10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to              to             

Commission file number 001-13828

MEMC Electronic Materials, Inc.

(Exact name of registrant as specified in its charter)

Delaware	56-1505767
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

501 Pearl Drive (City of O’Fallon) St. Peters, Missouri	63376
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(636) 474-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered:
$.01 Par Value Common Stock	New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

The aggregate market value of the registrant’s Common Stock held by nonaffiliates of the registrant, based upon the closing price of such stock on June 30, 2006 of $37.50, as reported by the New York Stock Exchange, and 222,048,958 shares outstanding on such date, was approximately $6,396,466,200. The number of shares outstanding of the registrant’s Common Stock as of February 16, 2007, was 224,227,557 shares.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the registrant’s 2006 Annual Report to Stockholders (Part I and Part II)

2. Portions of the registrant’s 2007 Proxy Statement (Part III)

PART I

Item 1. Business

Overview

We are a leading worldwide producer of wafers for the semiconductor industry, and are one of four wafer suppliers having more than a 10% share of the overall market. We operate manufacturing facilities in every major semiconductor manufacturing region throughout the world, including Europe, Japan, Malaysia, South Korea, Taiwan and the United States. Our customers include virtually all of the major semiconductor device manufacturers in the world, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world’s largest foundries. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) and in three general categories: prime polished, epitaxial and test/monitor. Depending on market conditions, we also sell intermediate products such as polysilicon, silane gas, partial ingots and scrap wafers to semiconductor device and equipment makers, solar customers, flat panel and other industries.

In 2006 we announced our intention to provide solar wafers as an additional type of wafer by signing multiple long-term solar wafer supply contracts. We began delivery of these wafers in January 2007.

We were formed in 1984 as a Delaware corporation and completed our initial public stock offering in 1995. Our corporate structure includes, in addition to our wholly owned subsidiaries, an 80%-owned consolidated joint venture in South Korea (MEMC Korea Company or MKC). In February 2004, we acquired approximately 100% ownership of Taisil Electronic Materials Corporation (Taisil) in Taiwan. Prior to February 2004, Taisil was a 45%-owned unconsolidated joint venture. In addition, in August 2004, we acquired 100% ownership of MEMC Southwest Inc. in Sherman, Texas. Prior to August 2004, MEMC Southwest Inc. was an 80%-owned consolidated joint venture.

On November 13, 2001, an investor group led by Texas Pacific Group and including TPG Wafer Holdings LLC and funds managed by Leonard Green & Partners, L.P. and TCW/Crescent Mezzanine Management LLC (collectively, TPG) acquired beneficial ownership of approximately 72% of our outstanding common stock and approximately $910 million of our debt from E.ON AG. All of the debt acquired by TPG from E.ON has been restructured or repaid. As part of the restructuring, TPG received shares of our Series A Cumulative Convertible Preferred Stock. On July 10, 2002, TPG converted all of the outstanding shares of Series A Cumulative Convertible Preferred Stock and the related accumulated but unpaid dividends into 125,010,556 shares of MEMC common stock. TPG sold approximately 15 million, 34 million, 66 million and 18 million shares of our common stock in public offerings in May 2003, February 2004, February 2005 and August 2005, respectively. TPG also sold approximately 19.5 million shares of common stock in a privately negotiated sale in November 2006 and an additional 20 million shares of common stock in a privately negotiated sale in February 2007. As of December 31, 2006, TPG beneficially owned approximately 16% of our outstanding common stock, and after the February 2007 sale, TPG beneficially owned approximately 7% of our outstanding common stock.

In 2006, we were engaged in one reportable industry segment—the design, manufacture and sale of silicon wafers. Financial information regarding this industry segment is contained in our 2006 Annual Report, which information is incorporated herein by reference.

Industry Background

Almost all semiconductors are manufactured from wafers, and thus the square inches shipped by the wafer industry are highly correlated to the unit shipments of the semiconductor device industry. The worldwide semiconductor device industry grew at a compound annual growth rate of 10% from 73 billion units in 1985 to 519 billion units in 2006, according to SIA & WSTS. In 2006, semiconductor device units increased 14% from 2005, according to SIA & WSTS.

The silicon wafer industry grew at a compound annual growth rate of 9% from 1,118 million square inches in 1985 to 7,975 million square inches in 2006, according to SIA/SEMI. In 2006, silicon wafer volumes grew 21% (excluding non-polished wafer sales), according to SEMI.

The fabrication of semiconductor devices requires a large number of complex and repetitive processing steps to layer different materials and imprint various features on a single wafer. Wafers are becoming increasingly differentiated by specific physical and electrical characteristics such as flatness, silicon purity and uniform crystal structures. As markets for semiconductor devices continue to evolve and become more specialized, we believe device manufacturers recognize the enhanced role that wafers and other materials play in improving device performance and reducing their production costs.

Semiconductor device manufacturers continue to move towards devices with shrinking device geometries and more stringent technical specifications. The wafers required to produce these next-generation devices are being developed in larger diameters. Thus, semiconductor device manufacturers continue to move to larger diameter wafers, with the 200 millimeter wafer being the primary wafer used today (measured in square inches).

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Over the past decade, we believe the semiconductor wafer industry has consolidated, with only four suppliers now each having more than a 10% share of the overall market. We believe this change in the competitive landscape is causing segmentation between larger and smaller producers with larger manufacturers gaining an increasing share of the overall wafer market. Semiconductor device manufacturers seek suppliers with whom they can better align wafer technology development with their own product development efforts. We believe these manufacturers will continue to select wafer suppliers that offer advanced technological capabilities, a broad product portfolio and superior service to satisfy their exacting device requirements.

Products

We offer wafers with a wide variety of features satisfying numerous product specifications to meet our customers’ exacting requirements. Our wafers vary in diameter, surface features, composition, purity levels, crystal properties and electrical properties. We provide our customers with a reliable supply of high quality wafers with consistent characteristics. These wafers range from 100 millimeter to 300 millimeter in diameter. Our wafers are used as a starting material for the manufacture of various types of semiconductor devices, including microprocessor, memory, logic and power devices. In turn, these semiconductor devices are used in computers, cellular phones and other mobile electronic devices, automobiles and other consumer and industrial products.

We continue to advance our products’ capabilities. In addition to other new product offerings, we offer wafers with the Magic Denuded Zone^®, or MDZ^®, product feature. As compared to traditional techniques, this patented product feature can increase our customers’ yields in both prime polished and epitaxial wafers by drawing impurities away from the surface of the wafer in a manner that is efficient and reliable, with results that are reproducible.

Our products include three general categories of wafers:

Prime Polished Wafers

Our prime polished wafer is a highly refined, pure wafer with an ultraflat and ultraclean surface. Our prime polished wafers are manufactured with a sophisticated chemical-mechanical polishing process that removes defects and leaves an extremely smooth surface. As devices become more complex, wafer flatness and cleanliness requirements, along with crystal perfection, become increasingly important because these properties have a significant impact on our customers’ processes and yields.

Our OPTIA^™ wafer is a 100% defect-free crystalline structure based on our patented technologies and processes, including MDZ^®. We believe the OPTIA^™ wafer is the most technologically advanced polished wafer available today.

Our annealed wafer is a prime polished wafer with near surface crystalline defects dissolved during a high-temperature thermal treatment.

Epitaxial Wafers

Our epitaxial, or EPI, wafers consist of a thin silicon layer grown on the polished surface of the wafer. Typically, the epitaxial layer has different electrical properties from the underlying wafer. This provides our customers with better isolation between circuit elements than a polished wafer, and the ability to tailor the wafer to the specific demands of the device. Without sufficient isolation of the various circuit elements, the elements could communicate electrically with each other, which could render the device useless. Epitaxial wafers provide improved isolation, thereby allowing for increased reliability of the finished semiconductor device and greater efficiencies during the semiconductor manufacturing process, which ultimately allows for more complex semiconductor devices.

Our AEGIS^™ product is designed for certain specialized applications requiring high resistivity epitaxial wafers and our MDZ^® product feature. The AEGIS^™ wafer includes a thin epitaxial layer grown on a standard starting wafer. The AEGIS^™ wafer’s thin epitaxial layer eliminates harmful defects on the surface of the wafer, thereby allowing device manufacturers to increase yields and improve process reliability.

Test/Monitor Wafers

We supply test/monitor wafers to our customers for their use in testing semiconductor fabrication lines and processes. Although test/monitor wafers are substantially the same as prime polished wafers with respect to cleanliness, and in some cases flatness, other specifications are generally less rigorous. This allows us to produce some of the test/monitor wafers from the portion of the silicon ingot that does not meet customer specifications for wafers to be used in the manufacture of semiconductors.

Sales, Marketing and Customers

We market our products primarily through a global direct sales force. We have customer service and support centers globally, including in China, France, Germany, Italy, Japan, Malaysia, Singapore, South Korea, Taiwan and the United States. A

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key element of our marketing strategy is establishing and maintaining close relationships with our customers. We accomplish this through multi-functional teams of technical, sales and marketing, and manufacturing personnel. These teams work closely with our customers to continually optimize our products for their production processes in their current and future facilities. We monitor changing customer needs and target our research and development and manufacturing to produce wafers adapted to each customer’s process and requirements. We make sales principally through agreements of one year or less (such agreements often are of three months or six months duration), which agreements specify price and typically indicate only expected volumes or market share.

We sell our products to virtually all major semiconductor device manufacturers, including the major memory, microprocessor and ASIC manufacturers, as well as the world’s largest foundries. In 2006, no customer represented 10% or more of our sales.

We sell our products to certain customers under consignment arrangements. Generally, these consignment arrangements require us to maintain a certain quantity of product in inventory at the customer’s facility or at a storage facility designated by the customer. Under these arrangements, we ship the wafers to the storage facility, but do not charge the customer or recognize revenue for those wafers until title passes to the customer. Title passes when the customer pulls the product from the assigned MEMC storage facility or storage area or, if the customer does not pull the product within a stated period of time (generally 60–90 days), at the end of that period, or when the customer otherwise agrees to take title to the product. Until that time, the wafers are considered part of MEMC’s inventory and are reflected on MEMC’s books and records as inventory. As such, these consignment arrangements are essentially inventory transfer arrangements. At December 31, 2006, we had approximately $6 million of inventory held on consignment.

Manufacturing

To meet our customers’ needs worldwide, we have established a global manufacturing network consisting of nine manufacturing facilities.

Our wafer manufacturing process begins with high purity semiconductor grade polysilicon. The polysilicon is melted in a quartz crucible along with minute amounts of electrically active elements such as arsenic, boron, phosphorous or antimony. We then lower a silicon seed crystal into the melt and slowly extract it from the melt. The resultant body of silicon is called an ingot. The temperature of the melt, speed of extraction and rotation of the crucible govern the diameter of the ingot, while the concentration of the electrically active element in the melt governs the electrical properties of the wafers to be made from the ingot. This is a complex, proprietary process requiring many control features on the crystal-growing equipment.

We then grind the ingots to the specified diameter and slice the ingots into thin wafers. Next, we prepare the wafers for surface polishing with a multi-step process using precision wafer planarization machines, edge contour machines and chemical etchers. Final polishing and cleaning processes give the wafers the clean and ultraflat mirror polished surfaces required for the fabrication of semiconductor devices. We further process some of our products into epitaxial wafers by utilizing a chemical vapor deposition process to deposit a single crystal silicon layer on the polished surface.

In certain of our manufacturing facilities we have fully integrated manufacturing capabilities that encompass the full range of wafer manufacturing process steps, including ingot growth, wafer slicing, wafer polishing and epitaxial deposition. We conduct certain of our processes in state-of-the-art cleanroom environments.

Raw Materials

We obtain our requirements for several raw materials, equipment, parts and supplies from sole suppliers. The main raw material in our production process is polysilicon. We use two types of polysilicon: granular polysilicon and chunk polysilicon. We produce all of our requirements for granular polysilicon at our facility in Pasadena, Texas. We do not believe there are other sources of semiconductor grade granular polysilicon. We produce chunk polysilicon in our Merano, Italy facility. Chunk polysilicon can be substituted for granular polysilicon, although our manufacturing throughput and yields could be adversely affected. We believe our ability to meet the majority of our polysilicon requirements through our in-house capabilities provides us with a key cost advantage to compete more effectively in the wafer industry. We have previously announced our plans to expand our polysilicon production capacity over the next few years. We sell some polysilicon to third parties and we also buy some polysilicon on the open market.

Research and Development

The wafer market is characterized by continuous technological development and product innovation. We believe that continued and timely development of new products and enhancements to existing products is necessary to maintain our competitive position. Our goal in research and development is to maintain a close working relationship with our customers to continually develop new products and refine existing products to meet the needs of the marketplace. Our research and development model combines engineering innovation with specific commercialization strategies. Our model closely aligns our

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technology efforts with our customers’ requirements. We accomplish this through a better understanding of our customers’ technology requirements and through targeted research and development projects aimed at developing products to meet those technology requirements. Some of these projects involve formal and informal joint development efforts with our customers.

In addition, in order to strengthen our customer relationships and interaction and to better target our research and development efforts, we assign research and development engineers to key customers worldwide. We do this through our Applications Engineering Group, in our laboratories located in the United States, Italy, Japan and South Korea, as well as field and resident engineers located at strategic locations throughout the world. The primary purpose of the Applications Engineering Group is to establish a close, technical working relationship with our customers to obtain a better knowledge of our customers’ material requirements.

We devote a portion of our research and development resources to enhance our position in the crystal technology area. We have dedicated engineers and scientists, located in our St. Peters, Missouri, Merano, Italy and Chonan, South Korea facilities, to further our understanding of defect control and cost reduction. In conjunction with these efforts, we are developing wafering technologies to meet advanced flatness and particle requirements of our customers. In addition, we continue to focus on the development of our advanced epitaxial wafer technology with a dedicated staff of scientists located primarily in our St. Peters, Missouri, Novara, Italy and Utsunomiya, Japan facilities, who focus on the development of new epitaxial wafer products and cost reduction processes.

In addition to our focus on advancements in wafer material properties, we also continue to invest in research and development associated with larger wafer diameters. We produced our first 300 millimeter diameter wafer in 1991 and continue to enhance our 300 millimeter technology program using our staff of research and development scientists, engineers and technicians located primarily in our St. Peters, Missouri and Utsunomiya, Japan facilities. In addition, we continue to focus on process design advancements to drive cost reductions and productivity improvements.

We have also entered into a license agreement for certain layer-transfer wafer technology and we are in the process of establishing production capability for 200 millimeter and 300 millimeter silicon-on-insulator (SOI) wafers using a dedicated group of engineers and scientists located in our St. Peters, Missouri facility.

Competition

The market for wafers is competitive. We compete in all the major semiconductor-producing regions of the world and face competition from established manufacturers. We estimate there are six major competitors in the semiconductor wafer industry; however, our major competitors are Shin-Etsu Handotai, SUMCO and Siltronic.

Our wafers compete with wafers manufactured by others on the basis of product quality, consistency, price, technical innovation, customer service and product availability. We believe we are competitive on the basis of these factors.

Proprietary Information and Intellectual Property

We believe that the success of our business depends in part on our proprietary technology, information, processes and know how. We try to protect our intellectual property rights based on patents and trade secrets as part of our ongoing research, development and manufacturing activities. As of December 31, 2006, we owned of record or beneficially approximately 229 U.S. patents, of which approximately 16 will expire by 2010, approximately 43 will expire between 2011 and 2015 and approximately 170 will expire after 2015. As of December 31, 2006, we owned of record or beneficially approximately 403 foreign patents, of which approximately 49 will expire by 2010, approximately 35 will expire between 2011 and 2015 and approximately 319 will expire after 2015. These foreign patents are generally counterparts of our U.S. patents. As of December 31, 2006, we had approximately 48 pending U.S. patent applications and approximately 273 pending foreign patent applications. The patents we beneficially own relate to polysilicon technology. We exclusively licensed these patents from Albemarle Corporation in connection with our purchase of Albemarle’s granular polysilicon business. We may request that these patents be assigned to us at any time in exchange for a nominal purchase price.

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations and we do not have any pending indemnification claims.

Employees

At December 31, 2006, we had approximately 5,000 full time employees and 500 temporary workers worldwide. We have approximately 1,500 unionized employees in our St. Peters, Missouri, Pasadena, Texas, South Korea and Italy facilities. We have not experienced any material work stoppages at any of our facilities due to labor union activities during the last several years.

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Geographic Information

Information regarding our foreign and domestic operations is contained in Note 17, “Geographic Segments”, of Notes to Consolidated Financial Statements included in our 2006 Annual Report, which information is incorporated herein by reference.

Available Information

We make available free of charge through our website (http://www.memc.com) reports we file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors

This Annual Report on Form 10-K contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, including those set forth under “Item 1. Business” and “Item 3. Legal Proceedings” and those incorporated herein by reference from our 2006 Annual Report. In addition to the business risks and uncertainties discussed elsewhere in this Form 10-K, the following are important risk factors which could cause actual results and events to differ materially from those contained in any forward-looking statement made by us.

Our business depends on the semiconductor device industry and if that industry experiences future downturns, our sales could decrease and we could be forced to reduce our prices while maintaining fixed costs, all of which could have significant negative effects on our operating results and financial condition.

Our business depends in large part upon the market demand for our customers’ semiconductors and products utilizing semiconductors. The semiconductor device industry experiences:

• rapid technological change;

• product obsolescence;

• changes in product mix;

• price erosion; and

• fluctuations in product supply and demand.

From time to time, the semiconductor device industry has experienced significant downturns. These downturns often occur in connection with declines in general economic conditions. Some of these downturns have lasted for more than a year and have resulted in a substantial decrease in demand for our products. For example, in 2001, the semiconductor industry experienced a significant downturn as a result of weakened demand and a broad-based inventory correction. The 2001 downturn continued into early 2003. In the second half of 2004, much of the semiconductor industry experienced a downturn related to product oversupply and a resulting inventory correction. These industry conditions continued into 2005, before improving in the second half of 2005. If the semiconductor device industry experiences future downturns, which is likely given past history, we will face pressure to reduce prices and we may need to further rationalize capacity and reduce fixed costs. If we are unable to reduce our expenses sufficiently to offset reductions in price and volume, our operating results and financial condition could be materially adversely affected.

Our dependence on single and limited source suppliers could harm our production output and adversely affect our manufacturing throughput and yield.

We obtain several raw materials, equipment, parts and supplies from sole suppliers. Likewise, we obtain all of our requirements for granular polysilicon from our facility in Pasadena, Texas. In the case of granular polysilicon, we believe that we could substitute chunk polysilicon for granular polysilicon. We cannot predict whether this substitution would be successful or how long this process would take. In addition, our manufacturing process could be interrupted and our manufacturing throughput and yields could be adversely affected. A failure to obtain a new qualification or a decrease in our manufacturing throughput or yields could have a material adverse effect on our operating results.

From time to time we have experienced limited supplies of certain raw materials, equipment, parts and supplies, particularly polysilicon. Because of the cyclical nature of our industry, we may experience shortages of our key raw materials, equipment, parts and supplies in the future. A prolonged inability to obtain raw materials, equipment, parts or supplies, or increases in prices resulting from these shortages, could have a material adverse effect on our operating results.

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The success of our currently planned expansion of polysilicon capacity and ramp of solar wafer production and sales presents business risks which could materially adversely affect our results of operations.

We are investing significantly in expanding our raw material (polysilicon) production capacity. We have also announced our long term agreements to sell solar wafers, which sales commenced in January 2007. In order to succeed in our planned expansion and solar wafer deliveries, we will need to devote capital expenditures as well as the investment of management time and related resources to successfully introduce this additional wafer type. This could disrupt our existing business, affect our operating results and distract our management team. Expansion of our production capacity is subject to risks such as availability of capital equipment; delays in construction of new production capacity; and availability of additional precursor raw materials. Our plan to sell solar wafers is subject to similar risks and, because it involves sales to new customers, it is also subject to additional risks, including refining and adapting our manufacturing technologies to customer requirements; creating and developing demand for and market acceptance of our technologies; marketing, promoting and distributing these wafers; competing with other, better established, solar wafer manufacturers; and establishing and maintaining sufficient internal research and development, marketing, sales, production and customer service infrastructures to support these efforts. Use of resources that otherwise would have been made available to our existing wafer operations or customers could have material adverse consequences on our results of operations if we fail to successfully make and sell solar wafers. Moreover, there can be no assurance that we will be able to successfully produce and supply the committed and anticipated quantities of solar wafers.

Our expansion of our 300 millimeter production capacity in Taiwan presents business risks which could materially adversely affect our results of operations if we fail to manage this expansion successfully.

In July 2005, we embarked upon a significant expansion of our 300 millimeter production capacity by establishing such production capacity at our Taisil facility in Taiwan, in addition to continuing our improvements to our Japan 300 millimeter operation. The establishment of this capacity at a new facility involves significant risks, including availability and timing of capital equipment installation, distraction of worldwide and local management; costs and spending in excess of budgeted amounts; timing of production ramp; and qualification of a new facility at new and existing customers. We believe that establishment of 300 millimeter capacity in Taiwan is important for strategic reasons, including market share and profitability. There can be no assurance that we will be able to successfully reach our production, timing and cost goals for our Taiwan expansion or maintain them for our Japan facility as customer specifications evolve. Use of capital and management resources that otherwise would have been made available to expand other parts of our business could have material adverse consequences on our results of operations if we fail to manage this expansion successfully or do not improve our Japan 300 millimeter operations to keep pace with market requirements.

We experience competition in the wafer industry which could force us to reduce our prices to retain market share or face losing market share and revenues.

We face competition in the wafer industry from established manufacturers throughout the world. We estimate there are six major competitors in the semiconductor wafer industry; however, the largest suppliers of semiconductor wafers with whom we compete are Shin-Etsu Handotai, SUMCO and Siltronic. For solar wafers, we compete with a large number of companies, including BP Solar International, Evergreen Solar, Mitsubishi Electric Corporation, Q-Cells AG, Sanyo Corporation, Sharp Corporation, SolarWorld AG and SunPower Corporation. We compete on the basis of product quality, consistency, price, technical innovation, customer service and product availability. We expect that our competitors will continue to improve the design and performance of their products and to introduce new products with competitive price and performance characteristics. Some of our competitors have substantial financial, technical, engineering and manufacturing resources to develop products that currently, and may in the future, compete favorably against our products. We may need to reduce our prices to retain or gain market share, which could have a material adverse effect on our operating results.

If we fail to meet changing customer demands, we may lose customers and our sales could suffer.

The wafer industry changes rapidly. Changes in our customers’ requirements, especially in the semiconductor wafer industry, result in new and more demanding technologies, product specifications and diameters, and manufacturing processes. Our ability to remain competitive will depend upon our ability to develop technologically advanced products and processes. We must continue to meet the increasingly demanding requirements of our customers on a cost-effective basis. As a result, we expect to continue to make significant investments in research and development and equipment. We cannot be certain that we will be able to successfully introduce, market and cost-effectively manufacture any new products, or that we will be able to develop new or enhanced products and processes that satisfy customer needs or achieve market acceptance.

Because we cannot easily transfer production of specific products from one of our manufacturing facilities to another, manufacturing delays or lack of capacity at a single facility could result in a loss of product volume.

It typically takes three to six months for our customers to qualify a manufacturing facility to produce a specific product, but it can take longer depending upon a customer’s requirements and market conditions. Interruption of operations or lack of

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available additional capacity at any of our primary wafer manufacturing facilities could result in delays or cancellations of shipments of wafers and a loss of product volume. Likewise, interruption of operations at our granular polysilicon manufacturing facility could adversely affect our wafer manufacturing throughput and yields and could result in our inability to produce certain qualified wafer products, delays or cancellations of shipments of wafers and a loss of product volume. A number of factors could cause interruptions, including labor disputes, equipment failures, or shortages of raw materials or supplies. Unions represent some of the employees at our wafer facilities in St. Peters, Missouri, Italy and South Korea and our granular polysilicon facility in Pasadena, Texas. A strike at any of these facilities could cause interruptions in manufacturing. We cannot be certain that alternate qualified capacity would be available on a timely basis or at all.

If we do not continue to reduce our manufacturing costs and operating expenses, we may not be able to compete effectively in the wafer industry.

The success of our business depends, in part, on our continuous reduction of manufacturing costs and operating expenses. The wafer industry has historically experienced price erosion and will likely continue to experience such price erosion. In addition, our long term agreements to supply solar wafers have fixed price reduction curves. If we are not able to reduce our manufacturing costs and operating expenses sufficiently to offset future price erosion, our operating results will be adversely affected. During the past few years, we have engaged in various cost-cutting and other initiatives intended to reduce costs and increase productivity. These activities have included reduction of headcount, refinement of our processes and efforts to increase yields and reduce cycle time. We cannot assure you that we will be able to continue to reduce our manufacturing costs and operating expenses. Moreover, any future closure of facilities or reduction of headcount may adversely affect our ability to manufacture wafers in required volumes to meet customer demand and may result in other production disruptions.

We are subject to periodic fluctuations in foreign currency exchange rates which can cause reported financial results to vary significantly from period to period.

Approximately 66% of our sales in 2006 were made outside North America. We expect that international sales will continue to represent a significant percentage of our total sales. In addition, a significant portion of our manufacturing operations is located outside of the United States. Sales outside of the United States expose us to currency exchange rate fluctuations. Our risk exposure from these sales is primarily related to the Euro, Japanese Yen and Korean Won. Our risk exposure from expenses at international manufacturing facilities is concentrated in the Euro, Japanese Yen, Korean Won, Malaysian Ringgit and the New Taiwanese Dollar. To the extent that our sales in foreign currencies occur at foreign sites which incur expenses in those currencies, our net exposure is reduced. We generally hedge receivables denominated in foreign currencies at the time of sale.

One of our foreign subsidiaries has debt denominated in Japanese Yen. We generally do not hedge these net foreign currency exposures. We recognized net currency losses totaling approximately $1.0 million in 2006, $0.5 million in 2005 and $2.0 million in 2004. We cannot predict whether these foreign currency exchange risks inherent in doing business in foreign countries will have a material adverse effect on our operations and financial results in the future.

We may acquire other businesses, products or technologies; if we do, we may be unable to integrate them with our business effectively or at all, which may impair our financial performance.

If we find appropriate opportunities, we may acquire businesses, products or technologies that we believe are strategic. If we acquire a business, product or technology, the process of integration may produce unforeseen operating difficulties and expenditures and may absorb significant attention of our management that would otherwise be available for the ongoing development of our business. If we make future acquisitions, we may issue shares of stock that dilute other stockholders, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing other intangible assets with estimated useful lives, any of which might harm our business, financial condition or results of operations.

Our business may be harmed if we fail to properly protect our intellectual property.

We believe that the success of our business depends in part on our proprietary technology, information, processes and know how. We try to protect our intellectual property rights based on trade secrets and patents as part of our ongoing research, development and manufacturing activities. We cannot be certain, however, that we have adequately protected or will be able to adequately protect our technology, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect our intellectual property rights. Moreover, we cannot be certain that our patents do or will provide us with a competitive advantage.

The protection of our intellectual property rights and the defense of claims of infringement against us by third parties may subject us to costly patent litigation.

Any litigation in the future to enforce patents issued to us, to protect trade secrets or know how possessed by us or to defend us or indemnify others against claimed infringement of the rights of others could have a material adverse effect on our

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financial condition and operating results. From time to time, we receive notices from other companies that allege we may be infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation, which could have a material adverse effect on us. In fact, we are presently involved in multiple cases involving allegations of patent infringement. Regardless of the validity or successful outcome of any such intellectual property claims, we may need to expend significant time and expense to protect our intellectual property rights or to defend against claims of infringement by third parties, which could have a material adverse effect on us. If we lose any such litigation where we are alleged to infringe the rights of others, we may be required to:

• pay substantial damages;

• seek licenses from others; or

• change, or stop manufacturing or selling, some of our products.

Any of these outcomes could have a material adverse effect on our business, results of operations or financial condition.

We have a limited number of principal customers and a loss of one or several of those customers would hurt our business.

Although no one customer accounted for more than 10% of our sales in 2006, our operating results could materially suffer if we experience a significant reduction in, or loss of, purchases by one or more of our top customers.

The loss of one or more of our customers with whom we have long term agreements could materially adversely affect our results of operations.

We have previously announced the execution of long term supply agreements with two wafer customers. Although these long term supply agreements are “take or pay contracts”, there can be no assurance that the customers will be able to fulfill their financial commitments to us in the agreements to pay the associated penalties if they do not fulfill their purchase obligations under the agreements. In such instance, we could have excess or idle production capacity. The loss of one or both of these wafer customers could materially adversely affect our operating results.

With the introduction of our solar wafer products, we are now also subject to the risks that affect solar energy demand, including macroeconomic factors.

Solar energy demand has experienced a high level of growth in recent years, but it has also experienced wide fluctuations in the operating results of industry participants. The demand for solar energy generation products is heavily influenced by macroeconomic factors such as the supply and price of other energy products, such as oil, coal and natural gas, as well as government regulations and policies concerning the electric utility industry, including the availability and size of government and economic incentives related to the use of solar power. A significant reduction in actual or anticipated solar energy demand could significantly reduce the demand for our solar wafers, which could materially adversely affect our operating results.

We are subject to periodic foreign economic downturns and political instability, which may adversely affect our sales and cost of doing business in those regions of the world.

Economic downturns have affected our operating results in the past, and could affect our operating results in the future. Additionally, other factors may have a material adverse effect on our operations in the future, including:

• the imposition of governmental controls or changes in government regulation;

• export license requirements;

• restrictions on the export of technology;

• geo-political instability; and

• trade restrictions and changes in tariffs.

We cannot predict whether these economic risks inherent in doing business in foreign countries will have a material adverse effect on our operations and financial results in the future.

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We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and could have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting. Such report must contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. The report must also contain a statement that our auditors have issued an attestation report on management’s assessment of our internal controls over financial reporting. Public Company Accounting Oversight Board Auditing Standard No. 2 provides the professional standards and related performance guidance for auditors to attest to, and report on, management’s assessment of the effectiveness of internal control over financial reporting under Section 404.

Each year we must perform the system and process documentation and evaluation needed to comply with Section 404. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert our internal control over financial reporting is effective. We reported one material weakness in our internal control over financial reporting in 2004 and three material weaknesses in our internal control over financial reporting in 2005. As a result of remediation efforts that we made in 2006, we will not report a material weakness for fiscal 2006, although there can be no assurance that we will not have one or more material weaknesses in the future. If we are unable to assert that our internal control over financial reporting is effective presently or in the future (or if our auditors are unable to attest that our management’s report is fairly stated or if they are unable to express an opinion on the effectiveness of our internal controls over financial reporting), we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

We are subject to numerous environmental laws and regulations, which could require us to discharge environmental liabilities, increase our manufacturing and related compliance costs or otherwise adversely affect our business.

We are subject to a variety of foreign, federal, state and local laws and regulations governing the protection of the environment. These environmental laws and regulations include those relating to the use, storage, handling, discharge, emission, disposal and reporting of toxic, volatile or otherwise hazardous materials used in our manufacturing processes. These materials may have been or could be released into the environment at properties currently or previously owned or operated by us, at other locations during the transport of the materials, or at properties to which we send substances for treatment or disposal. If we were to violate or become liable under environmental laws and regulations or become non-compliant with permits required at some of our facilities, we could be held financially responsible and incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims. Groundwater and/or soil contamination has been detected at four of our facilities. We believe we are taking all necessary remedial steps at these facilities. We do not expect these known conditions to have a material impact on our business. However, environmental issues relating to presently known or unknown matters could require additional investigation, assessment or expenditures. In addition, new laws and regulations or stricter enforcement of existing laws and regulations could give rise to additional compliance costs and liabilities.

The market price of our common stock has fluctuated significantly and may continue to do so.

The market price of our common stock may be affected by various factors, including:

• quarterly fluctuations in our operating results resulting from factors such as timing of orders from and shipments to major customers, product mix and competitive pricing pressures;

• announcements of technological innovations, new products or upgrades to existing products by us or our competitors;

• market conditions experienced by our customers;

• market conditions in the wafer industry;

• developments in patent or other proprietary rights by us or by our competitors;

• changes in our relationships with our customers;

• interruption of operations at our manufacturing facilities or the facilities of our suppliers;

• actual or perceived changes in our relationship with our largest stockholder, TPG;

• the size of the public float of our common stock;

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• announcements of operating results that are not aligned with the expectations of investors; and

• general stock market trends.

Technology company stocks in general have experienced extreme price and trading volume fluctuations that often have been unrelated to the operating performance of these companies. This market volatility may adversely affect the market price of our common stock.

If we fail to comply with covenants under our credit facility, the lenders could cause outstanding amounts to become immediately due and payable, and we might not have sufficient funds and assets to pay such loans.

We are party to a $200 million revolving credit facility with National City Bank of the Midwest, US Bank National Association and other lenders named therein. This facility contains certain restrictive covenants, including covenants to maintain minimum consolidated EBITDA and interest coverage ratios, as those terms are defined in the agreement. A continuing violation of any of these covenants, which in our industry could occur in a sudden or sustained downturn, would be deemed an event of default under the facility. In such event, upon election of the lenders, the loan commitments under the credit facility would terminate and the loans and accrued interest then outstanding would be due and payable immediately. We may not have sufficient funds and assets to cover any such required payments and may not be able to obtain replacement financing on a timely basis or at all. These events would have a material adverse effect on us. As of December 31, 2006, we had no outstanding borrowings under this facility, although we had approximately $3.3 million of outstanding third party letters of credit backed by this facility at such date.

Future sales of shares of our common stock may depress the price of our common stock.

If we or our stockholders, including our directors or executive officers, sell a substantial number of shares of our common stock in the public market, or investors become concerned that substantial sales might occur, the market price of our common stock could decrease. We have granted TPG registration rights with respect to all of the shares of our common stock and warrants to purchase common stock owned by TPG. Future sales of our common stock or warrants to purchase our common stock by TPG in the public market, or the perception that such sales might occur, could cause such a decrease in the price of our common stock.

Certain provisions of our Restated Certificate of Incorporation and Restated By-Laws could delay or make more difficult a change of control or change in management that would benefit our stockholders.

Certain provisions of our Restated Certificate of Incorporation and Restated By-Laws may delay, defer or make more difficult:

• a merger, tender offer or proxy contest;

• the assumption of control by a holder of a large block of our securities; and

• the replacement or removal of current management by our stockholders.

For example, our Restated Certificate of Incorporation divides the Board of Directors into three classes, with members of each class to be elected for staggered three-year terms. This provision may make it more difficult for stockholders to change the majority of directors and may frustrate accumulations of large blocks of common stock by limiting the voting power of such blocks. This may further discourage a change of control or change in current management.

These provisions may limit participation by our stockholders in any merger or other change of control transaction, whether or not the transaction is favored by current management or would be favorable to our stockholders. These provisions may also make removal of current management by our stockholders more difficult, even if such removal would be beneficial to the stockholders generally.

In addition, our Board of Directors is authorized to issue up to 50,000,000 shares of preferred stock without the vote of our holders of common stock, subject to certain restrictions on the issuance of preferred stock contained in our restructuring agreement with TPG. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of our common stock and could have the effect of delaying, deferring or impeding a change in control of us.

