SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the
Securities Exchange Act of 1934 (Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as determined by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ENERGY CONVERSION DEVICES, INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
---------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
COMPANY LOGO
ENERGY CONVERSION DEVICES, INC.
2956 Waterview Drive
Rochester Hills, Michigan 48309
October 17, 2005
Dear Stockholder:
You are cordially invited to attend our 2005 Annual Meeting of
Stockholders, which will be held at 10:00 a.m. Eastern Time on Tuesday, November
15, 2005 at the Michigan State University Management Education Center, 811 West
Square Lake Road, Troy, Michigan. A map is on the back cover of this proxy
statement. We look forward to your attendance either in person or by proxy. If
you plan to attend the meeting, we would appreciate your calling Investor
Relations at (248) 293-0440 or sending us an e-mail at
investor.relations@ovonic.com.
Details of the business to be conducted at this meeting are given in the
attached Notice of Meeting of Stockholders and Proxy Statement.
Whether or not you attend the annual meeting, it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to
promptly vote and submit your proxy by phone, via the Internet or by signing,
dating and returning the enclosed proxy in the accompanying reply envelope. If
you decide to attend the annual meeting, you will be able to vote in person even
if you have previously submitted your proxy.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Robert C. Stempel
------------------------------
Robert C. Stempel
Chairman of the Board
and Chief Executive Officer
ENERGY CONVERSION DEVICES, INC.
----------------------
NOTICE OF MEETING OF STOCKHOLDERS
----------------------
Rochester Hills, Michigan
October 17, 2005
To the Stockholders of
ENERGY CONVERSION DEVICES, INC.:
NOTICE is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of ENERGY CONVERSION DEVICES, INC. will be held at 10:00 a.m. (EST)
on Tuesday, November 15, 2005, at the Michigan State University Management
Education Center, 811 West Square Lake Road, Troy, Michigan. The purpose of the
Meeting is to:
1. Elect seven directors to hold office until our next Annual Meeting
of Stockholders.
2. Ratify the appointment of Grant Thornton LLP as independent
registered public accounting firm for the fiscal year ending June
30, 2006.
Stockholders of record at the close of business on October 3, 2005 will
be entitled to vote at the Meeting. A list of stockholders entitled to vote at
the Meeting will be available for inspection at our offices. Whether or not you
plan to attend the Meeting in person, please promptly vote your shares by
telephone, via the Internet or by signing, dating and returning the enclosed
proxy in the accompanying reply envelope.
To ensure that your vote is recorded promptly, please vote as soon as
possible, even if you plan to attend the annual meeting. Most stockholders have
three options for submitting their vote: (1) via the Internet, (2) by phone or
(3) by mail. If you have Internet access, we encourage you to record your vote
on the Internet. It is convenient, and it saves your company postage and
processing costs.
By Order of the Board of Directors
/s/ Ghazaleh Koefod
-----------------------------------
Ghazaleh Koefod
Secretary
Energy Conversion Devices, Inc.
2956 Waterview Drive
Rochester Hills, MI 48309
----------------------
PROXY STATEMENT
----------------------
ECD's Board of Directors (the "Board") solicits your proxy for the
Annual Meeting of Stockholders to be held at 10:00 a.m. Eastern Time on Tuesday,
November 15, 2005 at the Michigan State University Management Education Center,
811 West Square Lake Road, Troy, Michigan, and any postponement or adjournment
of the meeting, for the purposes set forth in the accompanying Notice of Meeting
of Stockholders (the "Notice").
This proxy statement and accompanying proxy were first mailed to
stockholders on or about October 17, 2005.
Purpose of the Meeting. The specific proposals to be considered and
acted upon at the Meeting are summarized in the Notice and are described in more
detail in this proxy statement.
Voting Rights of Stockholders. Holders of record of ECD's Common Stock
at the close of business on October 3, 2005, are entitled to vote at the
Meeting. As of October 3, 2005, there were outstanding and entitled to vote
29,348,363 shares of ECD's Common Stock, $.01 par value ("Common Stock"), each
of which is entitled to one vote with respect to each matter to be voted on at
the Meeting.
Record Date. Stockholders of record as of the close of business on
October 3, 2005, will be entitled to vote at the Meeting.
Quorum. The required quorum for the transaction of business at the
Meeting is a majority of the votes eligible to be cast by holders of record of
the Common Stock as of the close of business on the record date. If a
stockholder withholds his or her vote for the election of directors or abstains
from voting on the other proposals to be considered at the Meeting, the shares
owned by such stockholder will be considered to be present at the Meeting for
purposes of establishing the presence or absence of a quorum for the transaction
of business. If a broker indicates on the form of proxy that he or she does not
have discretionary authority as to certain shares to vote on any proposal, those
shares will also be considered to be present at the Meeting for purposes of
establishing the presence or the absence of a quorum for the transaction of
business.
Required Vote. The affirmative vote of a plurality of the votes cast at
the Meeting will be required to elect the directors of the Company. Because
directors are elected by a plurality vote, abstentions and withheld votes have
no impact in the election of directors once a quorum is established.
The affirmative vote of a majority of the votes cast at the Meeting will
be required to approve the proposal with respect to the appointment of the
Company's independent registered accounting firm. Abstentions will be considered
as votes cast with respect to such proposal and will have the same effect as a
vote against the proposal.
Voting of Proxies. All shares represented by signed proxies received at
or prior to the Meeting from stockholders of record as of the close of business
on October 3, 2005 will be voted at the Meeting. Unless a stockholder specifies
otherwise, all proxies will be voted FOR each of the proposals set forth in the
accompanying Notice of Meeting of Stockholders.
How you can vote. If you return your signed proxy, or vote by telephone
or the Internet, before the Meeting, we will vote your shares as you direct.
If a proxy is executed and returned but no instructions are given the
shares will be voted according to the recommendations of the Board of Directors.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
If your shares are registered directly in your name, you may vote:
Over the Internet. Go to the website of our tabulator, Computershare,
at http://www.eproxyvote.com/ener and follow the instructions you will find
there. You must specify how you want your shares voted or your Internet vote
cannot be completed and you will receive an error message. Your shares will be
voted according to your instructions.
By telephone. If you have a touch-tone phone, call 1-877-PRX-VOTE
(1-877-779-8683) toll free from the U.S. and Canada and follow the instructions.
You must specify how you want your shares voted and confirm your vote at the end
of the call or your telephone vote cannot be completed. Your shares will be
voted according to your instructions.
By Mail. Complete and sign the enclosed proxy and mail it in the
enclosed postage prepaid envelope to Computershare. Your proxy will be voted
according to your instructions. If you do not specify how you want your shares
voted, they will be voted as recommended by our Board of Directors
If your shares are held in "street name" (held for your account by a
broker or other nominee) you may vote:
Over the Internet or By Telephone. You will receive instructions from
your broker or other nominee if you are permitted to vote over the Internet or
by telephone.
By Mail. You will receive instructions from your broker or other nominee
explaining how to vote your shares.
In Person at the Meeting. Contact the broker or other nominee who holds
your shares to obtain a broker's proxy card and bring it with you to the
meeting. A broker's
2
proxy is not the form of proxy enclosed with this proxy statement. You will not
be able to vote shares you hold in street name at the meeting unless you have a
proxy from your broker issued in your name giving you the right to vote the
shares.
