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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 1-8403
ENERGY CONVERSION DEVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 38-1749884
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1675 West Maple Road, Troy, Michigan 48084
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 280-1900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Warrants to Purchase Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x].
The aggregate market value of stock held by non-affiliates (based upon the
closing price of such stock on the NASDAQ National Market System on September
22, 2000) was approximately $641 million. As of September 22, 2000, there were
219,913 shares of ECD's Class A Common Stock, 430,000 shares of ECD's Class B
Common Stock and 18,396,816 shares of ECD's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1: Business
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OVERVIEW
Energy Conversion Devices, Inc. (ECD), founded by Stanford R. Ovshinsky
and Dr. Iris M. Ovshinsky, is a leader in the synthesis of new materials and the
development of advanced production technology and innovative products. Under the
direction of Stanford R. Ovshinsky, principal inventor, we have pioneered the
development of products and production technology based on amorphous and related
materials, with an emphasis on alternative energy and advanced information
technologies. Unlike the simple, ordered, three-dimensional arrays found in most
crystalline materials, our proprietary synthetic materials (Ovonic materials)
are designed to exploit unique properties that result from atomically-engineered
chemical and structural disorder. Ovonic materials make possible the development
and commercialization of new products with unique chemical, electrical,
mechanical and optical properties and superior performance characteristics.
To advance our technology, we have used an integrated systems approach to
inventing materials, products and production technology that minimizes the
customary barriers between research and development, production design and
product planning. Our strategy has been to develop products that have
fundamental technological advantages over available alternatives and that are
capable of being produced commercially on an economically competitive basis. We
are also continuing our development efforts, funded in part through contracts
with U.S. Government agencies, our licensees and industrial partners, to broaden
and build upon our product and technological base.
We have established a multi-disciplinary business, scientific and
technical organization to commercialize products based on our technologies, and
have developed the enabling proprietary core technologies in the important
fields of:
o energy storage
o Nickel metal hydride (NiMH) batteries
o Ovonic Solid Hydrogen Storage Systems(TM)
o energy generation
o Ovonic Regenerative Fuel Cells(TM)
o Thin-film, flexible, low-cost photovoltaic (solar) products
o information storage and retrieval
o Ovonic Unified Memory (OUM)--a unique thin-film, nonvolatile,
solid-state memory that offers key competitive advantages in the
microelectronic memory marketplace in terms of cost, performance
and scaling over conventional solutions
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o Phase-change rewritable Optical memory technology used in
removable, rewritable compact disks (CD-RW) and
high-storage-capacity rewritable digital versatile disks (DVD-RAM)
We are currently engaged in manufacturing and selling our proprietary
products on our own, through our joint venture companies as well as through
licensing arrangements with major companies throughout the world. In addition,
in support of these activities, we are engaged in research and development, as
well as in designing and building production machinery. We have recognized the
need to protect our technology, and maintain an extensive patent portfolio
consisting currently of 363 issued United States patents and 840 foreign
counterparts. Our patent portfolio includes numerous basic and fundamental
patents covering amorphous, disordered and related materials as well as patents
covering products and production technologies.
We have a number of strategic alliances and significant joint ventures in
the fields of alternative energy and information technology.
In the alternative energy field, our NiMH battery business is conducted
through Ovonic Battery Company, Inc., approximately 91% of which is owned by us.
Sanyo Electric Co., Ltd., Honda Motor Company, Ltd. and Sanoh Industrial Co.,
Ltd. own approximately 9% of the outstanding stock of Ovonic Battery. NiMH
batteries have become the battery of choice in consumer electronics, in the
automotive industry worldwide for electric vehicles (EVs) and hybrid electric
vehicles (HEVs) and in all applications where high-density energy storage is
required. All significant manufacturers of consumer NiMH batteries are
manufacturing products under license from us.
In 1994, we established GM Ovonic L.L.C. (owned 40% by Ovonic Battery and
60% by General Motors Corporation) to manufacture and commercialize Ovonic NiMH
rechargeable batteries for EVs, HEVs, fuel cell electric vehicles (FCEVs) and
fuel cell hybrid electric vehicles (FCHEVs).
Beginning in April 2000, Ovonic Battery, after having received all
necessary government approvals, officially started the first three (valued at
$63.6 million) in a series of NiMH projects in China valued in total at
approximately $100 million. Each of these projects involves the licensing of
advanced NiMH technology and the sale of production equipment. Three joint
ventures have been established in China for the production of metal hydride
materials, negative electrodes and consumer batteries. We and Ovonic Battery
have a 19% interest in each of the joint ventures. These projects, first
announced in August 1999, with Rare Earth High-Tech Co., Ltd. of Baotou Steel
Company, Inner Mongolia, China, provide an important entry for us into the vast
Chinese market.
In April 2000, we, N.V. Bekaert S.A. and its U.S.-based subsidiary
(Bekaert) entered into a strategic alliance in the field of photovoltaic (solar)
products. The ECD-Bekaert joint
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venture provided for Bekaert to invest in a new manufacturing plant with an
annual capacity of 25 megawatts to be designed and built by us, a sales and
marketing expansion program and the purchase of Canon Inc.'s interest in United
Solar for a total investment by Bekaert of $84 million ($12 million of which
will be paid on or before January 1, 2004). (Prior to the ECD-Bekaert alliance,
United Solar, formed in 1990, was owned by us and Canon. The predecessor of
United Solar was Sovonics Solar Systems, established in 1981.)
The new ECD-Bekaert strategic alliance operates through two related
companies, United Solar, which is owned 81% by us and 19% by Bekaert, and the
new assembly, marketing and sales company, Bekaert ECD Solar Systems LLC, which
is owned 60% by Bekaert and 40% by United Solar. The combined operations of
United Solar and Bekaert ECD Solar Systems effectively result in an initial 50%
ownership interest by each of ECD and Bekaert.
United Solar has been producing unique solar shingles and standing seam
roofing products, as well as other photovoltaic products, which have been
described as a major breakthrough by the U.S. Government. United Solar's
products are also easily modified for use in commercial communication satellite
constellations offering a low-cost, lightweight alternative to traditional heavy
crystalline space-grade solar cells which add cost to space launches.
In May 2000, we and Texaco Inc. entered into a Stock Purchase Agreement
pursuant to which Texaco purchased a 20% equity stake in us for approximately
$67 million. We also agreed to establish joint ventures with Texaco for the
commercialization of our advanced energy technologies, initially in the fields
of Ovonic Regenerative Fuel Cells(TM) and the Ovonic Solid Hydrogen
Storage Systems(TM).
On September 21, 2000, we and Texaco Energy Systems, Inc. (TESI) formed a
joint venture, Texaco Ovonic Fuel Cell Company, LLC (Texaco Ovonic Fuel Cell),
to further develop and commercialize the Ovonic Regenerative Fuel Cells(TM).
TESI is a wholly-owned subsidiary of Texaco and is focused on commercialization
efforts in fuel cells and other advanced energy technologies, including the
development of viable fuel-processing technology for fuel cells. We and TESI
each own 50% of Texaco Ovonic Fuel Cell. The initial funding of Texaco Ovonic
Fuel Cell from TESI for initial product and market development is estimated to
exceed $40 million.
Together with Mr. Tyler Lowrey, a recognized authority in semiconductor
memory technology and the former vice chairman and chief technology officer of
Micron Technology, Inc., we formed a joint venture, Ovonyx, Inc., in January
1999, to commercialize our Ovonic Unified Memory (OUM). Based on our
proprietary electrically-initiated phase-change materials, the OUM can have a
wide variety of computer and
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information technology applications and is intended to replace conventional
FLASH, DRAM and SRAM semiconductor memory devices.
In November 1999, Ovonyx entered into a royalty-bearing agreement with
Lockheed Martin Space Electronics & Communications to commercialize the OUM
technology to replace FLASH, DRAM, Field-Programmable Gate Array (FPGA) and
other electronic devices in radiation-hardened space and military applications.
Ovonyx formed a strategic alliance with Intel in February 2000, in which
Intel Capital, as well as other investors, made equity investments in Ovonyx.
Additionally, Ovonyx granted Intel a nonexclusive royalty-bearing license and
began a joint development program utilizing one of Intel's wafer fabrication
facilities. We currently own 41.7% of Ovonyx.
In the field of information technology, we and General Electric Company
(GE), through its GE Plastics business unit, formed a strategic alliance in
March 2000, the first activity of which was the creation of a joint venture,
Ovonic Media, LLC. GE owns 51% of Ovonic Media and we own 49%. We have
contributed intellectual property and licenses and will contribute other assets
to the joint venture. GE will make cash and other contributions to the joint
venture. We received a multi-million dollar contract from Ovonic Media to
design, develop, demonstrate and commercialize our proprietary continuous web
roll-to-roll technology for the ultra-high-speed manufacture of optical media
products, primarily rewritable DVDs.
Our Ovonic phase-change rewritable optical memory technology, currently in
use in CD-RW systems, will be used in the emerging DVD rewritable optical disk
systems. The international standards for rewritable DVD media and systems,
designed by major optical disk manufacturers, specify the use of our phase-
change optical memory technology. Our licensees of phase-change optical memory
storage media include Matsushita Electric Industrial Co., Ltd. (Matsushita/
Panasonic), Ricoh Company Limited, Sony Corporation, Toshiba Corporation, Asahi
Chemical Industry Co., Ltd., Hitachi, Ltd., Plasmon Limited, Toray Industries,
Inc., TDK Corporation, and Teijin, Limited.
Certain technical terms used in this Annual Report are defined in the
section captioned "Glossary of Technical Terms" appearing at the end of this
Item 1.
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MAJOR BUSINESSES
Our business strategy has been to develop and commercialize enabling
technologies for use in the fields of alternative energy and information
technologies. This strategy has produced inventions of unique, proprietary and
cost-effective products and production processes which we then leverage through
strategic commercial alliances with major companies worldwide.
Energy activities, specifically in the areas of energy storage and
photovoltaic systems, represent a major element of our business strategy.
Environmentally-safe methods of generating and storing energy have become
critical in today's world. Our battery, hydrogen storage materials and devices,
and photovoltaic technologies have gained worldwide recognition, particularly in
light of sustained concerns about air pollution, global climate change, ozone
layer depletion, dependence on imported oil and related concerns which may cause
international political and economic instability.
Energy Storage.
Rechargeable Batteries. Using Ovonic materials, our Ovonic Battery
subsidiary has developed the proprietary NiMH battery technology which has
achieved recognition by major battery manufacturers throughout the world. Our
basic patents cover all commercial NiMH batteries. Ovonic Battery currently has
over a dozen consumer battery licensees and has established a dominant patent
position in the field of Ovonic NiMH batteries, with 61 issued United States
patents and 266 foreign counterparts. Additional United States and foreign
patent applications are in various stages of preparation and prosecution.
Ovonic NiMH batteries store over twice as much energy as standard nickel
cadmium (Ni-Cd) or lead acid batteries of equivalent weight. In addition, Ovonic
NiMH batteries have high power, long cycle life, are maintenance free and have
no memory effect. Moreover, Ovonic NiMH batteries do not contain cadmium or
lead, both environmentally-hazardous substances. Ovonic NiMH batteries are made
in a wide range of sizes and have a wide range of applications, including
hand-held consumer electronics; EVs, HEVs, FCEVs and FCHEVs; electric two- and
three-wheeled vehicles; power tools, utility and industrial applications; and
the emerging 36/42 volt starter, lighting and ignition (SLI) applications.
Ovonic NiMH batteries are manufactured and sold throughout the world by
major international companies under licensing and joint venture arrangements.
Ovonic Battery also produces the metal hydride negative electrodes and nickel
hydroxide positive electrode materials for sale to its licensees, including its
GM Ovonic joint venture.
During the fiscal year ended June 30, 2000, Ovonic Battery produced
negative electrodes and positive electrode materials for sale to certain
licensees for assembly into
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complete batteries for consumer, EV, HEV and FCEV applications. It also has
produced batteries for EV and HEV applications engineered and designed for
volume production. The Ovonic NiMH battery, by virtue of its engineered
materials, possesses superior performance characteristics without the
limitations of conventional batteries. We continue to further improve the
performance characteristics of our Ovonic NiMH batteries.
We are currently focusing on four principal battery markets:
o portable electronics and consumer applications;
o EV, HEV, FCEV and FCHEV batteries for propulsion in
vehicles and light trucks;
o electric and hybrid electric buses and trucks;
o two- and three-wheeled electric vehicle propulsion.
These batteries can also serve industrial applications such as portable power
tools, utility applications, industrial uses, energy storage for remote power
generation and battery-operated industrial equipment. We also are exploring the
next generation of 36/42 volt SLI batteries in conventional automotive
applications which will require batteries with high performance at higher
voltages.
Rechargeable Portable Electronics, Power Tools and Consumer Batteries. The
need for high energy density rechargeable batteries has continued to grow in
recent years. Increasing consumer dependence on portable electronic products
(such as cellular telephones, portable computers and cordless tools) has created
a large market for rechargeable batteries and has fueled development of higher
energy density battery systems. Although conventional storage batteries, such as
Ni-Cd, have been further improved in design and packaging in recent years, the
demand for higher performance batteries continues to increase. At present,
conventional Ni-Cd batteries have an energy density of 30-35
watt-hours/kilogram. Ovonic NiMH batteries are capable of having an energy
density of over 90 watt-hours/kilogram. Technology improvements have led to a
demonstration of energy density in excess of 100 watt-hours/kilogram in
prototype batteries with even higher energy densities in the process of
development.
Ovonic NiMH batteries offer a convenient "drop in" replacement for Ni-Cd
batteries in portable electronic and household appliances. Consumer and
governmental awareness that cadmium contained in Ni-Cd batteries can cause
serious health problems has begun to move the industry away from Ni-Cd
batteries, with many European governments seeking to ban their use. The desire
of the battery industry to be cadmium-free is also a major factor in the growing
interest in Ovonic NiMH batteries.
Ovonic Battery has licensing arrangements with many of the world's largest
battery manufacturing companies. Its proprietary battery technology has been
licensed for consumer battery applications to Toshiba Battery Co., Ltd. and
Sanyo (leading Japanese
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companies); GP Batteries International Limited (GP Batteries) (formerly Sylva
Industries, Ltd.) in Hong Kong, one of the world's largest manufacturers of
9-volt batteries and button cells; Varta Batterie AG; Sovlux Battery Co. Ltd.,
our joint venture in Russia; Harding Energy Inc.; Moltech Power Systems, Inc.
(formerly Eveready Battery Company, Inc.); Walsin Technology Corporation and
Nan Ya Plastics Corporation (an affiliate of Formosa Plastics Group and the
assignee of Asia Pacific Investment Co.), both leading Taiwanese companies;
Samsung Electronics Co., Ltd. and LG Chemical, Ltd., leading Korean companies;
Canon, Hitachi Maxell, Ltd., Furukawa Battery Co., Ltd. and Matsushita Battery
Industrial Co., Ltd. (MBI), all leading Japanese companies. In addition, the
Ovonic battery technology is being used in consumer battery applications by
another consumer battery manufacturer based in Japan. Saft, S.A., Saft America,
Inc., GS-Saft Ltd. (Saft Group) and Japan Storage Battery Co., Ltd. are also
licensed under a royalty-bearing license agreement to Ovonic Battery's
proprietary battery technology in the United States.
In addition to our three joint ventures in China with Rare Earth High-Tech
Co., Ltd., which are licensed for consumer battery applications, we have entered
into royalty-bearing consumer battery license agreements with two other Chinese
companies - BYD Battery Co., Ltd. and SANIK Battery Co. Ltd.
Electric, Hybrid and Fuel Cell Electric, and Fuel Cell Hybrid Electric
Vehicle Batteries. The strategic importance of EVs, HEVs, FCEVs and FCHEVs both
in the United States and worldwide has increased greatly in recent years. This
heightened interest is due to many concerns such as air pollution, global
climate change, ozone layer depletion, dependence on imported oil and the high
cost of fuel.
The California Air Resources Board, on September 8, 2000, voted to
maintain a previously-adopted mandate that, by 2003, 10% of all cars and light
trucks sold or leased in California by automobile manufacturers emit no
pollution. The mandate would require approximately 22,000 EVs per year, or
additional vehicles that emit only small amounts of pollution, such as HEVs or
FCHEVs.
Most of the world's major automobile manufacturers have active programs
underway to develop and commercially market EVs, HEVs, FCEVs and FCHEVs. Since
Ovonic NiMH battery technology provides two to two-and-a-half times the driving
range as the same mass of lead acid batteries, the NiMH battery has become the
battery of choice for several major automobile manufacturers as they prepare to
commercialize and market EVs, HEVs, FCEVs and FCHEVs.
In May 1999, the U.S. Department of Energy (DOE) released the results of
baseline performance testing of the General Motors EV1 and the Chevrolet S-10
electric pickup truck powered by Ovonic NiMH batteries manufactured by GM
Ovonic. According to the DOE results, the EV1 with Ovonic NiMH batteries is the
first vehicle to have a range of 220.7 miles at a constant speed of 45
miles-per-hour (mph) and 160.6 miles at a constant
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speed of 60 mph. In addition, the S-10 electric pickup truck with Ovonic NiMH
batteries traveled 130.6 miles at a constant speed of 45 mph and 87.7 miles at a
constant speed of 60 mph, twice as far as the S-10 powered by the lead acid
battery previously tested. The baseline performance testing was conducted by the
DOE's Field Operations Program at the Idaho National Engineering and
Environmental Laboratory.
At the 2000 Tour de Sol Road Rally, the Ovonic NiMH batteries powered a
General Motors production EV1 to a range of 224 miles. This was the seventh
consecutive year that Ovonic batteries have powered electric vehicles beyond the
200-mile threshold.
To illustrate the lower cost operation of battery-powered electric
vehicles, a four-door Chevrolet Geo Metro with a gasoline engine was matched
against a Solectria Force (the electric version of the Geo Metro) to measure the
operating efficiencies of the two vehicles over a 23.5-mile route through
mid-town Manhattan (New York City) at the 1998 Tour de Sol. Based upon a central
power plant efficiency rate of 51%, a power transmission efficiency rate of 92%,
a battery charger efficiency rate of 90% and a battery energy efficiency rate of
90%, the electric car's use of 2.87 kWh of electricity was the equivalent of
0.27 gallons of gasoline. The gasoline-fueled car used 2.28 gallons of gasoline.
The gasoline Geo Metro achieved 10.3 miles per gallon, while the Solectria Force
returned an 87 miles-per-gallon equivalent. At $1.50 per gallon, it cost $3.42
for the Geo Metro's gasoline and the equivalent of $.41 to power the Solectria.
GM Ovonic. In June 1994, Ovonic Battery and General Motors formed a joint
venture, GM Ovonic, to manufacture and sell Ovonic Battery's proprietary NiMH
batteries for four-wheeled electric propulsion applications to vehicle
manufacturers on a worldwide basis. GM Ovonic is owned 40% by Ovonic Battery and
60% by General Motors. Ovonic Battery has contributed intellectual property,
licenses, production processes, know-how, personnel and engineering services
pertaining to Ovonic NiMH battery technology to the joint venture. General
Motors' contribution consists of operating capital, plant, equipment and
management personnel necessary for the production of batteries.
Innovative Transportation Systems A.G. In May 1999, we participated in the
founding of Unique Mobility Europa, GmbH (Unique Europa) to manufacture and sell
EVs, HEVs and FCHEVs for world markets. The business and assets of Unique Europa
has been reorganized into a new company, Innovative Transportation Systems A.G.
(Innovative Transportation), based in Germany. We own an approximately
11.7% interest in Innovative Transportation which is in the process of
building a running prototype of its product, the InnoVan, a new, purpose-built
minivan using a composite body structure and an advanced battery-powered
electric drivetrain. The InnoVan can be configured as either a 2-passenger cargo
van or a 6-passenger commuter van and is designed to serve urban transportation
requirements where urban pollution concerns have restricted the use of
conventional vehicles.
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Other Vehicle Propulsion Battery Business Arrangements. In addition to its
GM Ovonic joint venture, Ovonic Battery has entered into royalty-bearing license
agreements for the manufacture of vehicle propulsion batteries and related
products outside of the United States with Sanyo, Toshiba, Hyundai Motor
Company, Varta, Nan Ya, GP Batteries and Sovlux Battery. Sanyo, Toshiba,
Hyundai, GP Batteries and Sovlux Battery have restricted rights to export
vehicle propulsion batteries to North America. Varta's license includes the
right to manufacture vehicle propulsion batteries subject to certain limitations
on access to technology and restrictions on manufacturing in North America. Saft
Group is licensed under a royalty-bearing license agreement for the manufacture
and sale of vehicle propulsion batteries in the United States.
Ovonic Battery is responding to significant interest by bus manufacturers
seeking to comply with government initiatives for providing pollution-free mass
transportation in urban areas. Ovonic Battery has a bus demonstration program in
the City of Rome, Italy, pursuant to which an Ovonic NiMH battery pack replaced
an existing lead acid battery, providing three times the range on a single
charge. This permits continuous operation over an entire shift, eliminating
expensive downtime and labor costs.
Ovonic Battery has developed a "Family of Batteries" that can satisfy the
energy storage needs of the full spectrum of EVs, HEVs, FCEVs and FCHEVs,
including bicycles, two- and three-wheeled scooters, cars, trucks and vans. This
internally-sponsored development was based on the demonstrated ability of NiMH
batteries to be engineered for different energy and power densities in a wide
range of capacities. The automotive industry has expressed considerable interest
in batteries for the emerging HEV market and Ovonic Battery is positioning
itself to offer the industry a high power, durable, high charge/discharge rate
NiMH battery. Ovonic Battery has demonstrated the power capabilities of its
prototype HEV battery at 1000 watts per kilogram. Ovonic NiMH batteries for HEVs
are being reviewed with a variety of potential customers. This "Family of
Batteries" program is intended to provide next- and future-generation NiMH
batteries. Both EV and HEV types of NiMH batteries are included in the program
with the objective of increasing the energy density of future batteries as well
as reducing their size and cost.
Ovonic Battery's HEV battery, developed under its "Family of Batteries"
program, meets specifications set by the Partnership for Next Generation of
Vehicles, a program among DaimlerChrysler Corporation, Ford Motor Company,
General Motors and the U.S. Department of Commerce. As presently designed for
production, Ovonic NiMH batteries tested for HEVs have the following performance
characteristics:
Specific Energy: 70 watt-hours/kg.
Peak Power: 625 watts/kg.
Regenerative Power: 600 watts/kg.
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Two- and Three-Wheeled Vehicles. Ovonic Battery has installed Ovonic NiMH
batteries in scooters converted to electric power and successfully demonstrated
the application of its battery for two- and three-wheeled electric vehicles.
Ovonic Battery considers two- and three-wheeled electric vehicles and
power-assisted bicycles a potential large-volume market since these types of
vehicles are the primary mode of transportation in many European and developing
countries throughout the world, such as India, China and Taiwan. Electric two-
and three-wheeled vehicles using Ovonic NiMH batteries should improve the acute
air pollution problems in these regions caused by conventional two- and
three-wheeled vehicles. Scooters powered by Ovonic NiMH batteries have won many
awards. Most recently, at the 2000 Tour de Sol, the Ovonic scooter was the
overall first place winner among the one-person vehicle entries, achieving a
range of 73 miles with an efficiency equivalent to more than 300 miles per
gallon of gasoline.
We have entered into royalty-bearing license agreements for the
manufacture and sale of Ovonic NiMH batteries for two- and three-wheeled
vehicles with Sanyo, Walsin, Sanoh and Nan Ya.
Sanoh, a licensee in Japan, has expanded its production of NiMH batteries
for two-wheeled electric vehicle applications at its plant in Koga, Japan.
Among Sanoh's customers are large manufacturers of electric scooters and
bicycles such as Honda who has announced plans to introduce new products.
In February 1998, we and EV Global Motors announced a strategic alliance
to cooperate in further development and commercialization of light-power-assist
EVs using EV Global vehicles and our energy storage technologies. In forming
this strategic alliance, we and EV Global exchanged shares of each other's
Common Stock. EV Global also transferred to us certain shares of the Common
Stock of Unique Mobility, Inc. held by EV Global, which in May 1999 were
exchanged for shares of Unique Europa (now Innovative Transportation).
Sovlux Battery. In March 1998, we announced the formation of Sovlux
Battery, an affiliate of Sovlux, our U.S.-Russian joint venture. Sovlux Battery,
owned 50% by us and 50% by the Chepetsky Mechanical Plant in Glazov, Russia,
plans to produce NiMH battery materials and components for sale to Ovonic
Battery and its licensees. In the longer term, Sovlux Battery expects to
manufacture batteries for the emerging two- and three-wheeled electric vehicle
market in Europe and Asia and for four-wheeled electric vehicles in Russia.
The availability of abundant Russian raw materials for the battery,
Chepetsky's alloy processing and production expertise, and joint collaboration
on battery research and development could provide the potential for substantial
reductions in the cost of Ovonic Battery's proprietary NiMH batteries.
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Other Battery Applications. Several licensees of Ovonic NiMH battery
technology, such as Sovlux, Canon and GM Ovonic, have been granted rights to
manufacture and sell large batteries for energy storage applications for
electricity generated by photovoltaics, remote power generation, utility
applications and battery-operated industrial equipment. There are numerous other
applications for Ovonic NiMH batteries where portable energy storage is required
or convenient.
Solid Hydrogen Storage Materials and Devices. Hydrogen energy technology
has been a part of our scientific work and business strategy since our founding
in 1960.
No other potential fuel source approaches the ideal fuel other than
hydrogen. It is clean and efficient and it yields more energy per unit of weight
than any other existing fuel. Hydrogen's only waste product is water vapor.
Because hydrogen is a major component of water and of hydrocarbons, it is in
abundant supply.