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Cautionary Statement Regarding Forward-Looking Statements

The following statements are or may constitute forward-looking statements:

• statements set forth in this Form 10-K or statements incorporated by reference from documents we have filed with the Securities and Exchange Commission regarding possible or assumed future results of our operations, including but not limited to any statements contained herein or therein concerning:

Ÿ Our belief that semiconductor device manufacturers will continue to select wafer suppliers that offer advanced technological capabilities, a broad product portfolio and superior service to satisfy the manufacturers’ exacting device requirements;

Ÿ Our belief that it is the technical evolution of the wafer that will be the enabling driver for semiconductor device improvements as the industry moves below 65 nanometer line-widths;

Ÿ Our belief that there will be less than a handful of wafer suppliers remaining in a few years, down from about two dozen or more in the 1990 time frame;

Ÿ Our expectation that our polysilicon sales as a percent of total sales will slowly decline over time as our wafer sales grow at a faster rate;

Ÿ Our belief that it is more likely than not, with our projections of future taxable income, we will generate sufficient taxable income to realize the benefits of the net deferred tax assets existing at December 31, 2006;

Ÿ Our expectation that our capital expenditures will be between 10% to 15% of net sales in 2007;

Ÿ Our expectation that contributions to our pension plans will be approximately $10 million in 2007;

Ÿ Our belief that we have the financial resources needed to meet business requirements for at least the next 12 months, including capital expenditures and working capital requirements;

Ÿ Our belief that we are taking all necessary environmental remediation steps at our facilities, and our expectation that these known conditions will not have a material impact on our business;

Ÿ Our belief that our existing facilities and equipment are well maintained, in good operating condition and are adequate to meet our current requirements;

Ÿ The impact of pending litigation on us;

Ÿ Other statements contained or incorporated by reference in this Form 10-K regarding matters that are not historical facts; and

Ÿ Any statements preceded by, followed by or that include the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may” or similar expressions.

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date that they were made. Factors that could cause actual results to differ materially are set forth under this “Item 1A. Risk Factors.”

These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located at 501 Pearl Drive (City of O’Fallon), St. Peters, Missouri 63376, and our telephone number at that address is (636) 474-5000. Our principal manufacturing and administrative facilities comprised approximately 3.9 million square feet as of December 31, 2006 and were situated in the following locations:

Location	Square Footage
St. Peters, MO, USA	744,000
Sherman, TX, USA	693,000
Pasadena, TX, USA	436,000
Hsinchu, Taiwan	522,000
Chonan, South Korea	453,000
Utsunomiya, Japan	327,000
Merano, Italy	327,000
Novara, Italy	322,000
Kuala Lumpur, Malaysia	86,000

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In December 2005, we purchased from the City of O’Fallon, Missouri the portion of our St. Peters facility that had been leased from the City of O’Fallon in connection with an industrial revenue bond financing. We lease the land on which our Pasadena, Texas facility is located. The term of the Pasadena lease expires in 2030 and is extendable for four (4) additional renewal terms of five (5) years each. We lease the land on which our Hsinchu, Taiwan facility is located. This lease expires in 2014. We also lease our facility in Kuala Lumpur, Malaysia. This lease expires in March 2009.

We believe that our existing facilities and equipment are well maintained, in good operating condition and are adequate to meet our current requirements. The extent of utilization of these facilities varies from plant to plant and from time to time during the year.

Item 3. Legal Proceedings

Albemarle Corporation et al. vs. MEMC Electronic Materials, Inc., et al.

In a case entitled Damewood vs. Ethyl Corporation, et al. (Cause No. 96-38521), filed on August 1, 1996, three employees of the former operator of MEMC Pasadena’s plant, Albemarle Corporation, filed suit against us and others in the 189th Judicial District Court, Harris County, Texas. The employees alleged that they sustained injuries during an explosion at that plant on January 27, 1996. We settled this matter with the plaintiffs and were dismissed as a party. One of the other defendants, Ethyl Corporation, was the only defendant in this case at the time of trial in October 1998. A jury awarded a verdict in favor of the plaintiffs that resulted in a judgment against Ethyl Corporation in the amount of $6.8 million. Ethyl Corporation appealed this judgment. Ethyl Corporation and the plaintiffs subsequently settled this matter for $5.2 million.

On September 29, 1998, Albemarle Corporation made a demand against us for defense and indemnity in this case on behalf of Ethyl Corporation. Albemarle Corporation assumed the obligation to defend and indemnify Ethyl Corporation under an agreement in which Ethyl Corporation transferred ownership of the plant where the injury took place to Albemarle Corporation. In November 1998, we made a demand for indemnity in this case against Albemarle Corporation. Demands for indemnity made by Albemarle Corporation on behalf of Ethyl Corporation and by us are both based on contractual indemnity language contained in the contract for the sale of the MEMC Pasadena plant from Albemarle Corporation to us.

In a case entitled Albemarle Corporation et al. vs. MEMC Electronic Materials, Inc., et al. (Cause No. 2002-59930), filed on November 20, 2002 in the 55th Judicial District Court, Harris County, Texas, Albemarle and its insurers filed suit against us and MEMC Pasadena seeking indemnification and costs of defense in the above matter. On February 14, 2003, we filed an answer denying the allegations by Albemarle Corporation and its insurers. On March 17, 2003, we filed a counterclaim against Albemarle Corporation seeking indemnification, costs of defense and payment of certain funds recovered by Albemarle Corporation’s workers’ compensation carrier in connection with the above matter. On October 22, 2004, the trial court entered an order granting Albemarle’s motion for summary judgment and denying our motion for summary judgment. The trial court did not consider the issue of damages. We appealed the trial court’s summary judgment decision to the Court of Appeals for the First District of Texas on April 15, 2005.

The appellate court held oral argument in this matter on January 23, 2007. On February 15, 2007, the appellate court ruled in our favor, concluding that under the contract for the sale of the MEMC Pasadena plant from Albemarle Corporation to us, we were not obligated to indemnify Albemarle. Accordingly, the appellate court reversed the summary judgment ruling of the trial court, and rendered judgment in favor of MEMC, stating that the trial court erred by granting partial summary judgment for Albemarle, and also erred by failing to grant partial summary judgment in favor of MEMC.

Sumitomo Mitsubishi Silicon Corporation et al. vs. MEMC Electronic Materials, Inc.

On December 14, 2001, MEMC filed a lawsuit against Sumitomo Mitsubishi Silicon Corporation (“SUMCO”) and several of its affiliates in the Northern District of California (the “First SUMCO Case”) alleging infringement of one of MEMC’s U.S. patents. On March 16, 2004, the court entered summary judgment against MEMC. MEMC appealed this decision to the U.S. Federal Circuit Court of Appeals, and on August 22, 2005, the U.S. Federal Circuit Court of Appeals reversed the grant of

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summary judgment with respect to inducement of infringement by SUMCO, and the case was remanded to the U.S. District Court for further proceedings. On February 24, 2006, the U.S District Court granted certain summary judgment motions of each of SUMCO and MEMC. In light of the summary judgment rulings in favor of SUMCO, on February 27, 2006 the U.S District Court issued a final judgment against MEMC in the First SUMCO Case. On February 28, 2006, MEMC filed its Notice of Appeal of the grant of certain of the summary judgment rulings in favor of SUMCO in the First SUMCO Case with the U.S. Federal Circuit Court of Appeals. MEMC and SUMCO filed their appellate briefs in this matter in 2006 and early 2007. Oral argument is expected in summer 2007, and a decision could come as early as fall 2007.

On July 13, 2004, SUMCO and certain of its affiliates filed a lawsuit against MEMC in the U.S. District Court for the District of Delaware (the “Second SUMCO Case”) in a case captioned Sumitomo Mitsubishi Silicon Corporation, aka SUMCO, a corporation of Japan and SUMCO USA Corporation, a Delaware corporation, v. MEMC Electronic Materials, Inc., a Delaware corporation, Civil Action No. 04-852-SLR. In May 2005, MEMC successfully had this case removed to the Northern District of California, although the Second SUMCO Case and the First SUMCO Case will not be consolidated. In the Second SUMCO Case, plaintiffs alleged that MEMC violated the antitrust laws by attempting to control sales of low defect silicon wafers in the United States, including through its patent policies and enforcement of its patents related to low defect silicon wafers. Plaintiffs also sought a declaratory judgment that plaintiffs’ wafers do not infringe the claims of two MEMC patents and that these two MEMC patents are invalid and unenforceable. Finally, plaintiffs alleged that these two MEMC patents are void and unenforceable because of MEMC’s alleged patent misuse. Plaintiffs sought treble damages in an unspecified amount, and attorneys’ fees and costs incurred by plaintiffs in the Second SUMCO Case and in the First SUMCO Case. MEMC asserted defenses against these claims, including a counterclaim for infringement of one of the two patents. In June 2006, in light of the pending appeal with the U.S. Federal Circuit Court of Appeals on certain matters from the First SUMCO Case, certain of the counts related to the two MEMC patents were dismissed from the Second SUMCO Case without prejudice. MEMC believes that SUMCO’s position in the Second SUMCO Case has no merit and is asserting a vigorous defense.

S.O.I.TEC Silicon on Insulator Technologies S.A. and Soitec USA, Inc. vs. MEMC Electronic Materials, Inc.

On November 21, 2005, S.O.I.TEC Silicon on Insulator Technologies S.A. and Soitec USA, Inc. (“Soitec”) filed a Complaint for Declaratory Judgment against MEMC in the U.S. District Court for the District of Delaware (Civil Action No. 05-806) alleging invalidity and/or non-infringement of seven MEMC U.S. patents. In January 2006, MEMC filed a motion to dismiss with respect to six of the seven patents in the case, and also brought a counterclaim against Soitec for infringement in the United States by Soitec of the remaining U.S. patent. The parties subsequently agreed to the dismissal of six of the seven patents from the case. Soitec filed an amended complaint in April 2006, and MEMC filed its amended answer and counterclaim in May 2006. Although the case is in the early stages, we believe that Soitec’s declaratory judgment action against us has no merit, and we are asserting a vigorous defense against that claim, as well as pursuing our counterclaim for infringement. Also, on December 28, 2005, MEMC filed suit against Soitec in France for infringement by Soitec of three of MEMC’s foreign patents. This case remains in the early stages. We do not believe that the Soitec cases, should they be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, however, the outcome of both matters are unpredictable and the result of either case could be unfavorable for MEMC.

ASi Industries GmbH vs. MEMC Electronic Materials, Inc. and MEMC Pasadena, Inc.

On June 19, 2006, ASi Industries GmbH (“ASi”) filed a Complaint for Breach of Contract and Declaratory Judgment against MEMC in the U.S. District Court for the Eastern District of Missouri (Civil Action No. 4:06-CV-00951-CDP) alleging breach of contract by MEMC, unjust enrichment, tortious interference with ASi’s contracts, antitrust violations and seeking a declaratory judgment of non-infringement, all related to a purchase order agreement related to polysilicon. MEMC filed its answer and related counterclaims in August 2006. In November 2006, the District Court granted MEMC’s motion to dismiss ASi’s antitrust claims. ASi also agreed at that time to dismiss its unjust enrichment claims. Although the case is in the very early stages, we believe our actions under the purchase order at issue were permitted, and are asserting a vigorous defense, as well as pursuing our counterclaims for infringement related to certain intellectual property related to polysilicon technology.

We do not believe that the ASi case, should it be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, however, the outcome of this matter is unpredictable and the result of the case could be unfavorable for MEMC.

Semi-Materials Co., Ltd. vs. MEMC Electronic Materials, Inc. and MEMC Pasadena, Inc.

On September 28, 2006, Semi-Materials Co., Ltd. (“Semi-Materials”) filed a Complaint for Breach of Contract against MEMC in the U.S. District Court for the Eastern District of Missouri (Civil Action No. 4:06-CV-01426-FRB) alleging breach of contract by MEMC, unjust enrichment, fraud, conversion and seeking specific performance, all related to a series of purchase orders for chunk polysilicon and polysilicon solar ingot. MEMC filed its answer in the case in December 2006. Although the case is in the very early stages, we believe our actions under the purchase orders at issue were permitted, and we intend to assert a vigorous defense.

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We do not believe that the Semi-Materials case, should it be decided against MEMC, in whole or in part, will have a material adverse effect on us. Due to uncertainty regarding the litigation process, the outcome of this matter is unpredictable and the result of the case could be unfavorable for MEMC.

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Item 4. Submission of Matters to a Vote of Security Holders

The following matters were voted upon at the Annual Meeting of Stockholders held on October 25, 2006 and received the votes set forth below:

1. Mr. Robert J. Boehlke was elected to serve as a Class II director for a term expiring in 2009, receiving the number of votes set forth below:

For	Withheld
194,263,098	8,318,688

2. Mr. C. Douglas Marsh was elected to serve as a Class II director for a term expiring in 2009, receiving the number of votes set forth below:

For	Withheld
194,398,994	8,182,792

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Executive Officers of the Registrant

The following is information concerning our executive officers as of January 31, 2007.

Name	Age	All Positions and Offices Held
Nabeel Gareeb	42	President, Chief Executive Officer and Director
Kenneth H. Hannah	38	Senior Vice President and Chief Financial Officer
Sean Hunkler	44	Senior Vice President, Manufacturing
John A. Kauffmann	50	Senior Vice President, Sales and Marketing
Shaker Sadasivam	47	Senior Vice President, Research and Development
Mignon Cabrera	47	Senior Vice President, Human Resources
Michael Cheles	48	Vice President, Information Technology and CIO
Bradley D. Kohn	38	Vice President, General Counsel and Corporate Secretary

Mr. Gareeb has been our President and Chief Executive Officer since April 2002 and has been a Director since that time. Prior to joining MEMC, Mr. Gareeb was Chief Operating Officer of International Rectifier Corporation, a leading supplier of power semiconductors. Mr. Gareeb joined International Rectifier in 1992 as Vice President of Manufacturing and subsequently held other senior management positions.

Mr. Hannah joined us as Senior Vice President and Chief Financial Officer in April 2006. Prior to joining MEMC, Mr. Hannah was employed by The Home Depot, Inc. from 2003 to 2006. Mr. Hannah most recently served as the Senior Vice President, Operations, covering all aspects of The Home Depot’s operations in the United States, Mexico, and Canada. Prior to that, he served as Senior Vice President, Finance, supporting all Home Depot stores in the United States and Mexico, as well as store operations and the global supply chain. Before Home Depot, from 2001 to 2003 Mr. Hannah worked as Vice President for The Boeing Company where he led the audit and financial planning functions. He also held senior finance positions at several GE divisions from 1997 to 2001.

Mr. Hunkler joined us in August 2005 as Senior Vice President, Manufacturing. Prior to MEMC, from June 1984 to July 2005, Mr. Hunkler worked for Freescale Semiconductor (previously Motorola (Semiconductor Products Sector)), where he was in charge of Final Manufacturing and, before that, Worldwide Wafer Fab Operations.

Mr. Kauffmann has been our Senior Vice President, Sales and Marketing since October 2004. Mr. Kauffmann served as Vice President, Marketing from August 2003 to October 2004 and Acting Vice President, Sales and Marketing from March 2003 to August 2003. Mr. Kauffmann served as our Director, Segment Marketing from August 2002 to February 2003 and as the Commercial Manager for our 300 millimeter business unit from June 2000 to July 2002. From September 1994 to May 2000, Mr. Kauffmann held various positions with MEMC in Taiwan including Technical Director from September 1994 to December 1997, Director of Operations from December 1997 to April 1999, and Director, Foundry Marketing from April 1999 to May 2000. From February 1980 to August 1994, Mr. Kauffmann held manufacturing positions in one of our U.S. manufacturing plants.

Dr. Sadasivam has been our Senior Vice President, Research and Development since July 2002. Dr. Sadasivam was President of MEMC Japan Ltd., our Japanese subsidiary, from April 2002 to June 2002. From July 2000 to March 2002, Dr. Sadasivam served as our Director, Worldwide Operations Technology. Dr. Sadasivam was Director, Technology for MEMC Korea Company, our South Korean subsidiary, from July 1999 to June 2000. From September 1997 to June 1999, Dr. Sadasivam held positions in the manufacturing technology group for our St. Peters facility.

Ms. Cabrera joined MEMC in August 2006 as Senior Vice President, Human Resources. Prior to joining MEMC, Ms. Cabrera was owner and principal of Professional Consulting Services, a human resource consulting firm, from September 2005 to August 2006. Previous to her consulting experience, from January 1999 to August 2005, Ms. Cabrera served as Vice President of Human Resources and General Affairs with Samsung Telecommunications America.

Mr. Cheles joined MEMC in September 2006 as Vice President, Information Technology and Chief Information Officer. Prior to joining MEMC, Mr. Cheles was a Director of Information for the Uniprise Division of United HealthCare, from April 2005 to August 2006. Previous to his employment with Uniprise, Mr. Cheles was Vice President, Information Technology at Hussmann Corporation from July 1997 to February 2004.

Mr. Kohn joined MEMC in September 2005 as Vice President, General Counsel and Corporate Secretary. Prior to joining MEMC, from March 2000 until September 2005, Mr. Kohn was with Pillsbury Winthrop Shaw Pittman LLP (formerly Pillsbury Madison & Sutro LLP) in its Palo Alto office, most recently as a partner in the Corporate Securities Group.

There are no family relationships between or among any of the named officers and the directors.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

The narrative and tabular information regarding the market for our common equity and related stockholder matters required by this item is set forth under Note 18, “Unaudited Quarterly Financial Information”, of Notes to Consolidated Financial Statements, included in our 2006 Annual Report and under “Stockholders’ Information” in our 2006 Annual Report, which information is incorporated herein by reference. We have not paid any dividends on our common stock for the last three fiscal years. Under the terms of our $200 million National City Bank revolving credit facility, we are prohibited from paying cash dividends on our common stock. Likewise, under the restructuring agreement between us and TPG, we cannot pay cash dividends on our common stock without the consent of TPG.

The information required under this Item 5 concerning equity compensation plan information is set out below under Item 12 and is incorporated herein by this reference.

Item 6. Selected Financial Data

The tabular information (including the footnotes thereto) required by this item is set forth under “Five Year Selected Financial Highlights” in our 2006 Annual Report, which information is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information required by this item is set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Annual Report, which information is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is set forth under “Market Risk” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Annual Report, which information is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The information required by this item is set forth under “Consolidated Statements of Operations”, “Consolidated Balance Sheets”, “Consolidated Statements of Cash Flows”, “Consolidated Statements of Stockholders’ Equity”, “Notes to Consolidated Financial Statements” and “Report of the Independent Registered Public Accounting Firm” in our 2006 Annual Report, all of which are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

The information required by this item is set forth under “Management’s Report on Internal Control Over Financial Reporting” in our 2006 Annual Report, which information is incorporated herein by reference.

Item 9B. Other Information

None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be set forth in the 2007 Proxy Statement under “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference. The remaining information required by this item with respect to directors will be set forth in the 2007 Proxy Statement under “INFORMATION ABOUT NOMINEES AND CONTINUING DIRECTORS” and is incorporated herein by reference. Information required by this Item relating to our Code of Ethics and Audit Committee will be set forth in the 2007 Proxy Statement under “Board of Directors and Committees of the Board.” The remaining information required by this item with respect to executive officers is set forth in Part I of this Annual Report on Form 10-K under “Executive Officers of the Registrant.”

Item 11. Executive Compensation

The information required by this Item will be set forth in our 2007 Proxy Statement under the headings “Director Compensation”, “Compensation Discussion and Analysis”, “Report of the Compensation Committee”, “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item will be set forth in our 2007 Proxy Statement under the headings “Beneficial Ownership by Directors and Executive Officers” and “Ownership of MEMC Equity Securities by Certain Beneficial Owners” and is incorporated herein by reference.

Equity Compensation Plans

The following table summarizes certain information regarding MEMC securities that have been and may be issued pursuant to our equity compensation plans as of December 31, 2006.

	(a)	(b)	(c)
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1)
Equity compensation plans approved by security holders	10,708,414 shares of common stock	$20.37	1,899,556 shares of common stock
Equity compensation plans not approved by security holders(2)	62,500 shares of common stock	$1.50	0 shares of common stock
Total	10,770,914 shares of common stock	$20.26	1,899,556 shares of common stock

(1) Number of shares is subject to adjustment for changes in capitalization for stock splits, stock dividends and similar events.

(2) Represents a stock option grant agreement for a nonqualified stock option granted in March 2002 to Nabeel Gareeb to purchase 650,000 shares of common stock at an exercise price of $1.50 per share. Of these shares, as of December 31, 2006, 587,500 have been issued upon exercise and 62,500 were vested but unexercised. These options expire on March 15, 2007.

Item 13. Certain Relationships and Related Transactions

The information required by this Item will be set forth in our 2007 Proxy Statement under the heading “Certain Transactions” and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information required by this Item will be set forth in our 2007 Proxy Statement under the heading “Principal Accounting Firm Services and Fees” and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) The following documents are filed as part of this report:

1. Financial Statements

The following consolidated financial statements of us and our subsidiaries and the Reports of the Independent Registered Public Accounting Firm of KPMG LLP are included in our 2006 Annual Report, and are incorporated herein by reference:

Consolidated Statements of Operations—Years Ended December 31, 2006, 2005 and 2004.

Consolidated Balance Sheets—December 31, 2006 and 2005.

Consolidated Statements of Cash Flows—Years Ended December 31, 2006, 2005 and 2004.

Consolidated Statements of Stockholders’ Equity —Years Ended December 31, 2006, 2005 and 2004.

Notes to Consolidated Financial Statements.

Report of the Independent Registered Public Accounting Firm.

2. Financial Statement Schedules

None.

3. Exhibits

Exhibit No.	Description
2.1	Restructuring Agreement between TPG Wafer Holdings LLC and the Company, dated as of November 13, 2001 (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated November 28, 2001)
2.2	Merger Agreement between TPG Wafer Holdings LLC and the Company, dated as of November 13, 2001 (Incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K dated November 28, 2001)
3.1	Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3-a of the Company’s Form 10-Q for the Quarter ended June 30, 1995)
3.2	Certificate of Amendment of Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on June 2, 2000 (Incorporated by reference to Exhibit 3-(i)(a) of the Company’s Form 10-Q for the Quarter ended June 30, 2000)
3.3	Certificate of Amendment of Restated Certificate of Incorporation of the Company as filed with the Secretary of State of the State of Delaware on July 10, 2002 (Incorporated by reference to Exhibit 3-(i)(b) of the Company’s Form 10-Q for the Quarter ended September 30, 2002)
3.4	Restated By-laws of the Company (Incorporated by reference to Exhibit 3(ii) of the Company’s Form 10-Q for the Quarter ended March 31, 2004)
4.1	Form of Warrant Certificate (Incorporated by reference to Exhibit 4.6 of the Company’s Current Report on Form 8-K dated November 28, 2001)
10.1	Joint Venture Agreement dated August 28, 1990 among the Company, Pohang Iron and Steel Company, Ltd. (“POSCO”) and Samsung Electronics Company, Ltd. (“Samsung”) (Incorporated by reference to Exhibit 10-c of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412)
10.2	First Amendment to Joint Venture Agreement dated December 9, 1993 among the Company, POSCO and Samsung (Incorporated by reference to Exhibit 10-d of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412)
10.3	Second Amendment to Joint Venture Agreement dated December 30, 1994 among the Company, POSCO and Samsung (Incorporated by reference to Exhibit 10-e of Amendment No. 1 to the Company’s Form S-1 Registration Statement No. 33-92412)

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10.4	Registration Rights Agreement by and among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein, dated as of November 3, 2001 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated November 28, 2001)
10.5	Amendment to Registration Rights Agreement dated July 15, 2002, among the Company, TPG Wafer Holdings LLC and Guarantors specified therein (Incorporated by reference to Exhibit 10-i(1) of the Company’s Form 10-Q for the Quarter ended September 30, 2002)
10.6	Amendment No. 2 to Registration Rights Agreement dated November 14, 2002, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(2) of the Company’s Form 10-K for the Year ended December 31, 2002)
10.7	Amendment No. 3 to Registration Rights Agreement dated February 17, 2003, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(3) of the Company’s Form 10-Q for the Quarter ended March 31, 2003)
10.8	Amendment No. 4 to Registration Rights Agreement dated August 31, 2003, among the Company, TPG Wafer Holdings LLC and the Guarantors specified therein (Incorporated by reference to Exhibit 10-i(4) of the Company’s Form 10-Q for the Quarter ended September 30, 2003)
10.9	MEMC Technology License Agreement dated as of July 31, 1995, between Albemarle Corporation and the Company (Incorporated by reference to Exhibit 10-tt of the Company’s Form 10-K for the Year ended December 31, 1995)
*10.10	Seller Technology License Agreement dated as of July 31, 1995, among Albemarle Corporation, the Company, and MEMC Pasadena, Inc. (Incorporated by reference to Exhibit 10-ll of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997)
*10.11	Technology Purchase Agreement dated as of July 31, 1995, among Albemarle Corporation and the Company (Incorporated by reference to Exhibit 10-mm of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997)
10.12	Ground Lease Agreement dated as of July 31, 1995, between Albemarle Corporation and MEMC Pasadena, Inc. (Incorporated by reference to Exhibit 10-nn of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997)
10.13	Amendment to Ground Lease Agreement dated as of May 31, 1997, between the Company, MEMC Pasadena, Inc., and Albemarle Corporation (Incorporated by reference to Exhibit 10-nn(1) of the Company’s Form 10-K/A Amendment No. 2 for the Year ended December 31, 1997)
†10.14	MEMC Electronic Materials, Inc. 1995 Equity Incentive Plan as Amended and Restated on January 26, 2004 (Incorporated by reference to Exhibit 10-cc of the Company’s Form 10-K for the Year ended December 31, 2003)
†10.15	Form of Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10-cc(1) of the Company Form 10-Q for the Quarter ended June 30, 2004)
†10.16	Form of Stock Option and Restricted Stock Agreement (Incorporated by reference to Exhibit 10-t(1) of the Company’s Form 10-K for the Year ended December 31, 1995)
†10.17	Form of Stock Option and Performance Restricted Stock Agreement (Incorporated by reference to Exhibit 10-yy of the Company’s Form 10-K for the Year ended December 31, 1995)
†10.18	Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-zz of the Company’s Form 10-K for the Year ended December 31, 1995)
†10.19	Form of Stock Option and Performance Restricted Stock Agreement (Incorporated by reference to Exhibit 10-nnn of the Company’s Form 10-Q for the Quarter ended March 31, 1997)
†10.20	Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-ooo of the Company’s Form 10-Q for the Quarter ended March 31, 1997)
†10.21	Form of Stock Option Agreement (Non-employee Directors) (Incorporated by reference to Exhibit 10-ppp of the Company’s Form 10-Q for the Quarter ended March 31, 1997)
†10.22	Form of Stock Option Agreement (Incorporated by reference to Exhibit 10-cc(7) of the Company’s Form 10-K for the Year ended December 31, 1999)

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†10.23	Form of Stock Option Agreement (4-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(9) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.24	Form of Stock Option Agreement (2-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(10) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.25	Form of Stock Option Agreement (7-year cliff vesting) (Incorporated by reference to Exhibit 10-cc(11) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.26	Form of Stock Option Agreement (Outside Directors) (Incorporated by reference to Exhibit 10-cc(12) of the Company’s Form 10-K for the Year ended December 31, 2003)
†10.27	MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan as Restated on March 2, 2004 (Incorporated by reference to Exhibit 10-dd of the Company’s Form 10-K for the Year ended December 31, 2003)
†10.28	Form of Stock Option Agreement (4 year vesting) (Incorporated by reference to Exhibit 10-dd(1) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.29	Form of Stock Option Agreement (7 year cliff vesting) (Incorporated by reference to Exhibit 10-dd(2) of the Company’s Form 10-Q for the Quarter ended March 31, 2002)
†10.30	Form of Stock Option Agreement (end of contract vesting) (Incorporated by reference to Exhibit 10-dd(3) of the Company’s Form 10-K for the Year ended December 31, 2002)
†10.31	Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.1 to the Company’s Form S-8 Registration Statement filed March 1, 2002)
†10.32	Stock Option Grant Agreement (Incorporated herein by reference to Exhibit 99.2 to the Company’s Form S-8 Registration Statement filed March 1, 2002)
†10.33	Written Description of MEMC Electronic Materials, Inc. Cash Incentive Plan Covering Executive Officers (Incorporated by reference to Exhibit 10-hh of the Company’s Form 10-Q for the Quarter ended September 30, 2004)
†10.34	Stock Option Grant Agreement (Four Year Vesting) (Incorporated by reference to Exhibit 10-ii(2) of the Company’s Form 10-Q for the Quarter ended June 30, 2002)
†10.35	Form of Restricted Stock Unit Award Agreement under the 2001 Equity Incentive Plan (Incorporated by reference to Exhibit 10.44 of the Company’s Form 10-K for the year ended December 31, 2005)
†10.36	Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj of the Company’s Form 10-Q for the Quarter ended September 30, 2002)
†10.37	Form of Indemnification Agreement (Incorporated by reference to Exhibit 10-jj(1) of the Company’s Form 10-Q for the Quarter ended March 31, 2003)
10.38	Reimbursement Agreement, dated as of December 21, 2001 by and among the Company, TPG Partners III, L.P., TCW/Crescent Mezzanine Partners III, L.P, TCW/Crescent Mezzanine Trust III, Green Equity Investors III, L.P. and Green Equity Investors Side III, L.P, and Citicorp USA, Inc. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 14, 2002)
10.39	Letter Agreement of March 24, 2005 with TPG GenPar III, L.P., terminating Management Advisory Agreement between the parties (Incorporated by reference to Exhibit 10 of the Company’s Form 10-Q for the Quarter ended March 31, 2005)
10.40	Revolving Credit Agreement, dated as of July 21, 2005, by and among the Company, National City Bank of the Midwest, US Bank National Association and the other lender signatories thereto (Incorporated by reference to Exhibit 10-eee(1) of the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2005)
10.41	Subsidiary Guarantee, dated as of July 21, 2005, by and among the Company, National City Bank of the Midwest, as Administrative Agent, and the guarantor signatories thereto (Incorporated by reference to Exhibit 10-eee(2) of the Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2005)
10.42	Amendment No. 1 to Revolving Credit Agreement, dated as of December 20, 2006, by and among the Company, National City Bank of the Midwest, US Bank National Association and the other lender signatories thereto
†10.43	Employment Agreement, effective as of October 25, 2006, between the Company and Nabeel Gareeb
†10.44	Stock Option Grant Agreement (Performance Based Vesting)

21

10.45	Solar Wafer Supply Agreement, dated as of July 25, 2006, by and between the Company and Suntech Power Holdings Co. Ltd. (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended September 30, 2006)*
10.46	Solar Wafer Supply Agreement, dated as of October 25, 2006, by and between the Company and Gintech Energy Corporation*
10.47	Summary of Director Compensation
10.48	Summary of Compensation Arrangements for Certain Named Executive Officers
13	Selected pages from the Company’s 2006 Annual Report to Stockholders
21	Subsidiaries of the Company
23	Consent of KPMG LLP
31.1	Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Confidential treatment of certain portions of these documents has been requested or granted.

† These exhibits constitute management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEMC ELECTRONIC MATERIALS, INC.
By:	/S/ NABEEL GAREEB
	Nabeel Gareeb President and Chief Executive Officer

Date: February 28, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ NABEEL GAREEB	President, Chief Executive Officer and Director (Principal executive officer)	February 28, 2007
Nabeel Gareeb
/s/ KENNETH H. HANNAH	Senior Vice President and Chief Financial Officer (Principal financial officer and accounting officer)	February 28, 2007
Kenneth H. Hannah
/s/ PETER BLACKMORE	Director	February 27, 2007
Peter Blackmore
/s/ ROBERT J. BOEHLKE	Director	February 26, 2007
Robert J. Boehlke
/s/ JOHN MARREN	Chairman of the Board of Directors	February 27, 2007
John Marren
/s/ C. DOUGLAS MARSH	Director	February 28, 2007
C. Douglas Marsh
/s/ WILLIAM E. STEVENS	Director	February 28, 2007
William E. Stevens
/s/ JAMES B. WILLIAMS	Director	February 27, 2007
James B. Williams

23

EXHIBIT INDEX

The following exhibits are filed as part of this report.

10.42	Amendment No. 1 to Revolving Credit Agreement, dated as of December 20, 2006, by and among the Company, National City Bank of the Midwest, US Bank National Association and the other lender signatories thereto
†10.43	Employment Agreement, effective as of October 25, 2006, between the Company and Nabeel Gareeb
†10.44	Stock Option Grant Agreement (Performance Based Vesting)
10.46	Solar Wafer Supply Agreement, dated as of October 25, 2006, by and between the Company and Gintech Energy Corporation*
10.47	Summary of Director Compensation
10.48	Summary of Compensation Arrangements for Certain Named Executive Officers
13	Selected pages from the Company’s 2006 Annual Report to Stockholders
21	Subsidiaries of the Company
23	Consent of KPMG LLP
31.1	Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification by the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

24

EX-10.42

Exhibit 10.42

Execution Version

MEMC ELECTRONIC MATERIALS, INC.

as the Borrower

THE LENDING INSTITUTIONS NAMED HEREIN

as Lenders

and

NATIONAL CITY BANK,

as a Lender, the Swing Line Lender, the Issuing Bank,

the Administrative Agent and the Collateral Agent

AMENDMENT NO. 1

dated as of

December 20, 2006,

to

REVOLVING CREDIT AGREEMENT

dated as of

July 21, 2005

AMENDMENT NO. 1

THIS AMENDMENT NO. 1 (this “Amendment”) is entered into as of December 20, 2006 (the “Amendment Closing Date”), among the following:

(i) MEMC ELECTRONIC MATERIALS, INC., a Delaware corporation (herein, together with its successors and assigns, the “Borrower”);

(ii) the lending institutions signatory hereto (herein, together with their successors and assigns, each a “Lender” and collectively, the “Lenders”); and

(iii) NATIONAL CITY BANK, a national banking association (successor to National City Bank of the Midwest), as a Lender, the Swing Line Lender, the Issuing Bank, and as the administrative agent (the “Administrative Agent”), the collateral agent (the “Collateral Agent”).

PRELIMINARY STATEMENTS:

A. The Borrower, the Lenders and the Administrative Agent entered into the Revolving Credit Agreement, dated as of July 21, 2005 (the “Credit Agreement”). All capitalized terms used in this Amendment but not otherwise defined shall have the meanings given to such terms in the Credit Agreement.

B. In connection with the Credit Agreement, the Borrower, the Subsidiary Guarantors and the Collateral Agent executed the Pledge Agreement, dated as of July 21, 2005 (the “Pledge Agreement”).

C. The parties hereto desire to amend certain provisions of the Credit Agreement and terminate the Pledge Agreement, as more fully set forth below.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. AMENDMENTS & TERMINATION. Effective on and as of the Amendment Effective Date (as defined in Section 2 of this Amendment):

1.1 AMENDMENT TO SCHEDULE 1. Schedule 1 to the Credit Agreement shall be amended and restated as set forth at Exhibit A to this Amendment.

1.2 AMENDMENT OF SECTION 1.1. The definition of “Additional Security Document” is hereby deleted from Section 1.1 of the Credit Agreement.

1.3 AMENDMENT OF SECTION 2.7(F). Section 2.7(f) of the Credit Agreement is hereby amended and restated as follows:

(f) Interest Rate Margins. As used herein the terms “Applicable Prime Rate Margin”, “Applicable Eurocurrency Margin” and “Applicable Commitment Fee Rate” shall mean the particular rate per annum determined by the Administrative Agent in accordance with the Pricing Grid Table which appears below, based on the Borrower’s ratio of Consolidated Total Funded Debt as of the end of each fiscal quarter to Consolidated EBITDA for the Testing Period most recently ended and the following provisions:

(A) On the Amendment Effective Date, until changed hereunder in accordance with the following provisions, the Applicable Prime Rate Margin for Revolving Loans and Swing Line Loans will be 0.00 basis points per annum, the Applicable Eurocurrency Margin for Revolving Loans will be 34.00 basis points per annum, and the Applicable Commitment Fee Rate shall be 8.00 basis points per annum.

(B) Commencing with the fiscal quarter of the Borrower ended on or nearest to December 31, 2006, and continuing with each fiscal quarter thereafter, the Administrative Agent will determine the Applicable Prime Rate Margin or Applicable Eurocurrency Margin for any Revolving Loan or Swing Line Loan and the Applicable Commitment Fee Rate in accordance with the Pricing Grid Table, based on the Borrower’s ratio of (x) Consolidated Total Funded Debt as of the end of the fiscal quarter, to (y) Consolidated EBITDA for the Testing Period ended on the last day of the fiscal quarter, as identified in such Pricing Grid Table. Changes in the Applicable Prime Rate Margin, Applicable Eurocurrency Margin or Applicable Commitment Fee Rate based upon changes in such ratio shall become effective on the first day of the month following the receipt by the Administrative Agent pursuant to section 8.1(a) or (b) of the financial statements of the Borrower, accompanied by the certificate and calculations referred to in section 8.1(c), demonstrating the computation of such ratio, based upon the ratio in effect at the end of the applicable period covered (in whole or in part) by such financial statements.