Revocation of Proxies. You may revoke your proxy and change your vote at
any time before the Meeting. To do this, you must do one of the following:
1. Vote over the Internet or by telephone as instructed above. Only
your latest Internet or telephone vote is counted.
2. Sign a new proxy and submit it as instructed above.
3. Attend the meeting and vote in person. Attending the meeting will
not revoke your proxy unless your shares are registered in your
name and you specifically request it.
ITEM NO. 1
ELECTION OF DIRECTORS
Upon recommendation of the Corporate Governance and Nominating
Committee, the Board has nominated for election at the meeting a slate of seven
nominees, all of whom are currently serving on the Board.
The directors are to be elected to serve until the next annual meeting
of stockholders and until their successors are duly elected and qualified. In
the unanticipated event that any nominee for director should become unavailable,
it is intended that all proxies will be voted for such substitute nominee as may
be designated by the Board of Directors. The affirmative vote of a plurality of
the votes cast at the Meeting will be required to elect the directors.
Information concerning the nominees for election as directors, including
the year each nominee first became a director, is set forth on the following
pages.
-------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ALL
SEVEN NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.
3
Director
of the
Company Principal Occupation and
Name Since Office Business Experience
- ----------------------- ----------- ---------- --------------------------------------------
Robert I. Frey 2004 Director Mr. Frey, 62, is an assistant professor of
global management and business ethics and
serves as the director of the Business
Ethics Center at Seidman School of Business,
Grand Valley State University, in Grand
Rapids, Michigan. He joined Herman Miller,
Inc. in 1996, where he was an executive vice
president and member of the executive
committee and president of Herman Miller
International, accountable for international
strategic planning, manufacturing, sales and
marketing until his retirement in 2002.
William J. Ketelhut 2004 Director Mr. Ketelhut, 53, was, from 2001-2002,
president of Control Products at Honeywell
International, a global company with 15
major lines of businesses including
semiconductors, consumer products and
sensors products. From 1994-2001, he served
as president of several business units of
Invensys plc, a global automation, controls
and process solutions group. He was
president and chief executive officer at
GE/Micro Switch Control Inc. (a joint
venture between GE and Honeywell Microswitch
Division) from 1992-1994.
Florence I. Metz 1995 Director Dr. Metz, 76, until her retirement in 1996,
held various executive positions with Inland
Steel: 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.
Iris M. Ovshinsky 1960 Vice Dr. Ovshinsky, 78, co-founder and Vice
President and President of ECD, has been an executive
Director officer and director of ECD since its
inception in 1960. Dr. Ovshinsky is the
wife of Stanford R. Ovshinsky.
4
Stanford R. Ovshinsky 1960 President, Mr. Ovshinsky, 82, the founder, President
Chief and Chief Scientist and Technologist of ECD,
Scientist and has been an executive officer and director
Technologist of ECD since its inception in 1960. Mr.
and Director Ovshinsky is the principal inventor of ECD's
technologies. He is also the chairman and
director of Ovonyx and a member of the Management
Committee of Cobasys. Mr. Ovshinsky is the
husband of Dr. Iris M. Ovshinsky.
Stephen Rabinowitz 2004 Director Mr. Rabinowitz, 62, was chairman and chief
executive officer of General Cable, Inc., a
leader in the development, design,
manufacture, marketing and distribution of
copper, aluminum and fiber optic wire and
cable products for the communications,
energy and specialty markets, from
1994-2001. He serves on the Board of
Directors of JLG Industries, Columbus
McKinnon Corp. and The NanoSteel Company.
Robert C. Stempel 1995 Chairman of Mr. Stempel, 72, is Chairman of the Board
the Board, and Chief Executive Officer of ECD. He is
Chief also the vice chairman and director of
Executive Ovonyx, Inc. and a member of the Management
Officer and Committee of Cobasys LLC. From 1990 until
Director his retirement in 1992, he was the chairman
and chief executive officer of General
Motors Corporation.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended June 30, 2005, the Board of Directors held
seven meetings. Each director attended at least 75% of the meetings of the Board
and the committees on which he or she served as a member. The Company encourages
all Board members to attend annual meeting of stockholders. All directors
attended the 2004 annual meeting of stockholders.
The Board of Directors has four committees: an Audit Committee, a
Compensation Committee, a Corporate Governance and Nominating Committee and a
Finance Committee. The members of the committees are identified in the
following table.
Corporate
Governance
Director Audit Compensation and Nominating Finance
-------- ------- ------------ -------------- --------
Robert I. Frey X Chair X
William J. Ketelhut Chair
Florence I. Metz X Chair X
Stephen Rabinowitz X Chair
Robert C. Stempel X
Each of the committees has authority to engage legal counsel or other
experts or consultants as it deems appropriate to carry out its
responsibilities. The Board of Directors has determined that each member of each
committee meets the applicable laws and regulations regarding "independence" and
that each member is free of any relationship that would interfere with his or
her individual exercise of independent judgment.
Audit Committee. The Audit Committee consists of Mr. William J. Ketelhut
(Chairman), Dr. Florence I. Metz and Mr. Stephen Rabinowitz and met six times
during fiscal year 2005. The Audit Committee assists the Board of Directors in
its oversight of the quality and integrity of the accounting, auditing, and
reporting practices of the Company. The Audit Committee's role includes
discussing with management the Company's processes to manage business and
financial risk, and for compliance with significant applicable legal, ethical,
and regulatory requirements. The Audit Committee is responsible for the
appointment, replacement, compensation, and oversight of the independent
registered public accounting firm engaged to prepare or issue audit reports on
the financial statements of ECD. The Audit Committee relies on the expertise and
knowledge of management and the independent registered public accounting firm in
carrying out its oversight responsibilities. The specific responsibilities in
carrying out the Audit Committee's oversight role are delineated in the Audit
Committee Charter, which is available on our website at www.ovonic.com. The
Board of Directors has determined Mr. Ketelhut, Chairman of the Audit Committee,
is an Audit Committee financial expert and is independent of the Company as
defined in the relevant securities law. This determination is based on a
qualitative assessment of Mr. Ketelhut's level of knowledge based on a number of
factors, including his formal education and other relevant experience.
Corporate Governance and Nominating Committee. The Corporate Governance
and Nominating Committee consists of Mr. Robert I. Frey (Chairman) and Dr. Metz,
both independent outside directors, and met three times. Neither of the
Corporate Governance
6
and Nominating Committee members is or was 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 Corporate Governance and Nominating Committee is responsible for (1)
identifying individuals qualified to become Board members; (2) recommending to
the Board director nominees for election or reelection at each annual meeting of
stockholders; and (3) develop and implement the Company's corporate governance
principles. The specific responsibilities and functions of the Corporate
Governance and Nominating Committee are delineated in the Corporate Governance
and Nominating Committee charter, which is on ECD's website at www.ovonic.com.
The Compensation Committee. The Compensation Committee consists of Dr.