The principal stumbling blocks to the use of hydrogen as a fuel have been
the costly and inefficient energy extraction process and the inability to store
hydrogen safely and efficiently. Conventional methods of storing hydrogen have
been high-pressure compressed gas and liquification at extremely low
temperatures. Using these methods of storage allow just 31 grams of hydrogen per
liter to be stored at a high pressure of 5,000 psi and 71 grams per liter in
liquid form at the extremely low temperature of -253(0)C. Hydrogen liquification
requires a tremendous amount of energy (approximately 10 kWh of electric energy
to liquify 1 kilogram of hydrogen), expensive cryogenic storage tanks, and
liquid hydrogen evaporates at a rate of 2-5% per day.
We have developed a new, practical approach to store hydrogen in a safe
and economical manner using a family of new efficient metal hydrides based upon
our proprietary, atomically-engineered materials technology which stores
hydrogen in a solid metal matrix at low pressure. Compared to high pressure
compressed gas or liquification, our Ovonic Solid Hydrogen Storage Systems(TM)
are capable of storing 103 grams of hydrogen per liter. Our advanced hydride
materials have been shown to store up to 7% hydrogen by weight, or the
equivalent of 780 standard liters of hydrogen per kilogram of hydride materials.
We have a basic patent position in the metal hydride field with 74 U.S. and 214
foreign patents applicable to hydrogen energy storage.
Our Ovonic Solid Hydrogen Storage Systems(TM) can be packaged in a variety
of sizes and shapes to meet application requirements - from automobiles to
consumer electronic devices. For example, we are currently designing compact
hydrogen storage canisters that can store hydrogen to operate lawnmowers, garden
equipment, power generators or even barbecue grilles.
Our metal hydride systems have proven to be safe in tests conducted in
cooperation with automobile manufacturers. This is a critically important
attribute that carries over to
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metal hydrides engineered for hydrogen storage. Our tests also indicate that
metal hydride systems will provide more than 2,000 refilling cycles (equivalent
to more than 200,000 miles in an automobile) with no performance degradation.
Among other applications, our advancements in metal hydrides facilitate
storing sufficient hydrogen to power an FCEV for several hundred miles. To
provide 300 miles of range in an advanced FCEV, six kilograms of hydrogen
storage capacity are required. Such capacity is expected to occupy 120 liters of
space and weighs 120 kilograms, including the refueling heat exchanger, high
efficiency insulation, and a hydrogen fueled catalytic burner to generate the
heat necessary to release the stored hydrogen.
We are completing a development program, under a cost-sharing contract
awarded by the U.S. Department of Commerce through its National Institute of
Standards and Technology (NIST) Advanced Technology Program (ATP), relating to
metal hydride materials for use in NiMH batteries and our Ovonic Solid Hydrogen
Storage Systems(TM).
Under a DOE-sponsored program, we are developing an integrated renewable
hydrogen-generation storage system. This system uses water electrolysis to
convert the electricity produced by our multi-junction photovoltaic products to
hydrogen and stores the produced hydrogen in metal hydride hydrogen storage
devices. The system is being designed for residential or small-scale commercial
production of hydrogen which can be used to replace conventional fuels as
sources of energy conversion.
Energy Generation.
Ovonic Regenerative Fuel Cells(TM). On September 21, 2000, we and Texaco
Energy Systems, Inc. (TESI) formed a joint venture, Texaco Ovonic Fuel Cell
Company, LLC (Texaco Ovonic Fuel Cell) to further develop and advance the
commercialization of the Ovonic Regenerative Fuel Cells(TM). TESI is a
wholly-owned subsidiary of Texaco and is focused on commercialization efforts in
fuel cells and other advanced energy technologies, including the development of
viable fuel-processing technology for fuel cells. We and TESI each own 50% of
Texaco Ovonic Fuel Cell. The initial funding of Texaco Ovonic Fuel Cell from
TESI for initial product and market development is estimated to exceed $40
million.
The Ovonic Regenerative Fuel Cells(TM) are electrochemical devices that
include two electrodes, an anode and a cathode. Between the two electrodes is a
solid or liquid electrolyte that allows ions to pass through, but prevents
electrons from passing through. Hydrogen, which enters the cathode, and oxygen,
which enters the anode, are converted into water (a byproduct) and electrical
energy.
Our unique, low-cost, proprietary materials technology does not rely on
expensive and rare noble metals such as platinum, and can provide significantly
superior performance
-13-
and lower costs as compared to other technologies, such as proton exchange
membrane (PEM) fuel cells.
The Ovonic Regenerative Fuel Cells(TM) are being developed for commercial
use in a full range of stationary and portable power applications, which can
eliminate dependence on electricity supplied through grid distribution or
portable fossil-fuel-powered generators. Our fuel cell also has the potential to
deliver high efficiency levels, a wide operating temperature range, and instant
start capability. Its ability to store energy during braking makes it ideal for
vehicle applications.
Photovoltaic Technology. Photovoltaic (PV) systems provide a clean and
simple solid-state method for direct conversion of sunlight into electrical
energy. The major barrier to the widespread use of direct solar-to-electrical
energy conversion has been the lack of an inexpensive solar cell technology. We
originated the continuous web, multilayer, large-area thin-film amorphous
silicon (a-Si) technology, and, together with our joint venture, United Solar,
are leaders in thin-film amorphous photovoltaic technology. We have invented a
unique proprietary approach in materials and to the manufacture of thin-film
photovoltaic products. Compared to PV products that are produced by other PV
technologies, our PV products are substantially lighter, more rugged, require
much less energy to produce and can be produced in high volume at significantly
lower cost. In large volume (100 megawatts) production, our PV products can
become price competitive to conventional fuels. Our proprietary position in
photovoltaic technology ranges from the invention of materials and the
development of products to the design and manufacture of production equipment.
We and United Solar have more than 173 U.S. patents and numerous foreign
counterpart patents in the area of photovoltaic technology.
Crystalline silicon was the original materials technology used by the
photovoltaic industry. First widely used in space satellites, conventional
crystalline silicon solar cells are fabricated in a step-and-repeat, batch
process from small wafers of single crystal or polycrystalline silicon
semiconductor materials. Notwithstanding the substantial advances that have been
made in the development of this technology, the cost of crystalline photovoltaic
modules still is high because of high materials costs and because many
processing steps are needed to manufacture the modules. Crystalline silicon
solar cell modules also are bulky and break easily and consume more energy in
their manufacture.
Using our proprietary thin-film, vapor-deposited a-Si alloy materials,
we have developed proprietary technology to reduce the materials cost in a solar
cell. Because a-Si absorbs light more efficiently than its crystalline
counterpart, the a-Si solar cell thickness can be 100 times less, thereby
significantly reducing materials cost. By utilizing a flexible, stainless steel
substrate and polymer-based encapsulants, United Solar's PV products can be very
lightweight, flexible, abuse-tolerant. They do not break during shipping, are
particularly easy to transport to remote rural areas, thus saving shipping
costs, and install without breakage.
-14-
Amorphous cells with different light absorption properties also can be
deposited one on top of another to capture the broad solar spectrum more
effectively, which increases the energy conversion efficiency of the multi-cell
device and improves performance stability. This unique multi-junction approach
has resulted in world record efficiencies for our a-Si technology. United Solar
has been awarded an "R&D 100" award by R&D Magazine for its triple-junction
amorphous silicon solar electric module. The magazine's editors and staff,
together with outside experts, reviewed thousands of new inventions to determine
the 100 most significant advances of 1998.
We have advanced our pioneering work in amorphous silicon alloy
photovoltaics through United Solar and hold current world records for both
large- and small-area conversion efficiency for amorphous silicon solar cells,
as measured by the DOE's National Renewable Energy Laboratory (NREL). Conversion
efficiency is the percentage of sunlight that is converted into electricity.
United Solar has achieved a world record of 10.2% stabilized energy conversion
efficiency for large area (one-square foot) amorphous silicon alloy photovoltaic
modules, which the DOE characterizes as a major breakthrough. United Solar holds
the world records for amorphous silicon alloy photovoltaic cells, including
solar-to-electricity stabilized efficiency of 13% for small-area amorphous
silicon alloy photovoltaic cells.
To further reduce the manufacturing cost of photovoltaic modules, we have
pioneered the development of and have the fundamental patents on a unique
approach utilizing proprietary continuous roll-to-roll solar cell deposition
process. Using a roll of flexible stainless steel that is a half-mile long and
14 inches wide, nine thin-film layers of a-Si alloy are deposited sequentially
in a high yield, automated machine to make a continuous, stacked three-cell
structure. The roll of solar cell material then is processed further for use in
a variety of photovoltaic products. This basic approach, pioneered by us, is
unique in the industry and has significant manufacturing cost advantages. We
believe that, in high-volume production, our photovoltaic modules will be
significantly less expensive than conventional crystalline silicon and other
thin-film solar modules produced on glass and can be cost competitive with
fossil fuels.
We have formed joint ventures to manufacture photovoltaic modules and
systems and to sell them throughout the world.
In April 2000, we and Bekaert entered into a strategic alliance in the
field of photovoltaic (solar) products. The joint ventures provide for Bekaert
to invest in new manufacturing equipment with an annual capacity of 25 megawatts
to be built by us, a sales and marketing expansion program and the purchase of
Canon's interest in United Solar for a total investment by Bekaert of $84
million ($12 million of which will be paid on or before January 1, 2004). (Prior
to the ECD-Bekaert alliance, United Solar was owned by us and Canon.)
-15-
We and Bekaert each have a 50% interest in the joint venture which
operates through two related companies - United Solar and Bekaert ECD Solar
Systems LLC - which will assemble photovoltaic modules, provide systems
integration, and marketing and sales.
Bekaert is a worldwide leading manufacturer of steel wire, steel wire
products and steel cord, and a fast-growing manufacturer of advanced materials.
Bekaert's market and technological leadership is based on metal-forming and a
wide range of coating technologies. It is based in Kortrijk, Belgium, with over
70 production centers worldwide and a workforce of 17,000 employees.
United Solar and Bekaert ECD Solar Systems are producing a variety of PV
products and selling PV modules and systems throughout the world. They
manufacture products for remote power applications, telecommunications,
PV-powered lighting systems, building-integrated photovoltaic systems and marine
applications at the Troy, Michigan facilities.
United Solar and Bekaert ECD Solar Systems recently announced that they
had selected Auburn Hills, Michigan, for their new manufacturing plant.
Approximately $63 million is expected to be invested in this new,
state-of-the-art solar facility which will expand manufacturing capacity
five-fold with the 25 megawatt annual capacity photovoltaic manufacturing
equipment being designed and built by our Production Technology and Machine
Building Division.
Based on research and development conducted by us in the early 1980s, we
and United Solar have developed, and United Solar and Bekaert ECD Solar Systems
are manufacturing and selling, unique products for the building industry such as
PV shingles metal roofing products and PV laminate products which emulate
conventional roofing materials in form, construction, function and installation.
United Solar received the Popular Science 1996 "Best of What's New" Grand Award,
and it received the Discover Magazine 1997 "Technology Innovation Award" for its
flexible solar shingles.
United Solar is also building on ECD's development of ultralight weight PV
technology and developing PV products for space applications. The global
telecommunications revolution is expected to result in the launch of large
constellations of low earth orbit satellites and high altitude platforms in the
next decade which will require lower cost, lighter weight PV modules than those
currently used in space. United Solar's PV cells, initially developed by ECD,
are radiation hard, perform very well at the high temperatures encountered in
space and can be significantly lighter than conventional technologies as well as
less expensive.
In December 1998, United Solar's ultralight space solar modules were
successfully installed on the MIR Space Station. The cells have gone through
thousands of thermal
-16-
cycles under space conditions successfully, and have demonstrated reliable space
performance without any degradation. United Solar's installation on the MIR
marks the first time advanced thin-film amorphous solar modules have been
installed on an orbiting spacecraft.
In April 2000, upon the successful completion of a Phase I contract, we
were awarded a two-year cost-sharing contract by the U.S. Air Force to further
advance our proprietary PV space technology. Under this contract, we and United
Solar will develop laser-integrated ultralight, thin-film amorphous
silicon-based solar panels on Kapton(R), a lightweight, 1 to 2 mil thick plastic
substrate, for auxiliary spacecraft power systems. The technology being
developed is capable of providing 2500 watts per kilogram which is dramatically
higher than 30-50 watts per kilogram currently available, with savings of
approximately $500,000 per satellite launch.
In 1990, we formed Sovlux Co., Ltd., a joint venture with State Research
and Production Enterprise Kvant (Kvant) to manufacture our photovoltaic products
in the countries of the former Soviet Union. We own 50% of Sovlux. In 1990,
Kvant entered into machine-building contracts with us for the construction of
2MW-capacity pilot photovoltaic manufacturing equipment. The equipment has been
installed in Sovlux's plant in Moscow. Kvant contributed this equipment to the
joint venture in exchange for its ownership interest in Sovlux. Sovlux has
received various U.S. Government contracts in 1998 and 1999 in connection with
certain of its operations.
Sovlux has conducted pre-production activities consisting of manufacturing
plant preparation and machinery optimization. It has manufactured commercially-
successful PV products; however, it has not been able to commence volume
production of photovoltaic products due to current economic conditions in
Russia.
For more than 13 years, ECD has been engaged in research contracts awarded
by the DOE and NREL aimed at further development of high-efficiency amorphous
silicon-based alloy thin-film solar cells, improvement of photovoltaic
manufacturing technologies, and the development and demonstration of
photovoltaic systems to be used in rooftop construction in lieu of conventional
shingles and other roofing materials.
In June 1998, we were awarded a three-year cost-sharing program by DOE and
NREL to further advance our proprietary roll-to-roll PV manufacturing
technology. This program is part of the DOE's ongoing initiatives to enhance
U.S. leadership in the world PV market through improved PV manufacturing
processes and reduced manufacturing costs.
-17-
Information Technologies.
We have developed a number of key proprietary products and processes in
the field of information technology.
Ovonic Unified Memory. On the basis of our pioneering technology, we
developed the first nonvolatile semiconductor memory, the Ovonic Electrically
Erasable Programmable Read Only Memory, for computer data storage in the 1960s.
We have advanced and extended that early work and have developed a proprietary
family of high-performance nonvolatile semiconductor memory and information
processing devices, called Ovonic Unified Memory (OUM), which we expect to
commercialize through a joint venture company, Ovonyx, Inc., formed in 1999 with
Mr. Tyler Lowrey, a recognized authority in semiconductor memory technology.
OUM is designed to provide nonvolatile computer data storage with the
speed of current volatile DRAM semiconductor system memory as well as to
decrease the cost of production. OUM also offers an opportunity to develop new,
fast computer architectures so as to eliminate the use of multiple tiers of
memory as well as data transfer bottlenecks caused by the current computer
memory hierarchy. By removing the distinction between archival storage and
system memory, data can be stored in a nonvolatile fashion and "executed in
place," resulting in improved computer performance and lower costs of data
transfer than those associated with the currently used memory hierarchy. We
believe that OUM can, in a single device, replace the multiple memory types of
devices which are used in today's personal computers.
Another application of OUM is intended for use in the rapidly growing
FLASH memory market. FLASH memory is used in portable electronic devices such as
laptop computers, pagers, and cellular telephones as all-solid-state, low-power
replacements for magnetic hard disk storage. Another important application of
Ovonic memory and the Ovonic Threshold Switch can provide a basis for practical,
highly complex, three-dimensional neural network systems for use in advanced
artificial intelligence and speech- and image-pattern recognition. Because OUM
memory can provide the capability to store more than one bit of information per
memory cell, it can allow the fabrication of semiconductor memory with high
storage density. An application under development is the use of OUM in
electronic cash and smart card systems that require information to be stored in
an encrypted, secure and tamperproof manner.
In February 2000, Intel Capital purchased an equity interest in Ovonyx. In
addition to granting Intel a nonexclusive, royalty-bearing license, Ovonyx and
Intel are jointly developing the OUM technology at one of Intel's wafer
fabrication facilities.
In November 1999, Ovonyx and Lockheed Martin Space Electronics &
Communications entered into a royalty-bearing agreement to commercialize the OUM
-18-
technology to replace FLASH, DRAM, FPGA and other electronic devices in
radiation-hardened space and military applications.
Optical Memory. We are the inventor and originator of phase-change
rewritable optical memory disk technology. Our Ovonic phase-change rewritable
optical memory technology makes it possible to store, in a convenient, removable
disk format, many times the amount of data as a conventional floppy magnetic
disks, and is a much more robust product having much lower cost than removable
rigid magnetic disks. Our proprietary phase-change rewritable optical memory
uses a laser to write or erase digital data on a thin film of amorphous
semiconductor alloy that has been deposited onto a substrate disk. The disk and
data-reading process are similar to an ordinary CD or CD-ROM, with the
significant difference being that the phase-change rewritable optical memory can
be erased and rewritten many times (1,000 in the case of CD-RW and 500,000 in
the case of DVD-RAM).
We have licensed our phase-change rewritable optical memory technology to
13 companies and expect to license others who are developing phase-change
optical memory products. Among our licensees are Matsushita/Panasonic, Ricoh,
Sony, Toshiba, Asahi, Hitachi, Plasmon, Toray, TDK and Teijin. The license
agreements provide for royalty payments to us based upon sales of phase-change
rewritable optical memory disks.
A "convergence" of the information processing, communications and
entertainment industries is taking place as a result of advances in digital
electronics. A new and emerging "convergence" product offering higher-capacity
data storage is the DVD. Playback-only DVD disks and drives (DVD-ROM) are
commercially available now. Our high-capacity phase-change optical memory
technology is well established as the technology of choice for rewritable DVD
media.
Our optical memory licensees now producing phase-change optical media, as
well as other storage media manufacturers, are expected to become manufacturers
of rewritable DVD products. Due to their high data storage capacity, the leading
manufacturers in the optical disk industry are targeting a wide range of
computer and information technology applications for DVD-rewritable disks,
including digital television recording.
Following the successful development of technology under a NIST ATP
project, we and GE, through its GE Plastics business unit, formed a strategic
alliance in March 2000, the first activity of which was the creation of a joint
venture, Ovonic Media, LLC. GE owns 51% of Ovonic Media and we own 49%. We have
contributed intellectual property and licenses and will contribute other assets
to the joint venture. GE will make cash and other contributions to the joint
venture. We received a multi-million dollar contract from Ovonic Media to
design, develop, demonstrate and commercialize our proprietary continuous web
-19-
roll-to-roll technology for the ultra-high-speed manufacture of optical media
products, primarily rewritable DVDs.
We are completing a development program under another NIST ATP project
relating to our optical memory technologies. This program involves the goal of
increasing the storage capacity of DVD-compatible optical storage technologies
by a factor of 10 and significantly increasing the data transfer rate, making it
possible to store two hours or more of high-definition television content, or
thousands of professional-quality high-resolution still photos, on a single
disk.
Thin-Film Synthetic Materials.
ECD has developed a range of vapor-deposited thin-film materials and
cost-effective roll-to-roll production technologies, including a high-rate
microwave plasma-enhanced chemical vapor deposition (MPCVD) process. The major
commercial application for this technology are high-performance optical
coatings.
Optical Films. Another important application for transparent thin-film
coatings which are deposited using our cost-effective roll-to-roll production
technologies is in thin-film optical coatings which selectively absorb, reflect
or transmit certain types of electromagnetic radiation. These coatings have a
wide range of commercial applications -- from anti-glare screens for computer
and television displays to solar-controlled windows for architectural and
automotive applications. In February 1999, we received a contract from Southwall
Technologies, Inc. to build proprietary large-area MPCVD equipment. In July
2000, our Production Technology and Machine Building Division delivered the
large area roll-to-roll MPCVD machine to Southwall. This is the first commercial
machine utilizing our passive coatings technology, and is expected to provide a
platform for commercialization of our passive coatings technology and related
equipment.
Vapor Barrier Films. Our MPCVD process also has been applied in the
development of a novel, low-cost, transparent vapor barrier coating for plastic
beverage containers and flexible packaging films. An extremely thin coating
(less than 1 millionth of an inch, or 1/50th of the wavelength of visible light)
of our MPCVD amorphous silicon oxide (quartz glass) improved the oxygen and
water vapor barrier of commodity and rigid packaging films by about a factor of
100. By blocking oxygen and water vapor transmission, the shelf life of food
beverages, pharmaceuticals and other types of sensitive products is extended.
-20-
PRODUCTION TECHNOLOGY AND MACHINE BUILDING DIVISION
AND CENTRAL ANALYTICAL LABORATORY
Our Production Technology and Machine Building Division operates as a
profit center for our machine-building and engineering activities. It has
extensive experience in designing and building proprietary automated production
equipment. The Production Technology and Machine Building Division has designed
and built for us and our licensees multiple generations of photovoltaic
production lines, including United Solar's existing machinery and equipment for
solar cells capable of producing 5 megawatts of electricity on an annual basis,
as well as research, development and manufacturing equipment for batteries,
vapor barrier coating and other materials technology. We are completing the
design and engineering work in connection with the construction of United
Solar's 25 megawatt annual capacity equipment.
Our Central Analytical Laboratory conducts analysis of materials produced
by us and our joint venture partners and licensees as well as materials produced
by other companies. We also maintain an advanced materials technology group that
supports the efforts of each of our business areas, including the manufacture of
high quality sputtering targets and advanced powdered metals.
RESEARCH AND PRODUCT DEVELOPMENT
The nature of our business has required, and will continue to require,
expenditures for research and product development to support our commercial
activities. The United States government agencies and our licensees and
industrial partners have partially funded our research and product development
activities. The materials, production technologies and products being developed
and produced by us and our joint venture partners are technologically
sophisticated and are designed for markets characterized by rapid technological
change and competition based, in large part, upon technological and product
performance advantages.
The following is a summary of our consolidated direct expenditures,
excluding the allocation of patents, depreciation and general and administrative
expenses, for product research and development for the five years ended June 30,
2000. All of our research and development costs are expensed as incurred.
-21-
Direct Research and Development Expenditures
Year Ended June 30,
------------------------------------
2000 1999 1998
---- ---- ----
Sponsored by licensees, $ 8,333,348 $14,403,073 $12,464,256
government agencies
and industrial partners
Sponsored by us 11,863,416 8,381,514 8,782,943
----------- ------------ -----------
$20,196,764 $22,784,587 $21,247,199
=========== =========== ===========
SOURCES AND AVAILABILITY OF RAW MATERIALS
Materials, parts, supplies and services used in our business are generally
available from a variety of sources. However, interruptions in production or
delivery of these goods and services could have an adverse impact on our
manufacturing operations.
PATENTS AND PROPRIETARY RIGHTS
Since our founding in 1960, we have focused our research and development
efforts on amorphous, disordered and related materials, a previously
unrecognized field of materials science that has since attracted widespread
attention. We have established a multi-disciplinary business, scientific and
technical organization ranging from research and development to manufacturing
and selling products as well as designing and building production machinery,
activities which we recognize need to be carefully protected. Our extensive
patent portfolio consists of 363 United States patents and 840 foreign
counterparts, and includes numerous basic and fundamental patents applicable to
each of our lines of business. We invent not only materials, but also develop
low-cost production technologies and high-performance products. Our patents,
therefore, cover not only materials, but also the production technology and
products we develop.
We believe that worldwide patent protection is important for us to compete
effectively in the marketplace. Certain of our patents have been the subject of
legal actions, all of which have been resolved in our favor prior to trial.
CONCENTRATION OF REVENUES
See Note B of the Notes to Consolidated Financial Statements on page 62
of this Report.
-22-
BACKLOG
Our backlog of orders as of August 31, 2000 for battery packs, electrodes
and machine-building contracts is $66,121,000. The backlog at August 31, 1999
was $2,871,000 for battery packs, electrodes and machine-building contracts. We
expect to recognize $24,715,000 of backlog in 2001.
COMPETITION
Our principal competitive advantages are our ownership of fundamental
patents and enabling technology and know-how which cover products and production
technology in the important fields of energy and information as well as our
research and development activities. We have a unique and successful
organization that has entered into joint venture or licensing agreements with
established industrial companies that we believe possess the financial resources
and manufacturing and marketing capabilities to commercialize products based on
our technologies in the areas of consumer rechargeable batteries, EV, HEV, FCEV
and FCHEV batteries, scooter batteries, industrial storage batteries,
photovoltaic and information technologies.
We compete with firms, both domestic and foreign, that manufacture and
sell products, as well as firms that perform research and development. Some of
these firms are among the largest industrial companies in the world and have
well-established product lines, extensive resources and large research and
development staff and facilities.
We are currently engaged in manufacturing and selling our proprietary
products through joint ventures and licensing arrangements, as well as through
our own divisions and internal production operations. Our ability to maintain
our competitive leadership in the future will depend not only on continuing
product and technological advances, but also on the strength and ability of our
licensees and joint venture partners.
EMPLOYEES
As of September 22, 2000, we had a total of 399 employees, of which 160
are Ovonic Battery employees and 72 are United Solar employees. The above
numbers do not include employees of our joint ventures or licensees. We consider
our relations with our employees to be excellent.
-23-
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K contains forward-looking statements about
our financial condition, results of operations, plans, objectives, future
performance and business. In addition, from time to time we and our
representatives have made or may make forward-looking statements orally or in
writing. The words "may," "will," "believes," "expects," "intends,"
"anticipates," "estimates," and similar expressions have been used in this
Annual Report to identify forward-looking statements.
We have based these forward-looking statements on our current views with
respect to future events and performance. Actual results may differ materially
from those predicted by the forward-looking statements. These forward-looking
statements involve risks, uncertainties, assumptions and the following:
o our continued ability to protect and maintain the proprietary nature of
our technology;
o our dependence on the willingness and ability of our licensees and
joint venture partners to devote financial resources and manufacturing
and marketing capabilities to commercialize products based on our
technologies;
o we are unable to successfully execute our internal business plans;
o we experience performance problems with key suppliers or
subcontractors;
o there are no adverse changes in general economic conditions or in
political or competitive forces;
o competition increases in our industry or markets;
o our government product development and research contracts are
terminated by unilateral government action;
o legal or regulatory proceedings reach unfavorable resolutions;
o there are adverse changes in the securities markets; and
o we suffer the loss of key personnel.
There is also the risk that we incorrectly analyze these risks or that
strategies we develop to address them are unsuccessful.