(C) Notwithstanding the above provisions, during any period when (1) the Borrower has failed to timely deliver its consolidated financial statements referred to in section 8.1(a) or (b), accompanied by the certificate and calculations referred to in section 8.1(c) or (2) an Event of Default has occurred and is continuing, the Applicable Prime Rate Margin and the Applicable Eurocurrency Margin for Revolving Loans and Swing Line Loans and the Applicable Commitment Fee Rate shall be the highest rate per annum indicated therefor in the Pricing Grid Table, regardless of the Borrower’s ratio of Consolidated Total Debt to Consolidated EBITDA at such time.

(D) Any changes in the Applicable Prime Rate Margin or Applicable Eurocurrency Margin for Revolving Loans or Swing Line Loans and the Applicable Commitment Fee Rate shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent will promptly provide notice of such determinations to the Borrower and the Lenders. Any such determination by the Administrative Agent pursuant to this section 2.7(f) shall be conclusive and binding absent manifest error.

PRICING GRID TABLE

(Expressed in Basis Points)

Ratio of Consolidated Total Funded Debt To Consolidated EBITDA	Applicable Prime Rate Margin	Applicable Eurocurrency Margin	Applicable Commitment Fee Rate
Greater than or equal to 2.00 to 1.00	0.0	47.5	15.0
Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00	0.0	37.5	12.5
Greater than or equal to 1.00 to 1.00 and less than 1.50 to 1.00	0.0	35.0	10.0
Less than 1.00 to 1.00	0.0	34.0	8.0

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1.4 AMENDMENT OF SECTION 4.1. Section 4.1(a) of the Credit Agreement shall be amended and restated as follows:

4.1(a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent fees (“Commitment Fees”) for the account of each Non-Defaulting Lender for the period from and including the Amendment Effective Date to, but not including, the Maturity Date or, if earlier, the date upon which the Total Revolving Commitment has been terminated, computed for each day at a rate per annum equal to the Applicable Commitment Fee Rate for such day on the amount of such Lender’s Revolving Commitment for such day. Commitment Fees shall be due and payable in arrears on April 1, July 1, October 1 and January 1 and on the Maturity Date or, if earlier, the date upon which the Total Revolving Commitment has been terminated.

1.5 AMENDMENT TO SCHEDULE 7.2. Schedule 7.2 to the Credit Agreement shall be amended and restated as set forth at Exhibit B to this Amendment.

1.6 AMENDMENT OF SECTION 8.12. Section 8.12 of the Credit Agreement shall be deleted in its entirety and replaced with the following:

8.12 [Reserved].

1.7 AMENDMENT OF SECTION 9.2. The last paragraph of Section 9.2 of the Credit Agreement shall be amended and restated as follows:

With respect to any Subsidiary which is a party to the Subsidiary Guaranty, such Subsidiary shall be released from the Subsidiary Guaranty if all of such Subsidiary’s capital stock (or other equity interests) are disposed of in accordance with this Section 9.2; and the Administrative Agent and the Collateral Agent shall be authorized to take actions deemed appropriate by them in order to effectuate the foregoing.

1.8 AMENDMENT OF SECTION 9.4. Section 9.4 of the Credit Agreement shall be amended by adding an additional subclause (j) as follows:

(j) Existing Letter of Credit: the letter of credit in the face amount of $2,550,000 issued by U.S. Bank, National Association for the benefit of the Missouri Department of Natural Resources having a letter of credit number of SLCL120281 and an annual expiration date of June 9th with automatic annual extensions.

3

1.9 TERMINATION OF PLEDGE AGREEMENT. Notwithstanding Sections 7.19 and 10.1(f) of the Credit Agreement, the Pledge Agreement shall be terminated and shall be of no further force and effect and all Pledged Stock and Pledged Equity Interests (each as defined in the Pledge Agreement) shall be promptly returned to the Borrower by the Collateral Agent. The termination of the Pledge Agreement pursuant to this Amendment shall not constitute a breach of the representation set forth in Section 7.19 of the Credit Agreement now or subsequent to the date hereof, and such termination shall not constitute a Default or an Event of Default pursuant to Section 10.1(f) of the Credit Agreement.

1.10 EXISTING LETTER OF CREDIT. Notwithstanding Section 3.1(d) of the Credit Agreement, the Existing Letter of Credit did not become a Letter of Credit under the Credit Agreement. The parties hereto acknowledge the terms of the Credit Agreement do not apply to the Existing Letter of Credit.

SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows:

2.1 AUTHORITY. This Amendment has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed and delivered by a duly authorized officer of the Borrower and constitutes the valid and binding agreement of the Borrower enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors’ rights and by equitable principles (regardless of whether enforcement is sought in equity or at law).

2.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Borrower contained in the Credit Agreement or in the other Credit Documents are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate to a specified date, in which case such representations and warranties are hereby reaffirmed as true and correct when made.

2.3 NO CLAIMS. No Credit Party has any claim or offset against, or defense or counterclaim to, the Borrower’s obligations or liabilities under the Credit Agreement or other Credit Documents.

2.4 NO EVENT OF DEFAULT. No Default or Event of Default has occurred or exists.

SECTION 3. CONDITIONS PRECEDENT.

This Amendment shall become effective on the date (the “Amendment Effective Date”) the following conditions shall have been satisfied:

3.1 EXECUTION AND DELIVERY. This Amendment shall have been executed by the Borrower, the Administrative Agent and each Lender and counterparts hereof as so executed shall have been delivered to the Administrative Agent. The Guarantor Acknowledgement attached hereto shall have been executed by the Subsidiary Guarantors and counterparts hereof as so executed shall have been delivered to the Administrative Agent; and

3.2 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and all documents incidental to the transactions contemplated hereby shall be satisfactory in form and substance

4

satisfactory to the Administrative Agent, and the Administrative Agent and its special counsel and the Lenders shall have received all such counterpart originals or certified or other copies of such documents as the Administrative Agent or its special counsel or any Lender may reasonably request;

and thereafter this Amendment shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent for the benefit of the Lenders, and the Lenders and their respective successors and assigns.

SECTION 4. MISCELLANEOUS.

4.1 RATIFICATIONS; FULL FORCE AND EFFECT. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement, and except as specifically modified or amended by the terms of this Amendment, the Credit Agreement and the other Credit Documents and all provisions contained therein are, and will continue to be, in full force and effect and are hereby ratified and confirmed.

4.2 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure to the benefit of the Borrower, the Lenders and the Administrative Agent and their respective permitted successors and assigns.

4.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them.

4.4 REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all other agreements, instruments or documents now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby.

4.5 EXPENSES. The Borrower agrees to pay on demand all costs and expenses incurred by the Administrative Agent and Lenders in connection with the preparation, negotiation and execution of this Amendment, including without limitation, the reasonable costs and fees of the Administrative Agent’s special legal counsel, regardless of whether this Amendment becomes effective in accordance with the terms hereof, and all costs and expenses incurred by the Administrative Agent or any Lender in connection with the enforcement or preservation of rights under the Credit Agreement, as amended hereby.

4.6 SEVERABILITY. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment, and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable.

4.7 APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

4.8 HEADINGS. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

4.9 ENTIRE AGREEMENT. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documents

5

executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement.

4.10 COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall be deemed to be one and the same instrument.

4.11 SECURITY. The parties hereto acknowledge that pursuant to the terms of this Amendment, the Commitments extended under the Credit Agreement are unsecured.

[Signature pages follow.]

6

IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written.

MEMC ELECTRONIC MATERIALS, INC.
By:	/s/ Kenneth H. Hannah
Name:	Kenneth H. Hannah
Title:	Senior Vice President & Chief Financial Officer
NATIONAL CITY BANK,
Individually as a Lender and in its Capacity as the Administrative Agent
By:	/s/ Eric Hartman
Name:	Eric Hartman
Title:	Senior Vice President

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

U.S. BANK NATIONAL ASSOCIATION,
as a Lender
By:	/s/ Timothy M. Hill
Name:	Timothy M. Hill
Title:	Assistant Relationship Manager

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

LASALLE BANK NATIONAL
ASSOCIATION, as a Lender
By:	/s/ David B. Vande Ven
Name:	David B. Vande Ven
Title:	Vice President

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

PNC BANK, NATIONAL ASSOCIATION, as
a Lender
By:	/s/ Louis K. McLinden
Name:	Louis K. McLinden
Title:	Vice President

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

REGIONS BANK, as a Lender
By:	/s/ Daniel R. Kraus
Name:	Daniel R. Kraus
Title:	Vice President

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

FIFTH THIRD BANK (SOUTHERN
INDIANA), as a Lender
By:	/s/ Robert M. Sander
Name:	Robert M. Sander
Title:	Vice President

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

Exhibit A

SCHEDULE 1

INFORMATION AS TO LENDERS AND COMMITMENTS

Name of Lender	Revolving Commitment
National City Bank	$40,000,000
	Swing Line Commitment: $10,000,000
US Bank National Association	$35,000,0000
LaSalle Bank National Association	$35,000,000
PNC Bank, National Association	$30,000,000
Union Planters Bank, N.A. d/b/a Regions Bank	$30,000,000
Fifth Third Bank (Southern Indiana)	$30,000,000
TOTAL	$200,000,000.00

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

Exhibit B

Schedule 7.2

Information as to Subsidiaries

Name of Subsidiary	Jurisdiction Where Organized	Percentage of Outstanding Stock or Other Equity Interest Owned (Indicating whether owned by the Borrower or a specified Subsidiary)
MEMC Electronic Materials France Sarl	France	100% (MEMC Electronic Materials, S.p.A.)
MEMC Electronic Materials GmbH	Germany	100% (MEMC Electronic Materials, S.p.A.)
MEMC Electronic Materials, Sdn. Bhd.	Malaysia	100% (Borrower)
MEMC Electronic Materials Sales, Sdn. Bhd.	Malaysia	100% (Borrower)
MEMC Electronic Materials, S.p.A.	Italy	100% (Borrower)
MEMC Electronic Materials (UK) Ltd.	United Kingdom	100% (MEMC Electronic Materials, S.p.A.)
MEMC Holding B.V.	The Netherlands	100% (MEMC Electronic Materials, S.p.A.)
MEMC Holdings Corporation	Delaware	100% (Borrower)
MEMC International, Inc.	Delaware	100% (Borrower)
MEMC Japan Ltd.	Japan	100% (Borrower)
MEMC Korea Company	South Korea	40% (MEMC International, Inc.) 40% (MEMC Holding B.V.)
MEMC Kulim Electronic Materials, Sdn. Bhd.	Malaysia	75% (MEMC International, Inc.)
MEMC Pasadena, Inc.	Delaware	100% (Borrower)
MEMC Singapore Pte. Ltd.	Singapore	100% (MEMC International, Inc.)
Taisil Electronic Materials Corporation	Taiwan	54.95% (Borrower) 45.00% (MEMC International, Inc.)

SIGNATURE PAGE

TO AMENDMENT NO. 1

FOR MEMC ELECTRONIC MATERIALS, INC.

GUARANTOR ACKNOWLEDGMENT

The undersigned each consents and agrees to and acknowledges the terms of the foregoing Amendment No. 1 to Credit Agreement, dated as of December 20, 2006 (the “Amendment”). The undersigned each further agrees that its respective obligations pursuant to the Subsidiary Guaranty shall remain in full force and effect and be unaffected hereby.

The undersigned each hereby represents and warrants that there exists no claim or offset against, or defense or counterclaim to, any of its obligations or liabilities under the Credit Agreement or the Subsidiary Guaranty, as applicable, or any other Credit Document to which it is a party.

[Signatures follow.]

IN WITNESS WHEREOF, this Guarantor Acknowledgment has been duly executed and delivered as of the date of the Amendment.

MEMC HOLDINGS CORPORATION
By:	/s/ Kenneth H. Hannah
Name:	Kenneth H. Hannah
Title:	President & Assistant Secretary
MEMC INTERNATIONAL, INC.
By:	/s/ Kenneth H. Hannah
Name:	Kenneth H. Hannah
Title:	President & Assistant Secretary
MEMC PASADENA, INC.
By:	/s/ Kenneth H. Hannah
Name:	Kenneth H. Hannah
Title:	Chief Financial Officer & Assistant Secretary

EX-10.43

Exhibit 10.43

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the 25th day of October, 2006 (the “Effective Date”) by and between MEMC Electronic Materials Inc., a Delaware corporation (the “Company”), and Nabeel Gareeb (“Executive”).

WITNESSETH:

WHEREAS, the Company desires to continue to employ Executive as an executive officer of the Company and Executive desires to continue to be employed by the Company on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows:

1. Term; Position and Responsibilities. Unless Executive’s employment shall sooner terminate pursuant to Section 4 hereof, the Company shall employ Executive on the terms and subject to the conditions of this Agreement for the term commencing on the Effective Date and ending on December 31, 2010, provided that the term shall be automatically renewed for successive one-year terms following the expiration of the initial term described above (the initial term and each additional one-year term each, a “Term”), unless either party provides the other party with notice pursuant to Section 9(f) at least sixty (60) calendar days before the expiration of the applicable Term of its (or his) intention not to renew such Term, in which case the Executive’s employment shall terminate at the end of such Term. The entire period during which Executive is employed by the Company pursuant to this Agreement shall be referred to as the “Employment Period.” During the Employment Period, Executive shall serve as Chief Executive Officer and President of the Company and shall have such duties and responsibilities as are customarily assigned to individuals serving in such positions and such other duties as the Company specifies from time to time. During the Employment Period, the Company will also cause the Board of Directors of the Company (the “Board”) to nominate Executive for re-election to the Board when his term expires. Executive shall comply with all policies and procedures of the Company. Executive shall devote all of his skill, knowledge, commercial efforts and working time to the conscientious and faithful performance of his duties and responsibilities for the Company (except for (i) vacation time as set forth in Section 3(b) hereof and absence for sickness or similar disability and (ii) to the extent that it does not interfere with the performance of Executive’s duties hereunder, (A) such reasonable time as may be devoted to the fulfillment of Executive’s civic responsibilities, (B) such reasonable time as may be necessary from time to time for personal financial matters and (C) certain other activities with the prior written consent of the Board.

2. Compensation.

(a) Base Salary. As compensation for the services to be performed by Executive during the Employment Period, the Company shall pay Executive a base salary at an

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annualized rate of $850,000, payable in installments on the Company’s regular payroll dates. Executive’s base salary shall be reviewed annually by the Board and may be adjusted upwards by the Board, in its sole discretion. The annual base salary payable to Executive under this Section 2(a) shall hereinafter be referred to as the “Base Salary.”

(b) Annual Bonus. During the Employment Period, Executive shall have the opportunity to earn an annual bonus (an “Annual Bonus”) in respect of each calendar year in accordance with this Section 2(b) and pursuant to the terms of the Company’s Annual Incentive Plan then existing for such calendar year; provided, however, that, except as may be provided in Section 4(f) hereof, the Annual Bonus for any calendar year shall be payable to Executive only if Executive is employed by the Company on December 31 of such year. In respect of calendar year 2007 and thereafter, Executive will have a target bonus of 100% of Executive’s Base Salary and a maximum bonus of 200% of Executive’s Base Salary. Any Annual Bonus that becomes payable to Executive shall be payable in the form of cash. The amount of any Annual Bonus and all other terms and conditions related thereto (including without limitation any performance criteria) shall be determined by the Board, in its sole discretion.

(c) Stock Options.

(i) Prior Grants. The Executive was granted certain awards prior to the Effective Date (the “Prior Grants”). The Prior Grants shall continue in accordance with their terms as amended from time to time, including the amendment of the “Service Option” to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

(ii) Annual Grant. For any calendar year during the Employment Period, the Board in its discretion may make an award to Executive under the Company’s 2001 Equity Plan or any successor plan thereto. The size and vesting of any such award shall be in the discretion of the Board. Notwithstanding the foregoing, in connection with stock option grants to be provided to the Executive simultaneously with the execution of this Agreement, Executive understands that the Company does not intend to grant him any stock options for the first four years of the Employment Period.

3. Employee Benefits and Perquisites.

(a) Participation in Employee Benefit Plans. During the Employment Period, Executive shall be eligible to participate in the employee benefit plans and programs maintained by the Company from time to time and generally available to the senior executives of the Company including to the extent maintained by the Company life, medical, dental, accidental and disability insurance plans and profit sharing, pension, retirement, deferred compensation and savings plans, in accordance with the terms and conditions thereof as in effect from time to time.

(b) Vacation. During the Employment Period, Executive shall be entitled to the same amount of annual vacation that is generally available to the senior executives of the Company, as may be increased from time to time consistent with the Company’s past practices.

4. Termination of Employment. Executive’s employment may be terminated prior to the end of the Term specified in Section 1 hereof as follows:

(a) Termination Due to Death or Disability. Executive’s employment may be terminated by the Company due to Executive’s Disability (as defined below). In the event that Executive’s employment hereunder terminates due to his death or is terminated by the Company due to Executive’s Disability, no termination benefits shall be payable to or in respect of Executive except as provided in Section 4(f)(ii). For purposes of this Agreement, “Disability” shall mean a physical or mental condition entitling Executive to benefits under the long-term disability policy maintained by the Company, as such policy may be amended from time to time. Executive’s employment shall be deemed to have terminated as a result of Disability on the date as of which he is first entitled to receive disability benefits under such policy.

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(b) Termination by the Company for Cause. Executive’s employment may be terminated by the Company for Cause (as defined below). In the event of a termination of Executive’s employment by the Company for Cause, no termination benefits shall be payable to or in respect of Executive except as provided in Section 4(f)(ii). For purposes of this Agreement, “Cause” shall mean (i) the failure of Executive to make a good faith effort to substantially perform his duties hereunder (other than any such failure due to Executive’s Disability) or Executive’s insubordination with respect to a specific resolution of the Board; (ii) Executive’s dishonesty, gross negligence in the performance of his duties hereunder or engaging in willful misconduct, but only if such action or omission has caused or is reasonably expected to result in direct or indirect material injury to the Company or any of its Affiliates (as defined below); (iii) breach by Executive of any material provision of this Agreement or of any other written agreement with the Company or any of its Affiliates or material violation of any Company policy applicable to Executive; or (iv) Executive’s indictment for a crime that constitutes a felony or other crime of moral turpitude or fraud that reasonably could impair Executive’s ability to satisfactorily perform his duties hereunder. If, subsequent to Executive’s termination of employment hereunder for other than Cause, it is determined in good faith by the Company that Executive’s employment could have been terminated for Cause hereunder, Executive’s employment shall, at the election of the Company, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred. Notwithstanding the foregoing, a failure, insubordination or breach described in items (i) and (iii) shall not constitute Cause unless the Company shall have first given Executive written notice describing the failure, insubordination or breach and a reasonable opportunity, not to exceed ten (10) days, to cure such failure, insubordination or breach.

(c) Termination Without Cause. Executive’s employment may be terminated by the Company Without Cause (as defined below). In the event of a termination of Executive’s employment by the Company Without Cause, no termination benefits shall be payable to or in respect of Executive except as provided in Section 4(f)(i). A termination “Without Cause” shall mean a termination of Executive’s employment by the Company during the Term specified in Section 1 hereof other than due to Executive’s death, Disability or for Cause.

(d) Termination by Executive. In the event that Executive terminates his employment for Good Reason (as defined below), Executive shall be entitled to the termination benefits described in Section 4(f)(i). In the event that Executive terminates his employment Without Good Reason (as defined below), no termination benefits shall be payable to or in respect of Executive except as provided in Section 4(f)(ii). A termination of employment by

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Executive for “Good Reason” shall mean a termination by Executive of his employment with the Company following the occurrence, without Executive’s consent, of any of the following events: (i) the Company’s failure to satisfy the material terms of the Agreement or (ii) relocation of Executive’s principal work location to more than twenty-five (25) miles from Executive’s current principal work location, provided that, (x) within thirty (30) days following the later of the occurrence of any of the events set forth herein or the Executive’s knowledge of such events, Executive shall have delivered written notice to the Company of his intention to terminate his employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to give rise to Executive’s right to terminate his employment for Good Reason, and the Company shall not have cured such circumstances to the reasonable satisfaction of Executive within thirty (30) days after receipt of such notice and (y) Executive delivers a Notice of Termination to the Company in accordance with Section 4(e) within ten (10) days following the Company’s failure to cure such circumstances within the time period specified above. A termination “Without Good Reason” shall mean a termination of Executive’s employment by Executive during the Term specified in Section 1 hereof other than a termination of Executive’s employment by Executive for Good Reason in accordance with the foregoing procedures.

(e) Notice of Termination; Date of Termination.

(i) Notice of Termination. Any termination by the Company pursuant to Section 4(a), 4(b) or 4(c), or by Executive pursuant to Section 4(d), shall be communicated by a Notice of Termination addressed to the other party to this Agreement in accordance with the notice provisions of Section 9(f). A “Notice of Termination” shall mean a notice stating that Executive or the Company, as the case may be, is electing to terminate Executive’s employment with the Company and stating the proposed effective date of such termination, provided such effective date shall not be sooner than the dates provided in Section 4(e)(ii).

(ii) Date of Termination. The term “Date of Termination” shall mean (i) if Executive’s employment is terminated by his death, the date of his death, (ii) if Executive’s employment is terminated by the Company for Cause or Without Cause, the date on which Notice of Termination is given or, if later, the effective date of termination specified in such Notice of Termination, (iii) if Executive’s employment is terminated due to either party providing the other party with notice of non-renewal of the Term in accordance with Section 1 hereof, the last day of such Term, (iv) if Executive’s employment is terminated due to Executive’s Disability, the date specified in the applicable Notice of Termination, provided that such date shall not be less than thirty (30) days after the date on which Notice of Termination is given, and (v) if Executive’s employment is terminated by Executive for any reason, the date specified in the applicable Notice of Termination, provided that such date shall not be less than thirty (30) days after the date on which Notice of Termination is given.

(f) Payments Upon Certain Terminations.

(i) Termination by the Company Without Cause or by Executive for Good Reason. In the event Executive’s employment is terminated by the Company Without Cause or by Executive for Good Reason at any time prior to the end of the Term specified in Section 1 hereof, the Company shall pay to Executive (i) his Base Salary through the Date of Termination and (ii) his Annual Bonus, if any, earned in the calendar year immediately preceding the calendar

4

year in which the Date of Termination occurs, in each case to the extent not yet paid, within thirty (30) days after the Date of Termination. In addition, in the event Executive’s employment is terminated by the Company Without Cause or by Executive for Good Reason, in either case, prior to the end to the Term specified in Section 1 hereof, subject to the effectiveness of Executive’s execution of a general release and waiver of all claims against the Company, its Affiliates and their respective officers and directors in a form reasonably satisfactory to the Company and subject to Executive’s compliance with the terms and conditions contained in this Agreement, Executive (or, following his death, Executive’s estate) shall be entitled to (iii) the continuation of Executive’s Base Salary for the one-year period beginning on the Date of Termination (the “Severance Period”) and (iv) continued coverage under the Company’s group health care plan through the earlier of the end of the Severance Period and the date the Executive becomes eligible for coverage under another group health care plan. Equity awards held by the Executive on the Date of Termination shall be governed by the applicable option plans and/or agreements for such awards.

(ii) Termination Due to Executive’s Death or Disability, by the Company for Cause, by Executive Without Good Reason, or as a result of failure to renew the Term. If, at any time prior to the end of the Term specified in Section 1 hereof, Executive’s employment is terminated due to Executive’s death or Disability, by the Company for Cause, by Executive Without Good Reason, or as a result of either party serving notice of non-renewal of the Term as provided in Section 1, the Company shall pay to Executive (or, in the event of Executive’s death, to his estate) (i) his Base Salary through the Date of Termination and (ii) his Annual Bonus, if any, earned in the calendar year immediately preceding the calendar year in which the Date of Termination occurs, in each case to the extent not yet paid, within thirty (30) days following the Date of Termination. Equity awards held by the Executive on the Date of Termination shall be governed by the applicable option plans and/or agreements for such awards.

(iii) Except as specifically set forth in this Section 4(f), Executive shall not be entitled to receive any payments or benefits under any such plan, policy, program or practice providing any bonus or incentive compensation or severance compensation or benefits (and the provisions of this Section 4(f) shall supersede the provisions of any such plan, policy, program or practice), except as may be required with respect to any vested benefits under any tax-qualified plan maintained or contributed to by the Company or Section 4980B of the Code. For avoidance of doubt, upon any termination of Executive’s employment, any outstanding Options not yet vested as of the Date of Termination shall expire and be canceled effective as of the Date of Termination; provided, however, that Executive shall be entitled to retain any vested options in accordance with the applicable option plans and/or agreements for such options.

(g) Resignation upon Termination. Effective as of any Date of Termination under this Section 4 or otherwise, Executive shall automatically and without taking any further actions be deemed to have resigned from all positions then held by him with the Company and all of its Affiliates.

5. Share Ownership Guidelines.

The Participant agrees to comply with the share ownership guidelines adopted by the Board on October 25, 2006, which require the Participant to own at least 100,000 shares of

5

Common Stock (excluding shares underlying unexercised options held by the Participant). The Participant agrees to use his best efforts to raise his level of share ownership to 100,000 shares by no later than the six-month anniversary of the date hereof, subject to approval of the Company’s Compensation Committee and compliance with the Company’s insider trading policies and applicable securities laws. The Executive shall not be required under the guidelines to own more than 100,000 shares unless such change in ownership requirements is mutually agreed to by the Executive and the Company.

6. Confidentiality Agreement.

The provisions of the confidentiality agreement between Executive and the Company dated as of May 1, 2002, a copy of which is attached as Exhibit A (the “Confidentiality Agreement”), under the headings “Confidential Information,” “Competitive Activity” and “Ideas, Inventions or Discoveries” shall continue in full force and effect and are herein incorporated by reference. In the event of any inconsistency between the provisions of this Agreement and the provisions of the Confidentiality Agreement, the provisions of this Agreement shall control.

7. Injunctive Relief with Respect to Covenants; Forum, Venue and Jurisdiction. Executive acknowledges and agrees that the covenants, obligations and agreements of Executive referenced in Section 6 hereof and contained in the Confidentiality Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants, obligations or agreements will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond or any other security) as a court of competent jurisdiction may deem necessary or appropriate to restrain Executive from committing any violation of such covenants, obligations or agreements. These injunctive remedies are cumulative and in addition to any other rights and remedies the Company may have.

8. Entire Agreement. Subject to the terms of the various plans and documents referenced herein, this Agreement constitutes the entire agreement among the parties hereto with respect to Executive’s employment and his right to compensation and benefits, including without limitation severance or termination pay. All prior correspondence and proposals (including, but not limited to, summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter (including, but not limited to, those made to or with Executive by any other Person and those contained in any prior offer, employment, consulting or similar agreement entered into by Executive and the Company or any predecessor thereto or Affiliate thereof) are merged herein and superseded hereby.

9. Miscellaneous.

(a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company and its successors and permitted assigns. This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal representatives. This Agreement shall not be assignable by any party

6

hereto without the prior written consent of the other parties hereto, except that the Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means).

(b) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflicts of laws.

(c) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment and social insurance taxes, as shall be required by law.

(d) Amendments. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Board or a Person authorized thereby and is agreed to by Executive. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

(e) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In addition, if any of the provisions referenced in Section 6 hereof and contained in the Confidentiality Agreement is for any reason held by a court to be excessively broad as to duration, geographical scope, activity, subject matter or otherwise then such provision will be construed or judicially modified so as to thereafter be limited or reduced to the extent required to be enforceable in accordance with applicable law; it being understood and agreed that the parties hereto regard such restrictions as reasonable and compatible with their respective rights.

(f) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing, (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested, (iii) deemed to have been received on the date of delivery or, if so mailed, on the third business day after the mailing thereof, and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

(A) If to the Company, to it at:

MEMC Electronic Materials, Inc.

501 Pearl Drive (City of O’ Fallon)

P.O. Box 8

St. Peters, Missouri 63376

Attention: General Counsel

(B) if to Executive, to him at his residential address as currently on file with the Company.

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Copies of any notices or other communications given under this Agreement shall also be given to:

Cleary, Gottlieb, Steen & Hamilton

One Liberty Plaza

New York, New York 10006

Attention: A. Richard Susko, Esq.

(g) Voluntary Agreement; No Conflicts. Executive hereby represents and warrants to the Company that he is legally free to accept and perform his employment with the Company, that he has no obligation to any other person or entity that would affect or conflict with any of Executive’s obligations pursuant to such employment, and that the complete performance of the obligations pursuant to Executive’s employment will not violate any order or decree of any governmental or judicial body or contract by which Executive is bound. The Company will not request or require, and Executive agrees not to use, in the course of Executive’s employment with the Company, any information obtained in Executive’s employment with any previous employer to the extent that such use would violate any contract by which Executive is bound or any decision, law, regulation, order or decree of any governmental or judicial body.

(h) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. A facsimile of a signature shall be deemed to be and have the effect of an original signature.

(i) Headings. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof.

(j) Certain Definitions.

“Affiliate”: with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including but not limited to a Subsidiary of the first Person, a Person of which the first Person is a Subsidiary, or another Subsidiary of a Person of which the first Person is also a Subsidiary.

“Control”: with respect to any Person, means the possession, directly or indirectly, severally or jointly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise.

“Person”: any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity.

“Subsidiary”: with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership

8

interests representing 50% or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person.

(k) 409A Compliance. The Company shall administer this Agreement in compliance with Code Section 409A, including, to the extent required, any delayed payment of benefits for six months following a termination of employment. Any such deferred amounts shall be paid as soon as is permissible under Code Section 409A. Prior to the date such amounts are paid to Executive in accordance with this Section 9(k), interest shall accrue thereon at a reasonable rate of interest as determined by the Board.

IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representatives and Executive has hereunto set his hand, in each case effective as of the date first above written.

MEMC ELECTRONIC MATERIALS, INC.
By:	/s/ John Marren
Name:	John Marren
Title:	Chairman of the Board of Directors
EXECUTIVE:
/s/ Nabeel Gareeb
Name:	Nabeel Gareeb

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Exhibit A

Confidentiality Agreement

10

EX-10.44

Exhibit 10.44

MEMC ELECTRONIC MATERIALS, INC.

2006 STOCK OPTION GRANT AGREEMENT

2001 Equity Incentive Plan

Performance-Based Vesting Option

for Nabeel Gareeb

THIS AGREEMENT (the “Agreement”) is made as of the 25th day of October 2006, between MEMC Electronic Materials, Inc. (the “Company”) and Nabeel Gareeb (the “Participant”).

WHEREAS, the Company wishes to promote the interests of the Company and its shareholders by providing the Participant with an appropriate incentive to encourage him to continue in the employ of the Company and to improve the growth and profitability of the Company;

WHEREAS, the Company has adopted and maintains the MEMC Electronic Materials, Inc. 2001 Equity Incentive Plan (the “Plan”) for the purpose of providing the Company’s key employees and others with such incentives; and

WHEREAS, the Plan provides for the Grant to Participants in the Plan of Non-Qualified Stock Options to purchase shares of Common Stock of the Company;

NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, the parties hereto hereby agree as follows:

1. Grant of Options. Pursuant to, and subject to, the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant a NON-QUALIFIED STOCK OPTION (the “Performance Option”) with respect to one million (1,000,000) shares of Common Stock of the Company.

2. Grant Date. The Grant Date of the Performance Option hereby granted is October 25, 2006.

3. Incorporation of Plan. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan, as interpreted by the Committee, shall govern. All capitalized terms used herein shall have the meaning given to such terms in the Plan.

4. Exercise Price. The exercise price of each share underlying the Performance Option hereby granted is $37.01, which is the Fair Market Value on the Grant Date.

5. Vesting Date. (a) The Performance Option shall become fully vested and exercisable, if at all, on the fourth anniversary of the Grant Date (the “Final Vesting Date”), provided that the Growth Rate of the Common Stock (as hereinafter defined) exceeds by more than five percentage points the compound annual growth rate (“CAGR”) of Standard & Poor’s S&P 500

index (the “S&P 500”) during the period beginning on the Grant Date and ending on the Final Vesting Date, and provided further that the Participant remains actively Employed as of the Final Vesting Date. For purposes of this Section 5, the “Growth Rate” of the Common Stock shall equal the amount (if any) by which (i) the average Fair Market Value of a share of the Common Stock during the ninety-day period immediately preceding the Final Vesting Date (the “Ending Value”), exceeds (ii) the average Fair Market Value of a share of the Common Stock during the ninety-day period immediately preceding the Grant Date (the “Initial Value”), expressed as a percentage of the Initial Value. For example, if the CAGR of the S&P 500 during the period between the Grant Date and the Final Vesting Date is 10% and the Ending Value of the Common Stock is 15% higher than the Initial Value of the Common Stock, the Performance Option would fully vest on the Final Vesting Date; however, if the CAGR of the S&P 500 during such period is 2% and the Ending Value of the Common Stock represents only a 6% increase over the Initial Value, the Performance Option would not vest and would expire as of the Final Vesting Date. The determination of whether the performance criteria described in this Section 5 have been met shall be made in the good faith determination of the Board.

(b) Notwithstanding the foregoing, the Performance Option shall become vested and exercisable on the third anniversary of the Grant Date (the “Early Vesting Date”) with respect to 400,000 shares underlying the Performance Option, provided that the growth rate of the Common Stock exceeds by more than five percentage points the CAGR of the S&P 500 during the period beginning on the Grant Date and ending on the Early Vesting Date, and provided further that the Participant remains actively Employed as of the Early Vesting Date. For purposes of the preceding sentence, the growth rate of the Common Stock shall equal the Growth Rate as defined in Section 5(a) above, except that the Ending Value shall equal the average Fair Market Value of a share of the Common Stock during the ninety-day period immediately preceding the Early Vesting Date.

(c) Notwithstanding the foregoing, in the event of a termination of Participant’s Employment by the Company without Cause (as defined in the Employment Agreement entered into as of the date hereof between the Participant and the Company (the “Employment Agreement”)) or by the Participant for Good Reason (as defined in the Employment Agreement) on or after the first anniversary of the Grant Date and prior to the Final Vesting Date, the Performance Option shall become vested and exercisable immediately as of the effective date of such termination (or, if later, the date on which the Board reasonably determines whether the performance criterion has been met) with respect to 250,000 shares underlying the Performance Option, provided that the growth rate of the Common Stock exceeds by more than five percentage points the CAGR of the S&P 500 during the period beginning on the Grant Date and ending on the effective date of the termination of Participant’s Employment. For purposes of the preceding sentence, the growth rate of the Common Stock shall equal the Growth Rate as defined in Section 5(a) above, except that the Ending Value shall equal the average Fair Market Value of a share of the Common Stock during the ninety-day period immediately preceding the date of the termination of Participant’s Employment.

(d) Notwithstanding the foregoing, if (i) a Change in Control occurs prior to the Final Vesting Date and (ii) the growth rate of the Common Stock exceeds by more than five percentage points the CAGR of the S&P 500 during the period beginning on the Grant Date and

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ending on the effective date of the Change in Control, then the Performance Option shall become fully vested and exercisable on the effective date of the Change in Control. For purposes of the preceding sentence, the growth rate of the Common Stock shall equal the Growth Rate as defined in Section 5(a) above, except that the Ending Value shall equal the consideration per share of Common Stock received by the Company’s shareholders in connection with the Change in Control.

