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. 2)
Filed by the Registrant [X]
filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as determined by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ENERGY CONVERSION DEVICES, INC.
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(Name of Registrant as Specified In Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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February 1999
Dear ECD Stockholders:
I am writing this personal letter to ask you to give special attention to this
year's Proxy Statement.
As you know, ECD has been my life's work, and Iris's, to solve societal problems
and build shareholder value through technology. From early on, Iris and I have
had stock with special voting powers to protect the company from takeovers that
would appropriate the fruits of our technology without paying full value to the
stockholders.
You, the stockholders, have extended these voting powers periodically, and it is
now time to do it again. Also, I have been giving great attention to the issue
of management continuity. Iris and I are so pleased that Bob Stempel has joined
us as a true partner. Because we have worked so closely and well with Bob for
several years, we believe deeply that he is the best conceivable successor to
manage the company and realize the full fruits of our dominating technological
position. To do this, Bob should have the same special voting powers after us.
One further observation about why these voting powers held by both Iris and me,
and later Bob, are important to you and the company. Several times within the
last few years, large companies have told us, "Why should we pay you royalties
or be concerned about your suing us for patent infringement? We can just as
easily buy the whole company." Because of the special voting powers, the threats
have receded. But, if we did not have the special voting powers, this type of
threat would be very real. Just last fall, a high-tech company, Quickturn Design
Systems, which had successfully asserted its patents against a competitor and
sought $225 million in damages, found itself subject to a takeover by the
competitor. It was apparently cheaper for the competitor to buy control than pay
the damages, even if that meant paying a significant premium to obtain control
of the target company. The takeover target did not have the protection of
special voting powers, and the courts turned down the target's defensive
strategy, resulting in the target being forced to seek out a merger with another
company to avoid being taken over by its competitor.
Your board of directors has thoroughly considered that the special voting rights
may discourage a takeover of ECD in which the stockholders might receive a
premium for their shares. However, the board has determined that any perceived
short-term benefits to stockholders as a result of a takeover are significantly
outweighed by the long-term benefits to stockholders in extending the special
voting rights. Your board recommends the adoption of these proposals.
So, I urge you to read the enclosed Proxy Statement carefully for a thorough
understanding of the importance of these proposals to your company, and make
sure that you vote FOR extending the special voting powers of the Class A Common
Stock another six years (until September 30, 2005) (Item 3) and FOR creating a
special Class B Common Stock to be placed in Bob Stempel's hands, which will
have the same special voting powers when we no longer have them (Item 4).
You can look forward to receiving shortly the 1998 Letter to Stockholders and
the new technology and product brochure. Thank you for your interest in Energy
Conversion Devices and your support for our efforts.
Sincerely,
Stanford R. Ovshinsky
[LOGO]
ENERGY CONVERSION DEVICES, INC.
1675 West Maple Road
Troy, Michigan 48084
Dear Stockholder:
The Annual Meeting of the Stockholders of Energy Conversion Devices, Inc.
will be held at _______ (E.S.T.) on March 25, 1999 at _________________________.
If you plan to attend, we would appreciate your calling the Investor Relations
department at (248)280-1900.
Sincerely,
Robert C. Stempel
Chairman of the Board
ENERGY CONVERSION DEVICES, INC.
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NOTICE OF MEETING OF STOCKHOLDERS
----------------------
Troy, Michigan
February __, 1999
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. (the "Company") will be held at
______ (E.S.T.) on Thursday, March 25, 1999 at
___________________________________. The purpose of the Meeting is to:
1. Elect fourteen directors to hold office until the next Annual
Meeting of the stockholders of the Company;
2. Approve the appointment of Deloitte & Touche LLP as independent
auditors for the fiscal year ending June 30, 1999;
3. Consider and act upon a proposal of the Board of Directors to
amend the Company's Certificate of Incorporation to change the
date on which shares of the Company's Class A Common Stock, par
value $.01 per share ("Class A Common Stock"), is deemed to be
converted into shares of the Company's Common Stock, par value
$.01 per share ("Common Stock"), from September 14, 1999 to
September 30, 2005;
4. Consider and act upon a proposal of the Board of Directors to
increase the Company's authorized capital stock to 20,930,000
shares and to amend the Company's Certificate of Incorporation to
authorize 430,000 shares of a new Class B Common Stock, par value
$.01 per share ("Class B Common Stock"); and
5. Transact such other business as may properly come before the Meeting.
The Company's Annual Report on Form 10-K for its fiscal year ended June
30, 1998 accompanies the enclosed Proxy Statement.
Whether or not you expect to attend the Meeting in person, please sign,
date and return the accompanying Proxy in the enclosed prepaid envelope. If you
attend the Meeting, you may vote in person even though you have already signed
and returned a Proxy.
Cordially,
Robert C. Stempel
Chairman of the Board
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Energy Conversion Devices, Inc., a Delaware
corporation (the "Company"), to be voted at the Annual Meeting of Stockholders
(the "Meeting") to be held at _____________________________ on March 25, 1999 at
______ (E.S.T.) for the purposes set forth in the accompanying Notice of Meeting
of Stockholders.
Voting Rights of Stockholders. Holders of record of the Company's Common
Stock at the close of business on January 25, 1999 are entitled to vote at the
Meeting. As of January 25, 1999, there were outstanding 12,996,193 shares of
Common Stock, par value $.01 per share ("Common Stock"), and 219,913 shares of
Class A Common Stock, par value $.01 per share ("Class A Common Stock"). Each
share of Common Stock is entitled to one vote per share and each share of Class
A Common Stock is entitled to 25 votes per share. Both classes vote as one class
on all matters, including the election and removal of directors, except that
with respect to (i) a merger or consolidation of the Company with another
corporation, (ii) the liquidation or dissolution of the Company, (iii) the sale
of all or substantially all of the assets of the Company, (iv) an amendment to
the Company's Certificate of Incorporation for which class voting is required by
Section 242 of the Delaware General Corporation Law, or (v) the authorization of
additional shares of Common Stock or Class A Common Stock, the affirmative vote
of a majority of the outstanding shares of Common Stock and the majority of the
outstanding shares of Class A Common Stock, voting as separate classes, is
required. Section 242 of the Delaware General Corporation Law provides that "the
holders of the outstanding shares of a class shall be entitled to vote as a
class upon a proposed amendment [to the corporation's certificate of
incorporation], whether or not entitled to vote thereon by the certificate of
incorporation, if the amendment would increase or decrease the aggregate number
of authorized shares of such class, increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely."
Stanford R. Ovshinsky and his wife, Dr. Iris M. Ovshinsky, executive
officers, directors and founders of the Company, own of record 153,420 and
65,601 shares, respectively (or approximately 69.8 percent and 29.8 percent,
respectively), of the outstanding shares of Class A Common Stock, with the
balance of the outstanding shares (892 shares) owned by members of their family.
Mr. and Dr. Ovshinsky also own of record 10,399 shares of Common Stock. In
addition, as of January 25, 1999, Mr. Ovshinsky had the right to vote 126,500
shares of Common Stock (the "Sanoh Shares") owned by Sanoh Industrial Co., Ltd.
("Sanoh") under the terms of an agreement dated November 3, 1992 between the
Company and Sanoh.
Record Date. Stockholders of record as of the close of business on
January 25, 1999 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 and Class A Common Stock as of the close of business on the
record date. If a stockholder withholds its 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 it 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 accountants. Abstentions will be considered as votes cast
with respect to such proposal and will have the same effect as a vote against
the proposal.
The affirmative vote of a majority of the combined voting power of the
outstanding Common Stock and Class A Common Stock, voting together as a single
class, will be required to approve the remaining proposals to be considered at
the Meeting. Because of this requirement, abstentions and broker non-votes on
such proposals will have the same effect as a vote against the proposals.
All of the directors and officers of the Company, including Stanford R.
Ovshinsky, Iris M. Ovshinsky and Robert C. Stempel, have advised the Company
that they intend to vote FOR each of the proposals set forth in the accompanying
Notice of Meeting of Stockholders. Such persons together hold approximately
39.6% of the combined voting power of the outstanding Common Stock and Class
A Common Stock.
Voting of Proxies. All shares which are represented by signed proxies
received at or prior to the Meeting from stockholders of record as of the close
of business on January 25, 1999 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.
Revocation of Proxies. A stockholder who executes a Proxy may revoke it
by written notice received by the Company at any time before it is voted.
Proxies may also be revoked by any subsequently dated Proxy or by the
stockholder attending the Meeting and voting in person.
Other Information. The Company's executive offices are located at 1675
West Maple Road, Troy, Michigan 48084. This Proxy Statement and the accompanying
Proxy are being sent to the Company's stockholders on or about February __,
1999.
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ITEM NO. 1
ELECTION OF DIRECTORS
At the Meeting, the directors are to be elected to serve until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. Pursuant to the provisions of the Company's by-laws, the Board of
Directors has by resolution set the number of directors comprising the full
Board at fourteen. 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 below.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ALL
FOURTEEN NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.
Director
of the
Company Principal Occupation and
Name Since Office Business Experience
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Stanford R. Ovshinsky 1960 President, Chief Mr. Ovshinsky, 76, the founder and Chief
Executive Officer Executive Officer of the Company, has been an
and Director executive officer and director of the Company since
its inception in 1960. Mr. Ovshinsky is the primary
inventor of the Company's technology. Mr.
Ovshinsky also serves as: the Chief Executive
Officer and director of Ovonic Battery Company,
Inc. ("Ovonic Battery"); President, Chief Executive
Officer and director of United Solar Systems Corp.
("United Solar"); a member of the Board of
Managers of GM Ovonic L.L.C. ("GM Ovonic"); and
Co-Chairman of the Board of Directors of Sovlux
Co. Ltd. ("Sovlux"). Mr. Ovshinsky is the husband
of Dr. Iris M. Ovshinsky.
Iris M. Ovshinsky 1960 Vice President Dr. Ovshinsky, 71, co-founder and Vice President
and Director of the Company, has been an executive officer and
director of the Company since its inception in 1960.
Dr. Ovshinsky also serves as a director of Ovonic
Battery. Dr. Ovshinsky is the wife of Stanford R.
Ovshinsky.
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Robert C. Stempel 1995 Chairman of the Mr. Stempel, 65, is Chairman of the Board and
Board, Executive Executive Director of the Company. Prior to his
Director and election as a director in December 1995, Mr.
Director Stempel served as senior business and technical
advisor to Mr. Ovshinsky. He is also the Chairman
of Ovonic Battery and serves on the Board of
Managers of GM Ovonic. 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.
Kenneth R. Baker 1999 Vice Chairman Mr. Baker, 51, prior to joining the Company in January
and Director 1999 as its Vice Chairman, held a variety of positions
with General Motors Corporation ("GM") from 1985-1999,
including Vice President and General Manager of GM's
Distributed Energy Business Unit (1998-1999); Vice
Vice President, GM R&D (1993-1998); Program Manager,
GM Electric Vehicles (1990-1993). Mr. Baker is a director
of AeroVironment, Inc.
Nancy M. Bacon 1977 Senior Vice Mrs. Bacon, 52, joined the Company in 1976 as its
President Vice President of Finance and Treasurer. She
and Director became the Senior Vice President of the Company
in 1993. Mrs. Bacon also serves on the Board of
Directors of Sovlux and United Solar.
Umberto Colombo 1995 Director Prof. Colombo, 71, 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
also active as a consultant in international science
and technology policy institutions related to
economic growth.
Hellmut Fritzsche 1969 Vice President Dr. Fritzsche, 71, 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 the
Company since 1965, acting on a part-time basis,
chiefly in the Company's research and product
development activities.
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Joichi Ito 1995 Director Mr. Ito, 32, is President of Digital Garage, KK and
Transoceanic Ventures, Inc. as well as a board
member of PSINet Japan, KK. 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, 49, 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.
Tyler Lowrey 1999 Vice President Mr. Lowrey, 45, prior to joining the Company in
and Director January 1999 as a Vice President, held a variety
of positions with Micron Technology Inc. (Micron)
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, 73, until his retirement in 1990, was
the Chairman and Chief Executive Officer of Detroit
Edison Company. He has served as a consultant
to the Company 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 on
the Audit Committee of the Board.
Florence I. Metz 1995 Director Dr. Metz, 69, 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.
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Nathan J. Robfogel 1990 Director Mr. Robfogel, 63, was, until his retirement in 1996,
a partner with the law firm of Harter, Secrest & Emery,
which he joined in 1959. Mr. Robfogel is currently
Vice President for University Relations of the Rochester
Institute of Technology where he was a trustee from
1985-1996. He is a member of the Board of Directors
of Genesee Valley Trust Company and Rochester Community
Baseball, Inc. After serving for 12 years as a trustee
of Monroe Community College, he was elected an Honorary
Trustee. From 1989 to 1995, Mr. Robfogel served as
Chairman of the Board and Chief Executive Officer of
the New York State Facilities Development Corporation,
a public benefit corporation.
Stanley K. Stynes 1977 Director Dr. Stynes, 67, 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.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Audit Committee of the Board of Directors (the "Audit Committee")
met three times during the fiscal year ended June 30, 1998 and was composed of
Stanley K. Stynes (Chairman), Walter J. McCarthy, Jr. and Robert C. Stempel. The
principal duties of the Audit Committee are to (i) recommend selection of the
Company's independent accountants, (ii) review with the independent accountants
the results of their audits, (iii) review with the independent accountants and
management the Company's financial reporting and operating controls and the
scope of audits, (iv) review all budgets of the Company and its subsidiaries and
(v) make recommendations concerning the Company's financial reporting,
accounting practices and policies and financial, accounting and operating
controls and safeguards.
The Compensation Committee of the Board of Directors (the "Compensation
Committee") met three times during the fiscal year ended June 30, 1998 and was
composed of Walter J. McCarthy, Jr. (Chairman) and Florence I. Metz. The
Compensation Committee is responsible for administering the policies which
govern both annual compensation of executive officers and the Company's stock
option plans. The Compensation Committee meets several times during the year to
review recommendations from management regarding stock options and compensation.
The Company does not have a standing nominating committee.
During the fiscal year ended June 30, 1998, the Board of Directors
held seven meetings. All directors attended more than 75 percent of the meetings
of the Board and the committees on which such directors served, except for Prof.
Colombo, Mr. Ito and Mr. Liebman.
-6-
COMPENSATION OF DIRECTORS
Directors who are officers of the Company receive no payment for service
as a director. The other directors of the Company are issued approximately
$5,000 per year in the Company's Common Stock based on the closing price of
Common Stock on the first business day of each year and are paid $500 for each
Board meeting attended (in person or via telephone conference call) as well as
$500 for each committee meeting if not coincident with a Board meeting.
Directors are also reimbursed for all expenses incurred for the purpose of
attending board of directors and committee meetings, including airfare, mileage,
parking, transportation and hotel.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1998, the Compensation Committee
was composed of Mr. McCarthy and Dr. Metz. None of the Compensation Committee
members are or were during the last fiscal year an officer or employee of the
Company or any of its subsidiaries, or had any business relationship with the
Company or any of its subsidiaries.
ITEM NO. 2
APPROVAL OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors
has appointed Deloitte & Touche LLP ("Deloitte & Touche") as independent
accountants for the Company to audit its consolidated financial statements for
the fiscal year ending June 30, 1999 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. Deloitte &
Touche also performs certain limited non-audit services for the Company.
The Board of Directors has directed that the appointment of Deloitte &
Touche be submitted to the stockholders for approval. The affirmative vote of a
majority of the votes cast at the Meeting will be required to approve such
appointment. If the stockholders should not approve such appointment, the Audit
Committee and the Board of Directors would reconsider the appointment.
The Company has been advised by Deloitte & Touche that it expects to
have a representative present at the Meeting and that such representative will
be available to respond to appropriate questions. Such representative will also
have the opportunity to make a statement if he or she desires to do so.
---------------
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE APPOINTMENT OF DELOITTE & TOUCHE AS INDEPENDENT
ACCOUNTANTS.
-7-
ITEM NO. 3
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION TO CHANGE THE DATE ON WHICH
THE SHARES OF CLASS A COMMON STOCK ARE DEEMED
TO BE CONVERTED INTO COMMON STOCK
At the Meeting, the stockholders of the Company will be asked to
consider and act upon a proposal (the "Class A Proposal") to amend Article
FOURTH of the Company's Certificate of Incorporation to change the date on which
the shares of Class A Common Stock of the Company are deemed to be converted
into Common Stock from September 14, 1999 to September 30, 2005. The full text
of Article FOURTH of the Company's Certificate of Incorporation, as proposed to
be amended pursuant to the Class A Proposal and the proposal described in Item
No. 4 below, is set forth as Exhibit A to this Proxy Statement, and has been
marked to indicate changes from the Company's existing Certificate of
Incorporation. As more fully described below, the purpose of the Class A
Proposal is to (i) help preserve the availability of the Company's net operating
loss carryforwards under the federal income tax laws and (ii) help the Company
maintain the management stability that the Board of Directors believes is
necessary for continued development and commercialization of the Company's
products and technology.