-24-
These forward-looking statements speak only as of the date of this Annual
Report. All subsequent written and oral forward-looking statements attributable
to us or any person acting on our behalf are qualified in their entirety by the
cautionary statements in this section. Because of these risks, uncertainties and
assumptions, you should not place undue reliance on these forward-looking
statements. We are not obligated to update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
-25-
GLOSSARY OF TECHNICAL TERMS
Certain technical terms used herein have the following meanings:
Amorphous - having an atomic structure that is not periodic.
CD-ROM (CD--Read Only Memory) - a type of data-storage media using a CD format
with pre-recorded data which cannot be recorded by the user.
CD-RW (CD--Rewritable Memory) - a type of data storage media using a CD format
employing ECD's proprietary phase-change rewritable optical memory technology
capable of being recorded and re-recorded many times.
Crystalline - having a repeating atomic structure in all three dimensions.
Cycle Life - the number of times a rechargeable battery can be charged and
discharged.
Disordered - Minimizing and lifting of lattice constraints which provides new
degrees of freedom, permitting the placement of elements in multi-dimensional
spaces where they interact in ways not previously available. This allows the use
of multi-elements and complex materials where positional, translational and
compositional disorder remove restrictions so new local order environments can
be generated controlling the physical, electronic and chemical properties of the
material, thereby permitting the synthesis of new materials with new mechanisms.
DRAM (Dynamic Random Access Memory) - a type of semiconductor memory device used
for the main system memory in most computers.
Electrode (battery) - the chemically active portions of a battery.
Energy Density - the amount of energy stored in a specific volume or weight.
EV (Electric Vehicle) - a vehicle propelled exclusively by an electric drive
system powered by an electrochemical energy storage device, typically a
rechargeable battery.
FLASH - a type of semiconductor memory device that retains stored data even with
the power off.
FCEV (Fuel Cell Electric Vehicle) - an electric vehicle that derives its
electricity from a fuel cell.
FCHEV (Fuel Cell Hybrid Electric Vehicle) - a vehicle that is propelled both by
a fuel cell and an electrochemical energy storage device coupled to an electric
drive.
FPGA (Field-Programmable Gate Array) - is an integrated circuit having
thousands of logic gates that can be programmed by an end user to perform
complex functions.
-26-
Fuel Cell - a device which produces electric power by oxidizing hydrogen and
exhausting only water as a byproduct.
HEV (Hybrid Electric Vehicle) - a vehicle that is propelled both by an
electrochemical energy storage device coupled to an electric drive and an
auxiliary power unit powered by a conventional fuel such as reformulated
gasoline, direct injection diesel, compressed natural gas or hydrogen.
Nonvolatile - a property of some types of computer memory which retain stored
data even when power is removed.
Optical Memory - a computer memory technology that uses lasers to record and
play back data stored on a rotating disc.
Ovonic - [after S.R. Ov(shinsky) + (electr)onic] - the term used to describe our
proprietary materials, products and technologies.
Peak Power - the maximum amount of energy available for a sustained period of
time, typically 10 to 30 seconds.
Phase-Change Rewritable - an optical memory technology invented by us in which
data is stored or erased on memory media by means of a laser beam that switches
the structural phase of a thin-film material between crystalline and amorphous
states.
Photovoltaic (PV) - direct conversion of light into electrical energy.
Regenerative Power - the amount of energy made available and returned to the
battery by the recovery of kinetic energy.
Roll-to-Roll Process - a process where a roll of substrate is continuously
converted into a roll of product.
Semiconductor - a class of materials with special electrical properties used to
fabricate solar cells, transistors, integrated circuits and other electronic
devices.
Specific Energy - the amount of energy capacity divided by the weight of the
battery.
SRAM (Static Random Access Memory) - a type of very fast semiconductor memory
device used for high-speed transfers of relatively small data blocks to the main
processor in a computer.
Stabilized Energy Conversion Efficiency - the long-term ratio of electrical
output to light input.
Thin Film - a very thin layer of material formed on a substrate.
-27-
Item 2: Properties
- ------- ----------
A summary of our principal facilities and those of our consolidated
subsidiaries, Ovonic Battery and United Solar, follows:
Location Number of
Square Feet
-------- -----------
ECD:
1675 West Maple Road, Troy, MI 31,550
1050 East Square Lake Road, MI 11,000
1621 Northwood, Troy, MI 27,480
Ovonic Battery:
1864 Northwood, Troy, MI 12,480
1826 Northwood, Troy, MI 12,480
1707 Northwood, Troy, MI 27,400
1334 Maplelawn, Troy, MI 28,100
1414 Combermere, Troy, MI 9,870
United Solar:
1100 West Maple Road, Troy, MI 47,775
-------
TOTAL 208,135
=======
Except for the property located at 1050 East Square Lake Road, Bloomfield
Township, MI, which is owned by us, the foregoing properties, which are
generally of brick and block construction, are leased by us. Except for the
property located at 1334 Maplelawn, Troy, MI, which is subleased to GM Ovonic,
the foregoing properties are devoted primarily to the product development,
production and pre-production activities and administrative and other operations
of ECD, Ovonic Battery and United Solar. Management believes that the above
facilities are generally adequate for present operations.
-28-
Item 3: Legal Proceedings
- ------- -----------------
We are not a party to any legal proceedings which management believes to
be material.
Item 4: Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
Not applicable.
-29-
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
- ------- ---------------------------------------------------------------------
Shares of our Common Stock, par value $.01 per share ("Common Stock"),
trade on the NASDAQ National Market System under the symbol "ENER." Shares of
our Class A Common Stock, par value $.01 per share ("Class A Common Stock"), and
Class B Common Stock, par value $.01 per share ("Class B Common Stock"), are not
publicly traded.
As of September 22, 2000, there were approximately 2,490 holders of record
of Common Stock, four holders of record of Class A Common Stock and one holder
of record of Class B Common Stock.
Below is the reported high and low price on the NASDAQ National Market
System for our Common Stock for the following quarters:
For the Fiscal Year Ended June 30
(in Dollars Per Share)
2001 2000 1999
---------------- ---------------- ----------------
High Low High Low High Low
First Quarter $40.375 $22.063 $ 15.00 $ 9.188 $10.250 $ 5.188
(through Sept. 22,
2000)
Second Quarter $11.313 $ 8.00 $ 8.125 $ 4.625
Third Quarter $31.438 $ 9.00 $12.938 $ 7.50
Fourth Quarter $27.375 $11.50 $10.50 $ 7.625
We have not paid any cash dividends in the past and do not expect to pay
any in the foreseeable future.
On April 11, 2000, Canon Inc. acquired 700,000 shares of our common stock
pursuant to a Stock Purchase Agreement in connection with the closing of our
purchase of Canon's voting stock of United Solar.
-30-
On May 30, 2000, Texaco Inc. acquired 3,742,800 shares of our common stock
pursuant to a Stock Purchase Agreement between TRMI Holdings Inc., a wholly-
owned subsidiary of Texaco, and us.
Canon and Texaco acquired our Common Stock in private transactions under
Regulation D, Rule 505 of the Securities Act of 1933.
-31-
Item 6: Selected Financial Data
- ------- -----------------------
Set forth below is certain financial information taken from the Company's
audited consolidated financial statements (See Item 1: Description of Business).
June 30,
----------------------------------------------------------------------------
Revenues: 2000 1999 1998 1997 1996
- --------- ------------- ------------ ------------- ------------- -------------
Product sales $ 6,892,355 $ 4,524,238 $ 9,858,343 $ 14,897,144 $ 14,828,133
Royalties 3,440,164 2,735,622 2,485,981 1,394,872 1,321,117
Revenues from product development
agreements 10,418,985 17,240,615 15,311,416 5,738,877 7,349,195
Revenues from license and other
agreements 3,138,000 4,753,995 1,701,134 5,828,648 12,524,262
Other 6,089,581 3,717,826 2,200,707 1,718,933 1,289,667
------------- ------------- ------------- ------------- -------------
TOTAL REVENUES 29,979,085 32,972,296 31,557,581 29,578,474 37,312,374
------------- ------------- ------------- ------------- -------------
Net Income (Loss) $(16,656,128) $(13,777,589) $(16,664,999) $(17,954,612) $ 1,054,269
============= ============= ============= ============= =============
Basic Net Income (Loss) per
Common Share $ (1.16) $ (1.06) $ (1.50) $ (1.67) $ .11
Diluted Net Income (Loss) per
Common Share $ (1.16) $ (1.06) $ (1.50) $ (1.67) $ .10
At year end:
Cash and Cash Equivalents $ 44,592,017 $ 19,076,983 $ 25,786,112 $ 14,270,145 $ 23,773,742
Investments $ 44,723,500 $ - $ - $ - $ -
Total Assets $148,905,642 $ 39,807,998 $ 51,360,816 $ 37,729,097 $ 57,129,439
Long-Term Liabilities $ 20,059,353 $ 2,679,936 $ 3,967,496 $ 585,795 $ 1,853,728
Working Capital $ 89,789,457 $ 18,438,953 $ 29,800,158 $ 23,161,108 $ 43,524,927
Stockholders' Equity $ 98,776,560 $ 23,188,627 $ 34,815,346 $ 26,418,659 $ 43,734,040
-32-
Item 7: Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
- -------------------------------------------------------------
The Company has continued to invest to further advance its technologies.
These investments in its technologies have led to historic new strategic
alliances over the past nine months with Texaco Inc., N.V. Bekaert S.A. and its
U.S.-based subsidiary (Bekaert), Intel Corporation, General Electric Company,
Lockheed Martin Space Electronics and Communications and China's Rare Earth
High-Tech Co. Ltd. of Baotou Steel Company (Rare Earth High-Tech). According
to generally accepted accounting principles as practiced in the United States
(GAAP), the Company was required to report these investments as a loss.
The Company had a net loss in the year ended June 30, 2000, of $16,656,000
compared to a net loss of $13,778,000 for the year ended June 30, 1999. The
change resulted primarily from a reduction in revenues to $29,979,000 in 2000
from $32,972,000 in 1999 and a $65,000 increase in operating expenses.
The change in revenues primarily resulted from lower revenues from license and
other agreements ($1,616,000) and revenues from product development agreements
($6,822,000) partially offset by higher product sales ($2,368,000) and royalties
($705,000). Revenues from license agreements include $1,778,000 from a license
agreement with Toshiba Battery Company Ltd., $1,000,000 from Sanyo Electric Co.,
Ltd. and $360,000 from Japan Storage Battery Co., Ltd., compared to a $4,400,000
license fee in 1999 from Sanyo. Other revenues increased from $3,718,000 in the
year ended June 30, 1999 to $6,090,000 in the year ended June 30, 2000,
principally due to revenues of $2,686,000 from Ovonyx, ECD's joint venture with
Tyler Lowrey and Intel.
The ECD/Ovonic Battery programs in the Ovonic nickel metal hydride (NiMH)
battery technology have led to a new family of batteries not only for hybrid
electric vehicles (HEVs), electric vehicles (EVs) and fuel cell electric
vehicles (FCEVs), but also for a new universal battery platform that has
included a much-needed addition to the starter lighter ignition battery field
where especially high voltages are required. ECD's continued investments in its
battery, solid hydride, and fuel cell development programs, as well as its
activities at United Solar and Bekaert ECD Solar Systems are all reported as
losses. Losses related to electrode production and the ongoing protection of the
Company's intellectual property also contributed to the 2000 losses. In addition
to the loss from operations, the Company incurred other expense (net) of
$604,000 in the year ended June 30, 2000, compared to other expense (net) of
$784,000 in the same period in the prior year.
-33-
Product sales, consisting of positive and negative battery electrodes,
battery packs, machine building and photovoltaic products (for United Solar
since April 11, 2000), increased 52% to $6,892,000 in the year ended June 30,
2000 from $4,524,000 in the year ended June 30, 1999. Battery pack sales
increased 41% to $1,493,000 in 2000 from $1,060,000 in 1999 and machine-building
revenues increased 424% to $1,824,000 in 2000 from $348,000 in 1999. The
machine-building revenues in both years were applicable to contracts to build
large-area microwave deposition equipment. Sales of negative and positive
electrodes decreased $1,753,000, primarily due to one of the Company's principal
negative electrode licensees currently manufacturing its own electrode products
as allowed under its license from the Company. Photovoltaic sales for the period
from April 11, 2000 (the date United Solar was consolidated) through June 30,
2000 were $2,212,000.
Royalties increased 26% to $3,440,000 in the year ended June 30, 2000 from
$2,736,000 in the year ended June 30, 1999. While the volume of NiMH batteries
currently being sold has increased substantially, the royalties the Company
receives continue to reflect increased production efficiencies of its licensees
which have resulted in lower prices as licensees move aggressively to increase
market share. (See NOTE B - Notes to Consolidated Financial Statements.)
Revenues from product development agreements decreased 40% from
$17,241,000 in the year ended June 30, 1999 to $10,419,000 in the year ended
June 30, 2000. There were increases in revenues from the Shell Hydrogen program
(which concluded in 2000) ($750,000 in 2000 compared to none in 1999) and the
hydrogen storage program with the Department of Energy (DOE) ($781,000 in 2000
compared to $191,000 in 1999). These increases in 2000 were more than offset by
decreases in revenues resulting from the successful conclusion of programs with
General Motors Corporation (General Motors) to develop batteries for electric
and hybrid electric vehicle applications ($1,002,000 in 2000 compared to
$8,039,000 in 1999) and with the National Institute of Standards and Technology
(NIST) for a new, low-cost manufacturing system for DVDs based on ECD's
proprietary phase-change optical memory technology ($3,883,000 in 2000 compared
to $5,606,000 in 1999), which resulted in the new alliance with General
Electric. Contracts with DOE and National Renewable Energy Laboratory (NREL) in
photovoltaics also had decreased revenues ($1,733,000 in 2000 compared to
$2,928,000 in 1999). (See Note B - Notes to Consolidated Financial Statements.)
The Company has $6,560,000 in unrecognized revenues outstanding under
product development agreements with the U.S. government or other agencies or
companies. Without giving effect to any new product development agreements which
may be entered into in the year ending June 30, 2001 and based upon scheduled
funding and performance, $5,695,000 is expected to be recorded in revenues from
product development agreements for the year ending June 30, 2001.
-34-
Revenues from license and other agreements decreased 34% from $4,754,000
in the year ended June 30, 1999 to $3,138,000 in the year ended June 30, 2000.
The 2000 revenues included a $1,778,000 license fee from Toshiba Battery;
$1,000,000 from Sanyo, which had previously been deferred from the agreement
entered into with Sanyo in October 1998; and $360,000 from Japan Storage. The
1999 license fees included $4,400,000 from Sanyo.
Other revenues increased by $2,372,000 to $6,090,000 in the year ended
June 30, 2000 from $3,718,000 in the year ended June 30, 1999, primarily due to
revenues from Ovonyx of $2,686,000 related to services provided to Ovonyx
and $1,098,000 related to services provided to Bekaert ECD Solar Systems,
partially offset by lower billings to GM Ovonic L.L.C. (GM Ovonic).
The $1,788,000 increase in cost of product sales in the year ended June
30, 2000 results from the $2,368,000 increase in product sales. The reduced loss
on product sales from $3,612,000 to $3,032,000 is a result of cost-reduction
measures taken by the Company. While the Company has taken significant steps to
reduce costs, the low sales volume, primarily of negative electrodes, combined
with high fixed costs, result in the loss on product sales. The Company has
continued its development of advanced electrode materials to be introduced to
its customers.
The Company incurred expenses for product development of $25,523,000
($10,373,000 funded and $15,150,000 unfunded) in the year ended June 30, 2000,
compared to expenses of $29,243,000 ($17,361,000 funded and $11,882,000
unfunded) in the year ended June 30, 1999. The expenditures continued the
development of the Company's core technologies: NiMH batteries, hydrogen
storage, energy generation, and information storage and retrieval devices.
Expenses were incurred in 2000 and 1999 in connection with the protection
of the Company's United States and foreign patents covering its proprietary
technologies. These expenses increased to $1,750,000 in the year ended June 30,
2000 from $1,656,000 in the year ended June 30, 1999.
The increase in operating, general and administrative expenses from
$6,930,000 in the year ended June 30, 1999 to $8,834,000 in the year ended June
30, 2000 was primarily related to consolidating United Solar results after April
11, 2000, decreased allocations to cost of revenues from product development
agreements and increased depreciation expense in 2000.
Other expense (net) was $784,000 in the year ended June 30, 1999, compared
to other expense (net) of $604,000 in the year ended June 30, 2000. Due
primarily to better operating performance at United Solar, the Company incurred
reduced charges for equity losses of $2,463,000 in 2000 compared to $3,660,000
in 1999. As required under GAAP, the Company recorded losses representing the
Company's share of the losses of United
-35-
Solar (prior to April 11, 2000) and Bekaert ECD Solar Systems regardless of the
value of these investments. Also, included in other expense (net) in 2000 is
$182,000 of income for minority interest share of losses related to Bekaert's
share of United Solar's losses and $117,000 income for amortization of negative
goodwill related to ECD's acquisition of Canon's interest in United Solar (see
NOTES A and D of Notes to Consolidated Financial Statements for further
discussions of United Solar and the Company's accounting for United Solar).
Also, interest income increased to $1,576,000 in 2000 compared to $1,187,000 in
1999. In 1999, a $1,970,000 gain was recognized related to the sale of Ovonic
Battery Company, Inc. (Ovonic Battery) stock to Sanyo.
The Company does business in many different parts of the world and its
royalty revenues are affected by changes in foreign currencies and their
exchange rates relative to the U.S. dollar. However, the vast majority of the
Company's business agreements are denominated in U.S. dollars and, as such, the
Company has minimized its exposure to currency rate fluctuations.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
- -------------------------------------------------------------
The Company had a net loss in the year ended June 30, 1999 of $13,778,000
compared to a net loss of $16,665,000 for the year ended June 30, 1998. The loss
was primarily due to: (i) ongoing product development and continued market
development activities, (ii) losses related to electrode production, (iii)
ongoing protection of the Company's intellectual property, and (iv) development
costs of Ovonic Unified Memory (OUM) microelectronic nonvolatile, thin-film
semiconductor devices. The amount of the net loss for 1999 was partially offset
by a $1,970,000 gain on the sale of Ovonic Battery stock and a $4,400,000
license fee from Sanyo. Additionally, included in other income (expense) for
1999 was an expense of $3,660,000 representing ECD's equity in the net loss from
its investment in the United Solar joint venture, as required under GAAP,
related to ECD's cash investments in United Solar.
Product sales, consisting of positive and negative battery electrodes,
battery packs and machine building, decreased 54% to $4,524,000 in the year
ended June 30, 1999 from $9,858,000 in the year ended June 30, 1998. Sales of
negative and positive electrodes decreased $6,179,000 primarily due to one of
the Company's principal negative electrode customers manufacturing its own
electrode products and the manufacturing of positive electrodes by GM Ovonic,
the Company's manufacturing joint venture with General Motors. Battery pack
sales increased 156% from $414,000 to $1,060,000 in 1999. Revenues from machine
building were $348,000 in 1999, compared to $148,000 in 1998. The Company
received a contract to build large-area microwave deposition equipment in
February 1999 and recognized revenue of $330,000 in connection with this
contract.
Royalties increased 10% to $2,736,000 in the year ended June 30, 1999 from
$2,486,000 in the year ended June 30, 1998 primarily due to higher battery
royalties.
-36-
While the volume of NiMH batteries sold increased substantially, the royalties
the Company received reflected increased production efficiencies of its
licensees which have resulted in lower prices as licensees move aggressively to
increase market share. (See NOTE B - Notes to Consolidated Financial
Statements.)
Revenues from product development agreements increased 13% to $17,241,000
in the year ended June 30, 1999 from $15,311,000 in the year ended June 30, 1998
due to substantially increased revenues from a program with General Motors to
develop batteries for electric and hybrid electric vehicle applications
($8,039,000 in 1999 compared to $6,995,000 in 1998) and from contracts with NIST
in the Company's battery and optical memory technologies ($5,606,000 in 1999
compared to $1,797,000 in 1998). Revenues from product development agreements
for ECD's photovoltaic technology increased 36% to $2,928,000 in the year ended
June 30, 1999 from $2,156,000 in the year ended June 30, 1998. (See NOTE B -
Notes to Consolidated Financial Statements.)
Revenues from license and other agreements increased 179% to $4,754,000 in
the year ended June 30, 1999 from $1,701,000 in the year ended June 30, 1998 due
to (i) a $4,400,000 battery license fee from Sanyo in 1999, (ii) $190,000 in
license fees in 1999 in connection with a new optical memory license agreement
with Ricoh Company Limited of Tokyo, Japan, the world's largest manufacturer of
rewritable compact disks and (iii) a battery license agreement with Japan
Storage, a Japanese battery manufacturing company. License fees in 1998
included $1,500,000 related to a technology transfer agreement with Sovlux
Battery and the Chepetsky Mechanical Plant, an enterprise of the Russian
Ministry of Atomic Energy. Revenues from license agreements are nonrecurring
and are based upon developing new business relationships.
Other revenues increased by $1,517,000 (or 69%) to $3,718,000 in the year
ended June 30, 1999, from $2,201,000 in the year ended June 30, 1998 primarily
due to increased billings in 1999 for work performed for Ovonic Battery
licensees and for additional work performed by ECD's Production Technology and
Machine Building Division. In 1998, there were certain adjustments which reduced
revenues to reflect a change in estimate based on information received by the
Company pertaining to certain customers and contracts.
The Company incurred expenses of $29,243,000 ($17,361,000 funded and
$11,882,000 unfunded) in the year ended June 30, 1999 for product development
compared to expenses of $27,031,000 ($15,606,000 funded and $11,425,000
unfunded) in the year ended June 30, 1998. The expenditures were primarily for
continued development of the Company's "family of batteries" products as well as
work performed on the OUM program. The increased expenses of $2,212,000 for
product development were offset by the $1,929,000 increase in revenues from
product development agreements.
-37-
The decrease in cost of product sales to $8,136,000 in the year ended June
30, 1999, from $12,673,000 in the year ended June 30, 1998 was due to the
reduced level of battery electrode sales.
Expenses were incurred in 1999 and 1998 in connection with the protection
of Ovonic Battery's United States patents covering its proprietary technology
for NiMH batteries. These expenses were reduced to $302,000 in the year ended
June 30, 1999 from $363,000 in the year ended June 30, 1998.
Operating, general and administrative expenses increased 1% to $6,930,000
in the year ended June 30, 1999 from $6,828,000 in the year ended June 30, 1998
primarily due to reduced allocations in 1999 to cost of revenues from product
development agreements, costs associated with a restricted stock grant to one of
the Company's executives, increased costs associated with stockholder relations
and other increased costs in 1999.
Other income (net) of $180,000 in the year ended June 30, 1998 compared to
other expense (net) of $784,000 in the year ended June 30, 1999. The $964,000
reduction was due to a $3,660,000 expense (versus $384,000 in 1998) representing
the Company's equity in the net loss in its investment in United Solar
(represented as a net loss on the Company's financial statements) and higher
interest expense, partially offset by a $1,970,000 gain on the sale of Ovonic
Battery stock in 1999 and higher interest income. This $3,660,000 expense is
related to ECD's cash investments in United Solar's future growth.
The Company does business in many different parts of the world and its
royalty revenues are affected by changes in foreign currencies and their
exchange rates relative to the U.S. dollar. However, the vast majority of the
Company's business agreements are denominated in U.S. dollars and, as such, the
Company has minimized its exposure to currency rate fluctuations.
-38-
Liquidity and Capital Resources
As of June 30, 2000, the Company had unrestricted consolidated cash, cash
equivalents, investments and accounts receivable of $105,381,000, an increase of
$78,584,000 from June 30, 1999. As of June 30, 2000, the Company had
consolidated working capital of $89,789,000 compared with a consolidated working
capital of $18,439,000 as of June 30, 1999.
The Company's strategy is to finance its operations and growth through
strategic alliances (joint ventures and license agreements) with third parties
who can provide financial resources and marketing expertise for the Company's
technologies and products. Over the past several months, the Company has entered
into a number of historic business agreements bringing the Company's short-term
cash reserves to approximately $90 million and having a significant positive
impact on future cash flows. As part of its long-standing strategy, the Company
has made investments in its technologies which have resulted in enabling
intellectual property and products. It has entered into strategic alliances and
joint ventures with some of the world's leading corporations listed below, which
form the basis of a fundamental restructuring of the Company. Highlights are:
o On May 2, 2000, ECD and Texaco announced that Texaco purchased a 20
percent equity position in the Company for $67.4 million and Texaco and
ECD intend, as soon as practicable, to enter into joint ventures to
promote the development and commercialization of Ovonic Solid Hydrogen
Storage Systems(TM) and Ovonic Regenerative Fuel Cells(TM) technology.
ECD will provide each venture with a license of ECD's intellectual
property relating to the respective field and Texaco will provide
funding to some agreed level.
o On September 21, 2000, ECD and Texaco Energy Systems, Inc. (TESI), a
wholly-owned subsidiary of Texaco, formed Texaco Ovonic Fuel Cell
Company LLC. TESI will fund initial product and market development
estimated to exceed $40 million. The primary use of this funding is to
fund a multimillion dollar contract from Texaco Ovonic Fuel Cell to ECD
to further develop Ovonic Regenerative Fuel Cells(TM) technology,
validate manufacturing methodologies and produce production-ready
prototypes.
o In April 2000, ECD and Bekaert entered into a strategic alliance
whereby Bekaert will invest $84 million in United Solar, which will
result in a fivefold capacity expansion and a sales and marketing
expansion program. The capacity expansion resulted in an order from
Bekaert ECD Solar Systems to ECD for production equipment valued at
approximately $50 million with an annual capacity of 25 megawatts.
