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<PAGE>
Company Logo 1999 Letter to Stockholders
Dear Stockholders:
This past year has seen continuing acceptance of ECD's proprietary products and
technology by both industry and customers. We are commercializing these
technologies and products, building on investments in our inventions over the
years, to bring forth products for everyday use.
ECD, an energy and information company, has three core product areas:
- - Information technology
- - Energy generation
- - Energy storage
These core product areas are all based on the company's proprietary atomic
engineered, amorphous and disordered materials. The material base supports the
following lines of business:
- - Phase-Change Optical Memory - rewritable CD and DVD products
- - Electronic Memory and Switches - Ovonic Unified Memory (Ovonyx)
- - Photovoltaics - Ovonic Uni-Solar(R) products
- - Batteries - Ovonic nickel metal-hydride batteries
- - Hydrogen Storage - Ovonic solid hydrogen storage systems
- - Protective Coatings - optical and barrier films
An important complementary business is our Production Technology and Machine
Building Division, which designs and builds many of the special machines used by
ECD and its joint ventures and licensees to manufacture products. Information
about ECD's products can be found in our current Technology and Products
brochure, first published and distributed in December 1998. Additional copies
are available from ECD, and you also can visit our website at www.ovonic.com.
This year, as we did last year, we will look at each of our lines of business
and discuss the past year's activities and our progress toward
commercialization.
Ovonics
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Energy Conversion Devices, Inc. Telephone: 248.280.1900
1675 West Maple Road Fax: 248-280-1456
Troy, MI 48084 e-mail: [email protected]
USA www.ovonic.com
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<PAGE>
Information Technology - Optical Memory
Rewritable compact and digital versatile disks continued to gain customer
acceptance, and both showed significant market growth. ECD originated
phase-change optical memory and has licensed this technology to leading
electronic and computer companies, including Sony, Matsushita/Panasonic and
Toshiba. In March 1999, ECD granted a nonexclusive license to Ricoh of Tokyo,
Japan, the world's major manufacturer of rewritable compact disks. In all, 13
companies now are licensees of ECD's phase-change technology.
Phase-change refers to the ability of amorphous (disordered, noncrystalline)
material to be changed to an ordered crystalline state by optical or electrical
means and reversed by the same process. This allows for recording and playback
using digital media, much like a typical tape recorder. Phase-change rewritable
technology is used in PD, CD-RW, DVD-RAM and DVD-RW disks.
Currently, ECD is exploring the possibility of forming a joint venture with a
major manufacturer to produce rewritable optical disks using the ECD microwave
deposition process. This is a high-speed, roll-to-roll manufacturing process
that potentially will reduce total cost. More information will be available as
we move forward with this project.
Information Technology - Electronic Memory and Switches
Ovonyx, Inc. (Ovonyx), a joint venture between ECD and Tyler Lowrey, a
world-recognized authority in semiconductor memory technology, and former vice
chairman and chief technology officer of Micron Technology, Inc. in Boise,
Idaho, was formed in January 1999 to commercialize Ovonic Unified Memory (OUM).
OUM is a unique, thin-film, nonvolatile, solid-state memory that offers key
competitive advantages for the microelectronic memory and embedded logic
marketplace in terms of cost, performance and scaling over conventional
solutions, solving some of the basic problems that semiconductors face.
In November 1999, Ovonyx announced that it entered into a royalty-bearing
agreement with Lockheed Martin Space Electronics and Communications in Manassas,
Virginia, to commercialize OUM technology to replace Flash, DRAM, FPGAs (Field
Programmable Gate Arrays) and other electronic devices in radiation-hardened
space and military applications. The joint development and technology-transfer
program that already is underway with Lockheed Martin is a first step in our
plan to introduce this advanced technology, which offers significantly faster
write and erase speeds, along with higher information density and cycling
endurance than conventional flash memory.
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The next step in our plan to introduce this technology also is underway with a
major producer of semiconductor devices. A joint development program is being
proposed which will combine technical teams from both companies working together
at the producer's facilities. Ovonyx technology is proposed to be transferred
under a license agreement, and process technology will be developed to integrate
it into the current silicon fabrication process. At such time as all agreements
are finalized, additional information will be released.