(e) Notwithstanding the foregoing, in the event of a termination of Participant’s Employment prior to the Final Vesting Date due to Participant’s death or Disability, the Performance Option shall become vested and exercisable, if at all, as described in this Section 5(e), provided that the growth rate of the Common Stock exceeds by more than five percentage points the CAGR of the S&P 500 during the period beginning on the Grant Date and ending on the effective date of the termination of Participant’s Employment. For purposes of the preceding sentence, the growth rate of the Common Stock shall equal the Growth Rate as defined in Section 5(a) above, except that the Ending Value shall equal the average Fair Market Value of a share of the Common Stock during the ninety-day period immediately preceding the date of the termination of Participant’s Employment. In the event the performance criterion described in this Section 5(e) is met, the Performance Option shall become vested and exercisable on the effective date of the termination of Employment (or, if later, the date on which the Board reasonably determines whether the performance criterion has been met) with respect to the number of shares of Common Stock underlying the Performance Option equal to the product of (i) the number of shares with respect to which the Performance Option remains unvested as of the effective date of such termination and (ii) a fraction, the numerator of which is equal to the number of calendar days from the Grant Date through the effective date of such termination and the denominator of which is one thousand four hundred sixty (1,460), as determined by the Board in good faith.

6. Expiration Date. Subject to the provisions of the Plan, with respect to the Performance Option or any portion thereof which has not become exercisable, the Performance Option shall expire on the earlier of the fourth anniversary of the Grant Date and the date the Participant’s Employment is terminated for any reason (or, pursuant to Sections 5(c) or 5(e) above, on such later date on which the Board determines whether the applicable performance criterion has been met), and with respect to the Performance Option or any portion thereof which has become exercisable, the Performance Option shall expire on the earlier of: (i) the commencement of business on the date the Participant’s Employment is terminated for Cause; (ii) 90 days after the date the Participant’s Employment is terminated for any reason other than Cause, death, Disability or Retirement (or, pursuant to Section 5(c) above, on such later date on which the Board determines whether the applicable performance criterion has been met); (iii) one year after the date the Participant’s Employment is terminated by reason of the Participant’s death, Disability or Retirement, provided, however, that if during such one year period following the termination of the Participant’s Employment by reason of Disability or Retirement the Participant dies, the Participant’s legal representative or beneficiary may exercise the Participant’s Performance Option, or any portion thereof which has become exercisable on the date the Participant’s Employment is terminated, for a period of one year from the date of the Participant’s death; or (iv) the seventh anniversary of the Grant Date.

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7. Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party hereto upon any breach or default of any party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party or any provisions or conditions of this Agreement, shall be in writing and shall be effective only to the extent specifically set forth in such writing.

8. Limitation on Transfer. During the lifetime of the Participant, the Performance Option shall be exercisable only by the Participant. The Performance Option shall not be assignable or transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Participant may request authorization from the Committee to assign his rights with respect to the Performance Option granted herein to a trust or custodianship, the beneficiaries of which may include only the Participant, the Participant’s immediate family or the Participant’s lineal descendants (by blood or adoption), and, if the Committee grants such authorization, the Participant may assign his rights accordingly. In the event of any such assignment, such trust or custodianship shall be subject to all the restrictions, obligations, and responsibilities as apply to the Participant under the Plan and this Stock Option Grant Agreement and shall be entitled to all the rights of the Participant under the Plan.

9. Integration. This Agreement, and the other documents referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement, including without limitation the Plan, supersedes all prior agreements and understandings between the parties with respect to its subject matter.

10. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to the provisions governing conflict of laws.

11. Participant Acknowledgment. The Participant acknowledges receipt of a copy of the Plan, and acknowledges that all decisions, determinations and interpretations of the Committee in respect of the Plan, this Agreement and the Performance Option shall be final and conclusive.

(Signature page follows)

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MEMC ELECTRONIC MATERIALS, INC.
By:	/s/ John Marren
Name:	John Marren
Title:	Chairman of the Board
/s/ Nabeel Gareeb
Name:	Nabeel Gareeb

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EX-10.46

Exhibit 10.46

CONFIDENTIAL TREATMENT

SOLAR WAFER SUPPLY AGREEMENT

This Solar Wafer Supply Agreement is entered into as of October 25, 2006, by and between MEMC ELECTRONIC MATERIALS, INC., a Delaware corporation with its principal place of business at 501 Pearl Drive (City of O’Fallon), St. Peters, Missouri 63376, United States of America, or its designated majority-owned subsidiary (“MEMC”), and GINTECH ENERGY CORPORATION, a Taiwan corporation with its principal place of business at 8F, no. 396, Sec. 1 Neihu Rd. Neihu Technology Park, Taipei 114, Taiwan (“Gintech”) or its designated majority-owned subsidiary. MEMC and Gintech together shall be referred to as the “Parties” and individually as a “Party”.

RECITALS:

WHEREAS, MEMC is in the business of designing, developing, manufacturing, marketing and selling wafers, and Gintech is in the business of designing, developing, manufacturing, marketing and selling photovoltaic cells and modules; and

WHEREAS, Gintech wishes to secure a supply of solar wafers and to purchase quantities of solar wafers from MEMC, and MEMC wishes to provide a supply of solar wafers and to sell quantities of solar wafers to Gintech; and

WHEREAS, as part of this Agreement and in order for MEMC to meet Gintech’s supply requirements, Gintech agrees to provide a loan to MEMC in the amount of U.S.$341.3 million over the course of this Agreement, which MEMC shall use to expand its manufacturing capacity in connection with this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements herein contained, MEMC and Gintech agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. The following terms shall have the following meanings for the purposes of this Agreement:

(a) “Additional Wafer Supply” shall have the meaning set forth in Section 2.13.

(b) “Agreement” shall mean this Solar Wafer Supply Agreement, including all Attachments and Exhibits hereto, as it may be amended, modified or supplemented from time to time in accordance with its terms.

(c) “Business Day” shall mean any day of the year other than (i) any Saturday or Sunday or (ii) any other day on which banks located in New York, New York generally are closed for business.

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(d) “Contract Year” shall mean a twelve month period commencing on January 1 of a particular year and ending on December 31 of that year; provided, however, that the first Contract Year under the Agreement shall be the five (5) month period from August 1, 2007 to December 31, 2007 and the eleventh Contract Year under the Agreement shall be the seven (7) month period from January 1, 2017 to July 31, 2017. The second Contract Year under the Agreement shall be from January 1, 2008 to December 31, 2008, the third Contract Year under the Agreement shall be from January 1, 2009 to December 31, 2009 and so on, until the tenth Contract Year, which shall be from January 1, 2016 to December 31, 2016.

(e) “Dollar”, “Dollars” or numbers preceded by the symbol “$” shall mean amounts in United States Dollars.

(f) “Effective Date” shall mean August 1, 2007.

(g) “Financial Statements” shall have the meaning set forth in Section 3.1(d).

(h) “Force Majeure Event” shall have the meaning set forth in Section 2.10.

(i) “Gintech Material” shall have the meaning set forth in Section 3.2.

(j) “Governmental Authority” shall mean any federal, state, local or foreign government or subdivision thereof, or any entity, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any federal, state, local or foreign government.

(k) “Guaranteed Financial Performance Criteria” shall mean the financial performance criteria of Gintech as set forth on Attachment D, which financial performance measures shall be calculated based on the Financial Statements and in accordance with the ROC generally accepted accounting principles.

(l) “Incoterms 2000” shall have the meaning set forth in Section 2.5(a).

(m) “Indemnified Person” shall mean the Person or Persons entitled to, or claiming a right to, indemnification under Article V.

(n) “Indemnifying Person” shall mean the Person or Persons claimed by the Indemnified Person to be obligated to provide indemnification under Article V.

(o) “Initial Term” shall have the meaning set forth in Section 4.1.

(p) “Law” shall mean any law, statute, regulation, ordinance, rule, order, decree or governmental requirement enacted, promulgated or imposed by any Governmental Authority.

(q) “LC Bank” shall have the meaning set forth in Section 3.1(c).

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CONFIDENTIAL TREATMENT

(r) “Letter of Credit Amount” shall have the meaning set forth in Section 3.1(c).

(s) “Loan/Security Deposit” shall have the meaning set forth in Section 3.1.

(t) “Loss” or “Losses” shall mean any and all damages, fines, fees, Taxes, penalties, deficiencies, losses (including lost profits or diminution in value) and expenses, including interest, reasonable expenses of investigation, court costs, reasonable fees and expenses of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment (such fees and expenses to include all fees and expenses, including fees and expenses of attorneys, incurred in connection with (i) the investigation or defense of any third party claims, (ii) asserting or disputing any rights under this Agreement against any Party hereto or otherwise, or (iii) settling any action or proceeding or threatened action or proceeding).

(u) “MEMC Competitor” shall mean any Person engaged in (i) the design, development, manufacture, marketing or sale of silicon wafers for use in semiconductors; or (ii) the design, development, manufacture, marketing or sale of Multi Wafers or Mono Wafers for use in solar cells or (iii) the production of polysilicon or polysilicon ingots.

(v) “Missed Delivery” or “Missed Deliveries” shall have the meaning set forth in Section 2.2(f).

(w) “Mono Wafers” shall mean monocrystalline silicon wafers for use in solar cells.

(x) “Non-Asia Pacific Wafers” shall have the meaning set forth in Section 2.5(a).

(y) “Multi Wafers” shall mean multi-crystalline silicon wafers for use in solar cells.

(z) “Person” shall mean any natural person, corporation, proprietorship, firm, partnership, limited partnership, limited liability company or partnership, trust, joint venture, union, association, Governmental Authority or other entity.

(aa) “Purchase Shortfall” shall have the meaning set forth in Section 2.2(a).

(bb) “Real Property Interest” shall have the meaning set forth in Section 3.2.

(cc) “Restricted Gintech Business” shall mean (i) the design, development, manufacture, marketing or sale of Multi Wafers or Mono Wafers for use in solar cells or (ii) the production of solar grade polysilicon or solar ingots.

(dd) Restricted MEMC Business” shall mean the design, development, manufacture, marketing or sale of photovoltaic cells and photovoltaic modules.

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(ee) “Restrictive Gintech Covenants shall have the meaning set forth in Section 2.11(b).

(ff) “Restrictive MEMC Covenants shall have the meaning set forth in Section 2.12(b).

(gg) “Retained Loan/Security Deposit Amount” shall have the meaning set forth in Section 3.1.

(hh) “Subsidiaries” shall mean any Person subject to control by either Party, or any of their respective affiliates. The term “control” as used in the preceding sentence means, with respect to a corporation, the right to exercise, directly or indirectly, fifty percent (50%) or more of the voting rights attributable to the shares of such corporation, or with respect to any Person other than a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person.

(ii) “Tax” or “Taxes” means all (i) federal, state, local, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, sales, use, ad valorem, receipts, value added, profits, license, withholding, payroll, employment, excise, property, net worth, capital gains, transfer, stamp, documentary, social security, payroll, environmental, alternative minimum, occupation, recapture and other taxes, and including any interest, penalties and additions imposed with respect to such amounts; and (ii) liability for the payment of any amounts as a result of an express or implied obligation to indemnify any other Person with respect to the payment of any amounts of the type described in clause (i).

(jj) “Wafers” shall mean Multi Wafers and/or Mono Wafers.

(kk) “Yearly Minimum Quantity(ies)” shall have the meaning set forth in Section 2.2(a).

(ll) “Yearly Target Quantity(ies)” shall have the meaning set forth in Section 2.2(a).

ARTICLE II

SUPPLY OF WAFERS

2.1 Wafer Specifications. The Wafers to be supplied under this Agreement shall meet the specifications as agreed to by the Parties as set forth in Attachment A to this Agreement. MEMC shall maintain, in accordance with MEMC’s standard procedures, accurate records and data for any quality testing done by or for MEMC of any Wafers purchased by Gintech hereunder and shall make such records and test data available to Gintech upon reasonable request.

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CONFIDENTIAL TREATMENT

2.2 Quantity and Price.

(a) Target Purchase Quantities and Minimum Purchase Quantities. Each Contract Year, as set forth below in this Section 2.2(a), Gintech agrees to purchase from MEMC, over the course of the Contract Year, a target quantity of Wafers (such yearly target purchase quantity commitments, measured in megawatts, the “Yearly Target Quantity”), at the prices set forth on Attachment B hereto. Each Contract Year, as set forth below in this Section 2.2(a), MEMC agrees to supply Gintech, over the course of the Contract Year, with the Yearly Target Quantity per Contract Year, at the prices set forth on Attachment B hereto, which Yearly Target Quantity will not fall below the Yearly Minimum Quantities (as such term is defined in Section 2.2(a)(i) below for Contract Years one through five and in Section 2.2(a)(ii) below for Contract Years six through eleven).

(i ) For Contract Years one through five, the minimum quantities to be purchased by Gintech (such quantities, the “Yearly Minimum Quantities”) shall be equal to the greater of (A) 100% of the yearly minimum quantities set forth on Attachment B hereto and (B) approximately [XXXX]% of Gintech’s then current solar wafer demand (measured in Watts), provided that MEMC can accommodate [XXXX]% of Gintech’s actual then current solar wafer demand (as part of and pursuant to the rolling forecast process of Section 2.2(e) hereof). For Contract Years one through five, MEMC shall be obligated to supply Gintech quantities only up to [XXXX]% of the Yearly Target Quantities set forth on Attachment B hereto for such Contract Year, unless MEMC has been given at least three (3) years advance notice of Gintech’s request for quantities in excess of [XXXX]% of the Yearly Target Quantities in such years, and MEMC has agreed to supply such quantities.

(ii) For Contract Years six through eleven, no later than the first day of Contract Year three (January 1, 2009), the Parties agree to commence a review to determine the exact quantities to be purchased and supplied for Contract Years six through eleven. Notwithstanding the foregoing, for Contract Years six through eleven, the minimum quantities to be purchased by Gintech (again, for such Contract Years, such quantities, the “Yearly Minimum Quantities”) shall be equal to the greater of (A) 100% of the Yearly Minimum Quantities set forth on Attachment B hereto and (B) approximately [XXXX]% of Gintech’s then current solar wafer demand (measured in Watts), provided that MEMC can accommodate [XXXX]% of Gintech’s actual then current solar wafer demand (as part of and pursuant to the rolling forecast process of Section 2.2(e) hereof). For Contract Years six through eleven, MEMC shall be obligated to supply Gintech quantities only up to 100% of the Yearly Minimum Quantities set forth on Attachment B hereto for such Contract Years, unless MEMC has been given at least three (3) years advance notice of Gintech’s request for quantities in excess of 100% of the Yearly Minimum Quantities for such years, in which event MEMC will be obligated to supply such increased quantities; provided, however, that in no event shall the increased quantity to be supplied by MEMC in Contract Years six through eleven exceed the Yearly Target Quantities set forth on Attachment B hereto unless such excess quantities have been requested by Gintech and agreed to by MEMC (after the required three (3) years advance notice).

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CONFIDENTIAL TREATMENT

(iii) The Yearly Minimum Quantities may also be reduced, for any Contract Year, pursuant to and in accordance with the provisions of Section 2.2(f)(i)(A).

(b) Mix Between Multi Wafers and Mono Wafers. Attachment B sets forth the aggregate yearly quantities of Multi Wafers and Mono Wafers to be supplied in each Contract Year, and does not differentiate for the purpose of aggregate yearly quantities between Multi Wafers and Mono Wafers. In the first three Contract Years, the percentage mix between Multi Wafers and Mono Wafers supplied shall be at MEMC’s discretion; provided, however, that in such Contract Years MEMC may choose not to supply any Mono Wafers. In Contract Years four through eleven, MEMC shall change the percentage mix between Multi Wafers and Mono Wafers based on Gintech’s request; provided that (i) Gintech has given at least three (3) years advance notice of such requested change in percentage mix between Multi Wafers and Mono Wafers; and (ii) MEMC can reasonably accommodate such requested change in percentage mix between Multi Wafers and Mono Wafers; and provided, further, that in no event will MEMC be obligated to supply more than [xxxxxxx] percent ([XXXX]%) of Wafers in any Contract Year as Mono Wafers, unless requested by Gintech and agreed to by MEMC.

(c) Prices. The prices set forth on Attachment B hereto are on a Dollar per Watt basis. Attachment B also includes, for illustration purposes, the prices on a per Wafer basis, which price per Wafer calculations are based on an indicative average efficiency factor of [XXXX]% for Multi Wafers and an indicative average efficiency factor of [XXXX]% for Mono Wafers. The Parties agree that the actual average efficiency factor for both Multi Wafers and Mono Wafers experienced by Gintech when using MEMC Wafers, shall be used to calculate the price per Wafer. These actual average efficiency factors shall be subject to audit and/or verification as mutually agreed by the Parties. The Parties agree that after an average efficiency factor for both Multi Wafers and Mono Wafers is established, all prices per Multi Wafer or Mono Wafer calculated using such average efficiency factor for the purposes of invoicing under Section 2.4 hereof shall be based on such average efficiency factor until the average efficiency factor is changed pursuant to the procedures on Attachment B. The Parties also agree and acknowledge that as the average efficiency factor increases, based on actual measurements by the mutually agreed method of producing solar cells based on the Baseline Cell Process (as such term is defined in Attachment B), the price per Wafer will increase (while the price per Watt remains fixed) and the quantity of Wafers supplied will decrease (while quantities of Watts remains fixed). All prices per Wafer set forth on Attachment B hereto (for the purposes of invoicing under Section 2.4 hereof) shall be updated for efficiency changes at least as frequently as is set forth on Attachment B.

(d) Purchase Shortfalls. If Gintech purchases fewer Watts than the lesser of (i) the Yearly Minimum Quantity, as calculated in accordance with Section 2.2(a) or (ii) the amount of Watts tendered for delivery by MEMC during any Contract Year, Gintech shall pay to MEMC via wire transfer of immediately available funds, within ten (10) days

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CONFIDENTIAL TREATMENT

after being invoiced therefor, the difference between (A) the amount that would have been payable by Gintech during such Contract Year if Gintech had purchased the lesser of (i) the Yearly Minimum Quantity as calculated in accordance with Section 2.2(a) or (ii) the amount of Watts tendered for delivery by MEMC during the entire Contract Year, and (B) the amount payable by Gintech during such Contract Year for the actual volume of Watts purchased by Gintech from MEMC based on the applicable price listed on Attachment B hereto (such calculated amount, the “Purchase Shortfall”). The Purchase Shortfall shall accrue interest at the rate of one and one-half percent (1.5%) per month from the date of the invoice therefor, unless prohibited by Law.

(e) Monthly Planning; Rolling Forecast. For planning purposes only, no later than the third (3^rd) Business Day of each calendar month, Gintech shall deliver to MEMC a forecast of the quantities of Wafers that Gintech anticipates that it will order from MEMC over the subsequent rolling twelve (12) months. Such rolling forecasts are for capacity planning purposes only, and such estimated amounts in the rolling forecasts shall have no effect on Gintech’s obligation to purchase some or all of Gintech’s Yearly Minimum Quantity for any Contract Year or MEMC’s obligation to deliver the indicated quantities, unless such quantity is confirmed pursuant to the procedures of Section 2.3.

(f) Missed Deliveries. If, in any Contract Year, MEMC fails to deliver twenty five percent (25%) or more of the Yearly Minimum Quantities of Wafers MEMC would be required to deliver pursuant to the provisions of Section 2.2(a) (a “Missed Delivery”), and such Missed Deliveries continue uncured by the end of such Contract Year, then the following provisions shall apply:

(i) MEMC shall have the right to try to “make up” Missed Deliveries for any Contract Year through the end of the following subsequent Contract Year. The Wafer price for such Missed Deliveries, if actually made in the subsequent Contract Year, shall be the Wafer price at the time of shipment of the Wafers. If MEMC fails to make up the Missed Deliveries prior to the end of the subsequent Contract Year, then:

(A) Gintech shall have the right, but not the obligation, which right must be exercised by Gintech, in writing (and if not so exercised, shall be automatically waived for such Contract Year, and only such Contract Year), no later than the last Business Day of the following subsequent Contract Year, to reduce the Yearly Minimum Quantity for the next following Contract Year as follows. The Yearly Minimum Quantity for such next following Contract Year shall be reduced by an amount equal to one-half ( ¹/2) the amount of the Missed Deliveries for the relevant prior Contract Year (taking into account the actual deliveries made by MEMC in the subsequent Contract Year intended as make up deliveries for the relevant prior Contract Year); and

(B) If Gintech chooses to reduce its Yearly Minimum Quantity for such next following Contract Year pursuant to the provisions of Section 2.2(f)(i)(A), then a corresponding reduction in the Letter of Credit Amount shall be made pursuant to the provisions of Section 3.1(c).

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CONFIDENTIAL TREATMENT

2.3 Purchase Orders and Order Acknowledgements. Gintech will issue a written purchase order to MEMC through email, fax or internationally recognized carrier on at least a monthly basis. Such purchase orders shall contain the requested delivery dates. All such purchase orders shall be subject to the terms and conditions set forth in this Agreement. MEMC shall, within five (5) Business Days after it receives any such purchase order, respond to such Gintech purchase orders with a written MEMC Order Acknowledgement, which MEMC Order Acknowledgement will set forth those requested Gintech quantities for which MEMC can then confirm a quantity (which quantity may be a partial quantity of the Gintech purchase order) and an estimated shipment calendar week. MEMC Order Acknowledgements shall reference the applicable Gintech purchase order. Until such time as MEMC has provided Gintech with an MEMC Order Acknowledgement for all Wafers requested on a Gintech purchase order, such purchase order shall not be deemed accepted by MEMC for the full amount of Wafers, but shall only be deemed accepted by MEMC for that amount of Wafers for which a confirmed quantity and shipment week has been provided. At all times during the term of this Agreement, unless otherwise mutually agreed by the parties, Gintech shall have provided MEMC with binding purchase orders requesting shipments of Wafers over at least the next ninety (90) days. Unless expressly agreed in writing by MEMC and Gintech, no additional or different terms or conditions contained in any quotation, sales order, acknowledgement form, purchase order or other communication from MEMC or Gintech shall be binding upon MEMC or Gintech, and each Party hereby objects to any such additional or different terms or conditions. To the extent there is any conflict among the terms and conditions of this Agreement, any Gintech purchase order and any MEMC Order Acknowledgement, the terms of this Agreement shall apply.

2.4 MEMC Invoices. MEMC invoices shall reference the applicable Gintech purchase order and shall be submitted for payment by MEMC to the Gintech accounts payable address specified in writing from time to time by Gintech. To the extent there is any conflict between the terms and conditions of this Agreement and of any such invoice, the terms of this Agreement shall apply. All prices in the invoices shall be based on the then-current price for each Wafer, calculated in accordance with the provisions set forth on Attachment B, on the date of confirm.

2.5 Terms of Sale and Shipment Terms.

(a) Terms of Sale. All sales of Wafers hereunder shall be made Ex Works (Incoterms 2000: EXW) MEMC’s designated location. “Incoterms 2000” means the version of “Incoterms” adopted by the International Chamber of Commerce effective January 1, 2000, including all amendments thereof, but excluding any amendments thereof specifically agreed to by the Parties as not being applicable to this Agreement. Notwithstanding the foregoing Ex Works terms of sale, if MEMC manufactures Wafers at a facility located in either Europe or the United States (“Non-Asia Pacific Wafers”) and then ships such Non-Asia Pacific Wafers to Gintech, MEMC shall pay, within thirty (30) days of being invoiced by Gintech therefor, fifty percent (50%) of all freight costs associated with such sales of Non-Asia Pacific Wafers under this Agreement, with such invoices to provide reasonable detail and supporting documentation for MEMC to confirm such freight costs.

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(b) Shipment Date. Per Section 2.3 above, the scheduled shipment date for Wafers will be specified by MEMC in the MEMC Order Acknowledgment.

(c) Shipment Instructions. Gintech shall furnish written shipping instructions to MEMC from time to time, and such shipping instructions, if different from the last shipping instructions provided by Gintech to MEMC, shall take effect no earlier than ten (10) Business Days after receipt of such written instructions by MEMC. MEMC shall pack and ship Wafers in accordance with then-current industry standards and practice.

(d) Shipment Date Change Requests. Gintech may request to delay or pull in shipment of an individual delivery or any part thereof upon written notice to MEMC, subject to the following conditions:

(i) Unless agreed to by MEMC, the shipment date change request notice must be received by MEMC at least ninety (90) days prior to the scheduled shipment date; and

(ii) If the shipment date change request notice is a delay request (a push out of requested delivery date), Gintech must commit to nonetheless purchase the delayed Wafers no later than the end of the Contract Year in which such shipment was originally scheduled by MEMC; and

(iii) MEMC must agree to such request in writing; and

(iv) In the event of an accepted shipment date change request, Gintech shall accept delivery of and pay for Wafers already manufactured or in the process of manufacture for such accepted purchase order at the time the shipment date change request notice is received by MEMC.

(e) In no event shall delay of any shipment or any part thereof as requested by Gintech pursuant to Section 2.5(d) affect, in any way, Gintech’s obligation to purchase some or all of Gintech’s Yearly Minimum Quantity for any Contract Year, unless the provisions of Section 2.2(a) hereof would otherwise require a change to Gintech’s Yearly Minimum Quantities for that Contract Year or a subsequent Contract Year.

2.6 Title and Risk of Loss. Pursuant to and consistent with the Incoterms 2000 term of sale of Ex Works MEMC’s designated location, title to and risk of loss of Wafers shall pass to Gintech at the time when the Wafers have been made available by MEMC for pickup by Gintech at MEMC’s designated location and Gintech has been notified that such Wafers have been made available by MEMC for pickup by Gintech.

2.7 Payment Terms; Delivery Terms; Freight Terms.

(a) MEMC shall issue an invoice to Gintech for each shipment of Wafers. All invoices will be in Dollars. Payment of invoices by Gintech shall be in Dollars, by wire

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transfer, check or by other means mutually agreed on by the Parties. Payment is due thirty (30) days from the date of the invoice. MEMC reserves the right to assess a late payment charge of one and one-half percent (1.5%) per month on the unpaid balance of any past due amount, unless prohibited by Law. If Gintech fails to pay the purchase price when due for any shipment, MEMC may, but need not, require receipt of payment in full prior to manufacturing the balance of any outstanding or subsequent order. Payment of sums due from Gintech shall be made upon terms set forth above. MEMC may recover for each delivery hereunder as a separate transaction, without reference to any other delivery. If Gintech has been failing to pay the purchase price when due for one or more shipments, and MEMC reasonably concludes that Gintech is in unsound financial condition and has notified Gintech of such conclusion, and the Parties have then negotiated in good faith for at least ten (10) Business Days to remedy such conclusion, or if Gintech is in default with respect to any of the material terms and conditions of this or any other agreement with MEMC, MEMC shall forthwith have the right to demand cash payment in advance or additional financial assurance until such time as said credit has been reestablished or default cured to MEMC’s satisfaction. If Gintech fails to pay the purchase price when due for any shipment, MEMC may also, but need not, (i) immediately offset any late payments against the Loan/Security Deposit and/or the Letter of Credit required by Section 3.1(c) and (ii) prior to any further shipments of Wafers, require that Gintech replenish the Loan/Security Deposit and/or the Letter of Credit required by Section 3.1(c) in accordance with the terms of this Agreement.

(b) All prices are based on Ex Works MEMC’s designated location. Gintech shall pay all transportation charges on a freight collect basis. Any Taxes, levies or assessments (including related interest and penalties) imposed, levied, assessed or arising by virtue of this Agreement other than Taxes based upon the net income of MEMC shall be the liability and responsibility of Gintech. If any charges are exempt from sales or use Tax liability, Gintech must provide MEMC with evidence of tax exemption acceptable to the relevant taxing authority.

2.8 Representations and Warranties. MEMC represents and warrants that the Wafers delivered to Gintech under this Agreement shall meet the specifications set forth in Attachment A hereto. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, MEMC MAKES NO OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, OF FITNESS OF THE WAFERS FOR PARTICULAR USE OR OTHERWISE, INCLUDING WITHOUT LIMITATION, WARRANTY OF MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE.

2.9 Limitation of Liability.

(a) Limitation. MEMC’s total liability, and Gintech’s exclusive remedy, for any and all Losses and damages, arising out of any cause whatsoever under any theory of contract, tort, strict liability, or other legal or equitable theory, including under a breach of representations and warranties made under Section 2.8 hereof, shall be limited solely to Gintech’s actual direct damages directly caused by the failure of the Wafers to meet the specifications set forth in Attachment A hereto; provided, however, that such actual direct damages may not exceed the purchase price of the Wafers that caused the damages,

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or, at MEMC’s option, the repair or replacement of such Wafers; and provided further that in order to recover for the failure of the Wafers to meet the specifications set forth in Attachment A hereto, Gintech shall be required to prove that such Wafers do not meet such specifications. In no event shall MEMC be liable for lost profits, special, incidental, consequential or punitive damages. MEMC shall not be liable for, and Gintech assumes liability for, all personal injury and property damage connected with the handling, transportation, possession, processing, further manufacture, other use or resale of the Wafers, whether the Wafers are used alone or in combination with any other material.

(b) Technical Advice. If MEMC furnishes technical or other advice to Gintech, whether or not at Gintech’s request, with respect to processing, further manufacture, other use or resale of the Wafers, MEMC shall not be liable for, and Gintech assumes all risk of, such advice and the results thereof, if such advice is followed by Gintech. Similarly, if MEMC offers technical or other advice to Gintech, whether or not at Gintech’s request, with respect to processing, further manufacture, other use or resale of the Wafers, and Gintech declines to follow such advice, MEMC shall not be liable for, and Gintech assumes all risk of, such declination of advice and the results thereof.

2.10 Force Majeure.

(a) MEMC shall not be liable for any delay or failure to perform due to any cause or condition beyond its reasonable control, whether foreseeable or not, including, without limitation, Acts of God, war, riot, fire, explosion, accident, flood or sabotage; lack of adequate fuel, power or raw materials, labor, containers or transportation facilities; compliance with governmental requests, Laws, regulations, orders, action or national defense requirements; embargoes or acts of civil or military authorities; theft, breakage or failure of machinery or apparatus; or in the event of labor trouble, strike, lockout or injunction (provided that MEMC shall not be required to settle a labor dispute against its own best judgment) (all of such events, a “Force Majeure Event”). MEMC shall give prompt written notice to Gintech of any such Force Majeure Event and any associated delivery changes.

(b) If a Force Majeure Event occurs, MEMC shall not be responsible for any damage, increased costs, or Losses which Gintech may sustain by reason of such failure of performance, but this Agreement shall not be regarded as terminated or frustrated as a result such failure of performance. If a Force Majeure Event occurs, MEMC shall take appropriate means to minimize or remove the effects of the Force Majeure Event and, within the shortest practicable time, attempt to resume performance of its obligations under this Agreement affected by the Force Majeure Event, except as may be permitted by Section 2.10(c).

(c) If MEMC has suffered a Force Majeure Event and is unable to perform substantially all of its obligations under this Agreement for eighteen (18) months or more after suspension of its performance after the occurrence of a Force Majeure Event, then Gintech and MEMC may mutually terminate this Agreement if the Parties mutually agree to terminate. Notwithstanding anything in this Agreement to the contrary, in no event shall the occurrence of a Force Majeure Event hereunder excuse either Party from its obligations to pay to the other Party any sums accrued or due hereunder to such other Party.

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2.11 Noncompete.

(a) Gintech understands that MEMC shall be entitled to protect and preserve the going concern value of its business to the extent permitted by Law and that MEMC would not have entered into this Agreement absent the provisions of this Section 2.11. Therefore, during the Initial Term (and any extensions of the Initial Term pursuant to Section 4.1 hereof), except as may be agreed to in writing by MEMC in advance of engaging in any activities, Gintech shall not, and each shall cause each of its affiliates and Subsidiaries to not, directly or indirectly, engage in any Restricted Gintech Business anywhere in the world including (A) owning any interest in, managing, operating, controlling or participating in any Person which owns or operates a Restricted Gintech Business, (B) soliciting any customer or prospective customer of MEMC anywhere in the world to purchase any products or services which compete with those provided by MEMC and (C) assisting any Person in any way to do, or attempt to do, anything prohibited above; provided, however, that the ownership by Gintech of up to a [xxxxxxx] percent ([XXXX]%) interest in any Person in a Restricted Gintech Business shall be permitted. In addition, Gintech shall not, and each shall cause each of its affiliates and Subsidiaries to not, directly or indirectly, permit investment in Gintech or its affiliates or Subsidiaries by any MEMC Competitor; provided, however, that this Section 2.11(a) shall not apply if an MEMC Competitor acquires an interest (equity or debt) in Gintech or its affiliates or Subsidiaries through trading in the stock market without being invited by Gintech or its affiliates or Subsidiaries; and provided further that in the event that any MEMC Competitor acquires a [xxxxxxx] percent ([XXXX]%) interest or more in Gintech or its affiliates or Subsidiaries, if requested in writing by MEMC, Gintech will use best efforts to negotiate with the MEMC Competitor in order to have such MEMC Competitor sell its position in the public markets or in a negotiated private transaction.

(b) If, at the time of enforcement of the covenants contained in this Section 2.11 (the “Restrictive Gintech Covenants”), a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed and directed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by Law. Upon advice of legal counsel, Gintech has determined and hereby acknowledges that the Restrictive Gintech Covenants are reasonable in terms of duration, scope and area restrictions. Gintech acknowledges that both MEMC and Gintech have been doing business throughout the world.

(c) If Gintech or any of its affiliates or Subsidiaries breaches, or threatens to commit a breach of, any of the Restrictive Gintech Covenants, MEMC shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to MEMC at law or in equity:

(i) the right and remedy to have the Restrictive Gintech Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Gintech Covenants would cause irreparable injury to MEMC and that money damages would not provide an adequate remedy to MEMC; and

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(ii) the right and remedy to require such Person to account for and pay over to MEMC any profits, monies, accruals, increments or other benefits derived or received by such Person as the result of any transactions constituting a breach of the Restrictive Gintech Covenants; and

(iii) the right and remedy to cease deliveries of Wafers hereunder until the breach of any of the Restrictive Gintech Covenants is cured.

2.12 Noncompete in Favor of Gintech.

(a) MEMC understands that Gintech shall be entitled to protect and preserve the going concern value of its business to the extent permitted by Law and that Gintech would not have entered into this Agreement absent the provisions of this Section 2.12. Therefore, during the Initial Term (and any extensions of the Initial Term pursuant to Section 4.1 hereof), except as may be agreed to in writing by Gintech in advance of engaging in any activities, MEMC shall not, and each shall cause each of its affiliates and Subsidiaries to not, directly or indirectly, engage in any Restricted MEMC Business anywhere in the world including (A) owning any interest in, managing, operating, controlling or participating in any Person which owns or operates a Restricted MEMC Business, (B) soliciting any customer or prospective customer of Gintech anywhere in the world to purchase any products or services which compete with those provided by Gintech and (C) assisting any Person in any way to do, or attempt to do, anything prohibited above; provided, however, that the ownership by MEMC of up to a [xxxxxxx] percent ([XXXX]%) interest in any Person in a Restricted MEMC Business shall be permitted.

(b) If, at the time of enforcement of the covenants contained in this Section 2.12 (the “Restrictive MEMC Covenants”), a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed and directed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by Law. Upon advice of legal counsel, MEMC has determined and hereby acknowledges that the Restrictive MEMC Covenants are reasonable in terms of duration, scope and area restrictions. MEMC acknowledges that both Gintech and MEMC have been doing business throughout the world.

(c) If MEMC or any of its affiliates or Subsidiaries breaches, or threatens to commit a breach of, any of the Restrictive MEMC Covenants, Gintech shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to Gintech at law or in equity:

(i) the right and remedy to have the Restrictive MEMC Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive MEMC Covenants would cause irreparable injury to Gintech and that money damages would not provide an adequate remedy to Gintech and

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(ii) the right and remedy to require such Person to account for and pay over to Gintech any profits, monies, accruals, increments or other benefits derived or received by such Person as the result of any transactions constituting a breach of the Restrictive MEMC Covenants.