-39-
o A strategic alliance was formed with General Electric, the first
activity of which resulted in the creation of a joint venture, Ovonic
Media, LLC, in March 2000. ECD received a multimillion dollar contract
from Ovonic Media to design, develop, demonstrate and commercialize
ECD's proprietary continuous web roll-to-roll technology for the
ultra-high-speed manufacture of optical media products, primarily
rewritable DVDs.
o Ovonyx formed a strategic alliance with Intel in February 2000, which
entails an investment by Intel in Ovonyx, to commercialize ECD's
proprietary nonvolatile semiconductor memory technology, OUM. OUM
memory technology promises to enable significantly faster write and
erase speeds and higher cycling endurance than conventional memory
types. It has been used in rewritable CD and DVD disks and may have
potential as a replacement for such memory types as FLASH, SRAM and
DRAM. The alliance with Intel also includes the granting of a
nonexclusive royalty-bearing license agreement and a joint development
program utilizing Intel's wafer fabrication facilities.
o On April 25, 2000, Ovonic Battery, after having received all necessary
government approvals, officially started the first (total contract
value is $25.2 million) in a series of NiMH projects in China. On June
15, 2000, the second and third projects (total contract value is $38.4
million) were started. These projects, first announced in August 1999,
with Rare Earth Ovonic create joint ventures, of which Ovonic Battery
has a 19% interest, which provide an important entry for the Company
into the vast Chinese market and have potential revenue to Ovonic
Battery in excess of $100 million.
These new business agreements have both near-term and long-term impact on
the Company's capital resources. The Texaco, Bekaert, Ovonyx and General
Electric agreements will all result in reduced cash expenditures as the
Company's business partners assume the responsibility for funding operations.
In the year ended June 30, 2000, the Company entered into a new license
agreement ($1,778,000 in license fees plus future royalties) with Toshiba
Battery for its HEV technology. In addition, Japan Storage, a licensee, notified
the Company that it had reached a certain level of sales of its products and
that the Company had earned an additional license fee of $360,000 pursuant to
certain terms contained in the previous license agreement with Japan Storage.
During the year ended June 30, 2000, $11,251,000 of cash was used in
operations. The difference between the net loss of $16,656,000 and the net cash
used in operations was principally due to ECD's $1,999,000 share of the losses
in United Solar relating to ECD's investment of cash in United Solar's future
growth and the Company's depreciation expense. As a result of Bekaert's
investment in United Solar, ECD is no
-40-
longer funding United Solar's operations. In addition, $698,000 of machinery
and equipment was purchased or constructed, principally for the Company's
battery operations, during this period.
The Company expects significant revenues and cash flows related to product
development agreements, many of which already exist, that are entered into by
the Company with industry partners and U.S. government agencies to develop the
Company's products and production technology. ECD has been awarded government
contracts with various governmental agencies (DOE, NREL, NIST, etc.) and with
various industry partners.
During the next 12 months, the Company expects to purchase up to $500,000
of machinery and equipment.
The Company has a financing arrangement with Standard Federal Bank, a
member of the ABN AMRO Group, for a $3,000,000 line of credit bearing an
interest rate at prime rate, which expires on June 30, 2001. The Company does
not expect to use any of this available financing during the next 12 months.
As previously noted, the Company's strategy is to finance its operations
and growth through the formation of strategic alliances to further commercialize
its products. The agreements discussed above will provide significant cash flows
in the future. While the Company is in negotiations with a number of companies
related to its technologies, which will accelerate the commercialization of its
products worldwide and which could provide it with additional revenue under
license and other agreements in the coming year, it is unable to predict the
amount, if any, of such revenue.
The Company is not aware of events or circumstances that would
significantly alter royalty revenues for the next 12 months.
Based upon the above information, the amount of cash to be received under
existing product development agreements in the year ending June 30, 2001 is
anticipated to be approximately $5,700,000, compared to $15,654,000 received
from product development agreements in the year ended June 30, 2000. Based on
historical trends, the amount of cash from royalties to be received in the year
ending June 30, 2001 is expected to be approximately $3,900,000 compared to
$3,058,000 received in the year ended June 30, 2000.
Since license agreements are continuously being negotiated, fees from such
agreements are difficult to predict. The Company is unable to forecast the
amount of cash to be received from license fees in the year ending June 30,
2001.
Due to the recent increase in its stock price, the Company has received,
since August 1, 1999, approximately $16.0 million ($1.9 million of which
occurred after June 30, 2000) in proceeds from the exercise of employee stock
options and the exercise of
-41-
warrants. While there are additional employee stock options and warrants, which
may be exercised, the Company is unable to predict the amount or the timing of
such exercises.
Management believes that funds generated from operations, new business
agreements and existing cash and cash equivalents will be adequate to support
and finance planned growth, capital expenditures and company-sponsored product
development programs over the coming year.
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
- -------- ----------------------------------------------------------
The following discussion about our exposure to market risk of financial
instruments contains forward-looking statements. Actual results may differ
materially from those described.
Our holdings of financial instruments are comprised of debt securities and
time deposits. All such instruments are classified as securities available for
sale. We do not invest in portfolio equity securities, or commodities, or use
financial derivatives for trading purposes. Our debt security portfolio
represents funds held temporarily pending use in our business and operations. We
manage these funds accordingly. We seek reasonable assuredness of the safety of
principal and market liquidity by investing in rated fixed income securities
while, at the same time, seeking to achieve a favorable rate of return. Our
market risk exposure consists of exposure to changes in interest rates and to
the risks of changes in the credit quality of issuers. We typically invest in
investment grade securities with a term of three years or less. The Company
believes that any exposure to interest rate risk is not material.
-42-
Item 8: Consolidated Financial Statements and Supplementary Data
- ------- -------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors
Energy Conversion Devices, Inc.
Troy, Michigan
We have audited the accompanying consolidated balance sheets of Energy
Conversion Devices, Inc. and subsidiaries (the "Company") as of June 30, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 2000 and
1999, and the results of its operations and its cash flows for the three years
in the period ended June 30, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Detroit, Michigan
September 28, 2000
-43-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
June 30,
----------------------------
2000 1999
------------- -------------
CURRENT ASSETS (NOTE A)
Cash, including cash equivalents of
$44,386,000 at June 30, 2000 and
$19,026,000 at June 30, 1999 $ 44,592,017 $ 19,076,983
Investments 44,723,500 -
Accounts receivable (net of allowance for
uncollectible accounts of approximately
$579,000 at June 30, 2000 and $303,000
at June 30, 1999) 6,915,578 6,296,097
Amounts due from related parties 9,149,942 1,423,828
Inventories 994,077 589,245
Other 302,413 -
------------ ------------
TOTAL CURRENT ASSETS 106,677,527 27,386,153
PROPERTY, PLANT AND EQUIPMENT (NOTES A and E)
Land and land improvements 312,588 312,588
Buildings and improvements 3,865,506 3,733,816
Machinery and other equipment (including construction in
progress of approximately $578,000 and $844,000
at June 30, 2000 and 1999) 18,808,002 18,353,014
Capitalized lease equipment 4,734,653 4,988,672
------------- -------------
27,720,749 27,388,090
Less accumulated depreciation
and amortization (21,459,477) (19,449,827)
------------- -------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,261,272 7,938,263
Investments in EV Global and Innovative Transportation
Systems (NOTE A) 2,639,716 2,239,716
Long-Term Note Receivable - Bekaert ECD Solar Systems 9,631,495 -
JOINT VENTURES (NOTE D)
United Solar - 956,411
Bekaert ECD Solar Systems 22,394,868 -
GM Ovonic - -
Ovonyx - -
Ovonic Media - -
Rare Earth Ovonic - -
Sovlux - -
OTHER ASSETS 1,300,764 1,287,455
------------- -------------
TOTAL ASSETS $148,905,642 $ 39,807,998
============= =============
See notes to consolidated financial statements.
-44-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30,
------------------------------
2000 1999
------------- -------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,151,372 $ 4,707,158
Salaries, wages and amounts withheld
from employees 1,998,684 1,581,447
Deferred revenues under business
agreements (NOTE A) 6,537,975 1,349,087
Current installments on long-term
liabilities (NOTE E) 2,200,039 1,309,508
------------- -------------
TOTAL CURRENT LIABILITIES 16,888,070 8,947,200
LONG-TERM LIABILITIES (NOTE E) 10,427,858 2,679,936
LONG-TERM NOTES PAYABLE (NOTE E) 9,631,495 -
DEFERRED GAIN 669,072 1,110,132
NONREFUNDABLE ADVANCE ROYALTIES (NOTE C) 3,938,667 3,882,103
------------- -------------
TOTAL LIABILITIES 41,555,162 16,619,371
NEGATIVE GOODWILL (NOTE D) 3,148,426 -
MINORITY INTEREST (NOTE D) 5,425,494 -
STOCKHOLDERS' EQUITY
Capital Stock (NOTES F and G)
Class A Convertible Common Stock,
par value $0.01 per share:
Authorized - 500,000 shares
Issued & outstanding - 219,913 shares 2,199 2,199
Class B Convertible Common Stock,
par value $0.01 per share
Authorized, Issued and Outstanding - 430,000 shares 4,300 4,300
Common Stock, par value $0.01 per share:
Authorized - 30,000,000 shares Issued &
Outstanding -18,098,646 shares at June 30,
2000 and 12,841,270 shares at June 30, 1999 180,986 128,413
Additional paid-in capital 324,293,312 233,861,099
Accumulated deficit (222,184,080) (205,527,952)
Accumulated other comprehensive income 50,783 -
Treasury stock at cost - 109,400 shares at June 30, 1999 - (1,028,092)
Unearned Compensation on Class B Convertible
Common Stock (3,570,940) (4,251,340)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 98,776,560 23,188,627
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $148,905,642 $ 39,807,998
============= ==============
See notes to consolidated financial statements.
-45-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Year ended June 30,
------------------------------------------
2000 1999 1998
------------ ------------- ------------
REVENUES (NOTES A and B)
Product sales $ 6,892,355 $ 4,524,238 $ 9,858,343
Royalties 3,440,164 2,735,622 2,485,981
Revenues from product development
agreements 10,418,985 17,240,615 15,311,416
Revenues from license and other agreements 3,138,000 4,753,995 1,701,134
Other 6,089,581 3,717,826 2,200,707
------------- ------------- -------------
TOTAL REVENUES 29,979,085 32,972,296 31,557,581
EXPENSES
Cost of product sales (NOTE A) 9,924,350 8,136,000 12,673,323
Cost of revenues from product
development agreements (NOTE A) 10,373,243 17,361,358 15,605,895
Product development and research (NOTE A) 15,149,637 11,881,945 11,425,333
Patents (NOTE A) 1,749,575 1,656,496 1,870,024
Operating, general and administrative 8,833,996 6,930,251 6,827,579
------------- ------------- -------------
TOTAL EXPENSES 46,030,801 45,966,050 48,402,154
------------- ------------- -------------
LOSS FROM OPERATIONS (16,051,716) (12,993,754) (16,844,573)
OTHER INCOME (EXPENSE):
Interest income 1,576,243 1,186,528 598,940
Interest expense (574,386) (563,613) (137,541)
Equity loss in joint ventures (2,462,978) (3,659,503) (384,000)
Amortization of negative goodwill 116,608 - -
Minority interest share of losses 181,911 - -
Gain on sale of Ovonic Battery stock - 1,970,000 -
Loss on Unique Mobility stock - (212,541) -
Other nonoperating income - (net) 558,190 495,294 102,175
------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) (604,412) (783,835) 179,574
------------- ------------- -------------
NET LOSS $(16,656,128) $(13,777,589) $(16,664,999)
============= ============= =============
BASIC NET LOSS PER SHARE
(NOTE H) $ (1.16) $ (1.06) $ (1.50)
============= ============= =============
DILUTED NET LOSS PER SHARE
(NOTE H) $ (1.16) $ (1.06) $ (1.50)
============= ============= =============
See notes to consolidated financial statements.
-46-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES F and G)
---------------------------------------------------------------
Three years ended June 30, 2000
Class A
Convertible
Common Stock Common Stock Treasury Stock Unearned
-------------- ------------------- ----------------- Compensa-
tion on
Class B
Accumulated Con- Total
Number Number Additional Other Number vertible Stock-
of of Paid-In Comprehen- Accumulated of Common holders'
Shares Amount Shares Amount Capital sive Loss Deficit Shares Amount Stock Equity
------- ------ ---------- -------- ------------- ----------- -------------- -------- --------- -------- ------------
Balance at
July 1, 1997 219,913 $2,199 10,603,251 $106,033 $202,004,599 $ 0 $(175,085,364) (42,000) $(608,808)$ 0 $26,418,659
Net loss for
year ended
June 30, 1998 (16,664,999) (16,664,999)
Issuance of stock
to directors
and consultants 3,564 36 84,960 84,996
Public offering
of common stock
and warrants 1,750,000 17,500 21,704,450 21,721,950
Common stock
issued in
connection with
exercise of
stock options
and warrants and
conversion of
certain securities 135,866 1,358 1,300,382 1,301,740
Common stock issued
in connection
with conversion
of CICs 212 2 (2) 0
Common stock and
warrants issued
to EV Global 146,924 1,469 1,998,531 2,000,000
Unrealized loss
on investment (47,000) (47,000)
------- ------ ---------- -------- ------------- --------- -------------- -------- ---------- ------ -------------
Balance at
June 30, 1998 219,913 $2,199 12,639,817 $126,398 $227,092,920 $(47,000) $(191,750,363) (42,000) $(608,808) $ 0 $ 34,815,346
======= ====== ========== ======== ============= ========= ============== ======== ========== ====== =============
See notes to consolidated financial statements.
(Continued on next page.)
-47-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES F and G)
---------------------------------------------------------------
Three years ended June 30, 2000
(CONTINUED)
Class A and
Class B
Convertible
Common Stock Common Stock Treasury Stock Unearned
-------------- ------------------- ------------------ Compensa-
tion on
Class B
Accumulated Con- Total
Number Number Additional Other Number vertible Stock-
of of Paid-In Comprehen- Accumulated of Common holders'
Shares Amount Shares Amount Capital sive Loss Deficit Shares Amount Stock Equity
------- ------ ---------- -------- ------------ ---------- -------------- --------- ----------- ------------ -------------
Balance at
June 30,
1998 219,913 $2,199 12,639,817 $126,398 $227,092,920 $(47,000) $(191,750,363) ( 42,000) $(608,808)$ 0 $ 34,815,346
Net loss
for year
ended
June 30,
1999 (13,777,589) (13,777,589)
Issuance of
Class B
convert-
ible
common
stock 430,000 4,300 4,591,540 (4,591,540) 4,300
Earned com-
pensation
on Class B
convert-
ible
common
stock 340,200 340,200
Issuance of
stock to
directors
and con-
sultants 5,000 50 39,950 40,000
Common stock
issued in
connection
with exercise
of stock
options
and warrants
and conver-
sion of CICs 161,730 1,617 1,583,045 1,584,662
Common stock
issued in
connection
with Unique
Europa 34,723 348 439,602 439,950
Stock options
issued to
non-employees 114,042 114,042
Purchase of
treasury
stock ( 67,400) (419,284) (419,284)
Realized
loss on
investment 47,000 47,000
------- ------ ---------- -------- ------------ --------- -------------- --------- ------------ ------------ ------------
Balance at
June 30,
1999 649,913 $6,499 12,841,270 $128,413 $233,861,099 $ 0 $(205,527,952) (109,400) $(1,028,092) $(4,251,340) $23,188,627
======= ====== ========== ======== ============ ========== ============== ========= ============ ============ ============
See notes to consolidated financial statements.
(Continued on next page.)
-48-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTES F and G)
---------------------------------------------------------------
Three years ended June 30, 2000
(CONTINUED)
Class A and
Class B
Convertible
Common Stock Common Stock Treasury Stock Unearned
-------------- ------------------- --------------------- Compensa-
tion on
Class B
Accumulated Con- Total
Number Number Additional Other Number vertible Stock-
of of Paid-In Comprehen- Accumulated of Common holders'
Shares Amount Shares Amount Capital sive Income Deficit Shares Amount Stock Equity
------- ------ ---------- -------- ------------ ---------- -------------- --------- ----------- ------------- ------------
Balance at
June 30,
1999 649,913 $6,499 12,841,270 $128,413 $233,861,099 $ 0 $(205,527,952) (109,400) $(1,028,092)$(4,251,340) $23,188,627
Net loss
for year
ended
June 30,
2000 (16,656,128) (16,656,128)
Earned
compen-
sation
on Class B
convertible
common
stock 680,400 680,400
Issuance of
stock to
directors
and
consultants 3,542 35 34,942 34,977
Common stock
issued
in connec-
tion with
exercise
of stock
options and
warrants and
conversion
of CICs 965,434 9,654 11,529,526 11,539,180
Stock options
issued to
non-employees 146,000 146,000
Purchase of
treasury
stock (45,000) (735,679) (735,679)
Warrants
sold to
GE Plastics 400,000 400,000
Treasury stock
sold to Texaco 154,400 1,763,771 1,763,771
Common stock
sold to Texaco 3,588,400 35,884 65,570,745 65,606,629
Stock issued
to Canon 700,000 7,000 12,751,000 12,758,000
Unrealized
gain on
investments
50,783 50,783
------- ------ ---------- -------- ------------ ------- -------------- --------- ------------ ------------ ------------
Balance at
June 30,
2000 649,913 $6,499 18,098,646 $180,986 $324,293,312 $50,783 $(222,184,080) 0 $ 0 $(3,570,940) $98,776,560
======= ====== ========== ======== ============ ======= ============== ========= ============ ============ ============
See notes to consolidated financial statements.
-49-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year ended June 30,
----------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
OPERATING ACTIVITIES:
Net loss $ (16,656,128) $ (13,777,589) $ (16,664,999)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,194,989 1,974,726 2,130,494
Equity interest in United Solar's net loss 1,999,370 3,659,503 384,000
Equity interest in Ovonic Media's net loss 67,871 - -
Equity interest in Bekaert ECD Solar Systems'net loss 395,737 - -
Profit deferred on sales to Bekaert ECD Solar Systems 209,395 - -
Gain on sale of Ovonic Battery stock - (1,970,000) -
Creditable royalties 56,564 (52,017) (257,366)
Options issued to executive for services rendered 113,250 453,000 453,000
Stock issued for services rendered 861,377 494,242 84,996
Loss on Unique Mobility Stock - 212,541 -
Loss on sale of equipment 5,051 - -
Amortization of deferred gain (441,060) (441,014) (274,025)
Negative goodwill - amortization (116,608) - -
Minority interest (181,911) - -
Other 62,000 - -
Changes in working capital:
Accounts receivable and amounts due from related parties (2,071,258) 2,438,142 2,452,160
Inventories 400,364 484,852 551,968
Other assets 22,994 382,435 (487,905)
Accounts payable and accrued expenses (3,361,635) 432,199 1,042,793
Deferred revenues under business agreements 5,188,888 (67,995) (254,449)
---------------- ---------------- ---------------
NET CASH USED IN OPERATIONS (11,250,750) (5,776,975) (10,839,333)
---------------- ---------------- ---------------
INVESTING ACTIVITIES:
Purchases of capital equipment (698,328) (1,321,562) (1,701,536)
Investment in United Solar (1,499,589) (2,500,000) (2,499,914)
Cash acquired in business combination 7,080,329 - -
Investment in Innovative Transportation (400,000) - -
Purchase of investments (44,672,717) - (3,085,435)
Sales of investments - - 4,145,368
Proceeds from sale of capital equipment 14,420 - -
---------------- ---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (49,175,885) (3,821,562) (3,141,517)
---------------- ---------------- ---------------
FINANCING ACTIVITIES:
Redemption (purchase) of treasury stock (735,679) (419,284) -
Principal payments under short-term and long-term
debt obligations and capitalized lease obligations (1,518,982) (1,297,272) (1,604,599)
Proceeds from capital lease transactions - - 4,530,725
Proceeds from sale of stock of subsidiary - 2,970,000 -
Net proceeds from sale of stock and warrants - 4,300 21,721,950
Proceeds from sale of stock to Texaco 67,370,400 - -
Proceeds from sale of stock upon exercise of stock
options and warrants 11,425,930 1,131,664 848,741
Proceeds from issuance of warrants - GE Plastics 400,000 - -
Proceeds from nonrefundable advance royalties - 500,000 -
---------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 76,941,669 2,889,408 25,496,817
---------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 25,515,034 (6,709,129) 11,515,967
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,076,983 25,786,112 14,270,145
---------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,592,017 $ 19,076,983 $ 25,786,112
================ =============== ===============
See notes to consolidated financial statements.
-50-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended June 30,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest $ 574,386 $ 563,613 $ 137,541
The Company's noncash investing and
financing activities were as follows:
Investments in EV Global/Unique Mobility - 439,950 2,000,000
Issuance of 700,000 shares of ECD
common stock to Canon in exchange
for Canon's interest in United Solar 12,758,000 - -
Long-term note receivable --
Bekaert ECD Solar Systems 9,631,495 - -
Long-term note payable -- Canon (9,631,495) - -
See notes to consolidated financial statements.
-51-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies
- ---------------------------------------
Nature of Business
- ------------------
Energy Conversion Devices, Inc. (ECD) has established a multidisciplinary
business, scientific and technical organization to commercialize products based
on its technologies. Its activities range from product development to
manufacturing and selling products, as well as designing and building production
machinery with an emphasis on alternative energy and advanced information
technologies.
Financial Statement Presentation and Principles of Consolidation
- ----------------------------------------------------------------
The consolidated financial statements include the accounts of ECD; its
approximately 91%-owned subsidiary Ovonic Battery Company, Inc. (Ovonic
Battery), a company formed to develop and commercialize ECD's Ovonic NiMH
battery technology; and, effective April 11, 2000, its 81%-owned subsidiary
United Solar Systems Corp. (United Solar) (see Note D) (collectively "the
Company"). The remaining shares of Ovonic Battery are owned by Honda Motor
Company, Ltd. (Honda), Sanoh Industrial Company, Ltd. (Sanoh) and Sanyo. The
remaining shares of United Solar are owned by N.V. Bekaert S.A. and its
U.S.-based subsidiary (Bekaert). No minority interest related to Ovonic Battery
is recorded in the consolidated financial statements because there is no
additional funding requirement by the minority shareholders. See Note D for
discussion of these ventures.
The Company has a number of strategic alliances and has, as of June 30,
2000, four major investments accounted for by the equity method: (i) Bekaert ECD
Solar Systems LLC (Bekaert ECD Solar Systems), United Solar's 40% joint venture
with Bekaert Corporation, a wholly-owned subsidiary of Bekaert (as more fully
described in Note D), (ii) GM Ovonic (40%), Ovonic Battery's joint venture with
General Motors to manufacture and sell the Company's proprietary NiMH batteries
for electric, hybrid electric and fuel cell electric vehicle applications, (iii)
Ovonyx, Inc. (Ovonyx), a 41.7%-owned joint venture with Mr. Tyler Lowrey, a
recognized authority in semiconductor memory technology and the former vice
chairman and chief technology officer of Micron Technology, Inc., Intel and
other investors, to commercialize ECD's OUM technology, and (iv) Ovonic Media
L.L.C. (Ovonic Media), a joint venture owned 51% by General Electric through its
GE Plastics business unit and 49% by ECD. In addition, ECD has a 50%-owned joint
venture in Russia, Sovlux Co., Ltd. (Sovlux). See Note D for discussion of all
of ECD's ventures.
Upon consolidation, all intercompany accounts and transactions are
eliminated.
Certain items for the years ended June 30, 1999 and 1998 have been
reclassified to be consistent with the classification of items in the year ended
June 30, 2000.
-52-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
In preparing financial statements in conformity with generally accepted
accounting principles as practiced in the United States (GAAP), management is
required to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reported period. Actual results could differ from those estimates. In addition,
the Company has certain concentrations of revenues as described in Note B. The
Company is impacted by other factors such as the continued receipt of contracts
from the U.S. government and industrial partners, its ability to protect and
maintain the proprietary nature of its technology, its continued product and
technological advances and the strength and ability of the Company's licensees
and joint venture partners to commercialize the Company's products and
technologies.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation" (FIN 44), which contains
rules designed to clarify the application of APB 25. FIN 44 will be effective
on July 1, 2000 and the Company will adopt it at that time. The Company
believes the anticipated impact of adoption of FIN 44 will not be material to
the earnings and financial position of the Company.
In December 1999, the Securities and Exchange Commission (SEC)issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which clarified certain existing accounting principles for the
timing of revenue recognition and its classification in the financial
statements. The SEC delayed the required implementation date of SAB 101 by
issuing Staff Accounting Bulletins No. 101A, "Amendment: Revenue Recognition in
Financial Statements," and No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements," in March and June 2000, respectively. As a result,
the SAB 101 will not be effective for the Company until the quarter ending
June 30, 2001. The Company believes the adoption of SAB 101 will not
be material to the earnings and financial position of the Company.
The FASB recently issued Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB
Statement." The Statement defers for one year the effective date of FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The rule now will apply to all fiscal quarters of all fiscal
years beginning after June 15, 2000. In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
amended by SFAS No. 138, "Accounting for Derivative Insteuments and Hedging
Activities, an amendment to SFAS No. 133." The Statement permits early
adoption as of the beginning of any fiscal quarter after its issuance.
The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not
-53-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
hedges must be adjusted to fair value through income. If thederivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company expects the adoption of
SFAS 133 in fiscal 2001, as well as the effect on subsequent periods, to be
immaterial.
Cash Equivalents
- ----------------
Cash equivalents consist of investments in short-term, highly liquid
securities having a maturity of three months or less from the date of
acquisition.
Investments
- -----------
Investments consist of commercial paper, classified as available for sale,
maturing in 91 days to 33 months from date of acquisition and are stated at
cost, which approximates fair market value.
Investments in EV Global Motors Company (EV Global) and Innovative
- ------------------------------------------------------------------
Transportation Systems A.G. (Innovative Transportation)
- -------------------------------------------------------
The Company accounts for its investment in EV Global, a nonpublic company,
and Innovative Transportation, a new company comprised of the former business
and assets of Unique Europa GmbH (Unique Europa), on the cost method basis of
accounting.
Financial Instruments
- ---------------------
The Company considers the carrying value of its financial instruments to
be a reasonable estimate of fair value.