Energy Generation - Photovoltaics
Since the 1970s, ECD's Photovoltaic Division has developed the materials and
technology essential to allow a shift to solar energy, making photovoltaics (PV)
- - the direct conversion of sunlight into electricity - viable for large-scale
terrestrial, telecommunications and space applications. Additional information
about ECD's Ovonic photovoltaic technology and its Uni-Solar products
manufactured by our joint venture - United Solar Systems Corp. (United Solar) -
is contained in our Technology and Products brochure.
During the year, United Solar operated its 5 megawatt (MW) plant in Troy,
Michigan, with higher product throughput as our Ovonic Uni-Solar products
continued to gain customer acceptance. The final assembly plant in Tijuana,
Mexico, also reached new highs in plant efficiency and production output.
Product sales were up 42 percent over 1998, the third year of double-digit sales
increases. Our emphasis on solar shingles and standing seam solar roofing
materials is gaining widespread attention.
The next step will be a 25 MW capacity machine to facilitate more cost-effective
production and meet market demand. During the year, the design of this machine
was refined, and we are in the process of arranging the financing and planning
for the manufacture of the machine. The 25 MW machine is an important step
towards a 100 MW capacity machine that will help us reach our goal of making
photovoltaics economically competitive with fossil fuels in the production of
electric power.
The rapidly growing demand for telecommunication services is increasing the need
for lightweight, low-cost solar panels for use on low-earth orbit satellites
(LEOS). During the year, several discussions were held with major companies
involved in producing satellites and satellite components.
United Solar space PV products were developed to offer an ultralight, low-cost
alternative to conventional space PV modules. The company's thin-film PV
material dramatically exceeds the power density requirement of 100 W/kg and is
well within the target cost of $30 to $60/Watt established by the
telecommunications industry. In addition, laboratory testing has shown that
United Solar's PV products are radiation-hard and have superior performance at
the high temperatures encountered in space.
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The lightweight space solar modules installed on the MIR Space Station in
November 1998 continue to perform flawlessly. The modules began providing
telemetric data shortly after installation, confirming their expected
performance from earth-based space simulation tests, and data are being received
continuously. It is anticipated that data transmission will continue for as long
as MIR remains in orbit.
Stan Ovshinsky was awarded the Karl W. Boer Solar Energy Medal of Merit by the
International Solar Energy Society.
Energy Storage - NiMH Batteries
The market for small, consumer-type nickel metal-hydride (NiMH) batteries
continues to grow with sales of approximately $800 million in 1998. All
significant manufacturers of consumer batteries are under license from ECD's
subsidiary, Ovonic Battery Company, Inc. (Ovonic Battery). Numerous product
tests have proven that rechargeable NiMH batteries offer consumers the best
economic value compared to alkaline, NiCad or lithium batteries. For example,
according to published photographic magazine test reports, four NiMH
rechargeable batteries are equivalent to 2,000 disposable alkaline batteries
when used to power the new digital cameras that are becoming so popular.
In previous letters to shareholders, we have described the superior range and
performance results obtained with Ovonic NiMH batteries installed in various
electric vehicles. This year, a General Motors EV1 equipped with first
generation GM Ovonic NiMH batteries - produced by our joint venture with General
Motors, GM Ovonic L.L.C. - surpassed all targets for range and demonstrated the
highest mileage on a single charge of any electric vehicle ever tested by the
U.S. Department of Energy (DOE) to date (see the following table).