2.13 Preferred Vendor. The quantities of Wafers to be supplied by MEMC hereunder assume that in any Contract Year such amount of Wafers will be approximately [XXXX]% of Gintech’s then current solar wafer demand, and the Yearly Minimum Quantities and Yearly Target Quantities of Wafers set forth in Attachment B, as modified by Section 2.2(a), reflect this mutual intention of the parties. In addition, MEMC shall be considered as a preferred vendor and shall have an annual right of first refusal (but not an obligation, unless MEMC would be so obligated pursuant to Section 2.2(a) hereof) to negotiate with Gintech to supply Gintech with additional Wafers, in excess of [xxxxxxx] percent ([XXXX]%) of Gintech’s then current demand for Wafers (such potential amount, the “Additional Wafer Supply”). The price per watt for such Additional Wafer Supply shall be negotiated by the parties. If the parties are unable to reach agreement on price and quantity for such Additional Wafer Supply by November 1 for the ensuing Contract Year commencing on January 1, Gintech may buy such Additional Wafer Supply from other suppliers. Such Additional Wafer Supply, if supplied by MEMC, shall not be added to the Yearly Minimum Quantity for the then current Contract Year or any Contract Year thereafter unless the parties expressly agree.

ARTICLE III

LOAN/SECURITY DEPOSIT AND LETTER OF CREDIT; EXECUTION OF ADDITIONAL

AGREEMENTS

3.1 Loan/Security Deposit. To induce MEMC to invest in additional polysilicon production and wafer manufacturing capacity, Gintech agrees to loan MEMC, per the schedule set forth on Attachment C hereto, the amount of $341.3 million (the “Loan/Security Deposit”), as a means of securing Gintech’s obligations to MEMC, which Loan/Security Deposit shall be repaid by MEMC, without interest, up to the amount of $324.2 million (95% of the aggregate Loan/Security Deposit amount, such retained amount of $17.1 million, the “Retained Loan/Security Deposit Amount”), according to the repayment schedule set forth on Attachment C hereto, unless Gintech has not purchased the Yearly Minimum Quantities in any Contract Year under the “take or pay” provisions of Section 2.2(a) hereof, in which case MEMC may choose to offset pursuant to this Article III any payments required from Gintech under Section 2.2(a) hereof against MEMC’s obligation to repay the Loan/Security Deposit.

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(a) In any Contract Year when Gintech is required to pay MEMC a portion of the Loan/Security Deposit per the schedule set forth on Attachment C, payment by Gintech to MEMC shall be made, in full, no later than the fifth Business Day of the applicable Contract Year; provided, however, that Gintech shall be entitled to request MEMC to calculate the difference between the amount of the Loan/Security Deposit repayable by MEMC pursuant to Section 3.1(b) and the amount of the Loan/Security Deposit payable by Gintech in any Contract Year, and Gintech shall pay such difference to MEMC no later than the fifth Business Day of the applicable Contract Year. In connection with the Loan/Security Deposit amount to be paid by Gintech to MEMC for the first Contract Year, twenty five percent (25%) of the Loan/Security Deposit amount to be paid by Gintech to MEMC for that first Contract Year shall be paid to MEMC three (3) Business Days after the date of this Agreement, and seventy five percent (75%) of the Loan/Security Deposit amount to be paid by Gintech to MEMC for that first Contract Year shall be paid to MEMC on or before the first shipment date for Wafers.

(b) In any Contract Year when MEMC is required to repay a portion of the Loan/Security Deposit to Gintech per the schedule set forth on Attachment C, payment by MEMC to Gintech shall be made, in full, no later than the fifth Business Day of the applicable Contract Year; provided, however, that if in any Contract Year there is a Purchase Shortfall that has not been paid by Gintech via wire transfer to MEMC in accordance with the provisions of Section 2.2(d) hereof, MEMC shall not be required to repay that portion of the Loan/Security Deposit up to the Purchase Shortfall in the next Contract Year, but instead MEMC may retain the amount of the Loan/Security Deposit up to the Purchase Shortfall (including the amount of any interest accrued on the Purchase Shortfall in accordance with Section 2.2(d) hereof, until the date that MEMC actually transfers or retains such amount); and provided further, that if in any Contract Year there is a Purchase Shortfall (or an aggregate Purchase Shortfall from more than one Contract Year) that has not been paid by Gintech to MEMC in excess of the amount of any Loan/Security Deposit not yet repaid by MEMC, MEMC may withhold repayment in any future Contract Years of the Loan/Security Deposit up to the amount of the aggregate unpaid Purchase Shortfall. If the aggregate unpaid Purchase Shortfall(s) exceed the remaining Loan/Security Deposit not yet repaid by MEMC, MEMC shall have any and all remedies available to it to recover from Gintech immediately the amount of any aggregate unpaid Purchase Shortfall, including drawing on the Letter of Credit pursuant to the provisions of Section 3.1(c).

(c) The Parties have also agreed that the amount of the Loan/Security Deposit outstanding in any Contract Year is less than the appropriate amount of security to be held by MEMC in order to ensure payment for Gintech’s “take or pay” obligations under Section 2.2(a) hereof. Accordingly, the Parties have agreed that Gintech will be required to deliver to MEMC, no later than the seventh Business Day of each Contract Year, an irrevocable Letter of Credit drawn on a bank that is requested by Gintech and approved by MEMC (the “LC Bank”), in an amount equal to the Required Letter of Credit Amount for such Contract Year as is set forth on Attachment C (the “Letter of Credit Amount”), and that expires on the eighth Business Day of the subsequent Contract Year. Gintech may, in its discretion, use quarterly or half-year revolving Letters of Credit to cover the full Letter of Credit Amount during any respective Contract Year; provided, however,

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that in no event shall there ever be a gap in coverage (i.e., a Letter of Credit will not be permitted to expire before a replacement Letter of Credit is put in place). MEMC’s right to unilaterally draw on the Letter of Credit (after exhaustion of the Loan/Security Deposit amount then held by MEMC) shall be substantially similar to those rights set forth in Section 3.1(b) above. The Letter of Credit Amount set forth on Attachment C for each Contract Year was calculated as follows:

(i) In Contract Year one, the Letter of Credit Amount shall be equal to twelve (12) months of MEMC’s revenue under this Agreement, based on the minimum quantity of Wafers for that Contract Year at the pricing for that Contract Year (assuming all Multi Wafers), less the cumulative net amount of the Loan/Security Deposit then held by MEMC;

(ii) In Contract Year two, the Letter of Credit Amount shall be equal to nine (9) months of MEMC’s revenue under this Agreement, based on the minimum quantity of Wafers for that Contract Year at the pricing for that Contract Year (assuming all Multi Wafers), less the cumulative net amount of the Loan/Security Deposit then held by MEMC; and

(iii) In Contract Year three through Contract Year eleven, the Letter of Credit Amount shall be equal to six (6) months of MEMC’s revenue under this Agreement, based on the minimum quantity of Wafers for that Contract Year at the pricing for that Contract Year (assuming an split between Multi Wafers and Mono Wafers of 75%/25%, respectively), less the cumulative net amount of the Loan/Security Deposit then held by MEMC.

(iv) In any Contract Year for which the Yearly Minimum Quantity is adjusted upward or downward pursuant to the provisions of Section 2.2(a) or Section 2.2(f)(i)(A), the Letter of Credit Amount will also be adjusted upward or downward consistent with the provisions of this Section 3.1(c).

(d) The Parties have also agreed that the amount of the Loan/Security Deposit outstanding in any Contract Year to be held by MEMC in order to ensure payment for Gintech’s “take or pay” obligations under Section 2.2(a) hereof may be adjusted pursuant to the provisions of this Section 3.1(d) as follows:

(i) Beginning in Contract Year two, every October 1 and April 1 Gintech will provide MEMC with complete financial statements for the six months and twelve months ended June 30 and December 31, respectively (such financial statements, the “Financial Statements”). From the Financial Statements, MEMC will verify whether Gintech meets the Guaranteed Financial Performance Criteria.

(ii) If the Guaranteed Financial Performance Criteria for the prior twelve (12) month period are met, then the Letter of Credit Amount shall not be adjusted pursuant to this Section 3.1(d).

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(iii) If, however, the Guaranteed Financial Performance Criteria for the prior twelve (12) month period are not met, then the Letter of Credit Amount shall be adjusted pursuant to this Section 3.1(d), by Gintech being required to increase the amount of security for MEMC by increasing the Letter of Credit Amount by an additional six (6) months of months of MEMC’s revenue under this Agreement, based on the minimum quantity of Wafers for that Contract Year at the pricing for that Contract Year (assuming a split between Multi Wafers and Mono Wafers of [XXXX]%/[XXXX]%, respectively), less the cumulative net amount of the Loan/Security Deposit then held by MEMC (e.g., in Contract Year two the total amount of required revenue months to be held as security would be fifteen (15) and in Contract Years three through eleven, the total amount of required revenue months would be twelve (12)).

(iv) In the event that Gintech will be required to increase the Letter of Credit Amount pursuant to Section 3.1(d)(iii), then Gintech shall deliver to MEMC a Letter of Credit for the increased amount no later than ten (10) Business Days after MEMC has performed the calculation required by Section 3.1(d)(i) above and has requested an increase in the Letter of Credit Amount from Gintech in writing. All other terms and provisions of this Agreement shall apply to any Letter of Credit required by this Section 3.1(d).

(v) Notwithstanding the foregoing provisions of this Section 3.1(d), if the quantity of Wafers tendered for delivery by MEMC during the just-ended Contract Year is less than the Yearly Minimum Quantities for such just-ended Contract Year, then each of the financial performance measures that make up the Guaranteed Financial Performance Criteria shall be reduced by the same percentage as the amount that the quantity of Wafers tendered for delivery by MEMC during the just-ended Contract Year is less than the Yearly Minimum Quantities for such just-ended Contract Year (e.g., if MEMC has tendered for delivery only 95% of the Yearly Minimum Quantity for a Contract Year, then the threshold amount of each of the financial performance measures that make up the Guaranteed Financial Performance Criteria shall be reduced to only 95% of such amounts).

3.2 Execution of Gintech Silicon Material Corporation Stock Purchase Agreement.

(a) Concurrently with the execution of this Agreement, Gintech and MEMC shall execute the Gintech Silicon Material Corporation Stock Purchase Agreement, pursuant to which Gintech shall transfer to MEMC one hundred percent (100%) of the ownership interests in Gintech Silicon Material Corporation (“Gintech Material”) as soon as practicable after December 16, 2006, but in no event later than December 31, 2006, which ownership interests shall then include all associated Tax holidays and benefits and incentives from Governmental Authorities, for lease of that certain 1.7 hectare parcel or that certain 1.8 hectare parcel of land and/or real property located in Hsin Chu Science Park (the “Real Property Interest”) suitable for MEMC to build a factory thereon to manufacture some of the Wafers should MEMC so choose.

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(b) Gintech warrants and represents that Gintech Material is qualified to enjoy the tax incentives (five years tax holidays) as provided for under Article 9 of the Statute for Upgrading Industries, pursuant to the approval letter (Ref. No. Kong Hua Zi 09400716260) issued by the Industrial Development Bureau (“IDB”) dated December 31, 2005.

(c) The Parties acknowledge and agree that such five years tax holidays status was granted based upon the original investment proposal submitted by Gintech Material to IDB. The Parties agree to cooperate with each other to amend the original investment proposal of Gintech Material to ensure that after being acquired by MEMC, Gintech Material will still be able to enjoy such five years tax holidays status based upon such amended investment proposal and seek the required regulatory approval for such amended investment proposal.

(d) If such five years tax holidays status granted to Gintech Material is cancelled or revoked, MEMC shall be entitled to hold back from the Loan/Security Deposit the amount of [xxxxxxx] Dollars ($[XXXX]) per year for each of the five years of such cancelled or revoked tax holidays status; provided, however, that in no event shall Gintech be subject to any such hold back in the case where such five years tax holidays status is cancelled or revoked for any of the following reasons: (i) Gintech Material fails to submit the amended investment proposal for IDB’s approval on or before December 31, 2006; (ii) Gintech Material fails to complete the construction of a new manufacturing facility with the minimum capacity of 100 Megawatts in Taiwan for manufacture of solar wafers on or before December 31, 2009 (after the granting of a one year extension by the IDB, if so requested by MEMC and/or Gintech Material); or (iii) the total amount of investment made by MEMC in Gintech Material is less than US$[XXXX] on or before December 31, 2009 (after the granting of a one year extension by the IDB, if so requested by MEMC and/or Gintech Material).

3.3 Execution of Share Subscription Agreement. Concurrently with the execution of this Agreement, Gintech and MEMC shall execute the Share Subscription Agreement, pursuant to which MEMC shall purchase 7.8 million shares of Gintech stock at NT$10 per share.

ARTICLE II

TERM AND TERMINATION

4.1 Term. The Term of this Agreement shall commence on the Effective Date and shall expire ten (10) years following the Effective Date (the “Initial Term”). No less than twelve (12) months prior to the expiration of the Initial Term, the Parties agree to negotiate in good faith to extend the Initial Term of the Agreement, with such negotiations intended to address price, quantity (including minimum quantities) and length of any extension term. In no event shall this Agreement be extended beyond the Initial Term unless the Parties expressly agree on all material terms of such extension.

4.2 Termination by Either Party. Either Party to this Agreement may terminate this Agreement by written notice to the other Party if, and only if, such other Party (a) becomes

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insolvent, (b) makes a general assignment for the benefit of creditors, (c) suffers or permits the appointment of a receiver for its business or assets, (d) becomes subject as the debtor to any proceeding under any bankruptcy or insolvency Law, whether domestic or foreign, and such proceeding is not dismissed with prejudice within sixty (60) days after filing, or (e) commences liquidation or dissolution proceedings, voluntarily or otherwise. In addition, if a Force Majeure Event has occurred, and the Parties have mutually agreed to terminate this Agreement pursuant to the provisions of Section 2.10(c), this Agreement shall be so terminated on the date the Parties have agreed shall be the termination date.

4.3 Termination by MEMC.

(a) In the event that Gintech has failed to pay a Purchase Shortfall to MEMC within five (5) Business Days of being notified thereof, and the amount of the unpaid Purchase Shortfall is greater than the amount of the Loan/Security Deposit and Letter of Credit then held by MEMC, then MEMC shall have the right, upon at least ten (10) Business Days prior written notice to Gintech in accordance with the notice provisions of Section 7.4, to immediately terminate this Agreement if:

(i) Gintech has not paid to MEMC, in immediately available funds, the amount of the unpaid Purchase Shortfall (after MEMC shall have retained the Loan/Security Deposit and drawn on the Letter of Credit) no later than the ninth (9^th) Business Day after receiving such written notice; and

(ii) Gintech has not replenished the Loan/Security Deposit to be held by MEMC (after MEMC has retained the Loan/Security Deposit) by wiring MEMC, in immediately available funds, the amount of the Loan/Security Deposit as would be required for such Contract Year by Attachment B (taking into account the provisions of Section 2.2(a), Section 2.2(f), Section 3.1(c) and Section 3.1(d) hereof) and replaced the Letter of Credit with a new Letter of Credit in the amount of the Letter of Credit Amount required for such Contract Year by Attachment B (taking into account the provisions of Section 2.2(a), Section 2.2(f), Section 3.1(c) and Section 3.1(d) hereof) no later than the ninth (9^th) Business Day after receiving such written notice.

4.4 Termination by Gintech.

(a) In the event that MEMC has failed to deliver the Yearly Minimum Quantities as would be required to be delivered pursuant to the provisions of Section 2.2(a) hereof (taking into account the provisions, including the recovery provisions, of Section 2.2(f)(i) hereof) for three (3) consecutive Contract Years, then, no later than thirty (30) days after the end of such third consecutive Contract Year, Gintech may provide written notice to MEMC that Gintech intends to immediately terminate this Agreement. Such termination will take effect five (5) Business Days thereafter if the breach is not cured by MEMC within such five (5) Business Day period; provided, however, that Gintech shall be required to accept delivery of and pay for Wafers already manufactured or in the process of manufacture for any accepted purchase orders at the time the termination notice pursuant to this Section 4.4(a) is received by MEMC in accordance with the notice provisions of Section 7.4.

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(b) If Gintech would have the right to terminate this Agreement pursuant to Section 4.4(a), but Gintech does not provide written notice of such intent to terminate to MEMC within the prescribed time frames of Section 4.4(a), then Gintech may not terminate this Agreement pursuant to Section 4.4(a) for that entire Contract Year, and will be deemed to have waived such right to terminate this Agreement pursuant to Section 4.4(a) for that three (3) Contract Year period of missed deliveries. In such event, Gintech can still “count” the two most recent Contract Years of missed deliveries of Wafers (as would be required to be delivered by MEMC pursuant to the provisions of Section 2.2(a) hereof (taking into account the recovery provisions of Section 2.2(f)(i) hereof)) for the purposes of determining whether, at the end of the subsequent Contract Year, a new right to terminate this Agreement pursuant to Section 4.4(a) has been triggered. In such case, the provisions of both Section 4.4(a) and this Section 4.4(b) shall again apply.

4.5 Effect of Termination. Upon termination or expiration of this Agreement, the Parties’ obligations hereunder shall terminate. Notwithstanding the foregoing, the provisions of Section 2.2, Section 2.9, Article V and Article VI are of a continuing nature and shall survive termination of this Agreement for any reason. No such termination shall relieve any Party from liability for any prior or subsequent breach of this Agreement. If the termination was validly made by Gintech pursuant to Section 4.2 or Section 4.4(a), MEMC shall return the balance of Loan/Security Deposit to Gintech within sixty (60) days of the termination.

ARTICLE V

INDEMNIFICATION

5.1 Indemnification Generally. Gintech shall indemnify and defend MEMC and its directors, officers, employees, contractors and agents, from any liability (including reasonable attorneys’ fees) for any Loss or injury to persons or property which may result from Gintech’s breach of its representations, warranties or covenants in this Agreement.

5.2 Resolution of Disputes; Litigation.

(a) Prior to initiating any legal or other action or proceeding against the other, the Parties shall attempt in good faith to resolve any controversy or claim arising from or relating to this Agreement promptly by negotiations between the respective representatives of the Parties. The disputing Party shall give the other Party written notice of the dispute. Within twenty (20) days after receipt of such notice, the receiving Party shall submit a written response to the other Party. The notice and response shall include a statement of the respective Party’s position and arguments supporting its position. The representatives shall meet at a mutually acceptable time and place within thirty (30) days after the date of the disputing Party’s notice and thereafter as often as they reasonably deem necessary to exchange relevant information and to attempt to resolve the dispute. If the matter has not been resolved through negotiation within sixty

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(60) days after the date of the disputing Party’s notice, or if either Party will not meet with the other Party within thirty (30) days after the date of the disputing Party’s notice, then either Party is free to bring any legal action or proceeding, so long as such legal action or proceeding complies with the provisions of Section 7.12 hereof. All deadlines specified herein may be extended by mutual written agreement of the Parties.

(b) If no agreement can be reached between the Parties after good faith negotiation above, either Gintech or MEMC may bring any legal action or proceeding, so long as such legal action or proceeding complies with the provisions of Section 7.12 hereof, unless the amount of the damage or loss is at issue in a pending action or proceeding involving a third party claim, in which event such action or proceeding shall not be commenced until such amount is ascertained or both Parties agree to the action or proceeding.

(c) In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing Party in such dispute shall be entitled to recover from the losing Party all fees, costs and expenses of enforcing any right of such prevailing Party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

5.3 Time Limits. Any right to indemnification or other recovery under this Article V shall only apply to Losses arising from claims with respect to which the Indemnified Person shall have notified the Indemnifying Person in writing within one (1) year of the occurrence of the facts giving rise to the underlying claim; provided, however, that such obligations to indemnify and hold harmless shall not terminate with respect to any Losses arising from claims as to which the Indemnified Person shall have, before the expiration of the one (1) year period, previously delivered a notice pursuant to Section 5.2 to the Indemnifying Person.

5.4 General Indemnification Provisions.

(a) The Indemnifying Party shall pay the Indemnified Party immediately available funds on an as-incurred basis for any Losses for which the Indemnified Party is entitled to indemnification hereunder. Any such indemnification payments shall include interest at the rate of 5% per annum (computed on the basis of a 360-day year) from the date any such Losses are suffered or sustained by the Indemnified Party.

(b) If and to the extent that any provision of Section 5.1 is unenforceable for any reason, each Party hereto agrees to make the maximum contribution to the payment and satisfaction of any Losses as to which such Party would otherwise have been responsible for indemnification which is permissible under applicable Law.

(c) Each Indemnifying Party hereby waives (i) presentment, demand, protest, notice of protest, notice of dishonor and notice of nonpayment; (ii) the right, if any, to the benefit of, or to direct the application of, any security hypothecated to Indemnified Party (if any), until all indemnification liability of another Indemnifying Party to Indemnified Party, howsoever arising, shall have been satisfied; (iii) the right to require the

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Indemnified Party to proceed against another Indemnifying Party, or to pursue any other remedy in Indemnified Party’s power (if any); and agrees that Indemnified Party may proceed against Indemnifying Party directly and independently of any other Indemnifying Party, and that any extension, forbearance, amendment, or acceptance, release or substitution of security, or any impairment or suspension of Indemnified Party’s remedies or rights against another Indemnifying Party or the cessation of the liability for indemnification hereunder of another Indemnifying Party for any reason other than full satisfaction of the indemnification obligation at issue, shall not in anywise affect the liability of Indemnifying Party hereunder.

ARTICLE VI

CONFIDENTIAL INFORMATION

6.1 Confidential Information; Public Disclosure.

(a) MEMC agrees that it will not disclose to any third party the existence of or the details of this Agreement and any trade secrets or other proprietary information it obtains with respect to Gintech during or after the term of this Agreement except as expressly permitted hereunder, and that it will treat all such information as confidential and will use such information only for carrying out the purposes of this Agreement; provided, however, that MEMC will not be obligated to treat as confidential any information acquired by it that is either known to the general public or to the industry, or known to, or in the possession of, MEMC prior to disclosure by Gintech, that is disclosed as required by Law, or that is independently developed by MEMC. The confidentiality obligations of MEMC hereunder shall continue during the term of this Agreement and for a period of ten (10) years after termination.

(b) Gintech agrees that it will not disclose to any third party the existence of or the details of this Agreement and any trade secrets or other proprietary information it obtains with respect to MEMC during or after the term of this Agreement except as expressly permitted hereunder, and that it will treat all such information as confidential and will use such information only for carrying out the purposes of this Agreement; provided, however, that Gintech will not be obligated to treat as confidential any information acquired by it that is either known to the general public or to the industry, or known to, or in the possession of, Gintech prior to disclosure by MEMC, that is disclosed as required by Law, or that is independently developed by Gintech. The confidentiality obligations of Gintech hereunder shall continue during the term of this Agreement and for a period of ten (10) years after termination.

(c) The Parties to this Agreement shall consult with each other as to the form, substance and timing of any press release or other public disclosure related to this Agreement or the transactions contemplated hereby and no such press release or other public disclosure shall be made without the consent of the other Party hereto, which consent shall not be unreasonably withheld or delayed; provided, however, that the Parties may make such disclosure to the extent permitted above or to the extent required by applicable Law, including the requirements of the New York Stock Exchange or the United States Securities and Exchange Commission.

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6.2 Equitable Relief. Notwithstanding any other provision of this Agreement, it is understood and agreed that the remedy of indemnity payments pursuant to Article V and other remedies at law may be inadequate in the case of any breach of the covenants contained in this Article VI. Accordingly, either Party shall be entitled to seek equitable relief, including the remedy of specific performance, with respect to any breach or attempted breach of such covenants.

ARTICLE VII

GENERAL PROVISIONS

7.1 No Partnership. Nothing contained in this Agreement shall create or shall be construed as creating a partnership, a joint venture or an agency relationship between the Parties to this Agreement. The Parties agree to perform in accordance with this Agreement only as independent contractors. Neither Party has the right or authority to assume or create any obligations or responsibilities, express or implied, on behalf of the other Party, and neither Party may bind the other Party in any manner or thing whatsoever. Neither Party shall be liable, except as expressly provided otherwise in this Agreement, for any expenses, liabilities or other obligations incurred by the other.

7.2 Expenses. Each Party hereto shall bear its own fees and expenses with respect to the transactions contemplated hereby.

7.3 Amendment. This Agreement may be amended, modified or supplemented only in writing signed by MEMC and Gintech.

7.4 Notices. Any notice, request, instruction or other document to be given or delivered hereunder by a Party hereto shall be in writing and shall be deemed to have been delivered, (a) when received if given in Person or by courier or a courier service, or (b) on the date of transmission if sent by facsimile transmission (receipt confirmed) on a Business Day during the normal business hours of the intended recipient, and if not so sent on such a day and at such a time, on the following Business Day:

If to MEMC, addressed as follows:

MEMC Electronic Materials, Inc.

501 Pearl Drive (City of O’Fallon)

P.O. Box 8

St. Peters, MO 63376

Attention: Chief Executive Officer

Tele: 636-474-5000

Fax: 636-474-5162

cc: MEMC General Counsel

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If to Gintech, addressed as follows:

Gintech Energy Corporation

8F, no. 396, Sec. 1

Neihu Rd.

Neihu Technology Park

Taipei 114

Taiwan

Attention: Chief Executive Officer

Tele: +886-2-2656-2000

Fax: +886-2-2656-0594

or to such other individual or address as a Party hereto may designate for itself by notice given as herein provided.

7.5 Waivers. Except as otherwise provided in Section 5.3, the failure of a Party hereto at any time or times to require strict performance of any provision hereof or claim damages with respect thereto shall in no manner affect its right at a later time to enforce the same. No waiver by a Party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty.

7.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns; provided, however, that, except with the written consent of the other Party, no assignment of this Agreement or any rights or obligations hereunder, by operation of Law or otherwise, may be made by either Party, other than to an at least eighty percent (80%) owned Subsidiary of such Party (but no such assignment shall relieve the assigning Party of its obligations hereunder), and any assignment in contravention of this Section 7.6 shall be of no effect and shall be void.

7.7 Captions. Captions of Sections or Articles of this Agreement are included for reference only, shall not be construed as part of this Agreement and shall not be used to define, limit, extend or interpret the terms of this Agreement.

7.8 Severability. If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality or enforceability of the other provisions hereof shall not be affected thereby, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue.

7.9 Entire Understanding; Conflicts. This Agreement sets forth the entire agreement and understanding of the Parties hereto with respect to the transactions contemplated hereby and supersedes any and all prior agreements, arrangements and understandings, both written and oral, among the Parties relating to the subject matter hereof.

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7.10 Language. Each of MEMC and Gintech agree that the language used in this Agreement is the language chosen by the Parties to express their mutual intent, and that no rule of strict construction is to be applied against MEMC or Gintech. Each of MEMC and Gintech and their respective counsel have reviewed and negotiated the terms of this Agreement.

7.11 Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the internal Laws of the State of New York, without giving effect to the principles of conflicts of law thereof.

7.12 Jurisdiction for Disputes. Subject to the provisions of Section 5.2 which shall govern any claim for indemnification as discussed therein, each Party to this Agreement hereby (a) agrees that any proceeding in connection with or relating to this Agreement or any matters contemplated hereby may be brought by either Party in a court of competent jurisdiction located within New York City, New York, whether a state or federal court; (b) agrees that in connection with any such proceeding, such Party shall consent and submit to personal jurisdiction in any such court described in clause (a) of this Section 7.12 and to service of process upon it in accordance with the rules and statutes governing service of process; (c) agrees to waive to the full extent permitted by Law any objection that it may now or hereafter have to the venue of any such proceeding in any such court or that any such proceeding was brought in an inconvenient forum; (d) agrees to service of process in any such proceeding by mailing of copies thereof to such Party at its address set forth in Section 7.4; (e) agrees that any service made as provided herein shall be effective and binding service in every respect; and (f) agrees that nothing herein shall affect the rights of either Party to effect service of process in any other manner permitted by Law.

7.13 Cumulative Remedies. Each and every right and remedy under this Agreement is cumulative with each and every other right and remedy in this Agreement or in any other agreement between the Parties or under applicable Law.

7.14 Counterparts; Facsimile Signatures. This Agreement may be executed in counterparts, and when so executed each counterpart shall be deemed to be an original, and said counterparts together shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature shall be deemed to have the same effect as if the original signature had been delivered to the other part(ies). The original signature copy shall be delivered to the other part(ies) by express overnight delivery. The failure to deliver the original signature copy and/or the nonreceipt of the original signature copy shall have no effect upon the binding and enforceable nature of this Agreement.

[remainder of page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

MEMC ELECTRONIC MATERIALS, INC.		GINTECH ENERGY CORPORATION
By:	/s/ Nabeel Gareeb	By:	/s/ Scott Kuo
	Nabeel Gareeb		Scott Kuo
	President and Chief Executive Officer		President and Chief Executive Officer
			Date: Oct. 25, 2006

SIGNATURE PAGE TO

SOLAR WAFER SUPPLY AGREEMENT

CONFIDENTIAL TREATMENT

Attachment A — Specifications

[xxxxxxxxxxxx]

A-1

CONFIDENTIAL TREATMENT

[xxxxxxxx]

A-2

CONFIDENTIAL TREATMENT

[xxxxxxxx]

A-3

CONFIDENTIAL TREATMENT

Attachment B – Target Quantities and Minimum Quantities

[xxxxxxx]

B-1

CONFIDENTIAL TREATMENT

Attachment B

[xxxxxxx]

B-2

CONFIDENTIAL TREATMENT

Attachment B

Determination of Efficiency Factor and Establishment of Baseline Cell Process

[xxxxxxx]

B-3

CONFIDENTIAL TREATMENT

Attachment C – Loan/Security Deposit Amounts; Letter of Credit Amounts

[xxxxxxx]

C-1

CONFIDENTIAL TREATMENT

Attachment D – Guaranteed Financial Performance Criteria

[xxxxxxx]

D-1

EX-10.47

Exhibit 10.47

Summary of Director Compensation

Set forth below is a summary of the compensation paid by MEMC Electronic Materials, Inc. (the “Company”) to its outside directors. Directors that are also employees of the Company receive no additional compensation for their service as a director.

Fees. Outside directors receive the following fees for their services on the Board of Directors and its Committees:

• $45,000 annual Board of Directors cash retainer;

• $20,000 additional cash retainer for Chairman of the Board of Directors;

• $40,000 additional cash retainer for Chairman of the Audit Committee and $10,000 additional cash retainer for each member of the Audit Committee;

• $20,000 additional cash retainer for Chairman of the Compensation Committee and $5,000 additional cash retainer for each member of the Compensation Committee;

• $5,000 additional cash retainer for the Chairman of the Nominating and Corporate Governance Committee; and

• $1,000 cash for each Board of Directors’ meeting and each Committee meeting attended.

Equity Compensation. Equity compensation is granted to outside directors as follows:

• Upon their initial election or appointment to the Board of Directors, outside directors who are not affiliated with Texas Pacific Group, Leonard Green & Partners and TCW/Crescent Mezzanine Management III LLC receive a grant of non-qualified stock options to purchase 10,000 shares of MEMC common stock at an exercise price per share equal to the fair market value per share on the date of grant. These options vest ratably over four years.

• Outside directors are awarded RSUs for shares of our common stock on an annual basis (as of the date of the annual stockholder meeting each year). The RSUs vest ratably over two years. Each year, RSUs are to be awarded in an amount such that the number of underlying shares of MEMC common stock has a total value of $100,000 on the date the award is granted. The actual number of RSUs to be awarded shall be determined in increments of 100 RSUs such that the value of common stock underlying the RSUs is as close to $100,000 as possible. For newly elected or appointed outside directors that become directors on a date other than the date of the annual stockholder meeting, such directors would receive RSUs for a pro rata portion of the $100,000 total value.

EX-10.48

Exhibit 10.48

Summary of Compensation Arrangements for Certain Named Executive Officers

Set forth below is a summary of the compensation paid by MEMC Electronic Materials, Inc. (the “Company”) to the executive officers to be named in the Company’s 2007 annual proxy statement who are not covered by current employment agreements, as of the date of filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) and are continuing as an executive officer of the Company in 2007. Each of these executive officers is an employee at will whose compensation and employment status may be changed at any time in the discretion of the Company’s Board of Directors.

Base Salaries. These executive officers receive base salaries in the amounts indicated below:

Name and Position	2007 Base Salary Amount
Kenneth H. Hannah, Senior Vice President and Chief Financial Officer	$	420,000
Sean Hunkler, Senior Vice President, Manufacturing	$	375,000
Shaker Sadasivam, Senior Vice President, Research and Development	$	330,750
John A. Kauffmann, Senior Vice President, Sales and Marketing	$	318,000
Bradley D. Kohn, Vice President, General Counsel and Corporate Secretary	$	265,000

The Compensation Committee adjusts these base salaries from time to time as the Committee deems appropriate, generally annually.

Incentive Awards. These executive officers are also eligible to participate in the Company’s incentive compensation plans as provided in the terms of such plans, including the Company’s short term incentive awards plan (which provides for cash incentive awards) and the Company’s long term incentive awards plan (e.g., the Company’s 2001 Equity Incentive Plan). Such plans, and any forms of awards thereunder providing for material terms, are included as exhibits to the Form 10-K as appropriate.

Pension Plan. These executive officers are also eligible to participate in the MEMC Pension Plan on the same terms as the Company’s other covered employees. Because they commenced employment after December 31, 2001, Mr. Hannah, Mr. Hunkler and Mr. Kohn are not covered by the MEMC Pension Plan.

Relocation Payments. From time to time the Company makes payments to executive officers to cover relocation expenses.

EX-13

Exhibit 13

Five Year Selected Financial Highlights Dollars in thousands, except share data

The following data has been derived from our annual consolidated financial statements, including the consolidated balance sheets and the related consolidated statements of operations, cash flows, and stockholders’ equity (deficiency) and the notes thereto. The information below should be read in conjunction with our consolidated financial statements and notes thereto including Note 2 related to significant accounting policies.

	2006	2005		2004(1)			2003		2002
Statement of Operations Data:
Net sales	$1,540,584	$	1,107,379	$	1,027,958		$	781,100	$	687,180
Gross margin	688,947		366,518		369,415			232,756		173,458
Marketing and administration	94,852		76,316		71,948			57,203		65,786
Research and development	35,819		33,209		37,975			32,934		27,423
Restructuring costs (2)	—		—		(996	)		—		15,300
Operating income	558,276		256,993		260,488			142,619		64,949
Net income (loss) allocable to common stockholders (3)	369,288		249,353		226,201			116,617		(22,097	)
Basic income (loss) per share	1.66		1.17		1.09			0.58		(0.17	)
Diluted income (loss) per share	1.61		1.10		1.02			0.53		(0.17	)
Shares used in basic income (loss) per share computation	222,128,722		213,513,110		207,713,837			202,439,828		129,810,012
Shares used in diluted income (loss) per share computation	229,743,349		226,449,944		221,047,946			218,719,459		129,810,012
Balance Sheet Data:
Cash, cash equivalents and short-term investments	585,491		153,611		92,314			130,697		165,646
Working capital	641,696		211,369		155,024			92,256		71,942
Total assets	1,765,524		1,148,103		1,028,189			726,752		631,682
Short-term borrowings	—		13,209		20,001			16,899		80,621
Long-term debt (including current portion of long-term debt)	34,408		39,917		138,727			114,193		204,017
Stockholders’ equity (deficiency)	1,166,893		711,337		442,898			193,623		(24,680	)
Other Data:
Capital expenditures	148,370		162,738		145,840			67,396		21,952
Employment	5,500		5,400		5,500			4,900		4,700

⁽¹⁾ In the 2004 first quarter, we completed the acquisition of the remaining 55% interest in Taisil that we did not already own. As a result, the financial results of Taisil were consolidated with our results effective February 1, 2004.

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⁽²⁾ During 2002, we incurred charges of $15 million primarily in connection with restructuring plans affecting approximately 450 salaried, hourly and temporary employees. During 2004, we reversed the remaining unused restructuring reserves of $1 million related to the 2002 restructuring charge.

⁽³⁾ During 2005, we reversed $67 million of valuation allowances related to deferred tax assets. This represented the reversal of all remaining valuation allowances on deferred tax assets. During 2004, we reversed $137 million of valuation allowances related to deferred tax assets.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

COMPANY OVERVIEW

We are a leading worldwide producer of wafers for the semiconductor industry, and are one of four wafer suppliers having more than a 10% share of the overall market. We operate manufacturing facilities in every major semiconductor manufacturing region throughout the world, including Europe, Japan, Malaysia, South Korea, Taiwan and the United States. Our customers include virtually all of the major semiconductor device manufacturers in the world, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world’s largest foundries. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) and in three general categories: prime polished, epitaxial and test/monitor. Depending on market conditions, we also sell intermediate products such as polysilicon, silane gas, partial ingots and scrap wafers to semiconductor device and equipment makers, solar customers, flat panel and other industries.