Translation Gains and Losses
- ----------------------------
Since most of the Company's contracts and transactions are denominated
and settled in U.S. dollars, there are no significant foreign currency gains
or losses.
-54-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
Accounts Receivable and Amounts Due from Related Parties
- --------------------------------------------------------
The following tabulation shows the component elements of accounts
receivable and amounts due from related parties from long-term contracts,
royalties and other programs:
June 30,
------------------------------
2000 1999
------------- --------------
U.S. Government:
Amounts billed $ 758,930 $ 1,055,313
Unbilled 750,131 876,649
------------- --------------
Total 1,509,061 1,931,962
------------- --------------
Commercial Customers:
Amounts billed 2,974,176 910,848
Related party billed
- Bekaert ECD Solar Systems 939,854 184,200
- Ovonyx 128,865 -
- GM Ovonic 433,760 830,875
Royalties 1,847,485 1,430,731
Due per contracts 11,400 2,101,833
Related party unbilled
- GM Ovonic 1,688 408,753
- Ovonyx 352,668 -
- Bekaert ECD Solar Systems 7,144,030 -
- Rare Earth Ovonic joint ventures 149,077 -
Other unbilled 212,745 116,236
------------- -------------
Total 14,195,748 5,983,476
------------- -------------
Other 939,711 107,487
------------- -------------
Allowance for Uncollectible Accounts (579,000) (303,000)
------------- -------------
TOTAL $ 16,065,520 $ 7,719,925
============= =============
Amounts due per contracts, related party unbilled, and other unbilled
from commercial customers represent revenues recognized on the percentage-of-
completion method of accounting related to machine-building contracts and
amounts earned under certain commercial contracts, for which amounts are
billed in subsequent months.
Certain contracts with the U.S. government require a retention that is
paid upon completion of audit of the Company's indirect rates. There are no
material retentions at June 30, 2000 and June 30, 1999. Certain U.S. government
contracts remain subject to audit. Management believes that adjustments, if any,
which may result from an audit would not be material to the financial position
or results of operations of the Company.
-55-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
Inventories
- -----------
Inventories of raw materials, work in process and finished goods for the
manufacture of electrodes, battery packs and other products, together with
supplies, are valued at the lower of cost (moving average) or market. Cost
elements included in inventory are materials, direct labor and manufacturing
overhead. Cost of sales is removed from inventory based on actual costs of items
shipped to customers.
Inventories (principally those of Ovonic Battery for 1999 and for United
Solar and Ovonic Battery for 2000) are as follows:
Year Ended June 30,
-------------------------
2000 1999
----------- -----------
Finished products $ 37,785 $ 1,000
Work in process 557,732 286,193
Raw materials 398,560 302,052
---------- -----------
$ 994,077 $ 589,245
========== ===========
Property, Plant and Equipment
- -----------------------------
All properties are recorded at cost. Plant and equipment are depreciated
on the straight-line method over the estimated useful lives of the individual
assets. The estimated lives of the principal classes of assets are as follows:
Years
-------
Buildings and improvements 5 to 20
Machinery and other equipment 3 to 10
Capitalized lease equipment and
leasehold improvements 3 to 5
Capitalized lease equipment and leasehold improvements are amortized over
the shorter of the term of the lease or the life of the equipment or
improvement, usually three to five years. Accumulated amortization on
capitalized lease equipment as of June 30, 2000 and June 30, 1999 was $2,398,000
and $1,287,000, respectively.
Costs of machinery and other equipment acquired or constructed for a
particular product development project, which have no alternative future use (in
other product development projects or otherwise), are charged to product
development and research costs as incurred.
-56-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
Expenditures for maintenance and repairs are charged to operations.
Expenditures for betterments or major renewals are capitalized and are
depreciated over their estimated useful lives.
Product Development, Patents and Technology
- -------------------------------------------
Product development and research costs are expensed as they are incurred
and, as such, the Company's investments in its technologies and patents are
recorded at zero in its financial statements, regardless of their values. The
technology investments are the bases by which the Company is able to enter into
license and joint venture agreements.
Total direct product development and research costs, a portion of which is
included in cost of revenues from product development agreements, were
$20,197,000, $22,785,000 and $21,247,000 for the three years ended June 30,
2000, 1999 and 1998, respectively.
Patents
- -------
Patent expenditures are charged directly to expense. Total patent
expenditures were $1,750,000, $1,355,000 and $1,507,000 for the three years
ended June 30, 2000, 1999 and 1998, respectively. Patent defense expenditures,
which are incurred by the Company to protect its patents and to defend or
prosecute claims involving the Company's patents, are charged directly to
expense.
Product Sales
- -------------
Product sales include battery electrodes, revenues related to building of
battery packs, and revenues related to machine-building contracts. In addition,
after April 11, 2000, product sales include photovoltaic products. Revenues
related to machine-building contracts are recognized on the percentage-of-
completion method of accounting using the costs incurred to date as a
percentage of the total expected costs. All other product sales are recognized
when the product is shipped. In certain cases, low sales volumes, previously
related to negative electrodes, combined with high fixed costs result in losses.
Royalties
- ---------
Most license agreements provide for the Company to receive royalties from
the sale of products which utilize the licensed technology. Typically, the
royalties are incremental to and distinct from the license fee and are
recognized as revenue upon the sale of the respective licensed product. In
several instances, the Company has received cash
-57-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
payments for nonrefundable advance royalty payments which are creditable
against future royalties under the licenses. Advance royalty payments are
deferred and recognized in revenues as the creditable sales occur, the
underlying agreement expires, or when the Company has demonstrable evidence
that no additional royalties will be creditable and, accordingly, the earnings
process is completed.
For both ECD and Ovonic Battery royalties, there are royalty trust or
contingent fee arrangements whereby the Company is obligated to pay a trust 25%
of optical memory royalties received and a law firm 25% of Ovonic Battery
royalties received relative to consumer battery licenses entered into in 1995 in
settlement of an International Trade Commission action.
Other Comprehensive Income (Loss)
- ---------------------------------
The Company's total comprehensive income (loss) was as follows:
Year Ended June 30,
-------------------------------------------
2000 1999 1998
------------- ------------- -------------
Net Loss $(16,656,128) $(13,777,589) $(16,664,999)
OTHER COMPREHENSIVE INCOME (LOSSES):
Realized (Unrealized) losses on securities - 47,000 (47,000)
Unrealized gains on securities 50,783 - -
------------- ------------- -------------
COMPREHENSIVE LOSS $(16,605,345) $(13,730,589) $(16,711,999)
============= ============= =============
Business Agreements
- -------------------
A substantial portion of revenues is derived through business agreements
for the development and/or commercialization of products based upon the
Company's proprietary technologies. The following describes two types of such
agreements.
The first type of business agreement relates to licensing the Company's
proprietary technology. Licensing activities are tailored to provide each
licensee with the right to use the Company's technology, most of which is
patented, for a specific product application or, in some instances, for further
exploration of new product applications of such technologies. The terms of such
licenses, accordingly, are tailored to address a number of circumstances
relating to the use of such technology which have been negotiated between the
Company and the licensee. Such terms generally address whether the license will
be exclusive or nonexclusive, whether the licensee is limited to very narrowly
defined applications or to broader-based product manufacture or sale of products
using such technologies, whether
-58-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
the license will provide royalties for products sold which employ such licensed
technology and how such royalties will be measured, as well as other factors
specific to each negotiated arrangement. In some cases, licenses relate
directly to product development that the Company has undertaken pursuant to
product development agreements; in other cases, they relate to product
development and commercialization efforts of the licensee; and other agreements
combine the efforts of the Company with those of the licensee.
License agreement fees are generally recognized as revenue at the time the
agreements are consummated, which is the completion of the earnings process.
Typically, such fees are nonrefundable, do not obligate the Company to incur any
future costs or require future performance by the Company, and are not related
to future production or earnings of the licensee. License fees payable in
installments are recorded at the present value of the amounts to be received,
taking into account the collectibility of the license fee. In some instances, a
portion of such license fees is contingent upon the commencement of production
or other uncertainties. In these cases, license fee revenues are not recognized
until commencement of production or the resolution of uncertainties. Generally,
there are no current or future direct costs associated with license fees.
In the second type of agreement, product development agreements, the
Company conducts specified product development projects related to one of its
principal technology specializations for an agreed-upon fee. Some of these
projects have stipulated performance criteria and deliverables whereas others
require "best efforts" with no specified performance criteria. Revenues from
product development agreements that contain specific performance criteria are
recognized on a percentage-of-completion basis which matches the contract
revenues to the costs incurred on a project based on the relationship of costs
incurred to estimated total project costs. Revenues from product development
agreements, where there are no specific performance terms, are recognized in
amounts equal to the amounts expended on the programs. Generally, the
agreed-upon fees for product development agreements contemplate reimbursing the
Company for costs considered associated with project activities including
expenses for direct product development and research, patents, operating,
general and administrative expenses and depreciation. Accordingly, expenses
related to product development agreements are recorded as cost of revenues from
product development agreements.
Overhead and General and Administrative Allocations
- ---------------------------------------------------
The Company allocates overhead and general and administrative expenses to
product development research expenses and to cost of revenues from research and
development agreements based on a percentage of direct labor costs. For cost of
-59-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - Summary of Accounting Policies - (Continued)
- -----------------------------------------------------
revenues from product development agreements, this allocation is limited to the
amount of revenues, after direct expenses, under the applicable agreements.
Overhead is allocated to cost of product sales through the application of
overhead to inventory costs.
Other Operating Revenues
- ------------------------
Other operating revenues consist principally of revenues related to
services provided to certain related parties and third-party service revenue
realized by certain of the Company's service departments, including the
Production Technology and Machine Building Division and Central Analytical
Laboratory and changes in estimates of revenues recognized on certain customers
and contracts.
Other Nonoperating Income
- -------------------------
Other nonoperating income-net consists of the amortization of deferred
gains and rental income.
-60-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B - Product Sales, Royalties, Revenues from Product Development Agreements
- --------------------------------------------------------------------------------
and License and other Agreements
- --------------------------------
The Company has product sales and business agreements with third parties
for which royalties and revenues are included in the consolidated statements of
operations. A summary of all of the Company's revenues follows:
Year Ended June 30,
--------------------------------------------
2000 1999 1998
------------- ------------- ------------
Product Sales:
Negative and positive electrodes $ 1,362,764 $ 3,116,106 $ 9,295,574
Battery packs 1,493,297 1,059,769 414,469
Machine building 1,824,044 348,363 148,300
United Solar (photovoltaics) 2,212,250 - -
------------- ------------- -------------
$ 6,892,355 $ 4,524,238 $ 9,858,343
============= ============= =============
Royalties:
Battery technology $ 3,300,547 $ 2,681,778 $ 2,479,319
Optical memory 139,617 53,844 6,662
------------- ------------- -------------
$ 3,440,164 $ 2,735,622 $ 2,485,981
============= ============= =============
Revenues from product development agreements:
Photovoltaics $ 1,732,740 $ 2,927,982 $ 2,156,080
Battery technology 4,851,372 11,602,269 10,668,813
Optical memory 1,663,572 2,472,230 1,357,128
Hydrogen 1,610,632 191,231 585,103
Other 107,499 46,903 544,292
United Solar 453,170 - -
------------- ------------- -------------
$ 10,418,985 $ 17,240,615 $ 15,311,416
============= ============= =============
License and other agreements:
Battery $ 3,138,000 $ 4,663,995 $ 1,701,134
Optical memory - 90,000 -
------------- ------------- -------------
$ 3,138,000 $ 4,753,995 $ 1,701,134
============= ============= =============
In the year ended June 30, 2000, the Company entered into a new license
agreement ($1,778,000 in license fees plus future royalties) with Toshiba
Battery for its HEV technology. In addition, Japan Storage, a licensee, notified
the Company that it had reached a certain level of sales of its products and
that the Company had earned an additional license fee of $360,000.
Also, in the year ended June 30, 2000, the Company recognized the
remaining gain of $1,000,000 that had been deferred relevant to a cooperative
venture agreement and a patent license agreement with Sanyo. Sanyo has been
granted a nonexclusive license under Ovonic Battery patents, which includes the
right to sublicense Sanyo affiliates. The license agreement provided for an
up-front payment of $4,400,000 and advance royalties of $500,000. Sanyo also
purchased a minority common share position in Ovonic Battery
-61-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B - Product Sales, Royalties, Revenues from Product Development Agreements
- --------------------------------------------------------------------------------
and License and other Agreements - (Continued)
- ----------------------------------------------
for $2,970,000. A gain on the sale of Ovonic Battery stock in the amount of
$1,970,000 was recorded for the year ended June 30, 1999 and the remaining gain
of $1,000,000 was recognized as a license fee in the year ended June 30, 2000.
The Company historically has entered into agreements with a relatively small
number of major customers throughout the world. GM Ovonic is one major customer
which represents a total of 14% of total revenue for the year ended June 30,
2000. There are two major customers which represent a total of 63% (18% for GM
Ovonic and 45% for General Motors) of total revenue for the year ended June 30,
1999. There are three major customers which represent a total of 62% of total
revenue for the year ended June 30, 1998 (24% for General Motors, 15% for GM
Ovonic and 23% for GP Batteries International Limited (GP Batteries). All of the
Company's major customers are Ovonic Battery customers.
The following table presents revenues by country based on the location of
the customer:
Year Ended June 30,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
United States $21,243,803 $24,879,683 $21,506,018
Australia 536,764 - -
Germany 698,211 - -
Japan 5,984,375 6,701,664 2,204,355
Hong Kong 81,519 783,822 7,465,908
The Netherlands 779,336 - -
Other countries 655,077 607,127 381,300
------------ ------------ -----------
$29,979,085 $32,972,296 $31,557,581
============ ============ ===========
-62-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE C - Nonrefundable Advance Royalties
- ----------------------------------------
At June 30, 2000 and 1999 the Company deferred recognition of revenue
relating to nonrefundable advance royalty payments. Nonrefundable advance
royalties consist of the following:
June 30,
---------------------------
2000 1999
------------ ------------
Battery $ 1,913,331 $ 1,792,068
Optical memory 2,025,336 2,090,035
------------ -----------
$ 3,938,667 $ 3,882,103
=========== ===========
During the years ended June 30, 2000, 1999 and 1998, $165,536, $52,017 and
$257,366, respectively, of creditable royalties earned were recognized as
revenue. During the year ended June 30, 2000, a nonrefundable advance royalty of
$100,000 was received from Japan Storage. During the year ended June 30, 1999, a
nonrefundable advance royalty of $500,000 was received from Sanyo. There are no
obligations in connection with any of the advance royalty agreements which
require the Company to incur any additional costs.
NOTE D - Joint Ventures and Investments
- ---------------------------------------
Joint Ventures
- --------------
Intellectual property resulting from the Company's investments in its
technologies is valued at zero in the balance sheet. Intellectual property
provides the foundation for the creation of the important strategic alliances
whereby the Company provides intellectual property and joint venture partners
provide cash.
The Company's investments in its joint ventures, other than Bekaert ECD
Solar Systems, are recorded at zero. The Company will continue to carry its
investment in each of these joint ventures at zero until the venture becomes
profitable (based upon the venture's history of sustainable profits), at which
time the Company will start to recognize over a period of years its share, if
any, of the then equity of each of the ventures, and will recognize its share of
each venture's profits or losses on the equity method of accounting.
Based upon the opinion of legal counsel, the Company believes that it has
no obligation to fund any losses that its joint ventures incur beyond the
Company's investment. Additionally, the Company has no financial or other
guarantees with respect to liabilities incurred by its joint ventures.
-63-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
United Solar/Bekaert ECD Solar Systems
In April 2000, ECD and Bekaert entered into a strategic alliance in the
field of photovoltaic (solar) products. The joint venture entails an investment
by Bekaert in a new manufacturing plant with an annual capacity of 25 megawatts
(MW) to be designed and built by ECD, a sales and marketing expansion program
and the purchase of Canon's interest in United Solar for a total investment by
Bekaert of $84,000,000.
The new ECD-Bekaert strategic alliance will operate through two related
companies: United Solar, which is owned 81% by ECD and 19% by Bekaert, and a new
assembly, marketing and sales company, Bekaert ECD Solar Systems LLC, which is
owned 60% by Bekaert and 40% by United Solar. In April 2000, at the closing of
the aforementioned transactions, ECD received a total of $7,000,000 from United
Solar and Bekaert ECD Solar Systems. Of this amount, $5,000,000 was an advance
on the 25 MW machine-building order and $2,000,000 was a repayment by United
Solar to ECD of previous loans made by ECD to United Solar. Effective April 11,
2000, ECD is consolidating United Solar in ECD's financial statements. Prior to
the transaction, United Solar's fiscal year end was December 31. United Solar's
year end has now been changed to June 30 to coincide with ECD's year end.
ECD valued the acquisition of Canon's interest in United Solar at
$13,214,630, which includes the issuance of 700,000 shares of ECD Common Stock
which was valued at $12,758,000 and $456,630 balance in ECD-United Solar
joint venture account on April 11, 2000. The acquisition, which resulted in
ECD's ownership in United Solar to increase from 49.98% to 81%, has been
recorded under the purchase method of accounting. The Company allocated the
purchase price for this acquisition to the net assets of United Solar. The value
of the net assets acquired exceeded the purchase price resulting in negative
goodwill, which resulted in a reduction of consolidated expenses. The Company
allocated this negative goodwill to reduce United Solar's long-term assets
(capital equipment) and applicable depreciation expense. The remaining negative
goodwill ($3.3 million) is being amortized over seven years on a straight-line
basis.
-64-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
The fair value of the assets acquired by ECD was:
Cash $ 7,080,329
Accounts Receivable 6,274,337
Inventory 805,196
Other 182,516
Property, Plant and Equipment (net) 7,425,587
Investment in Bekaert ECD Solar Systems 23,000,000
Other 156,200
------------
Total Assets 44,924,165
Accounts Payable 5,223,086
Current Installments of long-term debt 1,445,703
Long-term notes payable - Canon 2,500,000
Long-term Debt 6,242,720
-------------
Total Liabilities 15,411,509
-------------
Net assets acquired 29,512,656
Less - Minority interest (19%) (5,607,405)
- Write off of fixed assets (7,425,587)
- Negative goodwill (3,265,034)
-------------
ECD's investment in United Solar $ 13,214,630
=============
The table below reflects unaudited pro forma combined results of the
Company and United Solar for the years ended June 30, 2000 and June 30, 1999 as
if this acquisition had taken place at the beginning of fiscal 2000 and fiscal
1999:
Year Ended June 30,
-----------------------------
2000 1999
------------ ------------
Total Revenues $ 39,349,212 $ 44,985,573
Net Loss $(14,058,256) $(12,117,823)
Net Loss Per Share $ (.98) $ (.93)
ECD performed laboratory, shop, patent and research services for the
benefit of United Solar for which ECD billed approximately $149,000, $79,000 and
$315,000 in the nine months ended March 31, 2000 and in the years ended 1999 and
1998, respectively. These amounts are included in other revenues. In addition,
in the nine months ended March 31, 2000 and in the years ended 1999 and 1998,
United Solar billed ECD for approximately $359,000, $437,000 and $180,000,
respectively, for work performed in accordance with U.S. Government contracts.
-65-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
The following sets forth certain financial data regarding Bekaert ECD
Solar Systems that are derived from Bekaert ECD Solar System's financial
statements.
BEKAERT ECD SOLAR SYSTEMS
STATEMENT OF OPERATIONS
-----------------------
Three Months Ended
June 30, 2000
-------------------
(Unaudited)
Revenues -
Operating Expenses -
General and administrative $ 1,098,371
------------
Total (1,098,371)
Other Income 109,029
------------
Net Loss $ (989,342)
============
BEKAERT ECD SOLAR SYSTEMS BALANCE SHEET
---------------------------------------
June 30, 2000
-------------------
(Unaudited)
Current Assets:
Cash and Cash Equivalents $ 17,352,523
Inventory 5,035,236
Other Current Assets 17,247,084
-------------
Total Current Assets 39,634,843
Property, Plant and Equipment (Net) 1,720,921
Other Assets 10,462,695
-------------
Total Assets $ 51,818,459
=============
Current Liabilities:
Accounts Payable and Accrued Expenses $ 8,120,306
Note Payable-ECD 9,631,495
-------------
Total Current Liabilities 17,751,801
Total Members' Equity 34,066,658
-------------
Total Liabilities and Members' Equity $ 51,818,459
=============
GM Ovonic
In June 1994, Ovonic Battery and General Motors formed a joint venture, GM
Ovonic, for the manufacture and commercialization of Ovonic NiMH batteries for
electric vehicles. General Motors has a 60% interest and Ovonic Battery has a
40% interest in this
-66-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
joint venture. Ovonic Battery has contributed intellectual property, licenses,
production processes, know-how, personnel and engineering services pertaining
to Ovonic NiMH battery technology to the joint venture. The contribution of
General Motors consists of operating capital, plant, equipment and management
personnel necessary for the volume production of batteries.
During the years ended June 30, 2000, 1999 and 1998, the Company had
revenues of $4,233,000, $5,924,000 and $4,871,000, respectively, related to
sales of products to GM Ovonic and revenues for services performed for
GM Ovonic.
There are no financial statements currently available for GM Ovonic. GM
Ovonic is in its developmental stage and, as such, has a history of operating
losses.
Ovonyx
In January 1999, ECD and Mr. Tyler Lowrey, the former vice chairman and
chief technology officer of Micron Technology, Inc., formed a strategic alliance
(a corporation was formed on June 23, 1999), Ovonyx (initially owned 50% by ECD
and the balance owned by Mr. Lowrey together with an affiliate of Mr. Lowrey),
to commercialize ECD's Ovonic Unified Memory. In February 2000, Ovonyx formed a
strategic alliance with Intel in which Intel Capital, and other investors, made
an equity investment in Ovonyx. Additionally, Ovonyx granted Intel a
nonexclusive royalty-bearing license and began a joint development program
utilizing one of Intel's wafer fabrication facilities. As a result, ECD
currently owns 41.7% of Ovonyx.
ECD recorded revenues from Ovonyx of $2,686,000 through June 30, 2000,
representing services performed for its operations which commenced on January
15, 1999. ECD has received payment for $2,205,000 for these services as of June
30, 2000, and the remaining balance is included in accounts receivable.
-67-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
The following sets forth certain financial data regarding Ovonyx that are
derived from Ovonyx's financial statements.
OVONYX INC. STATEMENT OF OPERATIONS
-----------------------------------
Period from
June 23, 1999 to
May 31, 2000
--------------------
Revenues $ 458,150
Operating Expenses
Product development 2,394,072
Patent 106,871
General and administrative 860,622
--------------
Total 3,361,565
Other Income 83,639
--------------
Net Loss $ (2,819,776)
==============
OVONYX INC. BALANCE SHEET
-------------------------
May 31, 2000
--------------------
Current Assets:
Cash and Cash Equivalents $ 2,256,875
Accounts Receivable 101,880
Other Current Assets 16,927
--------------
Total Current Assets 2,375,682
Property, Plant and Equipment (Net) 11,883
Other Assets 3,000
Securities available for sale 4,481,150
--------------
Total Assets $ 6,871,715
==============
Current Liabilities:
Accounts Payable and Accrued Expenses $ 502,232
--------------
Total Current Liabilities 502,232
Total Stockholders' Equity 6,369,483
--------------
Total Liabilities and Stockholders' Equity $ 6,871,715
=============
-68-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
Investments in EV Global and Innovative Transportation
In February 1998, the Company and EV Global, a Lee Iacocca company,
entered into a Stock Purchase Agreement (Agreement) which provided for the
transfer to EV Global of 146,924 shares of ECD Common Stock and warrants to
purchase 133,658 shares of ECD Common Stock. The Agreement also provided for
the transfer to ECD of 250,000 shares of EV Global Common Stock and 129,241
shares of Unique Mobility Common Stock. Pursuant to the terms of the warrant
agreement, EV Global elected to exchange, in March 2000, the warrants for
49,888 shares of ECD Common Stock.
In May 1999, ECD, Unique Mobility and EV Global formed the German private
company, Unique Europa, headquartered in Mittweida, near Leipzig, in the Free
State of Saxony, Germany, to manufacture battery-electric, hybrid-electric and
fuel cell-electric vehicles. In October 1999, the business and assets of Unique
Europa were reorganized into a new company, Innovative Transportation.
Innovative Transportation was initially capitalized with a minor amount
of cash and a contribution of 625,000 shares of Unique Mobility Common Stock.
Of the stock contribution, 208,333 shares (79,092 of which were acquired
from EV Global in exchange for 34,723 shares of ECD) were contributed by ECD.
At the inception of Innovative Transportation, ECD's interest was 5.7%. ECD's
interest increased to 11.7% as a result of an additional investment of $400,000.
Innovative Transportation is in its formative stage and, as such, there
are no financial statements currently available.
Rare Earth Ovonic
During the year ended June 30, 2000, ECD signed an agreement with
Rare Earth High-Tech Co. Ltd. (Rare Earth High-Tech) of Baotou Steel Company of
Inner Mongolia, China. The agreement called for the creation of joint ventures
for manufacturing and licensing of advanced NiMH battery technology, hydrogen
storage alloy powders, advance Ovonic nickel hydroxide materials and production
equipment for NiMH batteries. As of June 30, 2000, three of the contemplated
five joint ventures have been started. ECD's subsidiary, Ovonic Battery, will
contribute technology for its 19% interest in each of these joint ventures.
Ovonic Media
In March 2000, ECD and General Electric formed a strategic alliance, the
first activity of which resulted in the creation of a joint venture, Ovonic
Media, LLC. This joint
-69-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
venture is owned 51% by General Electric through its GE Plastics business unit
and 49% by ECD. ECD has contributed intellectual property and licenses and
will contribute other assets to the joint venture. GE will make cash and other
contributions to the joint venture.
The following sets forth certain financial data regarding Ovonic Media
that are derived from Ovonic Media's financial statements.