Driving Condition DOE Target Actual
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Constant speed range @ 45 mph 60 miles 220.7 miles
Constant speed range @ 60 mph 60 miles 160.6 miles
City driving cycle range 60 miles 140.3 miles
Max. speed @ 50% SOC* at one mile 70 mph 79.6 mph**
Recharge time 8 hours 6.9 hours
Acceleration 0 to 50 mph 50% SOC 13.5 seconds 7.9 seconds
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* State of Charge
** Vehicle top speed limited to approximately 80 mph; vehicle has set a closed
course speed record of 183 mph without limiter and other modifications
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There is significant interest in electric vehicles, especially in overseas
markets. Several major cities in Europe already have or are planning to restrict
vehicle traffic in city centers, causing people to consider alternate
transportation. In May 1999, ECD formed a joint venture with EV Global, a Lee
Iacocca company, and Unique Mobility (UQM), an electric motor and controller
company that is headquartered in Golden, Colorado. The joint venture, formerly
known as Unique Mobility Europa GmbH, is headquartered in Mittweida near
Leipzig, State of Saxony, Germany. The initial product plan for electric
vehicles envisions a two-passenger cargo van and a six-passenger commuter van
using UQM's motor and controller and Ovonic NiMH batteries. Some of the early
design concept work was done by a German company, Transport-Systemetechnik, AG
(Trapos). During the year, financial and business difficulties caused Trapos to
cease operations, thereby delaying the project; all relations with Trapos have
terminated. Our current van was designed in cooperation with Storz Design of
Zell am See, Austria, and body and chassis engineering is being done in
cooperation with Design and Concept Engineering of Bosau, Germany.
During December 1999, the original partnership company (GmbH) was restructured
as a public company (AG) and renamed Innovative Transportation Systems, AG, or
ITS AG. The "InnoVan" name is registered in Germany and exclusive to our
vehicle. We expect to begin prototype construction during the first calendar
quarter of 2000 so we can begin to demonstrate the van to increase investor
interest.
In August 1999, Ovonic Battery signed historic agreements with Rare Earth
High-Tech Co. Ltd. of Baotou Steel Company, Inner Mongolia, China, for several
major NiMH battery projects. The total project has a potential value of $100
million. The initial discussions were started with Baotou Steel more than a year
ago. Rare Earth High-Tech, the first rare-earth company to be listed on the
Chinese Stock Exchange, is the largest producer of rare-earth elements in China
and a supplier of these materials to more than 50 countries worldwide. It is the
principal supplier of rare-earth materials to NiMH battery makers around the
world.
Completion of the financing arrangements will allow us to begin the launch of
the first phase of these projects. In addition to licensing advanced NiMH
battery technology to Rare Earth High-Tech, the agreements include the
manufacture of hydrogen storage alloy powders, advanced Ovonic nickel hydroxide
materials and production equipment for NiMH batteries. It is interesting to note
that after extensive review of all the major manufacturers of NiMH batteries,
Rare Earth High-Tech selected Ovonic Battery to be its partner in these projects
based upon Ovonic Battery's leadership position in NiMH technology.
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Energy Storage - Ovonic Solid Hydrogen Storage Systems
One of our newest lines of business can be traced back to the earliest days of
ECD - hydrogen storage as a solid in thermal hydride materials. In 1981, our
Report to Shareholders summarized the early developments and discussed
"Hydrogen, the Fuel of the Future." In our most recent Product and Technology
brochure, a discussion of thermal hydride products can be found on page 24.
Hydrogen is the fuel of the future!
During 1999, interest in fuel cells for automotive and distributed power - both
residential and industrial - increased dramatically. A number of media reports
covered announcements of several automaker programs aimed at having
production-intent fuel cell vehicles available by 2004. Several fuel cell
manufacturers announced the availability of fuel cells with a wide range of
electrical outputs. All of these activities need hydrogen as a fuel. For
automotive applications, solid hydrogen storage is a safe, compact, low
pressure, high density, lower system cost alternative to gaseous or liquid
hydrogen storage.
Mid-year, ECD signed a Memorandum of Understanding with Shell Hydrogen, a unit
of the Royal Dutch/Shell Group, to explore the establishment of a joint venture
to further develop and commercialize ECD's proprietary solid hydride storage
technology. Shell Hydrogen will provide refueling and distribution expertise.
Ongoing development has led to new special Ovonic proprietary alloys that
o
store hydrogen in a solid state of 7 wt.% at 300 C desorption temperature and
can be charged in under two and one-half minutes, solving the fundamental
problem not only of storage but also kinetics and infrastructure. This means the
volume of hydrogen to drive a vehicle 350 miles can be stored as a solid in
about 20 percent of the system volume required if the hydrogen were stored in a
high pressure gaseous system. Solid storage systems are much simpler than
cryogenic systems required to store hydrogen as a liquid. Shell Hydrogen has
been pleased with our progress, and we are presenting initial results and
technical data to the world's automakers. The Ovonic solid hydrogen storage
system provides automakers with an alternative to onboard reforming of natural
gas or methanol to obtain hydrogen. It is an enabling technology that may help
speed the transition to hydrogen fuels. Hydrogen, the ultimate fuel, contains no
carbon and emits no pollution, with water vapor as its only combustion product.