As indicated below, the Board of Directors strongly believes that the
Class A Proposal is in the best interests of the Company and its stockholders.
Under Delaware law, the Class A Proposal must be approved by both the Board of
Directors and the holders of a majority of the Company's Class A Common Stock
and Common Stock, voting together as a single class. The Board of Directors
unanimously approved the Class A Proposal on July 8, 1998, with all Directors
who are holders of Class A Common Stock (Mr. and Dr. Ovshinsky) or who are
employees of the Company (Mr. Stempel, Mrs. Bacon and Dr. Fritzsche) abstaining.
Under the Company's Certificate of Incorporation, holders of Class A
Common Stock and Common Stock vote as a single class on all matters, except that
separate class voting is required with respect to (i) the merger or
consolidation of the Company with another corporation, (ii) the liquidation or
dissolution of the Company, (iii) the sale of all or substantially all of the
assets of the Company, (iv) any amendment to the Company's Certificate of
Incorporation for which class voting is required by Section 242 of the Delaware
General Corporation Law and (v) any authorization of additional shares of the
Company's Common Stock or Class A Common Stock. The Board of Directors has
received an opinion of Delaware counsel that Delaware law requires that the
Class A Proposal be approved by the holders of the Class A Common Stock and the
Common Stock voting together without regard to class. Accordingly, the Class A
Common Stock and the Common Stock will vote as a single class on the Class A
Proposal. The affirmative vote of a majority of the combined voting power of the
Common Stock and Class A Common Stock, voting together as a single class, will
be required to approve the Class A Proposal.
The Company has received written confirmation from The Nasdaq Stock
Market, Inc. that the Class A Proposal complies with Nasdaq's voting rights
rules.
If the Class A Proposal is adopted by the stockholders, the Company will
file a Certificate of Amendment with the Delaware Secretary of State amending
the Company's Certificate of Incorporation in accordance with the Class A
Proposal. The Company intends to file the foregoing
-8-
Certificate of Amendment irrespective of whether the Company's stockholders
approve the proposal described in Item No. 4 below.
Background
The Class A Common Stock was created in 1967 and originally provided
that the holders of the Class A Common Stock were entitled to three votes per
share and that, except as otherwise provided by law or by the Company's
Certificate of Incorporation, the holders of the Class A Common Stock and the
Common Stock voted together on all matters as a single class. The Class A Common
Stock was convertible into Common Stock at the option of the holder at any time,
and was to be deemed converted into Common Stock on September 30, 1979.
In 1978, the Company amended its Certificate of Incorporation to
increase the number of votes per share to which the Class A Common Stock was
entitled to 10 and to change the date on which shares of Class A Common Stock
were to be deemed converted into Common Stock to September 14, 1988. In 1981,
the Company amended its Certificate of Incorporation to increase the number of
votes per share to which the Class A Common Stock was entitled to 25, to change
the voting requirements for additional issuances of shares of Common Stock and
Class A Common Stock, and to change the date on which shares of Class A Common
Stock were to be deemed converted into Common Stock to September 14, 1993. In
1993, the Company again amended its Certificate of Incorporation to change the
date on which shares of Class A Common Stock were to be deemed converted into
Common Stock to September 14, 1999.
All of the 219,913 outstanding shares of Class A Common Stock are
beneficially owned by Stanford R. Ovshinsky, his spouse, Dr. Iris M. Ovshinsky,
and members of their family. Such shares are owned directly or indirectly
through certain trusts of which Mr. and Dr. Ovshinsky are co-trustees. In
addition, Mr. and Dr. Ovshinsky , through such trusts, have the right to acquire
210,137 shares of Class A Common Stock pursuant to presently exercisable stock
options. As result of the 25 vote per share preferential voting right of the
Class A Common Stock, on matters on which the Class A Common Stock and the
Common Stock vote together, Mr. and Dr. Ovshinsky hold approximately 29.6
percent of the combined voting power of the Company's outstanding stock. Coupled
with the shares of Common Stock beneficially owned by Mr. and Dr. Ovshinsky and
the shares of Common Stock over which Mr. Ovshinsky exercises voting power, the
preferential voting rights of the Class A Common Stock result in Mr. and Dr.
Ovshinsky holding or have the right to acquire pursuant to stock options
approximately 45.8 percent of the combined voting power of the Company on
matters on which the Common Stock and Class A Common Stock vote together. If the
outstanding shares of Class A Common Stock are converted into Common Stock, Mr.
and Dr. Ovshinsky would beneficially own approximately 1.7 percent of the Common
Stock, and would control, by virtue of their Common Stock ownership and voting
power over other shares of Common Stock, approximately 2.7 percent of the
combined voting power of the Company.
To insure that Mr. and Dr. Ovshinsky would not transfer effective
control of the Company to any outside interests, Mr. and Dr. Ovshinsky in 1964
entered into an agreement in connection with the issuance of the Class A Common
Stock (the "Class A Restriction Agreement") providing that they would not
transfer any shares of Class A Common Stock except to each other or to their
respective children or to trusts established exclusively for the benefit of each
other or their respective children. Furthermore, in the event of the death of
Mr. Ovshinsky, the Class A Restriction Agreement provides that the shares of
Class A Common Stock owned by him, Dr. Ovshinsky and any permitted transferee
will be required to be converted into shares of Common Stock upon the
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earlier of two years after the date of his death or the death of Dr. Ovshinsky.
If Mr. Ovshinsky survives Dr. Ovshinsky, all shares of Class A Common Stock will
be required to be converted into shares of Common Stock upon the date of death
of Mr. Ovshinsky. Approval of the Class A Proposal will not have any effect on
the restrictions on transfer contained in the Class A Restriction Agreement.
Purpose of the Class A Proposal
The Board of Directors strongly believes that the Class A Proposal will
enhance stockholder value by (i) helping preserve the availability of the
Company's net operating loss carryforwards under the federal income tax laws and
(ii) helping the Company achieve the management stability and continuity that
the Board of Directors believes is necessary for continuing development and
commercialization of the Company's products.
Net Operating Loss Carryforwards. At June 30, 1998, the Company had
available net operating loss carryforwards of approximately $122.6 million (the
"Carryforwards"). The Carryforwards will expire between 1999 and 2013 and are a
valuable asset of the Company because they may be used to offset taxable income
of the Company at any time before they expire. The Board of Directors is
concerned, however, that the conversion of the Class A Common Stock into Common
Stock would increase the risk that the Internal Revenue Service (the "IRS")
could argue that the Company may not avail itself of the full benefit of such
Carryforwards.
Section 382 of the Internal Revenue Code of 1986 generally provides that
if a corporation with net operating loss carryforwards undergoes an "ownership
change," its ability to use those carryforwards may be limited or, in certain
circumstances, completely eliminated. An "ownership change" occurs when those
persons holding, either directly or indirectly, five percent or more of the
corporation's stock (each a "five percent shareholder") increase their
collective percentage ownership in the corporation by more than 50 percentage
points within any three-year testing period. It is not necessary for a 50
percentage point change to result from a single transaction for an ownership
change to occur. In most instances, an ownership change results from a series of
transactions, each of which is generally referred to as an "owner shift."
Section 382 broadly defines owner shifts to include not only purchases and sales
of stock but certain recapitalizations and other reorganization-type
transactions
Ownership of stock is generally attributed to the ultimate beneficial
owner, and ownership by nominees, corporations, partnerships, trusts or other
entities is disregarded, except to the extent used to identify different public
groups. Thus, in addition to examining the actual record ownership of a loss
corporation's stock, a net operating loss analysis must take into account
beneficial ownership. Whether a person is a five percent shareholder is
determined by reference to the fair market value of the stock held by such
person relative to the outstanding stock of the issuer. The legislative history
of Section 382 indicates, however, that fluctuations in value between different
classes of stock will not cause an owner shift.
An "owner shift" may be caused by recapitalization transactions as well
as by outright purchases and sales. The date on which any owner shift
transaction occurs is deemed a "testing date" and on any such date a loss
corporation is obligated to undertake a Section 382 analysis to determine if an
ownership change has occurred. Section 382 was enacted by the Tax Reform Act of
1986 and is a complicated provision. Many issues that may arise under Section
382 have yet to be addressed by either the courts or by the IRS. Neither Section
382 itself nor the applicable
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Treasury Regulations specifically define what types of transactions constitute
"recapitalization" for Section 382 purposes. The Board of Directors is concerned
that allowing the Class A Common Stock to be converted into Common Stock could
subject the Company to an argument by the IRS that the conversion constituted a
"recapitalization." If such an argument prevailed, the date on which the
conversion occurred would be a testing date which would require an ownership
change analysis. Even if the conversion did not itself cause an ownership
change, it would move the Company closer to the 50 percent limit of Section 382.
This could restrict the Company's ability to issue stock or enter into
equity-related financing transactions, since owner shifts resulting from these
transactions could be added to the shift arising from the conversion and
together cause an ownership change.
If an ownership change occurs, the amount of the Carryforwards that the
Company may use to offset income in any future taxable year would be limited to
an amount determined by multiplying the fair market value of the Company's then
outstanding capital stock by the "long-term tax-exempt rate," which is published
monthly by the IRS. For example, if an ownership change of the Company had
occurred on December 31, 1998, the Company would be permitted to use a maximum
of approximately $4.4 million of its approximately $122.6 million in
Carryforwards in any future year. Moreover, if an ownership change were to occur
and if the Company no longer conducted any of its significant historic lines of
business or no longer used a significant portion of its historic business assets
in a business during the two-year period after the ownership change, the
Company's ability to use the Carryforwards would terminate altogether. Either
consequence would have a significant adverse impact on an asset (the
Carryforwards) that the Board of Directors believes has substantial potential
value. For these reasons, the Board of Directors believes it is appropriate and
necessary to adopt the Class A Proposal to help preserve the availability of the
Carryforwards.
The Board determined that, in light of the Company's Carryforwards as
well as other considerations, an extension of the Class A conversion date would
be in the best interests of the Company's stockholders. Pursuant to Section 382,
any conversion of the Class A Common Stock would be aggregated with any other
owner shifts, including additional issuances of stock. An extension of the Class
A conversion date would provide the Company with an additional window period
during which the Company would be able to seek equity financing, if it so
elects, without concern over the potential impact of the automatic conversion of
the Class A Common Stock on the Carryforwards.
It is possible that, as a result of the mandatory conversion provisions
contained in the Class A Restriction Agreement, the Class A Common Stock could
be required to be converted prior to the proposed automatic conversion date in
2005. For purposes of the limitations under Section 382, early conversion
pursuant to the terms of the Class A Restriction Agreement is likely to be
treated in the same manner as conversion on the automatic conversion date. Under
the terms of the Class A Restriction Agreement, however, the Class A Common
Stock is not required to be converted until the earlier of two years after Mr.
Ovshinsky's death or the death of Dr. Ovshinsky. It is therefore likely that any
limitations arising under Section 382 as a result of a mandatory conversion
pursuant to the Class A Restriction Agreement will not affect the Company for at
least the next several years.
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Although the Class A Proposal is intended to help preserve the
availability of the Carryforwards, it should be noted that it may not be
effective in preventing all transfers that might result in an ownership change
for purposes of Section 382. For example, the Company has no control over open
market transactions conducted by and between third parties. It should also be
noted that in its analysis of the Carryforwards, the Board of Directors has
carefully considered whether the extension of the Class A Common Stock could
itself result in an owner shift under Section 382. While there is no clear
authority in this regard, the Board of Directors is of the view that the risks
to the Carryforwards that result from extending the special voting rights of the
Class A Common Stock are less than the risks that would result if the rights
were permitted to expire.
Management Stability and Continuity.
Mr. Ovshinsky is the Company's Chief Executive Officer and the primary
inventor of the Company's technology. He is a key executive employee, not only
in respect to scientific matters, but in all phases of the Company's business.
Mr. Ovshinsky has played a major role in the development of product
applications, in establishing and continuing relationships with the Company's
business partners and licensees, and in obtaining financing for the Company. In
light of Mr. Ovshinsky's importance to the Company in all of these areas, the
Board of Directors believes that firms having business dealings with the Company
prefer the stability of management provided by Mr. Ovshinsky's control. It is
the Board of Directors opinion that the continuation of the Class A Common Stock
under Mr. Ovshinsky's control will foster the management stability necessary for
continued development of new business opportunities, growth and expansion.
The Company's business strategy is to commercialize its technology through
license and joint venture arrangements with major international corporations.
The future value of these arrangements is expected to be significant and, in
certain instances, the Company believes potential licensees, joint venture
partners or competitors could have a strong financial incentive to bypass
negotiations with the Company and attempt to obtain access to the Company's
technology through an unsolicited acquisition of the Company. A recent Delaware
court decision, which involved the attempted hostile takeover of a technology
company that had successfully asserted its patent rights against the potential
acquiror, confirms the Company's belief that conventional takeover deterrents
such as "poison pill" rights plans, restrictive bylaws and similar measures,
could delay an attempted takeover but would not ultimately be sufficient to
deter a party intent on acquiring control of the Company. Although the Delaware
courts have approved the use, in certain situations, of such takeover
defenses, as a practical matter it may be difficult for a small company, such as
the Company, to remain independent when confronted with an unsolicited takeover
proposal by a larger and better financed acquiror. Although the extension of the
Class A conversion date may deter unsolicited acquisitions of the Company, the
extension may also prevent stockholders who desire to do so from participating
in such unsolicited acquisition.
Effect of Change
If the Class A Proposal is approved by the Company's stockholders, Mr. and
Dr. Ovshinsky will, by virtue of the Class A Common Stock owned by them continue
to control for an additional six years through September 30, 2005 approximately
30.3 percent of the vote for the election and removal of Directors, based on the
number of shares of Class A Common Stock and Common Stock outstanding at the
record date, and approximately 45.8 percent of the vote by virtue of the Class A
Common Stock beneficially owned or controlled by them or acquirable by them
pursuant to presently exercisable stock options. If the Class A Proposal is
approved by the Company's stockholders and after giving effect to the exercise
of all outstanding options and warrants, Mr. and
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Dr. Ovshinsky, will by virtue of the Class A Common Stock owned by them,
continue to control for an additional six years through September 30, 2005
approximately 27.7 percent of the vote for the election and removal of
Directors, based on the number of shares of Class A Common Stock and Common
Stock outstanding at the record date, and approximately 40.5 percent of the vote
by virtue of the Class A Common Stock beneficially owned or controlled or
acquirable by them pursuant to presently exercisable stock options. For
practical purposes, this will generally constitute voting control for any
corporate action where a majority vote of both classes of stock, voting as a
single class, would be required and permitted by the Company's Certificate of
Incorporation. Mr. and Dr. Ovshinsky are likely, as a practical matter, to have
the power to elect and remove the entire Board of Directors. Under applicable
Delaware law, the foregoing mandatory conversion date may be extended in the
future from time to time with the approval of the Company's stockholders voting
together as a single class.
At present, the Class A Common Stock and Common Stock have separate class
voting for any merger or consolidation of the Company with another corporation,
the sale of all or substantially all of the assets of the Company and the
liquidation or dissolution of the Company. Thus, any such proposal could be
defeated by the negative vote of the majority of the outstanding shares of
either class, thereby making the accomplishment of a given transaction, which
either class of stockholders might deem in its best interest, more difficult. No
change is proposed with respect to the existing requirement for separate class
votes for these matters.
Although the Class A Proposal is being proposed for the purposes outlined
above, it may have an "anti-takeover" effect by discouraging transactions that
may involve an actual or potential change of control of the Company. Therefore,
some stockholders may find the Class A Proposal disadvantageous to the extent
that it may discourage or prevent tender offers or accumulations of substantial
blocks of shares in which stockholders might receive a substantial premium above
market value and may thereby foreclose stockholders from the opportunity to
dispose of their stock at a premium over market value. Similarly, the Class A
Proposal may discourage the assumption of control by third parties and may make
the removal of incumbent management more difficult even though such action may
be desired by a majority of the Company's stockholders. The Board of Directors
considered anti-takeover effects in evaluating the Class A Proposal and
determined that the benefits to be expected from a continuation of the
preferential voting rights of Class A Common Stock significantly outweigh the
disadvantages of these effects.
Mr. and Dr. Ovshinsky have advised the Company that they intend to vote in
favor of the Class A Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE CLASS A PROPOSAL.
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ITEM NO. 4
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE
OF INCORPORATION TO AUTHORIZE SHARES OF A NEW
CLASS B COMMON STOCK
At the Meeting, the stockholders of the Company will be asked to consider
and act upon a proposal (the "Class B Proposal") to amend Article FOURTH of the
Company's Certificate of Incorporation to increase the Company's authorized
capital stock to 20,930,000 shares and to authorize 430,000 shares of a new
Class B Common Stock, par value $.01 per share ("Class B Common Stock"). There
are currently authorized 20,500,000 shares of capital stock consisting of
20,000,000 shares of Common Stock and 500,000 shares of Class A Common Stock.