OVONIC MEDIA STATEMENT OF OPERATIONS
------------------------------------
Four Months Ended
June 30, 2000
-------------------------
(Unaudited)
Revenues $ -
Operating expenses:
Product development 422,479
General and administrative 121,681
-----------
Total expenses 544,160
-----------
Loss from operations (544,160)
Interest expense (5,004)
-----------
Net Loss $ (549,164)
===========
OVONIC MEDIA BALANCE SHEET
--------------------------
June 30, 2000
-------------------------
(Unaudited)
Current Assets:
Advances to ECD $ 463,867
-----------
Total Current Assets 463,867
Property, Plant and Equipment (Net) 223,015
-----------
Total Assets $ 686,882
===========
Current Liabilities:
Current Portion of Equipment Lease $ 65,816
-----------
Total Liabilities 65,816
Capital Contributions 1,170,230
Accumulated Deficit (549,164)
-----------
Total Members' Equity 621,066
-----------
Total Liabilities and Members' Equity $ 686,882
===========
-70-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE D - Joint Ventures and Investments - (Continued)
- -----------------------------------------------------
Sovlux
In 1990, ECD formed Sovlux, a joint venture to manufacture the Company's
photovoltaic products in the countries of the former Soviet Union. Sovlux is
owned 50% by ECD and 50% by the State Research and Production Enterprise Kvant
and enterprises of the Russian Ministry of Atomic Energy (Minatom). Sovlux has
not been able to continue production of photovoltaic products due to current
economic conditions in Russia.
In 1998, ECD formed Sovlux Battery to produce NiMH batteries and
components for sale to Ovonic Battery and its licensees. Sovlux Battery is owned
50% by ECD and 50% by the Chepetsky Mechanical Plant (Chepetsky), an enterprise
of Minatom. ECD's contribution to the ventures consists solely of technology.
There are no financial statements currently available for Sovlux or Sovlux
Battery. Sovlux and Sovlux Battery are in their developmental stage and, as
such, have a history of operating losses.
In 1998, the Company recorded revenues of $1,500,000 for license fees
relating to a technology transfer agreement with Sovlux Battery and Chepetsky.
NOTE E - Long-Term Liabilities and Line of Credit
- -------------------------------------------------
A summary of the Company's long-term liabilities is as follows:
June 30,
---------------------------
2000 1999
---------------------------
Capitalized leases with Finova
(with interest rates of approximately 12% at
June 30, 2000 and 12% at June 30, 1999) $ 2,552,643 $ 3,789,416
Capitalized Leases - Fuji
(interest rate of 6.93%) 7,458,879 -
Note Payable - Canon
(interest rate of 6.3%) 9,631,495 -
Note Payable - Canon
(interest rate of 6.21%) 2,500,000 -
Financing Lease for headquarters building
with interest at 8.2% and monthly payments
of $19,250 - 132,172
Other capitalized leases 39,375 52,856
Other 77,000 15,000
------------ -------------
Total 22,259,392 3,989,444
Less amounts included in current liabilities 2,200,039 1,309,508
------------ ------------
Total Long-Term Liabilities $20,059,353 $ 2,679,936
============ ============
-71-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE E - Long-Term Liabilities and Line of Credit - (Continued)
- ---------------------------------------------------------------
Capitalized Leases
- ------------------
In April 1998, the Company entered into a $6,000,000 capital lease
transaction with Finova Capital Corporation, which has two components. One
component, which has been fully utilized, provided $2,000,000 to refinance
existing leased equipment (resulting in $1,200,000 net cash to the Company) and
has a three-year term at the expiration of which the Company will be required to
purchase the equipment for 10% of the original cost. The second component
provided for up to $4,000,000 of financing through December 31, 1998 for the
Company's sale and leaseback of equipment it acquired subsequent to June 30,
1996. At the expiration of the related five-year lease, the Company will be
required to purchase the leased equipment for 10% of the original cost. At June
30, 1998, the Company had entered into sale-and-leaseback arrangements of
$3,137,000 in connection with the second component. The unused portion of the
second component has expired.
The lease agreement is secured by Ovonic Battery's plant and equipment. In
addition, ECD has guaranteed Ovonic Battery's obligations under this agreement
and has provided a first security interest in the Company's unencumbered plant
and equipment.
The Company is obligated under a capital lease with Fuji Bank for certain
machinery and equipment. Under the terms of the agreement, United Solar will
make 43 monthly payments of $120,475 from the period November 21, 1997 to June
21, 2001, and 42 monthly payments of $174,733 from the period July 21, 2001
until the lease termination date of December 21, 2004, at which time United
Solar can repurchase the assets for the nominal value of $1.00. The lease is
guaranteed by Canon and, as a result, Canon has a lien on United Solar's assets.
Notes Payable and Other Long-Term Liabilities
- ---------------------------------------------
In connection with the acquisition of Canon's interest in United Solar,
ECD issued a noninterest-bearing note payable to Canon for $12,000,000 due no
later than January 2004. This note payable was recorded by ECD at a value
of $9,500,000 (using an interest rate of 6.3%).
United Solar entered into a term loan with Canon in the amount of
$2,500,000. Interest accrues at a rate of 6.21% per annum and the loan plus
accrued interest is payable in full on January 17, 2003. At the Company's
option, certain additional rights can be given to Canon under a license
currently in effect in lieu of a cash payment.
-72-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE E - Long-Term Liabilities and Line of Credit - (Continued)
- ---------------------------------------------------------------
Other
- -----
The Company has operating lease agreements, principally for office and
research facilities and equipment. These leases, in some instances, include
renewal provisions at the option of the Company. Rent expense under such lease
agreements for the years ended June 30, 2000, 1999 and 1998 was approximately
$765,000, $699,000, and $1,361,000, respectively.
Future minimum payments on long-term notes payable and other long-term
liabilities, obligations under capital leases and noncancellable operating
leases expiring in each of the five years subsequent to June 30, 2000 are
as follows:
Long-Term
Note Payable
and Other
Long-Term Liabilities Capital Leases Operating Leases
--------------------- -------------- ----------------
2001 - $ 3,011,796 $ 1,682,743
2002 - 2,882,606 1,702,684
2003 $ 2,500,000 2,810,723 1,697,088
2004 12,000,000 2,096,795 1,551,214
2005 - 1,048,397 1,172,037
Thereafter 77,000 - -
------------ ----------- ------------
TOTAL $ 14,577,000 $ 11,850,317 $ 7,805,766
============
Less interest & taxes included above 2,368,506 1,799,419
------------- ------------
Present value of minimum payments $ 12,208,494 $ 10,050,898
============= ============
Line of Credit
- --------------
In April 1999, the Company entered into a two-year financing agreement
with Standard Federal Bank for a line of credit of up to $3,000,000. This
financing bears an interest rate of prime, is secured by a first interest in the
Company's accounts receivable and inventory and contains certain financial
covenants relating to the Company's tangible net worth, working capital and
total debt to tangible net worth. The Company has not borrowed under this
financing agreement.
-73-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - Capital Stock
- ----------------------
The voting rights of ECD's three classes of stock are as follows:
Class A Convertible Common Stock - 25 votes per share
Class B Convertible Common Stock - one vote per share
Common Stock - one vote per share
The Class A Convertible Common Stock is automatically convertible into
Common Stock on a share-for-share basis on September 30, 2005 and is convertible
at the option of the holder any time prior to that date.
As part of an employment agreement among ECD, Ovonic Battery and Mr.
Stanford R. Ovshinsky, president and CEO of ECD, ECD granted Mr. Ovshinsky the
right to vote the shares of Ovonic Battery held by ECD following a change in
control of ECD. For purposes of this agreement, change in control means (i) any
sale, lease, exchange or other transfer of all or substantially all of ECD's
assets, (ii) the approval by ECD stockholders of any plan or proposal of
liquidation or dissolution of ECD, (iii) the consummation of any consolidation
or merger of ECD in which ECD is not the surviving or continuing corporation,
(iv) the acquisition by any person of 30% or more of the combined voting power
of the then-outstanding securities having the right to vote for the election of
directors, (v) changes in the constitution of the majority of the Board of
Directors, (vi) the holders of the Class A Common Stock ceasing to be entitled
to exercise their preferential voting rights other than as provided in ECD's
charter, and (vii) bankruptcy. In the event of mental or physical disability or
death of Mr. Ovshinsky, the foregoing power of attorney and proxy shall be
exercised by Mr. Ovshinsky's wife, Dr. Iris Ovshinsky, a vice president of ECD.
In February 1999, the Board of Directors of the Company renewed each of Mr.
Ovshinsky's employment agreements for an additional term ending September 30,
2005.
As part of an Executive Employment Agreement between ECD and Mr. Robert C.
Stempel, chairman and executive director of ECD, dated January 15, 1999 (the
"Employment Agreement"), ECD issued to Mr. Stempel 430,000 shares of its Common
Stock, $.01 par value, for $4,300, representing an amount equal to the aggregate
par value of the Common Stock. ECD recorded compensation expense of $680,400 in
the year ended June 30, 2000 in connection with this transaction. Following
stockholder approval on March 25, 1999 authorizing 430,000 shares of a new
Class B Common Stock (Class B Common Stock), par value $.01, Mr. Stempel
surrendered to ECD the shares of Common Stock issued for an equal number of
shares of Class B Common Stock. After the conversion of the Class A Common
Stock into Common Stock, the Class B Common Stock will be entitled to 25 votes
per share.
-74-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE F - Capital Stock - (Continued)
- ------------------------------------
The Class B Common Stock is automatically convertible into Common Stock on
a share-for-share basis on September 30, 2005.
During the years ended June 30, 2000, 1999 and 1998, ECD issued 3,542,
5,000, and 3,564 shares of restricted common stock, respectively, as
compensation to employees, consultants, contractors and directors. ECD recorded
compensation expense, based upon fair market value of these shares at the date
of issuance, for the years ended June 30, 2000, 1999 and 1998 of $35,000,
$40,000 and $45,000, respectively, relating to these restricted shares of
Common Stock.
NOTE G - Stock Option Plans, Warrants and Other Rights to Purchase Stock
- ------------------------------------------------------------------------
The Company has Common Stock reserved for issuance as follows:
Number of Shares
-----------------------------
June 30, 2000 June 30, 1999
------------- -------------
Conversion of Class A Convertible Common Stock 219,913 219,913
Conversion of Class B Convertible Common Stock 430,000 430,000
Stock options 2,587,247 3,327,590
1999 Private Placement Warrants 120,000 165,307
Warrants issued in connection with services rendered 285,000 285,000
Warrants issued to EV Global - 133,658
Warrants issued to General Electric 400,000 -
Warrants issued in connection with public offering of units 1,750,000 1,750,000
Convertible Investment Certificates 5,745 5,773
----------- -----------
TOTAL RESERVED SHARES 5,797,905 6,317,241
=========== ===========
Stock Option Plans
- ------------------
The Company's 1976 Amended and Restated Stock Option Plan (the "Amended
Plan") which expired in November 1996, the 1987 Stock Option and Incentive Plan
(1987 Stock Option Plan), which expired in December 1997, and the 1995
Non-Qualified Stock Option Plan (1995 Stock Option Plan) authorize the granting
of stock options at such exercise prices and to such employees, consultants and
other persons as the Compensation Committee appointed by the Board of Directors
(the "Compensation
-75-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE G - Stock Option Plans, Warrants and Other Rights to Purchase Stock -
- --------------------------------------------------------------------------
(Continued)
- -----------
Committee") shall determine. All three stock option plans are administered by
the Compensation Committee.
Options under the Amended Plan and the 1987 Stock Option Plan expire six
years from the date of grant. Options under the 1995 Stock Option Plan expire no
later than 10 years from the date of grant. Stock options under all three plans
may not be exercised during the first six months of the grant. Thereafter,
options may be exercised cumulatively each year, starting at the end of six
months after grant of the option, at a predetermined rate of the number of
shares of the Common Stock subject to the option. The exercise price of all
options granted has been equal to the fair market value of the Common Stock
at the time of grant.
The purchase price and number of shares covered by the options are subject
to adjustment under certain circumstances to protect the optionholders against
dilution.
A summary of the transactions during the years ended June 30, 2000, 1999
and 1998 with respect to the Company's Amended Plan, 1987 Stock Option Plan and
1995 Stock Option Plan follows:
2000 1999 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------ ------------------ ------------------
Outstanding July 1 2,254,693 $13.17 2,269,413 $12.97 2,327,606 $12.82
Granted 5,000 $19.00 185,000 $10.19 19,453 $15.71
Exercised 798,468 $12.59 161,482 $ 7.01 61,866 $ 7.73
Cancelled 7,360 $13.61 38,238 $12.93 15,780 $15.10
--------- ------ --------- ------ --------- ------
Outstanding June 30 1,453,865 $13.50 2,254,693 $13.17 2,269,413 $12.97
========= ====== ========= ====== ========= ======
Exercisable June 30 1,339,065 $13.75 2,060,993 $13.44 2,135,933 $12.76
========= ====== ========= ====== ========= ======
-76-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE G - Stock Option Plans, Warrants and Other Rights to Purchase Stock -
- --------------------------------------------------------------------------
(Continued)
- -----------
The following table summarizes information about stock options outstanding
at June 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices As of 6/30/00 Contractual Life Price As of 6/30/00 Price
- --------------- ------------- ---------------- -------- ------------- --------
$10.19 - $11.75 253,070 5.34 $10.80 143,270 $11.27
$11.88 - $11.88 686,285 4.65 $11.88 686,285 $11.88
$15.13 - $15.88 297,340 5.54 $15.56 297,340 $15.56
$16.75 - $23.50 217,170 5.42 $18.96 212,170 $18.97
---------- ------ -------- --------- ------
$10.19 - $23.50 1,453,865 5.07 $13.50 1,339,065 $13.75
In November 1993, stock options to purchase 94,367 shares of Common Stock
held by Stanford R. Ovshinsky, and stock options to purchase 49,630 shares of
Common Stock held by Dr. Iris M. Ovshinsky, issued under the aforementioned
Amended Plan, were cancelled and new stock options, covering 150,000 (adjusted
to 366,230 as of June 30, 2000) shares of Common Stock in the case of Mr.
Ovshinsky and 100,000 shares (adjusted to 243,902 as of June 30, 2000) of Common
Stock in the case of Dr. Ovshinsky, were granted by ECD. The stock options
cancelled had an average exercise price of approximately $18.00 per share. The
weighted average exercise price of the outstanding stock options is $12.68 per
share. The number of stock options are adjusted pursuant to the antidilution
provisions of the stock option grants. The weighted average price was arrived at
based upon (i) the option price of $7.00 per share for the original number of
shares and any additional shares as adjusted for the antidilution provisions
during the 18-month period following the grant, and (ii) thereafter, the fair
market value of any additional shares as adjusted for the antidilution
provisions, determined quarterly.
On January 15, 1999, ECD entered into a Stock Option Agreement with Robert
C. Stempel that granted Mr. Stempel an option to purchase up to 300,000 shares
of Common Stock at an exercise price of $10.688 per share, the fair market value
of the Common Stock as of the date of the Stock Option Agreement. The option,
which is not subject to vesting requirements, may be exercised from time to
time, in whole or in part, commencing as of the date of the Stock Option
Agreement and ending on the tenth anniversary of such date.
-77-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE G - Stock Option Plans, Warrants and Other Rights to Purchase Stock -
- --------------------------------------------------------------------------
(Continued)
- -----------
The Company continues to apply APB 25 to its stock-based compensation
awards to employees. Had compensation cost for the Company's stock option plans
been determined based upon the fair value at the grant date for awards under
these plans consistent with the methodology prescribed under SFAS 123, the
Company's net loss and loss per share for the years ended June 30, 2000, 1999
and 1998 would have been increased by approximately $2,133,000, $1,972,000 and
$1,268,000 and $.15, $.15 and $.11 per share, respectively. The fair value of
the options granted during 2000, 1999 and 1998 is estimated as $1,849,000,
$2,139,000 and $349,000 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
2000 1999 1998
------------ ------------ ------------
Dividend Yield 0% 0% 0%
Volatilty % 77.96% 70.27% 59.77%
Risk Free Interest Rate 6.19% 4.87% 5.74%
Expected Life 4.31 years 4.08 years 3.91 years
Warrants
- --------
As of June 30, 2000, ECD had outstanding warrants for the purchase of
120,000 shares of Common Stock in connection with private placements of Common
Stock as well as warrants to purchase 215,000 shares of Common Stock in
connection with services rendered. The warrants are currently exercisable at a
weighted average price of $12.87 per share. The exercise price of certain of the
warrants may be reduced in the future pursuant to certain antidilution
provisions.
ECD also has outstanding warrants for the purchase of 400,000 shares of
Common Stock granted to General Electric pursuant to a Common Stock Warrant
between GE and ECD entered into in March 2000. These warrants are exercisable on
or prior to March 10, 2010 at $22.93 per share.
In connection with the 1998 limited public offering of units, ECD has
outstanding warrants for the purchase of 1,750,000 shares of Common Stock. These
warrants, which trade on the NASDAQ National Market under the symbol ENERW, are
exercisable at $20.54 at any time on or prior to July 31, 2001, the expiration
date of the warrants.
-78-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE G - Stock Option Plans, Warrants and Other Rights to Purchase Stock -
- --------------------------------------------------------------------------
(Continued)
- -----------
Pursuant to the Stock Purchase Agreement between ECD and Texaco Inc. dated
as of May 1, 2000, Texaco purchased a 20% equity stake in ECD for $67.4 million.
As part of this Stock Purchase Agreement, Texaco has rights to purchase
additional shares of ECD Common Stock or other ECD securities (ECD Stock).
Other Rights to Purchase Stock
- ------------------------------
So long as Texaco owns more than 5% of ECD Stock and in the event ECD
issues additional ECD Stock other than to Texaco, Texaco has the right to
purchase additional ECD Stock in order for Texaco to maintain its same
proportionate interest in ECD Stock as Texaco held prior to the issuance of the
additional ECD Stock. If Texaco elects to purchase ECD Common Stock, the
purchase price shall be the average of the closing price on NASDAQ of the ECD
Common Stock as reported in The Wall Street Journal for the five trading days
prior to the closing date of the sale multiplied by the number of shares of
the ECD Common Stock which Texaco is entitled to purchase.
If Texaco does not exercise its right to purchase additional ECD Stock
within 15 days after delivery of a Rights Notice from ECD, Texaco's right to
purchase such additional ECD Stock which are the subject of the Rights Notice
shall terminate.
-79-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE H - Net Loss Per Share
- ---------------------------
Basic net loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding. The Company used the
treasury stock method to calculate diluted earnings per share. Potential
dilution exists from stock options and warrants. Weighted average number of
shares outstanding and basic and diluted earnings per share for the three years
ended June 30 are computed as follows:
2000 1999 1998
------------- ------------- --------------
Weighted average number of
shares outstanding 14,327,869 13,019,657 11,116,619
Net loss $(16,656,128) $(13,777,589) $(16,664,999)
BASIC NET LOSS PER SHARE $ (1.16) $ (1.06) $ (1.50)
============== ============= =============
Weighted average number of
shares outstanding 14,327,869 13,019,657 11,116,619
Weighted average shares for
dilutive securities -0- -0- -0-
------------- ------------- --------------
Average number of shares outstanding
and potential dilutive shares 14,327,869 13,019,657 11,116,619
Net loss $(16,656,128) $(13,777,589) $(16,664,999)
DILUTED NET LOSS PER SHARE $ (1.16) $ (1.06) $ (1.50)
============= ============= =============
Due to the Company's net losses, the 2000, 1999 and 1998 weighted average
shares of potential dilutive securities of 721,513, 101,898 and 450,639,
respectively, were excluded from the calculations of diluted loss per share, as
inclusion of these securities would have been antidilutive to the net loss per
share. Additional securities of 332,817, 3,840,852 and 2,014,649, respectively,
were excluded from the 2000, 1999 and 1998 calculations of weighted average
shares of potential dilutive securities. Because of the relationship between the
exercise prices and the average market price of ECD's Common Stock during these
periods, these securities would have been antidilutive regardless of the
Company's net loss.
-80-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE I - Federal Taxes on Income
- --------------------------------
At June 30, 2000 and 1999, the Company has approximately $70,704,000 and
$43,316,000, respectively, of net deferred tax assets, consisting primarily of
$70,190,000 and $42,304,000, respectively, due to net operating loss
carryforwards, and $514,000 and $1,012,000, respectively, due to tax credit
carryforwards. However, a valuation reserve of the same amount is required due
to the Company's operating history and uncertainty regarding the future
realizability of the net tax operating loss carryforwards and tax credit
carryforwards.
The Company's valuation reserve was increased by $27,388,000 in 2000,
$381,000 in 1999 and by $2,712,000 in 1998 for the impact of the 2000, 1999 and
1998 net operating losses, temporary differences and the expiration of tax
carryforwards. The increase in 2000 is mainly the result of consolidating
United Solar's net operating losses. The Company's utilization of United
Solar's net operating losses is limited to approximately $10 million per year
under the Internal Revenue Codes.
At June 30, 2000, the Company's remaining net tax operating loss
carryforwards and tax credit carryforwards expire as follows:
Net Tax Operating Investment Tax R&D Credit
Loss Carryforward Credit Total Carryforward
----------------- -------------- ------------
2001 $23,828,000 $27,000 -
2002 15,900,000 - -
2003 17,460,000 - -
2004 1,338,000 - -
2005 2,907,000 - -
2006 12,382,000 - -
2007 10,430,000 - $276,000
2008 9,496,000 - 41,000
2009 11,804,000 - 30,000
2010 7,619,000 - 15,000
2011 14,743,000 - 40,000
2012 17,173,000 - 14,000
2013 22,819,000 - 29,000
2014 14,044,000 - 42,000
2015 - - -
2016 - - -
2017 - - -
2018 - - -
2019 - - -
2020 24,501,000 - -
------------ ------- --------
$206,444,000 $27,000 $487,000
============ ======= ========
-81-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE J - Related Party Transactions
- -----------------------------------
For the three years ended June 30, 2000, 1999 and 1998, ECD incurred
expenses of $470,824, $63,331 and $107,881, respectively, for services rendered
by its directors.
For related party transactions involving United Solar, GM Ovonic and
Sovlux see Note D.
NOTE K - Business Segments
- --------------------------
The Company has three business segments: its subsidiaries, Ovonic Battery
and United Solar, and the parent company, ECD. Ovonic Battery is primarily
involved in developing and commercializing battery technology. United Solar is
primarily involved in selling, developing and commercializing photovoltaic
technology. ECD is primarily involved in photovoltaics, microelectronics, fuel
cells, hydrogen storage technologies and machine building. Some general
corporate expenses have been allocated to Ovonic Battery.
The Company's operations by business segment were as follows:
Financial Data by Business Segment
----------------------------------
(in thousands)
Ovonic Battery United Solar* ECD Other Consolidated
-------------- ------------ ------------ ------------ ------------
Revenues**
Year ended June 30, 2000 $16,365 $3,763 $11,213 $(1,362) $29,979
Year ended June 30, 1999 25,687 - 7,285 - 32,972
Year ended June 30, 1998 27,161 - 4,397 - 31,558
Interest Income
Year ended June 30, 2000 - $50 $1,526 - $1,576
Year ended June 30, 1999 - - 1,187 - 1,187
Year ended June 30, 1998 11 - 588 - 599
Interest Expense***
Year ended June 30, 2000 $385 $174 $15 - $574
Year ended June 30, 1999 525 - 39 - 564
Year ended June 30, 1998 62 - 76 - 138
Operating Loss****
Year ended June 30, 2000 $(14,621) $(497) $(1,161) $227 $(16,052)
Year ended June 30, 1999 (9,785) - (3,209) - (12,994)
Year ended June 30, 1998 (14,462) - (2,383) - (16,845)
-82-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE K - Business Segments - (Continued)
- ----------------------------------------
Ovonic Battery United Solar* ECD Other Consolidated
-------------- ------------ ------------ ------------ ------------
Equity in Net Loss of Investee
Under Equity Method
Year ended June 30, 2000 - $(396) $(2,067) - $(2,463)
Year ended June 30, 1999 - - (3,660) - (3,660)
Year ended June 30, 1998 - - (384) - (384)
Depreciation Expense
Year ended June 30, 2000 $1,486 $424 $708 $(424) $2,194
Year ended June 30, 1999 1,247 - 728 - 1,975
Year ended June 30, 1998 1,307 - 823 - 2,130
Capital Expenditures
Year ended June 30, 2000 $335 $98 $265 - $698
Year ended June 30, 1999 800 - 522 - 1,322
Year ended June 30, 1998 1,357 - 345 - 1,702
Investments in Equity Method Investees
Year ended June 30, 2000 - $22,395 - - $22,395
Year ended June 30, 1999 - - $956 - 956
Year ended June 30, 1998 - 2,116 - 2,116
Identifiable Assets
Year ended June 30, 2000 $8,930 $41,763 $121,225 $(23,012) $148,906
Year ended June 30, 1999 13,012 - 26,796 - 39,808
Year ended June 30, 1998 16,340 - 35,021 - 51,361
- ------------------------------
*For the period from April 11, 2000 to June 30, 2000.
**All revenues are derived from external customers.
***Excludes intercompany interest.
****Includes intercompany interest of $4,038 for the year ended June 30, 2000, $3,565 for the year ended
June 30, 1999 and $3,444 for the year ended June 30, 1998 charged by ECD to Ovonic Battery in
accordance with the agreements between the parties.
-83-
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
Item 9: Changes in and Disagreements on Accounting and Financial Disclosure
- ------- ------------------------------------------------------------------
Not applicable.
-84-
PART III
Item 10: Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The composition of the Board of Directors of ECD is as follows:
Director
of the
Company Principal Occupation and
Name Since Office Business Experience
---- -------- ------ ------------------------
Stanford R. Ovshinsky 1960 President, Chief Mr. Ovshinsky, 77, the founder and Chief Executive
Executive Officer Officer of ECD, has been an executive officer and
and Director director of ECD since its inception in 1960.