It solves the problem of hydrocarbon fuel combustion affecting climate change.
There will be more information as events unfold in the months ahead.
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<PAGE>
ECD's Financial Results and Assets
1999 continued the trend of increasing revenues and reducing total losses. We
still have much to accomplish, but we are pleased with our progress. During the
year, we continued to leverage our position with strategic investments in
products and technology designed to support our development programs. These
investments are showing results as major companies continue to seek out
leading-edge enabling ECD technology.
In prior letters and reports to shareholders, we have noted that ECD's balance
sheet does not reflect the value of our most important assets. Our more than 350
U.S. patents, more than 800 corresponding foreign patents and our joint ventures
are not carried at any significant value on our balance sheet.
Patents/Intellectual Property: 353 United States, 864 Foreign
Joint Ventures and Subsidiary:
United Solar ECD's joint venture partner invested $58MM+
(49.98% owned by ECD) for its 49.98% interest
GM Ovonic GM has invested $60MM for its 60% interest
(40% owned by Ovonic Battery)
Sovlux KVANT & Minatom invested $15MM+ for their
(50% owned by ECD) 50% interest
Ovonic Battery Company 20+ licensees
(91.4% owned by ECD) Sanyo, Sanoh and Honda each purchased an
interest in Ovonic Battery which values the
Ovonic Battery Company at approximately
$150MM
Capital Equipment: Replacement value is $15MM+
Tax Loss Carryforwards: $42MM in reduction of future income taxes
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<PAGE>
An article in the November 1999 issue of The Economist noted how this practice,
required under Generally Accepted Accounting Principles, can dramatically alter
expectations. For example, over the years corporate investment in computer
software was treated as an expense. Treating software as an investment accounts
for about one-half of the productivity gain experienced by the U.S. in recent
years as opposed to "zero" when expensed! The U.S. Department of Commerce has
finally come to understand what was helping to drive productivity (if software
was helping to improve efficiency and reduce errors, it probably increased
productivity but productivity gains were nowhere to be found in financial
statements), but conventional accounting doctrine and the Internal Revenue
Service still treat it as an "expense." We are certain that our shareholders
agree with the Commerce Department assessment -- money spent to develop
technologies and improve efficiency are investments of enormous value to
businesses and ECD.
ECD's three-pronged commercialization strategy continues to be:
- - Joint venture and business alliances that provide a leadership role for ECD
in growth markets
- - Licensing ECD products to provide a royalty revenue stream
- - Building ECD's manufacturing base to bring materials and products to market
ECD Investor Relations
During the year, ECD management met with several investor groups to present the
ECD story. Investor groups regularly visit ECD in Troy, Michigan, and we are
always more than pleased to present our technologies and vision of the future to
all who are interested. We plan to continue our outreach program in an effort to
expand our investor base.
The ECD website has been expanded, and "Ovonics On-Line" has been introduced
with the first article covering our hydrogen technologies. Ovonics On-Line will
be updated and will present new information each quarter.
Management will continue its efforts to increase investor awareness in 2000.
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<PAGE>
In Closing
This past year has been one of significant change for ECD as our technologies,
developed over the years (listed below), have moved to the forefront with major
industrial companies seeking to use them:
- - The next step in memory devices, the Ovonic Unified Memory (Ovonyx)
- - Ovonic ultralight photovoltaic materials for the satellite communications
industry
- - Even greater acceptance of our enabling proprietary NiMH battery technology
- - Our "game-changing" Ovonic solid storage hydrogen system technology
Climate change issues and pollution now have realistic solutions through ECD's
contributions.