Florence I. Metz (Chairwoman) and Mr. Robert I. Frey and met three times during
fiscal year 2005. The Compensation Committee establishes compensation policies
which govern both the annual compensation of and grants of stock options to the
senior executive officers of the Company and its wholly and/or majority owned
subsidiaries and the Company's directors. The specific responsibilities and
functions of the Compensation Committee are delineated in the Compensation
Committee charter, which is available on ECD's website at www.ovonic.com.
The Finance Committee. The Finance Committee consists of Mr. Stephen
Rabinowitz (Chairman) and Mr. Robert I. Frey, both of whom meet applicable rules
of the Nasdaq Stock Market, Inc. for independence, and Mr. Stempel. The Finance
Committee reviews and recommends matters related to ECD's capital structure,
including new business opportunities, the issuance of debt and equity securities
and joint venture/partnership opportunities. The specific responsibilities and
functions of the Finance Committee are delineated in the Finance Committee
charter, which is available on ECD's website at www.ovonic.com.
Board Independence. The Board of Directors has determined affirmatively
that if the nominees for director are elected at the Meeting, a majority of the
members of the Board will meet the standards for independence set forth in
applicable rules of the Nasdaq Stock Market, Inc.
Executive Sessions. The independent directors meet regularly scheduled
executive sessions without management present. The independent directors of the
Board met in executive sessions four times in fiscal 2005.
Nominating Directors. The Corporate Governance and Nominating Committee
identifies nominees for directors from various sources, including third-party
consultants, to assist in identifying and evaluating potential nominees. The
Committee has specified the following minimum qualifications that it believes
must be met by a nominee for a position on the Board:
7
o have the highest personal and professional ethics and integrity and
whose values are compatible with the Company's values;
o have had experiences and achievements that have given them the
ability to exercise good business judgment;
o can make significant contributions to the Company's success;
o have the ability to provide wise, informed and thoughtful counsel
to top management on a range of issues;
o are willing to devote the necessary time to the work of the Board
and its committees;
o understand and meet their responsibilities to the Company's
stockholders including the duty of care (making informed decisions)
and the duty of loyalty (maintaining confidentiality and avoiding
conflicts of interest); and
o have backgrounds that provide a portfolio of experience and
knowledge commensurate with the Company's needs.
The Committee will consider persons recommended by the stockholders in
the same manner as a Committee-recommended nominee. Notice of proposed
stockholder nominations for director must be delivered to the Secretary of the
Company not less than 120 days prior to any meeting at which directors are to be
elected. Nominations must include (i) as to each nominee, all information
required to be disclosed in solicitation of proxies for elections of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, (ii) the
name and address of the stockholder giving the notice, (iii) a representation
that the stockholder is a holder of the Company's Common Stock and intends to
appear at the meeting to make the nomination, (iv) a description of all
arrangements or understandings among the stockholder and the nominee; and (v)
the written consent of each nominee to serve as a director if so elected.
Code of Ethics. A copy of our Code of Business Conduct and Ethics, which
applies to our chief executive officer, chief financial officer, all of our
employees and directors, can be found on our website at www.ovonic.com.
Communicating with Directors. Stockholders may contact any of our
directors or our Board as a group by writing to them c/o the Corporate
Secretary, Energy Conversion Devices, Inc., 2956 Waterview Drive, Rochester
Hills, MI 48309. All communications will be received, processed and forwarded to
the directors by the Corporate Secretary. You will receive a written
acknowledgement from the Corporate Secretary upon receipt of your communication
if you include a return address.
COMPENSATION OF DIRECTORS
Directors who are employees of ECD do not receive additional
compensation for their services as a director. Effective January 1, 2005, the
nonemployee directors of the Company are issued approximately $15,000 per year
in ECD Common Stock based on the
8
closing price of the Common Stock on the first business day of each year and
are paid $1,500 for attendance at each Board meeting. Members of the Audit
Committee are paid $2,500 for attendance at each Audit Committee meeting and
the Audit Committee Chair receives an annual retainer of $7,500. Members of the
Finance Committee are paid $2,000 for attendance at each Finance Committee
meeting and the Finance Committee Chair receives an annual retainer of $5,000.
Members of the Corporate Governance and Nominating Committee receive $1,500 for
attendance at each Corporate Governance and Nominating Committee meeting; the
Committee Chair is paid an annual retainer of $5,000. Members of the
Compensation Committee receive $1,500 for attendance at each Compensation
Committee meeting; the Committee Chair is paid an annual retainer of $5,000.
Nonemployee directors are compensated for teleconference meetings lasting beyond
an hour. Directors who are not employed by the Company are also reimbursed for
all expenses incurred for the purpose of attending board and committee meetings,
including airfare, mileage, parking, transportation and hotel. Nonemployee
directors are eligible to receive stock options under the Company's stock
option plans.
AUDIT COMMITTEE REPORT
The following report of the Audit Committee should not be deemed filed
or incorporated by reference into any other Company filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent the
Company specifically incorporates this report by reference therein.
The Audit Committee is comprised of three directors, all of whom are
independent directors as defined under applicable rules of the Securities and
Exchange Commission (SEC) and Nasdaq Stock Market, Inc.
The Audit Committee oversees the integrity of the Company's financial
statements on behalf of the Board of Directors; the adequacy of the Company's
systems of internal controls; the Company's compliance with legal and regulatory
requirements; the qualifications and independence of the Company's independent
registered public accounting firms; and the performance of the Company's
independent registered public accounting firms, and of the Company's internal
audit function. The public accounting firm of Crowe Chizek and Company LLC has
been retained to perform the Company's internal audit function.
In fulfilling its oversight responsibilities, the Audit Committee has
direct responsibility, among other things, for:
o confirming the independence of the Company's independent registered
public accounting firms;
o the appointment, compensation and retention of the Company's
independent registered public accounting firms;
9
o reviewing the scope of the audit services to be provided by the
Company's independent registered public accounting firms, including
the adequacy of staffing and compensation;
o approving nonaudit services;
o overseeing management's relationship with the Company's independent
registered public accounting firms; o overseeing management's
implementation and maintenance of effective systems of internal and
disclosure controls; and
o reviewing the Company's internal audit program.
The Audit Committee reviews the financial reporting process on behalf of
the Board. Management has the primary responsibility for the financial
statements and the reporting process, including the systems of internal
controls. The independent registered public accounting firm is responsible for
performing an audit in accordance with standards of the United States Public
Company Accounting Oversight Board to obtain reasonable assurance that the
consolidated financial statements are free from material misstatement and
expressing an opinion on the conformity of the financial statements with
accounting principles generally accepted in the United States of America. During
fiscal year 2005, the Audit Committee met six times with management and the
independent registered public accounting firm and discussed the interim
financial information contained in each quarterly earnings report prior to
public release.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent registered public accounting firm
a formal written statement describing all relationships between the auditors and
the Company that might bear on the auditors' independence consistent with
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees," discussed with the auditors any relationships that may impact
their objectivity and independence and satisfied itself as to the auditors'
independence. The Audit Committee also discussed with management and the
independent registered public accounting firm the quality and adequacy of the
Company's internal controls and the requirements of the Sarbanes-Oxley Act of
2002. The Audit Committee discussed with management the process used to support
the certifications of the Chief Executive Officer and Chief Financial Officer
that are required in periodic reports filed by the Company with the SEC. The
Audit Committee reviewed with the independent registered public accounting firm
their audit plans, audit scope, and identification of audit risks. The Audit
Committee engaged the independent registered public accounting firm and approved
auditor services and fees, including audit, audit-related and nonaudit fees.
The Audit Committee discussed and reviewed with the independent
registered public accounting firm all communications required by generally
accepted auditing standards, including those described in Statement on Auditing
Standards No. 61, as amended, "Communication with Audit Committees," and, with
and without management present,
10
discussed and reviewed the results of the independent registered public
accounting firm's examination of the consolidated financial statements.
The Audit Committee reviewed with management and the independent
registered public accounting firm the audited financial statements as of and for
the fiscal year ended June 30, 2005. Management represented to the Audit
Committee that the consolidated financial statements were prepared in accordance
with generally accepted accounting principles in the United States of America
and the Audit Committee has reviewed and discussed the consolidated financial
statements with management, the internal auditor and the independent registered
public accounting firm.
Based on the above-mentioned reviews and discussions with management and
the independent registered public accounting firm, the Audit Committee
recommended to the Board of Directors (and the Board agreed) that the audited
consolidated financial statements be included in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2005, for filing with the SEC.
AUDIT COMMITTEE
William J. Ketelhut, Chairman
Florence I. Metz
Stephen Rabinowitz
11
Independent Registered Public Accounting Firm Fees. The following table
presents aggregate fees for professional audit services rendered by Grant
Thornton LLP, our Independent Registered Public Accounting Firm, for the fiscal
year ended June 30, 2005 and 2004 and fees billed for other services rendered by
Grant Thornton during those periods.
2005 2004
------------ ------------
Audit Fees(1) $ 1,449,000 $ 605,000
Audit-Related Fees(2) - 52,000
Tax Fees(3) - -
All Other Fees(4) 142,000 31,000
----------- -----------
Total Fees $ 1,591,000 $ 688,000
=========== ===========
------------
(1) Audit Fees -- These are fees for professional services performed by
Grant Thornton for the audit of our annual financial statements and
review of financial statements included in our 10-Q filings, and
services that are normally provided in connection with statutory
and regulatory filings or engagements.
(2) Audit-Related Fees -- These are fees for the assurance and related
services performed by Grant Thornton that are reasonably related to
the performance of the audit or review of our financial statements.
(3) Tax Fees -- These are fees for professional services performed by
Grant Thornton with respect to tax compliance, tax advice and tax
planning.
(4) All Other Fees -- These are fees for permissible work performed by
Grant Thornton that does not meet the above categories.
During fiscal year 2005, the Audit Committee approved all audit and
nonaudit services provided to us by Grant Thornton prior to management engaging
Grant Thornton for that purpose. The Committee's current practice is to consider
for pre-approval annually all audit and nonaudit services proposed to be
provided by our independent registered public accounting firm for the fiscal
year. In accordance with the Committee's current policy, additional fees related
to audit services proposed to be provided within the scope of the approved
engagement may be approved by management, so long as the fees for such
additional services are consistent with historical experience, and are reported
to the Audit Committee at the next regularly scheduled Committee meeting.
Additional fees for other proposed audit-related or nonaudit services (not
within the scope of the approved engagement) may be considered and, if
appropriate, approved by the Chairman of the Audit Committee if such additional
fees constitute five percent or less of the approved budget, otherwise the Audit
Committee must approve all additional audit related and nonaudit services to be
performed by the independent registered public accounting firm. The Audit
Committee has considered that the provision of nonaudit services rendered by
Grant Thornton was compatible with maintaining Grant Thornton's independence.
12
ITEM NO. 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Upon the recommendation of the Audit Committee, the Board of Directors
has selected Grant Thornton LLP as ECD's independent registered public
accounting firm to audit its consolidated financial statements for the fiscal
year ending June 30, 2006 and to perform audit-related services. Such services
include review of periodic reports and registration statements filed by the
Company with the Securities and Exchange Commission and consultation in
connection with various accounting and financial reporting matters. Grant
Thornton will also perform limited non-audit services for ECD.
The Board of Directors has directed that the appointment of Grant
Thornton be submitted to the stockholders for ratification. The affirmative vote
of a majority of the votes cast at the Meeting will be required to ratify such
appointment. In the event that the stockholders do not ratify the selection of
Grant Thornton as independent registered public accounting firm, the Audit
Committee and the Board of Directors will reconsider the appointment.
Representatives of Grant Thornton will be present at the Meeting and
available to respond to appropriate questions. They will also be given the
opportunity to make a statement if they desire to do so.
-------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2006.
13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth aggregate information regarding grants
under all equity compensation plans of ECD as of October 3, 2005.
Number of Number of securities
securities to be remaining available
issued upon Weighted-average for future issuance
exercise of exercise price of under equity compen-
outstanding outstanding sation plans (excluding
options, warrants options, warrants securities reflected in
Plan category and rights and rights 1st column)
- ------------------------------- ----------------- ----------------- -----------------------
Equity compensation plans
approved by security holders(1) 1,791,715 $ 18.80 971,910
Equity compensation plans not
approved by security holders 1,170,731(2)(3) $ 13.88 (2)(3)
---------
Total 2,962,446 $ 16.86 971,910
========= =======
------------------
(1) These plans consist of the 1995 Non-Qualified Stock Option Plan
and 2000 Non-Qualified Stock Option Plan.
(2) Of the 1,170,731 shares issuable upon exercise, options to acquire
528,088 shares and 342,643 shares were issued to Mr. and Dr.
Ovshinsky, respectively, pursuant to Stock Option Agreements (the
"Agreements") dated November 1993, as amended in November 1995,
which provided for periodic antidilution protection adjustments
based on changes in the number of outstanding shares of ECD Common
Stock. In June 2005, the Agreements were further amended by
deleting the antidilution protection adjustment provisions. No
further options will be granted to Mr. and Dr. Ovshinsky under
the Agreements. In consideration of the agreements by Mr. and Dr.
Ovshinsky to such amendment, the Company's Compensation Committee
approved the grant of options to Mr. Ovshinsky (100,000 shares) and
Dr. Ovshinsky (65,000 shares) under the Company's 2000
Non-Qualified Stock Option Plan.
(3) Of the 1,170,731 shares issuable upon exercise, options to acquire
300,000 shares were issued to Mr. Robert Stempel pursuant to a
Stock Option Agreement dated January 15, 1999. There are no
securities available for future issuance under this Stock Option
Agreement.
14
Security Ownership of Certain Beneficial Owners and Management
Directors and Executive Officers. The following table sets forth, as of
October 3, 2005, information concerning the beneficial ownership of Common Stock
by each director and executive officer and for all directors and executive
officers of the Company as a group. All shares are owned directly except as
otherwise indicated.
Amount and Nature
of Beneficial Percentage
Name of Beneficial Owner Ownership(1) of Class(2)
------------------------ ----------------- -----------
Robert C. Stempel 1,118,404 (3) 3.74%
Stanford R. Ovshinsky 825,748 (4) 2.75%
Iris M. Ovshinsky 505,753 (5) 1.70%
Nancy M. Bacon 150,015 (6) *
James R. Metzger 49,974 (7) *
Stephan W. Zumsteg 41,000 (8) *
Florence I. Metz 14,405 (9) *
William J. Ketelhut 5,768 (10) *
Stephen Rabinowitz 4,268 (11) *
Robert I. Frey 3,268 (12) *
---------
All executive officers and
directors as a group (10 persons) 2,718,603 8.70%
=========
----------------
* 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.
(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 607,000 shares represented by options exercisable within 60
days.
(4) Includes 660,088 shares represented by options exercisable within 60
days. Under the rules and regulations of the Securities and Exchange
15
Commission, Mr. Ovshinsky may be deemed a beneficial owner of the
shares of Common Stock and Class A Common Stock owned by his wife,
Dr. Ovshinsky. Such shares are not reflected in Mr. Ovshinsky's share
ownership in this table.
(5) Includes 432,643 shares represented by options exercisable within 60
days. 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,
Mr. Ovshinsky. Such shares are not reflected in Dr. Ovshinsky's share
ownership in this table.
(6) Includes 125,000 shares represented by options exercisable within 60
days.
(7) Includes 45,000 shares represented by options exercisable within 60
days.
(8) Includes 39,000 shares represented by options exercisable within 60
days.
(9) Includes 6,000 shares represented by options exercisable within 60
days.
(10) Includes 2,000 shares represented by options exercisable within 60
days.
(11) Includes 2,000 shares represented by options exercisable within 60
days.
(12) Includes 2,000 shares represented by options exercisable within 60
days.
Principal Shareholders. The following table sets forth, to the knowledge
of the Company, the beneficial holders of more than 5% of the Company's Common
Stock (see footnotes for calculation used to determine "percentage of class"
category):
Name and Address of Amount and Nature of Percentage of
Beneficial Holder Beneficial Ownership Class(1)
- ------------------------------- -------------------- -------------------
FMR Corp. 2,682,932 (2)(3) 9.15%(2)
82 Devonshire Street, E31C
Boston, Massachusetts 02109
----------------
(1) Under the rules and regulations of the SEC, 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.
(2) The Company has relied upon information contained in filings with the
SEC.
(3) Based upon information contained in a Form 13F filed by FMR Corp. with
the SEC for the period ended June 30, 2005. Based upon a Schedule 13G
filed by FMR Corp. on
16
February 14, 2005, FMR Corp. has sole power to dispose or to direct
the disposition of such shares. Sole power to vote the shares of
Common Stock beneficially owned by FMR Corp. resides in the
respective boards of trustees of the funds that have invested in the
shares.
EXECUTIVE OFFICERS
The executive officers of ECD are as follows:
Served as an
Executive Officer
Name Age Office or Director Since
- ---------------------- --- ---------------------------- -----------------
Robert C. Stempel 72 Chairman of the Board, Chief 1995
Executive Officer and Director
Stanford R. Ovshinsky 82 President, Chief Scientist and 1960(1)
Technologies and Director
Iris M. Ovshinsky 78 Vice President and Director 1960(1)
James R. Metzger 58 Executive Vice President and 2000
Chief Operating Officer
Nancy M. Bacon 59 Senior Vice President 1976
Stephan W. Zumsteg 59 Vice President and Chief 1997
Financial Officer
- --------------------
(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.
Mr. Metzger joined ECD as Vice Chairman in November 2002. He was named
ECD's Chief Operating Officer in February 2003 and Executive Vice President in
February 2004 with responsibility for the day-to-day operations of ECD. He
served on ECD's Board of Directors from July 2000 - February 2004. Prior to his
retirement from Texaco on March 1, 2002 following the merger of Chevron and
Texaco on October 9, 2001, he was Vice President and Chief Technology Officer at
Texaco Inc.
Mrs. Bacon joined ECD in 1976 as Vice President of Finance and Treasurer
and was named Senior Vice President in 1993. She served on ECD's Board of
Directors from November 1977 - February 2004.
Mr. Zumsteg joined ECD in March 1997. He was elected Treasurer in April
1997 and Vice President and Chief Financial Officer in February 2001.
17
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers to file with the Securities and Exchange
Commission reports of ownership and changes in ownership with respect to the
securities of the Company and its affiliates and to furnish copies of these
reports to the Company. Based on a review of these reports and written
representations from the Company's directors and officers regarding the
necessity of filing a report, the Company believes that during fiscal year ended
June 30, 2005, all filing requirements were met on a timely basis.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to ECD's Chief
Executive Officer and the next four most highly compensated executive officers
for the fiscal years ended June 30, 2005, 2004 and 2003.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation
Compensation Awards
------------ --------------
Securities
Name and Principal Fiscal Underlying All Other
Position Year(1) Salary(2) Options (#) Compensation(3)
- ------------------ ------- ------------ ----------- ---------------
Robert C. Stempel 2005 $ 270,005 - $ 5,438
Chairman and Chief 2004 $ 275,776 - $ 5,778
Executive Officer 2003 $ 300,019 40,000 $ 4,191
Stanford R. Ovshinsky 2005 $ 331,219 160,198(4) $ 8,200
President and Chief 2004 $ 338,295 66,391(5) $ 8,000
Scientist and Technologist 2003 $ 367,668 40,000 $ 10,781
James R. Metzger 2005 $ 290,280(6) - $ 8,200
Executive Vice President and 2004 $ 279,347(7) 25,000 $ 6,069
Chief Operating Officer 2003 $ 141,571(8) 25,000 -
Iris M. Ovshinsky 2005 $ 283,504 105,132(4) $ 13,762
Vice President 2004 $ 289,564 44,261(5) $ 13,562
2003 $ 314,727 25,000 $ 13,562
Nancy M. Bacon 2005 $ 270,005 10,000 $ 10,522
Senior Vice President 2004 $ 275,776 - $ 10,322
2003 $ 289,441 30,000 $ 10,322
- --------------
18
(1) ECD's fiscal year is July 1 to June 30. ECD's 2005 fiscal year ended
June 30, 2005.
(2) Amounts shown include compensation deferred under ECD's 401(k) Plan.
(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, 2004, 2003 and 2002, respectively, as follows: Mr. Ovshinsky
$8,200, $8,000 and $8,000; Mr. Metzger $8,200, $6,069 and $0; Dr.
Ovshinsky $8,200, $8,000 and $8,000; Mrs. Bacon $8,200, $8,000, $8,000;
and (ii) the dollar value of any life insurance premiums paid by ECD in
the fiscal years ended June 30, 2005, 2004 and 2003 with respect to
term-life insurance for the benefit of each of the named executives as
follows: Mr. Stempel $5,438, $5,778 and $4,191; Mr. Ovshinsky $0, $0,
$2,781; Dr. Ovshinsky $5,562 (all three years); Mrs. Bacon $2,322 (all
three years). Under the 401(k) Plan, which is a qualified
defined-contribution plan, ECD makes matching contributions
periodically on behalf of the participants. Effective October 2000, the
Board of Directors approved employer matching contributions in the
amount of 100% of the first 2% and 50% of the next 4% of each such
participant's deferred compensation. These matching contributions were
limited to 4% of a participant's salary, up to $205,000 for calendar
year 2004 and up to $200,000 for calendar years 2003 and 2002. Mr.
Stempel does not participate in the Company's 401(k) Plan.
(4) Of the stock options issued to Mr. and Dr. Ovshinsky in the amount of
160,198 shares and 105,132 shares, respectively, 60,198 shares (Mr.
Ovshinsky) and 40,132 shares (Dr. Ovshinsky) were issued pursuant to
Stock Option Agreements (the "Agreements") dated November 1993, as
amended in November 1995, which provided for periodic antidilution
protection adjustments based on changes in the number of outstanding
shares of ECD Common Stock. In June 2005, the Agreements were further
amended by deleting the antidilution protection adjustment provision.
No further options will be granted to Mr. and Dr. Ovshinsky under the
Agreements. In consideration of the agreements by Mr. and Dr. Ovshinsky
to such amendment, the Company's Compensation Committee approved the
grant of options to Mr. Ovshinsky (100,000 shares) and Dr. Ovshinsky
(65,000 shares) under the Company's 2000 Non-Qualified Stock Option
Plan.
(5) The stock options were issued to Mr. and Dr. Ovshinsky pursuant to the
Agreements referred to in footnote (4) above.
(6) Includes expenses of $46,121 for travel and lodging imputed as income
to Mr. Metzger.
(7) Includes expenses of $69,967 for travel and lodging imputed as income
to Mr. Metzger.
(8) The salary reported for fiscal year 2003 is for the eight-month period
November 2002 - June 2003 and includes expenses of $6,460 for travel
and lodging imputed as income to Mr. Metzger. Prior to joining ECD as
an employee in November 2002, Mr. Metzger served as a nonemployee board
member. Accordingly, the salary for 2003 also includes approximately
$5,000 in annual director fees for calendar year 2002.
19
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all options granted to the named
executive officers during the fiscal year ended June 30, 2005.
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(1)
----------------------------------------------------- ---------------------------
Number of
Securities Percent of
Underlying Total Options Exercise
Options Granted to of Base
Granted Employees in Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5% 10%
- --------------------- ---------- ------------- --------- ---------- ----------- ------------
Stanford R. Ovshinsky 160,198 (2) 40.78% $ 21.84(3) (4) $ 2,200,308 $ 5,576,013
Iris M. Ovshinsky 105,132 (5) 26.76% $ 21.84(3) (6) $ 1,443,624 $ 3,658,427
Nancy M. Bacon 10,000 2.55% $ 16.75 1/26/2015 $ 105,340 $ 266,952
--------------
(1) The potential realizable value amounts shown illustrate the values that
might be realized upon exercise immediately prior to the expiration of
their term using 5% and 10% appreciation rates as required to be used
in this table by the SEC, compounded annually, and are not intended to
forecast possible future appreciation, if any, of ECD's stock price.
Additionally, these values do not take into consideration the
provisions of the options providing for nontransferability or
termination of the options following termination of employment.
(2) Of the 160,198 shares, 100,000 shares were issued pursuant to ECD's
2000 Non-Qualified Stock Option Plan and 60,198 shares were issued
pursuant to a Stock Option Agreement (the "Agreement") dated November
1993, and amended in November 1995, which provided for periodic
antidilution protection adjustments based on changes in the number of
outstanding shares of ECD Common Stock. In June 2005, the Agreement was
amended by deleting the antidilution protection adjustment provision.
No further options will be granted to Mr. Ovshinsky under the
Agreement.
(3) The exercise price is the weighted average exercise price of all stock
options granted to Mr. and Dr. Ovshinsky in fiscal year 2005.
(4) Of the 160,198 shares, 100,000 shares expire on June 24, 2015 and
60,198 shares expire 12 months after termination of employment other
than voluntary termination or 90 days after voluntary termination.
(5) Of the 105,132 shares, 65,000 shares were issued pursuant to ECD's 2000
Non-Qualified Stock Option Plan and 40,132 shares were issued pursuant
to a Stock Option Agreement (the "Agreement") dated November 1993, and
amended November 1995, which provided for periodic antidilution
protection adjustments based on changes in the number of outstanding
shares of ECD Common Stock. In June 2005, the Agreement was amended by
deleting the antidilution protection adjustment provision. No further
options will be granted to Dr. Ovshinsky under the Agreement.
(6) Of the 105,132 shares, 65,000 shares expire on June 24, 2015 and 40,132
shares expire 12 months after termination of employment other than
voluntary termination or 90 days after voluntary termination.
20
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, 2005, and the number and value
of unexercised options held by the named executive officers at June 30, 2005.
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised in-the-Money Options
Exercise Realized Options at June 30, 2005 at June 30, 2005
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- ----------- ------------- ------------------------- -------------------------
Robert C. Stempel(1) 129,000 $ 1,012,432(2) 599,000 / 16,000 $ 4,420,745 / $ 191,680
Stanford R. Ovshinsky(3) 194,957 $ 1,638,266(4) 652,088 / 116,000 $ 4,397,695 / $ 211,680
Iris M. Ovshinsky(5) 146,888 $ 1,251,812(6) 427,643 / 75,000 $ 2,774,989 / $ 132,800
James R. Metzger(7) _ _ 33,000 / 27,000 $ 323,710 / $ 308,240
Nancy M. Bacon(8) 125,200 $ 956,881(9) 115,000 / 22,000 $ 272,015 / $ 200,060
- -----------------
(1) Mr. Stempel's exercisable and unexercisable options are exercisable at
a weighted average price of $15.11 and $10.40 per share, respectively.
(2) Of the $1,012,432 value realized, approximately $408,516 was used to
cover withholding taxes associated with the exercise. Mr. Stempel
retained 20,000 of the 129,000 shares exercised.
(3) Mr. Ovshinsky's exercisable and unexercisable options are exercisable
at a weighted average price of $15.92 and $20.56 per share,
respectively.
(4) Of the $1,638,266 value realized, $579,127 was used to cover
withholding taxes associated with the exercise.
(5) Dr. Ovshinsky's exercisable and unexercisable options are exercisable
at a weighted average price of $16.18 and $20.61 per share,
respectively.
(6) Of the $1,251,812 value realized, $442,515 was used to cover
withholding taxes associated with the exercise.
(7) Mr. Metzger's exercisable and unexercisable options are exercisable at
a weighted average price of $12.57 and $10.96 per share, respectively.
(8) Mrs. Bacon's exercisable and unexercisable options are exercisable at a
weighted average price of $20.24 and $13.29 per share, respectively.
(9) Of the $956,881 value realized, approximately $290,414 was used to
cover withholding taxes associated with the exercise.
21
EMPLOYMENT AGREEMENTS
On January 15, 1999, we entered into an Executive Employment Agreement
with Robert C. Stempel and a Restricted Stock Agreement awarding Mr. Stempel
430,000 shares of Class B Common Stock. Under the provisions of our Articles of
Incorporation, the Class B Common Stock was automatically converted to Common
Stock on September 30, 2005. The Executive Employment Agreement, which provided
for Mr. Stempel to serve as our Executive Director for a term ending September
30, 2005, was amended in October 2000 to extend the term of his employment until
September 30, 2010. The Executive Employment Agreement is automatically
renewable for successive one-year terms after the initial term, unless
terminated by either Mr. Stempel or ECD by giving written notice of termination
at least 120 days in advance of the renewal date. Mr. Stempel was named Chief
Executive Officer in February 2004.
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
based on Mr. Stempel's individual performance and our financial performance. Mr.
Stempel is also entitled to receive nonwage benefits of the type provided
generally by us to our senior executive officers.
The Executive Employment Agreement permits Mr. Stempel to retire as one
of our officers and employees 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 our officer. The Executive Employment
Agreement permits us to terminate Mr. Stempel's employment upon the occurrence
of certain defined events, including the material breach by Mr. Stempel of
certain noncompetition 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 one of our officers and employees
(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 cease effective upon the date of the
termination of his employment.
On September 2, 1993, Mr. Ovshinsky entered into separate employment
agreements with each of ECD and Ovonic Battery in order to clearly define 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. The agreements are automatically renewable
for successive one-year terms unless terminated by Mr. Ovshinsky or ECD or
Ovonic Battery by giving notice of termination 120 days in advance of the
renewal date.
In June 2005, Mr. Ovshinsky's Executive Employment Agreements with ECD
and Ovonic Battery were amended to provide for ECD and Ovonic Battery to have
the benefits
22
of Mr. Ovshinsky's services as a consultant following the termination of his
active employment for consulting fees equal to 50% of the salary payable to
Mr. Ovshinsky at the date of the termination of his active employment and for
Mr. Ovshinsky to retire at any time during his services as a consultant and
receive retirement benefits equal to the consulting fees for the remainder of
his life.
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 and an annual bonus equal to 1% of our pretax income (excluding
Ovonic Battery) and 1% of the operating income of Ovonic Battery. Accordingly,
Mr. Ovshinsky received $676,000 in bonus based upon Ovonic Battery's financial
results for fiscal year 2005, paid to him in September 2005. Mr. Ovshinsky did
not receive a salary increase in fiscal year 2005 and, along with other senior
executives, voluntarily reduced his salary by 10 percent in August 2003.
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 our
assets; (ii) the approval by our stockholders of any plan or proposal of our
liquidation or dissolution; (iii) the consummation of any consolidation or
merger of ECD in which we are not the surviving or continuing corporation; (iv)
the acquisition by any person of 30% or more of the combined voting power of our
then outstanding securities having the right to vote for the election of
directors; (v) changes in the constitution of the majority of our Board of
Directors; (vi) the holders of our Class A Common Stock ceasing to be entitled
to exercise their preferential voting rights other than as provided in our
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. Ovshinsky.
Pursuant to his employment agreement with Ovonic Battery, Mr. Ovshinsky
was granted stock options to purchase 186 shares of Ovonic Battery's common
stock, exercisable at a price of $16,129 per share, representing approximately
6% of Ovonic Battery's outstanding common stock.
In February 1998, the Compensation Committee recommended and our Board
of Directors approved an Employment Agreement between ECD and 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 us
following the termination of her active employment for consulting fees equal to
50% of the salary payable to Dr. Ovshinsky at the date of the termination of her
active employment. Dr. Ovshinsky has 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.
23
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. Dr. Ovshinsky did not receive
a salary increase or a bonus in fiscal year 2005 and, along with other senior
executives, voluntarily reduced her salary by 10 percent in August 2003.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee is responsible for establishing compensation
policies which govern both the annual compensation of and grants of stock
options to the executive officers of the Company and its wholly and/or majority
owned subsidiaries and the Company's directors. No member of the Compensation
Committee is a current or former officer or employee of ECD or any of its
subsidiaries. The Committee meets several times during the year to review and
approve management's recommendation regarding stock options and compensation.
Compensation and stock option recommendations are based principally upon
performance and also take into consideration market-based comparisons to current
compensation, stock option ownership, and years of service to us. We do not have
a formal bonus program for executives, although we have awarded bonuses to our
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 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 the 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.
Salary and Bonus
- ----------------
Salary is paid for ongoing performance. In light of cost-containment
initiatives, ECD instituted a salary freeze for all ECD and Ovonic Battery
employees in August 2003. Additionally, senior executives voluntarily reduced
their salaries by 10 percent effective September 1, 2003. We do not have a
formal bonus program for executives. Mr. Ovshinsky's Executive Employment
Agreement with Ovonic Battery entitles him to receive annual bonuses equal to 1%
of the operating income of Ovonic Battery. Accordingly, Mr. Ovshinsky received
$676,000 in bonus based upon Ovonic Battery's financial results for fiscal year
2005, paid to him in September 2005.
24
Stock Options
- -------------
The Compensation Committee considers stock options to be an extremely
effective incentive for executive officers and other employees. Such options
also encourage executives to remain with ECD because they vest over a period of
years. In fiscal year 2005, stock options were granted to Mr. Ovshinsky, Dr.
Ovshinsky, Nancy M. Bacon and Stephan W. Zumsteg. See page 20 - Option Grants
in Last Fiscal Year - for the number of stock options granted to Mr. Ovshinsky,
Dr. Ovshinsky and Mrs. Bacon. On January 26, 2005, Mr. Zumsteg was granted an
option to purchase 10,000 shares of ECD Common Stock at $16.75 per share under
the terms of ECD's 1995 Non-Qualified Stock Option Plan.
The employees of our majority-owned subsidiaries also participate in the
broad-based stock option program.
Chief Executive Officer Compensation
Mr. Stempel was named Chief Executive Officer in February 2004 by the
Board of Directors. In January 1999, he entered into an Executive Employment
Agreement with ECD. The Executive Employment Agreement, which provides that Mr.
Stempel serve as an executive of ECD for a term ending until September 30, 2010.
See "Management -- Employment Agreements" which sets forth the terms and
conditions governing Mr. Stempel's employment. Mr. Stempel did not receive a
salary increase or a bonus in fiscal year 2005 and, along with other senior
executives, voluntarily reduced his salary by 10 percent in August 2003.
COMPENSATION AND NOMINATING COMMITTEE
Florence I. Metz, Chairwoman
Robert I. Frey
25
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 Russell 2000 Index.
Cumulative Total Return
-------------------------------------------------------
6/00 6/01 6/02 6/03 6/04 6/05
ENERGY CONVERSION DEVICES, INC. 100.00 110.34 61.83 36.41 44.37 88.20
NASDAQ STOCK MARKET (U.S.) 100.00 55.50 37.13 31.63 43.05 43.54
RUSSELL 2000 100.00 100.66 91.93 90.42 120.59 131.98
The total return with respect to NASDAQ Stock Market - U.S. Index and
the Russell 2000 Index assumes that $100 was invested on June 30, 2000,
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 SEC 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.
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chevron Corporation. In December 2004, in consideration of the expansion
of the scope of licenses to Cobasys, the 50-50 joint venture between Ovonic
Battery and Chevron, ECD received through its Ovonic Battery subsidiary an
option to purchase 4,376,633 shares of ECD Common Stock owned by a subsidiary of
Chevron at $4.55 per share. The option was exercised in May 2005 for a total
purchase price of $19,913,680 and the shares acquired were cancelled and
returned to authorized and unissued status. ECD received $4,675,000
restructuring payment from Chevron in December 2004 in connection with the
transfer to ECD of Chevron's interest in Ovonic Hydrogen Systems.
Ovonic Hydrogen Systems (formerly known as Texaco Ovonic Hydrogen
Systems). In December 2004, a subsidiary of Chevron transferred its 50% interest
in Ovonic Hydrogen Systems to ECD in consideration of relieving Chevron of any
continuing funding obligation. Stanford R. Ovshinsky and Robert C. Stempel,
directors of ECD, are members of the Management Committee of Ovonic Hydrogen
Systems. For the year ended June 30, 2005, ECD recorded revenues of $4,089,000
from Ovonic Hydrogen Systems during the period it was co-owned and funded by
Chevron primarily for advanced product development work.
Cobasys. Stanford R. Ovshinsky and Robert C. Stempel, directors of ECD
and Ovonic Battery, are members of the Management Committee of Cobasys. For the
year ended June 30, 2005, Ovonic Battery recorded revenue of $2,112,000 from
Cobasys primarily for advanced product development work.
Ovonyx. Stanford R. Ovshinsky and Robert C. Stempel, directors of ECD,
are directors of Ovonyx. ECD owns 41.7% of Ovonyx. ECD recorded revenues of
$272,000 from Ovonyx for the year ended June 30, 2005 for services provided to
Ovonyx. ECD made a $100,000 payment to Ovonyx in fiscal year 2005 under a
license from Ovonyx.
Other Arrangements. 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 $200,013 in salary during the fiscal year ended June 30, 2005.
Benjamin Ovshinsky, Stanford R. Ovshinsky's son, is employed by ECD as
its business representative for the Western United States. He received
compensation of $85,010 during the fiscal year ended June 30, 2005.
ADDITIONAL INFORMATION
Cost of Solicitation. The cost of solicitation will be borne by the
Company. In addition to solicitation by mail, directors, officers and other
employees of the Company may solicit proxies personally or by telephone or other
means of communication. Arrangements may be made with brokerage houses and other
custodians, nominees and fiduciaries to
27
forward, at the expense of the Company, copies of the proxy materials to
the beneficial owners of shares held of record by such persons. The Company
also intends to hire Morrow & Co., at an anticipated cost of approximately
$4,500 plus out-of-pocket expenses, to assist it in the solicitation of proxies
personally, by telephone, or by other means.
Other Action at the Meeting. The Company's management, at the time
hereof, does not know of any other matter to be presented which is a proper
subject for action by the stockholders at the Meeting. If any other matters
shall properly come before the Meeting, the shares represented by a properly
executed proxy will be voted in accordance with the judgment of the persons
named on the proxy.
Annual Report. Our annual report on Form 10-K for the fiscal year 2005
has been mailed to stockholders along with this proxy statement. If you have not
received our annual report on Form 10-K, please call Investor Relations at (248)
293-0440 or send us an e-mail at investor.relations@ovonic.com.
Stockholder Proposals for 2006 Annual Meeting. Any stockholder intending
to submit a proposal for inclusion in the proxy statement for the 2006 annual
meeting must meet the eligibility and other criteria required under Rule 14a-8
of the Securities Exchange Act of 1934, as amended, which proposal must be in
writing and delivered to the Company's Secretary at the Company's principal
executive offices at 2956 Waterview Drive, Rochester Hills, Michigan 48309, no
later than June 20, 2006 in order to be considered timely. Written notice of
stockholder proposals (other than proposals for inclusion in the proxy) for
consideration at the 2006 annual meeting must be received by the Company's
Secretary by September 1, 2006. The 2006 annual meeting is tentatively scheduled
to be held on or about November 15, 2006.
---------------
Stockholders are urged to send in their proxies without delay.
By Order of the Board of Directors
/s/ Ghazaleh Koefod
-----------------------------------
Ghazaleh Koefod
Secretary
October 17, 2005
28
MICHIGAN STATE UNIVERSITY
MANAGEMENT EDUCATION CENTER
811 WEST SQUARE LAKE ROAD
TROY, MI
(248) 879-2456
MAP GIVING DIRECTION AND COORDINATES OF ANNUAL MEETING LOCATION
Energy Conversion Devices, Inc.
Annual Meeting of Stockholders
Tuesday, November 15, 2005, 10:00 a.m.
ECVCM-PS-05
- -------------------------------------------------------------------------------
ENERGY CONVERSION DEVICES, INC.
- -------------------------------------------------------------------------------
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
The matters you are asked to vote upon are discussed in detail in the enclosed
proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
November 15, 2005.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Energy Conversion Devices, Inc.
DETACH HERE
ENERGY CONVERSION DEVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROGER JOHN LESINSKI and GHAZALEH KOEFOD and
each of them, with power of substitution, and in place of each, in case of
substitution, his or her substitute, the attorneys and proxies for and on behalf
of the undersigned to attend the Annual Meeting of Stockholders (the "Meeting")
of ENERGY CONVERSION DEVICES, INC. (the "Company") to be held at Michigan State
University Management Education Center, 811 West Square Lake Road, Troy,
Michigan, on Tuesday, November 15, 2005 at 10:00 a.m. (EST) and any and all
adjournments thereof, and to cast the number of votes the undersigned would be
entitled to vote if then personally present. The undersigned instructs such
proxies to vote as specified on this card.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES FOR DIRECTORS AND FOR PROPOSAL 2 AS DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT.
The Board of Directors of the Company recommends a vote FOR Proposals 1 and 2.
PLEASE VOTE, DATE AND SIGN ON REVERSE AN RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign this Proxy exactly as your name(s) appear(s) on the books of the
Company. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more than
one name appears, a majority must sign. If a corporation, this signature should
be that of an authorized officer who should state his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
ENERGY CONVERSION DEVICES, INC.
C/O COMPUTERSHARE
P.O. BOX 8694
EDISON, NJ 08818-8694
Your vote is important. Please vote immediately.
Vote-by-Internet Vote-by-Telephone
Log on to the Internet and go to OR Call toll-free
http://www.eproxyvote.com/ener 1-877-PRX-VOTE (1-877-779-8683)
If you vote over the Internet or by telephone, please do not mail your card.
DETACH HERE
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
-----------------------------------
1. Election of Directors. ENERGY CONVERSION DEVICES, INC.
Nominees as Directors -----------------------------------
For Against Abstain
(01) Robert I. Frey, (02) William J. Ketelhut, 2. Proposal to approve the [ ] [ ] [ ]
(03) Florence I. Metz, (04) Iris M. Ovshinsky, appointment of Grant Thornton LLP
(05) Stanford R. Ovshinsky, (06) Stephen Rabinowitz as independent registered public
and (07) Robert C. Stempel accounting firm for the fiscal year
ending June 30, 2006.
For all [ ] [ ] Withhold All
For all Except [ ] --------------------------------------
For all nominees except as noted above
Mark box at right if an address change or [ ]
comment has been noted on the reverse side
of this card.
Mark box at right if you plan to attend the [ ]
the Annual Meeting.
Please be sure to sign and date this Proxy.
Signature: -------------------- Date: -------------- Signature: -------------------- Date: --------------