Mr. Ovshinsky is the primary inventor of ECD's
technology. He also serves as the Chief Executive
Officer and a director of Ovonic Battery; Chief
Executive Officer and Chairman of United Solar; a
member of the Management Committee of Texaco
Ovonic Fuel Cell Company, LLC; a member of the
Management Committee of Bekaert ECD Solar
Systems; a member of the Board of Managers of GM
Ovonic; Chairman of Ovonyx, a member of the Alliance
Board of Ovonic Media; and Co-Chairman of the Board
of Directors of Sovlux. Mr. Ovshinsky is the husband
of Dr. Iris M. Ovshinsky.
Iris M. Ovshinsky 1960 Vice President Dr. Ovshinsky, 73, co-founder and Vice President of
and Director ECD, has been an executive officer and director of
ECD since its inception in 1960. Dr. Ovshinsky also
serves as a director of Ovonic Battery. Dr. Ovshinsky
is the wife of Stanford R. Ovshinsky.
Robert C. Stempel 1995 Chairman of the Mr. Stempel, 67, is Chairman of the Board and
Board and Executive Director of ECD. Prior to his election as a
Executive director in December 1995, Mr. Stempel served as
Director senior business and technical advisor to Mr.
Ovshinsky. He is also the Chairman of Ovonic Battery;
a member of the Board of Managers of GM Ovonic; a
director of United Solar and Ovonyx; a member of the
Management Committee of Texaco Ovonic Fuel Cell
Company, LLC; a member of the Management
Committee of Bekaert ECD Solar Systems and a
member of the Alliance Board of Ovonic Media. From
1990 until his retirement in 1992, he was the Chairman
and Chief Executive Officer of General Motors
Corporation. Prior to serving as Chairman, he had
been President since 1987. Mr. Stempel serves on the
Audit Committee of the Board. He is a director of
Southwall Technologies, Inc.
-85-
Nancy M. Bacon 1977 Senior Vice Mrs. Bacon, 54, joined ECD in 1976 as its Vice
President and President of and Treasurer. She became the
Director Senior Vice President of ECD in 1993. Mrs. Bacon
also serves as a director of Sovlux and United Solar
and is a member of the Management Committee
of Bekaert ECD Solar Systems.
Umberto Colombo 1995 Director Prof. Colombo, 72, is Chairman of the Scientific
Councils of the ENI Enrico Mattei Foundation and of
the Instituto Per l'Ambiente in Italy. He was Chairman
of the Italian National Agency for New Technology,
Energy and the Environment until 1993 and then
served as Minister of Universities and Scientific and
Technological Research in the Italian Government until
1994. Prof. Colombo is a member of the Board of
Directors of several Italian-based public companies.
He is also active as a consultant in international
science and technology policy institutions related to
economic growth.
Subhash K. Dhar 1999 Director Mr. Dhar, 49, joined ECD in 1981 and has held various
positions with Ovonic Battery since its inception in
October 1982. Mr. Dhar is currently the President,
Chief Operating Officer and a director of Ovonic
Battery.
Hellmut Fritzsche 1969 Vice President Dr. Fritzsche, 73, was a professor of Physics at the
and Director University of Chicago from 1957 until his retirement in
1996. He was also Chairman of the Department of
Physics, the University of Chicago, until 1986. Dr.
Fritzsche has been a Vice President of ECD since
1965, acting on a part-time basis, chiefly in ECD's
research and product development activities. He
serves on the Board of Directors of United Solar.
Joichi Ito(1) 1995 Director Mr. Ito, 34, is the Chairman and a Director of Digital
Garage, K.K. and Infoseek Japan K.K. He is also the
President of Neoteny and Transoceanic Ventures, Inc.,
as well as a board member of PSINet Japan, K.K. He
is an expert on new computer technology and
networked information systems and writes and lectures
extensively in the United States, Japan and Europe.
Mr. Ito serves as a director and consultant to many
companies in the field of information technology.
Seymour Liebman 1997 Director Mr. Liebman, 51, currently Executive Vice President
and General Counsel at Canon U.S.A., Inc., has held
a variety of positions with Canon since 1974, including
Senior Vice President and General Counsel from 1992-
1996. Mr. Liebman also serves on the Board of
Directors of United Solar. He is a director of Zygo
Corporation.
-86-
Tyler Lowrey 1999 Director Mr. Lowrey, 47, currently the President, Chief
Executive Officer and director of Ovonyx, held a variety
of positions with Micron Technology Inc. from 1984-
1997, including Vice Chairman, Chief Technology
Officer, Chief Operating Officer and Vice President,
R&D. While at Micron, Mr. Lowrey was responsible for
DRAM, SRAM, Flash and RFID product development
as well as heading up all manufacturing operations,
DRAM design, QA and R&D Process Fab.
Walter J. McCarthy, Jr. 1995 Director Mr. McCarthy, 75, until his retirement in 1990, was the
Chairman and Chief Executive Officer of Detroit Edison
Company. He has served as a consultant to ECD
since 1990. Until 1995, Mr. McCarthy also served on
the Boards of Comerica Bank, Detroit Edison Company
and Federal-Mogul Corporation. He is a member of the
National Academy of Engineering. Mr. McCarthy
serves as Chairman of the Compensation Committee
and is on the Audit Committee of the Board.
Florence I. Metz 1995 Director Dr. Metz, 71, until her retirement in 1996, held various
executive positions with Inland Steel Company:
General Manager, New Ventures, Inland Steel
Company (1989-1991); General Manager, New
Ventures, Inland Steel Industries (1991-1992) and
Advanced Graphite Technologies (1992-1993);
Program Manager for Business and Strategic Planning
at Inland Steel (1993-1996). Dr. Metz also serves on
the Board of Directors of Ovonic Battery. She serves
on the Compensation Committee of the Board.
James R. Metzger 2000 Director Mr. Metzger, 53, currently a Vice President and the
Chief Technology Officer at Texaco, Inc., has held
various position with Texaco since joining Texaco in
1969. Mr. Metzger's responsibilities at Texaco include
Corporate Planning and Economics, Safety Health and
Environment, Corporate Services and Purchasing. He
is a member of the Diversity Council, chairs the
Corporate Technology Council and serves on Texaco's
Executive Council, the company's senior leadership
team. He is a member of the board of Alto Technology,
Magic Earth, White Plains Hospital Corp. and a Trustee
of Mercy College. Mr. Metzger was appointed to
ECD's Board of Directors on July 27, 2000.
-87-
Nathan J. Robfogel(1) 1990 Director Mr. Robfogel, 65, is currently Senior Counselor to the
President of the Rochester Institute of Technology
(RIT). From 1996-1999, he served as Vice President
for University Relations of RIT, where he was also a
Trustee from 1985-1996. For over 30 years and until
his retirement in 1996, Mr. Robfogel was a partner in
the law firm of Harter, Secrest & Emery, where he was
Managing Partner. From 1989-1995, Mr. Robfogel was
Chairman of the Board and Chief Executive Officer of
the New York State Facilities Development
Corporation, a public benefit corporation. He is a
member of the Board of Directors of Genesee Valley
Trust Company and Rochester Community Baseball,
Inc.
Stanley K. Stynes 1977 Director Dr. Stynes, 68, was Dean of the College of
Engineering at Wayne State University from 1970 to
August 1985, and a Professor of Engineering at Wayne
State University from 1985 until his retirement in 1992.
He has been involved in various administrative,
teaching, research and related activities. Dr. Stynes
serves as Chairman of the Audit Committee of the
Board.
William M. Wicker 2000 Director Mr. Wicker, 51, is currently a Senior Vice President at
Texaco Inc. Prior to joining Texaco in 1997, Mr.
Wicker was a Managing Director at Credit Suisse First
Boston, which he joined in 1989. Mr. Wicker's
responsibilities at Texaco include Texaco Power and
Gasification, Texaco Natural Gas, Texaco Pipeline
International and Texaco Energy Systems. He serves
on Texaco's Executive Council, the company's senior
leadership team. Mr. Wicker was appointed to ECD's
Board of Directors on July 27, 2000.
- -------
(1) Messrs. Ito and Robfogel stepped down as Board members, effective July
2000, due to additional business responsibilities.
-88-
The executive officers of ECD are as follows:
Served As An Executive
Name Age Office Officer or Director Since
---- --- ------ -------------------------
Stanford R. Ovshinsky 77 President, Chief Executive Officer 1960(1)
and Director
Iris M. Ovshinsky 73 Vice President and Director 1960(1)
Robert C. Stempel 67 Executive Director and Chairman of 1995
the Board
Nancy M. Bacon 54 Senior Vice President and Director 1976
Hellmut Fritzsche 73 Vice President and Director 1969
Subhash K. Dhar 49 President and Chief Operating 1986
Officer of Ovonic Battery and
Director
Stephan W. Zumsteg 54 Treasurer 1997
- -------
(1) The predecessor of ECD was originally founded in 1960. The present
corporation was incorporated in 1964 and is the successor by merger of the
predecessor corporation.
See above for information relating to Stanford R. Ovshinsky, Iris M.
Ovshinsky, Robert C. Stempel, Nancy M. Bacon, Hellmut Fritzsche and Subhash K.
Dhar.
Stephan W. Zumsteg joined ECD in March 1997 and was elected Treasurer in
April 1997. Prior to joining ECD, Mr. Zumsteg was Chief Financial Officer of the
Kirlin Company from July 1996 to February 1997 and Vice President-Finance &
Administration and Chief Financial Officer of Lincoln Brass Works from July 1991
to June 1996.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and officers to file reports of ownership and changes in ownership
with respect to our securities and those of our affiliates with the Securities
and Exchange Commission and to furnish copies of these reports to us. Based on a
review of these reports and written representations from our directors and
officers regarding the necessity of filing a report, we believe that during
fiscal year ended June 30, 2000, all filing requirements were met on a timely
basis.
-89-
Item 11: Executive Compensation
- ------- ----------------------
The following table sets forth the compensation paid by ECD during its
last three fiscal years to its Chief Executive Officer and each of its other
four most highly compensated executive officers for the fiscal year ended June
30, 2000.
SUMMARY COMPENSATION TABLE
Annual Long Term
Compensation Compensation
------------ ------------
All
Restricted Options Other
Name and Principal Fiscal Stock (Number of Compen-
Position Year(1) Salary(2) Bonus Award Shares) sation(3)
------------------ ------- --------- ----- ---------- ---------- ---------
Stanford R. Ovshinsky, 2000 $303,908 $12,657
President and Chief 1999 $294,929 $14,952
Executive Officer 1998 $284,967 $14,652
Robert C. Stempel, 2000 $270,004 - - $ 5,035
Executive Director 1999 $270,004 $4,591,540(4) 300,000 $ 6,111
1998 $270,005 - - $ 3,159
Iris M. Ovshinsky, 2000 $265,918 $12,657
Vice President 1999 $257,941 $14,952
1998 $250,016 $13,569
Nancy M. Bacon, 2000 $255,008 $ 6,538
Senior Vice President 1999 $254,854 $ 7,104
1998 $235,019 $ 5,796
Subhash K. Dhar, 2000 $224,421 $ 5,829
President and Chief 1999 $220,001 $ 6,157
Operating Office of 1998 $211,545 $ 5,283
Ovonic Battery
- -------
(1) ECD's fiscal year is July 1 to June 30. ECD's 2000 fiscal year ended
June 30, 2000.
(2) Amounts shown include compensation deferred under ECD's 401 (k) Plan.
Does not include taxable income resulting from exercise of stock options.
-90-
(3) "All Other Compensation" is comprised of (i) contributions made by ECD to
the accounts of each of the named executive officers under ECD's 401(k)
Plan with respect to each of the calendar years ended December 31, 1999,
1998 and 1997, respectively, as follows: Mr. Ovshinsky $4,800 for each of
1999 and 1998 and $4,500 for 1997; Dr. Ovshinsky $4,800 for each of 1999
and 1998 and $4,500 for 1997; Mrs. Bacon $4,800 for each of 1999 and 1998
and $4,500 for 1997; Mr. Dhar $4,800 for each of 1999 and 1998 and $4,500
for 1997; (ii) the dollar value of any life insurance premiums paid by ECD
in the calendar years ended December 31, 1999, 1998 and 1997,
respectively, with respect to term-life insurance for the benefit of each
of the named executives as follows: Mr. Ovshinsky $7,857 for 1999 and
$10,152 for each of 1998 and 1997; Mr. Stempel $5,035, $6,111, and $3,159;
Dr. Ovshinsky $7,857, $10,152 and $9,069; Mrs. Bacon 1,738, $2,304 and
$1,296; Mr. Dhar $1,029, $1,357 and $783. Under the 401 (k) Plan, which is
a qualified defined-contribution plan, ECD makes matching contributions
periodically on behalf of the participants in the amount of 50% of each
such participant's contributions. These matching contributions were
limited to 3% of a participant's salary, up to $160,000 for the three
calendar years reported.
(4) Represents the market value, less consideration paid consisting of the par
value $.01, of 430,000 shares of Common Stock awarded to Mr. Stempel under
a Restricted Stock Agreement dated January 15, 1999. Such shares of Common
Stock were exchanged for an equal number of shares of Class B Common Stock
upon the approval by ECD's stockholders, at the Annual Meeting held on
March 25, 1999, of a proposal to amend ECD's Certificate of Incorporation
to authorize 430,000 shares of a new Class B Common Stock. See "Class B
Common Stock." All shares of Restricted Stock will be deemed to vest if
Mr. Stempel is serving as a director and officer of ECD on September 30,
2005 or upon the occurrence of a change in control of ECD. Dividends will
be paid on the Restricted Stock if and to the extent paid on ECD's Common
Stock generally. So long as Mr. Stempel continues to serve as a director
of ECD and irrespective of whether the shares are deemed vested, he will
be entitled to exercise all voting rights with respect to the Restricted
Stock, including all preferential voting rights to which the Class B
Common Stock may become entitled after the conversion of the Class A
Common Stock. The value of Mr. Stempel's Restricted Stock at the close of
ECD's fiscal year was $10,911,250.
OPTION GRANTS IN LAST FISCAL YEAR
The named executive officers did not receive any option grants during the
fiscal year ended June 30, 2000.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table sets forth all stock options exercised by the named
executives during the fiscal year ended June 30, 2000, and the number and value
of unexercised options held by the named executive officers at fiscal year end.
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised in-the-Money Options
Exercise Realized Options at Fiscal Year End at Fiscal Year End
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ----------- -------- -------------------------- -------------------------
Stanford R. Ovshinsky(1) 62,100 $765,750(2) 599,087/0 $7,797,551/$0
Iris M. Ovshinsky(3) 35,000 $420,437(4) 390,790/0 $5,077,892/$0
Robert C. Stempel(5) 34,000 $496,400(6) 604,000/0 $7,547,600/$0
Nancy M. Bacon(7) 23,000 $258,562(8) 162,200/0 $1,984,950/$0
Subhash K. Dhar(9) 6,888 $100,885(10) 62,040/0 $ 535,095/$0
- -------
(1) Mr. Ovshinsky's exercisable options are exercisable at a weighted average
price of $13.36 per share.
(2) Of the $765,750 value realized, approximately $265,000 was used to cover
withholding taxes and other expenses associated with the exercise.
(3) Dr. Ovshinsky's exercisable options are exercisable at a weighted average
price of $12.38 per share.
(4) Of the $420,437 value realized, approximately $148,000 was used to cover
withholding taxes and other expenses associated with the exercise and
$41,125 was used to purchase 3,500 shares of ECD Common Stock.
(5) Mr. Stempel's exercisable options are exercisable at a weighted average
price of $12.88 per share.
(6) Of the $496,400 value realized, approximately $174,000 was used to cover
withholding taxes and other expenses associated with the exercise and
$102,700 was used to purchase 10,000 shares of ECD Common Stock.
(7) Mrs. Bacon's exercisable options are exercisable at a weighted average
price of $13.14 per share.
(8) Of the $258,562 value realized, approximately $92,000 was used to cover
withholding taxes and other expenses associated with the exercise.
(9) Mr. Dhar's exercisable options are exercisable at a weighted average
price of $16.75 per share.
(10) Of the $100,885 value realized, approximately $38,000 was used to cover
withholding taxes and other expenses associated with the exercise.
-92-
EMPLOYMENT AGREEMENTS
On September 2, 1993, Stanford R. Ovshinsky entered into separate
employment agreements with each of ECD and Ovonic Battery in order to define
clearly his duties and compensation arrangements and to provide to each company
the benefits of his management efforts and future inventions. The initial term
of each employment agreement was six years. In February 1999, the Board of
Directors of ECD and Ovonic Battery renewed each of Mr. Ovshinsky's employment
agreements for an additional term ending September 30, 2005. Mr. Ovshinsky's
employment agreement with ECD provides for an annual salary of not less than
$100,000, while his agreement with Ovonic Battery provides for an annual salary
of not less than $150,000. Both agreements provide for annual increases to
reflect increases in the cost of living, discretionary annual increases as
determined by the Board of Directors of ECD and an annual bonus equal to 1% of
the net income from operations of ECD (excluding Ovonic Battery) or Ovonic
Battery. Mr. Ovshinsky's annual salary increases over the last three fiscal
years have been determined based upon increases in the cost of living as
determined by the Compensation Committee using as a guide the percentage
increase in the Consumer Price Index for the Detroit- metropolitan area
published by the Bureau of Labor Statistics.
Mr. Ovshinsky's employment agreement with Ovonic Battery additionally
contains a power of attorney and proxy from ECD providing Mr. Ovshinsky with the
right to vote the shares of Ovonic Battery held by ECD following a change in
control of ECD. For purposes of the agreement, change in control means (i) any
sale, lease, exchange or other transfer of all or substantially all of ECD's
assets; (ii) the approval by ECD's stockholders of any plan or proposal of
liquidation or dissolution of ECD; (iii) the consummation of any consolidation
or merger of ECD in which ECD is not the surviving or continuing corporation;
(iv) the acquisition by any person of 30 percent or more of the combined voting
power of the then outstanding securities having the right to vote for the
election of directors; (v) changes in the constitution of the majority of the
Board of Directors; (vi) the holders of the Class A Common Stock ceasing to be
entitled to exercise their preferential voting rights other than as provided in
ECD's charter and (vii) bankruptcy. In the event of mental or physical
disability or death of Mr. Ovshinsky, the foregoing power of attorney and proxy
will be exercised by Dr. Iris M. Ovshinsky.
Pursuant to his employment agreement with Ovonic Battery, Mr. Ovshinsky
was granted stock options, exercisable at a price of $16,129 per share to
purchase 186 shares (adjusted from a price of $50,000 per share to purchase 60
shares pursuant to the anti- dilution provisions of the option agreement) of
Ovonic Battery's common stock, representing approximately 6 percent of Ovonic
Battery's outstanding common stock. The Ovonic Battery stock options vest on a
quarterly basis over six years commencing with the quarter beginning October 1,
1993, subject to Mr. Ovshinsky's continued performance of his obligations to
Ovonic Battery under his employment agreement.
-93-
In February 1998, the Compensation Committee of the Board of Directors
recommended and the Board of Directors approved an Employment Agreement between
ECD and Dr. Iris M. Ovshinsky. The purpose of the Employment Agreement is to
clearly define Dr. Ovshinsky's duties and compensation arrangements. The
Employment Agreement also provides for ECD to have the benefits of Dr.
Ovshinsky's services as a consultant to ECD following the termination of her
active employment for consulting fees equal to 50 percent of the salary payable
to Dr. Ovshinsky at the date of the termination of her active employment. Dr.
Ovshinsky shall have the right to retire at any time during her services as a
consultant and receive retirement benefits equal to the consulting fees for the
remainder of Dr. Ovshinsky's life.
The initial term of Dr. Ovshinsky's employment period was until September
2, 1999 and is automatically renewed for successive one-year periods unless
terminated by Dr. Ovshinsky or ECD upon 120 days notice in advance of the
renewal date. Dr. Ovshinsky's employment agreement provides for an annual salary
of not less than $250,000, annual increases to reflect increases in the cost of
living and discretionary annual increases, as determined by the Board of
Directors of ECD.
On January 15, 1999, ECD entered into an Executive Employment Agreement
(Executive Employment Agreement) with Mr. Stempel. The Executive Employment
Agreement provides that Mr. Stempel will serve as the Executive Director of ECD
for a term ending September 30, 2005. During the term of his employment, Mr.
Stempel will be entitled to receive an annual salary as determined by the Board
of Directors from time to time. The Executive Employment Agreement also provides
for discretionary bonuses to be determined by the Board of Directors based on
Mr. Stempel's individual performance and the financial performance of ECD. The
Executive Employment Agreement also requires ECD to provide Mr. Stempel with
non-wage benefits, including insurance, pension and profit sharing, stock
options, automobile use or allowance and organizational membership fees, of the
types provided generally by ECD to its senior executive officers.
The Executive Employment Agreement permits Mr. Stempel to retire as an
officer and employee of ECD and will permit him to resign his employment at any
time in the event he becomes subject to any mental or physical disability which,
in the good faith determination of Mr. Stempel, materially impairs his ability
to perform his regular duties as an officer of ECD. The Executive Employment
Agreement permits ECD to terminate Mr. Stempel's employment upon the occurrence
of certain defined events, including the material breach by Mr. Stempel of
certain non-competition and confidentiality covenants contained in the Executive
Employment Agreement, his conviction of certain criminal acts or his gross
dereliction or malfeasance of his duties as an officer and employee of ECD
(other than as a result of his death or mental or physical disability).
Mr. Stempel's entitlement to compensation and benefits under the Executive
Employment Agreement will generally cease effective upon the date of the
termination of
-94-
his employment, except that ECD will be required to continue to provide Mr.
Stempel and his spouse with medical, disability and life insurance coverage for
the remainder of their lives or until the date they secure comparable coverage
provided by another employer.
COMPENSATION COMMITTEE REPORT
Compensation Committee.
The Compensation Committee is composed of Mr. McCarthy (Chairman) and Dr.
Metz. Neither of the Compensation Committee members are or were during the
last fiscal year an officer or employee of ECD or any of its subsidiaries, or
had any business relationship with ECD or any of its subsidiaries.
The Compensation Committee is responsible for administering the policies
which govern both annual compensation of executive officers and ECD's stock
option plans. The Compensation Committee meets several times during the year to
review recommendations from management regarding stock options and compensation.
Compensation and stock option recommendations are based upon performance,
current compensation, stock option ownership, and years of service to ECD. ECD
does not have a formal bonus program for executives, although it has awarded
bonuses to its executives from time to time.
Compensation of Executive Officers.
The Compensation Committee considers ECD's financial position and other
factors in determining the compensation of its executive officers. These factors
include remaining competitive within the relevant hiring market--whether
scientific, managerial or otherwise--so as to enable ECD to attract and retain
high quality employees, and, where appropriate, linking a component of
compensation to the performance of ECD's Common Stock--such as by a granting of
stock option or similar equity-based compensation--to instill ownership thinking
and align the employees' and stockholders' objectives. ECD has been successful
at recruiting and retaining and motivating executives who are highly talented,
performance-focused and entrepreneurial.
During ECD's last fiscal year, the Compensation Committee determined that
ECD had achieved several important scientific and business milestones. The
Compensation Committee also concluded that the achievement of these milestones
had not yet been fully reflected in ECD's financial results. In light of ECD's
general policy of conserving available cash flow where possible to advance its
business objectives, the Compensation Committee determined that it was not
advisable to materially raise executive base salaries or grant material bonuses,
stock options or other compensation to ECD's executive officers.
-95-
Chief Executive Officer Compensation.
In September 1993, Mr. Ovshinsky entered into separate employment
agreements with each of ECD and Ovonic Battery. The purpose of these agreements,
which provide for the payment to Mr. Ovshinsky of an annual salary of not less
than $250,000 by ECD and by Ovonic Battery, was to define clearly Mr.
Ovshinsky's duties and compensation arrangements and to provide to each company
the benefits of his management efforts and future inventions. See "Employment
Agreements." Mr. Ovshinsky's compensation for fiscal year 2000 was determined in
accordance with his Employment Agreements with ECD and Ovonic Battery. Based on
the factors described above with respect to the compensation of ECD's executive
officers, the Compensation Committee determined that it was not advisable to pay
a discretionary bonus to ECD's Chief Executive Officer for fiscal year 2000.
COMPENSATION COMMITTEE
Walter J. McCarthy, Jr.
Florence I. Metz
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PERFORMANCE GRAPH
The line graph below compares the cumulative total stockholder return on
ECD's Common Stock over a five-year period with the return on the NASDAQ Stock
Market - U.S. Index and the Chase H & Q Technology Index.
Cumulative Total Return
----------------------------------------------------
6/95 6/96 6/97 6/98 6/99 6/00
---- ---- ---- ---- ---- ----
ENERGY CONVERSION DEVICES, INC. 100 140.00 78.46 59.62 61.16 156.15
NASDAQ STOCK MARKET (U.S.) 100 128.39 156.15 205.58 296.02 437.30
CHASE H & Q TECHNOLOGY 100 116.87 152.63 193.34 312.92 548.97
The total return with respect to NASDAQ Stock Market - U.S. Index and the
Chase H & Q Technology Index assumes that $100 was invested on June 30, 1995,
including reinvestment of dividends.
We have not paid any cash dividends in the past and do not expect to pay
any in the foreseeable future.
The Report of the Compensation Committee on Executive Compensation and the
Performance Graph are not deemed to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, or Securities Exchange
Act of 1934, as amended, or incorporated by reference in any documents so filed.
-97-
Item 12: Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
CLASS A COMMON STOCK
Mr. Stanford R. Ovshinsky and his wife, Dr. Iris M. Ovshinsky (executive
officers, Directors and founders of ECD), own of record 153,420 shares and
65,601 shares, respectively (or approximately 69.8% and 29.8%, respectively), of
the outstanding shares of Class A Common Stock. Such shares are owned directly
or indirectly through certain trusts of which Mr. and Dr. Ovshinsky are
co-trustees. Common Stock is entitled to one vote per share and each share of
Class A Common Stock is entitled to 25 votes per share. Class A Common Stock is
convertible into Common Stock on a share-for-share basis at any time and from
time to time at the option of the holders, and will be deemed to be converted
into Common Stock on a share-for-share basis on September 30, 2005. At ECD's
Annual Meeting held on March 25, 1999, ECD's stockholders approved a proposal to
amend ECD's Certificate of Incorporation changing the date on which shares of
Class A Common Stock are deemed to be converted into shares of Common Stock from
September 14, 1999 to September 30, 2005. Under applicable Delaware law, the
September 30, 2005 mandatory conversion date may be extended in the future from
time to time with approval of ECD's stockholders voting together as a single
class.