In 2006 we announced our intention to provide solar wafers as an additional type of wafer by signing multiple long-term solar wafer supply contracts. We began delivery of these wafers in January 2007.

RESULTS OF OPERATIONS

Net Sales	2006			2005			2004
Dollars in millions
Net Sales	$	1,541		$	1,107		$	1,028
Percentage Change		39	%		8	%		32	%

Our net sales increased by 39% to $1,541 million in 2006 from $1,107 million in 2005. The increase was driven by continued price increases on both sales of our excess polysilicon raw material and wafers combined with increased volumes. Our wafer average selling prices for the 2006 year were approximately 10% higher than the average selling prices for the 2005 year. Our raw material polysilicon sales amounted to slightly less than 19% of total sales in 2006 compared to slightly less than 10% in 2005. This percentage is anticipated to slowly decline over time as our wafer sales grow at a faster rate.

Our net sales increased by 8% to $1,107 million in 2005 from $1,028 million in 2004 resulting primarily from increased sales of polysilicon at higher prices and an increase in wafer product volume. Wafer average selling prices declined approximately 3% in 2005 compared to 2004. The worldwide polysilicon shortage allowed us to sell excess polysilicon to solar customers. Polysilicon sales amounted to slightly less than 10% of total sales in 2005.

We operate in all the major semiconductor-producing regions of the world, with approximately 66% of our 2006 net sales to customers located outside North America. Net sales by geographic region for each of the last three years were as follows:

Net Sales by Geographic Area:

Dollars in millions

2

Gross Margin	2006			2005			2004
Dollars in millions
Cost of Goods Sold	$	852		$	740		$	659
Gross Margin		689			367			369
Gross Margin Percentage		45	%		33	%		36	%

Our gross margin improved to $689 million, or 45% of net sales, in 2006 compared to $367 million, or 33% of net sales, in 2005. The improvement was driven by price increases on both excess polysilicon and wafer sales. Cost of goods sold increased $4 million due to the recording of stock compensation expense associated with the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”).

Our gross margin was $367 million in 2005 compared to $369 million in 2004 and decreased as a percentage of sales from 36% to 33%. This decrease was mainly due to the decrease in wafer average selling prices noted above, offset by increased margin on the sale of polysilicon. Additionally, in 2005 we changed our technology transfer process that isolated research and development (R&D) costs within manufacturing and reclassified them to R&D. See “Research and Development,” below. The change resulted in an increase in cost of goods sold with a corresponding decrease in R&D expense. The 2004 amount recorded was $6 million.

Marketing and Administration	2006			2005			2004
Dollars in millions
Marketing and Administration	$	95		$	76		$	72
As a Percentage of Net Sales		6	%		7	%		7	%

Marketing and administration expenses increased to $95 million in 2006 compared to $76 million in 2005. The increase was primarily a result of the recording of stock compensation expense associated with the adoption of SFAS 123R and higher professional fees. Stock compensation expense recorded in marketing and administration expenses was $13 million in 2006 as compared to $2 million in 2005. As a percentage of net sales, marketing and administration expenses in 2006 decreased to 6% compared to 7% in 2005.

Marketing and administration expenses were $76 million in 2005 compared to $72 million in 2004. As a percentage of net sales, marketing and administration expenses remained consistent with 2004, at 7%. In aggregate dollar amount, marketing and administration fees increased due to increased freight on customer shipments, higher professional fees and increased cost of providing sample wafers to customers. These increases were substantially offset by the termination of a management advisory agreement with Texas Pacific Group (“TPG”) in March 2005. Pursuant to the agreement, TPG provided management and financial advisory services to us as requested by our Board of Directors in exchange for a management advisory fee of $2 million per year plus related out-of-pocket expenses, and other additional compensation prior to the termination.

Research and Development	2006			2005			2004
Dollars in millions
Research and Development	$	36		$	33		$	38
As a Percentage of Net Sales		2	%		3	%		4	%

R&D expenses consisted mainly of product and process development efforts to increase our capability in the areas of flatness, particles and crystal defectivity. Our research and development expenses increased to $36 million in 2006 compared to $33 million in 2005 due to stock compensation expense associated with the adoption of SFAS 123R of $1 million in 2006 and a reduction in the amount of R&D grants we received from the Department of Defense.

Our R&D expenses decreased to $33 million in 2005 compared to $38 million in 2004, primarily due to the 2005 change in the classification of certain R&D costs. We changed our technology transfer process that isolated R&D costs within manufacturing and reclassified them to R&D. We determined that the difficulty of precisely measuring the impact of these actual costs warranted no longer classifying such costs as R&D. The amount recorded in 2004 was $6 million.

3

Nonoperating (Income) Expense	2006	2005			2004
Dollars in millions
Interest Expense	$2	$	7		$	14
Interest Income	(15)		(4	)		(5	)
Loss on the Extinguishment of Debt	—		—			61
Other, Net	(20)		2			(8	)

Interest expense in 2006 decreased to $2 million from $7 million in 2005. The decrease was due to our continued reduction of debt during 2005. Interest expense in 2005 decreased to $7 million compared to $14 million in 2004. The decrease was primarily the result of the redemption in December 2004 of the senior subordinated secured notes as well as the reduction of South Korean debt throughout 2004.

In 2006, our interest income increased to $15 million, compared to approximately $4 million in 2005 and $5 million in 2004. This change was primarily due to returns on higher cash balances and increased interest rates throughout 2006.

On December 30, 2004, we redeemed in full our outstanding senior subordinated secured notes plus interest for $68 million. In order to redeem the notes, we negotiated an amendment to the note indenture to allow for this early redemption without a premium. As a result of this amendment, we recognized a non-operating debt extinguishment loss on a pre-tax basis of $61 million in the 2004 fourth quarter.

Other nonoperating income in 2006 includes a gain of $19 million due to the mark to market adjustment related to a warrant received from a customer as discussed in Financial Condition below. The primary components of other nonoperating income included in the 2004 period were the reversal into income of unused customer deposits following the expiration of contracts, a gain on the termination of a customer supply arrangement and a reimbursement recorded from a business interruption insurance recovery.

Income Taxes	2006	2005			2004
Dollars in millions
Income Tax Expense (Benefit)	$215	$	(3	)	$	(40	)
Income Tax Rate as a % of Income before Income Taxes	36%		(1	)%		(20	)%

In 2006, we recorded income tax expense of $215 million representing 36% of income before income taxes, equity in joint venture and minority interests. The increase in the overall tax rate in 2006 from 2005 was related primarily to the release of all existing valuation allowances, a reassessment of income tax contingent liabilities, effects of foreign operations and changes in state items in 2005 (all as described below) and an increase in profitability in 2006.

In 2005, we recognized an income tax benefit of $3 million representing a benefit of 1% of income before income taxes, equity in joint venture and minority interests. The tax benefit was primarily due to reversal of valuation allowances, reassessments in reserves for changes of estimates of $30 million, effects of foreign operations on taxes offset by state income tax increases from rate changes and non-realizable state tax loss carry-forwards. We reversed $67 million of valuation allowances based on our projected future earnings because we believe it is more likely than not that certain deferred tax assets will be recognized in the future. In making this determination, we considered all available evidence including historical pre-tax and taxable income (losses), and the expected timing of the reversals of existing taxable temporary differences by taxable jurisdiction. We reassessed reserves for changes in estimates benefiting taxes by $30 million primarily for allowable depreciation deductions under IRS rules and an election to claim U.S. foreign tax credits. We expensed $10 million of state income taxes related to tax rate changes and non-realizable state net operating losses caused by a merger in 2005 for tax purposes. We recognized a tax benefit of $10 million primarily from our election to credit foreign taxes. We made certain prior period adjustments that netted to a tax expense of $3 million. See “Other Events” below.

In 2004, we recognized an income tax benefit of $40 million primarily due to the reversal of $108 million in valuation allowances against deferred tax assets related to our projected future earnings and $29 million related to current earnings in

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2004. We reversed the valuation allowances related to future earnings because we believe that it is more likely than not that certain deferred tax assets will be realized, taking into consideration all available evidence including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences by taxable jurisdiction. Primarily as a result of the total valuation allowance reversals of $137 million related to current and future earnings, we had an income tax benefit rate as a percentage of income before income taxes of (20%) in 2004. We also recorded a $27 million tax liability in 2004 for the potential non-deductibility of the payment to TPG for the redemption of the subordinated note.

FINANCIAL CONDITION

Cash and cash equivalents increased $401 million from $127 million at December 31, 2005 to $528 million at December 31, 2006. See additional discussion in Liquidity and Capital Resources.

Short-term investments increased $31 million from $27 million at December 31, 2005 to $58 million at December 31, 2006. Our improved operating results have allowed us to build our cash balance which we continue to invest in short-term investments, primarily comprised of time deposits.

Our accounts receivable increased $74 million to $199 million at December 31, 2006, compared to $125 million at the end of 2005. Of this increase, $28 million is attributed to a reduction in factored receivables. As discussed below, at December 31, 2006 and 2005, we had factored $3 million and $42 million of receivables, respectively, of which $0 and $11 million have been recorded as short-term borrowings and accounts receivable as of December 31, 2006 and 2005, respectively. The remaining $46 million is due to a combination of increased sales offset by improved payment terms. Our overall days sales outstanding (“DSO”) was 43 days at December 31, 2006, compared to 38 days at the end of 2005 based on annualized fourth quarter sales for the respective years. The increase is a result of fewer factored receivables.

Our inventories decreased $40 million or 33% to $80 million from the prior year. The decrease was primarily due to the 39% increase in 2006 sales compared to 2005 and our efforts to reduce our consignment inventory. Our annualized inventory turns, calculated as the ratio of annualized fourth quarter cost of goods sold divided by the year-end inventory balance, were approximately 11 times at December 31, 2006 versus approximately six times at December 31, 2005. We sell our products to certain customers under consignment arrangements. Generally, these consignment arrangements require us to maintain a certain quantity of product in inventory at the customer’s facility or at a storage facility designated by the customer. At December 31, 2006, we had $6 million of inventory held on consignment, compared to $18 million at December 31, 2005.

Our net property, plant and equipment increased $109 million to $604 million over the prior year. The increase was primarily due to capital expenditures related to expansions at our plants in Taiwan, Italy and Pasadena, Texas and foreign currency changes, offset by depreciation expense.

Our net deferred tax assets totaled $131 million at December 31, 2006 (of which $12 million was included in prepaid and other assets) compared to $178 million at December 31, 2005 (of which $12 million was included in prepaid and other assets). In 2006, the decrease of $47 million in net deferred tax assets is primarily attributed to an increase in deferred tax liabilities relating to property, plant, and equipment and pension and post-employment benefits. We believe that it is more likely than not, with our projections of future taxable income, we will generate sufficient taxable income to realize the benefits of the net deferred tax assets existing at December 31, 2006. In 2005, we reversed $67 million in tax valuation allowances because we believe that it is more likely than not that the related deferred tax assets will be realized.

Other assets increased $92 million to $143 million at December 31, 2006 from $51 million at December 31, 2005. During 2006, MEMC signed a long-term supply agreement with a customer. At the same time, MEMC received a fully vested, non-forfeitable warrant to purchase shares of that customer. The warrant becomes exercisable over a five-year period (20% annually) and has a five-year exercise period from the date each tranche becomes exercisable. We recorded $67 million for the original estimated fair value of the warrant with the offset to deferred revenue – long-term. The warrant is considered a derivative and is therefore marked to market each reporting period based on the market price of the underlying security. The warrant was valued at $86 million at December 31, 2006, resulting in the recording of a $19 million unrealized gain to other income in 2006.

Our accounts payable increased $19 million to $125 million at December 31, 2006, compared to $106 million at the end of 2005. The increase was primarily due to the timing of capital expenditures.

Accrued liabilities decreased $14 million to $35 million at December 31, 2006 from $49 million at December 31, 2005. This decrease was due to a reclassification of short-term pension liabilities to long-term in connection with the adoption of SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”), as well as a decrease in the amount of expected benefit contributions, slightly offset by an increase in customer prepayments.

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Our deferred revenue consists of short-term and long-term deferrals. We had short-term deferred revenue totaling $5 million as of December 31, 2006, compared to $15 million at December 31, 2005. During 2006, we had multiple transactions which included finalizing an agreement with a customer and mutually terminating a prior agreement. These transactions resulted in a net benefit from deferred revenue of $2 million. This had an associated cost of goods sold of $1 million. We defer revenue for multiple element arrangements based on a fair value per unit for the total arrangement when we receive cash in excess of the fair value. We also defer revenue when pricing is not fixed and determinable or other revenue recognition criteria is not met. See “Critical Accounting Estimates – Revenue Recognition”. Long-term deferred revenue of $68 million at December 31, 2006 relates to new supply agreements signed in 2006 including the warrant described above. We will recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the contracts.

Income taxes payable increased $42 million to $54 million at December 31, 2006, compared to $12 million at December 31, 2005. This increase is primarily attributed to improved profitability in the U.S. operations over and above the benefit derived from our decision to credit foreign taxes and is net of estimated payments made to date.

Pension and post-employment liabilities decreased $24 million to $88 million at December 31, 2006, compared to $112 million at the end of 2005 (of which $3 million and $21 million were included in accrued liabilities at December 31, 2006 and 2005, respectively), primarily reflecting the reclassification of prior service credits and actuarial gains to accumulated other comprehensive income of approximately $11 million upon the adoption of SFAS 158, as well as pension plan contributions exceeding total expenses by approximately $7 million.

Other noncurrent liabilities increased $79 million to $120 million at December 31, 2006, compared to $41 million at December 31, 2005. The increase is due to security deposits received from multiple customers in connection with new supply agreements of $37 million and liabilities for various tax positions.

LIQUIDITY AND CAPITAL RESOURCES

	2006			2005			2004
Dollars in millions
Net Cash Provided by (Used in):
Operating Activities	$	528		$	321		$	258
Investing Activities		(174	)		(153	)		(195	)
Financing Activities		41			(94	)		(65	)

In 2006, we generated $528 million of cash from operating activities, compared to $321 million in 2005 and $258 million in 2004. The year over year increases were primarily due to the improved operating results.

Our principal sources and uses of cash during 2006 were as follows:

Sources:

• Generated $528 million from operations;

• Received approximately $37 million in customer deposits; and

• Received approximately $17 million from the exercise of stock options.

Uses:

• Invested $148 million in capital expenditures;

• Purchased approximately $31 million of investments, net;

• Paid down $18 million under short-term borrowings and long-term debt agreements; and

• Paid approximately $6 million as a dividend to a minority shareholder in our Korean subsidiary.

At December 31, 2006, we had approximately $79 million of committed capital expenditures. Capital expenditures in 2006 and committed capital expenditures for 2007 primarily relate to increasing our capacity and capability for our next generation products. We expect our capital expenditures to be between 10% to 15% of our net sales in 2007.

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In 2006, cash from financing activities provided $41 million, compared to $94 million used in 2005. This increase was mainly due to an $89 million net paydown under long-term credit facilities in 2005 compared to $5 million in 2006. Approximately $37 million was received in connection with customer deposits related to new supply agreements. These deposits are returnable to the customer after two years, although such deposits are replaced each year with new deposits based on increased volume commitments stated in the contract to reduce our risks associated with nonfulfillment of the contract by the customers. Also contributing to the increase in cash from financing activities was the excess tax benefits from share-based payment arrangements of $11 million recorded in accordance with SFAS 123R and $17 million received in connection with stock option exercises compared to $15 million in 2005. These increases were offset by net activity under short-term borrowing arrangements resulting in a decrease of $13 million in 2006, compared to $9 million in 2005.

On July 21, 2005, we entered into a Revolving Credit Agreement with National City Bank of the Midwest (“National City Bank”), US Bank National Association, and such other lending institutions as may from time to time become lenders (the “National City Agreement”). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the LIBOR rate. Additionally, our obligations and the guaranty obligations of our subsidiaries are no longer secured by a pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200 million revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement would be payable based on our election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.0%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries.

One of our foreign subsidiaries has an agreement with a financial institution whereby the subsidiary sells, on a continuous basis, eligible trade accounts receivable. The agreement permits our foreign subsidiary to sell receivables on a recourse or non-recourse basis. All of these receivables have been sold on a recourse basis. This agreement does not extend beyond one year. Such factoring is generally limited to $90 million by the National City Agreement. At December 31, 2006 and 2005, we had factored $3 million and $42 million of receivables, respectively, of which $11 million was recorded as short-term borrowings and accounts receivable as of December 31, 2005, as the sale criteria under SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” were not met for certain factored transactions. There were no factored receivables recorded as short-term borrowings as of December 31, 2006.

Credit facilities and related borrowings outstanding at December 31, 2006 were as follows:

	Committed	Outstanding
Dollars in millions
Long-term Debt	$270	$	34
Short-term Borrowings	59		—
Total	$329	$	34

Of the $270 million committed long-term credit facilities, $8 million is unavailable as it relates to the issuance of third party letters of credit. Our weighted-average cost of borrowing was 2.3% and 2.6% at December 31, 2006 and 2005, respectively. Our short-term borrowings are subject to renewal annually with each financial institution through the course of the year. Our total debt to total capital ratio at December 31, 2006 was 3%, compared to 7% at December 31, 2005. The improvement in this ratio is due primarily to the payoff of debt and the higher stockholders’ equity in 2006 as compared to 2005.

Our contractual obligations as of December 31, 2006 were as follows:

	Payments Due By Period
Contractual Obligations	Total	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Dollars in millions
Long-term Debt 1	$ 34	$	5	$	10	$	6	$	13
Operating Leases	13		4		6		2		1

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Purchase Obligations 2		184		82		47		35		20
Committed Capital Expenditures 3		79		79		—		—		—
Pension Funding Obligation 4		35		10		11		11		3
Customer Deposits 5		37		—		37		—		—
Total Contractual Obligations	$	382	$	180	$	111	$	54	$	37

The contractual commitments shown above, except for our debt obligations and customer deposits, are not recorded on our consolidated balance sheet.

¹ Our long-term debt consists of foreign currency denominated plant expansion borrowings that have notes maturing over the next ten years.

² Represents obligations for agreements to purchase goods or services that are enforceable and legally binding on the Company, including minimum quantities to be purchased, and outstanding purchases for goods or services as of December 31, 2006.

³ Committed capital expenditures represent commitments for construction or purchase of property, plant and equipment. They are not recorded as liabilities on our consolidated balance sheet as of December 31, 2006 as we have not yet received the related goods or services or taken title to the property.

⁴ Pension funding obligations represent the estimated payments assuming an annual expected rate of return on pension plan assets of 8%, and a discount rate on pension plan obligations of 5.50%. These estimated payments are subject to significant variation and the actual payments may be more or less than the amounts estimated.

⁵ Customer deposits consist of amounts provided in connection with new supply agreements which must be refunded to the customers according to the terms of the agreements.

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. The terms of most of these indemnification obligations generally do not provide for a limitation of our liability. We have not had any claims related to these indemnification obligations.

Our pension expense and pension liability are actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on assets to estimate our pension costs and obligations. We determine the expected return on plan assets based on our pension plans’ actual asset mix as of the beginning of the year. While the assumed expected rate of return on plan assets in 2006 was 8%, the actual return experienced in our pension plan assets in the comparable period in 2006 was 7.6%. We consult with the plans’ actuaries to determine a discount rate assumption that reflects the characteristics of our plans, including expected cash outflows from our plans, and utilize an analytical tool that incorporates the concept of a hypothetical yield curve, developed from corporate bond (Aa quality) yield information. Assuming a 100 basis point variation in these assumptions, our 2006 pension expense would have been approximately $2 million higher or lower.

Our total unfunded pension liability related to our various defined benefit pension plans at December 31, 2006 totaled $60 million. Our pension obligations are funded in accordance with provisions of federal law. Contributions to our pension plans in 2006 totaled approximately $12 million. We expect contributions to our pension plans in 2007 to be approximately $10 million.

We believe that we have the financial resources needed to meet business requirements for at least the next 12 months, including capital expenditures and working capital requirements.

OTHER EVENTS

Certain amounts recorded in 2005 related to previous periods. The amount of such adjustments was not material to our consolidated results of operations for 2004 and prior periods, nor is the inclusion of the net expense in the results of operations for 2005 considered material. The effect of these adjustments on gross margin and net income for 2005 was as follows:

2005 Prior Period Adjustments – increase (decrease)	Impact on Gross Margin			Impact on Net Income
Dollars in millions
Income Taxes, net	$	2		$	(3	)
Other		(3	)		(2	)
Total	$	(1	)	$	(5	)

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Included in the Income Taxes, net are prior period adjustments, including a benefit of $7 million related to the portion of the interest on senior subordinated notes deductible for tax purposes, additional expense of $3 million (tax expense of $7 million offset by less depreciation expense and other adjustments) related to the U.S. Generally Accepted Accounting Principles (“US GAAP”) treatment of fixed asset basis under the Korea Asset Revaluation Law, additional expense of $6 million associated with non-qualified stock option deductions in prior periods, and additional expense of $1 million related to amended tax filings and reassessment of tax basis limitations.

Included in Other are primarily adjustments to cost of goods sold and inventory of approximately $2 million for profit not previously eliminated from inventory for product shipped between operations and other adjustments that are not individually significant.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates of certain amounts included in the financial statements. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our significant accounting policies are more fully described in Note 2 of Notes to Consolidated Financial Statements herein.

Revenue Recognition

We record revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed and determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned MEMC storage facility or storage area or, if the customer does not pull the product within a contractually stated period of time (generally 60–90 days), at the end of that period, or when the customer otherwise agrees to take title to the product. Our wafers are generally made to customer specifications and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes. We defer revenue for multiple element arrangements based on an average fair value per unit for the total arrangement when we receive cash in excess of fair value. We also defer revenue when pricing is not fixed and determinable or other revenue recognition criteria is not met.

In connection with new supply agreements executed during 2006 and the warrant received from a customer as discussed in “Warrant Valuation” below, we recorded long-term deferred revenue. We will recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the contracts.

Inventory

Inventories, which consist of materials, labor and manufacturing overhead, are valued at the lower of cost or market. Raw materials are stated at weighted-average cost. Goods in process and finished goods inventories are stated at standard cost as adjusted for variances, which approximates weighted-average actual cost. The valuation of inventory requires us to estimate excess and slow moving inventory. The determination of the value of excess and slow moving inventory is based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Property, Plant and Equipment

We depreciate our building, improvements, and machinery and equipment evenly over the assets’ estimated useful lives. Changes in circumstances such as technological advances, changes in our business model, or changes in our capital strategy

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could result in the actual useful lives differing from our estimates. In those cases where we determine that the useful life of property, plant and equipment should be shortened or lengthened, we depreciate the net book value over its revised remaining useful life.

In accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we periodically assess the impairment of long-lived assets when conditions indicate a possible loss. When necessary, we record charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets. We have recorded no significant impairment charges in 2006, 2005 or 2004.

Income Taxes

In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. We calculate our current and deferred tax provisions based upon estimates and assumptions that could differ from the actual results reflected in our income tax returns filed during the subsequent year. We record adjustments based on filed returns when we have identified the adjustments and finalized the returns, which is generally in the third and fourth quarters of the subsequent year. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets, which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes. We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified.

We repatriate all or substantially all of our portion of the current year earnings of certain of our subsidiaries to the United States. We do not provide for U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries which would be payable if the undistributed earnings were distributed to the U.S., as we consider those foreign earnings to be permanently reinvested outside the U.S. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.

We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. From time to time, we are subject to income tax audits in these jurisdictions. We believe that our tax return positions are fully supported, but tax authorities are likely to challenge certain positions, which may not be fully sustained. However, our income tax expense includes amounts intended to satisfy income tax assessments that may result from these challenges. Determining the income tax expense for these potential assessments and recording the related assets and liabilities requires significant management judgments and estimates. We evaluate our income tax contingencies in accordance with SFAS 5, “Accounting for Contingencies.” We believe that our income tax liabilities, including related interest, is adequate in relation to the potential for additional tax assessments. The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. We review our liabilities quarterly, and we may adjust such liabilities because of proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning our transfer prices, the resolution of entire audits, or the expiration of statutes of limitations. Material adjustments are most likely to occur in the year during which major audits are closed.

Employee-Related Liabilities

We have a long-term liability for our defined benefit pension and other post-employment benefit plans. Detailed information related to this liability is included in Note 15 of Notes to Consolidated Financial Statements herein. Our obligations are funded in accordance with provisions of federal law.

Our pension and other post-employment liabilities are actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on assets, to estimate our costs and obligations. If our assumptions do not materialize as expected, expenditures and costs that we incur could differ from our current estimates.

Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method and therefore have not restated prior periods’ results. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions

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of SFAS No. 123, “Accounting for Stock-Based Compensation”. Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of an estimated forfeiture rate and recognize the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. With the adoption of SFAS 123R, we elected to recognize stock-based compensation expense for all grants on or after January 1, 2006 on a straight-line basis over the requisite service period of the entire award for ratable awards. For awards granted prior to January 1, 2006, we will continue to calculate compensation expense by treating each vesting tranche as a separate award. We estimated the forfeiture rate for 2006 based on our historical experience during the preceding four fiscal years.

Prior to January 1, 2006, we accounted for our stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (“Opinion 25”), “Accounting for Stock Issued to Employees”, and related interpretations. Accordingly, we generally recognized expense only when we granted options with a discounted exercise price. Any resulting compensation expense was recognized over the associated service period, which was generally the option vesting term.

Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. As of December 31, 2006, approximately $65 million of total estimated unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.4 years. See Note 12 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

Warrant Valuation

On July 25, 2006, MEMC received a fully vested, non-forfeitable warrant to purchase common shares of a customer. The warrant becomes exercisable over a five year period (20% annually) and has a five year exercise period from the date each tranche becomes exercisable. The warrant is considered a derivative and is therefore marked to market each reporting period. Determining the appropriate fair value model and calculating the fair value of the warrant require the input of subjective assumptions, including the stock price volatility of the customer.

We used a lattice model to determine the warrant’s fair value. A combination of the customer’s historical and implied stock price volatility was used as an indicator of expected volatility. The assumptions used in calculating the fair value of the warrant represent our best estimates, but these estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use different assumptions, the valuation of our warrant could be materially different in the future.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. We are currently evaluating the effect that the adoption of FIN 48 will have on our consolidated results of operations and financial condition and have not yet reached final conclusions.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We have not yet determined the impact SFAS 157 will have on our consolidated results of operations and financial condition.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS 158 requires an employer to recognize the

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overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This requirement is effective for our fiscal year ended December 31, 2006. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. This requirement becomes effective for fiscal years ending after December 15, 2008. As a result of the adoption of the recognition provisions of SFAS 158 as of December 31, 2006, we reclassified approximately $10 million from accrued liabilities to pension and post-employment liabilities as we have pension assets exceeding the expected beneficiary payments in 2007. In addition, we reclassified approximately $11 million of unrecognized prior service credit and net unrealized gains from the pension and post-employment liabilities to accumulated other comprehensive income, which reduced our recorded liabilities.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 expresses the SEC staff views regarding the process by which misstatements in financial statements should be evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006. During 2006, MEMC adopted the provisions of SAB 108 and recorded a cumulative credit adjustment of $7 million to beginning retained earnings related to minority interest that was overstated as of December 31, 2005.

See Note 2 of the Consolidated Financial Statements for a description of other recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.

MARKET RISK

The overall objective of our financial risk management program is to reduce the potential negative earnings effects from changes in foreign exchange and interest rates arising in our business activities. We manage these financial exposures through operational means and by using various financial instruments. These practices may change as economic conditions change.

To mitigate financial market risks of foreign currency exchange rates, we utilize currency forward contracts. We do not use derivative financial instruments for speculative or trading purposes. All of the potential changes noted below are based on sensitivity analyses performed on our financial positions at December 31, 2006 and 2005. Actual results may differ materially.

We generally hedge transactional currency risks with currency forward contracts. Gains and losses on these foreign currency exposures are generally offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure to MEMC.

With the receipt of the customer warrant, we are now exposed to equity price risk. A hypothetical 10% decrease in the stock price of our customer would result in a loss on the fair value of the warrant of $13 million at December 31, 2006. A hypothetical 10% increase in the stock price of our customer’s stock would result in a gain on the fair value of the warrant of $14 million at December 31, 2006.

A substantial majority of our revenue and capital spending is transacted in U.S. Dollars. However, we do enter into these transactions in other currencies, primarily, the Euro, the Japanese Yen, and certain other Asian currencies. To protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates, we have established transaction-based hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. In addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive.

Our Taiwan and Malaysian based subsidiaries use the U.S. Dollar as their functional currencies for US GAAP purposes and do not hedge New Taiwanese Dollar or Malaysian Ringgit exposures.

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Consolidated Statements of Operations Dollars in thousands, except share data

	For the year ended December 31,
	2006			2005			2004
Net sales	$	1,540,584		$	1,107,379		$	1,027,958
Cost of goods sold		851,637			740,861			658,543
Gross margin		688,947			366,518			369,415
Operating expenses:
Marketing and administration		94,852			76,316			71,948
Research and development		35,819			33,209			37,975
Restructuring costs		—			—			(996	)
Operating income		558,276			256,993			260,488
Nonoperating (income) expense:
Interest expense		2,428			7,256			13,512
Interest income		(14,672	)		(4,156	)		(5,003	)
Loss on the extinguishment of debt		—			—			61,403
Other, net		(19,966	)		1,518			(7,955	)
Total nonoperating (income) expense		(32,210	)		4,618			61,957
Income before income tax expense (benefit), equity in loss of joint venture and minority interests		590,486			252,375			198,531
Income tax expense (benefit)		214,833			(2,808	)		(40,119	)
Income before equity in loss of joint venture and minority interests		375,653			255,183			238,650
Equity in loss of joint venture		—			—			(1,717	)
Minority interests		(6,365	)		(5,830	)		(10,732	)
Net income	$	369,288		$	249,353		$	226,201
Basic income per share	$	1.66		$	1.17		$	1.09
Diluted income per share	$	1.61		$	1.10		$	1.02
Weighted-average shares used in computing basic income per share		222,128,722			213,513,110			207,713,837
Weighted-average shares used in computing diluted income per share		229,743,349			226,449,944			221,047,946

See accompanying notes to consolidated financial statements.

13

Consolidated Balance Sheets Dollars in thousands, except share data

	As of December 31,
	2006		2005
Assets
Current assets:
Cash and cash equivalents	$	527,520	$	126,494
Short-term investments		57,971		27,117
Accounts receivable, less allowance for doubtful accounts of $1,426 and $1,411 in 2006 and 2005, respectively		199,071		125,183
Inventories		80,179		119,956
Prepaid and other current assets		34,773		37,528
Total current assets		899,514		436,278
Property, plant and equipment, net		603,509		494,927
Deferred tax assets, net		119,457		165,570
Other assets		143,044		51,328
Total assets	$	1,765,524	$	1,148,103
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	5,035	$	18,305
Accounts payable		125,358		105,500
Accrued liabilities		35,081		48,938
Accrued wages and salaries		32,781		25,987
Deferred revenue		5,221		14,558
Income taxes payable		54,342		11,621
Total current liabilities		257,818		224,909
Long-term debt, less current portion		29,373		34,821
Pension and post-employment liabilities		85,245		91,028
Deferred revenue		68,105		—
Other liabilities		119,528		41,362
Total liabilities		560,069		392,120

14

Minority interests		38,562			44,646
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized, none issued or outstanding at December 31, 2006 or 2005		—			—
Common stock, $.01 par value, 300,000,000 shares authorized, 223,999,414 and 222,258,808 issued at December 31, 2006 and December 31, 2005, respectively		2,240			2,223
Additional paid-in capital		242,538			191,663
Retained earnings		933,805			557,704
Accumulated other comprehensive loss		(7,419	)		(35,854	)
Deferred compensation		—			(128	)
Treasury stock: 741,580 shares at 2006 and 2005		(4,271	)		(4,271	)
Total stockholders’ equity		1,166,893			711,337
Total liabilities and stockholders’ equity	$	1,765,524		$	1,148,103

See accompanying notes to consolidated financial statements.

15

Consolidated Statements of Cash Flows Dollars in thousands

	For the year ended December 31,
	2006			2005			2004
Cash flows from operating activities:
Net income	$	369,288		$	249,353		$	226,201
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		70,256			57,182			44,135
Minority interests		6,365			5,830			10,732
Stock compensation		19,026			2,156			2,310
Loss on the extinguishment of debt		—			1,929			61,403
(Benefit from) provision for deferred taxes		47,134			(44,114	)		(105,306	)
Gain on fair value of warrant		(18,913	)		—			—
Other		(3,563	)		13,735			3,409
Changes in assets and liabilities:
Short-term investments – trading securities		(768	)		8,396			31,965
Accounts receivable		(69,775	)		27,831			(45,283	)
Inventories		42,563			1,258			(14,035	)
Prepaid and other current assets		3,734			(7,018	)		2,877
Accounts payable		(8,502	)		6,451			23,455
Accrued liabilities		(18,664	)		(4,331	)		(1,023	)
Accrued wages and salaries		5,180			8,562			(4,710	)
Deferred revenue and customer deposits		(9,336	)		12,793			(14,310	)
Income taxes payable		45,594			23,766			6,355
Pension and related liabilities		10,108			(11,403	)		(18,423	)
Other noncurrent assets and liabilities		38,116			(31,380	)		48,275
Net cash provided by operating activities		527,843			320,996			258,027
Cash flows from investing activities:
Proceeds from sale and maturities of investments		32,213			46,254			34,323
Purchases of investments		(61,970	)		(37,885	)		(26,032	)
Capital expenditures		(148,370	)		(162,738	)		(145,840	)
Purchase of Taisil, net of cash acquired		—			—			(57,226	)
Other		3,895			1,757			91
Net cash used in investing activities		(174,232	)		(152,612	)		(194,684	)

16

Cash flows from financing activities:
Net repayments on short-term borrowings		(13,209	)		(9,054	)		(11,564	)
Proceeds from customer deposits		37,250			—			—
Proceeds from issuance of long-term debt		—			60,000			60,014
Principal payments on long-term debt		(5,250	)		(149,476	)		(113,407	)
Debt financing fees		—			(1,184	)		—
Excess tax benefits from share-based payment arrangements		10,501			—			—
Dividend to minority interest		(5,636	)		(9,546	)		(4,765	)
Proceeds from issuance of common stock		17,148			14,817			4,826
Net cash provided by (used in) financing activities		40,804			(94,443	)		(64,896	)
Effect of exchange rate changes on cash and cash equivalents		6,611			3,034			(3,822	)
Net increase (decrease) in cash and cash equivalents		401,026			76,975			(5,375	)
Cash and cash equivalents at beginning of period		126,494			49,519			54,894
Cash and cash equivalents at end of period	$	527,520		$	126,494		$	49,519
Supplemental disclosures of cash flow information:
Interest payments, net of amount capitalized	$	1,420		$	6,407		$	13,098
Income taxes paid	$	77,035		$	27,906		$	14,567
Supplemental schedule of non-cash investing and financing activities:
Accounts payable incurred (relieved) for acquisition of fixed assets	$	24,861		$	(16,133	)	$	3,971

See accompanying notes to consolidated financial statements.

17

Consolidated Statements of Stockholders’ Equity Dollars in thousands (except share data)

	Common Stock Issued			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Deferred Compensation			Common Stock Held in Treasury					Total Stockholders’ Equity			Total Comprehensive Income (Loss)
	Shares	Amount													Shares		Amount
Balance at December 31, 2003	207,878,032	$	2,079	$	150,095		$	82,150	$	(33,338	)	$	(2,916	)	(875,455	)	$	(4,447	)	$	193,623
Comprehensive income:
Net income	—		—		—			226,201		—			—		—			—			226,201		$	226,201
Net translation adjustment	—		—		—			—		22,308			—		—			—			22,308			22,308
Minimum pension liability (net of $0 tax)	—		—		—			—		(6,359	)		—		—			—			(6,359	)		(6,359	)
Stock plans, net	1,230,073		12		4,641			—		—			1,653		161,250			819			7,125
Total comprehensive income																							$	242,150
Balance at December 31, 2004	209,108,105	$	2,091	$	154,736		$	308,351	$	(17,389	)	$	(1,263	)	(714,205	)	$	(3,628	)	$	442,898
Comprehensive income:
Net income	—		—		—			249,353		—			—		—			—			249,353			249,353
Net translation adjustment	—		—		—			—		(22,035	)		—		—			—			(22,035	)		(22,035	)
Minimum pension liability (net of $12,135 tax)	—		—		—			—		3,570			—		—			—			3,570			3,570
Stock plans, net	3,150,703		32		37,027			—		—			1,135		(27,375	)		(643	)		37,551
Net exercise of warrants	10,000,000		100		(100	)		—		—			—		—			—			—
Total comprehensive income																							$	230,888
Balance at December 31, 2005	222,258,808	$	2,223	$	191,663		$	557,704	$	(35,854	)	$	(128	)	(741,580	)	$	(4,271	)	$	711,337
SAB 108 cumulative effect adjustment	—		—		—			6,813		—			—		—			—			6,813
SFAS 158 adjustment (net of $4,373 tax)	—		—		—			—		7,093			—		—			—			7,093
Comprehensive income:
Net income	—		—		—			369,288		—			—		—			—			369,288			369,288
Net translation adjustment	—		—		—			—		18,604			—		—			—			18,604			18,604
Minimum pension liability (net of $1,607 tax)	—		—		—			—		2,738			—		—			—			2,738			2,738
Stock plans, net	1,740,606		17		50,875			—		—			128		—			—			51,020
Total comprehensive income																							$	390,630
Balance at December 31, 2006	223,999,414	$	2,240	$	242,538		$	933,805	$	(7,419	)	$	—		(741,580	)	$	(4,271	)	$	1,166,893

See accompanying notes to consolidated financial statements.

18

Notes to Consolidated Financial Statements Dollars in thousands, except share data

1. NATURE OF OPERATIONS

We are a leading worldwide producer of wafers for the semiconductor industry. We operate manufacturing facilities in every major semiconductor manufacturing region throughout the world, including Europe, Japan, Malaysia, South Korea, Taiwan and the United States. Our customers include virtually all of the major semiconductor device manufacturers in the world, including the major memory, microprocessor and applications specific integrated circuit, or ASIC, manufacturers, as well as the world’s largest foundries. We provide wafers in sizes ranging from 100 millimeters (4 inch) to 300 millimeters (12 inch) and in three general categories: prime polished, epitaxial and test/monitor. Depending on market conditions, we also sell intermediate products such as polysilicon, silane gas, partial ingots and scrap wafers to semiconductor device and equipment makers, solar customers, flat panel and other industries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Use of Estimates

In preparing our financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. Estimates are used when accounting for depreciation, amortization, accrued liabilities, employee benefits, derivatives, stock based compensation and asset valuation allowances. Our actual results could differ from those estimates.

(b) Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation.

(c) Principles of Consolidation

Our consolidated financial statements include the accounts of MEMC Electronic Materials, Inc. and our wholly and majority-owned subsidiaries. We account for investments of less than 50% but greater than 20% in joint venture companies using the equity method. We record minority interest for non-wholly owned consolidated subsidiaries. All significant intercompany balances and transactions among our subsidiaries have been eliminated. Following the acquisition of Taisil effective February 1, 2004, we no longer have any significant investments in less than 50% joint venture companies.

In November 2001, Texas Pacific Group (“TPG”) acquired a beneficial ownership of approximately 72% of the outstanding stock of MEMC. In connection with that transaction, the assets of a majority-owned subsidiary were understated and a portion of the subsequent depreciation of those assets should have been charged to minority interests. The effect in any individual prior year was not material to our results of operations, financial position or cash flows. During 2006, MEMC adopted the provisions of Staff Accounting Bulletin No. 108 and recorded a cumulative credit adjustment of $6,813 to beginning retained earnings related to the minority interest that was overstated as of December 31, 2005.

(d) Cash Equivalents

Cash equivalents include items such as overnight investments and short-term time deposits with original maturity periods of three months or less when purchased.

(e) Investments

Short-term investments consist of the following:

	As of December 31,
	2006		2005
Dollars in thousands
Time Deposits	$	38,511	$	19,151
Trading Investments		9,460		7,966
Available for Sale Investments		10,000		—
	$	57,971	$	27,117

19

Time Deposits. Time deposits are comprised mainly of demand deposits with commercial banks or investment companies having fixed original maturities exceeding three months but less than or equal to one year with fixed interest rates including pre-payment penalties for early withdrawal. Purchases and sales of time deposits are included in investing activities in the Consolidated Statements of Cash Flows.

Trading Investments. Trading investments are stated at fair value, with realized and unrealized gains or losses resulting from changes in fair value recognized currently in non-operating income and expense. Included in trading investments are beneficiary certificates and marketable securities. Unrealized gains included in short-term investments at December 31, 2006 and 2005 were $509 and $394, respectively. Total net unrealized gains of $495, $389 and $829 have been included in earnings for the years ended December 31, 2006, 2005 and 2004, respectively. Purchases and sales of trading investments are included in operating activities in the Consolidated Statements of Cash Flows.

Available-for-Sale Investments. Investments designated as available-for-sale include marketable debt securities. Investments designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income. There were no unrealized or realized gains or losses in 2006 or 2005. Purchases and sales of available-for-sale investments are included in investing activities in the Consolidated Statements of Cash Flows.

Long-term investments of $2,379 consist of less than 10% of the common stock of a customer, which was acquired at the same time as the execution of a long-term supply agreement with that customer. This investment was recorded on the date of acquisition in 2006 and is accounted for under the cost method of accounting. As of December 31, 2006, it was not practicable to estimate the fair value of this investment as it is a privately-held entity and shares similar to our investment are not traded on a publicly available market. This investment is carried at cost, which is preliminary, as we pursue obtaining a fair value of the investment.

(f) Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts to adjust our net receivables to amounts considered to be ultimately collectible. Our allowance is based on a variety of factors, including the length of time receivables are past due, significant one-time events, the financial health of our customers and historical experience. The changes in the allowance for doubtful accounts were as follows:

	Balance at Beginning of Period		Charged to Costs and Expenses	Currency Fluctuations		Write-off of Uncollectible Accounts		Balance at End of Period
Dollars in thousands
Year ended December 31, 2004	$	2,408	—	131		(906	)	$	1,633
Year ended December 31, 2005	$	1,633	32	(207	)	(47	)	$	1,411
Year ended December 31, 2006	$	1,411	20	—		(5	)	$	1,426

(g) Inventories

Inventories, which consist of materials, labor and manufacturing overhead, are valued at the lower of cost or market. Raw materials are stated at weighted-average cost. Goods in process and finished goods inventories are stated at standard cost as adjusted for variances, which approximates weighted-average actual cost. The valuation of inventory requires us to estimate excess and slow moving inventory. The determination of the value of excess and slow moving inventory is based upon assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

(h) Property, Plant and Equipment

We record property, plant and equipment at cost and depreciate it evenly over the assets’ estimated useful lives as follows:

	Years
Buildings and improvements	4-60
Machinery and equipment	1-15

20

Depreciation expense for the years ended December 31, 2006, 2005 and 2004 was $68,224, $55,305 and $42,042, respectively.

The cost of constructing facilities and equipment includes interest costs. Capitalized interest totaled $724, $577 and $240 in 2006, 2005 and 2004, respectively.

(i) Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we periodically assess the impairment of long-lived assets when conditions indicate a possible loss. When necessary, we record charges for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets. We have recorded no significant impairment charges in 2006, 2005 or 2004.

(j) Operating Leases

The Company enters into lease agreements for a variety of business purposes, including office and manufacturing space, office and manufacturing equipment and computer equipment. A portion of these are noncancellable operating leases.

(k) Customer Deposits

During 2006, MEMC executed supply agreements with multiple customers, which agreements required the customers to provide security deposits. As of December 31, 2006, the balance of these deposits totaled $37,250 and was recorded as a long-term liability. These deposits are required to be refunded to the customers over the next two years, as set forth in the agreements, unless minimum purchase quantities are not met.

(l) Revenue Recognition

We record revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed and determinable and collection of the related receivable is reasonably assured, which is generally at the time of shipment for non-consignment orders. In the case of consignment orders, title passes when the customer pulls the product from the assigned MEMC storage facility or storage area or, if the customer does not pull the product within a contractually stated period of time (generally 60–90 days), at the end of that period, or when the customer otherwise agrees to take title to the product. Our wafers are generally made to customer specifications and we conduct rigorous quality control and testing procedures to ensure that the finished wafers meet the customer’s specifications before the product is shipped. We consider international shipping term definitions in our determination of when title passes. We defer revenue for multiple element arrangements based on a fair value per unit for the total arrangement when we receive cash in excess of fair value. We also defer revenue when pricing is not fixed and determinable or other revenue recognition criteria is not met.

As of December 31, 2006, MEMC had $1,500 of long-term deferred revenue related to the non-refundable portion of cash received in connection with the new supply agreements executed during 2006. MEMC also had $66,605 of long-term deferred revenue related to the original fair value of the warrant received from a customer as discussed in (m) below as of December 31, 2006. We will recognize the deferred revenue on a pro-rata basis as product is shipped over the life of the contracts.

(m) Derivative Financial Instruments

We generally use currency forward contracts to manage foreign currency exchange risk relating to current trade receivables with our foreign subsidiaries and current trade receivables and payables with our customers and vendors denominated in foreign currencies (primarily Japanese Yen and Euro). The purpose of our foreign currency derivative activities is to protect us from the risk that the dollar net cash flows resulting from foreign currency transactions will be negatively affected by changes in exchange rates. We do not hold or issue financial instruments for speculative or trading purposes.

Gains or losses on our forward exchange contracts, as well as the offsetting losses or gains on the related hedged receivables, are included in nonoperating (income) expense in the Consolidated Statements of Operations. Net currency losses on unhedged foreign currency positions totaled $1,061, $441 and $1,907 in 2006, 2005 and 2004, respectively.

21

The currency losses in 2004 were primarily associated with the revaluation of a Yen-based intercompany loan. On July 1, 2004, we designated this Yen-based intercompany loan as a long-term investment with settlement not planned or anticipated in the foreseeable future. Since we no longer expect settlement of the intercompany loan, foreign currency gains and losses from this loan are no longer being recorded in the Consolidated Statements of Operations.

During 2006, MEMC signed a long-term supply agreement with a customer. At the same time, MEMC received a fully vested, non-forfeitable warrant to purchase common shares of that customer. The warrant becomes exercisable over a five year period (20% annually) and has a five year exercise period from the date each tranche becomes exercisable. We recorded $66,605 for the estimated grant date fair value of the warrant as other assets – long-term with the offset to deferred revenue – long-term in accordance with EITF 00-8 “Accounting by a Grantee for an Equity Instrument to be received in conjunction with Providing Goods or Services”. This non-cash transaction has been excluded from the Consolidated Statements of Cash Flows. Determining the appropriate fair value model and calculating the fair value of the warrant require the input of estimates and assumptions, including the customer’s stock price volatility, interest rate, dividends, marketability and expected return requirements. We used a lattice model to determine the warrant’s fair value. The assumptions used in calculating the fair value of the warrant represent our best estimates, but these estimates involve inherent uncertainties and the application of our judgment. The warrant is considered a derivative and is therefore marked to market each reporting period. Accordingly, in 2006, $18,913 was recorded as an increase to other assets – long-term and other income.

(n) Translation of Foreign Currencies

We determined the functional currency of each subsidiary based on a number of factors, including the predominant currency for the subsidiary’s expenditures and the subsidiary’s borrowings. When the subsidiary’s local currency is considered its functional currency, we translate its financial statements to U.S. Dollars as follows:

• Assets and liabilities using exchange rates in effect at the balance sheet date; and

• Statement of operations accounts at average exchange rates for the period.

Adjustments from the translation process are presented in accumulated other comprehensive loss in stockholders’ equity.

Effective October 1, 2004, we changed the functional currency of our South Korean subsidiary from U.S. Dollar to Korean Won. The change was determined based on the significant changes in economic facts and circumstances of the subsidiary in accordance with Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation.” The change was made prospectively with the adjustment for the current rate translation of nonmonetary assets on October 1, 2004 being recorded to other comprehensive income in the amount of $2,328.

(o) Income Taxes

We apply Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as temporary differences. We record the tax effect of these temporary differences as deferred tax assets (generally items that can be used as a tax deduction or credit in future periods) and deferred tax liabilities (generally items that we received a tax deduction for, but have not yet been recorded in the Consolidated Statements of Operations). We regularly review our deferred tax assets for realizability, taking into consideration all available evidence, both positive and negative, including historical pre-tax and taxable income (losses), projected future pre-tax and taxable income (losses) and the expected timing of the reversals of existing temporary differences. In arriving at these judgments, the weight given to the potential effect of all positive and negative evidence is commensurate with the extent to which it can be objectively verified.

We repatriate all or substantially all of our portion of the current year earnings of certain of our subsidiaries to the United States. We do not provide for U.S. income taxes on the remaining undistributed earnings of our foreign subsidiaries which would be payable if the undistributed earnings were distributed to the U.S., as we consider those foreign earnings to be permanently reinvested outside the U.S. We plan foreign remittance amounts based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations.

(p) Stock-Based Compensation

Prior to January 1, 2006, we accounted for our stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (“Opinion 25”), “Accounting for Stock Issued to Employees”, and related interpretations. Accordingly, we generally recognized expense only when we granted options with a discounted exercise price. Any resulting compensation expense was recognized over the associated service period, which was generally the option vesting term.

22

Prior to January 1, 2006, we provided pro forma disclosure amounts in accordance with Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), as if the fair value method defined by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) had been applied to our stock-based compensation.

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method and therefore have not restated prior periods’ results. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123. Stock-based compensation expense for all share-based payment awards granted after December 31, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. We recognize these compensation costs net of an estimated forfeiture rate and recognize the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. With the adoption of SFAS 123R, we elected to recognize stock-based compensation expense for all grants on or after January 1, 2006 on a straight-line basis over the requisite service period of the entire award for ratable awards. For awards granted prior to January 1, 2006, we will continue to calculate compensation expense by treating each vesting tranche as a separate award. We estimated the forfeiture rate for 2006 based on our historical experience during the preceding four fiscal years.

(q) Contingencies

We record contingent liabilities when the amount can be reasonably estimated and the loss is probable.

(r) Shipping and Handling

Costs to ship products to customers are included in marketing and administration in the consolidated statements of operations. Amounts billed to customers, if any, to cover shipping and handling are included in net sales. Cost to ship products to customers were $9,622, $9,947 and $8,119 for the years ended December 31, 2006, 2005 and 2004, respectively.

(s) Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and was required to be adopted by MEMC in the first quarter of 2006. MEMC has determined that the adoption of SFAS 154 did not have a material impact on its consolidated results of operations and financial condition.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. We are currently evaluating the effect that the adoption of FIN 48 will have on our consolidated results of operations and financial condition and have not yet reached final conclusions.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We have not yet determined the impact SFAS 157 will have on our consolidated results of operations and financial condition.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This requirement is effective for our fiscal year ended December 31, 2006. SFAS 158 also requires an

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employer to measure the funded status of a plan as of the date of its year-end statement of financial position. This requirement becomes effective for fiscal years ending after December 15, 2008. As a result of the adoption of the recognition provisions of SFAS 158 as of December 31, 2006, we reclassified $10,300 from accrued liabilities to pension and post-employment liabilities as we have pension assets exceeding the expected beneficiary payments in 2007. In addition, we reclassified $11,466 of unrecognized prior service credit and net unrealized gains from the pension and post-employment liabilities to accumulated other comprehensive income, which reduced our recorded liabilities.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 expresses the SEC staff views regarding the process by which misstatements in financial statements should be evaluated for purposes of determining whether financial statement restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006. During 2006, MEMC adopted the provisions of SAB 108 and recorded a cumulative credit adjustment of $6,813 to beginning retained earnings related to minority interest that was overstated as of December 31, 2005.

(t) 2005 Adjustments

Certain adjustments related to accounting errors recorded in 2005 related to previous periods. The amount of such adjustments was not material to our consolidated results of operations for 2004 and prior periods, nor is the inclusion of the net expense in the results of operations for 2005 considered material. The effect of these adjustments on gross margin and net income was as follows:

2005 Prior Period Adjustments – increase (decrease)	Impact on Gross Margin			Impact on Net Income
Dollars in thousands
Income Taxes, net	$	2,358		$	(3,251	)
Other		(3,712	)		(2,321	)
Total	$	(1,354	)	$	(5,572	)

Included in the Income Taxes, net are prior period adjustments, including a benefit of $6,478 related to the portion of the interest on senior subordinated notes deductible for tax purposes, additional expense of $2,768 (tax expense of $7,418 offset by less depreciation expense and other adjustments) related to the U.S. Generally Accepted Accounting Principles (“US GAAP”) treatment of fixed asset basis under the Korea Asset Revaluation Law, additional expense of $6,024 associated with non-qualified stock option deductions in prior periods (see Note 14), and additional expense of $937 related to amended tax filings and reassessment of tax basis limitations.

Included in Other are primarily adjustments to cost of goods sold and inventory of approximately $2,400 for profit not previously eliminated from inventory for product shipped between operations and other adjustments that are not individually significant.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

We used the following methods and assumptions to estimate the fair value of derivative and other financial instruments at the relevant balance sheet date:

• Short-term financial instruments (cash equivalents, short-term investments, accounts receivable and payable, income taxes payable, short-term borrowings, and accrued liabilities)—cost approximates fair value because of the short maturity period, except for short-term investments classified as trading and available for sale investments which are recorded at fair value, which is determined by available market prices.

• Long-term debt—fair value is based on the amount of future cash flows associated with each debt instrument discounted at our current borrowing rate for similar debt instruments of comparable terms.

• Currency forward contracts—fair value is measured by the amount that would have been paid to liquidate and repurchase all open contracts.

• Customer warrant— Determining the appropriate fair value model and calculating the fair value of the warrant require the input of estimates and assumptions, including the customer’s stock price, volatility, interest rate, dividends, marketability and expected return requirements. We used a lattice model to determine the warrant’s fair value.

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Information on the estimated fair values of financial instruments is as follows:

	Carrying Amount		Face/Notional Amount		Estimated Fair Value
Dollars in thousands
Long-term debt
2006	$	34,408	$	34,408	$	35,183
2005		39,917		39,917		40,422
Currency forward contracts – net sell positions
2006	$	185	$	53,930	$	185
2005		1,952		70,079		1,952
Warrant to acquire stock
2006	$	85,519	$	205,849	$	85,519

4. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss, net of tax, were as follows:

	As of December 31,
	2006			2005
Dollars in thousands
Accumulated net translation adjustment	$	3,771		$	(14,833	)
Accumulated minimum pension liability (net of tax of $12,135 in 2005)		—			(21,021	)
Net actuarial loss, prior service credit, and transition obligation (net of $6,155 tax in 2006)		(11,190	)		—
Total accumulated other comprehensive loss	$	(7,419	)	$	(35,854	)

5. CREDIT CONCENTRATION

Our customers are in the semiconductor and solar industries and are located in various geographic regions including North America, Europe, Japan and the Asia Pacific area. Our customers are generally well capitalized, and the concentration of credit risk is considered minimal. In 2006, there were no customers that comprised 10% or greater of our sales. In 2005 and 2004, we had only one customer comprising over 10% of our sales, specifically 13.7% and 13.3%, respectively.

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6. INVENTORIES

Inventories consist of the following:

	As of December 31,
	2006	2005
Dollars in thousands
Raw materials and supplies	$14,978	$	13,169
Goods in process	28,232		50,012
Finished goods	36,969		56,775
	$80,179	$	119,956

At December 31, 2006, we had $6,043 of inventory held on consignment, compared to $17,933 at December 31, 2005.

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

	As of December 31,
	2006			2005
Dollars in thousands
Land	$	5,461		$	5,105
Buildings and improvements		128,020			125,877
Machinery and equipment		639,316			527,513
		772,797			658,495
Less accumulated depreciation		(299,716	)		(236,866	)
		473,081			421,629
Construction in progress		130,428			73,298
	$	603,509		$	494,927

8. TEXAS PACIFIC GROUP TRANSACTIONS

In connection with the Restructuring Agreement with TPG dated as of November 13, 2001, we entered into a management advisory agreement with TPG. Pursuant to the agreement, TPG provided management and financial advisory services to us as requested by our Board of Directors in exchange for a management advisory fee of $2,000 per year plus related out-of-pocket expenses, and additional compensation if TPG acted as a financial advisor to us for future transactions such as a merger or debt or equity financing. This agreement was terminated by the parties in March 2005.

In February 2005, TPG sold 65.6 million common shares in a public offering, reducing its beneficial ownership to approximately 34%. Additionally, a secondary offering by the investor group led by TPG of 18.3 million shares was completed in August 2005. The shares offered included all of the remaining shares on the resale shelf registration statement filed in February 2004, including 10.0 million shares acquired by TPG upon the exercise of warrants issued in 2001, further reducing TPG’s beneficial ownership to approximately 25%. This reduction in beneficial ownership constitutes a change of control under the U.S. tax rules. In November 2006, TPG sold 19.5 million shares in a privately negotiated sale. As of December 31, 2006, TPG beneficially owned approximately 16% of our outstanding common stock.

9. ACQUISITIONS, INVESTMENT IN TAISIL JOINT VENTURE

On January 30, 2004 and February 4, 2004, we acquired the remaining approximate 55% interest of Taisil Electronic Materials Corporation (“Taisil”) that we did not already own. The acquisition was structured as a stock purchase for cash. The purchase price totaled $57,226. In order to finance the acquisition, we borrowed $60,000 under a prior credit facility. We now own 99.97% of the outstanding shares of Taisil. As a result of these transactions, the financial results of Taisil were consolidated with MEMC effective as of February 1, 2004.

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Royalties earned under royalty agreements with the joint venture and sales of intermediate and finished product by the Taisil joint venture to MEMC were as follows:

	January 2004
Dollars in thousands
Royalties	$	105
Sales	$	764

A summary of the results of operations for 2004 of the previously unconsolidated Taisil joint venture follows:

	January 2004
Dollars in thousands
Total for unconsolidated joint venture:
Net sales	$	3,649
Gross margin		(1,783	)
Net income (loss)		(3,815	)
Our share—
Net income (loss)	$	(1,717	)

On August 1, 2004, we acquired the 20% ownership interest in our MEMC Southwest Inc. joint venture that we did not already own. The consideration for the 20% ownership interest was the termination of the various joint venture agreements, including the shareholders’ agreement, the technology transfer agreement and a wafer purchase agreement. Negative goodwill of $18,546 resulted from the application of purchase accounting. The negative goodwill was calculated as the excess of the fair value of the minority interest’s net assets acquired over the assumed purchase price. The negative goodwill was then allocated to the basis of the minority interest’s share of existing property, plant and equipment, goodwill and other noncurrent assets.

The financial results of MEMC Southwest Inc. continued to be consolidated with MEMC subsequent to this transaction, but the minority interest was no longer reflected in our consolidated balance sheets, statements of operations or cash flow statements.

10. SHORT-TERM BORROWING AGREEMENTS

Our short-term borrowings totaled approximately $0 and $13,209 (including factored receivables, as discussed below) at December 31, 2006 and 2005, respectively. We have short-term committed loan agreements of approximately $58,751 at December 31, 2006, which are renewable annually. Of the $58,751 committed short-term loan agreements, $3,926 is unavailable as it relates to the issuance of third party letters of credit. Interest rates are negotiated at the time of the borrowings.

Our weighted-average interest rate on short-term borrowings was 3.7% at December 31, 2005.

One of our foreign subsidiaries has an agreement with a financial institution whereby the subsidiary sells, on a continuous basis, eligible trade accounts receivable. The agreement permits our foreign subsidiary to sell receivables on a recourse or non-recourse basis. All of these receivables have been sold on a recourse basis. This agreement does not extend beyond one year. Such factoring is generally limited to $90,000 by the National City Agreement (discussed below). We account for the transfers of receivables as sales under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”).

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At December 31, 2006 and 2005, we had factored $2,893 and $41,793 of receivables, respectively, of which $10,929 have been recorded as short-term borrowings as of December 31, 2005, as the sale criteria under SFAS 140 were not met for certain factored transactions. There were no factored receivables recorded as short-term borrowings as of December 31, 2006.

11. LONG-TERM DEBT

Long-term debt consists of the following:

	As of December 31,
	2006		2005
Dollars in thousands
Long-term notes with interest payable semi-annually at rates ranging from 2.1% to 2.9%, due in 2009 through 2017	$34,408		$	39,917
Less current portion	(5,035	)		(5,096	)
	$29,373		$	34,821

On July 21, 2005, the Company entered into a Revolving Credit Agreement with National City Bank of the Midwest (National City Bank), US Bank National Association, and such other lending institutions as may from time to time become lenders (the National City Agreement). The National City Agreement was amended on December 20, 2006 to reduce the commitment fee and the interest spread on loans bearing interest at a rate determined by reference to the LIBOR rate. Additionally, our obligations and the guaranty obligations of our subsidiaries are no longer secured by a pledge of the capital stock of certain of our domestic and foreign subsidiaries. The National City Agreement provides for a $200,000 revolving credit facility and has a term of five years. Interest on borrowings under the National City Agreement will be payable based on the Company’s election at LIBOR plus an applicable margin (currently 0.34%) or at a defined prime rate plus an applicable margin (currently 0.00%). The National City Agreement also provides for us to pay various fees, including a commitment fee (currently 0.08%) on the lenders’ commitments. The National City Agreement contains covenants typical for credit arrangements of comparable size, such as minimum earnings before interest, taxes, depreciation and amortization and an interest coverage ratio. Our obligations under the National City Agreement are guaranteed by certain of our subsidiaries.

On July 21, 2005 we borrowed an aggregate of $60,000 under the National City Agreement and used those funds to repay all amounts then outstanding under prior credit facilities; interest on this $60,000 loan was due quarterly beginning October 1, 2005. In connection with the execution of the National City Agreement, we terminated the prior credit facilities upon their repayment by us of all amounts then outstanding. The extinguishment of the prior credit facilities resulted in the write-off of $1,929 of deferred financing fees. This loss was recorded in nonoperating expenses in 2005.

Long-term debt at December 31, 2006 totaling $34,408 owed to a bank by our Japanese subsidiary is guaranteed by us and is secured by the land, buildings and machinery and equipment of our Japanese subsidiary. These loans mature in years ranging from 2009 to 2017. Such guarantees would require us to satisfy the loan obligations in the event that the Japanese subsidiary failed to pay such debt in accordance with its stated terms.

We have long-term committed loan agreements of approximately $269,967 at December 31, 2006, of which $34,408 is outstanding. Of the $269,967 committed long-term loan agreements, which fully expire beginning 2007 and ending 2017, $8,424 is unavailable as it relates to the issuance of third party letters of credit. We pay commitment fees of up to 0.08 percent on the committed loan agreements.

The aggregate amounts of long-term debt maturing after December 31, 2006 are as follows:

Dollars in thousands
2007	$5,035
2008	5,035
2009	4,658
2010	3,273
2011	2,434
Thereafter	13,973
	$34,408

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12. STOCKHOLDERS’ EQUITY

Preferred Stock

We have 50,000,000 authorized shares of $.01 par value preferred stock and no shares issued and outstanding as of December 31, 2006 and 2005. The Board of Directors is authorized, without further action by the stockholders, to issue any or all of the preferred stock.

Warrants

Pursuant to the 2001 TPG Restructuring Agreement, TPG received warrants to purchase 16,666,667 shares of our common stock. We recorded the warrants at their aggregate fair market value of less than one dollar. The warrants are exercisable at an exercise price of $3.00 per share of common stock and expire on November 13, 2011. In 2005, TPG exercised 10,000,000 warrants on a cashless basis, resulting in the retirement of 1,989,391 additional warrants held by TPG which were used as payment for the exercise price. As of December 31, 2006, TPG held warrants to purchase 4,677,276 shares of our common stock.

Common Stock

Holders of our $.01 par value common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Subject to the rights of any holders of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in the distribution of all assets remaining after payment of liabilities, subject to the rights of any holders of preferred stock. The declaration and payment of future dividends on our common stock, if any, will be at the sole discretion of the Board of Directors and is subject to restrictions as contained in the National City Agreement and the Restructuring Agreement dated as of November 13, 2001, between MEMC and TPG. There were no dividends declared or paid during the years ended December 31, 2006, 2005 and 2004.

Under our Restructuring Agreement with TPG dated as of November 13, 2001, we must either obtain the consent of TPG or give TPG a right of first refusal over any issuances of our equity securities to any person or group to the extent that the equity securities would have 10% or more of the voting power of all of our then outstanding voting securities. As of December 31, 2006, TPG beneficially owned approximately 16% of our outstanding common stock, and we would have been required to obtain consent from TPG before any such issuance of our equity securities. In February 2007, TPG sold 20,000,000 shares of our common stock in a privately negotiated sale. After the February 2007 sale, TPG beneficially owned approximately 7% of our outstanding common stock, and this consent requirement no longer applied to any such issuance of our equity securities.

Stock-Based Compensation

We have equity incentive plans that provide for the award of non-qualified stock options, restricted stock, performance shares, and restricted stock units to employees, non-employee directors, and consultants. We issue new shares to satisfy stock option exercises. As of December 31, 2006, there were 1,899,556 shares authorized for future grant under these plans.

Options to employees are generally granted semi-annually primarily with four-year ratable vesting, although certain grants have three, four and five-year cliff vesting. In addition, one million options were granted in 2006 with a market condition requiring that, at the end of a four-year term, if MEMC’s common stock price outperforms the S&P 500 market index by a specified amount over that four-year period, the options would vest. These options also provide for an early vesting of 400,000 of these options at the end of three years if MEMC’s common stock price outperforms the S&P 500 market index by a specified amount over the three-year period. In 2006, non-qualified stock options to a non-employee director were granted and vest at a rate of 33 1/3% annually over three years. The maximum term of each option is 10 years or less. No stock options were granted to non-employee directors in 2004 or 2005.

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The exercise price of stock options granted has historically equaled the market price on the date of the grant except as noted below. As discussed in Note 2(p), we adopted SFAS 123R effective January 1, 2006. Prior to this date, we accounted for stock options under Opinion 25. Under the provision of Opinion 25, in this case, there was no recorded expense related to grants of stock options. Once exercisable, the employee can purchase shares of our common stock at the market price on the date we granted the option.

In 2002, certain stock options were granted at exercise prices less than the market price on the date of grant. These options were either immediately vested or vested over two to four years. Since these options were issued below the market price of our common stock on the date of issuance, compensation expense was recognized for the intrinsic value of the options of approximately $12,800 and the expense was recognized based on graded vesting. Compensation expense related to these stock options was $86, $531 and $1,907 in 2006, 2005 and 2004, respectively. Deferred compensation expense related to these stock options at December 31, 2006 and 2005 was $0 and $86, respectively.

The following table presents information regarding outstanding stock options as of December 31, 2006 and changes during the year then ended with regard to stock options:

	Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Average Remaining Contractual Life
Beginning of year	8,403,441		$	10.73
Granted	4,548,154			34.71
Exercised	(1,739,431	)		9.86
Forfeited	(554,354	)		22.75
Expired	(27,996	)		19.81
End of year	10,629,814		$	20.53	$	198,763	8.0 years
Options exercisable at year-end	2,005,620		$	7.22	$	64,015	6.0 years

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2006. This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised was $46,039, $42,747 and $8,921 in 2006, 2005 and 2004, respectively. Cash received from option exercises under option plans was $17,148, $14,817 and $4,826 and the actual tax benefit realized for the tax deductions from option exercises was $14,844, $21,218 and $0 for 2006, 2005 and 2004, respectively.

As part of its SFAS 123R adoption, MEMC examined its assumptions used in estimating the fair value of employee options granted. As part of this assessment, management determined that its historical stock price volatility and historical pattern of option exercises were appropriate indicators of expected volatility and expected term. The interest rate is determined based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the award. We estimate the fair value of options using the Black-Scholes option-pricing model for our ratable and cliff vesting options. For market condition awards, a lattice binomial model is used. Our weighted-average assumptions are as follows:

	Lattice Binomial			Black-Scholes
	2006			2006		2005		2004
Risk-free interest rate		4.7	%	4.7	%	3.9	%	3.6	%
Expected stock price volatility		63.5	%	64.9	%	102.1	%	106.5	%
Expected term until exercise (years)		5		4		4		6
Expected dividends		0.0	%	0.0	%	0.0	%	0.0	%

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The weighted-average grant-date fair value per share of options granted was $18.47, $10.29 and $7.81 for 2006, 2005 and 2004, respectively. As of December 31, 2006, $65,106 of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.4 years.

Restricted stock units represent the right to receive a share of MEMC stock at a designated time in the future, provided the stock unit is vested at the time. Restricted stock units granted to non-employee directors generally vest over a two year period from the grant date. Employee restricted stock units granted in April 2006 totaled 52,500 and vest 50% on a four-year ratable basis with the remaining 50% on a four-year cliff vesting basis. Recipients of restricted stock units do not pay any cash consideration for the restricted stock units or the underlying shares, and do not have the right to vote or have any other rights of a shareholder until such time as the underlying shares of stock are distributed. The following table presents information regarding outstanding restricted stock units as of December 31, 2006 and changes during the year then ended:

	Restricted Stock Units	Aggregate Intrinsic Value		Average Remaining Contractual Life
Beginning of year	59,000
Granted	82,100
End of year	141,100	$	5,523	2.1 years

At December 31, 2006, there were no restricted stock units which were convertible. As of December 31, 2006, $1,192 of total unrecognized compensation cost related to restricted stock units is expected to be recognized over a weighted-average period of 2.1 years. The weighted-average fair value of restricted stock units on the date of grant was $39.95 and $8.24 in 2006 and 2004, respectively. There were no restricted stock units granted in 2005. We recorded compensation expense related to restricted stock units of $556, $141 and $368 in 2006, 2005 and 2004, respectively. Deferred compensation expense related to restricted stock unit grants at December 31, 2006 and 2005 was $0 and $40, respectively.

As a result of adopting SFAS 123R, income before income taxes and minority interests for the year ended December 31, 2006 was $18,114 lower and net income for the year ended December 31, 2006 was $11,484 lower than if we had continued to account for stock-based compensation under Opinion 25. The impact on both basic and diluted earnings per share for the year ended December 31, 2006 was $0.05 per share. In addition, prior to the adoption of SFAS 123R, we presented the tax benefit of stock option exercises as operating cash flows. Upon the adoption of SFAS 123R, tax benefits resulting from tax deductions in excess of the tax benefit related to compensation cost recognized for those options will now be classified as financing cash flows. For the year ended December 31, 2006, we recognized $10,501 of excess tax benefits from share-based payment arrangements as a cash inflow in financing activities.

Stock-based compensation expense recorded for the years ended December 31 was allocated as follows:

	2006		2005		2004
Cost of goods sold	$	4,260	$	—	$	—
Marketing and administration		13,063		2,156		2,310
Research and development		1,433		—		—

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	2006		2005		2004
Stock-based employee compensation before related tax effects		18,756		2,156		2,310
Less: Income tax benefit		6,865		819		879
Total stock-based compensation expense, net of related tax effects		$11,891	$	1,337	$	1,431

The amount of stock-based compensation cost capitalized into inventory at December 31, 2006 was $270. Prior to the adoption of SFAS 123R on January 1, 2006, stock-based compensation costs were not capitalized.

