ENERGY FOCUS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		94-3021850
(State of incorporation)		(I.R.S. Employer Identification No.)

32000 Aurora Road

Solon, Ohio 44139

(Address of principal executive officers, including zip code)

Registrant’s telephone number, including area code: 440.715.1300

Securities registered pursuant to Section 12(b) of the Act: None

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

Title of Each Class

Common Stock, Par Value $0.0001

Series A Participating Preferred Stock Purchase Rights

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act of 1933. Yes o No þ

 

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

 

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

 

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

 

Large accelerated filer  o		Accelerated filer  þ
Non-accelerated filer  o (Do not check if a smaller reporting company)		Smaller reporting company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ 

Aggregate market value (on basis of closing bid price) of voting stock held by non-affiliates as of June 29, 2007: $ 72,640,030

 

Number of the registrant’s shares of common stock outstanding as of March 31, 2008: 14,830,040

Documents Incorporated by Reference

None

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TABLE OF CONTENTS

 

		Page
Item 10.	Directors, Executive Officers, Promoters and Control Persons of the Registrant	3
	Director Compensation	4
	Section 16(A) Beneficial Ownership Compliance	5
	Audit Committee	5
Item 11.	Executive Compensation	6
Item 12.	Security Ownership of Certain Beneficial Owners and Management	14
Item 13.	Certain Relationship and Related Transactions	15
Item 14.	Principal Accounting Fees and Services	16
Item 15.	Exhibits, Financial Statement Schedules	16
Signatures		17
Exhibit Index		18

 

PART III

Annual Retainer		$	12,000
Additional Annual Retainers:
Board Chairman		$	28,000
Governance Committee Chairman		$	18,000
Audit Committee Chairman		$	8,000
Compensation Committee Chairman		$	3,000

 

Under the terms of the Company’s 2004 Stock Incentive Plan, each newly appointed non-employee director receives an option to purchase 10,000 shares of Common Stock at an exercise price of 100% of the fair market value of the stock on the date of grant, which vests in twelve equal monthly installments following the date of grant. In addition, following each annual meeting of the Company’s shareholders, each non-employee director who will continue to serve as a member of the Board of Directors automatically receives an option to purchase 7,000 shares of Common Stock at an exercise price of 100% of the fair market value of the stock on the date of grant, which option vests in twelve equal monthly installments following the date of grant, and the Chairman of the Board and the Chairman of the Audit Committee are to receive an additional option to purchase 3,000 shares under the same terms. Starting in 2007, the Chairman of the Governance Committee will receive an additional 3,000 shares under the same terms.

 

The following table summarizes the compensation paid to non-employee directors during 2007:

 

		Fees												Change in Pension Value And Nonqualified
		Earned									Non-Equity			Deferred
		or Paid			Stock			Option			Incentive Plan			Compensation			All Other
		in Cash			Awards			Awards(1)			Compensation			Earnings			Compensation			Total
Name		($)			($)			($)			($)			($)			($)			($)
John B. Stuppin			40,000			—			31,130			—			—			—			71,130
Michael Kasper			30,000			—			31,130			—			—			—			61,130
Ronald A. Casentini			20,000			—			31,130			—			—			—			51,130
Phillip Wolfson			15,000			—			21,791			—			—			—			36,791
Paul von Paumgartten			12,000			—			21,791			—			—			—			33,791
David N. Ruckert			12,000			—			—			—			—			—			12,000

4

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(1)

Reflects the dollar amount recognized for financial reporting purposes for 2007 in accordance with FASB 123(R), which equates to the fair value of the option awards on the date of grant. The method and assumptions used to determine the amount of expense recognized for options is set forth in Note 9 to our consolidated financial statements. As of December 31, 2007, each non employee director had the following number of options granted: Mr. Stuppin, 10,000; Mr. Casentini, 10,000; Mr. Kasper, 10,000; Mr. Wolfson, 7,000, and Mr. von Paumgartten, 7,000.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company’s officers and directors and persons who own more than 10% of a registered class of the Company’s equity securities to file certain reports regarding ownership of, and transactions in, the Company’s securities with the Securities and Exchange Commission (the “SEC”). Such officers, directors and 10% stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms that they file.

Based solely on its review of such forms furnished to the Company and written representations from certain reporting persons, the Company believes that, all filing requirements applicable to the Company’s executive officers, directors and more than 10% stockholders were complied with for 2007.

 

Audit Committee

 

5

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Item 11.  EXECUTIVE COMPENSATION AND OTHER MATTERS

 

Compensation Discussion and Analysis

 

The Compensation Committee of our Board of Directors has the responsibility for administering our executive compensation program. The Committee reviews and, as appropriate, makes recommendations to the full Board regarding the base salaries and annual cash bonuses for executive officers, and administers our 2004 plan, including the grant of stock options. Where appropriate, we have also entered into employment agreements with certain executive officers.

 

Compensation Philosophy and Objectives.  Our principal executive compensation policy, which is endorsed by the Committee, is to provide a compensation program that will attract, motivate and retain persons of high quality and will support a long-standing internal culture of loyalty and dedication to the interests of the Company and our shareholders. In administering the executive compensation program, the Committee is mindful of the following principles and guidelines, which are supported by the full Board of Directors:

 

	•	Base salaries for executive officers should be competitive.
	•	A sufficient portion of annual compensation should be at risk in order to align the interests of executives with those of our shareholders.
	•	The variable part of annual compensation should reflect both individual and corporate performance.
	•	As a person’s level of responsibility increases, a greater portion of total compensation should be at risk and include more stock-based compensation to provide executives long-term incentives and help to align further the interests of executives and shareholders in the enhancement of shareholder value.

 

Our executive officers’ compensation currently has three primary components: base salary, annual cash bonuses and stock-based awards granted pursuant to our 2004 plan. In addition, executive officers receive certain benefits that are specifically provided for in their employment agreements or are generally available to all salaried employees. We do not have any defined benefit pension plans, nonqualified deferred compensation arrangements or supplemental retirement plans for our executive officers.

 

For each executive officer, the Committee determines the appropriate level for each compensation component based in part, but not exclusively, on its view of competitive market factors, internal equity and consistency, and other considerations deemed relevant, such as rewarding extraordinary performance. Our Chief Executive Officer provides the Committee with recommendations for executive officers other than himself, which the Committee reviews and approves as submitted or with revisions, if any. The Committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid compensation, between cash and non-cash compensation, or among different forms of non-cash compensation, and has not sought to formally benchmark our compensation against that of our peers.

Base salary increases for Messrs. Davenport, Berchtold, Hilliard and Buelow in 2007 were 0%, 0%, 13% and 31%, respectively. In determining these increases, the primary factors considered were increases in the cost-of-living, the officers’ individual performances, the growth of the Company, changes in their duties and responsibilities and period of time since their last review.

 

Base Salary. Base salaries for executive officers are based on a review of salaries for similar positions requiring similar qualifications in similar industries. In determining executive officer salaries, the Compensation Committee has approved the use by management of information from salary surveys.

The President and Chief Executive Officer annually assesses the performance of all other executive officers and recommends salary increases to the Compensation Committee based on a number of factors such as performance evaluations, comparative data and other relevant factors. The Compensation Committee then reviews and approves the increases for any person with total annual compensation over $100,000.

  

In addition to reviewing performance evaluations, the Compensation Committee also reviews the financial condition of Energy Focus in setting salaries.

 

Bonus Incentive Plan. The Compensation Committee administers an incentive plan to provide additional compensation to executives who meet established performance goals. In consultation with the President and Chief Executive Officer, the Compensation Committee annually determines the total amount of cash bonuses available for executive officers and certain other management employees. For fiscal 2007, awards under this bonus plan were contingent upon Energy Focus’ attainment of operating profit targets set by the Compensation Committee in consultation with the President and Chief Executive Officer. The target amount of bonuses for senior executive officers was set by the Compensation Committee. Awards are weighted so that higher awards are received when Energy Focus’ performance reaches maximum targets, smaller awards are received when Energy Focus’ performance reaches minimum targets and no awards are made when Energy Focus does not meet minimum performance targets. After the total eligible bonus pool is determined, annual incentives are paid to executive officers, based on their individual performance as determined by Energy Focus’ President and Chief Executive Officer. Energy Focus’ performance in fiscal 2007 was not on target, and no bonuses were paid under this bonus incentive plan. Consistent with Energy Focus’ objective of aligning compensation with performance, the Compensation Committee anticipates that future bonus payments will be based on specific targets and performance.

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Each of our executive officers is eligible to receive annual cash bonuses based on determinations made by the Committee. Except in the case of Mr. Davenport, the Company has not historically adopted a formal or informal annual bonus plan with preset criteria and targets. Rather, the determination to pay a cash bonus, if any, was made after the year-end based on the Committee’s subjective judgment with respect to the past performance of the individual or on the individual’s attainment of quantified performance goals during the year. In either such case, the bonus may be based on the specific accomplishments of the individual or on the overall success of the Company, or both. However, for 2007, the Committee has adopted a plan pursuant to which target bonuses of 10% - 20% of base salary for executive officers and key employees, other than Mr. Davenport, will be based on specific criteria set for the Company, as well as individual goals. No bonuses will be payable under the plan unless the Company’s goal of positive cash flow, as determined by the Committee, is achieved. If this goal is achieved, each participant will receive one-third of the target bonus. An additional one-third of the target bonus will be paid if the company achieves EFO sales of $12 million for the year, and another third of the target will be awarded based on personal performance against expectations. In the case of Mr. Davenport, his employment agreement provides for an objective annual cash bonus based on our planned profit and EFO revenue growth. Mr. Davenport’s bonus for 2007 will be determined in the same manner as the other executive officers, with a target bonus of 25% - 50% of base salary based upon performance of the company against established goals and objectives.

 

 

 

 

			•	salary through the date of termination;
			•	stock-based compensation in which he has vested; and

 

 

 

 

 

 

	John B. Stuppin
	Ronald A. Casentini
	Michael Kasper
	Paul von Paumgartten
	Philip E. Wolfson

 

 

 

		Year Ended December 31,
		2007			2006
Audit Fees		$	506,812		$	534,053
Audit-Related Fees			1,500			---
Total		$	508,312		$	534,053

 

 

Exhibit Number		Description of Documents
24.1		Power of Attorney (incorporated by reference from Exhibit 24.1 to the Registrant’s Annual Report on Form 10-K filed on March 17,2008)
31.1		Rule 13a-14(a) Certification by Chief Executive Officer
31.2		Rule 13a-14(a) Certification by Chief Financial Officer

 

EXHIBITS		DESCRIPTION
24.1		Power of Attorney (incorporated by reference from Exhibit 24.1 to the Registrant’s Annual Report on Form 10-K filed on March 17,2008)
31.1		Rule 13a-14(a) Certification by Chief Executive Officer
31.2		Rule 13a-14(a) Certification by Chief Financial Officer