Acceptance of these technologies is due to the dedication and hard work of our
talented colleagues and employees. We are proud of our strong management team,
which has years of both business and technical experience. We also appreciate
the efforts of our board of directors who helped with many business, industry
and government contracts that contributed to our progress. We thank our
stockholders, especially those who have stayed with us over the years, for their
loyal support.
/s/ S.R. Ovshinsky /s/ Robert C. Stempel
- ------------------------------------ -----------------------------
S. R. Ovshinsky R. C. Stempel
President and Chief Executive Officer Chairman
December 1999
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Stockholders are encouraged to read the Company's Annual Report on Form 10-K for
its fiscal year ended June 30, 1999, carefully, including the information
contained in the section Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of 1995.
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<PAGE>
Directors and Officers
Stanford R. Ovshinsky, President, Chief Executive Officer and Director, ECD;
Chief Executive Officer and Director, Ovonic Battery; President, Chief Executive
Officer and Director, United Solar Systems Corp.; Member, Board of Managers of
GM Ovonic L.L.C.; Co-Chairman of the Board of Directors, Sovlux; Chairman,
Ovonyx, Inc.
Robert C. Stempel, Chairman of the Board and Executive Director, ECD; Chairman,
Ovonic Battery; Member, Board of Managers of GM Ovonic L.L.C.; former Chairman
and Chief Executive Officer, General Motors Corp.
Iris M. Ovshinsky, Ph.D., Vice President and Director, ECD; Director and
Secretary, Ovonic Battery
Nancy M. Bacon, Senior Vice President and Director, ECD; Director, United Solar
Systems Corp.; Director, Sovlux
Kenneth R. Baker, Director, ECD; President and CEO, Environmental Research
Institute of Michigan; former Vice-President, General Motors Corp., and General
Manager of GM Distributed Energy Business Unit
Umberto Colombo, Ph.D., Director, ECD; Chairman of the Scientific Councils of
the ENI Enrico Mattei Foundation and of the Instituto Per l'Ambiente, Italy;
former Chairman of ENEA (Italian National Agency for New Technology, Energy and
Environment)
Subhash K. Dhar, Director, ECD; President, Chief Operating Officer and Director,
Ovonic Battery
Hellmut Fritzsche, Ph.D., Vice President and Director, ECD; retired Professor
of Physics and former Chairman of the Department of Physics, The University of
Chicago
Joichi Ito, Director, ECD; Director of Digital Garage KK and Infoseek Japan KK;
President of Neoteny and Transoceanic Ventures, Inc., Japan; and board member
of PSINet Japan KK
Seymour Liebman, Director, ECD; Director, United Solar Systems Corp.; Executive
Vice President and General Counsel, Canon U.S.A., Inc.
Tyler Lowrey, Vice President and Director, ECD; President and Chief Executive
Officer, Ovonyx, Inc.; former Vice Chairman and Chief Technology Officer of
Micron Technology, Inc., Boise, Idaho
Walter J. McCarthy, Jr., Director, ECD; retired Chairman and Chief Executive
Officer of Detroit Edison, Detroit, Michigan
Florence I. Metz, Ph.D., Director, ECD; Director, Ovonic Battery; retired
Project Manager for Business and Strategic Planning, Inland Steel, East
Chicago, Indiana
Nathan J. Robfogel, Director, ECD; Vice President for University Relations,
Rochester Institute of Technology, Rochester, New York; retired Partner, Harter,
Secrest & Emery, Rochester, New York
Stanley K. Stynes, Ph.D., Director, ECD; retired Professor and former Dean,
College of Engineering, Wayne State University, Detroit, Michigan
Marvin S. Siskind, Vice President and Patent Counsel, ECD
Ghazaleh Koefod, Secretary, ECD
Roger John Lesinski, General Counsel, ECD
Stephen W. Zumsteg, Treasurer, ECD
Outside Legal Counsel Auditors
Jenner & Block Deloitte & Touche LLP
Chicago, Illinois Detroit, Michigan
Outside Patent Counsel Transfer Agent
Lawrence G. Norris EquiServe as servicing agent for
Palm Desert, California State Street Bank & Trust Company
P.O. Box 8200
Boston, Massachusetts 02266-8200
800.257.1770
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ECVCM-LS-99