There are currently 13,016,193 shares of Common Stock and 219,913 shares of
Class A Common Stock outstanding. Approval of the Class B Proposal will not
result in any change in the authorized number of shares of Common Stock or Class
A Common Stock.
If the Class B Proposal is approved by the Company's stockholders, the
Company intends to issue all of the authorized shares of Class B Common Stock to
Robert C. Stempel, the Chairman of the Board of Directors and Executive Director
of the Company, pursuant to the terms of the Restricted Stock Agreement (the
"Restricted Stock Agreement") dated as of January 15, 1999 between the Company
and Mr. Stempel. Pursuant to the Restricted Stock Agreement and the related
Executive Employment Agreement (the "Executive Employment Agreement") and Stock
Option Agreement (the "Stock Option Agreement"), each dated as of January 15,
1999, between the Company and Mr. Stempel, Mr. Stempel has agreed, subject to
certain conditions, to continue to serve as an executive officer of the Company
through September 2005. The full text of Article FOURTH of the Company's
Certificate of Incorporation, as proposed to be amended pursuant to the Class A
Proposal and the Class B Proposal, is set forth as Exhibit A to this Proxy
Statement, and has been marked to indicate changes from the Company's existing
Certificate of Incorporation. Conformed copies of the Executive Employment
Agreement, Restricted Stock Agreement and Stock Option Agreement are set forth
as Exhibit B, Exhibit C and Exhibit D, respectively, to this Proxy Statement. As
more fully described below, the purpose of the Class B Proposal is to (i)
provide an additional incentive for Mr. Stempel to continue to serve as a
director and officer of the Company and (ii) to help the Company maintain the
management stability that the Board of Directors believes is necessary for
continued development and commercialization of the Company's products and
technology.
As indicated below, the Board of Directors strongly believes that the
Class B Proposal is in the best interests of the Company and its stockholders.
Under Delaware law, the Class B Proposal must be approved by both the Board of
Directors and the holders of a majority of the Company's Class A Common Stock
and Common Stock, voting together as a single class. The Board of Directors
approved the Class B Proposal on July 8, 1998, with Mr. Stempel and all
Directors who are employees of the Company (Mr. and Dr. Ovshinsky, Mrs. Bacon
and Dr. Fritzsche) abstaining.
The Company has received written confirmation from The Nasdaq Stock
Market, Inc. that the Class B Proposal complies with Nasdaq's voting rights
rule.
The Board of Directors has received an opinion of Delaware counsel that
Delaware law requires that the Class B Proposal be approved by the holders of
the Class A Common Stock and
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the Common Stock voting together without regard to class. Accordingly, the Class
A Common Stock and the Common Stock will vote as a single class on the Class B
Proposal. The affirmative vote of the combined voting power of the Common Stock
and the Class A Common Stock, voting together as a single class, will be
required to approve the Class B Proposal. The Class B Proposal will not be
deemed to have been approved unless the Company's stockholders also approve the
Class A Proposal in accordance with Item No. 3 above.
If the Class B Proposal is adopted by the stockholders, the Company will
file a Certificate of Amendment with the Delaware Secretary of State amending
the Company's Certificate of Incorporation in accordance with the Class B
Proposal. The Class B Proposal will not be deemed to have been approved unless
the Company's stockholders also approve the Class A Proposal described above in
Item No. 3, and the Company accordingly will not file the foregoing Certificate
of Amendment in the event the Company's stockholders do not approve the Class A
Proposal.
Background
Since December 1995, Robert C. Stempel has served as the Chairman of the
Board of Directors and Executive Director of the Company and has devoted
substantially all of his business time and attention to his duties as a director
and officer of the Company. As the former Chairman of the Board and Chief
Executive Officer of General Motors Corporation, the Board of Directors believes
that Mr. Stempel's business experience and stature in the business community and
automotive industry have substantially benefited the Company and have enhanced
the value of the Company for its stockholders. The Board of Directors further
believes that Mr. Stempel's continued association with the Company is critical
to the Company's long term success, particularly in light of the Company's
increasing emphasis on bringing products based on its technologies into
commercial production.
Beginning in late 1997, the Board of Directors initiated a review of
possible arrangements to ensure that Mr. Stempel's services as a director and
officer would continue to be available to the Company. Based on this review, the
Board of Directors determined to consider an arrangement under which the Company
would enter into an employment agreement providing for Mr. Stempel's continued
service as an executive officer of the Company through September 2005. In
connection with a proposed employment agreement, the Board also determined that
it would be desirable to provide Mr. Stempel with an additional incentive in the
form of a restricted stock grant and stock option grant. In order to help
maintain the management stability that the Board of Directors believes is
necessary for continued development and commercialization of the Company's
products and technology, the Board determined that the shares of restricted
stock to be granted to Mr. Stempel should be of a new Class B Common Stock
having terms substantially similar to those of the Company's existing Class A
Common Stock, except that the special voting rights of the Class B Common Stock
would be triggered only upon the conversion of the Class A Common Stock into
shares of Common Stock. The conversion of the Class A Common is not expected to
occur prior to mandatory conversion provided for under the terms of the Class A
Restriction Agreement following the death of Mr. Ovshinsky.
The Compensation Committee of the Board of Directors was authorized to
develop a detailed proposal relating to the arrangements between the Company and
Mr. Stempel and to cause the preparation of appropriate agreements setting forth
the terms of those arrangements. The terms of the Executive Employment
Agreement, Restricted Stock Agreement and Stock Option Agreement between the
Company and Mr. Stempel were approved by the Compensation Committee
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on July 8, 1998 and, upon the recommendation of the Compensation Committee, were
unanimously approved by the Board of Directors on the same date, with Mr.
Stempel and all Directors who are employees of the Company (Mr. and Dr.
Ovshinsky, Mrs. Bacon and Dr. Fritzsche) abstaining.
Purpose of the Class B Proposal
The Board of Directors strongly believes that the Class B Proposal will
enhance stockholder value by (i) providing an additional incentive for Mr.
Stempel to continue to serve as a director and officer of the Company and (ii)
helping the Company achieve the management stability and continuity that the
Board of Directors believes is necessary for continuing development and
commercialization of the Company's products.
Additional Incentive for Continued Service.
The Board of Directors strongly believes that Mr. Stempel's continued
association with the Company is critical to the Company's long term success,
particularly in light of the Company's increasing emphasis on bringing products
based on its technology into commercial production. The Compensation Committee
of the Board of Directors therefore determined that it was desirable to secure
the continued availability of Mr. Stempel's services as a director and officer
of the Company for a significant period and that it was in the best interests of
the Company and its stockholders that the Company and Mr. Stempel enter into an
employment agreement providing for Mr. Stempel's continued employment as a
officer through September 30, 2005. The Compensation Committee also determined
that it was appropriate and in the best interests of the Company and its
stockholders for the Company to make a restricted stock grant to Mr. Stempel
covering 430,000 shares of a newly authorized Class B Common Stock and to grant
to Mr. Stempel an option to acquire up to 300,000 shares of Common Stock.
The Compensation Committee determined that, in view of the Company's
existing capital resources and projected cash requirements, it was not advisable
for the Company to commit to provide all or most of Mr. Stempel's compensation
in the form of salary or cash bonuses on a long term basis. The Compensation
Committee accordingly determined that restricted stock and stock option grants
would provide an appropriate additional incentive for Mr. Stempel to continue to
serve as a director and officer of the Company and would serve to further align
the interests of Mr. Stempel with those of the Company's public stockholders.
Management Stability and Continuity.
In addition to providing an additional incentive to Mr. Stempel to
continue to serve as a director and officer of the Company, the Board of
Directors strongly believes that the Class B Proposal will enhance stockholder
value by promoting continuity in the management and policies of the Company
after the conversion of the Class A Common Stock. The Company's business
strategy is to commercialize its technology through license and joint venture
arrangements with major international corporations. The future value of these
arrangements is expected to be significant and, in certain instances, the
Company believes potential licensees, joint venture partners or competitors
could have a strong financial incentive to bypass negotiations with the Company
and attempt to obtain access to the Company's technology through an unsolicited
acquisition of the Company. The Board of Directors believes that the
implementation of the Class B Proposal will permit the Company to continue to
enter into beneficial license and joint venture transactions and to protect its
technology and existing agreements after the conversion of the Class A Common
Stock
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and, accordingly, that the long term value of the Company to its public
stockholders would be substantially enhanced by the approval of the Class B
Proposal. The Board of Directors further believes that the failure to take
appropriate steps at this time to ensure continuity in the management and
policies of the Company could materially and adversely affect the Company's
ability to carry out its long term strategic plan.
Description of the Class B Common Stock
Upon the approval of the Class B Proposal by the Company's stockholders,
the Company's Certificate of Incorporation will be amended to increase the
Company's authorized capital stock to 20,930,000 shares and to authorize 430,000
shares of a new Class B Common Stock. The newly authorized shares of Class B
Common Stock will be in addition to the 500,000 shares of Class A Common Stock
and 20,000,000 shares of Common Stock presently authorized under the Company's
Certificate of Incorporation.
The terms of the Class B Common Stock are intended to be substantially
similar to those of the Company'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 the Company's
stockholders. Except as otherwise required under Section 242 of the Delaware
General Corporation Law, the Common Stock, Class A Common Stock and Class B
Common Stock will initially vote together as a single class on all matters.
The Company's amended Certificate of Incorporation will provide, however,
that each share of Class B Common Stock will become entitled to 25 votes as of
the first date (the "Conversion 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 Conversion Date is not expected to
occur prior to the mandatory conversion of the Class A Common Stock into shares
of Common Stock provided for under the terms of the Class A Restriction
Agreement following the death of Mr. Ovshinsky. The preferential voting rights
of the Class B Common Stock, if triggered, will expire on September 30, 2005.
After the Conversion Date, holders of Class B Common Stock and Common
Stock will vote as a single class on all matters, except that separate class
voting will be required with respect to (i) the merger or consolidation of the
Company with another corporation, (ii) the liquidation or dissolution of the
Company, (iii) the sale of all or substantially all of the assets of the
Company, (iv) any amendment to the Company's Certificate of Incorporation for
which class voting is required by Section 242 of the Delaware General
Corporation Law and (v) any authorization of additional shares of the Company's
Common Stock or Class B Common Stock.
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. Pursuant to the Class B Proposal, the Company's amended
Certificate of Incorporation will provide that the foregoing mandatory
conversion date may be extended in the future with the approval of the Company's
stockholders voting together as a single class.
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Description of the Executive Employment Agreement
The Company on January 15, 1999 entered into the Executive Employment
Agreement with Mr. Stempel. The Executive Employment Agreement provides that Mr.
Stempel will serve as the Executive Director of the Company 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 the Company.
The Executive Employment Agreement also requires the Company 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 the Company to its senior executive officers.
The Executive Employment Agreement permits Mr. Stempel to retire as an
officer and employee of the Company 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 the Mr. Stempel, materially impairs
his ability to perform his regular duties as an officer of the Company. Mr.
Stempel is also permitted to terminate the Executive Employment Agreement in the
event the Company's stockholders fail to approve the Class B Proposal at the
Meeting. The Executive Employment Agreement permits the Company 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 the Company (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 his employment, except that the Company 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.
Description of the Restricted Stock Agreement
The Company on January 15, 1999 entered into the Restricted Stock
Agreement with Mr. Stempel. On that date, the Company made a restricted stock
grant to Mr. Stempel consisting of 430,000 shares of Common Stock. Upon the
approval of the Class B Proposal by the Company's stockholders, Mr. Stempel will
be required to surrender the shares of Common Stock originally issued to him
pursuant to the Restricted Stock Agreement in exchange for an equal number of
shares of Class B Common Stock. If the Company's stockholders do not approve the
Class B Proposal at the Meeting, the Restricted Stock Agreement provides that
Mr. Stempel will be entitled to continue to hold the shares of Common Stock
originally issued to him pursuant to the Restricted Stock Agreement. The
restricted shares held by Mr. Stempel, including the shares of Class B Common
Stock issuable to him upon approval of the Class B Proposal, are referred to
collectively in the Restricted Stock Agreement as the "Restricted Stock."
The Restricted Stock Agreement provides that all of the shares of
Restricted Stock will be deemed to vest if Mr. Stempel is serving as a director
and officer of the Company on September 30, 2005. If Mr. Stempel ceases to serve
as a director of the Company prior to September 30, 2005,
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other than as a result of his death, disability or a change in control of the
Company, all of the shares of Restricted Stock will be forfeited by Mr. Stempel.
The Restricted Stock Agreement provides for partial vesting of the Restricted
Stock if Mr. Stempel is serving as a director, but not an officer, of the
Company on September 30, 2005, and in the event of his death or resignation due
to disability prior to such date. The Restricted Stock Agreement also provides
for immediate vesting of all of the shares of Restricted Stock upon the
occurrence of a change in control of the Company provided that Mr. Stempel was
serving as a director of the Company on the date 90 days prior to the date of
such change in control. For purposes of the Restricted Stock Agreement, a
"change in control" will include (i) any sale, lease, exchange or other transfer
of all or substantially all of the Company's assets, (ii) the approval by the
Company's stockholders of any plan or proposal of liquidation or dissolution of
the Company, (iii) the consummation of any consolidation or merger of the
Company in which the Company is not the surviving or continuing corporation or
pursuant to which the Company's voting securities would be converted into cash,
securities or other property, (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 composition
of the majority of the Board of Directors as a result of certain events such as
actual or threatened proxy contests, and (vi) the bankruptcy or insolvency of
the Company. The Restricted Stock Agreement also provides that all of the shares
of Restricted Stock will immediately vest if Mr. Stempel is not nominated as a
director of the Company, or if Mr. Stempel is nominated as a director but not
elected by the Company's stockholders.
The Restricted Stock Agreement provides that Mr. Stempel will be entitled
to all voting and dividend rights with respect to the Restricted Stock, whether
or not the Restricted Stock is deemed to have vested. Mr. Stempel will cease to
be entitled to such voting or dividend rights with respect to any shares of
Restricted Stock which are forfeited by Mr. Stempel in accordance with the
provisions of the Restricted Stock Agreement.
Transfer of the shares of Restricted Stock by Mr. Stempel will be
prohibited except as expressly provided in the Restricted Stock Agreement.
Following the date upon which any shares of Class B Common Stock constituting
Restricted Stock are deemed to have vested, the Restricted Stock Agreement
permits Mr. Stempel, or his executor or legal representative, to convert the
vested shares of Class B Common Stock into shares of Common Stock and to
transfer such shares of Common Stock subject to any restrictions on transfer
arising under the federal or applicable state securities laws. In addition, the
Restricted Stock Agreement provides that at any time and from time to time after
the Conversion Date, Mr. Stempel, so long as he is then serving as a director of
the Company, may deliver written notice to the Company designating one or more
persons then serving as a director of the Company as a permitted transferee of
all or a portion of the Restricted Stock held by Mr. Stempel. The Board of
Directors may at any time after Mr. Stempel's designation approve the person or
persons designated by Mr. Stempel as a permitted transferee. In connection with
the Board's approval of a permitted transferee, the Board may establish
conditions to such approval, including the number of shares of Restricted Stock
permitted to be transferred to such person and the terms and conditions under
which such person will be permitted to hold such shares. The Board may rescind
its approval of any person as a permitted transferee of the Restricted Stock at
any time prior to a change in control of the Company.
Upon Mr. Stempel's death or resignation as a director of the Company due
to disability, the Restricted Stock Agreement permits Mr. Stempel, or his
executor or legal representative, to transfer shares of Restricted Stock,
whether or not deemed vested, to those permitted transferees approved by the
Board of Directors, subject to any conditions related to such approval imposed
by the Board.
-19-
The Restricted Stock Agreement further provides that effective as of the date of
any such permitted transfer of Restricted Stock, the Company will issue to Mr.
Stempel, or his executor or legal representative, a number of shares of Common
Stock equal to the number of shares of Restricted Stock which were deemed to be
vested shares as of the date of Mr. Stempel's death or resignation as a director
due to disability.
The Company is obligated under the terms of the Restricted Stock Agreement
to file upon the request of Mr. Stempel a registration statement with the
Securities and Exchange Commission registering the resale of the vested shares
of Common Stock issuable to Mr. Stempel upon the conversion or transfer of Class
B Common Stock and upon the exercise of the option granted to Mr. Stempel
pursuant to the Stock Option Agreement. The Company is obligated to pay all
registration expenses (excluding underwriters discounts and commission) in
connection with the preparation and filing of such registration statement and to
indemnify and defend Mr. Stempel against certain liabilities arising with
respect to the registration and sale of such shares, including certain
liabilities arising under the Securities Act of 1933, as amended.
Due to the transfer restrictions and vesting provisions contained in the
Restricted Stock Agreement, no taxable income attributable to the grant of the
Restricted Stock will be recognized by Mr. Stempel in the year in which the
Restricted Stock is issued to him. The Company will likewise not be entitled to
an immediate tax deduction relating to the issuance of the Restricted Stock to
Mr. Stempel. In general, the value of the Restricted Stock at the time the
Restricted Stock is deemed to have vested will be recognized as compensation
income by Mr. Stempel in the tax year in which vesting occurs. The Company will
generally be entitled to a corresponding tax deduction for compensation expense
in such years. The Company's ability to utilize tax deductions resulting from
the vesting of the Restricted Stock may be limited under Section 162(m) of the
Code in the event the non-cash compensation received by Mr. Stempel from the
Company in the year in which the vesting occurs exceeds $1 million. In addition,
if the Restricted Stock vests in connection with a change in control of the
Company, the Company's ability to utilize the resulting tax deductions may be
limited under Section 280G of the Code, which limits the deductible if certain
payments and benefits deemed to constitute "excess parachute payments" as
defined in such section. Amounts not deductible due to the "excess parachute
payment" limitations under Section 280G of the Code also reduce the $1 million
limit under Section 162(m) of the Code. The Restricted Stock Agreement provides
that the Company will be obligated to make certain payments to Mr. Stempel upon
any vesting of the Restricted Stock in connection with any change in control of
the Company in order to satisfy any resulting excise tax liability incurred by
him under Section 4999 of the Code.
Description of Stock Option Agreement
The Company on January 15, 1999 entered into the Stock Option Agreement
with Mr. Stempel. Pursuant to the Stock Option Agreement, the Company 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 granted to Mr. Stempel
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.
The option is not subject to vesting requirements and may be exercised by Mr.
Stempel prior to or after the termination of his service as an executive officer
and director of the Company.
The Stock Option Agreement provides that the number of shares of Common
Stock issuable to Mr. Stempel thereunder and the applicable exercise price per
share will be subject to appropriate
-20-
adjustment in connection with any stock split, stock dividend, reverse stock
split, combination of shares, merger, recapitalization or other reorganization
affecting the Company's Common Stock.
No taxable income attributable to the grant of the option pursuant to the
Stock Option Agreement will be recognized by Mr. Stempel in the year in which
such grant is made. The Company will likewise not be entitled to an immediate
tax deduction relating to the grant of such option to Mr. Stempel. The option
granted to Mr. Stempel pursuant to the Stock Option Agreement is not intended to
be treated as an incentive stock option for federal income tax purposes.
Accordingly, upon the exercise of the option, an amount equal to the difference
between the exercise price of the option and the fair market value of the
Company's Common Stock as of the date of exercise will be recognized as
compensation income by Mr. Stempel. The Company will generally be entitled to a
corresponding tax deduction for compensation expense as of such date.
Effect of Change
If the Class B Proposal is approved by the Company's stockholders, after
the Conversion Date, Mr. Stempel, by virtue of the Class B Common Stock owned by
him subject to the terms and conditions of the Restricted Stock Agreement, will
control approximately 45.9 percent of the vote for the election and removal of
Directors and for all other corporate actions requiring or permitting a majority
vote of both classes of stock, voting as a single class, based on the number of
shares of Class A Common Stock and Common Stock outstanding at the record date,
and approximately 40.1 percent of such vote after giving effect to the exercise
of all outstanding options and warrants. For practical purposes, this will
generally constitute voting control for any corporate action where a majority
vote of both classes of stock, voting as a single class, would be required and
permitted by the Company's Certificate of Incorporation. Mr. Stempel is
therefore likely, as a practical matter, to have the power to elect and remove
the entire Board of Directors.
Under the terms of the Class B Proposal, after the Conversion Date, the
Class B Common Stock and Common Stock would have separate class voting for any
merger or consolidation of the Company with another corporation, the sale of all
or substantially all of the assets of the Company and the liquidation or
dissolution of the Company. Thus, any such proposal could be defeated by the
negative vote of the majority of the outstanding shares of either class, thereby
making the accomplishment of a given transaction, which either class of
stockholders might deem in its best interest, more difficult.
Although the Class B Proposal is being proposed for the purposes outlined
above, it may have an "anti-takeover" effect by discouraging transactions that
may involve an actual or potential change of control of the Company. Therefore,
some stockholders may find the Class B Proposal disadvantageous to the extent
that it may discourage or prevent tender offers or accumulations of substantial
blocks of shares in which stockholders might receive a substantial premium above
market value and may thereby foreclose stockholders from the opportunity to
dispose of their stock at a premium over market value. Similarly, the Class B
Proposal may discourage the assumption of control by third parties and may make
the removal of incumbent management more difficult even though such action may
be desired by a majority of the Company's stockholders. The Board of Directors
considered anti-takeover effects in evaluating the Class B Proposal, and
determined that the benefits to be expected from the Class B Proposal
significantly outweigh the disadvantages of these effects.
-21-
Mr. and Dr. Ovshinsky have advised the Company that they intend to vote in
favor of the Class B Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE CLASS B PROPOSAL.
-22-
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 the Company), own of record 153,420 shares
and 65,601 shares, respectively (or approximately 69.8 percent and 29.8 percent,
respectively), of the outstanding shares of Class A Common Stock. 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 14, 1999. As of January 25, 1999, Mr.
Ovshinsky also had the right to vote 126,500 Sanoh Shares which, together with
the Class A Common Stock and 10,399 shares of Common Stock Mr. and Dr. Ovshinsky
own, give Mr. and Dr. Ovshinsky voting control over shares representing
approximately 30.3 percent of the combined voting power of the Company.
The following table sets forth, as of January 25, 1999, information
concerning the beneficial ownership of Class A Common Stock by each Director and
all executive officers and Directors of the Company 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.
Class A
Name of Common Stock Total Number of Shares
Beneficial Owner Beneficially Owned(1)(2) Beneficially Own Percentage of Class
- ---------------- ------------------------ ---------------------- -------------------
Stanford R. Ovshinsky 279,502 279,502 65.0%
Iris M. Ovshinsky 149,656 149,656 34.8%
All other executive
officers and directors as
a group (14 persons) -- -- --
Total 429,158 429,158 99.8%
- --------------
(1) The balance of the 219,913 shares of Class A Common Stock outstanding, 892
shares, or approximately 0.2 percent, 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 included in the number of shares
indicated.
-23-
COMMON STOCK
Directors and Executive Officers. The following table sets forth, as of
January 25, 1999, 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 Percentage Combined Voting
Name of Beneficial Owner Beneficial Ownership(1) of Class(2) Power(1)(2)(3)
- ------------------------ ----------------------- ----------- ---------------
Robert C. Stempel 1,120,904(4) 8.2% 5.9%
Stanford R. Ovshinsky 840,394(5) 6.1% 34.6%(18)
Iris M. Ovshinsky 420,482(6) 3.1% 19.6%(19)
Nancy M. Bacon 248,715(7) 1.9% 1.3%
Subhash K. Dhar 68,928(8) * *
Hellmut Fritzsche 31,490(9) * *
Walter J. McCarthy, Jr. 22,681(10) * *
Stanley K. Stynes 21,378(11) * *
Nathan J. Robfogel 17,611(12) * *
Umberto Colombo 12,645(13) * *
Florence I. Metz 11,378(14) * *
Joichi Ito 8,549(15) * *
Seymour Liebman 8,021(16) * *
Stephan W. Zumsteg 6,600(17) * *
Tyler Lowrey 1,000 * *
Kenneth R. Baker -- -- --
All executive officers and
directors as a group 2,840,776 18.6% 52.0%
(16 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.
-24-
(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 Common Stock and Class A Common Stock (25 votes per share).
(4) Includes 630,500 shares represented by options exercisable within 60
days and 14,000 shares represented by warrants exercisable within 60
days.
(5) Includes 551,074 shares (adjusted as of December 31, 1998 pursuant to
the antidilution provisions in Mr. Ovshinsky's November 18, 1993 Stock
Option Agreement) represented by options exercisable within 60 days, the
126,500 Sanoh Shares over which Mr. Ovshinsky has voting power, 153,420
shares of Class A Common Stock which are convertible into Common Stock,
and 750 shares represented by warrants exercisable within 60 days.
8,650 shares of Common Stock and 153,420 shares of Class A Common Stock
are owned by Mr. Ovshinsky's Revocable Trust of which he and Dr.
Ovshinsky are co-trustees. 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.
(6) Includes 352,382 shares (adjusted as of December 31, 1998 pursuant to
the antidilution provisions in Dr. Ovshinsky's November 18, 1993 Stock
Option Agreement) represented by options exercisable within 60 days,
65,601 shares of Class A Common Stock which are convertible into Common
Stock, and 750 shares represented by warrants exercisable within 60
days. 1,749 shares of Common Stock and 65,601 shares of Class A Common
Stock are owned by Dr. Ovshinsky's Revocable Trust of which he
and Mr. Ovshinsky are co-trustees. 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 her husband, Stanford R. Ovshinsky. Such shares
are not reflected in Dr. Ovshinsky's share ownership in this table.
(7) Includes 225,200 shares represented by options exercisable within 60
days and 6,000 shares represented by warrants exercisable within 60
days.
(8) Includes 68,928 shares represented by options exercisable within 60
days.
(9) Includes 18,980 shares represented by options exercisable within 60 days
and 1,980 shares represented by warrants exercisable within 60 days.
(10) Includes 10,000 shares represented by options exercisable within 60
days.
(11) Includes 9,000 shares represented by options exercisable within 60 days.
(12) Includes 15,000 shares represented by options exercisable within 60
days.
(13) Includes 10,000 shares represented by options exercisable within 60
days.
(14) Includes 5,000 shares represented by options exercisable within 60 days.
(15) Includes 6,743 shares represented by options exercisable within 60 days.
(16) Includes 7,000 shares represented by options exercisable within 60 days.
(17) Includes 5,600 shares represented by options exercisable within 60 days.
(18) Common Stock and Class A Common Stock beneficially owned or controlled
by Dr. Ovshinsky are not included in Mr. Ovshinsky's voting power.
Together, Mr. and Dr. Ovshinsky have voting control of 45.8 percent of
the combined voting power of the Company.
-25-
(19) Common Stock and Class A Common Stock beneficially owned or controlled
by Mr. Ovshinsky are not included in Dr. Ovshinsky's voting power.
Together, Mr. and Dr. Ovshinsky have voting control of 45.8 percent of
the combined voting power of the Company.
Principal Shareholders. The following table sets forth, as of January 25,
1999, to the knowledge of the Company, the beneficial holders of more than five
percent 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)
- ------------------- -------------------- -------------
Stanford R. and Iris M. Ovshinsky 1,260,876(2) 9.2%(3)
1675 West Maple Road
Troy, Michigan 48084
Robert C. Stempel 1,120,904(4) 8.2%
1675 West Maple Road
Troy, Michigan 48084
FMR Corp. 1,020,000(5) 7.9%
82 Devonshire St.
Boston, MA 02109
T. Rowe Price Associates, Inc. 801,700(6) 6.1%
100 E. Pratt Street
Baltimore, MD 21202
- ----------------
(1)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.
(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 14, 1999),
10,399 shares of Common Stock owned by Mr. and Dr. Ovshinsky, 126,500 shares
of Sanoh Shares over which Mr. Ovshinsky has voting rights, 903,448 (adjusted
as of September 30, 1998) shares represented by options exercisable within 60
days and 1,500 shares represented by warrants exercisable within 60 days held
by Mr. and Dr. Ovshinsky.
(3)Represents the sum of Mr. and Dr. Ovshinsky's respective ownership interests
calculated separately.
(4)Includes 476,404 shares of Common Stock and 630,500 shares represented by
options exercisable within 60 days and 14,000 shares represented by warrants
exercisable within 60 days.
(5)Based upon information contained in Schedule 13G dated February 1, 1999,
Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp. and an investment adviser, is the beneficial owner
of 1,020,000 shares or 7.9% of the Common Stock outstanding of the Company as
a result of acting as investment adviser to various investment companies.
The number of shares of Common Stock of the Company owned by the investment
companies on December 31, 1998 included 400,000 shares of Common Stock
resulting from the assumed conversion of 400,000 of the Company's Warrants.
Edward C. Johnson 3d, FMR Corp., through its control of Fidelity, and the
funds
-26-
each has sole power to dispose of the 1,020,000 shares owned by the Funds.
Neither FMR Corp. nor Edward C. Johnson 3d, chairman of FMR Corp, has sole
power to vote or direct the voting of the shares owned directly by the
Fidelity Funds, which power resides with the Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Boards of Directors.
(6) Based upon information contained in Schedule 13G dated February 12, 1999,
T. Rowe Price Associates, Inc. ("Price Associates") has indicated that
these securities are owned by various individual and institutional
investors, including T. Rowe Price New Horizons Fund, Inc., which owns
800,000 shares representing 6.1% of the shares outstanding which Price
Associates serves as investment adviser with power to direct investments
and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is
deemed to be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the beneficial owner
of such securities.
-27-
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Served As An Executive
Name Age Office Officer or Director Since
---- --- ------ -------------------------
Stanford R. Ovshinsky 76 President, Chief Executive Officer 1960(1)
and Director
Iris M. Ovshinsky 71 Vice President and Director 1960(1)
Robert C. Stempel 65 Executive Director and Chairman 1995
of the Board
Nancy M. Bacon 52 Senior Vice President and Director 1976
Hellmut Fritzsche 71 Vice President and Director 1969
Subhash K. Dhar 47 President and Chief Operating 1986
Officer of Ovonic Battery
Stephan W. Zumsteg 52 Treasurer 1997
- -----------
(1) The predecessor of the Company 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 and Hellmut Fritzsche.
Subhash K. Dhar joined the Company in 1981 and has held various positions
with Ovonic Battery since its inception in October 1982. Mr. Dhar has served as
Chief Operating Officer of Ovonic Battery since 1986 and President since 1987.
Stephan W. Zumsteg joined the Company in March 1997 and was elected
Treasurer in April 1997. Prior to joining the Company, 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.
-28-
EXECUTIVE COMPENSATION
The following tables set forth the compensation paid by the Company 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, 1998.
SUMMARY COMPENSATION TABLE
Annual Long Term
Compensation Compensation
--------------- ----------------------
All
Restrict Options Other
Name and Principal Fiscal Stock (Number Compen-
Position Year(1) Salary(2) Bonus Award of Shares) sation(4)
- ------------------ -------- --------- ----- -------- ---------- ---------
Stanford R. Ovshinsky 1998 $284,967 -- $14,652
President and Chief 1997 $276,016 $37,981(3) $10,017
Executive Officer (5) 1996 $267,800 $90,741(3) $10,017
Robert C. Stempel, 1998 $270,005 -- -- $ 3,159
Executive Director(6) 1997 $270,005 -- 25,000 $ 3,159
1996 $125,008 $50,312(7) 125,000 $ 3,159
Iris M. Ovshinsky, 1998 $250,016 $13,569
Vice President 1997 $250,016 $ 8,939
1996 $250,004 $ 5,726
Nancy M. Bacon, 1998 $235,019 -- $ 5,796
Senior Vice President 1997 $235,019 -- $ 5,796
1996 $235,472 25,000 $ 5,794
Subhash K. Dhar, President 1998 $211,545 -- -- $ 5,283
and Chief Operating Officer 1997 $200,013 -- -- $ 5,283
Ovonic Battery 1996 $200,503 $15,000 62,040 $ 5,283
(1) The Company's fiscal year is July 1 to June 30. The Company's 1998 fiscal
year ended June 30, 1998.
(2) Amounts shown include compensation deferred under the Company's 401 (k)
Plan. Does not include taxable income resulting from exercise of stock
options.
(3) Computed based on net income from operations for preceding years as
provided in Mr. Ovshinsky's September 1993 Employment Agreement.
-29-
(4) "All Other Compensation" is comprised of (i) contributions made by the
Company to the accounts of each of the named executive officers under the
Company's 401(k) Plan with respect to each of the fiscal years ended June
30, 1998, 1997 and 1996, respectively, as follows: Mr. Ovshinsky $4,500
(1998); Dr. Ovshinsky $4,500, $3,269 and $2,500; Mrs. Bacon $4,500 (for
each of 1998, 1997 and 1996); Mr. Dhar $4,500 (for each of 1998, 1997 and
1996); (ii) the dollar value of any life insurance premiums paid by the
Company in the calendar years ended December 31, 1998, 1997 and 1996,
respectively, with respect to term-life insurance for the benefit of each
of the named executives as follows: Mr. Ovshinsky $10,152 (1998) and
$10,017 (for each of 1997 and 1996); Mr. Stempel $3,159 (for each of
1998, 1997 and 1996); Dr. Ovshinsky $9,069, $5,670, and $3,226; Mrs. Bacon
$1,296 (1998 and 1997) and $1,294 (1996); and Mr. Dhar $783 (for each of
1998, 1997 and 1996). Under the 401 (k) Plan, which is a qualified
defined-contribution plan, the Company 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 $150,000 for 1997. The
contributions reported for 1998 are for the calendar year ended December
31, 1997.