The following table provides pro forma net income and earnings per share had we applied the fair value method of SFAS 123:

	For the year ended December 31,
	2005			2004
Dollars in thousands, except share data
Net income allocable to common stockholders, as reported		$249,353		$	226,201
Add:
Stock-based employee compensation included in reported net income, net of related tax effects		1,337			1,431
Deduct:
Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects		(12,629	)		(10,761	)
Pro forma net income allocable to common stockholders		$238,061		$	216,871
Income per share:
Basic—as reported	$	1.17		$	1.09
Basic—pro forma	$	1.12		$	1.04
Diluted—as reported	$	1.10		$	1.02
Diluted—pro forma	$	1.05		$	0.98

In October 2004, a provision of the American Jobs Creation Act of 2004 dramatically changed U.S. tax laws governing non-qualified deferred compensation, as defined. Most significantly, this new provision, known as Section 409A, imposed new tax penalties for failure to comply with the new law, including an additional 20% excise tax payable by an employee on deferred taxable compensation that does not comply with the new provision. This 20% excise tax is in addition to any normal income taxes payable by the employee on income. In 2005, the IRS published proposed regulations regarding Section 409A. These new proposed regulations treat options to buy stock at an exercise price that is below the fair market value of the stock on the date the option was granted (discount options) as deferred compensation subject to the new penalty tax. The new Section 409A only applies to discount options that vested on or after January 1, 2006. This would have impacted over 1,000 employees with penalties as a result of options they had been granted in 2002 prior to the new provision. Because of the potential adverse effects of Section 409A, MEMC decided to accelerate the discount options that were granted in 2002 prior to the new ruling that would have vested on January 2, 2006 by approximately one month to a new vest date of December 1, 2005 for all employees other than the Chief Executive Officer. In addition, because of limitations imposed by MEMC’s policy on insider trading in company securities, certain employees were not able to exercise options and sell the underlying shares during December 2005. Accordingly, to facilitate the need to address the Section 409A issue before the 2005 year end, the Compensation Committee of the Board of Directors amended certain of the options to permit cashless exercise of the options so that the employees could receive the shares net of

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statutory tax withholdings with MEMC retaining the surrendered shares in Treasury. Because these employees were allowed to exercise their options in this way, variable accounting was triggered and $1,482 of marketing and administration expense was recorded in the fourth quarter of 2005 related to these exercises.

13. INCOME PER SHARE

In 2006, 2005 and 2004, basic and diluted earnings per share (EPS) were calculated as follows (in thousands except share amounts):

	For the year ended December 31, 2006				For the year ended December 31, 2005				For the year ended December 31, 2004
	Basic		Diluted		Basic		Diluted		Basic		Diluted
EPS Numerator:
Net income allocable to common stockholders	$	369,288	$	369,288	$	249,353	$	249,353	$	226,201	$	226,201
EPS Denominator:
Weighted-average shares outstanding		222,128,722		222,128,722		213,480,225		213,480,225		207,705,094		207,705,094
Restricted stock units		—		62,025		32,885		55,209		8,743		22,482
Warrants		—		4,282,849		—		9,993,170		—		11,356,387
Stock options		—		3,269,753		—		2,921,340		—		1,963,983
Total shares		222,128,722		229,743,349		213,513,110		226,449,944		207,713,837		221,047,946
Earnings per share	$	1.66	$	1.61	$	1.17	$	1.10	$	1.09	$	1.02

In 2006, 2005, and 2004, options to purchase 1,912,655, 712,210 and 3,345,661, respectively, of MEMC stock were excluded from the calculation of diluted EPS because the effect was antidilutive. Restricted stock units, which were excluded from the calculation of diluted earnings per share due to their antidilutive effect, amounted to 35,959 in 2006. There were no restricted stock units excluded from the calculation of diluted earnings per share in 2005 and 2004.

14. INCOME TAXES

Income before income taxes, equity in loss of joint venture and minority interests consists of the following:

	For the year ended December 31,
	2006		2005		2004
Dollars in thousands
U.S.	$	321,918	$	113,821	$	17,130
Foreign		268,568		138,554		181,401
	$	590,486	$	252,375	$	198,531

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Income tax expense (benefit) consists of the following:

	Current			Deferred			Total
Dollars in thousands
Year ended December 31, 2006:
U.S. Federal	$	84,672		$	28,011		$	112,683
State and local		5,806			1,921			7,727
Foreign		80,523			13,900			94,423
	$	171,001		$	43,832		$	214,833
Year ended December 31, 2005:
U.S. Federal	$	(14,554	)	$	(55,996	)	$	(70,550	)
State and local		4,228			10,429			14,657
Foreign		33,872			19,213			53,085
	$	23,546		$	(26,354	)	$	(2,808	)
Year ended December 31, 2004:
U.S. Federal	$	31,599		$	(43,344	)	$	(11,745	)
State and local		222			—			222
Foreign		22,837			(51,433	)		(28,596	)
	$	54,658		$	(94,777	)	$	(40,119	)

Income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income before income taxes, equity in loss of joint venture and minority interests as a result of the following:

	For the year ended December 31,
	2006		2005		2004
Dollars in thousands
Income tax at federal statutory rate	35.0	%	35.0	%	35.0	%
Increase (reduction) in income taxes:
Change in the valuation allowance for deferred tax asset	—		(26.6	)	(69.2	)
Nondeductible interest	—		—		13.4
Effect of foreign operations and repatriation	(0.2	)	(3.7	)	2.0
State income taxes, net of Federal benefit	0.9		1.1		—
Reassessment of reserves due to change in estimate	0.1		(11.7	)	—
Reassessment of rate due to change in estimate	0.7		4.1		—
Prior period adjustments	0.2		3.1		—
Other, net	(0.3	)	(2.4	)	(1.4	)
Effective tax rate	36.4	%	(1.1	)%	(20.2	)%

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The “Change in the valuation allowance for deferred tax asset” relates to movement in the valuation allowance against deferred tax assets for domestic temporary differences and tax credits, state and foreign net operating loss carryforwards, and other foreign deferred tax assets. We evaluate all significant available positive and negative evidence, including the existence of losses in recent years and our forecast of future taxable income, in assessing the need for a valuation allowance. The underlying assumptions we used in forecasting future taxable income require significant judgment and take into account our recent financial performance. Based upon this analysis, the valuation allowance of $67,069 was reversed in 2005, bringing the total valuation allowance to zero. In 2004, the net deferred tax asset was reviewed in light of improvements in both domestic and foreign operating results and higher expected future taxable income levels. Domestically, because of higher projected taxable income levels and the expectation that it is more likely than not that we will be able to recognize certain deferred tax assets and tax loss carryforwards, we reduced the valuation from that reflected in prior years. On the foreign side, earnings improvements at our Japanese operations resulted in the expectation that all of the net deferred tax asset will be utilized resulting in the reversal in 2004 of the remaining Japanese valuation allowance. In summary, we reversed $107,581 in valuation allowances related to future earnings and $29,601 related to current earnings in 2004.

The “Effect of foreign operations and repatriation” includes the net reduced taxation of foreign profits combining jurisdictions with rates above and below the U.S. federal statutory rate. It also includes the impact of withholding taxes. For 2006, the net decrease represents a benefit of $16,936 associated with electing the U.S. foreign tax credit in 2005 instead of deducting foreign taxes, offset by an increase in expense of $15,751 related to dividends and foreign withholding taxes. For 2005, the net decrease of $9,442 represents reductions of $12,455 associated with electing the U.S. foreign tax credit in 2005 instead of deducting foreign taxes, $6,664 of foreign taxes below U.S. statutory rates, and increases of $4,576 in foreign withholding taxes, $2,285 related to the recognition of certain additional U.S. residual income tax that is expected to be imposed upon a distribution of unremitted foreign earnings, and $2,816 in liabilities established for potential transfer pricing and other issues. In 2004, the increases represented the excess of foreign taxes over U.S. taxes at statutory rates, recognition of certain additional U.S. residual income tax expected to be imposed on distribution of unremitted foreign earnings and foreign withholding tax.

The “Reassessment of reserves due to change in estimate” in 2006 relates primarily to accrued interest and in 2005 relates to an increase in our estimate of our allowable depreciation deductions totaling $22,416, a benefit of $5,979 related to prior year U.S. tax return amendments to elect foreign tax credits net of previously taken deductions for foreign taxes and a decrease of $1,223 of other changes in estimate.

The “Prior period adjustments” in 2006 relates primarily to recording additional expense for state net operating losses net of federal benefit and in 2005 included a benefit of $6,478 related to the portion of the interest on senior subordinated notes deductible for tax purposes for which a liability had been recorded, additional tax expense of $7,418 related to the US GAAP treatment of fixed asset basis difference under the Korea Asset Revaluation Law, additional expense of $6,024 associated with non-qualified stock option deductions which had been recorded as a reduction to income tax expense in prior periods, and additional expense of $937 related to amended tax filings and reassessment of tax basis limitations.

The “Reassessment of rate due to change in estimate” for 2006 includes approximately $3,876 additional expense related to a Texas tax law change and in 2005 includes approximately $6,309 of expense related to a change in the blended state tax rate expected to apply to reversing temporary differences in future periods due to changes in expected apportionment ratios and other factors as well as state net operating losses of $3,999 that expired as a result of a merger in 2005 for tax purposes.

The tax effects of the major items recorded as deferred tax assets and liabilities are:

	As of December 31,
	2006		2005
Dollars in thousands
Deferred tax assets:
Inventories	$	5,599	$	5,304
Expense accruals		21,389		8,631
Property, plant and equipment		65,587		89,785

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Pension, medical and other employee benefits		22,375			44,301
Net operating loss carryforwards – state and foreign		3,943			10,529
Capitalized R&D		8,544			9,882
Other		5,944			11,524
Total deferred tax assets		133,381			179,956
Deferred tax liabilities:
Other		(1,970	)		(2,432	)
Total deferred tax liabilities		(1,970	)		(2,432	)
Net deferred tax assets	$	131,411		$	177,524

Our deferred tax assets and liabilities, netted by taxing location, are in the following captions in the Consolidated Balance Sheets:

	As of December 31,
	2006		2005
Dollars in thousands
Current deferred tax assets, net (recorded in prepaids and other current assets)	$	11,954	$	11,954
Noncurrent deferred tax assets, net		119,457		165,570
	$	131,411	$	177,524

At December 31, 2006, the Company had a $3,441 deferred tax asset for state income tax loss carryforwards. These carryforwards are scheduled to expire between 2007 and 2022 if unused. Of these, $1,743 will expire in 2011, $127 in 2017, $122 in 2020, $1,280 in 2021 and $169 in 2022.

Other noncurrent liabilities includes tax liabilities of $48,854 and $10,689 at December 31, 2006 and December 31, 2005, respectively. These liabilities have been established for tax filing positions that we believe are fully supported but may be challenged by taxing authorities and may not be fully sustained. These liabilities are expected to remain on our books until the time that the positions are sustained upon audit or the statute of limitations expires.

15. EMPLOYEE-RELATED LIABILITIES

Pension and Other Post-Employment Benefit Plans

Prior to January 2, 2002, our defined benefit pension plan covered most U.S. employees. Benefits for this plan were based on years of service and qualifying compensation during the final years of employment. Effective January 2, 2002, we amended our defined benefit plan to discontinue future benefit accruals for certain participants. In addition, effective January 2, 2002, no new participants will be added to the plan.

We also have a non-qualified plan under the Employee Retirement Income Security Act of 1974. This plan provides benefits in addition to the defined benefit plan. Eligibility for participation in this plan requires coverage under the defined benefit plan and other specific circumstances. The non-qualified plan has also been amended to discontinue future benefit accruals.

Prior to January 1, 2002, our health care plan provided postretirement medical benefits to full-time U.S. employees who met minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. Effective January 1, 2002, we amended our health care plan to discontinue eligibility for postretirement medical benefits for certain participants. In addition, effective January 2, 2002, no

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new participants will be eligible for postretirement medical benefits under the plan. During 2006, a negative plan amendment was recorded related to the clarification of contributions to be paid by MEMC, resulting in the recording of approximately $11,617 of unrecognized prior service credit. This credit will be amortized to income over the average remaining service period of the active employees.

In July 2005, approximately 88% of eligible employees of our Taiwan subsidiary elected to opt out of their defined benefit pension plan into a new defined contribution plan, creating a one-time curtailment loss of $518.

We adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”) as of December 31, 2006, except for the change in measurement date provisions. SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.

The following table summarizes the incremental effect of adopting SFAS 158:

Year ended December 31, 2006	Pension Plans									Health Care and Other Plans
	Before			Changes			After			Before			Changes			After
Dollars in thousands
LIABILITIES
Current liabilities	$	(11,560	)	$	10,300		$	(1,260	)	$	(1,948	)	$	—		$	(1,948	)
Pension and post-employment liabilities	$	(41,128	)	$	(17,955	)	$	(59,083	)	$	(45,283	)	$	19,121		$	(26,162	)
STOCKHOLDERS’ EQUITY
Accumulated other comprehensive income (pre-tax)	$	28,811		$	7,655		$	36,466		$	—		$	(19,121	)	$	(19,121	)
Net periodic benefit cost consists of the following:

Year ended December 31,	Pension Plans									Health Care and Other Plans
	2006			2005			2004			2006			2005			2004
Dollars in thousands
Service cost	$	3,545		$	3,745		$	3,950		$	379		$	357		$	258
Interest cost		9,388			9,285			9,017			2,282			2,482			2,929
Expected return on plan assets		(8,561	)		(7,525	)		(5,974	)		—			—			—
Amortization of service costs		4			12			13			—			—			—
Net actuarial (gain)loss		2,125			1,652			1,131			(637	)		(556	)		(66	)
Transition obligation recognized		3			18			23			—			—			—
Curtailment charge		—			518			—			—			—			—
Net periodic benefit cost	$	6,504		$	7,705		$	8,160		$	2,024		$	2,283		$	3,121

We use a measurement date of September 30 to determine pension and other postretirement and post-employment benefit measurements for the plans.

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The following is a table of actuarial assumptions used to determine the net periodic benefit cost:

Year ended December 31,	Pension Plans						Health Care and Other Plans
	2006		2005		2004		2006		2005		2004
Weighted-average assumptions:
Discount rate	5.50	%	5.75	%	6.00	%	5.50	%	5.75	%	6.00	%
Expected return on plan assets	8.00	%	8.00	%	8.00	%	NA		NA		NA
Rate of compensation increase	4.00	%	4.50	%	4.50	%	4.00	%	4.50	%	4.50	%
Current medical cost trend rate	NA		NA		NA		7.25	%	8.25	%	9.25	%
Ultimate medical cost trend rate	NA		NA		NA		5.25	%	5.25	%	5.25	%
Year the rate reaches ultimate trend rate	NA		NA		NA		2008		2008		2008

The following summarizes the change in benefit obligation, change in plan assets, and funded status of the plans:

Year ended December 31,	Pension Plans						Health Care and Other Plans
	2006			2005			2006			2005
Dollars in thousands
Change in benefit obligation:
Benefit obligation, beginning	$	179,631		$	170,606		$	43,339		$	48,979
Service cost		3,545			3,745			379			357
Interest cost		9,388			9,285			2,282			2,482
Plan participants’ contributions		—			—			2,097			1,648
Actuarial (gain)loss		(2,001	)		7,807			(1,317	)		(4,292	)
Gross benefits paid		(10,077	)		(12,215	)		(6,289	)		(5,835	)
Less: Federal subsidy on benefits paid		—			—			150			—
Plan amendment		—			—			(11,617	)		—
Currency exchange (gain)loss		(27	)		403			—			—
Benefit obligation as of September 30	$	180,459		$	179,631		$	29,024		$	43,339
Change in plan assets:
Fair value of plan assets, beginning	$	105,006		$	92,046		$	—		$	—
Actual return on plan assets		8,627			9,744			—			—
Employer contributions		15,686			15,495			4,042			4,187
Plan participants’ contributions		—			—			2,097			1,648
Gross benefits paid		(10,077	)		(12,215	)		(6,289	)		(5,835	)
Less: Federal subsidy on benefits paid		—			—			150			—
Currency exchange (gain)loss		17			(64	)		—			—
Fair value of plan assets as of September 30	$	119,259		$	105,006		$	—		$	—

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Unfunded status as of September 30:
Fair value of plan assets	$	119,259		$	105,006		$	—		$	—
Benefit obligation		180,459			179,631			29,024			43,339
Unfunded status	$	(61,200	)	$	(74,625	)	$	(29,024	)	$	(43,339	)
Unrecognized net actuarial (gain) loss [A]		—			40,565			NA			(6,824	)
Unrecognized prior service (credit) cost [A]		—			45			NA			—
Unrecognized transition (asset) obligation [A]		—			48			NA			—
Fourth quarter contribution		857			3,225			914			922
Accrued benefit cost at December 31	$	(60,343	)	$	(30,742	)	$	(28,110	)	$	(49,241	)
Amounts recognized in statement of financial position:
Accrued liabilities, current	$	(1,260	)	$	(17,661	)	$	(1,948	)	$	(4,450	)
Pension and post-employment liabilities		(59,083	)		(46,237	)		(26,162	)		(44,791	)
Accumulated other comprehensive loss before taxes [B]		—			33,156			—			—
Net amount recognized	$	(60,343	)	$	(30,742	)	$	(28,110	)	$	(49,241	)

[A] Amounts reclassified to accumulated other comprehensive income in connection with the adoption of SFAS 158 as of December 31, 2006.

[B] Amounts recognized in accumulated other comprehensive income (before tax):

Year ended December 31,	Pension Plans			Health Care and Other Plans
	2006		2005	2006			2005
Dollars in thousands
Net actuarial (gain) loss	$	36,378	NA	$	(7,504	)	NA
Prior service (credit) cost		41	NA		(11,617	)	NA
Transition (asset) obligation		47	NA		—		NA
Net amount recognized		$36,466	NA	$	(19,121	)	NA

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The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2007 are as follows:

	Pension Plans		Health Care and Other Plans
Dollars in thousands
Actuarial (gain) loss	$	1,800	$	(822	)
Prior service (credit) cost		4		(2,143	)
Transition (asset) obligation		3		—
	$	1,807	$	(2,965	)

The following is a table of the actuarial assumptions used to determine the benefit obligation:

Year ended December 31,	Pension Plans				Health Care and Other Plans
	2006		2005		2006		2005
Weighted-average assumptions:
Discount rate	5.75	%	5.50	%	5.75	%	5.50	%
Rate of compensation increase	3.75	%	4.00	%	3.75	%	4.00	%
Current medical cost trend rate	NA		NA		7.25	%	8.25	%
Ultimate medical cost trend rate	NA		NA		5.25	%	5.25	%
Year the rate reaches ultimate trend rate	NA		NA		2008		2008

Pension plan assets are invested primarily in marketable securities including common stocks, bonds and interest-bearing deposits. The weighted-average allocation of pension benefit plan assets at September 30 was:

Asset Category	Target Allocation		Actual Allocation
	2006		2006		2005
Equity securities	20-65	%	61	%	62	%
Fixed income securities	20-75	%	29	%	28	%
All other	0-20	%	10	%	10	%
Total			100	%	100	%

The investment objectives of our pension plan assets are as follows:

• To achieve a favorable relative return as compared with inflation;

• To achieve an above average total rate of return relative to capital markets;

• Preservation of capital through a broad diversification among asset classes which react, as nearly as possible, independently to varying economic and market circumstances; and

• Long-term growth, with a degree of emphasis on stable growth, rather than short-term capital gains.

Our pension expense and pension liability are actuarially determined, and we use various actuarial assumptions, including the discount rate, rate of salary increase, and expected return on assets to estimate our pension costs and obligations. We determine the expected return on plan assets based on our pension plans’ actual asset mix as of the beginning of the year. The

40

expected investment return assumption used for the pension plans reflects what the plans can reasonably expect to earn over a long-term period considering plan target allocations. The expected return includes an inflation assumption and adds real returns for the asset mix and a premium for active management, and subtracts expenses. While the assumed expected rate of return on plan assets in 2006 was 8.0%, the actual return experienced in our pension plan assets in the comparable period in 2006 was 7.6%. We consult with the plans’ actuaries to determine a discount rate assumption for pension and other postretirement and post-employment plans that reflects the characteristics of our plans, including expected cash outflows from our plans, and utilize an analytical tool that incorporates the concept of a hypothetical yield curve, developed from corporate bond (Aa quality) yield information.

Our pension obligations are funded in accordance with provisions of Federal law. Contributions to our pension plans in 2006 totaled $12,257. We expect contributions to our pension plan in 2007 to be approximately $10,300.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets were as follows:

	Pension Plans
	2006	2005
Dollars in thousands
Projected benefit obligation, end of year	$180,459	$	179,631
Accumulated benefit obligation, end of year	$171,092	$	170,422
Fair value of plan assets, end of year	$119,259	$	105,006

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A 1% change in the medical trend rate would have the following effects at December 31, 2006:

	1% Increase		1% Decrease
Dollars in thousands
Total service and interest cost components	$	88	$	(87	)
Postretirement benefit obligation		472		(478	)

We estimate that the future benefits payable for the pension and other postretirement plans are as follows:

	Pension Plans		Health Care and Other Plans
Dollars in thousands			Gross Benefits		Federal Subsidy
2007	$	9,815	$	2,286	$	218
2008		10,025		2,207		269
2009		10,588		2,124		321
2010		11,391		2,067		376
2011		12,467		2,049		431
2012-2016		76,278		9,134		2,615

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Defined Contribution Plans

We sponsor a defined contribution plan under Section 401(k) of the Internal Revenue Code covering all U.S. salaried and hourly employees, and a defined contribution plan in Taiwan covering most salaried and hourly employees of our Taiwan subsidiary. Our costs included in results of operations totaled $5,419, $4,475 and $4,568 for 2006, 2005 and 2004, respectively.

Other Employee-Related Liabilities

Employees of our subsidiaries in Italy and Korea are covered by an end of service entitlement that provide payment upon termination of employment. Contributions to these plans are based on statutory requirements and are not actuarially determined. The accrued liability was $34,881 at December 31, 2006 and $30,631 at December 31, 2005, and is included in other long-term liabilities and accrued wages and salaries on our balance sheet. The accrued liability is based on the vested benefits to which the employee is entitled assuming employee termination at the measurement date.

16. COMMITMENTS AND CONTINGENCIES

Leases and Purchase Obligations

We lease buildings, equipment and automobiles under operating leases. Rental expense was $5,269, $5,280 and $8,102 in 2006, 2005 and 2004, respectively. The total future commitment under operating leases as of December 31, 2006 was $13,319, of which $11,983 is noncancellable. We enter into purchase commitments for materials and services utilized in the normal course of business. Our unconditional purchase obligations represent the minimum requirements of the contractual termination penalties (take or pay provisions) under these various long-term commitments. Our operating lease and unconditional purchase obligations as of December 31, 2006 were as follows:

	Payments Due By Period
	Total		2007		2008		2009		2010		2011		Thereafter
Dollars in thousands
Operating Leases	$	13,319	$	4,430	$	3,595	$	1,965	$	1,342	$	1,338	$	649
Unconditional Purchase Obligations		137,400		35,085		27,526		19,664		19,011		15,680		20,434

Indemnification

We have agreed to indemnify some of our customers against claims of infringement of the intellectual property rights of others in our sales contracts with these customers. Historically, we have not paid any claims under these indemnification obligations and we do not have any pending indemnification claims.

Litigation

Sumitomo Mitsubishi Silicon Corporation et al. vs. MEMC Electronic Materials, Inc.

On December 14, 2001, MEMC filed a lawsuit against Sumitomo Mitsubishi Silicon Corporation (“SUMCO”) and several of its affiliates in the Northern District of California (the “First SUMCO Case”) alleging infringement of one of MEMC’s U.S. patents. On March 16, 2004, the court entered summary judgment against MEMC. MEMC appealed this decision to the U.S. Federal Circuit Court of Appeals, and on August 22, 2005, the U.S. Federal Circuit Court of Appeals reversed the grant of summary judgment with respect to inducement of infringement by SUMCO, and the case was remanded to the U.S. District Court for further proceedings. On February 24, 2006, the U.S District Court granted certain summary judgment motions of each of SUMCO and MEMC. In light of the summary judgment rulings in favor of SUMCO, on February 27, 2006 the U.S District Court issued a final judgment against MEMC in the First SUMCO Case. On February 28, 2006, MEMC filed its Notice of Appeal of the grant of certain of the summary judgment rulings in favor of SUMCO in the First SUMCO Case with the U.S. Federal Circuit Court of Appeals. MEMC and SUMCO filed their appellate briefs in this matter in 2006 and early 2007. Oral argument is expected in summer 2007, and a decision could come as early as fall 2007.

On July 13, 2004, SUMCO and certain of its affiliates filed a lawsuit against MEMC in the U.S. District Court for the District of Delaware (the “Second SUMCO Case”) in a case captioned Sumitomo Mitsubishi Silicon Corporation, aka SUMCO, a corporation of Japan and SUMCO USA Corporation, a Delaware corporation, v. MEMC Electronic Materials, Inc., a Delaware corporation, Civil Action No. 04-852-SLR. In May 2005, MEMC successfully had this case removed to the Northern District of California, although the Second SUMCO Case and the First SUMCO Case will not be consolidated. In

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the Second SUMCO Case, plaintiffs alleged that MEMC violated the antitrust laws by attempting to control sales of low defect silicon wafers in the United States, including through its patent policies and enforcement of its patents related to low defect silicon wafers. Plaintiffs also sought a declaratory judgment that plaintiffs’ wafers do not infringe the claims of two MEMC patents and that these two MEMC patents are invalid and unenforceable. Finally, plaintiffs alleged that these two MEMC patents are void and unenforceable because of MEMC’s alleged patent misuse. Plaintiffs sought treble damages in an unspecified amount, and attorneys’ fees and costs incurred by plaintiffs in the Second SUMCO Case and in the First SUMCO Case. MEMC asserted defenses against these claims, including a counterclaim for infringement of one of the two patents. In June 2006, in light of the pending appeal with the U.S. Federal Circuit Court of Appeals on certain matters from the First SUMCO Case, certain of the counts related to the two MEMC patents were dismissed from the Second SUMCO Case without prejudice. MEMC believes that SUMCO’s position in the Second SUMCO Case has no merit and is asserting a vigorous defense. We do not believe that this matter will have a material adverse effect on our consolidated results of operations and financial condition. Due to uncertainty regarding the litigation process, however, the outcome of this matter could be unfavorable, in which event we might be required to pay damages and other expenses.

17. GEOGRAPHIC SEGMENTS

We are engaged in one reportable segment – the design, manufacture and sale of silicon wafers.

Geographic financial information is as follows:

Net Sales to Customers:

	2006		2005		2004
Dollars in thousands
United States	$	521,292	$	344,069	$	286,302
Foreign		1,019,292		763,310		741,656
Total	$	1,540,584	$	1,107,379	$	1,027,958

Foreign revenues were derived from sales to the following countries:

	2006		2005		2004
Dollars in thousands
China	$	218,080	$	37,250	$	29,312
Japan		74,693		91,882		99,567
Korea		188,085		184,234		173,194
Taiwan		273,400		225,355		200,958
Other foreign countries		265,034		224,589		238,625
Total	$	1,019,292	$	763,310	$	741,656

Net sales are attributed to countries based on the location of the customer.

Our net sales attributable to polysilicon for the years ended December 31, 2006, 2005 and 2004 were 18.5%, 9.6% and 3.1% as a percent of total sales, respectively.

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Long-Lived Assets, net of accumulated depreciation:

	2006		2005		2004
Dollars in thousands
United States	$	184,997	$	159,334	$	120,139
Japan		163,070		176,771		171,169
Korea		65,064		58,593		44,687
Italy		63,976		39,012		82,697
Taiwan		175,563		106,870		77,306
Other foreign countries		5,985		5,675		3,779
Total	$	658,655	$	546,255	$	499,777

18. UNAUDITED QUARTERLY FINANCIAL INFORMATION

2006	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Dollars in thousands, except per share data
Net sales	$	341,549		$	370,540		$	407,949		$	420,546
Gross margin	$	132,681		$	160,462		$	192,508		$	203,296
Income before minority interests	$	68,338		$	83,326		$	93,479		$	130,510
Minority interests	$	(995	)	$	(1,378	)	$	(2,432	)	$	(1,560	)
Net income	$	67,343		$	81,948		$	91,047		$	128,950
Basic income per share	$	0.30		$	0.37		$	0.41		$	0.58
Diluted income per share	$	0.29		$	0.36		$	0.40		$	0.56
Market close stock prices:
High	$	38.19		$	48.75		$	40.67		$	43.55
Low	$	23.40		$	30.54		$	27.21		$	33.89

44

2005	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Dollars in thousands, except per share data
Net sales	$	250,939		$	272,256		$	280,743		$	303,441
Gross margin	$	81,275		$	89,304		$	85,246		$	110,693
Income before equity in loss of joint venture and minority interests	$	57,120		$	42,364		$	103,037		$	52,662
Minority interests	$	(82	)	$	(1,887	)	$	(1,412	)	$	(2,449	)
Net income	$	57,038		$	40,477		$	101,625		$	50,213
Basic income per share	$	0.27		$	0.19		$	0.47		$	0.23
Diluted income per share	$	0.25		$	0.18		$	0.45		$	0.22
Market close stock prices:
High	$	14.56		$	16.19		$	22.79		$	23.68
Low	$	10.74		$	11.23		$	15.82		$	16.87

Quarter ended March 31, 2005

We recognized certain discrete tax adjustments representing an income tax benefit of $19,361. These included a reassessment of tax reserve (noncurrent liability) requirements of $29,618 due to changes in estimated allowable depreciation deductions and our election to credit foreign taxes. Also included were prior period adjustments of $7,901. (see Note 14)

Quarter ended September 30, 2005

We reversed all remaining valuation allowances against domestic deferred tax assets of $67,069 based upon our determination that these deferred tax assets would more likely than not be realized.

Quarter ended December 31, 2006

A gain of $18,913 million was recorded to other nonoperating income due to the mark to market adjustment related to a warrant received from a customer in 2006 as discussed in Note 2(m) above.

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Report of Independent Registered Public Accounting Firm

The Board of Directors

MEMC Electronic Materials, Inc.:

We have audited the accompanying consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment” effective January 1, 2006. Also, as discussed in Note 2 to the consolidated financial statements, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” effective December 31, 2006, and the Company changed its method of quantifying errors in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commissions (COSO), and our report dated February 26, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

	/s/ KPMG LLP
St. Louis, Missouri
February 26, 2007

46

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation as of December 31, 2006, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2006.

(b) Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

As of December 31, 2006, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based upon the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on management’s assessment utilizing these criteria, we believe that, as of December 31, 2006, our internal control over financial reporting was effective.

KPMG LLP, an independent registered public accounting firm, has issued an audit report on management’s assessment of the company’s internal control over financial reporting. Their report appears below.

(c) Remediation of Prior Material Weakness in Internal Control over Financial Reporting

A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected.

As disclosed in our 2005 Annual Report on Form 10-K, and in our Quarterly Reports on Form 10-Q for each of the first three quarters of 2006, we reported material weaknesses in our internal controls specifically pertaining to ineffective company-level controls, inadequate expertise in U.S. Generally Accepted Accounting Principles (“US GAAP”), and inadequate revenue recognition policies and procedures.

As of December 31, 2006, we have remediated the previously reported material weaknesses in internal control over financial reporting in part by completing the following actions:

Remediation Activities to Improve Company-Level Controls

• Instituted a weekly review process with our eight executive officers (including the CEO) to ensure identified control deficiencies are remediated timely;

• Issued guidance and provided additional training to the senior leadership team (80 people) on implementing specific actions to improve the control environment;

• Expanded the quarterly financial certification content and coverage to solicit evidence that controls are functioning effectively; and

• Enhanced the internal audit staff by increasing the number of trained personnel and expanded the audit coverage.

Remediation Activities to Increase Staff Expertise in U.S. Generally Accepted Accounting Principles

• Hired senior finance, accounting and tax personnel with substantial accounting and public company financial expertise;

• Utilized personnel from multiple third-party professional services firms with expertise in accounting for income taxes to assist in the preparation and review of our income tax provision and the income tax related balance sheet accounts; and

• Implemented an on-going US GAAP training program and held training sessions for the worldwide finance managers, as well as certain finance and accounting personnel.

Remediation Activities to Improve Revenue Recognition Policies and Procedures

• Established Sales and Marketing finance roles within the accounting and finance organization for the purpose of reviewing sales arrangements;

47

• Provided additional training to sales and accounting personnel on the proper reporting of sales arrangements, treatment of international shipping terms and accounting for revenue recognition; and

• Implemented a quarterly sales and marketing checklist for senior sales personnel to provide assurance that customer agreements and related transactions are properly reported.

In the third and fourth quarters of 2006, we undertook and completed, as appropriate, our testing to validate compliance with the newly implemented policies, procedures and controls. We undertook this testing over these periods to demonstrate operating effectiveness over a period of time that is sufficient to support our conclusion. In reviewing the results from this testing, management has concluded that our company-level controls, staff expertise in US GAAP and internal controls over revenue recognition have been significantly improved and that the above referenced material weaknesses in internal control over financial reporting have been remediated as of December 31, 2006.

(d) Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

MEMC Electronic Materials, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A(b)), that MEMC Electronic Materials, Inc. (the Company or MEMC) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in the Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that MEMC maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in the Internal Control—Integrated Framework, issued by COSO. Also, in our opinion, MEMC maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in the Internal Control—Integrated Framework, issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated February 26, 2007, expressed an unqualified opinion on those consolidated financial statements.

48

/s/ KPMG LLP

St. Louis, Missouri

February 26, 2007

(e) Changes in Internal Control Over Financial Reporting

Except as otherwise discussed above, there have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal quarter and year ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

49

EX-21

Exhibit 21

List Of Subsidiaries

Subsidiary	Jurisdiction of Organization
MEMC Electronic Materials France Sarl	France
MEMC Electronic Materials, GmbH	Germany
MEMC Electronic Materials Sales, Sdn. Bhd.	Malaysia
MEMC Electronic Materials, Sdn. Bhd.	Malaysia
MEMC Electronic Materials, S.p.A.	Italy
MEMC Electronic Materials (UK) Ltd.	United Kingdom
MEMC Holding B.V.	The Netherlands
MEMC Holdings Corporation	Delaware
MEMC International, Inc.	Delaware
MEMC Japan Ltd.	Japan
MEMC Korea Company	South Korea
MEMC Kulim Electronic Materials, Sdn. Bhd.	Malaysia
MEMC Pasadena, Inc.	Delaware
MEMC Singapore Pte. Ltd.	Singapore
Taisil Electronic Materials Corporation	Taiwan

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors

MEMC Electronic Materials, Inc.:

We consent to the incorporation by reference in the registration statement (Nos. 33-96420, 333-19159, 333-43474, 333-83624, 333-83628, 333-100404, and 333-122405) on Form S-8 of MEMC Electronic Materials, Inc. of our report dated February 26, 2007, with respect to the consolidated balance sheets of MEMC Electronic Materials, Inc. and subsidiaries as of December 31, 2006 and 2005; and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006; and our report dated February 26, 2007, with respect to management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 Annual Report on Form 10-K of MEMC Electronic Materials, Inc.

As discussed in note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment” effective January 1, 2006. Also, as discussed in Note 2 to the consolidated financial statements, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” effective December 31, 2006, and the Company changed its method of quantifying errors in 2006.

/s/ KPMG LLP

St. Louis, Missouri

February 26, 2007

EX-31.1

Exhibit 31.1

Certification

I, Nabeel Gareeb, certify that:

1. I have reviewed this annual report on Form 10-K of MEMC Electronic Materials, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007

/s/ NABEEL GAREEB

Nabeel Gareeb

Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification

I, Kenneth H. Hannah, certify that:

1. I have reviewed this annual report on Form 10-K of MEMC Electronic Materials, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2007

/s/ KENNETH H. HANNAH

Kenneth H. Hannah

Senior Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of MEMC Electronic Materials, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Nabeel Gareeb, President and Chief Executive Officer of the Company, and Kenneth H. Hannah, Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 28, 2007

By:	/s/ Nabeel Gareeb
Name:	Nabeel Gareeb
Title:	President and Chief Executive Officer MEMC Electronic Materials, Inc.

Date: February 28, 2007

By:	/s/ Kenneth H. Hannah
Name:	Kenneth H. Hannah
Title:	Senior Vice President and Chief Financial Officer MEMC Electronic Materials, Inc