As of September 22, 2000, Mr. Ovshinsky also had the right to vote 126,500
shares of Common Stock (Sanoh Shares) owned by Sanoh Industrial Co., Ltd.
(Sanoh) under the terms of an agreement dated as of November 3, 1992 between ECD
and Sanoh which, together with the Class A Common Stock and 14,989 shares of
Common Stock Mr. and Dr. Ovshinsky own, give Mr. and Dr. Ovshinsky voting
control over shares representing approximately 23.09% of the combined voting
power of ECD's outstanding stock.
The following table sets forth, as of September 22, 2000, information
concerning the beneficial ownership of Class A Common Stock by each director and
all executive officers and directors of ECD as a group. All shares are owned
directly except as otherwise indicated. Under the rules of the Securities and
Exchange Commission, Stanford R. Ovshinsky and Iris M. Ovshinsky may each be
considered to beneficially own the shares held by the other.
-98-
Class A
Name of Common Stock Total Number of Shares
Beneficial Owner Beneficially Owned Beneficially Owned Percentage of Class
- ------------------ ------------------- ---------------------- -------------------
Stanford R. Ovshinsky 153,420 153,420 69.8%
Iris M. Ovshinsky 65,601 65,601 29.8%
All other executive
officers and directors as
a group (13 persons) _ _ _
Total 219,021 219,021 99.6%
- -------
(1) The balance of the 219,913 shares of Class A Common Stock outstanding, 892
shares, or approximately 0.4%, are owned by other members of Mr. and Dr.
Ovshinsky's family. Neither Mr. nor Dr. Ovshinsky has voting or investment
power with respect to such shares.
(2) On November 10, 1995, the Compensation Committee recommended, and the Board
of Directors approved, an amendment to Mr. and Dr. Ovshinsky's Stock Option
Agreements dated November 18, 1993 (the "Agreements") to permit Mr. and Dr.
Ovshinsky to exercise a portion (126,082 and 84,055 shares, respectively) of
their existing Common Stock option for Class A Common Stock on the same
terms and conditions as provided in the Agreements. The shares of Class A
Common Stock issuable upon exercise of the options under the Agreements, as
amended, are not included in the number of shares indicated.
CLASS B COMMON STOCK
At ECD's Annual Meeting held on March 25, 1999, ECD's stockholders
approved a proposal to increase ECD's authorized capital stock and to authorize
430,000 shares of a new Class B Common Stock. All of the authorized shares of
Class B Common Stock were awarded to Mr. Robert C. Stempel pursuant to the terms
of a Restricted Stock Agreement dated as of January 15, 1999 between ECD and Mr.
Stempel.
The terms of the Class B Common Stock are substantially similar to those
of ECD's Class A Common Stock. The principal difference between the Class A
Common Stock and the Class B Common Stock is with respect to voting rights. Each
share of Class B Common Stock will initially entitle the holder to one vote on
all matters to be voted upon by ECD's stockholders. However, each share of Class
B Common Stock will become entitled to 25 votes as of the first date upon which
all of the outstanding shares of Class A Common Stock have been converted into
Common Stock and no shares of Class A Common Stock are outstanding. The
preferential voting rights of the Class B Common Stock, if triggered, will
expire on September 30, 2005.
The Class B Common Stock will be convertible into Common Stock on a
share-for- share basis at any time at the option of the holder. In addition, the
Class B Common Stock will be deemed to be converted into Common Stock on
September 30, 2005. Under
-99-
applicable Delaware law, the September 30, 2005 mandatory conversion date may
be extended in the future from time to time with approval of ECD's stockholders
voting together as a single class.
COMMON STOCK
Directors and Executive Officers. The following table sets forth, as of
September 22, 2000, information concerning the beneficial ownership of Common
Stock by each director and executive officer and for all directors and executive
officers of ECD as a group. All shares are owned directly except as otherwise
indicated.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) % of Class(2)
- ------------------------ ----------------------- -------------
Robert C. Stempel 1,070,404(3) 5.52%
Stanford R. Ovshinsky 850,847(4) 4.45%
Iris M. Ovshinsky 461,640(5) 2.45%
Nancy M. Bacon 175,215(6) *
Subhash K. Dhar 59,040(7) *
Hellmut Fritzsche 20,710(8) *
Seymour Liebman 13,527(9) *
Walter J. McCarthy, Jr. 13,187 *
Stanley K. Stynes 12,884 *
Stephan W. Zumsteg 10,000(10) *
Florence I. Metz 9,884(11) *
Umberto Colombo 8,151(12) *
Tyler Lowrey 8,000(13) *
William M. Wicker --
James R. Metzger --
All executive officers and
directors as a group 2,713,489 13.03%
(15 persons)
-------
* Less than 1%.
(1) Under the rules and regulations of the Securities and Exchange
Commission, a person is deemed to be the beneficial owner of a security
if that person has the right to acquire beneficial ownership of such
security within sixty days, whether through the exercise of options or
warrants or through the conversion of another security.
-100-
(2) Under the rules and regulations of the Securities and Exchange
Commission, shares of Common Stock issuable upon exercise of options and
warrants or upon conversion of securities which are deemed to be
beneficially owned by the holder thereof (see Note (1) above) are deemed
to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such person but are not
deemed to be outstanding for the purpose of computing the percentage of
the class owned by any other person.
(3) Includes 430,000 shares of Class B Common Stock, 579,000 shares
represented by options exercisable within 60 days.
(4) Includes 561,187 shares (adjusted as of June 30, 2000) represented by
options exercisable within 60 days, the 126,500 Sanoh Shares over which
Mr. Ovshinsky has voting power and 153,420 shares of Class A Common Stock
which are convertible into Common Stock. Under the rules and regulations
of the Securities and Exchange Commission, Mr. Ovshinsky may be deemed a
beneficial owner of the shares of Common Stock and Class A Common Stock
owned by his wife, Iris M. Ovshinsky. Such shares are not reflected in
Mr. Ovshinsky's share ownership in this table.
(5) Includes 390,790 shares (adjusted as of June 30, 2000) represented by
options exercisable within 60 days and 65,601 shares of Class A Common
Stock which are convertible into Common Stock. Under the rules and
regulations of the Securities and Exchange Commission, Dr. Ovshinsky may
be deemed a beneficial owner of the shares of Common Stock and Class A
Common Stock owned by her husband, Stanford R. Ovshinsky. Such shares are
not reflected in Dr. Ovshinsky's share ownership in this table.
(6) Includes 150,200 shares represented by options exercisable within 60 days.
(7) Includes 59,040 shares represented by options exercisable within 60 days.
(8) Includes 8,980 shares represented by options exercisable within 60 days.
(9) Includes 12,000 shares represented by options exercisable within 60 days.
(10) Includes 8,000 shares represented by options exercisable within 60 days.
(11) Includes 3,000 shares represented by options exercisable within 60 days.
(12) Includes 5,000 shares represented by options exercisable within 60 days.
(13) Includes 7,000 shares represented by options exercisable within 60 days.
Principal Shareholders. The following table sets forth, as of September
22, 2000, to the knowledge of ECD, the beneficial holders of more than 5% of
ECD's Common Stock (see footnotes for calculation used to determine "percentage
of class" category):
-101-
Name and Address of Amount and Nature of
Beneficial Holder Beneficial Owners Percentage of Class
- ------------------- -------------------- -------------------
TRMI Holdings Inc. 3,742,800(1) 19.65%
2000 Westchester Avenue
White Plains, NY 10650
Stanford R. and Iris M. Ovshinsky 1,312,487(2) 6.7%(3)(4)
1675 West Maple Road
Troy, Michigan 48084
Canon Inc. 1,071,905(5) 5.83%
30-2 Shimomaruko, 3-chome ohta ku
Tokyo 146-8501 - Japan
Robert C. Stempel 1,070,404(6) 5.51%(3)
1675 West Maple Road
Troy, Michigan 48084
(1) Based upon information contained in Schedule 13-D filed with the
Securities and Exchange Commission by Texaco Inc. and dated as of June 8,
2000. Pursuant to the Stock Purchase Agreement dated as of May 1, 2000,
Texaco has agreed that (i) so long as it beneficially owns an aggregate of
5% of ECD's Common Stock and (ii) so long as Mr. and Dr. Ovshinsky are the
beneficial owners of Class A Common Stock, or Mr. Stempel is the
beneficial owner of Class B Common Stock, Texaco will vote its ECD Common
Stock in accordance with the votes cast by the holders of Class A Common
Stock (prior to its conversion) or Class B Common Stock (after conversion
of the Class A Common Stock).
(2) Includes 219,021 shares of Class A Common Stock owned by Mr. and Dr.
Ovshinsky (which shares are convertible at any time into Common Stock and
will be deemed to be converted into Common Stock on September 30, 2005),
14,989 shares of Common Stock owned by Mr. and Dr. Ovshinsky, 126,500
shares of Sanoh Shares over which Mr. Ovshinsky has voting rights and
951,977 (adjusted as of June 30, 2000) shares represented by options
exercisable within 60 days.
(3) Under the rules and regulations of the Securities and Exchange Commission,
shares of Common Stock issuable upon exercise of options and warrants or
upon conversion of securities which are deemed to be beneficially owned by
the holder thereof are deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class owned by
such person but are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
(4) Represents the sum of Mr. and Dr. Ovshinsky's respective ownership
interests calculated separately.
(5) Based upon information contained in Schedule 13-D filed with the
Securities and Exchange Commission by Canon Inc. and dated April 21, 2000.
(6) Includes 430,000 shares of Class B Common Stock owned by Mr. Stempel
(which shares are convertible at any time into Common Stock and will be
deemed to be converted into Common Stock on September, 30, 2005) 61,404
shares of Common Stock and 579,000 shares represented by options
exercisable within 60 days.
-102-
Item 13: Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Herbert Ovshinsky, Stanford R. Ovshinsky's brother, is employed by ECD as
Director of the Production Technology and Machine Building Division working
principally in the design of manufacturing equipment. He received $142,508 in
salary during the year ended June 30, 2000.
HKO Media, Inc., owned by Harvey Ovshinsky, Stanford R. Ovshinsky's son,
performed video production services on behalf of ECD. HKO Media, Inc. was paid
$69,507 by ECD for its services during the fiscal year ended June 30, 2000.
Mr. Stempel became a director of Southwall Technologies, Inc. in April
2000. In February 1999, Southwall awarded a contract to ECD for approximately
$2 million to build large-area microwave deposition equipment. The completed
equipment was shipped to Southwall in July 2000.
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PART IV
Item 14: Exhibits, Financial Statement Schedules and Report on Form 8-K
- -------- --------------------------------------------------------------
(a) 1. Financial Statements
See Part I Page
----
2. Financial Statement Schedules
The following is included in Part II, Item 8:
Independent Auditors' Report........................ 43
Other financial statements and financial statement schedules are omitted
(1) because of the absence of the conditions under which they are required
or (2) because the information called for is shown in the financial
statements and notes thereto.
3. Exhibits (including those incorporated by reference)
Page or
Reference
---------
3.1 Restated Certificate of Incorporation filed September 29, 1967 (a)
3.2 Certificate of Amendment to Certificate of Incorporation filed (b)
February 24, 1998, increasing authorized shares of the Company's Common
Stock from 15,000,000 shares to 20,000,000 shares
3.3 Certificate of Amendment of Incorporation filed January 27, 2000 (c)
increasing authorized shares of the Company's Common Stock from
20,000,000 shares to 30,000,000
3.4 Certificate of Amendment to Certificate of Incorporation filed March 25, (d)
1999 extending voting rights of the Company's Class A Common Stock,
increasing the authorized capital stock of the Company's Common Stock to
20,930,000 shares, and authorizing 430,000 shares of Class B Common
Stock
3.5 Bylaws in effect as of July 17, 1997 (e)
3.6 Amendment to Article VIII of the Bylaws effective as of April 27, (f)
2000
4.1 Agreement among the Company, Stanford R. Ovshinsky and Iris M. (g)
Ovshinsky relating to the automatic conversion of Class A Common Stock
into the Company's Common Stock upon the occurrence of certain events,
dated September 15, 1964
-104-
10.1 Amendment to the Patent License Agreement dated December 5, (h)
1986 between the Company and Matsushita Electric Industrial Co.,
Ltd.
10.2 License Agreement and Supplemental Understanding dated (i)
February 10, 1989 between Varta Batterie AG and the Company
and Ovonic Battery Company
10.3 Charter of the Soviet-American Joint Venture, Sovlux, dated (j)
January 11, 1990
10.4 Agreement on the Establishment and Activity of the Soviet-American (k)
Joint Venture, Sovlux, dated January 11, 1990
10.5 License and Joint R&D Agreement entered into as of February 20, (l)
1990 by and between Hitachi Maxell, Ltd., the Company and Ovonic
Battery Company, Inc.
10.6 Amended Master Agreement made and entered into by and (m)
between the Company and Matsushita Electric Industrial Co., Ltd.
dated January 24, 1991
10.7 Memory Patent License Agreement made and entered into by and (n)
between the Company and Matsushita Electric Industrial Co., Ltd.
dated January 24, 1991
10.8 Memory Patent License Agreement by and between the Company (o)
and Asahi Chemical Industry Co., Ltd. dated April 26, 1991
10.9 License Agreement by and between the Company, Ovonic Battery (p)
and Samsung Electronics Co., Ltd. dated June 10, 1991
10.10 License Agreement between the Company, Ovonic Battery and (q)
Sylva Industries Limited dated June 14, 1991
10.11 License Agreement by and between the Company and Ovonic (r)
Battery and Harding Energy Systems, Inc. dated August 28, 1991
10.12 License Agreement made as of November 20, 1991 by and between (s)
the Company, Ovonic Battery and Hyundai Motor Company
10.13 Memory Patent License Agreement effective as of April 1, 1992 (t)
and between the Company and Plasmon Limited
10.14 Option License Agreement effective as of September 8, 1992 by and (u)
between the Company, Ovonic Battery and Sylva Industries Limited
10.15 Memory Patent License Agreement dated as of February 3, 1993 (v)
between the Company and Toshiba Corporation
10.16 License Agreement between the Company and a Japanese Battery (w)
Manufacturer filed confidentially pursuant to Rule 24b-2
-105-
10.17 Intercompany Services Agreement dated as of September 2, 1993 between (x)
the Company and Ovonic Battery Company, Inc.
10.18 Executive Employment Agreement dated as of September 2, 1993 (y)
between the Company, Ovonic Battery Company, Inc. and Stanford
R. Ovshinsky
10.19 Executive Employment Agreement dated as of September 2, 1993 (z)
between the Company and Stanford R. Ovshinsky
10.20 Stock Option Agreement by and between Ovonic Battery Company, (aa)
Inc. and Stanford R. Ovshinsky dated as of November 18, 1993
10.21 Stock Option Agreement by and between the Company and (bb)
Stanford R. Ovshinsky dated as of November 18, 1993
10.22 Stock Option Agreement by and between the Company and Iris M. (cc)
Ovshinsky dated as of November 18, 1993
10.23 Stock Purchase Agreement by and between Sanoh Industrial Co., (dd)
Ltd., the Company and Ovonic Battery dated December 31, 1993
10.24 Stakeholder Agreement between Ovonic Battery Company, Inc. and (ee)
General Motors Corporation for the organization of GM Ovonic
L.L.C. dated June 14, 1994 filed confidentially pursuant to Rule 24b-2
10.25 Consumer Battery License Agreement effective as of December 1, (ff)
1994 by and between the Company, Ovonic Battery Company, Inc.
and Sanyo Electric Co., Ltd., filed confidentially pursuant to Rule
24b-2
10.26 Consumer Battery License Agreement effective as of December 2, (gg)
1994 by and between the Company, Ovonic Battery Company, Inc.
and Toshiba Battery Co., Ltd., filed confidentially pursuant to Rule
24b-2
10.27 Second Amendment to Sylva/ECD/OBC License Agreement (hh)
effective as of January 1, 1995 by and between the Company,
Ovonic Battery Company, Inc. and Sylva Industries, Ltd., portions
of which have been filed confidentially pursuant to Rule 24b-2
10.28 Consumer battery agreement effective as of January 10, 1995 by and (ii)
between the Company, Ovonic Battery Company, Inc. and a consumer battery
manufacturer, portions of which have been filed confidentially pursuant
to Rule 24b-2
10.29 Battery License Agreement dated March 28, 1995 by and between (jj)
Ovonic Battery Company, Inc. and Walsin Technology Corp.,
portions of which have been filed confidentially pursuant to Rule
24b-2
-106-
10.30 Amendment to License and Joint R&D Agreement effective as of (kk)
March 31, 1995 by and between Hitachi Maxell, Ltd., the Company
and Ovonic Battery Company, Inc., portions of which have been
filed confidentially pursuant to Rule 24b-2
10.31 Energy Conversion Devices, Inc. 1995 Non-Qualified Stock Option (ll)
Plan
10.32 Memory Patent License Agreement by and between Toray (mm)
Industries, Inc. and the Company effective as of April 1, 1995
10.33 Amendment Agreement by and between Varta Batterie A.G., the Company (nn)
and Ovonic Battery effective as of June 8, 1995, portions of which have
been filed confidentially pursuant to Rule 24b-2
10.34 Amendment to License Agreement by and between Samsung (oo)
Display Devices Co., Ltd., the Company and Ovonic Battery
effective as of June 23, 1995, portions of which have been filed
confidentially pursuant to Rule 24b-2
10.35 Amendment Agreement by and between Eveready Battery (pp)
Company, Inc., the Company and Ovonic Battery effective as of
June 23, 1995, portions of which have been filed confidentially
pursuant to Rule 24b-2
10.36 License Agreement effective as of September 30, 1995 by and (qq)
between Ovonic Battery Company, Inc. and Sanoh Industrial Co.,
Ltd., portions of which have been filed confidentially pursuant to
Rule 24b-2
10.37 Consumer Battery Agreement effective as of September 29, 1995 (rr)
by and between Ovonic Battery Company, Inc. and Furukawa
Battery Co., Ltd., portions of which have been filed confidentially
pursuant to Rule 24b-2
10.38 Battery License Agreement by and between Ovonic Battery (ss)
Company, Inc. and Asia Pacific Investment Co. dated January 4,
1996, filed confidentially pursuant to Rule 24b-2
10.39 Stock Purchase Agreement executed May 14, 1996, by and among (tt)
Honda Motor Co., Ltd., the Company and Ovonic Battery Company,
Inc.
10.40 Settlement Agreement effective as of March 28, 1996, by and (uu)
among the Company, Ovonic Battery Company, Inc., Saft America,
Inc. ("Saft") and certain entities affiliated with Saft, portions of
which have been filed confidentially pursuant to Rule 24b-2
10.41 Executive Employment Agreement dated as of February 19, 1998 (vv)
between the Company and Iris M. Ovshinsky
-107-
10.42 Executive Employment Agreement, Restricted Stock Agreement an (ww)
Stock Option Agreement dated as of January 15, 1999 between the
Company and Robert C. Stempel
10.43 Stock Purchase Agreement by and between the Company and 114
TRMI Holdings Inc. dated as of May 1, 2000
11.1 Computation of Earnings Per Share Attributable to Common Stock 147
21.1 List of all direct and indirect subsidiaries of the Company 148
23.1 Consent of Independent Auditors 149
27.1 Financial Data Schedule (Edgar version)
Notes to Exhibit List
(a) Filed as Exhibit 2-A to the Company's Form 8-A and incorporated herein
by reference.
(b) Filed as Exhibit 3.5 to the Company's Registration Statement on Form S-3
(Registration No. 333-50749) and incorporated herein by reference.
(c) Filed as Exhibit 3.6 to the Company's Registration Statement on Form S-3
(Registration No. 333-33266) and incorporated herein by reference.
(d) Filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1999 and incorporated herein by reference.
(e) Filed as Exhibit 3.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997, as amended, and incorporated herein
by reference.
(f) Filed as Exhibit 3.8 to the Company's Registration Statement on Form S-3
(Registration No. 333-42758) and incorporated herein by reference.
(g) Filed as Exhibit 13-D to the Company's Registration Statement on Form
S-1 (Registration No. 2-26772) and incorporated herein by reference.
(h) Filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1986 and incorporated herein by
reference.
(i) Filed as Exhibit 10.71 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1989, as amended, and incorporated herein
by reference.
(j) Filed as Exhibit 10.82 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990, as amended, and incorporated herein
by reference.
-108-
(k) Filed as Exhibit 10.83 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990, as amended, and incorporated herein
by reference.
(l) Filed as Exhibit 10.92 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990, as amended, and incorporated herein
by reference.
(m) Filed as Exhibit 28.1 to the Company's Current Report on Form 8-K dated
February 6, 1991 and incorporated herein by reference.
(n) Filed as Exhibit 28.2 to the Company's Current Report on Form 8-K dated
February 6, 1991 and incorporated herein by reference.
(o) Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991 and incorporated herein by reference.
(p) Filed as Exhibit 10.114 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991, as amended, and incorporated herein
by reference.
(q) Filed as Exhibit 10.115 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991, as amended, and incorporated herein
by reference.
(r) Filed as Exhibit 10.116 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991, as amended, and incorporated herein
by reference.
(s) Filed as Exhibit 10.72 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992, as amended, and incorporated herein
by reference.
(t)Filed as Exhibit 10.75 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992, as amended, and incorporated herein by
reference.
(u) Filed as Exhibit 10.81 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992, as amended, and incorporated herein
by reference.
(v) Filed as Exhibit 10.87 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 and incorporated herein by
reference.
(w) Filed as Exhibit 10.94 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 and incorporated herein by
reference.
(x) Filed as Exhibit 10.96 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 and incorporated herein by
reference.
(y) Filed as Exhibit 10.100 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 and incorporated herein by
reference.
(z) Filed as Exhibit 10.101 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 and incorporated herein by
reference.
-109-
(aa) Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993 and incorporated herein by
reference.
(bb) Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993 and incorporated herein by
reference.
(cc) Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993 and incorporated herein by
reference.
(dd) Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1993 and incorporated herein by
reference.
(ee) Filed as Exhibit 10.75 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994 and incorporated herein by
reference.
(ff) Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1994 and incorporated herein by
reference.
(gg) Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1994 and incorporated herein by
reference.
(hh) Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and incorporated herein by reference.
(ii) Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and incorporated herein by reference.
(jj) Filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and incorporated herein by reference.
(kk) Filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and incorporated herein by reference.
(ll) Filed as Exhibit 10.77 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995 and incorporated herein by
reference.
(mm) Filed as Exhibit 10.78 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995 and incorporated herein by
reference.
(nn) Filed as Exhibit 10.79 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995 and incorporated herein by
reference.
(oo) Filed as Exhibit 10.80 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995 and incorporated herein by
reference.
(pp) Filed as Exhibit 10.81 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995 and incorporated herein by
reference.
-110-
(qq) Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference.
(rr) Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference.
(ss) Filed as Exhibit 28.1 to the Company's Current Report on Form 8-K dated
January 4, 1996 and incorporated herein by reference.
(tt) Filed as Exhibit 10.73 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 and incorporated herein by
reference.
(uu) Filed as Exhibit 10.74 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 and incorporated herein by
reference.
(vv) Filed as Exhibit 10.63 to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and incorporated herein by
reference.
(ww) Filed as Exhibits B, C and D, respectively, to the Company's Proxy
Notice and Statement dated February 23, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
-111-
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.
ENERGY CONVERSION DEVICES, INC.
By: /s/ Stanford R. Ovshinsky
--------------------------------------------
Stanford R. Ovshinsky,
President and Chief Executive Officer
Dated: October 3, 2000 (Principal Executive Officer)
------------------
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:
/s/ Stanford R. Ovshinsky President, Chief Executive October 3, 2000
- ------------------------ Officer and Director -----------------
Stanford R. Ovshinsky (Principal Executive Officer)
/s/ Stephan W. Zumsteg Treasurer October 3, 2000
- ------------------------ ------------------
Stephan W. Zumsteg
/s/ Robert C. Stempel Director October 3, 2000
- ------------------------ (Chairman of the Board) ------------------
Robert C. Stempel
/s/ Nancy M. Bacon Director October 3, 2000
- ------------------------ ------------------
Nancy M. Bacon
/s/ Umberto Colombo Director October 3, 2000
- ------------------------ ------------------
Umberto Colombo
-112-
/s/ Subhash K. Dhar Director October 3, 2000
- ------------------------ ------------------
Subhash K. Dhar
/s/ Hellmut Fritzsche Director October 3, 2000
- ------------------------ ------------------
Hellmut Fritzsche
/s/ Seymour Liebman Director October 3, 2000
- ------------------------ ------------------
Seymour Liebman
/s/ Tyler Lowrey Director October 3, 2000
- ------------------------ ------------------
Tyler Lowrey
/s/ Walter J. McCarthy, Jr. Director October 3, 2000
- ------------------------ ------------------
Walter J. McCarthy, Jr.
/s/ Florence I. Metz Director October 3, 2000
- ------------------------ ------------------
Florence I. Metz
/s/ James R. Metzger Director October 3, 2000
- ------------------------ ------------------
James R. Metzger
/s/ Iris M. Ovshinsky Director October 3, 2000
- ------------------------ ------------------
Iris M. Ovshinsky
/s/ Stanley K. Stynes Director October 3, 2000
- ------------------------ ------------------
Stanley K. Stynes
/s/ William M. Wicker Director October 3, 2000
- ------------------------ ------------------
William M. Wicker
-113-
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
10.43 Stock Purchase Agreement by and between the Company
and TRMI Holdings Inc. dated as of May 1, 2000
11.1 Computation of Earnings Per Share Attributable to
Common Stock
21.1 List of all direct and indirect subsidiaries of the
Company
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule