a condition to receipt
by the Holder of the Purchase Price therefor; provided, however, that
the Purchase Price shall be so paid pursuant to this Section 3.08 only
if the Security so delivered conforms in all material respects to the
description thereof in the related Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.08, a portion of a Security if the Principal Amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security also apply to the purchase of such
portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions
hereof shall be consummated by the delivery of the consideration to be received
by the Holder promptly following the later of the Business Day following the
Purchase Date and the time of delivery of the Security.
Notwithstanding anything herein to the contrary, any Holder delivering
to any Paying Agent or any applicable office or agency referred to in Section
4.05 the Purchase Notice contemplated by this Section 3.08(a) shall have the
right to withdraw at any time prior to the close of business on the Purchase
Date such Purchase Notice by delivery of a written notice of withdrawal to such
Paying Agent or such office or agency in accordance with Section 3.10.
Holders may surrender a Security for purchase by the Company by means
of book entry delivery in accordance with the provisions set forth herein and
the regulations of the applicable book entry facility. For the purposes of this
Section 3.08, a Security shall be deemed to have been surrendered to a Paying
Agent upon receipt by such Paying Agent of a copy of an irrevocable notice given
by any book entry facility to the relevant Registrar or any custodian for such
Registrar instructing it to deliver the certificate corresponding to such
Security to such Registrar for cancellation.
Each Paying Agent shall promptly notify the Company of the receipt by
it of any Purchase Notice or written notice of withdrawal thereof.
At least five Business Days before the Company Notice Date (as defined
below), the Company shall deliver an Officers' Certificate to the Trustee
specifying:
(i) the information required by Section 3.08(c); and
26
(ii) whether the Company desires the Trustee to give the
notice required by Section 3.08(c).
(b) Purchase. On the Purchase Date the Principal Amount of the
Securities in respect of which the Purchase Notice pursuant to Section 3.08(a)
has been given, or a specified percentage thereof, may be purchased by the
Company with cash equal to the aggregate Purchase Price of such Securities.
(c) Notice of Election. The Company shall send notices (the "Company
Notice") to the Holders (and to beneficial owners as required by applicable law)
in the manner provided in Section 11.02, on a date not less than 20 Business
Days prior to the Purchase Date (such date not less than 20 Business Days prior
to the Purchase Date being herein referred to as the "Company Notice Date").
Such notices shall include a form of Purchase Notice to be completed by the
Securityholder and shall state:
(i) the Purchase Price and Conversion Rate;
(ii) the name and address of each Paying Agent and Conversion
Agent and of the offices or agencies referred to in Section 4.05;
(iii) that Securities as to which the Purchase Notice has been
given may be converted into Common Shares at any time prior to the
close of business on the applicable Purchase Date only if the
applicable Purchase Notice has been withdrawn in accordance with the
terms of this Indenture;
(iv) that Securities must be surrendered to any Paying Agent
or to any applicable office or agency referred to in Section 4.05 to
collect payment;
(v) that the Purchase Price for any security as to which the
Purchase Notice has been given and not withdrawn will be paid promptly
following the later of the Purchase Date and the time of surrender of
such Security as described in (iii);
(vi) the procedures the Holder must follow to exercise rights
under Section 3.08 and a brief description of those rights;
(vii) briefly, the conversion rights of the Securities and
that Holders who want to convert Securities must satisfy the
requirements set forth in paragraph 8 of the Securities; and
27
(viii) the procedures for withdrawing the Purchase Notice.
At the Company's written request, the Trustee shall give such notice in
the Company's name and at the Company's expense; provided, however, that, in all
cases, the text of such notice shall be prepared by the Company.
(d) Procedure Upon Purchase. The Company shall deposit cash at the time
and in the manner as provided in Section 3.10, sufficient to pay the aggregate
Purchase Price of all Securities to be purchased pursuant to this Section 3.08.
As soon as practicable after the later of the Business Day following the
Purchase Date and the date such Securities are surrendered to any Paying Agent
or at any applicable office or agency referred to in Section 4.05, the Company
shall deliver to each Holder entitled to receive payment of the Purchase Price,
cash in payment of such Purchase Price.
SECTION 3.09. Purchase of Securities at the Option of the Holder Upon
Change in Control. (a) If after November 6, 2000 there shall have occurred a
Change in Control, Securities shall be purchased, at the option of the Holder
thereof, by the Company at the purchase price specified in paragraph 6 of the
Securities (the "Change in Control Purchase Price"), on the date that is 35
Business Days after the occurrence of the Change in Control (the "Change in
Control Purchase Date"), subject to satisfaction by or on behalf of the Holder
of the requirements set forth in Section 3.09(c).
A "Change in Control" shall be deemed to have occurred at such time as
any of the following events shall occur:
(i) Any person (for the purposes of this Section 3.09 only,
the term "person" shall include a "person" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") or any successor provision to
either of the foregoing) (other than the Company, any Subsidiary, any
employee benefit plan of either the Company or any Subsidiary, or any
entity the majority of whose voting stock is owned directly or
indirectly by one or both of the governments of the Republic of France
or the Republic of Italy or any Principal Shareholder of the Company)
has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of 50% or more of the total voting
power in the aggregate of all classes of Capital Stock of the Company
then outstanding normally entitled to vote in elections of Managing
Directors; provided, however, that a person shall not be deemed
beneficial owner of, or to own beneficially, (A) any securities
tendered pursuant to a tender or exchange offer made by or on
28
behalf of such person or any of such person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange
thereunder, or (B) any securities if such beneficial ownership (1)
arises solely as a result of a revocable proxy delivered in response to
a proxy or consent solicitation made pursuant to, and in accordance
with, the applicable rules and regulations under the Exchange Act, and
(2) is not also then reportable on Schedule 13D (or any successor
schedule, form or report) under the Exchange Act. For the avoidance of
doubt, a Change in Control will not be deemed to have occurred upon the
occurrence alone of a decrease to below any particular percentage of
STMicroelectronics Holding II B.V.'s percentage ownership in the
Company;
(ii) There shall be consummated any consolidation or merger of
the Company pursuant to which the Common Shares would be converted into
cash, securities or other property, in each case other than a
consolidation or merger of the Company in which the holders of Common
Shares immediately prior to the consolidation or merger have, directly
or indirectly, at least a majority of the total voting power in the
aggregate of all classes of capital stock of the continuing or
surviving corporation immediately after such consolidation or merger;
or
(iii) There shall be consummated a transfer of all or
substantially all of the assets of the Company, as an entirety, to any
person (as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act), other than any Subsidiary, any employee
benefit plan of either the Company or any Subsidiary, or any entity the
majority of whose voting stock is owned directly or indirectly by one
or both of the governments of the Republic of France or the Republic of
Italy or any Principal Shareholder of the Company.
"Associate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in effect on the
date hereof.
"Principal Shareholders" means France Telecom, CEA Industrie and
Finmecanica S.p.A.
(b) Within 15 Business Days after the occurrence of a Change in
Control, (i) the Company shall mail a written notice of such Change in Control
by first-class mail to the Trustee and to each Holder (and to beneficial owners
if required by applicable law) and (ii) the Company shall cause a copy of such
notice to be published in The Wall Street Journal or another daily newspaper of
national circulation, the Financial Times and Les Echos or La Tribune. The
notice sent to
29
the Trustee and to each Holder shall include a form of Change in Control
Purchase Notice to be completed by the Securityholder and shall state:
(1) briefly, the events causing a Change in Control, and the date such
Change in Control is deemed to have occurred for purposes of this Section 3.09;
(2) the date by which the Change in Control Purchase Notice pursuant to
this Section 3.09 must be given;
(3) the Change in Control Purchase Date;
(4) the Change in Control Purchase Price;
(5) the name and address of each Paying Agent and Conversion Agent and
the offices or agencies referred to in Section 4.05;
(6) the Conversion Rate and any adjustments thereto;
(7) that Securities as to which a Change in Control Purchase Notice has
been given may be converted into Common Shares at any time prior to the close of
business on the Change in Control Purchase Date only if the Change in Control
Purchase Notice has been withdrawn in accordance with the terms of this
Indenture;
(8) that Securities must be surrendered to a Paying Agent or any
applicable office or agency referred to in Section 4.05 to collect payment;
(9) that the Change in Control Purchase Price for any Security as to
which the Purchase Notice has been duly given and not withdrawn will be paid
promptly following the later of the Change in Control Purchase Date and the time
of surrender of such Security as described in clause (8) above;
(10) the procedures the Holder must follow to exercise rights under
this Section 3.09 and a brief description of those rights;
(11) briefly, the conversion rights of the Securities;
(12) that Holders who want to convert Securities must satisfy the
requirements set forth in paragraph 8 of the Securities; and
(13) the procedures for withdrawing a Change in Control Purchase
Notice.
30
(c) A Holder may exercise its rights specified in Section 3.09(a) upon
delivery of a written notice of purchase (a "Change in Control Purchase Notice")
to any Paying Agent or to any applicable office or agency referred to in Section
4.05 at any time prior to the close of business on the Change in Control
Purchase Date, stating:
(1) the certificate number, if any, of the Security which the Holder
will deliver to be purchased;
(2) the portion of the Principal Amount of the Security which the
Holder will deliver to be purchased, which portion must be $1,000 or an integral
multiple thereof; and
(3) that such Security shall be purchased on the Change in Control
Purchase Date as specified in Section 3.10 and pursuant to the terms and
conditions specified in paragraph 6 of the Securities.
Receipt of the Security by any Paying Agent prior to, on or after the
Change in Control Purchase Date (together with all necessary endorsements), at
any office of such Paying Agent or to any applicable office or agency referred
to in Section 4.05 shall be a condition to the receipt by the Holder of the
Change in Control Purchase Price therefor; provided, however, that such Change
in Control Purchase Price shall be so paid pursuant to this Section 3.09 only if
the Security so delivered to such Paying Agent or such office or agency shall
conform in all material respects to the description thereof set forth in the
related Change in Control Purchase Notice.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.09, a portion of a Security if the Principal Amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security also apply to the purchase of such
portion of such Security.
Any purchase by the Company contemplated pursuant to the provisions of
this Section 3.09 shall be consummated by the delivery of the consideration to
be received by the Holder promptly following the later of the Business Day
following the Change in Control Purchase Date and the date such Securities are
surrendered to any Paying Agent or at any applicable office or agency referred
to in Section 4.05.
Notwithstanding anything herein to the contrary, any Holder delivering
to a Paying Agent or to any applicable office or agency referred to in Section
4.05 the Change in Control Purchase Notice contemplated by this Section 3.09(c)
shall
31
have the right to withdraw such Change in Control Purchase Notice at any time
prior to the close of business on the Change in Control Purchase Date by
delivery of a written notice of withdrawal to such Paying Agent or to such
office or agency in accordance with Section 3.10.
Holders may surrender a Security for purchase by the Company by means
of book entry delivery in accordance with the provisions set forth herein and
the regulations of the applicable book entry facility. For the purposes of this
Section 3.09, a Security shall be deemed to have been surrendered to a Paying
Agent upon receipt by such Paying Agent of a copy of an irrevocable notice given
by any book entry facility to the holder of the certificate corresponding to
such Security instructing it to deliver such certificate to the relevant
Registrar for cancellation.
Each Paying Agent shall promptly notify the Company of the receipt by
it of any Change in Control Purchase Notice or written withdrawal thereof.
SECTION 3.10. Effect of Purchase Notice or Change in Control Purchase
Notice. Upon receipt by any Paying Agent of the Purchase Notice or Change in
Control Purchase Notice specified in Section 3.08(a) or Section 3.09(c), as
applicable, the Holder of the Security in respect of which such Purchase Notice
or Change in Control Purchase Notice, as the case may be, was given shall
(unless such Purchase Notice or Change in Control Purchase Notice is withdrawn
as specified in the following two paragraphs) thereafter be entitled to receive
solely the Purchase Price or Change in Control Purchase Price, as the case may
be, with respect to such Security. The Purchase Price or Change in Control
Purchase Price shall be paid to such Holder promptly following the later of (x)
the Business Day following the Purchase Date or the Change in Control Purchase
Date, as the case may be, with respect to such Security (provided the conditions
in Section 3.08(a) or Section 3.09(c), as applicable, have been satisfied) and
(y) the time of delivery of such Security to any Paying Agent or to any
applicable office or agency referred to in Section 4.05 by the Holder thereof in
the manner required by Section 3.08(a) and (d) or Section 3.09(c), as
applicable. Securities in respect of which the Purchase Notice or Change in
Control Purchase Notice, as the case may be, has been given by the Holder
thereof may not be converted into Common Shares on or after the date of the
delivery of such Purchase Notice or Change in Control Purchase Notice, as the
case may be, unless such Purchase Notice or Change in Control Purchase Notice,
as the case may be, has first been validly withdrawn as specified in the
following two paragraphs.
The Purchase Notice or Change in Control Purchase Notice, as the case
may be, may be withdrawn by means of a written notice of withdrawal delivered to
any office of any Paying Agent or to any applicable office or agency referred to
32
in Section 4.05 at any time on or prior to the close of business on the Purchase
Date or the Change in Control Purchase Date, as the case may be, specifying:
(1) the certificate number, if any, of the Security in respect of which
such notice of withdrawal is being submitted;
(2) the Principal Amount of the Security with respect to which such
notice of withdrawal is being submitted; and
(3) the Principal Amount, if any, of such Security which remains
subject to the original Purchase Notice or Change in Control Purchase Notice, as
the case may be, and which has been or will be delivered for purchase by the
Company.
There shall be no purchase of any Securities pursuant to Sections 3.08
or 3.09 if there has occurred (prior to, on or after, as the case may be, the
giving, by the Holders of such Securities, of the required Purchase Notice or
Change in Control Purchase Notice, as the case may be) and is continuing an
Event of Default (other than a default in the payment of the Purchase Price or
Change in Control Purchase Price, as the case may be, with respect to such
Securities). Each Paying Agent will promptly return to the respective Holders
thereof any Securities (x) with respect to which the Purchase Notice or Change
in Control Purchase Notice, as the case may be, has been withdrawn in compliance
with this Indenture, or (y) held by it during the continuance of an Event of
Default (other than a default in the payment of the Purchase Price or Change in
Control Purchase Price, as the case may be, with respect to such Securities).
SECTION 3.11. Deposit of Purchase Price or Change in Control Purchase
Price. Prior to 3:00 p.m. (New York) on the Business Day following the Purchase
Date or the Change in Control Purchase Date, as the case may be, the Company
shall deposit or cause to be deposited with the Trustee or with a Paying Agent
(or, if the Company or a Subsidiary or an Affiliate of either of them is acting
as Paying Agent, shall segregate and hold in trust as provided in Section 2.04)
an amount of cash in immediately available funds, sufficient to pay the
aggregate Purchase Price or Change in Control Purchase Price, as the case may
be, of all the Securities or portions thereof which are to be purchased.
SECTION 3.12. Securities Purchased in Part. Any Security which is to be
purchased only in part shall be surrendered at any office of any Paying Agent or
any applicable office or agency referred to in Section 4.05 (with, if the
Company or the Trustee so requires, due endorsement, or a written instrument of
transfer in form satisfactory to the Company and the Trustee executed by the
Holder or such Holder's attorney duly authorized in writing) and the Company
shall execute and
33
the Trustee shall authenticate and deliver to the Holder of such Security,
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate Principal Amount equal to,
and in exchange for, the portion of the Principal Amount of the Security so
surrendered which is not purchased.
Holders may surrender a Security for purchase in part by the Company by
means of book entry delivery in accordance with the provisions set forth herein
and the regulations of the applicable book entry facility. For the purposes of
this Section 3.12, a Security shall be deemed to have been surrendered to a
Paying Agent upon receipt by such Paying Agent of a copy of an irrevocable
notice given by any book entry facility to the holder of the certificate
corresponding to such Security instructing it to deliver such certificate to the
relevant Registrar for cancellation.
SECTION 3.13. Covenant to Comply with Securities Laws Upon Purchase of
Securities. In connection with any offer to purchase or purchase of Securities
under Section 3.08 or 3.09 hereof, the Company shall (i) comply with Rule 13e-4,
Rule 14e-1 and any other tender offer rules under the Exchange Act, if
applicable, (ii) file the related Schedule 13E-4 (or any successor schedule,
form or report) or any other required schedule under the Exchange Act, if
applicable, and (iii) otherwise comply with all U.S. Federal and state and other
applicable securities laws and regulations, including any applicable securities
laws outside the United States, regulating the offer and delivery of Common
Shares upon purchase of the Securities (including positions of the SEC under
applicable no-action letters) so as to permit the rights and obligations under
Sections 3.08 and 3.09 to be exercised in the time and in the manner specified
in Sections 3.08 and 3.09.
SECTION 3.14. Repayment to the Company. The Trustee and each Paying
Agent shall return to the Company, upon request of the Company, any cash
together with interest on such cash, if any, held by them for the payment of the
Purchase Price or Change in Control Purchase Price, as the case may be, of the
Securities that remain unclaimed as provided in paragraph 12 of the Securities;
provided, however, that to the extent that the aggregate amount of cash
deposited by the Company pursuant to Section 3.11 exceeds the aggregate Purchase
Price or Change in Control Purchase Price, as the case may be, of the Securities
or portions thereof to be purchased, then promptly after the Business Day
following the Purchase Date or Change in Control Purchase Date, as the case may
be, the Trustee shall return any such excess to the Company together with
interest, if any, thereon.
34
ARTICLE 4
COVENANTS
SECTION 4.01. Payment of Securities. The Company shall promptly make
all payments in respect of the Securities on the dates and in the manner
provided in the Securities or pursuant to this Indenture. Principal Amount,
Issue Price, accrued Original Issue Discount, Redemption Price, Purchase Price,
Change in Control Purchase Price and interest, if any, shall be considered paid
on the applicable date due if on such date the Trustee or any Paying Agent
holds, in accordance with this Indenture, cash or securities, if expressly
permitted hereunder, sufficient to pay all such amounts then due. The Company
will pay cash amounts in money of The United States of America that at the time
of payment is legal tender for payment of public and private debts. However, the
Company may make such cash payments by check payable in such money.
The Company shall, to the extent permitted by law, pay interest on
overdue amounts at the per annum rate of interest set forth in paragraph 1 of
the Securities, compounded semi-annually, which interest on overdue amounts (to
the extent payment of such interest shall be legally enforceable) shall accrue
from the date such overdue amounts were originally due and payable. The Company
will pay any transfer taxes, stamp taxes, capital contributions or other similar
taxes upon (i) issue of the Securities or (ii) delivery of the Common Shares
upon conversion of the Securities, except that a holder of the Securities will
be required to pay any such tax which may be payable in respect of any transfer
involved in the issue or delivery of the Common Shares in a name other than such
holder's name.
SECTION 4.02. SEC Reports. The Company shall file with the Trustee,
within 15 days after it files such annual and quarterly reports, information,
documents and other reports with the SEC, copies of its annual and quarterly
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act (or any such successor provisions
thereto). In the event the Company is at any time no longer subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act (or any such
successor provisions), it shall continue to provide the Trustee with reports
containing substantially the same information as would have been required to be
filed with the SEC had the Company continued to have been subject to such
reporting requirements, and the Trustee shall make any such reports available to
Securityholders upon request. In such event, such reports shall be provided at
the times the Company would have been required to provide reports had it
continued to have been subject to such
35
reporting requirements. The Company also shall comply with the other provisions
of TIA Section 314(a), to the extent such provisions are applicable.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.03. Compliance Certificate; Notice of Defaults. (a) The
Company shall deliver to the Trustee within 120 days after the end of each
fiscal year of the Company a certificate of the principal executive officer, the
principal financial officer or the principal accounting officer of the Company
stating whether or not, to the knowledge of the signer, the Company has complied
with all conditions and covenants on its part contained in this Indenture and,
if the signer has obtained knowledge of any default by the Company in the
performance, observance or fulfillment of any such condition or covenant,
specifying each such default and the nature thereof. For the purpose of this
Section 4.03, compliance shall be determined without regard to any grace period
or requirement of notice provided pursuant to the terms of this Indenture.
(b) The Company shall file with the Trustee written notice of the
occurrence of any Default or Event of Default within 10 Business Days of its
becoming aware of such Default or Event of Default.
SECTION 4.04. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purposes of this Indenture.
SECTION 4.05. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York, and such other
locations as may be required by, or necessary under, the rules of any securities
exchange or quotation system on which the Securities may from time to time be
listed, an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer,
exchange, purchase, redemption or conversion and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Company will maintain in Paris, France, an office or agency where Securities
may be presented or surrendered for payment, where Securities may be surrendered
pursuant to any purchase, redemption or conversion and where notices and demands
to or upon the Company in respect of the Securities and this
36
Indenture may be served. The Company will maintain in Amsterdam, The
Netherlands, an office or agency where Securities may be surrendered for
registration of transfer and exchange. The office of (a) the Trustee in The City
of New York, which office on the date hereof is located at The Bank of New York,
101 Barclay Street, Floor 21 West, New York, New York 10286, Attention:
Corporate Trust Trustee Administration; (b) the Paris Conversion Agent and the
Paris Paying Agent in Paris, France, which office on the date hereof is located
at BNP Paribas, 16 boulevard des Italiens, 75009 Paris, France, and (c) the
Dutch Registrar in Amsterdam, The Netherlands, which office on the date hereof
is located at Netherlands Management Company B.V. Herengracht 320, 1016 CE
Amsterdam, The Netherlands, shall be such office or agency for the respective
purposes described above, unless the Company shall maintain some other office or
agency for such purposes and shall give prompt written notice to the Trustee of
the location, and any change of location, of such other office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in each of
The City of New York, Paris and Amsterdam for the purposes described in the
preceding paragraph.
SECTION 4.06. Additional Amounts. The Company will pay the holder of
the Securities such amounts (the "Additional Amounts") as may be necessary in
order that every net payment of the Principal Amount, Issue Price, accrued
Original Issue Discount, Redemption Price, Purchase Price, Change in Control
Purchase Price or interest, if any, in respect of any Security by the Company,
after deduction or withholding for or on account of any present or future tax,
assessment or other governmental charge imposed upon or as a result of such
payment by The Netherlands or any Successor Jurisdiction or any political
subdivision or taxing authority thereof or therein ("Taxes") will not be less
than the amount provided for in such Security to be then due and payable;
provided, however, that the foregoing obligation to pay Additional Amounts will
not apply (a) with respect to any Security presented for payment by, or on
behalf of, a holder who is liable to such taxes or duties in respect of such
Security by reason of his having some connection with The Netherlands or any
Successor Jurisdiction other than the mere holding of such Security, (b) more
than 30 days after the Relevant Date except to the extent that the holder of
such Security would have been entitled
37
to such Additional Amounts on presenting the same for payment on such thirtieth
day (where such presentation is required), or (c) any tax, assessment or other
governmental charge which would not have been imposed but for the failure to
comply, following a request by the Company to the holder, with any
certification, identification or other reporting requirements concerning the
nationality, residence, identity, or connection with The Netherlands or any
Successor Jurisdiction or any political subdivision thereof of the holder of the
Security, if compliance is required by statute or by regulation of The
Netherlands or any Successor Jurisdiction or any political subdivision or taxing
authority thereof as a precondition to exemption from such tax, assessment or
other governmental charge.
"Relevant Date" means the date which is the later of (i) the date on
which such net payment first becomes due and (ii) if the full amount of the
moneys payable has not been received by the Trustee on or prior to such date,
the date 21 days after the date on which the full amount of such moneys having
been so received, notice to this effect shall have been given to the holders in
accordance with this Indenture.
Whenever in this Indenture there is mentioned, in any context, the
payment of the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price in respect
of, or interest on, any Security, such mention shall be deemed to include
mention of the payment of Additional Amounts provided for in this Section to the
extent that, in such context, additional amounts are, were or would be payable
in respect thereof pursuant to the provisions of this Section and express
mention of the payment of Additional Amounts (if applicable) in any provisions
hereof shall not be construed as excluding Additional Amounts in those
provisions hereto where such express mention is not made.
At least 10 days prior to the first day on which payment of the
Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price, Change in Control Purchase Price or interest, if any, in
respect of any Security by the Company is made and at least 10 days prior to
each date of such payment if there has been any change with respect to the
matters set forth in the below-mentioned Officers' Certificate, the Company will
furnish the Trustee and each Paying Agent, if other than the Trustee, with an
Officers' Certificate instructing the Trustee and such Paying Agent whether such
payment with respect to the Securities shall be made to Holders of Securities
without withholding for or on account of any Taxes. If any such withholding
shall be required, then such Officers' Certificate shall specify by country the
amount if any, required to be withheld on such payments to such holders and the
Company will pay to the Trustee or any Paying Agent the Additional Amounts
required by this Section.
38
The Company covenants to fully indemnify the Trustee and any Paying Agent for,
and to hold them harmless against, any and all loss, liability or expense
(including taxes other than taxes based on the income of the Trustee) reasonably
incurred without negligence or wilful misconduct on their part arising out of or
in connection with actions taken or omitted by any of them in reliance on any
Officers' Certificate furnished pursuant to this Section.
SECTION 4.07. Calculation of Original Issue Discount. The Company shall
file with the Trustee promptly at the end of each calendar year (i) a written
notice specifying the amount of Original Issue Discount (including daily rates
and accrual periods) accrued on outstanding Securities as of the end of such
year and (ii) such other specific information relating to such Original Issue
Discount as may then be relevant under the Internal Revenue Code of 1986, as
amended from time to time.
SECTION 4.08. Limitation on Liens. The Company may not allow any Lien
securing the Company's Capital Market Indebtedness, or securing a guaranty or
indemnity provided by the Company in respect of the Capital Market Indebtedness
of its Subsidiaries or of any other person, to exist on any of its property or
assets, which includes capital stock, unless the Lien secures the Securities
equally and ratably with or prior to, any other indebtedness secured by such
Lien. The foregoing provision shall not apply to secured Capital Market
Indebtedness which the Company may issue, assume, guarantee or permit to exist
up to 5% of the consolidated net tangible assets as shown on the Company's most
recent consolidated balance sheet at the time. This limitation will not apply
to:
(a) Liens existing at the date hereof;
(b) Liens on property that exist when the Company acquires the property
and Liens that secure payment of the purchase price of the property;
(c) Liens on shares or stock of any entity that exists when the Company
or any Subsidiary acquires such shares or stock;
(d) Liens on property to secure debt incurred for development or
improvement of the property;
(e) Liens securing (i) nondelinquent performance of bids or contracts,
other than for borrowed money, obtaining of advances or credit or the securing
of debt, (ii) contingent obligations on surety and appeal bonds and (iii) other
similar nondelinquent obligations, in each case incurred in the ordinary course
of business;
39
(f) Liens securing capital lease obligations, provided that (i) any
such Lien attaches to the property within 270 days after the acquisition thereof
and (ii) such lien attaches solely to the property so acquired;
(g) Liens arising solely by virtue of any statutory or common law
provision relating to banker's Liens, rights of set-off or similar rights and
remedies as to deposit account or other funds, provided that such deposit
account is not a dedicated cash collateral account and is not subject to
restrictions against our access in excess of those set forth by regulations
promulgated by the European Central Bank, the Central Bank of The Netherlands or
the Federal Reserve Board and such deposit account is not intended by the
Company to provide collateral to the depository institution;
(h) pledges or deposits under worker's compensation laws, unemployment
insurance laws or similar legislation;
(i) statutory and tax Liens for sums not yet due or delinquent or which
are being contested or appealed in good faith by appropriate proceedings;
(j) Liens arising solely by operation of law and in the ordinary course
of business, such as mechanics', materialmen's, warehousemen's and carriers'
Liens and Liens of landlords or of mortgages of landlords on fixtures and
movable property located on premises leased in the ordinary course of business;
(k) Liens on personal property, (other than shares or debt of the
Company's Subsidiaries) securing loans with an initial maturity of not more than
one year or on accounts receivables in connection with a receivables financing
program; or
(l) extensions, renewals or replacement of any of the Liens described
above, if limited to all or any part of the same property securing the original
Lien.
If the Company takes any action that would require the Securities to be
secured by any Lien then the Company shall notify the Trustee and shall provide
the Trustee with evidence that the Securities are secured by such Lien.
SECTION 4.09. 144 Information Requirement. The Company shall use its
reasonable efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act in a timely manner and, if at any time it is
not required to file such reports but in the past had been required to or did
file such reports, it will, upon the request of any holder of the Securities,
make available other information as required by, and so long as necessary to
permit, sales of its Securities pursuant to Rules 144 and 144A under the
Securities Act or, in each case, any similar rule or regulation hereafter
adopted by the SEC as a replacement
40
thereto having substantially the same effect as such rule. Notwithstanding the
foregoing, nothing in this Section 4.09 shall be deemed to require the Company
to register any of its securities pursuant to the Exchange Act
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge or Transfer Assets. The Company,
in a single transaction or through a series of related transactions, may,
without the consent of any Holders of outstanding Securities, consolidate with
or merge with or into or transfer (by assignment, sale or otherwise) or lease
its assets substantially as an entirety to any person, and any person may
consolidate with or merge into or transfer or lease its assets substantially as
an entirety to the Company, provided that:
(a) the person (if other than the Company) formed by such consolidation
or into which the Company is merged or the person which acquires or leases the
assets of the Company substantially as an entirety (1) shall be a corporation,
partnership or trust organized and existing under the laws of any European Union
member state or any state of the United States ( the "Successor Jurisdiction")
and (2) shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all of the
obligations of the Company under the Securities and this Indenture;
(b) immediately after giving effect to such transaction, and the
assumption contemplated by clause (a) above, no Default or Event of Default
shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture, comply with this Article and
that all conditions precedent herein provided for relating to such transaction
have been satisfied.
For purposes of the foregoing, the transfer (by assignment, sale or
otherwise) or lease of the properties and assets of one or more Subsidiaries
(other than to the Company or another wholly owned Subsidiary), which, if such
assets were owned by the Company, would constitute all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
the assets, substantially as an entirety, of the Company.
41
The successor person formed by such consolidation or into which the
Company is merged or the successor person to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor had been named as the Company herein; and thereafter, except in
the case of (i) a lease of its properties and assets substantially as an
entirety and (ii) obligations the Company may have under a supplemental
indenture pursuant to Section 10.15, the Company shall be discharged and
released from all obligations and covenants under this Indenture and the
Securities. Subject to Section 9.05, the Trustee shall enter into a supplemental
indenture to evidence the succession and substitution of such successor person
and such discharge and release of the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of the Principal Amount, Issue
Price, accrued Original Issue Discount, Redemption Price, Purchase Price or
Change in Control Purchase Price on any Security when the same becomes due and
payable at its Stated Maturity, upon redemption, upon declaration, when due for
purchase by the Company or otherwise, whether or not such payment shall be
prohibited by this Indenture;
(b) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in clause (a) above
and clause (c) below) and such failure continues for 60 days after receipt by
the Company of a Notice of Default;
(c) the Company fails to deliver Common Shares (or pay cash in lieu of
fractional Common Shares) in accordance with the terms hereof when such Common
Shares (or cash in lieu of fractional Common Shares) are required to be
delivered, upon conversion of a Security and such failure is not remedied for a
period of 10 days; or
(d) a default shall occur under any mortgage (including any pledge,
lien, deed of trust, security interest or other similar encumbrance), indenture,
or instrument under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by the Company or any
Consolidated Subsidiary, whether such indebtedness now exists or shall hereafter
be created, which default shall have resulted in such indebtedness, in an
aggregate
42
principal amount exceeding $10 million becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, without such indebtedness having been discharged, such acceleration
having been rescinded or annulled or there having been deposited in trust a sum
of money sufficient to discharge in full such indebtedness within a period of 20
days after there shall have been given, by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of at
least 25% in Principal Amount of the Securities, a written notice specifying
such default and requiring the Company to cause such indebtedness to be
discharged, to cause such acceleration to be rescinded or annulled or to cause
there to be deposited in trust a sum sufficient to discharge in full such
indebtedness and stating that such notice is a "Notice of Default" hereunder.
(e) the Company pursuant to or within the meaning of any Bankruptcy
Law:
(i) commences a voluntary case or proceeding;
(ii) consents to the entry of an order for relief against it
in an involuntary case or proceeding or the commencement of any case
against it;
(iii) consents to the appointment of a Custodian of it or for
any substantial part of its property;
(iv) makes a general assignment for the benefit of its
creditors;
(v) files a petition in bankruptcy or answer or consent
seeking reorganization or relief; or
(vi) consents to the filing of such petition or the
appointment of or taking possession by a Custodian;
(f) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company in an involuntary case
or proceeding, or adjudicates the Company insolvent or bankrupt;
(ii) appoints a Custodian of the Company or for any
substantial part of its property; or
(iii) orders the winding up or liquidation of the Company;
43
and the order or decree remains unstayed and in effect for 60 days;
"Bankruptcy Law" means any applicable bankruptcy law, insolvency law,
or any similar law for the relief of debtors, of The Netherlands or any
successor jurisdiction in which the Company (or any successor) is incorporated.
"Custodian" means any receiver, trustee, assignee, liquidator,
custodian or similar official under any Bankruptcy Law.
A Default under clause (b) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
Principal Amount of the Securities at the time outstanding notify the Company
and the Trustee, of the Default and the Company does not cure such Default
within the time specified in clause (b) above after receipt of such notice. Any
such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default."
The Company shall deliver to the Trustee, within 30 days after it
becomes aware of the occurrence thereof, written notice of any event which with
the giving of notice and the lapse of time or both would become an Event of
Default under clause (b) or clause (d), its status and what action the Company
is taking or proposes to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event
of Default specified in Section 6.01(e) or (f)) occurs and is continuing, unless
the Principal Amount of all the Securities shall have already become due and
payable, either the Trustee by notice to the Company, or the Holders of at least
25% in aggregate Principal Amount of the Securities at the time outstanding by
notice to the Company and the Trustee, may declare the Issue Price and accrued
Original Issue Discount to the date of declaration on all the Securities to be
immediately due and payable, whereupon such Issue Price and accrued Original
Issue Discount shall be due and payable immediately; provided that, if an Event
of Default specified in Section 6.01(e) or (f) occurs and is continuing, the
Issue Price and accrued Original Issue Discount on all the Securities to the
date of the occurrence of such Event of Default shall become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Security holders. The Holders of a majority in aggregate Principal Amount
of the Securities at the time outstanding, by notice to the Trustee (and without
notice to any other Securityholder) may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of the Issue Price and accrued Original Issue Discount that have
become due solely as a result of acceleration and if all amounts due to the
Trustee under Section 7.06 have been
44
paid. No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of the Issue Price and accrued Original Issue Discount on the Securities or to
enforce the performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if the Trustee does not
possess any of the Securities or does not produce any of the Securities in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of, or acquiescence in, the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
SECTION 6.04. Waiver of past Defaults. The Holders of not less than a
majority in aggregate Principal Amount of the Securities at the time
outstanding, by notice to the Trustee (and without notice to any other
Securityholder), may waive an existing Default and its consequences except (a)
an Event of Default described in Section 6.01(a), (b) a Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected or (c) a Default under Article 10. When a Default is
waived, it is deemed cured and shall cease to exist, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
aggregate Principal Amount of the Securities at the time outstanding may direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or that the Trustee determines in good faith is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability unless the Trustee shall have been provided with security
or indemnity against such liability satisfactory to the Trustee.
SECTION 6.06. Limitation on Suit. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
45
(2) the Holders of at least 25% in aggregate Principal Amount of the
Securities at the time outstanding make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee security or indemnity
against any loss, liability or expense satisfactory to the Trustee;
(4) the Trustee does not comply with the request within 60 days after
receipt of the notice, the request and the offer of security or indemnity; and
(5) the Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
any other Securityholder or to obtain a preference or priority over any other
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
the Principal Amount, Issue Price, accrued Original Issue Discount, Redemption
Price, Purchase Price, Change in Control Purchase Price or interest, if any, in
respect of the Securities held by such Holder, on or after the respective due
dates expressed in the Securities or any Redemption Date, and to convert the
Securities in accordance with Article 10 or to bring suit for the enforcement of
any such payment on or after such respective dates or the right to convert,
shall not be impaired or affected adversely without the consent of each such
Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
described in Section 6.01(a) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
for the whole amount of the Principal Amount, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Change in Control Purchase
Price or interest, if any, owing with respect to the Securities and the amounts
provided for in Section 7.06.
SECTION 6.09. Trustee May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the Trustee (irrespective
of whether the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest,
if any, in respect of the Securities shall then be due and payable as therein
expressed or by
46
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of any such amount) shall be entitled
and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the Principal
Amount, Issue Price, accrued Original Issue Discount, Redemption Price, Purchase
Price, Change in Control Purchase Price or interest, if any, owing and unpaid on
the Securities, as applicable, and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding; and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
this Article 6, it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.06;
SECOND: to Securityholders for amounts due and unpaid on the Securities
for the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price, Change in Control Purchase Price or interest,
if any, as the case may be, ratably, without preference or priority of any kind,
according to such amounts due and payable on the Securities; and
THIRD: the balance, if any, to the Company.
47
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section 6.10. At least 15 days before such
record date, the Company shall mail to each Securityholder and the Trustee a
notice that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant (other than the Trustee) in the suit of
an undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit initiated by the Trustee, a suit by a Holder pursuant
to Section 6.07 or a suit by Holders of more than 10% in aggregate Principal
Amount of the Securities at the time outstanding.
SECTION 6.12. Notice of Defaults. The Trustee shall, within 90 days
after the occurrence of any Default, mail to all Holders of Securities, as the
names and addresses of such Holders appear on the books of registry of the
Company, notice of all Defaults of which a Trust Officer of the Trustee shall be
actually aware, unless such Defaults shall have been cured or waived before the
giving of such notice; provided that, except in the case of a Default described
in Section 6.01(a), the Trustee shall be protected in withholding such notice if
and so long as the board of directors, the executive committee, or a trust
committee of directors or Trust Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders of
Securities.
SECTION 6.13. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent it may lawfully do so) that it shall not at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law or any usury or other law, wherever
enacted, now or at any time hereafter in force, that would prohibit or forgive
the Company from paying all or any portion of the Principal Amount, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase Price or Change in
Control Purchase Price in respect of the Securities, or any interest on any such
amounts, as contemplated herein, or that may affect the covenants or the
performance of this Indenture or the Securities; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
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ARTICLE 7
TRUSTEE
SECTION 7.01. Duties and Responsibilities of the Trustee; During
Default; Prior to Default. The Trustee, prior to the occurrence of an Event of
Default and after the curing or waiving of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default has
occurred (which has not been cured or waived) the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the curing
or waiving of all such Events of Default which may have occurred:
(i) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture, and the
Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee,
the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such statements, certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Indenture (but need not
confirm or investigate the accuracy of any mathematical calculations or
other facts stated therein);
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer or Trust Officers of the Trustee, unless it shall
be proved that the Trustee was negligent in ascertaining the pertinent facts;
and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
holders of not less than a majority in principal amount of the Securities at the
time
49
outstanding relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
This Section 7.01 is in furtherance of and subject to Sections 315 and
316 of the TIA.
SECTION 7.02. Rights of Trustee. Subject to the provisions of Section
7.01:
(a) The Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note, coupon, security or other paper or
document (whether in its original or facsimile form) believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents or attorneys and shall not be
responsible for the misconduct or negligence of any agent or attorney appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers.
(e) The Trustee may refuse to perform any duty or exercise any right
or power or extend or risk its own funds or otherwise incur any financial
liability unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee (acting in
any
50
capacity hereunder) shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
(g) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Trust Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by a Trust Officer of the Trustee at its office set forth in Section
11.02.
(h) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(i) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney
at the sole cost of the Company and shall incur no liability or additional
liability of any kind by reason of such inquiry or investigation.
(j) The Trustee may request that the Company deliver an Officers'
Certificate setting forth the names of individuals and/or titles of officers
authorized at such time to take specified actions pursuant to this Indenture,
which Officers' Certificate may be signed by any person authorized to sign an
Officers' Certificate, including any person specified as so authorized in any
such certificate previously delivered and not superceded.
SECTION 7.03. Trustee's Disclaimer. The Trustee in its individual or
any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee. Any Paying Agent, Registrar, Conversion Agent or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.09 and 7.10. The Trustee makes no representation as to the
validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, it shall
not be responsible for any statement in the registration statement for the
Securities under the Securities Act of 1933 (the "Securities Act") or in this
Indenture or the Securities (other than its certificate of authentication), or
the determination as to which beneficial owners are entitled to receive any
notices hereunder.
51
SECTION 7.04. Notice of Defaults. The Trustee shall, within 90 days
after the occurrence of any Default, mail to all Holders of Securities notice of
all Defaults of which a Trust Officer of the Trustee shall have actual knowledge
or has received written notice, as and to the extent provided by the TIA, unless
such Defaults shall have been cured or waived before the giving of such notice;
provided that, except in the case of a Default described in Section 6.01(a), the
Trustee shall be fully protected in withholding such notice if and so long as
the board of directors, the executive committee, or a trust committee of
directors or Trust Officers of the Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of Securities.
SECTION 7.05. Reports by Trustee to Holders. Within 60 days after each
March 15 beginning with the March 15 following the date of this Indenture, the
Trustee shall mail to each Securityholder a brief report dated as of such March
15 that complies with TIA Section 313(a), if required by said Section. The
Trustee also shall comply with TIA Sections 313(b) and (c).
A copy of each report at the time of its mailing to Securityholders
shall be provided to the Company and shall be submitted to the SEC and each
stock exchange on which the Securities are listed. The Company agrees promptly
to notify the Trustee whenever the Securities become listed on any stock
exchange and of any delisting thereof.
SECTION 7.06. Compensation and Indemnity. The Company agrees:
(a) to pay to the Trustee from time to time as agreed upon in writing
such compensation for all services rendered by it hereunder (which compensation
shall not (to the extent permitted by law) be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(b) to reimburse the Trustee upon its request and, if requested in
writing by the Company, submission of reasonable documentation for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any provision of this Indenture (including the reasonable
compensation and the expenses, advances and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(c) to indemnify each of the Trustee, its officers, directors,
employees and agents, or any predecessor Trustee, in any of its capacities
hereunder, for, and to hold it harmless against, any and all loss, liability,
damage, claim or expense, including taxes (other than taxes based upon, measured
or determined by the
52
income of the Trustee), incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust or the exercise or performance of any of its powers or duties in each of
its capacities hereunder, including the reasonable costs and expenses of
defending itself against any claim (whether asserted by the Company, any Holder
or any other Person) or liability in connection with the exercise or performance
of any of its powers or duties hereunder.
The Trustee shall give the Company notice of any claim or liability for
which the Trustee might be entitled to indemnification under subparagraph (c) of
this Section 7.06, within a reasonable amount of time after a Trust Officer of
the Trustee becomes aware of such claim or liability. To secure the Company's
payment obligations in this Section 7.06, the Trustee shall have a lien prior to
the Securities on all money or property held or collected by the Trustee.
The Company's payment obligations pursuant to this Section 7.06 shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(e) or (f), the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
The provisions of this Section shall survive the termination of this Indenture
and the resignation or removal of the Trustee.
SECTION 7.07. Replacement of Trustee. The Trustee may resign by so
notifying the Company; provided, however, no such resignation shall be effective
until a successor Trustee has accepted its appointment pursuant to this Section
7.07. The Holders of a majority in aggregate Principal Amount of the Securities
at the time outstanding may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee (subject to the consent of the Company, such
consent not to be unreasonably withheld). The Company shall remove the Trustee
if:
(1) the Trustee fails to comply with Section 7.09;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
53
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint, by
resolution of its Board, a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.06.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in aggregate Principal Amount of the Securities at the
time outstanding may petition any court of competent jurisdiction, at the
Company's expense, for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.09, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
SECTION 7.08. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation, the resulting,
surviving or transferee corporation without any further act shall be the
successor Trustee.
SECTION 7.09. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Sections 310(a) and (b). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. In determining whether the
Trustee has conflicting interests as defined in TIA Section 310(b)(1), the
provisions contained in the proviso to TIA Section 310(b)(1) shall be deemed
incorporated herein.
SECTION 7.10. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
SECTION 7.11. Appointment of Authenticating Agent. The Trustee may
appoint an Authenticating Agent or Agents with respect to the Securities that
shall be authorized to act on behalf of the Trustee to authenticate Securities
issued upon
54
original issue and upon exchange, registration of transfer or partial redemption
thereof or pursuant to Section 2.06, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation authorized
under the laws of its jurisdiction to act as an Authenticating Agent, having a
combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by a government authority. If such Authenticating
Agent publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or into which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent that shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with
55
like effect as if originally named as an Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon an alternative certificate of authentication in the
following form:
This is one of the Securities designated therein referred to in the
within-mentioned Indenture.
The Bank of New York
as Trustee
Dated: By:
----------------------------- ------------------------------------
As Authenticating Agent
By:
------------------------------------
Authorized Signatory
SECTION 7.12. Trustee's Application for Instructions from the Company.
Any application by the Trustee for written instructions from the Company may, at
the option of the Trustee, set forth in writing any action proposed to be taken
or omitted by the Trustee under this Indenture and the date on and/or after
which such action shall be taken or such omission shall be effective. The
Trustee shall not be liable for any action taken by, or omission of, the Trustee
in accordance with a proposal included in such application on or after the date
specified in such application (which date shall not be less than three Business
Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
56
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. Discharge of Liability on Securities. When (i) the
Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.06) for cancellation or (ii) all
outstanding Securities have become due and payable and the Company deposits with
the Trustee cash or, if expressly permitted by the terms hereof, securities
sufficient to pay at Stated Maturity the Principal Amount of all outstanding
Securities (other than Securities replaced pursuant to Section 2.06), and if in
either case the Company pays all other sums payable hereunder by the Company,
then this Indenture shall, subject to Section 7.06, cease to be of further
effect. The Trustee shall join in the execution of a document prepared by the
Company acknowledging satisfaction and discharge of this Indenture on demand of
the Company accompanied by an Officers' Certificate and Opinion of Counsel and
at the cost and expense of the Company.
SECTION 8.02. Repayment to the Company. The Trustee and each Paying
Agent shall return to the Company, upon request of the Company, any money or
securities held by them for the payment of any amount with respect to the
Securities that remains unclaimed for two years; provided, however, that the
Trustee or such Paying Agent, before being required to make any such return,
may, at the expense of the Company, cause to be published once in The Wall
Street Journal or another daily newspaper of national circulation, The Financial
Times and Les Echos or La Tribune or mail to each such Holder notice that such
money or securities remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such mailing, any
unclaimed money or securities then remaining will be returned to the Company.
After return to the Company, Holders entitled to the money or securities must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person, and the Trustee and each
Paying Agent shall have no further liability with respect to such money or
securities for that period commencing after the return thereof.
57
ARTICLE 9
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without the consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency; provided,
however, that such amendment does not materially adversely affect the rights of
any Securityholder;
(2) to comply with Article 5 or Section 10.15;
(3) to provide for uncertificated Securities in addition to or in place
of certificated Securities so long as such uncertificated Securities are in
registered form for purposes of the Internal Revenue Code of 1986, as amended;
(4) to make any change that does not adversely affect the rights of any
Securityholder;
(5) to add to the covenants or obligations of the Company hereunder or
to surrender any right, power or option herein conferred upon the Company.
SECTION 9.02. With Consent of Holders. With the written consent of the
Holders of at least a majority in aggregate Principal Amount of the Securities
at the time outstanding, the Company and the Trustee may amend this Indenture or
the Securities. However, without the consent of each Securityholder affected, an
amendment or supplement to this Indenture or the Securities may not:
(1) make any reduction in the Principal Amount of Securities whose
Holders must consent to an amendment;
(2) make any change to the rate of accrual in connection with Original
Issue Discount, reduce the rate of interest referred to in paragraph 1 of the
Securities or extend the time for payment of accrued Original Issue Discount or
interest, if any, on any Security;
(3) reduce the Principal Amount or the Issue Price of or extend the
Stated Maturity of any Security;
(4) reduce the amount of cash payable in respect of conversion upon the
Company's election to pay cash with respect thereto or reduce the Redemption
58
Price, Purchase Price or Change in Control Purchase Price of any Security or
extend the date on which the Purchase Price or Change in Control Purchase Price
of any Security is payable;
(5) make any Security payable in money or securities other than that
stated in the Security;
(6) make any change in Section 6.04 or this Section 9.02, except to
increase any percentage referred to therein, or make any change in Section 6.07;
(7) make any change that adversely affects the right to convert any
Security (including the right to receive cash in lieu of Common Shares);
(8) make any change that adversely affects the right to require the
Company to purchase the Securities in accordance with the terms thereof and this
Indenture (including the right to receive cash if the Company has elected to pay
cash upon such purchase);
(9) make any change to the provisions of this Indenture relating to the
purchase of Securities at the option of the Holder pursuant to Section 3.08 or
3.09 which change would result in a violation of applicable U.S. federal or
state securities laws (including positions of the SEC under applicable no-action
letters) and other applicable securities laws and regulations (including any
applicable securities laws outside the United States, whether as a result of the
exercise or performance of any rights or obligations under such provisions or
otherwise;
(10) modify the provisions of this Indenture relating to the ranking of
the Securities in a manner adverse to the Holders of the Securities; or
(11) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the Securities.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section 9.02 becomes effective, the
Company shall mail to each Holder a notice briefly describing the amendment.
SECTION 9.03. Revocation and Effect of Consent, Waivers and Actions.
Until an amendment or waiver becomes effective, a consent to it or any other
action by a Holder of a Security hereunder is a continuing consent by the Holder
59
and every subsequent Holder of that Security or portion of the Security that
evidences the same obligation as the consenting Holder's Security, even if
notation of the consent, waiver or action is not made on the Security. However,
any such Holder or subsequent Holder may revoke the consent, waiver or action as
to such Holder's Security or portion of the Security if the Trustee receives the
notice of revocation before the date the amendment, waiver or action becomes
effective. After an amendment, waiver or action becomes effective, it shall bind
every Securityholder, except as provided in Section 9.02.
SECTION 9.04. Notation on or Exchange of Securities. Securities
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new Securities so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for outstanding
Securities.
SECTION 9.05. Trustee to Sign Supplemental Indentures. The Trustee
shall sign any supplemental indenture authorized pursuant to this Article 9 if
the amendment does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may, but need not, sign it.
In signing such amendment the Trustee shall be entitled to receive, and (subject
to the provisions of Section 7.01) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that such amendment is
authorized or permitted by this Indenture.
SECTION 9.06. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article, this Indenture shall be modified
in accordance therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
ARTICLE 10
CONVERSION
SECTION 10.01. Conversion Privilege. A Holder of a Security may convert
such Security into Common Shares at any time during the period stated in
paragraph 8 of the Securities. The number of such Common Shares issuable upon
conversion of a Security per $1,000 of Principal Amount thereof (the
60
"Conversion Rate") shall be that set forth in paragraph 8 in the Securities,
subject to adjustment as herein set forth. A Holder may elect to take delivery
of Common Shares in the form of either Dutch Shares or New York Shares; provided
that (i) Holders or beneficial owners of Common Shares received upon conversion
of all or a portion of the Rule 144A Global Bond or any Rule 144A Definitive
Registered Bond and (ii) Holders or beneficial owners of Common Shares received
upon conversion of all or a portion of the Regulation S Global Bond or any
Regulation S Definitive Registered Bond during the 40-day period following the
date hereof, may not elect to take delivery of Common Shares in the form of New
York Shares but shall take delivery of any Common Shares in the form of Dutch
Shares.
A Holder may convert a portion of the Principal Amount of a Security if
the portion is $1,000 or an integral multiple of $1,000. Provisions of this
Indenture that apply to conversion of all of a Security also apply to conversion
of a portion of a Security.
"Average Sale Price" means (except as provided below with respect to
Section 10.09) the average of the Sale Prices of the Common Shares for the
shorter of:
(i) 30 consecutive Trading Days ending on the last full
Trading Day prior to the Time of Determination with respect to the
rights, options, warrants or distribution in respect of which the
Average Sale Price is being calculated, or
(ii) the period (x) commencing on the date next succeeding the
first public announcement of (a) the issuance of rights, options or
warrants or (b) the distribution, in each case, in respect of which the
Average Sale Price is being calculated and (y) proceeding through the
last full Trading Day prior to the Time of Determination with respect
to the rights, warrants or distribution in respect of which the Average
Sale Price is being calculated, or
(iii) the period, if any, (x) commencing on the date next
succeeding the Ex-Dividend Time with respect to the next preceding (a)
issuance of rights, warrants, or options or (b) distribution, in each
case, for which an adjustment is required by the provisions of Section
10.06(4), 10.07, 10.08 or 10.09 and (y) proceeding through the last
full Trading Day prior to the Time of Determination with respect to the
rights, warrants, or options or distribution in respect of which the
Average Sale Price is being calculated.
61
If the Ex-Dividend Time (or in the case of a subdivision, combination
or reclassification, the effective date with respect thereto) with respect to a
dividend, subdivision, combination or reclassification to which Section
10.06(1), (2), (3) or (5) applies occurs during the period applicable for
calculating "Average Sale Price" pursuant to the definition in the preceding
sentence, "Average Sale Price" shall be calculated for such period in a manner
determined by the Board to reflect the impact of such dividend, subdivision,
combination or reclassification on the Sale Price of the Common Shares during
such period.
"Average Sale Price" as used in Section 10.09 shall mean the average of
the Sale Prices of the Common Shares for the 10 consecutive Trading Days
beginning on the 20th Trading Day preceding the date of announcement of the
terms of any issue requiring an adjustment pursuant to Section 10.09.
"Time of Determination" means the time and date of the earlier of (i)
the determination of stockholders entitled to receive rights, warrants, or
options or a distribution, in each case, to which Sections 10.07 and 10.08 apply
and (ii) the time ("Ex-Dividend Time") immediately prior to the commencement of
"ex-dividend" trading for such rights, options, warrants or distribution on the
New York Stock Exchange or such other national or regional exchange or market on
which the Common Shares are then listed or quoted.
SECTION 10.02. Conversion Procedure. To convert a Security a Holder
must satisfy the requirements in paragraph 8 of the Securities. The date on
which the Holder satisfies all those requirements is the conversion date (the
"Conversion Date"). The Company shall deliver to the Holder no later than the
seventh Business Day following the Conversion Date a certificate for the number
of full Dutch Shares or New York Shares, as the case may be, issuable upon the
conversion and cash in lieu of any fractional share determined pursuant to
Section 10.03.
The person in whose name the certificate is registered shall be treated
as a stockholder of record on and after the Conversion Date; provided, however,
that no surrender of a Security on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the person or persons
entitled to receive the Common Shares upon such conversion as the record holder
or holders of such Common Shares on such date, but such surrender shall be
effective to constitute the person or persons entitled to receive such Common
Shares as the record holder or holders thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer books are open;
provided, further, that such conversion shall be at the Conversion Rate in
effect on
62
the date that such Security shall have been surrendered for conversion, as if
the stock transfer books of the Company had not been closed. Upon conversion of
a Security, such person shall no longer be a Holder of such Security.
Holders may surrender a Security for conversion by means of book entry
delivery in accordance with paragraph 8 of the Securities and the regulations of
the applicable book entry facility. Upon conversion of a Security, the Company
shall on the Conversion Date redeem any Security delivered for conversion at a
Redemption Price equal to the sum of the Issue Price of the Security plus
accrued Original Issue Discount from the Issue Date to the Conversion Date and
the Company shall pay such redemption monies into an account in the name of the
Trustee (on behalf of the relevant Holder). When the redemption monies are paid
into such an account in the name of the Trustee, the Trustee shall, on behalf of
the relevant Holder, immediately transfer such redemption monies to the Company
in exchange for the Dutch Shares or New York Shares, as the case may be,
deliverable upon conversion to the relevant Holder. Such Holder shall be deemed
to have consented to such transfer.
No payment or adjustment will be made for dividends on any Common
Shares except as provided in this Article 10. On conversion of a Security, that
portion of accrued Original Issue Discount attributable to the period from the
Issue Date of the Security to the Conversion Date with respect to the converted
Security shall not be cancelled, extinguished or forfeited, but rather shall be
deemed to be paid in full to the Holder thereof through delivery of the Dutch
Shares or New York Shares, as the case may be, (together with the cash payment,
if any, in lieu of any fractional Common Shares) in exchange for the Security
being converted pursuant to the provisions hereof.
If the Holder converts more than one Security at the same time, the
number of Common Shares issuable upon the conversion shall be computed based on
the total Principal Amount of the Securities converted.
Upon surrender of a Security that is converted in part, the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder, a
new Security in an authorized denomination equal in Principal Amount to the
unconverted portion of the Security surrendered.
If the last day on which a Security may be converted is a Legal Holiday
in a place where any Conversion Agent is located, the Security may be
surrendered to such Conversion Agent on the next succeeding day that is not a
Legal Holiday.
63
SECTION 10.03. Fractional Shares. The Company will not issue a
fractional Common Share upon conversion of a Security. Instead, the Company will
deliver cash for the current market value of any such fractional share. The
current market value of a fractional share shall be determined to the nearest
l/1000th of a share by multiplying the Sale Price, on the last Trading Day prior
to the Conversion Date, of a full share by the fractional amount and rounding
the product to the nearest whole cent. In the event that conversion of all of
the Securities at the initial Conversion Rate established upon issuance would
result in the issuance of more than 20,000,000 Common Shares (and in any event
not more than 20,000,003 Common Shares), such Common Shares that are issuable in
excess of 20,000,000 Common Shares shall be treated as fractional shares. The
foregoing sentence shall cease to apply subsequent to the adjustment of the
Conversion Rate, even if such adjustment results in more than 20,000,000 Common
Shares being required to be issued.
SECTION 10.04. Taxes on Conversion. If a Holder converts a Security,
the Company shall pay any documentary, stamp or similar issue or transfer tax or
capital tax due on the issue of Common Shares upon such conversion. However, the
Holder shall pay any such tax which is due because the Holder requests the
Common Shares to be issued in a name other than the Holder's name. Each
Conversion Agent may refuse to deliver any certificates representing the Common
Shares being issued in a name other than the Holder's name until such Conversion
Agent receives a sum sufficient to pay any tax which will be due because the
Common Shares are to be issued in a name other than the Holder's name. Nothing
herein shall preclude any tax withholding required by law or regulations.
SECTION 10.05. Company to Provide Stock. The Company shall, prior to
issuance of any Securities hereunder, and from time to time as may be necessary,
reserve out of its authorized but unissued Common Shares a sufficient number of
Common Shares to permit the conversion of the Securities for Common Shares.
All Common Shares delivered upon conversion of the Securities shall be
newly issued Common Shares or treasury shares, shall be duly and validly issued
and fully paid and nonassessable and shall be free from preemptive rights and
free of any lien or adverse claim.
The Company will endeavor promptly to comply with all U.S. federal,
state and other applicable securities laws and regulations (including any
applicable securities laws outside the United States) regulating the offer and
delivery of Common Shares upon conversion of Securities, if any, that are
applicable to the Securities and such Common Shares assuming compliance with the
transfer restrictions set forth in this Indenture and will list or cause to have
quoted such
64
Common Shares on each securities exchange or in the over-the-counter market or
such other market on which the Common Shares are then listed or quoted.
SECTION 10.06. Adjustments for Change in Capital Stock. If, after the
Issue Date, the Company:
(1) pays a dividend or makes a distribution on its Common Shares in
shares of its Common Shares;
(2) subdivides its outstanding Common Shares into a greater number of
shares;
(3) combines its outstanding Common Shares into a smaller number of
shares;
(4) pays a dividend or makes a distribution on its Common Shares in
shares of its Capital Stock (other than Common Shares or rights, warrants or
options for its Capital Stock); or
(5) issues by reclassification of its Common Shares any shares of its
Capital Stock (other than rights, warrants or options for its Capital Stock),
then the conversion privilege and the Conversion Rate in effect immediately
prior to such action shall be adjusted so that the Holder of a Security
thereafter converted may receive the number of Common Shares or other units of
Capital Stock of the Company which such Holder would have owned immediately
following such action if such Holder had converted the Security immediately
prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security upon conversion of such
Security may receive shares or other units of two or more classes or series of
Capital Stock of the Company (including Common Shares), the Conversion Rate
shall thereafter be subject to adjustment upon the occurrence of an action taken
with respect to any such class or series of Capital Stock as is contemplated by
this Article 10 with respect to the Common Shares, on terms comparable to those
applicable to Common Shares in this Article 10.
65
SECTION 10.07. Adjustment for Rights Issue. If, after the Issue Date,
the Company distributes any rights, warrants or options to all holders of its
Common Shares entitling them, for a period expiring within 60 days after the
record date for such distribution, to subscribe for or purchase Common Shares at
a price per share less than the Sale Price as of the Time of Determination, the
Conversion Rate shall be adjusted in accordance with the following formula:
R' = R x (O + N)
-----------
O + N x P
-----
M
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of Common Shares outstanding on the record date for
the distribution.
N = the number of additional Common Shares offered pursuant to
the distribution.
P = the subscription or purchase price per share of such
additional Common Shares.
M = the Average Sale Price, minus, in the case of (i) a
distribution to which Section 10.06(4) applies or (ii) a
distribution to which Section 10.08 applies, for which, in
each case, (x) the record date shall occur on or before the
record date for the distribution to which this Section 10.07
applies and (y) the Ex-Dividend Time shall occur on or after
the date of the Time of Determination for the distribution to
which this Section 10.07 applies, the fair market value (on
the record date for the distribution to which this Section
10.07 applies) of:
(1) the Capital Stock of the Company distributed in
respect of each Common Share in such Section 10.06(4)
distribution, and
(2) the assets of the Company or debt securities or
any rights, warrants or options to purchase securities of the
Company
66
distributed in respect of each Common Share in such Section
10.08 distribution.
The Board shall determine fair market values for the purposes of this
Section 10.07.
The adjustment shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights, warrants
or options to which this Section 10.07 applies.
No adjustment shall be made under this Section 10.07 if the application
of the formula stated above in this Section 10.07 would result in a value of R'
that is equal to or less than the value of R.
SECTION 10.08. Adjustment for Other Distributions. If, after the Issue
Date, the Company distributes to all holders of its Common Shares any of its
assets or debt securities or any rights, warrants or options to purchase
securities of the Company (including securities or cash, but excluding (x)
distributions of Capital Stock referred to in Section 10.06 and distributions of
rights, warrants or options referred to in Section 10.07 and (y) cash dividends
or other cash distributions that are paid out of consolidated current net
earnings or earnings retained in the business as shown on the books of the
Company except to the extent such cash dividends or other cash distributions
constitute Extraordinary Cash Dividends (as defined below) from consolidated
current net earnings or earned surplus), the Conversion Rate shall be adjusted,
subject to the provisions of the last paragraph of this Section 10.08, in
accordance with the formula:
R' = R x M
-----
M - F
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
M = the Average Sale Price, minus, in the case of a distribution
to which Section 10.06(4) applies for which (i) the record
date shall occur on or before the record date for the
distribution to which this Section 10.08 applies and (ii) the
Ex-Dividend Time shall occur on or after the date of the Time
of Determination for the distribution to which this Section
10.08 applies, the fair market value (on the
67
record date for the distribution to which this Section 10.08
applies) of any Capital Stock of the Company distributed in
respect of each Common Share in such Section 10.06(4)
distribution.
F = the fair market value (on the record date for the
distribution to which this Section 10.08 applies) of the
assets, securities, rights, warrants or options to be
distributed in respect of each Common Share in the
distribution to which this Section 10.08 is being applied
(including, in the case of cash dividends or other cash
distributions giving rise to an adjustment, all such cash
distributed concurrently).
The Board shall determine fair market values for the purpose of this
Section 10.08.
The adjustment shall become effective immediately after the record date
for the determination of shareholders entitled to receive the distribution to
which this Section 10.08 applies.
For purposes of this Section 10.08, the term "Extraordinary Cash
Dividend" shall mean, in respect of each twelve month period ending after
November 16, 2000, the dividend in respect of any common share in such period
which, when aggregated with the amount of all other cash dividends in respect of
such common share, exceeds the relevant percentage set out below of U.S. $0.15.
Calendar year Percentage
- ------------- ----------
November 16, 2000 to November 15, 2001................................. 125.00%
November 16, 2001 to November 15, 2002................................. 156.25%
November 16, 2002 to November 15, 2003................................. 195.31%
November 16, 2003 to November 15, 2004................................. 244.14%
November 16, 2004 to November 15, 2005................................. 305.18%
November 16, 2005 to November 15, 2006................................. 381.47%
November 16, 2006 to November 15, 2007................................. 476.84%
November 16, 2007 to November 15, 2008................................. 596.05%
November 16, 2008 to November 15, 2009................................. 745.06%
November 16, 2009 to November 15, 2010................................. 931.32%
In the event of a dispute as to whether, and the extent to which, any
dividend constitutes an extraordinary cash dividend, such dispute shall be
determined by an independent investment bank of international repute selected by
the Company.
68
SECTION 10.09. Adjustment for Certain Other Issuances. (a) If, after
the Issue Date, the Company shall issue (but excluding issuances of Common
Shares for cash referred to in Sections 10.07 and 10.08) wholly for cash any
Common Shares (other than Common Shares issued on the conversion of the
Securities or on the exercise of any other rights of conversion into, or
exchange or subscription for, Common Shares) or options, warrants or other
rights to subscribe or purchase Common Shares at a price per Common Share which
is less than 95% of the current Sale Price on the Trading Day immediately
preceding the date of announcement of the terms of such issue, other than shares
issued pursuant to the Company's 2000-2003 employee share purchase plan and upon
the exercise of options to purchase up to 33,000,000 common shares granted
pursuant to existing option plans, then in each such case the Conversion Rate
shall be adjusted in accordance with the following formula:
R' = R x (O + N)
------------
O + N x P
-----
M
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of Common Shares outstanding on the date of
announcement of the terms of the issue.
N = the number of additional Common Shares offered pursuant to
such issuance.
P = the subscription or purchase price per Common Share of such
additional Common Shares.
M = the Average Sale Price, minus, in the case of (i) a
distribution to which Section 10.06(4) applies or (ii) a
distribution to which Section 10.08 applies, for which, in
each case, (x) the record date shall occur on or before the
announcement of the issuance of the Common Shares and (y) the
Ex-Dividend Time shall occur on or after the announcement of
the issuance of the Common Shares to which this Section
10.09(a) applies, the fair market value (on the date of
announcement of the issuance of the Common Shares to which
this Section 10.09(a) applies) of:
69
(1) the Capital Stock of the Company distributed in
respect of each Common Share in such Section 10.06(4)
distribution, and
(2) the assets of the Company or debt securities or
any rights, warrants or options to purchase securities of the
Company distributed in respect of each Common Share in such
Section 10.08 distribution.
The Board shall determine fair market values for the purposes of this
Section 10.09(a).
Such adjustment shall be made and shall become effective on the Issue
Date of such additional Common Shares.
(b) If, after the Issue Date, the Company (otherwise than as mentioned
in Sections 10.07, 10.08 and 10.09(a) above) or (pursuant to a legally binding
agreement with the Company) any other company, person or entity shall issue
wholly for cash any securities (other than the Common Shares issuable on
conversion thereof) which by their terms carry rights of conversion into, or
exchange or subscription for, Common Shares to be issued by the Company upon
conversion, exchange or subscription at a price per Common Share which is less
than 95% of the current Sale Price on the Trading Day immediately preceding the
date of announcement of the terms of issue of such securities, then in each case
the Conversion Rate shall be adjusted in accordance with the following formula:
R' = R x (O + N)
------------
O+ N x P
-----
M
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of Common Shares outstanding on the date of
announcement of the terms of the issue.
N = the maximum number of additional Common Shares issuable upon
any conversion, exchange or exercise of rights of subscription
70
attaching thereto at the initial conversion, exchange or
subscription price or rate.
P = the subscription or purchase price per Common Share based on
the consideration receivable by the Company per Common Share
upon initial conversion, exchange or exercise of rights of
subscription.
M = the Average Sale Price, minus, in the case of (i) a
distribution to which Section 10.06(4) applies or (ii) a
distribution to which Section 10.08 applies, for which, in
each case, (x) the record date shall occur on or before the
announcement of the issuance of the Common Shares and (y) the
Ex-Dividend Time shall occur on or after the announcement of
the issuance of the Common Shares to which this Section
10.09(b) applies, the fair market value (on the date of
announcement of the issuance of the Common Shares to which
this Section 10.09(b) applies) of:
(1) the Capital Stock of the Company distributed in
respect of each Common Share in such Section 10.06(4)
distribution, and
(2) the assets of the Company or debt securities or
any rights, warrants or options to purchase securities of the
Company distributed in respect of each Common Share in such
Section 10.08 distribution.
The Board shall determine fair market values for the purposes of this
Section 10.09(b).
Such adjustment shall become effective on the Issue Date of such
securities.
In case there shall be any modification of the rights of conversion,
exchange or subscription attaching to any such securities (other than in
accordance with the terms applicable to such securities) so that the
consideration per Common Share is less than 95% of the current Sale Price on the
last trading day preceding the date of announcement of the proposals for such
modification, then in each such case the Conversion Rate shall be adjusted in
accordance with the above formula except that O, N and P shall be determined as
of the date of announcement of the modified terms and in accordance with the
modified conversion, exchange or subscription price or rates and M shall be
determined as above, except that if the Average Sale Price as so determined is
higher than the
71
existing conversion, exchange or subscription price, then such lower price shall
be used for M.
Such adjustment shall become effective on the date of modification of
the rights of conversion, exchange or subscription attaching to such securities.
(c) For the purpose of any calculation of the consideration receivable
pursuant to (a) and (b) above, the following provisions shall apply:
(i) the consideration receivable per Common Share issued for
cash shall be the amount of such cash provided that in no case shall
any deduction be made for any commission or any expenses paid or
incurred by the Company for any underwriting of the issue or otherwise
in connection therewith; and
(ii) (x) the consideration receivable per Common Share to be
issued upon the conversion or exchange of any securities shall be
deemed to be the consideration received or receivable by the Company
for any such securities and (y) the consideration receivable per Common
Share to be issued upon the exercise of rights of subscription attached
to any securities which shall be deemed to be that part of the
consideration received or receivable by the Company for such securities
which is attributed by the Company to such rights of subscription or,
if no part of such consideration is so attributed or the Trustee so
requires by notice in writing to the Company, the fair market value of
such rights of subscription as at the date of the announcement of the
terms of issue of such securities (as determined in good faith by a
reputable independent investment bank selected by the Company and
approved by the Trustee), plus in the case of each of (x) and (y)
above, the additional minimum consideration (if any) to be received by
the Company upon the conversion or exchange of such securities, or upon
the exercise of such rights of subscription attached thereto (the
consideration in all such cases to be determined subject to the proviso
in subclause (i) of this subsection).
No adjustment shall be made under this Section 10.09 if the application
of any formula stated above in this Section 10.09 would result in a value of R'
that is equal to or less than the value of R.
SECTION 10.10. When Adjustment May Be Deferred. No adjustment in the
Conversion Rate need be made unless the adjustment would require an increase or
decrease of at least 1% (e.g., if the Conversion Rate is 4, an increase or
decrease of .04 (1% of 4)) in the Conversion Rate. Any adjustments that are not
72
made shall be carried forward and taken into account in any subsequent
adjustment.
All calculations under this Article 10 shall be made to the nearest
cent or to the nearest l/l,000th of a share, as the case may be, with one-half
of a cent and 5/10,000ths of a share being rounded upwards.
SECTION 10.11. When No Adjustment Required. No adjustment need be made
for a transaction referred to in Sections 10.06, 10.07, 10.08, 10.09 or 10.15 if
Securityholders are to participate in the transaction on a basis and with notice
that the Board determines to be fair and appropriate in light of the basis and
notice on which holders of Common Shares participate in the transaction.
No adjustment need be made for rights to purchase Common Shares
pursuant to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the nominal value of the
Common Shares.
To the extent the Securities become convertible into cash pursuant to
the terms of Section 10.15, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
Notwithstanding any provision to the contrary in this Indenture, no
adjustment shall be made in the Conversion Rate to the extent, but only to the
extent, such adjustment results in the following quotient being less than the
nominal value of the Common Shares: (i) the Issue Price plus accrued Original
Issue Discount as of the date such adjustment would otherwise be effective
divided by (ii) the Conversion Rate as so adjusted.
SECTION 10.12. Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Company shall file with the Trustee and each Conversion Agent a
notice of such adjustment and a certificate from the Company's independent
public accountants briefly stating the facts requiring the adjustment and the
manner of computing it. The Trustee will promptly mail such notice to
Securityholders at the Company's expense. The certificate shall be conclusive
evidence that the adjustment is correct. Neither the Trustee nor any Conversion
Agent shall be under any duty or responsibility with respect to any such
certificate except to exhibit the same to any Holder desiring inspection
thereof.
SECTION 10.13. Voluntary Increase. The Company from time to time
may increase the Conversion Rate by any amount and for any period of time
73
(provided, that such period is not less than 20 Business Days). Whenever the
Conversion Rate is increased, the Company shall mail to Securityholders and file
with the Trustee and each Conversion Agent a notice of the increase. The Company
shall mail the notice at least 15 days before the date the increased Conversion
Rate takes effect. The notice shall state the increased Conversion Rate and the
period it will be in effect.
A voluntary increase of the Conversion Rate does not change or adjust
the Conversion Rate otherwise in effect for purposes of Sections 10.06, 10.07,
10.08 or 10.09.
SECTION 10.14. Notice of Certain Transactions. If:
(1) the Company takes any action that would require an adjustment in
the Conversion Rate pursuant to Section 10.06, 10.07 or 10.08 (unless no
adjustment is to occur pursuant to Section 10.11); or
(2) the Company takes any action that would require a supplemental
indenture pursuant to Section 10.15 or
(3) there is a liquidation or dissolution of the Company;
then the Company shall mail to Securityholders and file with the Trustee and
each Conversion Agent a notice stating the proposed record date for a dividend
or distribution of the proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, binding share exchange, transfer,
liquidation or dissolution. If the Company takes an action as described in
Clause (1) above, it shall deliver to the Trustee an Officers' Certificate
stating that a sufficient number of Common Shares have been authorized by the
Company to allow for the conversion of all the outstanding Securities under the
adjusted Conversion Rate. The Company shall file and mail such notice or
Officer's Certificate at least 15 days before such date. Failure to file or mail
the notice or Officers' Certificate or any defect in it shall not affect the
validity of the transaction.
SECTION 10.15. Reorganization of Company; Special Distributions. If the
Company is a party to a transaction subject to Section 5.01 (other than a sale
of all or substantially all of the assets of the Company in a transaction in
which the holders of Common Shares immediately prior to such transaction do not
receive securities, cash or other assets of the Company or any other person) or
a merger or binding share exchange which reclassifies or changes its outstanding
Common Shares, the person obligated to deliver securities, cash or other assets
upon
74
conversion of Securities shall enter into a supplemental indenture. If the
issuer of securities deliverable upon conversion of Securities is an Affiliate
of the successor Company, that issuer shall join in the supplemental indenture.
The supplemental indenture shall provide that the Holder of a Security
may convert it into the kind and amount of securities, cash or other assets
which such Holder would have received immediately after the consolidation,
merger, binding share exchange or transfer if such Holder had converted the
Security immediately before the effective date of the transaction, assuming (to
the extent applicable) that such Holder (i) was not a constituent person or an
Affiliate of a constituent person to such transaction; (ii) made no election
with respect thereto; and (iii) was treated alike with the plurality of
non-electing Holders. The supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practical to the adjustments
provided for in this Article 10. The successor Company shall mail to
Securityholders a notice briefly describing the supplemental indenture.
If this Section applies, neither Section 10.06 nor 10.07 applies.
If the Company makes a distribution to all holders of its Common Shares
of any of its assets, or debt securities or any rights, warrants or options to
purchase securities of the Company that, but for the provisions of the last
paragraph of Section 10.08, would otherwise result in an adjustment in the
Conversion Rate pursuant to the provisions of Section 10.08, then, from and
after the record date for determining the holders of Common Shares entitled to
receive the distribution, a Holder of a Security that converts such Security in
accordance with the provisions of this Indenture shall upon such conversion be
entitled to receive, in addition to the Common Shares into which the Security is
convertible, the kind and amount of securities, cash or other assets comprising
the distribution that such Holder would have received if such Holder had
converted the Security immediately prior to the record date for determining the
holders of Common Shares entitled to receive the distribution.
SECTION 10.16. Company Determination Final. Any determination that
the Company or the Board must make pursuant to this Article 10 is conclusive.
SECTION 10.17. Trustee's Adjustment Disclaimer. The Trustee has no duty
to determine when an adjustment under this Article 10 should be made, how it
should be made or what it should be. The Trustee has no duty to determine
whether a supplemental indenture under Section 10.15 need be entered into or
whether any provisions of any supplemental indenture are correct. The Trustee
shall not be accountable for and makes no representation as to the validity or
75
value of any securities or assets issued upon conversion of Securities. The
Trustee shall not be responsible for the Company's failure to comply with this
Article 10. Each Conversion Agent (other than the Company or an Affiliate of the
Company) shall have the same protection under this Section 10.17 as the Trustee.
SECTION 10.18. Simultaneous Adjustments. If this Article 10 requires
adjustments to the Conversion Rate under more than one of Sections 10.06(4),
10.07, 10.08 or 10.09, and the record dates or the dates of announcement for the
distributions or issuances giving rise to such adjustments shall occur on the
same date, then such adjustments shall be made by applying, first, the
provisions of Section 10.06, second, the provisions of Section 10.08, third, the
provisions of Section 10.07 and, fourth, the provisions of Section 10.09.
SECTION 10.19. Successive Adjustments. After an adjustment to the
Conversion Rate under this Article 10, any subsequent event requiring an
adjustment under this Article 10 shall cause an adjustment to the Conversion
Rate as so adjusted.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be in English
and in writing and delivered in person or mailed by first-class mail, postage
prepaid, and shall be deemed effective when actually received if addressed as
follows:
if to the Company:
STMicroelectronics N.V.
Technoparc du Pays de Gex-B.P. 112
165, rue Edouard Branly
01630 Saint Genis Pouilly
France
Attention: Corporate Vice President; Chief Financial Officer,
with a copy to each of the Corporate Vice President,
76
Treasurer and the Group Vice President, Corporate
Legal Affairs and Intellectual Property
if to the Trustee:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration Global Finance Unit
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication given to a Securityholder shall be mailed
by first-class mail to the Securityholder at the Securityholder's address as it
appears on the registration books of the Registrar and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders.
If the Company mails a notice or communication to the Securityholders,
it shall mail a copy to the Trustee and each Registrar, Paying Agent, Conversion
Agent or co-registrar.
SECTION 11.03. Certificate and Opinion to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion. Each
Officers' Certificate or Opinion of Counsel with respect to compliance with a
covenant or condition provided for in this Indenture shall include:
77
(1) a statement that each person making such Officers' Certificate or
Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such Officers'
Certificate or Opinion of Counsel are based;
(3) a statement that, in the opinion of each such person, he has made
such examination or investigation as is necessary to enable such person to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement that, in the opinion of such person, such covenant or
condition has been complied with.
SECTION 11.05. Separability Clause. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.06. Rules by Trustee, Paying Agents, Conversion Agent and
Registrar. The Trustee may make reasonable rules for action by or a meeting of
the Securityholders. Each Registrar, Conversion Agent and Paying Agent may make
reasonable rules for their functions.
SECTION 11.07. Legal Holiday. A "Legal Holiday" is any day other than a
Business Day. If any specified date (including a date for giving notice) is a
Legal Holiday, the action shall be taken on the next succeeding day that is not
a Legal Holiday, and to the extent applicable no Original Issue Discount or
interest, if any, shall accrue for the intervening period.
SECTION 11.08. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SECTION 11.09. Submission to Jurisdiction; Appointment of Agent for
Service. The Company agrees and covenants as follows:
78
The Company irrevocably agrees that any legal suit, action or
proceeding against it arising out of or based upon this Indenture, the
Securities or the transactions contemplated hereby may be, but is not required
to be, instituted in any United States Federal or State Court in the Borough of
Manhattan, The City of New York, State of New York, and irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any such
proceeding and irrevocably submits to the non-exclusive jurisdiction of such
courts in any such suit, action or proceeding. The Company irrevocably waives
any immunity to jurisdiction to which it may otherwise be entitled or become
entitled (including immunity to prejudgment attachment and execution) in any
legal suit, action or proceeding against it arising out of this Indenture, the
Securities or the transactions contemplated hereby which is instituted in any
United States Federal or state court in the Borough of Manhattan, The City of
New York, State of New York, or in any foreign court. To the extent permitted by
law, the Company hereby waives any objection to the enforcement by any competent
foreign court of any jurisdiction validly obtained in any such proceeding. The
Company has appointed CT Corporation Systems, 1633 Broadway, New York, New York
10019, as its authorized agent (the "Authorized Agent") upon which process may
be served in any such action arising out of or based on this Indenture, the
Securities or the transactions contemplated hereby which may be instituted in
any United States Federal or state court in the Borough of Manhattan, The City
of New York, State of New York, expressly consents to the jurisdiction of any
such court in respect of any such action and waives any other requirements of or
objections to personal jurisdiction with respect thereto. Such appointments
shall be irrevocable. The Company represents and warrants that the Authorized
Agent has agreed to act as said agent for service of process and it agrees to
take any and all action, including the filing of any and all documents and
instruments, that may be necessary to continue such appointment in full force
and effect as aforesaid. Service of process upon the Authorized Agent and
written notice of such service of process to the Company shall be deemed, in
every respect, effective service of process upon the Company. Notwithstanding
the foregoing, any action based on this Indenture and the Securities or the
transactions contemplated hereby may be instituted by any party hereto, subject
to the limitations set forth in Article 6 hereof, by the Holder of any Security
in any competent foreign court.
SECTION 11.10. Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.11. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
79
instruments of substantially similar tenor signed by such Holders in person or
by agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Proof of execution of any such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture and
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of the Securities shall be proved by the Security
register or by a certificate of the registrar thereof.
SECTION 11.12. Waiver of Jury Trial. Each of the Company, Trustee, New
York Registrar, Dutch Registrar, New York Paying Agent, Paris Paying Agent, New
York Conversion Agent, and Paris Conversion Agent hereby irrevocably waives, to
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Indenture, the
Securities or the transactions contemplated hereby.
SECTION 11.13. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
80
IN WITNESS WHEREOF, the undersigned, being duly authorized, have
executed this Indenture on behalf of the respective parties hereto as of the
date first above written.
STMICROELECTRONICS N.V.
By:
--------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
--------------------------------
Name:
Title:
EXHIBIT A-1
[FORM OF FACE OF RULE 144A GLOBAL BOND]
FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF
PRINCIPAL AMOUNT OF THIS SECURITY IS $310.32, THE ISSUE DATE IS NOVEMBER 16,
2000, AND THE YIELD TO MATURITY IS 3.75% PER ANNUM.
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to STMicroelectronics
N.V. or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
STMICROELECTRONICS N.V.
Zero Coupon Senior Convertible Bonds due 2010
THIS CONVERTIBLE BOND HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS CONVERTIBLE BOND IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES
ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS CONVERTIBLE BOND, RESELL OR
OTHERWISE TRANSFER THIS CONVERTIBLE BOND EXCEPT (A) TO STMICROELECTRONICS N.V.
OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
A-1-1
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904
UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), IN EACH CASE IN
COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
STATES OR ANY OTHER JURISDICTION, AND (3) AGREES THAT IT WILL DELIVER TO EACH
U.S. PERSON TO WHOM THIS CONVERTIBLE BOND IS TRANSFERRED WITHIN THE PERIOD
REFERRED TO IN RULE 144(k) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THIS CONVERTIBLE BOND WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION
S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER (AS APPLICABLE) ANY TRANSFER OF THIS CONVERTIBLE
BOND IN VIOLATION OF THE FOREGOING RESTRICTIONS.
THE HOLDER OR BENEFICIAL OWNER OF SHARES RECEIVED UPON CONVERSION OF THIS
CONVERTIBLE BOND MAY NOT REGISTER SUCH SHARES OR CAUSE SUCH SHARES TO BE
REGISTERED WITH STMICROELECTRONICS N.V.'S NEW YORK SHARE REGISTER FOR SO LONG AS
SUCH SHARES ARE "RESTRICTED SECURITIES"(WITHIN THE MEANING OF RULE 144(a)(3))
THAT ARE NOT ELIGIBLE FOR SALE PURSUANT TO RULE 144(k) UNDER THE SECURITIES ACT.
No.
Issue Date: November 16, 2000
Issue Price: $689.68 per $1,000 Principal Amount
Original Issue Discount: $310.32
(for each $1,000 Principal amount)
STMicroelectronics N.V., (the "Company") a company incorporated under
the law of The Netherlands, with its corporate seat in Amsterdam, The
Netherlands promises to pay to Cede & Co. or registered assigns, the Principal
83
Amount set forth on the register of the New York Registrar on November 16, 2010.
This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on the
other side of this Security. This Security is convertible into common shares of
the Company as specified on the other side of this Security. All capitalized
terms used herein without definition shall have the respective meanings assigned
thereto in the Indenture referred to on the other side of this Security.
Additional provisions of this Security are set forth on the other side
of this Security.
STMICROELECTRONICS N.V.
By:
------------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York
as Trustee, certifies that this Security
is one of the Securities referred to
in the within-mentioned Indenture.
By: __________________________________
Authorized Signatory
Date: ________________________
A-1-3
EXHIBIT A-2
[FORM OF FACE OF REGULATION S GLOBAL BOND]
FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF
PRINCIPAL AMOUNT OF THIS SECURITY IS $310.32, THE ISSUE DATE IS NOVEMBER 16,
2000, AND THE YIELD TO MATURITY IS 3.75% PER ANNUM.
STMICROELECTRONICS N.V.
Zero Coupon Senior Convertible Bonds due 2010
[1 THIS CONVERTIBLE BOND HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS CONVERTIBLE BOND IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES
ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS CONVERTIBLE BOND, RESELL OR
OTHERWISE TRANSFER THIS CONVERTIBLE BOND EXCEPT (A) TO STMICROELECTRONICS N.V.
OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES
ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT
- --------
1 This legend may not be removed until the 41st day after November 16, 2000.
A-2-1
(IF AVAILABLE), IN EACH CASE IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS
OF THE STATES OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND (3) AGREES
THAT IT WILL DELIVER TO EACH U.S. PERSON TO WHOM THIS CONVERTIBLE BOND IS
TRANSFERRED WITHIN THE PERIOD REFERRED TO IN RULE 144(k) A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS
CONVERTIBLE BOND WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK
THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER (AS APPLICABLE)
ANY TRANSFER OF THIS CONVERTIBLE BOND IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
THE HOLDER OR BENEFICIAL OWNER OF SHARES RECEIVED UPON CONVERSION OF THIS
CONVERTIBLE BOND MAY NOT REGISTER SUCH SHARES OR CAUSE SUCH SHARES TO BE
REGISTERED WITH STMICROELECTRONICS N.V.'S NEW YORK SHARE REGISTER FOR SO LONG AS
SUCH SHARES ARE "RESTRICTED SECURITIES"(WITHIN THE MEANING OF RULE 144(a)(3))
THAT ARE NOT ELIGIBLE FOR SALE PURSUANT TO RULE 144(k) UNDER THE SECURITIES
ACT.]
No.
Issue Date: November 16, 2000
Issue Price: $689.68 per $1,000 Principal Amount
Original Issue Discount: $310.32
(for each $1,000 Principal amount)
STMicroelectronics N.V., a company incorporated under the law of The
Netherlands with its corporate seat, in Amsterdam, The Netherlands, promises to
pay to SICOVAM, or registered assigns, the Principal Amount set forth on the
register of SICOVAM on November 16, 2010.
This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on the
other side of this Security. This Security is convertible into Common Shares of
the Company as specified on the other side of this Security. All capitalized
terms used herein
A-2-2
without definition shall have the respective meanings assigned thereto in the
Indenture referred to on the other side of this Security.
Additional provisions of this Security are set forth on the other side
of this Security.
STMICROELECTRONICS N.V.
By:
---------------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York
as Trustee, certifies that this Security
is one of the Securities referred to
in the within-mentioned Indenture.
By: __________________________________
Authorized Signatory
Date: ________________________
A-2-3
EXHIBIT A-3
[FORM OF FACE OF DEFINITIVE REGISTERED BOND]
FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF
PRINCIPAL AMOUNT OF THIS SECURITY IS $310.32, THE ISSUE DATE IS NOVEMBER 16,
2000, AND THE YIELD TO MATURITY IS 3.75% PER ANNUM.
STMICROELECTRONICS N.V.
Zero Coupon Senior Convertible Bonds due 2010
[1 THIS CONVERTIBLE BOND HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS CONVERTIBLE BOND IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES
ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS CONVERTIBLE BOND, RESELL OR
OTHERWISE TRANSFER THIS CONVERTIBLE BOND EXCEPT (A) TO STMICROELECTRONICS N.V.
OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE SECURITIES
ACT, (D) PURSUANT TO THE EXEMPTION FROM
- --------
1 In the case of a Regulation S Definitive Registered Bond only, this
legend may be removed after the 41st day after November 16, 2000.
A-3-1
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), IN
EACH CASE IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES OR ANY OTHER JURISDICTION, AND (3) AGREES THAT IT WILL DELIVER TO
EACH U.S. PERSON TO WHOM THIS CONVERTIBLE BOND IS TRANSFERRED WITHIN THE PERIOD
REFERRED TO IN RULE 144(k) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THIS CONVERTIBLE BOND WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION
S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER (AS APPLICABLE) ANY TRANSFER OF THIS CONVERTIBLE
BOND IN VIOLATION OF THE FOREGOING RESTRICTIONS.
THE HOLDER OR BENEFICIAL OWNER OF SHARES RECEIVED UPON CONVERSION OF THIS
CONVERTIBLE BOND MAY NOT REGISTER SUCH SHARES OR CAUSE SUCH SHARES TO BE
REGISTERED WITH STMICROELECTRONICS N.V.'S NEW YORK SHARE REGISTER FOR SO LONG AS
SUCH SHARES ARE "RESTRICTED SECURITIES"(WITHIN THE MEANING OF RULE 144(a)(3))
THAT ARE NOT ELIGIBLE FOR SALE PURSUANT TO RULE 144(k) UNDER THE SECURITIES ACT.
No.
Issue Date: November 16, 2000
Issue Price: $689.68 per $1,000 Principal Amount
Original Issue Discount: $310.32
(for each $1,000 Principal amount)
STMicroelectronics N.V., a company incorporated under the laws of The
Netherlands, with its corporate seat in Amsterdam, The Netherlands, promises to
pay to _________________________, or registered assigns, the Principal Amount of
_______________________ Dollars ($______________) on November 16, 2010.
This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on the
other side of
A-3-2
this Security. This Security is convertible into Common Shares of the Company as
specified on the other side of this Security. All capitalized terms used herein
without definition shall have the respective meanings assigned thereto in the
Indenture referred to on the other side of this Security.
Additional provisions of this Security are set forth on the other side
of this Security.
STMICROELECTRONICS N.V.
By:
-------------------------------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York
as Trustee, certifies that this Security
is one of the Securities referred to
in the within-mentioned Indenture.
By: __________________________________
Authorized Signatory
Date: ________________________
A-3-3
EXHIBIT B-1
[FORM OF REVERSE SIDE OF BOND]
Zero Coupon Senior Convertible Bonds due 2010
1. Interest
This Security shall not bear interest, except that if the Principal
Amount hereof or any portion of such Principal Amount is not paid when due
(whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the
date set for payment of the Redemption Price pursuant to paragraph 5 hereof,
upon the date set for payment of the Purchase Price or Change in Control
Purchase Price pursuant to paragraph 6 hereof or upon the Stated Maturity of
this Security) or if Common Shares (or cash in lieu of fractional Common Shares)
in respect of a conversion of this Security in accordance with the terms of
Article 10 of the Indenture is not delivered when due, then in each such case
the overdue amount shall bear interest at the rate of 3.75% per annum,
compounded semiannually (to the extent that the payment of such interest shall
be legally enforceable), which interest shall accrue from the date such overdue
amount was due to the date payment of such amount, including interest thereon,
has been made or duly provided for. All such interest shall be payable on
demand.
Original Issue Discount (the difference between the Issue Price and the
Principal Amount of the Security), in the period during which a Security remains
outstanding, shall accrue at 3.75% per annum, on a semiannual bond equivalent
basis using a 360-day year composed of twelve 30-day months, commencing on the
Issue Date of this Security, and cease to accrue on the earlier of (a) the date
on which the Principal Amount hereof or any portion of such Principal Amount
becomes due and payable and (b) any Redemption Date, Conversion Date, Change in
Control Purchase Date, Purchase Date or other date on which such Original Issue
Discount shall cease to accrue in accordance with Section 2.07 of the Indenture.
2. Method of Payment
Subject to the terms and conditions of the Indenture,
STMicroelectronics N.V. (the "Company") will make payments in respect of the
Securities to the persons who are registered Holders of Securities at the close
of business on the Business Day preceding the Redemption Date or Stated
Maturity, as the case may be, or at the close of business on the Purchase Date,
Change in Control Purchase Date or Conversion Date, as the case may be. Holders
must surrender Securities
B-1-1
to a Paying Agent to collect such payments in respect of the Securities. The
Company will pay cash amounts in money of The United States of America that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may make such cash payments by check payable in such money.
3. Paying Agent, Conversion Agent and Registrar
Initially, The Bank of New York, a New York banking corporation, will
act as New York Conversion Agent, New York Paying Agent and New York Registrar.
Initially, BNP Paribas, a societe anonyme organized under the laws of the French
Republic, will act as Paris Conversion Agent and Paris Paying Agent, and
Netherlands Management Company B.V., a company incorporated under the laws of
The Netherlands, will act as Dutch Registrar. The Company may appoint and change
any Paying Agent, Conversion Agent, Registrar or co-registrar, upon notice to
the Trustee and the Holders. The Company or any of its Subsidiaries or any of
their Affiliates may act as Paying Agent, Conversion Agent, Registrar or
co-registrar.
4. Indenture
The Company issued the Securities under an Indenture, dated as
of November 16, 2000 (the "Indenture"), between the Company and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, and, as in effect on the date
of the Indenture (the "TIA"). Capitalized terms used herein or on the face
hereof and not defined herein have the meanings ascribed thereto in the
Indenture. The Securities are subject to all such terms, and Securityholders are
referred to the Indenture and the TIA for a statement of those terms.
The Securities are general unsecured obligations of the Company limited
to the aggregate Principal Amount specified in Section 2.02 of the Indenture
(subject to Section 2.06 of the Indenture). The Indenture does not limit other
indebtedness of the Company.
5. Redemption at the Option of the Company
No sinking fund is provided for the Securities. Prior to November 16,
2003, the Securities will not be redeemable at the option of the Company, except
as provided in the last two paragraphs of this paragraph 5. During the period
from November 16, 2003 until the close of business on November 15, 2005, the
B-1-2
Company may only redeem the Securities for cash as a whole at the end of any
period of 30 consecutive Trading Days during which the Average Sale Price on
each of the 30 Trading Days is equal to or greater than 130% of the Conversion
Price then in effect. The Company must provide notice of redemption of the
Securities within a maximum of five Trading Days following the last day of the
said 30 days' Trading Period, whereupon the Trustee shall promptly publish the
notice of redemption in the Wall Street Journal or another daily newspaper of
national circulation, The Financial Times and Les Echos or La Tribune. During
the period from November 16, 2003 until the close of business on November 15,
2005, the Company may only redeem the Securities as described above upon not
less than 30 days' nor more than 60 days' notice of redemption given by
publication in the Wall Street Journal or another daily newspaper of national
circulation, the Financial Times and Les Echos or La Tribune.
On and after November 16, 2005, the Company may redeem the Securities
for cash at any time. The Securities may be redeemed, in whole or in part, upon
not less than 30 days' nor more than 60 days' notice of redemption given by mail
to Holders of Securities (unless a shorter notice shall be satisfactory to the
Trustee). Any such redemption must be in multiples of $1,000 Principal Amount.
Any redemption pursuant to this paragraph 5 shall be at the Redemption
Price on the relevant Redemption Date. The table below sets forth the Redemption
Prices of a Security per $1,000 Principal Amount upon redemption on November 16,
2003, at each November 16 thereafter prior to maturity, and at Stated Maturity,
which prices reflect accrued Original Issue Discount calculated to each such
date. The Redemption Price of a Security redeemed between such dates shall
include an additional amount reflecting the additional Original Issue Discount
accrued from and including the next preceding date in the table to, but
excluding, the Redemption Date.
(1) (2) Accrued
Security Original Issue (3) Redemption
Redemption Date Issue Price Discount at % Price = (1)+(2)
- --------------- ----------- ------------- ---------------
November 16, 2003............ 689.68 81.32 771.00
November 16, 2004............ 689.68 110.50 800.18
November 16, 2005............ 689.68 140.79 830.47
November 16, 2005............ 689.68 172.22 861.90
November 16, 2006............ 689.68 204.85 894.53
November 16, 2007............ 689.68 238.71 928.39
November 16, 2008............ 689.68 273.85 963.53
B-1-3
November 16, 2010............ 689.68 310.32 1,000.00
The Securities are also redeemable for cash at the Company's option
prior to their maturity in the event of certain changes in the tax laws of The
Netherlands (including any enactment of the Veegwet Wet inkomstenbelasting 2001
(the "Bill") in a form different from the version of the Bill submitted to the
Parliament of The Netherlands on October 23, 2000, provided that any changes to
the Bill as originally proposed result in the Bill applying to the Securities
for Netherlands tax purposes) that occur after November 6, 2000, as specified
below. If as a result of any change in, or amendment to, the laws or regulations
of The Netherlands or any political subdivision or taxing authority thereof or
therein, which change or amendment is proposed and becomes effective on or after
November 6, 2000 (including any enactment of the Bill in a form different from
the version submitted to the Parliament of the Netherlands on October 23, 2000,
provided that any changes to the Bill as originally proposed result in the Bill
applying to the Securities for Netherlands Tax Purposes), the Company is
obligated to pay to the holder of any Security Additional Amounts, and such
obligations cannot be avoided by the Company taking reasonable measures
available to it, then the Company may, at its option, redeem the Securities as a
whole but not in part, upon not less than 30 nor more than 60 days' notice given
as provided in the Indenture, at the then applicable Redemption Price but
without reduction for applicable Netherlands withholding taxes except that (i)
no such notice of redemption may be given earlier than 60 days prior to the
earliest date on which the Company would be obligated to pay any such Additional
Amounts were a payment in respect of the Securities then due, and (ii) at the
time such notice is given, such obligation to pay such Additional Amounts
remains in effect. Prior to the giving of any such notice of redemption, the
Company must deliver to the Trustee (a) a certificate stating that the Company
is entitled to effect such redemption and setting forth a statement of facts
showing that the conditions precedent to the right of the Company so to redeem
have occurred and (b) an opinion of independent counsel or an independent
accountant of recognized standing acceptable to the Trustee to the effect that
the Company has or will become obligated to pay such Additional Amounts as a
result of such change or amendment. The Company's right to redeem the Securities
shall continue as long as the Company is obligated to pay such Additional
Amounts, notwithstanding that the Company shall have made payments of Additional
Amounts.
The Securities may be also redeemed for cash at the Company's option
before maturity, in whole but not in part, at any time that, as a consequence of
the exercise of conversion rights, redemptions or purchases, 10 per cent or less
of the original aggregate principal amount of the Securities remains
outstanding. The Company's right to redeem under this provision is in addition
to and is in no way
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intended to limit other rights of the Company under the Indenture including its
right to redeem the Securities in other circumstances. In the event the Company
elects to redeem the Securities, it will do so at the then applicable redemption
price, which will be equal to the original issue price plus the accrued Original
Issue Discount calculated to the date of the redemption. The Company may only
redeem the Securities in accordance with this paragraph if it has given at least
30 days' and not more than 60 days' notice of the redemption. The Trustee shall
promptly publish the notice of redemption in The Wall Street Journal, the
Financial Times, Les Echos or La Tribune.
6. Purchase of Securities by the Company at the Option of the Holder
Subject to the terms and conditions of the Indenture, the Company shall
become obligated to purchase, at the option of the Holder, the Securities held
by such Holder on January 17, 2005 (the "Purchase Date") and at a purchase price
of $805.15 (the "Purchase Price") per $1,000 Principal Amount of such
Securities, upon delivery of the Purchase Notice containing the information set
forth in the Indenture, at any time from the opening of business on the date
that is 20 Business Days prior to the Purchase Date until the close of business
on the Purchase Date and upon delivery of the Securities to any Paying Agent by
the Holder as set forth in the Indenture. The Purchase Price shall be paid in
cash.
Subject to the terms and conditions of the Indenture, if any Change in
Control occurs after November 6, 2000, the Company shall, at the option of the
Holders, purchase all Securities for which a Change in Control Purchase Notice
shall have been delivered as provided in the Indenture and not withdrawn, on the
date that is 35 Business Days after the occurrence of such Change in Control,
for a Change in Control Purchase Price equal to the Issue Price plus accrued
Original Issue Discount to the Change in Control Purchase Date, which Change in
Control Purchase Price shall be paid in cash.
Holders have the right to withdraw any Purchase Notice or Change in
Control Purchase Notice, as the case may be, until the close of business on the
Purchase Date or Change in Control Purchase Date, as the case may be, by
delivering to any Paying Agent a written notice of withdrawal in accordance with
the provisions of the Indenture.
If cash sufficient to pay the Purchase Price or Change in Control
Purchase Price of all Securities or portions thereof to be purchased as of the
Purchase Date or the Change in Control Purchase Date, as the case may be, is
deposited with any Paying Agent on the Business Day following the Purchase Date
or the Business Day following the Change in Control Purchase Date, as the case
may be, Original
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Issue Discount ceases to accrue on such Securities (or portions thereof) on and
after such date, and the Holders thereof shall have no other rights as such
(other than the right to receive the Purchase Price or Change in Control
Purchase Price, as the case may be, upon surrender of such Security).
Holders may surrender a Security for purchase by the Company by means
of book entry delivery in accordance with the provisions set forth herein and
the regulations of the applicable book entry facility. For the purposes of this
paragraph 6, a Security shall be deemed to have been surrendered to a Paying
Agent upon receipt by such Paying Agent of a copy of an irrevocable notice given
by any book entry facility to the holder of the certificate corresponding to
such Security instructing it to deliver such certificate to the relevant
Registrar for cancellation.
7. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at the Holder's registered address. If money sufficient to pay the Redemption
Price of all Securities (or portions thereof) to be redeemed on the Redemption
Date is deposited with any Paying Agent prior to or on the Redemption Date, on
and after such date Original Issue Discount ceases to accrue on such Securities
or portions thereof. Securities in denominations larger than $1,000 of Principal
Amount may be redeemed in part but only in integral multiples of $1,000 of
Principal Amount.
8. Conversion
Subject to the next two succeeding sentences, a Holder of a Security
may convert it into Common Shares of the Company at any time before the close of
business on November 16, 2010 provided, however, that if a Security is called
for redemption, the Holder may convert it at any time before the close of
business on the Redemption Date. The number of Common Shares to be delivered
upon conversion of a Security into Common Shares per $1,000 of Principal Amount
shall be equal to the Conversion Rate. A Security in respect of which a Holder
has delivered the Purchase Notice or Change in Control Purchase Notice
exercising the option of such Holder to require the Company to purchase such
Security may be converted only if the notice of exercise is withdrawn in
accordance with the terms of the Indenture. A Holder may elect to take delivery
of Common Shares in the form of either Dutch Shares or New York Shares; provided
that (i) Holders or beneficial owners of Common Shares received upon conversion
of all or a portion of the Rule 144A Global Bond or any Rule 144A Definitive
Registered Bond and (ii) Holders or beneficial owners of Common
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Shares received upon conversion of all or a portion of the Regulation S Global
Bond or any Regulation S Definitive Registered Bond during the 40-day period
following the date hereof, may not elect to take delivery of Common Shares in
the form of New York Shares but shall take delivery of any Common Shares in the
form of Dutch Shares.
The initial Conversion Rate is 9.320 Common Shares per $1,000 Principal
Amount, subject to adjustment in certain events described in the Indenture. The
Company will deliver cash or a check in lieu of any fractional Common Shares. In
the event that conversion of all of the Securities at the initial Conversion
Rate established upon issuance would result in the issuance of more than
20,000,000 Common Shares (and in any event not more than 20,000,003 Common
Shares), such Common Shares that are issuable in excess of 20,000,000 Common
Shares shall be treated as fractional shares. The foregoing sentence shall cease
to apply subsequent to the adjustment of the Conversion Rate, even if such
adjustment results in more than 20,000,000 Common Shares being required to be
issued.
To convert a Security a Holder must (i) complete and manually sign the
conversion notice on the back of the Security (or complete and manually sign a
facsimile of such notice) and state in the conversion notice whether the Holder
elects to receive Dutch Shares or New York Shares upon conversion and deliver
such notice to a Conversion Agent (or any applicable office or agency referred
to in Section 4.05 of the Indenture) or, if applicable, complete and deliver to
the applicable book entry facility the appropriate instruction form for
conversion pursuant to such book entry facility's book entry conversion program,
(ii) surrender the Security to a Conversion Agent by physical or book entry
delivery (if necessary under such book entry facility's book entry conversion
program), (iii) furnish appropriate endorsements and transfer documents if
required by any Conversion Agent, the Company or the Trustee and (iv) pay any
transfer or similar tax, if required. Book entry delivery of a Security to any
Conversion Agent may be made by any financial institution that is a participant
in such book entry facility; conversion through such book entry facility's book
entry conversion program is available for any security that is held in an
account maintained at such book entry facility by any such participant.
Upon conversion of a Security, the Company shall, on the Conversion
Date, redeem any Security delivered for conversion at a Redemption Price equal
to the sum of the Issue Price of the Security plus accrued Original Issue
Discount from the Issue Date to the Conversion Date and the Company shall pay
such redemption monies into an account in the name of the Trustee (on behalf of
the relevant Holder). When the redemption monies are paid into such an account
in the name of the Trustee, the Trustee shall, on behalf of the relevant Holder,
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immediately transfer such redemption monies to the Company in exchange for the
Common Shares deliverable upon conversion to the relevant Holder. Such Holder
shall be deemed to have consented to such transfer without any requirement that
such Holder take any action or be notified of any such transfers.
A Holder may convert a portion of a Security if the Principal Amount of
such portion is $1,000 or an integral multiple of $1,000. No payment or
adjustment will be made for dividends on the Common Shares, other than payment
of cash for fractional shares, and except as provided in the Indenture. On
conversion of a Security, that portion of accrued Original Issue Discount
attributable to the period from the Issue Date to the Conversion Date with
respect to the converted Security shall not be cancelled, extinguished or
forfeited, but rather shall be deemed paid in full to the Holder thereof through
the delivery of the Common Shares (as per the procedures set forth in the
preceding paragraph) in exchange for the Security being converted pursuant to
the terms hereof.
The Conversion Rate will be adjusted for dividends or distributions on
Common Shares payable in Common Shares or other Capital Stock; certain
subdivisions, combinations or reclassifications of Common Shares or securities
convertible into Common Shares; distributions to all holders of Common Shares of
certain rights, warrants or options to purchase Common Shares or securities
convertible into Common Shares for a period expiring within 60 days after the
record date for such distribution at a price per share less than the Sale Price
at the Time of Determination; distributions to holders of Common Shares of
assets or debt securities of the Company or certain rights, warrants or options
to purchase securities of the Company (excluding certain cash dividends or other
cash distribution (except to the extent cash dividends or other cash
distributions constitute Extraordinary Cash Dividends) from consolidated current
net earnings or earned surplus or dividends payable in Common Shares; and the
issuance by the Company for cash of Common Shares or options, warrants or other
rights to subscribe or purchase Common Shares not otherwise described above at a
price per Common Share which is less than 95% of the Sale Price on the Trading
Day immediately preceding the announcement of such issuance other than shares
issued pursuant to the 2000-2003 employee share purchase plan and upon the
exercise of options to purchase up to 33,000,000 common shares granted pursuant
to existing option plans, or (otherwise than as described above) the issuance of
securities for cash which carry conversion, exchange or subscription rights at a
consideration per Common Share which is less than 95% of the Sale Price on the
Trading Day immediately preceding the announcement of such issuance. However, no
adjustment need be made if Securityholders may participate in the transaction or
in certain other cases. The Company from time to time may voluntarily increase
the Conversion Rate.
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If the Company is a party to a consolidation, merger or binding share
exchange of the type specified in the Indenture, or certain transfers of all or
substantially all of its assets to another person, or in certain other
circumstances described in the Indenture, the right to convert a Security into
Common Shares may be changed into a right to convert it into securities, cash or
other assets of the Company or another person.
9. Conversion Arrangement on Call for Redemption
Any Securities called for redemption, unless surrendered for conversion
before the close of business on the Redemption Date, may be deemed to be
purchased from the Holders of such Securities at an amount not less than the
Redemption Price, by one or more investment bankers or other purchasers who may
agree with the Company to purchase such Securities from the Holders and to make
payment for such Securities to the Trustee in trust for such Holders.
10. Denominations; Transfer; Exchange
The Securities are in fully registered form, without coupons, in
denominations of $1,000 of Principal Amount and integral multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the Indenture. A
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. A Registrar need not transfer or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities in respect of which the Purchase Notice or Change in Control Purchase
Notice has been given and not withdrawn (except, in the case of a Security to be
purchased in part, the portion of the Security not to be purchased) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
this Security for all purposes.
12. Unclaimed Money or Securities
The Trustee and each Paying Agent shall return to the Company any money
or securities held by them for the payment of any amount with respect to the
Securities that remains unclaimed for two years, provided, however, that the
Trustee or such Paying Agent, before being required to make any such return, may
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at the expense of the Company cause to be published once in The Wall Street
Journal or another daily newspaper of national circulation, The Financial Times
and Les Echos or La Tribune or mail to each such Holder notice that such money
or securities remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication or mailing, any
unclaimed money or securities then remaining will be returned to the Company.
After return to the Company, Holders entitled to the money or securities must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person, and the Trustee and each
Paying Agent shall have no further liability with respect to such money or
securities for that period commencing after the return thereof.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate Principal Amount of the Securities
at the time outstanding and (ii) certain defaults or noncompliance with certain
provisions may be waived with the written consent of the Holders of at least a
majority in aggregate Principal Amount of the Securities at the time
outstanding. Subject to certain exceptions set forth in the Indenture, without
the consent of any Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, defect or inconsistency, or
to comply with Article 5 or Section 10.15 of the Indenture or to make any change
that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default in payment
of the Principal Amount, Issue Price, accrued Original Issue Discount,
Redemption Price, Purchase Price or Change in Control Purchase Price, as the
case may be, in respect of the Securities when the same becomes due and payable;
(ii) failure either to deliver Common Shares (or cash in lieu of fractional
Common Shares) in accordance with the terms of the Indenture when such Common
Shares (or cash in lieu of fractional Common Shares) is required to be delivered
following conversion of a Security and such failure is not remedied for a period
of 10 days; (iii) failure by the Company to comply with other agreements in the
Indenture or the Securities, subject to notice and lapse of time; (iv) default
under any mortgage (including any pledge, lien, deed of trust, security interest
or other similar encumbrance), indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed of the Company, which default shall have resulted in such indebtedness,
in an
B-1-10
aggregate principal amount exceeding $10 million becoming or being declared due
and payable prior to the date on which it would otherwise have become due and
payable without such indebtedness being discharged or such acceleration having
been rescinded or annulled, or there having been deposited in trust a sum of
money sufficient to discharge such indebtedness within a period of 20 days after
the giving of a Notice of Default; or (v) certain events of bankruptcy or
insolvency. If an Event of Default occurs and is continuing, the Trustee, or the
Holders of at least 25% in aggregate Principal Amount of the Securities at the
time outstanding, may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities becoming due and payable immediately upon
the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders notice of any
continuing Default (except a Default in payment of amounts specified in clause
(i) above) if it determines that withholding notice is in their interests.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
A director, member of the Board, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
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17. Authentication
This Security shall not be valid until an authorized officer of the
Trustee or any Authenticating Agent manually signs the Certificate of
Authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common) and CUST (=custodian), and UNIF TRANS MIN ACT (=Uniform
Transfers to Minors Act).
19. GOVERNING LAW
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND TO BE PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS.
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ASSIGNMENT FORM CONVERSION NOTICE
To assign this Security, fill in the form To convert this Security into
below: Common Shares of the Company,
check the box:|_|
I or we assign and transfer this Security to To convert only part of this
Security, state the Principal
Amount to be converted(which
____________________________________________ must be $1,000 or an integral
(Insert assignee's soc. sec. or tax ID no.) multiple of $1,000):
____________________________________________ $__________________
____________________________________________
____________________________________________
____________________________________________
(Print or type assignee's name, If you want the stock
address and zip code) certificate made out in another
person's name, fill in the form
below:
and irrevocably appoint ____________________ ___________________________
as agent to transfer this Security on the (Insert person's soc. sec.
books of the Company. The agent may or tax ID no.)
substitute another to act for him. ___________________________
___________________________
To resell or transfer this Security check ___________________________
one of the boxes below: ___________________________
(Print or type person's name,
|_| I or we assign or transfer this security address and zip code)
to STMicroelectronics N.V or its subsidiary
_______________ (print or type name of The undersigned Holder elects to
subsidiary) receive Common Shares as checked
below:
|_| I or we assign and transfer this
security to a Qualified Institutional Buyer ____________ Shares of Dutch
("QIB") as defined in Rule 144A under the Registry
Securities Act
|_| I or we assign and transfer this __________ Shares of New York
security outside the United States in an Registry (Not available to
offshore transaction in compliance with Rule holders or beneficial owners of
903 or 904 under the Securities Act shares received upon conversion
of Rule 144A Bonds)
|_| I or we assign and transfer this
security pursuant to the exemption from
registration provided by Rule 144 under the
Securities Act
I or we hereby declare and represent that
the assignment of this Security is made in
compliance with all applicable securities
laws of the states of the United States or
any other jurisdiction.
Date: ______________________ Your Signature: _______________________
_____________________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
* Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the Registrar, which requirements in the case of the New
York Registrar include membership or participation in the Security Transfer
Agent Medallion Program ("STAMP") or such other "signature guarantee program" as
may be determined by the New York Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
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EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
_______________, _______
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Re: STMICROELECTRONICS N.V.
Zero Coupon Senior Convertible Bonds due 2010
Ladies and Gentlemen:
In connection with our proposed sale of o _____________ principal
amount of the Convertible Bonds, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of 1933
and, accordingly, we represent that:
(1) the offer of the Convertible Bonds was not made to a person in
United States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By _____________________________
Authorized Signature
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EXHIBIT 10.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-80797, No. 33-90616, No. 333-06390, No.
333-06862, No. 333-07226 and No. 333-12732) of STMicroelectronics N.V. of our
reports dated February 1, 2001 relating to the financial statements and
financial statement schedule, which appear in this Form 20-F.
PRICEWATERHOUSECOOPERS N.V.
Amsterdam, The Netherlands
May 14, 2001