(5) In September 1993, Mr. Ovshinsky entered into separate employment
agreements with the Company and Ovonic Battery. See "Employment
Agreements." The amounts indicated include compensation received by Mr.
Ovshinsky pursuant to the Employment Agreements with the Company and
Ovonic Battery.
(6) Mr. Stempel joined the Company in December 1995. The salary reported for
1996 is for the six month period January 1996 - June 1996.
(7) The 5,000 shares of restricted stock awarded to Mr. Stempel during the
1996 fiscal year were fully vested as of June 30, 1998. Mr. Stempel
continued to hold such shares as of June 30, 1998.
None of the executive officers of the Company have ever received
compensation from the Company that was not fully deductible for federal income
tax purposes under Section 162(m) of the Internal Revenue Code. Under the terms
of certain employment and other agreements between the Company and its executive
officers, it is possible that certain of such officers might receive
compensation in connection with a future change in control of the Company, or as
the result of the death or disability of the executive, which might not be
deductible by the Company under Sections 162(m) or 280G of the Internal Revenue
Code. Except in such special cases, it is generally the policy of the Company to
seek to qualify all compensation paid to its executive officers for
deductibility under Section 162(m).
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to the named executive officers during the
fiscal year ended June 30, 1998.
-30-
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, 1998 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/Unexercise Exercisable/Unexercisable
- -------------------------- ----------- -------- -------------------------- -------------------------
Stanford R. Ovshinsky (1) _ - 550,491/0 $438,254/$0
Iris M. Ovshinsky (2) _ _ 351,993/0 $291,497/$0
Robert C. Stempel (3) 12,000 $80,256 308,000/30,000 $ 17,442/$0
Nancy M. Bacon (4) 10,000 $39,125 217,700/7,500 $117,520/$0
Subhash K. Dhar (5) _ _ 68,928/0 $8,721/$0
(1) Mr. Ovshinsky's exercisable options are exercisable at a weighted average
price of $11.07 per share.
(2) Dr. Ovshinsky's exercisable options are exercisable at a weighted average
price of $11.05 per share.
(3) Mr. Stempel's exercisable and unexercisable options are exercisable at a
weighted average price of $14.12 and $19.59 per share, respectively.
(4) Mrs. Bacon's exercisable and unexercisable options are exercisable at a
weighted average price of $11.60 and $20.125 per share, respectively.
(5) Mr. Dhar's exercisable options are exercisable at a weighted average price
of $15.99 per share.
EMPLOYMENT AGREEMENTS
On September 2, 1993, Stanford R. Ovshinsky entered into separate
employment agreements with each of the Company 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 is six years. The Company and Ovonic
Battery expect to renew each of Mr. Ovshinsky's employment agreements for an
additional term ending September 30, 2005. Mr. Ovshinsky's employment agreement
with the Company 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 the Company and an annual bonus equal to 1% of the
net income from operations of the Company (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
-31-
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 the Company providing Mr. Ovshinsky
with the right to vote the shares of Ovonic Battery held by the Company
following a change in control of the Company. For purposes of the agreement,
change in control means (i) any sale, lease, exchange or other transfer of all
or substantially all of the Company's assets; (ii) the approval by the Company's
stockholders of any plan or proposal of liquidation or dissolution of the
Company; (iii) the consummation of any consolidation or merger of the Company in
which the Company 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 the
Company'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. Vesting of the stock options will
accelerate in the event of Mr. Ovshinsky's death, mental or physical disability
or termination of employment without cause and in the event of a change in
control of the Company.
In February 1998, the Compensation Committee of the Board of Directors
recommended and the Board of Directors approved an Employment Agreement between
the Company 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 the Company to have the benefits of Dr.
Ovshinsky's services as a consultant to the Company 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 is until September
2, 1999 and is automatically renewed for successive one-year periods unless
terminated by Dr. Ovshinsky or the Company 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 the Company.
-32-
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 the Company or any of its subsidiaries, or
had any business relationship with the Company or any of its subsidiaries.
The Compensation Committee is responsible for administering the policies
which govern both annual compensation of executive officers and the Company'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 the Company. The Company 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 the Company'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 the
Company to attract and retain high quality employees, and, where appropriate,
linking a component of compensation to the performance of the Company'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. The Company has been successful at recruiting,
retaining and motivating executives who are highly talented,
performance-focused and entrepreneurial.
During the Company's last fiscal year, the Compensation Committee
determined that the Company 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 the
Company's financial results. In light of the Company'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 the Company's executive officers.
Chief Executive Officer Compensation.
In September 1993, Mr. Ovshinsky entered into separate employment
agreements with each of the Company 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 the Company 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 1998 was
determined in accordance with his Employment Agreements with the Company and
Ovonic Battery. Based on the factors described above with respect to the
compensation of the Company's executive officers, the Compensation Committee
determined that it was not advisable to pay a discretionary bonus to the
Company's Chief Executive Officer during 1998.
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
the Company's Common Stock over a five-year period with the return on the NASDAQ
Stock Market - US Index and the Hambrecht & Quist Technology Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ENERGY CONVERSION DEVICES, INC., THE NASDAQ STOCK
MARKET--U.S. INDEX AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
Cumulative Total Return
------------------------------------------------------
6/93 6/94 6/95 6/96 6/97 6/98
---- ---- ---- ---- ---- ----
Energy Conversion Devices, Inc. 100.00 112.64 149.43 209.20 117.24 89.08
Nasdaq Stock Market (U.S.) 100.00 100.96 134.77 173.03 210.38 277.61
Hambrecht & Quist Technology 100.00 102.21 180.82 211.32 275.98 349.59
The total return with respect to NASDAQ Stock Market - US Index and the
Hambrecht & Quist Technology Index assumes that $100 was invested on June 30,
1993, including reinvestment of dividends.
ECD has paid no cash dividends in the past and no cash dividends are
expected to be paid 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.
-34-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Canon/United Solar. In June, 1990, the Company formed United Solar, a
joint venture with Canon Inc. (Canon), in which Canon and the Company each own
49.98 percent of the outstanding shares, with the balance held by Mrs. Haru
Reischauer, a member of the Company's Board of Directors until her death on
September 23, 1998. Mrs. Reischauer was also a director of United Solar. In the
year ended June 30, 1998, the Company performed various laboratory, shop, patent
and research services for United Solar for which United Solar was charged
approximately $315,000. In the year ended June 30, 1998, United Solar billed the
Company for approximately $180,000 for work performed in accordance with a
contract from the U.S. Department of Energy.
Miscellaneous. Herbert Ovshinsky, Stanford R. Ovshinsky's brother, is
employed by the Company as Director of the Production Technology and Machine
Building Division working principally in the design of manufacturing equipment.
He received $122,712 in salary during the year ended June 30, 1998.
HKO Media, Inc., owned by Harvey Ovshinsky, Stanford R. Ovshinsky's son,
performed video production services on behalf of the Company. HKO Media, Inc.
was paid $99,030 by the Company for its services during the fiscal year ended
June 30, 1998.
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 reports of ownership and changes in ownership
with respect to the securities of the Company and its affiliates with the
Securities and Exchange Commission 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, 1998, all filing
requirements were met on a timely basis.
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 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 $8,500 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.
-35-
Stockholder Proposals for 1999 Annual Meeting. Proposals of stockholders
intended to be presented at the Company's next annual meeting of stockholders,
presently expected to be held during February 2000 must be received by the
Company no later than September 10, 1999 in order for those proposals to be
included in the proxy materials for the meeting.
---------------
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998
ACCOMPANIES THIS PROXY STATEMENT. THE INFORMATION SET FORTH IN THE COMPANY'S
ANNUAL REPORT IS INCORPORATED BY REFERENCE TO THE EXTENT REQUIRED BY SCHEDULE
14A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
THE COMPANY WILL PROVIDE TO ANY STOCKHOLDER THE EXHIBITS TO ITS 1998
ANNUAL REPORT ON FORM 10-K, AT A COPYING CHARGE OF $.25 PER PAGE, UPON WRITTEN
REQUEST TO ENERGY CONVERSION DEVICES, INC., 1675 WEST MAPLE ROAD, TROY,
MICHIGAN 48084, ATTENTION: INVESTOR RELATIONS.
Stockholders are urged to send in their proxies without delay.
By Order of the Board of Directors
Robert C. Stempel
Chairman of the Board
February __, 1999
-36-
EXHIBIT A
ARTICLE FOURTH OF RESTATED CERTIFICATE OF INCORPORATION
(SHOWING PROPOSED AMENDMENTS)
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 20,930,000 shares, of which 500,000
shares shall be Class A Common Stock of a par value of one cent ($.01) per
share, 430,000 shall be Class B Common Stock of a par value of one cent ($.01)
per share, and 20,000,000 shares shall be Common Stock of a par value of one
cent ($.01) per share. The powers and rights, and the qualifications,
limitations and restrictions of said classes of stock of the Corporation shall
be as follows:
SECTION 1 - Provisions Applicable to All Classes of Stock
1.1 - General. The Class A Common Stock, the Class B Common Stock and the
Common Stock shall be of equal rank and shall have the same powers and rights
(including rights upon the dissolution of the Corporation) except as otherwise
expressly provided herein.
1.2 - Dividends and Other Distributions, Subscription Rights and Split-Ups
and Combinations of Shares. Whenever dividends are declared or any other
distribution of the assets of the Corporation is made, whether in cash, property
or shares of stock of the Corporation, and whenever any distribution is made to
stockholders of rights to subscribe to additional shares of stock of the
Corporation, the holders of Class A Common Stock, the holders of the Class B
Common Stock and the holders of Common Stock shall be entitled to share equally,
share for share, in such dividends or other distributions; except that in the
case of dividends payable in shares of stock of the Corporation, or in the case
of rights to subscribe to such shares, the holders of Class A Common Stock and
the holders of Class B Common Stock shall receive their dividends in, or shall
have rights to subscribe to, shares of Common Stock. Whenever the shares of any
class are split up or combined, the shares of the other classes shall be
proportionately split up or combined.
1.3 - Additional Issuances of Stock. The Corporation shall not, except
with the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock, Class A Common Stock and Class B Common Stock, each voting
separately as a class, authorize any additional shares of Class A Common Stock,
Class B Common Stock or Common Stock, except to satisfy the provisions of
Section 1.2 above.
A-1
SECTION 2 - Voting Rights
2.1 - Conversion Date. As used herein, the term "Conversion Date" shall
mean the first date as of which all outstanding shares of Class A Common Stock
have been converted into shares of Common Stock and no shares of Class A Common
Stock are issued and outstanding.
2.2 - Voting Rights. Except as herein provided, prior to the Conversion
Date, upon all matters requiring the vote of stockholders, including the
election and removal of directors with or without cause, the holders of Class A
Common Stock shall be entitled to twenty-five votes per share, and the holders
of the Class B Common Stock and the Common Stock shall be entitled to one vote
per share. Except as herein provided, from and after the Conversion Date, upon
all matters requiring the vote of stockholders, including the election and
removal of directors with or without cause, the holders of Class B Common Stock
shall be entitled to twenty-five votes per share, and the holders of the Common
Stock shall be entitled to one vote per share. Except as otherwise provided by
law, or by this Certificate of Incorporation, the votes of the holders of the
Class A Common Stock, the holders of the Class B Common Stock and the holders of
the Common Stock shall be counted and totaled together without regard to class.
Prior to the Conversion Date, the holders of the Class A Common Stock, as one
class, and the holders of the Class B Common Stock and Common Stock, together as
a second class, shall be entitled to vote as two separate classes on all matters
involving or relating to the merger, consolidation, liquidation, dissolution,
sale of all, or substantially all, of the assets of the Corporation, or such
other matters as may come within the meaning of Section 242 of the Delaware
General Corporation Law requiring votes by classes. From and after the
Conversion Date, the holders of the Class B Common Stock, as one class, and the
holders of the Common Stock, as a second class, shall be entitled to vote as two
separate classes on all matters involving or relating to the merger,
consolidation, liquidation, dissolution, sale of all, or substantially all, of
the assets of the Corporation, or such other matters as may come within the
meaning of Section 242 of the Delaware General Corporation Law requiring votes
by classes.
SECTION 3 - Conversion
3.1 - Conversion into Common Stock at Option of Holders. Any holder of
shares of Class A Common Stock or Class B Common Stock may convert any or all of
such shares held by him into the same number of shares of Common Stock by
surrendering to the Corporation, or to any duly authorized transfer agent for
the Corporation, a certificate representing the shares of Class A Common Stock
or Class B Common Stock to be converted together with a written statement signed
by such holder stating that the shares are to be so converted. Any shares of
Class A Common Stock or Class B Common Stock so surrendered for conversion shall
thereupon be deemed to have been converted into an equal number of shares of
Common Stock, and the Corporation or such transfer agent shall promptly
thereafter issue and deliver to the holder of the shares surrendered for
conversion a certificate or certificates representing the shares of Common Stock
issuable upon such conversion.
A-2
3.2 - Mandatory Conversion into Common Stock. All outstanding shares of
Class A Common Stock and Class B Common Stock shall be deemed to have been
converted into an equal number of shares of Common Stock on September 30, 2005.
From and after the time of such conversion, the special rights and powers of the
Class A Common Stock and the Class B Common Stock shall terminate regardless of
the fact that certificates purporting to represent Class A Common Stock or Class
B Common Stock may continue to be outstanding. The Corporation shall be entitled
to demand surrender of certificates purporting to represent Class A Common Stock
or Class B Common Stock which have been converted into Common Stock under this
Section 3.2 and to withhold dividends and other distributions on the shares so
converted until the surrender of such certificates. Upon surrender of such
certificates representing shares of Class A Common Stock or Class B Common
Stock, the Corporation shall issue to the holder thereof certificates
representing an equal number of shares of Common Stock.
3.3 - Stock Converted Not to be Reissued. No share of Class A Common Stock
or Class B Common Stock converted pursuant to Section 3.1 or Section 3.2 hereof
shall be reissued.
A-3
A-3
EXHIBIT B
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT dated as of January 15, 1999 by
and between Energy Conversion Devices, Inc., a Delaware corporation (the
"Company"), and Robert C. Stempel (the "Executive").
The Executive currently serves as the Chairman of the Board of
Directors and Executive Director of the Company. In order to induce the
Executive to enter into this Agreement and to continue to devote his full
business time and attention to the business and affairs of the Company, the
Company and the Executive have entered into this Agreement and the Company has
agreed to enter into a Stock Option Agreement (the "Stock Option Agreement") and
a Restricted Stock Agreement (the "Restricted Stock Agreement"), each dated as
of the date hereof, pursuant to which the Company has agreed to grant to the
Executive an option to acquire certain shares of the Company's Common Stock, par
value $.01 per share, and to issue to the Executive certain shares of its Class
B Common Stock, par value $.01 per share (the "Class B Common Stock"), upon the
terms and subject to the conditions set forth therein.
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive do
hereby agree as follows:
Section 1. Employment and Duties. Upon the terms and subject
to the conditions set forth in this Agreement, the Company agrees to employ the
Executive as its Executive Director and the Executive hereby accepts such
employment and agrees to perform such services as would be customary for such
position or as otherwise reasonably requested from time to time by the Company's
Board of Directors. Except in connection with normal business travel, the
Executive shall not be required to perform his duties under this Agreement at a
location other than the Detroit metropolitan area.
Section 2. Other Employment. The Company acknowledges and
agrees that the Executive may, in addition to his position as Executive Director
of the Company, serve as a senior advisor to EV Global Motors, an outside
director of other publicly held corporations and as a director and officer of
subsidiaries of the Company, and may divide his time between the Company, such
other publicly held corporations and the Company's subsidiaries as necessary and
appropriate, provided that the Executive shall spend such time and efforts as
reasonably necessary to fulfill his duties on behalf of the Company.
Section 3. Term. The term of employment under this Agreement
(the "Employment Period") shall commence as of the date hereof and shall remain
in effect until September 30, 2005 unless earlier terminated as hereinafter
provided. The Employment Period shall be automatically renewed for successive
one year periods after the initial term unless terminated by either the
Executive or the Company by giving written notice of termination at least 120
days in advance of the renewal date.
B-1
Section 4. Compensation.
4.1 Salary. For all the services to be rendered by the
Executive hereunder, the Company agrees to pay, during the Employment Period, an
annual salary, determined by the Board of Directors of the Company from time to
time, payable every two weeks or otherwise according to the Company's regular
pay schedule for salaried employees.
4.2 Bonus. During the Employment Period, the Executive shall
be entitled to receive annual bonuses as may be deemed advisable by the Board of
Directors of the Company based on the individual performance of the Executive
and the financial performance of the Company.
4.3 Other Benefits. During the Employment Period, the
Executive shall be eligible for all non-wage benefits, including health,
disability and life insurance, pension and profit sharing, stock option,
automobile use or allowance, and organizational membership fees, that the
Company provides generally for its senior executive officers. The Company shall
not be obligated to provide any such non-wage benefit to the Executive if and so
long as the Executive is entitled to receive a comparable benefit on
substantially equivalent terms from any prior or subsequent employer.
Section 5. Business Expenses. Subject to policies established
from time to time by the Company, the Company shall reimburse the Executive for
the reasonable, ordinary and necessary expenses incurred by him in connection
with the performance of his duties hereunder, including ordinary and necessary
travel expenses and entertainment expenses.
Section 6. Covenants of Executive.
6.1 Non-Competition During the Employment Period. During the
Employment Period, except as provided in Section 2, the Executive shall not,
without the Company's prior written consent, which may be withheld at the
Company's sole discretion, engage in any other business activity for gain,
profit or other pecuniary advantage (except the investment of funds in such form
or manner as shall not require any material services on the part of the
Executive in the operation of the affairs of the companies in which such
investments are made) or engage in or any manner be connected or concerned,
directly or indirectly, whether as an officer, director, stockholder, partner,
owner, employee, creditor or otherwise, with the operation, management or
conduct of any business anywhere in the world that competes with the business of
the Company or that utilizes technology of a nature similar to that utilized by
the Company.
6.2 Confidentiality. During the Employment Period and
following the termination thereof for any reason, the Executive shall not
disclose or make any use of, for his own benefit or for the benefit of any
business or entity other than the Company, any secret or confidential
information or any other information of or pertaining to the Company, its
business, products, financial affairs, licensees, customers or services not
generally known by the public and which was acquired by him during his
affiliation with the Company.
6.3 Inventions and Secrecy. Except as otherwise provided in
this Section 6.3, the Executive shall (a) promptly disclose to the Company all
inventions, ideas, devices,
B-2
processes, formulas, compositions, techniques and research and development
information (whether patentable or unpatentable and whether or not reduced to
practice) made or conceived by him alone or jointly with others from the time of
entering the Company's employ until such employment is terminated for any
reason, relevant or pertinent in any way, whether directly or indirectly, to the
Company's business or resulting from or suggested by any work which he may have
done for the Company or at its request, (b) at all times during his employment
with the Company, assist the Company (at the Company's expense) to obtain and
develop for the Com pany's benefit patents on such inventions, ideas, devices,
processes, formulas, compositions, techniques and research and development,
information, and (c) do all such acts and execute, acknowledge and deliver all
such instruments as may be necessary or desirable in the opinion of the Company
to vest in the Company the entire interest in such inventions, ideas, devices,
processes, formulas, compositions, techniques and research and development
information.
6.4 Competition Following Termination. If the employment of
the Executive is terminated by the Company for Cause (as defined in Section 7.1)
or if the Executive voluntarily terminates his employment with the Company, then
within the three-year period immediately following such termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company, which consent may be withheld at the sole
discretion of the Company, engage in or in any manner be connected or concerned,
directly or indirectly, whether as an officer, director, stockholder, partner,
owner, employee, creditor or otherwise with the operation, management or conduct
of any business anywhere in the world that competes with the business of the
Company at the time of such termination or that utilizes technology of a nature
similar to that utilized by the Company at the time of such termination.
Notwithstanding the foregoing, in no event shall the restrictions of this
Section 6.4 continue beyond September 30, 2005. Neither the Executive's
termination of his employment with the Company due to the Company's breach of
this Agreement, nor the Executive's election not to renew the Employment Period
pursuant to Section 3, shall be deemed to constitute a voluntary termination of
the Executive's employment for purposes of this Agreement.
6.5 Solicitation of Employees and Customers Following
Termination. Within the three-year period immediately following termination of
the Executive's employment with the Company for any reason (other than
termination by the Company without Cause), the Executive shall not, without the
Company's prior written consent, which may be withheld at the Company's sole
discretion, directly or indirectly, on his own behalf or on behalf of any other
person or entity (a) solicit, contact, interfere with or divert any licensee or
customer of the Company, or any pro spective customer identified by or on behalf
of the Company, during the Executive's association with the Company or (b)
solicit or hire any person then employed by the Company or employed by the
Company at any time during the preceding 12-month period.
6.6 Acknowledgment. The Executive acknowledges that the
restrictions set forth in this Section 6 are reasonable in scope and essential
to the preservation of the Company's business and proprietary properties and
that the enforcement thereof shall not in any manner preclude the Executive, in
the event of the Executive's termination of employment with the Company, from
becoming gainfully employed in such manner and to such extent as to provide a
standard of living for himself, the members of his family, and those dependent
upon him of at least the sort and fashion to which he and they have become
accustomed and may expect.
B-3
6.7 Severability. The covenants of the Executive contained in
this Section 6 shall each be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of the Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants. The parties hereby expressly agree that it is not the intention
of any party hereto to violate any public policy, statutory or common law, and
that if any sentence, paragraph, clause or combination of the same of this
Agreement is in violation of the law of any state where applicable, such
sentence, paragraph, clause or combination of the same shall be void in the
jurisdictions where it is unlawful, and the remainder of such paragraph and this
Agreement shall remain binding on the parties to make the covenants of this
Agreement binding only to the extent that it may be lawfully done under existing
applicable laws. In the event that any part of any covenant of this Agreement is
determined by a court of law to be overly broad thereby making the covenant
unenforceable, the parties hereto agree, and it is their desire, that such court
shall substitute a judicially enforceable limitation in its place, and that as
so modified the covenant shall be binding upon the parties as if originally set
forth herein.
Section 7. Termination.
7.1 Termination for Cause. The Company shall have the option
to terminate the Employment Period for cause ("Cause") in the event of (a) a
material breach by the Executive of the covenants provided in Section 6 of this
Agreement, (b) the commission by the Executive of theft or embezzlement of
material items of Company property, (c) the conviction of the Executive of a
crime resulting in material injury to the business, property or reputation of
the Company, or (d) the Executive's gross dereliction or malfeasance in the
performance of his duties hereunder (other than as a result of the Executive's
death or mental or physical disability), provided that such dereliction or
malfeasance continues uncorrected during the notice period described in the next
sentence. Any termination pursuant to this Section 7.1 shall be effective only
upon the expiration of a 120-day period following delivery by the Company to the
Executive of a written notice of such termination, setting forth in reasonable
detail the grounds for such termination, if the circumstance or event providing
such grounds is not cured by the Executive during such 120-day period.
7.2 Retirement, Disability and Death. The Executive shall have
the right at any time to terminate the Employment Period in connection with the
Executive's retirement as an officer of the Company or in the event the
Executive becomes subject to any Disability. For purposes of this Section 7.2,
the term "Disability" means any physical or mental disability, or any
combination of physical or mental disabilities, which, in the good faith
determination of the Executive, materially impairs the ability of the Executive
to perform his regular duties as an officer of the Company. The Employment
Period shall automatically terminate in the event of the Executive's death.
7.3 Failure to Authorize Class B Common Stock. The Executive
shall have the right to terminate the Employment Period in the event of the
failure of the Company's stockholders to approve the proposed amendment to the
Company's Certificate of Incorporation to authorize the Class B Common Stock as
provided in Section 3 of the Restricted Stock Agreement.
B-4
7.4 Survival of Covenants. The covenants of the Executive set
forth in Sections 6.2, 6.4 and 6.5 of this Agreement shall survive the
termination of the Employment Period or termination of this Agreement,
regardless of the reason therefor, and shall continue in effect for the periods
specified in such Sections.
7.5 Continuation of Insurance. Following termination or
expiration of this Agreement for any reason, the Company shall, at its expense,
continue the medical, disability and life insurance coverage of the Executive
and the Executive's spouse, as in effect at such time, for the remainder of the
lives of the Executive and the Executive's spouse or until the date the
Executive or the Executive's spouse secures comparable coverage provided by
another employer.
8. General Provisions.
8.1 Notice. Any notice required or permitted hereunder shall
be made in writing (a) either by actual delivery of the notice into the hands of
the party thereunder entitled, or (b) by the mailing of the notice in the United
States mail, certified or registered mail, return receipt requested, all postage
prepaid and addressed to the party to whom the notice is to be given at the
party's respective address set forth below, or such other address as the parties
may from time to time designate by written notice as herein provided.
As addressed to the Company:
Energy Conversion Devices, Inc.
1675 West Maple Road
Troy, Michigan 48084
With a copy (which shall not constitute notice) to:
Chester T. Kamin, Esq.
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
As addressed to the Executive:
Robert C. Stempel
Energy Conversion Devices, Inc.
c/o 1675 West Maple Road
Troy, Michigan 48084
With a copy (which shall not constitute notice) to:
William L. Weber, Jr., Esq.
Daniels & Kaplan, P.C.
401 South Old Woodward Avenue
Suite 350
Birmingham, Michigan 48009-6613
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The notice shall be deemed to be received in case (a) on the date of its actual
receipt by the party entitled thereto and in case (b) on the third day after
date of its mailing.
8.2 Amendment and Waiver. No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in writing and
signed by an officer of the Company duly authorized by the Company's Board of
Directors or upon the Executive unless made in writing and signed by him. The
waiver by any party of the breach of any provision of this Agreement by any
other party shall not operate or be construed as a waiver of any subsequent
breach.
8.3 Governing Law. THE VALIDITY AND EFFECT OF THIS AGREEMENT
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED AND
DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS,
OF THE STATE OF MICHIGAN.
8.4 Entire Agreement. This Agreement (together with the Stock
Option Agreement, the Restricted Stock Agreement and any other agreements
pursuant to which the Executive has been granted stock options by the Company)
contains all of the terms agreed upon by the parties with respect to the subject
matter hereof and supersedes all prior agreements, arrangements and
communications between the parties dealing with such subject matter, whether
oral or written.
8.5 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the transferees, successors and assigns of the
Company, including any company or corporation with which the Company may merge
or consolidate, and shall be binding upon the Executive and shall inure to the
benefit of the Executive and his heirs, executors, personal representative and
beneficiaries.
8.6 Remedies for Breach. The Executive specifically
acknowledges that his services under this Agreement are unique and extraordinary
and that irreparable injury shall result to the Company and its business and
property in the event of a breach of the terms and conditions of this Agreement
to be performed by him (including, but not limited to, leaving the employment
provided for hereunder). The Executive, therefore, agrees that in the event of
his breach of any of the terms and conditions of this Agreement to be performed
by him (including, but not limited to, leaving the employment provided for
hereunder) the Company shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either at law or
in equity and without posting any bond or other security, to enjoin him from
performing services for any other person, firm or corporation in violation of
any of the terms of this Agreement, and to obtain damages for any breach of this
Agreement. In the event of the breach by the Company of any of the terms and
conditions of this Agreement to be performed by it, the Executive's remedies
shall be similarly free of limitations. The remedies provided herein shall be
cumulative and in addition to any and all other remedies which either party may
have at law or in equity.
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8.7 Costs of Enforcement. In the event of any suit or
proceeding by the Executive seeking to enforce the terms, covenants or
conditions of this Agreement, the Executive, if he prevails, shall in addition
to all other remedies and relief that may be available under this Agreement or
applicable law recover his reasonable attorneys' fees and costs as shall be
determined and awarded by the court.
8.8 Headings. Numbers and titles to paragraphs hereof are for
information purposes only and, where inconsistent with the text, are to be
disregarded.
8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
when taken together, shall be and constitute one and the same instrument.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date and year first written above.
ENERGY CONVERSION DEVICES, INC.
By: /s/ Stanford R. Ovshinsky
------------------------------------------
Its: President and Chief Executive Officer
/s/ Robert C. Stempel
------------------------------------------
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EXHIBIT C
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT dated as of January 15, 1999 by and
between Energy Conversion Devices, Inc., a Delaware corporation (the "Company"),
and Robert C. Stempel (the "Executive").
The Executive currently serves as the Chairman of the Board of
Directors and Executive Director of the Company. In order to induce the
Executive to continue to devote his full business time and attention to the
business and affairs of the Company, the Company and the Executive have entered
into an Executive Employment Agreement dated as of the date hereof (the
"Employment Agreement") and the Company has agreed to grant to the Executive an
option to acquire certain shares of the Company's Common Stock, par value $.01
per share ("Common Stock"), pursuant to a Stock Option Agreement dated as of the
date hereof (the "Stock Option Agreement") and to issue to the Executive certain
shares of its Common Stock and Class B Common Stock, par value $.01 per share,
upon the terms and subject to the conditions set forth in this Agreement.
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive do
hereby agree as follows:
1. Defined Terms. As used in this Agreement, the following
capitalized terms shall have the meanings indicated in this Section 1:
"Certificate of Amendment" means the Certificate of Amendment
in the form attached to this Agreement as Annex A authorizing the Class B Common
Stock.
"Change in Control" means a change in control of the Company
of a nature that would be required to be reported in response to Item 1(a) of
the Current Report on Form 8-K, as in effect as of the date of this Agreement,
promulgated pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to the reporting requirements of the Exchange Act; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(a) there shall be consummated any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or substantially all
of the Company's assets, (b) the stockholders of the Company approve any plan or
proposal of liquidation or dissolution of the Company, (c) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation or pursuant to which the Company's
voting securities would be converted into cash, securities or other property,
(d) any "person" or "group" (as such terms are used in Section 13(d) and 14(d)
of the Exchange Act) other than the Executive shall become, after the date of
this Agreement, the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the combined voting power of the Company's then-outstanding
voting securities ordinarily having the right to vote for the election of
directors, (e) individuals who, as of the date of this Agreement, constitute the
Board of Directors of the Company (the "Board" generally, and as of the date
hereof, the "Incumbent Board") shall cease for any reason to constitute a
majority of
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the Board, provided that any person becoming a director subsequent to the date
of this Agreement whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board, (f) a proceeding is instituted in a court
of competent jurisdiction seeking a decree or order for relief in respect of the
Company in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or for any substantial part of its property, or for the
winding-up or liquidation of its affairs, and such proceeding remains
undismissed or unstayed and in effect for a period of 60 consecutive days or
such court enters a decree or court granting the relief sought in such
proceeding, or (g) the Company commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in effect,
consents to the entry of an order for relief in an involuntary case under any
such law, or consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of or for any substantial part of its property, or makes a general
assignment for the benefit of creditors, or fails generally to pay its debts as
they become due, or take any corporate action in furtherance of any of the
foregoing. Notwithstanding the foregoing, no Change in Control shall be deemed
to occur as a result of any transfer of beneficial ownership of shares of Common
Stock or Class A Common Stock from Stanford R. Ovshinsky to Iris M. Ovshinsky.
"Class A Common Stock" means the Company's Class A Common
Stock, par value $.01 per share.
"Class B Common Stock" means the Company's Class B Common
Stock, par value $.01 per share.
"Code" has the meaning set forth in Section 10(b).
"Common Stock" means the Company's Common Stock, par value
$.01 per share.
"Company" means Energy Conversion Devices, Inc., a Delaware
corporation.
"Conversion Date" means the first date as of which all
outstanding shares of Class A Common Stock have been converted into shares of
Common Stock and no shares of Class A Common Stock are issued and outstanding.
"Demand Registration" has the meaning set forth in Section
11(a).
"Disability" means any physical or mental disability, or any
combination of physical or mental disabilities, which, in the good faith
determination of the Executive, materially
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impairs the ability of the Executive to perform his regular duties as a director
or officer of the Company.
"Excise Tax" has the meaning set forth in Section 10(d).
"Executive" means Robert C. Stempel.
"Gross-Up Payment" has the meaning set forth in Section 10(d).
"Payment" has the meaning set forth in Section 10(d).
"Permitted Transferee" has the meaning set forth in Section
7(b).
"Piggyback Registration" has the meaning set forth in Section
11(e).
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with the provisions of Section 11 of this
Agreement, including all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other persons retained by the Company.
"Registrable Securities" means, collectively, (a) any shares
of Common Stock which are deemed to have vested in accordance with the
provisions of Section 5, (b) any shares of Common Stock issued or issuable upon
the conversion of shares of Class B Common Stock which are deemed to have vested
in accordance with the provisions of Section 5 and (c) any shares of Common
Stock issued or issuable upon the exercise of the stock option granted to the
Executive pursuant to the Stock Option Agreement.
"Restricted Stock" has the meaning set forth in Section 3. For
purposes of this Agreement, the term "Restricted Stock" shall also include (a)
any Common Stock issued or issuable upon the conversion of the shares of Class B
Common Stock issued to the Executive pursuant to this Agreement and (b) any
equity securities of the Company or any of its subsidiaries issued or issuable
in connection with any stock dividend, stock split, combination of shares,
merger, consolidation, recapitalization, spin-off or similar transaction with
respect to or affecting the shares of Common Stock or Class B Common Stock
issued to the Executive pursuant to this Agreement or any Common Stock issued or
issuable with respect thereto.
"Securities Act" has the meaning set forth in Section 11(a).
"Transfer" means any sale, assignment, conveyance, pledge,
hypothecation, transfer or other disposition.
2. Grant of Common Stock. Upon the terms and subject to the
conditions set forth in this Agreement, the Company hereby agrees to issue to
the Executive, as of the date of this Agreement, 430,000 shares of Common Stock.
The Company hereby acknowledges receipt from the Executive of $4,300,
representing an amount equal to the aggregate par value
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of the Common Stock. The Company accordingly represents and warrants to the
Executive that the foregoing shares of Common Stock have been validly issued and
are fully paid and nonassessable.
3. Stockholder Approval of Class B Common Stock. The Company
shall submit to its stockholders at its next annual meeting of stockholders a
proposal to amend the Company's Certificate of Incorporation as set forth in the
Certificate of Amendment. The proxy materials delivered to the Company's
stockholders in connection with such meeting shall include the recommendation of
the Company's Board of Directors that the Company's stockholders vote in favor
of and approve the proposal to amend the Company's Certificate of Incorporation
and the Company shall otherwise use its reasonable best efforts to cause such
proposal to be approved by its stockholders. Immediately after such stockholder
meeting, provided that such proposal has been approved by the requisite vote of
the Company's stockholders, the Company shall cause the Certificate of Amendment
to be filed with the Secretary of State of the State of Delaware in accordance
with the requirements of the Delaware General Corporation Law. Immediately
following the filing of the Certificate of Amendment, the Executive shall
surrender to the Company the shares of Common Stock issued to the Executive
pursuant to Section 2, together with appropriate stock powers duly executed in
blank, and in exchange therefor the Company shall issue to the Executive an
equal number of shares of Class B Common Stock. Upon surrender to the Company,
the shares of Common Stock formerly held by the Executive shall resume the
status of authorized but unissued shares of Common Stock. If the proposal to
approve the Certificate of Amendment is not approved by the Company's
stockholders as contemplated by this Section 3, then the Executive shall be
entitled to continue to hold the shares of Common Stock issued to him pursuant
to Section 2. The shares of Common Stock and Class B Common Stock issued to the
Executive pursuant to this Agreement are referred to collectively as the
"Restricted Stock."
4. Dividend and Voting Rights.
(a) So long as the Executive continues to serve as a director
of the Company and irrespective of whether the Restricted Stock is deemed
to have vested in accordance with the provisions of Section 5, the
Executive shall be entitled to exercise all voting rights with respect to
the Restricted Stock, including all preferential voting rights to which
the holders of Class B Common Stock may become entitled from and after the
Conversion Date, and shall be entitled to receive all dividends and
distributions payable in respect of the Restricted Stock.
(b) Except as otherwise provided in Section 8, as of the date
the Executive ceases to serve as a director of the Company for any reason,
the Executive, or his executor or legal representative, shall (i)
immediately cease to be entitled to exercise any preferential voting
rights with respect to any shares of Class B Common Stock held by the
Executive or his estate and (ii) cease to be entitled to receive any
dividend or distribution thereafter payable in respect of the Restricted
Stock.
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5. Vesting.
(a) The Restricted Stock shall be deemed to have vested (i) in
full on September 30, 2005, if the Executive is serving as both a director
and an officer of the Company on such date, (ii) in part, as provided in
Section 5(b), on September 30, 2005, if the Executive is serving as a
director, but not as an officer, of the Company on such date, (iii) in
part, as provided in Section 5(b), upon the Executive's death prior to
September 30, 2005 if the Executive is serving as a director of the
Company as of the date of his death, (iv) in part, as provided in Section
5(b), upon the Executive's resignation as a director of the Company prior
to September 30, 2005 due to Disability, (v) in full upon the occurrence
of a Change in Control prior to September 30, 2005 provided that the
Executive was serving as a director of the Company on the date 90 days
prior to the occurrence of such Change in Control, and (vi) in full in the
event the Executive is not nominated as a director of the Company or if
the Executive is nominated as a director but not elected by the Company's
stockholders.
(b) If (i) the Executive is serving as a director, but not an
officer, of the Company on September 30, 2005, (ii) the Executive dies
prior to September 30, 2005 while serving as a director of the Company or
(iii) the Executive resigns as a director of the Company prior to
September 30, 2005 due to Disability, the number of shares of Restricted
Stock that will be deemed to have vested for purposes of this Agreement
will be equal to (A) 5,308.65 shares, multiplied by the number of full
calendar months in the period commencing as of January 1, 1999 and ending
on September 30, 2005 or the date of the death or resignation of the
Executive, as applicable, during which the Executive served both as a
director and an officer of the Company and (B) 2,654.325 shares,
multiplied by the number of full calendar months in the period commencing
as of January 1, 1999 and ending on September 30, 2005 or the date of the
death or resignation of the Executive, as applicable, during which the
Executive served as a director, but not an officer, of the Company.
(c) In addition to any shares of Restricted Stock which may be
deemed to have vested in accordance with the provisions of Section 5(b),
if the Executive dies prior to September 30, 2005 while serving as a
director of the Company, the Executive shall be deemed to have vested in
an additional number of shares of Restricted Stock equal to quotient
determined by dividing (i) the total number of shares of Restricted Stock
minus the number of shares of Restricted Stock deemed to have vested upon
the Executive's death in accordance with the provisions of Section 5(b) by
(ii) 2.
6. Forfeiture and Conversion of Restricted Shares.
(a) Except as otherwise provided in Section 8, as of the date
the Executive ceases for any reason to serve as a director of the Company,
any shares of Restricted Stock which are not deemed to have vested as of
such date in accordance with the provisions of Section 5 shall be
immediately forfeited by the Executive and neither the Executive, his
estate nor any other person acting on behalf of the Executive or claiming
any interest in his estate shall have any further rights or interests in
any such forfeited shares of Restricted Stock. Except as otherwise
provided in Sections 7 and 8, all shares of Class B Common Stock which are
forfeited by the Executive shall be deemed to have been converted into
shares of Common Stock immediately upon such forfeiture and shall not be
reissued by the Company.
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(b) Except as otherwise provided in Sections 7 or 8, within 30
days after the date the Executive ceases for any reason to serve as a
director of the Company, any shares of Class B Common Stock which are
deemed to have vested in accordance with the provisions of Section 5 as of
the date of the Executive's cessation of service as a director shall be
converted into shares of Common Stock and share certificates evidencing
such shares of Common Stock shall be issued to the Executive or his estate
or legal representative.
7. Restrictions on Transfer.
(a) Except as otherwise expressly provided in this Section 7,
the Executive shall not Transfer any interest in any share of Restricted
Stock.
(b) At any time and from time to time after the Conversion
Date, the Executive, so long as he is then serving as a director of the
Company, may deliver written notice to the Secretary of the Company
designating one or more persons also then serving as a director of the
Company as a permitted transferee of all or a portion of the Restricted
Stock pursuant to this Section 7(b). At any time after the date such
notice of designation is delivered by the Executive, the Board, acting
upon the vote or consent of the majority of the directors then in office
(excluding for this purpose the Executive), may approve the person or
persons designated in the Executive's notice of designation and each such
person, as of the date of such approval by the Board, shall be deemed to
be a "Permitted Transferee" for purposes of this Agreement. The Board,
acting as aforesaid, may in connection with the approval of any person as
a Permitted Transferee stipulate conditions on such approval (including
the number of shares of Restricted Stock permitted to be transferred to
such person and the terms and conditions under which such person will be
permitted to hold such shares). At any time during the period commencing
on the date of the approval of any person as a Permitted Transferee and
ending upon the occurrence of a Change in Control, those directors
constituting the Incumbent Board, acting upon the vote or consent of the
majority of such directors (excluding for this purpose the Executive), may
act to rescind such approval, in which event such person shall thereafter
no longer be deemed to be a Permitted Transferee for purposes of this
Agreement, or to modify the terms and conditions under which such
Permitted Transferee is permitted to hold shares of Restricted Stock
transferred to such Permitted Transferee.
(c) The Executive or his executor or legal representative may,
upon Executive's death or his resignation as a director of the Company due
to Disability, Transfer all or any portion of the Restricted Stock,
without regard to whether such Restricted Stock is deemed to have vested
in accordance with Section 5, to any Permitted Transferee subject to any
conditions relating to such Transfer determined by the Board in accordance
with the provisions of Section 7(b).
(d) Upon any Transfer of Restricted Stock pursuant to the
provisions of Section 7(c), the Company, as of the effective date of such
Transfer, shall issue to the Executive (or to his estate in the event of
the Executive's death) a number of shares of Common Stock equal to the
number of shares of Restricted Stock included in such Transfer which were
deemed to have vested in accordance with the provisions of Section 5 as of
the date of the Executive's death or resignation as a director.
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(e) Following the date upon which any shares of Class B Common
Stock have deemed to have vested in accordance with the provisions of
Section 5, the Executive or his executor or legal representative may at
any time convert such shares into shares of Common Stock and may at any
time thereafter Transfer such shares of Common Stock, subject to any
restrictions on Transfer arising under the federal or applicable state
securities laws.
8. Change in Control. Notwithstanding any provision of this
Agreement to the contrary, if the Executive's cessation of service as a director
or officer of the Company occurs as of result of, or directly or indirectly in
connection with, a Change in Control, then (a) the Executive shall continue to
be entitled to exercise all preferential voting rights to which the holders of
the Class B Common Stock may be entitled, (b) all of the Restricted Stock shall
be deemed to have vested immediately upon the occurrence of such Change in
Control and (c) none of the Restricted Stock shall be required to be forfeited
or converted by the Executive or his estate.
9. Delivery of Shares; Stock Legends.
(a) At all times during the period during which the Transfer
of the Restricted Stock is prohibited in accordance with the provisions of
Section 7, all stock certificates evidencing the Restricted Stock shall be
held in custody by the Company for the Executive's account. Upon the
expiration or termination of such period, the Company shall deliver to the
Executive or his estate, as applicable, stock certificates, without any
legend other than as to applicable securities law transfer restrictions,
evidencing the number of shares of Restricted Stock which are deemed to
have vested in accordance with the provisions of Section 5. Except as
otherwise provided in Section 7, upon the forfeiture of any Restricted
Stock, such Restricted Stock shall be transferred to the Company, without
further action by the Executive, as an issued, reacquired share, and shall
be deemed to have been converted into shares of Common Stock immediately
upon such forfeiture and shall not be reissued by the Company.
(b) Each certificate evidencing shares of Restricted Stock
shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were
originally issued on January 15, 1999, and have not been
registered under the Securities Act of 1933, as amended. The
transfer of the securities represented by this certificate is
subject to the conditions specified in the Restricted Stock
Agreement dated as of January 15, 1999, between the Energy
Conversion Devices, Inc., a Delaware corporation (the
"Company") and Robert C. Stempel, and the Company reserves the
right to refuse the transfer of such securities until such
conditions have been fulfilled with respect to such transfer.
A copy of such conditions will be furnished by the Company to
the holder hereof upon written request and without charge."
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10. Tax Matters.
(a) The Restricted Stock issued to the Executive pursuant to
this Agreement shall be deemed to have been issued at the fair market
value thereof as of the date of the initial issuance thereof as provided
in this Agreement or, in the case of any securities constituting
Restricted Stock issued after such initial issuance date, as of the date
of issuance of such security. For this purpose, the fair market value of
each share of Class B Common Stock shall be deemed to be equal to the
closing sale price of a share of Common Stock on the date of issuance
thereof as reported by The Nasdaq Stock Market, Inc.
(b) The Executive acknowledges that he will be taxed on the
value of the Restricted Stock as of the date such Restricted Stock is
deemed to have vested in accordance with the provisions of Section 5. The
Executive further acknowledges that he understands that he may make an
election under Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), to be taxed on the value of the Restricted Stock as
of the date of this Agreement rather than in the years the Restricted
Stock is deemed to have vested. The Executive, after consulting with his
personal legal, tax and financial advisors, hereby notifies the Company
that he does not intend to make such an election with respect to the
Restricted Stock to be issued to him pursuant to this Agreement.
(c) Upon the vesting of the Restricted Stock, the Company
shall be entitled to make appropriate arrangements to satisfy any tax
withholding requirements provided by applicable law.
(d) If, as a result of the immediate vesting of the Restricted
Stock in connection with a Change in Control as provided in Section 8(b),
any payment or benefit (within the meaning of Section 280G(b)(2) of the
Code) to the Executive or for the Executive's benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with the Executive's employment with the Company
(a "Payment") would be subject to the excise tax imposed by Section 4999
of the Code, or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to as the "Excise Tax"),
then the Executive will be entitled to receive an additional payment (a
"Gross-Up Payment") from the Company in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed
with respect to such taxes and any Excise Tax imposed upon the Gross-Up
Payment), the amount of the Gross-Up Payment retained by the Executive
equals the Excise Tax imposed upon such Payment.
11. Registration Rights.
(a) Upon the terms and subject to the conditions set forth in
this Section 11, the Executive or his estate or legal representative may
request a single registration (the "Demand Registration") under the
Securities Act of 1933, as amended (the "Securities Act"), of all or part
of the Registrable Securities.
(b) The Registration Expenses of the holders of Registrable
Securities shall be paid by the Company in connection with the Demand
Registration.
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(c) The Company shall not include in the Demand Registration
any securities which are not Registrable Securities without the prior
written consent of the Executive or his estate or legal representative. If
the Demand Registration is an underwritten offering and the managing
underwriters advise the Company that in their opinion the number of
Registrable Securities and, if permitted hereunder, other securities
requested to be included in such offering exceeds the number of
Registrable Securities and other securities which can be sold in an
orderly manner in such offering within a price range acceptable to the
Executive or his estate or legal representative, the Company shall include
in such registration prior to the inclusion of any securities which are
not Registrable Securities the number of Registrable Securities requested
to be included which in the opinion of such underwriters can be sold in an
orderly manner within the price range of such offering.
(d) The Company may postpone for up to 180 days the filing or
the effectiveness of a registration statement for the Demand Registration
if the Company determines in good faith that such Demand Registration
would reasonably be expected to have an adverse effect on any proposal or
plan by the Company to engage in any acquisition of assets (other than in
the ordinary course of business), merger, consolidation or tender offer or
to enter into any material license agreement, joint venture arrangement or
similar transaction; provided that in such event, the holders of
Registrable Securities shall be entitled to withdraw such request and, if
such request is withdrawn, such Demand Registration shall not count as the
permitted Demand Registration hereunder and the Company shall pay all
Registration Expenses in connection with such registration.
(e) Whenever the Company proposes to register any of its
securities under the Securities Act (other than pursuant to a Demand
Registration and other than registrations on Form S-4, Form S-8 or any
similar or successor registration forms) and the registration form to be
used may be used for the registration of Registrable Securities (a
"Piggyback Regis tration"), the Company shall give prompt written notice
to the Executive of its intention to effect such a registration and shall
include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein
within 15 days after the giving of the Company's notice.
(f) The Registration Expenses of the holders of Registrable
Securities shall be paid by the Company in connection with all Piggyback
Registrations.
(g) If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters
advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a
price range acceptable to the Company, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities and any other securities requested to
be included in such registration by holders entitled to registration
rights in connection therewith, pro rata among such holders based on the
number of shares requested to be included in such registration, and (iii)
third, other securities requested to be included in such registration
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(h) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the
managing underwriters advise the Com pany in writing that in their opinion
the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the holders initially requesting such
registration, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration, (ii) second, the Registrable Securities and any other
securities requested to be included in such registration by holders
entitled to registration rights in connection therewith, pro rata among
such holders based on the number of shares requested to be included in
such registration, and (iii) third, other securities requested to be
included in such registration.
(i) Whenever the holders of Registrable Securities have
requested that any Registrable Securities be registered pursuant to this
Agreement, the Company shall use its reasonable best efforts to effect the
registration and the sale of such Registrable Securities in accordance
with the intended method of disposition.
(j) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors
and each person who controls such holder (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
the same are caused by or contained in any information furnished in
writing to the Company by such holder expressly for use therein or by such
holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Company shall indemnify such
underwriters, their officers and directors and each person who controls
such underwriters (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the
holders of Registrable Securities.
(k) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law,
shall indemnify the Company, its directors and officers and each person
who controls the Company (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact contained in
the regis tration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the extent that
such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder; provided that the
obligation to indemnify shall be individual to each holder and shall be
limited to the net amount of proceeds received by such holder from the
sale of Registrable Securities pursuant to such registration statement.
C-10
(l) The registration rights provided in this Section 11 shall
be exercisable only after the vesting of the Restricted Stock in
accordance with the provisions of Section 5 and shall not be deemed to
permit the Transfer of any Restricted Stock otherwise prohibited in this
Agreement.
12. Miscellaneous.
(a) Any notice required or permitted hereunder shall be made
in writing (i) either by actual delivery of the notice into the hands of
the party thereunder entitled, or (ii) by the mailing of the notice in the
United States mail, certified or registered mail, return receipt
requested, all postage prepaid and addressed to the party to whom the
notice is to be given at the party's respective address set forth below,
or such other address as the parties may from time to time designate by
written notice as herein provided.
As addressed to the Company:
Energy Conversion Devices, Inc.
1675 West Maple Road
Troy, Michigan 48084
With a copy (which shall not constitute notice) to:
Chester T. Kamin, Esq.
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
As addressed to the Executive:
Robert C. Stempel
c/o Energy Conversion Devices, Inc.
1675 West Maple Road
Troy, Michigan 48084
With a copy (which shall not constitute notice) to:
William L. Weber, Jr., Esq.
Daniels & Kaplan, P.C.
401 South Old Woodward Avenue
Suite 350
Birmingham, Michigan 48009-6613
The notice shall be deemed to be received in case (i) on the
date of its actual receipt by the party entitled thereto and in case (ii)
on the third day after date of its mailing.
(b) No amendment or modification of this Agreement shall be
valid or binding upon the Company unless made in writing and signed by an
officer of the Company duly
C-11
authorized by the Company's Board of Directors or upon the Executive
unless made in writing and signed by him. The waiver by any party of the
breach of any provision of this Agreement by any other party shall not
operate or be construed as a waiver of any subsequent breach.
(c) THE VALIDITY AND EFFECT OF THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE
STATE OF MICHIGAN.
(d) This Agreement (together with the Employment Agreement,
the Stock Option Agreement and any other agreements pursuant to which the
Executive has been granted stock options by the Company) contains all of the
terms agreed upon by the parties with respect to the subject matter hereof and
supersedes all prior agreements, arrangements and communications between the
parties dealing with such subject matter, whether oral or written.
(e) This Agreement shall be binding upon and shall inure to
the benefit of the transferees, successors and assigns of the Company,
including any company or corporation with which the Company may merge or
consolidate, and shall be binding upon the Executive and shall inure to
the benefit of the Executive and his heirs, executors, personal
representative and beneficiaries.
(f) In the event of any suit or proceeding by the Executive
seeking to enforce the terms, covenants or conditions of this Agreement,
the Executive, if he prevails, shall in addition to all other remedies and
relief that may be available under this Agreement or applicable law
recover his reasonable attorneys' fees and costs as shall be determined
and awarded by the court.
(g) Numbers and titles to paragraphs hereof are for
information purposes only and, where inconsistent with the text, are to be
disregarded.
(h) This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
when taken together, shall be and constitute one and the same instrument.
* * * * *
C-12
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
ENERGY CONVERSION DEVICES, INC.
By: /s/ Stanford R. Ovshinsky
-------------------------------------------
Its: President and Chief Executive Officer
/s/ Robert C. Stempel
-------------------------------------------
C-13
EXHIBIT D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of January 15, 1999 by and
between Energy Conversion Devices, Inc., a Delaware corporation (the "Company"),
and Robert C. Stempel (the "Executive").
The Executive currently serves as the Chairman of the Board of
Directors and Executive Director of the Company. In order to induce the
Executive to continue to devote his full business time and attention to the
business and affairs of the Company, the Company and the Executive have entered
into an Executive Employment Agreement dated as of the date hereof (the
"Employment Agreement") and the Company has agreed to issued to the Executive
certain shares of its Class B Common Stock, par value $.01 per share, pursuant
to a Restricted Stock Agreement dated as of the date hereof (the "Restricted
Stock Agreement") and to grant to the Executive an option to acquire certain
shares of the Company's Common Stock, par value $.01 per share, upon the terms
and subject to the conditions set forth in this Agreement.
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive do
hereby agree as follows:
1. Defined Terms. As used in this Agreement, the following
capitalized terms shall have the meanings indicated in this Section 1:
"Aggregate Exercise Price" has the meaning set forth in
Section 3(b).
"Common Stock" means shares of the Company's Common Stock, par
value $.01 per share; provided that if there is a change such that the
securities issuable upon exercise of the Option are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the term "Common Stock" shall mean one share of the securities issuable
upon exercise of the Option if such securities is issuable in shares, or shall
mean the smallest unit in which such securities is issuable if such securities
is not issuable in shares.
"Company" means Energy Conversion Devices, Inc., a Delaware
corporation.
"Executive" means Robert C. Stempel.
"Exercise Price" has the meaning set forth in Section 2.
"Exercise Period" has the meaning set forth in Section 3(a).
"Exercise Time" has the meaning set forth in Section 3(b).
"Liquidating Dividend" has the meaning set forth in Section 6.
D-1
"Market Price" means, as to any securities, the average of the
closing prices of the sales of such securities on all domestic securities
exchanges on which such securities may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges as the end of such day, or, if on
any day such securities is not so listed, the average of the representative bid
and asked prices quoted in The Nasdaq Stock Market, Inc. as of 4:00 P.M., New
York City time, on such day, or, if on any day such securities is not quoted in
The Nasdaq Stock Market, Inc., the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day; provided that if such securities is listed on any domestic
securities exchange the term "business days" as used in this sentence means
business days on which such exchange is open for trading. If at any time such
securities is not listed on any domestic securities exchange or quoted in The
Nasdaq Stock Market, Inc. or the domestic over-the counter market, the "Market
Price" shall be the fair value thereof determined jointly the Company and the
Executive; provided that if such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Executive. The determination of such
appraiser shall be final and binding on the Company and the Executive, and the
fees and expenses of such appraiser shall be paid by the Company.
"Option" has the meaning set forth in Section 2.
"Organic Change" has the meaning set forth in Section 5(c).
"Purchase Rights" has the meaning set forth in Section 7.
2. Grant of Option. Upon the terms and subject to the
conditions set forth in this Agreement, the Company hereby grants the Executive
the option (the "Option") to purchase up to 300,000 shares of the Company's
Common Stock at an exercise price of $10.688 per share (the "Exercise Price").
The number of shares issuable upon the exercise of the Option and the Exercise
Price are subject to adjustment as provided in this Agreement.
3. Exercise of Option.
(a) The Executive may exercise, in whole or in part (but not
as to a fractional share of Common Stock), the Option at any time and from
time to time after the date of this Agreement to and including the tenth
anniversary of the date hereof (the "Exercise Period"). The Company shall
give the Executive written notice of the expiration of the Exercise Period
at least 30 days but not more than 90 days prior to the expiration of the
Exercise Period.
(b) The Option shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(i) a written notice of exercise executed by or on
behalf of the Executive;
(ii) a copy of this Agreement; and
D-2
(iii) either (A) a check payable to the Company in an
amount equal to the product of the Exercise Price multiplied by the
number of shares of Common Stock being purchased upon such exercise
(the "Aggregate Exercise Price") or (B) the surrender to the Company
of securities of the Company having a Market Price equal to the
Aggregate Exercise Price of the Common Stock being purchased upon
such exercise.
(b) Certificates for shares of Common Stock purchased upon
exercise of the Option shall be delivered by the Company to the Executive
within five business days after the date of the Exercise Time. In
connection with any partial exercise of the Option, unless the Option has
expired or been exercised in full, the Company shall prepare a new
agreement, substantially identical hereto, representing the rights
formerly represented by this Agreement that have not expired or been
exercised and shall, within such five-day period, deliver such new
agreement to the Executive.
(c) The Common Stock issuable upon the exercise of the Option
shall be deemed to have been issued to the Executive at the Exercise Time,
and the Executive shall be deemed for all purposes to have become the
record holder of such Common Stock at the Exercise Time.
(d) The Executive acknowledges that the exercise of the Option
may subject the Company to a tax withholding obligation. The Company and
the Executive agree to cooperate to effect any such tax withholding in a
mutually agreeable fashion.
(e) The issuance of certificates for shares of Common Stock
upon exercise of the Option shall be made without charge to the Executive
for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise
of the Option shall, upon payment of the Exercise Price therefor, be fully
paid and nonassessable and free from all liens and charges with respect to
the issuance thereof.
(f) The Company shall not close its books against the transfer
of any share of Common Stock issued or issuable upon the exercise of the
Option in any manner which interferes with the timely exercise of the
Option. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Agreement is at all times equal to
or less than the Exercise Price then in effect.
(g) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the exercise of the Option, such number of shares
of Common Stock issuable upon the exercise of the Option in full. The
Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance).
D-3
4. Fractional Shares. If a fractional share of Common Stock
would, but for the provisions of Section 3(a), be issuable upon exercise of the
Option, the Company shall, within five business days after the date of the
Exercise Time, deliver to the Executive a check payable to the Executive in lieu
of such fractional share in an amount equal to the difference between the Market
Price of such fractional share as of the date of the Exercise Time and the
Exercise Price of such fractional share.
5. Adjustment of Exercise Price and Number of Shares.
(a) In order to prevent dilution of the rights granted under
this Agreement, the Exercise Price and the number of shares of Common
Stock obtainable upon exercise of this Agreement shall be subject to
adjustment from time to time as provided in this Section 5.
(b) If the Company at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of shares of Common Stock
obtainable upon exercise of the Option shall be proportionately increased.
If the Company at any time combines (by reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior
to such combination shall be proportionately increased and the number of
shares of Common Stock obtainable upon exercise of the Option shall be
proportionately decreased.
(c) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another person or entity or other transaction which is effected
in such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the
Company shall make appropriate provision (in form and substance
satisfactory to the Executive) to insure that the Executive shall
thereafter have the right to acquire and receive in lieu of or addition to
(as the case may be) the shares of Common Stock immediately theretofore
acquirable and receivable upon the exercise of the Option, such shares of
stock, securities or assets as may be issued or payable with respect to or
in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of the Option had such
Organic Change not taken place. In any such case, the Company shall make
appropriate provision (in form and substance satisfactory to the
Executive) with respect to the Executive's' rights and interests to insure
that the provisions of this Section 5 shall thereafter be applicable to
the Option (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than the
Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such consolidation, merger or
sale, and a corresponding immediate adjustment in the number of shares of
Common Stock acquirable and receivable upon exercise of the Option). The
Company shall not effect any such consolidation, merger or sale unless
prior to the consummation thereof the successor entity (if other than the
Company) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance
satisfactory to the Executive)
D-4
the obligation to deliver to the Executive such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Executive may be entitled to acquire.
(d) Promptly following any adjustment of the Exercise Price,
the Company shall give written notice thereof to the Executive setting
forth in reasonable detail and certifying the calculation of such
adjustment.
6. Liquidating Dividends. If the Company declares or pays a
dividend upon the Common Stock payable otherwise than in cash out of earnings or
earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a stock dividend payable in shares
of Common Stock (a "Liquidating Dividend"), then the Company shall pay to the
Executive at the time of payment thereof the Liquidating Dividend which would
have been paid to the Executive on the Common Stock had the Option been fully
exercised immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
7. Purchase Rights. If at any time the Company grants, issues
or sells any options, warrants, convertible securities or rights to purchase
stock, securities or other property pro rata to the record holders of any class
of Common Stock (the "Purchase Rights"), then the Executive shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Executive could have acquired if the Executive had
held the number of shares of Common Stock acquirable upon complete exercise of
the Option immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issuance or sale of such Purchase Rights.
8. No Voting Rights; Limitations of Liability. This Agreement
shall not entitle the Executive to any voting rights or other rights as a
stockholder of the Company pertaining to the Common Stock issuable to the
Executive upon the exercise of the Option. No provision hereof, in the absence
of affirmative action by the Executive to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Executive, shall give rise
to any liability of the Executive for the Exercise Price of Common Stock
acquirable by exercise of the Option or as a stockholder of the Company.
9. Registration Rights. The Executive shall be entitled to
registration rights with respect to the shares of Common Stock issuable upon the
exercise of the Option as provided in the Restricted Stock Agreement.
D-5
10. Miscellaneous.
(a) Any notice required or permitted hereunder shall be made
in writing (i) either by actual delivery of the notice into the hands of
the party thereunder entitled, or (ii) by the mailing of the notice in the
United States mail, certified or registered mail, return receipt
requested, all postage prepaid and addressed to the party to whom the
notice is to be given at the party's respective address set forth below,
or such other address as the parties may from time to time designate by
written notice as herein provided.
As addressed to the Company:
Energy Conversion Devices, Inc.
1675 West Maple Road
Troy, Michigan 48084
With a copy (which shall not constitute notice) to:
Chester T. Kamin, Esq.
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
As addressed to the Executive:
Robert C. Stempel
c/o Energy Conversion Devices, Inc.
1675 West Maple Road
Troy, Michigan 48084
With a copy (which shall not constitute notice) to:
William L. Weber, Jr., Esq.
Daniels & Kaplan, P.C.
401 South Old Woodward Avenue
Suite 350
Birmingham, Michigan 48009-6613
The notice shall be deemed to be received in case (i) on the
date of its actual receipt by the party entitled thereto and in case (ii)
on the third day after date of its mailing.
(b) No amendment or modification of this Agreement shall be
valid or binding upon the Company unless made in writing and signed by an
officer of the Company duly authorized by the Company's Board of Directors
or upon the Executive unless made in writing and signed by him. The waiver
by any party of the breach of any provision of this Agreement by any other
party shall not operate or be construed as a waiver of any subsequent
breach.
D-6
(c) THE VALIDITY AND EFFECT OF THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE LAW OF CONFLICTS, OF THE
STATE OF MICHIGAN.
(d) This Agreement (together with the Employment Agreement,
the Restricted Stock Agreement and any other agreements pursuant to which the
Executive has been granted stock options by the Company) contains all of the
terms agreed upon by the parties with respect to the subject matter hereof and
supersedes all prior agreements, arrangements and communications between the
parties dealing with such subject matter, whether oral or written.
(e) This Agreement shall be binding upon and shall inure to
the benefit of the transferees, successors and assigns of the Company,
including any company or corporation with which the Company may merge or
consolidate, and shall be binding upon the Executive and shall inure to
the benefit of the Executive and his heirs, executors, personal
representative and beneficiaries.
(f) In the event of any suit or proceeding by the Executive
seeking to enforce the terms, covenants or conditions of this Agreement,
the Executive, if he prevails, shall in addition to all other remedies and
relief that may be available under this Agreement or applicable law
recover his reasonable attorneys' fees and costs as shall be determined
and awarded by the court.
(g) Numbers and titles to paragraphs hereof are for
information purposes only and, where inconsistent with the text, are to be
disregarded.
(h) This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
when taken together, shall be and constitute one and the same instrument.
* * * * *
D-7
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
ENERGY CONVERSION DEVICES, INC.
By: /s/ Stanford R. Ovshinsky
------------------------------------------
Its: President and Chief Executive Officer
/s/ Robert C. Stempel
------------------------------------------
D-8
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_______________________, on March 25,
1999 at _______ (E.S.T.) 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 PROPOSALS 2, 3 AND 4 AS DESCRIBED
IN THE ACCOMPANYING PROXY STATEMENT.
The Board of Directors of the Company recommends a vote FOR Proposals 1, 2,
3 and 4.
1. Election of Directors: Stanford R. Ovshinsky, Iris M. Ovshinsky, Robert
C. Stempel, Kenneth R. Baker, Nancy M. Bacon, Umberto Colombo, Hellmut
Fritzsche, Joichi Ito, Seymour Liebman, Tyler Lowrey, Walter J. McCarthy,
Jr., Florence I. Metz, Nathan J. Robfogel and Stanley K. Stynes.
[ ] VOTE FOR ALL FOURTEEN NOMINEES LISTED ABOVE [ ] VOTE WITHHELD FOR ALL
NOMINEES (except as directed to the contrary below):
INSTRUCTION: To withhold authority to vote for any nominee, write that nominee's
name in the space provided below:
- --------------------------------------------------------------------------------
2. Proposal to approve the appointment of Deloitte & Touche LLP as
independent accountants for the fiscal year ending June 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
-39-
3. Proposal to approve the amendment of the Company's Certificate of
Incorporation changing from September 14, 1999 to September 30, 2005 the
date on which the Company's Class A Common Stock is deemed converted into
Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal to approve the increase in the Company's authorized capital
stock providing for 430,000 shares of a new Class B Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
_______________________________Dated: ____________________,
Signature:
_______________________________Dated: ____________________,
Signature:
Please sign exactly as your name appears above. If shares are registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians, attorneys and corporate officers should show their full
titles.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENVELOPE
PROVIDED. If you have changed your address, please PRINT your new address
above.
-40-